Intel goes all-in on wireless with Infineon deal, but will the bet pay off?

phil goldsteinIntel's $1.4 billion acquisition of Infineon's wireless chipset unit is now official, and I think the deal boosts Intel's prospects in wireless a great deal, especially in smartphones and embedded wireless products. However, Intel will have to walk a tightrope by both taking a hands-off approach to the unit while simultaneously tightly integrating the German chip maker's wireless IP into its processors for mobile devices.

Intel has a weak record when it comes to acquisitions, especially communications-related deals. According to Will Strauss, a chipset analyst and the president of Forward Concepts, Intel suffered from culture clash while integrating DSP Communications, which it bought in 1999 for $1.6 billion. This time, however, Intel has promised to operate the Infineon unit as a standalone business. "That is the one thing that indicates to me that it really could be a successful acquisition," Strauss told me.

On the product side, Intel will be able to combine Infineon's line of baseband technology with its own growing line of Atom-based processors, thereby offering a more complete product to handset vendors. Intel, already the world's largest chip maker, will become No. 4 in the 3G cellular baseband market through the transaction, behind Qualcomm (NASDAQ:QCOM), Texas Instruments and ST-Ericsson.

Ironically enough, industry analyst Jack Gold notes, Intel previously offered wireless baseband and ARM-based processor technology--dubbed XScale--but sold that business to Marvell in 2006 for $600 million. "With an increasing need to power its Atom-based solution, particularly those based on [system-on-chip] designs, with a variety of 3G/4G technologies, Intel finds itself needing the ability to design in newer wireless technologies, particularly LTE, to compliment its existing capabilities in WiFi and WiMAX," Gold notes.

Intel's efforts in wireless mirror those of Qualcomm, which has been integrating its application processors like Snapdragon with its wireless modems. In-Stat analyst Jim McGregor said the Infineon acquisition not only gives Intel legacy 3G solutions, but also a clear path forward with LTE. (Intel has been a major backer of WiMAX, and is a strategic investor in Clearwire (NASDAQ:CLWR), but has recently indicated that it likely will embrace LTE as it becomes the dominant 4G standard.)

If it is able to deliver a multi-mode solution, Intel could become even more of a dominant player in the embedded wireless market, McGregor said, especially as LTE makes its way into more products--from medical devices to ereaders and digital picture frames. And, as Gold notes, "we should not underestimate the need for Infineon's wireless assets and solutions in the embedded space where [system-on-chips] utilized in M2M and similar embedded solutions represent a major growth opportunity for Intel (potentially as much as 20-25 percent of its business)."

With the Infineon acquisition, Intel is making a serious long-term bet on wireless, and is positioning itself for the future. As McGregor put it: "They're still not there yet--but one, two, three years from now, they could be really, really dangerous." --Phil

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