(Image courtesy of Bosch).

Silicon Labs Acquired Sigma Designs for $282 Million. Here's Why.

For the last two years, Silicon Labs has been stocking its shelves with all the major wireless components to link household devices and industrial equipment, putting particular emphasis on ZigBee, Bluetooth, Wi-Fi and Thread. It has engineered chips that can switch between protocols with a simple software update.

Now the Austin, Texas-based chipmaker is expanding into Z-Wave, which is among the most popular wireless protocols for connecting light bulbs, door locks, and other home automation devices without complex programming. Silicon Labs recently said that it would buy Sigma Designs, the standard’s proprietor, for $282 million.

“By adding Z-Wave technology to Silicon Labs connectivity portfolio, we will be better positioned to serve this fast-growing market,” said Tyson Tuttle, the chief executive officer of Silicon Labs, in a statement. “Ecosystem providers and developers will have a one-stop shop for wireless connectivity solutions for the home.”

As chief executive for the last five years, Tuttle has Silicon Labs playing the long game with the Internet of Things. Under him, the company bought BlueGiga to expand its assortment of Bluetooth chips, Zentri to broaden its Wi-Fi solutions, as well as Ember and Telegesis to tighten its grip on ZigBee, which can be used connect smart homes with a mesh network that skips data from one device to another until its reaches a gateway.

Now it is inheriting Z-Wave with the acquisition of Sigma Designs, the solitary supplier of Z-Wave chips for more than 600 manufacturers, including Amazon and Samsung. With Sigma Designs’ silicon secrets, Silicon Labs may want to create a chip that supports both ZigBee and Z-Wave, which also uses mesh networking.

The two technologies could be a natural fit, with Z-Wave sending radio signals over the 908 MHz spectrum in the United States, while ZigBee shares the same 2.4 GHz frequency band as Wi-Fi, which typically eats through too much power for applications like wireless sensors installed in factories or commercial warehouses.

It is not guaranteed that two ZigBee devices will work together unless planned beforehand, but Z-Wave devices will almost always connect to other Z-Wave devices, which can send signals around 100 feet. While ZigBee devices have a shorter range, the network can support up to 65,000 devices, while Z-Wave can only handle a maximum of 232 devices.

The combination chip would fit Silicon Labs’ strategy. In March, the company expanded its line of Wireless Gecko chips that can simultaneously support ZigBee and Thread, Bluetooth and Wi-Fi, as well as proprietary sub-GHz protocols. The chips have more memory than previous versions, and that helps them store stronger security software and switch between wireless protocols faster while in the field.

Silicon Labs offers a few different ways to swap between protocols. The company’s chips can reprogrammed in the factory or remotely with an over-the-air update. Silicon Labs also lets multiple wireless protocols work simultaneously using a time-slicing mechanism. Customers could, for instance, use Bluetooth in connected office lights and then shift to ZigBee as more devices come onto the network.

This is how Silicon Labs plans to hedge against a lack of smart home and building automation standards, which has hampered the smart home and broader Internet of Things from growing. Z-Wave was invented in 2001. ZigBee – named for the waggle dance of honey bees after their return to the beehive – officially became a standard in 2003. And neither one has superseded the other yet.

Sigma Design’s chips would give it customers more flexibility. Now it will “offer the complete portfolio of parts to them as opposed to cannibalizing one standard versus the other,” said Tuttle in a conference call with investors. Silicon Labs expects to close the deal in the first quarter next year. The boards of both companies have approved the deal.

Sigma Designs has agreed to sell its smart television business and is negotiating the sale of its media connectivity division. If it fails to sell both business units, Silicon Labs said that it would buy the Z-Wave business for $240 million. As part of the deal, Silicon Labs will also absorb around 100 employees that survived a recent restructuring at Sigma Designs.

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