Analysts cool on Intel/Altera combo

“People have been talking about something like this for two or three years but when I run down the advantages to Intel, I’m not so sure I come up with a very long list,” said Rich Wawrzyniak, a senior analyst at Semico Research.

The deal would help Intel diversify beyond the slumping PC market, expanding its growing business in sectors such as telecom. Like Intel, Altera sells chips at relatively high average prices and profit margins.

However the volumes of the FPGA market are tiny by comparison to Intel’s computer markets. Some have questioned a deal that would require spending as much as $13 billion to acquire just less than $2 billion in annual revenues

Intel and Altera have grown close in recent years, potentially sparking talk of an acquisition. Altera will use Intel as a supplier of 14nm foundry capacity, although it still maintains a longstanding relationship with TSMC which makes most of its chips.

Analysts in Taiwan were mixed on the impact such a deal would have for TSMC. Altera accounts for about three percent of TSMC’s sales revenue.

An Altera acquisition by Intel “is likely long-term negative for TSMC,” said George Chang, an analyst with Yuanta Securities in Taipei. “It shows the aggressiveness of Intel’s inroads into the foundry market,” he said.

“Altera has still not announced their 10nm process, so an acquisition could sway this decision,” said Randy Abrams, an analyst with Credit Suisse in Taipei. “Even if an acquisition takes place, we would expect Altera to keep the 20nm and above nodes at TSMC due to incompatible processes and resources needed to requalify the parts.”

Intel’s lacks the equipment to support various lagging nodes, so the financial impact on TSMC should be small if Intel acquires Altera, Abrams said.

Altera is the second largest maker of FPGAs, following Xilinx. IC Insights ranks it as the 39^th largest chip maker with revenues of $1.9 billion in 2014 compared to Xilinx at #30 with $2.4 billion. Semico projects the FPGA market as a whole will grow from $5.4 billion this year to $7.4 billion in 2019, slightly faster than industry.

Intel has experimented with links between its server processors and FPGAs, an approach Microsoft is starting to adopt in its data centers. However, Intel does not have to acquire Altera to get access to FPGA technology.

A handful of smaller companies are licensing FPGA blocks, Wawrzyniak said. Intel also makes FPGAs for smaller firms such as Achronix and Tabula, which is closing its doors this month.

“Altera, along with Broadcom, has long been considered a likely acquisition target for Intel,” said Ross Seymore, an analyst with Deutsche Bank, in a note late Friday.

“Given their foundry relationship at 14nm, Altera’s need for leading edge technologies and Intel’s expertise in process technologies, we think this makes as much strategic sense today as it has in the past,” Seymore said. However, Intel’s “$20 billion share repurchase plan announced last year seems to have decreased the likelihood of a deal of such scale, as Intel seemingly believed buying back its own stock a superior alternative,” he added.

One Wall Street analyst speculated Intel might buy an FPGA company as far back as early 2010.

The reports of the Altera acquisition are the latest in a trend toward consolidation of the semiconductor industry following an announcement earlier this year of NXP’s bid for Freescale Semiconductor.

“The recent rapid consolidation of the chip industry and the resurgence of integrated device manufacturers could put the foundry business model under threat,” said Maybank Kim Eng Securities analyst Warren Lau in a report today. Samsung could be the next company on the acquisition trail given its ample war chest of $60 billion in cash, Lau said.

–Alan Patterson in Taipei contributed to this report

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