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Intel in talks to acquire Altera for more than $10bn

Intel is in talks to acquire Altera, a maker of "programmable" processors, in a deal likely to exceed $10bn, according to people close to the deal.

A transaction would be the chipmaker's largest acquisition to date and among the biggest the technology industry has seen in recent years.

Altera's stock leapt more than 28 per cent on Friday afternoon after a report that Intel could acquire the chipmaker, leaving its market capitalisation above $13bn.

The deal would be Silicon Valley's largest since Facebook bought WhatsApp Messenger for $22bn last year and is could rank among the tech industry's top ten richest deals.

Shares in Intel rose by 6 per cent, valuing the company at more than $150bn. The move marks a bold departure by Brian Krzanich, who took over as its chief executive two years ago.

Intel and Altera declined to comment. The deal was first reported in the Wall Street Journal.

Analysts at Citi said that the deal, which could still fall apart, could add 4 per cent to Intel's earnings per share, contributing $2bn in annual revenue.

"We believe an acquisition of Altera would be accretive to Intel's margins and eventually could be effective fab filler," Citi wrote, referring to its semiconductor fabrication facilities, but the analysts warned that Intel was currently struggling with "execution issues" in that foundry business.

With the PC market in decline, its progress in mobile devices limited and a push into the "internet of things" market still nascent, Intel is looking to other areas for growth.

Buying Altera would shore up its presence in data centres, where programmable chips can lower energy consumption and improve performance, and help to fend off the emerging threat of competition from server chips based on designs from rival Arm Holdings. Altera would also bolster its foundry business, where Intel uses its manufacturing facilities to make chips for other companies.

Intel's move comes less than a month after NXP Semiconductors, a Dutch company that specialises in chips used in debit and credit cards, acquired smaller US rival Freescale for $11.8bn.

Founded in 1984, San Jose, California-based Altera has more than 3,000 employees in 19 countries. Its chips are used in a range of telecoms and wireless equipment, its biggest market, where sales are flat, as well as military hardware, automotive and industrial applications, where revenues fell last year, and networking, which remains a growth area.

Its largest customers are Huawei and Ericsson, who each made up more than 10 per cent of its revenues last year.

Altera's sales grew 12 per cent in 2014 to $1.9bn, despite a 4 per cent decline in the fourth quarter. Net income rose 7 per cent to $473m last year.

Pairing Intel's more traditional chips with programmable processors such as Altera's in a server can bring huge gains in performance and power efficiency, Intel executives have said in the past.

In 2013, Intel began a new push into contract chip manufacturing, going up against TSMC and GlobalFoundries. That year, Altera became Intel's first foundry services customer.

Some analysts have seen Intel's entry to the foundry business as an indication that demand may not be high enough for its PC chips to fill capacity in its manufacturing facilities alone.

2014 was "the third consecutive year with overall volumes declining" in the PC market, analysts at IDC said in January, with global shipments falling by 2.1 per cent to 308.6m units last year.

Shares in Xilinx, Altera's biggest rival, rose 6 per cent on Friday afternoon.

Additional reporting by Richard Waters

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