TIs $365M Deal for Libit Revs Up Its Cable Drive

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Texas Instruments Inc. is entering the cable sector in a
big way through its surprise $365 million buyout of Libit Signal Processing Ltd.

Already a major supplier of digital signal processors for
other platforms, TI's acquisition of Herzlia, Israel-based Libit, announced last
week, gives it an immediate, significant presence in the market for silicon used by
standards-based cable modems capable of supporting high-speed data and, eventually,
Internet-protocol telephony.

Combined with its pending $435 million buyout of Telogy
Networks Inc. -- a key developer of software for IP-telecommunications DSPs -- TI's
Libit deal strengthens its hand in the competition to provide IP-telephony solutions for
cable and other broadband platforms.

Industry estimates are that the semiconductor
broadband-access market could grow to $1 billion annually by 2003, as voice networks of
all types evolve, from circuit switches to packet switches. TI wants its DSPs at every
connection along the digital network, from telephones to network interfaces, modems and
set-top boxes.

"We see the explosion in the broadband-communications
market as a huge opportunity for TI," manager of DSP strategic marketing Leon Adams
said. "Our vision is to provide TI's programmable DSP solutions across all forms
of this communication."

TI plans to develop a reference design incorporating each
of the three companies' technologies, which it will pitch to vendors as a means of
getting more advanced modems to market faster.

The all-cash deal for Libit brings TI together with one of
the only two chip makers so far to provide silicon for modems certified as meeting the
industry's Data Over Cable Service Interface Specification for interoperability.

This launches giant TI -- a major supplier of DSPs for
digital-subscriber-line modems -- squarely into a market for cable set-top and modem
silicon that has been dominated so far by Libit's rival, Broadcom Corp.

Also planning to invade the cable-modem space is Conexant
Systems Inc., a leading supplier of analog modem chips that has unveiled its own digital
modem and cable set-top-box designs.

Libit's "LBT4030" physical-layer transceiver
(PHY) is used by Toshiba America Consumer Products for its DOCSIS-certified cable modem.

So far, Sharp Electronics Corp. is the only other vendor
close to submitting to DOCSIS testing using Libit's PHY and media-access-control
solutions.

But now that Libit has TI's financial, technological
and manufacturing resources, it becomes an even more attractive supplier for a number of
companies that might have wanted to use multiple chip vendors, but that did not want to
risk alienating Broadcom while that company still dominated the modem-silicon business.

"This provides for a substantial, if not leading,
position in terms of the cable-modem and set-top box marketplace," Libit vice
president of sales and marketing Jacob Tanz said. "We are now a credible supplier
with fab [fabrication capabilities] behind us, with more technology behind us and with
software that's first-class."

Mark Knudsen, general manager of Toshiba America's
network-products division, agreed that besides validating Libit as a credible source of
technology, the TI acquisition would likely boost confidence in its solution among
manufacturers and MSO customers.

"There's always a comforting feeling knowing that
a key supplier is part of an organization in which, for all intents and purposes, the
pockets are limitless in terms of development resources," former TI executive Knudsen
said. "TI is a company that will migrate technological talent across organizational
boundaries to solve problems."

Not that Libit has gone wanting for attention from suitors
eager to use its technology for entry into the red-hot cable-modem sector.

For months before last week's deal, Lucent
Technologies was considered the leading contender to acquire Libit, with sources
indicating that the two companies had a tentative agreement late last month for a $260
million cash deal.

As recently as the National Show earlier this month, Lucent
and Libit were on the verge of finalizing a deal, but they were unable to reach a
definitive agreement.

Libit also reportedly rebuffed earlier overtures not only
from Intel Corp. -- its partner in developing a lower-cost, "host-based" modem
chip -- but also from TI, which, news reports from Israel indicated, had its original $110
million offer topped by Lucent.

Lucent Microelectronics spokeswoman Samantha Baxter
acknowledged that the companies had been in talks, but they could not reach mutually
agreeable terms.

Lucent has a small presence in the cable-modem market,
doing custom semiconductor designs for a handful of clients, and Libit would have enabled
the company to expand its product range, Baxter said.

"We still see it as an important area, and there are
still options out there for us," she added.

Tanz said Libit had talked with multiple potential
partners, but TI's ability to meld solutions covering both data and voice over IP was
the most compelling.

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