A Kink in Apple’s Armor?

June 22, 2008, Editor Picks, Tech Investing — @ 11:24 pm

A funny thing happened to me on the way to the Apple store. I picked up the latest copy of Information Week magazine and read an article about the HP Voodoo Envy 133. Long story short, I’m no longer going to the Apple store. I’m waiting for the Envy.

Vista Woes

After a painful year running Vista I want need a dependable lightweight laptop with amazing battery life. So I did the once unthinkable; considered getting a Mac. In the past two weeks I’ve visited the Apple store twice to checkout and ask some questions about the Mac Air. I would have bought it the second time, but it was the South Beach store and it seemed the price was a couple hundred dollars higher than in Dallas (no surprise there).

While many rave about the OS X, and I have no doubt it is better than Vista, corporate types like me simply need some applications that do not run on the Mac; and I want to avoid dual boot (granted VMware does have a better solution). However, since I could do 90% of my work on OS X I was willing to get a Mac as a second mobile laptop primarily due to the amazing battery life.

Apple’s Killer Products

Apple has re-built their business this decade on the back of its product designers. Their sleek integrated products simply blew away the competition. Their best two products the MacBook and iPod have driven astounding growth.

The iPhone looks like it may be a third category killer. Granted, Apple has some pretty powerful competitors to overcome like Nokia, Samsung, Sony, Motorola, and HTC. I don’t include RIMM because in a couple years battery life will reach a point where the last feature (RIM’s battery efficient devices) Blackberry dominates will be a non-issue. Since practically every other phone supports ActiveSync IT departments will finally be able to jettison the extra cost of maintaining a Blackberry server. Soon, when Apple releases its 3G / ActiveSync iPhone for $199 its sales should sky rocket. Although, how long can Apple maintain its lead in the cell phone market? Probably the most cut throat product market.

The iPod is still head and shoulders above the other MP3 players. In fact, I just bought my second iPod Nano a couple months ago. However, this market is leveling off as it is becoming more common to find people with even multiple MP3 players. The HDTV / LCD market is commoditizing like the original TV market did. You can see this at any Best Buy store or even at Dell’s Northpark mall store. This is making Apple’s nice sleek desktop models look comparatively less impressive. Especially when doing a side by side comparison at the Best Buy stores that conveniently now offer Apple computers.

Mac Attack

So back to the Mac; the heart of Apple. The MacBook is a solid product, but I just saw a Gateway laptop at Best Buy for less than $900 that included 4GB of memory and an Intel Core 2 Duo – undoubtedly very competitive with the Mac book. It is amazing how more power can make up for many of Vista’s issues. The Mac Air has been the wow product. While this year the Air has faced stiff competition from the Toshiba Portege R500 and the Lenovo ThinkPad X300 the HP Voodoo Envy 133 ups the bar compared to everything in the market right now.

It has features the Mac Air is clearly missing like a removable battery and more than one USB port, but the amazing part of the Envy 133 is its design. Its appearance is cool. It has a removable battery. It has a removable battery (repeated for emphasis). It is .7 inches thick. It’s sturdy due to its carbon fiber chassis. It has introduced a few new design elements that upon seeing them just appear to be common sense, such as putting the Ethernet port on the power connector. It has an HDMI port. It has instant access to Skype and an Internet browsing through the Voodoo IOS.

Rahul Sood may have bested a fragile Steve Jobs and made Voodoo HP’s Lamborghini. I don’t expect Apple to stumble any time soon. They still have a stranglehold on the MP3 player market; with no end in sight. They still are releasing a game changing iPhone while competitors aren’t innovating but instead copying Apple. Which Nokia appears to admit.

“I don’t know what is copy and what is original but if there is something good in the world we copy with pride.”

Windows Vista is finally getting to the stabilizing service pack time frame and despite prevailing wisdom the MacBook and OS X have not been completely without defects either. Windows Vista is still a very disappointing product that will be skipped by most enterprises. However, Apple doesn’t offer anything close to true enterprise client management software. If enterprises migrate from Windows they are more likely to embrace a Linux based
thin client than OS X. Now if Apple decides they want to move to the enterprise by purchasing Sun Microsystems things could get interesting. That doesn’t seem to be the direction Apple is pursuing.

Apple depends on being the best of breed consumer product. Something that HP Voodoo’s division might have something to say about, exposing some kinks in Apple’s business model…

Next Generation Semiconductor Design

, Editor Picks, Semiconductors, Tech Investing — @ 10:45 pm

I was pleased that Seeking Alpha published a summary of my paper on the Next Generation of Semiconductor Design and honored that they made it an Editors Pick. Over the past couple years I’ve find Seeking Alpha to easily be the best source for investment ideas. On my Seeking Alpha post I put a follow up comment that did not include some links so I thought I would re-post it here.

