Marvell Technology Group Ltd. (Nasdaq: MRVL) has signed a deal to acquire software specialist Radlan Computer Communications Ltd., a move that increases the chipmaker's systems-level capabilities (see Marvell Acquires Radlan).

Expected to close within 60 days, the deal has Marvell paying Radlan shareholders $49.7 million in stock and cash, plus 1 million more shares if certain performance goals are met. Radlan shareholders also receive 500,000 warrants for Marvell stock, priced at $18.41. Marvell shares were trading at $18.68 late today.

Radlan specializes in prefab networking software, its flagship product being the OpENS line of Internet Protocol routing code (see Radlan Markets Router in a Box ). Its headquarters are in Tel Aviv, Israel, with U.S. operations based in Santa Clara, Calif.

From Marvell's side, the deal isn't that surprising. The company already owns 9 percent of Radlan, and Marvell's Ethernet-switch group has worked with Radlan for years. Moreover, both companies are developing ready-made switches that include all the necessary hardware and basic software; Marvell's version, in fact, uses Radlan's software (see Marvell's Ethernet Switch Kit).

Radlan has also done work for Marvell in the storage-networking and wireless areas, and Marvell plans to step up those activities, says Weili Dai, executive vice president and general manager of Marvell's communications business group.

Most chipmakers in networking are being asked to provide increasing amounts of software. That's particularly true for functions that are ordinary in themselves, but complicated to program.

"The chipsets and the technology are becoming more complex, and what I see is that the ODMs [original design manufacturers] are really running out of gas," Dai says. "We really need to make sure the software piece is addressed properly."

Radlan will complete all of its current projects, but after that, it will become a captive operation inside Marvell.

Which brings up an interesting situation. Radlan's recent projects include one it did for one of Marvell's top rivals: the StrataSwitch chip from Broadcom Corp. (Nasdaq: BRCM). StrataSwitch competes with Marvell's Prestera chips in the Ethernet switching realm (see Marvell Readies GigE Attack). Luckily for Broadcom, it doesn't appear that Radlan's absence from the market will cause any harm.

Marvell officials claim that Radlan has no competitors, but in reality, a multitude of embedded-software experts could provide similar work. Maybe none of them have Radlan's exact products, but for any given project, chipmakers such as Broadcom shouldn't have trouble finding new partners.

"I'm sure there are other companies who will come in to fill that niche. I wouldn't extrapolate this to mean trouble for any of Marvell's competitors," says Ambrish Srivastava, analyst with Gerard Klauer Mattison.

Moreover, Marvell's Dai acknowledges that Radlan is "probably at the tail end" of its work on StrataSwitch.

As for any bottom-line effects, Marvell officials told analysts they expect the acquisition to benefit both revenues and gross margins. But realistically, the benefit might be small at first, considering so many of Marvell's Ethernet products already use Radlan's software.

"It's a building-block kind of acquisition. It's not going to impact the numbers," Srivastava says. "I don't think it opens up the market much more. But a lot of data guys are strapped for cash, and little deals like this could differentiate a guy like Marvell."

— Craig Matsumoto, Senior Editor, Light Reading