A message from Altium's Joint CEOs

Catching the next wave in electronics design

When we publicly listed the company in 1999 we did so with the conviction that a fundamental change was brewing in the electronics industry that we service. This change stemmed from the potential benefits of a class of programmable logic electronic devices known as FPGAs (Field Programmable Gate Arrays). However, while FPGAs offered engineers enormous competitive advantages for the design of electronic systems and products, sizeable barriers were limiting the widespread adoption of the devices.

A real barrier to their adoption, and one that holds significant growth opportunities for Altium, was the lack of suitable design tools that would allow the majority of electronics system designers to exploit the potential of FPGAs. At that time, the design of FPGAs required specialist skills and expertise, and the only design tools available for board-level engineers did not integrate with the PCB design flows used in the industry. Without suitable software tools, the majority of engineers had no way of accessing the time and cost benefits these devices offered. So while many companies were interested in what FPGAs could offer, the significant investment in developing the skills and processes to accommodate them on a large scale made their use impractical.

Addressing this situation and making this promising new technology accessible to the majority of electronics engineers worldwide formed the foundation of the strategic plan outlined in our 1999 IPO Prospectus. Altium needed to acquire and develop a set of technologies that fully supported FPGA design, and to integrate these technologies with its existing board-level design tools to create a coherent system that would enable the mainstream of designers and electronics companies to exploit the potential of FPGAs without having to radically alter their existing skill-sets and design processes.

Nexar – a breakthrough in design

February 2004 marked a milestone for the company with the release of the first version of Nexar. Nexar is a breakthrough product that encapsulates the technology direction we have been working towards. With Nexar, for the first time, any electronics system engineer, even those without specialist FPGA expertise, can easily and rapidly develop an entire microprocessor-based digital system on an FPGA platform. The core value in Nexar is its unique capability to take systems-based FPGA design out of the realm of the few elite, resource-rich R&D environments and make it accessible to mainstream electronics designers. Nexar also introduces a new development methodology we call 'LiveDesign' that has great potential to lower the cost and time taken to develop electronics systems. From a strategic perspective, Nexar and its unique LiveDesign capabilities give Altium the opportunity to capitalise on what is firmly emerging as the next wave in electronics design, and to cement its position as an industry technology leader.

A platform for success

While Nexar is the spearhead of our development efforts, it is one element in a wider product strategy. Our Design Explorer (DXP) technology integration platform that forms the core of Nexar also underpins a newly-released version of our Protel board-level design system and a new design capture product called CircuitStudio. We have also launched a unique FPGA-based development board called a NanoBoard that facilitates the LiveDesign process and is compatible with all our DXP-based products. This integrated and comprehensive suite of products will allow the company to capitalise on the system-on-FPGA revolution and set the wheels in motion for this next stage of growth.

With these products we now have a complete electronics design solution, from concept to completion, which supports FPGA-based application development in a LiveDesign environment. Altium is 'FPGA-ready' and we are determined to take advantage of all opportunities that this presents in terms of growth for our existing markets and in exploiting the untapped potential of emerging new markets.

Growth for existing markets, opportunities for new markets

Five years on from our IPO it appears that our expectations in terms of the coming FPGA revolution will be proven correct. Electronics industry analysts are increasingly preoccupied with the rise of the FPGA, and we see on a daily basis a mounting flurry of industry reports touting their potential and broad usefulness – strong evidence to support our belief that these devices will become a pervasive technology.

More than any other single factor, the emergence of low-cost, high-capacity FPGAs is having a huge impact on the business of designing electronic products. FPGA manufacturers are continuing to release higher capacity devices at lower costs, making this technology suitable for mass market adoption. Electronics designers are increasingly looking to programmable hardware to provide the flexibility and design efficiency they need to meet shrinking time-to-market windows. It is becoming clear that the 'system-on-FPGA' revolution holds significant potential to create growth in Altium's existing key markets, and also to create entirely new markets for the company.

