I recently finished a paper on investment opportunities in the next generation of semiconductor design and how it favors Xilinx, Altera, and to a lesser extent Microchip. Since this is a blog I will micro-chunk the papers content over several posts. The thesis of this paper is that semiconductor design will be based more around an integrated design and manufacturing platform than the historical approach of cobbling together various vendors’ offerings based on best of breed research. Similar to how IT departments have consolidated around only a handful of vendors semiconductor designers are consolidating around the major vendors’ platforms.

Since the bursting of the .com and telecom bubbles in 2000 the technology infrastructure market has evolved from a high growth industry into the cash cow phase. Winners such as Cisco, EMC, and Xilinx have tremendous free cash flow. While losers like 3Com and LSI are struggling to survive. With technology products especially there is little value purchasing second tier products so the leading companies only grow stronger until the next major secular inflection point. New startups are reduced to only attack market niches. For digital semiconductor chips as well as IP networking and storage the next secular inflection point is probably a decade or more in the future.

In this paper (and subsequent blogs) I will explain how the structure of the semiconductor market is going vertical due to the dramatic increase in semiconductor complexity requiring semiconductor design integration and how this favors the two leading FPGA (Field Programmable Gate Array) companies. The next generation semiconductor products will be designed using Xilinx and Altera’s platforms.

A major acceleration in growth of the FPGA market should occur in 2010 based on several factors listed below. The two companies that control approximately 85% of the FPGA (Field Programmable Gate Array) market are positioned to exploit this inflection point in growth.

• When 65nm devices go mainstream
  • FPGA’s as SoC (for embedded systems), especially with ARM and MIPS soft-core processors
  • The continued acceleration of FPGA’s stealing market share from ASICs and ASSPs
• FPGA’s in new markets
  • x86 servers and PCs
  • Industrial & Automotive
  • Consumer devices
• Beginning of construction for the next generation communication network driven by
  • The communication equipment is nearly half of the FPGA end market
  • The glut of dark fiber from the .com bubble will be in use
  • The explosion of true mobility due to 802.11n, WiMax, LTE, etc
  • The explosion of interactive TV (through high definition video over IP) enabled by fiber to the home
  • The virtualization of the data center, including desktops
• The end of the global slowdown, re-invigorating world-wide growth of capital goods products, which are increasingly designed with digital devices like FPGAs