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Could Intel rejoin ARM base with Infineon buy?

German chip firm hires JPMorgan to explore options, Intel tipped as buyer


Published: 17 June, 2010

READ MORE: M&A | Infineon Technologies | Intel | Semiconductor

As the ARM-based community gears up to defend its mobile device stronghold against Intel Atom, the x86 giant could re-enter the ARM space itself, with speculation resurfacing that it will acquire the wireless unit of German chipmaker Infineon.

In May, rumors that Intel would acquire Infineon first did the rounds and now they have gained new credence on reports that the German company has hired investment bank JPMorgan to explore a possible wireless sale. People close to the situation told Dow Jones that "at least one possible buyer" (which many took to be Intel) had already approached Infineon.

This could raise the interesting prospect of Intel, which has been aggressively promoting its x86 architecture as a superior alternative to ARM in emerging mobile device segments, gaining an ARM business again. Infineon is a long standing ARM licensee and last November, the companies extended their cooperation to pursue the emerging chip card sector. This involved Infineon receiving one of ARM's rare architecture licenses, which allow the recipient to create its own core designs (Qualcomm and Marvell also have them, though Infineon's is confined to hardware-based security and smartcard products, a key expansion focus for ARM). For its part, Intel offloaded its own ARM-based business to Marvell in 2006 and is now trying to push x86 into the mobile market via its own low power range, Atom.

It would be interesting to see how Intel would accommodate Infineon's ARM-based processors into its story, and whether it would continue to support the firm's traditional product range and customer base long term, or mainly harness key technologies such as modems to enhance the Atom platform.

However, the price is likely to be high, since the unit's performance has improved considerably since a successful restructuring and a return to profit in the first half of the year. Analysts estimate that the division, which made €917m ($1.13bn) in revenues last year and supplies Apple, Nokia, Samsung and RIM, could be worth from €1bn ($1.3bn) to almost three times that figure. CEO Peter Bauer has stressed that there is more room for organic growth in Infineon's mobile operation and is understood to be reluctant to sell unless a stellar price is on the table.

Whether Intel would come up with an offer Bauer could not refuse would depend on how strategic it sees Infineon being to its hugely important strategy to offset the future decline of the PC by dominating the mobile device market in all its forms. Infineon would have some attractions for that, but would also bring downsides - for instance, it would drag down Intel's margins (Infineon's operating margin in wireless is 2.5%). Intel has no experience in cellular basebands or RF, the heart of Infineon's business. And it is questionable whether Intel really needs its own baseband/RF offering, and whether it could manage it effectively, or whether it would incur less cost and risk by just doing a licensing deal with Infineon.

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