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Atheros: A Tasty Target?

Armed with an impressive set of contract wins, wireless LAN chipset maker Atheros Communications has started shipping its third-generation products.

That, in turn, has set analysts speculating whether the company could be a ripe target for acquisition.

Atheros, which has scored $98 million in funding since its inception in 1998, is taking on major rivals like Broadcom Corp. (Nasdaq: BRCM), Intersil Corp. (Nasdaq: ISIL), and – most especially -- Intel Corp. (Nasdaq: INTC) in the growing market for 802.11 chipsets. Atheros, which pioneered the development of 802.11a (54-Mbit/s over 5GHz), now supports the b (11-Mbit/s over 2.4Ghz) and g (54-Mbit/s over 2.4Ghz) standards and is much more bullish on multimode chips.

"The market is already rolling over to a/g," claims Sheung Li, product line manager for Atheros. "The b-only market is essentially dead."

The firm says that its next generation of silicon offerings also offers improved radio characteristics and supports Atheros-only features like a speed boost up to 108 Mbit/s on high-end chipsets.

Atheros also now has deals with all the major laptop vendors, except for Dell Computer Corp. (Nasdaq: DELL), and supplies chipsets for access points and wireless LAN switches as well.

"We're not a small startup anymore," says Li. "We hit cash-flow positive sometime ago." He just shook his head when Unstrung asked about the possibility of his company being acquired. Instead, the company is still talking about an IPO when market conditions are right.

However, according to Ken Furer at IDC, the company's facility with wireless LAN technology and a brace of contracts may only make it more attractive to an established vendor like Intel, which currently only offers 802.11b WLAN as part of its Centrino chipset.

Furer first posited the prospect of Intel buying companies to get the technology it needs for its WLAN push last year. (see It's WLAN Seduction Season) "I still think it’s a possibility," he says.

Certainly Intel is willing to throw plenty of money around to establish its position in the market. The firm has earmarked $300 million just to market its Centrino chipset.

Furer says that Atheros shipped around a million units last year and made around $25 million. In 2003, he expects it to ship about 5 million units, pulling in about $75 million.

"Atheros is still a pure-play in one market," says Furer. "They need some sort of diversification." — Dan Jones, Senior Editor, Unstrung

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