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Broadcom Acquires Video Compression Firm

Broadband communications chipmaker Broadcom said it has agreed to purchase San Video for $77.5 million in stock and cash.

The acquisition will help Broadcom, known for its system-on-a-chip (SoC) products for wireless, networking, VoIP and storage markets, develop video compression semiconductor technology for devices running high definition (HD) and video-on-demand content.

Sand Video, a privately-held firm out of Andover, Mass., makes chips that support existing MPEG-2 compression standards as well as the emerging ITU-T H.264 standard, also known as advanced video coding (AVC), or MPEG-4 Part 10, and will be supporting Microsoft's Windows Media 9 compression and decompression standards in the future.

Video compression algorithm technology has moved forward dramatically over the past several years, culminating in new emerging compression standards such as AVC and Windows Media 9. These standards can bit rates required to transmit a video signal by more than 50 percent.

The list of platforms that could use the enhanced Broadcom chips includes digital TVs, enhanced cable and satellite TV set-top boxes, personal video recorders (PVRs), high definition DVD recorders and players, Internet Protocol (IP) set-top boxes, and video conferencing, among others, the Irvine, Calif., company said.

"With the demand for high definition (HD) and video-on-demand content accelerating rapidly, the industry is looking beyond the current MPEG-2 standard to advanced compression technology that will significantly reduce the bit rate required to transmit broadcast-quality video," said Daniel A. Marotta, group vice president of Broadcom's Broadband Communications Group.

Marotta said much of Sand Video's development team would be staying on as a "great complement" to Broadcom's existing global digital video team. San Video president and CEO Peter Besen is also expected to stay on in a managerial role.

Rick Whittington, managing director of research at Caris & Company, said the acquisition is just another example of how Broadcom is bouncing back from the widespread semiconductor sector downturn.

"Even as their founder-CEO departed, senior management has publicly noted the company seems to have jelled in 2003 from a technology-rich, developmental enterprise into 'an execution machine'," Whittington said in a newsletter to subscribers. "By getting into position with strong intellectual property, dominating standards, setting committees and issuing a steady stream of new products, Broadcom is positioned as one of the fastest growth companies in the world."

Under the terms of the acquisition, Broadcom's $77.5 million purchase price is split between $70.1 million in the form of 1.666 million shares of its Class A common stock and $7.4 million in cash in exchange for all outstanding shares of Sand Video capital stock, outstanding employee stock options and other Sand Video rights.

Broadcom expects to close the deal in June.