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Altera Corporation (NASDAQ:ALTR)

Acquisition of Enpirion Conference

May 14, 2013 11:00 am ET

Executives

Scott Wylie - Former Vice President of Investor Relations

John P. Daane - Chairman, Chief Executive Officer and President

Jeffrey W. Waters - Senior Vice President and General Manager of Military, Industrial and Computing Division

Ronald J. Pasek - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Ambrish Srivastava - BMO Capital Markets U.S.

James Schneider - Goldman Sachs Group Inc., Research Division

Doug Freedman - RBC Capital Markets, LLC, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Ian Ing - Lazard Capital Markets LLC, Research Division

Glen Yeung - Citigroup Inc, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Operator

Good day and welcome to today's Enpirion Acquisition Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to your host, Vice President of Investor Relations, Mr. Scott Wylie. Please go ahead, sir.

Scott Wylie

Good morning. Thank you for joining this conference call, which will be available for replay telephonically and on Altera's website shortly after we conclude today. To listen to the webcast replay, please visit Altera's Investor Relations web page where you'll find complete instructions. The telephone replay will be available at (719) 457-0820, use code 258712.

During today's prepared remarks, we'll be making some forward-looking statements. In addition, management may make additional forward-looking statements in response to questions. In light of the Private Securities Litigation Reform Act, I would like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on our website or available from the company without charge.

With me today are John Daane, our CEO; Ron Pasek, Chief Financial Officer; and Jeff Waters, Senior Vice President and Head of our MIC division. John will open the call and be followed by Jeff, who will give you his perspective on today's Enpirion acquisition announcement. Ron will conclude our prepared remarks with some details about the financial aspects of this transaction. After Ron speaks, we will take your questions.

Prior to the Q&A session, the operator will be giving instructions on how you can access the conference call with your questions.

Today's call is intended to provide you with more information related to the Enpirion transaction. We welcome your questions but request that you limit your questions to that topic only. We will not be touching on other aspects of Altera's business today. We expect today's call should take about 0.5 hour. I would now like to turn the call over to John.

John P. Daane

Thank you, Scott. The combination of our base FPGA products targeting the ASIC industry, FPGAs with microprocessors to address the embedded market and FPGAs enhanced with soft IP for ASSP replacement provide Altera a sufficiently large market opportunity that we should be able to grow twice as fast as the semiconductor industry on average for many years to come.

From time to time, we may acquire companies whose technology augments our base products such as TPACK announced last month. In this case, we added soft OTN IP cores that combined with our FPGAs create ASSP solutions for the telecom market. We also look for companies with adjacent products to complement and differentiate our FPGAs while also having growth and profit models in line with Altera's long range objectives. Enpirion, a fabless analog company fits this case. Jeff Waters, who has over 18 years of analog engineering, marketing and sales experience with National Semiconductor and TI and over 1 year with Altera, will be managing this acquisition. Let me now turn the call to Jeff to provide the details.

Jeffrey W. Waters

Thanks, John. We're very excited to have the Enpirion team joining us here at Altera. We're very confident that the expertise they hold in power management, along with their products and technology, will make for a very compelling addition to our company. The need for Altera to get more directly into power management can best be explained through a meeting I had with a European customer last year. We were reviewing a design with one of our FPGAs, and they were excited about the amount of integration they were able to achieve, integrating a DSP chip, a few micro-controllers, as well as an interface ASSP. The director for the group then drew a large square around the periphery of our product and told us that it represented the large area taken up by the 20-plus chips and passive components that made up the power supply. Helping to simplify that, he said, will be the next biggest challenge we could help him solve. By solving that, we can save a lot of board space as well as a significant time and effort that it took his engineers to do that power design. This seems like a clear opportunity for Altera to do more for our customers in an area of critical need.

