Smartphone Use Fueling PLD Market

With the growing popularity of smartphones like the iPhone, the number of smartphones users is multiplying at an astonishing rate, and so is the demand for bandwidth to access applications, data, and videos online. We recently saw how this trend benefited the optical networking industry. Another industry benefiting from the build out of telecommunications infrastructure is the programmable logic device (PLD) market. Let’s take a closer look.

PLS Market Set for Unprecedented Growth of 42%
According to market research firm iSuppli, core silicon, the largest segment in the semiconductor industry is set for unprecedented growth this year, erasing the contraction last year. The core silicon market is expected to grow 21.2% to $102.7 billion from $84.8 billion in 2009. Driving its growth is the PLD market, which is set to reach $4.7 billion this year, up 43% from 2009 levels. Wired communications and industrial market applications will drive PLD sales, iSuppli’s semiconductor forecasts indicates.

Unlike PLDs, application-specific standard products (ASSP) and application-specific integrated circuits (ASIC), the two other core silicon segments, will not share the booming growth but with projected ASSP revenue for 2010 at $79.7 billion, it is 23.1% up from 2009 and substantially higher than any year in history. ASSPs will be powered in the market by chips going to desktop and notebook PCs, mobile handsets, flat-panel TVs, and set-top boxes. But ASICs are estimated to grow only 9.8% to $17.0 billion in 2010. ASICs will be the only core silicon segment not to stage a full recovery from the economic slump, and an upturn is not expected until 2013 or 2014.

PLDs on the other hand are manufactured for no specific customer or application. Using PLD chips, companies can easily reprogram or change the program that runs them. This allows for easy upgrades and the smartphone sector bogged down by pressure on the component system benefits from this aspect of PLDs. Denny Steele of EETimes covers the details on the use of programmable logic in handsets.

Financials of PLD Market Leaders
Altera (NASDAQ:ALTR) recently updated its revenue guidance for third quarter. It now expects revenue to grow 10% to 14% q-o-q versus the earlier guidance of 4% to 8% q-o-q. Its second quarter revenue was $469.3 million, an increase of 68% y-o-y and 17% q-o-q. Net income was $180.6 million or $0.58 per share, compared with $47.4 million or $0.16 per share last year and $153.2 million or $0.50 per share last quarter. Altera ended the quarter with $2.1 billion in cash and increased its quarterly cash dividend to $0.06 per share, up from the previous dividend of $0.05 per share. The stock is trading around $30 with market cap of about $9 billion. It hit a 52-week high of $30.97 on September 29.

Xilinx (NASDAQ:XLNX) is the leader in the PLD market with annual revenue of $1.83 billion in fiscal 2010, while Altera is close behind Xilnx with annual revenue of $1.2 billion in 2009. For the recent first quarter, revenue was up 58% y-o-y and 12% q-o-q to $594.7 million, and net income was $158.6 million or $0.58 per share versus $38 million or $0.14 per share last year and $148.5 million or $0.54 per share last quarter. Gross margin was 65%, up from 61.8% last year. Xilinx ended the quarter with $2.1 billion in cash and investments and a net cash position of $800 million.

For the first quarter, Xilinx expects revenue to increase 3%–7% q-o-q. The stock  is currently trading around $26 with market cap of about $6.8 billion. It hit a 52-week high of $29.12 on July 14.

The PLD market is looking hot, and it would not be surprising to see Intel continue its acquisition spree in this sector. I earlier discussed the speculation that Intel would acquire Xilinx. In 1994, Intel sold its PLD business to Altera when ASICs and ASSPs were growing aggressively, fueling an electronics renaissance for a decade. But times have changed. Most important, business models have changed to the extent that the semiconductor business is fast becoming a non-profit industry. The pricing and margin pressure on electronics will continue over the next decade as emerging markets ramp up. Against this backdrop, PLDs look to be a relatively viable business model, and I would not be surprised to see Intel eyeing Xilinx.