In digital devices, there are three main types of integrated circuits: memory products, processors, and logic devices, all of which are used to manage the manipulation and interchange of digital signals in a system.
Logical devices can be broadly categorized into two: programmable and fixed devices. The programmable logic devices (PLD) industry has two market leaders, Xilinx and Altera Corporation. Characteristically, the PLD chips can be programmed, allowing for the instructions set by the electronics manufacturer to be reprogrammed and the circuitries customized for specific purposes.
Xilinx have been competing with Altera in the PLD industry for a very long time now, and Xilinx has been leading the race so far. With the recent acquisition of Altera by Intel, industry observers feared that Altera would have an edge over Xilinx. And while both companies have their own strengths and weaknesses, this hasn’t been the case. The PLD market share for the 2017 financial year stood at Xilinx: 59% and Altera 41%.
Reasons Why Xilinx is Built for Growth
Despite the popularity of Xilinx, the market results for the second quarter of 2017 were quite a “mixed bag”. The company hadn’t technically reached its projected topline sales expectations, but the revenue generated reached a total of $620 million compared to $579 generated the previous year. And while the performance remains a mixed bag, the company remains to be a strong market investment with the revenue acquired for the quarter leveling at a midpoint compared to Wall Street’s expectations.
Of course, the Xilinx company has much more than the short term growth expectations and merely numbers. The company has been setting itself up for growth by targeting the fast-growing FPGA (field programmable gate array) chip markets. It’s also set to tap the three growth verticals of cloud acceleration, autonomous vehicles, and 5G deployments. However, this has increased is R&D efforts as well as its capital expenses.
By taking a closer look at these trends as outlined by the company’s management in the 2017’s earnings, it’s possible to tell why Xilinx is built for growth.
- Momentum Gains from the Advanced Products
Xilinx is now supplying an estimated 52% of the top line goods according to its revenue of sales, compared to 46% of the previous year. This is not that surprising considering that the developers are increasingly targeting the more lucrative markets, including the advanced driver assistance systems.
2017 reports highlight the Xilinx Zynq programmable chip as the most successful product for the year. The numbers show that the sales of Zynq increased by 65% from the previous year and accounted for about 12% of the total annual sales from the company. Plus, the programmable chip is expected to continue with a similar momentum due to an increased use of these chips in the automotive industry.
The infrastructure of FPGA chips allows them to be optimized for specific tasks even after the chip has been manufactures. The program developer can modify the chip to perform certain tasks that would be difficult or impossible to complete using a traditional processing unit. Traditional processors cannot perform these tasks simply because they have a fixed infrastructure while FPGA chips do not.
Component suppliers are increasingly looking to use FPGA chips to improve the performance of their components and minimize the cost of their products. As a market leader in the design and production of FPGA chips, Xilinx sales in these chips have grown dramatically over the past few years, with an annual rate of 60% since the year 2013. According to analysts, this trend is likely to continue, and it’s expected that the client base will expand constantly.
- The Cloud Business Might Be Down, But It’s Still Strong
In the previous quarter, revenue from the communications and data center market has seen a 5% drop Year over Year (YoY). This has impacted the top line of the company because the sector contributed about 37% of the total revenue. However, this should not be a cause for panic because the recent Xilinx deals should improve the situation.
In the last quarter, Xilinx made a deal that saw it landing three large cloud computing clients: Alibaba, Huawei, and Amazon Web Services. Each of these cloud computing corporations have decided to use Xilinx’s FPGA for infrastructure acceleration, which a trend that has amassed quite the momentum based on the undeniable benefits of these programmable chips.
Ideally, the programmable nature of FPGA chips makes the process of training artificial intelligence models much faster in the cloud. Furthermore, since the chips deliver a stronger performance per every watt of energy consumed, they are more cost effective and ideal for deployment in the large-scale server setting where minimizing power consumption is vital.
Consequently, the deployment of FPGAs in cloud computing and data centers is projected to increase through to 2025. Based on Tractica’s estimates, the FPGA chips will play a major role in powering the deep learning applications in the cloud, and their shipments are projected to match CPUs by then.
- FPGA Domination
It’s projected that by 2024, the use of FPGA technology across the fast growing sectors such as the cloud and the automotive industry will boost the market revenue from $6.9 billion last year to $12.1 billion, based on Variant Market Research. Considering that Xilinx controlled 59% of this market in 2017, the company is in a pole position to tap into this growth.
In addition, Xilinx believes that it can potentially increase the market share to between 60% and 65% in the course of the next 4 years. This seems quite achievable considering its technology lead over its arch rival, Altera. The company plans to keep this lead through R&D and is working to launch its ambitious 7-nanometre technology node in 2019.
Altera recently announce plans to develop next-gen FGPAs on a 10-nm technology node without any specifics on the launch date. By comparison, the next-gen FPGAs from Xilinx will be based on a smaller technology node, meaning that they should reduce manufacturing costs, consume less power, and deliver improved performance and tell you how to find a fpga board supplier.
With all these put into consideration, it’s unsurprising to see why researchers and analysts expect the growth rate of Xilinx’s annual earnings to more than double within the next 5 years, up from the annual jump of 4% the company has delivered within the last 5 years. The long-term upside of Xilinx looks very attractive, especially from its leadership position in the FPGA technology market.