Programmable Logic

Industry Eyes Are On Altera Think Altera's acquisition of Intel's programmable logic business isn't important to you? Think again. By Larry Waller

The purchase by the Altera Corp. (San Jose, CA) of the programmable logic business of Intel Corp. (Folsom, CA) should be of interest to more than just those companies' stockholders, employees, and customers.

To be sure, this $50-million-or-so deal is important to those parties, but one factor gets the attention of other movers and shakers in programmable logic. This acquisition is simply the most notable yet to take place in the field.

Conventional wisdom now holds that more buy-outs of one kind or another have to happen over the next several years as the leading players get an even stronger grip on programmables. This is why the subject of just how well Altera integrates the Intel purchase into its operations becomes a very intriguing topic to everyone with some stake in this field.

Altera has already made a lot of things happen to put its own stamp on the Intel products since the deal closed on October 1. The foremost goal during the transition phase--even more important than starting to market new devices--is "don't interrupt service to existing Intel customers," says Bob Beachler, who manages strategic marketing and communications.

This is solid thinking on Altera's part, as high-tech industry acquisitions of the past have often been marked by overly disruptive transitions that disturbed relationships with customers and made them prey for lurking competitors. In this case, too, Altera found, other programmable suppliers had been sniffing around. Since one way to stave off customer shrinkage is to give a better deal, Altera immediately cut prices on the whole Intel line by four to 14 percent. In the words of one Altera official, "that shows them our commitment."

Maintaining customer satisfaction is given especially high priority to make the deal successful because of who those customers are. Intel always claimed its programmable sales leveraged heavily off their unparalleled personal computer industry linkages, and Altera's analysis of the lists found this to be true. "This is an enticing new base," notes Beachler, "one we haven't seen to date."

It is therefore very important in addressing the PC hardware market more effectively than programmable outfits have been able to previously. The key is having devices that meet the specs of the peripheral component interconnect (PCI) bus, which Intel designed into its new FLEXlogic family of flash technology-based programmables. (An interesting aside is that Intel initially called them FPGAs, but Altera soon took issue with this terminology. The company says the interconnect scheme is really a CPLD, so Altera remains pristine as a CPLD-only operation.)

The timing of the deal worked here in Altera's favor, as the EPX8160 FLEXlogic part just started the sampling phase when the deal closed. The flash technology SRAM logic 160 macrocell device has features that should appeal to computer systems designers who seek single-chip parts that can keep pace with Pentium CPUs. One is a clock delay option that enables computer registers to be reset, making it easier for support logic to keep up with the processor.

Altera plans to make the most of the flash technology acquired from Intel by migrating it into some smaller logic parts, the EPX740 and EPX780, by mid-year. A big attraction in the acquisition in fact was access to Sharp's 0.6µm CMOS flash process. Besides the flash products, under terms of the agreement Intel will also continue to supply other wafers.

The biggest challenge to Altera's smoothly bringing the Intel lines under its tent was learning the special wrinkles of the new FLEXlogic products. It took the entire two months between the initial announcement in July and the October 1 closing to get Altera's people up to speed. Intensive tutorials for application engineers and Altera's design groups were required, and they are still learning. The easiest part of the transition was reconciling the only overlapping products, Altera's Classic PLD line. Since the '80s, Intel has served as a second source for some of these parts, with densities up to 1,800 gates. Also, for the first time, Altera now has the popular 22V10 from Intel among its products.

The takeover has stayed relatively on track, and the only delays have been minor ones. One reason for this is that only devices and technology--rather than people and a lot of equipment--are involved. Beachler reports that fewer than 10 Intel employees have made the jump so far to Altera. Too, Intel has a solid motivation in seeing the deal work out well, and has an extra incentive in helping it along, since half of the purchase price was in Altera common stock. This already has enhanced the payoff, since the price has appreciated steadily since late summer.

As to industry rumors that usually abound around a hot topic, the mill has been surprisingly quiet concerning the Altera-Intel deal. "That must mean it's going well," quips Beachler. Not necessarily, observes Rhondalee Rohleder, a market researcher for Pace Technologies (Scottsdale, AZ). "It's too early," she says. "It takes time. It's not unusual not to hear anything this soon."

The experience of Altera's arch-competitor Xilinx Inc. (San Jose, CA) in acquiring tiny Plus Logic in 1992 attests to just how long it can take to get some results. At that time, Plus Logic had a promising EPLD device and sales of about $2 million, but had hit the barrier that had stymied so many startups during that period: it ran out of financial backing, venture capitalists were leery of sinking in more money, and the chip industry was in the late throes of a recession. This situation spelled opportunity for Xilinx, which was then apparently looking for architectural diversity, to augment its successful SRAM bread-and-butter family, so they picked up Plus Logic for about $2 million.

While the deal targeted "bringing a new architecture into the company," according to Scott Lewis, manager of the EPLD Product Group, there was really another objective: the technology. While continuing to sell the original 7200 product family to existing customers, Xilinx proceeded to re-engineer it, designing a 100 percent new device. The XC7300 EPLD line came out in 1993. "It takes about two years to take shape," says Lewis, "and the product is starting to build." Revenues from the Plus Logic business are about $3.5 million.

Altera expects to get results faster than that, which should be apparent by mid-year. With all the comments inspired by the acquisition by Altera, there has been little criticism. Most see the logic of adding complementary products with good potential.

The only discouraging words have been about price. Some competitors say that Altera overpaid, shelling out $50 million (about half in cash) for some $35 million in sales. Marketing vice president Eric Cleage has a fast retort: "They're just jealous. Wait until they see the results."

Larry Waller is contributing editor of Integrated System Design. To voice an opinion on this or any Integrated System Design article, please e-mail your message to: michael@asic.com.

integrated system design  February 1995