Businessmodel of Cavium Networks

Customer Segments

Cavium has a niche market business model, with a specialized customer segment. The company specializes in providing MIPS-based and ARM-based video, network, and security processors. It primarily sells its offerings to providers of wireless, storage, networking, and consumer electronic equipment. In 2015, five of its customers accounted for more than half of its revenues (55.3%).

Value Proposition

Cavium offers three primary value propositions: accessibility, customization, and brand/status.

The company creates accessibility by offering a wide variety of semiconductors. Its offerings enable storage, communications, intelligent networking, security, and video applications. The processors can provide functionality in broadband/consumer, enterprise, service provider, and data center equipment. They range in speed from 1Gbps to 100Gbps.

The company offers customization by providing products that are “systems on a chip”, or SoCs. They include a thoroughly integrated architecture, multiple or single processor cores, and customizable software based on a wide range of standard operating systems.

The company has established a strong brand because of its success. Its customers include many prominent firms, including Cisco, IBM, Motorola ECC, Juniper, Nokia, Radisys, Qualcomm, Alcatel-Lucent, and Citrix. It has won many prestigious honors, including the HPC Wire Editor’s Choice Award (2015), the Golden Bridge Award (2013), placement on the Deloitte Technology Fast 500 (2014), and recognition as the “Most Respected Public Semiconductor Company” by GSA (2012).

Channels

Cavium’s main channels are its direct sales and applications support team and distributors who respond to third-party orders for its products (Future Electronics and Phoenix Electronics). The company promotes its offerings through its website and attendance of conferences and summits.

Customer Relationships

Cavium’s customer relationship is primarily of a self-service nature. Customers utilize its products while having limited interaction with employees. The company’s website offers some self-help resources, including data sheets, product documentation, and reference software. That said, there is a community element in the form of a section for discussion groups and a personal assistance component in the form of e-mail support.

Key Activities

Cavium’s business model entails designing and developing semiconductors and software for its customers. The company outsources the manufacturing, assembling, and testing of its products to third-party foundries and contractors. They are responsible for the retrieval of raw materials.

Key Partners

Cavium maintains the Partnership to Accelerate Customer End-solutions (PACE) program. It is a network of 70+ partners that the company works with to reduce development costs and time-to-market for its customers. They fall into the following categories:

• AMC/ATCA/PCIe Cards
• Complementary Silicon
• Hardware Debuggers/Analyzers
• Operating System/Development Tools
• Software Stacks and Applications
• Appliances/Motherboards
• CPE Gateways/Home Appliances
• Hardware Consulting
• Software Consulting
• SMB WLAN Specific partners include Cortina Systems, Lanner Electronics, Mocana Corporation, Lenovo, Hyve Solutions, Oracle, Advanced Thermal Solutions, Benison Technologies, and InForce Computing.

Key Resources

Cavium’s main resource is its team of embedded software and semiconductor engineers, which has significant expertise in networking, security, and high-performance multi-core microprocessor design. The employees operate out of San Jose, CA; Marlborough, MA; Beijing, China; and Bangalore and Hyderabad in India. The company places a high priority on its intellectual property, with 120 issued and 311 pending patents in the U.S., and 47 issued and 219 pending patents in foreign countries. Lastly, as a startup it has relied heavily on funding from outside parties, raising $144.49 million from eight investors as of March 2011.

Cost Structure

Cavium has a cost-driven structure, aiming to minimize expenses through low-price value propositions. Its biggest cost driver is research and development expenses, a fixed cost. Other major drivers are in the areas of sales/marketing and administration, both fixed costs, and cost of revenue, a variable expense that includes the cost of buying wafers and assembly/test services.

Revenue Streams

Cavium has three revenue streams:

Product Revenues – Revenues from the sale of semiconductor products

Licensing Revenues – Revenue from the licensing of software and related support and maintenance

Service Revenues – Revenue from the sale of professional services