Good day, ladies and gentlemen, and welcome to this conference call to discuss our agreement to acquire Alterra. My name is Dave. I'll be your operator for today. At this time, all participants are in listen only mode. We will conduct a question and answer session toward the end of this conference.
As a reminder, the call is being recorded for replay purposes. I'd now like to turn the call over to Mr. Mark Henninger, Head of IR at Intel. Please proceed sir.
Great. Thank you, Dave and welcome everyone to Intel's conference call to discuss our agreement to acquire Ultera. By now you should have received a copy of our press release, but it's also available at our transaction website intelacquiresalterra. Transactionannouncement.com. I'm joined today by Brian Krzanich, our CEO Stacy Smith, our Chief Financial Officer and Steve Rogers, our General Counsel.
In a moment, we'll hear brief remarks from both Brian and Stacy followed by Q and A. Today's presentations contain forward looking statements. All statements made that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. Please refer to the risk factors set forth at the end of this presentation for risk factors specifically related to this proposed transaction and the business combination. This presentation including the risk factors will be posted on our transaction website, which is the site that Intel and Alterra will use to post all information about the proposed transaction.
Please also refer to Intel's and Ultera's most recent earnings releases and Forms 10 Q and 10 ks filings for more information on the risk factors related to our respective businesses. If we use any non GAAP financial measures during this presentation, you'll find the reconciliation to the most directly comparable GAAP financial measure on our transaction website. Alterra will file a proxy statement with the SEC in connection with this solicitation of proxies from Alterra's stockholders. Stockholders are urged to read the proxy and any other relevant documents that Alterra files with the SEC when they become available because they'll contain important information. Proxy statements and any other documents filed by Alterra or Intel in connection with the proposed transaction will be available at the SEC's website sec.gov and at the transaction website.
With that, let me hand it over to Brian. Thanks, Mark.
I want to start by just saying I'm really excited to be here today announcing our agreement to acquire Alterra. And I'd like to begin by offering some context from my perspective to illustrate how closely this acquisition is to our growth strategy. And this slide that we're showing right now is from our last investor meeting in November of 2014, when I laid out our growth strategy, which is to use our core strengths to enter profitable and complementary market. Specifically, Intel continues to drive Moore's Law, which has propelled the technology revolution and improving semiconductor performance and power and cost reduction, enabling an integration of more and more capabilities into our devices and leveraging shared IP across the product family. This acquisition is a perfect extension of this strategy.
By bringing together our leading processors with Ultera's hardware of programmable FPGAs, we can make the next generation of semiconductors not just better, but truly able to do more.
Good morning, everybody. This is Stacy. I'd like to just add my welcome to Brian.
I'm going
to take a second to just give you a very high level acquisition with a combination of cash from the balance sheet and debt that we expect to raise. We're targeting a close in 6 to 9 months and we expect the transaction to be accretive to Intel's non GAAP EPS and free cash flow in the 1st year after close. The transaction has been unanimously approved by both the Intel and Ultera Boards of Directors. And now let me turn it back over to Brian to go through some of the strategic rationale of the deal.
Thanks, Stacy. As I mentioned earlier, this acquisition is very well aligned to our strategy. And just as importantly, Ultera is very well positioned as a market leader in the FPGA space. When we combine that product leadership with our IP portfolio, we'll be in a position to enable new classes of products that meet emerging customer needs in the data center and the Internet of Things. We believe that this combination will create significant stockholder value in the process.
I want to give you just a quick overview of Ultera and just kind of give you a little bit about who they are and what they do. As we've talked about, they are a world leader in programmable logic devices. They're headquartered here in San Jose, in fact only a couple of miles from our headquarters. They have a little over 3,000 employees in more than 20 countries and have about 12,000 customers served through direct sales force and distributors. Their fiscal year 2014 revenue was about 1 $900,000,000 and a gross margin of 66%.
I want to talk a little bit about the current Intel foundry relationship. It was established in 2013 as a multi year agreement and the idea was to build world class PLDs on our world class silicon technology. And the products that we were going to manufacture are Ultera Stratix 10. And those SoCs will be using Intel's 14 nanometer Trigate process and packaging technologies. We believe that the result is using world class silicon and combining the world class engineering teams of the 2 companies that over time these products were going to become leaders in the marketplace.
