It's amazing what one little microchip can do.
Shares of networking expert Alcatel-Lucent (NYSE: ALU ) jumped nearly 4% on Tuesday amid a veritable ocean of bullish new options contracts.
What did Lucent do to deserve all this investor love? The company introduced the FP3 networking chip, capable of quadrupling the bandwidth of today's biggest, baddest backbone routers. Micron Technology (Nasdaq: MU ) and Rule Breaker Cypress Semiconductor (Nasdaq: CY ) help out by supplying various types of ultrafast memory to the platform. Shares of Micron and Cypress didn't share in Alcatel-Lucent's exuberance, though both companies will benefit from sales of the new product.
Working the environmental angle hard, the company also stressed the new chip's lower power draws and smaller physical footprint. These monster routers will take up less space in the data center while sipping about half of the previous generation's electrical juice and delivering blistering performance.
"This is the key to unlock a new world of online communications," said Alcatel-Lucent CEO Ben Verwaayen. "It's easy to think the Internet of today does all it will ever be capable of, but we have scarcely scratched the surface of its potential."
At a time when analysts see price erosion reducing the value of close rivals Juniper Networks (Nasdaq: JNPR ) and Cisco Systems (Nasdaq: CSCO ) , Alcatel-Lucent lets loose a perfectly timed salvo of fresh innovation. FP3-based systems stand apart from the competition with drastically higher performance, perchance commanding a price premium.
Mind you, finished products won't be available until the middle of 2012, which gives the rest of the sector some time to catch up -- if itcan. Cisco was happy to introduce a much slower solution as recently as March of 2010, so there's some catching up to do here.
The new line cards will be compatible with Alcatel routers from 2004 onward, which opens an easy path to upgrades for existing customers. They're also compatible with traffic of many kinds, from cable to mobile to DSL and direct Ethernet connections. So the next time known Alcatel customers from Level 3 Communications (Nasdaq: LVLT ) to Sprint Nextel (NYSE: S ) are hungry for upgrades to their backbone systems, Alcatel just made itself look mighty tasty.
Alcatel shares have now nearly doubled since I called the company a mess and wondered whether there was any hope for the future. This announcement is a big part of Alcatel's answer as the company now looks assured to get a generous slice of this generation of network builds.
Learn more about high-speed networking and how to invest in it by reading our latest free report on the subject.
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