Intel Buys Infineon Wireless Radio Chip Unit for $1.4 Billion
Paul Otellini, chief executive officer of Intel Corp.
Jay Mallin/Bloomberg
Paul Otellini, chief executive officer of Intel Corp.
Paul Otellini, chief executive officer of Intel Corp. Photographer: Jay Mallin/Bloomberg
Intel Corp., the world’s largest chipmaker, agreed to buy Infineon Technologies AG’s wireless unit for about $1.4 billion, gaining a foothold in the mobile- phone business it has struggled to crack for more than a decade.
The all-cash transaction is expected to close in the first quarter of 2011, Infineon, Europe’s second-largest semiconductor maker, said in a statement today.
“It’s a good deal for both companies,” said Marco Guenther, an analyst with Hamburger Sparkasse in Hamburg. “Intel strengthens its position 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.”
The acquisition of Infineon’s unit, on the heels of Intel’s $7.68 billion purchase of security software maker McAfee Inc., 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 Inc.’s iPhone, a handset that uses an Infineon radio chip.
Infineon is selling a unit that has struggled to turn a profit, 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 Inc., which dominates the market for chips that control radio functions in phones.
Infineon shares were 1.3 percent lower to 4.55 euros at 9:18 a.m. in Frankfurt, giving the company a market value of 4.96 billion euros ($6.3 billion).
Intel Sales
“Despite the strategic rationale behind the deal, we fear the equity market will give Infineon only brief credit for the disposal,” Bernd Laux, a Frankfurt-based analyst with Cheuvreux, wrote in a note to investors. Investors may focus on the cyclical downturn in the chip industry, he wrote.
Intel generated $3.49 billion in cash from operations in the second quarter and ended the period with more than $18 billion in reserve. The McAfee purchase is a cash transaction.
Intel, which posted a record profit margin for the quarter at 67 percent, gets more than 90 percent of its sales from the PC market. After an estimated 26 percent rebound in revenue this year, analysts predict that the Santa Clara, California-based company’s sales will increase about 5 percent next year, shy of the double-digit growth Intel itself targets.
Intel is hitching its mobile ambitions 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 Oyj and LG Electronics Inc., though it has yet to win a spot in a phone that’s currently on sale.
Unit’s Operations
The Infineon unit, which also makes chips for Samsung Electronics Co.’s 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 last month.
The market for processors that run smartphones is dominated by technology from Cambridge, England-based ARM Holdings Plc, which licenses its designs to companies including Qualcomm, Dallas-based Texas Instruments Inc., and Samsung, in Suwon, South Korea. Qualcomm produces chips that combine the functions of applications and baseband processors, making it the largest supplier of chips for mobile phones.
To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net; Ragnhild Kjetland at rkjetland@bloomberg.net.
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