Intel to Sell Chip Unit to Marvell
Intel Corp., facing slowing demand for personal computers and stiffer competition, agreed to sell its division that makes processors for hand-held devices to Marvell Technology Group Ltd. in a $600-million deal announced Tuesday.
Marvell would be acquiring the business that makes chips used in the popular BlackBerry and Treo hand-held devices. The chips are based on Intel’s XScale technology. The unit employs 1,400 people, and Marvell said it expected to retain the “vast majority” of them.
In April, Santa Clara, Calif.-based Intel reported a 38% drop in first-quarter profit as gross margins, the percentage of sales left after manufacturing costs, fell below its own forecasts. Intel has lost market share in its core business for PC microprocessors over the last few years, prompting Chief Executive Paul Otellini to vow to restructure the company and make it “leaner, more agile and more efficient.”
The sale would allow Intel to focus on more-profitable businesses, such as chips for PCs and server computers, and help pay for new factories, analysts said.
“Intel is not as profitable as it once was, and times are looking tougher in the immediate future,” Eric Ross, an analyst with ThinkEquity Partners, wrote in a research report. “Intel needs the cash to compete with Advanced Micro Devices and build the massive amount of capacity they plan.”
Marvell, also based in Santa Clara, would pay cash, although Intel has an option to receive $100 million of the purchase in Marvell stock. Marvell said it might take a charge for research and development costs when the deal closed. The 2,200-employee company sells chips for data storage, communications and networking products.
Intel moved into the market for hand-held processors in the late 1990s as part of a campaign to expand its dominance beyond PC microprocessors. It developed its XScale product line with technology it acquired in the 1998 settlement of a patent infringement dispute with Digital Equipment Corp.
XScale chips are used in a variety of products including storage devices and networking equipment. The sale to Marvell involves communications and applications processors for hand-held devices only. Ross estimated that the business generated about $300 million in sales a year, less than 1% of Intel’s $38.8 billion in revenue last year.
Under the agreement, Intel would continue making the chips for as much as two years.
Intel shares fell 23 cents, or 1.3%, to $18.05. Marvell shares fell $7.76, or 15%, to $44.14.