In the programmable logic world, we're continually moving to the latest wafer fab process node with our products. At Altera, we're shipping 28-nanometers today, we'll soon release 20-nanometer products, and we just recently announced our relationship with Intel to develop 14-nanometer products. These advances bring significant gains and capabilities through higher performance and higher logic densities. But like all other large digital chips these days, these performance gains bring with them more complexity in supplying power to them. As an example, over the life of our Stratix family, we've achieved a 20x gain in logic density, meaning our customers have 20x the amount of circuits that they can put into our products. With this extra capacity, however, the number of individual power supplies needed has grown from 9 to 24 and the power consumption has grown nearly 5x. What has exacerbated this challenge is the significantly higher demands on our customers for their products to be lower power consuming to them -- to their end consumers. The demands are only getting more challenging, and although FPGAs provide system designers with lower power versus the Altera dose, they always need more reduction. The acquisition of Enpirion will help strengthen the key FPGA value propositions of fast time to market, smaller board space, lower system power and lower system cost. Enpirion is the acknowledged leader in PowerSoCs, a recent product class that integrates traditional power management silicon components and magnetics into a single package. Through a rich library of intellectual property, over 10 years of development and over 100 million units shipped, Enpirion now has product that is less than 1/3 the size of the nearest competitor, requires a minimal amount of applications support design in and deliver substantial power savings even as compared to much larger footprint discrete products.

The combination of Altera and Enpirion will quickly deliver validated powered FPGA systems that are much smaller in board space, much lower in power consumption and very cost competitive. In the near future, this combination will enable even greater advantages through more sophisticated digital power control, where Altera FPGAs and Enpirion PowerSoCs will work symbiotically to dynamically supply only as much power as the system requires. This is a trend that companies like Qualcomm have already acted upon with their entry into power management as well. For our sales force, this will streamline FPGA sales because we will deliver validated powered FPGA solutions to a customer base they already know well. As well, this will build on our already strong position in enterprise and communications infrastructure, where Enpirion products and technology have already been chosen by Tier 1 customers.

The Enpirion Business Unit is expected to do $35 million of revenues next year, and from a potential perspective, we see power management being an additional 15% to 25% in extra revenue for every FPGA they power at gross margins that are similar to our overall corporate model.

To close, I thought I'd share another customer story that sums up the value we see in adding Enpirion to Altera. I was at dinner a few weeks back with a senior manager from a Tier 1 enterprise customer. When asked in what significant challenges he was facing on his designs and how we was solving them, he brought up power management. Due to the efficiency and space constraints of his primary product, his teams were unable to meet the key specs using the traditional power management suppliers. He relayed to me that they came across this small company called Enpirion, who essentially made their design possible through power supplies that were smaller and more efficient than anything else on the market. He also said that he was able to convince his corporate procurement to approve them as a vendor despite the size of the company.

He told his procurement team that his team couldn't do the design without Enpirion and that he was certain that they would eventually be scooped up by a larger company because their technology was years ahead of anything else on the market. Although I couldn't tell him at the time, I was thinking how happy I was that Altera was the company that will be making his prediction come true.

And with that, let me turn it over to Ron Pasek.

Ronald J. Pasek

Thank you, Jeff. Our purchase price of $141 million includes cash of $134 million and the assumption of approximately $7 million in debt, which we expect to pay off immediately. We expect 2013 post acquisition partially year revenue of about $12 million.

As discussed in our release, we expect 2013 full year operating expense to increase by $6 million compared to our previously announced guidance. This increase will primarily occur in the SG&A expenses and includes anticipated one-time deal costs. R&D expense for the full year will be substantially consistent with our prior guidance, as full year cost savings will offset the R&D resulting from this deal.

On a post acquisition basis, we expect no dilution in FY '13 from the acquisition of Enpirion. With that, let me turn the call back over to Scott.

Scott Wylie

We would now like to take questions. [Operator Instructions] Operator, would you please provide the instructions and poll for questions?

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Ambrish Srivastava with BMO Capital Markets.

Ambrish Srivastava - BMO Capital Markets U.S.

John, my first question is I'm just trying to understand is there a grander vision here, say, a recent slurry of M&A activity post TPACK, you've made another acquisition, or is it just opportunistic that you're finding opportunities that you're going after? And then my follow-up, could you please talk about where the 100 million you mentioned, Jeff, 100 million units shipped, kind of what end markets and where do you see the target?

John P. Daane

So from an acquisition perspective, I think you want to think of this as opportunistic. We certainly do scan the market, look for both technologies from an IP core perspective that we could for instance add to our FPGAs in order to address the ASSP market, which is very, very large opportunity for us. Under the same pressure that the ASIC market and, for that matter, the microprocessor market are under from a very high and increasing development cost and, therefore, a need to pursue higher volume applications in order to get that payback. Much like the ASIC market, we can add microprocessors and now add IP to our FPGAs and address the lower volume space that other companies abandoned. Enpirion is simply a company that complements our existing FPGAs, as Jeff highlighted. It gives a profit and growth model which is very similar to our overall corporations. As you have come to know, analog has very high gross margins like FPGAs, and I think it's a great complement. And again, it will allow us to differentiate our end FPGAs and really help solve some big technical issues in front of our customers. So I would say opportunistic, small in terms of price, but definitely giving us a competitive advantage in the market.

