Intel (INTC +0.74%) announced on Monday that it had agreed to sell a 51% stake in Altera, the FPGA specialist it acquired in 2015, to investment firm Silver Lake. While Intel will retain a 49% stake in the company, it will relinquish operational control as Altera becomes an independent, pure-play FPGA provider.
Intel acquired Altera nearly a decade ago as part of a plan to capture more spending in the data center. That plan has largely been a failure. Altera's revenue in 2024 was lower than in 2014, likely due to a combination of a tough field programmable gate array (FPGA) market and poor execution on the part of Intel. On top of Altera's lackluster performance, Intel has lost server CPU market share to AMD and watched as data center spending shifted to AI accelerators.
With a renewed turnaround effort underway, Intel needs to both simplify its business and raise cash to continue investing in its manufacturing operations. This Altera transaction accomplishes both, although Intel is eating a multibillion-dollar loss in the process.
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Key Data Points
A slashed valuation
Intel's acquisition of Altera in 2015 was valued at $16.7 billion. The deal with Silver Lake values the FPGA company at just $8.75 billion. A major haircut certainly makes sense. Altera generated revenue of $1.54 billion and adjusted operating income of just $35 million in 2024. That compares to revenue of $1.93 billion and operating income of $543 million in 2014 .
Part of the problem is almost certainly a difficult market environment. AMD acquired fellow FPGA company Xilinx in 2022, and things have been going sideways there as well. AMD's embedded segment, which is primarily Xilinx, suffered a 33% revenue decline in 2024 to $3.6 billion due to mixed end market demand and excessive customer inventory levels.
Another aspect of the problem was likely Intel itself. As part of Intel, Altera may not have received the attention or resources it needed to thrive. This is a challenge with any acquisition, and it's one reason why the optimistic assumptions and forecasts offered by acquiring companies should always be taken with a grain of salt.
Intel is keeping a 49% stake in Altera, meaning that it will benefit from any upside if Altera manages to turn things around. With a minority stake, Intel won't be involved in day-to-day operations. That's a good thing, given its track record over the last decade.
Two birds with one stone
While Intel will take a large loss on its sale of a majority stake in Altera, the deal accomplishes two things. First, it simplifies Intel's business at a critical time for the semiconductor giant. Intel has been losing market share in its core CPU businesses, struggling to gain a foothold in the AI accelerator market, and pursuing a capital-intensive plan to become a leading foundry services provider. The company needs as few distractions as possible as it looks to right the ship. Altera will continue to be an Intel foundry customer, so its success as an independent company will benefit Intel in multiple ways.
Second, Intel will raise some much-needed cash. The company has been pouring capital into new factories as it worked toward bringing its critical Intel 18A process node to production. Now that Intel 18A is ready, the company needs to scale it up. With a backdrop of a trade war potentially hurting demand for PCs and servers, and thus Intel's CPUs, fortifying the balance sheet is more important than ever.
Intel CEO Lip-Bu Tan, who took the helm in March, is getting off to a quick start as he looks to revitalize the ailing semiconductor giant. Getting Altera off the company's plate less than a month after taking charge is a good first step, and more changes are likely to come as Tan refocuses Intel on its core businesses. While Intel is taking a big loss on Altera, separating the two companies looks like the right move.
