Intel (INTC, Financial) has decided to sell 51% of its Altera business to Silver Lake Management for $8.75 billion. This move comes after months of speculation about whether Intel would divest Altera, a developer of Field Programmable Gate Array (FPGA) technology acquired in 2015 for $16.7 billion. Although this deal involves a significant financial concession, it provides immediate financial relief as new CEO Lip-Bu Tan works to stabilize the Foundry business.
CEO Lip-Bu Tan, who succeeded Pat Gelsinger a month ago, has emphasized the need to streamline Intel's portfolio, focusing on core chip manufacturing and AI initiatives. This sale, along with Intel's earlier decision to spin off Intel Capital, marks a significant step toward simplifying operations and stabilizing cash flows. However, these actions do not address Intel's weakened competitive position.
- Intel's acquisition of Altera aimed to integrate FPGA technology with its Xeon processors for data centers, IoT, and other high-growth markets. However, the integration efforts, such as combining CPUs and FPGAs into products like Xeon Gold, failed to gain traction. This oversight allowed competitors like Advanced Micro Devices (AMD, Financial) and Lattice Semiconductor (LSCC, Financial) to capture market share.
- Despite challenges in leveraging Altera's technology, FPGAs remain crucial for AI and data center applications. Selling Altera could further weaken Intel's position in these markets, complicating its turnaround efforts.
- Financially, Altera contributed $1.54 billion in revenue in FY24, representing about 3% of Intel's total revenue, with a modest operating income of $35.0 million. As an independent entity, Altera's competitiveness as a pure-play FPGA provider in AI-driven markets like edge computing and robotics could improve.
- Intel plans to use the capital from the sale to strengthen its financials after its GAAP EPS plummeted to $(4.38) in FY24 from $0.40 in FY23, due to restructuring charges, inventory write-downs, and significant losses in the Foundry business. In 4Q24 alone, the Foundry segment incurred an operating loss of $13.0 billion as Intel invested heavily in new chip factories, struggling to attract enough external customers to offset rising capital expenditures.
Intel's decision to sell a majority stake in Altera is a strategic move aimed at financial stabilization and focusing on its core business. While the sale offers immediate financial benefits, it may weaken Intel's long-term position in key growth areas like AI and data centers.
