Intel has gotten its long-term Issuer Default Rating (IDR) of A+ and short-term IDR of F1 reiterated by Fitch following the company’s announcement of it acquiring Altera for $16.7 billion in cash. Fitch’s reaffirmation of the ratings will impact the chip maker’s $13.2 billion of debt, excluding incremental dent issuance, primarily to fund the Altera acquisition.
Intel to maintain strong operating profile
Intel received a stable rating outlook from the rating agency on the expectation that the chip maker’s operating profile will remain strong even though it will have to resort to incremental debt to fund the Altera acquisition. In the long term, Altera might play a significant role in data centers and the Internet of Things [IoT] segment.
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Intel is looking to fund the Altera acquisition with cash and incremental debt, but Fitch expects the new debt to account for a major portion of the purchase price since all but $3.4 billion of Intel’s $14.1 billion of total cash as of March 31 was located offshore. The rating agency is estimating total leverage of around 1x versus 0.5x for the latest 12 months (LTM) ending March 31).
Altera acquisition presents low integration risk
Altera is one of the major players in the field programmable logic device segment with a 39% share in the $5 billion market. The chip maker is looking to enhance its reach in the data center market by integrating its processors and Altera’s PLDs on a lower-cost and better-performing single die. The Altera acquisition is expected to contribute $2 billion in revenue with gross profit margins in the mid-60%s, which is marginally higher than Intel with a substantially lower capacity as a fabless semiconductor. Also the foundry relationship between Intel and Altera and the design collaboration will bring down the integration risk.
The rating agency is expecting that Intel will slow down on stock repurchases to maintain its conservative total leverage. Fitch sees Intel as a dominant player in the microprocessor industry, especially in manufacturing. Another factor that Fitch notices is the broad geographic and business diversification, even though most of the company’s revenue comes from PCs and servers. Fitch stated that Intel has the capacity to attain long term stable growth in digitization and computer adoption across the world with the expansion of microprocessors in areas outside traditional computing.
On Monday, Intel shares closed down 1.61% at $33.90, and year to date, the stock is down by almost 8%.