Intel Acquisitions Raise Strategy Questions

Intel says it has entered into an agreement to buy privately held semiconductor company VxTel Inc. for about $550 million in cash. VxTel makes processors that allow voice traffic to move from circuit-switched networks such as the traditional phone system to packet-based networks such as the Internet. The acquisition is subject to regulatory approval but is expected to close in the second quarter.

Intel has been on a buying spree the last few years, purchasing between eight and a dozen companies in 2000, depending on whom you ask. It's an acquisition strategy that makes observers wonder whether there actually is a strategy. "They've bought so many companies in the past two years that I've lost track," says AG Edwards analyst Chris Chaney. "It seems that they're buying anything that moves." He says it's not a surprise that Intel is buying companies outside of the PC area, "because the PC area is mature, and, in order to grow, they're going to have to get in some immature areas." Nonetheless, Chaney says Intel should focus on acquiring silicon and semiconductor companies to shore up its core business.

"Their acquisition strategy has definitely been focused outside of the PC industry," agrees Morningstar analyst Jeremy Lopez. Intel wanted to diversify because it knew its core market was slowing down, he says, but it tried to do too much at one time. "It seems to me that they've made a broad effort to diversify, but it hasn't paid off."

But Martin Reynolds, a Gartner analyst, says there's a distinct strategy at work, and Intel is positioning itself to lead on next-generation telephony. "Intel sees their servers as the core of the next telephony system," he says. "The VxTel piece fits in to that because it's a technology that allows this telephony to work."

Mark Christensen, VP and general manager of Intel's Network Communications group, says the VxTel buy is consistent with Intel's four-pronged acquisition strategy, and agrees that next-generation telephony will be a major focus of the company in the future. "We're very active in that," he says. "This acquisition was very critical in that regard."