Qualcomm Buys Flarion for $600M, Stocks Rise

Qualcomm Inc (QCOM) said on Thursday it would buy wireless broadband technology firm Flarion Technologies (search) to expand its own wireless technology portfolio in a cash and stock deal worth about $600 million.

It could pay an another $205 million if the companies reach certain milestones within eight years of the deal closing.

Shares of Qualcomm, a supplier of wireless chips and technology licenses, rose more than 3 percent with one analyst saying its purchase of the high-profile private firm could help Qualcomm dominate future high-speed wireless technologies. "Both companies are doing well on this deal," Deutsche Bank analyst Brian Modoff said. "Flarion investors are getting a good exit strategy and Qualcomm is continuing to have a strong patent portfolio."

The combination could be bad news for developers of future versions of WiMax, an emerging high-speed wireless technology which includes chip giant Intel Corp. (INTC) among its most prominent backers, Modoff said.

Developers of mobile versions of WiMax - expected to be based on OFDM technology — could have a "difficult time designing their systems for mobility without infringing Qualcomm patents" as a result of the deal, he said.

The combined company has more than 300 OFDM patents, according to a Qualcomm executive who said vendors developing WiMax would need to buy licenses for some of its patents.

"We are willing to license these patents on fair and reasonable terms," Qualcomm's President Steve Altman said in an interview.

Qualcomm already dominates the market for CDMA, the most popular cellphone standard in the United States. It also sells licenses and chips for W-CDMA (search), a high-speed wireless standard that is emerging in Europe and other parts of the world.

Bedminster, N.J.-based Flarion was spun out of the development arm of Lucent Technologies Inc. (LU), which no longer has an ownership stake in Flarion.

Many operators around the world have tested Flarion's gear in their search for high-speed wireless technology but it has had little commercial success so far as most operators are currently building networks based on Qualcomm technology.

San Diego, California-based Qualcomm said it plans to continue developing Flarion's FLASH-OFDM products and could integrate it with its own technology if there is demand.

"It would take some time and would depend on carrier interest," said Altman.

Qualcomm expects the deal to dilute its fiscal 2006 earnings per share by about 3 cents. Upon closing the deal it expects $10 million in one-time charges related to in-process research and development.

It plans to issue $267 million of stock and assume existing Flarion options and warrants valued at about $128 million, and pay about $205 million in cash, net of Flarion's projected cash balance at the close of the deal.

Within eight years of the close Qualcomm plans to issue another $35 million of stock and pay another $170 million in cash, depending on certain milestones, it said.

Qualcomm expects to close the deal, which is subject to regulatory approval, around October. Flarion was advised by Evercore Partners and Qualcomm was advised by Morgan Stanley.

Qualcomm shares were up $1.28 at $40.49 in afternoon trade on Nasdaq after hitting $40.60 earlier in the session. Intel shares were down 31 cents, or 1.5 percent, at $26.57.