If Intel Corp. goes ahead with purported plans to purchase programmable logic peddler Altera Corp., it would be the largest-ever acquisition in the x86 chipmaker’s 46-year history. Whether or not the deal actually goes through, the negotiations, first reported by the Wall Street Journal on March 27, are interesting for several reasons.
As NASDAQ.com pointed out, word of these “advanced talks” pushed Intel stock up 6.4 percent. This is rare for an acquisition of this magnitude, which usually results in a minor sell-off as investors fret over the uncertainty involved and the prospect of all that debt.
Altera, known in the HPC space for its Stratix series FPGAs and System on Chip FPGA devices, experienced an even stronger stock surge in the wake of buyout speculation, pushing its market value from $10.4 billion to $13.4 billion by the market’s close on Friday. As of today (Monday), both companies’ stocks retracted slightly, but are still up by about 5 percent (Intel) and 25 percent (Altera). As of its last reporting, Intel had $14.1 billion cash on hand, making this a tight-but-not-impossible purchase.
The companies already have a partnership going back to February 2013, when Intel began providing foundry services for the FPGA giant. No longer having to pay for overhead on its chip manufacturing would be a boon for Altera’s gross margin. There is also synergy to be tapped combining Xeon processors with Altera coprocessors, providing Intel a competitive play against both the OpenPower consortium and Heterogenous Systems Architecture foundation.
Recall that Intel has been working on a Xeon-FPGA chip for about a year now, as announced by Intel’s Diane Bryant at Gigaom Structure 2014. The integrated design aims to provide customers with “a programmable, high performance coherent acceleration capability to turbo-charge their algorithms.” For the record, Intel didn’t say which of the two FPGA companies (Altera or Xilinx) they were partnering with for the hybrid devices, but we’re betting it’s Altera.
The deal is largely seen by market-watchers as something that Intel needs to do to boost its datacenter business in response to a tepid mobile market and lagging PC biz. With Altera set to bring in about $2 billion in revenue this year, an amount that is just shy of 4% of Intel’s projected revenue, the profit payoff would not happen overnight but by strengthening its datacenter prowess, Intel fortifies its highest-earning division. The datacenter group is already responsible for about about 26 percent of Intel’s business and is on track to grow to 32 percent in 2016. According to NASDAQ, bringing Altera into the fold would increase that revenue pool by another 13.4 percent, goosing earnings by 7.44 percent.