Intel to buy Altera in $16.7bn deal in Internet of Things push

Semiconductor giant swoops on Altera for its FPGA expertise

Semiconductor vendor Intel is to acquire Altera for $16.7bn in cash - a high price for a company with annual revenues of $1.9bn in 2014.

Altera was founded in 1983 and focuses on programmable logic devices, and since February 2013 has used Intel's foundry services to produce 14-nanometre node field-programmable gate arrays (FPGAs). Its products are generally used in the automotive, communications aerospace and medical device industries.

FPGAs enable companies to avoid the cost of having custom-chips designed for their products - a practice that has increased in cost in recent years. This has helped companies with the biggest volumes. Instead, therefore, companies can buy FPGAs and customise blocks of circuitry themselves.

While the resulting chips are not as fast as specialised designs, it can help cut costs, particularly for manufacturers outside the top-tier.

Intel management sees Altera's technology being increasingly adopted in devices in the so-called internet of things, with Altera technology at the heart of connected devices. It also sees a role for FPGAs in the data centre.

"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," said Intel CEO Brian Krzanich

Chip analyst Kevin Krewell, principal analyst at Tirias Research said that the deal made sense - but was expensive.

Intel's deal for Altera has been approved by the boards of both companies and comes one week after rivals Broadcom and Avago agreed a $37bn merger deal. Altera's main rival in FPGAs is Xilinx, as well as Lattice Semiconductor, and Microsemi. It also produces IP cores based on ARM.

Out of its 2014 revenues of $1.9bn, the company posted a net income of $472.7m.