"Consolidation" seems to be the latest trend in the technology space. Every now and then, there are reports of big tech companies acquiring new and innovative startups. This time the report comes from Bloomberg that states that Intel (INTC, Financial), the world’s largest chipmaker, is going to acquire LSI Axxia Networking Business, owned by Avago Technologies (AVGO, Financial). This development was taken well by Wall Street; Intel shares jumped 2.9%. Let’s take a look at the target, what it has to offer, and how Intel plans to benefit from it.
About Avago Technologies and LSI Axxia
Avago Technologies has its origins in Singapore with a joint headquarter in California and Singapore. The company is into manufacturing of semiconductors. Avago had acquired LSI Corporation last year for a sum of $6.6 billion and since then has been spinning of LSI businesses one by one. Earlier, Avago was in talks to sell LSI’s flash storage business to Seagate (STX, Financial) for $450 million.
This time the news is related to LSI’s networking wing – Axxia Networking Business – which Intel has decided to acquire for $650 million. Axxia primarily makes low-power networking and infrastructure products for enterprise gateways and wireless networks. Both the parties have agreed to the deal and are now waiting for regulatory approvals. Intel expects the deal to get closed by the end of the fourth quarter.
How this acquisition benefits Intel
Technology analysts closely analyzing the synergies between Intel and Axxia believe the former has a lot to gain from the acquisition. Intel is a big name in the personal computing space and supplies chips and processors in more than 95% of the cases globally. However, its dependence on the server and personal computer market is too high.
To counter this over-dependence, Intel has been attempting to enter the low-cost high-margin smartphone and tablet market, which so far has been dominated by the ARM architecture from ARM Holdings. However, the company hasn’t had much luck in the matter and has been struggling with partnerships limited to smaller OEMs. After this acquisition, the chipmaker will be positioned better to take on the challenges of the market. Intel will be able to offer chips to smartphone and tablet makers and benefit hugely from the market that Rose Schooler, VP of Intel Data Center Group, predicts to be worth $16 billion.
"This acquisition puts us in a better position to provide a complete product portfolio for our customers and to continue to enable service providers to create networks that are more intelligent, efficient and cost-effective and to deploy new services faster" – Rose Schooler
So far companies that have adopted Intel processors in their smartphones are Orange, China’s Lenovo (LNVGY, Financial), and Xolo from Lava. As against this, the major smartphone and tablet makers such as Apple (AAPL, Financial), Samsung (SSNLF, Financial), and several others all use ARM-based processors. Axxia’s core competencies will strengthen Intel’s capabilities, making it easier for the ace chipmaker to make its mark in the connected devices space. Analysts are also considering this move to be another win for Intel in its attempt to make it big in the Internet of Things.
Parting thoughts
Axxia’s acquisition has a lot to offer to Intel. If the Santa Clara company can build synergies that will enrich its offerings, it will certainly see a lot of traction in the dynamic smartphone and tablet market. Even OEMs are in need of processors that are low on power consumption without compromising on the processing capabilities. With Axxia under its belt, Intel will find it easier to crack the demand.