Additionally, Ultera has a very attractive base business. We serve a wide range of customers, which are in large high growth market segments. The telecom and wireless customers represent approximately 44% of Ultera's 14 revenue. With industrial, military and automotive filling out about 22% and networking and computer networking, computing filling out the remaining at about 16%. We currently have strong market share segment in about 40% of the FPGAs.
I also want to highlight here that we know many of Ultera's customers. In fact, we do business with 8 of the top 10 customers that Ultera has already at Intel. And finally, we increasingly see FPGAs and the integrated CPU plus FPGA products as alternatives to ASICs and ASSPs. The green chart on the right of this page makes this clear the opportunity in both of these market segments. Part of what we talked about is that this is a growth segment.
And when you look at this growth segment, we wanted to look at it both backwards in time, but forwards projecting. And we've built this model and we've built this acquisition on pretty much a normalized 7% compounded annual growth rate. And this is across a wide range of market segments as you can see from the chart here. So we've talked so far about the attractiveness of Ultera's existing business. I'd like to now spend a little bit of time sharing with you some of the synergies we expect to realize.
We've broken these out into 2 categories. Now I'll speak about the product synergies and then I'll ask Stacy to address the cost and manufacturing fees. There are 2 segments within our portfolio in which new classes of integrated FPGA products are expected to be especially impactful. And those are the data center and the Internet of Things. Within the data center, we see an opportunity to combine with FPGAs to significantly improve performance and through integration reduce the cost.
That combination will position us to address emerging workloads in creative new ways, adding value to our customers. And these are products that our customers have been looking for. In IoT, integrating ATOM with FPGAs will allow us to pursue segments that are now served primarily by ASICs and ASSP, expanding our serviceable market by roughly $11,000,000,000 Combined, we expect these product synergies to drive roughly 60% of the value we create with this acquisition. I'll share more specifics on each of these value drivers in just a minute. But before I do, I wanted to ask Stacy to touch on the cost and manufacturing section.
Thanks, Brian. So on top of the benefit that we get of bringing out this new class of integrated products, We also expect meaningful reductions in OpEx and improved competitiveness in Ultera's existing product line by bringing them onto our manufacturing processes and using our IDM tools. The OpEx reductions will be primarily focused on G and A and those cost savings will grow over time. On the manufacturing side, we expect to create significant value by working with the Ultera team to ensure that their products are consistently first to node, taking advantage of the best process technology in the world. The OpEx reductions and the benefits of manufacturing leadership combined to produce the other 40% of the value that we expect to create.
All right. So let's take a minute now on some of the specific applications and let's talk about the data center and give you a little bit more detail of just how these products are going to improve the marketplace. For some workloads in the cloud especially and I've provided a few examples here on this page, FPGAs can significantly improve performance and cost. But what's especially interesting is what happens when you integrate FPGAs with our Xeon microprocessors. That combination by integrating the 2 products together improves performance by 2x and at the same time reducing cost even further.
FPGAs also significantly improved the flexibility for our customers, allowing them to quickly implement and update their algorithms. We expect limited shipments of co packaged Xeon microprocessors and FPGAs in the latter half of twenty sixteen. And those will be followed over time with On Die integrated solutions. And by 2020, it is estimated that up to 1 third of cloud service provider nodes may use these FPGAs. The next example I wanted to do was turn to the IoT and talk about how FPGAs will help in that space.
Turning using the FPGAs in the Internet of Things, we'll create new growth opportunities by integrating FPGAs with our Adam microprocessors. Here again, integration will provide our customers with improved performance, cost and flexibility. More specifically, with integration, FPGAs become cost competitive against ASICs and ASSPs, opening up an $11,000,000,000 incremental SAM, we believe by 2020. We'll have the option to preload accelerators for specific verticals like the industrial automation example I've shown here. These pre programmed SoCs will combine the benefits of a familiar Intel architecture and workload specific accelerators that might otherwise be found in ASSPs.
Then we can take that very same part, that same integrated Atom plus FPGA SoC and offer it as an ASIC replacement for implementations like driver assistance systems that I've highlighted here as well. That would allow the automaker to define load and update their unique IP on a real time basis. Stacy earlier mentioned the value of advanced manufacturing in the FPGA market segment. Ultera has an already strong product portfolio that we think that the product portfolio gets even better when manufactured on Intel Process Technology. We also anticipate improvements in design speed and effectiveness as a result of having Ultera and Intel's engineers all under one roof, working together even closer.