 

To help clarify, Xilinx and Altera have platforms that their clients develop products on top of and Xilinx and Altera make money by selling chips that go into these end products. While it is true that Microsoft needs to care about the layman’s needs, Xilinx and Altera only need to support engineers due to the nature of their products.

As for whether Xilinx or Altera is in a better position the simple answer would be Xilinx since they have a larger market share and currently appear to have more mindshare. Of course, things are rarely that simple. Altera has better margins and has made some great moves the last couple years such as: partnering with ARM, designing for power management, and having the best path to structured ASICs.

Both Xilinx and Altera have independently discussed that future growth is in adjacent markets not fighting a battle of attrition between each other; such is the benefit of a duopoly. It typically takes two years from design win to volume production and I don’t expect meaningful revenue growth in the PLD industry for about a year and a half. Right now I don’t see a major difference in design wins between the two companies, but that could change.

I think both companies are a great value at the current price and I intend, as best as I can, to track the design wins for these two firms. That will be the leading indicator of who will benefit from the next wave of end product innovation. For the foreseeable future the market can support two major PLD companies and the first losers will be those in adjacent markets.

Semiconductor Design Platforms Conclusion

June 16, 2008, Semiconductors, Tech Investing — Tags: , , — @ 5:08 pm

The platform aspects of Xilinx and Altera’s business model do not require that the companies offer the best of breed technology; although they often do. The PLD (programmable logic market) market is not prone to the extreme price competition seen in the ASIC (application specific integrated circuit), generic processor, and memory markets due to the high barriers to entry caused by the required software platforms and the lock-in once a vendor selects a PLD design platform. This makes the two dominant PLD vendors, who control over 80% of the market, very profitable with net margins over 20%.

The PLD market will see solid growth for years once several macro trends emerge causing a tipping point in PLD demand. These emerging trends are

  • The increasing complexity of new semiconductor devices
  • The new markets for PLDs due to microprocessor performance barriers and dramatically shortened end product lifecycles
  • The maxing out of the current communications infrastructure
  • World-wide growth due to globalization, potentially temporarily restrained due to a US consumer led recession

Semiconductors often act as a leading indicator for the technology industry. Xilinx and Altera are up 27% and 18% respectively this year after several years of their stocks floundering with negative returns. With Xilinx and Altera’s accelerating design wins it appears the still have considerable room to run.

If you have any questions or comments related to the posts from this paper shoot me an e-mail. You can view our entire paper on the Next Generation of Semiconductor Design or use the links below to jump to specific posts from the paper.

Part 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14

Programmable Logic - New Markets

June 8, 2008, Semiconductors, Tech Investing — Tags: , , — @ 8:55 pm

In the previous two posts on why semiconductor solutions are converging and why this is a great opportunity for FPGAs. I explained this was occurring because of increasing semiconductor complexity and physical barriers. Below are two new end market opportunities as a result of increased digital IC complexity and physical barriers.

FPGAs in Supercomputers

FPGA’s have moved into supercomputers as the enabler of Reconfigurable Computing. Like any change in the marketplace, reconfigurable computing also represents a risk. Companies like Stretch are creating FPGA like software configurable microprocessors, but how straight-forward will engineers find the design tools?

The architecture for a RPU (reconfigurable processor unit) system is just now becoming standardized. While FPGAs theoretically have the ability to be reprogrammed at run-time software development tools have not supported this. While some proprietary systems, such as Cray’s FPGA-augmented XD1 and SGI’s Altix with RASC option, have seen limited success it appears FPGA’s may finally be entering the standard x86 market.

FPGAs entering the IT (PC/Server) Market

The reconfigurable computing data-stream-driven model may alleviate many of the performance barriers in the existing x86 server market. As prices fall and the speed of a single processor core stabilizes it is not farfetched to see FPGA’s in desktop PC’s and cell phones. A PC manufacturer may decide to use a FPGA chip to implement common tasks such as TCP/IP processing.

Xilinx and Altera are working with Intel and AMD to plug directly into new multi-core processor’s front-side bus architecture. We may start to see PLD products for this as early as mid-2008.

Both Intel and AMD have developed their own technique to allow PLD’s to plug into the PC architecture. In June 2006, AMD announced its Torrenza program creating an interface to plug into its proprietary HyperTransport CPU bus. Not to be left behind, Intel, along with IBM and others, in September 2006 announced Geneseo an open source project creating a set of extensions to PCI Express aiming to help graphics chips and other accelerators. Geneseo proposals aim to extend Express in four general areas: fine-grained power management, locking shared memory, hints to help coherent processor handle I/O more effectively, and efficiencies for mapping virtual to physical memory.

