A somewhat frustrating result of the no short rule is the unusually high bid/ask spread in the option market. I called my broker and asked why he wasn’t jumping between the bid/ask spread to fill my option order. Granted I could have done this manually by splitting my trade, but with the excessive volatility recently I preferred avoiding this. My broker said that due to the no shorting rule the market maker was not jumping between the spread to fill orders, but was instead just letting clients name the spreads. I said that explains why there appears to be no market maker, because basically there wasn’t one.

I’m sure governments around the world didn’t care about option bid/ask spreads when outlawing shorting, but it has an impact on the efficiency of markets. The no shorting rule will probably keep the VIX elevated for some time. The past month has seen the VIX spike straight up. One consequence of this is that this has been and will continue to be a great time to trade options.

I typically avoid writing about option strategies as there are many that know far more than me. However, I’ve been surprised that no one (that I’ve heard) seems to have connected the suspension in shorting hundreds of companies with the spike in the VIX. I could elaborate on how government interventions to increase market efficiency will have many unintended consequences that could actually increase volatility, but I’ll leave that to “the experts”. Alas testing is something that exists only in traditional engineering; not financial engineering…

Xilinx said in a statement. “The microprocessor industry is steadily shifting towards CMT architectures”… It is thought that Knudsen was referring to processors that support multiple threads of computation on a single chip as in chip-multi-threading (CMT) but the acronym was not expanded.

I have a fairly good mental library of acronyms, but “CMT” isn’t one I readily recognize. When technical publications struggle to decipher a company’s lingo it indicates the company has some work to do in the marketing department. Xilinx has a very enviable position that they are struggling to leverage or communicate.

The PLD (Programmable Logic Device) industry badly needs to create a “Web 2.0″ type marketing headline that can energize engineers, designers, managers, and venture capitalists. Otherwise PLDs may stagnate in their current niche with market adjacencies continuing to be dominated by ASSPs (Application Specific Standard Products). Potential alone isn’t a recipe for success. People need inspiration to change habits away from the traditional approach.

Open Standards

Everyone is proclaiming how great this will be that we will have an open source browser. The thing is, there is already a great open source browser; Mozilla’s Firefox. It is debatable how much is gained from open sourcing the browser’s code. What is important is, how will this browser support open standards? Since so many websites were not initially implemented to fully support the W3C Standards (the international organization that defines the internet’s standards) will Chrome be able to correctly render 99% of websites, as claimed, while also fully supporting open standards?

Innovator’s Dilemma

Balancing support for innovation and new standards with support for legacy applications and standards is a monumental task that should not be taken lightly. Legacy support is what gives Microsoft Windows its monopoly, but it also acts as a yoke on innovation. Microsoft has a better operating system than Vista; they just cannot figure out how to roll it out.

Microsoft’s Internet Explorer is in a similar boat. It has been estimated that over 50% of IE’s code base is error handling and “seamless” handling of poorly written website code. This code was very useful in the late 1990s and early 2000s when nascent programmers were still figuring out how to write relatively static web applications. Now that web applications are much more dynamic this code bloat is a performance drag affecting many of the more complex Web 2.0 style applications.

In a classical example of an innovator’s dilemma Microsoft invented the key technology behind Web 2.0 applications, but IE is still a laggard due to the legacy yolk. A key factor of Firefox’s success, and its dramatically better performance, is they took the time to clean up their legacy code base. IE 8 is making steps towards better support for W3C Standards and better
performance while supporting a migration path for enterprises. In many respects following how Microsoft balances these objectives is more important than following Chrome’s progress. Although I imagine the press will instead follow Chrome’s progress.

Where is the Innovation

What new, innovative features does this Google browser have? So far it appears they have just implemented functionality currently in the existing browsers. As for new functionality like video we already have platforms like Flash and Silverlight that are pretty good and improving.

Mozilla’s recently released Firefox 3.0 has a much better optimized JavaScript engine and IE 8 will as well. So far Chrome’s JavaScript engine appears to only be 13% faster than Firefox 3.0. Users do not notice 13% improvements. When Chrome goes live it will probably also be competing with IE 8.0 and IE 8′s performance improvement.

Overtaking Microsoft

Internet Explorer (IE) is a relatively crappy browser that has easily over 50% market share. As some claim, this isn’t solely because most people can assume a user has IE. It is because many websites still work better in IE; and many, probably most, of these websites are inside firewalls. Applications built for only a few hundred users or less.

