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Infineon After Sale Of Wireless Unit

Posted on Friday, Sep 17th 2010

Intel recently announced its plans to acquire Infineon’s wireless chip business for $1.4 billion. On the other hand, communications chip company Marvell Technology, with fiscal 2010 revenue of $2.81 billion, last month announced its acquisition of Spain’s powerline chipmaker Diseño de Sistemas en Silicio SA (DS2) for an undisclosed sum. Let’s take a closer look.

Powerline technology converts any existing electrical power wiring into an intelligent, high-speed networking medium.  The DS2 acquisition follows its rollout of a new family of passive optical networking (PON) chips early this year. Atheros was the first to acquire in the powerline space with its acquisition of Intellon last year, and in July it made its move into PON, acquiring China’s Opulan Technologies Corp. for $72 million. Rick Merritt of EETimes wonders if Broadcom, which acquired PON chipmaker Teknovus early this year, will follow Marvell into Powerline. Gigle Networks, Spidcom or Arkados are some of his suggestions as acquisition targets.

Marvell (NASDAQ:MRVL) last month reported second quarter revenue of $896 million, up 40% y-o-y and 5% q-o-q. Net income was $220 million or $0.33 per share, versus $206 million, or $0.30 per share last quarter and $58 million or $0.09 per share last year. Gross margin was 59.3% versus 55% last year and 59.8% last quarter. The company ended the quarter with a cash balance of $2.4 billion. Marvell also announced that its board of directors has authorized a program to repurchase up to $500 million of its outstanding common shares. Q1 coverage is available here.

Despite a softening macroeconomic environment that affected demand for PCs, Marvell managed to deliver a strong quarter. However, sales to the storage end-market declined 15% sequentially. The company expects Q3 storage revenue to be essentially flat, which is well below typical seasonality.

In the mobile and wireless end market, sales increased over 50% sequentially and accounted for nearly one-third of the total revenue. About 15% of the sequential increase was due to the initial production revenue from the ARMADA application processors, mainly due to a major customer preparing to launch a new gaming platform. About 30% of the sequential increase was due to the sale of cellular communication processors because one of Marvell’s key smartphone customers is preparing to ramp production of several new handset programs. About 55% of the sequential growth was due to the company’s embedded Wi-Fi products. It expects Q3 sales from mobile and wireless products to grow in a range of 15% to 20% sequentially.

In the networking end market, sales grew a few percentage points, slightly below Marvell’s forecast. The primary drivers of revenue growth were enterprise-class switches, physical layer devices, and system-on-chip (SoC) products, which in total grew by 10% sequentially, offset by the sequential declines in the sale of PC clients. Marvell expects Q3 sales from the networking market to be essentially flat on a sequential basis.

For the third quarter, Marvell expects total revenue to increase 4% to 8% q-o-q to a range of $930 million to $970 million. The stock is currently trading around $17 with a market cap of about $11 billion; the 52-week range is $13.36–$22.87.

Chart forMarvell Technology Group Ltd. (MRVL)

Despite having Apple and RIM as its customers, Infineon has not been able to recover from the downturn as well as Marvell has. Last year, guest author Nalini Kumar Muppala looked at the holes in Infineon’s wireless portfolio. An incomplete portfolio of connectivity solutions and the lack of application processors were hampering Infineon’s progress. With annual revenue of €917 million, the company’s wireless business accounted for about 30% of its revenue but it also experienced a loss of €36 million last year. In the wireless market, Infineon holds the No.4 position with just 5.9%.

The sale is a strategic decision for Infineon to expand its leading position in the markets for automotive, industry, and security technologies. The industrial segment accounted for 30% revenue and posted profit of €35 million. With a revenue decline of 33%, its automotive segment which accounted for 28% revenue was the worst hit by the recession and posted a loss of €11 million. Chip Card & Security posted a loss of €4 million and accounts for 11% revenue.

Intel, which has been eyeing the smartphone microprocessor market, would gain 3G capabilities from this acquisition that it plans to use in its core notebook PC platform. Also, Intel can finally be a part of the Apple ecosystem. Infineon has a design win in Apple’s iPhone 4, and on the estimated sale of ten million units of iPhone 4, it will make about $140 million. However, recent rumors speculate that Apple might forego Intel–Infineon chips in favor of Qualcomm chips in the next iPhone. Infineon has been a supplier for all the iPhone models since the first one was released in 2007.

In July, Infineon (NYSE:IFX; IFX.DE) reported third quarter revenue of €1.209 billion ($1.58 billion), up 59% y-o-y and 17% q-o-q driven by the Wireless and Industrial segments. Net income improved 59% q-o-q to €126 million ($164 million) from €79 million ($97 million) last quarter. It ended the quarter with a gross cash position of €1.514 billion ($1.98 billion). Q2 coverage is available here.

Infineon raised its outlook for fiscal 2010 to more than 40% revenue growth. For the fourth quarter, Infineon expects revenue to increase sequentially by high single digits. The stock is trading around $4.50 with a 52-week range of $2.91–$5.58.

Infineon shot to fame as a key supplier for the iPhone. But its industrial and automotive businesses have also been growth drivers. Infineon is the leader in the industrial market with 10.2% share (up from 7.5% in 2007) and the No.2 in the automotive market with 9.5% in 2009 (up from 9% in 2007). In the chip card security market also it is the leader with 25.5% share. The energy efficiency and security trends can further boost its growth in the automotive, industrial, and chip card markets.

Chart forINFINEON TECHNO N (IFX.DE)

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