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August 30, 2010

Intel earlier this morning said it is acquiring Infineon Technologies’ wireless division for about $1.4 billion, gaining a foothold in the mobile phone industry that it has struggled so much to penetrate for more than ten years already. Intel's all-cash acquisition of the company is expected to close around February of next year.

Europe’s second-largest semiconductor maker, Infineon reported sales of over 3 billion Euros for 2009.

The acquisition of Infineon’s wireless division, on the heels of Intel’s $7.69 billion acquisition of security software maker McAfee, builds on Chief Executive Officer Paul Otellini’s plans to break the company’s reliance on the personal-computer market.

Intel wants to get its processors into smartphones, such as Apple’s iPhone, a handset that uses an Infineon radio chip as well.

Infineon is selling a business unit that has struggled to turn a profit for a long time, letting it focus on areas where it can grab the biggest market share such as the automotive and industrial sectors.

Infineon trails San Diego-based Qualcomm, which dominates the market for mobile chips that control radio functions in smartphones and MIDs (mobile Internet devices).

Marco Guenther, an analyst with Hamburger Sparkasse in Germany says “It’s a very good deal for both companies. Intel is strengthening its portfolio in the fast-growing smartphone market. Infineon sells its wireless unit at a time when the more cyclical business is running successfully. The transaction price is in line with expectations.”

“In the near term, Intel could potentially equip every PC with 3G, which could accelerate its 3G volumes and directly challenge Qualcomm’s 3G dominance,” said Stephen Entwistle, an analyst with Strategy Analytics, a consulting group in the U.K.

Intel is integrating its mobile plans to a scaled-down version of its PC chips called Atom. The company has signed agreements aimed at landing its products in devices made by Nokia and LG Electronics, though it has yet to win a spot in a phone that’s currently on sale.

Infineon's wireless division, which also makes chips for Samsung Electronics’ Galaxy S phone, had sales of 346 million Euros in the fiscal third quarter, a 38 percent increase from a year earlier.

The gains were mainly due to a “ramp-up of new smartphone and entry-level phone platforms at several major customers,” Infineon said in July.

Posting a record profit margin for the second quarter at 67 percent, Intel now is getting more than 90 percent of its sales from the PC and server market. After an estimated 26 percent rebound in revenue for 2010, analysts predict that the company’s sales will increase about 5 percent in 2011, shy of the double-digit growth Intel itself is currently targetting.

The company generated almost $3.5 billion in cash from operations in the last quarter and ended the period with more than $18 billion in reserves. And it’s paying for its McAfee acquisition all in cash.

Infineon's stock price was about 2.1 percent lower to 4.5 euros this morning in Frankfurt, giving the company a market value of about 4.92 billion Euros.

“Despite the strategic rationale behind the acquisition, we fear the equity market will still give Infineon only a very brief credit for the disposal,” Bernd Laux, a Frankfurt-based analyst with Cheuvreux, wrote in a note to investors.

The market for mobile processors that run smart phones is mostly dominated by technology from Cambridge, England-based ARM Holdings, which licenses its designs to companies including Qualcomm, Texas Instruments and Samsung.

Qualcomm produces chips specialized for the wireless industry that combine the functions of applications and baseband processors, making it the largest supplier of chips for mobile phones and smartphones.

Last week, Intel and AMD said they are planning to fuse two key PC chips together, the central and graphics processing units, into one single processor.

A point made by Insight 64 principal analyst Nathan Brookwood in a white paper written for AMD, but which, in some fundamental respects, applies equally to Intel as well.

Overall, heterogeneous computing combines functions typically found on a graphics processor with the main CPU chip. And CPUs and GPUs (graphics processor unit) are well suited to different kinds of computing chores.

Modern CPUs today can handle a wide array of all kinds of computing tasks, while GPUs are more specialized but much faster at certain types of operations when it comes to graphics. Future heterogeneous chips could find photos and videos in a large library that contains particular faces or places, or famous people, for example.

Or a well-optimized GPU can easily recognize your face when you log into a computer. In short, putting both capabilities on one small piece of silicon creates a much smarter chip with a lot more processing power than was ever possible before today.

Of course, the question is which company will really deliver the goods and drive cutting-edge PC and laptop technology next year?

AMD claims that because it is also a supplier of GPUs, via its ATI graphics chip unit, that its products are more forward-looking because of the increased emphasis on graphics via key multimedia technologies like Microsoft's Direct-X and Apple's Open-CL software.

Earlier this year, Intel was the first chip maker to move to 32-nanometer technology, which allows it to pack more functions and more complexity on the same chip.

In comparison, Global Foundries, AMD's manufacturing partner, won't make that move until sometime in 2011 the company said. But the upcoming 32-nanometer Sandy Bridge architecture from Intel will represent the fruition of this effort.

Mark Bohr, Intel's senior engineering fellow says "Sandy Bridge combines multiple CPU cores together with the graphics circuitry on the same chip. The fact that we're an aggregate device manufacturer allows us to do internal optimization of all these pieces and bring out a leading-edge product sooner than other companies."

"Also, Intel is understandably more 'CPU centric'. That's Intel's view," said John Taylor, director of marketing for Fusion at AMD.

"Through ATI Technologies, we're a provider of high-performance graphics chips. We're also incorporating world-class GPU intellectual property into a new type of design as well. We look at the GPU in a consumer notebook as a very efficient computer engine as well as all of the wonderful 2D and 3D graphics capabilities," Taylor said.

Not surprisingly, Intel, the world's largest chipmaker, believes it has the upper hand because of its cutting-edge manufacturing technology allows it to integrate a lot more on a single piece of silicon, and sooner than any other major chip maker.

For instance, Intel's Atom chip already fuses two CPU processing cores and the graphics function on a single piece of silicon, and that's the whole idea: make it smaller, cheaper, make it run cooler, and make it faster and more versatile and you have a real winner in your hands.

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Source: Intel Corp.