GARDEN GROVE, Calif.—Chinese telecom and networking equipment vendor Huawei Technologies Co. Ltd. is using ASICs in some of its gear for the first time, displacing FPGAs supplied by Altera Corp. The development is expected to cut Altera's sales and could deal a blow to the disputed notion that FPGAs are steadily capturing sockets traditionally held by ASICs.
John Daane, Altera's president, chairman and CEO, said following Altera's third quarter earnings report Tuesday (Oct. 23) that two customers have in recent months converted three high-volume designs to ASICs. Daane did not identify the customers, but said one of the two was Altera's largest customer, believed to be Huawei.
[Get a 10% discount on ARM TechCon 2012 conference passes by using promo code EDIT. Click here to learn about the show and register.]
According to Christopher Danely, an analyst with JP Morgan, Huwaei accounted for about 16 percent of Altera's third quarter sales, making it Altera's largest customer. According to Danely, Huawei was the last major telecom equipment OEM that exclusively used programmable logic.
In a report circulated late Tuesday, Danely said he ranks Huawei as the single largest buyer of FPGAs, spending about $350 million per year—about 1 percent of Huawei's annual revenue. Huawei buys about $300 million worth of FPGAs from Altera each year, according to Danely.
Danely estimates that Altera could lose about $150 million in annual revenue over the next year or so as Huawei makes the transition from using programmable logic exclusively to using a mix of both ASICs and programmable logic. A similar decline in programmable logic revenue occurred several years ago when EMC Corp. transitioned from an FPGA-only model to a mix of FPGAs and ASICs, Danely said.
To make matters worse for Altera, Danely said Xilinx Inc., the market leader in programmable logic, is expected to benefit from its first major design wins at Huawei.
Both Altera and Xilinx have argued that trends in recent years favor FPGAs over ASICs, with companies converting sockets to FPGAs to get to market more quickly and save on non-reoccurring engineering costs. But both companies acknowledge that ASICs are more cost effective in high-volume applications.
Daane said Tuesday that rising design implementation and wafer costs at advanced nodes would further accelerate the trend of ASIC replacement by programmable logic.
Altera reported third quarter sales of $495 million, up 6 percent sequentially but down 5 percent year-over-year. The company reported a net income for the quarter of $157.5 million, or 49 cents per share, down 3 percent sequentially and down 15 percent year-over-year.
Altera's third quarter sales were in line with consensus analysts' expectations. The company did not provide a fourth quarter sales target.