Last updated on April 17, 2014 at 17:30 EDT

Intel Acquires Infineon’s Wireless Unit

August 31, 2010

Intel Corp. is buying German chipmaker Infineon Technologies’ Wireless Solutions Business (WLS) for $1.4 billion, in a deal that marks Intel’s second major acquisition in the past two weeks.

The move is part of Intel’s strategy to expand its reach into the lucrative mobile phone market.

“The WLS transaction is a strategic decision for Intel and Infineon,” Intel in a statement on its website.
“WLS complements Intel’s existing assets and enables growth in mobile computing, smartphones and embedded computing.”

Infineon’s wireless unit makes the chips used in smartphones such as Apple Inc.’s iPhone and other mobile devices.  Intel had seen only limited success in getting its processors into mobile phones.

The all-cash acquisition would give Intel the technology to produce chips for smartphones and other small devices that do not drain batteries as quickly.  That know-how is particularly important for chips built around the low-power ARM architecture commonly used in mobile phones.

“The global demand for wireless solutions continues to grow at an extraordinary rate,” said Paul Otellini, Intel president and CEO.

“Computing is spreading to a wide array of connected smart devices, including laptops, cars, smartphones, tablets, smart TVs, and new categories being created almost daily,” said Otellini during a conference call with analysts.

Acquiring WLS raises Intel’s stakes in the wireless market, where firms such as Qualcomm are aggressively working to lead in next-generation chips that enable rapid downloads of music, video and other data.

“Without the deal, Intel was likely at the risk of being shut out of this important market,” said BMO analyst Ambrish Srivastava in a note to clients.

“Now, the company has a fighting chance,” Reuters quoted him as saying.

Although Intel has dominated the PC chip market for years, its processors are rarely selected by smartphone makers due to their high-power consumption.

Intel also said it would accelerate Infineon’s move into Long Term Evolution, or LTE, a high-speed wireless technology that several large wireless operators are planning to use for their network upgrades.

Infineon had planned to offer processors for LTE-enabled devices by 2012.  However, that may be too late with many wireless carriers already building their LTE networks.

Intel said it expects WLS to continue growing, and plans to operate it as a stand-alone business.

Shares of Infineon’s stock fell 3.7 percent to 4.444 euros in Frankfurt on Monday, following losses on Friday after Intel warned its third-quarter revenue would fall short of its own expectations due weakened consumer demand for personal computers.

“Investors had hoped for a higher price and, additionally, we expect profit-taking on the long-expected deal,” Reuters quoted analysts at Alpha brokerage as saying.

Infineon’s wireless unit had revenue of $1.17 billion during its last fiscal year, which ended last September.

Shares of Intel’s stock fell 2.2 percent to $17.96, with at least three brokerages cutting their price targets on the stock.

Selling its wireless unit to Intel will allow Infineon to concentrate on its core market segments — automotive, industrial and chip card security — without having to invest in making WLS a leading player in the wireless market.

“There is one thing I have learned over the past 15 years — at the end of the day in technology portfolio, size matters if you want to maintain leadership,” said Infineon Chief Executive Peter Bauer, who took over the company in mid-2008.

As CEO, Bauer turned around the mobile chip unit after years of losses.  WLS now generates around 30 percent of Infineon’s total revenue and ranks No. 5 in the chipset industry.

Intel said it expects the acquisition of WLS will close in the first quarter of 2011.

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