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 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

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

“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.

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