Bellwether fabless semiconductor company
) went a step ahead to focus on an advanced version of FPGA
(Field-Programmable Gate Arrays) chips. For this transition into
high-end high performance next-generation chips, Altera is
collaborating with the chip giant
So far, the chip maker has used its facilities for its own
processors. Signing Altera as its first foundry customer will
allow it to grow its foundry chip business and make a successful
strategic shift in its business model.
According to the agreement, Intel will be making chips for Altera
using its 14 nanometer (nm) trigate transistor technology. Altera
is currently manufacturing its chips at the 45nm, 40nm and 28nm
nodes. Intel's technology will help it to make a smooth
transition to 14nm FPGA production. Altera remains on track to
launch its 20nm FPGA product suites as planned.
Altera believes that the 14nm offerings will be suitable for
high-performance systems used in military, wireline
communications, cloud networking, and computing and storage
An FPGA is a semiconductor programmable logic device (PLD) that
can be programmed by the customers/original equipment
manufacturers (OEM) after manufacturing. The flexible nature of
the FPGA is preferred by many customers over the low-cost,
fixed-function ASICs (application-specific integrated circuits).
Altera earns the largest share of its revenues from FPGA
products. It is also evident that the company's revenue growth is
led by its new products. Hence, we are positive on Altera's
decision to shift to Intel-powered 14nm FPGA product suites as
this would give its revenue stream a boost, going forward.
With the transition, Altera would be in a favorable position
against its archrival
). The agreement between Altera and Intel requires Intel to
consider Altera as the prime consumer of its 14 nm FPGAs. Hence,
it will be difficult for Xilinx to adopt Intel's technology to
match its rival's offerings.
In a separate development, Altera announced that it will be
continuing its long-term relationship with its foundry partner
Taiwan Semiconductor Manufacturing Company
), which will continue to work on developing advanced FPGA
offerings. Currently, TSMC is working on Altera's yet-to-be
announced 20 nm product suites.
Despite prospects in the FPGA space and a favorable position in
the PLD market, some basic problems (longer sales cycle,
volatility in the semiconductor market, a soft telecom market and
declining margins) keep us concerned about Altera. The company
delivered disappointing fourth quarter 2012 results with earnings
per share (EPS) and revenues missing the Zacks Consensus
Estimates. It also provided a soft first quarter 2013 outlook.
The association with Intel is not going to drive its near term
results. Hence, Altera currently has a Zacks Rank #5 (Strong
ALTERA CORP (ALTR): Free Stock Analysis
INTEL CORP (INTC): Free Stock Analysis Report
TAIWAN SEMI-ADR (TSM): Free Stock Analysis
XILINX INC (XLNX): Free Stock Analysis Report
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