Intel: Mobile's next Goliath?

Intel-Infineon deal goes far beyond handsets, putting new technologies in netbooks, tablets, embedded PCs, and more

Add a baseband chip to an Atom processor and what do you get? An integrated piece of silicon that will make mobile devices a lot more powerful -- and place Intel as a leading supplier of components for technology's fastest-growing market.

If that's not clear enough, here's how Intel CEO Paul Otellini explained the $1.4 billion acquisition of Infineon's wireless business in an interview with Fox Business News: "We look forward to a period in the not-so-distant future where all of these functions can be on a single chip. Intel has great capabilities and applications processors today, but bringing in the capabilities for 3G and ultimately LTE (Long-Term Evolution) onto the chip, that makes a lot of sense to us from an economic and power standpoint."

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Unless you own stock in Qualcomm, this is good news. Integrated chips that combine radio functions along with an operating system will make handheld devices smaller, more powerful, and more energy-efficient. Along the way, those chips will help Intel realize its strategic goal of broadening its business beyond the increasingly commoditized PC and server markets.

Indeed, the Infineon deal is a good fit. Nathan Brookwood, a longtime chip analyst and research fellow at Insight64, sums up the industry's reaction: "All you can say, is what's not to like?"

Takeover fever is back
The Infineon wireless buy comes hard on the heels of the chip giant's acquisition of security software vendor McAfee for a stunning $7.7 billion. It also comes during a summer when cash-rich technology companies have moved decisively into acquisition mode: Dell and HP have been engaged in a heated bidding war for 3Par, Google has purchased Angstro and SocialDeck, and Cisco is reportedly trying to acquire Skype.

Wall Street thought Intel paid much to much for McAfee -- about 40 times this year's projected earnings -- but Otellini justified the deal, saying that security has become a "third pillar of what people demand from all computing experiences."

That's true, but whether it will add to Intel's bottom line is hardly clear. Baking security features into chips doesn't translate into higher prices. "You probably can't get a premium for that," says Brookwood. You could argue that McAfee's ongoing revenue stream is a plus, but given the price, it will take a long time to see a return on that $7.7 billion.

Infineon, though, is a leader in a growing market. Its customers include Nokia and Samsung, and every one of Apple's iPhones contains the company's baseband chips. A few years ago, climbing into bed with Intel would have made Apple execs positively nauseous, but those days are long gone, so speculation that Apple will run away makes little sense. 

A broad opportunity for Intel
Although Intel is obviously targeting the handset market, the opportunity is even larger.

Intel will use Infineon's technology in its Core-based laptops, as well as Atom-based devices ranging from smartphones to netbooks, tablets, and embedded computers, Intel said when it announced the deal. "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," said Otellini.

Buying WLS (the wireless arm of Infineon) is reminiscent of AMD's purchase of ATI, the graphics chipmaker. AMD needed to add advanced graphics capabilities to its technological arsenal, and it was easier to buy them than to develop them in-house. Similarly, mixed signal and analog engineering are not areas where Intel has much expertise, says Brookwood, so buying those capabilities is a smart strategic move.

Even with the combined engineering talent, developing an integrated piece of silicon that melds an application processor and a baseband chip is challenging. With the deal not expected to close until early next year, figure on waiting 18 to 24 months to see the real fruits of the partnership, says Brookwood.

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This article, "Intel: Mobile's next Goliath?," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com.

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