Way back in 1999, Intel Corp. (NASDAQ: INTC) bought a company called DSP Communications Inc. for $1.6 billion. DSP designed and built chips for the cell phone market. By 2006, Intel decided it had lost enough money on this deal, so it sold the business to Marvell Technology Group Ltd. (NASDAQ: MRVL) for $600 million.
Now, Intel has decided the time is right to get back to where it once belonged. The company has acquired the wireless chip unit of Infineon Technologies AG (OTC: IFNNY) for about $1.4 billion. Intel’s own Atom microprocessor, the brains of most netbook devices currently on the market, has not lent itself well to downsizing for the smartphone market. Intel, noting that the writing on the wall now spelled out ‘wireless’, bought its way back into the wireless business.
Infineon makes the customized version of the ARM Holdings plc (NASDAQ: ARMH) chip that Apple Inc. (NASDAQ: AAPL) uses in its iPhone 4. And there is some talk that Apple might use an ARM core in its internally designed A4 processor — that’s the one that powers the iPad. Apple also sources iPhone and iPod Touch processors from Samsung that use the ARM core. Intel opens the door to a whole new relationship with Apple with this purchase.
Competition with ARM has been slow in developing. Intel’s Atom couldn’t do it quickly enough. Advanced Micro Devices Inc. (NYSE: AMD) is still working on getting its first wireless chip, code-named Bobcat, out the door. The only serious competitors for smartphone CPUs has come from Infineon and Marvell.
Other wireless baseband and RF chip-makers, including Broadcom Corp. (NASDAQ:
BRCM), Texas Instruments Inc. (NYSE:TXN), Qualcomm Inc. (NASDAQ: QCOM) and Skyworks Solutions Inc. (NASDAQ: SWKS) have not ventured into the smartphone microprocessor business yet, but the chips they design and manufacture are required in a variety of wireless network equipment, as well as feature phones and smartphones. Except for Qualcomm and its Snapdragon chip, itself based on the ARM platform, none of these players offer anything to a would-be competitor to Intel in the smartphone microprocessor business.
One final note on Intel’s Inifineon purchase: Intel’s recent announcement of its $7.7 billion acquisition of McAfee, Inc. (NYSE: MFE) fits well with this latest purchase. Either Intel can hardwire security on its Atom chip, or it can hardwire security on ARM-based chips, or both.
Note too, that Intel lowered its third quarter revenue forecast, even though chip sales have been growing. Much of that growth is in sales of lower-cost, lower-margin smartphones and tablets. Intel needs a dog in this hunt, and Infineon’s wireless business gives the world’s largest chip maker a solid entry.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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