Just as our own products benefit enormously from our IDM business we expect similar benefits for Ultera. And while our founding relationship provides some of the benefits of manufacturing leadership, this transaction unlocks greater value and ensures that the value accrues to Intel stockholders. So that covers the primary value drivers. And before I summarize and move on to the Q and A, I'd like to talk about our integration plans for the company. One of the things that gives us confidence about merging our 2 companies is that we already have a history together via our Foundry relationship.
That relationship has resulted in strong engineering engagement. Organizationally, we'll be setting Ultera up as an integrated Intel business unit with a dedicated sales force and engineering team. Adding to our confidence, Ultera has retention plans in place that will help us to ensure a smooth transition. And once that transition closes transaction closes, we'll implement longer term retention plans from Intel. I'd like to move to the summary now.
This is a big day for both Intel and Ultera. I'm looking forward to the opportunities that we can create together. We're buying an already strong business and a strong team. And we think with our technology, we can make that even better. That combined with the innovative new products in the data center and IoT will enable us to create significant value for our owners.
With that, I'd like to turn it back over to Mark for Q and A.
All right. Thank you, Brian and Stacy. Moving on to the Q and A, because our time is limited here today, we'll ask each participant to limit themselves to just one question. Dave, go ahead and please introduce our first questioner.
Thank you. The first question comes from C. J. Muse at ISI Group. Please go ahead.
Yes, good morning. Thank you for taking my question. I guess first question thinking through the data center, can you talk how this grows your SAM there? And then why you made a decision to bring Altaria in house as opposed to simply continuing to maintain your current joint venture with them?
Thank you. Sure. So think about that when you integrate the FPGA with the Xeon processor, you're creating a new class of products, a set of products that don't exist today, where you're able to move the software algorithms things like facial search or encryption down into the silicon and improve performance as we said greater than 2x. And so that's really what this is creating. Now that's a new class of products and that's allowing us to provide a set of products that don't exist today.
Now you said why move them inside continuing that in just the family relationship? As you said Sorry
in terms of the work that you were doing I believe the HAARP research platform that you were working with them?
Yes. I'm not going to talk about specific yes, products like that. But let me just talk about the sequence of events. So as we said, each time you integrate further and further from being on board on the same motherboard to building a co packaged product which is what that product that you just mentioned was to building a piece of silicon that's a monolithic piece of silicon where the Xeon processor and FPGA are 1 piece of silicon. You get significant performance improvements in each one of those integration implementations.
We believe that in order to go to the full extent where you build a monolithic piece of silicon to get the maximum performance, cost, power reduction, footprint reduction, all of those improvements that our customers really want and the market needs, we need to integrate the company because you're going to have such a tight relationship between those two intellectual properties, those two pieces of IP that you have to work within the same team. That's why we wanted to move them inside.
Very helpful. Thank you.
Thanks. Your next question is from the line of Ross Seymore at Deutsche Bank. Go ahead please.
Thanks for letting me ask a question. Stacy a couple for you. Any size on the cost synergies? And then just generally can you talk about how Intel thought about the difference between the accretion you'd get from using the same amount of stock cash to buy back your own stock versus doing this deal? Sure.
Happy to talk about both of those Ross. So as we went through the combination of cost and manufacturing synergies is about 40% of the value that we expect to create and then the other 60% come from this new class of products that we can bring to the market. Looking specifically at that 40%, the cost synergies is a piece of it. It's not the majority, but it's a piece. And for us, the cost synergies are primarily in the G and A space.
That's where we expect to realize most of them. And then the other portion of that bucket, that 40% bucket is as we advance from node to node, we'll continue to make their product line better and we think that just gives them a stronger competitive position in the marketplace. On the priorities of capital, this is very consistent with what we've talked about over the last several years, which is 1st and foremost invest in our business. When we look at this deal, this is a great example of that. We believe that we can create significant value for the shareholders and it will result in a good return for you and a thing that only we can do because of bringing them into our manufacturing facilities and the ability to integrate into a product that's coupled with some of our other IP blocks.
Thanks, Ross.
Okay. Thank you.
Sure.
Thanks. Next question is from John Pitzer at Credit Suisse. Please go ahead.
Yes. Good afternoon. Good morning, guys. Congratulations on the deal. Just quickly, Stacy, how much debt to do the deal?
