Will Intel Acquisition Help Sagging Stock? (INTC, TXN)

Intel INTC said Monday that it would buy the cable modem product line of chip maker Texas Instruments TXN in order to expand its consumer electronics chip business. Intel shares gained more than 1.6% today, ending a month-long slide that saw market capitalization decline by 10%. Intel plans to combine Texas Instruments products with Intel chips for advanced television set-top boxes and modems, according to a Reuters report. The company has been looking for ways to expand beyond the scope of PC and server chip production. “Adding the talents of the Texas Instruments’ cable team to Intel’s efforts to bring its advanced technology to consumer electronics makes for a compelling combination,” said Bob Ferreira, general manager, Cable Segment, Intel’s Digital Home Group. “Intel is focused on delivering SoCs that provide the foundation for consumer electronics devices such as set top boxes, digital TVs, Blu-ray* disc players, companion boxes and related devices. This acquisition specifically strengthens Intel’s product offerings for the continuum of cable gateway products and reinforces Intel’s continued commitment to the cable industry.” The question is whether Intel shareholders will benefit from the acquisition, the terms of which have yet to be released. Despite rising to $24 a share in April, Intel has seen its stock decline to below $20 recently. Shares closed Monday at $19.47. Optimists point toward Intel's visible effort to expand revenues, and diversify chip businesses. Critics, however, argue that a soft economy and a skittish consumer will curtail purchases of computers in the near-term. The Wall Street Journal reported August 10 that "Several analysts said they had seen a dismal start to August for PC-related orders coupled with piling-up inventories of memory chips, a worrying sign for Intel and other chip makers that were coming off record quarters and had predicted the strength would continue." Whether bulls can push higher because of a discounted stock price remains to be seen. Markets will surely keep a close eye on Intel in the coming months, though, as the company is a strong indicator of technology demand.