Intel Corporation Thinks It Can Gain Share in FPGAs in 2017 and Beyond

By Ashraf Eassa Markets Fool.com

In mid-2015, microprocessor giant Intel (NASDAQ: INTC) announced that it planned to acquire programmable-logic maker Altera, and the deal closed just before the end of 2015. Altera has been part of Intel for a while now, now operating as the latter's Programmable Solutions Group (PSG).

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Intel's Stratix 10 FPGA. Image source: Intel.

On Intel's most recent earnings call, management provided quite a bit of information about how the business did in 2016 and what it expects from it during 2017 -- let's go over it.

A solid 2016 as integration continues

Intel CEO Brian Krzanich said that, on a non-GAAP basis, PSG saw revenue growth of "about 7%" year over year. He further added that this business "saw strength across many segments, with particular strength in compute and storage" applications.

Krzanich also boasted about Intel's efforts to integrate Altera/PSG into the Intel business, praising the team for "meeting integration objectives, while continuing to deliver new products and grow the business."

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Finally, Krzanich said he believes that the company "gained share relative to the competition" in field-programmable gate arrays (FGPAs).

Modest share gains in 2017

Looking ahead to 2017, Krzanich thinks that Intel will "gain a little bit of share."

One of the key theses behind Intel's acquisition of Altera was that by building Altera's products on Intel's manufacturing technology, those products would be more competitive than they would have been otherwise.

It is likely that investors are going to judge this acquisition based on whether Intel does deliver on those expected share gains, so it's little wonder that Krzanich -- in putting his expectation out there for modest share gains in 2017 -- pointed out that the markets that PSG serves are "slow-moving."

"You don't grow 10% share instantly because design cycles and design conversions are relatively difficult," Krzanich explained on the call.

Optimism for Stratix 10

The products that Intel's PSG is selling today are manufactured by a third party. The first FPGA that Intel will build using its in-house manufacturing technology is an upcoming high-end FPGA known as the Stratix 10. It began sampling to customers late last year, and Krzanich says it has "the largest demand pipeline in Altera's history."

"We believe [Stratix 10] brings a performance and a cost to our customers that is truly industry-leading and shifting," Krzanich said.

With that in mind, the effects of Stratix 10 on Intel's PSG revenues aren't going to be apparent right away. Krzanich indicated that production shipments are going to begin in the "second half of 2017" and that this product "will really be driving growth in 2018."

"And, really, if you think about these design cycles, that product will really continue to drive growth for, probably, the next three years-plus just because these cycles are fairly long," Krzanich added.

Sounds good, but what about the integrated parts?

Thus far, Intel has mainly talked about the base standalone FPGA business. Although it's certainly important that Intel continue to push to improve the base business that it purchased, the prospects of integrated FPGA and Xeon processors that Intel talked about when it announced the acquisition seem much more interesting.

It'll probably be a while before we see the first fruits of this union, but any insight into when investors should expect to see such products make it to market and start driving incremental at Intel's Feb. 9 investor meeting would be most welcome.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.