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Business News/ Companies / Intel is said to be in talks to acquire chip maker Altera
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Intel is said to be in talks to acquire chip maker Altera

Intel is on the hunt for growth as it faces a slowdown in the market for PCs that forced a $1 billion cut in its first- quarter sales forecast earlier this month

That decline comes on top of heavy losses in Intel’s mobile division. The group reported an operating loss of $4.21 billion for 2014. Photo: BloombergPremium
That decline comes on top of heavy losses in Intel’s mobile division. The group reported an operating loss of $4.21 billion for 2014. Photo: Bloomberg

New York: Intel Corp. is in talks to acquire Altera Corp., people with knowledge of the matter said, as the world’s largest chip maker searches for growth beyond a moribund personal-computer market.

The people asked not to be identified discussing private information. The Wall Street Journal reported earlier on the discussions. Altera shares jumped 28% to $44.39 at the close in New York, giving the company a valuation of about $13.4 billion. Intel rose 6.4% to $32.

Chuck Mulloy, a spokesman for Santa Clara, California-based Intel, and Sue Martenson, a spokeswoman for San Jose, California-based Altera, declined to comment.

Intel is on the hunt for growth as it faces a slowdown in the market for PCs that forced a $1 billion cut in its first- quarter sales forecast earlier this month. Sales in the worldwide PC market will shrink 4.9% this year, IDC said, as consumers around the world spend more on mobile devices typically based on processors using designs from Intel rivals such as Qualcomm Inc.

That decline comes on top of heavy losses in Intel’s mobile division. The group reported an operating loss of $4.21 billion for 2014.

A bright spot for Intel is the data-center group, where profits soared to $7.28 billion on sales of $14.4 billion in 2014. The company benefited from a boom in the amount of data being generated and held in computing centers around the world.

Altera’s chips

Altera makes a broad range of low-power programmable semiconductors, which are used in small embedded devices and computer servers for big data centers.

In buying Altera, Intel could expand into markets for automotive, industrial and communication applications, while cementing its lead in data centers, said Betsy Van Hees, an analyst at Wedbush Securities Inc. Hees has a neutral rating on the stock.

“This would be a significant move for Intel, it would be a significant change in strategy," she said. “They need diversification beyond the PC market. Data center has been a tremendous source of strength. Mobile has been a tremendous financial drain."

Intel and Altera announced a manufacturing partnership in February 2013, agreeing that Altera chips would be made in Intel’s cutting-edge plants. That deal was extended in March last year when the companies agreed to do more detailed work together on chip packaging and design.

Data centres

An acquisition of Altera would help Intel make further inroads into corporate data centers and reduce its dependence on a PC market pressured by the rise of mobile computing, according to Stacy Rasgon, an analyst at Sanford C. Bernstein & Co. who has the equivalent of a sell rating on Intel’s stock.

“It makes sense that they would potentially be looking for other opportunities to grow the other part of the business," Rasgon said. “There are synergies, say, in Intel’s data-center business."

Intel could use Altera’s technology to create new processors that pair its traditional products with low-power communications chips, wrote Jefferies Group LLC in a note circulated after the market close on Friday.

Taking share

That would let the company “offer cloud-service providers like Google, Amazon and Facebook the ability to pull communication processing from expensive networking equipment into much lower-cost server blades, effectively enabling Intel to take share in the data-center networking-equipment market," Jefferies wrote.

Altera reported operating income of $543.4 million on sales of $1.93 billion in 2014, compared with Intel’s full-year revenue of $55.9 billion.

The acquisition could be a cash cow for Intel by letting it pour Altera’s chips through its aging chipmaking facilities, Hees said. This would help Intel amortize the expense of new plants, which can cost as much as $10 billion.

“It makes sense for them to forge forward in terms of acquiring them," she said. “They have the capacity."

Semiconductor makers are turning to acquisitions as they seek new avenues of growth. Intel’s biggest acquisition to date was the purchase of security software maker McAfee Inc. in 2010 for $6.59 billion. Dutch chip maker NXP Semiconductor agreed earlier this month to acquire Freescale Semiconductor Ltd. for about $11.8 billion. Bloomberg

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Published: 28 Mar 2015, 05:24 PM IST
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