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Intel Nabs Chipmaker for $550 Million in Cash

Intel Corp. Monday added to its chip-making arsenal by snapping up privately-held VxTel Inc. for $550 million in cash.

VxTel is known for its Voice over Packet (VoP) products that deliver extremely clear voice and data communications over next-generation optical networks, a sector that is gaining popularity among huge chipmakers such as Broadcom Corp. and PMC Sierra.

VoP makes it possible for circuit-switched networks, such as traditional telephone and wireless networks, to migrate to packet-based networks, such as the Internet. Specifically, moving to one network that encompasses all types of communications formulas will greatly benefit service providers, who will need to supply consumers with the ever-increasing demand of differentiated voice, data and video services.

VxTel's digital signal processor (DSP), software and reference designs help telecommunication equipment manufacturers deliver such services over packet-based networks. The VxTel VoP solution enables more than 2,000 simultaneous voice connections on a single card. Essentially, service providers can support more customers with less equipment and at a lower cost with DSP.

Upon completion of the acquisition, VxTel will become a wholly-owned subsidiary of Intel reporting to the Telecom Component Division of Intel's Network Communications Group. VxTel President and Chief Executive Officer Shri Dodani will continue to lead the firm once it is integrated with Intel.

Jay Patel, an analyst with Yankee Group's carrier convergence communications group, told InternetNews.com the deal was right in line with Intel's competitive strategy versus fellow chip warriors Broadcom and PMC Sierra.

"It was a good strategic move and certainly nothing unusual," Patel said. "Intel and Broadcom have been acquiring firms that will serve as building blocks for laying the foundation of the convergence of voice and data networks."

Mark Christensen, vice president and general manager of Intel's Network Communications Group, said his company made the deal to prepare for the convergence Patel mentioned.

"VxTel's Voice over Packet solution, together with the broad family of Intel Internet Exchange Architecture communications components, will enable our customers to accelerate their designs to take advantage of this new opportunity," Christensen said.

Other research firms bear this line of thought out as the latest IDC study, "Digital Cellular/PCS Semiconductor Market Review and Forecast," released Monday found that despite the recent slowdown in the economy and inventory issues from several leading OEMs, the opportunities for semiconductor vendors in the cellular market will continue to be very attractive.

The upcoming year will be looked at as a major time of transition in the cellular handset market as technologies migrate from being "voice-only" applications, according to Michael Nguyen, analyst for IDC's semiconductor program.

"Development of these next-generation handsets over the next few years promises to dramatically change the business environment and competitive landscape that we see today," Nguyen said.

Interestingly, Intel announced the deal as quite a kickoff to its developer's forum in San Jose, Calif. and it may be seen as a war cry in the face of Broadcom Corp., which snagged chipset outfit ServerWorks in Jan. 8 for $957 million in stock.

Intel is also expected to draw the curtain on its "McKinley" product, a 64-bit processor for high-end servers, at the conference.