By Yinka Adegoke

NEW YORK |
Thu Sep 2, 2010 3:16pm EDT

SAN FRANCISCO – As the world’s biggest maker of computer chips, Intel Corp. can’t afford to ignore its huge blind spot in mobile phones.

Eighty percent of today’s personal computers use Intel processors. But Intel is absent in smart phones, which are threatening PCs as gateways to the Internet. One reason is that Intel still doesn’t have good ways to design chips to use less power, so Intel’s products drain batteries more quickly — something smart-phone makers won’t tolerate.

The dynamic has put Intel at risk of missing out on the next great opportunity for semiconductor companies. That is why Intel has decided to buy the wireless-chip division of Germany’s Infineon Technologies AG for $1.4 billion. With it, Intel gets the chips used in Apple Inc.’s popular iPhone.

The all-cash deal, announced Monday, is an acknowledgment that Intel has missed the boat on mobile phones, and it gives the company an opportunity to correct its course.

The challenge is similar to the one Microsoft Corp. is facing with Google Inc. as software is increasingly being delivered over the Internet instead of being stored on PCs, the way Microsoft has long approached it. Like Microsoft, Intel is the undisputed leader in a market that’s under attack from a fast-rising force from the outside.

Intel is trying to play catch-up before it falls too far behind.

Intel bought mobile software maker Wind River Systems for $884 million last summer, and the company has spearheaded development of the open-source Moblin software, which is designed to run on mobile devices that use Intel chips.

Two weeks ago, it announced plans to buy computer-security software maker McAfee Inc. for $7.68 billion, which would be the biggest acquisition in Intel’s 42-year history once it gains the expected approvals.

As mobile phones become increasingly enticing targets for hackers, security companies have been developing ways to protect those devices. With McAfee, Intel would be able to bake security into its mobile chips — including those from Infineon.

But even as Infineon’s products give Intel quick entry into the mobile-chip business, Intel is fighting its own history with the Infineon deal, which could prove to be a costly distraction. Many analysts aren’t optimistic about Intel’s chances, pointing to its spotty track record with acquisitions.

"We feel like we have seen this movie before," analyst Craig Berger with FBR Capital Markets wrote in a research note to investors.

Berger said Intel would gain a strong business with a "sizable presence" among big cell-phone makers and the expertise in building chips based on a low-power design that is widely used in cell phones.

However, he said he is skeptical of Intel’s ability to execute outside of its core market, which is making microprocessors that act as the "brains" of PCs.

Intel needs to branch out because that market is under pressure. Last week, Intel lowered its forecast for the third quarter, blaming weaker-than-expected consumer demand for PCs. PC makers also have been cutting prices drastically in recent years, and in lean times have been buying cheaper chips from Intel just to maintain slim profits.

Intel had a division that made chips for smart phones, but sold it off four years ago in a round of cost-cutting. Since then, Intel has focused on its core business. Meanwhile, use of the Internet on mobile phones has exploded, and companies that make chips for phones have benefited from demand for more capable — and expensive — chips.

Phone chips need to sip power instead of guzzle it, and even Intel’s energy-efficient designs are criticized as too power-hungry for today’s smart phones. Phone makers need to make awkward contortions, such as building bigger devices, to accommodate the need for a bigger battery — which most are loath to do.

With an annual research-and-development budget of nearly $6 billion, Intel is equipped to pour incredible resources into essentially any chip project it chooses. After its exit from the mobile-phone chip market in 2006, it focused on other types of communications technologies. Buying its way back into the market is the fastest way for the company to make up for lost time.

David Perlmutter, an Intel executive vice president, said in an interview with The Associated Press that the decision to sell the mobile-chip business in 2006 was "the right decision at the time," and that Intel is buying a more complete lineup of technologies from Infineon than those available in the business it sold.

"I hope that we’ve learned our lessons and that we’re way more focused," he said.

With Infineon, Intel would become the fifth-biggest supplier of mobile-phone processors if the deal closes as expected in the first quarter of next year.

It would get a running start in a market dominated by Qualcomm Inc., Texas Instruments Inc. and STMicroelectronics, which together own about half the total market for processors and other communications chips for cell phones, according to Gartner Inc.

