Intel-Altera deal could help chipmaker extend reach in cloud

SAN FRANCISCO—A potential deal for chipmaker Intel to buy Altera could help the company further diversify the market for its chips beyond personal computers into cloud computing.

The deal has reportedly been on and off since March, when it was first reported. The New York Post, citing a source close to the situation, reported that Santa Clara, Calif.-based Intel was close to completing a $15 billion acquisition deal for its smaller rival.

Intel is the world's leading computer-chip maker. Its processors run for the most part on PCs and in data center servers and are well-known through its "Intel Inside" ads.

The Santa Clara, Calif.-based company has seen revenues stagnate as PC sales fall and a strong dollar makes its products more expensive.

Consumers may not know the name Altera, but they likely make use of its chips every day.

The company makes integrated circuits called Field Programmable Gate Arrays (FPGAs) which can be reconfigured and reprogrammed, making them very flexible.

"FPGA's are used in cellular phone networks at the base station, so you use them every day on the other side of your phone connection," said Mark Hung, an analyst with Gartner Research.

These programmable chips are also beginning to be used in data centers for cloud computing. So whenever users go online and grab data from the cloud "they could be using these chips," he said.

Shares of both companies were up Friday on talk of the pending purchase.

San Jose, Calif.-based Altera ALTR closed up 4% Friday at $48.85.

Intel INTC closed up 1.3% at $34.36.

The Financial Times reported the deal could be announced as early as next week.

Both Intel and Alterra declined to comment Friday.

The potential deal is part of a wave of consolidation that have been sweeping the chip industry this spring.

On Thursday Singapore's Avago agreed to purchase U.S.-based Broadcom for $37 billion.

In March, Freescale Semiconductor, which makes chips used in cars, agreed to a $11.8 billion cash and stock take-over by Dutch chipmaker NXP Semiconductors.

If Intel and Altera can't agree on a price over the weekend, the deal could head to a new chapter on Monday.

There have been reports that the companies signed a standstill agreement as part of their talks. That agreement is said to expire June 1.

Such agreements bar hostile takeover attempts. If such a deal is in place, when it expires on Monday Intel would be free to begin a hostile takeover attempt if a purchase price has not been agreed on.

That's never ideal, said Hung.

"Whenever you're trying to buy a company, it's always better when the management team agrees to the takeover, that's always the preferred route. However if Altera is an asset that's valuable enough that Intel feels they can't get the management to agree, that may result in a hostile takeover," he said.