Revitalising the PCB design market

It is estimated that approximately 60% of board designs already contain at least one programmable logic device, and this number is rapidly growing. The impact of FPGAs on our existing board-level customers will clearly be a major driver of change and holds the potential to dramatically revitalise a maturing PCB design market. The increasingly complex challenge of integrating FPGA and PCB design processes is likely to have significant impact on board designers and the tools they require to remain competitive. If their current design systems do not provide solutions for FPGA integration, then they will need to consider alternatives. PCB design tools will need to be 'FPGA–ready' in order to service the future demands of the changing design landscape. We are ideally situated to capitalise on the significant 'retooling' opportunity presented by the rise of FPGA use.

'Future-proof' tools for embedded developers

Beyond our board-level tools, our new technology provides opportunities for our current TASKING embedded development customers and opens the way to a flexible and programmable platform for creating custom and upgradeable embedded systems. Programmable devices are becoming a platform of choice for advanced embedded system designs.

The ability to easily re-configure the hardware portions of systems will create many new opportunities for developers; allowing them to design and deploy solutions for a wide range of applications and quickly adapt new systems for new markets. The use of FPGAs allows for applications that can be re-configured even after they have been manufactured. For example, engineers can download new circuitry to a product's FPGA over a network to upgrade the system with new features or fix existing bugs.

Re-configurable platforms are set to revolutionise the development and ongoing support of a diversity of products, such as internet-enabled devices, military, aerospace, and digital broadcast equipment, and wireless base stations.

New untapped markets

As programmable devices continue to develop in capacity and reduce in cost, new customers and market segments are created. There is a sizeable market of potential customers who are either not currently employing the technology, but will, or those who are struggling with non-integrated tool solutions and are looking for a better way to design with FPGAs. This presents a once-in-a-generation opportunity for Altium to increase its pool of customers.

Catching the wave

This is an exciting time for Altium. We are now in a strong strategic position to capitalise on the potential that the current wave of change in the industry is creating. Our next challenge is to carry through on our wider goals to penetrate these markets and the global engineering community with our FPGA-ready solutions. Our long history in the board-level design sector and our philosophy of selling direct to the mass market of engineers gives us a broad and diverse customer base on which to build. Nexar and our latest generation DXP 2004-based products provide a logical step up to system-level FPGA design for our existing PCB customers as it preserves the value of their current skill sets and design tool investment.

Beyond this, we'll be aggressively targeting new market opportunities as FPGA designers struggle to integrate microprocessors into their designs, and application-specific IC designers look to cut design time and prototyping costs. Our technology provides a compelling solution for both of these areas.

We will continue to pursue an active public relations campaign to raise awareness of Nexar and demonstrate the benefits of LiveDesign. This effort has already resulted in significant mainstream electronics industry press coverage across the globe. Working hand-in-hand with this effort has been our participation in a number of internationally-significant trade shows, where we have hosted seminars and workshops demonstrating our technology innovation and industry leadership.

We have been systematically training all sales and support staff worldwide to ensure smooth integration of Nexar into our sales channels. We will be supplementing our traditional sales activities with strategic sales programmes that will target corporate-level sales to key accounts throughout the world. The goal of this new model is to further drive growth in sales revenue and allow us to provide special handling for corporate-level and global customers' needs in order to support their adoption of this new technology.

An important area for stimulating long-term growth is partnering with educational institutions. Altium has always had an active involvement with universities, and with Nexar we will be increasing this role. We have already seen some success in this area. Teaching institutions have been quick to grasp the product's potential to provide a 'live' learning platform for both fundamental and advanced electronics.

Future-ready

Electronics designers are looking to programmable hardware to provide the flexibility and design efficiency they need to meet shrinking time-to-market windows. They are demanding electronic design tools that are 'FPGA ready'. Altium is uniquely placed to service these and future demands of the changing design landscape. We believe our hard work over the past five years puts us in a strong position to capitalise on the changes currently sweeping through the global electronics industry. We also believe that we have the infrastructure, the sales strategies and expansion plans in place to turn this positioninto increased shareholder value over the long term.

Kayvan Oboudiyat Director and Joint Chief Executive Officer	Nicholas M Martin Director and Joint Chief Executive Officer

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