Updated from 9:27 AM ET

Intel

(INTC) - Get Report

, the world's largest chipmaker, said Wednesday that it will buy Danish chipmaker

Giga A/S

for $1.25 billion in cash, marking the latest in a string of 13 acquisitions by Intel in the networking and communications-related area.

The move enables Intel to build up its expertise in the design of high-speed chips that direct traffic across voice and data networks. Giga, a unit of the Copenhagen-based industrial and electronics company

NKT Holding A/S

, is a leading supplier of optical networking products, such as integrated circuits and components

That higher performance capability with the optical application fills a gap in Intel's network communications portfolio, which has grown significantly since January 1999.

Intel has aggressively targeted this space because the "PC market is becoming fairly stagnant," says Dan Scovel, an analyst at

Fahnestock & Co.

He rates Intel a hold, and his firm has done no underwriting for the company.

More than 80% of Intel's revenue comes from the personal computer market. But Intel's growth in the fourth quarter for that segment increased only 9.8%, to $6.955 billion.

The move to the communications sector makes sense, as the growth rates are higher than in Intel's basic business. Scovel characterizes the strategic shift as a positive one, but asks, "How quickly can they do it? How quickly can they offset the less attractive growth prospects in the core PC business?"

That concern is echoed by Tad LaFountain, an analyst at

Needham & Co.

"How much do they have to pay for these acquisitions? Is there an economic justification there?" he asks. After all, Intel is paying $1.25 billion for a company that recorded revenue of 190 million Danish krone, or $24.7 million, in 1999.

He rates Intel a hold, and his firm has done no underwriting for the company.

"How much would this have to grow in order to offset the foregone income

from the $1.25 billion in cash?" LaFountain says. He calculates that Giga would have to record $300 million in sales, assuming a 20% pretax margin, to offset that foregone income. That could take five years or maybe longer.

"To get higher growth rates, the price of buying communications companies is so astronomically high that the arithmetic is inherently unappealing," LaFountain says. He adds that companies will pay these prices because "they look at other people willing to do so and figure that's the going rate."

Shares of Intel, based in Santa Clara, Calif., rose 3 1/8, or 3%, to 121 1/16 around midday Wednesday.

The acquisition is subject to regulatory approvals and is expected to close within the next few months. Upon the close of the transaction, Giga will become part of

Level One Communications

, a wholly owned subsidiary that Intel bought last August.

Since January 1999, Intel has also acquired

XLNT Networks

,

Softcom Microsystems

,

Dialogic

,

NetBoost

,

Stanford Telecommunications'

telecom component products division,

IPivot

,

DSP Communications

,

Parity Software

,

Thinkit Technologies

and

Ambient Technologies

, as well as the hire of 200 engineers from

Olicom

.

Giga employs about 100 people. In 1999, the company reported pretax profit of 102 million Danish krone. Giga was founded 12 years ago.