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Intel Buys Infineon's Wireless Biz. Is It About LTE?

It's been rumored for months that Intel (INTC), the world's largest chipmaker, was close to buying German semiconductor company Infineon's (IFNNY:US) wireless chip business.Well, it's finally happened.Intel announced it was spending $1.4 billion in cash to buy Infineon's wireless business solutions group (WLS). Given that WLS's annual revenues are close to $1.16 billion, it doesn't seem as if Intel overpaid. However, Infineon might be facing tough times as Apple (AAPL), a major customer, starts to look for alternatives for the radios inside its iPhone, especially for the rumored CDMA version of the gadget. Infineon says it will focus on the automotive, industrial, and security industries now that it has jettisoned wireless.

The big question is, will this buy be enough for Intel to make a strong showing in the hypercompetitive wireless chip market? My views on this are pretty black and white. After all, I wrote a post almost four months ago arguing that Intel was going to always be a wireless loser. My views haven't changed since then, mostly because Intel has a very checkered record when it comes to acquisitions. In addition, Intel has become accustomed to the fat margins of its PC business and, as a result, would have a tough time trying to quit that habit.

Intel CEO Paul Otellini lays out the rationale for this deal in a press release:

"The global demand for wireless solutions continues to grow at an extraordinary rate. The acquisition of Infineon's WLS 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 from Wi-Fi and 3G to WiMAX and LTE. 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.

Intel's goal is to expand its mobile and embedded product offerings to support additional customers and market segments, including smartphones, tablets, netbooks, notebooks, and embedded computing devices. Through this effort, Intel will pair WLS's best-in-class cellular technology with its core strengths to enable the delivery of low-power, Intel-based platforms that combine its applications processor with an expanded portfolio of wireless options—bringing together Intel's leadership in Wi-Fi and WiMAX with WLS's leadership in 2G and 3G, and a combined path to accelerate 4G LTE."

Otellini's comments also reflect the ultimate truism of our times: Computing without connectivity doesn't matter, and perhaps that's why his company badly needed a radio to be married to its processors. It's something Qualcomm (QCOM) figured out earlier and has been using to its advantage.

In addition, it seems Otellini (and Intel), like many of the early backers of WiMAX, may be shifting loyalties in favor of LTE, which clearly has more momentum with the handset makers. Intel, like other WiMAX backers, has had some setbacks in recent months, while Infineon has made some good progress on LTE.The German company had been working closely with Nokia on LTE, and given that Nokia (NOK) and Intel are partners on Meego, a Linux-based operating system targeting smartphones and tablets, one could reasonably guess that Intel's new wireless chips might find its way into Nokia handsets and connected devices with new chips.

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Om Malik is founder and senior writer of GigaOM. Before launching his own publishing venture, he was a senior writer for Business 2.0 magazine covering telecom and broadband stories.

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