We’ve written a few times now about the rabidly rumored Intel bid to buy Altera. In fact, we actually predicted the whole thing almost a year ago:
Were we right? It’s still too early to tell. And all we really have to go on are: reports of leaked information, the rules of the game, technology trends, and our own speculation about the motivations and positions of the players involved.
But one thing is for sure – this is one high-stakes game of chicken.
New information has emerged this week – in the form of a new Reuters report – which says that, according to “sources,” Intel signed a “standstill” agreement with Altera back in February. This means that Intel would be free to launch a hostile takeover bid for Altera as early as June 1.
Why is that interesting? It revs up the engines to near maximum RPM and puts a timeline on when the clutches could be released.
But this story really began around five years ago. And it’s hard to understand what’s going on today without knowing how we got here – poised perilously on the precipice. So, let’s review a timeline of the events that led us to this dusty road where two angry drivers are about to go head-to-head with pedals to the metal in an eleven-figure game of chicken. We’ll throw in our own interpretation as we go along, of course.
Waaay back in 2010, we talked about an obscure Intel product that mixed an Intel Atom processor with an Altera FPGA in the same package:
While that product – aimed at the embedded systems market – was a clear failure, it did indicate that Intel saw significant value in pairing conventional processors with FPGAs.
Then, in 2011, Altera’s archrival Xilinx announced a new type of chip that combined conventional processors (ARM processors in this case) with FPGAs – on the same chip. Xilinx called this new family “Zynq,” and (spoiler alert) Zynq has been a pretty smashing success. We explained that here:
It didn’t take Altera long to fire back with an announcement of their own (mostly marketing at the time), that they would offer a combination of processors and FPGAs on the same chip.
Shaking Up Embedded Processing
Altera Introduces SoC FPGAs
Then, fast-forward to November, 2012, Altera announced that they had created technology to compile OpenCL code targeting Altera FPGAs. That meant that people who had written high-performance software aiming to take advantage of accelerators like graphics processing units (GPUs) could run that software on FPGAs – with better performance and lower power consumption. We wrote about that here:
The Path to Accelleration
Altera Bets on OpenCL
In that story, we said: “We could truly end up with data centers full of racks of servers – where each blade contains FPGA SoC devices running OpenCL code. The performance capabilities of such an architecture would be staggering, and, more importantly, the power-per-performance would be dramatically lower than for today’s high-performance computing systems. Since power is often the ultimate limitation on the amount of compute power we can deploy today, these could form the basis of the supercomputers of the future.”
Altera doubled down on that announcement shortly after, revealing that they had worked on a very close partnership with ARM to develop a tool flow that would make it particularly easy for ARM customers to take advantage of Altera SoC FPGAs.
The Secret Ingredient
Altera and ARM Roll FPGA/SoC Tools
Then in February, 2013, Altera announced that they had signed a deal with Intel, where Intel would manufacture the next generation of Altera FPGAs and SoC FPGAs using Intel’s upcoming 14nm Tri-Gate technology.
We gave our take on that announcement here:
Because Intel is widely regarded as having the world’s most advanced semiconductor manufacturing processes, Altera had the potential to gain a technology advantage over archrival Xilinx, who is developing their own next-generation FPGAs based on TSMC’s 16nm FinFET technology. The terms of the Altera/Intel agreement were not disclosed at that time (and those terms will become EXTREMELY important later in our story), but Altera did say that their deal with Intel was exclusive and that no other “major FPGA company” would be allowed to work with Intel. (hint: the only other “major” FPGA company is Xilinx).
We explained more about that in March, 2013, and introduced potential interlopers Achronix and Tabula:
It’s Getting Hot at the Top
A few months later, in June, 2013, Altera announced some details of the chips Intel would be building for them:
The Next-Node Battle Begins
Altera Announces “Generation 10”
What Altera DID NOT announce at that time was – whose processors would be included in their upcoming Generation 10 SoC FPGAs. Logically, it should be ARM processors, because Altera had already ventured far enough down that path that switching horses would create severe disruption for Altera customers and would require a major investment in new tools and re-engineering of the SoC FPGA architecture.
