Semiconductor Industry M&As Continue: Intel to Buy Altera - Analyst Blog
It seems that the semiconductor industry is going through a massive consolidation phase as merger & acquisition activities are on the rise. The most recent development in this regard is the acquisition of Altera Corp. ALTR by world’s No. 1 chipmaker, Intel Corp. INTC.
In a joint announcement, the companies revealed a definitive agreement under which Intel will acquire Altera in an all-cash deal worth $16.7 billion or $54 per share. The price suggests an approximate 10.5% premium over its May 29 closing price of $48.85.
Following the announcement, shares of Altera gained nearly 6% and hit a new 52-week high of $51.91. However, shares of Intel dropped 1.6% to $33.90.
The board of directors at both the companies unanimously approved the deal which is expected to close in the next 6–9 months. This will be Intel’s biggest acquisition to date, which it will fund through a combination of available cash and debt from its balance sheet.
The two companies have been in merger talks for some time now. In March, Intel was apparently in advanced talks to buy Altera. However, in April, Altera rejected the offer due to a price disagreement.
Altera is a leading field programmable gate array (FPGA) maker. FPGAs designed by Altera are used in telecom and computer networks, cars and other products and are suitably reconfigured to take the workload off the main computer system to increase the speed.
Intel, on the other hand, designs and prepares the computing logic that processes the information on the system. Therefore, Intel’s chips work faster when coupled with FPGAs — same as what Chipzilla has been doing for some time now with its Xeon line.
Altera already has an exclusive 14-nm foundry agreement with Intel. The buyout will bring the companies closer in terms of chip design as well as manufacturing process. Intel will also be able to further diversify its business beyond personal computers and expand into cloud computing.
Further, Altera’s programmable chips, or chips that can be configured by customers after purchase, will not only allow Intel to be able to sell less expensive semi-custom-made chips, but also increase its capabilities in the “Internet of Things” space.
The Altera-Intel merger announcement came just after Avago Technologies Ltd. AVGO, the Singapore-based radio frequency chipmaker, announced that it has reached a deal to acquire Broadcom Corp. BRCM for $37 billion. Post acquisition, Avago will become the world’s third largest chipmaker in terms of revenues trailing Intel and Qualcomm Inc. QCOM in the first and second places, respectively.
Earlier in March, chipmaker NXP Semiconductors NV entered into a definitive agreement to acquire Freescale Semiconductor Ltd. FSL, another chipmaker, for $11.8 billion. The acquisition is anticipated to close in the second half of 2015.
We consider that semiconductor stocks are likely to have a smooth ride in 2015 with the growing demand for technology-based devices among consumers and enterprises alike. According to the Semiconductor Industry Association (SIA), worldwide semiconductor sales are likely to witness a year-over-year growth of 3.4% in 2015 and 3.1% in 2016.
As per the report, last year, the worldwide semiconductor industry recorded sales growth of 9.9% and reached $335.8 billion. The industry is experiencing growth primarily due to developing end markets and new product offerings, supported by process and yield improvements by semiconductor manufacturers.
Continued strong adoption of tablets and smartphones, automotive electronics and the emergence of the new category of wearable devices have led to stronger demand for the processing and sensing devices that run them. These factors are likely to drive the semiconductor industry this year.
Altera currently carries a Zacks Rank #4 (Sell) while Intel has a Zacks Rank #3 (Hold). Nevertheless, looking at the growth forecasts and recent merger & acquisition activities, it makes sense to remain invested in the industry. Some better-ranked stocks in the semiconductor space are Ambarella Inc. AMBA, CEVA Inc. CEVA and Cirrus Logic Inc. CRUS. All these stocks sport a Zacks Rank #1 (Strong Buy).
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INTEL CORP (INTC): Free Stock Analysis Report
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