Marvell Needs Time to Profit from Intel

Marvell Technology Group will need about 18 months to make money from its proposed acquisition of Intel’s loss-making communications and application processor business, according to the company’s president and chief executive officer, Sehat Sutardja.

Marvell plans to increase production of the application and baseband processors by signing up a second production facility, in addition to Intel, Sutardja said Monday in an interview. Intel lacked sufficient production capacity to expand this line of chips, he said.

Under the agreement between Intel and Marvell, Intel will continue to manufacture the products until Marvell, which designs but doesn’t produce chips, makes alternate arrangements.

Moreover, Marvell hopes to sell some of its own products in the areas of power management, Wi-Fi and WiMax to customers of the Intel processors it acquires, according to Sutardja. "We should not look at the losses of the business unit in isolation, but also focus on the synergies among our products," he said.

Marvell of Santa Clara, Calif., announced in June that it had entered into an agreement with Intel to acquire its communications and application processor business for US$600 million. This business of Intel makes processors based on its XScale technology. The transaction is expected to close in approximately four to five months, the two companies said in June.

"We looked at it as an investment for us to address the largest market opportunity for semiconductors for consumers, which is cell phones," said Sutardja. "One way or the other, anybody who wants to get into this business needs to invest, so for us the losses in the [Intel] business we are acquiring is a minor cost of entering a new business."

The key attraction for Marvell is Intel’s baseband processor for third-generation (3G) applications. The market for 3G baseband processors is currently dominated by Qualcomm of San Diego, Calif., Sutardja said.

A new entrant in the mobile phone market, Marvell plans to focus on 3G mobile phones. The market for earlier generation mobile phone technologies, such as Global System for Mobile Communications, is already saturated with six large vendors, according to Sutardja. For the 3G market, Marvell has all the technology pieces required to integrate 3G, Wi-Fi, WiMax and other radio technologies into the mobile phone, he said.

One of the benefits of using the XScale technology in mobile phones is the large interest among third-party developers to develop applications that will run on this platform, Sutardja said. Intel has about 400 engineers working on applications around XScale, and some of these will be part of Marvell after the acquisition is complete. The company plans to hire most of the 1,400 staff that Intel employs in this business unit.

Marvell plans to migrate some of the processors it acquires from Intel to 65-nanometer production technology. The transition of its own products from 90-nanometer to 65-nanometer technology is already at the R&D stage. At that point, it will be both viable and cost-attractive to integrate more functions into the chips, Sutardja said.

After the transition is complete, Intel will not manufacture the 65-nanometer chips for Marvell.

By John Ribeiro, IDG News Service (Bangalore Bureau)

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Copyright © 2006 IDG Communications, Inc.

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