But that meant that Intel would be manufacturing processors designed by archrival ARM. And that possibility would have been hard for them to swallow.
Then, in October, 2013, Altera came clean. The Intel-fabbed, next-generation Altera Generation 10 FPGA SoCs would indeed contain ARM processors. And not just any ARM processors – they were to be the newly announced, 64-bit, data-center-ready ARM Cortex-A53.
ARMing a New Generation
Altera Announces Processor Architecture for Gen X
Two important points from that announcement – Intel will be making data-center-ready chips for Altera, and those chips will contain ARM processors rather than Intel processors.
We need to think at this point about TWO Intels, or rather two different groups within Intel. One group has scored a major success by signing Altera as the first major client of Intel’s new and emerging merchant semiconductor fab business. Go Team!
The second group – who has most likely been on the sidelines through this process – is Intel’s data center group – which accounts for a very significant portion of Intel’s total revenue. This group may have noticed about this time that their own company is about to begin manufacturing devices for Altera that could pose a major risk to their core data center business. Intel was, in effect, possibly holding a gun to its own head. Totally not cool.
We were then left to speculate about the ensuing race between Altera and Xilinx to develop FinFET-based FPGAs – Altera partnering with Intel, and Xilinx partnering with TSMC. We dropped the details of that battle here:
Xilinx vs. Altera
Calling the Action in the Greatest Semiconductor Rivalry
Compounding the problem for Intel, Xilinx would pretty obviously be out there making their own, similar, data-center-capable devices. Also with the potential to impact Intel’s data-center dominance. Then, Xilinx came right out and made those intentions known:
FPGAs Cool Off the Datacenter
Xilinx Heats Up the Race
By this time, one thing was crystal clear – by 2016, there would be two FPGA companies making amazingly capable chips that combined conventional processors with FPGA fabric. Those devices would be serious game changers and would fly into a wide range of markets – all the way from embedded systems to the Internet of Things (IoT) to machine vision to – yep, data centers.
Oh, and most important for this discussion, they’d BOTH be doing it with ARM processors.
In early 2014 Altera showed a bit more of their strategy, announcing a series of floating-point arithmetic features for their FPGAs.
Toward 10 TeraFLOPS
Altera Kicks Up Floating Point
This is significant because it signaled ever further that Altera was aiming at high-end processing applications – data center and high-performance computing.
If you’re the Intel data center group, are you sweating yet? If not, you should be. You have a forty-billion-dollar business to defend. Intel’s dominance has always been primarily based on the fact that Intel has the world’s best semiconductor manufacturing. And having the world’s best semiconductor manufacturing is valuable only as long as you’re winning the race in Moore’s Law.
But if Moore’s Law ends, there is no more race to win. Intel has to find another advantage. We talked about Moore’s Law ending in August, 2014:
The Sun Sets on Moore’s Law
Are FPGAs Harbingers of a New Era?
But Intel knew that long before we wrote about it. They’ve probably had people trying to blast microscopic droplets of tin with boxcar-sized lasers to make EUV light for a while now. They know that making chips beyond 7nm (which should start around four years from now, according to Moore’s Law) is going to be very, very difficult – maybe impossible – and most definitely so expensive that almost nobody on Earth will be able to take any meaningful advantage of it.
Intel dropped another bomb – albeit very, very quietly. In June, 2014, at the Gigaom Structure ‘14 event, Diane Bryant announced that Intel would be producing a version of their Xeon processor with a coherent FPGA in the same package.
Let’s think about that for a minute, shall we? Intel is worried enough about the future of their data center business that they’re going to make processors with FPGAs in the same package. Folks, FPGAs are very expensive. Intel must have made a deal with someone to buy these FPGAs, but they don’t identify the supplier. They also give no clue about where they’re going to get the tools required to make these FPGAs useful in any way. All in all – it’s a very mysterious announcement.
It was mysterious enough, in fact, that it inspired us to publish “When Intel Buys Altera” in June of last year:
When Intel Buys Altera
Will FPGAs Take Over the Datacenter?
