This week was a busy one for reporters covering chip makers. It looks like the sector will see yet another large deal if Intel is able to finally able to come to terms with Altera for an acquisition.
The Wall Street Journal had this story by Dana Cimilluca, Dana Mattioli and Don Clark:
Intel Corp.’s on-again-off-again attempt to buy Altera Corp. is on the cusp of succeeding, as the chip maker prepares to announce the roughly $17 billion acquisition Monday, a move that would allow it to boost revenue and help defend a crucial business.
Altera stockholders will receive about $54 a share, people familiar with the matter said, around the price the company rejected in April during an earlier round of talks.
There is, as always, a chance the deal could fall apart at the last minute.
The expected price is 56% higher than the one at which Altera traded before The Wall Street Journal first reported talks between the companies on March 27. Altera’s shares closed Friday at $48.85.
Intel’s bid continues a consolidation wave in the semiconductor industry—a particularly active sector for deal making of late in a red-hot year for mergers and acquisitions—as companies search for new sources of revenue growth and target chip makers finding it hard to boost profitability on their own. Avago Technologies Ltd. on Thursday announced a $37 billion deal to buy Broadcom Corp., the largest technology acquisition on record.
Ed Carson wrote for Investor’s Business Daily that Altera makes expensive, versatile chips used in servers:
Altera makes field programmable gate arrays. FPGAs are costly but versatile chips. FPGAs increasingly are used in servers, notably in data centers for the cloud.
FPGAs also have been used to boost by Microsoft (NASDAQ:MSFT) to boost its Bing search engine performance, as well as by China search giant Baidu (NASDAQ:BIDU).
Since 2013, Intel has been a foundry for Altera’s chips, raising speculation ever since that it might seek a formal union. Intel likely will want to combine its server microprocessors with Altera’s FPGAs for even stronger performance. Intel said last year it was working on a Xeon-FPGA hybrid.
The expected Intel-Altera deal follows moves by Apple iPhone chip suppliers to diversify. Avago, which has reported eight straight quarters of accelerating earnings and revenue growth, on Thursday made a huge bet on Broadcom. Earlier this year, NXP Semiconductors (NASDAQ:NXPI) agreed to buy Freescale Semiconductor (NYSE:FSL) to become an automotive chip powerhouse.
The Associated Press story (via ABC News) said that the deal could be Intel’s largest:
If the acquisition goes through, it likely would be the biggest in Intel’s 47-year history.
Intel, based in Santa Clara, California, is the world’s largest maker of PC chips and sells most of the chips used in servers, a much more profitable product. It already partners with Altera, manufacturing some top-end chips designed by the much-smaller company, while Altera has used some of Intel’s technology in the design of its chips under a long-term agreement reached in 2013.
Altera is attractive because it makes chips used in phone networks and cars. Intel has been looking to get into those areas as demand for personal computer chips slips due to the downturn in the sales of desktop and laptop computers as more people rely on smartphones and tablets to connect to the Internet.
The Financial Times story by James Fontanella-Khan and Richard Waters that the two companies are already in business together:
Altera, which has more than 3,000 employees in 19 countries, would help Intel diversify further from its dependence on the mature PC sector and soak up some of the excess capacity in its chipmaking plants.
Altera’s chips are used in a range of telecoms and wireless equipment as well as military hardware, automotive and industrial applications and networking, which is a growth area. Its largest customers are telecoms groups Huawei of China and Sweden’s Ericsson.
Brian Krzanich, Intel chief executive, made a renewed focus on manufacturing a key part of the company when he took over two years ago. It already manufacturers some products for Altera, a company that develops and designs chips but relies on companies such as Intel and TSMC, the Taiwanese manufacturer, to produce them.
The merger is a good way to counter Avago’s deal for Broadcomm, keeping Intel in the game. Altera’s business is used in industrials, which could be a good compliment for Intel’s consumer chip business. One thing is certain, the industry is moving toward being a maker of commodity-like parts, and firms are looking for revenue anyway possible.
