Intel to buy Xircom for $748 million

In its bid to reduce its dependence on its core microprocessor business and expand into the arena of communications equipment, global giant Intel Corporation announced the acquisition of Xircom, a manufacturer of wireless communication products. The deal, estimated at $748 million in cash, will see Intel pay a premium of 38 per cent over the closing price of Xircom on January 12.

Xircom, for years the top seller of access cards, manufactures PC cards and other products used to connect notebook PCs and other devices to corporate networks and the internet through wireless connections. A stellar performer, it had, recently, fallen victim to a market shift as consumers have started buying embedded network access gear instead of separate PC cards.

According to Mark Christensen, vice president and head of Intel's network communications group the acquisition will help in combining Intel's strengths with Xircom's strengths in small-form factor design combined to develop new and innovative solutions for linking mobile computing devices to corporate wired and wireless networks. The acquisition is in line with Intel's strategy for the future under which Craig Barrett, chief executive, has predicted that within five years, revenues from its microprocessor business will be eclipsed by revenues from its communications equipment and components business.

Microprocessors, the largest segment of the chip market, slated to grow dismally at 10 per cent, one of the slowest growth rates in the industry, according to the Semiconductor Industry Association. With chips for communications applications growing at much faster rates, the acquisition is likely to provide Intel with a chance to offset any slowness.

Analysts, however, feel that the timing of the deal was wrong and that Intel, which itself faced a downward revision of its forecast, had picked the wrong time to buy Xircom at this price considering that the latter had a massive earnings shortfall.