Intel said the deal, the largest in its 47-year history, would boost its portfolio of chips for data centers and the 'Internet of Things,' an emerging area of transactions that do not require human-to-human or human-to-computer contacts.
The deal follows the May 28 announcement that Singapore-based Avago Technologies would buy rival Broadcom in a tech-sector record USD 37 billion deal aimed at mobile chipmaking.
Intel will pay USD 54 per share in cash for Altera, which designs processors for phone networks, server systems, cars and other devices.
Altera shares were trading in the mid-USDS 30s in March prior to US media reports of a possible deal with Intel.
The longtime leader in semiconductors for personal computers, Intel has been shifting its focus to mobile devices and connected objects. It had 2014 sales of USD 55.9 billion.
Intel alluded to "Moore's Law", the maxim of company cofounder Gordon Moore, which holds that the number of transistors on a chip will approximately double every 24 months.
"Whether to enable new growth in the network, large cloud data centers or Internet of Things segments, our customers expect better performance at lower costs. This is the promise of Moore's Law and it's the innovation enabled by Intel and Altera joining forces."
Although competitors, the two companies in February 2013 announced an agreement in which Altera would employ Intel transistor technology in its next-generation products.
Intel is based Santa Clara, California, while Altera is in the neighboring San Jose.