After months of rumors and speculation, Intel is buying Infineon Technologies' wireless chip unit, its latest move to expand beyond its traditional server and PC processor business.
The Aug. 30 announcement by Intel signals the chip giant's aggressive push into the exploding Internet-connected mobile device space-Infineon's wireless customers include the likes of Apple, Nokia and Samsung-and is an indication that Intel's Atom platform may not yet be ready for the mainstream mobile phone market.
It also comes four years after Intel sold its XScale application processor business to Marvell Technology Group. The chip line at the time was being used in some mobile devices from Palm and BlackBerry maker Research In Motion.
During a conference call with analysts and journalists Aug. 30, Anand Chandrasekher, senior vice president and general manager of Intel's Ultra Mobility Group, said the mainstream mobile device space is of keen interest to the company, and that buying Infineon's Wireless Solutions business will enable it to continue its momentum.
"If we slowed down with our investments in this area, we'd lose touch with where the market is going," Chandrasekher said.
Intel is buying the Infineon business for $1.4 billion, and after the deal closes sometime in the first quarter of 2011, about 3,400 Infineon employees will shift over to Intel, Peter Bauer, Infineon CEO, said during the call. The unit will operate as an independent business, with a dedicated sales force, according to Intel and Infineon executives. It will be headed by Infineon board member Hermann Eul, who will report to Dadi Perlmutter, executive vice president and co-general manager of Intel's Architecture Group.
Intel President and CEO Paul Otellini said the acquisition will enable his company to become a player in every computing segment where devices connect to the Internet.
"The global demand for wireless solutions continues to grow at an extraordinary rate," Otellini said in a statement. "The acquisition of Infineon's [wireless chip 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 WiFi and 3G to WiMAX and LTE (Long-Term Evolution)."
Roger Kay, an analyst with Endpoint Technologies Associates, said the deal makes sense for Intel, which not only gets an established wireless chip business that Infineon officials said has been profitable for the past five quarters, but also gets established big-name customers.
"[Communication] chips have become that much more important over the last three or four years" since Intel sold its XScale chip line, Kay said in an interview with eWEEK. "Maybe at the time it was a non-strategic asset, but that's changed now."
Intel has been trying to make some inroads into the mobile device market with its x86-based Atom platform-which initially was developed for such systems as netbooks-but Intel executives probably saw it was going to take awhile before Atom chips were ready to be significant players in the space, he said.
"Even at 32 nanometers, it wasn't cool enough to really do the battery life needed in that space," Kay said. "They've been aiming for this space and didn't quite hit it, and the next found [of Atom development] is two years away."
Essentially Intel executives were able to trade several years of Atom development for the $1.4 billion they're spending for Infineon's established business, which he said is a good deal.
Greg Richardson, an analyst with Technology Business Research, said the deal also once again illustrates Intel's willingness to grow its reach in fast-growing markets, a trait that was on display less than two week ago, when Intel announced it was buying security software maker McAfee for almost $7.7 billion.
"The acquisitions of McAfee and Infineon's Wireless Solutions Business strengthen components of Intel's 'three pillars'-energy efficiency, connectivity and security-a key maneuver in expanding its presence in the growing mobile device market," Richardson said in a research note. "By coupling technologies from both acquisitions, Intel will target the end users' concerns of securing personal data and reliable connectivity as a means to drive value sales and differentiate from competitors."
Demand in IT is changing, he said, as users look to such Internet-connected devices as netbooks, smartphones and tablet PCs to use the Web more quickly and efficiently.
"Although servers and PCs will remain cornerstones in the IT industry, we believe end users are increasingly using smaller, lower-cost devices to complete simple day-to-day IT tasks, such as checking email or surfing the Web," Richardson wrote. "Through acquisitions, Intel is aligning its portfolio to meet this growing demand, helping differentiate itself from its traditional competitors, such as [Advanced Micro Devices], while simultaneously diving head-first into mobile markets that are dominated by the likes of Qualcomm and ARM."
Intel executives for more than a year have talked about the need to grow their business in order to rely less on the PC and server chip markets. That need was highlighted Aug. 27, when Intel-after two quarters of significant revenues and profits-reduced its revenue projections for the third quarter, noting a softening in the consumer PC market.