Intel buys Infeneon wireless unit for $1.4b
Intel Corp. agreed to buy the wireless unit of Germany’s Infineon Technologies AG for $1.4 billion (EUR1.1 billion) in cash, both companies said Monday.
With the deal, Intel, the world’s largest semiconductor company, significantly strengthens its position in an area in which it has had limited success previously.
“The acquisition of Infineon’s wireless 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 WiFi and 3G to WiMAX and the long-term evolution,” a standard for the new faster fourth generation mobile networks,” Intel President and Chief Executive Paul Otellini said in a statement.
Infineon will “now fully concentrate our resources towards strong growth in our core segments,” its CEO Peter Bauer said without elaborating. He added that the sale of its wireless operations “is a strategic decision to enhance Infineon’s value.”
Bauer added that acquisitions are an element of Infineon’s further growth strategy, although he added that there are no concrete talks and he fells no time pressure to buy.
Infineon got a “reasonable price” for its wireless unit “but might be below ambitious market expectations that failed to factor in upcoming investment” for fourth generation networks, said Commerzbank analyst Thomas Becker, who rates the shares buy, but cut his target price to EUR5.80 from EUR6.60 to reflect the divestment.
According to various media reports, it had been seeking between EUR1 billion and EUR1.5 billion for its wireless unit.
Analysts also widely expect that Infineon will pay a dividend for current fiscal 2010, which ends Sept. 30. Becker said he estimates a return of EUR0.10 a share.
Infineon shares closed in Frankfurt down 3.7% at EUR4.44, underperforming a broader market with Frankfurt’s DAX down 0.7%, while Intel traded at 1540 GMT down 1.6% at $18.08 also underperforming a broader market down 0.5%.
In the quarter ended June 30, revenue at Infineon’s wireless-solutions business rose 38% to EUR346 million, 29% of Infineon’s total revenue in the period. The unit makes products including cellular baseband chips for mobile phone makers like Nokia Corp. and Samsung Electronics Co. Ltd.
During the Internet bubble, Intel used acquisitions to build cellphone expertise, but found mobile handset chips a drag on its earnings. It sold the product lines to Marvell Technology Group Ltd. in 2006 for $600 million.
In acquiring Infineon’s baseband radio chip business, Intel gains an important foothold in the ever-growing mobile market with access to a wide range of the wireless chip company’s customers.
Infineon’s baseband chips could also potentially be paired to work with Intel’s handset-focused processing chips, analysts say, making the world’s largest chipmaker a compelling option for smartphone manufacturers.
Intel said, it will run wireless as independent unit. It will head by the current Infineon board member Hermann Eul, Bauer said. Intel managers said that the semiconductor giant will invest in wireless but provided no detail.
Besides wireless, Infineon produces logic chips used in cars, machines and in security solutions, such as passports. Its wireless unit is dependent on a number of key customers, which it has officially never confirmed, but include iPhone producer Apple Inc. Margin at the unit in the third quarter was 7%, significantly lower than the 22% achieved in its industrial and multimarket segment and 16% in automotive. Margin for wireless chips are lower, as they requires similar research and development expenses as in Infineon’s other segments, but its product cycle is much shorter.
Infineon is ranked number three by market share in its wireless segment, behind market leader Qualcomm Inc. (QCOM) and Texas Instruments Inc. (TXN), but number one in all other segments.
The unit drove last year’s recovery after the slump in demand caused by the economic downturn, and revenue growth in the current quarter is expected to also be driven by wireless, according to the company’s most recent outlook.
The transaction is subject to regulatory approval and its closing is expected in the first quarter of 2011, said both companies, the boards of which have already approved the transaction.
Intel was advised U.S.-based investment bank Evercore Partners Inc. and Infineon by J.P. Morgan.
Intel said on a conference call with investors that it expects the deal to be neutral to slightly lower earnings in the first year after the deal is closed. Analysts, on average, expect Intel to report earnings of $1.97 in fiscal 2011.
According to information obtained by Dow Jones Newswires prior to Monday’s announcement, Infineon was also negotiating with Samsung about a joint venture for its wireless unit.
Source: WSJ