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Morningstar | We're Maintaining Our Chipmaker FVEs, as We Don't Yet Foresee a Tech Cold War Despite the Huawei Ban

Xilinx is the leader in the field-programmable gate array niche of the broader semiconductor industry. In contrast to application-specific integrated circuits or standard products, FPGAs can be reconfigured to address the unique needs of users. Xilinx, along with Intel (via its Altera acquisition), dominates the multibillion-dollar FPGA market. Targeted processors, such as ASICs and ASSPs, that run a specific function or algorithm generally exhibit superior performance and are cheaper to make in large volume than FPGAs. The advantages derived from using the latter include lower initial startup costs and the ability to reconfigure functionality. However, their programmable nature means FPGAs are frequently bigger with higher incremental cost. As a result, applications for FPGAs include military, industrial, automotive, and wireless and wireline communications infrastructure uses that aren't as volume-intensive and require changes on the fly. For example, these changes could be to handle a brand new workload or an existing one more optimally.One of the key attributes associated with FPGAs are their high switching costs. As users become accustomed with programming FPGAs from a particular vendor, they often remain customers because of the familiarity gained with the software and design tools used.As semiconductor technologies progress, dedicated silicon becomes inherently more expensive. To justify the significant up-front costs of a cutting-edge ASIC or ASSP, there needs to be a significant boost in performance. Consequently, the hurdle that must be overcome for ASICs and ASSPs has risen and created an opportunity for FPGAs. There exists a continuum of configurability that has blurred over time and will probably lead to further use of FPGAs in conjunction with or in lieu of other types of computing processors.Intel's acquisition of former key competitor Altera does not change our overarching view of Xilinx and the FPGA space. We believe the Intel-Altera duo will mostly focus on FPGA applications in the data center space, though Xilinx has shown to be quite impressive in that subsegment as well.