SAN FRANCISCO -- Atheros Communications' ( ATHR) bottom line was cut in half in the first quarter, as write-offs, acquisition-related charges and higher expenses weighed down the chipmaker's results.

But the company said demand for its wireless networking chips is set to accelerate in the coming months, despite general fears that a sluggish economy will pinch sales of the PCs that incorporate its chips.

Santa Clara, Calif.-based Atheros reported sales of $114.5 million in the three months ended March 31, compared with $95.5 million at this time last year.

Analysts polled by Thomson Financial were expected $113.8 million in sales.

Whiles sales to PC makers were soft in the first quarter, due to seasonality and a weak economy, Atheros said overall revenue from its wireless network chips was particularly strong, thanks to healthy demand from retail customers and communications companies.

And Atheros' line of older 802.11G wireless chips have proven to have nice legs: The company's wireless chips are finding a niche in the nascent category of ultramobile notebooks epitomized by the Asus Eee PC.

"The sub-$500 PC segment is becoming increasingly important to Atheros," said CEO Craig Barratt in a post-earnings conference call.

He noted that Atheros is enjoying an advantage in the segment, since rival Intel ( INTC) no longer offers Centrino-branded chips based on the older, less-expensive 802.11G standard.

Atheros posted net income of $3.4 million, or 6 cents a share, vs. $7.6 million, or 13 cents a share, in the year ago period.

Atheros incurred more than $14 million in charges, including stock compensation expenses and a $5 million write-down for the company's auction rate securities, whose value now stands at $25 million.

Excluding the charges, Atheros said it earned 28 cents a share. The average analyst expectation of 28 cents EPS excluded stock compensation expenses. It was not immediately clear if the other charges were also excluded.

Atheros' gross margin was 51.2% in the first quarter, ahead of its business model of 45% to 47% gross margin.

Operating expenses were up 8% sequentially in the wake of Atheros' $54 million acquisition of GPS chip firm U-Nav in December.

Atheros unveiled its latest GPS product Monday, and the company said it had high hopes for the business despite the recent signs of slowing growth and profit pressure at Sirf Technology Holdings ( SIRF), the leading GPS chipmaker.

And Atheros said its Rocm line of chips for handheld consumer electronics has been selected for more than 30 devices, including products at three of the top five cell phone makers.

Atheros has partnered with cell phone chipmakers Qualcomm ( QCOM) and Infineon ( IFX) to help it break into the highly competitive cell phone market.

Looking ahead, Atheros forecast that sales would increase between 4% and 6% sequentially in the current quarter, which translates to $119 million and $121.3 million, vs. the average analyst expectation of $120.7 million.

Atheros said its EPS will range between 29 cents and 30 cents. Analysts were looking for 29 cents.

Shares of Atheros were off 2.7% to $25.80 in recent after-hours trading.

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