SAN FRANCISCO -- Navigation devices are the hot gift this holiday season.

And the components that comprise the heart of the gizmos are also at the top of wish lists for deal-hungry chipmakers.

Last Friday,

NXP Semiconductor

announced its purchase of


, a Newport Beach, Calif., maker of global positioning satellite chips, for $85 million in cash, with another $25 million tied to performance milestones over the next two years.

The deal comes a week after


( ATHR) snatched GPS chip firm


for $54 million.

In June,



Global Locate

for $146 million.

As consumer electronic devices add a staggering array of features, semiconductor firms see GPS chips as one more bridge to new customers. As in any arms race, the fear of missing out on the latest technology seems to be driving the GPS frenzy.

Atheros finance chief Jack Lazar reckons that more buyers are likely shopping around for the five to 10 other independent GPS chip firms out there.

"I do think there's probably a couple more that get picked up," Lazar says.

Sirf Technology

( SIRF) is the most-well known standalone GPS chipmaker, although the company's $1.5 billion market cap makes it significantly more expensive than some of the recently acquired companies in the sector.

There's also a handful of private GPS firms, such as San Francisco's


, and

TST Recommends


, based in Switzerland.

As it turns out, Atheros engineers were already hard at work on an internally developed GPS product during the past year. But the growing opportunity to sell GPS chips into a variety of gadgets convinced Atheros that it needed to speed up its entry into the market.

"I would have had to invest a lot of P&L in the upcoming year to go do this and had no guaranteed product success going forward," Lazar says. "This jumpstarts things at least a year or two."

GPS chips communicate with overhead satellites to pinpoint the geographic location of an electronic device. The most well-known market for GPS chips today are in the personal navigation devices made by companies like


(GRMN) - Get Report



, which serve up step-by-step driving directions.

But cell phones are clearly the next frontier.

According to industry research firm iSuppli, some 444 million cell phones will feature GPS chips by 2011, up from 107 million in 2006.

NXP Semiconductor CEO Frans Van Houten describes GPS as the next logical phase of the cell phone's evolution.

"We already turned the cell phone into a multimedia wallet. It's only natural that we also want to use our mobile phones to navigate and to find local goods and services," Van Houten said in the announcement about the GloNav deal.

A range of so-called location-based services, from promotions for nearby retail stores and restaurants to notifications about friends in proximity, are planned for GPS-enabled mobile phones.

And regulatory requirements, such as the Federal Communication Commission's Enhanced 911, which allows emergency services to determine a cell phone caller's location, could spur handset makers to incorporate the chips into phones (although software that calculates a cell phone's distance from nearby transmission towers provides alternative ways to do the job).

Atheros' Lazar says GPS provides "the major piece of the puzzle we were missing to go after the handset manufacturers."

But he says that cell phones won't be an immediate target for Atheros. The near-term revenue opportunity is in personal navigation devices and notebook PCs, where Atheros already has strong customer relationships through its wireless networking chip business.

The main problem with the current crop of navigation devices is price, says Lazar. And that's where he believes Atheros will make a difference, by driving down the costs and making GPS products so inexpensive that they're practically disposable.

Of course, a good chunk of the price of navigation products is the software that displays the GPS data on maps and delivers useful services, like voice-activated directions.

But those costs could be due for a drop as well, particularly in light of


(NOK) - Get Report

move to purchase mapping software company


(NVT) - Get Report


GPS is finishing the year in the spotlight. But for chipmakers, the story is just beginning.