UPDATE 1-Smith Micro to buy PCTEL unit for $59.7 million

(Adds details, analyst comments, conference call details)

By Supantha Mukherjee

BANGALORE, Dec 10 (Reuters) - PCTEL Inc (PCTI.O) said it agreed to sell its mobility solutions group to Smith Micro Software Inc (SMSI.O) for about $59.7 million in cash and plans to buy back three million shares.

PCTEL, which makes telecommunications software and hardware, said it will get about $42 million, after expenses, from the sale of the business. It acquired it in 2002 for $1.5 million.

Smith Micro is a diversified developer and marketer of wireless communications software products and services and the company said the move would help it expand its technology portfolio.

"It's expensive, but it helps Smith Micro in many different ways, Morgan Joseph analyst Kevin Dede said by phone.

"... And with proper execution on the acquisition it could remove some of the operating costs and hopefully it will translate into more profit," he added.

In a conference call on Monday, Smith Micro said following the transaction it will add six Tier-I customers: AT&T Inc (T.N), Sprint Nextel Corp (S.N), Britain's Vodafone Group Plc (VOD.L), French telecoms operator Orange, NTT DoCoMo (9437.T) and Deutsche Telekom's (DTEGn.DE) T-Mobile division.

Chief Executive William Smith said the purchase price for the deal was fair given all the synergies.

Dede said there is an IMS (IP Multimedia Subsystem) application that PCTEL has which is actually very powerful and this would benefit the company as more networks migrate to IP.

"So, there's customer breadth and there's technology breadth and then there is operating synergies," Dede said.

IMS is about services and applications, enabling telecoms, mobile operators, and other service providers to offer rich multimedia services across networks.

"We think it's the right time to enter the IMS space. We see it as a area of growth in the latter part of 2008 and most definitely in 2009, and we are excited in entering that space," CEO Smith said.

Shares of Smith Micro rose about 13 percent to $8.70 in after-market trade, while PCTEL's shares were trading flat at $7.61. Both trade on the Nasdaq. (Editing by Bernard Orr)