Intel (INTC) Could Pay Premium for Altera (ALTR), but Deal Should Expand Opportunities - Cowen

Cowen and Company comments on Intel (Nasdaq: INTC) following news that the company might be in talks to acquire Altera (Nasdaq: ALTR).

Analyst Timothy Arcuri noted that Altera might be bought for $14 to $15 billion, or so, based on recent deal premiums. The analyst believes that Intel is paying a lot for just a little extra revenue, but there are other considerations that makes the deal appealing.

Arcuri elaborated: On the surface, ALTR is one of the only semiconductor companies with better gross margin than INTC and with ~2/3 of revenue from telecom/wireless/mil/aero definitely fits the bill of diversifying revenue beyond INTC's legacy compute markets. Lastly, PLDs are one of the only verticals requiring leading-edge silicon in which INTC does not compete - indeed, this served as the basis for the 14nm foundry relationship. As the ice breaker for INTC's foundry efforts, we believe any recent strain in the relationship (Broadwell and ALTR tapeout delays (our checks)) would put INTC's entire foundry effort at risk. Thus, paying ~$15B for what is ultimately only ~3-4% revenue accretion seems aggressive but 1) may not fully capture the entire picture, 2) opens up a whole new angle for the story, 3) takes some heat off the obvious compute headwinds, and 4) uses cash in a value-accretive way.

In terms of read across, this is optically negative for XLNX and to a lesser degree BRCM because it takes an acquisition of either the entire company or the connectivity assets by INTC off the table.

Cowen and Company has Intel at Market Perform with a price target of $36.

For an analyst ratings summary and ratings history on Intel click here. For more ratings news on Intel click here.

Intel closed at $32.00 yesterday.

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