The key to overtaking Microsoft’s browser isn’t to build a cooler browser. Apple, Mozilla, and Opera have done that. The key to overtaking IE is to making a compelling ROI argument to enterprises to abandon IE for a different primary browser.

Enterprise Strategy

Unless Apple makes a big push into the enterprise or Red Hat consolidates the many Linux splinters Microsoft’s desktop dominance will probably last another decade; even with corporations not upgrading to Vista. On a side note it would be interesting if Apple purchased Sun, spun-off its hardware business (while it still has some value), and made a big push into the enterprise. Thin clients offer an alternative, but Windows and its partner Citrix are currently positioned relatively well. However, that is for another article. So for now browser makers are still playing in Microsoft’s playground.

For the majority of websites it is not cost effective to build and test the website in multiple browsers. Project teams focus on one or two core browsers and make a best effort for the others. This is especially true for corporations building websites only intended for a limited number of users. As a result many corporations choose the browser with

• The largest market share.
• The one they have built applications on for years.
• The one they know how best to manage. For support reasons companies need to manage how and when core software upgrades are presented to users.

Active Directory

At any large or mid-size company any internal website can know who you are (and probably does) if you are using Internet Explorer because of its tight integration with Active Directory. This allows easy implementation for single sign-on across company or even inter-companies’ web applications. To gain critical enterprise adoption the existing browsers need better support for Active Directory and how to manage it.

Offensive or Defensive

Few people have mentioned that Chrome may actually be a defensive move by Google to protect their search engine turf. I regularly use iGoogle and Google Maps, but I haven’t actually gone to Google.com to perform a search in at least a year. I perform all my searching in the browser. Of course, I primarily use Google, but I find myself using other website’s like Wikipedia, Ask, and Dictionary.com more often; and my switching costs are basically nil. In fact, I’ve even started using Live Maps because of its far better international support (Live vs. Google).

Five years ago I remember wondering why someone would use a search engine other than Google because it was at least twice as good as competitors. While completely subjective I think Google is now only marginally better. I have a dozen search engines configured in my browsers and I’m always one click away from not using Google. Now I wonder why people are so reliant on Google. It is getting easier to use other search engines and Google is growing up and becoming a little
closer to being evil.

Laissez-Faire Mess

Google is well renowned for encouraging engineers to spend 20% of their time pursuing individual projects. This has created a great environment where ideas bubble up. However, some initiatives require top down strategy. Creating a browser platform serving a multi-sided market is such an initiative.

Fortune called Google’s management style a “laissez-faire mess“. The questionable strategy and rollout of the Google browser may validate that endorsement. In fact, one could go so far as to say that Google’s laissez-faire strategy resembles one of its competitor’s peanut butter strategy.

Google still has yet to prove that massive hiring into a laissez-faire environment can fuel innovation. In fact Apple, perhaps the most innovative company this decade, takes the opposite approach by keeping its core design teams small and focused. I am still questioning the special capabilities of Google’s Android and now we have Chrome. For comparison, I can critique specific features of the iPhone, such as the battery (which Apple will eventually fix like they did with the iPod), but the special capabilities of the iPhone are crystal clear to any observer.

Current Market State

As an advantage of losing Browser World War I Mozilla was able to free itself of its legacy code and become the performance leader; just as Web 2.0 applications began taking off. Microsoft finally seems motivated to accelerate many legacy applications migration path allowing it to offer better support for standards and increased performance. Although it is apparent that IE 8.0′s performance will still trail Firefox 3. Safari will be relegated to the smaller yet growing Apple user base with little enterprise support. Opera is a good browser that doesn’t offer a compelling enough reason to switch (sounds similar to Google’s Chrome).

Currently Firefox has a real chance to become the number one browser in Europe, but its market share (and growing importance) may be hurt by the splintering browser market due to Safari and now Chrome.

So What Has Changed

I’ll download Chrome and test it out, but I’m not excited to build a new website and have to test it in an additional browser. That is the problem that Google has to address. Not just for the hundreds of thousands of websites on the internet, but especially for the hundreds of thousands of web sites not on the internet (at least not without a username and password).

