Intel could face several challenges in cable industry.
The chip giant wants to move beyond from its server and PC processors business and focus on the cable gateway market that is currently being dominated by the likes of Broadcom Corp.
On August 16, Intel said it agreed to buy TI's cable modem product line for an undisclosed sum that will accelerate adoption of its Atom chips into the cable market and could help target new customers in cable market like Cisco Systems and Motorola.
But, analysts see significant challenges ahead for Intel from a competitive as well as technical point of view as it seeks to gain share from market leader Broadcom.
Broadcom, which is also based in California, makes its own silicon tuners, has its own wireless chipsets and video-rendering technology and leads the market in providing a cheap package.
The TI's cable modem unit is known for its Puma cable technology, and California-based Intel intends to mix Puma technology with its Atom-based system-on-chip (SoC) products to use in cable modems, set-top boxes, and residential gateways.
"We view this transaction (TI deal) as an essential step for Intel to further its traction in the cable gateway market, but we see significant challenges ahead from a competitive and technical perspective," Jefferies analyst Adam Benjamin said in a recent note to clients.
Analyst Benjamin said Intel's solution will be less integrated and likely more expensive in the long term as it still does not control many of the other IP blocks within the media/IP gateway including the cable tuner, Ethernet switch, and voice modem, which its primary competitor Broadcom does.
The media/IP gateway is one central box that handles the data, voice, and video including the digital video recording (DVR) functionality.
In this system, the media/IP gateway sends the TV signal to each TV over IP to set-top boxes (STBs), resulting in the elimination of multiple DVRs and replaces the cable tuners in the STB.
"We would note that the elimination of the cable tuner does take away one of Broadcom's advantages that has allowed it to maintain a very high share in the cable STB market, but we still believe it has significant advantages in connectivity, integration, and software," Benjamin said.
In addition, Intel would have to rewrite TI's modem software to run on Atom or ship two processor cores, but Broadcom supplies only one processor core.
The crux here is that the performance advantages of the Atom core will have to be significant enough to warrant the likely additional cost.
Though, Intel does have some initial wins with Atom in the cable market, including an Arris IP gateway, it will be important for the world's leading chip company to maintain these designs as they move from the high-end to volume deployments Arris IP gateway is expected to ramp in late 2010.
Shares of Intel closed at $19.53 Tuesday on Nasdaq.
International Business Times, The Global Business News Leader
Intel is a Motley Fool Inside Value choice. The Fool owns shares of and has written puts on Intel. Motley Fool Options has recommended buying calls on Intel. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.