Track Hyper | Once a prestigious giant Intel: Sellers are facing challenges

Author: Zhou Yuan / Wall Street News

Intel's stock price recorded a 7.42% increase on November 6 (Pacific Daylight Time), marking the fourth time since August 8 that its stock has exceeded a 7% increase, which is quite remarkable for the once-mighty semiconductor company now in deep trouble.

On the news front, the likely reason for the stock surge for the fourth time in three months is that Intel has begun to accelerate the independent IPO process for its FPGA chip company, Altera.

Although it is pushing for the IPO of its business module, it essentially amounts to selling assets. However, a pure asset sale yields one-time revenue, while pushing a business module to go public will provide long-term benefits. Of course, this also depends on whether Intel can maintain control after Altera's IPO is realized.

For example, at the beginning of October this year, market rumors suggested that Intel was considering selling more shares of Mobileye. Mobileye is Intel's supplier of autonomous driving system software and hardware, which Intel acquired for $15.3 billion in 2017. This action, compared to Altera's business, is purely an asset sale.

According to Intel's third-quarter financial report released on November 1, Intel's current business segments include client computing, data center and AI, networking and edge, Mobileye, and foundry services.

The revenue from the Mobileye segment was $485 million in the third quarter of 2024, down 8.5% year-on-year, accounting for less than 5% of total revenue.

Market news indicates that potential investors such as Silver Lake Partners, Bain Capital, and private equity firm Francisco Partners have expressed interest in acquiring a stake in Altera. However, regarding the details of the acquisition, since Intel's push for Altera's IPO is still in the early stages, no details have been disclosed yet.

Market speculation suggests that Intel may not sell the entire Altera business but only a portion of it, though the exact proportion is unknown. When Intel acquired Altera in 2015, the valuation was $17 billion. This means that the valuation basis for the minority stake in Altera that Intel intends to sell is $17 billion, and the market value of these shares should be in the scale of several billion dollars.

On June 2, 2015, Intel announced the acquisition of Altera at a price of $54 per share, with a total transaction value of $16.7 billion, setting a record for the largest acquisition amount in Intel's history. After this transaction, Intel became the second-largest programmable logic device manufacturer in the world.

Altera was founded in 1983 and is headquartered in San Jose, California, focusing on the design and manufacturing of programmable logic devices (PLD) and field-programmable gate arrays (FPGA).

After acquiring Altera, Intel initially operated the original Altera business through its Programmable Solutions Group (PSG); eight years later, on October 3, 2023, Intel announced that it would spin off the PSG department into an independently operating company and would promote its IPO within the next 2-3 years; on February 29, 2024, Intel pushed for the independence of the FPGA department, which was subsequently branded as "Altera." This is equivalent to saying that today's Altera actually only includes one of the two types of businesses of the original "Altera" company, namely the design and manufacturing of FPGAs.

In Intel's business sequence, the originally acquired Altera transitioned from being part of PSG to belonging to DCAI (Data Center and AI), which is a subordinate business unit of PSG, and finally divested its programmable logic devices (PLD), becoming an independent company that only focuses on FPGA design and manufacturing.

The revenue from this module in Intel's business landscape is quite insignificant. According to Intel's third-quarter report, Altera's revenue decreased by 44% year-on-year but increased by 14% quarter-on-quarter, reaching $412 million, accounting for only 3.1%.

This is completely inconsistent with the goals Intel initially aimed to achieve through the acquisition of Altera. Intel intended to enhance the overall capabilities of the x86 ecosystem through technology, but due to Intel's own inefficiencies in strategic execution and a bloated management system, the initial expectations fell short.

Intel's own problems have also dragged Altera down, causing it to lose its leadership position in embedded systems. Moreover, Intel now claims it wants to promote Altera, which only includes FPGA design and manufacturing, for an IPO, but Altera, which included PLD design and manufacturing back in 2015, was originally a publicly traded company.

This is akin to the original, more complete business of the publicly listed company Altera, after going through a nine-year detour and cutting half of its business, attempting to go public for the second time?

However, Intel actually has no choice, as the losses are simply too great. To get out of this predicament, in addition to relying on substantial financial support from the U.S. government, Intel has to make adjustments itself. For instance, during the conference call following the second-quarter financial report, CEO Pat Gelsinger announced Intel's largest downsizing plan in history, cutting over 15% of its workforce, while also suspending the practice of paying dividends to shareholders that had been in place for over twenty years.

In the surprising third-quarter financial report released on November 1, after taking a one-time charge of $18.5 billion in various expenses, Gelsinger provided a relatively optimistic outlook for the fourth quarter during the earnings call: the revenue outlook for the fourth quarter is slightly above expectations, leading the market to optimistically anticipate that Intel has the ability to regain some of its lost market share—one must say that the market's tolerance for Intel, once a semiconductor giant, is still quite high