TSM Taiwan Semiconductor Manufacturing Co Ltd

Intel Corp. on Monday completed its biggest-ever acquisition, a deal that underscores Chief Executive Brian Krzanich's plan to use new tactics to expand the chip maker's business.

The $16.7 billion purchase of Altera Corp. makes Intel, known for microprocessors used in computers, the second-largest maker of chips that can be programmed after they leave the factory. Altera's chips are used in an assortment of devices that include networking equipment, a field that Intel has targeted recently.

But Intel's more pressing priority is continuing to serve the computing needs of giant Web services like Facebook Inc., Google Inc. and Microsoft Corp. that rely on the company's Xeon processors. That is becoming more difficult to accomplish through Intel's traditional practice of squeezing more transistors on each piece of silicon.

Microsoft and others, seeking faster performance in tasks like Web searches, have experimented with augmenting Intel's processors with the kind of chips sold by Altera known as FPGAs, or field programmable gate arrays. Intel's first product priority after closing the Altera deal is to extend that concept.

The Santa Clara, Calif., chip giant, which announced the Altera deal at the end of May, has said it plans in 2016 to begin selling products with a Xeon chip and an Altera FPGA in a single package. But Mr. Krzanich has promised to pack traditional processor and FPGA circuitry onto one chip, bringing still greater performance benefits.

Wendell Brooks, Intel's vice president in charge of mergers and acquisitions, estimated that the first approach can bring a 30% to 50% speed improvement over using processors and FPGAs separately. Integrating the two functions, which won't occur until after 2016, can double or triple the performance, he said. That combination, he said, should bring dramatic benefits for jobs like facial recognition, where computers may have to search through hundreds of millions of images to find matches.

In a different vein, Mr. Brooks said, integrating Intel's tiny Atom chips with FPGAs could also help the company in new areas such as automobile electronic systems, where the ability to reprogram chips could bring new features to vehicles even after they have been sold to consumers.

Intel is betting that its production technology can help bring such integrated products to market quickly. At the same time, it intends to improve Altera's products with the goal of taking sales from longtime rival Xilinx Inc.

"The biggest impact of the deal is the way Intel can bring its manufacturing process to the FPGA business," said Mark Hung, an analyst with Gartner Inc.

Intel plans to let Altera operate as a new business unit that will keep the Altera brand and some operations that are foreign to Intel. Though future Altera chips will be made in Intel factories, for example, existing products will continue to be manufactured by Taiwan Semiconductor Manufacturing Co.

The unit, called the programmable solutions group, also will continue to deliver some products that use processor designs licensed from ARM Holdings PLC. Intel has long fought—largely unsuccessfully—to displace ARM chips from smartphones in favor of its mainstay x86 processor technology.

"We are going to support and develop ARM-based products, just as Altera did historically," Mr. Brooks said.

Linley Gwennap, a Silicon Valley chip analyst who heads a firm called the Linley Group, said the Altera deal illustrates Mr. Krzanich's willingness to try new approaches in search of growth beyond the slowing market for PC chips.

Another sign is a series of recent senior executive hires from outside Intel, which has tended to promote from within the company.

In November, Intel recruited longtime Qualcomm Inc. executive Venkata "Murthy" Renduchintala to run the company's largest businesses. Mr. Krzanich recently estimated that about 40% of his direct staff is new to the company.

"It's a big change for them," Mr. Gwennap said. "I really get the feeling that Brian wants to shake things up."

Most of Altera's roughly 3,300 employees will remain in their current jobs or be encouraged to find other positions at Intel, Mr. Brooks said. One who won't stay is John Daane, Altera's chief executive. The new unit will be run by Dan McNamara, a longtime Altera executive.

Write to Don Clark at don.clark@wsj.com

(END) Dow Jones Newswires

December 28, 2015 16:55 ET (21:55 GMT)

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