By Dana Mattioli and Dana Cimilluca in New York and Don Clark in San Francisco 

Intel Corp. is in advanced talks to buy chip partner Altera Corp., according to people familiar with the model, a move that would represent the semiconductor giant's biggest-ever acquisition.

It wasn't immediately clear how much Intel would pay for a deal. Altera had a market capitalization of about $10.4 billion before The Wall Street Journal first reported on the talks and ended Friday valued at $13.4 billion. It would be a big bite for Intel, which has historically stuck to smaller-size acquisitions.

The Santa Clara, Calif., company is a giant in the semiconductor business and had a market value of $151.6 billion. It is the largest maker by far of chips that supply calculating engines in PCs and server systems.

Altera, based in San Jose, Calif., is one of the two largest makers of field-programmable gate arrays, or FPGAs, which can be configured by customers for various tasks after they are manufactured. FPGAs are widely used in phone networks, computer-networking equipment, cars and other products.

Altera and longtime rival Xilinx Inc. have pushed FPGAs into new areas where customers once designed chips from scratch. These chips can be programmed to carry out specialized tasks like data encryption and work much faster than standard microprocessors like Intel's Xeon.

Intel and Altera have worked together in the past. Intel, which has tried to build a new business out of manufacturing chips for other companies, in 2013 reached an agreement to offer its most advanced production process to Altera.

Buying Altera would further solidify their manufacturing partnership, and help Intel keep its factories full. Still, a tie-up with Altera may not help Intel place more of its chips in smartphones, now a major gap in its portfolio as more computing activities take place in pocket-size products. A deal indirectly could help Intel in the mobile market; Altera chips are widely used in the wireless base stations that connect cellphone users.

A combination would add a fast-growing business to Intel; Altera's revenue is climbing faster than Intel's--up 12% to $1.93 billion last year while Intel's rose 6.1% to $55.9 billion.

"I think FPGAs are hot and having [Altera] in-house is a big win for Intel," said Roger Kay, an analyst at researcher Endpoint Technologies Associates.

Intel investors cheered the possible deal. The company's shares, which had risen 18% in the past year, shot up 6.4% to $32 after the Journal reported talks were under way. Altera stock, which had been down 2.5% in the past 12 months, jumped 28% to $44.39.

Altera, a so-called fabless chip designer which owns no factories of its own, mainly has relied on Taiwan Semiconductor Manufacturing Co. to build its earlier generations of products. Past industry mergers suggest Altera would continue to use TSMC to make those chips, even if it becomes part of Intel because of the difficulties of moving production.

Intel, which built a huge franchise in the PC market in the 1990s, began suffering several years ago as consumer spending shifted from laptop computers to tablets and smartphones. Despite efforts to crack the smartphone market, the semiconductor pioneer largely has failed to match the success of rivals like Qualcomm Inc.

Though the PC business has rebounded somewhat, Intel's results have remained under pressure. The company this month cut its revenue outlook for the first quarter by nearly $1 billion to roughly $12.8 billion.

Under Chief Executive Brian Krzanich, who took over in 2013, Intel has continued trying to break into mobile devices and focused on newer opportunities such as wearable computing devices. Those efforts have so far failed to boost Intel's revenues by much, however.

The semiconductor industry, meanwhile, is facing a consolidation wave as mature companies like Intel find it harder to expand their existing businesses on their own. Another factor is the increase in costs to design new chips that pack more features on each square of silicon, which is driving some smaller players into the arms of larger rivals.

Just this month, NXP Semiconductors NV agreed to buy Freescale Semiconductor Ltd. for $11.8 billion.

"About six months ago I said in five-to-10 years, half of the companies we know today won't exist anymore," Scott McGregor, CEO of chip maker Broadcom Corp., said in an interview soon after that deal was disclosed. "And it's pretty solid on that track."

So far this year, there have been more than $21 billion in announced semiconductor deals globally, not including any Intel and Altera tie-up, according to Dealogic. That is a 122% increase over the same period last year, and the largest year-to-date total since the data provider started keeping records in 1995. In all of 2014, there were only $39.1 billion of chip deals announced, according to Dealogic.

Intel's last significant acquisition was its $7.7 billion deal to buy security-software company McAfee Inc. in 2011. Around the same time, Intel purchased Infineon Technologies AG's wireless-chip business for $1.4 billion.

Write to Dana Mattioli at dana.mattioli@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Don Clark at don.clark@wsj.com

Access Investor Kit for Taiwan Semiconductor Manufacturing Co., Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=TW0002330008

Access Investor Kit for Altera Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US0214411003

Access Investor Kit for Broadcom Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US1113201073

Access Investor Kit for Intel Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US4581401001

Access Investor Kit for Lattice Semiconductor Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US5184151042

Access Investor Kit for QuickLogic Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US74837P1084

Access Investor Kit for Taiwan Semiconductor Manufacturing Co., Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US8740391003

Access Investor Kit for Xilinx, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US9839191015

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Intel (NASDAQ:INTC)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Intel Charts.
Intel (NASDAQ:INTC)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Intel Charts.