Deceiving Headline? - Intel sale of communication-chip assets could fetch $1 billion
/* turns out, $1B ain't much to brag about */
By John Shinal
Jun 6, 2006 18:45:00 (ET)
SAN FRANCISCO (MarketWatch) -- Intel Corp. is in talks with several private investment firms and rival chipmakers to sell all or part of its struggling communication-chip businesses in a single sale or series of deals that could fetch as much as $1 billion, according to two people whose firms are involved in the talks.
Intel Capital, the in-house strategic-investment arm that is overseeing the sale, is pushing to complete a transaction as early as this month, said one of the potential buyers, who spoke on condition of anonymity because the negotiations are at a fragile stage and could still falter. The buyers could include private-equity firms flush with cash or other technology companies looking to bolster their own communication-chip businesses.
Such a divestiture would dovetail with the strategic plan of Intel Chief Executive Paul Otellini, who in April ordered a sweeping review of operations to "restructure and resize" the Santa Clara, Calif.-based company in response to a changed marketplace.
Intel (INTC, Trade ) spokesman Chuck Mulloy declined to comment directly on any talks, which were first reported over the weekend by the San Jose Mercury News. At the same time, Mulloy said Otellini's review "is well underway" and added that "everything in the business is being evaluated."
Intel's push into the market for chips used in networking gear, cell phones and other devices has been a disappointment. During the late 1990s, the company spent more than $9 billion in cash and stock to beef up its line of communications-related products.
But the company, which dominates sales of microprocessors that run personal computers and servers, has made little headway...
...
Exiting its communications businesses could pose a risk. Analyst Michael Madsea of Credit Suisse wrote in a research report earlier this week that such a retreat would leave Intel more dependent than ever on the mature PC market, where growth is slowing.
Intel shares have been battered this year, reflecting skepticism about the impact of Intel's next-generation chip architecture and slowing demand for PCs.am I the only one getting tired of this line? Advanced Micro Devices Inc. (AMD, Trade ), its smaller rival, has taken market share from Intel during the last 18 months, especially in the server-chip market.
This summer, Intel will roll out new sets of chips for servers, desktops, and laptops in a bid to reclaim lost market share.
Otellini's review, the first comprehensive overhaul the chip giant has undertaken since the mid-1980s, is expected to be completed by mid-summer, with specific actions expected in the third quarter.schedule must have been changed "The objective is to make a more nimble and more cost-efficient Intel," said spokesman Mulloy.
Starting in 1997, Intel made a series of acquisitions to diversify its business beyond its traditional PC market into the Internet networking and cellular phone markets. It acquired part of Digital Equipment Corp. for $700 million in 1997, Level One Communications for $2.2 billion in March 1999, DSP Communications for $1.6 billion later that year, and GIGA A/S for $1.25 billion in 2000.
Intel's communications group, which was split apart during a realignment of the company early last year, contributed $5 billion in sales in 2004 -- or 15% of Intel's total revenue that year. But it also posted an operating loss of $791 million.
Here's why they don't list the 2005 numbers instead. It's because Intel
hides the "non-Flash" part of their Comm business now in the Enterprise
and Mobility Groups, but here's what I figure Intel's revenues for 2004
and 2005 in these 3 segments
1) x86 CPUs, 2) Flash part of Comm, 3) Non-Flash Comm
2004 24,463 2,275 2,752
2005 27,216 2,278 3,000 - 3,500
Estimating the Non-Flash number for 2005 is difficult because
you need to estimate how much of the over $1B increase in
non-x86-CPU-non-flash-sales was Comm and how much was x86
motherboards, x86 chipsets and Itanium sales.
Now I *think* the $1B Intel is trying to get does not include
selling the Flash business, which means they are aiming for about a
1/3 price to sales ratio. If they only expect $1B from the
entire thing INCLUDING flash, then they must be really desperate.
Intel is expected to hold onto its business that makes wireless chips used to connect laptop computers to the Internet, a market that has helped Intel post double-digit sales growth last year.
Intel has started to make some headway in the so-called smart phone market through its partnership with Research In Motion, which last fall began outfitting its BlackBerry devices with Intel's XScale processors, said Suji Desilva, an analyst at Cathay Financial Inc.
Still, the unit volumes may not be enough to justify keeping the business, said Desilva, who rates Intel shares neutral.
link: marketwatch.com
Hard to imagine that $1B comes anywhere near the unamortized book value of these assets. The $1B number is pretty shocking.
Petz |
