Chip giant Intel Corp. (INTC) recently acquired the networking business of semiconductor company Avago Technologies (AVGO). Will this buy-out help Intel to expand its business? What are Intel's plans? Let's take a look.
What's the deal all about?
Intel sealed a definitive agreement with Avago to buy its Axxia Networking business spending $650 million. Avago is a renowned supplier of a broad range of analog components that are used in various products pertaining to wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals industries.
Avago had inherited the Axxia Networking business after acquiring semiconductor player LSI Corp. last December. LSI's Axxia portfolio included communication processors or chips that are used in switches and routers for high-performance networking, particularly software-defined-networking (SDN). Axxia chips help data center and enterprise network in transferring information efficiently.
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The deal has already received approval from Intel and Avago's board of directors and is likely to be wrapped up during the last quarter of this year.
The acquisition is expected to strengthen Intel's mainstay in the data center networking, SDN and mobile network infrastructure space. Integrating Axxia business could get easier as Intel will get support from the 650 Avago professionals.
Intel's data center portfolio will get strengthened
Intel's Data Center Group offers processors and motherboards that are used in servers, switches and storage arrays. The company is growing faster in this segment as its offerings are getting popular among data center vendors. Similar to the earlier generation Xeon processors, Intel's latest 'Haswell' Xeon server processors have been tried and tested by customers before the actual launch in September.
In fact, the early adoption of Haswell chips boosted the segment's revenue by a solid 19% that helped Intel to post 8% growth in total revenue. The segment's operating income shot up by 40% from the year-ago quarter, adding to the company's profitability.
According to Intel's chief executive officer Brian Krzanich, the segment registered an all-time high revenue growth in the quarter and expects the momentum to stay with the launch of Haswell Xeon E5 v3 chips in the coming 2-3 months.
Added capabilities from Axxia will expand Intel's product portfolio allowing it to deliver small, energy-efficient and powerful server chips that will help boost data center performances.
IoT and mobile & communication group performances can improve
Apart from the Data Center Group, Intel expects the Axxia deal to boost the performance of the other two segments – Internet of Things Group (IoTG) and Mobile and Communications Group (MCG).
Internet of Things is a relatively new concept of embedding computing into various devices and connecting them via web. According to IT research firm Gartner, roughly 26 billion units will be connected globally through IoT by 2020, from just 0.9 billion units in 2009. While another IT research firm IDC projects around $7.1 trillion of revenue generation by 2020.
Intel provides platform and software solutions for this market and has started recording revenues separately under a segment. Intel uses its own x86 processors for developing platform for IoT while other big players prefer using the most popular ARM technology. As Axxia chips run on ARM technology, Intel's grip over the extremely potential IoT market would get a significant push.
Intel could also leverage Axxia's capabilities in bettering its small presence in the mobile network infrastructure space. Intel generated revenue of $51 million for MCG in the last quarter, a drop of 83% from the year-ago period. Apart from being a late entrant in the market, Intel is facing challenges from the secular shift from 2G/3G standards to the more integrated 4G platform.
Axxia's mobile communications processors are designed to meet the requirements of high-speed networking. Hence, with an enhanced portfolio, Intel's MCG segment could generate higher revenues going forward.
To conclude
Intel is one of the most important players in the vast semiconductor market with significant exposure in PC, data center, cloud, networking and software services end markets. Axxia could play a vital role in strengthening its data centre portfolio, boosting IoT revenue, and enhancing the chip giant's presence in the mobile space.
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