Intel buys Infineon's wireless unit

Intel is buying the wireless technology group of Infineon for $1.4bn.

Infineon's mobile unit, called WLS, makes mobile chips for Apple's iPhone and for handsets made by Nokia and LG.

The move follows Intel's purchase on 19 August of virus software company McAfee for $7.7bn.

Intel has had a stake in the wireless chip market before, through the ARM processor licence it got as part of its acquisition of Digital Equipment, but later sold the activity to Marvell. Its return to the wireless fray will put it into competition with sector specialists such as Qualcomm and Broadcom.

"Without the deal, Intel was likely at the risk of being shut out of this important market," said Ambrish Srivastava, an analyst at BMO, in a note to clients. "Now, the company has a fighting chance."

Intel has long dominated the market for PC processors. Its Atom mobile chips took the netbook market by storm, but are rarely used in smartphones.

Experts say future growth in the microchip industry lies in mobile devices.

"Computing is spreading to a wide array of connected smart devices, including laptops, cars, smartphones, tablets, smart TVs, and new categories being created almost daily," said Paul Otellini, CEO of Intel.

Intel, which has spent years and hundreds of millions of dollars promoting the WiMAX fourth-generation mobile standard to little effect, now says it will speed up Infineon's development of   chip for the alternative Long Term Evolution 4G standard. Infineon had planned to offer chips for LTE devices by 2012.

"Intel's proposed acquisition of Infineon's wireless business unit, while a step in the right direction, is by far no guarantee of success for Intel in smartphones," wrote Tristan Gerra, an analyst Robert W Baird & Co analyst.

Intel plans to keep Infineon's mobile unit independent once the cash transaction closes in early 2011 and expects the deal to be neutral or slightly dilutive to earnings.

Meanwhile, rivals based on UK-listed ARM's chip design, which is said to be more power-efficient than Intel's current offerings, continue to grab market share.

Infineon shares fell 3.8 per cent on the news on Monday.

"Investors had hoped for a higher price and, additionally, we expect profit-taking on the long-expected deal," analysts at Alpha brokerage wrote.

Intel shares fell 2.01 per cent on Monday afternoon.

The Intel deal will allow Infineon to focus on what it now defines as its core segments: automotive, industrial and chip card security.

"There is one thing I have learned over the past 15 years - in technology portfolio, size matters if you want to maintain leadership," said peter Bauer, chief executive of Infineon.

Bauer, who took the helm in mid-2008, turned around Infineon's mobile chip unit after years of losses. It now generates around 30 per cent of Infineon's total revenue and ranks number five in the chipset industry.

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