Jeffrey W. Waters

Yes, and from a -- from where they've shipped their 100 million units to date, it mirrors very closely the markets that we sell into, so dominated by sales into enterprise applications, into communications, into the broad industrial applications and markets. And then even to expand on that, even into the broader space into the distribution space. Pretty much all of the markets we serve, and much like us, they don't sell into the mobile space or into the consumer space. So it's very much the broad base that we sell to.

Operator

Next, we'll go to James Schneider with Goldman Sachs.

James Schneider - Goldman Sachs Group Inc., Research Division

First, a financial question and then a technical one. On the financial side, Ron, this is 2 acquisitions plus the Intel announcement where it's all basically already been comprehended in your initial 2013 R&D guidance. At least there's no incremental change to the dollars you predicted for R&D. So can you maybe talk about when you set that guidance early -- late last year, did that anticipate all of these things actually coming to light, and how much of that is incremental and how much is cost savings and then are there any other things we should be looking for later this year that would also be included in that original guidance?

Ronald J. Pasek

So Jim, no. When we gave the original guidance in early December for the year, it was based on the approved plan from the board. Certainly, we knew of a couple of these discussions we're having but I couldn't size them so I didn't include them in our guidance. What I'd said on the earnings call last month was we had some cost savings for the year both on the SG&A side and the R&D side in particular. And you should think about that as really the function of when we gave the original guidance, we had a roadmap that didn't contemplate fully what we were doing with Intel. We knew about the Intel deal, but we still have a different roadmap. And that's changed now. And that's some of the cost savings. There's other areas where we've just tightened our belt a little bit. So the full year guidance now is $725 million. What I gave back in December was $719 million for total OpEx. And again, this is working this pretty closely and being very careful about some of the investments this year. As you know, originally, I said we were going to do a little bit of hiring this year and that's basically the case. It's a very, very small amount. So we're just being really careful and conservative.

John P. Daane

Yes, again, just to highlight that, Intel, we did know about and did build into the original budget that we had. The 2 acquisitions we've done, TPACK and Enpirion, were not in the original guidance that we provided.

James Schneider - Goldman Sachs Group Inc., Research Division

That's clear. And then as a follow-up, on the technical side, maybe Jeff, can you address beyond the board space savings consideration that you had talked about earlier, of about 1/3 of the size, can you talk about any power savings metrics that Enpirion provides versus kind of standard, more discrete solutions?

Jeffrey W. Waters

Yes, definitely. One of the areas that we focused in on in our due diligence was one of the more aggressive areas of power management, it's around supplying the power to the analog parts of our chip. And these are the parts of our products that really drive the high-speed transceivers, the very high performance transceivers within our products. And traditionally, those are done with a kind of a lower technology LDO or low dropout regulator. This is an older technology, but really felt you need to do that to get the noise performance, to get what you can out of the high-speed transceivers. With Enpirion, they claimed when we first spoke with them that they could achieve a similar noise performance using a switching regulator. And the benefits of doing that with a switching regulator is that you get a much better power efficiency. So you get about a 50% greater power savings using a switching regulator. But traditionally, that's not been something that you can achieve with a switching regulator technology, the noise is typically too much. When we went through and did our due diligence, we found that they were able to get a very low noise, very clean power supply even with that switching regulator. I mean, that's just one example. But when you look across all the power supplies that we're having going into our products, we expect to see significant power gains, things that will be very noticeable to our customers, and a lot of cases, will allow us to get in into designs with our FPGAs and the applications where maybe we couldn't in the past.

Operator

We'll go next to Doug Freedman with RBC Capital Markets.

Doug Freedman - RBC Capital Markets, LLC, Research Division

If you could touch on, you have many different power management partners that you've been using in the past. How do you believe that this deal will impact your relationships with them?

John P. Daane

This is John, Doug. We have had partnerships with several other companies. In some cases, we will first sell our power solutions, obviously. But in many cases, we're continuing the partnerships with these companies. As an example, if a customer's interested in a fully discrete solution, that's something that we're not planning to offer at this point. We -- so therefore, we'll continue to work with a number of external companies. Additionally, data converters is an area that we're not going into, so in some cases, for some of the interfaces, customers want A2Ds, D2As. In those cases, we would also work with some of the traditional analog firms externally. So expect us to lead with our power solutions. Obviously, an integrated solution with a competitive power and price profile probably will win almost every time in the industry. So we expect predominantly to sell our power solutions, but we'll still work with the other companies.

