Is The Latest Stumble An Opportunity At Altera?
Stephen Simpson, CFA
Stephen Simpson, CFA
Altera: A Semiconductor Catch-Up Play Long In The Making
Stephen Simpson, CFA
Stephen Simpson, CFA
Altera: 20-40% Upside As Intel Foundry Deal Drives Market Share Gains And Sentiment
Ashraf Eassa • 87 Comments
Ashraf Eassa • 87 Comments
Dec. 28, 2015, 10:08 AM
- Intel's (INTC -0.5%) $16.7B purchase of FPGA developer Altera (ALTR) is officially on the books. As previously announced, Intel expects the deal to be accretive to non-GAAP EPS and cash flow in its first year after closing, and dilutive to GAAP EPS due to M&A-related costs.
- Altera will now operate as Intel's Programmable Solutions Group (PSG). Notably, PSG won't be led by Altera CEO John Daane (has a large golden parachute), but by Dan McNamara, previously the GM of Altera's embedded products division. McNamara's name doesn't currently appear on Altera's executive bio page.
- Intel promises Altera/PSG will work with Intel's Data Center Group (server CPUs/network processors) and IoT Group (embedded CPUs and related products) to deliver "highly customized, integrated products and solutions." The company promised last month solutions pairing Xeon CPUs with Altera FPGAs will arrive in Q1, while estimating FPGAs will go into 30% of data center servers by 2020.
- Last week: Chinese regulators approve Intel/Altera deal
- Update: Deutsche's Ross Seymore estimates Altera will account for ~3% of Intel's 2016 revenue, and ~9% of DCG revenue. His Intel target has been upped by $1 to $37. "We now estimate Intel’s DCG revs to grow +21% y/y, up from +10% y/y previously as ALTR accounts for ~53% of y/y DCG rev growth. We model 2016 gross margins to benefit slightly (62.4% from prior DBe 62.2%) with opex increasing +2.7% from prior DBe to $20.9b ($20.4b previously). Our resulting 2016 EPS goes to $2.40 from $2.35 previously."
Dec. 21, 2015, 11:52 AM
- China's Ministry of Commerce (MOFCOM) has signed off on Intel's (INTC - unchanged) purchase of Altera (ALTR +2%), thus providing the final regulatory clearance needed for the $16.7B ($54/share) all-cash deal to go through. (8-K filing)
- The acquisition is now expected to close "on or about" Dec. 28. Altera has risen to within $0.09 of Intel's buyout price.
- Two months ago: EU regulators approve Intel/Altera deal
Oct. 9, 2015, 2:49 PM
- Reuters reports EU regulators have approved Intel's (NASDAQ:INTC) planned $54/share ($16.7B) acquisition of Altera (ALTR +1.3%), following September clearance from the DOJ. Regulatory approval has been widely expected - Intel doesn't compete with Altera's core FPGA products, and Xilinx remains a formidable rival FPGA supplier.
- Altera still trades $1.60 below Intel's buyout price. SA author Chris DeMuth Jr. has been arguing a good merger arb opportunity exists. He estimated yesterday Altera's net arbitrage spread (diminished a bit today) spelled a 15% annual return.
- 3 days ago: Altera shareholders approve Intel deal
Oct. 6, 2015, 6:37 PM| Oct. 6, 2015, 6:37 PM | 3 Comments
Jun. 1, 2015, 8:49 AM
- As rumored over the weekend, Intel (NASDAQ:INTC) agrees to buy Altera (NASDAQ:ALTR) for $54 per share in cash, or $16.7B. The purchase is expected to be accretive to Intel's EPS and free cash flow in the first year after the close (in six-to-nine months).
- A webcast to discuss the deal is set for 10 ET.
- INTC +0.65% and ALTR +4.8% (to $51.20) premarket
- Previously: WSJ: Intel to announce $54/share Altera deal on Monday (May 31)
May 31, 2015, 4:02 PM
- Following more than two months of drama, Intel (NASDAQ:INTC) is set to announce tomorrow it's buying FPGA vendor Altera (NASDAQ:ALTR) for the same $54/share price Bloomberg reported hearing in early April, per the WSJ.
- The reported price translates to a $16.2B valuation (per Yahoo/Google Finance), or $13.2B after factoring net cash/investments. It represents an 11% premium to Altera's Friday close, and a 56% premium to where it traded before the WSJ first reported of deal talks on March 27.
- Since the first reports, Altera has posted disappointing Q1 results/Q2 guidance, and Intel has announced a server CPU partnership with programmable ASIC maker eASIC (Pending:EASI) that has been seen as a hedge against Altera. But that alliance could prove complementary, as FPGAs remain the gold standard for rapid programmability and low design costs, while ASICs maintain a size, performance, and power edge.
- Will Xilinx (NASDAQ:XLNX) get acquired next? Reuters reported earlier this month Avago has shown interest in the Altera archrival. But that was before Avago struck a $37B deal to merge with Broadcom.
