分析：英特尔14亿美元换来什么

Analysis: Intel's wireless move no guarantee of success

by Peter Clarke

Repeatedly leaked in advance and therefore fully expected, Intel and Infineon have agreed that the world's largest chip company should acquire the wireless business unit of Infineon for about $1.4 billion in cash.

As a result Intel becomes a supplier of wireless transceivers to numerous cell phone makers and into Apple's highly successful iPhone and iPad products. And Infineon becomes 30 percent smaller than it was, arguing that this allows it to focus on automotive and industrial applications.

My view is that this deal that gives a Intel a $1.4 billion ticket to bet on itself in the convergence of communications and personal computing – but no guarantee of success. And it gives Infineon a cash booster but is perilous for the company – as one executive's restructuring can be another's deconstruction by a thousand cuts.

Turning to Intel: the key piece of evidence is that the company has shown itself poor at competing in any other major sector except PCs.

Or, put another way, Intel's heavy-handed dominance of the systems companies in the PC sector in the 1980s and 1990s, helped make up the minds of a lot of communications OEMs not to deal with Intel. This is Intel's second major tilt at the communications market place but there is not clear reason why the company should be any more successful this time around.

Readers may remember that Intel launched itself at the handset market in the middle part of the decade using an applications processor based on an ARM architectural license. Intel found getting traction with customers outside the U.S. difficult and ended up selling the business to Marvell Technology Group Ltd. in 2006 (see Marvell buys Intel's handheld processor unit for $600 million).

Intel into communications take two

How much has changed since Intel's last foray in to communications?

In 2006 Intel's Bulverde chip was aimed at smartphone and digital assistant applications on running 3G networks. Some might argue that Intel's Atom is now better suited to a coming wave of tablets and smarter phones on 4G-LTE and hybrid communications networks. But others would argue that Intel's rival ARM Holdings plc (Cambridge, England) still has the high ground in low power consumption and that it is on better terms with multiple semiconductor vendors that can create application processors and RF chipsets.

One thing that has changed is that ARM-based processor designs have increased in significance and penetration. The Infineon wireless modem chips are based on ARM and Intel felt obliged to say in the announcement of its deal with Infineon that it would continue to supply wireless products that would support ARM-based application processor architectures. But that statement itself may cause some handset companies re-evaluate their relationship with the Infineon wireless unit.

Intel's move begins to look like an admission that by turning its back on communications in 2006 the company got it wrong. The acquisition does give Intel the option to integrate digital and RF circuits and take a system-level view of requirements and partitioning. That, together with its leading-edge manufacturing engine, does give it some key advantages in the market, but it is not clear that these will be enough to transcend the suspicion Intel is regarded with by some in the communications sector.

Of late Apple has liked to play a tactical game with many of its suppliers keeping a couple of chip companies interested for various aspects of its consumer electronics and flipping them in or out with each product iteration. It keeps the suppliers keen and honest on price. Infineon's RF chips have been ever present since the introduction of the iPhone but that is not to say that others could not be invited to pitch for the slot.

The same is true in mobile phones. Indeed, the news that Nokia had sold its wireless modem operations to Japanese chip company Renesas was not only a sign that the Intel-Infineon deal was more or less done, but that Nokia would be dealing with Renesas for wireless modem chips going forward (see Analyst: Nokia's modem move hints at Intel-Infineon done deal).

Therefore this deal is more about Intel's ability to integrate RF and digital than to continue supplying and building a component business working to the handset makers' requirements. In other words, it looks like a repeat of the Intel PC strategy where it took a system-level view and started to tell OEMs "this is what your product looks like, this is the software, these are the components and their pricing and this is the PCB layout."

And from there it was only a short step to telling OEMs what their margins were and how many of which types of product they should make each month.

Infineon takes the cash, but what's the plan? And what does the deal mean for Infineon?

It certainly shows CEO Peter Bauer to be a robust negotiator. He appears to have extracted full value from Intel – which does have more cash than it knows what to do with. Prior to the announcement the deal was variously valued at between $1.1 and $1.4 billion and the announcement came at the top of that range.

However, business fashion has clearly swung against arguments in favor of economies of scale and in favor of the leadership brigade that argues if you are not a top-three vendor in a market get out. But, of course, it all depends on how you define and measure a market.

Bauer, like a good CEO, has probably done the Infineon supervisory board's bidding and scaled back in return for cash. The test will now be how Infineon puts that cash to work. The company had 2.2 billion euro (about $2.8 billion) in liabilities as of the end of its third financial quarter, which closed June 30, 2010. But of that only about 400 million euro (about $500 million) was in short and long-term debt.

So the company is relatively well balanced, albeit getting smaller, and could use its cash for acquisitions in line with, or complementary to, its new-found focus on automotive, industrial, multimarket, and chip card & security.

If Infineon fails to do that, then the 30 percent cut in revenue and a move away from a sector that is clearly strategic in the 21st century, just hurts the company's economies of scale and would be bad for both shareholders and the European semiconductor industry more generally. After all Infineon has already got out of memories with the collapse of Qimonda, and wireline communication chips with the creation of Lantiq. With the sale of the wireless business unit Infineon needs to start showing some growth or risk being seen as a hulk being broken up.

It is remarkable how similar the new Infineon's portfolio will be to that of NXP Semiconductors BV (Eindhoven, The Netherlands). While a merger of those two companies might be good to bolster the European semiconductor industry against further attrition, it is the case that similarities of product portfolio and geography are rarely drivers for mergers or acquisitions. Infineon is more likely to be looking east for a series of smaller targets that are becoming well integrated into the greater Chinese manufacturing complex.