Doug Freedman - RBC Capital Markets, LLC, Research Division

Is there a target that you have or a way that we should think about Enpirion and your internal power solution powering x percentage of your FPGA market? Is that a reasonable way to think about your internal goals for the integration impact?

Jeffrey W. Waters

Yes, it is. And the way I would look at it would be looking at new designs, where customers are going into new designs. We will be offering, as I said earlier, validated powered FPGA solutions. So we will be able to show a customer on a board the design with the Altera Enpirion power products surrounding it, be able to demonstrate the performance. They will be able to take that almost to a cut-and-paste into their designs and to be able to ramp that into production. So that would be predominantly with new designs. There may be some instances where customers want the additional power savings and they want to go back and look at designs that are running in production. But predominantly, we expect it to be with the newer designs.

John P. Daane

I think as Jeff highlighted earlier, the opportunity is about $0.15 to $0.25 for every dollar of FPGA. In other words, that's what the analog power solutions are costing today.

So it provides what is a very, very substantial, very large opportunity for us to sell into. We're not going to do 100% of that, obviously. There will be discrete solutions, there'll be other providers that are used or a few other providers. But generally, it provides a very large growth opportunity for this technology. The, I think, additional thing I'd probably point out as we look at Enpirion, they're expected to roughly do for the full year this year about $20 million of revenue based on the design wins that they've had, independent of Altera to date. And based on our conversations with those customers, we expect them to do about $35 million next year. So they're on a very strong growth trajectory. And again, that's before Altera has an ability really to more broadly sell their products to the communications industry, which is an area that they've had very little experience with so far, more of an enterprise broad customer base today. We have an ability to expand that substantially, and we think it can really impact the growth rate in 2015 and beyond.

Operator

We'll go next to Vivek Arya with Bank of America Merrill Lynch.

Vivek Arya - BofA Merrill Lynch, Research Division

Maybe first one for John or Jeff, and the second one for Ron. Can you give us a sense of the competitive landscape? I think you mentioned the strong growth trajectory for Enpirion. I understand it's a smaller player right now but whose products are you replacing? And then along the same lines, I think traditionally, Xilinx has done better in wired -- on the wired side. But you have done better in wireless. So how does the TPACK and the Enpirion acquisition help balance this landscape?

Jeffrey W. Waters

From a competitive perspective, if you look at the power management going around FPGAs today, it's dominated by companies like Texas Instruments or Linear Technology. So kind of your broad analog suppliers. And so what you would expect to see with us is more and more of the Altera products surrounding that.

John P. Daane

And I think as Jeff pointed out, in the case of Enpirion, their technology is far more highly integrated as a solution and lower power than the other companies. So we think it provides what is a distinct competitive advantage over the other traditional analog players. In terms of communications, we've generally led in the telecom space, in the wireless space, our major competitor has led enterprise. We think whatever the market opens up a very large space from the top-tier customers for us to go sell us into in the communication space. Again, they're already very, very successful in the enterprise server market, which is a newer space for us but has been a fast-growing market and is very complementary from that perspective. And as Jeff pointed out, clearly highlights that if they're getting designed into the top-tier server manufacturers who are very concerned, obviously, about quality and performance and capability if they're getting on the preferred vendor list as a startup company, that shows that they really have, I believe, some outstanding technology.

Jeffrey W. Waters

And just one last comment, I think if you look at the products that they have today, we've done a full review on the portfolio, and with the products they have in production today, you can power all of our FPGA products. So they have a portfolio in place. So that's for today. When you look a little bit further down the road, you're really going to start see a lot more kind of dynamic power management where you have a lot more communication going between the FPGA and the power management chips surrounding it. And that's really where I think you're going to see from a technology perspective us to start to begin to differentiate even more so and drive much greater levels of power reduction than we've been seeing.

Vivek Arya - BofA Merrill Lynch, Research Division

And as a follow-up, actually it's maybe for John, I know this call is not to discuss the Intel relationship. But John, how is the initial engagement been and what I really want to dig into a little bit is that if you look at the current customer engagements, some of your large customers are now trying to place equipment for TD-LTE the last several years. So are you able to engage with Intel in the right time to actually take advantage of that 14-nanometer capability? Because I assume it's going to take you some time to actually roll out the product and get into the design cycle. So a, how's the engagement been so far? And b, when do you think it actually start benefiting you from a customer engagement perspective?