- Previously: Intel/Altera seen providing many synergies, sparking more M&A
May 29, 2015, 1:53 AM
- Intel (NASDAQ:INTC) is close to a deal to buy fellow chipmaker Altera (NASDAQ:ALTR) for about $15B, the NY Post reports, stating that a deal is "likely by the end of next week."
- Altera reportedly rejected an Intel $54/share bid just a few months ago and then broke off sales talks, but that was before Altera issued disappointing earnings.
- Intel also has the option to launch a hostile bid after June 1, when its standstill agreement with Altera expires.
- Intel-Altera timeline
May 18, 2015, 7:25 AM
Apr. 30, 2015, 4:32 PM
- Intel (NASDAQ:INTC) signed a standstill agreement with Altera (NASDAQ:ALTR) amid M&A talks, Reuters reports. However, the agreement is said to expire on June 1, after which Intel would be free to launch a hostile bid if it wishes. Sources state it's "unclear" whether Intel will make such a move (through a public tender offer) once the standstill expires.
- The news service adds Intel discussed a $58/share bid for Altera in February, but lowered its offer after signing an NDA and poring through Altera's books - Altera's Q1 results and Q2 guidance appear to explain Intel's thinking. Bloomberg previously reported of a $54/share offer.
- ALTR +5% AH to $43.78. Earlier this week, major Altera investor TIG Advisors demanded the FPGA maker resume Intel buyout talks.
- Prior Intel/Altera coverage
Apr. 27, 2015, 5:34 PM
- Arguing "stockholders should have right to choose between Intels reported $54 cash offer and [the] uncertain future of standalone Altera (NASDAQ:ALTR)," TIG Advisors (1.5% stake) is urging Altera investors to vote against lead independent director T. Michael Nevens' reelection at the FPGA maker's May 11 annual meeting. It's too late for investors to submit alternate candidates.
- TIG argues rejecting Nevens will "send a strong signal to the Board to immediately re-engage with Intel." It also thinks the company's reported decision to reject a $54/share Intel offer is unsurprising given "Altera has had a history of overestimating its growth rate."
- The firm thinks Altera would need to produce annual EPS of $2.70 to justify a $54/share valuation, something it thinks is "unlikely to happen over the next few years given the outlook for a secular decline in worldwide base station deployments in 2016-2019 until 5G starts ramping." The 2015 EPS consensus is at $1.31.
- Bloomberg reported two weeks ago TIG, Cadian Capital, and other investors were pushing Altera to restart Intel talks. The company posted a Q1 miss and provided light Q2 guidance last Thursday.
Apr. 13, 2015, 5:00 PM
- In what might be one of the most predictable acts of shareholder activism in recent memory, many large Altera (NASDAQ:ALTR) investors have sent letters to the company urging it to resume buyout talks with Intel (NASDAQ:INTC), sources tell Bloomberg. Cadian Capital (2.8% Altera stake) and TIG Advisors (1.5% stake) are said to be among the disgruntled parties.
- The letters followed reports Altera had rejected an Intel buyout offer in the low-to-mid $50s (Bloomberg reported $54/share). Altera closed at $34.58 the day before Intel buyout reports first broke, and at $43.86 today. They briefly tumbled on reports of Altera's rejection, but soon erased their losses as investors bet a deal would eventually occur.
- Altera +1.8% AH to $44.65. Intel's Q1 report arrives tomorrow afternoon; Altera's arrives on April 23.
Apr. 9, 2015, 11:32 AM
- After initially seeing double-digit losses in response to a CNBC report (later backed up by Bloomberg) stating Intel (NASDAQ:INTC) has broken off buyout talks due to price disagreements, Altera (ALTR +0.1%) is now near breakeven.
- With the FPGA vendor's shares still 22% below the $54/share offer price reported by Bloomberg, investors/traders are betting a deal will eventually happen.
- Altera is currently up 21% from where it traded before the WSJ reported of deal talks on March 27. Q1 results arrive on April 23.
Apr. 9, 2015, 9:11 AM
- CNBC's David Faber reports Intel (NASDAQ:INTC) has ended talks to buy Altera (NASDAQ:ALTR) due to a failure to agree on price.
- Intel reportedly made an all-cash offer in the "low $50s" (sharply above Altera's Wednesday close of $42.00), and was rejected. Talks are said to have been going on for months.
- Intel -2.3% premarket to $30.60. Altera -10.6% to $37.65. Altera archrival Xilinx (NASDAQ:XLNX) -1.9% to $41.75.
- Previously: Intel reportedly in talks to buy Altera; shares soar
- Previously: Intel/Altera seen yielding many synergies, sparking more M&A
- Update: Bloomberg reports Intel offered ~$54/share.
- Update 2 (11:35AM ET): Altera has erased its losses, and Intel has mostly done the same. Xilinx is up slightly.
