Reports: Intel likely to buy chipmaker Altera for more than $10B, gaining base station silicon specialist

Intel is in advanced talks to buy chipset vendor Altera Corp., according to multiple reports, in a deal that could top more than $10 billion. Altera makes specialized chips that are widely used in cellular base stations, so the deal could be a way for Intel to get a tighter grip of the wireless market while it is trying to get its silicon into more mobile devices.

The deal, first reported by the Wall Street Journal and then also by Bloomberg and Reuters, would be Intel's largest by far. It would also fit into a pattern of Intel expanding into new areas outside of chips for PCs and data centers through acquisitions.

Intel and Altera declined to comment, according to the reports. Altera had a market capitalization of around $10.4 billion before the WSJ first reported on the talks and ended Friday valued at $13.4 billion, according to the Journal.

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, the Journal noted. 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, according to the Journal.

"On the surface, Altera is one of the only semiconductor companies with better gross margins than Intel, and with about two-thirds of its revenue from telecom, wireless, military/aerospace, it definitely fits the bill of diversifying revenue beyond Intel's legacy computer markets," Cowen & Co. analyst Timothy Arcuri wrote in a research note to clients, according to Reuters.

Further, Altera's revenue grew faster than Intel's in 2014, jumping up 12 percent to $1.93 billion last year while Intel's increased 6.1 percent to $55.9 billion, according to the Journal.

The deal speculation comes at a time when Intel has been trying to diversify its revenue streams as the PC market has slowed down. Earlier this month Intel forecast that its first-quarter revenue would be around $1 billion lower than it previously estimated. Intel said that the change was a result of weaker than expected demand for business desktop PCs and lower than expected inventory levels across its PC supply chain. 

"This would be a significant move for Intel, it would be a significant change in strategy," Wedbush Securities analyst Betsy Van Hees told Bloomberg. "They need diversification beyond the PC market. Data center has been a tremendous source of strength. Mobile has been a tremendous financial drain."

In February, Intel struck a deal to buy Lantiq, a system-on-chip specialist focused on broadband access and home networking technologies, in a bid to get more deeply enmeshed in the smart home, one of the leading areas in the Internet of Things market. Financial terms of that deal were not disclosed but the deal is expected to close this spring.

Intel purchased Infineon's wireless business in 2010 for $1.4 billion and has struggled to gain traction in the mobile market since, losing out to Qualcomm (NASDAQ:QCOM), MediaTek and others. In 2014, Intel racked up $4.2 billion in losses in its mobile business but vowed to cut those losses this year.

However, Intel hopes to turn the corner in mobile in 2015. At the Mobile World Congress show, Intel unveiled three new Atom-based mobile processors called the x3, x5, and x7, in addition to a new 7360 LTE modem. The x3, which had been named "SoFIA," is designed for low-cost smartphones, phablets and tablets. Intel said it has 20 customers committed to deliver designs based on the x3, and that chip is expected to boost Intel's market share in the entry-level smartphone market this year. Further, a VentureBeat report claimed that Apple (NASDAQ: AAPL) will include the 7360 LTE modem inside a special version of the next iPhone that will be marketed to emerging markets in Asia and Latin America, which would be a major boon for Intel.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

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