Intel buys Altera for $16.7B to get further into chips for base stations, data centers

Intel agreed to buy rival chipset maker Altera for $16.7 billion in a long-rumored deal that will get Intel further involved in the market of silicon for network gear and data centers. The deal represents another indication of consolidation in the silicon industry and comes hot on the heels of Avago Technologies' $37 billion transaction to buy Broadcom, which will push Avago into the networking chipset market.

Intel will acquire Altera for $54 per share in an all-cash transaction, which is expected to close within six to nine months, the companies said. The price represents a premium of 11 percent over Altera's closing share price on Friday and 56 percent from March 26, the day before the possibility of a transaction was first reported, according to Bloomberg.

Altera, along with rival Xilinx, is one of the two biggest suppliers of so-called field-programmable gate arrays, or FPGAs, which can be used in a wide variety of devices and applications. FPGAs are widely used in base stations, computer networking gear equipment, cars and other products. After they are manufactured, the FPGA chips can be programmed to carry out specialized tasks like data encryption and work much faster than traditional microprocessors.

Intel said it will use its proprietary manufacturing processes in combination with Altera's FPGA technology. The companies plan to create new products for the data center and Internet of Things market segments, and Intel plans to offer Altera's FPGA products combined with its own Xeon processors as highly customized, integrated products. Altera and Xilinx have recently been offering customers FPGA chipsets that have processors designed by Intel rival ARM Holdings embedded in them, according to the Wall Street Journal. Intel said it plans to continue support and development for Altera's ARM-based and power management product lines.

Altera will become an Intel business unit to avoid disruptions with existing and new Altera customers in terms of sales and support, the companies said. 

"Intel's growth strategy is to expand our core assets into profitable, complementary market segments," said Intel CEO Brian Krzanich in a statement. "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."

As the BBC notes, the two companies already work together, with Intel manufacturing some of the chips designed by Altera, while Altera has used some of Intel's technology to create its own silicon.

The Intel/Altera deal comes after Avago announced plans last week to purchase Broadcom in the largest chip deal ever. Broadcom decided to exit the cellular baseband market in mid-2014 after concluding it was losing too much money. However, Broadcom is still a major supplier of Wi-Fi silicon and of Wi-Fi combo chipsets, which include Bluetooth, FM radio and other technologies. Additionally, Broadcom is a player in the Internet of Things market. Combined, Avago and Broadcom will be a major player in the wireless infrastructure, networking and broadband technology markets.

The deals could put pressure on Qualcomm (NASDAQ:QCOM), the leading wireless chipset supplier, and force a shift in strategy. Overall, they present not just consolidation in the industry but chipmakers' desire to acquire expertise in market share in adjacent segments in the silicon market, and in the wireless infrastructure segments in particular, as a way to achieve future growth.

For more:
- see this Intel release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this NYT article

Related Articles:
Qualcomm may need strategy refresh in wake of Avago-Broadcom deal
Avago buys Broadcom in $37B deal to get further enmeshed in wireless networking chips
Intel on track to cut $800M in mobile losses, but will still pay to get its chips inside devices
Reports: Intel and base station chipset specialist Altera cut off deal talks amid dispute over price
Reports: Intel likely to buy chipmaker Altera for more than $10B, gaining base station silicon specialist

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