If Chrome was built by someone other than Google we probably wouldn’t be hearing about it. I am excited that one day enterprises will be building websites on a browser much better than IE 7, but that will take a vendor who understands enterprises and has a relevant platform strategy. I haven’t heard such a strategy from Google. For the near future it is most likely that vendor will be Microsoft and now less likely to be Mozilla. I imagine the IE and Firefox teams will wake up tomorrow looking over their shoulder at each other not Chrome.

Chrome’s biggest impact may be a weakening of Google’s support of Firefox. Google has been the biggest sponsor for Firefox. If this support (technical or financial) diminishes due to Chrome than the biggest beneficiary of Chrome may indeed by Microsoft. Let’s hope not. The browser market needs a strong number two to compel the market leader to innovate. However, the internet will not benefit from a splintered browser market requiring programmers to support numerous browsers. Like any platform market, the browser market will trend toward a monopoly or duopoly market. Let’s hope it’s a duopoly.

So What Is Next

Maybe Google will announce tight integration for Chrome with Android or some amazing new Semantic Web style feature. However, I’ll bet the next major disruptive innovation in this area will come from Apple or one of the new companies created by ex-Googlers.

Disclaimer: I own no stock in Google, Microsoft, or Apple.

Apple chose to save some money by choosing Infineon’s subpar baseband solution. They also didn’t learn from the many previously released 3G smart phones that have struggled due to disappointing battery life. For example, the Motorola Q had to basically double the size of its battery. The 3G iPhone should satisfy Apple’s core customers, but it is difficult to see widespread adoption before the battery and baseband are meaningfully improved. That should give AT&T time to upgrade its 3G network to be competitive with Verizon and Sprint. Although doubtful, it might also give competitors time to offer more competitive devices.

Between the imminent WiFi upgrade to 802.11n, mobile WiMax (IEEE 802.16e), and the eventual launch of LTE; wireless broadband will eventually be ubiquitous and most of us will be using an iPhone type device. For Apple it is encouraging how many companies are targeting their mobile platform; with some incredible adoption rates. However, most companies will probably build their “iPhone applications” as web applications that can be just as easily used on a Blackberry or Windows Mobile device; once both companies figure out how to incorporate a web browser into their phone.

Disclaimer: I have no position in any company listed, but do intend on purchasing an iPhone once the battery easily lasts a full day and the 3G baseband is competitive with Texas Instruments’ solution.

Earlier this year I outlined how digital products are increasingly migrating to Xilinx and Altera’s FPGAs due to the strong platforms offered by these companies; enabling convergence in semiconductor design. Let me provide an update based on the June quarter results from these two highly profitable companies who control over 80% of the FPGA market.

Altera won this quarters battle

Historically Altera has had better margins and a much higher return on equity. A week ago Zack’s semiconductor analyst Abdul Saleh put out a timely buy recommendation on Altera referencing Altera’s:

• HardCopy structured ASICs, the leading structured ASIC products
• Partnership with Taiwan Semiconductor (TSM) which is allowing them to leapfrog Xilinx to 40nm
• And of course beating the drum of FPGA’s replacing ASICs

Along with these points I think Altera’s growth will be driven through its partnership with ARM (for software processors) and its low power leadership. The partnership with TSM is a big deal. Altera and Xilinx are both fabless which means they outsource the actual manufacturing of their chips. TSM controls approximately half of the semiconductor manufacturing market. Intel has historically had the premier manufacturing facilities. TSM’s foundries are starting to have nearly equivalent capability demonstrated by their ability to produce 40nm FPGA’s later in the year.

Novice note: The smaller process node (for now fewest nanometers) a company can use to manufacture their chips the more powerful the chip can be.

Altera’s Q2 2008 Results (released July 15, 2008)

Financial Highlights

• Revenue = $359.9M, up 7%, up 13% Q/Q
  • FPGA growth up 18% (9% Q/Q)
  • 90-nm FPGAs were largest growth drivers
  • 65-nm FPGA up over 100% Q/Q
• Net Income = $98M up 22% / $.32 up 43%

“The combination of solid top line growth, continued gross margin improvement, and lower than planned operating expense created significant operating leverage…We are on schedule to ship the industry’s first 40-nm Stratix IV FPGAs [with up to 13.3M gates] later this year…hundreds of early adopter customers have already begun designs with these devices”