John P. Daane

So as we mentioned, I think, earlier, we want to stay focused on Enpirion today. Certainly, we'll have opportunities at conferences and for our next call to talk about Intel and TD-LTE, and some of the other things going on. Unfortunately, that answer is probably a 5-minute answer, so we'd like to stay focused on Enpirion right now.

Operator

And we'll go next to Ian Ing with Lazard Capital Markets.

Ian Ing - Lazard Capital Markets LLC, Research Division

The Enpirion roadmap, do you see that being tailored to power Altera products or do you see it being agnostic where it can be designed into perhaps reference designs with direct or indirect FPGA customers?

Jeffrey W. Waters

Yes, so the focus for the roadmap is going to be on powering FPGAs. The beauty of that though is that if you look at the power requirements for FPGAs, they do cover a broad array of other applications powering other products. If you look at powering micro-controllers, GPUs, CPUs, all the power rails and needs that we have for our FPGAs will demand products that we -- could also be sold into those markets as well. So I think you're going to see a broadening of the portfolio that will have a broader need beyond FPGAs. Within the enterprise space, there are also development there that some of our lead customers on the FPGA side, there's a great overlap for powering not just the FPGAs in their systems, but also powering other parts of their systems like maybe their Intel CPUs. So I think you're going to see some broadening of it.

Ian Ing - Lazard Capital Markets LLC, Research Division

Great. For my follow-up, PowerSoC, can you give us a sense, is this fairly established manufacturing process or is there some room for improvement? It seems like a fairly mature process with some specialization that integrate some things like conductors.

Jeffrey W. Waters

Yes, it is. It's a very established process with the use of one of the more experienced, probably the most experienced power management wafer foundry for the vast majority of their supply. They have a very tried-and-true process. As John alluded to earlier, they have been qualified at Tier 1 enterprise customers that demand everything from dual supply to very heightened levels of quality and reliability. They have been able to pass their tests. So that was one of the things that made us feel comfortable and confident in adding them to the Altera portfolio.

Operator

We'll go next to Glen Yeung with Citi.

Glen Yeung - Citigroup Inc, Research Division

Can I ask, if we think over time, as this acquisition gets folded in, what proportion of their product do you think you will sell sort of separately and what product do you think will always be attached to an FPGA?

Jeffrey W. Waters

I would say the majority -- if you look at their portfolio, I would say the majority of it will be used to power FPGAs. But as I alluded to earlier, if you look at the voltage rails that you have going into FPGAs and the power management chips required for them, it's a very close match to what you would use across a variety of other large digital chips.

So it's not even -- and you can see this with a lot of the other analog suppliers, they don't have dedicated FPGA power chips. It's the same chips that are used to supply other large digital chips on the board. So you're going to see a lot of overlap, really.

Glen Yeung - Citigroup Inc, Research Division

Okay. You alluded to the idea that with this acquisition, you can now go to some customers you couldn't have previously gone to. I wonder if you can identify who those are or the types of customers those are. But I wonder also if there are customers that you can -- that may have left you that now can come back, where power had previously become an issue for them and maybe they can come back into the FPGA market.

Jeffrey W. Waters

I think from a pure FPGA customer perspective, we've always had superior power. So I wouldn't say that there have been FPGA opportunities that we've lost because of power. The real play for us in the growth for us though is moving into other markets where right now FPGAs are not being used. With the amount of integration we get, there's a lot of power consumption reduction, adding the additional technology from Enpirion being able to drive more power reduction will open up the potential for new customers and new markets, accelerate some of the strategies that we already have in place.

John P. Daane

I think one of the benefits that it brings is the power efficiency of the entire power design. We have a lot of customers who, for reliability concerns, try to minimize the -- how exotic the cooling system is for the cabinet or the chassis, and, therefore, try to stay under a certain power budget for their components. And if that's 100 watts for instance and we're saving 7 watts just with the Enpirion solution over competitors, that's a lot. And we'll get definitely a lot of looks in anything that's in the communications infrastructure against servers or enterprise where, first of all, power is very expensive, and number two, where they're concerned about every watt and trying to significantly reduce the power consumption of the devices. And so we think that gives us a competitive advantage. And I think as Jeff also talked about earlier, there are things that we can do between the FPGA and the power solutions in the future which are very unique and can't necessarily be done by 2 separate companies that easily, which will allow us to provide even more competitive solutions from a power perspective in the future.

