Intel Corporation – Altera Deal: How Do Analysts View It?

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Intel Corporation – Altera Deal: How Do Analysts View It?
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Intel’s potential acquisition of Altera has garnered mixed reactions from analysts, with some upgrading the stocks and some remaining cautious. On Monday, several analysts released mixed reactions regarding the possible agreement between Intel and Altera, and a report from Investors.com has summarized those comments.

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Positive on Intel from the deal

Pacific Crest Securities analyst Michael McConnell suggested that the merger could aid Intel strategically as it could grant the world’s largest chip maker diversity apart from PCs and provide the company with an opportunity to expand in the communications, infrastructure and industrial verticals. Also the deal could strengthen the chip maker’s dominant position in the data center market.

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McConnell further added that the agreement would enable Intel to “scale its nascent foundry business and use its best-in-class manufacturing to improve Altera’s competitiveness long term.”

The merger is expected to “achieve impressive industrial-electronics market share gains” for the Intel-Altera group, especially in manufacturing and process automation, military and civil aerospace, and test and measurement, states IHS Research analyst Robbie Galoso. It is estimated that the combined Intel-Altera group would be the largest in the industrial semiconductor market after Texas Instruments.

Few challenges and considerable gains

On the negative side, UBS analyst Stephen Chin noted that Intel would have to make twice as much effort to acquire Altera as it did on any prior acquisitions. Other challenges for the company include the increasing use of ARM Holdings’ processor technology by Altera and the networking food chain, and the use of x86, an Intel processor technology, could face headwinds.

Analysts at Morgan Stanley, CLSA, Credit Agricole and Macquairie downgraded Altera stock, although, William Blair analyst Anil Doradla upgraded the stock from Underperform to Market Perform. Doradla believes that a merger with Intel could lead Altera to a way out of its position of weakness. The analyst noted that Altera’s fundamentals have degraded in recent years along with its market share, which it has lost to competitor Xilinx. Moreover, the company witnessed a decline in its margins and has struggled with delays in new product ramp-ups and competitive issues due to lack of investment by the company on research and development, claimed Doradla.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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