If you can't beat them, buy them. At least that's what executives at Intel seem to be thinking.
Reports are circulating around the internet that the powerhouse chip maker is close to finalising a deal with German semiconductor company Infineon Technologies AG to buy its wireless chip unit. If such a deal goes through, it would be a boon to Intel, which has struggled to get a footing in the lucrative smartphone market.
"Infineon chips are used in smartphones from the iPhone to other popular phones," said Dan Olds, an analyst with The Gabriel Consulting Group. "The vast number of phones and now smartphones is driving a lot of chip sales, and Intel wants a piece of that pie. If Intel grabs Infineon, it will definitely have an impact on the market. With Intel's size and reach, they can put the competitive screws to the other companies and drive margins down."
On Monday, Infineon announced that executives have been in discussions with "interested parties" about its wireless chip unit. "A significant progress has been made within these discussions," the company said on its website, although the names of the interested parties were not disclosed.
Talk in the blogosphere and in online media sites noted that Intel has not been the only company interested in Infineon's wireless chip business. Reportedly Samsung Electronics and Broadcom have also thrown their hats into the ring, though Intel is rumoured to be the frontrunner.
Infineon is a hot commodity because of the widespread adoption of its chips in the smartphone market. The company's wireless chip unit produces cellular baseband chips used by Apple for some of its iPhones and its new iPad. The chips are also used in some BlackBerries and Samsung and Nokia phones.
The hot smartphone market would be lucrative for any chip maker these days. Research company iSuppli Corp. estimates that next year Apple will be the second-largest semiconductor buyer in the world, so the company selling a big chunk of smartphone chips to Apple could expect to be in an enviable position.
"From what I'm seeing, Intel has the inside track, and it looks to me like they're going to cut a deal," Olds said. "I see this as a good move for Intel. It gives them a stronger mobile play and we know that this is a market that they've openly lusted after for years... Intel has had a hard time cracking the phone market because they couldn't get their heads around it. Their chips were too big and power hungry and didn't offer the same overall value as, say, ARM chips."
However, Rob Enderle, an analyst with the Enderle Group, said buying a piece of Infineon might be going down a road that has a few bumps.
"Infineon has a presence that Intel could find valuable, but buying a European company, particularly one in Germany, comes with a lot of regulatory problems that will make the purchase more difficult to close than otherwise," he noted.
Enderle also said the difference between Intel's and Infineon's chip-building platforms could pose a problem for the company down the road.
"I see mostly downsides because of the difference in the platforms," he added. "However it would improve their chances [in the smartphone market]. The question is whether that improvement is worth the cost and an inability to easily exit from it should this strategy fail. At least from my angle, the risks exceed the benefits with this one significantly."