        - John P. Daane, Altera’s CEO

Operating Highlights

• Altera is gaining market share and should continue to do so
• For the first time Altera believes it has architectural leadership and process technology leadership
• Book to bill was slightly below one at Q2 end, but has since accelerated over one
• Rockwell Collins, a top-tier government electronics contractor, recognized Altera as the number-one supplier among its more than 10,000 suppliers
• Cash = $1.2B / LT debt = $500M
• Quarterly Dividend = $.05

Guidance: Q3 2008

• Revenue: Flat to down 3%
• Gross Margin: 66.5 – 67.5%

Altera was very upbeat; this was their first conference call in some time where the economy was not one of the major discussion points. Altera is benefitting from a couple relatively new markets showing strong growth: Automotive customers are moving from prototype to production cycles and the government now accounts for 7-8% of revenue.

Xilinx is still winning the war, for now…

Xilinx was less upbeat, but also did not seem too concerned about the economy. Xilinx deflected questions comparing Altera’s growth with its own by discussing how Altera dominated the 130 nanometer process node, which is now peaking; even though Altera’s results appeared to be driven by the adoption of its 65nm and 90nm products. In the next couple years 65nm and 90nm products should begin peaking. Xilinx currently has the majority of market share at 90nm and it supplies 90% of the FPGA industry’s 65nm sales. Xilinx’s mid-term future looks very bright with its dominance at the 65 nanometer node. However, Altera’s momentum is making up for some of the initial market share loss due to the delay in their migration to these smaller process nodes.

Analysts are concerned that Altera beat Xilinx to 40nm. This is surprising based on Xilinx’s much faster migration to 65nm. A few years ago Altera delayed their product launches because of a re-design focusing on low power consumption by unveiling what they call programmable power. Since then Altera has definitely benefitted from this low power leadership. This time it appears Xilinx is doing a re-design, to focus on its platform strategy.

Xilinx’s Q1 2009 Results (released July 16, 2008)

Financial Highlights

• Revenue = $488.2M up 9%, up 3% Q/Q
  • New Products up 15% Q/Q (now 42% of sales, up from 28% in Q1 2008)
• Net Income = $108M / $.37 (vs. $96.5M / $.34 last quarter)
  • Not including a pre-tax restructuring charges of $19.5M and pre-tax charge of $4.6M related to impairment losses on equity investments
• Operating Cash Flow = $158M

Operating Highlights

• Gross margin = 63.8%, up from 63.4% last quarter and 62.2% in Q1 2008
• YTD has repurchased $350M shares
• Quarterly Dividend = $0.14 a share (up from $.12 last quarter and Q1 2008)
• Cash ($1.24B) + LT Investments ($607M) – Convertible ($1B) = $831M

Guidance: Q2 2009

• Revenues: up 1% to down 3% Q/Q
• Gross margin: 63 – 64%

For years Willem Roelandts, Xilinx’s former CEO now chairman, advocated FPGAs as a platform for 3^rd party IP. Currently developers still get most of the IP (intellectual property) directly from the FPGA vendors or by building it themselves. Xilinx’s new CEO, Moshe Gavrielov, is beating the same drum of 3^rd party IP. Soon after joining the company this year he articulated how it now costs $70 million to design a new ASSP, using the latest process node. This requires a billion dollar plus market for such an endeavor to be viable.

Xilinx believes they need to focus less on being a technology innovator in order to create market opportunities, but instead pursue a business platform leadership position. This strategy appears to make sense since the last couple years analysts have pondered why ASIC designs have not seen a mass migration to FPGAs as expected. Instead ASIC starts have migrated more to ASSP products. This creates a huge opportunity for platform FPGAs to take market share from mid to low volume ASSPs.

This is not a war of attrition

Altera’s strategy is clear. Leverage its low power leadership and relationship with TSM to create the most advanced FPGAs that can be migrated to its structured ASIC product. Xilinx strategy is yet to be fully unveiled, but it is focused on building a platform that vendors can use to create IP and end products that will compete directly with lower volume ASSPs and IP now designed for ASICs/ASSPs.

No longer is Xilinx strategy to focus primarily on technical innovation to create market opportunity, but instead to focus on customer requirements to fill a technological product void. This year Xilinx has re-structured the entire organization around creating vertical platforms (devices that basically compete directly with ASSPs and microcontrollers) and horizontal platforms (generic platform devices).

