Why Intel Is Buying Infineon

BY www.fastcompany.com/user/148610" title="View user profile." style="color: rgb(0, 51, 102); text-decoration: none;">KIT EATONToday

Intel is about to fork over $1.4 billion for the wireless products division of Infineon--partly to screw Apple (which has been busy ignoring Intel in its iPhones and iPads), partly to cosy-up to its old mate Microsoft.

It's a $1.4 billion deal due for completion in early 2011 (because there's likely to be a lot of regulatory concern about the deal and Intel's monopolistic past). Intel is acquiring only part of Infineon, its Wireless Solutions Business (dubbed WLS) and has been quick to stress--probably to appease the FTC even at this early stage--that WLS will continue to operate as a stand-alone business, and "Intel is committed to serving WLS' existing customers, including support for ARM-based platforms."

The two companies also try to illustrate that the deal is all about "Intel's computing strategy," aligning with the "Internet connectivity pillar" of the business, along with improving "Wi-Fi and 4G WiMAX offerings" by leveraging "Infineon's 3G capabilities" and that it all "supports Intel's plans to accelerate LTE."

But the real reasoning behind the deal is all about Intel's complicated relationship with Apple and Microsoft--it's coded into this bit from the press release: "The acquired technology will be used in Intel Core processor-based laptops, and myriad of Intel Atom processor-based devices, including smartphones, netbooks, tablets and embedded computers."

Apple and Intel partnered up several years back when the computer maker made a huge switch away from its IBM PowerPC CPU architecture. Since then, the two have been close collaborators for chips inside Apple's Mac-based computers--even seeing a one-off special-edition low profile chip being designed by Intel for the first-generation MacBook Air. But the fastest growing portion of Apple's business has been the iPod, iPhone, and iPad mobile-devices sector, and these devices (which have overturned three different markets) don't use Intel chips: The iPad in particular is a challenge to Intel's dominance of the portable PC market, and it even uses Apple's own-branded ARM-architecture A4 CPU, and has been selling like hot cakes. With Apple's moves into this market, Intel's execs must've been getting antsy, and back in July there was even some thinking that Apple could buy Infineonand really ratchet-up its vertical integration to challenge Intel directly. Intel and Apple's relationship is complicated. And now its got more so.

Meanwhile Intel's long term "best friend" Microsoft has been seeing its dominance over the high-tech world take bigger and bigger hits: Its smartphone business has all but fallen into the toilet bowl, and the netbook phenomenon succeeded based on an old (and increasingly aged-looking and PR-damaging) Microsoft product--XP. And now the netbook phenomenon looks like its being overtaken by the tablet PC revolution, led by Apple and a horde of Android clones. Microsoft's big hope to grab some of the limelight back are its Windows Phone 7 series devices, and tablet-friendly Windows 7 OS. If Intel can get itself into Microsoft's good books, and offer powerful battery-friendly CPUs and lots of the base-band electronics for smartphones that are specifically tailored to MS requirements, then maybe its Intel's in-route to the mobile device market.

What's the next development in this story going to be? It may be an odd one: Apple may choose to spend some of its gigantic war chest of cash reserves on buying a competing business to Infineon.