Outlook Brightens For Altera, Rival Xilinx
investors.com
By JAMES DETAR, INVESTOR'S BUSINESS DAILY
Posted 06:37 PM ET
Build it programmable, and they will come.
Chips that companies can program to do different tasks are on track for one of their biggest years ever, with one analyst estimating sales could jump 37%. After a decade of slow growth, makers of programmable chips are on the march as the economy improves and companies invest more in network gear.
On Monday, Altera (ALTR), one of two chipmakers that dominate this niche, raised its revenue guidance for the current quarter. It forecasts its sales will rise 10% to 12% from the preceding quarter, to $447 million at the midpoint. Earlier, it forecast an 8% to 12% rise.
Programmable logic devices, or PLDs, are key parts in the routers and switches that transmit data on the Internet and other computer networks. And the chips are used in some other growth products, such as smart phones.
Smart-phone and network gear makers prize the chips because they can change the software that runs them. Since technical standards can change fast, using PLDs lets companies quickly update their products.
Altera and archrival Xilinx (XLNX) both recently provided first peeks at their next-generation chips .
Ticonderoga Securities analyst Apurva Patel forecasts that PLD sales could jump as much as 37% this year, to a record $4.5 billion from $3.28 billion last year. That would be the biggest percentage jump since the 2000 dot-com bubble year, he says.
He estimates first-quarter sales rose 7.2% from the fourth quarter, far ahead of the 1.2% rise in chip sales overall.
"We believe the PLD market will grow two to three times the semiconductor industry growth rate in 2010," Patel said in an interview.
The Semiconductor Industry Association says total chip sales will rise 10.2% this year to $249 billion.
PLDs let companies get their product out the door faster, says Danny Biran, an Altera vice president.
"The thing that's important is it affects time to market" for gear makers, Biran said. "With (programmable chips) you can immediately implement (a new product). You can take a product to the market much earlier than if you had to rely on an ASIC."
PLDs are eating into sales of a rival type of chip called an application specific integrated circuit. ASICs are semi-custom chips that companies use to do a single task. PLDs cost more but because companies can reprogram them, they're making inroads in the auto and other markets with rapidly changing technology standards that have favored ASICs.
The opportunity for PLD makers is huge, Raymond James analyst Hans Mosesmann said in a report Tuesday.
"Altera and Xilinx are on the cusp of taking ownership of a $15 billion to $20 billion market formerly in the camp of" ASICs, Mosesmann wrote.
In 2000, 70% of PLDs went into routers, switches and other communications products, Patel says. Now, they're expanding into autos and other products.
"Today, 50% of PLD sales are still going to the telecom market, but (PLD makers) are quickly diversifying," Patel said.
Longtime Silicon Valley rivals Altera and Xilinx, both based in San Jose, Calif., combined account for more than 80% of PLD chip sales. Patel has a buy rating on Altera and a neutral rating on Xilinx. Other PLD makers include Lattice Semiconductor (LSCC) and Actel (ACTL).
Xilinx leads the PLD market with sales last quarter of $520 million, vs. Altera's $402 million. But Altera's gaining. Xilinx forecasts 5% to 9% growth this quarter.
Both Altera and Xilinx contract out the actual manufacturing of their chips to outside plants, called fabs. Xilinx Chief Executive Moshe Gavrielov said in an April conference call that two manufacturing partners were having a tough time keeping up with orders, slowing Xilinx's sales. "As we enter the June quarter, our ability to deliver continues to challenge us," he said.
Altera says it's not having any such problems.
Altera and Xilinx are both rolling out new products.
Altera's next-generation line of PLDs is called Stratix V. Altera's Biran says Stratix V will boost speeds for routers and switches.
In April, Xilinx unveiled a new PLD chip that's its first to include an ARM (ARMH) core. U.K.-based ARM is the leading maker of chip core designs for cell phones. Analysts say binding programmable circuits with a processing core creates a powerful type of chip for Xilinx.
Including the ARM core should boost the performance of Xilinx chips in communication devices, including smart phones, Gavrielov said in April.
Mosesmann says the outlook for Xilinx the next couple of quarters is good despite its near-term struggles to get its chips made. He rates both Xilinx and Altera a buy.
© 2010 Investor's Business Daily, Inc. All rights reserved. Investor's Business Daily, IBD and CAN SLIM and their corresponding logos are registered trademarks of Data Analysis Inc. Copyright and Trademark Notice | Privacy Statement Terms | Conditions of Use |
