Intel (Nasdaq:INTC) has seen the future, and it is no longer in PCs and laptops. If Intel wants to still be inside the devices that consumers are buying, the company needs to get moving in the smartphone market. Monday's purchase of Infineon's (Nasdaq:IFNNY) wireless chip unit may be a good move, but it is just a start.

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What Intel Is Getting
Intel is buying Infineon's unit for $1.4B in cash - a price that looks to be a little less than 1x trailing revenue. If that sounds like a cheap price, there is a reason. Although Infineon has won a couple of high-profile placements (like Apple's (Nasdaq:AAPL) iPhone and iPad), the unit's profitability was quite a laggard relative to Infineon's other businesses or stand-alone chip companies like Qualcomm (Nasdaq:QCOM).

Infineon had built its wireless business around single-chip solutions for both low-end and high-end phones. Despite using architecture from ARM Holdings (Nasdaq:ARMH) and investing meaningful R&D into the business, the company was still having trouble really getting a leg up on Qualcomm and other rivals like Texas Instruments (NYSE:TXN), STMicroelectronics (NYSE:STM) and Broadcom (Nasdaq:BRCM). With this deal, Infineon gets some cash and can re-focus on its more profitable industrial and automotive segments. (For more, see The Wacky World Of Mergers And Acquisitions.)

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An Entry Point for Intel
It may seem odd that Intel is buying its way into the market with what looks something like a laggard. Investors should remember, though, that Infineon had put a lot of resources into this unit and it may be the case that current financial results do not show all of the progress that Infineon has made (though it would raise the question of why Infineon is selling now). On top of that, Intel probably did not have a lot of options - the other rivals in the wireless chip space would have cost Intel a great deal more, assuming a deal could have been finalized at all.

Remember, Infineon was deemed good enough for Apple. That has to carry at least a little bit of weight, especially as iPhone users do not seem to have any complaints about the performance of the phone (apart from the recent antenna issue).

It will be interesting to see what Intel can do with this business. To date, Intel has really not gotten much traction in the phone world, apart from Nokia (NYSE:NOK) and LG Electronics. In the future, though, perhaps the company can figure out how to leverage and combine technology from its existing business, Infineon's wireless business, and the recently-announced McAfee acquisition. Along the way, it is also fair to wonder whether Intel will maintain Infineon's relationship with ARM Holdings, or go its own way and rely on its own architecture.


The Bottom Line
Infineon shareholders should be a little puzzled as to why they could not get more money for this unit and why the company did not want to wait and see if there would be fruits to the years of R&D investment. On the other hand, it does allow the company to go back to doing what it does best and sometimes these deals work out for the best in the long-term (Silicon Labs likewise made a divestiture years ago that seemed risky at the time but prudent in hindsight).

For Intel shareholders, this is an affordable deal that looks like a low-risk/high-potential maneuver. Intel definitely needs to do something to raise its profile in the wireless/handheld market, and this could be a good starting point. That said, it is just a starting point and Intel will need to prove that it can build on this deal by grabbing the baton and running with it. If they do not succeed, the days of "Wintel" meaning much of anything will be over. (For more, see 3 Secrets Of Successful Companies.)

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