Intel shuts down Xircom two years after purchase. (Up Front).

Intel Corp. is shutting down its Xircom Inc. unit in Thousand Oaks, less than two years after acquiring the company.

Intel officials made the announcement on Jan. 31, saying in a statement that Xircom would close next month, thus ending its 15 years in business.

Intel said some Xircom employees will be moved to other units within the company, but officials had not yet completed their assessment of how many of the Xircom workers would be given pink slips.

In January 2001, Xircom employed an estimated 1,900 people at its headquarters and its two manufacturing plants in Colorado Springs and Seattle.

Officials from Intel would not comment further to the Business Journal.

The closure likely stems from the company's drop in revenue due to a court-ordered ban on the sale of its top networking card products from August until November of last year after 3Com Corp. filed suit against the company claiming Xircom's products infringed on its trademarks.

Late last year, Xircom agreed to pay 3Com $15 million and fees to license the rights to manufacturing its PC cards and modems from 3Com, making the continued production of the cards more costly than ever before.

The networking cards and related devices accounted for about two-thirds of Xircom's business.

"For Intel, Xircom is a spit in the bucket, but closing it is really part of their overall strategy," said Jeremy Lopez, an analyst with Morningstar Inc.

Xircom's value to Intel, like many of its other acquisitions, was its technology rather than its business model, Lopez explained.

"If you look at their other acquisitions, they're essentially technology acquisitions where the companies were later closed, spun off or sold," he added.

Intel, which acquired Xircom for $748 million in 2001, does not release figures on Xircom's sales. Before the acquisition, the company reported $25 million in net income on revenues of $496.2 million.

"It was a good acquisition for Intel because the company was profitable, but when they stopped being profitable, it became a problem," Lopez said.

Likewise, David Wu, an analyst for Wedbush Morgan Securities, said Xircom's plight is partly due to Intel's corporate strategy of acquiring companies purely for their technology.

"They are more interested in the technology than the company itself," Wu said.

"It's about how to take advantage of the technology and integrate that into its other products."

Lopez said Intel's strategy has been to acquire companies to get their technology.

"They buy a company, it seems, with little idea how they're going to integrate it into their overall operations," he said.

Between January 1999 and December 2001, Intel acquired 35 companies for $11 billion but in the past two months, it has sold off some of those acquisitions, such as Trillium Digital Systems and its Shiva net-working group.

Although Xircom's shut down may seem an expensive failed acquisition for Intel, Lopez said it was a good deal nonetheless.

"They've developed Centrino, a new product that allows PC makers to bundle a lot of different products with wireless technology embedded in it," he said.

"They probably wouldn't have had that had they not incorporated Xircom's wireless technology."

Centrino allows power notebooks to use less power and be able to access networks through a wireless connection. It is scheduled to hit the market next month.