UPDATE 2-Broadcom to buy AMD's Digital TV business

(Adds analyst quote, details on Broadcom opportunity)

By Sinead Carew

NEW YORK, Aug 25 (Reuters) - Chip maker Broadcom Corp (BRCM.O) said it would buy Advanced Micro Devices Inc's (AMD.N) digital television chip business for $192.8 million in cash to enter the market for cheaper television sets.

AMD shares rose 4.5 percent after the news but Broadcom shares fell 3.5 percent after it said the deal would hurt earnings in the first year.

However, Stifel Nicolaus analyst Cody Acree applauded the agreement, saying it opens high-volume, high-growth consumer markets for Broadcom's TV chip unit.

"If Broadcom gets into a lower end DTV box, it allows them to target markets like China, India and Brazil," said Acree, adding that sales of cheaper televisions could be lifted by economic uncertainty among consumers.

After the deal, Broadcom would be selling chips for television sets with screens of up to 20 inches priced around $200 to $300. Broadcom, which makes chips for a range of consumer electronics including cell phones and set-top boxes, had previously focused on chips for more expensive TVs.

The deal is expected to close in the fourth quarter and is forecast to cut Broadcom's full year 2009 net earnings per share by a range of 4 cents to 5 cents, including 2 cents of stock-based compensation, the company said. It expects the impact on earnings to lessen and "approach neutrality" by the fourth quarter of 2009.

Broadcom said the deal would not change its long-term, gross margin target range of 49.5 percent to 51.5 percent.

Acree said the purchase price was "relatively cheap" for Broadcom as it is less than the unit generated in revenue for the last year, according to his estimates. Acree said it made sense for AMD, which needs to focus on its main business of graphics chips and computer chips.

AMD, which trails behind far-larger rival Intel Corp (INTC.O) in the computer microprocessor market, has reported seven straight quarterly net losses and is developing a new strategy for manufacturing.

Broadcom said it planned to offer jobs to 530 AMD employees, about 90 percent of whom are engineers.

It said the boards of each company had approved the deal, which does not require a shareholder vote but does need regulatory approval.

Broadcom also said it may record a one-time charge for purchased in-process research-and-development expenses related to the acquisition in the quarter in which the transaction closes but said the amount, if any, had yet to be determined.

Broadcom shares were down 95 cents at $26.47 in late morning trading on Nasdaq. Shares in AMD were up 26 cents to $6.07 on the New York Stock Exchange. Its shares were still about 21 percent lower than mid-June levels. (Additional reporting by Euan Rocha; Editing by Brian Moss and Derek Caney)