And then Brian, you were very clear about the SAM expansion opportunity that Alterra brings in IoT, a little bit less clear in the data center. So I guess guess I'm trying to get a better understanding relative to the data center. To what extent this is offensive and TAM expansive versus defensive trying to protect the footprint that you already have as FPGA gains more and more traction on workloads within the data center? Thank you.
Sure. And you were a little faint there, John. Was your question how much of this is debt versus cash?
Correct.
Yes. We're not breaking it down. As you know, we have significant cash on the balance sheet, significant cash available to do this. So it will be a combination of debt and cash. Beyond that, we're not breaking it down to be more precise.
On your second question, John, we do not consider this a defensive
play or move. We look at this in both the IoT and in the data center as expensive. And it's really these are products that our customers want built. And we said that approximately 30% of the cloud workloads would be on these types of products as you exit this decade. Guesstimate on our part based on how we see trends moving and where we see the market going.
But this is about really providing the capability to move those workloads down into the silicon, which is going to happen one way or another. And this we believe it's best done with the Xeon processor FPGA combination, which will clearly have the best performance cost and footprint for the industry. So this is truly about in IoT expanding into new available markets that are currently ASIC and ASSPs and in the data center around moving those workloads down into silicon and really continuing the growth of the cloud overall. I do not consider that a defensive direction.
Thanks, John. And I'll remind everyone again that we're asking everyone to limit themselves to just one question.
Next question comes from Chris Danely at Citigroup. Please go ahead.
Hey, thanks. I guess, good evening guys since everyone's in Taiwan. In terms of the price $17,000,000,000 can you just talk about I guess the internal metrics you use to justify the price of the purchase?
Yes. It's can we create value? So at that price, we believe we create significant value for our shareholders. And just to reiterate what Brian said at the beginning, the value drivers here are this allows us to build a new class of products both for the data center and the IoT business. Both of those businesses are pretty exciting to us.
We get some cost synergies and we get this manufacturing advantage that builds over time as we continue to bring out new generations of FPGAs on our leading edge process technology.
Thanks, Chris. Operator, please go ahead and introduce the next question.
Next question is from James Covello
at Goldman Sachs. Please go ahead.
Thanks guys. Appreciate the opportunity to ask a question. Brian question for you. Obviously there's tremendous value as you're highlighting in the accelerator market and you're talking about 30% of the workloads being applicable here. There's FPGA accelerators, there's graphic accelerators.
How do you think about what your combined offering is going to be compared to what the competition would be going forward then in the form of a graphics accelerator? Thank you.
Sure. There's different workloads that are benefited I'd say from different kinds of accelerators. And so you really have to look at what's your adjustable market. Graphics accelerators because of the way that architecture works tend to be more in the high performance computing space and they tend to give you more of an acceleration in that space just because of the way graphics works and how the graphics architecture is laid out. FPGAs are going to be used for accelerators in places where it's more of a logic kind of accelerator.
So things like facial search encryption that aren't linear in nature. And so they're very different workloads that are going to be applied. Now the other thing that an FPGA gives you is the ability to program and so you can adjust the software basically that you're using and the acceleration model. So you can do that both in something like a facial search algorithm. You could over time make improvements to your facial search algorithm.
And as a result program that into the FPGA. With the graphics fixed die, you're not going to be able to necessarily do that. All of that software occurs on the outside. And the other thing is you can actually move from workload to workload with an FPGA. You can move with the same system from accelerating facial search to accelerating an encryption model.
And you could literally do that between sequences basically on the fly. Would be very difficult again to do with a graphics system. So I look at them as 2 different kinds of workloads. By the way, there are workloads that are still better done by ASICs and other products. You saw an announcement we made a couple of weeks ago with the ASICs, same kind of thing where there are going to be workloads that are better driven by specific algorithms like that.
Really helpful. Thanks so much. Good luck. Thanks, Jim.
Next question is from Timothy Arcuri. Go ahead, please.
Thank you very much. I actually had 2 questions. First of all, does this mean that Alterra will be fully on Intel at 10 nanometer? And then I'm also wondering whether the CapEx requirements that you've talked about for 2015, whether this changes those? Thanks.
Sure. So they're somewhat related. So the CapEx requirements for 2015 should not change because this really doesn't those CapEx requirements are kind of laying out the capacity for 2016 2017 and we already had Ultera built in as a foundry Ultera is they were already in our silicon in our design methodologies. And so it doesn't really change the capital requirements as a result. And the new products that we've talked about start to occur in 2016 as a co packaged part in the second half of twenty sixteen and then really ramp in 2017 2018.
