March 17, 2021- On today’s podcast, we welcome special guest Robert Blake, CEO of Achronix, the only independent supplier of high-performance FPGAs used in high-growth applications including AI, cloud computing, 5G and autonomous vehicles. Achronix recently announced a merger with SPAC ACE Convergence Acquisition at a $2.1 billion equity valuation.
On the podcast, Robert discusses:
- Why he spent his career in the semiconductor industry
- How Achronix differs from semiconductor companies such as Arm, AMD, Nvidia, Altera and Xilinx
- How they are capitalizing on the growth of 5G, cloud and artificial intelligence
- Key insights into their recently announced merger with SPAC ACE Convergence
- And more
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com.
Julian Klymochko: Welcome Robert to The Absolute Return Podcast. Super excited to have you on the show today, a lot going on at Achronix these days. Congratulations on the recently announced going public transaction, exciting times for you, I’m sure. Before we get into the weeds on what you’re up to at Achronix and specifically this going public transaction, I had a read on your background. It’s super interesting because you’ve basically spent your entire career focused on the Semiconductor industry. You studied chip design at university. Can you walk us through your career progression and what led you to becoming the CEO at Achronix?
Robert Blake: Yeah, it’s kind of an interesting background. Obviously, I’ve been in the semiconductor business for actually many years. But my university career actually set me up very well for this. And back in the early eighties, I actually decided to do a degree at Durham University, which is in the Northeast of England. And I got the opportunity to do a dual-track degree in microelectronics and in business. And it turns out that has actually served me very well to have not only a technical background, but to have done an MBA at the same time.
Julian Klymochko: That’s great to hear. So, I’m interested to hear about the transition from moving from a firm like Altera, which you spent a number of years at to more of a startup at Achronix when you joined about 10/11 years ago. How was that transition?
Robert Blake: So, I spent a number of years at Altera, it was a very exciting place to work. And I had a number of different roles from being in the sales organization, running some of the business units, but also a role in strategic product planning. And that gave me great insight because of the customer contacts that I had and really learning about, what kind of solutions customers wanted in the products and services that they would buy? And so, I felt that was the variety of different roles that I had at Altera and kind of the experience that I had in building customer relationships was something that was a very good kind of setup to be able to make a transition into a smaller company building, you know, FPGA Technology. When I did join Achronix, it was a relatively small startup company. They were building some very innovative technologies and I felt that it was an exciting opportunity to bring the experiences that I had to that team, and first to build some, you know, exciting products that we could bring to the marketplace.
It turns out that many companies had actually tried to build you know, FPGA business over certainly the last 30 years. And really, you know, very few companies had actually been successful. And so, we realized that we needed to have the discipline and expertise in not only building chips but also in building a very comprehensive set of software tools that would enable customers to be able to [Inaudible 00:03:31] in our products. And that was kind of one of the core strengths that Achronix has as a company.
Julian Klymochko: It’s cool, because looking into and researching the company over the past few weeks, hearkens me back to my university days, because I actually started out and got a degree in electrical engineering. So, I do remember programming some FPGA chips. I believe one was the Xilinx Spartan from back in the day, but that being said at FPGA and semiconductors, obviously like a massive growth industry and really key in many of the technologies we use each and every day. Number one, how has the industry changed over the past decade since you joined as CEO? And number two, how has the company, you know, adapted to that growth?
Robert Blake: I think the first thing is, that, you know, FPGA technology has evolved very rapidly. In its early phases, it was used mainly as a glue logic or interface technology. And now with the new levels of compute efficiency, demand driven by your wireless infrastructure by AI and machine learning applications, you know, intelligent storage systems and autonomous vehicles, there’s a desire and requirement to build new levels of compute efficiency. And it turns out that the parallel processing capabilities of FPGA technology makes them an ideal solution for, you know, a broad range of data acceleration applications. And I think joining the company, it was that realization that use models for the FPGA marketplace was changing rapidly and they were going to be some large growth opportunities over the next few years. And so, Achronix started to develop its products and services aimed at solving those. If you like broad data acceleration applications.
Julian Klymochko: Yeah, you can just imagine so many future applications with whether it be, you know, 5g, autonomous vehicles, cloud computing, there’s so many opportunities in the space. And if we rewind back 10, 20 years ago, I’m sure what you envision the future, you know, completely turned out different. But that being said, you know, if you can accomplish all your goals at the company, what do you guys think you can offer in terms of products to customers? What sort of technologies do you think that can be developed over say the next decade or two that will really change modern day society?
