Alex Sherman and Jack Clark
INTEL was in talks to acquire Altera, people with knowledge of the matter said last week, as the world’s largest chipmaker searches for growth beyond a moribund personal-computer market.
The people asked not to be identified discussing private information. The Wall Street Journal reported earlier on the discussions.
Altera shares jumped 28 percent to $44.39 (R534) at the close in New York on Friday, giving the company a valuation of about $13.4bn. Intel rose 6.4 percent to $32.
Chuck Mulloy, a spokesman for California-based Intel, and Sue Martenson, a spokeswoman for California-based Altera, declined to comment.
Intel is on the hunt for growth as it faces a slowdown in the market for PCs that forced a $1bn cut in its first- quarter sales forecast earlier this month.
Sales in the worldwide PC market would shrink 4.9 percent this year, research firm IDC said, as consumers around the world spend more on mobile devices typically based on processors using designs from Intel rivals such as Qualcomm.
That decline comes on top of heavy losses in Intel’s mobile division.
The group reported an operating loss of $4.21bn for 2014.
A bright spot for Intel is the data-centre group, where profits soared to $7.28bn on sales of $14.4bn in 2014. The company benefited from a boom in the amount of data being generated and held in computing centres around the world.
Altera’s chips
Altera makes a broad range of low-power programmable semiconductors, which are used in small embedded devices and computer servers for big data centres.
In buying Altera, Intel could expand into markets for automotive, industrial and communication applications, while cementing its lead in data centres, said Betsy Van Hees, an analyst at Wedbush Securities. Hees has a neutral rating on the stock.
“This would be a significant move for Intel, it would be a significant change in strategy,” she said.
“They need diversification beyond the PC market. Data centre has been a tremendous source of strength. Mobile has been a tremendous financial drain.”
Intel and Altera announced a manufacturing partnership in February 2013, agreeing that Altera chips would be made in Intel’s cutting-edge plants.
That deal was extended in March last year when the companies agreed to do more detailed work together on chip packaging and design.
An acquisition of Altera would help Intel make further inroads into corporate data centres and reduce its dependence on a PC market pressured by the rise of mobile computing, according to Stacy Rasgon, an analyst at Sanford C Bernstein, who has the equivalent of a sell rating on Intel’s stock.
“It makes sense that they would potentially be looking for other opportunities to grow the other part of the business,” Rasgon said. “There are synergies, say, in Intel’s data-centre business.”
New processors
Intel could use Altera’s technology to create new processors that pair its traditional products with low-power communications chips, wrote Jefferies Group in a note circulated after the market close on Friday.
That would let the company “offer cloud-service providers like Google, Amazon and Facebook the ability to pull communication processing from expensive networking equipment into much lower-cost server blades, effectively enabling Intel to take share in the data-centre networking-equipment market,” Jefferies wrote.
Altera reported operating income of $543.4 million on sales of $1.93bn in 2014, compared with Intel’s full-year revenue of $55.9bn.
The acquisition could be a cash cow for Intel by letting it pour Altera’s chips through its aging chipmaking facilities, Hees said. This would help Intel amortise the expense of new plants, which can cost as much as $10bn.
“It makes sense for them to forge forward in terms of acquiring them,” she said. “They have the capacity.”
Semiconductor makers are turning to acquisitions as they seek new avenues of growth. Intel’s biggest acquisition to date was the purchase of security software maker McAfee in 2010 for $6.59bn.
Dutch chipmaker NXP Semiconductor agreed earlier this month to acquire Freescale Semiconductor for about $11.8bn. – Bloomberg