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Computers

Intel to buy Altera for $16.7B as chipmakers consolidate

The world's largest chipmaker, looking ahead to changes in computing, makes its biggest acquisition ever.

James Martin/CNET

Intel has agreed to buy fellow chipmaker Altera for about $16.7 billion -- Intel's largest acquisition ever -- a move that could provide a boost in its data-server and Internet of Things businesses.

Intel said Monday that it will pay $54 in cash per Altera share and that it expects to close the deal in six to nine months. Altera's stock has surged more than 40 percent since late March, when news of the companies' negotiations first surfaced. Reports that talks fell apart came out about a month ago, though the New York Post on Thursday said a revived deal would be announced as soon as this week.

Altera shares were up an additional 6 percent Monday, while Intel's share fell 1.3 percent.

"By bringing together our leading processors with Altera's hardware...we can make the next generation of semiconductors not just better, but truly able to do more," Intel CEO Brian Krzanich said on a call with analysts.

Santa Clara, Calif.-based Intel, the world's largest chipmaker, makes the processors that power the majority of the world's personal computers and data-center servers. Altera, based in nearby San Jose, Calif., focuses on chips called field-programmable gate arrays that customers can reprogram for specific tasks and that are used in the automotive, aerospace and medical industries.

The two companies already work closely together, with Intel manufacturing several of Altera's chips. Intel said Monday it plans to use Altera's products with its Xeon data-server chips, and Altera will become a business unit within Intel.

The deal marks a continued consolidation in the chips world, as firms look to bulk up in hopes of surviving in their capital-intensive industry and expand into the Internet of Things, the concept of connecting billions of everyday objects -- from buildings to shoes -- to the Web. For consumers interested in this new technology, more deals like this one could mean the young Internet of Things market will become a reality sooner, since right now no single chipmaker has a broad enough portfolio to meet all the expected needs. On the other hand, having too few chipmakers holding too much of the market could pose a danger to consumers, as less competition could allow these firms to push prices higher.

Among the biggest deals announced this year, chipmaker Avago last week unveiled its merger deal for Broadcom for $37 billion and NXP in March agreed to buy fellow chipmaker Freescale for $11.8 billion. Since the start of the year, there have been more than $80 billion in chips deals announced, according to Dealogic, easily outpacing any prior full year since the researcher started collecting this data 20 years ago.

"We're going to have a few giants out there," Gartner analyst Sergis Mushell said, who viewed all the consolidation as a sign of the chips industry maturing.

The Altera acquisition should help Intel build up and defend its data-center chips business, where Intel is the dominant player. Intel could package its server chips beside Altera's customizable chips to offer cloud providers more flexibility in creating servers for their own specific needs. The rapid growth of cloud computing, in which people can keep their files stored online, has become a major growth engine for Intel, as firms including Amazon, Google and Microsoft are racing to build huge data-center networks using Intel's chips to power their services. That growth has been particularly beneficial for Intel since its core PC chips business has struggled as consumers migrate more to smartphones.

But, with Intel already holding about 95 percent of the server market, it will also need to find new areas to grow. The Altera deal should help with that, Mushell said, by giving Intel more exposure to the networking industry, too.