The acquisition of Austrian chip developer NewLogic Technologies AG by the services arm of Wipro Ltd. , one of India's largest outsourcing firms, will add capabilities in the wireless LAN and Bluetooth field to Wipro's portfolio and hasten the movement of IT services firms on the subcontinent further up the technology food chain.

The all-cash $56 million acquisition, which in a case of "reverse outsourcing" adds 120 specialist engineers to Wipro's ranks, gives the software and IT services company a major leg up in the business of wireless R&D. And it will give wireless LAN providers a new, low-cost supplier of both semiconductors and software. About one third of Wipro's 2005 revenue comes from its R&D services business.

"I would guess that Azim Premji, who controls 82 percent of Wipro, wants to do for WLANs and Bluetooth what [Indian outsourcer] Infosys did for services outsourcing," says Bob Egan, research director of emerging technologies at TowerGroup.

Wipro and its Southeast Asian counterparts, Infosys and TCS, have all reported double-digit increases in sales in the last few weeks. U.S. competitors, such as IBM and EDS, are struggling to maintain single-digit increases.

The NewLogic acquisition also continues a string of overseas acquisitions for major Indian IT services firms. Wipro has bought seven companies since 2000, according to Bloomberg data. NewLogic is the largest semiconductor acquisition to date by an Indian company.

Though the deal adds robustness to Wipro's intellectual-property portfolio, the radio skills of NewLogic's engineers were the key selling point, according to Bob Wheeler, senior analyst at semiconductor analyst firm, the The Linley Group .

"I suspect Wipro was more interested in the RF design team and client base than the WLAN and BT intellectual property," says Wheeler. "Still, it's early days for integration of complete WLAN and BT functions into system-on-chip devices. Just as we see 10/100 Ethernet functions integrated into numerous devices today, integration of 802.11 should become more widespread over time."

The integration of wired and wireless capabilities on a single piece of silicon will make sense for Wipro's many consumer and enterprise customers alike. The firm already develops software and silicon for telecom, networking, and consumer electronics firms around the world.

The deal also enhances Wipro's access to high-end European customers such as Infineon Technologies AG (NYSE/Frankfurt: IFX) and Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) .

— Dan Jones, Site Editor, Unstrung