A little background on the Xilinx deal.
In this stormy stock market that now delights in crushing household names in technology, not just high-flying fads or small, vulnerable stocks, I think investors need to be careful about being on the “right side of technology.” As the PC Paradigm peaks on schedule this year, traders will play Microsoft like a fiddle, but long-term investors need to find replacement investments on the right side of technology.
Program Logic Devices (PLD’s) are on the right side of technology and therefore represent a great investment theme. The field is dominated by two virtually equal semiconductor companies, Altera and Xilinx, each with about 1/3 of the total market. The recent sell-off in both of these two companies provided a wonderful opportunity to establish positions in these well-positioned companies. Of the two, the stock market seems to think XLNX is best, especially at the high end of the space. The announced partnership with WIND confirms the market’s elevated view of Xilinx relative to Altera.
The attraction of PLDs is in time-to-market and upgradabilty. ASIC’s, the old-technology competitor, takes too long to design, costs too much to set up and begin fabricating, and is inflexible once installed. As complexity increases, the time and risk associated with a pure hardware solution increases the attractiveness of PLD chips, even with their relatively higher marginal cost of production. Both Altera and Xilinx claim they are taking share from traditional ASIC producers, which is confirmed by their stellar performances over the last couple of years. Both companies emphasize that their attractiveness no longer is limited to prototyping. These chips increasingly are being used in production devices particularly in telecommunications and networking -- sectors with intense time-to-market pressures and protocols always subject to refinement.
Upgradability introduces a new set of complexities, mainly in the need for software to manage the upgrade process. Half an upgrade is much worse than no upgrade. WIND’s partnership with Xilinx completes the picture by bringing management software that integrates with the entire development suite to the party. Xilinx, the leader of the PLD space, obviously lined up with the leading software development provider for the space, not only to solve the upgrade management problem but, through network effects, to secure its leadership position.
With Altera losing its long-time CEO to retirement at the end of the year, I wonder if the pressure of the WIND partnership with Xilinx is enough to cause the two companies to combine resources much like WIND and ISI did last year. The circumstances for these two companies mirror the situation WIND and ISI faced prior to their merger. (If so, then ALTR may be the better buy in today’s market!)
Most interesting of all was the stock market’s obvious ignorance of what the announced partnership means and tells about WIND’s position in the embedded space.
Allen |