Mar. 30, 2015, 11:37 AM
- After rising 28.4% on Friday on reports Intel (INTC -0.3%) is in talks to buy the company, Altera (ALTR -3.8%) is paring its gains in response to downgrades from CLSA, Morgan Stanley, and Macquarie. Morgan Stanley has also downgraded Xilinx (XLNX +0.3%), which rose 5.8% on the reports.
- Reactions to the reports, which vindicate at least a few predictions, have been largely positive. Among the perceived benefits to Intel from a deal: 1) Cost synergies from handling the manufacturing of Altera's FPGAs in-house. 2) Lowering Intel's PC dependence amid soft industry demand. 3) The potential to better cater to the likes of Facebook and Google (and keep ARM rivals at bay) by creating Xeon server CPUs with built-in FPGA circuitry to accelerate algorithm performance. 4) The potential to create system-level solutions for servers, telecom infrastructure gear, and other products that combine processors, FPGAs, and other chips.
- CLSA: "[W]e view a potential Altera deal favorably given the manufacturing and end-market synergies ... Altera’s strong base station presence is valuable to Intel ... we see $0.05-0.10 accretion to our 2016 EPS, and additional accretion down the road as manufacturing moves in house."
- Cowen: "[W]e surmise the deal would be heavily debt financed ... ALTR is one of the only semiconductor companies with better gross margin than INTC ... PLDs are one of the only verticals requiring leading-edge silicon in which INTC does not compete."
- Though upgrading Altera to Market Perform, Wiliam Blair is more cautious. "[W]e believe Altera’s fundamentals have deteriorated as the company has faced multiple headwinds. These include market share loss to Xilinx, declining margins, delays in new product ramp-ups, and competitive issues ... On top of this, we believe Altera (as well as Xilinx) has been negatively affected by the increased adoption of SoC solutions, resulting in decreased demand for FPGAs for Glue Logic functions." Bernstein (still bearish on Intel) notes Altera's revenue is only equal to 3% of Intel's.
- If a deal happens, many think Xilinx will be acquired soon afterwards. The short list of chipmakers big enough to swallow Xilinx ($11.1B market cap) and arguably having complementary products includes Texas Instruments, Qualcomm, Analog Devices, NXP/Freescale (about to merge), Skyworks, and Avago. There's also some speculation Intel, which has sat out the chip industry's recent M&A wave, will follow up on an Altera deal by making other purchases to lower its PC exposure.
Mar. 27, 2015, 3:47 PM
- The WSJ reports Intel (INTC +5.9%) is in talks to buy FPGA vendor/foundry partner Altera (ALTR +22.7%). Shares of both companies have surged in response. With Altera currently sporting a $12.7B market cap, the deal would be the biggest in Intel's history, and one of the biggest in the chip industry's M&A/consolidation wave.
- Intel struck a foundry deal with Altera in 2013, and is set to produce 14nm chips for the company. Altera's FPGAs are found in plenty of products containing Intel's Xeon server CPUs or network processors. The companies have also collaborated on a solution for Web data centers that pairs a Xeon CPU and an Altera FPGA in the same package, with the latter enabling on-the-fly programmability.
- Altera archrival Xilinx (XLNX +5%) and smaller rival Lattice (LSCC +3.7%) have also spiked higher.
- Update (4:00PM ET): The full story is now out. The WSJ states deal terms and timing are unknown.
- Update 2 (4:08PM): Bloomberg has joined the WSJ in reporting of deal talks. Intel closed up 6.4%, and Altera closed up 28.4%.
Jun. 17, 2014, 6:58 PM
- The consolidation wave that has hit the semi industry could soon yield tax inversion deals for foreign firms similar to deals seen in the healthcare industry, says FBR's Christopher Rolland.
- Inversion deals allow U.S. companies buying foreign firms to see lower tax rates if less than 80% of the equity in the new company is owned by legacy U.S. shareholders, and the post-merger company has substantial foreign ops.
- Rolland thinks ARM (ARMH), NXP (NXPI), Mellanox (MLNX), and Taiwan's MediaTek could be among the foreign companies targeted by U.S. chipmakers. Worth noting: Mellanox sells more than just chips, and ARM's business model depends on the company maintaining a neutral status within the industry.
- Meanwhile, Nomura's Romit Shah names 15 potential M&A candidates, and divides them into 3 groups: "Sub-scale companies" with high margins and strong IP; "strategic companies" with compelling product lines; and "undervalued companies."
- Shah's "sub-scale companies:" IDTI, ISIL, MTSI, MCRL, SMTC, SLAB.
- "Strategic companies:" ALTR, AMCC, ATML, CAVM, MPWR, BRCM ($22.5B market cap could make it tough to digest).
- "Undervalued companies:" DIOD, IRF, MSCC.
Altera Corp designs and sells programmable logic devices, HardCopy application-specific integrated circuit devices, power system-on-chip devices, pre-defined design building blocks known as intellectual property cores, and associated development tools.
Industry: Semiconductor - Specialized
Country: United States
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