With Intel (INTC ) struggling to crack the white-hot cell-phone business, some pros say it has little choice but to buy its way in. Names that pop up include Qualcomm and Analog Devices (ADI ), which already collaborates with Intel on cell-phone technology. But attempts with Analog "have met with limited success," says Krishna Shankar of JMP Securities. The plum catch, he asserts, is Texas Instruments (TXN ). It dominates in baseband processors -- "the brains of wireless audio-signal processing," for global cellular standards. "Intel is eager to extend its franchise beyond microprocessors, and Intel and TI would be an ideal match," says Stephen Leeb, president of Leeb Capital Management, which owns shares in both. "Intel hasn't been able to translate its success into cell phones -- TI's stronghold," says Leeb. Shankar says that Intel on its own doesn't have extensive cell-phone software or the expertise to compete. TI is also a leader in digital-signal processing chips and software for processing voice and video. Qualcomm is big in the CDMA wireless market used by Verizon and Sprint. With its solid balance sheet and market value of $144 billion, Intel, trading at 22 a share, can easily gobble up TI, with a market cap of $40 billion and a stock price at 23. Both are off about 30% from their 52-week highs. An Intel-TI deal may raise regulatory issues, warns Shankar, who also owns both stocks. He sees TI earning $1.05 a share on sales of $12.5 billion in 2004 and $1.25 on $13.3 billion in 2005. Intel says it is "cautiously optimistic" that it can gain market share in cell phones and compete without having to buy another company. TI declined comment.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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