Intel’s Acquisition Of LSI’s Networking Business To Boost Its Presence In IoT

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Intel (NASDAQ:INTC) announced of signing a definite agreement to acquire LSI’s Axxia networking business and related assets from Singapore based Avago, a vendor of analog semiconductor devices, for $650 million in an all cash deal. Avago purchased LSI late last year and has divested some of the company’s assets during the course of the year. Avago recently sold LSI’s storage assets to Seagate for $450 million. [1]

The deal will aid Intel’s foray into the Internet-of-things (IoT) and other emerging technologies. The company plans to integrate the Axxia networking technologies into its systems on a chip (SoCs), enabling better performance in data centers and communication within the Internet-of-things space. The Axxia networking business builds systems-on-a-chip (SOCs) for networking infrastructure. It generated revenue of $113 million in 2013 and currently employees around 650 people. Intel expects the transaction to close in the fourth quarter of 2014.

Intel, which is a leader in PC and server microprocessors, was a late entrant in the mobile computing space and for this reason does not (yet) have a very large presence in the market. However, the computing giant is keen not to miss the next big wave in computing – IoT. IoT includes all the other computing devices apart from PCs, tablets and smartphones. Gartner estimates the market will grow almost 30 times, from an installed base of 0.9 billion in 2009 to 26 billion by 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets. [2]

Intel is driving significant innovation in this area as its invests, both to extend its architecture into the very low power space and to acquire IP and capabilities. Earlier this year, the company completed its acquisition of Basis Science, which specializes in wearable device technologies for health and wellness applications. This gives Intel an immediate entry into the wearable devices market, which is still at a nascent stage and is predicted to more than double (from $4 billion in 2013) by 2018. [3]

Adding the Axxia networking capabilities to its portfolio will help accelerate Intel’s strategy to become a leader in platform solutions for the network infrastructure market. Intel aims to help operators create a more efficient, scalable and flexible network to keep up with future bandwidth demands while also allowing for fast provisioning of new services. The company believes that the acquisition will help it develop new technology for the next-generation of Internet of Things devices.

Our price estimate of $33 for Intel is just a bit below the current market price. 

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Notes:
  1. Intel’s $650 Million Play For Axxia Is To Bolster Its Wireless Networking Portfolio, Bright Side Of News, August 14, 2014 []
  2. Gartner Says the Internet of Things Installed Base Will Grow to 26 Billion Units By 2020, Gartner Newsroom, December 12, 2013 []
  3. Intel buys wearable technology firm Basis Science, BBC, March 26, 2014 []
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