So again that's kind of outside this capital cycle. And then you asked about 10 nanometers. Again, that's an independent decision. Ultera is an independent company until this deal closes. You'll have to talk to them about their decisions to make where they choose to implement 10 nanometer and we'll support those decisions.
We think our technology is good. We have a good shot at being the chosen one for that, but that's going to be their decision on that.
I'd have to say I like our chances to win it. They're an independent company, but I think we're well positioned.
Thanks, Tim.
Our next question is from Joe Moggs at Morgan
I wonder how you're going
to think about the gross margin of the business particularly when you start to foundry the product yourself. You'll stack a foundry gross margin on top of the already high 60s gross margin. Will you therefore have kind of an 80% gross margin on that type of business? Or will you use that incremental margin to price more aggressively?
Yes. So to the I'll talk philosophically. This is Stacy. But to the specifics of your question, we'll it's going to take a while for this deal to close. So likely post close, you'll see us being pretty explicit about the implications of this acquisition once it closes on our ongoing financials.
So I'm not going to go there yet. In general though, when we look at Ultera, one of the things that was attractive to us is we like the business. It's a business that benefits from technology. We like the profit profile of it. So we're not planning on significant changes there.
We think that we can enhance their business by landing them on our process technology, advancing their product line even faster, we think over time that gives us a competitive benefit in the marketplace. But we're not planning to come in and massively change the business model. We think that's one of the things we bought.
Okay. Thank you very much.
Next question is from the line of David Wong at Wells Fargo.
Thank you very much. Coming back to your point about they remain an independent company. Are you able to have teams start working on single chip designs with PLD circuits on the same chip of processors now? Or do you have to wait till the acquisition closes before this happens? Would we expect to see the 1st single chip process of PLD products begin to come out?
I'll let Steve Rogers talk about what we can and cannot do prior then I can talk about the roadmap.
David, during the closing period, the companies will continue to operate as independent companies with an arm's length relationship. So anything we would do with them would need to be handled in negotiations in arm's length capacity.
And then your comment about or your question about when will we see products. So we said that the first products which are co packaged where 2 pieces of silicon in the same package would start to occur in the second half of 2016 and really ramp in 2017. So limited availability in the second half of twenty sixteen and then a strong ramp in 2017. We haven't given an exact date for when we'll have a single monolithic piece of silicon, but you can think about it being a little bit after those kinds of dates.
Great. Thanks very much.
Thanks. The next question is from Christopher Rolland at FBR. Please go ahead.
Hey, guys. Congrats on the transaction. So Ultera played at the lower end of the market where Xilinx didn't play. You guys mentioned IoT. It looks like it's industrial automation and ADAS there.
But to further penetrate IoT, you might have to move down market more. Have you given us any sort of consideration whether you guys are going to move down market, stay there or perhaps penetrate it a little bit more?
When you say down market, I just want to make sure you're talking about lower cost products?
Exactly.
Okay. So first, if you take a look at where FPGAs are going to be applied and you take a look at the industrial automation, I used that as an example. I used ADAS as an and are using a lot of and are using a lot of compute capability. Those are clearly our first targets. But if you take a look at our IoT strategy overall, we have a set of products like Quark, Atom and then core that allow us to we think move across the market ranges.
So I believe we can go using your terms fairly down market. And if those down markets want an FPGA that's scaled appropriately to that size, we would absolutely provide it at that level as well. So I don't think we've completely investigated how far we can implement on this FPGA roadmap. But certainly if a quirk plus FPGA made sense, we'll now have the ability once this acquisition closes to provide a product like that. And that is what I would consider then a more down market type of application that you're talking about.
Yes. I would just add Chris, what one of the things we're excited about, what we hear from customers, the reason they want this is because of the performance of it is the total cost of ownership from their perspective. It lowers their total cost of ownership and it reduces their time to market and improves their flexibility. And those tend to be things that we can get paid for. So I think we can address large segments of the market and do it in a very accretive fashion.
Great. Thanks guys and congrats again.
Thanks Chris.
Next question is from the line of Ambrish Srivatsava. Go ahead please.
