Broadcom Corp. today said it will pick up a parcel of communications algorithms through the acquisition of Digital Furnace Corp. which will allow it to triple the upstream bandwidth of broadband cable networks.
According to terms of the acquisition, which will be accounted for as a pooling of interests, Broadcom will issue shares valued at approximately $136 million in exchange for Digital Furnace, an Atlanta-based software developer for small office/home office and residential communications applications.
Specifically, Digital Furnace's patent-pending Propane software runs over Broadcom's cable-modem chipsets and supports the company's Data Over Cable Service Interface Specification (DOCSIS). Digital Furnace said Propane uses advanced algorithms to improve efficiency and reduce latency in broadband networks, providing as much as three times greater upstream capacity for interactive services, while reducing the cost of integrating voice and data.
"The Digital Furnace software will turbo-charge Broadcom's cable-modem technology, optimizing the full capabilities of our chipsets," said Henry T. Nicholas III, Broadcom's president and chief executive. "We can offer our cable-modem customers superior and wider performance capabilities, allowing them to differentiate themselves in the expanding residential and business markets."
Citing figures compiled by Forrester Research Inc., Cambridge, Mass., Broadcom said 26 million households will have Internet access via cable modems by 2005, and 20% of U.S. households will have telephone service via cable-connected phones.
Such expectations mean that service providers will need to receive data sent from the subscriber to the network at much faster rates than are available today. Propane's algorithms are said to an increase reverse-path capacity up to three times, depending on cable plant and market variables.
"We're excited about combining our technology with Broadcom's chips to help speed delivery of new voice, video, and data services," said John Lappington, Digital Furnace's co-founder, president, and chief executive. "With the added capacity provided by Propane, cable operators deploying Broadcom-based communications equipment can now greatly increase their number of interactive customers and resulting service revenue over existing broadband networks."
According to terms of the deal, Broadcom will issue 664,735 shares of its Class B Common Stock and reserve 85,265 additional shares for issuance upon exercise of outstanding employee stock options and other rights of Digital Furnace. Broadcom will reflect the transaction in its first fiscal 2000 quarter, ending March 31, and expects to record a one-time charge to cover related expenses.
The boards of directors of both companies have approved the merger, which is contingent upon the approval of Digital Furnace's shareholders and other closing conditions. Following the merger, the operations and employees of Digital Furnace will be integrated with those of Broadcom's Residential Broadband Business Unit, also based in Atlanta.