Intel to pay $1.4B for Infineon's wireless biz, says it will continue support for ARM-based customers

Analyst believes that should Intel mis-execute on the transition of acquired technologies into its portfolio, Broadcom is well positioned to pick up any market share that the company would possibly lose in the soon-to-be acquired cellular basedband business.

Suzanne Deffree -- EDN, August 30, 2010

Intel Corp this morning announced plans to acquire Infineon's Wireless Solutions (WLS) business for $1.4 billion as it continues with its push for connected computing beyond the PC space.

The much anticipated deal had been rumored to be in the works for weeks. Intel said the buy will enable the delivery of low-power, Intel-based platforms that combine its applications processors with an expanded portfolio of wireless options, bringing together Intel's Wi-Fi and WiMAX with WLS' 2G and 3G, and a combined path to accelerate 4G LTE.

WLS provides baseband processors, radio-frequency transceivers, power management ICs, additional connectivity features, single-chip solutions, as well as the corresponding system software. WLS will remain a standalone business under Intel's ownership.

The business will continue to support its customers, including those who use WLS ARM-based products, Intel said. ARM-based technologies are well accepted in several of the markets Intel has plans to expand its mobile and embedded product offerings in, which include smart phones, tablets, netbooks, notebooks, and embedded computing devices. Today's acquisition announcement came after Intel on Friday warned that it would not meet projections for Q3 revenue on weak PC demand.

"Intel feels compelled to build out its mobile product suite, including ARM baseband processors for handsets, smart phones, tablets, and other mobile devices," Craig Berger, an analyst at FBR Capital Markets, said in a research report this morning. "Remember, Intel sold its ARM-based baseband product group, XScale, to Marvell in late 2006 for $600 million in cash. ... Intel's soon-to-be acquired ARM technologies are increasingly found in smart phones and tablet PCs so that Intel can defend its CPU market share as tablets ramp."

In addition to providing Intel with WLS ARM technologies, Berger noted other positives of the deal, including that the WLS buy gives Intel a "well executing, sizable presence" in the cellular baseband market with top customers including Apple, LG, Nokia, and Samsung.

However, negatives were also noted by the analyst. "Execution risks loom as Intel does not have a great track record of success outside of its core Intel Architecture CPU markets," he said.  Berger believes Intel's management could get distracted with the company's baseband- and mobile-related efforts. He further noted that touting Atom chips and ARM based-chips could be somewhat confusing to customers.

Should Intel mis-step with the transition of WLS into its portfolio, Berger suspects Broadcom could benefit. "Given Intel's track record of mis-execution in various chip markets outside of its core CPU/chipset market, we think the possibility exists that Intel could lose market share in its soon-to-be acquired cellular baseband business. If this were to be the case (as was the case with Intel's Wi-Fi market share as it lost out to Broadcom, Atheros, and others), we think Broadcom is best positioned to pick up any market share that Intel loses," he said, noting that Broadcom already has relationships with some of WLS' customers, including Apple and Nokia.

"Net, Intel's efforts here are a ‘show-me' story as we feel like we have seen this movie before and generally remain skeptical of Intel's ability to execute outside of core CPU market," Berger said.

The analyst made specific note of XScale, which was initiated at Intel by the purchase of the StrongARM division from Digital Equipment Corp in 1998 and, as noted above, was sold by Intel in 2006 so that the company could focus its resources on its core x86 and server businesses.

Intel more recently has put an emphasis on "Internet connectivity," as it did with a separate acquisition the company made earlier this month. Intel on August 19, announced it would spend $7.68 billion to acquire security giant McAfee, noting vulnerability across the rapidly expanding array of Internet-connected devices. Just three days before that Intel announced it had signed an agreement to acquire Texas Instruments' cable modem product line.

"The global demand for wireless solutions continues to grow at an extraordinary rate," said Paul Otellini, Intel president and CEO, in a statement. "The acquisition of Infineon's WLS business strengthens the second pillar of our computing strategy -- Internet connectivity -- and enables us to offer a portfolio of products that covers the full range of wireless options from Wi-Fi and 3G to WiMAX and LTE. As more devices compute and connect to the Internet, we are committed to positioning Intel to take advantage of the growth potential in every computing segment, from laptops to handhelds and beyond."

In the statement, Infineon noted that the sale will allow it to concentrate its resources on growth in its core automotive, industrial and multimarket, and chip card and security segments. With annual revenue of Euro 917 million, WLS was approximately 30% of Infineon's total annual revenue of Euro 3.03 billion in the past financial year.

The acquisition is expected to close in Q1 2011.