Intel, Creative Ink $50M Deal

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The world’s largest manufacturer of semiconductor products, Intel Corp. (INTC) recently announced a deal with Creative Technology Ltd. (CREAF) subsidiary ZiiLabs worth $50 million. The transaction is expected to be completed by the end of the year.

The deal involves payment of $30 million for asset acquisition of ZiiLabs Limited, formerly known as 3DLabs, and the remaining 20 million for licensing patents with relation to ZiiLabs' GPU technology.

ZiiLabs is a UK-based subsidiary of Creative Technology focusing on system on chip (SoC) designs for smartphones and tablets. ZiiLabs GPU technology supports full profile Open Computing Language (OpenCL), which Intel has begun to integrate into its own GPU architecture.

OpenCL is a framework for writing programs that execute across heterogeneous platforms consisting of central processing units (CPUs), graphics processing units (GPUs), and other processors. It improves speed and responsiveness for a wide spectrum of applications in numerous market categories from gaming and entertainment to scientific and medical software.

Though Intel has made significant strides with its integrated graphics technology in notebook/ultrabook as well as in the tablet form factor, the company is still dependent on PowerVR IP from Imagination in the smartphone space.

The deal will help Intel in getting more powerful integrated graphics processing technology, and hence limit its dependency on Imagination Technologies' PowerVR products. It will also help Intel to better compete with Nvidia Corp. (NVDA), Samsung and Qualcomm (QCOM) in the low-power SoC market.

According to Global Industry Analysts, Inc. (:GIA), global market for SoC is estimated to reach US$48.8 billion by the year 2017. Market growth is expected to be driven by encouraging developments in the field of multiple systems on a chip and increasing Internet-centric applications of SOC, such as in networking and data storage systems.

Intel is best known as a chipmaker and remains well positioned in the server segment. Graphics are also very important in all areas of computing, from high end gaming PCs to low end smartphones. The deal will be important for Intel's mobile strategy going forward.

Intel shares carry a Zacks #3 Rank, implying a short-term Hold rating.

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