Intel Corp. CEO Paul Otellini said the company will have a strong presence in tablet computers.
World's largest microchip maker Intel Corp. (NASDAQ.INTC) said, Monday, it has agreed to buy German rival Infineon Technologies AG's (ETR.IFXA) wireless unit for $1.4 billion - a move that will help Intel diversify away from its core business of producing microchips that are used inside most personal computers (PCs) and get a better footing in the smartphone market.
Infineon's mobile unit called WLS (Wireless Solutions), which counts Apple Inc., LG Electronics Inc., Research In Motion (RIM) and Nokia Oyj among its clients, makes mobile chips used in laptops, netbooks and smartphones and will strengthen Intel's lineup of 3G, 4G, Wimax and Wi-Fi cards.
On August 19, Intel said it will buy security technology provider McAfee Inc. for $7.68 billion.
On Monday, Intel CEO Paul Otellini told analysts in a conference call that both the deals "are carefully and strategically aimed at improving our capabilities in the traditional PC segments and in the emerging smart-market segments that Intel has identified as important growth areas."
According to Otellini, "wireless connectivity continues to grow at an extraordinary rate" and is "spreading to a wide array of connected smart devices, including laptops, cars, smartphones, tablets, smart TVs, and new categories being created almost daily."
In this regard, WLS will help Intel push deeper into the world of mobile computing. "The acquisition of Infineon's WLS (Wireless Solutions) 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," Otellini said.
When Intel announced its decision to acquire McAfee, Otellini said security is the "third pillar of what people demand from all computing experiences." Intel considers energy-efficient performance as the first pillar to define "computing requirements."
Market analysts said the latest acquisition will help Intel make an inroad in the mobile industry where it has a negligible presence.
Intel's powerful microchip powers over 80 percent of the PCs worldwide. It also Atom mobile chips that power low-cost, no-frills netbooks. However, it has made very little impact in the smartphone market where devices run on chips made by Qualcomm Inc., Texas Instruments Inc. and Broadcom Corp.
According to the analysts, WLS will be able to help Intel expand into the mobile industry where the future growth of microchip lies. WLS helped Infineon earn €917 million in the last fiscal year. It was ranked fourth in cellular-baseband shipments last year with 11 percent market share.
"Intel's acquisition of (the unit of) Infineon creates a well-funded industry competitor looking to compete and invest in the road map over the longer term," said UBS analyst Maynard Um.
Agrees Global Equities Research analyst Trip Chowdhury. "This acquisition is Intel's attempt to try to play catch up to Qualcomm and Texas Instruments," Chowdhury said.
According to JMP Securities analyst Alex Gauna, "Intel's big strategy is to be at the heart of computing everywhere."
"The McAfee acquisition helps make that a secure equation and a potential Infineon acquisition would give them inroads in the mobility space," Guana said.
Intel, which expects the cash transaction to close in the first quarter of 2011 and expects the deal to be neutral or slightly dilutive to earnings, said it plans to keep WLS independent.
"We have learned from our experience over the past 20 years that many of our previous acquisitions have not been as successful as we would have liked them to be; that's why we are keeping this entity independent," Arvind Sodhani, executive vice president of Intel, said.
Shares of Neubiberg, Germany-based Infineon, which will focus on its core business segments viz. automotive, industrial and chip card security after selling WLS to Intel, closed down 1.73 percent at €4.49 on Frankfurt bourse.
Intel's shares closed down 2.23 percent at $17.96 on the Nasdaq.
The announcement of the acquisition came barely days after Intel spooked the market, saying weaker-than-expected PC sales have forced it to lower its third quarter revenue and gross margin target.
In July, the company had offered a robust guidance, saying its gross profit margin will be about 67 percent this year. The company also said its third quarter sales will rise to $11.6 billion, plus or minus $400 million. Analysts polled by Bloomberg, on average, had estimated $10.9 billion.
At that time the analysts said Intel's results and guidance had allayed fears of economic slowdown and had suggested that corporate IT spending is on the rise. Last year, companies, hit by economic slowdown, scrimped on their IT spending and delayed orders.
However, on Friday, Intel said it expects third quarter revenue to be in the range of $10.8 billion and $11.2 billion while gross margin, or the percentage of sales remaining after deducting production costs, to be around 66 percent.
"Revenue is being affected by weaker than expected demand for consumer PCs in mature markets," including the US and Europe, the company said in a statement.
A weak "back-to-school" shopping season and growing dependence of companies and people on smartphones, iPads and cloud computing technology could be hurting PC sales, analysts said.
This article is copyrighted by International Business Times, the business news leader