Intel, a company virtually synonymous with the silicon chip, is gearing up to provide more computing solutions for consumer electronics, smart phones and products like advanced refrigerators and cars that increasingly are running powerful CPUs. Its a strategy Intel is honing, even while seeking to maintain its dominance in computer chips (80 percent of computers globally run on Intel processors). In a recent interview with Institutional Investor in New York, Stacy Smith, Intels chief financial officer, says the tech titans plans to acquire security software company McAfee and German chipmaker Infineon Technologies Wireless Solutions business need to be seen in that light.
What were trying to do is take the Intel architecture into a bunch of other devices, explains Smith, who joined Intel in 1988 after earning an MBA in finance from the University of Texas. Our view is that any device that computes and connects to the Internet is a logical place for us to sell into.
On August 19, Intel announced that it had agreed to purchase McAfee, paying $48 a share, or $7.68 billion, in cash for its Santa Clara, California, neighbor. Less than two weeks later, the chipmaker was back in the news with its deal to pay $1.4 billion, again in cash, for Infineons wireless business.
With the Infineon transaction, Intel plans to use the companys technology in laptops, smart phones, netbooks, tablets and embedded computers in consumer products, eventually integrating its wireless modem into Intels silicon chips. In time, its probably a single chip where the connectivity is built right in, Smith says. It makes it cheaper, it makes it more power efficient and it makes it fit into a smaller form.
The strategy behind the McAfee acquisition is a little different, says Smith, who, unlike many CFOs, is involved in setting M&A strategy for his company. As consumers do more and more activities with mobile devices say banking on a smart phone security has become a key concern, he explains. By acquiring McAfee, which offers a suite of software-related security solutions, Intel is hoping that it will be able to build security capabilities directly into its chips. The company can then deploy secure chips into servers, notebooks, desktop computer systems, smart phones and tablets.
Presumably well get paid for that capability and make money for our shareholders, Smith says. Though he doesnt generally comment on the future of acquisitions, the Intel CFO did say his company doesnt have anything big on its radar screen. Investors are questioning whether Intel has rethought M&A because it made two acquisition announcements in the third quarter. Smith emphasizes that it had been working on the purchases for some time and the company is still one of the least acquisitive large global U.S. corporations. Smith, like most Intel executives, has had many roles in many geographies, including in sales and marketing, and finance. He was chief information officer, heading up information technology, and he headed sales and marketing in the Europe, Middle East and Africa region.
Intel, whose stock has barely budged over the past decade despite executing on its plans to expand globally and remaining a dominant computing power, is hoping its plan to go upmarket will turn it once again into a growth story. In the third quarter, Intel reported more than $11 billion in revenue for the first time. Results were driven by corporate sales and activity in emerging markets.
If you look at how weve approached the market, our history is that we provide the silicon that goes into the computer marketplace, Smith says. I dont want to sound at all dismissive of that core market, but when youre looking where were heading, its building on that.
To do that, Intel has to develop much more software capability than it has historically. As an example, Smith says, Intel wrote half of the 10 million lines of code that are powering Google TV, a joint development project between Intel, Sony, Logitech and Google. In the third quarter, Intel shipped 1 million processors that will go into Smart TVs. Its a brand new segment of the market, but it shows that to be successful in that market, we have to be up the value chain a bit from where weve historically played, he says.
Infineon and McAfee arent the only acquisitions to support Intels broader strategy. In July 2009, Intel acquired Wind River Systems, which provides real-time operating systems for the embedded market (products and services that are running powerful computers largely invisible to the public, such as traffic lights, printers, security systems, washers, dryers and refrigerators).
Their [Wind Rivers] business is growing, but what is as important to me is that its causing an acceleration in my silicon business, says Smith.