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Texas Instruments to acquire Telogy Networks

TI plans to acquire the software company for $435 million, a move that will bolster TI's effort to enable the transmission of computer data and telephone calls over the same networks.

Texas Instruments announced plans today to acquire Telogy Networks for $435 million, a software company that will bolster TI's effort to enable the transmission of computer data and telephone calls over the same networks.

The acquisition will unite TI chip technology with software from Telogy so that TI can gain a bigger presence in the market for equipment that sends voice phone calls over computer networks, including the Internet.

TI's Telogy acquisition makes sense because builders of telecommunications equipment will have one less headache when shopping for the components to build their products, said Hilary Mine, an analyst with Probe Research.

That equipment includes small devices such as telephones that plug straight into Ethernet networks, medium-sized devices such as computers that replace a company internal phone system, and large devices such as the "central office" switches used to shuttle phone calls from homes and businesses onto large-scale phone networks, Mine said.

"TI is working its way up the value chain by adding software stacks," Mine said.

TI is one of the major players in the market for a type of chip called a digital signal processor, or DSP, a type of chip that pervades the telecommunications industry. DSPs are used to translate analog information like a person's voice into packets of digital data that computers can handle.

But in order to perform that translation, a DSP needs encoding and decoding software, Mine said. That's where Telogy comes in.

Telogy's software, called Golden Gateway, currently only works with TI's DSPs, Mine said. The software can send and receive digital data in several formats, including the Internet Protocol (IP), Frame Relay, and ATM, the company said.

The real question now, according to Mine: "When is Intel going to make a move on TI?"

Intel and Analog Devices, a DSP designer, have teamed up to produce next-generation DSPs.

Curiously, though, Intel's acquisition of Dialogic yesterday conceivably could make Intel a customer of the TI hardware and software, Mine said, because Dialogic makes telecommunications equipment that needs the DSPs and software translation features.

TI is making the acquisition through a stock-for-stock transaction in which TI plans to issue 4.1 million shares. Based on TI's closing price June 1, that values the deal at about $435 million, TI said.

"The guys at Telogy must be smiling," said Mine. "They said they were pretty pleased." Telogy is privately owned.