Intel Gets Ready for $10 Billion Altera Acquisition – Negotiaion in Progress

Usman Pirzada

Altera is a very well known manufacturer of SoCs and FPGAs and recent industry rumors indicate that the Blue Giant is getting ready for one of its biggest takeovers ever. For a company that provides part of the fabrication facility behind Altera's FPGAs and SoCs, this vertical expansion should strengthen its foothold in the industry further. Not only that, but it will allow Intel to gain a very large share in a prominent business market.

Intel in talks for Altera acquisition - Biggest blue takeover at $10 Billion

Field programmable gate arrays, complex programmable logic devices (CPLDs) and system on chips are some of the offerings that Altera rolls out as products. Creating programmable and semi programmable processors is somewhat of a specialty of the company and some of their offerings have the unbeatable Intel advantage. While competitors that use TSMC are usually a node below the mainstream process, Altera has access to Intel's bleeding edge process that is usually not even mainstream yet. It is worth pointing out that Altera uses TSMC for lower end products too and how this takeover will affect those agreements (if at all) remains to be seen.

It makes sense therefore, for Altera to be a logical takeover option for Intel. It would however be interesting to see how Intel will manage third party transactions and arms length pricing with Altera as a subsidiary of itself. Altera's products are used in everything from industrial, medical, telecommunication and even military devices. Infact, Altera's products have also ended up integrated on certain Intel offerings in custom HPC niches. Altera’s net sales in 2014 were $1.932 billion with net income short of $500 Million.

“On the surface, Altera is one of the only semiconductor companies with better gross margins than Intel, and with about two-thirds of its revenue from telecom, wireless, military/aerospace, it definitely fits the bill of diversifying revenue beyond Intel’s legacy computer markets,” said Timothy Arcuri, an analyst with Cowen & Co.

One of the obvious advantages that Intel will enjoy is customizing and possibly creating a new lineup of Xeon processors with Altera SoCs on board. It will also allow Intel to compete with the OpenPower consortium in the long run. Intel has been gearing up for the long haul in the server market and this potential acquisition could give it just the right tools to hold its own and maintain (and possibly grow) its market share in the Industry.

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