Intel to buy Infineon's mobile unit for $1.4 billion

Intel Corporation President and CEO Paul S. Otellini walks off the stage following his keynote address at the Oracle OpenWorld conference in San Francisco, California in this September 23, 2008 file photo.

Credit: Reuters/Robert Galbraith

FRANKFURT (Reuters) - Intel is to buy German chipmaker Infineon's wireless unit for $1.4 billion, enabling the U.S. chipmaker to boost its presence in the smartphone market.

The cash transaction is expected to close in the first quarter of 2011 and the mobile unit will remain as a standalone business, the companies said in a statement on Monday.

Three people familiar with the matter had told Reuters on Friday that Intel and Infineon would likely reach an agreement on the future of Infineon's wireless operations within the next few days.

It is the second major deal for Intel within two weeks after the company announced its $7.7-billion offer for McAfee Inc on Aug 19, its largest acquisition, bolstering the appeal of its chips as it tries to expand further into the mobile market.

Intel's Atom mobile chips took the low-cost, no-frills netbook market by storm but are rarely found in smartphones where other chipmakers dominate.

"Infineon would make Intel an instant heavyweight (in the mobile space) and buy them three, four years in R&D," IDC analyst Flint Pulskamp has said.

But analysts also caution that while an acquisition such as Infineon's mobile chip unit would be a step in the right direction it would take time to produce results.

Meanwhile, rivals based on UK-listed ARM chip design -- which is said to be more power-efficient than Intel's offerings -- continue to grab market share.

Infineon shares were indicated down 0.1 percent in Frankfurt on Monday in pre-market trade, recouping some of the losses they posted on Friday after Intel warned that its third-quarter revenue would fall short of its own expectations due to weak consumer demand on personal computers.

Intel shares closed largely flat at market close in New York at $18.37.

SPECIAL DIVIDEND FOR INFINEON?

For Infineon the deal allows the company to focus on its core segments -- automotive, industrial and chip card security.

Infineon's mobile chip operations generate around 30 percent of Infineon's total revenue but it ranks No. 5 in the chipset industry, far behind sector giants Qualcomm, Texas Instruments and Broadcom.

Based in Neubiberg near Munich, Infineon supplies chips to top manufacturers such as Nokia, LG and Apple.

Infineon Chief Executive Peter Bauer, who took the helm at the company in mid-2008, managed to turn around the unit, which had been loss-making for years.

Infineon investors would welcome any proceeds from asset sales because they open the door for a special dividend, a gladly received option for shareholders, who have not seen a payout in years.

In addition, Infineon could use the money to invest in its other businesses.

"The sale of WLS is a strategic decision to enhance Infineon's value," CEO Bauer said. "We can now fully concentrate our resources toward strong growth in our core segments."

M&A MANIA

The deal comes amid a flurry of M&A activity worldwide as companies struggle to boost revenue in an anemic economic environment.

According to Thomson Reuters data, nearly $200 billion in mergers and acquisitions has been announced in August, already making it the third-best month so far this year in terms of money committed to deals.

The top bids include BHP Billiton's $39 billion hostile offer for Canada's Potash Corp and Vedanta Resources' $9.6 billion stake purchase in Cairn India.

In addition, Hewlett Packard and Dell Inc are embroiled in a bidding war for 3PAR Inc with HP's latest bid of $2 billion currently trumping Dell's offer.

(Additional reporting by Noel Randewich; Editing by Mike Nesbit)

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