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Intel to pay $1.4bn for Infineon WLS, but does it really need it?

Infineon's strengths in security and auto may be crown jewels, not baseband deals

By CAROLINE GABRIEL

Published: 30 August, 2010

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

Intel has embarked on a major shopping spree to counter the pressures on its traditional businesses, which prompted it to issue a results warning at the end of the week. That was swiftly followed by the announcement that it would acquire Infineon's wireless arm, as widely expected, for $1.4bn, hard on the heels of the purchase of security software firm McAfee.

While some elements of the proposed McAfee takeover were baffling, the general strategy was clear and necessary - diversifying the product range, increasing software and services elements as opposed to pure silicon, adding new value to that silicon, finding new routes into the wireless and embedded markets where Intel's progress has been obstructed remarkably effectively by the ARM-based community.


The planned acquisition of Infineon WLS (Wireless Solutions), which should close in the first quarter of 2011, is the direct opposite of the McAfee deal. At first glance it is more logical. After all, it will increase, at a stroke, the range and scale of Intel's activities in the market it most wants to penetrate, mobile devices. Indeed, only last week a report from analysts at IC Insights said that a major purchase of this kind was the best way to fend off the fate of being overtaken by Samsung as the world's largest semiconductor maker. But a closer look raises far more questions that it answers, most importantly, why does Intel want Infineon?

Unlike its parent, Infineon WLS has been stable and profitable in recent times, but the merger process could still be fraught, especially with the involvement of German takeover and employment laws, the firms' very different cultures, and possible manufacturing tie-ins to the larger Infineon. Intel says it will address these risks by keeping WLS as autonomous as possible, though this in itself could dilute some hoped-for economies of scale and product integrations.

The main strengths of Infineon WLS have recently been at the lower end of the device market, which seems to be the area in which Intel has little interest, given the impact that would have on its traditional margins and channels. Infineon's low cost basebands, and its integrated modem/processor system-on-chip for affordable 2G and 3G, have won it major deals with Nokia and Samsung, but the structure of this business seems alien to Intel's goal to dominate the processors, particularly in higher value products.

Infineon WLS has moved up the handset food chain with its basebands, most famously with its iPhone deal, but this does not impact the coveted processor slot (and never will, now that Apple has its Samsung deal and the resulting A4). Does Intel really need its own baseband firm, even one with an Apple slot? Intel certainly needs to improve its SoC activities, but it does not need to acquire a baseband firm in order to create integrated architectures around Atom - it could partner, as most of its mobile app processor rivals, like Texas Instruments, do. Intel failed in offering combined processor/baseband architectures before, and even previously giant vendors in this area, like TI and Freescale, have given up on the thankless margins and lack of differentiation to be found in modems (Nokia recently sold its own team to Renesas, while MediaTek continues to drive down the prices).

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