• by Thom Forbes  @tforbes, June 2, 2015

With PC sales spiraling downward as the Internet of Things ascends and the cloud expands, Intel yesterday made a deal for its future, buying chip maker Altera — which makes the kind of chips that can be programmed to do specific and sophisticated tasks  — in an all-cash deal valued at $16.7 billion.

“Intel’s growth strategy is to expand our core assets into profitable, complementary market segments,” Intel CEO Brian Krzanich said in a press release announcing release. “With this acquisition, we will harness the power of Moore’s Law to make the next generation of solutions not just better, but able to do more. Whether to enable new growth in the network, large cloud data centers or IoT segments, our customers expect better performance at lower costs.”

Intel co-founder Gordon Moore famously made the observation that the number of transistors per square inch on integrated circuits had not only doubled 24 months since the “chip” was invented but also predicted that the trend would continue for the foreseeable future. In observance of the 50^th anniversary of that prognostication, Bill Gates tweeted Saturday: “I’ve made a couple of predictions that came true. But nothing like Moore’s Law.”

“Still going strong today, Moore's Law means Intel's latest microprocessor, the fifth-generation Core i5, is 3,500 times faster and 90,000 times more efficient than its first one, the Intel 4004, made in 1971,” writes Channelweb’s Doug Woodburn, cribbing from a video on Intel’s website. 

“Meanwhile, the price per transistor has fallen 60,000 times. If automobile technology had progressed at the same rate, cars would go over 300,000 miles per hour, get over 2,000,000,000 miles per gallon and cost only four cents,” the narrator tells us.

But they don’t. And back in the real world, some analysts said that Intel paid too much — “$54 a share to Altera holders, about 56% higher than when The Wall Street Journal first reported deal talks between the companies in March — the WSJ’s Don Clark writes. Even Mr. Krzanich characterized the price as startling. “‘There is a bit of surrealness to it,’ he said in an interview. ‘The number is so big.’”

But the combination is the latest in a flurry of acquisitions in the industry, Quentin Hardy and Chad Bray report in the New York Times, pointing out that “even as the demand for chips expands, the business has become ruinously expensive for all but the biggest players.” 

When Avago Technologies “gobbled up” Broadcom for a “whopping $37 billion last week, the Economist’s hed was “Munch or Be Munched On.” NXP Semiconductors paid $11.8 billion for Freescale Semiconductor in March; both companies make chips for automobiles. 

“If you want to make cars drive by themselves, then the use of sensors is likely to grow exponentially,” Robin van den Broek, an analyst at ING in Amsterdam, told Bloomberg at the time. And that growth is exploding not only in automobiles but just about everything, from home thermostats to smart watches to diapers. Yes, diapers. 

“Nappies of the future will include a sensor, or you'll get your tot to wear one, and when your offspring's alimentary canals produce waste you'll get a warning on your smartphone,” reports Simon Sharwood in the UK’s The Register.

Altera, Clark reports, “specializes in chips called field programmable gate arrays that can be customized for specific jobs after they leave the factory. They are particularly popular in networking and wireless equipment, which would represent new markets for Intel.” FPGAs can also be used “alongside conventional chips to help speed up servers, a concept that is among Intel’s motivations for the deal,” he reports. 

You can get a free FPGAs for Dummies ebook by registering on the Altera site.

“Acquiring Altera may help Intel defend and extend its most profitable business: supplying server chips used in data centers,” writes Bloomberg’s Ian King. “While sales of semiconductors for PCs are declining as more consumers rely on tablets and smartphones to get online, the data centers needed to churn out information and services for those mobile devices are driving orders for higher-end Intel processors and shoring up profitability.”

But it’s also about the wetware, some suggest.

“It's not a technology they are buying. It's a mindset,” Richard Doherty, research director of The Envisioneering Group tellsUSA Today’s Kaja Whitehouse and Mike Snider. “They are buying a different approach to getting to market quickly and it's going to interesting to see if Intel tries to absorb them, like all their other acquisitions. Or whether this will be one where there will be a true business line and a true character and flavor to it.”