In an effort to shore up its own efforts to develop chips for high-speed digital subscriber line (DSL) modems, Rockwell (ROK) has licensed technology from PairGain (PAIR) and will work with the company to develop new DSL chips.
Rockwell said it has signed a two-year, exclusive agreement to license PairGain's Falcon chip for full-speed DSL modems. Rockwell will pay licensing and royalty fees to PairGain, although specific terms were not announced.
PairGain's asymmetric DSL technology can download data--the most commonly used form of data transmission--to users at up to 8 mbps over standard copper telephone lines, while users can send information out to a network at a slower rate of 640 kbps or more. The fastest consumer dial-up modems on the market operate at a maximum rate of about 53 kbps.
The market for DSL chipsets is expected to grow rapidly as more Internet users and businesses clamor for multimegabit access speeds. However, DSL services still are too expensive to be considered for mass deployment to consumers.
To that end, Rockwell said it is working with PairGain to develop chips for "DSL Lite" modems, which would have maximum downstream transmission rates as high as 1 mbps and upstream speeds of 128 kbps.
PairGain investors reacted positively to the news, sending the company's stock up 1-1/2 points to 20-5/8, a gain of 7.84 percent at the market's close.
DSL Lite modems would reduce the cost of service by eliminating the need for a telephone company to install a piece of equipment called the "splitter." Rockwell will use the chips to deliver DSL Lite capabilities along with the ability to access regular 56 kbps dial-up services, according to Raouf Halim, vice president of Rockwell's network access division.
"PairGain is one of the major players [in the DSL market]," said Lisa Pelgrim, an analyst with Dataquest. "It is in a good position because it has an existing relationship with a number of phone companies." PairGain manufactures the more profitable equipment sold to the telcos, she explained.
"It makes sense for Rockwell to supply [DSL chips] to other equipment vendors. It follows the same business model in the [dial-up] modem market" added Pelgrim.
Last year, the company joined a number of communications equipment vendors and chipmakers such as Alcatel Telecom, Texas Instruments, Lucent, GlobeSpan Technologies, and Hayes, which are working on slower versions of DSL technology in order to bring down the price of modems and service.
While Rockwell said it has a majority market share in certain kinds of prestandard DSL technologies, the company sorely needed a DSL technology that could easily be made compatible with the upcoming international standard for DSL modems--a technology PairGain already had.
Overall, analysts say there are too many big players chasing a small market for DSL chipsets, and the future for companies such as PairGain will involve either partnerships or outright acquisitions, as exemplified by last week's purchase of DSL vendor NetSpeed by Cisco.