Such platforms for ASSP and microcontroller replacement will require using standard soft-cores within a powerful FPGA for ease of use by end product device developers and easy IP migration to newer chips. In many respects this strategy relies more on Xilinx’s ability to build a platform ecosystem of vendors and 3^rd party IP providers than offering the most cutting edge performance. Unfortunately for investors, Xilinx has yet to announce exactly how it intends to accomplish the task of building this platform ecosystem.

Both companies can be successful. Neither company has interest in starting a price war. Each company has thousands of legacy customers that are not looking to switch vendors.

While I personally think this recession overall will be one of the most severe in decades I think it will be relatively minor for the technology industry; compared to the 2001 technology-led recession. The semiconductor industry is a leading indicator for the technology sector. In their conference calls both companies showed minimal concerns about the economy affecting their business. This is a reassuring sign for the technology sector.

Disclosure: I own a little more XLNX than ALTR. I will reconsider this allocation based on Xilinx’s platform and process node announcements later this year. I have investments in no other company mentioned.

Cash America “expects second quarter 2008 earnings per share to be between 51 cents and 54 cents. The Company’s updated expectation for the second quarter of 2008 is now between 62 cents and 64 cents per share, up over 44% from 43 cents per share earned in the second quarter of 2007. Cash America will release complete second quarter results on July 24, 2008 before the market opens.”

This is the second quarter in a row that during the quarter CSH has increased its guidance. On March 24, 2008 CSH raised its EPS guidance to $.80 – 82 from $.70 – 75 then exceeded that updated guidance on April 24 with actual EPS of $.86. Cash America’s business is really running on almost all cylinders.

“Revenue from pawn loans and increased gross profit dollars on the sale of merchandise exceeded expectations… [while the] online cash advance product offering experienced strong revenue growth and lower than expected loan losses.”

Regulatory Risk

The only cylinder potentially misfiring is due to regulation risks of its cash advance business. This caused the company to reduce full year 2008 EPS guidance by 15 cents and consider closing 139 stores. The regulatory risks warrant caution however several prominent 3^rd parties, including the New York Fed and Yale, have released major studies demonstrating the positive effects of CSH’s type of short term lending.

Online Short-Term Financing Platform

Cash America has a strong, growing online cash advance platform. This platform offers short-term cash advances over the Internet to customers in 32 states and in the UK. The online platform, which was acquired in September 2006, has spent years getting various regulatory approvals and tweaking its proprietary lending models. Recently the president of the Internet Services division purchased 57,400 shares of CSH.

Crossover of Retail Customers

The current consumer lead recession has driven many sub-prime lenders from the market. This has caused many new marginal borrowers to seek financing from Cash America. In addition, many traditional retail customers are crossing over from traditional retail to pre-owned merchandise. Cash America offers a smooth transition for many customers with its strongly branded safe, clean stores easing the migration of new customers. The pre-owned merchandise offered by CSH allows consumers to stretch their limited dollars. For example, it is common for jewelry to be priced 35-40% below traditional retail outlets.

Solid Management & Growth

CSH’s seasoned management has a history of being conservative and open with shareholders. The company’s growth is high quality coming from its brick and mortar stores’ organic growth (not by opening new stores) and through the company’s online platform. Even after yesterday’s run-up Cash America has a P/E around 12 based on its current 2008 full year guidance which now appears extremely conservative. Below I’ve included a summary of Cash America’s Q1 2008 results to provide a better understanding of Cash America’s business and results.

Q1 2008 Results (April 24, 2008)

Revenue: $250.9M up 13%

• Pawn segment: $170.3M up 14%
  • Includes finance and service charges on pawn loans and proceeds from sale of merchandise
• Cash Advance segment: $79.6M up 10%

Net Income: $25.8M up 34%

EPS: $.86 up 37%

• Driven by
  • Increased pawn loans
  • Increased cash advance fees, primarily through their online platform
  • Improvement in the credit quality of the cash advance loan portfolio, which is demonstrated in a decrease in the expense for loan losses

Highlights

• Pawn loan balances outstanding finished Q1 up 11% well ahead of the pace at fiscal year end
• An increase in the sale of merchandise generated an 18% increase in gross profit

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…

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.

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