Intel has reached an agreement to purchase Altera, a producer of microprocessors, for $16.7 billion.
Altera, founded in 1983, is known for its FPGA (field programmable gate arrays) products. These are chips that can be programed to execute a plethora of computational commands. Altera FPGAs are used in every day devices like cars and optical imaging, but also play a crucial role in data processing and storage. For example, earlier this year Audi asked Altera to adapt its FPGAs for assistance in producing its own automated cars.
The San Jose based integrated circuits company started working with Intel in February of 2013. The project integrated Intel’s 14-nm node technology into Altera’s FPGA chips to improve its transistor technology.
The benefits for both companies are clear. With the acquisition, Intel is growing its market share. Currently a manufacturer of computer chips for individual computers and industrial servers, as Brian M. Krzanich, CEO of Intel put it, “Intel’s growth strategy is to expand our core assets into profitable, complementary market segments. 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.”
Altera benefited tremendously from the deal too. According to the New York Times, “Under the terms of the transaction, Intel would pay $54 a share in cash for Altera. That represents a premium of about 56 percent to where Altera was trading on March 26 before reports of merger talks emerged.”
Interestingly enough, as reported by the Times, “On Monday morning, shares of Altera were up 6 percent, at $51.81. Intel shares were down nearly 0.5 percent.”
This acquisition comes at a time when the semiconductor industry has seen numerous companies taken over and amalgamated. Only last week Broadcom was taken over by Avago Technologies for $37 billion. This past March, Freescale Semiconductor was purchased for $12 billion by NXP Semiconductors. Intel’s acquisition of Altera is one in a trend but is more notable simply because Intel is an international force in the production of computer chips.
Intel is betting on the increasing importance of FPGAs because they are more efficient than microprocessors at performing the same tasks. According to Jason Mars, professor of computer science at the University of Michigan, “This is where things are moving. And Intel is responding.”
Mars and his cohorts have found that FPGAs are also useful for voice recognition software, another burgeoning area of the technological world.
Another area where Intel is improved by the merger is GPU (graphics processing unity) production and development. Intel’s competitors such as Facebook and Google have already started developing their GPU systems to power speech and image recognition technology. Despite having a chokehold over classic individual computer processors, that is a technology of the past. To keep up, this acquisition was an absolute necessity for Intel, which makes the drop in share price rather surprising.
FPGA and GPU technology are the future, and in absorbing Altera, Intel has moved one step closer to being an innovator in future computing ventures. The largest acquisition in the tech monster’s 47-year history is a grab for additional revenue streams as mobile devices start to eclipse individual computers as the most important technological medium in the world.