Hi, Stacy and Brian. I'm really struggling with some of the assumptions that you're laying out. Ultima has had a negative CAGR for the last 3 years. And okay, we can take a longer term view and they have barely outgrown the industry. And you're saying a 7% target is if I heard you correctly, Brian.
And then you layer on the fact and I'm going with what Ultera has publicly said $1,000,000,000 opportunity for the co processor market. It's very small compared to the already $14,000,000,000 and change for the DCG. So how do you get to that 7% CAGR? And how do you make the math work Stacy? I don't think you answered Chris Danely's question on what are the metrics that you use for return on the capital that you're deploying to this deal?
Thank you, sir.
I'll start with a little bit of the strategic side and a little bit of the view of their business and then I'll let Stacy get into more of the financial detail. I think when you take a look at it and as you said, they said, well, gosh, the co processor segment is worth $1,000,000,000 When you probably talk about a standalone part that sits on a motherboard isolated, I'm not going to absolutely give credit to that number, but it's probably not nearly as big a number as what we're talking about. So it's probably not an unreasonable dollar number value of $1,000,000,000 What we're talking about is significantly improving the performance beyond that, going to the fully integrated part and providing something that's 2x the performance for that. And so we think that opens up the market quite a bit more. And that's where we said approximately 30% of the workloads in the cloud.
We think we'll have this capability or require this capability as we exit this decade. And that's going to be quite a bit bigger than that $1,000,000,000 number when you take a look at it. How do we get to the 7%? Again, we believe that when you look at the FPGA market, it's all about providing leading edge Silicam. And if you take a look at the historical, the person who has brought the products on the leading edge silicon technology first and have brought the right products to that marketplace.
They were designed correctly with performance and power and cost along with that, tended to win share and tended to grow. And we believe by integrating as we said, we can move even quicker to the leading node and help them with their design coming quicker because their architects are now working hand in hand with our architects. A lot of this is about how good you are with the tools and how good you are working with the silicon. And that's a place where we can bring the strength over to on our leading edge silicon, right? They're very good using other silicon at all.
So we think that combination provides the right growth that 7% number and the numbers we've used for data center and IoT growth. For the rest of the financials, I'll let Stacy answer. Actually, I
thought you did a brilliant job. The only thing I'd add to that is again to put the value driver in perspective that we're looking at on the product side of this is as Brian said you get this 2 plus x increase in performance. You get a through integration you get a massive decrease in cost. We think that opens up a really broad swath of the market that will want to take advantage of this capability. And we said earlier on the call that we think that it will grow to be a third of the cloud customers.
Think about the size of that market, how fast growing it is, that's a very significant value driver
for us. Thanks, Ambrish.
Thanks. The next question comes from Ian Ng. Please go ahead.
Yes. It sounds like you're placing a lot of hope on this monolithic CPU and FPGA being a much better solution to go after ASICs and ASSPs. But you've had Skeleton announced since 2010 as the FPGA co package. I mean, if the integration doesn't work, would you actually consider going after ASICs and ASSPs using Ultera IP actually doing those kind of parts?
Wow. Okay. So it's a little bit of convoluted question. So let's step back for a second. The parts we talked about in the data center aren't really replacing necessarily ASICs and ASSPs.
What we're actually doing, if you take a look at something like facial search, what happens right now is those algorithms sit out in memory and storage and they're coming back on and off the CPU on some regular basis as the algorithm is applied. And what we're allowed to do now is actually put that algorithm directly in the silicon with the FPGA. And so now they're only going out to get the data, the massive number of faces they're looking at pulling those down in and applying the algorithm real time on the silicon piece. So that's not something an ASIC or an SSP is doing today. It's something that's basically moving in and out of the CPU today.
Where we said ASICs and SSPs were being applied is something like assisted driving, where there's a specific ASIC now that somebody has built that has all the algorithms that watch all of the sensors on a car and look at something like lane changes and the sensors that sense whether somebody is driving up alongside of you and put all that together and shake your steering wheel or flashlight that says don't change or you're going to hurt somebody. That is done by an ASIC or an SSP today. What we can do is move that workload off those ASICs and piece at we believe an equal or lower cost and onto the FPGA. What that also does is allows people to update those algorithms real time, not have to go out to their car line and do adjustments to the hardware, but actually be able to do that as the car is shipping out the door in software and they can continue to make improvements in the safety and the quality of that vehicle
as a result. So those are 2 different workloads and 2 different scenarios. And the cost piece of this becomes really important, because we're now getting to the point on the process technology with our process technology leadership that the cost difference at the silicon level is being more than offset by the lower development cost and mass cost and everything else. And so it's unlocking more and more of the ASIC and ASSP market where these integrated FPGA solutions are cost competitive. And so we think that on the IoT side that opens up pretty significant opportunity for us, a big chunk of sand.