Robert Blake: So, I think obviously, you see several different themes in terms of classes of products. So, the first thing is that there’s a common use model for a broad range of these applications, is the desire to do compute acceleration or data acceleration. And so, the kind of the main thing that you would see there is, first of all, massive amounts of data that need to be processed and a requirement that those data sets be processed in very rapid times. And in some cases, with very low latency, those would be kind of the, you know, the heart of the compute or data processing requirements that these kinds of technologies have. What I think is really exciting is obviously where there’s several themes that are coming together at the same time. I think one of those is, you know, autonomous driving and I’ll give you an example. Where does FPGA technology fit into that? And it’s something that we call sensor fusion. And so, as you see some of these early autonomous vehicles being tested on some of the streets around the country. What you see is that they have, you know arrays of video cameras, radar and LIDAR systems. And obviously those sensors are all capturing massive amounts of data in real-time in different formats to try and determine then how the vehicle should be, you know, steer safety through, you know, whatever, you know, environment it’s in. And so, what I would say there is, that the FPGA technology then is a data acceleration technology that enables these different data sets coming from these senses to be processed in real-time with low latency. And also, the ability to be able to change.
One of the characteristics of FPGA technology is its adaptability. Meaning the fact that it couldn’t be used as an interface technology to connect the sensor one today, but if a new or more advanced sensor comes out in, you know, over the lifetime of the product, then they could adapt to a different type of sensor. And so that flexibility in the product really enables the compute system, or if you like, the heart of the autonomous vehicle to have much greater flexibility, to be able to adapt over its lifespan. And so that’s pretty exciting, you know, end applications that the technology jeep can be deployed.
Julian Klymochko: And the crux of the technology industry really is a consistent advancement. You have Moore’s law where we expect things to improve every year. Chips to get faster, obviously more and more data, data’s perhaps increasing exponentially. As you indicated, even on a car there’s, like tons of sensors, LIDAR, et cetera, bringing in billions of data points for processing. As a technologist, like where do you think the limit is? Whether it be, you know, the physical on an atom level, or is it, you know, will we ever get to the point where things start progressing, where things will slow down, or do you think it’ll kind of be a steady step up in technological advancements as far as the eyes can see?
Robert Blake: Yeah, no, I think it will be. I think that there’s been many cases when, you know, people thought that it was end of specific areas of technology and particularly in semiconductor processing technology. But I think what you see is that, yeah, we’ve got a tremendous amount of talent on a worldwide basis being looked at new ways to innovate and just kind of take the landscape of compute. I saw some estimates recently, and there was a presentation that Bill Gates had made where he looked at the new demands for compute efficiency instead of doubling up the kind of Moore’s law rate of every two years. The compute demands were changing or doubling every three to four months. And so obviously that is putting tremendous pressure on new levels of efficiency to meet the compute systems, you know, meet the performance requirements and cost and power requirements. I think what we’ve seen there is then is that actually required, you know, a change to the overall compute systems to become more heterogeneous. And this is a way to look at all aspects, whether that’s the networking piece, whether that’s the compute engines being not just, you know, traditional CPU architecture, but then a heterogeneous architecture of FPGA accelerators, GPU accelerators, custom [Inaudible 00:11:19], all aimed at improving the overall efficiency of the compute system.
Julian Klymochko: Yeah, I find it fascinating, the technological progress that the industry is going through on a constant basis. And there’s many big competitors out there. ARM, AMD, Nvidia, doing a lot of cool things with their chips. Altera, Xilinx, Intel, obviously they’re having some well publicized issues, but that being said, how does Achronix differ from competitors in the market? Like, what’s your unique value add that will put you one step ahead of these highly innovative, highly competitive companies?
Robert Blake: We’re about to roll out a whole new generation, a family of high-end FPGA [Inaudible 00:12:08] accelerators, and we call that family, the speedster 70 family. And so, Speedster is the, you know, the product name for the high-end bidder acceleration. And this particular family is actually built on TSMC seven-nanometer technology. So, it’s an advanced technology. And what we’ve done in this family of devices is that we’ve really innovated in multiple areas to give us a performance advantage over our competitors. And I can kind of describe those things in three different pieces. The first piece is that if you’re ever thinking about building a high-performance compute platform or data acceleration platform. The analogy I’d give you is maybe to a race car. You can put a big engine in a race car to make it, to give it the kind of horsepower to be very fast. But one of the things that you need to do is make sure that the fuel pump is adequately supplying fuel to that engine. And the analogy that I give you is in the speeedster7t devices, not only if we innovate in the networking and the machine learning processes that do the mass in these devices, but we’ve really innovated in terms of the memory bandwidth and data transport, and those things are analogous to the kind of fuel pump in these systems. You only get high super efficiency if it’s the data engine inside this technology are running all of the time. And so, what we chose to do is to look holistically at the problem of data, acceleration and innovate, not only in communications, but also in the memory bandwidth. And we realized that those things are critical in order to deliver your high-performance solution.
