Nvidia Bulks Up

Nvidia(NVDA Quote) finally announced an acquisition on Monday, but it wasn't the deal the Street was expecting.

Though the rumor mill had been abuzz for weeks that Nvidia would get swallowed by chip giant Intel(INTC Quote), it turned out that Nvidia was the one looking to bulk up. The Santa Clara, Calif., graphics chipmaker plunked down $357 million to acquire PortalPlayer(PLAY Quote).

Nvidia CEO Jen-Hsun Huang described the deal as bringing together the two key ingredients of next-generation electronic devices: the application processor and the graphics chip.

"With the products created through this combination, we intend to drive the next digital revolution, where the mobile device becomes our most personal computer," said Huang.

The combination was in many ways one of necessity for the two chipmakers, which have found themselves under increasingly challenging circumstances.

Nvidia has been taking steps to diversify itself away from a maturing PC industry, by expanding into consumer electronics such as cell phones and game consoles. The pressure has been particularly acute since Nvidia's graphics rival ATI Technologies joined forces with Advanced Micro Devices(AMD Quote) last month.

For its part, San Jose, Calif.-based PortalPlayer has been desperate for any kind of a succor after the company lost its business providing chips for Apple Computer's(AAPL Quote) popular iPod nano in April.

Despite PortalPlayer's setbacks, investors bid the stock down in afternoon trading Monday, owing to the meager premium that Nvidia ponied up. PortalPlayer shares were recently off 7 cents to $13.29.