The PC microprocessor giant Intel (NASDAQ:INTC) acquired the mobile GPS chip business division of ST-Ericsson for an undisclosed amount last month. The declining global PC shipments combined with Intel’s late entry in the mobile computing space has significantly slowed its growth in the last few quarters. Being more responsive to customer demands in the mobile computing segment is one of the key growth strategies of its newly appointed CEO Brian Krzanich. This is Intel’s first acquisition after the change in its leadership.
ST-Ericsson is a joint venture between ST Microelectronics and Ericsson. On account of declining orders, the joint venture reported an operating loss of $158 million last quarter and had been looking to dissolve the venture in the last few months. The deal, expected to close in August this year, will reduce the costs of closing ST-Ericsson by approximately $90 million, as per STMicroelectronics. The amount includes the cash paid by Intel for the acquisition plus the projected cost savings by ST-Ericsson, as it will not have to pay severance or restructuring charges related to the GPS unit.
GPS chipsets are important mobile device components which are used for maps and driving directions. ST-Ericsson’s GPS business competes with companies such as Qualcomm and Broadcom, two of the leading players in the the mobile chip market. Getting a team that has a more than 20 years and 11 generations of experience in developing navigational technology will make Intel’s mobile portfolio more competitive.  In addition to ST-Ericsson’s assets and intellectual property, around 130 employees across multiple locations in Bangalore, Singapore and the U.K. will join Intel’s new mobile devices unit.
Intel marked its entry in the mobile market at the start of 2012, and its Atom processors power only 12 smartphones and 15 tablets at present, whereas leading player ARM Holdings accounts for close to 90% of the market. ((Intel’s Krzanich pledges stronger mobile push in his first speech as CEO, Computer World, May 16, 2013)) Intel continues to focus on producing more energy efficient chips and adding features for connectivity and security. The possible integration of GPS with its chipsets in the future will add to Intel’s competitiveness in the market.
Despite rising competition, we believe that an expanding mobile portfolio will help Intel increase its penetration in the smartphone and tablet market. Intel’s Atom processor are also currently used in other devices such as car infotainment systems, Google TV and home, and business energy management systems. The acquisition will help the company increase its presence in the car infotainment market as well.
Our $27.58 price estimate for Intel is at a premium of over 10% to the current market price.Notes:
- Intel buys satellite navigation chips business from ST-Ericsson, PC World, May 29, 2013 [↩]