Intel CEO Brian Krzanich

Intel CEO Brian Krzanich.

Intel Buys Altera To Expand Data Center, IoT Offerings

Intel this week said it's buying Altera in an all-cash deal of $16.7 billion. Here are the details.

Intel (INTC) this week announced it's buying Altera (ALTR), a San Jose, CA-based fabless $13.4 billion maker of field-programmable gate arrays (FPGAs), in an all-cash deal of $16.7 billion.

Intel said it will pay $54 a share for Altera, whose FPGAs are in telecom and networking equipment and headed into the data center. The transaction has been approved by both companies' boards of directors and is expected to close within six to nine months, officials said.

The purchase is Intel's largest ever and its most prominent acquisition since 2011 when it bought anti-virus developer McAfee for some $7.7 billion. Under terms of the deal, Altera will operate as an Intel business unit maintaining its existing sales and support teams. Intel said it will continue support and development for Altera's ARM-based and power management product lines.

Intel chief executive Brian Krzanich said the acquisition will yield new classes of customized, integrated products for the data center and Internet of things (IoT), combining its Xeon processors with Altera's FPGAs.

"Intel's growth strategy is to expand our core assets into profitable, complementary market segments," said Krzanich. "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," he said. "Whether to enable new growth in the network, large cloud data centers or IoT segments, our customers expect better performance at lower costs."

John Daane, Altera chairman, president and chief executive, said the deal will enable the chip maker to "develop innovative FPGAs and system-on-chips for our customers in all market segments. Together, we expect to drive meaningful value for our customers, partners and employees around the world."

Reports surfaced two weeks ago that the companies had resumed talks after earlier negotiations broke down over price. The NY Times reported that Altera investor TIG Advisors subsequently called for the company to come back to the table to hammer out a deal.

Altera shares, which were trading at about $35 at the end of March, closed Friday, May 29 at $48.85, as the company’s market capitalization rose to $14.7 billion.

Both the NY Times and the NY Post reported late last week that the deal was imminent and an announcement could come as early as this week.

In late April, Altera reported a 16 percent earnings tumble to $0.31 a share and a 5.6 percent revenue slide to $435 million, missing Zack’s estimates on both fronts.

The deal comes on the heels of chip maker Avago’s (AVGO) $37 billion acquisition of Broadcom (BRCM) in one of the largest technology mega-mergers on record. That merger will result in a combined company of some $15 billion in revenue and $77 billion in enterprise value.

M&A activity in the semiconductor industry has heated up of late, with Decembe's $1.6 billion merger of Cypress Semiconductor (CY) and Spansion (CODE) kicking off the recent spate of activity.

Altera and its chief rival Xilinx are the two dominant FPGA makers in the industry. In November, 2013, Krzanich disclosed plans to open Intel’s factories to other high-volume chip makers, a tactic dismissed by his predecessors but one he believed would produce a viable, alternate revenue source.

The chip maker subsequently signed outsourcing deals with Achronix Semiconductor, Tabula, Netronome and Microsemi to add to an existing fab agreement with Altera. Then, in mid-2014, Krzanich corraled Panasonic’s System LSI business for Intel’s custom foundry operation. The deal was noteworthy not only for what it brings to Intel but also for what it takes away from rival Taiwan Semiconductor Manufacturing (TSMC), the dominant player in outsourced processor production.

This article was originally published on The VAR Guy, a sister site of Talkin' Cloud's.

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