Broadcom wants NetLogic to handle the real-time cloud

Broadcom, (s brcm) a chipmaker known for building integrated wireless chips for cell phones and home networks, today said it will buy NetLogic(s netl), a company that makes the silicon inside networking gear for a whopping $3.7 billion. It’s a lot of money, but it might be money well spent. Why?

The growing complexity of networks in wireless and the demand for more intelligence at the edge of wireline networks requires smarter silicon to handle the bits ever faster and NetLogic makes that silicon. NetLogic counts Alcatel-Lucent (s alu) and ZTE as customers for its processors. Broadcom, which has been primarily focused on handsets and residential gateways, is making a play for the innards of the network, and more importantly, the fast growing data center business.

The acquisition is another sign of consolidation in the networking chip space as the emphasis in real-time data flow increases pressure inside the data center and the demand for bandwidth increases pressure on wireless and wireline networks.

Like Intel’s (s intc) buy of Fulcrum two months ago, this deal is a big vendor trying to buy into a rapidly changing data center market that’s demanding more performance. Spurred on by increases in compute speed and new ways of architecting the data center, applications are demanding more bandwidth in order to serve up real-time results for Facebook status rivers or for big data analysis. The network is a bottleneck for that at the moment, as it doesn’t scale as rapidly.

Thus, chipmakers are working on improving on-chip communication as they add more cores, but they are also trying to improve server-to-server communication and even communication between the data centers with a wide array of products and protocols –from Open Flow to 100 gigabit networks. Whether the solution to these bottlenecks are fabrics such as those proposed by Juniper (s jnpr) for inside the data center, or Freescale (a Netlogic rival) on chip, or a different way of networking as proposed by the OpenFlow proponents, the future in the data center is being defined right now. Broadcom just made its bet with Netlogic.