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How Will Altera Acquisition Impact Intel’s IoT Presence?

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Altera acquisition

On June 1, 2015, Intel (INTC) announced that it would acquire Altera. During the company conference call, Intel‘s CEO, Brian Krzanich, stated that he expects approximately 60% of Altera’s value to come from “product synergies” in the data center and the Internet of Things (or IoT) spaces.

Altera’s programmable chip technology makes its chips a popular choice for a vast number of IoT devices, such as connected cars.

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Massive growth expected in IoT space

Intel expects more than 800 million households worldwide to be connected by broadband by 2018. According to the IDC (International Data Corporation), the IoT market is expected to reach $7.1 trillion in sales by 2020, up from $1.9 trillion in 2014. The above chart shows that IoT devices are expected to see a 57% compound annual growth rate (or CAGR) during the period from 2014 to 2019.

Sensing the huge growth expected in the IoT space, Intel developed its IoT platform. In February 2015, Intel strategically acquired Lantiq, which develops broadband access and home networking technology, to strengthen its presence in this space. The company also invested $740 million in Cloudera, a Hadoop vendor.

Apart from developing its platform of intelligent gateway solutions, which provide integrated and pre-validated hardware and software, Intel is also part of an IoT group, the Industrial Internet Consortium. The group is focused on the connectivity of industrial machinery. The other founding members include Cisco (CSCO), GE (GE), and IBM (IBM).

Data center and IoT will drive demand for chips

In 1Q15, Intel’s data center and IoT segments grew to $3.7 billion and $533 million, respectively. The segments grew by 19% and 11% in 1Q15, respectively. Intel’s IoT segment designs embedded chips for network-connected devices. The data center and IoT sectors are expected to lead demand for processors and memory chips.

If you’re bullish about Intel, you can invest in the Technology Select Sector SPDR Fund (XLK) to gain exposure to Intel. Intel makes up about 3.55% of XLK.

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