Intel to Buy Altera in Effort to Grow Cloud, IoT Work

The $16.7 billion deal enables Intel to integrate FPGAs into Xeon and Atom chips, expanding its capabilities around cloud workloads and IoT devices.

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Intel is finally pulling the trigger on Altera, buying the programmable chip maker for $16.7 billion in a bid to bolster its efforts in the data center and Internet of things and accelerating a wave of consolidation in a volatile semiconductor market.

After months of speculation and on-and-off negotiations, Intel officials announced June 1 that the giant chip maker will pay $54 per share for Altera, an Intel partner since 2013 that builds field-programmable gate arrays. FPGAs can be programmed through software and are becoming increasingly important accelerators for cloud and Web-scale environments by improving performance and holding down power consumption.

Intel executives expect the deal to close within six to nine months, after which Altera will become a business unit within the company. The boards of directors of both companies have approved the deal, according to Intel Executive Vice President and CFO Stacy Smith.

During a conference call to talk about the deal, Intel CEO Brian Krzanich said Altera fits within his company's business strategy of using its core strengths to expand into complementary markets. In this case, Intel will not only be able to leverage Altera's technology and expertise to grow its capabilities in cloud environments, but also will be able to expand its reach in the burgeoning Internet of things (IoT).

"This acquisition is a perfect example of our strategy," Krzanich said. "We can make the next generation of processors not just better, but be able to do more."

Intel's acquisition of Altera highlights a trend within the semiconductor industry of chip makers buying other companies to bolster their capabilities in such markets as fast-growing and increasingly important mobile devices, cloud workloads and the IoT. The Intel deal follows on the heels of last week's massive $37 billion deal by Avago Technologies to buy chip maker Broadcom, which will create a significantly larger company that officials expect will be better positioned to compete with such vendors as Intel, Qualcomm and Samsung in markets like smartphones, tablets and IoT devices.

Other deals include NXP Semiconductors in March announcing it is buying Freescale Semiconductor for about $12 billion and Qualcomm, the world's largest mobile device chip maker, last fall saying it is acquiring British chip maker CSR for $2.5 billion, a move to boost its capabilities in the IoT.

"This is not a defensive play or move," Intel's Krzanich said, adding that the Intel-Altera pairing will fuel the development of new systems and devices. "These are products that customers want."

He said that having Altera and its 40 percent share of the FPGA market in the fold will enable his company to address emerging cloud workloads in the data center by integrating FPGAs into its Xeon server processors and offering "alternatives to ASICs and ASSPs [application-specific standard products]. This is a growth segment." The company is predicting that by 2020, a third of all workloads run by cloud service providers will leverage FPGAs to reduce costs and increase performance by as much as two times, the CEO said, adding that the addressable data center market addressed by a combined Intel-Altera is about $37 billion.