Intel buys Infineon's wireless wing for 4G lift-off

Intel has bought Infineon's wireless business, boosting Intel's mobile broadband portfolio and taking the company back into the business of supporting ARM-based systems for the first time since it sold off its XScale business.

The $1.4bn (£908m) deal, announced on Monday, will leave the German firm's wireless business (known as WLS) as a standalone business, Intel said in a statement, adding that it was "committed to serving WLS' existing customers, including support for ARM-based platforms". Intel used to be a licensee of ARM's architecture, the main rival to its own x86 architecture, but sold off its XScale ARM processor business to Marvell in 2006.

WLS makes baseband processors, radio-frequency (RF) transceivers, power management integrated circuits and the system software that goes with them. Intel will use WLS's technology in its Core-based laptops, as well as Atom-based devices ranging from smartphones to netbooks, tablets and embedded computers, it said.

The acquisition will augment Intel's current wireless offerings — Wi-Fi and WiMax — with Infineon's 2G and 3G cellular capabilities, while also accelerating Intel's work on the long-term evolution (LTE) of 3G, Intel said. LTE is the main rival to WiMax in the '4G' technology field, and has become the preferred next-generation platform for many carriers in the Western world.

"The global demand for wireless solutions continues to grow at an extraordinary rate," Intel chief Paul Otellini said in the statement. "The acquisition of Infineon's WLS business strengthens the second pillar of our computing strategy — Internet connectivity — and enables us to offer a portfolio of products that covers the full range of wireless options from Wi-Fi and 3G to WiMax and LTE."

"As more devices compute and connect to the Internet, we are committed to positioning Intel to take advantage of the growth potential in every computing segment, from laptops to handhelds and beyond."

Peter Bauer, Infineon's chief executive, said in the statement that selling WLS left the German firm able to concentrate on its automotive, industrial and chip card and security businesses. "This creates a great perspective for all Infineon customers, employees and shareholders," he said. "We all stand to benefit enormously from this deal. Thanks to the outstanding effort of the employees and the management during the last years, WLS is excellently positioned to grow further with the new owner who is ideally suited for this business."

Intel noted in the statement that WLS would continue to support Infineon's ARM-based products "as well as Intel-based application processor platforms with leading-edge 3G slim modem solutions". The company also said it expected WLS, which has a current annual revenue of €917m (£755m) — around 30 percent of Infineon's total annual revenue — to continue growing.

According to Gartner research director Jon Erensen, Intel needs to retain Infineon's key customers, who include Apple, Nokia, Samsung and most other major handset manufacturers. "That does mean supporting the ARM-based solutions Infineon has, in order to keep their key customers happy," he said.

"Intel has ambitions for being a bigger player in the smartphone market and this is a necessary piece of the puzzle," Erensen said. "The capabilities that Infineon has are something that's going to be integral to any solution going into smartphones — you want to be able to provide a broad product offering if you're Intel, and Infineon has the baseband processors and RF transceivers that will allow Intel to put together a complete wireless solution."

Erensen explained that Intel could now support either of the two main approaches to building phones: pairing a discrete application processor with another company's baseband cellular connectivity, or using an integrated package of those two pieces of technology. Previously, he said, it could only support the first option. He also predicted the deal would work for Infineon, who had been "at a crossroads" with its wireless business.

"We had Infineon ranked as the number-five supplier in mobile phone application-specific semiconductors," Erensen said — the top four, in descending order, are Qualcomm, Texas Instruments, ST-Ericsson and MediaTek. "Infineon have done a great job of resurrecting this business. Five years ago, it had one or two customers, but since then they've grown it to a pretty strong business. They needed to invest in this business if they were going to be a leader in this market. Now they can take money from sale and invest in their other core businesses, where they have more of a leadership position."

However, Malcolm Penn, an analyst with Future Horizons, was more circumspect about what the deal means for Infineon. "They get a huge slag of money, so the current owners will be pleased, but they're now saddled with the fact that they're two-thirds of their [former] size, have the same operational costs and will be less competitive," he said.

Referring to the result as "slow strangulation" for Infineon, Penn said it would be tough for the company to remain competitive. He also noted that the deal represents the end for the "last semblance of an indigenous European wireless operation", and said some Infineon engineers may not like working for their new employer.

Penn also expressed doubts about Intel's ability to make the best of the deal, pointing out that "buying the business is no guarantee of success".

"Intel loves exploiting its customers and getting a monopoly situation, so it's not entirely clear that [Infineon's] customers will remain loyal," Penn said. "The mobile market is not the same as the microprocessor market — there are a lot of good competitors in there, such as Qualcomm, who are lean and mean and aggressive. Intel will have to learn a whole new way of doing business. Its big customers have a mind of their own and they have alternatives, unlike in the PC space."

Intel and Infineon's boards have both approved the transaction, and it is expected to close in the first quarter of next year, assuming it meets with regulatory approval.