Will the Intel-Altera merger succeed?

Reports that x86 giant Intel Corp. was in advanced talks to buy FPGA maker Altera has received half-hearted responses from analysts.

On Friday, the Wall Street Journal and Reuters reported Intel was in talks to acquire Altera. The FPGA maker's stock shot up from $34.74 to $44.41 within 30 minutes, pushing the price of what would be Intel's largest acquisition ever from $10 billion to $13 billion. Altera's stock price cooled slightly Monday to about $42.

"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 3 per cent 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.

- Rick Merritt
  With a report from Alan Patterson in Taipei
  EE Times