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Intel buys further into networking

The chip giant makes another move into networking by purchasing Softcom Microsystems, a start-up that makes processors for switches and routing devices.

Intel made another move into networking today by purchasing Softcom Microsystems, a start-up that makes processors for switches, routing devices, and other network hardware.

Intel did not disclose financial details of the Softcom purchase, saying only that it was a cash transaction. But analysts say the acquisition could be a smart move because it helps Intel dive into a market segment now dominated by in-house development.

Fearful of lower profits as PC processor prices continue to drop, Intel entered the growing networking-chip market in March by purchasing Level One Communications for $2 billion.

Intel and other chipmakers believe that network-hardware companies, such as Cisco Systems and Nortel Networks would rather buy processors than build them from scratch.

Analyst John Freeman of Current Analysis said Softcom gives Intel the technology to build next-generation networking chips that are fast and programmable.

"Intel certainly gives a large degree of legitimacy to this whole architectural move," Freeman said, referring to the next-generation networking chips. "Now networking-equipment vendors who have been using Pentiums for their routers, or general-purpose RISC chips will look at this emerging space and think maybe it makes sense to change the architecture of their products to support the new processors."

It also shows that established chip companies can't build the new chips themselves and need the expertise supplied by Softcom and half a dozen other companies that specialize in the new generation of chips.

The purchase of Softcom raises the values of other start-ups in the market, such as C-Port and SiTera, Freeman said.

"If Intel can't do it by itself, then you're a hot commodity," he said. "If AMD, Hitachi and anybody else involved with semiconductors want to get involved in this space, they may have to look to the start-ups."

Level One makes components for telecom and corporate-networking equipment, as well as DSL technology, a high-speed alternative to cable Internet access. After that purchase, Intel continued its communications push by buying Dialogic, maker of network-oriented technology that adds voice, data, and fax functions to computer equipment.

While Softcom's technology is used in the guts of a router to process packets of data, Level One's technology is used in "physical layer interfaces" or the silicon that sends information over a medium, such as telephone wire, Freeman said.

Intel said all of Softcom's 32 employees will work for Intel. Tony Stelliga, chief executive of Softcom, will serve as general manager and report to Mark Christensen, vice president of Intel's Network Communications Group.