Centillium Unloads DSL Business to Ikanos

Centillium Communications Inc. announced today that it would be selling its DSL business to Ikanos Communications Inc. (Nasdaq: IKAN) for $12 million in cash. Ikanos will acquire assets, technology, and employees as part of the deal and will maintain Centillium's existing DSL customer relationships. (See Ikanos Buys DSL Biz.)

Ikanos's interest in Centillium was more to obtain its intellectual property, engineering team, and customer relationships rather than its ADSL business itself. CEO Michael Ricci pointed out to analysts on a conference call this morning that Ikanos saw this acquisition as an opportunity to expand its own VDSL business to Centillium's customer base.

"This will enable them (the engineers) to make immediate contributions and provide Ikanos the capacity to accelerate digital home initiatives and next generation VDSL2 platform development," said Ricci.

Centillium meanwhile unloads a business that accounted for 60 percent of its revenues in the third quarter of 2007. While DSL was a big part of the company, it was turning into a dead end and now Centillium might be looking to focus on developing its PON business instead.

"Most of what got them started in that business was ADSL in Japan. Obviously with PON now being the norm there, that growth has been on the decline," says Tim Kellis, an analyst with Stanford Financial Group .

Kellis points out that Centillium achieved an important milestone last quarter when it developed an architecture that met NTT Communications Corp. (NYSE: NTT)'s PON standards and is currently providing its solution to the Japanese carrier. "My take is that Centillium is now focusing on that PON opportunity," says Kellis.

Ikanos says that it expects the acquisition to close at the end of February this year. This is not the first time it has made a move into a different technology in an attempt to capitalize on its position in the VDSL market. Last year it licensed technology from Terawave in order to offer a GPON chip product. (See Ikanos Joins GPON Arms Race.)

Shares of Ikanos are trading down $0.13 (2.59%) to $4.88 while Centillium is up $0.01 (1.10%) to $0.92 in midday trading.

— Raymond McConville, Reporter, Light Reading

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