U.S. chipmaker Intel Corp
The deal is the second major acquisition in two weeks by Intel with an eye to a future where telephones, tablets, cars and household appliances are increasingly connected to each other through networks.
Infineon's mobile unit, called WLS, makes and supplies mobile chips to companies such as Nokia Corp
On August 19, Intel said it would pay $7.7 billion to buy security software maker McAfee Inc
Both transactions are carefully and strategically aimed at improving our capabilities in the traditional PC segments and in the emerging smart-market segments that Intel has identified as important growth areas, Intel CEO Paul Otellini told analysts during a conference call.
Intel has long dominated the market for PC market processors. Its Atom mobile chips took the low-cost, no-frills netbook market by storm, but they are rarely chosen by manufacturers to be included in smartphones.
And while a shaky economic recovery may make families think twice about upgrading their desktop computers, experts say future growth in the microchip industry lies in mobile devices.
Computing is spreading to a wide array of connected smart devices, including laptops, cars, smartphones, tablets, smart TVs, and new categories being created almost daily, Otellini said.
Intel plans to keep Infineon's mobile unit independent once the cash transaction closes in the first quarter of 2011 and expects the deal to be neutral or slightly dilutive to earnings.
We have learned from our experience over the past 20 years that many of our previous acquisitions have not been as successful as we would have liked them to be; that's why we are keeping this entity independent, said Arvind Sodhani, executive vice president of Intel.
UBS analyst Maynard Um said: Intel's acquisition of (the unit of) Infineon creates a well-funded industry competitor looking to compete and invest in the road map over the longer term.
Meanwhile, rivals based on UK-listed ARM's chip design -- which is said to be more power-efficient than Intel's offerings -- continue to grab market share.
Infineon shares fell 3.8 percent to 4.434 euros in Frankfurt, widening losses from Friday, when Intel warned its third-quarter revenue would fall short of its own expectations due to weak consumer demand on personal computers.
Investors had hoped for a higher price and, additionally, we expect profit-taking on the long-expected deal, analysts at Alpha brokerage wrote.
People familiar with the matter told Reuters on Friday an Intel-Infineon deal would likely be reached soon.
Intel shares were down 1.91 percent at $18.02. At least three brokerages cut their price targets on Intel's stock, bracing for a weak quarterly performance from the semiconductor bellwether.
SPECIAL DIVIDEND FOR INFINEON?
The deal will allow Infineon to focus on its core segments: automotive, industrial and chip card security.
There is one thing I have learned over the past 15 years -- at the end of the day in technology portfolio, size matters if you want to maintain leadership, said Chief Executive Peter Bauer.
Bauer, who took the helm in mid-2008, turned around Infineon's mobile chip unit after years of losses. It now generates around 30 percent of Infineon's total revenue, but it ranks No. 5 in the chipset industry, far behind sector giants Qualcomm Inc
Asset sales may also open the door for a special dividend for Infineon shareholders, who have not seen a payout in years. Bauer said he could not comment on a dividend.
The deal comes amid a flurry of global M&A activity as companies struggle to boost revenue in a weak economy.
According to Thomson Reuters data, nearly $200 billion in mergers and acquisitions has been announced in August, already making it the third-best month so far this year in terms of money committed to deals.
Evercore was Intel's financial advisor for the deal, while JP Morgan advised Infineon.
(Reporting by Nicola Leske and Noel Randewich; additional reporting by Manasi Phadke in Bangalore and Sinead Carew in New York; editing by Andre Grenon)