"Buy at the peak, sell halfway down"? UBS says Intel's sale of Altera is a bit of a loss

According to Zhitong Finance APP, Intel (INTC.US) recently announced that it has reached an agreement to sell a majority stake in its programmable chip division Altera to Silver Lake, with an implied valuation of $8.75 billion, lower than UBS's previous expectations. The bank also released a research report commenting on this event.

The transaction is expected to be completed in the second half of 2025, marking the long-awaited monetization of the Altera business. However, Intel's decision to relinquish a majority stake in this business differs from its initial strategic plan. This sale will help improve Intel's current poor financial situation, but the transaction valuation is significantly lower than the $16.7 billion Intel spent to acquire Altera in 2015, representing a valuation shrinkage of 47.6%.

Altera's multi-use chips are primarily used in telecommunications networks. In 2024, this American chip manufacturer stated that it would consider selling its stake in Altera as part of its broader business transformation plan. According to previous reports, Lattice Semiconductor Corp. and some acquisition companies have shown interest in Altera.

The $8.75 billion valuation of Altera is also significantly lower than UBS's initial expectation of $20-25 billion about 18 months ago. Of course, UBS's previous expectations were based on the premise that Intel's revenue would reach approximately $2.8 billion by 2026, while the bank currently predicts about $1.9 billion. The sale of Altera is also below the approximately $13 billion valuation recently given by the bank.

In comparison, considering the bank's revenue forecast of about $1.9 billion for 2026, the implied price-to-sales ratio of this transaction is 4.6 times, while Lattice Semiconductor (LSCC.US) has a price-to-sales ratio of 9.5 times, making this deal appear somewhat unfavorable. Nevertheless, as Intel attempts to bridge the gap between its current situation and achieving high-volume manufacturing (HVM) at the 14A process node, this transaction at least brings in a capital injection.

Intel is a leading manufacturer of microprocessor chips and platforms based on the x86 architecture, with its products used in client computing (about 50% of sales), data centers (30-35%), the Internet of Things (about 5%), memory solutions (about 8%), security (about 1%), and programmable solutions (about 3%). Its products and solutions are widely used in applications such as laptops and desktops, enterprise/cloud servers, communication infrastructure devices, mobile phones and tablets, wireless and wired connectivity products, IoT, industrial, military, and automotive applications