Qualcomm, the mobile phone chipmaker whose technology dominates 3G handsets, on Thursday moved to strengthen its fourth-generation position with the acquisition of Flarion Technologies for up to $805m.
Flarion holds patents and makes equipment for OFDMA (Orthogonal Frequency Division Multiple Access) technology, which promises data speeds at least 10 times faster than current third-generation phones.
While Flarion has held OFDMA trials in South Korea, the US and Europe, the standard is still being developed and full-scale commercial deployments are at least three years away, analysts said.
Qualcomm's patents for CDMA (Code Division Multiple Access) technology are reaping it billions of dollars in royalties and its W-CDMA and CDMA 2000 technology have been adopted by 3G operators around the world.
“We have also been working on OFDMA for a number of years internally,” said Paul Jacobs, Qualcomm chief executive.
Combining Qualcomm's internal development staff with Flarion's 110 engineers would give the company the strongest team in the industry, he said.
Qualcomm is betting operators will want to use OFDMA to serve mobile video to consumers and its MediaFLO subsidiary is using a version of the technology to develop a mobile network television service.
Qualcomm said it had been in on-and-off talks with Flarion, which is based in New Jersey and partly owned by Cisco Systems, over the past few years.
Flarion had been developing mobile broadband equipment since 2000.
Qualcomm said it would pay $600m in stock and cash and an additional $205m over the next few years if certain milestones were achieved.
Tal Liani, analyst at Merrill Lynch, in a note on Thursday predicting the acquisition, said the real benefit of the deal would be for Qualcomm's chip division as current GSM, W-CDMA and future OFDMA technologies would need to co-exist together on mobile phones.
“We see the need for dual-mode or even triple-mode chips to power advanced OFDM devices. Qualcomm, as well as other chip vendors, will have to master OFDM to design such chips and we believe therein lies the rational,” he wrote.
The deal is expected to be completed in October, creating $10m in costs and diluting 2006 profits by 3 cents a share. Flarion was advised by Evercore Partners and Qualcomm by Morgan Stanley.