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WLAN chip maker Intersil has become the first major casualty of the battle to dominate the crowded Wi-Fi silicon market. Today it said it will sell its WLAN chip business to DSL chip specialist Globespan Virata for $365 million in cash and shares.

Intersil is one of the best-known WLAN chip companies and has been in the market for more than five years. But as demand for Wi-Fi products has ballooned, it has had to face many new competitors, almost all of them based in the Far East and choosing to compete on price.

This is "resulting in even greater differences in the business models of Intersil's High Performance Analog Product Groups and its Wireless Networking Product Group (WNPG)", said Intersil president and CEO, Rich Beyer, in a statement.

So Globespan will get the WNPG, while Intersil will focus exclusively on its analog products. The Analog Product Groups are "approaching a $500 million annual revenue run rate", said Beyer, who also noted that the business grew by more than ten per cent during the first half of the year compared to the same period in 2002.

By contrast, WNPG contributed sales of $49 million during the first quarter. Analysts expect it to have accounted for around $55 million worth of sales during Intersil's second quarter, which ended on 4 July. The quarter's figures will be made public on 23 July.

But that short-term revenue growth masks the longer-term trend of declining revenues despite increasing unit shipments as average selling prices fall.

That's going to make business difficult for Globespan, of course. But it's betting on unit growth more than compensating for the falling prices: the old volume versus value argument. According to Allied Business Intelligence, worldwide WLAN chip sales are expected to grow at a 23 per cent compound annual growth rate between 2002 and 2006.

And Globespan has the benefit of taking on board a complete WLAN unit, with a well established brand and reputation, which should cost it less in the long run than building such a business from scratch.

Intersil's WNPG employs around 300 people in design, sales, marketing and applications development, all of whom will become Globespan workers. Intersil's Prism branded products and the intellectual property they embody will be transferred to Globespan too.

Under terms of the agreement, Intersil will receive $250 million in cash and approximately $115 million in GlobespanVirata stock. Intersil will also retain the WNPG's accounts receivable and the accounts payable, resulting in approximately $20 million of additional cash after the transaction is completed. Completion is expected by the early October. ®

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