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Qualcomm gobbles Atheros, arms self for coming tablet wars

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Wireless telecommunications chip giant Qualcomm is spending $3.1bn to buy partner Atheros Communications, betting big on the future of Wi-Fi wireless communications.

Qualcomm is one of the darlings of the dot-com boom that kept right on booming as people all over the world cut their phone lines and moved to wireless phones. The company had just under $11bn in revenues in its fiscal 2010 year ended last September and brought an astounding $3.25bn to the bottom line.

Not surprisingly the San Diego-based company remains one of Wall Street's favorites, and at the market close yesterday had a market capitalization of just under $80bn. Qualcomm ended its fiscal year with $3.55bn in cash, $6.73bn in marketable securities, and only $1.1bn in debt. Qualcomm could easily write a check to buy Atheros, and did. The word on the street was that Qualcomm would pay as much as $3.5bn to get its hands on the Wi-Fi chip maker.

There has been a run up in Atheros' stock since it hit a low of $22.77 back in September, and the company's stock closed at $44 a share yesterday, up from around $36 a share as 2010 came to a close and 2011 got going. Rumors hit yesterday afternoon that Qualcomm was working on a deal, which is why Atheros' stock was up like a shot, almost matching the $45 a share that Qualcomm is offering to take control of the Wi-Fi chip maker.

Atheros is located in San Jose and has booked nine consecutive years of revenue growth; it has more than 1,700 employees, who design and peddle single-chip wireless systems that are used in laptop computers, retail devices, various consumer electronics, and carrier and enterprise networking products.

The company's chips are used in Ethernet controllers, transceivers, and switches; Atheros also makes chips for Bluetooth and GPS protocols. About half of its sales come from networking product makers, with a little less than a quarter coming from computer makers and a little more than a quarter coming from consumer electronics gadget hawkers.

Atheros just ended its financial year in December and has not yet reported its results, but in the trailing 12 months that match up with Qualcomm's fiscal year, Atheros had sales of $885.7m and net income of $93.2m. It had $109.8m in cash and $379.2m in securities in its cash hoard last September and has no debt, which makes the deal even sweeter for Qualcomm.

Qualcomm says that the boards of directors for both companies are behind the deal and that it expects the deal to close sometime during the first half of 2011 and that if you exclude amortization of acquired assets then Atheros will add to Qualcomm's earnings in its fiscal 2012.

Craig Barratt, who is president and chief executive officer at Atheros (and not to be confused with a man of similar name who formerly ran chip maker Intel), is staying on at The Q to be president of its Networking and Connectivity division. ®

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