How Intel Can Avoid Botching Infineon
Intel Corp. (Nasdaq: INTC) must avoid the temptation to meddle if it's to make the most of its US$1.4 billion Infineon Technologies AG (NYSE/Frankfurt: IFX) acquisition, analysts say. (See Intel to Acquire Infineon's Wireless Biz.)
So far, so good. In announcing the deal Monday, Intel said it would keep Infineon's wireless division as a standalone business. (See Intel Looks to Infineon for the Full SOC.)
There's a practical aspect to that, since the Infineon business generated $1.13 billion of revenues in its most recent full fiscal year by selling to companies that use processors other than Intel's.
But whether the Infineon group stays standalone in the long run is a crucial question.
"Intel needs to say to the new team, 'Here is an Atom CPU. Bitte, build the best smartphone product you can using this CPU. Danke,'" writes analyst Linley Gwennap of The Linley Group , in an email to Light Reading. "If Intel tries to micromanage the project, it won't work."
Intel has a long track record of failed acquisitions, especially in cases where it tries to get into new markets. Will Strauss, principal analyst with Forward Concepts Co. , counts $10 billion in acquisitions from 1999 to 2005, some of which were eventually sold off for practically nothing. (See Intel's ROI.)
The tally includes Intel's push into communications during the dotcom bubble. (See Intel Hands Off to Cortina and Marvell Takes a Bit of Intel.)
Another way to look at it: Intel's 15 largest acquisitions, excluding the recent Wind River deal, were shut down or sold on, as Gwennap noted in a blog entry yesterday.
What keeps going wrong? Some of it was bubble exuberance; Intel fell as hard for optical as any company circa 2000. (See Intel's 10-Gig Shopping Spree.)
But it's also a case of Intel imposing its thinking and methods onto the companies it buys, Strauss says. "The Intel coprorate culture kind of smothered the innovative spirit of the startups they acquired."
To avoid having the same thing happen to the Infineon business a few years from now, Intel could try stepping out of the way. The German engineering team is arguably the most valuable part of the deal, Gwennap notes, and Intel is going to have to keep from alienating them.
"To make this deal work, Intel has to respect the Infineon team's ideas and culture," Gwennap writes via email. "Infineon knows a lot more about the smartphone market than Intel does, but I am not sure Intel is willing to admit that."
Along similar lines, Intel says it would keep McAfee Inc. (NYSE: MFE) separate after the companies close their $7.7 billion merger. But that's an easier case, considering parts of McAfee's business are alien to Intel: It's hard to picture Intel telling McAfee how to sell boxed retail software at Wal-Mart Stores Inc. .
— Craig Matsumoto, West Coast Editor, Light Reading