Xilinx versus Intel—A Competition of Scale and Technology

Xilinx (XLNX) is set to tap the three growth verticals of autonomous vehicles, cloud acceleration, and 5G deployments. Intel (INTC) has entered each of these verticals by acquiring Altera. 

Xilinx has been competing with Altera in the FPGA (field programmable gate array) market for a very long time. Industry observers feared that Altera’s acquisition by Intel would give it an edge over Xilinx. However, both companies have their own strengths and weaknesses.

While Intel has large scale and capital, Xilinx has the technology lead. These strengths have made both companies strong competitors in the FPGA market.

Intel dominates the server chip market with a 99% share. With its large scale, it can just integrate Altera’s FPGAs in its server CPUs (central processing units) and gain market share for FPGA in the data center end market. On the other hand, Xilinx has an 18-month technology lead over Intel, which is helping it win orders from large cloud customers such as Amazon (AMZN) and Baidu (BIDU). The competition is between Intel’s marketing and scale and Xilinx’s technology.

If Intel is not able to compete with Xilinx in terms of technology, it can compete in terms of price. Intel can use the profits from its server chips and invest it in FPGAs in order to sell them at a low price. This strategy echoes the contra-revenue strategy it used to gain smartphone market share. However, it cannot be said with certainty whether this strategy would help it gain market share.

When Intel acquired Altera in 2015, many analysts were concerned about the success of this acquisition, as Intel has a history of failed acquisitions. It recently spun off McAfee, which it acquired in 2010, as it failed to integrate security features at the silicon level.

Intel also tried to venture out of CPU and into the mobile processor and discrete GPU (graphics processing unit) technologies. However, its Atom mobile processors could not gain market share from Qualcomm’s (QCOM) ARM processors, forcing the former to exit the mobile processor market in 2016 with a $4 billion loss. Intel also tried to build discrete GPUs but did not succeed. It remains to be seen whether Intel’s FPGA-integrated server processors succeed.

In the meantime, Xilinx is leveraging its technology lead to get maximum design wins. As FPGA applications have long development cycles, a design win locks in revenues for several years. With this strategy, the company looks to increase its share in the PLD (programmable logic device) market from 58% in 2017 to 60%–65% in 2021.

Xilinx is investing heavily in new products to tap these growth verticals. Next, we’ll see how this investment is impacting its balance sheet.