Updated from 5:04 p.m. EST

Atheros Communications ( ATHR) swung to a loss in its fourth quarter, on acquisition charges related to the chipmaker's diversification plan.

The Santa Clara, Calif., company said Monday that sales in the three months ended Dec. 31 were $87.8 million, up 65% year over year, thanks to strong demand for its Wi-Fi chips based on the leading-edge 802.11N standard.

Atheros had a net loss of $953,000, or 2 cents a share, in the fourth quarter, including $11.4 million in acquisition-related expenses.

Excluding stock option-compensation expenses, Atheros said it earned 22 cents a share.

Analysts polled by Thomson Financial were looking for 20 cents a share on sales of $86.2 million.

Atheros has spent the last several months broadening its business through a combination of acquisitions and home-grown initiatives.

In October, Atheros acquired Taiwanese chip company Attansic Technology for roughly $72 million in cash and stock.

In a separate announcement Monday, Atheros announced its latest new business, a line of wireless, Bluetooth chips.

Atheros said it will initially target the Bluetooth chips at the PC market, where the company said it has existing relationships with many of the big players, with plans to eventually move into the larger Bluetooth cell-phone handset and headset markets.

Shares of Atheros were up 4 cents at $24.07 in extended trading.

As laptop PCs increasingly become digital-entertainment and communications hubs, CEO Craig Barratt predicted a growing need for wireless connectivity between PCs and cell-phone handsets and headsets, as well as with traditional PC peripherals like the keyboard and the mouse.

And unlike the market for Wi-Fi chips, Intel ( INTC) does not offer Bluetooth functionality into its Centrino notebook PC platform, presenting Atheros with a significant market opportunity.

"The things we've learned about making cost-efficient products, having a very efficient supply chain and working very closely with our customers can serve us very well in this market," Barratt said in an interview with TheStreet.com after the earnings report.

Barratt said that Atheros does not believe Bluetooth products need to have lower profit margins than those of its Wi-Fi chip business.

Still, Atheros has given itself a bit of a cushion as it moves into Bluetooth: The company's business model calls for a gross margin level between 43% and 45%, which is lower than the 47% to 48% range Atheros has posted in the past couple of quarters.

According to Barratt, the Bluetooth products will not make a material contribution to the company's financial results until the end of 2007.

In the first quarter, sales of 802.11N chips will slow down somewhat, accounting for 20% of the company's wireless LAN revenue, vs. 23% in the fourth quarter.

But Atheros management said revenue in each of its business divisions will be up sequentially in the fourth quarter, boosting sales in what is typically a seasonally soft quarter.

Indeed, Atheros projected that first-quarter sales will increase between 5% and 9% sequentially, which translate to a revenue range of $92.2 million and $95.7 million.

EPS will range between 20 cents and 21 cents.

Analysts were looking for sales to decrease slightly to $84.8 million in the first quarter, with EPS of 19 cents.

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