Analyst’s Take on Intel Corp. (NASDAQ:INTC) Altera Corp. (NASDAQ:ALTR) Deal

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Intel Corp. (NASDAQ:INTC) is buying Altera Corp. (NASDAQ:ALTR), a logic device maker for $16.7 billion. Based on a Reuters report, Analysts view the deal as a move against its competitors. Intel will be integrating Altera’s FPGA designs to its platform, to offer enhanced services to clients.

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Intel and Altera had earlier worked together to build multi-die devices. Both the firms even have a “foundry relationship.” Intel is building Altera’s “Stratix 10 FPGAs and system-on-chips using its 14nm Tri-Gate process.” The shareholders of Altera will get $54 per share in cash, under the deal. As a result the shares of Altera rose by 6% to over $51.8 yesterday.

Analysts on Intel Altera Deal

Mark Lipacis from Jefferies says that Intel is giving a “premium” amount to Altera. Lipacis says that Intel’s data center will profit more than client computing in 2017 for the first time. Consequent to the deal analysis, Jefferies kept their “Buy” rating on Intel at a target price of $48.00.

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But, not all analysts are positive on the deal. Bernstein Research analyst, Stacy Rasgon views the deal as “defensive for the datacenter.” Rasgon argues that Intel will not be able to deliver its growth estimate of 7% per year. Altera’s market share has also been reduced by 2% over the last three years. Even BMO Capital after analyzing the deal, downgraded the rating from “Outperform” to “Market Perform” and cut the price target to $33 from $40.

Gartner analyst, Mark Hung views the deal to be a“precautionary measure” by Intel, as FPGA chips might hamper the demand of Intel’s core market- central processing unit (CPU) chip servers. FBR capital analyst, Christopher Rolland said that Intel would profit under the deal if clients “use FPGAs instead of CPUs.”

Intel holds 90% of the share in the current datacenter market. Analysts see the deal to enhance competition in the market. Intel has been facing pressure from the recent pacts among its rivals – QUALCOMM, Inc. and ARM Holdings, and Avago Technologies and Broadcom Corporation.

Intel Altera Deal to impact TSM

The Intel-Altera deal is likely to have a direct impact on the foundry maker, Taiwan Semiconductor (TSM), based on Maybank analyst Warren Lau. Altera was among the major clients to TSM over the years, accounting for over 3% of TSM’s revenues for 20/28 nodes. But going forward, Intel and Altera might build 14nm in house only. TSM’s major clients like Apple and Qualcomm are also diversifying their foundry makers of 14nm nodes, adding more pressure.

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