Earlier this year, Intel (NASDAQ:INTC) agreed to buy Altera (NASDAQ: ALTR) for almost $17 billion. That purchase will enhance Intel's data center chips with Altera's field-programmable gate arrays (FPGAs). On their own, FPGA chips are weaker than Intel's x86 chips, but they can be reprogrammed after manufacture to customize them for use in a wide range of devices such as connected cars, smart appliances, and even airplanes.

Intel's purchase of Altera immediately cast a spotlight on Xilinx (NASDAQ:XLNX), the only other major maker of FPGAs, as a potential partner or takeover target for rival chipmakers. To counter Intel's acquisition of Altera, Qualcomm (NASDAQ:QCOM) and IBM (NYSE:IBM) both recently signed deals with Xilinx. Qualcomm's upcoming ARM-based server chips and IBM's Power-based ones will both use Xilinx's FPGAs to accelerate their performance.

Xilinx's ZYNQ processors in connected cars. Source: Xilinx.

Does the interest from Qualcomm and IBM in Xilinx indicate that the FPGA maker is a good long-term investment? To find out, let's compare Xilinx's business to Altera's, discuss its fundamental growth, and understand the impact of its deals with Qualcomm and IBM.

Xilinx vs. Altera
Xilinx controls 50% of the FPGA market while Altera controls 39%, according to Morningstar. That's why Xilinx generated 23% more revenue than Altera last year.

Last quarter, Altera's revenue fell 20% annually to $399.6 million, missing estimates by $29.4 million. Net income declined 48% to $61.5 million, or $0.20 per share, which also missed expectations by $0.10 a share. Altera blamed those declines on "choppy conditions" across multiple markets. It noted that while telecom, wireless networking, computer, storage, and data center sales rose sequentially, sales in the industrial automation, military, and connected auto markets declined. That weakness translated to a 21% year-over-year decline in FPGA revenue and a 5% decline in complex programmable logic device (CPLD) revenue.

Xilinx's revenue slipped 13% annually to $527.6 million last quarter, which also missed expectations by $2 million. Net income fell 26% to $127 million, or $0.48 per share, which beat estimates by a penny. Xilinx struggled with the same market conditions as Altera -- robust demand in wired and wireless communications was offset by declines across the industrial, aerospace, and defense markets. However, Xilinx finished the quarter with a gross margin of 70%, compared to Altera's  66.5%.

Altera didn't offer any forward guidance due to its upcoming acquisition by Intel. Meanwhile, Xilinx said it expects its third quarter revenue will rise 3% to 7% sequentially to $543.4 million to $564.5 million, which is in line with the consensus estimate of $548.3 million.

How much will Qualcomm and IBM help Xilinx?
Qualcomm and IBM both want to challenge Intel in the data center market. That's a tough task, since Intel controls 99% of that market with its Xeon chips, which will be augmented with Altera's FPGAs.

Intel-powered servers. Source: Intel.

Qualcomm claims that its ARM-licensed data center chips, which use a 24-core Qualcomm CPU with custom ARM cores, "will be competitive in performance and price" with Intel's. That's a bold claim, since ARM server chips have mostly been used in low-end "microservers" that are purchased in clusters. Nonetheless, Qualcomm asserted last May that its designs could claim 10% of the data center market by 2017.

IBM, which sold its Intel-powered server business to Lenovo last year, still sells high-end servers and mainframes that run on its Power processors. IBM is trying to gain ground against Intel in data centers by "open sourcing" its Power-based designs to third-party server vendors through its Open Power program. Xilinx's FPGAs will be paired with those designs.

Both Qualcomm and IBM have ambitious goals, but it will be hard for either company to loosen Intel's grip on the data center market. Therefore, the overall impact of their plans on Xilinx's revenues should be minimal -- until or unless one or both gains some ground on Intel.

Should you buy Xilinx today?
Xilinx, as mentioned before, has experienced choppy growth this year, but demand for FPGAs is still expected to rise. Research firm Markets and Markets expects the overall FPGA market to grow at a compound annual rate of 8.1% between 2014 and 2020 to a value of $8.5 billion.

Xilinx currently trades at 23 times earnings, which is considerably cheaper than the average P/E of 27 for the semiconductor/integrated circuits industry. It also pays a decent forward annual dividend yield of 2.5%. Looking ahead, it's likely that other chipmakers could sign new partnerships with Xilinx or make buyout offers to challenge Intel. Therefore, it might make sense to buy some shares of Xilinx today, even though the stock is near a 52-week high.