FREMONT, Calif. — Donald Ciffone had been president and chief executive officer of Exar Corp. for only a few weeks when he got a strong hint the chip company needed a tighter focus: "I was in my first analyst meeting, and I was asked how our dog tag business was doing," he recalled.

That was just over three years ago, when Exar participated in a couple of dozen markets, building both standard and custom products with a variety of analog, digital and mixed-signal processes. For a company with revenue of only $125 million, the lack of concentration proved a big handicap.

Under Ciffone, who previously worked at Toshiba, VLSI Technology and National Semiconductor, Exar has undergone a significant restructuring, shutting its internal test operations and selling its Silicon Microstructures sensor business unit to OSI Systems Inc. Exar also pruned its sales-representative and distribution network, in moves that helped cut the work force to 270, from 365 when Ciffone took over.

Exar further has tightened its focus on the communications market, which represented 57 percent of revenue in fiscal 1999, up from 48 percent a year earlier. In the current fiscal year, Ciffone expects 75 percent of company revenue will come from communications.

With roots in Japanese electronics giant Rohm Ltd. dating back to 1971, Exar actually went through two phases of reinvention in the past decade — a difficult 10 years during which the company's revenue fluctuated between $75 million and $160 million annually. Originally, the company was known for its Flexar analog ASIC concepts, a viable strategy as long as OEMs saw something to gain from the relatively low-integration analog ASIC.

When George Wells of LSI Logic Corp. arrived in 1992 to transform Exar into a U.S. company, he brought a strategy of focusing on standard products and special custom business in markets such as hearing aids. Exar also gained control of local fab resources by partnering with its neighbors Exel Microelectronics and IC Works — a strategy that cost the company as much as it gained, since memory products from the fabs became a drain on resources. Exar has terminated both agreements.

In communications, Exar's expertise lies in combining analog transceiver functions and digital framing functions into single-chip line interface units (LIUs) and integrated framer products. The devices are used for such interfaces as T1/E1 (1.5 and 2.08 Mbits/second), T3/E3 (45 and 34 Mbits/s) and a variety of Sonet interface rates, including 155 Mbits/s (OC-3), 622 Mbits/s (OC-12) and 2.5 Gbits/s (OC-48).

The T1 market has been brutal, but participation is necessary if Exar is to show a commitment to wideband access. Players such as Conexant Systems Inc. and Dallas Semiconductor Corp. have had a lead in framer products for many years. PMC-Sierra Inc. is the primary participant to beat in several digital access markets: Its framers and user-network interface products have defined the field in many speeds and channel densities.

By concentrating on T3, including multichannel T3 transceivers, Ciffone may be piloting Exar between Scylla and Charybdis. Many mixed-signal players have neglected the T3 market because of the slow takeoff of T3 access. Now that carriers are lowering rates and customers are asking for T3, many analog IC vendors are not prepared to supply products.

Level One Communications Inc. (Sacramento, Calif.) was perhaps closest to serving the T3 market. But in the wake of Intel Corp. acquisition of Level One last year, Ciffone said, the emphasis seems to have shifted away from mixed-signal physical-layer interfaces, and the combined Intel/Level One may be less of a threat. "They've definitely taken their eye off the ball there," he said.

The problem for Exar remains how to move to Sonet in an efficient and low-cost manner, relatively late in the game. Not only do all the traditional framer and LIU vendors have Sonet in their sights, but high-speed analog specialists like Vitesse Semiconductor Corp. and Applied Microcircuits Corp. have been looking for ways to use common designs across all Sonet speeds. As Vitesse and AMCC field CMOS and silicon germanium offerings, they could prove to be formidable competitors.

Nevertheless, Ciffone can point to a number of blue-chip transmission and networking customers, including Alcatel, Ascend, Cisco, Fujitsu, Nokia and 3Com. He expects 40 percent growth for communications chips this year, although shrinkage in some of Exar's legacy products will keep overall company growth to about 10 percent. Gross margins, which once averaged about 40 percent, are now about 56 percent.

What's more, investors have signed on to the strategy. Exar's stock recently has traded above $50, compared with a 52-week low of $13.