Michael Kesslering: It’s very interesting when you talk about early innovation within the memory bandwidth area. And so, I guess moving to kind of the financial aspects of the firm. One thing that you can see in the investor presentation is, you did have a little bit of a revenue fall off in 2019 but then resumed growth in 2020, and you’re forecasting very strong revenue growth on a go-forward basis in kind of the range of 30%. Can you explain a little more granular detail, 2019 and how that plays into some of the forecast moving forward?
Robert Blake: Yeah, what I would say is that in our past and in our mature products we had some very large customers that were buying those products in the kind of 2017 and 2018. Those customers bought more product than, was their demand. And so, in 2019 we saw kind of a pause and back kind of buying schedule. The fundamentals of the use model where we’re very sound. And so back in 2020, what we saw was, you know, very strong or the backlog. We thought 2020 of almost $240 million dollars. And so, we had a very strong year in 2020, which is $105 million dollars. And we exited the year 2020, with almost $140 million dollars of backlog on our mainstream products. And so that put us in a very unique position entering into 2021, in that when we looked at our revenue plan for the year, we already had orders in hand for about 72% of that annual business. And so that was a very good setup for us to be very successful in terms of a growth year for 2021 over 2020.
The second thing I’d say that you’d see is obviously we’re bringing new products to market. Those are two kinds of classifications. The first of those is this exciting speedster7t product family that I’d mentioned early. So obviously that’s a new product, and we’re seeing tremendous design interest in that product across multiple market segments in the networking space, in the compute acceleration space, in storage and in testing measurement applications. And so, we’re seeing a diverse set of applications that are adopting that technology. The second thing that I really didn’t mention before that really differentiates us from our competitors is that on top of having a high-end FPGA data acceleration family, which is speedster7t. We’ve combined that with an IP business model. And what that means is that for companies that would like to build their own chips, they’re either building A6 or a system on chips. We then license our FPGA did, or acceleration technology for integration in their own chips. And the reason that is a very important play for us, first of all, we are the only company to ought to sell both high-end FPGA technology and license for that IP. So that puts us in a very unique position, but also it really then enables us to expand the market opportunities for the use of our products and to do that by really leveraging other companies, R&D teams to design in our products. And so that really is a big market expansion play for us. The licensing model is much in the same way as you would see a company like ARM, where they would license their CPU technology, we’re really licensing our embedded FPGA technology for being used in other companies A6 and the SoC.
Julian Klymochko: So, speaking specifically from an investor standpoint, obviously you guys touch on a number of key themes that investors realize are producing explosive growth, whether it be 5g, cloud computing, artificial intelligence, how are you guys capitalizing on those opportunities and how do these themes play into your current and future revenue say in terms of, you know, rough percentages or what portion of your businesses would be related to these overall growth themes?
Robert Blake: Yeah, so I would say is, again, that, you know, back to the fundamental of the technology is we’re really doing data acceleration and data acceleration has, you know, applications in a broad range of applications. Obviously, the common theme is, you know, massive data sets, increasing data sets and the requirement to process those in real time or very low latency. And then when you look at that as a kind of a backdrop, then you see applications in a number of areas, obviously 5g wireless infrastructure which has that continues to roll out is going to connect, you know, billions of connected devices. AI machine learning, so in [Inaudible 00:19:30] supposed to cloud and edge. And I think what we see there is that we’re still at the very early days of those algorithms and services. Obviously, we’ve seen things like image processing and speech processing and video processing, but I think we’re still at the very early phases of that development. And I think that we’re going to see, you know, many, many changes to those algorithms and those workloads, which will be well-suited to the flexibility of FPGA. There is applications in smart networking, where the networks need to be more intelligent to be able to process these massive streams of data. We see companies starting to develop smart storage or intelligent storage devices, but not only on the storage devices, you’re able to store and recall these data sets, but also, they’re able to add to the overall compute efficiency by pre-processing those data sets. And so that’s a new class of exciting applications. And then finally, obviously on the automotive side, we kind of talked about some examples in that space, but the other kind of key differentiation in speedster7t is associated with it first kind of market technology advances. And so, in some cases, this is on the [Inaudible 00:20:51] side of things where we have a hundred gig [Inaudible 00:20:55]. These are required for things like Ethan net connectivity at 400 and 800 gigabits per second. Things like PCI generation 5, which is a, you know, a new standard in terms of compute patch. And then we’re also providing connectivity very latest high performance memory structures, like GDDR6, these kinds of applications or features enable us to then participate in test and measurement applications. So, if I kind of take a step back, the market segments that we’re going to be in our products will be steady balanced between those different segments. So, compute, networking, storage, automotive, and 5g wireless infrastructure. And obviously all of those, you know, share that common theme of needing data acceleration and that giving us the diversity in applications.
