Intel Buys Altera for $16.7 Billion

by Dan Holden | June 1, 2015

Altera chips

Intel Corp. today confirmed that it has agreed to buy Altera Corp. for $16.7 billion in a move that is designed primarily to achieve growth in the face of declining PC sales and stiff competition from other chip makers.

Intel will pay some $54 per share in cash for Altera, which makes programmable logic, typically using the ARM processor design for core logic.

Altera makes programmable logic devices and uses primarily ARM cores (designs) for processing.  The acquisition gives Intel a significant position in the ARM processor market, which is a direct competitor to Intel processors and has dominated the mobile device market due to its lower power draw and open business model.

By purchasing a semiconductor maker that is based on ARM technology Intel competes with its own business, but it also gains a significant edge, especially in markets demanding the latest technology and programmable designs. Altera processors also command a premium as they typically push the leading edge of manufacturing technology to accommodate its large designs in the smallest possible space.

Years ago, Altera used primarily Taiwan Semiconductor Manufacturing Company (TSMC) as its sole source for semiconductor manufacturing, which allowed the company to freely adopt the ARM processor technology. Later pressure from investors and customers caused Altera to seek a second source for its manufacturing, but a tie with Intel was considered out of the question due to the conflicting use of ARM processor cores. Nevertheless Intel made accommodations and Altera has since become a primary partner in Intel’s nacent “foundry” business, in which it uses excess capacity to build chips for other companies.

Still, ARM and its customers had already severely damaged Intel’s play in the mobile market by developing chips that operated as fast as Intel’s processors but used considerably less power, enabling longer batter life for mobile devices.  The win was so overwhelming that Intel has never really recovered.

Intel’s acquisition price represented a premium of 11 percent over Altera’s closing share price on Friday and 56 percent from March 26, the day rumors of a transaction were first reported.

Though large, the acquisition is dwarfed by Avago Technologies’ deal last week to purchase Broadcom Corporation for $37 billion. That deal is considered the largest ever in the $300 billion semiconductor market.

Disclosure: Writer Dan Holden was previously employed at Altera Corporation.

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