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Rating Action:

Moody's affirms Intel's A1 senior unsecured following acquisition announcement of Altera; Intel's outlook stable

01 Jun 2015

New York, June 01, 2015 -- Moody's Investors Service ("Moody's") affirmed Intel Corporation's A1 senior unsecured rating following today's announcement that Intel has signed a definitive agreement to acquire Altera Corporation for $16.7 billion in cash. Both boards of directors have approved the transaction, and subject to Altera's shareholder vote and customary regulatory and closing conditions, Intel expects the acquisition to close in the second half of calendar year 2015. The rating outlook remains stable.

RATINGS RATIONALE

Intel plans to fund the acquisition using a combination of new debt and existing balance sheet cash. Though the acquisition cost is high (approximately 26x LTM EBITDA), Intel was modestly levered before the transaction and should remain within our expectations for its A1 rating. Even with a significant portion of debt funding, Moody's expects pro forma adjusted gross debt to EBITDA to be well under 1.5x at closing (using Moody's standard adjustments).

From a strategic standpoint, the acquisition is positive for Intel because, over time, it should allow the company to address a larger part of the very profitable data center market as well as growing opportunities in the broad Internet of Things market. While Intel dominates chips sold into the server market, with an estimated a 98% market share, some companies (such as hyper scale players Microsoft, Facebook, and Baidu) have begun using field programmable gate array (FPGA) chips made by Altera (and by its chief competitor Xilinx) into their data centers. Importantly, FPGA's can be programmed via software to perform very specific tasks, and they don't consume as much power as Intel's traditional x86-based microprocessors. With Altera in its fold, Intel would be better positioned to integrate the computational functions of its microprocessors and Altera's FPGA's to optimize the massive compute requirements and minimize the power consumption of data center customers.

The acquisition would also diversify Intel's revenue base away from the company's compute-centric focus and extend its position into Altera's communications oriented end markets (44% of Altera's revenue). Also, given Altera's high gross margins, the transaction would be accretive to Intel's margins and help to fill its manufacturing facilities over time if Intel in-sources more of Altera's chip production from its primary foundry, Taiwan Semiconductor Manufacturing Corporation.

While this is the largest acquisition in Intel's history, Altera is relatively small, with revenue of $1.9 billion, or 3% the size of Intel's $56 billion. Because of Altera's fabless business model, its $600 million of cash flow from operations less capital expenditures is slightly larger, but still modest at 5% the size of Intel's $11.9 billion.

As of March 2015 , Intel had $14.1 billion of cash and short term investments with about $10.7 billion held offshore. Intel also reported $8.2 billion of liquid long term investments. Altera had $2.4 billion of cash and short term investments, with $1.8 billion held offshore, along with $2.1 billion of other long term liquid investments. Intel also maintains a $3.0 billion commercial paper program with zero outstanding as of March 2015.

Intel's rating outlook is stable and reflects expectations that the company will defend its very strong market position, given its strong and broad product offering, good momentum for successor products and execution of its process roadmap, as well as its ongoing financial strength.

Intel's long term rating could be upgraded if there are sustainably reduced competitive challenges or the prospect for sustained improvement in already strong debt protection measures. Ratings could be lowered if there is an erosion of microprocessor market share below 70% over the intermediate term; sustained deterioration in operational performance; significant disruption in manufacturing capability that could derive from technology transition challenges or; a material reduction in its balance sheet liquidity and/or departure from its conservative fiscal practices.

Ratings affirmed:

Intel Corporation

Senior unsecured rating at A1

Junior subordinate ratings at A2

Senior unsecured rating shelf at (P)A1

Subordinate rating shelf at (P)A2

Pref. Shelf rating shelf at (P)A3

Commercial paper rating at Prime-1

Intel Overseas Corporation

Senior unsecured rating shelf at (P)A1

Subordinate rating shelf at (P)A2

Puerto Rico Ind Med&Env Poll Ctl Fac Fin Auth

Ind rev bonds ratings at A1

Chandler (City of) AZ, I.D.A.

Ind rev bonds ratings at A1

Outlook remains Stable

Intel Corporation, based in Santa Clara, California, is the world's largest semiconductor company, and the leading microprocessor manufacturer. Moody's anticipates Intel will generate revenue of about $56 billion over the next year.

The principal methodology used in these ratings was Global Semicondutor Industry Methodology published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Richard J Lane
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Intel's A1 senior unsecured following acquisition announcement of Altera; Intel's outlook stable
No Related Data.
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