Still, Intel would be a small player: the Infineon division owns only about 5 percent of the market.

Analyst Tristan Gerra with Robert W. Baird & Co. warned that the deal might be "too little, too late" for Intel’s push into smart phones, and he said that Intel will have to invest heavily to keep Infineon’s products competitive with the rollout of the next-generation cellular networks known as 4G.

Gerra noted that the mobile-phone business moves faster than the PC business.

"Whether a PC company such as Intel can move nimbly given more rapid new product cycles within the mobile-phone industry remains a significant question mark," he said.

NEW YORK – Facebook users carrying their smart phones will soon be able to check in to real-life locations such as restaurants, bars or live concerts.

It’s the first foray by the world’s largest online social network into the frenzy of location-based services. Rising with the popularity of smart phones, such services let users find coupons, earn quirky merit badges or simply share with friends where they are.

The new feature is called Facebook Places. Sharing your whereabouts with friends is its main focus.

Check-ins will be available on Facebook’s iPhone application Wednesday with a free update users can download, as well as on the site’s touch site used by many other mobile phones.

LAS VEGAS – A computer security researcher has built a device for just $1,500 that can intercept some kinds of cell phone calls and record everything that’s said.

The attack Chris Paget showed Saturday illustrates weaknesses in GSM, one of the world’s most widely used cellular communications technologies.

His attack was benign; he showed how he could intercept a few dozen calls made by fellow hackers in the audience for his talk at the DefCon conference here. But it illustrates that criminals could do the same thing for malicious purposes, and that consumers have few options for protecting themselves.

Paget said he hopes his research helps spur adoption of newer communications standards that are more secure.

"GSM is broken — it’s just plain broken," he said.

GSM is considered 2G, or "second generation," cellular technology. Phones that run on the newer 3G and 4G standards aren’t vulnerable to his attack.

If you’re using an iPhone or other smart phone and the screen shows that your call is going over a 3G network, for example, you are protected. BlackBerry phones apply encryption to calls that foil the attack, Paget pointed out. But if you’re using a type of phone that doesn’t specify which type of network it uses, those phones are often vulnerable, Paget said.

Paget’s device tricks nearby cell phones into believing it is a legitimate cell phone tower and routing their calls through it. Paget uses Internet-based calling technology to complete the calls and log everything that’s said.

A caveat is that recipients see numbers on their Caller IDs that are different than the cell numbers of the people calling them. Paget claims it would be easy to upgrade the software to also include the callers’ real numbers.

The device he built is called an "IMSI catcher," which refers to the unique International Mobile Subscriber Identity numbers that phones use to identify themselves to cellular networks.

Commercial versions of such devices have existed for decades and have mainly been used by law enforcement. Paget’s work shows how cheaply hobbyists can make the devices using equipment found on the Internet.

"That’s a significant change for research — it’s a major breakthrough for everyone," said Don Bailey, a GSM expert with iSec Partners who wasn’t involved in Paget’s research.

Another security expert, Nicholas DePetrillo, said such devices haven’t been built as cheaply in the past because the hardware makers have closely controlled who they sell to. Only recently has the necessary equipment become available cheaply online.

In the U.S., AT&T Inc. and T-Mobile USA are two cellular operators whose networks include GSM.

There are more than 3 billion GSM users and the technology is used in nearly three quarters of the world’s cell phone markets, according to the GSM Association, an industry trade group.

In a statement, the group emphasized the hurdles to launching an attack like Paget’s, such as the fact an attacker’s base station would need to be physically close to the target and that only outgoing calls can be intercepted. Incoming calls are not vulnerable.

"The overall advice for GSM calls and fixed-line calls is the same: neither has ever offered a guarantee of secure communications," the group said. "The great majority of users will make calls with no reason to fear that anyone might be listening. However, users with especially high security requirements should consider adding extra, end-to-end security features over the top of both their fixed line calls and their mobile calls."

A representatives for AT&T had no comment. T-Mobile didn’t immediately respond to e-mails Saturday from The Associated Press.

Paget had been debating dropping the demonstration from his talk, after federal authorities told him it might violate wiretapping laws. He went ahead with it after conferring with lawyers. He said he didn’t believe he had broken any laws.