Intel Corp. wants to move beyond its microprocessor base to the digital and Internet connectivity market but contrary to expectations in certain quarters the company's transition into new IC segments will not involve huge and disruptive acquisitions.
However, if Intel moves towards acquiring a major programmable logic IC company—Altera Corp. or Xilinx Inc.—as speculated by an industry analyst recently, it would be inflicting a grievous wound not only on current core computing and server microprocessor business but also killing off any future chances it may have to make a significant impact on the embedded processor market.
Fortunately, even though Intel's top executives preach paranoia they are not suicidal. Acquiring Altera or Xilinx, for which a potential buyer would have to pay a hefty premium—EE Times estimates in the range of $8 billion to $10 billion—would be a financially crippling move but also an operational and integration nightmare.
The hefty financial bill is one critical reason for ruling out the idea of Intel making a move for either of the two leading FPGA vendors. There are other reasons but first, let's explore the financial implications of such a move.
Many observers focus on Intel's huge cash hoard when weighing possible acquisition actions by the company obscuring other critical issues of concern to the board of directors.
Strictly on valuations alone, Intel's board of directors would be crazy to approve a deal to purchase Altera or Xilinx. True, with almost $13 billion in cash and short-term securities—not to mention slightly more than $9 billion in longer-term investments and other long-term assets—as at the end of the September quarter, Intel certainly has the means to fund a major acquisition on its own.
If necessary, the company's ultra high investment rating could come in useful if it needs to borrow from the financial market or raise additional funds by selling shares.
However, what will Intel get for the nearly $8 billion to $10 billion it would have to spend to gain control of Altera or Xilinx and would the benefits of such a union outweigh the challenges of integrating either of these enterprises into its operations? Furthermore, the entire speculation about Intel acquiring a company of the size of Altera or Xilinx ignores the history of the world's biggest semiconductor company.
Intel has made significant acquisitions in the past, the latest being its purchase in June, 2009 of Wind River Systems Inc. for $884 million, as part of plans to diversify operations.
This token approximately $1 billion acquisition by a company of Intel's heft cannot be likened to a multi-billion dollar deal. Even though Intel spent a lot more over the last decade in efforts to broaden operations, the company till date, is not known for large and radical moves.
Even today, despite any perceived desperation that might prompt or necessitate the acquisition of companies the size of Altera or Xilinx, Intel's conservative management style does not favor such a move. While Intel will undoubtedly stir the acquisition waters in the near future, it won't be towards the direction of Altera or Xilinx.