Achronix, a high end FPGA provider is going public via SPAC. They are the only independent company with offerings on leading edge process nodes. This places them in a unique position with which they can capitalize by offering differentiated products and services. They have geared their FPGA’s towards becoming DPUs at the heart of the next generation datacenter. The competition, Xillinx and Altera are hemmed into a limited scope and secondary role in this transition due to their incumbent x86 ownership.
Achronix’s offerings help realize the vision that hyperscalers have for the next generation of datacenters. The enemy of the data center is power consumption. More power is burned transferring data throughout the datacenter than any other element including computation. Much of this is due to the current computing model where data must go throughout the datacenter networking stack to an inefficient CPU before being sent to its destination. The DPU paradigm shift, which is backed by hyperscalers, has the goal of dramatically reducing power consumption by efficiently routing data through the datacenter. Instead of routing data through the inefficiencies of the legacy style x86 CPU compute, data is routed through a programable smart fabric to the appropriate x86 CPU, ARM CPU, accelerators, or storage.
On the path to realizing independence, there will be massive demand for silicon that reduces extraneous data movement. Achronix’s offerings are outright superior to CPUs and Xillinx/Altera FPGA’s in this regard. This makes them uniquely suited to supplementing the x86 CPU’s role as the hub for all compute and storage.
Achronix’s hardware and software are built from the ground up to serve the role of DPU with massive IO and integrated AI hardware. Altera and Xillinx have a generation of hardware every couple of years that must serve many more end markets. Intel and AMD will continue to design their products with yesterday’s focus that the CPU is the core of every server. This will hinder the FPGA divisions from being geared for the coming age of datacenters. They do not want to cannibalize their primary CPU markets.
The upcoming Speedster7t family is an unparalleled solution for the datacenter. It offers a highly reconfigurable network on chip, a large pool of on chip embedded memory, and integrated machine learning acceleration. One of the largest advantages comes from IO offering with up to 8 400Gbe ports. Xillinx’s best parts for late 2021 to 2022 offer only a single 400Gbe port. Additionally, it offers the highest memory bandwidth (up to 1TB/s) despite using much cheaper GDDR6 versus the costly HBM that Xillinx and Altera resort to.
Amazon, Alibaba, Baidu, Google, Facebook, Microsoft, and Tencent all desire complete vertical control over the hardware/software makeup of future datacenters. The end goal for the hyperscalers is to customize and control the datacenter from silicon to software in order to drive operating efficiencies and control the worlds data processing and storage. They are actively trying to snatch the power away from incumbent Intel/x86. As such, they wish to develop their own solutions through a combination of in-house silicon efforts and partnerships with smaller focused firms. These hyperscalers can integrate Achronix’s IP with others such as that from ARM and Synopsis to build their own custom DPU. Achronix have already won licensing deals in other markets such as automotive with General Motors.
In this pursuit, Achronix is a potential partner with extremely powerful IP. Having full control over the datacenter means the flow of data must be highly reconfigurable. The only provider that can offer this IP for licensing is Achronix. Intel and AMD will never license their core FPGA IP.
The IP licensing business is one which only an independent company can engage in. It is not as lucrative as ye olden days of holding all the keys and selling merchant silicon, but if a cloud providers are actively looking to ditch this antiquated business model that providers such as Intel rely on, then the industry must evolve. Achronix is the only company that is offering advanced FPGA IP for license and hyperscalers will choose to license this and integrate it with their other IP in home grown silicon solutions.
This robust offering allows Achronix to have a pipeline of over $1.1B and drive a projected 30% CAGR. At its current valuation, Achronix has lower multiples than other players such as Lattice ($LSCC) despite higher growth. This is entirely due to their current concentration with 1 customer. The biggest risk with becoming an Achronix shareholder lies here. Investors are wary this business runs off and the new growth does not materialize. SemiAnalysis believes this risk is smaller than it initially appears.
The most eye-popping facet of this risk is that the customer is Intel. Intel uses these FPGAs in their fabs for test, measurement, and the processing of data that comes out of the fabrication of microprocessors. The fact Intel uses Achronix despite owning Altera speaks volumes to the quality of the Speedster 22i. Additionally, due to Intel’s famous “Copy Exact” technique in the fabs, it is unlikely these parts will be replaced even years from now. Due to this, the business is unlikely to runoff as quickly as projected.
The concentration risk is also significantly mitigated due to a conservative run off for this business large existing non-cancellable and non-refundable orders. Sales for next generation products and IP will be robust due to their competitiveness. Achronix has an existing track record for delivering quality product on time.
Most other small fabless players do not have an aggressive roadmap and the history of delivering to back it up. AI accelerator startups are fetching larger valuations on the backs of unproven IP and a stiffer competitive market. They are also unwilling to license IP. Achronix is going public with a lower EBITDA multiple than LSCC. Xillinx was purchased at a ~35x EBITDA multiple despite no growth in 2020 and a large amount of operating leverage. Achronix is going public at ~45x and with robust growth and room for operating leverage, looks incredibly undervalued. If a hyperscaler or semi company with adjacent synergies such as Qualcomm wants to get serious in datacenter AI and FPGA’s, Achronix is a natural acquisition target.
Clients and employees of SemiAnalysis may hold positions in companies referenced in this article.