VDSL chip firm Ikanos Communications Inc. (Nasdaq: IKAN) is setting sights on the residential gateway, acquiring a network processor line and ADSL chips from Analog Devices Inc. (NYSE: ADI).

The $30 million cash purchase, announced after the market closed yesterday, gives Ikanos its first products beyond the DSL-chip area. (See Ikanos Acquires ADI Lines.)

The deal is expected to close during the first quarter of 2006, adding $25 million to $30 million to Ikanos's 2006 revenues. Analysts had expected Ikanos to report revenues of $120 million for 2006, according to Thomson First Call .

It's unclear how many employees Ikanos would pick up in the deal, but officials say the purchase would bring the company's headcount to 220, half of whom are in India.

The network processor acquired from ADI, dubbed Fusiv, targets access appliances and was crafted to transmit 100 Mbit/s upstream and downstream while running IP routing, VPNs, and a firewall at the same time. The 100-Mbit/s figure is a nice coincidence, matching the speed claimed by VDSL chipmakers, including Ikanos. (See Ikanos Intros VDSL2 Chips.)

Ikanos says it would use Fusiv as a home-gateway play, targeting the customer-premises appliances that would be central to carriers' triple-play broadband plans. The primary customer for Fusiv has been set-top box vendor Sagem Télécommunications SA . In January, ADI also announced ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) as a Fusiv customer, and Ikanos CEO Rajesh Vashist fingered Netopia Inc. as a Fusiv buyer during yesterday's conference call with analysts. (See ADI Targets Broadband and ZTE Picks ADI Chips.)

The deal shows Ikanos eager to expand beyond the VDSL chips that brought the company public in September. While Ikanos has claimed success in VDSL, the company faces the prospect of increased competition as large chip players such as Broadcom Corp. (Nasdaq: BRCM), Conexant Systems Inc. (Nasdaq: CNXT), and Infineon Technologies AG (NYSE/Frankfurt: IFX) get more interested in the market. (See Ikanos Prices IPO , VDSL2 Fight Begins, Conexant Takes VDSL Plunge, and Infineon Launches VDSL2.)

Ironically, the ADI deal would intensify any rivalry between Ikanos and those firms; Broadcom and Conexant, in particular, already target home gateways. Even so, CEO Rajesh Vashist believes Ikanos isn't arriving too late, as he thinks his competitors will have to redesign their residential gateways anyway.

"They're based on network processing capabilities from some time back," he said on a conference call with analysts late yesterday. "There was not an expectation that VDSL or 100-Mbit/s or 200-Mbit/s performance would show up this quickly."

Still, Ikanos doesn't have the bigger chip companies quaking yet. In an email to Light Reading, a Conexant spokeswoman points out that her company has experience on its side, having worked the home gateway market "since its inception." She also notes that a network processor alone doesn't make a gateway: "We have WiFi and VoIP and transport technologies such as powerline [Ethernet] which further strengthen our portfolio."

Meanwhile, some companies such as Amedia Networks Inc. (OTC: AANI) and Netopia have begun incorporating VDSL into their gateways. (See Amedia Unveils Triple-Play Tech and Netopia Embraces VDSL.)

Ikanos's share price inexplicably jumped 10 percent on Jan. 10, which could be interpreted as a sign that rumors of this acquisition -- possibly in mutated form -- were making the rounds. Yesterday, Ikanos shares closed down 59 cents (3.4%) at $16.80.

— Craig Matsumoto, Senior Editor, Light Reading