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Intel to buy Giga for $1.25 billion

Computer chip giant Intel Corp. (Nasdaq: INTC) said Wednesday it will buy Danish cable company NKT's networking chip unit Giga for $1.25 billion in cash. The move furthers Intel's diversification strategy into networking chips.

Intel shares closed at 117 7/8 Tuesday, after hitting a new 52-week high of 125 5/8 earlier in the day.

Intel's acquisition of Giga targets the hot market for high-performance networking chips. The chipmaker is looking to gain as telecommunications companies build out fiber-optic networks.

Although Intel is known for its PC chips, recent acquisitions have been moving the company into rich terrain, such as e-commerce, consumer electronics, Internet servers, and wireless phones.

Intel clearly wants to be a networking player. Prior to the Giga purchase, Intel formed a venture with U S West (NYSE: USW) to jointly offer high-speed home networking services.

In February, Intel announced special-purpose network servers to manage Web traffic that will pit it against networking equipment maker Cisco Systems Inc. (Nasdaq: CSCO). In January, it revealed plans to sell branded information appliances--screen phones, e-mail stations, TV set-top boxes. Last September, Intel introduced a new line of chips for networking and communications gear, and in October, the company paid $1.6 billion for DSP Communications, a maker of digital wireless phone technology.

Toss in the 1999 acquisitions of Dialogic and Level One Communications and it's clear Intel wants to be a networking giant.

Giga, founded in 1988, specializes in advanced high-speed communications chips used in optical networking. Its products are targeted for a range of applications that speed transmission over the Internet backbone.

As higher-bandwidth access technologies such as xDSL and cable are being deployed, a need for greater capacity at the core of the network arises, Intel said. Giga's new optical communications chip design, combined with its existing Level One Communications design team, gives Intel the ability to address this demand.

Upon close of the transaction, Giga will become a subsidiary of Intel and will report within Level One Communications, Inc., a wholly owned subsidiary of Intel.

The all-cash transaction is expected to be completed within the next few months. NKT owned 63.5 percent of Giga, which had net sales of 190 million crowns ($24.68 million) last year.

Intel competes with AMD, which temporarily stole the limelight in their ongoing battle for microchip supremacy with its 1 gigahertz Athlon chip. Conexant Systems, Inc. (Nasdaq: CNXT) and Broadcom Corp (Nasdaq: BRCM) are also communications chip makers.