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Small cells will be the hallmark of new networks from this year, and the wireless chip industry's second acquisition this week brings together two key technologies - femtocell SoCs and LTE. Mindspeed Technologies is to pay up to $76.8m for the UK's Picochip, allowing both firms to achieve the scale to remain competitive in a sector poised for major growth - but eyed hungrily by the giants.

Mindspeed has attracted high levels of attention for its pioneering work in small cell architectures, particularly for LTE, but has not yet converted its innovation into significant sales. Meanwhile, 11-year old Picochip is the leading supplier of SoCs for the femtocell market, and has led the charge to adapt the concepts of that segment - highly integrated, low power, self-managing units - for the more complex challenge of the public access, carrier network.

Acquisition gives the UK company the wherewithal to accelerate its migration into the outdoor network, and to survive the classic danger period for the start-up, when an initial market lead starts to be threatened by rivals with deeper pockets, before new market opportunities have fully matured. This has been seen in femtocells, where Broadcom entered the market via its own acquisition of Percello and Qualcomm has also become active. Meanwhile, even before the broader small cell sector converts carrier enthusiasm into large scale revenues, majors like Texas Instruments and Freescale are throwing their hats in the ring and seeking to sideline the pioneers like Mindspeed.

The price tag reflects the dangers of this transition period, as well as economic realities, rather than the real value of Picochip's technology and market position. Mindspeed is paying $27.5m in cash and issuing 5.19m new shares to Picochip's investors, and will pay a further $25m in cash by 2013 if Picochip meets certain undisclosed financial performance objectives. Mindspeed expects to close the acquisition this quarter.

However, the timing is good, giving both firms a fighting chance of making their mark in the LTE small cells space, where SKT recently sounded the bugle with a world-first deployment of a network based on what will become the guiding principles of modern 4G network planning - shrunken base stations and heterogeneous networks combining 3G, LTE and Wi-Fi. In this context, Mindspeed and Picochip make a complementary and highly strategic match, even if the former - like Marvell with its purchase of network processor maker Xelerated earlier this week for a reported $100m - has got a European innovator decidedly on the cheap.

Mindspeed estimates that, together, its Trancede SoC line and Picochip's PicoXcell have 70% of the HSPA femtocell chip market and are best positioned for the LTE small base station wave, nascent as that may currently be. Both companies have big name customers and alliances, too - Picochip powers femtocells from Alcatel-Lucent, Cisco and others, while Mindspeed, with its broader portfolio of ARM-based telecoms infrastructure offerings, also supplies those two giants, plus Nokia Siemens, Huawei and Samsung.

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