INTEL SIGN AT SANTA CLARA HEADQUARTERS.
Photograph by Paul Sakuma — AP
By Stacey Higginbotham
May 18, 2015

Pass the popcorn because chip giant Intel is back in talks to acquire Altera, the maker of programmable custom-designed semiconductors, according to the New York Post. The two firms had been in talks earlier this year, but in April the talks fell apart over a disagreement in price. Altera thought it was worth more than Intel wanted to pay.

Intel reportedly offered $54 per share for Altera, according to the Post, which could have put the value of any deal at more than $10 billion. When the talks leaked in March, Altera stock was trading at $35 per share. However, after the deal fell apart, shares traded up to about $44 per share suggesting that investors believed that another buyer would emerge. Altera’s closing price on Friday before news of continued talks with Intel leaked, was $44.42.

This morning, news of the talks sent the share price up to $47.50 before the market opened. A deal between the two companies makes sense, even at such lofty valuations. This deal is less about Intel’s chips inside laptops, and more about the $14 billion server business.

Currently, the chips that Intel’s largest customers—massive data center clients such as Microsoft, Google, Facebook, Amazon, etc.— are most interested in are designed to perform specific calculations. Those customers also want flexibility in their hardware so that it can be changed as their software changes. The only way to do that is to use the programmable chips that companies such as Altera and Xilinx make. There are trade offs to using those chips, that had made this a less feasible option for decades, but now, with the sheer numbers of servers trying to perform these calculations, such as running Microsoft’s Bing search algorithms, it makes economic sense.

Intel announced last summer that it was making custom chips combined with these programmable cores for clients such as Microsoft and eBay, so it makes sense that if it received enough demand for this type of silicon it would want to bring the capability under its own control. Which may be why it is willing to come back to the table with Altera.

Intel did not respond to requests for comment.

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