Intel closed the biggest acquisition in its history Monday, wrapping up the $16.7 billion deal for programmable chipmaker Altera.
The takeover was one of the biggest transactions in a record year for semiconductor industry consolidation, with more than $110 billion in merger-and-acquisition activity. Chipmakers are buying each other to bulk up on scale, hoping to offset the rising cost of manufacturing increasingly complex computer chips.
Altera becomes a new business unit within Intel called the programmable solutions group. It will be run by former Altera Vice President Dan McNamara. Altera’s headquarters were in San Jose, Calif., close to Intel’s corporate offices in Santa Clara.
Intel said it will lose money on the deal during the first year, primarily because of acquisition costs. But Intel expects the deal to contribute to its cash flow using a separate measure of profitability.
Altera is a small company relative to Intel — $1.2 billion through the first nine months of 2015, compared to the $40.4 billion Intel reported in the same period.
But Intel hopes Altera’s programmable chips can improve the performance of microprocessors inside data centers, which have emerged as Intel’s most important market. While PC sales are shrinking, data centers are hugely profitable for Intel and the company forecasts long-term growth around 15 percent annually.
Intel also expects Altera’s chips to play a role in the Internet of Things market — an emerging sector that encompasses wearable technology, online appliances and other forms of computing integrated into day-to-day life. It’s a tiny part of Intel’s business now, but the company is investing heavily in hopes of being out in front of the next wave of technology.
Altera was among the first chip businesses to contract with Intel to make its chips inside Intel’s leading-edge factories. The two companies had a prolonged, semi-public courtship this spring, with Altera rejecting successive offers from Intel – then coming under investor pressure to take a deal.
The companies finally came to an agreement in June. Altera’s $16.7 billion price represents a 56 percent premium on its market value before word of a possible deal hit the streets in March. Intel borrowed more than $7 billion to help fund the takeover.
Intel shares were down 11 cents in early trading Monday at $34.94. Its stock remains near its highest point of the year, though.
