Innovation Disrupts FPGA Duopoly

We estimate that 86% of the market for programmable logic devices (including FPGAs) is controlled by Xilinx and Altera. Further, this $3.5 billion market is about the same size as it was 10 years ago and is projected to grow at a low rate of 3.5%. Both of the leading vendors reap high profit margins and seem content with their current revenue levels. High-end FPGAs, which can sell for more than $1,000 each, provide much of the duopoly’s margins. Consequently, each company carefully manages its product lines to ensure that low-end products do not encroach into high-end applications.

Lattice exploited this environment by offering midrange FPGAs with some high-end capabilities but with lower prices. Lattice had some success with this strategy until the market leaders created their own midrange FPGAs. Xilinx and Altera could easily match these products because Lattice offered little technology differentiation.

Technology from two new companies, Tabula and Tier Logic, poses a greater threat to the FPGA duopoly. These startups have fundamentally changed the FPGA silicon architecture to offer midrange and high-end FPGAs at low-end prices. If Xilinx and Altera attempt to follow suit using their current architectures, they would ruin their margin structure. Instead, the market leaders are likely to use other tactics to discredit these startups, prevent them from gaining a foothold at major accounts, and increase the financial barriers for each to be successful.

In the long run, scare tactics are unlikely to work, because OEM customers would dearly like to see a strong third supplier instead of declining competitors such as Lattice. These tactics may buy time, however, for Xilinx and Altera to improve their architectures to match the lower cost offered by these innovative startups. One way or another, FPGA customers are likely to see lower prices and more fundamental innovation than they have seen in the past decade. Although these changes will reduce margins at FPGA suppliers, they are also likely to enable true growth in the FPGA market through greater displacement of the $20 billion ASIC market. --Jag

Jag Bolaria, senior analyst

Additional coverage of FPGAs can be found in our report "A Guide to FPGAs for Communications."

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