Intel sells communications unit to Marvell

The deal is valued at $600M

Intel Corp. will sell its communications and application processor business to Marvell Technology Group Ltd. for $600 million, the companies announced today.

The move is part of an Intel effort to shore up its core business in the face of increasing competitive pressure from Advanced Micro Devices Inc. and a slowing global PC market. Intel today identified mobile computing, in addition to the traditional PC market, as an area on which it plans to focus.

In April, Intel announced that it expected a 3% drop in revenue for 2006 and said it would undertake a reorganization that could include layoffs within 90 days. A layoff announcement is widely expected around the time Intel makes its next earnings announcement on July 19.

Intel expects profits to decline from $12.1 billion last year to $9.3 billion this year. Speaking to Wall Street analysts in New York in April, CEO Paul Otellini said the company will cut spending this year by $1 billion, cut capital expenditures by $300 million and begin a 90-day structural reorganization of "nonperforming business units."

Getting rid of the communications business appears to fit nicely into that plan. "Communications is a long and mostly sad story at Intel," said Gordon Haff, an analyst at Illuminata Inc. in Nashua, N.H. "It's a product line where they just pumped untold dollars into a black hole for years now."

He said that while Intel has had a few "moderately successful" products come out of the group, it never developed into a particularly profitable business.

"This sale is specifically of our handheld business, making cellular and application processors. We're still very much focused on wireless communications technologies like Wi-Fi and WiMax," said Intel spokesman Robert Manetta.

Those technologies are currently slated for laptop PCs, but Intel could find itself back in the handheld business if they are adopted for future generations of handhelds or cell phones.

The business segment Intel sold to Marvell includes cellular communications processors, which handle voice data in electronic products such as BlackBerry devices, and applications processors, which are the CPUs that give brains to smart phones like the Motorola Q and the Palm Treo.

Manetta declined to say whether Intel had ever turned a profit by making these chips, stating simply that the company decided that the handheld area "was not a good fit for us."

Indeed, analysts say Intel entered that market segment too late to be profitable.

"It's an area that made sense at one point for Intel to make an investment there and to attempt to establish a presence in the wireless space," said Charles King, an analyst at market research firm Pund-IT Inc. "But, frankly, that market was pretty mature by the time Intel got involved in it. It's a market that tends to focus on high volume, very thin profit margins, with really bloodthirsty competition in it. So it's a tough place to make a dollar."

For Marvell, the buy gives it a leg up in the market for handheld computing devices such as PDAs and smart phones. The deal is expected to close in the fourth quarter. Marvell will also assume some of the unit's liabilities.

The Intel unit produces processors built on the company's XScale technology, including the PXA9 processor used in Research In Motion Ltd.'s BlackBerry. The unit employs about 1,400 people, most of whom are expected to work for Marvell after the purchase is complete, according to the companies.

The acquisition marks Marvell's entrance into the cell phone market, said Sehat Sutardja, chairman, president and CEO of Marvell, speaking during a conference call to discuss the acquisition. "The cell phone business, even though it's a big business opportunity, it's a very challenging market to enter," he said. Marvell acquired the technology from Intel rather than invest time and development effort to build it internally, he said.

With the acquisition, Marvell will focus solely on third-generation mobile technologies and beyond, he said. The company is based in Santa Clara, Calif.

Ben Ames and Shelley Solheim of the IDG News Service contributed to this report.

Copyright © 2006 IDG Communications, Inc.

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