Intersil Drops Wi-Fi

Intersil Corp. of Milpitas, Calif., a long time leader in the world of Wi-Fi silicon with its PRISM line, is getting out of the wireless LAN (WLAN) business. The company announced today that a definitive agreement has been signed to sell its Wireless Networking Product Group to fabless integrated circuit (IC) maker GlobespanVirata , headquartered in Red Bank, N.J.

In a conference call this morning, Rich Beyer, president and CEO of Intersil said, “We have made a strategic decision to focus on our leadership position in high performance analog.”

Financial terms of the deal include Intersil receiving $250 million in cash and $115 million in GlobespanVirata stock. Intersil will receive approximately another $20 million in cash after the transaction is completed, as Intersil will retain the Wireless Networking Product Group’s accounts payable and receivable. All in all, it should generate about $300 million in working cash for Intersil.

Intersil’s 2003 first quarter WLAN product sales were $49 million, with remaining revenue of $51 million based on sales in other areas the company will retain.

The Wireless Networking Product Group includes the entire portfolio of PRISM-based WLAN products and intellectual property, including products supporting 802.11b, 11g, and 11a. The group employs about 300 people.

It’s a transaction that makes sense for both companies, as GlobespanVirata will be able to integrate Wi-Fi into the chips it makes for DSL products. Financial analysts seem to think it is the right move for Intersil, as well. For example, WR Hambrect + Co. saw the “decision to sell its WLAN biz to GlobespanVirata as a positive move from a stock price perspective, as it removes the overhang on stock stemming from an intense competitive environment in WLAN.” Deutsche Bank says Intersil becoming a pure-analog player now is “a strategic positive.”

Bob Wheeler, senior analyst at The Linley Group, a research firm that follows the wireless chipset market, says it makes sense for Intersil to do this now. The sale is “indicative of where Wi-Fi is headed…. [it will be] just another technology integrated into larger devices, like Ethernet is today.”

He’s not sure it’s going to be great for Intersil’s customers, specifically noting how Intersil had been licensing its Wi-Fi MAC/baseband intellectual property to Conexant — a direct competitor of GlobalspanVirata in broadband chips. While it’s assumed this agreement was factored into the acquisition, Wheeler still feels the sale will change the dynamics of the market.

“Intersil needed to exit the WLAN market because the model was too divergent from their other business,” says Wheeler. “Massive competition is coming into the [WLAN chip] market. Intersil was making good money, but could see that this year would be tough.”

Such competition had already been felt from companies like Broadcom , which had major success with 802.11g chips before Intersil’s own PRISM GT (802.11g) or PRISM Duette (dual-band 802.11a/g) made it to market.

“Broadcom is a big reason for Intersil’s exit from the market,” according to Wheeler.

Another player entering the WLAN space with the money to go the long haul is Intel , which has had success in just a few short months pushing the Centrino brand, which consists of a mobile Pentium accompanied by a Wi-Fi chip on the side.

Chipmaker Atheros remains one of the few pure-play WLAN chip vendors having some success these days, and Wheeler feels the Intersil getting out of the market will help Atheros in the short term by opening up opportunities for the company to license or sell intellectual property as a major independent supplier. In the long run, however, he doubts Atheros can sustain itself as an independent company with just Wi-Fi — they’ll need to follow other markets that are still developing, such as WiMax/802.16a.

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