Intel's Rumored Acquisition Of Altera Could Protect Its Massive Monopoly In Servers

The Wall Street Journal reported on Friday that chipmaking giant  Intel  is in talks to buy  Altera . If this deal goes through, it'll be one of the largest deals Intel has ever made -- Altera's market cap stood at $13.36 billion when markets closed on Friday.

But this deal is well worth it, said technology analyst Patrick Moorhead, as it would help protect one its biggest money makers: servers. Intel chips dominate the server industry at a 98 percent market share.

Some companies have begun plugging Field Programmable Gate Array (FPGA) chips made by Altera--and by its chief competitor  Xilinx --into their data centers. FPGAs are reprogrammable chips that can run specific tasks faster than Intel's processing chips on their own. Companies like  Microsoft  and Baidu have begun using Altera's FPGAs along with Intel's processing chips to good results. Intel is already the manufacturer of Altera's FPGAs, but by buying the company, Intel could more closely integrate the FPGA onto its chip and get even better performance, said Moorhead.

Another factor Intel could be considering is that companies running big servers like Microsoft and Baidu could integrate FPGAs with ARM-based processing chips -- the ARM chip architecture stands as the biggest possible threat to Intel's x86 domination of the server industry. "If Intel owns Altera, the chance of that happening is zero percent," said Moorhead.

If Altera were bought up, that would leave Xilinx as the main FPGA chipmaker left in the field, and that would be a juicy takeover target for others.

Intel's traditional business of providing chips for PCs has been hurting over the past few years as the consumer world increasingly migrates towards phones and tablets. Intel has been trying its best to get a foothold into the mobile world -- and has made some progress in tablets -- but it's slow going in smartphones. Its servers group is its most profitable business division and the business has been making up for some of those loses. The server group helped bring in $14.4 billion in revenue out of Intel's total $55.9 billion 2014 revenue -- up 18 percent from 2013. Intel will be doing everything it can to protect that server business, especially as the PC business continues to struggle -- two weeks ago, Intel announced that it lowered its first quarter revenue forecasts on weak demand in the enterprise PC business.