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With Picochip, Mindspeed buys big into a small market

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Networking silicon vendor Mindspeed Technologies (s mspd) aims to become a big player in wireless infrastructure in a very small way. It is purchasing femtocell system-on-a-chip (SoC) maker Picochip for $51.8 million, creating what Mindspeed hopes will be a powerhouse in the so-far disappointing but still potentially lucrative miniature base station market.

Femtocells are essentially private cellular nodes that carriers give or sell to their customers to improve their coverage and provide additional 3G and 4G capacity. They use the same frequencies as the overall macro network, but they link back to the carrier’s network through the customer’s home or office broadband connection. Mindspeed estimates that its Trancede and Picochip’s PicoXcell SoC lines command a combined 70 percent of the HSPA femtocell semiconductor market and has the biggest exposure to femtocell manufacturers developing the next generation of LTE femtocells. Those would be some impressive stats if there were more of a femtocell market to speak of. The demand among operators for home and business base stations didn’t exactly go gangbusters.

In June, Informa Telecoms and Media reported that 2.3 million femtos had been installed in homes and businesses around the world. That may seem like a large number, but not when you compare it to the 1.6 million macrocells deployed at towers and on rooftops globally. Femtocells were supposed to webscale the cellular network, turning a network of a few big public nodes into a network with millions upon millions of small private nodes. The carriers’ lackluster enthusiasm for femtos, however, soon became apparent due to the interference problems. And as the smartphone gained popularity, Wi-Fi became a much cheaper and easier way to offload mobile data and voice traffic.

The femto vendors haven’t given up. They’ve changed tack, positioning their formerly private femtos as public “small cells,” which can be used to used to offload data capacity in congested outdoor and indoor networks. They may be on to something here as small cells fit nicely with the emerging wireless design concept of the heterogeneous network (or het net). The basic idea of het net is that the single monolithic wireless network will devolve into multiple networks, some providing an umbrella of persistent coverage while others focus solely on packing tremendous amounts of capacity into small areas.

Even if Het Net takes off, femto makers won’t necessarily be the benefactors. As you move into the public wide area network, you venture into the domain of the big telecom vendors, who tend to be very tight with their carrier customers. Ericsson (s Eric), Alcatel-Lucent (s ALU), Nokia Siemens Networks (s NOK)(s SI) and Huawei are all developing small cell solutions of their own and they’re bringing established telecom silicon vendors such as Texas Instruments (s TXN) and Freescale along for the ride. Here Mindspeed may have an advantage. It isn’t a small specialist company like Picochip and has a established portfolio of ARM-based processors used throughout the telecom infrastructure market, counting Cisco Systems (s CSCO), NSN, Huawei, Alcatel-Lucent and Samsung among its customers.

Mindspeed is paying $27.5 million in cash and issuing 5.19 million new shares to Picochip’s investors. Mindspeed will also pay up to $25 million in cash by 2013 if Picochip meets certain unnamed financial performance objectives. Mindspeed expects to close the acquisition this quarter.

Picochip isn’t the femto vendor that’s attracting attention. Femto maker and software developer ip.access in December raised an additional $15 million in venture capital. Last year, Radisys (s rsys) bought femto software developer and designer Continuous Computing. The femto market seems to be heating up, but let’s hope it doesn’t flame out.