Will All this M&A Finally Give Intel a Leg up in Battle with ARM?

Intel Acquires Mobile Group from Infineon

What happened?

In another move aimed at strengthening its portfolio of solutions targeting mobile devices, Intel (NASDAQ: INTC) announced that it has come to terms with Germany’s Infineon Technologies AG (FWB: IFX) to acquire its Wireless Solutions unit for $1.4 billion in cash.

VDC’s View

Intel’s warning last week of lower than expected revenue for Q3, underscores the importance of its attempts to diversify its business beyond its current PC-market dependency.

Less than two weeks ago, Intel announced its intent to acquire McAfee (NYSE: MFE), a security solutions company that had previously made acquisitions of its own to target the mobile space and, on August 16, Intel also announced the purchase of the cable modem assets from Texas Instruments (NYSE: TXN).  Let’s also not forget Intel’s 2009 acquisition of Wind River Systems, a leading supplier of operating systems and tools for mobile and embedded devices.

So we all understand the appeal of the growing device shipments in mobile, but why the recent reacceleration of acquisitions?

For one, despite Intel’s more reserved outlook for Q3 revenue, they have had a very successful 2010 to date with first half revenue up almost 40% year-over-year in addition to cash and short term investments also being up 40% from mid-year 2009 levels.  With many acquisition targets still available at a discount over 2008 levels and the Bush tax cuts set to expire at yearend, cash rich companies have had an opportunity to widen and/or deepen their solution set while also improving their tax liabilities in the near term.

However, perhaps the most important factor driving Intel’s repeated investment in their mobile solution portfolio is the lack of broad-based success or traction around their Atom and other embedded processor lines.  Although the company has continued to announce revenue growth for the platform, they have not yet created a compelling value proposition capable of luring business prospects – and market share – away from ARM IP-based processors.

As shown in this graphic originally posted in our blog on July 23^rd, ARM has obtained substantial momentum within the embedded market over recent years as mobile phone shipments have exploded and more embedded devices have been converted to mobile form factors.  Although Intel’s roadmap indicates that they are closing the gap in terms of power per watt performance, ARM has established a strong following and ecosystem of supporting solutions that will make its mobile incumbency difficult to displace in the near term. 

Intel’s product development and acquisition spree over the past two years has certainly helped it gain relevance within mobile device development discourse, but its ability to convert this dialogue into tangible design wins and market share gains will rely on its ability to integrate these new solutions into a compelling mobile solution stack that can also offer an ecosystem of complementary solutions on par with that around its desktop and IT platforms.

Comments

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