Relatively fragmented in the 1990s, the ASIC market now comprises a handful of top-tier providers, a generally struggling middle tier, and smaller companies consisting of startups and established application specialists. This consolidation will continue, as application-focused vendors pick up market share at the expense of vendors stuck in an older model where raw technology was king and could be used to address a wide spectrum of applications.
Those days are long past, and they're unlikely to return. Application-focused companies such as Texas Instruments (wireless) and IBM (data processing and, increasingly, consumer) dominate the ASIC market share rankings. In the top 10, only STMicroelectronics can be considered to be successful in a broad range of application areas.
Larger events, such as LSI Logic's acquisition of Agere, also continue to drive the industry consolidation. Still, the combination of the companies' portfolios—LSI's storage and consumer with Agere's storage, wired, and mobile communications— may result in a newly defocused company that goes against the current wisdom of a targeted product approach.
Structured ASICs, the darling of the early part of the decade, have fallen far short of the early and extremely over-optimistic expectations that had many analysts predicting a market of well over $1 billion by 2008. Perhaps a much more cautious view of the market is more appropriate, as it takes time for designs—even when turned quickly—to generate meaningful production revenue.
Subsequent forecasts of a structured ASIC market growing to almost $400 million in 2008 will need to be revised to a range of $200 million or less. Both LSI Logic and NEC Electronics have pulled out of the market in the past year, and Fujitsu is rumored to be struggling to gain traction with its product. Only Altera seems to be generating sizable revenue in this space, as its HardCopy product is a solid adjunct to its FPGA lineup.
As it has been for over half a decade, the programmable logic device (PLD) space in 2007 will be a see-saw struggle between the two industry heavyweights, Xilinx and Altera. They control over 83% of the PLD market, and that percentage has been growing steadily. Lattice Semiconductor has been the primary donor of this market share over the past several years, though in 2006 the company did regain some lost ground.
Overall, Lattice revenues have slumped despite the acquisition of both Vantis and of Agere's FPGA line in the past eight years. Lattice has now come out with a solid line of FPGAs, but whether this will enable a continued turnaround remains to be seen.
Growth in the PLD space is forecast to be among the strongest in the semiconductor space through the end of the decade. These products not only enjoy growth along with the rest of the industry, they also continue to make inroads into areas traditionally held by ASICs. With each new process generation, more designers of systems that previously couldn't use FPGAs due to performance, integration, or power considerations can at least consider using these devices.
Over time, more of these systems on the margin will be able to shift to a programmable solution and will drive the above-market growth rates. This growth won't necessarily be monotonic, though, as the fourth quarter results from Xilinx and Altera have shown. Both companies also forecast a decline in revenue in current quarter. But in the long term, prospects for this segment are quite positive.
ASICs LOOK GOOD
This will be a strong year for ASICs in particular, but not all vendors will share in the good fortune. Video game consoles, with the long-awaited arrival of the Sony PlayStation 3 and the Nintendo Wii, will consume upwards of $1 billion in ASICs (when the controller chip is included as well; though we categorize these as application-specific microprocessors, they are equally ASICs).
A recent teardown of the PS3 shows well over $200 in ASIC and application-specific microprocessor unit content in each box. PLDs won't enjoy any such blockbuster application to drive growth, though. But they will need to be content with yet another "ho-hum" year of growth approaching if not surpassing double digits.