Intel OKs $1.6-Billion Deal for DSP

Intel Corp., the world’s largest chip maker, has agreed to buy wireless telephone chip maker DSP Communications Inc. for about $1.6 billion in cash, the latest in a series of aggressive moves by Intel to go beyond its traditional microprocessor business.

DSP shareholders will receive $36 a share, a 29% premium over Wednesday’s closing price. The purchase is Intel’s second-largest acquisition and its biggest all-cash transaction.

“I think the acquisition of DSP Communications absolutely fits into our strategic vision,” Craig Barrett, Intel’s president and chief executive, said on a conference call. “Our vision is that the Internet will increasingly go wireless . . . especially in the form of hand-held devices.”

Analysts estimate that within a few years, more people will access the Internet through wireless devices such as cellular phones than through PCs. In 2003, almost 450 million cell phones and hand-held computers will be shipped, most of which will offer Internet access, according to market researcher Dataquest.

DSP Communications makes digital-signal processors that convert sound, light and other signals into a digital computer language that can be understood by other chips instantly. The process lets cell phones and other wireless devices communicate.

The market for digital-signal processors is expected to swell 26% to $4.4 billion this year, according to Forward Concepts Co., a Tempe, Ariz.-based market researcher.

Intel’s foray into digital-signal processors puts it in more direct competition with Texas Instruments Inc. and Lucent Technologies Inc., said Barry Jaruzelski, a partner with management consulting firm Booz, Allen & Hamilton Inc.

Texas Instruments is the biggest maker of digital-signal processors, with 47% of the worldwide market; Lucent has 28%, according to Forward Concepts.

The DSP deal comes just two days after Intel reported third-quarter earnings of 55 cents a share, below Wall Street’s expectations, as prices for the company’s core microprocessors fell in the quarter.

“Their results were horrible and unless they build up a communications business quickly, they aren’t going to get any better,” said Dan Niles, an analyst at Robertson Stephens. “I think they are doing exactly the right thing. This is where the growth is. . . . Wireless is obviously a monster area.”

In the last year, Intel has been made many acquisitions in networking and Internet infrastructure, saying it wants to be the building-block supplier of the Internet.

Those deals included the $2.3-billion acquisition of Level One Communications, $780-million purchase of Dialogic Corp., $180-million purchase of Shiva Corp. and many other smaller transactions.

In September, the company introduced 13 chips designed for networking equipment. Intel estimates the market for such processors could reach $11 billion in two years.

The new products put Intel in competition with companies such as Lucent and Motorola Inc., as well as highflying network-chip makers Broadcom Corp., PMC-Sierra Inc. and MMC Networks Inc.

Last week, Intel bought closely held IPivot Inc. for $500 million to gain products that accelerate online transactions.

Shares of DSP jumped $6.94 to close at $34.94 on the New York Stock Exchange. Intel stock closed at $73.34, up $1.22 on Nasdaq.