Michael Kesslering: So, you’re also going through a bit of a milestone for the company currently after you’d recently announced your initial business combination with a SPAC, ACE Convergence in a transaction that valued you at about $1.8 billion in enterprise value. And so, we’re always curious, how did this deal come about? Was it the result of inbound interest and you decided to go the route of a SPAC or had you already made the decision to go public and you were just looking at different options and SPAC was the in your decision there, the right one? How did that come about?
Robert Blake: If you look back to kind of Q4 last year, we were actually preparing to do a conventional IPO. And so, we actually started to talk to initial investors as part of kind of a testing the waters. And we were going down that conventional path. At that time, we also started to get inbound interest from multiple SPAC entities. And one of the things that we were attracted to ACVE was the fact that the management in that company had extensive domain experience in semiconductors and specifically FPGA technology. And so, we felt that the merging with that company would do two things. One, it would have enabled us to enter the public markets a little earlier, and so gain additional capital to accelerate our product development. And also, we’d be bringing on some expertise through that merger that would give us insight into some of the market segments that we’re really focused on. And so, it was where domain expertise in these segments that really attracted us to them versus some of the other companies that approach us.
Michael Kesslering: So, when you were going through, you mentioned some of the capital raise as well. You did have a $150 million dollar pipe financing. How was the fundraising process for that and how did that all come together during the process, simultaneous process of negotiating with ACE?
Robert Blake: Yeah. So as part of the SPAC process, obviously what we did is, we looked at, you know, the kind of profile of ACE. We looked at what our capital requirements would be going forward to accelerate our business. We then, you know, we made a decision to raise a PIPE of about $150 million dollars. And so, then we went out to a very broad range of investors’ technology investments. And through that process, you know, the PIPE process was actually oversubscribed against that goal of $150 million dollars, and showed really quite broad interests. I think the reason being is that the company, it was more of a standout from some other SPAC companies. First of all, the company has got a range of products. The company has got some significant revenue growth and profitability. And then they looked at the kind of end market segments of the products that we would be going into. And again, those growth segments of wireless, automotive and computing networking and the disruptive technologies that we will bring to those marketplaces. And then the last piece is looking at the competitive landscape. Obviously with, you know, Altera being part of Intel, with Xilinx being schedule to merge or to be acquired by AMD. That then left us as being the only independent high-end FPGA provider in the market by somewhat seem, that really gain us some, you know, further customer interest at looking at the products and capabilities that we have. So, it, you know, it really was the right timing for us to bring new products to market, but really to be able to benefit from entering the public markets, because now we could scale the company and accelerate the development of our products.
Julian Klymochko: So, circling back on the pipe financing and selecting is ACE Convergence as a partner, obviously when you’re going through this consideration of various vehicles to go public. First the traditional IPO, switch to a potential SPAC, talked to a number of dance partners. You indicated selecting ACEV based on their extensive domain experience. What I thought was fascinating with respect to the transaction, your team put together was the $50 million dollar commitment to the pipe financing from the SPAC sponsor. How important was that for them to re up their capital commitment to the business?
Robert Blake: Yeah, I think that was, you know, that was important. It really showed the level of commitment that they had and having them, you know, looked at our business in, you know, in detail, you know, from an experience standpoint, from the management, being in a semiconductor business for a long time. I think they felt confident with the opportunity that was in front of us, you know, the types of products and services that we were building and the market segments that we’re going after. Obviously, they felt very confident about that and were able to provide additional commitments to invest against alongside the pipe. And I think that, you know, that’s the testament to the, you know, if you like the analysis of our business and confidence in terms of the success that we’ll have.