 

PC and server architectures are highly standardized alleviating many of the advantages of PLDs. However, as computers take over more real-time computing functions, like processing high definition video signals, there may be more of a need to balance the inflexible speed of ASICs and the flexible sluggishness of software for x86 processors. Some examples of new real-time PC computing functions could be replacing proprietary PBX systems with generic servers running unified communications software or streaming video from a home server appliance.

Semiconductor Design Changes

June 7, 2008, Semiconductors, Tech Investing — Tags: , , — @ 8:00 pm

This is my second of three posts on why semiconductor solutions are converging and why this is a great opportunity for FPGAs.

The Memory wall

For well over a decade processor speed has been increasing more than memory speed, because much more R&D has been poured into logic and processor design. This is because logic (Broadcom, Xilinx, Altera) and processor designers (Intel, IBM) have far better margins than memory designers (Micron, Spansion, Samsung).

Physical Barriers

It is apparent that for servers the application performance improvement curve is flattening. Intel’s generic microprocessor architecture has overtaken many RISC processors because of the shear R&D money Intel has dumped into its x86 design and manufacturing compared to RISC makers. Even so, Intel is no longer dramatically increasing the speed of its processors.

Intel is only able to keep up with Moore’s Law by adding more processors. Inefficiencies abound from using multiple processors. Programmers are not taking full advantage of these multi-core and multi-processor machines because these machines are not offering the proper development platforms and compilers for object-oriented programmers to optimize for multi-core, multi-processor environment. Additionally managing memory in these multi-core architectures is more challenging. Moore’s law is running into an instruction set wall because the data stream is too large.

Physical barriers (like transistor leakage) are inhibiting the ability for semiconductor companies to continue keeping pace with Moore’s Law. To keep up with Moore’s Law microprocessor designers are forced to build up by adding more processors. Processor manufacturers’ ability to scale clock speed and shrink transistors is decelerating. They must now use parallelism.

Semiconductor Design Convergence

June 5, 2008, Semiconductors, Tech Investing — Tags: , , , — @ 3:18 am

In my next three posts I’ll wrap up my series on Investment Opportunities in the Next Generation of Semiconductor Design. In these three posts I’ll cover why semiconductor solutions are converging and why this is a great opportunity for FPGAs.

Convergence of Software Design Platforms

Programming many-core microprocessors and FPGAs is also a problem of educational deficits and development platform shortcomings. The developer’s choice here may ultimately be decided by who builds the simpler development platform or raises the level of abstraction through powerful framework IP.

Where the innovation is made will make all the difference. Will embedded systems use Platform FPGAs, dedicated microprocessors, or DSPs? With globalization and the Internet; China, India, Russia, and Eastern Europe are producing hundreds of thousands to millions of engineers. Altera has over 30 joint laboratory and training centers in China, but it is not alone as Xilinx and other major semiconductor firms are working to get the next generation of engineers to learn and innovate on their platform. What development platform will win the minds of the next innovators?

Competition is migrating from semiconductor companies solely competing based on their IC based on the platform they offer. Microchip is a successful example of this strategy. When the innovation in the IC slows the innovation moves to the platform; and the efficiency it bequeaths on the end product designer.

The information technology departments and particularly web software developers have discovered and embraced agile project development methodology. Rapidly shrinking product lifecycles are encouraging digital product designers to embrace similar prototype and release agile strategies.

Platform FPGAs as SoC

As chips become more complex their design and manufacturing costs increase dramatically. More requirements require a complex design which produces more functionality to test and debug, and a more complex design triggers lower yields and higher NRE in the manufacturing stage. Embedded systems are being designed around SoC. Industrial, automotive, and consumer electronics devices are increasingly becoming digitized.

Another example of an FPGA SoC is HDTVs. Most HDTV are now designed with a stand-alone FPGA or coupling an FPGA with an ASSP as a coprocessor. These Platform FPGAs include hard-coded DSP blocks, internal memories, and standard IP blocks along with the programmable logic.

High-end convergence consumer devices are a great opportunity for FPGAs. In addition, the growth in internet traffic is will create another round of build-out in the FPGA industry’s sweet spot, telecom and networking.

