After a long wait, Intel announces Altera’s acquisition
On June 1, 2015, Intel (INTC) announced the acquisition of Altera Corporation for ~$16.7 billion in cash, as reported that day in the Wall Street Journal. Intel would pay $54 per share to Altera. Funded by a combination of cash and debt, the Altera acquisition is expected to be finalized in the next six to nine months. This acquisition is touted as the biggest acquisition Intel has made to date.
Another major acquisition in the semiconductor space was Avago Technologies’ (AVGO) announcement that it would acquire Broadcom (BRCM) for $37 billion, as announced on May 28, 2015. The agreed-to price of $54 per share of Altera stock is at a premium of 11% over Altera’s closing share price on March 29, 2015, and 56% from March 26, when the possibility of Altera’s acquisition was first reported. On May 27, the Wall Street Journal reported that Intel was in “advanced talks” to acquire Altera.
However, because Altera’s management was not satisfied with the price that Intel offered for its acquisition, the Wall Street Journal reported on April 9 that talks between the two companies had stalled. The above chart shows Intels’ price from February 4–June 3, 2015.
Altera is one of the leading manufacturers of field-programmable gate arrays (or FPGAs) that customers can configure for various tasks. FPGAs are used extensively in computer networking equipment, phone networks, and automobiles. In fiscal 2014, Altera posted revenues of $1.9 billion.
Altera acquisition boosts Intel’s position in datacenter chip market
The PC market is going through a sluggish phase, as consumers and enterprise users turn to tablets and smartphones to access the Internet. So, data centers must churn out information and services for these mobile devices that are driving demand for higher-end Intel processors.
Data centers, along with the Internet of Things (or IoT), are expected to drive demand for processors and memory chips. Intel highlighted these two segments as its future growth drivers. As the above chart shows, Altera’s acquisition should provide Intel with a small but rapidly growing business.
On June 1, Intel CEO Brian Krzanich noted, “The acquisition will couple Intel’s leading-edge products and manufacturing process with Altera’s leading field-programmable gate array (or FPGA) technology.” He further stated, “The combination is expected to enable new classes of products that meet customer needs in the data center and Internet of Things market segments.”
If you’re bullish about Intel, you can invest in the VanEck Vectors Semiconductor ETF (SMH) and the Technology Select Sector SPDR Fund (XLK). SMH and XLK invest 19.4% and 3.55% of their holdings in Intel, respectively.