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Seven years after buying the Israeli company DSPC from Ishay Davidi for $1.6 billion, Intel is selling it to Marvell Corporation for less than half that amount. The sale indicates that the unit fell short of the hopes Intel had inculcated in the hi-tech community for the company.

The two companies today announced the deal, in which Intel is selling Marvell its communications processors and applications activities for $600 million.

"In the late 1990s Intel identified the potential for itself in chips for hand-held computers," relates David "Dadi" Perlmutter, a senior VP at Intel, in conversation with TheMarker. And the area did succeed, he says: "But it fell short of the dimensions we had thought were worthy of further investment by Intel. We concluded it was best to sell the activity and concentrate on our areas in which we see greater potential."

The transaction brings Marvell presence in the market for processors used on smart miniaturized computers. Intel for its part will be more focused on its core business, including high-power processors with low energy consumption, and technologies for mobile computing, including wireless broadband and WiMax.

The transaction is expected to close in four to five months and is contingent on regulatory approvals.

Most of the 500 DSPC workers will be rehired by Marvell, Perlmutter says.

Intel had bought DSPC in 1999 for the stunning sum of $1.6 billion. Under Intel's direction, the company developed chips for cellphones and hand-hand computers, such as PDAs, as well as processors and applications for communications.

This would not be Marvell's first acquisition in Israel. In January 2001 it bought Galileo Technology for $2.7 billion, and in June 2003 it bought Radlan Communications from the RAD Bynet group for $150 million.

Conversation with Dadi Perdlmutter, leader of Intel Mobility Group

When did Intel decide to sell the communications chips division? "Without getting into details, three months ago the Intel CEO told me he was deeply considering the matter," Perlmutter relates.

And why is it selling? Mainly because chips for communications is a far cry from Intel's usual business, he explains. Processors for cellphones and for PCs are very different things, and while Intel did succeed, it was not to the degree the company had expected and aspired. The software base is different, marketing methods are different.

From now on, Perlmutter says, Intel will be focusing tightly on the whole topic of mobile computing, which is where its expertise lies, and where its chances of success are the greatest. It means to place an emphasis on the digital home and business computing machines.

And why sell to Marvell? The companies have a long business relationship, Perlmutter says: Intel has been an investor in Marvell since the 1990s.