Broadcom, which makes chips used in TV set-top boxes and cable modems, said privately held VisionTech has key technologies used in digital video recording, a function that allows set-top boxes with a hard drive to record shows and pause live television.
The acquisition is Broadcom's 12th this year. Earlier this month, the Irvine, Calif.-based company announced that it will buy start-up chipmaker SiByte.
Broadcom chief executive Henry Nicholas told CNET News.com that digital video recording is one of the compelling uses of VisionTech's products but added that its video compression technology will be used in other areas such as home networking and Internet video streaming.
VisionTech's chips are already designed into products from Motorola, Scientific-Atlanta, Pace, ReplayTV and game console maker Sega, which was an early investor in VisionTech. Although VisionTech has not announced any deals with TiVo, Nicholas said Broadcom already has "a very strong relationship" with the digital video recording company.
As part of the deal, Broadcom will form Broadcom Israel, a subsidiary to be headed by VisionTech chief executive Amir Morad.
Broadcom's stock has been on the skids lately. As of Tuesday's market close, Broadcom's shares were off more than 65 percent from a $251 closing price in late October.
"Despite all the market turbulence, our ability to go off and complete a strategic acquisition... it really demonstrates the strength of our companies," Nicholas said.
Broadcom's acquisition comes as ReplayTV said it will exit the business of selling digital video recorders, instead offering its services to other companies that want to offer digital video recording in their set-top boxes. Analysts assert that digital video recording is likely to become a popular feature but not necessarily in a standalone box.
According to researcher Dataquest, the market for set-top boxes that include a digital video recording function is expected to grow from 65,000 units last year to 8.5 million by 2003.
A Motorola executive praised the deal, noting that Motorola was already working with VisionTech to incorporate digital video recording into its DCT-5000 set-top box.
"We have been impressed with VisionTech's technology and highly talented engineers and applaud both Broadcom and VisionTech in their decision to combine resources," Motorola senior vice president Dave Robinson said in a statement.
Under the deal, which is expected to close within 60 days, Broadcom will acquire VisionTech in exchange for 7.96 million Broadcom shares. When the deal was announced, those shares were worth $776.6 million based on Monday's closing price.
The acquisition has been approved by both companies' boards of directors but is subject to approval by VisionTech shareholders.
Broadcom said it will take an unspecified one-time charge in conjunction with the deal.
The deal will dilute Broadcom's earnings by about a penny in both the first and second quarters of 2001, Nicholas said, but will begin adding to earnings in the third quarter.