By Dana Mattioli and Dana Cimilluca in New York and Don Clark in San Francisco
Intel Corp. is in advanced talks to buy chip partner Altera
Corp., according to people familiar with the matter, a move that
would represent the semiconductor giant's biggest-ever
acquisition.
It wasn't immediately clear how much Intel would pay for a deal.
Altera had a market capitalization of about $10.4 billion before
The Wall Street Journal first reported on the talks and ended
Friday valued at $13.4 billion. It would be a big bite for Intel,
which has historically stuck to smaller-size acquisitions.
The Santa Clara, Calif., company is a giant in the semiconductor
business and had a market value of $151.6 billion. It is the
largest maker by far of chips that supply calculating engines in
PCs and server systems.
Altera, based in San Jose, Calif., is one of the two largest
makers of field-programmable gate arrays, or FPGAs, which can be
configured by customers for various tasks after they are
manufactured. FPGAs are widely used in phone networks,
computer-networking equipment, cars and other products.
Altera and longtime rival Xilinx Inc. have pushed FPGAs into new
areas where customers once designed chips from scratch. These chips
can be programmed to carry out specialized tasks like data
encryption and work much faster than standard microprocessors like
Intel's Xeon.
Intel and Altera have worked together in the past. Intel, which
has tried to build a new business out of manufacturing chips for
other companies, in 2013 reached an agreement to offer its most
advanced production process to Altera.
Buying Altera would further solidify their manufacturing
partnership, and help Intel keep its factories full. Still, a
tie-up with Altera may not help Intel place more of its chips in
smartphones, now a major gap in its portfolio as more computing
activities take place in pocket-size products. A deal indirectly
could help Intel in the mobile market; Altera chips are widely used
in the wireless base stations that connect cellphone users.
A combination would add a fast-growing business to Intel;
Altera's revenue is climbing faster than Intel's--up 12% to $1.93
billion last year while Intel's rose 6.1% to $55.9 billion.
"I think FPGAs are hot and having [Altera] in-house is a big win
for Intel," said Roger Kay, an analyst at researcher Endpoint
Technologies Associates.
Intel investors cheered the possible deal. The company's shares,
which had risen 18% in the past year, shot up 6.4% to $32 after the
Journal reported talks were under way. Altera stock, which had been
down 2.5% in the past 12 months, jumped 28% to $44.39.
Altera, a so-called fabless chip designer that owns no factories
of its own, mainly has relied on Taiwan Semiconductor Manufacturing
Co. to build its earlier generations of products. Past industry
mergers suggest Altera would continue to use TSMC to make those
chips, even if it becomes part of Intel, because of the
difficulties of moving production.
Intel, which built a huge franchise in the PC market in the
1990s, began suffering several years ago as consumer spending
shifted from laptop computers to tablets and smartphones. Despite
efforts to crack the smartphone market, the semiconductor pioneer
largely has failed to match the success of rivals like Qualcomm
Inc.
Though the PC business has rebounded somewhat, Intel's results
have remained under pressure. The company this month cut its
revenue outlook for the first quarter by nearly $1 billion to
roughly $12.8 billion.
Under Chief Executive Brian Krzanich, who took over in 2013,
Intel has continued trying to break into mobile devices and focused
on newer opportunities such as wearable computing devices. Those
efforts have so far failed to boost Intel's revenues by much,
however.
The semiconductor industry, meanwhile, is facing a consolidation
wave as mature companies like Intel find it harder to expand their
existing businesses on their own. Another factor is the increase in
costs to design new chips that pack more features on each square of
silicon, which is driving some smaller players into the arms of
larger rivals.
Just this month, NXP Semiconductors NV agreed to buy Freescale
Semiconductor Ltd. for $11.8 billion.
"About six months ago I said in five-to-10 years, half of the
companies we know today won't exist anymore," Scott McGregor, CEO
of chip maker Broadcom Corp., said in an interview soon after that
deal was disclosed. "And it's pretty solid on that track."
So far this year, there have been more than $21 billion in
announced semiconductor deals globally, not including any Intel and
Altera tie-up, according to Dealogic. That is a 122% increase over
the same period last year, and the largest year-to-date total since
the data provider started keeping records in 1995. In all of 2014,
there were only $39.1 billion of chip deals announced, according to
Dealogic.
Intel's last significant acquisition was its $7.7 billion deal
to buy security-software company McAfee Inc. in 2011. Around the
same time, Intel purchased Infineon Technologies AG's wireless-chip
business for $1.4 billion.
Write to Dana Mattioli at dana.mattioli@wsj.com, Dana Cimilluca
at dana.cimilluca@wsj.com and Don Clark at don.clark@wsj.com
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