Intel Corp. has reached a deal to acquire Altera Corp. for $16.7 billion in continuation of a multi-year effort by the company to widen its offerings and transform into an enterprise able to sell components into new markets, including faster-growing data center and Internet of Things (IoT) applications.
The planned acquisition of Altera, a leading vendor of field programmable gate array (FPGAs), will help Intel move further away from its PC-centric operation and strengthen offerings to companies that market high volume electronics products such as regular household equipment that are being equipped with connectivity capabilities by manufacturers. The transaction will also help the company better fill its manufacturing fabrication plants thereby maintaining the advantages of being an integrated device manufacturer, according to company executives.
"With this acquisition, we will harness the power of Moore's Law to make the next generation of solutions not just better, but able to do more,” said Brian Krzanich, Intel’s CEO in a statement. “Whether to enable new growth in the network, large cloud data centers or IoT segments, our customers expect better performance at lower costs. This is the promise of Moore's Law and it's the innovation enabled by Intel and Altera joining forces."
The Altera acquisition is Intel’s biggest deal in recent years although the company has made numerous other transactions over the last 10 years to maintain its competitiveness and broaden offerings as demand for semiconductors began shifting away from the PC to other devices, including smartphones, tablets and other connected equipment. In 2011 Intel bought Internet security vendor McAfee to stake out a position in the market for IoT devices by offering built-in security with its processors. The purchase of Altera – expected to close in six to 9 months – should help advance Intel’s continuing push for a bigger role as a vendor of chips to OEMs serving the IoT market.
“The combination is expected to enable new classes of products that meet customer needs in the data center and Internet of Things (IoT) market segments,” Intel said. “Intel plans to offer Altera's FPGA products with Intel Xeon processors as highly customized, integrated products. The companies also expect to enhance Altera's products through design and manufacturing improvements resulting from Intel's integrated device manufacturing model.”
Speculations had grown in recent months that Intel and Altera were in discussions about a possible acquisition of the FPGA vendor by its larger rival. The two companies previously had a production agreement under which Intel served as a foundry making Altera’s chips, replacing the former wafer supplier Taiwan Semiconductor Manufacturing Co. Ltd. In addition to being the world’s biggest semiconductor supplier by sales, Intel also devotes a great deal of its financial resources to maintaining one of the industry’s best manufacturing operations. It has over the last 5 years spent tens of billions of dollars on capital equipment and R&D.
For Altera, a hook up with Intel would help the company improve its financial performance in many ways in addition to keeping it competitive against rival Xilinx Inc. The company should benefit from Intel’s manufacturing prowess and leading-edge process technology, according to executives at the two companies. Altera has fallen behind Xilinx in recent years and its annual sales trail those of the main rival by several hundred dollars. In 2014, Altera reported sales of $1.9 billion while Xilinx for the same four-quarter period had sales of $2.4 billion.
Altera and Xilinx both face ongoing pressures from smaller rivals and competing technologies, however, and had been looking for ways to reduce costs and improve productivity and profit margins. This transaction should lessen the manufacturing cost pressure on Altera and improve its sales position once the company’s current offerings are coupled with Intel products. Customers could be attracted by the opportunity to purchase complimentary components from a single supplier, according to executives.
"Given our close partnership, we've seen firsthand the many benefits of our relationship with Intel—the world's largest semiconductor company and a proven technology leader, and look forward to the many opportunities we will have together," said John Daane, chairman, president and CEO of Altera in the joint statement released by the companies. "We believe that as part of Intel we will be able to develop innovative FPGAs and system-on-chips for our customers in all market segments."
Intel said it will leave Altera as a separate business unit, adding it will continue to support competing offerings from ARM PLC, one of its main rivals for semiconductors used in IoT devices. The chipmaker said it will fund the acquisition partly with available cash and also by issuing new debts. It is expected to close the deal by the end of the year or early in the New Year.