Operator

We'll go next to Ross Seymore with Deutsche Bank.

Ross Seymore - Deutsche Bank AG, Research Division

A couple of housekeeping ones, mainly for Ron. Just specifically when did the deal close? The $6 million OpEx that you talked about mainly in SG&A, what percentage of that is ongoing versus kind of onetime deal related, and then maybe the final one is what sort of OpEx level should we bake in that would be reflective of that $35 million in revenue that you think that the company can do in 2014?

Ronald J. Pasek

Yes, so Ross, this deal should close in about 2 weeks. I'm not going to give a lot of detail in the OpEx, partly because some of this stuff is still moving around a little bit, we haven't finalized it. And I'm really hesitant to give you an ongoing number next year because we haven't started our planning process yet. But as I said, for this year, you shouldn't assume any dilution from previous guidance I gave on OpEx given what they're dragging in, in revenue margin. And looking forward, it's a really good acquisition. We're talking about minimal, minimal dilution next year. So I'm not going to go into a lot of detail.

Ross Seymore - Deutsche Bank AG, Research Division

And I guess maybe one that I have a better shot at, for the $35 million in revenue target that you have next year, is there any synergies associated with that or did those happen further out in time given the design cycles, et cetera?

John P. Daane

The synergy will be further out in time because of the design cycle. In other words, we're just now going to start selling this technology and product. And if you think about the design cycle for a lot of the products that we're in, it's the 1 to 2, 3 years sort of cycle. So with power, you can intercept the overall system design later but we really expect that almost all of the revenue next year is going to be revenue that Enpirion already has designed in and that we really have an ability to effect that in 2015 and beyond.

Operator

We'll take our final question from Anil Doradla with William Blair.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Clearly, this is an important issue, as you guys pointed out. So I'm assuming that some of your customers have their own preferences. And given that, how much say will you have with this integrated product? In other words, what do you think are the challenges in up-selling an Enpirion-like solution to customers who already have their preferences for power management?

Jeffrey W. Waters

I think if a customer has a strong preference to use their own power management, much as it is today, they can use whatever they would like. I think for us that will be a true test of how competitive our power management solutions are. From what I've seen today and from the brief customer exposure that I've had to the Enpirion products and technologies, it is very compelling. So I think you're going to see a lot of the customers want to make that switch, especially now that Enpirion is not a private small company, they're now part of a larger company like Altera. I think going forward, as you see what we're able to achieve, with our products and technologies and the collaboration between power and our FPGAs, I think it's going to become an even easier sell. An analogy I think you can make is Qualcomm. Qualcomm took in doing their own power management ICs back a number of years ago, and initially, there were still other analog suppliers that were supplying the PMICs into those systems. Today, the vast majority are Qualcomm-supplied products, and it really gets to, once again, that integration of technology and the R&D people in putting together a real complete and very highly optimized solution.

John P. Daane

The other thing I'd sort of point out is if you think for instance the communications infrastructure industry, we are generally one of the top 5 companies in those semiconductor spends. We're already one of the biggest vendors that those companies have. And if you look at the analog vendors, they're generally not anywhere in the top 10 many times, not even in the top 20. So our ability to influence the customers to look at our technology and products, I think, is very easy and very simple. We have very strong senior management relationships that can be leveraged. And again, they're already doing so much spend, they would like to continue to consolidate spend around their top suppliers as much as possible that I think this is going to be a pretty easy conversation and a pretty easy engagement model.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Very good. And finally on the TAM expansion you talked about $0.15 to every dollar that's spent on the FPGAs. So if I look at the FPGA TAM as $60 billion to $70 billion, are we talking about a 15% increment to that TAM or am I looking at it in the wrong way?

John P. Daane

No, you're looking at it the right way. It's $0.15 to $0.25, so take $0.20 as an average and think of the PLD industry as about $5 billion and that gives you roughly the -- what is spent on power today just around the FPGAs. And that is a very large opportunity for us to go address with the solutions that we have.

Scott Wylie

All right. Thanks, Anil. And with that, this morning's conference call will conclude. I want to thank you for your interest and your participation this morning.

Operator

That does conclude today's conference. We appreciate your participation. You may now disconnect.

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