Intel (INTC) to Trim Business, Divests Wind River Unit to TPG

Intel Corporation INTC is divesting its software firm Wind River Systems Inc. to alternative asset fund manager TPG. The financial term of the deal were kept under wraps.

Notably, the world’s largest chip maker had bought Wind River Systems for $884 million in 2009 with the aim of stepping out of the traditional semiconductor market and expanding into the consumer electronics space.

Wind River is the global leader in Device Software Optimization (“DSO”). The buyout enabled Intel to possess Wind River’s expertise in running device software with greater reliability, at faster speed and lower cost. The acquisition also aided the chipmaker to expand beyond the computing end market to embedded systems for mobile phones, smart phones and networking equipment.

According to Tom Lantzsch, Intel’s Internet of Things Group senior vice president, “This move is designed to sharpen our focus on growth opportunities that align to Intel’s data-centric strategy.”

The news comes approximately a year after Intel concluded the sale of its majority stake in Intel Security division McAfee unit to TPG for $4.2 billion.

Intel has outperformed the industry over the past year. While the industry grew just 21.1%, the stock returned 27.4%.

Growth Prospects

We believe that the completion of the divestiture will help Intel to focus on fast growing businesses like data center, memory, Internet of Things (IoT) and autonomous car technology. The majority stake sale will free up resources for the company, which it intends to invest on these rapidly growing businesses.

Intel’s data center business and cloud have been registering significant growth. The company has made significant advancement in this area as well and it is now offering more integrated solutions that will likely be competitive on a cost per watt basis.

The company’s investments in field programmable gate array (FPGA) for acceleration (dramatically increases performances at very low power) and memory to reduce latency and increase speeds are helping it develop custom solutions for big players.

Moreover, Intel’s acquisition of MobilEye now enables it to offer almost anything related to self-driving vehicles — cameras, in-car networking, sensor-chips, roadway mapping, cloud software, machine learning and data management.

Additionally, the company has also been a long-time supplier to Alphabet’s GOOGL Waymo division. Further, its partnerships with BMW, Nissan, Volkswagen AG, and Ferrari is likely to boost sales of processing chips, sensor-chips, cloud software and many more, which will drive top-line growth.

Zacks Rank & Key Picks

Intel carries a Zacks Rank #3 (Hold).

Few better-ranked stocks in the broader technology sector include Applied Materials, Inc. AMAT and NVIDIA Corporation NVDA, both sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials and NVIDIA have a long-term expected EPS growth rate of 13.26% and 10.25%, respectively.

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