The deal that we have all been speculating on is finally done and we’ve come to know that the boards of both companies have approved. Altera shareholders are the only ones left to vote, but that’s just a formality considering the way its shares have soared recently.
The acquisition that is expected to close later this year will be immediately accretive.
The Lowdown
Altera ALTR 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 INTC, 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.
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.
Catching the Excitement
Intel CEO Brian Krzanich: “Intel’s growth strategy is to expand our core assets into profitable, complementary market segments. 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.
"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. We look forward to working with the talented team at Altera to deliver this value to our customers and stockholders.”
Altera CEO John Daane: “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. Together, we expect to drive meaningful value for our customers, partners and employees around the world.
"This is an exciting transaction that provides immediate and significant value to our stockholders. We look forward to working closely with the Intel team to ensure a smooth transition and complete the transaction as quickly as possible.”
But Don’t Forget the Hurdles…
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, 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 synergies could be a bit delayed.
To Conclude
The consolidation in the semiconductor industry is significant and with the first half barely over, we have seen several billion dollars in deals. Just last week, Avago AVGO announced its acquisition of Broadcom BRCM for $37 billion. And we probably aren’t done yet!
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