Intel Corporation (NASDAQ:INTC) doesn’t exactly have a reputation for splurging. It is pretty calculative with regards to acquisitions and does them to make up for lack of specific technologies. That’s why Intel’s $16.7 billion acquisition of Altera Corporation (NASDAQ:ALTR) is momentous.
Altera’s technology is valuable to Intel’s fast growing data center business unit. It is a matter of debate whether the acquisition of Altera makes financial sense. Intel is emulating Facebook Inc (NASDAQ:FB)’s acquisition of WhatsApp by gambling on something that doesn’t follow conventional wisdom.
The numbers simply doesn’t support the Altera’s acquisition. Intel is dishing over 30 times previous years operating income for an enterprise, with margins less than what it had four years back. A few Wall Street analysts opined that the deal was vastly overpriced. The Altera deal is part of Intel’s game plan of the data center industry analogous to its command over the desktop industry before the advent of the mobile.
But Intel’s CEO, Brian Krzanich holds the view that Altera’s expertise would significantly ramp up Intel’s most profitable business of manufacturing chips for corporate data centers.
The Altera deal is part of Intel’s game plan of monopolizing the data center industry analogous to its command over the desktop industry before the advent of the mobile.
The demand for Intel’s microprocessors put inside PCs has decreased, with demand moving to smartphones and tablets. Altera’s expertise is in chips termed field programmable gate arrays (FPGA) which can be tweaked for specific tasks after their production. They are pervasive in networking and wireless equipment markets where Intel hasn’t entered yet. Certain firms are combining FPGAs with conventional chips to accelerate servers a practice Intel’s desires to replicate.
While Intel’s chips are predominantly utilized in servers, Altera’s chips are present in phone networks and automobiles, a domain Intel plans to enter. The two firms have a successful history of collaboration. Intel produces some of Altera’s designed chips while Altera has harnessed Intel’s expertise in chip designing. It takes less time to produce new hardware with an FPGA compared to a custom chip design.
Intel hopes that Altera acquisition will drastically reduce the development period for industrial and automotive hardware. The deal could propel Intel to being leading supplier for a new generation of components.
Sources: Frobes, BBC, wsj.com