That article was based on the idea that we’ve pretty much established on this timeline – that Intel really needed FPGA technology to protect their dominant position in data center processors. But there are other ways they can get access to that technology without buying Altera, right? Let’s list them:
Intel could partner with an FPGA company. But that won’t guarantee that the FPGA company will apply their resources on the priorities needed to achieve Intel’s objective. Xilinx and Altera both have MANY market segments they’re attacking. Data centers is just one of them. If you listened to Altera’s latest quarterly earnings conference call, it’s pretty clear that Altera has only a small portion of their overall focus on data center applications. And, in order to really take advantage of FPGA technology, the FPGA needs to be on the same chip with the conventional processor – not just sitting next to it or in the same package. And Altera and Xilinx both seem quite content to proceed with ARM processors on their chips, which leaves Intel out in the cold.
Or, Intel could buy a different FPGA company, or make their own FPGA fabric, couldn’t they?
Ah, here is where the plot thickens. Things turn all nasty and gnarly. Apparently, in the February, 2013 agreement Intel signed with Altera, they agreed that they would not make FPGAs for any other major FPGA company (meaning Xilinx). And they agreed that they would not make FPGAs themselves, and that they would not BUY another FPGA company.
Yep, you read that right. In that agreement, Intel apparently shot themselves in the foot – repeatedly. When you put yourself in a position where you have no other alternatives, you are no longer negotiating. If Intel needs FPGAs to protect their data center business, they have signed an agreement that says they have no alternative but to get that FPGA technology from Altera. They can’t develop it themselves, and they can’t buy Xilinx.
But, hang on, how long is the term of that agreement? Can’t they just wait it out?
Well, if we look at what Altera made public, that information is conveniently reduxed out. But we do have a hint – Altera had to ask for at least twelve years of supply guarantee for certain customers (like defense contractors). That means Intel probably had to agree to keep on making Altera FPGAs for at least twelve years. If that’s the term of the overall agreement as well, Intel is basically – what’s the technical term? Oh, yeah, “screwed.”
That brings us to the new information from Reuters. According to that report, sometime around February, 2015, Intel came to Altera with a tentative offer of somewhere around $58 per share. That was (as is common practice) contingent upon the two companies signing a nondisclosure agreement, and Altera giving Intel access to current financial data. After reviewing that data, Intel reportedly came back with a reduced offer of $54 per share. Apparently, at that point, Altera responded with something akin to “pound sand,” or – they may have countered with a normally-reasonable price bump up to $60. Either way, the two parties appear to have stopped talking at that point.
We can imagine that Intel, having reviewed Altera’s financials, knew that Altera would have to report a far-less-than-stellar quarterly result. If Altera’s shareholders knew that Altera had just turned down a $54/share offer, and that the stock had been in the $30 range before the rumors began, and then a bad quarter had been reported, they might begin to apply significant pressure to Altera to reconsider the offer. And, in fact, we see evidence that pressure has begun to mount.
At the same time, it was disclosed that Intel had signed a “standstill” agreement – that they would not try a takeover by buying Altera shares on the open market before June 1 (a part of the normal process for the pre-acquisition negotiations we described above.) That is, perhaps, the biggest coiled spring in the plot right now.
Come June 1, if these reports are reasonably accurate, Intel could choose to initiate a hostile takeover of Altera. Many of Altera’s shareholders are clearly nervous already, and they could probably be easily convinced to sell their interests to Intel at somewhere around what the company is rumored to have offered already. Should Altera management hold their ground and go for the extra 10% or so? Is there more at stake that we’re not seeing?
There certainly is no clear path for Altera to be so successful that they can generate the kind of value Intel seems to be offering the Altera shareholders in any reasonable amount of time. You can feel the torch mob gathering outside the gates.
If our reasoning is correct, there is no other comparable suitor waiting in the wings for Altera. The company has this unique strategic value to Intel, and to Intel alone. And there is no alternative for Intel to acquire FPGA technology – if they believe that FPGA technology is essential to protect their data center business. The two companies would indeed be on a collision course of epic proportions.
It will be interesting to watch.