Intel’s $17bn deal for rival Altera will give the firm a much better chance of becoming a dominant player in the cloud and Internet of Things (IoT) markets, as its traditional server and PC markets diminishes.
This was the view of analysts in response to the deal, which was confirmed by Intel on Monday when it touted the deal as key for its future by enabling its to broaden its offerings to customers.
“With this acquisition, we will harness the power of Moore’s Law to make the next generation of solutions not just better, but able to do more,” said Intel CEO Brian Krzanich.
“Whether to enable new growth in the network, large cloud data centres or IoT segments, our customers expect better performance at lower costs.”
Tom Hackenberg, principal analyst, embedded processing for IHS, said it was clear Intel needs to do this as its traditional areas of revenue for its microprocessors (MPUs) for central processing unit in PCs, tablets and desktop is stalling, while its moble efforts are not paying off.
“In the last several years, demand has stagnated for desktop PCs and the forecast for portable PCs has begun to slow,” he said.
“Much of this market sluggishness has been related to the introduction of more portable computing platforms, such as smartphones and tablets.”
As such, picking up Altera, which generates around $2bn a year in revenues from its focus on other areas of the market, specifically the data centre, and its technology related to programmable logic devices (PLDs) and system-on-chip (SoC) field programmable gate arrays (FPGAs), will benefit Intel.
“Intel supplies a host of integrated chip solutions to many markets beyond computers, and it is in many of these markets that Intel has the most potential for continued growth,” added Hackenberg.
“Communications infrastructure and data center equipment comprise some of the largest synergetic markets for Intel and Altera.”
Furthermore, with the IoT market a major area of focus for Intel the technology offered by Altera in this area will complement its existing offerings perfectly.
“Intel is already the leading supplier of high-performance wired and wireless telecommunications infrastructure processor solutions and - with an increasing market for IoT connected devices - these markets provide even greater opportunity for the right solutions.
“Altera’s position as a strong supplier of broadband, networking and telecommunications solutions was likely a crucial consideration for Intel."
Ken Odeluga, a senior market analyst at www.cityindex.com.sg, agreed that Intel’s move was key to combating the slowdown in PC market revenues.
“The companies are already partners and Intel will look to use its new acquisition’s line of programmable chips to get revenue growth amid a slow down in personal computer demand that is dampening its own growth.”
He added that Intel’s move with symptomatic of the existing consolidation taking place within the chip market, which includes the recent $37bn merger agreed last week between Avago and Broadcom.
“Intel’s bid for Altera is a strategic manoeuvre to consolidate – a strategy that is becoming more common within the semi conductor sector as companies search for new sources of revenue growth and target chip makers struggling to increase their profitability on their own,” he said.
Intel will run Altera as a business unit and leave the company free to continue making services that run on ARM products.
The acquisition is worth $16.7bn in total, which sees Altera's shares valued at $54 each, and has already been approved by the boards of both firms.
John Daane, chief executive of Altera, said that the deal was the right move and will bring its expertise to Intel.
"Given our close partnership, we've seen first hand the many benefits of our relationship with Intel and look forward to the many opportunities we will have together,” he said.
The deals between Altera and Intel and Broadcom and Avago are not the only major acquisitions in the chip market this year. NXP bought Freescale in a deal worth $11bn in March.
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