Wireless LAN chipset vendor Intersil Corp.'s (Nasdaq: ISIL) stock was up today on rumors that the company is going to be acquired by Texas Instruments Inc. (NYSE: TXN).

The rumor was bubbling on Wall Street during the afternoon, coinciding with a spike in the stock price. Intersil, which is currently the market leading supplier of wireless LAN chipsets, was up 4 percent in afternoon trading today. At least one source close to the companies confirmed that talks have been underway.

The deal would surprise few, as everybody seems to think it's the right time for Intersil -- which sported a market capitalization of $3.5 billion as of 3:30 p.m. today -- to sell.

"It makes sense," says Jacob Kaldenbaugh, founder and senior analyst at Harvest Equity Research. "They've got a pretty good valuation, given they make a chip that anybody else can make."

One big question is what TI is willing to pay. Kaldenbaugh doesn't see the justification for a large premium. He notes that Intersil is being squeezed by larger players such as Broadcom Corp. (Nasdaq: BRCM) and Intel Corp. (Nasdaq: INTC), which are integrating wireless functions into other chipsets.

Although he hadn't heard the rumors, IDC analyst Ken Furer says that such a move could make sense for TI, giving the company an instant leadership position in this fast-moving market. "It’s an interesting concept," Furer says. "As much as TI talks about wireless LAN, it still needs market share... and radio expertise."A spokesperson for TI declined to comment.

Intersil had about a 50 percent share of the 802.11 chipset market in 2002, according to the The Linley Group. However, that lead is now being challenged by Broadcom, the research firm says (see Broadcom Ascending in WLAN?).

— Dan Jones, Senior Editor, Unstrung, and R. Scott Raynovich, US Editor, Light Reading