The tech industry is abuzz with speculation regarding Intel's next moves in the wake of a potential acquisition. Following a report from Bloomberg on February 18, 2024, it appears that Silver Lake, a leading private equity firm, is engaged in detailed negotiations to purchase Intel's programmable chip division, Altera. This rumored acquisition could significantly reshape Intel's business landscape, particularly given Altera's pivotal role in the programmable chip ecosystem.

Founded to specialize in System on a Programmable Chip (SOPC) technology, Altera was acquired by Intel in a landmark deal for $16.7 billion in 2015. The technology developed by Altera transforms traditional electronics by amalgamating various components such as processors, memory, and input/output interfaces on a single chip, allowing for programmable functionalities tailored to users' needs. This capability sits at the intersection of flexibility and performance, making it a cornerstone of modern embedded systems.

At the time of the acquisition, Altera and its chief competitor, Xilinx, collectively held over 70% of the FPGA (Field-Programmable Gate Array) market, positioning Intel to strategically maneuver beyond its traditional CPU-centric business model. However, despite initial optimism, Altera's performance has not met Intel's ambitious growth expectations in the new sectors it sought to enter. The competitive landscape has evolved, and Intel now finds itself grappling with various challenges, including surprising competitive pressure from rivals like AMD and Nvidia in both the CPU and AI chip sectors.

In September 2023, Pat Gelsinger, Intel's then-CEO, emphasized Altera's importance to the company’s future, declaring it a "core part" of their roadmap. Yet just weeks later, Intel began signaling that it might offload a portion of its stake in Altera. Gelsinger, during a quarterly earnings call in October, indicated that Intel was actively engaging with potential investors to facilitate the sale of Altera's shares, aiming for a potential public offering around early 2025.

Should Silver Lake succeed in acquiring Altera, it would offer Intel a double-edged sword: freeing up financial resources while simultaneously allowing the tech giant to concentrate on its core CPU business. This decisive strategic shift could catalyze renewed focus and investment in areas that promise greater returns, rather than maintaining a sprawling portfolio of non-core assets.

The mere rumors of such a deal sent shockwaves through the stock market, with Intel's shares spiking by 17% at the opening on February 18, marking the largest single-day jump for the company in nearly five years, and closing over 16% higher. From the start of the month, Intel's stock had surged more than 33%, a remarkable rebound not seen since March 2023, emphasizing a dramatic change in investor sentiment.

Further complicating matters, there are reports that Intel may be partitioned into two separate entities. Companies like Broadcom and TSMC (Taiwan Semiconductor Manufacturing Company) are closely eyeing this potential bifurcation. Broadcom's interest reportedly lies within Intel's chip design and marketing operations, and they have informally discussed strategies for a takeover. However, any bid will likely hinge on finding a suitable partner for Intel's manufacturing operations before moving forward.

Meanwhile, TSMC has reportedly explored options to gain control over all or parts of Intel's chip manufacturing facilities, potentially through investment consortiums. According to a recent report from Baird, an American financial services company, there is speculation that the U.S. government could become involved in a scheme involving both Intel and TSMC, reflecting a significant policy direction aimed at bolstering domestic semiconductor manufacturing capabilities.

As part of this potential collaboration, TSMC engineers may be dispatched to Intel's advanced 3nm/2nm semiconductor plants to leverage their expertise for future projects. This collaboration might see Intel's manufacturing units spun off into a joint venture with TSMC at the helm, potentially capitalizing on funds available through the CHIPS Act, designed to support domestic semiconductor production. However, this information remains unverified.

Analysts on Wall Street generally express optimism regarding Intel's possible split into two parts. Raymond James analyst Srini Pajjuri communicated to investors that segregating Intel's product and foundry operations could be a key to unlocking substantial value. Similarly, Evercore analyst Mark Lipacis suggested that if Intel proceeds with a split, its market valuation could soar beyond $237 billion, equating to roughly $54.18 per share.

The backdrop to these developments is Intel's notable performance decline in recent years, particularly in advanced process technologies where it trails behind TSMC and Samsung. The company's share of the central processing unit (CPU) market has significantly declined as AMD continues to capture consumer interest, while Intel faces substantial challenges in matching Nvidia's dominance in the AI chip space. Against this backdrop of adversity, Gelsinger announced his retirement set for December 1, 2024, leading the company to appoint David Zinsner and Michelle Johnston Holthaus as interim co-CEOs.

In spite of Intel's struggles, the U.S. government remains strongly committed to supporting the company, injecting fresh hope among investors. Last week, Vice President Kamala Harris signaled a commitment to fostering domestic chip manufacturing during the Paris AI Action Summit, reiterating the administration's goal to maintain technological superiority through the use of American-made chips.

Market sentiment surrounding the potential collaboration between Intel and TSMC remains cautiously optimistic. Outlets such as Bloomberg and The New York Times have echoed these sentiments, yet analysts from Citigroup caution that the likelihood of such arrangements materializing is low. A source from the White House has also dismissed notions of allowing foreign corporations to operate Intel's facilities, suggesting that the Biden administration will prioritize national interests when it comes to America's semiconductor capabilities.