But did Stellerton go after any of those opportunities that you lifted or it just wasn't the right product at the time?
Well, Stellerton prior generation relatively expensive. You think of it as on this evolutionary path, but what we're planning to do with Ultera will be significantly more evolved.
Okay. Thank you very much.
Thanks, Ian. Operator, we have time for 2 more questions.
Thank you, sir. The next one comes from Matt Ramsay. Please
go ahead. Yes. Thank you for taking my question. Brian, maybe you could talk a little bit about how this acquisition might be an extension and might and might open up some opportunities for customers that might not be so keen to give you guys access to the algorithms to do customized stuff and give them a little bit of a sandbox to play with on that?
Yes. Wow. I so you have to help me write my marketing foils. You almost gave me the answer there in the question. I mean you're absolutely right.
What this does, it not only allows people to have a customized part without having to hand me over their algorithms. Now to be honest they can do that in multiple ways and they don't necessarily have to give me those algorithms per se in order for me to build those into a customized silicon. They can either design that segment of the silicon themselves or give it to a third party that can do the design for them that hands us simply the circuit layout so to speak. But this does give them as you described it a playground. You can think of an FPGA as a large sea of gates that they can program now.
And so if they think that that algorithm may change over time as they learn and get smarter or they want to be efficient more efficient, they don't have enough volume to have a single workload on a single piece of silicon. They can use an FPGA to have accelerators of multiple segments, facial search at the same time is doing encryption. And we can basically on the fly reprogram this FPGA literally within microseconds that's recurring on the CPU itself. That gives them a much lower cost and a much more a much greater level of flexibility than a single customized part. You'd have to have quite a bit of scale need for that singular part that only is going to do one workload.
So this that's where we find people are really interested in this versus just a customized piece of silicon is. They want to be able to do multiple workloads or they know that workload is going to grow and shift and change over time. Those are really ideal for this kind of application.
Thank you very much. Congrats again.
Thank you. Operator, can you please go ahead and introduce our last question?
The last question comes from Harlan Sur.
Hi, good morning and congratulations to both sides of the deal announcement. Lots of discussion on data center, but IoT and embedded has been a key focus area for both the Intel and Ultera teams. Can you just talk about a timeline you can walk us through to help us understand when the team can bring an integrated processor plus FPGA solution to the IoT market integrated all into a single piece of silicon? And then on the manufacturing side, obviously, the team has the 14 nanometer partnership. I assume that on a go forward basis for new manufacturing technologies, these will all be primarily Intel manufacturing.
Can you just tell us how long it's going to take or what the plans are to migrate the existing product base over to Intel internal manufacturing just given the long product life cycles of the FPGA platforms? Thank you.
Sure. Okay. So I think there was a couple of questions in there, but let me try. I don't see a real need or desire to move existing products into the Intel silicon. They're yielding well, running fine.
Most of them I believe are TSMC, good partner of ours. There's not really a need to go do that. We're going to focus on the future. And the future is both driving their future products at a faster rate to the better node or to the newer node. And that will be those existing products or those next generation products and then these integrated products for both the data center and the IoT.
We said that the first of the data center as a co package would be in the second half of 2016 ramping in 2017. We said I think shortly after that products that are monolithic or on a single piece of dye. So that's slightly after that. So the IoT, we're still trying to understand whether co packaged parts make sense, whether there's enough cost savings, whether the workloads are there or whether we have to move all the way to that integrated part to hit the cost envelope and footprint that they need. We haven't finished that analysis and it's part of it is just so workload specific and you have to design the part relative to the workload and all of that.
We haven't laid that out yet. That's one of the projects we'll really be working on. We know what it can do and how it can improve the performance of those devices. We know that an integrated part will provide significant and you see that integrated part probably around the same time the data center parts integrated fully integrated would be. The question is will a co packaged part be in a good interim and we just don't know those answers right now.
Great. Thanks for the insights and again congratulations.
Thanks a lot.
Thanks Harlan. All right. Thank you all for joining us today. Dave please go ahead and wrap up the call.
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