Julian Klymochko: I found, it’s super interesting how you mentioned the dramatic consolidation happening in the market over the past five years, Altera, ARM, Xilinx, you know, you mentioned how Achronix will be the only independent kind of small growth story, because they’re not going to really find that in these consolidators that have turned into massive, massive companies. So, for investors new to the Achronix story, could you provide like the quick elevator pitch as to why they should consider your company as an investment?
Robert Blake: Yeah, I think that first of all, the company has built a very innovative set of products, meaning both, you know, high-end data acceleration family meaning speedster7t and then combining that with an IP plate. So, first of all, nobody else in the industry provides the combination of those two products. So that’s the, you know, the first one. The second one is, I think that as you see then, this demand for new levels of compute efficiency driven by 5g wireless, AI, machine learning, high-performance networks. What you’re seeing is that FPGA technologies are being recognized in their own right, to be able to sit right next to CPU’s or GPU’s or custom [Inaudible 00:29:16] to help in improving this overall compute efficiency and flexibility for the kind of new workloads that we’re seeing. I think it’s that opportunity that is very exciting for investors, for us to innovate our products.
Obviously, we’re still relatively small in terms of size, obviously at $105 million dollars in revenue for 2020, we’re going to see a significant growth issue in terms of our products, but the market place for our products is over $10 billion dollars over the next five years. And so, there’s a huge growth opportunity for us to continue our growth. And so, we expect that, you know, on an annual basis, we’ll see growth rates. They’re going to be in that 20 to 25% per year, over an extended period of time. The last piece, I would say from an investor standpoint is the growth is there, I’d say profitability is also. We’re targeting the high end of the FPGA marketplace, where the gross margins on products tend to be higher. And so that obviously is important for us to be able to continue to drive a business that has high margin.
And then because we’re combining that with a life IP model, our embedded FPGA technology, and that’s similar to the ARM model, you know, the company, there’s no manufacturing costs for that business. And so that is an additive in terms of overall gross margin to our business. So, I think the 20,000-foot level, the company is targeting, you know, with some high growth markets, we’ve got an innovative range of new products, both standalone products and the license model. And I think that puts us in a very strong position for both growth and profitability over an extended period of time.
Julian Klymochko: Certainly, it sounds like an innovative and intriguing small cap growth story soon to be public. Certainly, the market seems to like it so far, just judging how the SPAC is trading your SPAC partner, ACE Convergence. Now, before I let you go Robert, just to wrap things up. Super interesting, what you guys got going on here, you mentioned the differentiated business model, how you’re licensing and the high gross margins. You’ve got the speedsters products coming out, touching on a bunch of key themes for a growth such as 5g, cloud, AI, a lot going on. So where if investors are interesting in learning more about Achronix, where’s the best spot that they can learn more about your company?
Robert Blake: Yeah, I think so obviously website has got a tremendous amount of information on us in terms of what the products, the end market places that our products and services go into. And so, for the investors that are interested in learning about the technology play in the market, let’s say that’s an excellent source. And then I’d say that some of the industry magazines and websites would also be a great source for gaining insight. Obviously, the [Inaudible 00:32:35] platform is a good source of information. In many occasions reported on our products and capabilities. And then one other last place that I’ve looked through is, a group called FPGA Journal that reports globally on the types of technologies and the end market applications that our products go in. And they’ve also had some extensive interviews with us, looking at our products and services over the last 12 months.
Julian Klymochko: That’s great to hear. So, investors, if you are interested in learning more about the company and the sector that they play in, definitely check out those industry, publications. Gets you more information, do your due diligence prior to considering it as an investment. And I encourage you to check out the filings on Edgar Filing with the SEC, whether it’s investor presentation and things of that nature. But Robert, thank you so much for being on the show today. It was a blast having you here. You really clarify the investment case for the Achronix story. We’re wishing you the best in exciting times for the company as you guys pursue this going public transaction and wish you all the best.
Robert Blake: Yeah, so I really appreciate you taking the time today. Obviously, we’ve got a great group of employees, they highly motivated. We’re doing some very innovative things. We’re building some great new products and services and it’s going to be an exciting time for us. So, we very much appreciate the discussion today.
Julian Klymochko: All right. Thank you, Robert. Cheers. Bye everybody.
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