| Marvell to acquire Intel's
communications and application processor business
27 June, 2006
By Liam Lahey
Marvell Technology Group Ltd. and Intel Corp. have announced
that they have signed an agreement for Intel to sell its communications
and application processor business to Marvell for a purchase
price of $600 million (U.S.) plus the assumption by Marvell
of certain liabilities.
Officials said the planned sale would give Marvell a strong
presence in the growing market segment for processors used
in smart handheld devices.
The sale would in turn enable Intel to focus its investments
on its core businesses. The transaction is expected to close
in approximately five months and is subject to regulatory
review and other normal closing conditions.
Rob Enderle, principal analyst for the San Jose, Calif.-based
Enderle Group, said Intel dramatically needed to focus on
its' core businesses and the communications chip unit was
one of many distractions it didn't need.
"They could have simply shut down the unit; by selling
it they recoup at least some of their investment," he
said. "Marvell is in this business and can make use of
both the existing client relationships and the intellectual
property Intel has to strengthen their own position and this
technology appears to have a better fit in Marvell's technology
portfolio.
"Generally it is better to be close to the core business
of your parent company and, while no merger is certain, this
puts the unit in question in a better position to succeed."
Intel's communications and application processor business
develops and sells processors for handheld devices including
smart phones and personal digital assistants. The business'
processors, based on Intel XScale technology, include the
Intel PXA9xx communications processor that powers Research
in Motion's (RIM) Blackberry 8700 device. The Intel PXA27x
applications processor (code-named "Bulverde"),
is used in the Palm Treo smart phone, the Motorola Q, and
other devices.
Recently, Intel released its Xeon 5100 series of server processors
(code- named Woodcrest), and the company has plans to focus
more on mobile broadband technologies such as Wi-Fi and WiMax,
following the sale.
The communications and application processor segments continue
to present an attractive market opportunity, and Intel described
the business and its assets as an optimal fit for Marvell.
Meanwhile, Warren Shiau, senior associate and lead analyst
of IT research for The Strategic Counsel, said it's a case
of the grass looking greener for Intel. By selling off its
communications chip unit Intel is relieving itself of a financial
burden.
"They got into communications chips figuring it would
be a hot market; instead it's been (in general) commoditizing
with pretty slim margins and a lot of excess capacity being
carried as overhead," Shiau said. "Intel probably
decided the investment necessary to maintain and build-up
economies of scale versus everyone else in the market wasn't
worth it given margins and demand, and that it doesn't (financially)
want to be in the market." Shiau added he didn't expect
much impact on either Intel and its' partners as it was long
in the pipeline that Intel wanted out, so it's good the operation
has gone to people who want to make a go of it and who are
serious.
"It's unlikely anyone is going to be worried about Marvell
as the operation is pretty much being handed over turnkey
to them," he said.
The communications and application processor business includes
approximately 1,400 employees involved in a variety of functions,
including engineering, product testing-validation, operations
and marketing. It is expected that the vast majority of these
employees would become employees of Marvell, officials said.
Intel currently intends to receive the entire purchase price
in cash. However, Intel has the option to take up to $100
million of the $600 million purchase price in Marvell common
stock. Upon closing, Marvell may record a one-time charge
for purchased in-process research and development expenses.
The amount of that charge, if any, has not yet been determined.
Intel will provide information regarding the financial impact
of the transaction at a later time.
After the close of the transaction, Intel intends to continue
manufacturing products currently sold by this business for
handheld devices and embedded applications, and to manufacture
products that are being designed into upcoming devices. This
arrangement is expected to continue while Marvell arranges
other manufacturing resources. Intel and Marvell do not anticipate
disruptions in the supply of these products due to this planned
sale.
This planned sale does not impact the ability of other Intel
businesses in the networking and storage market segments to
continue to use ARM-based, Intel XScale processors, the company
said. Those Intel businesses will be able to continue licensing
chip designs directly from ARM Holdings PLC and modifying
the designs for their needs.
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