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Intel forced to buy Altera

by on03 April 2015

Or Wall Street will kick it to death

While there are some that do not believe that Intel will have to press ahead with its rumoured buy out of rival Altera, there are signs that it might not have a choice.

Wall Street began slashing first-half profit estimates on Intel for months and then reports surfaced of the Altera deal.

Rather than thinking "hey Intel has a cunning plan after all" Wall Street saw it as a sign that there was an underlying weakness in Intel's over all business.

On the face of it that is unfair. Intel seems to be coming out of its mobile rut and although PC sales are still lower, Chipzilla appears to be doing better than its rivals.

If the Altera deal fails, for any reason, Wall Street will send Intel shares into a death spiral. So this might be why CEO Brian Krzanich might be seriously thinking about Chipzilla's biggest acquisition ever.

Altera is worth $13 billion, but it is not exactly in a great state either. It has seen sales projections slump.

It also competes against Intel in the market for Internet-server chips, so any such deal would buy the much-larger company more share of that market and get rid of some of the competition.

Altera not that great

Altera main business, in programmable logic chips, isn't expected to grow much faster any time soon.

First-half sales and profit estimates have also been coming down on Altera, which competes with Xylinx in this market for chips that can be fine-tuned after they're installed.

So on the face of it, buying Alteria will not sort out many of Intel's problems, but if it doesn't it could be in even bigger trouble.

However that trouble might be just temporary. If Intel backs away from the deal, its shares will fall and the value of the company will drop. However this will all happen just as the cheques start to arrive from Apple and its mobile business takes off.

If this mess happens, Intel could use that cash pile that would have been spent on Alteria buying back shares at a discount.

However it is unlikely that any company, particularly the size of Intel would have the nerve to let this happen. It it would be better for Intel to send the Wall Street hounds packing by doing what it is told.

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