As has been rumored over the past couple of months, microchip maker Intel (INTC) has agreed to acquire competitor Altera (ALTR). The price is the same that had been discussed in early April — $54 per share — though Altera originally rejected the offer. The price translates to a $16.7 billion valuation. So the real question is whether it’s worth it.

What Intel’s missing

It’s easy for skeptics to question Intel’s decision. The company made a huge mistake when it bought McAfee for $7.7 billion in cash. But in order for Intel to remain competitive in the industry, it’s missing one thing: FPGA.

FGPA (or field-programmable gate array) “is an integrated circuit designed to be configured by a customer or a designer after manufacturing – hence ‘field-programmable.’” It’s the future of microchip computing and as mobile continues to outpace the PC market, FGPA will become more and more important in the industry. And Intel is far behind its competitors, especially Xilinix, which currently has the inside track on the product.

By acquiring Altera, Intel can push to develop the required tools to develop good FPGA software. Altera has the technology Intel needs to do that. Obviously, Intel could develop the technology itself, but it would take far too much time and far too much money to get there. Intel already missed the boat on the first wave of mobile, so it’s likely conscious to never do that again.

But is it too much?

I don’t think shareholders are too concerned with the decision to acquire Altera per se. It’s the price tag. A $54 price per share is roughly 56% higher than the $34.58 Altera was trading at before talks were announced March 27. Is the specialized semiconductor company really worth 37 times earnings, or 34 times forward earnings?

Additionally, Altera’s revenues over the past five years have been stagnant at best. In fact, its revenues have declined over that time.

However, it seems as if Intel doesn’t have much of a choice. The fact that Altera management originally rejected a $54 per share offer shows that the company likely wouldn’t have settled for less — though Altera shareholders were livid at the rejection, suggesting that Altera wouldn’t be able to reach that level on its own. And if Intel can’t make the acquisition, it’s stuck trying to play catch up once again.

So is Altera worth $54 per share? Probably not. The deal doesn’t add any intrinsic value to Intel’s shareholders either. But Intel isn’t in the position to care. It needs to compete and it needs to do so now. The acquisition allows Intel to be aggressive in creating new capabilities that will hopefully keep it at the forefront of the industry for a few more years. It also helps Intel build a stronger moat around its server business, making it difficult for competitors like AMD to gain a foothold in the server market.

Short-term and long-term effect

So far, investors have reacted negatively to the news. After trading at $34.50 to close Friday, Intel is now trading at $33.27 — a 3.56% decline. But over the long term, the deal is likely to give Intel a nice boost, not because it adds direct value to shareholders, but because it puts Intel in a better position to build better products. In this industry, innovative products are all a company needs to outsell the competition.