In 2008 products built around an FPGA will be delivered. What will be new is that for the first time some of these products will be built on an industry-standard soft-core processor architecture from ARM which ARM released in 2007 specifically for FPGAs. Now the huge base of ARM engineers can develop software for embedded systems based on a FPGA system-on-a-chip and use the massive installed base of ARM software and tools. Will adding an ARM processor and its accompanying ecosystem to the FPGA platform be the inflection point for FPGA design wins and the growth that inevitably follows?

Programmable Logic Market Risks

June 3, 2008, Semiconductors, Tech Investing — Tags: , , , — @ 2:27 am

This is my last post related to the potential risks to Xilinx and Altera’s continued market dominance in programmable devices and growth into adjacent semiconductor industries in my 14 post piece on investment opportunities in semiconductor design. To summarize the other risks where

  • Competition from other Platforms
  • Existing Competitors and new entrants
  • Competition from ASICs and reliance on the communications sector

The Semiconductor Industry is Cyclical

Due to the .com and telecom bubble PLD sales surpassed economical sense in 2000 and 2001. After bottoming in 2002 PLD sales have grown at a compound annual rate of about 15% and FPGA sales have grown roughly 20% annually. FPGA’s are now 75% of total PLD sales. In 2001, the PLD market peaked at $4.1B and in 2002 bottomed at $2.3B. Since 2002, both Altera and Xilinx have gained market share every year. The PLD market has only recently exceeded the peak experienced in 2001.

It looks like the economy is headed back into a recession, but unlike the 2001 recession, which was business capital spending induced, this recession looks like it will be driven by a drop in consumer spending. This will affect semiconductor sales, but it will not be nearly as dramatic as the drop in 2001. Although some firms may experience financing issues, companies are for the most part well capitalized.

The 2001 recession was caused by a glut in supply of technology products and an over investment in technology oriented startups. The 2008 recession has neither of these characteristics.

In 2001, companies like, Xilinx, Altera, Cisco, EMC, Sun Microsystems, etc sold (and often helped finance) products to startups and other customers in the technology sector whose unprofitable business models caused them to go bankrupt when the market turned down and venture capital investment dried up. These bankrupt or dramatically downsized companies dumped their newly purchased technology products on the market. So not only had demand decreased drastically; supply increased drastically; causing a glut in the market that took years to work through.

This time supply chains have been optimized for just in time product delivery and technology companies’ balance sheets have never been stronger; often in conjunction with record low sales to inventory ratios. While there may be some re-selling of technology equipment in emerging markets it should be minimal compared to what occurred in the telecom and .net bubble of 2001. In addition, within the semiconductor industry, PLD sales should fare better than most since they require less up front risks, such as time and costs.

With rational supply and persistent growth in data storage, networking, and the digitization of industrial components this recession will look much different than the technology led recession of 2001. Recessions also spur new cost cutting or risk reduction strategies. Companies that have solely relied on ASICS or generic PC architectures may explore the benefits of programmable logic.

Programmable Logic, Communication Sector Dependence

June 2, 2008, Semiconductors, Tech Investing — Tags: , , , , , — @ 12:23 am

In the last post two posts on semiconductor design I reviewed the risks to Altera and Xilinx due to competition from other platforms, existing competitors, and new entrants. Here I’ll review the risks from reliance on the communication sector (which may finally be a strength for the first time since early 2000) and from ASIC vendors.

Competition from Structured ASICS and ASSP’s

In March 2006, LSI Logic, the first vendor to create a structured ASIC, closed its RapidChip division exiting the structured ASIC business. This was a blow to the EDA vendors who haven’t seen significant growth since the 2001 downturn and have struggled to gain a foothold in the FPGA industry. By shuttering its structured ASIC division LSI conceded that customers are moving to FPGA’s for new products as it is much faster and more economical to initially design a Xilinx (or Altera) FPGA and migrate to the same vendor’s structured ASIC in volume, than design using LSI’s ASIC-based process.

In 2001, Altera introduced their HardCopy® structured ASIC platform and they are now a leader in the structured ASIC market. Altera has a straightforward migration path from FPGA to structured ASIC. They maintain compatibility with the FPGA architecture, but reduce the die size by removing the configuration circuitry, programmable routing, and programmability for logic and memory with fixed wired interconnect. Xilinx has a similar product called EasyPath®.

Reliance on Communications Sector

In 2000, over 80% of PLDs went into communications related equipment. Today that number is just under 50% of sales and steadily dropping. Since 2000 the growth in PLDs for communications end products has significantly trailed other end markets.

In fact, if the growth in the communication sector picks up, like we think it will in 2010 or 2011, this could be a major boost to the PLD market. The other end market segments like storage, industrial, and consumer electronics should continue to see strong growth over the next decade.