Qualcomm expands into WiFi with chipmaker deal

Qualcomm is pushing ahead with efforts to expand beyond its traditional mobile handset market with a $3.2bn cash deal to buy Atheros Communications, a leading maker of chips used for wireless communications.

Atheros investors will get $45 a share, or 22 per cent more than the closing price on January 3, before reports about the purchase emerged. Qualcomm shares rose for a second day on Wednesday, gaining more than 2 per cent in midday trading.

The companies confirmed the deal early on Wednesday, after advanced reports sent Atheros’s shares up 19 per cent.

The purchase is Qualcomm’s biggest bet so far that microprocessors will continue to combine functions that have been handled independently, including multiple forms of communication.

While Qualcomm is a leader in wireless chips for mobile phones, especially smartphones, Silicon Valley-based Atheros is stronger in WiFi transmission.

The largest-ever acquisition for Qualcomm gives it immediate access to new customers that make networking gear and advanced products for consumers. But in the longer term, it plans to integrate current Qualcomm and Atheros capabilities on a single chip.

“Three to five years from now, if you don’t have an integrated solution, you are going to be a loser,” said Wedbush Morgan analyst Patrick Wang. “You are not going to be relevant.”

The deal follows top microprocessor maker Intel’s $1.4bn purchase of Infineon’s wireless chip business, announced in August. Both combinations reflect the increasing expectations from equipment manufacturers such as Apple for greater capability in chips with smaller size and lower cost.

Smartphones are taking a rapidly growing share of the overall phone market, and many manufacturers are pouring into the nascent market for tablet computers that Apple pioneered a year ago.

Broadcom of the US continues to play a main role at the high end of the communications chip market, with Asian chipmakers on the low end. In the middle, Qualcomm and Intel have run out of time to develop more effective chips in-house and are having to spend to acquire them.

Analysts said that valuations had recovered from six months ago, discouraging a flurry of additional mergers. The major companies will now turn to the challenge of manufacturing integration.

Qualcomm expects to close the Atheros deal in the first half of the year and be “modestly accretive” to earnings per share in fiscal year 2012, the first full year of combined operations.

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