The upheaval in the wireless infrastructure chip sector continues, with Intel said to be in talks for the biggest deal yet, a takeover of Altera, which had a market cap of $13.3bn on Friday.
If a bid transpires from the negotiations - leaked by sources to The Wall Street Journal - it would be one of Intel's biggest purchase ever, and would reflect the chip giant's urgent need to reduce its reliance on stagnating markets, notably PC processors, and consolidate its strength in servers (still 98% share, but under the first credible attack in years, from ARM).
This is no longer just about enterprises - Intel is pushing its server processor technology into the carrier network and wireless infrastructure spaces, riding on the interest in virtualization, including Cloud-RAN. It has made several acquisitions recently, including those of LSI's Axxia division and Mindspeed's former Picochip unit, aimed at improving its capabilities in base stations, network processors and C-RAN (even at the cost of introducing ARM-based platforms into the fold).
In this market, and in the broader cloud server segment, Intel has a natural advantage, but needs to build on that quickly to fend off ARM's licensees. Since the UK-based core provider moved to 64-bit, partners like Cavium and EZchip have been pushing the Cortex-A architecture into the heartlands of Intel x86 and of proprietary designs, including high end servers, accelerators and network processors.
Altera makes programmable chips (field programmable gate arrays or FPGAs) for base stations and other infrastructure, and leads this segment, ahead of Xilinx and Lattice, especially in the high end sub-sector which comprises over half the market. In 2013, the company became the largest customer for Intel's fledgling foundry business, signing a deal for the US giant to manufacture new top end parts with its cutting edge 14nm FinFet process. At the time, there was also considerable speculation that Intel would need to expand its FPGA expertise, probably via acquisition, in order to take a lead in base stations, and particularly in Cloud-RAN.
This is because FPGAs are increasingly needed, alongside general purpose processors, to satisfy the demands of performance-intensive infrastructure such as cloud servers and carrier networks. FPGAs can run specific tasks very quickly and are increasingly seen in data center platforms used by Microsoft and Baidu alongside Intel chips. Altera has been the leader in penetrating this high growth segment, and if Intel acquired it, there would be the chance to secure those revenues for itself, and also to integrate CPU and FPGA more closely, to gain competitive advantage against rivals.
In particular, that would cut off a valuable source of FPGAs for ARM-based competitors, though that in turn could boost Xilinx, and possibly make it a target for acquisition too (its shares leapt 6% on the reports of the Intel talks with its arch-rival).
As well as servers, FPGAs are an important element of base stations, and of the emerging virtualized version, Cloud-RAN. Intel has been prototyping a base station platform built around its Xeon processor with accelerators optimized for signal processing. Prototypes based on FPGA chips are being used in China Mobile's huge C-RAN market trial, which aims to virtualize network functions on an x86 server in order to control a large number of small and macro cell sites in a flexible, centralized way.
At this year's Mobile World Congress, Altera and Intel were part of China Mobile's demonstrations of C-RAN based on the NFV specifications. Altera signed a strategic collaboration with the China Mobile Research Institute (CMRI) in 2014, focused on the future needs of 5G with regards to virtualization and FPGAs.
"It has been nearly five years since CMRI first introduced the C-RAN concept to the industry, and there is now wide recognition within the industry that this solution is essential for 5G networks," said Chih-Lin I, CMRI's chief scientist, said in Barcelona. "As a key partner helping to realize the industry vision of the C-RAN architecture-based 5G wireless network, Altera provided advanced technologies and great support to our project as we conducted the research and development together."
Intel has also talked about producing a full base station platform, though to date it has mainly worked with partners to get x86 processors into cell site equipment, as seen in its alliances with NSN to create the RACS/Liquid Apps offering, and Cisco/Ubiquisys for the Smart Cell.
The Altera deal, if it materializes, would pull all these strands together, capitalize further on the important Axxia takeover, and give Intel a strong position when the C-RAN market gains scale (which, despite major trials by China Mobile, Telefonica and others, is unlikely to be until the industry gets close to its '5G' stage, around the end of the decade).
Analysts at Citi told Bloomberg that the acquisition could add 4% to Intel's earnings per share and contribute $2bn in annual revenue, as well as being an effective "fab filler" following recent huge investments in new plants and the 14nm process. It could also give Altera the boost it needs in its largest market, wireless and telecoms equipment, where its sales have recently been flat. It has also seen decline in military, automotive and industrial equipment chips, though the networking business has enjoyed growth and it saw a 12% year-on-year rise in sales in 2014, to $1.9bn, with net income pu 7% to $473m.
Founded in 1984, California-based Altera has more than 3,000 employees in 19 countries. Its largest customers are Huawei and Ericsson, which accounted for 10% of its revenue apiece last year and would be attractive targets for Intel, which has made slow progress in penetrating the heart of the mobile infrastructure world, despite its strength in some types of core network processors