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Intel Beefs Up On Mobile With Infineon Deal

By: Trefis
Posted: 11/4/2010 4:03:00 PM
Referenced Stocks: AMD;APPL;INTC;NOK;NVDA

Intel ( INTC ) plans to acquire the wireless business unit of Infineon Technologies AG in an attempt to deepen its penetration of the mobile device market.

Historically, Intel has focused on producing chips and processors for PC manufacturers competing with the likes of AMD ( AMD ) and nVIDIA ( NVDA ), and we see its recent move as a way for the company to broaden its business focus and participate in the growth of the mobile device market.

Together with its Atom processors, we expect higher revenue growth from the mobile chipset segments, which currently accounts for just under 9% of the Trefis price estimate. Higher chipset growth could represent an additional 8% upside to the scenario we include below.We have a current Trefis price estimate of $26.50 , which is about 30% ahead of the current market price.

Broadening its Mobile Business

Intel's ultra low voltage Atom microprocessors were introduced initially to power netbooks and small desktop computers. However in early 2010, Intel launched Atom processor for smartphones and tablets.

Atom opened the door for Intel into a lucrative but crowded smartphone market populated by well established and formidable players.Given the more fragmented market than its dominant PC business, the company needed a range of mobile phone offerings in order to compete effectively.

Infineon's products are currently used in mobile devices made by Apple ( APPL ), Nokia ( NOK ) and RIMM (NASDAQ:RIM), and we believe this latest move will help Intel establish a significant presence in the mobile market.

Smartphones Growing Faster Than PCs

IDC estimates that in 2010, mobile phone vendors will ship nearly 270 million smartphones compared to 173.5 million in 2009, an expected growth rate of 55%.  This growth rate is double the expected growth for global PC shipments.

We estimate that Intel's mobile chipset business grew from $2.4 billion in revenues in 2005 to about $4 billion in 2009.  We currently estimate that this will grow to nearly $6 billion by the end of our forecast period.  However, given the rapid rate of growth in the smartphone market, our estimates may prove to be significantly conservative.  If mobile chipsets grew to be a $10 billion annual revenue business for Intel, there would be 8% upside to the current Trefis price estimate for Intel.

You can see the complete $26.50 Trefis price estimate for Intel's stock here.