The acquisition would fill a technology void for Intel in the mobile device market, where the chipmaker hopes to someday become the dominant player like it is in the PC market today. While the company's Atom processor is expected to eventually evolve into a competitive product as an application processor, Intel doesn't have much else for smartphone makers. Infineon's wireless unit makes integrated circuits that are used in handsets to send and receive calls and data over carrier networks. In purchasing this business, Intel gets the technology it needs to integrate with its Atom processors, in order to offer mobile phone makers a broader technology platform. At the same time, Intel also gets to sell Infineon products and its own separately, which is how many companies in the highest end of the smartphone market buy their components, including Infineon customer Apple.
"Intel is trying to make sure that they put together a complete wireless platform and support potential customers no matter what they want to use," Jon Erensen, analyst for Gartner, told InformationWeek.
Equally important is Infineon's customer base. Once the acquisition is completed, Intel gets all of the world's largest mobile phone makers as customers. In trying to keep these companies using Infineon technology, Intel plans to operate the acquired unit as a standalone business.
"The acquisition of Infineon's WLS (Wireless Solutions) 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," Intel President and Chief Executive Paul Otellini said.
While the acquisition would be a big step in the right direction, Intel still has a lot of work to do. First, it will have to optimize Atom to work with Infineon technology, and then convince Infineon's existing customers to go with those integrated products.
"For Intel, this is very strategic for them," Erensen said. "It's not going to happen overnight, but this is a big opportunity in smartphones, tablet computers and other important, growing categories. This is a place that they have to be and have to commit to, and this is a big step in that direction."
Today, much of the smartphone market is focused at high-end devices, which are expensive for people living in countries outside the United States and many places in Europe. Lower-priced smartphones are expected to become a huge market in the future in emerging markets like China, so having an inexpensive integrated platform for these devices is pivotal, Erensen said.
Intel will face stiff competition as it tries to push deeper into the innards of smartphones and mobile devices. Today, ARM application processors dominate the mobile phone market, and Intel will have to continue dropping the power-consumption levels of Atom in order to compete, as well as reduce size and cost. At the same time, Intel will be competing with Infineon technology against major Texas Instruments, Broadcom, STMicroelectronics and other major semiconductor vendors.
Infineon, based in Germany, is selling its wireless semiconductor unit in order to focus on what it considers its core businesses of selling computer memory and technology for the automotive, manufacturing and security industries.
"The sale of WLS is a strategic decision to enhance Infineon's value," Peter Bauer, CEO of Infineon, said in a joint statement with Intel. "We can now fully concentrate our resources towards strong growth in our core segments."
Intel has acquired other technology in the mobile phone market. In June 2009, the company bought embedded-software vendor Wind River Systems for $884 million. Wind River had expertise in the software powering mobile devices, such as web browsers. Earlier this month, Intel said it plans to buy security software maker McAfee for $7.68 billion. The latter company's technology is expected to someday be useful in building better security into smartphones and other Internet-connected devices.