Altera spurns Intel, and might have done Intel a favor.

Merger talks are off, which would have been Intel's most expensive ever.

After a few weeks of speculation, Altera has apparently walked away from a very generous acquisition offer from Intel. Altera makes field-programmable gate array (FPGA) processors, a field Intel does not play in, and it would have been a whole new market for Intel, which really needs a growth story these days.

Bloomberg reported that Altera walked away from an offer of $54 per share this week, a major premium over Altera's stock price, which was stalled in the mid-$30 range for more than three years. It shot up to $43 per share on news of the Intel merger talk.

Gus Richard, an analyst at Northland Securities Inc., summed it up best to Bloomberg: "What are they thinking? They’re going to come under a huge amount of pressure to take that offer. Earnings aren’t going to be that great."

The deal was said to be an all-cash offer, which I find hard to believe because Intel only has $13 billion in cash and short-term investments, not enough to pull off the deal.

Acquiring Altera would have benefitted Intel in the one area where it is strong: the data center. While its desktop business has been flat and mobile is bleeding gushers of money, the Data Center group has been growing as Intel reigns pretty much unchallenged in the server space. RISC processors have plummeted to fractional market share.

"Clearly, Altera is in a market that is growing and it has unique technology that Intel would have a lot of trouble replicating if it wanted to. FPGA does make sense in some applications," said Nathan Brookwood, research fellow with Insight64. "The negative is the number of servers that can benefit from this is relatively small compared to the overall size of the server market."

So what happens now? A number of things. Altera's board is probably getting holy hell from major shareholders for not taking the deal. That may drive them back to Intel. The premium Intel was willing to pay was a whopper; four times Altera's market cap. If Intel wants an FPGA company that bad, and the San Jose Mercury News said it's gone fishing elsewhere, it could always approach Altera's biggest competitor Xilinx, which has a comparable market cap.

The question is why Intel would want to spend so much money on FPGA technology. Altera is a $2 billion annual company. What's so valuable that it wants to spend $13 billion for that? The only thing I can think of is Intel wants in to the FPGA market and decided it would be cheaper and quicker to buy rather than build.

But we won't know until a merger goes through, if ever.

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