Update: Intel to acquire Infineon's wireless division

Intel will acquire Infineon Technologies' wireless division for $1.4 billion, the company said Monday.

The acquisition of Infineon's wireless division could help Intel grow faster in the high-volume smartphone market, where the company has minimal presence. Most smartphones today carry chips designed by rival Arm, and Intel has had its eye on the smartphone market as the volume of chips for mobile devices outpaces traditional CPUs that go into PCs.

Intel earlier this year released low-power Atom chips for high-end smartphones and tablets, and next year is expected to release new Atom chips for wireless handsets that are more power efficient. Most Atom chips today go into netbooks, and Intel until now has struggled to snag customers to use Atom chips in smartphones.

The acquisition will also net Intel some of the world's top smartphone makers as customers. Infineon's Wireless Solutions division makes 3G chips and baseband processors that are used in smartphones like Apple's iPhone and Samsung's Galaxy S, and tablets like the iPad.

Intel wants to accelerate growth in emerging markets such as smartphones and tablets, and the acquisition of Infineon's wireless assets will provide additional building blocks to round out the company's connectivity offerings, said Intel CEO Paul Otellini on a conference call.

Future product development will involve integrating Infineon's 3G and 4G offerings to Intel's processors and system-on-chips, which should make it easier for devices to connect to the Internet, Otellini said.

Intel until now has primarily promoted WiMax-based 4G technology, but the acquisition opens the door for Intel to integrate LTE (Long-Term Evolution) communication capabilities into its chips, said Dadi Perlmutter, vice president of Intel's Architecture Group.

Otellini said the company's integrated offerings could ultimately include radios to connect to wireless networks, be they 3G, LTE or WiMax. Further product plans will be discussed after the acquisition closes, which may happen in the first quarter of 2011.

Intel also hopes to keep the existing business of Infineon's Wireless Division alive after the acquisition, Perlmutter said. It will continue to offer communication processors to smartphone makers and other device manufacturers, and continue to support Arm-based processor offerings.

The planned acquisition is a positive move for Intel, said Jack Gold, principal analyst at J. Gold Associates.

"It allows them to offer a complete solution for embedded systems. It will allow them to offer a system-on-chip capability for future business in phone and other device markets ... with Atom processor at the core, and a variety of connection possibilities," Gold said.

As happened with Wi-Fi, the connectivity options may go from an external chip and be embedded into the same core chip as the processor, Gold said.

"That is where Intel wants to take this, and although it will likely take them two to three years to achieve, it's a requirement for them to be competitive long term," Gold said.

Sales of devices such as smartphones and tablets are booming, and with a converged offering, Intel is trying to enter a new market where it can expand revenue opportunities, said Greg Richardson, an analyst with Technology Business Research.

Intel will be able to design products that are more power efficient and users will find it easier to connect devices to the Internet, Richardson said.

By integrating mobile offerings, the acquisition also adds one more element to help Intel compete with Arm, Richardson said. It may take a while for Intel to catch up, but that will add one more hurdle for Arm in establishing its dominance, he added. Arm processors are licensed by smartphone chip makers including Samsung, Texas Instruments and Qualcomm.

At the same time, the acquisition could be a step toward helping Intel differentiate itself from its traditional PC competitors such as Advanced Micro Devices, Richardson said.

Infineon was originally formed when Siemens spun off its semiconductor division in 1999.

Infineon earlier said it was in discussions with interested parties about a "transaction" concerning the company's Wireless Solutions division. The division represents approximately 30% to Infineon's total annual revenue of ¬917 million ($1.17 billion) from the past financial year. For the current third fiscal quarter of 2010 ending June 30, revenue for the Wireless Solutions division grew 38% year-over-year to ¬346 million, representing 29% of the company's total quarterly revenue.

Companies including Samsung and Broadcom were rumored to be in talks with Infineon to acquire the division.

The announcement that Intel will acquire Infineon's wireless division nmarks the second major acquisition by the company in less than two weeks, following the chip maker's $7.7 billion deal to acquire McAfee.

Sumner Lemon, in Singapore, contributed to this report.

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