Nvidia Corp. plans to buy privately held cellphone chip maker Icera Inc. for $367-million (U.S.) in cash, stepping up competition against Qualcomm Inc. and Intel Corp. in the smart-phone chip market.
With this deal, Nvidia enters the competitive market for baseband or radio chips, which connect devices to cellular networks.
Led by racing-car enthusiast Jen Hsun-Huang, Nvidia vaulted into the mobile chip market this year, going head to head with Qualcomm, Texas Instruments Inc. and Marvell Technology Group.
The maker of graphics chips for PCs grabbed centrestage with design wins in tablets and phones using Google's Android platform and made by Samsung Electronics Co., Motorola Mobility and LG Electronics Inc.
Wall Street has rewarded Santa Clara, Calif.-based Nvidia. Its shares have risen 27 per cent since the beginning of the year.
Buying Icera's technology will let Nvidia package its high-end application processors, which enable features like video on smart phones and tablets, with cellphone communications.
Nvidia said Icera could help it double the revenue it can generate from each mobile device.
Intel Corp., struggling to stake out territory in smart phones and tablets, last year bought German chip maker Infineon Technologies, AG's wireless unit, for $1.4-billion.
"[Radio chips]seemed like a hole in the strategy to get into mobile for Nvidia," Stifel Nicolas analyst Kevin Cassidy said. "This will put Nvidia on equal footing with Intel and Qualcomm."
But with industry giant Texas Instruments shutting down its low-margin baseband chip business to concentrate on more profitable application processors, some analysts warn that Nvidia will find itself in a tough market.
"They don't have to come in and take over Qualcomm's No. 1 spot for this to make logical sense," said Cody Acree, an analyst at Williams Financial Group. "But I also caution investors that this is a strategy that has been tried to differing degrees of success and a lot of failures."
While all of Icera's chip sales to date have been to makers of network cards used to connect laptops to the Internet wirelessly, it launched smart-phone chips earlier this year.
Icera's customers include Nokia Corp., Chinese mobile device manufacturers Huawei and ZTE, and Samsung Electronics Co. Ltd.
Nvidia said the deal would slightly lower operating profit in the first half of 2012, but it expects the transaction to add to operating profit in the second half.
But Stifel's Mr. Cassidy said he does not expect the deal to hurt Nvidia's profit margins in the long run.
Earlier this year, Qualcomm agreed to buy another smaller wireless radio chip maker, Atheros, for $3.2-billion.
Evercore Partners was financial adviser to Icera in the Nvidia deal.