Report: Intel Mulls Altera Acquisition in Mega Chip Deal

Chip giant Intel (INTC) is in talks to buy San Jose, CA-based Altera, a fabless $13.4 billion maker of field-programmable gate arrays (FPGAs) now used in telecom and networking equipment and headed into the data center, according to a report in the Wall Street Journal.

While no firm price yet has been set on the deal, the purchase would be Intel’s largest ever and its most prominent acquisition since 2011 when it bought anti-virus developer McAfee for some $7.7 billion. Altera’s market cap before word of a possible deal stood at $10.4 billion but closed Friday at $13.36 billion.

FPGAs are integrated circuits that can be custom programmed by customers after manufacturing to run specific tasks such as data encryption and can perform faster than standard microprocessors such as Intel’s Xeon chip. Intel has an existing manufacturing deal with Altera in place since March, 2013 to make the vendor’s FPGAs using its 14nm tri-gate transistor technology.

Altera and its chief rival Xilinx are the two dominant FPGA makers in the industry. Were Intel to snap up Altera it might also position Xilinx as an attractive takeover target.

In November, 2013, Intel chief executive Brian Krzanich disclosed his plan to open the company’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 its 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.

Krzanich, in referring to Intel’s manufacturing services, previously has said, “If we can utilize our silicon to provide the best computing, we’ll do that. People who can use our leading edge and build computing capabilities that are better than anyone else’s, those are good candidates for our foundry service.”

The Altera purchase for sure will keep Intel’s foundries full. And, an Altera deal could help make up for what Intel sees as an impending slowdown in its PC chip business for Q1 2015. Two weeks ago, Intel said its initial forecast for Q1 chip sales was too optimistic by $1 billion and lowered its revenue projections for the period to $12.8 billion.