Intel to Gain Customized Chip Capabilities with eASIC Buyout

Intel INTC recently stated its plans to acquire eASIC. Santa Clara, CA-based eASIC is a small company which specializes in customized chip-making technology and has a experience of 19 years in the field. The financial terms were reportedly almost insignificant to the tech giant to be disclosed.

Custom-made chips are more efficient but cannot be modified for other purposes. Intel’s move to acquire eASIC holds promise in the long haul considering its ambitions of creating a unique and new technology which takes into account both efficiency and flexibility.

Post acquisition, eASIC team will join the chipmaker’s Programmable Solutions Group (“PSG”). eASIC’s structured ASICs (application-specific integrated circuit) microchips will add considerable depth to Intel’s programmable solutions portfolio. Improving time-to-market, advanced features and improved performance will be the other positives.

Intel’s notable economies of scale will enable it to gain an edge in terms of cost, power and extended product life cycles of its offerings.

The acquisition is expected to conclude in the third quarter of 2018, after clearing the customary regulations.

Notably, Intel’s stock has returned 54.9% in the past year, outperforming the industry’s rally of 52.1%. Intel’s bid to enable customers unlock the power of data is a key catalyst.

Is the Addition of eASIC to PSG Division a Masterstroke?

The customers are increasingly handling workloads either over the cloud, Internet of Things (“IoT”), 4G/5G wireless networks, among other emerging platforms. This calls for designing power constrained and high performance applications solutions which customized ASICs offer.

Moreover, robust adoption of FPGAs (field-programmable gate arrays) is eventually easing the migration to structured ASICs. Considering the rapid shift to structured ASICs, the company also targets to offer a cost-effective solution that automates the conversion process.

In the longer haul, Intel aims to develop advanced programmable chips which “no one on the marketplace” offers. The new class of chips will leverage the company’s Embedded Multi-Die Interconnect Bridge (“EMIB”) technology. The new chips will combine Intel’s FPGAs with eASIC’s structured ASICs in a system to be offered as a package solution.

PSG Segment Analysis

PSG accounted for 3.1% of total revenues in first-quarter 2018. PSG unit started with the $16.5 billion Altera acquisition which the company completed in 2015. The segment reported growth of 17.2% from the year-ago quarter to reach $498 million. Strength in data center and embedded products drove top-line growth.

Further, PSG's data center segment soared 150% from the year-ago quarter. Management stated that revenues from advanced FPGA products (28, 20 and 14-nm) grew 40% from the year-ago quarter.

Altera & eASIC Aids Intel Up the Ante Against Xilinix

After acquiring Altera, Intel has been developing high-end high-performance next-generation 14 nm FPGA chips by using its 14 nm trigate transistor technology. Altera also provides Intel a strategic advantage over Xilinx XLNX regarding its HardCopy offering (a new type of high performance ASIC).

The impending new development raises the bar, providing the tech giant a significant edge in the space. Customer base continues to expand as PSG wins more customer designs. Notably, Microsoft MSFT has selected Intel's FPGAs to power new Bing intelligent search features using real-time Artificial Intelligence (“AI”).

With the eASIC buyout, Intel will bolster PSG capabilities significantly. The new offerings will provide it a further edge over Xilinix, going forward.

Conclusion

In a bid to enhance experience of the clients leveraging critical cloud, edge applications, Intel is aspiring to move beyond providing CPUs. Exploring new end-markets will help the company expand its total addressable market (“TAM”).

The buyout highlights the ongoing consolidation in the chip industry. The smaller players bereft of economies of scale resort to being acquired by the big names, as it expands their exposure considerably. We believe the combined technologies complement each other. This deal is a win-win situation for both the parties.

While Broadcom’s recent proposal to buy CA left a major chunk of analysts confused, Intel’s merger with eASIC has clarity and makes sense. The company’s move is encouraging and augurs well for the future.

Zacks Rank & Other Pick

Intel sports a Zacks Rank #1 (Strong Buy). Screen Holdings Co., Ltd DINRF is another stock in the same space, worth considering. It carries the same rank as Intel. The long term earnings of Screen Holdings is pegged at 10%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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