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Default [2006-06-03] Intel to sell off divison that makes BB chips

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http://www.mercurynews.com/mld/mercu...y/14733041.htm (original article / link for more details)

How Intel wasted billions
CHIP MAKER REPORTEDLY WILL SELL MONEY-LOSING COMMUNICATIONS UNITS
By Dean Takahashi
Mercury News


As Intel focuses on its core microprocessor business to pull out of its slump, the chip giant has put several of its money-losing communications businesses up for sale, according to sources who have seen details of the plans.

Intel paid more than $10 billion for its entire collection of communications businesses over the past decade as it sought to diversify beyond chips for personal computers. But the businesses are losing money and no longer have the value they once had in the pre-bubble days.

Intel spokesman Robert Manetta declined to comment when asked about the potential sales. The Mercury News received details from sources who have seen documents describing the businesses for sale and spoke on the condition they not be identified.

The decision to sell off some of these businesses is tantamount to an admission that the company's biggest diversification effort in its decades of existence turned out to be a failure.

``If you look at Intel today, it's hard to find a trace of the technology or the people that they spent more than $10 billion on,'' said Linley Gwennap, an analyst at the Linley Group in Mountain View. ``They've already laid off, shut down, or exited so many markets already. Where they've succeeded, they grew the businesses internally.''

Intel has packaged several of the communications businesses into specific groups that are for sale, but not all of Intel's communications businesses are included. The businesses that are up for sale generate hundreds of millions of dollars in revenue and employ numerous people in Silicon Valley, according to the sources.

Intel has done well with the home-grown WiFi wireless Internet chip business that it kick-started in 2003 with the launch of its Centrino mobile computing campaign, and it is still investing in WiMax, a successor wireless technology. But Gwennap says that Intel's current strategy is to only keep the communications businesses that support its consumer or corporate computing efforts, such as storage processors, WiFi chips and WiMax technology.

The groups for sale include:

Intel's communications processor business, including the IXP network processor and communications processor families for communications gear. That business generated approximately $150 million in revenue for 2005, according to sources who have seen documents describing the business.

Intel's Xscale business, which includes applications processors for cell phones and chips for BlackBerrys, smart cell phones, handheld computers and portable media players. That business generated approximately $250 million in sales last year, according to sources who saw documents on the business.

Both the communications processor and applications processor businesses, which are being shopped as a single group, are losing money. Intel can get a tax write-off for selling the businesses.

Other Intel communications businesses are also for sale, for the right price, according to industry sources.

And it remains to be seen what Intel will do with its other money-losing businesses, Itanium microprocessors and flash memory chips.

Intel's network processor business and its application processor business got their start when the company paid $700 million in 1997 to Digital Equipment. Intel took the fledgling Digital network processor business and gave it strong financial backing.

Intel also took Digital's StrongArm low-power processor business and renamed it Xscale. It has tried to use the Xscale to break into portable devices such as cell phones, but it has had the best luck getting into handheld computers such as the Palm Treo and the BlackBerry.

Although Intel declined to comment on the potential sales, the company's other recent broad comments make the sale of money-losing businesses plausible to analysts. Intel Chief Executive Paul Otellini said recently that Intel was evaluating ``every inch'' of its money-losing businesses for strategic fit with Intel's plans, and he said a month ago that the company would complete its evaluation in 90 days.

Private equity firms, which specialize in buying businesses and turning them around, are already looking over the businesses up for sale.

``We are very interested in playing a role with Intel as we did in other deals,'' said Terry Garnett, a managing director of Garnett & Helfrich Capital, a venture buyout company in San Mateo.

Garnett declined to specifically comment on Intel's assets for sale, but he said he can understand why a big company would decide to shed its smaller businesses in order to focus on a core business.

``What Intel is doing is a very logical process,'' said David Helfrich, also a managing director at Garnett & Helfrich. ``As these companies grow through acquisition and then shift into a new strategy, they find over time they need to adjust the product lines.''

Under former CEO Craig Barrett, Intel considered the communications business a key way to diversify beyond the PC market that has been its mainstay business for 25 years. But as its microprocessor business has come under attack from a resurgent rival, Advanced Micro Devices, Otellini has shown limited patience for money-losing businesses.

The review has prompted rumors of layoffs. Intel spokesman Manetta said there is no specific plan yet for a particular number of job cutbacks. But he added, ``We do expect to have fewer employees than now as a result of attrition, redeployment and changes to Intel's business.''
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