Intel splashes $16.7bn to protect its data centre presence

Intel agreed to buy Altera for $16.7bn (€15.31bn) to defend its presence in data centres, forging a deal that will add to a record year for industry consolidation.

Intel splashes $16.7bn to protect its data centre presence

The largest chipmaker in the world will pay $54 a share in cash for the maker of programmable logic semi- conductors.

That is a premium of 11% over Altera’s closing share price on Friday and 56% from March 26, the day before the possibility of a transaction was first reported.

Intel, like other chipmakers, is seeking to contend with growth and rising costs, while trying to defend its most profitable business.

The largest deal ever in the $300bn semiconductor business was announced last week when Avago Technologies agreed to buy Broadcom for $37bn.

Intel’s Altera purchase and Avago’s Broadcom deal makes 2015 already a record year for semiconductor deals.

The deal will be funded with cash and debt and is expected to close within six to nine months.

Intel has been looking for growth beyond the struggling personal-computer market, which has been declining since it peaked in 2011. Altera chips are used in a variety of markets, ranging from communications to consumer electronics.

Intel chief executive Brian Krzanich is trying to find more customers, outside of his own chip business, for Intel’s factory network, which the company says is the most advanced in the industry. Altera has been the biggest customer of that fledgling effort.

Acquiring Altera may help Intel defend and extend its most profitable business: Supplying server chips used in data centres.

While sales of semiconductors for PCs are declining as more consumers rely on tablets and smartphones to get online, the data centres needed to churn out information and services for those mobile devices are driving orders for higher-end Intel processors and shoring up profitability.

Data centres sales at Intel’s data-centre division rose 19% in the first quarter as internet companies such as Google and Facebook built out their server operations.

As a part of Intel, Altera will continue to support designs that couple its chips with others designed on ARM Holdings technology. Companies such as Qualcomm are preparing to use that to try to break Intel’s dominance in data-centre chips, where it has more than 98% of the market.

Bloomberg

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