Intel has agreed to spend a whopping $16.7 billion to acquire Altera, a company that makes something Intel lacks: FPGAs (field-programmable gate arrays), which are reprogrammable chips.
Some of Intel's major acquisitions in the past haven't panned out well, most notably the 2010 purchase of McAfee for $7.68 billion, so only time will tell if this one will turn out better.
For now, here are five reasons behind Intel's interest in Altera:
1. By acquiring FPGA technology, Intel is thinking outside the CPU, now that the execution of tasks is increasingly off-loaded to graphics processors and other accelerators.
2. Having its own FPGAs will strengthen Intel's server offerings. Server chips are cash cows for Intel, and they are gaining more importance as the PC market slows down and as Intel struggles to sell tablet and smartphone chips in its floundering mobile business.
Intel is offering customers, such as server makers and companies building data centers, the option to package server chips with third-party FPGAs, which are being used for dedicated functions like search, sorting and character matching. Companies like Microsoft and Baidu have put FPGAs to good use in data centers.
3. Intel's factories are under-used, so working on FPGAs, which are big and complicated to make, will increase their workload and help Intel justify the billions it spends on advancing its manufacturing technologies.
4. Intel hopes to get a boost in the Internet of Things market. FPGAs are being used in IoT implementations, such as smart city and factory automation systems, and at the center of IoT's fast growth is communications equipment, which also use FPGAs. The acquisition would also make Intel the backbone of many IoT installations, which means an opportunity to up-sell more products.
5. The acquisition would also hurt competitors using Altera products. If Intel's Altera acquisition is completed successfully -- it's expected to close in the next six to nine months -- IBM and ARM will be left scrambling to seek other FPGA options for their server products. Altera's competitors include Xilinx, Microsemi, Lattice and others.