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PLD Overview: Xilinx and Altera

Posted on Wednesday, Oct 14th 2009

The recession had a severe impact on the semiconductor industry in 2008, but the programmable logic device (PLD) market was one of the few segments which saw growth. This $3.8 billion market received a boost early this year following the expansion of 3G mobile networks in China. The overall programmable logic market is estimated to grow to $4.2 billion in 2013. Let’s take a closer look at the dominant players, Xilinx Inc (NASDAQ:XLNX) and Altera Corporation (NASDAQ:ALTR), which together account for about 86% of the market.

Founded in 1984, Xilinx is the leader in the PLD market and had about 50% market share in 2008. PLDs are standard semiconductor integrated circuits or chips used to perform desired logic functions in electronic systems such as cellphone base stations, network routers, DVD players, and cable modems. PLD is increasingly becoming a competitive alternative to ASIC and ASSP because it is more flexibile, costs less to develop, and has a shorter time-to-market than ASIC and ASSP. The digital logic market consisting of ASICs and ASSPs was about $35 billion in 2008 and offers scope for the PLD market to grow.

Xilinx reported annual revenue of $1.8 billion in fiscal 2009, about the same as in 2008. 3G wireless activity in China resulted in Asia Pacific revenue growing 15%, while revenue from North America declined 13% and from Japan 4%; revenue from Europe increased 1%. The Communications end market accounted for 44% of the company’s net revenues, Industrial 32%, Consumer and Automotive 16%, and Data Processing 8%.

Xilinx ended fiscal 2009 with 3,145 employees. Its gross margin was 63.3% versus 62.7% in 2008. It ended the year with $1.67 billion in cash. It bought back shares for $275 million in 2009 and paid dividends of $154.5 million.

Last month, it raised its second quarter guidance due to broad-based strength across nearly all its end markets and geographies. It expected second quarter revenue to improve 10% sequentially against its previous guidance of 2% to 6% q-o-q growth. Gross margin was expected to be 61%.

In its latest second quarter results released today, it reported revenue of $415 million, up 10% q-o-q and down 14% y-o-y. Net income was $64 million or $0.23 per share, down 21% from $81.1 million or $0.29 per share last quarter. Analysts expected earnings of $0.22 per share on revenue of $410 million. Gross margin was 61.9%.

For the third quarter, it expects revenue to increase 6% – 10% sequentially to a range of $440 to $457 million. Analysts expect Q3 revenue of $423 million. Gross margin is expectedto be 62-63%.

The stock is currently trading around $24 with market cap of about $6.6 billion. It hit a 52-week high of $24.47 after the company raised its guidance. It hit a 52-week low of $14.36 on November 20.

Chart for Xilinx Inc. (XLNX)

One of Xilinx’s main rivals is Altera, which controls about 36% of the market. Altera was founded in 1983 and has over 13,000 customers in the communications, computer and storage, industrial, and consumer market segments. Apart from PLDs, it also manufactures HardCopy ASIC devices, pre-defined design building blocks called intellectual property (IP) cores, and associated development tools.

Altera’s annual revenue grew 8% to $1.3 billion in 2008 with PLDs generating over 90% of this revenue. Field-programmable gate arrays (FPGAs) account for about 74% of total PLD sales and are expected to continue to be the fastest-growing segment of the PLD market. The Communications end market accounted for 43% of the company’s net revenues, Industrial 35%, Consumer 15% and Computer & and Storage 7%. Both the Communications and the Industrial segments grew in the double digits due to strong traction in ASIC and ASSP replacement. Altera reported growth in all regions with revenue from North America growing 13%, Asia Pacific 12%, Europe 3%, and Japan 4%.

Gross margin increased to 67.1% from 64.5% in 2007 mainly due to material cost improvements and better market segment mix. Altera ended the year with $1.2 billion in cash. It bought back shares worth $473.2 million in 2008 and paid dividends of $57.1 million. It ended 2008 with 2,760 employees, of which 1,302 were located in the United States.

In its latest third quarter results released this week, Altera reported sales of $286.6 million, up 3% q-o-q and down 20% y-o-y. Net income was $56.7 million, or $0.19 per share, down 40% from from $94.7 million or $0.31 per share last year. Analysts expected earnings of $0.18 per share on revenue of $283 million.

Sales of Altera’s 40-nm devices tripled sequentially, and its first-to-market position continued to drive record design-win results. It ended the quarter with $1.4 billion in cash.

For its fourth quarter, Altera estimates that revenue will grow 6% to 10% sequentially, which would be between $303.8 million and $315.2 million. Gross margin is expected between 67% and 68%. The stock is currently trading around $21 with market cap of about $6.3 billion. It hit a 52-week high of $21.49 on October 12 just before its earnings release. The stock has recovered well from its 52-week low of $12.99 on December 5.

 Chart for Altera Corp. (ALTR)

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Nice and very factual overview. But you don’t take any position for either XLNX or ALTR?

You may be interested in these two pieces. One in EDACafe (http://bit.ly/u7LJE) is about why the FPGA market has been mostly a duopoly for the last 20+ years, even though so many startups tried they luck. Read the comments: some are very incisive and basically are poiting out that innovation is put under control by patents, the XLNX-ALTR non-verbal agreement to not go too hard at each other, and marketing blunders from the FPGA startups.

The other (http://bit.ly/23XnFc) discusses the Q3 results. I am still amazed by XLNX having such a captive market (only 30% revenue due to new product), and its poor operation margin. I still believe ALTR has an edge if they become more aggressive on the marketplace.

Let me know what you think.

Olivier Coudert Friday, October 16, 2009 at 4:19 AM PT

What is your view on the future of Lattice Semiconductor. The third serious player in this industry.

Aks Mit Tuesday, October 27, 2009 at 9:00 AM PT