Media sources are reporting that “people familiar with the matter” know that Intel INTC is in advanced talks to buy out Altera ALTR.
There’s no doubt it’s a good fit and not entirely unexpected, which is why Wall Street has been speculating on its possibility ever since Intel became Altera’s foundry of choice for advanced chips back in 2013.
Altera designs the field-programmable-gate-arrays (FPGAs) that are used in telecom and computer networks, cars and other products where they are suitably reconfigured to take workloads off the main compute system and thereby speed it up.
Intel, on the other hand, designs and makes the computing logic that processes the information in the system. Therefore, Intel’s chips speed up when they are coupled with FPGAs, which is exactly what Chipzilla has been doing with its Xeon line for some time now.
Intel has said in the past that its foundry partnerships would be strategic and that it wouldn’t offer foundry services simply to keep its fabs full. And it hasn’t really done anything to make us believe otherwise.
After all, Altera’s FPGA volumes aren’t likely to be colossal and yet Intel went to a lot of trouble to get Altera on board: Altera has exclusive access to Intel’s 14nm tri-gate manufacturing technology for FPGAs (albeit for a limited time). It also has a 12-year product support commitment and last-time buy rights.
Intel will also have to fork out a ton of cash if it decides to terminate the contract and is not allowed to buy any other FPGA company during this time – the immediate names that come to mind are Xilinx XLNX and much smaller rival Lattice LSCC. All this seems to indicate that Intel wants Altera for the long haul.
And the partnership has just gotten so important for Intel that it’s willing to part with as much as (probably more than) $13 billion, which is Altera’s current market capital. Intel barely has the short term capital necessary to make the purchase, which means it will need to raise some debt that could send it into a net debt position.
So what else seems to be in the way?
First, there is the ARM Holding ARMH issue. Most chip companies dealing with consumer and communications markets are dependent on ARM technology and Altera is no different. Since ARM designs are in direct competition with Intel designs and in fact constitute one of the biggest challenges for Intel, it’s hard to see Intel furthering its competitor’s business. But this again could be part of the reason for the acquisition: Intel would surely like to replace ARM in mobile.
Second, 14nm manufacturing hasn’t started, and in the meantime, Altera being a fabless company, remains totally dependent on Taiwan Semiconductor Manufacturing Company TSM. Transferring existing production to Intel’s fabs won’t be feasible cost-wise, so Intel won’t see any near term benefit from the acquisition.
And third, Intel’s existing foundry relationship with Achronix, which also designs programmable chips, could sour. But this seems to be less of a concern at the moment, since Altera along with Xilinx, has a dominant share of the FPGA market.
Whatever the outcome, the rumor mills appear to be working overtime, with Altera and Intel shares soaring a respective 28.39% and 6.38% in response.
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