Intel could strengthen its server product stack with Altera

Intel is in talks to acquire Altera, which has a market capitalization of $10.4 billion [B], according to a report in the Wall Street Journal. Intel and Altera declined to comment on negotiations or any deal.

Altera makes FPGAs, which are specialized chips that can reprogrammed to run specific tasks at much higher speeds than CPUs. Intel makes Altera's FPGAs in its factories and has also mentioned plans to use FPGAs with its server chips.

Intel's Data Center Group is the company's most profitable group, and its growing data-center product stack includes CPU, memory, networking and storage gear. But server designs are changing, and many tasks are being off-loaded to co-processors like graphics processors and FPGAs. Intel wants to keep growing in the server market, and Altera could partly fill a product gap, analysts said.

Intel wants to grow its co-processor and custom chip portfolio, and buying Altera saves them from developing FPGAs internally, said Patrick Moorhead, president of Moor Insights and Strategy.

"It would be hard for Intel to build their own FPGA and make it competitive. They could do it, but how much time It took them about a decade to become competitive in GPUs," Moorhead said.

Intel could license FPGA technology from Altera like it does now, but bringing the technology in-house could accelerate the release of custom server chips, Moorhead said.

Moreover, taking Altera FPGAs off the market could hurt competing server chip platforms from ARM and IBM, which are viewed as alternatives to Intel's x86 chips, Moorhead said.

Intel has been adding more capabilities to servers with its own components, and tying Altera's FPGAs to the CPU and other parts could bring more functionality to servers, said Dean McCarron, principal analyst at Mercury Research.

Altera's acquisition might also have a secondary benefit to Intel's factories, which could be kept busy manufacturing FPGAs, McCarron said.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com