​Intel's Altera purchase strategy: Data center today; IoT tomorrow

Why buy Altera? For Intel, the acquisition is about packaging Altera's programmable processors with its Xeon so enterprises can adjust algorithms on the fly. In the long run, think Intel's Internet of things.

Intel's acquisition of Altera is a $16.7 billion investment to beef up the chipmaker's data center and Internet of things units while minimizing the dependence on the PC market.

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Altera, which was already an Intel partner, makes field-programmable gate array processors and technology. In English, these FPGA processors can be configured and customized by the customer. And enterprise customers want the customization so they can tweak the algorithms involved with various workloads

Previously: Intel buys Altera for $16.7 billion

Intel has been teaming up its Xeon processors with Altera's FPGA and a merger will tighten that integration.

On a conference call, Intel CEO Brian Krzanich said:

FPGA significantly improves performance and cost but what's especially interesting is what happens when you integrate FPGAs with our Xeon processors.

FPGAs also significantly improve the flexibility for our customers allowing them to quickly implement and update their algorithms. We expect limited shipments in the latter half of 2016. And those will be followed over time with on die integrated solutions.

And by 2020 it is estimated that up to one third of cloud service provider nodes may use these FPGAs.

The data center wins and manufacturing synergies can justify the Altera purchase in the short term.

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As for the long-run, Altera is all about the Internet of things. Altera's FPGAs will be integrated with Intel's various processors and tailored to industries such as autos and manufacturing.

The Internet of things hook is one reason why Intel said it will continue to support Altera's ARM efforts. ARM will have a big chunk of the Internet of things market.

Naturally, Intel will be integrating Altera's wares with its Atom processor. But with Altera, Intel can play the Internet of things whether ARM or Atom dominates.

Intel already has a promising IoT unit, but Altera will accelerate the chip maker's plans. More importantly, Altera gives Intel more diversification in terms of industries.

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Altera's processors occupy areas where Intel doesn't play. Altera's revenue base includes industrial, military and automotive customers, networking, compute and storage and telecom and wireless. All of those areas are going to play into the Internet of things.

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Intel's master Internet of things plan will take time to play out. For now, the Altera deal will revolve mostly around the data center. Ultimately, Intel's role in the Internet of things will determine whether the Altera purchase was a huge win.

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