Applied Micro Circuits will acquire intellectual property and a range of assets related to IBM's embedded PowerPC processors, in a deal worth $227 million.

IBM makes the award-winning PowerPC chips used in Apple's Power Mac G5 and Xserve G5.

The agreement includes current products based on IBM's PowerPC 403, 405 and 440 processor architectures, which IBM says accounted for $55 million in revenue in 2003, Dave Rickey, AMCC chairman, president and chief executive officer, said in a statement.

IBM, in Armonk, New York, said in early April that it planned to encourage third-party licensing of its Power architecture to boost the integration of devices, from small devices to large servers. Tuesday's deal is part of that move to "expand the Power ecosystem," IBM spokesman Rick Brause said.

IBM will continue to manufacture the embedded PowerPC products for AMCC, which does not have its own manufacturing facilities, according to analyst Linley Gwennap, of the Linley Group, who had been briefed by the companies on the deal.

It will also continue to make high-performance PowerPC products for its own products and for important customers including Apple Computer, Sony and Nintendo, Gwennap added.

IBM is attempting to focus on a few large customers and doesn't want to invest in new products for small, untested markets, hence its decision to divest assets such as the embedded PowerPC products, Gwennap said.

The agreement also includes a Power architecture licence, AMCC said.

"AMCC now has the opportunity to build its own PowerPC processors in future," Gwennap said.

"This is a pretty big deal for AMCC – it's a big chunk of cash, but it's a nice product to complement their current range of networking products," Gwennap said.

The transaction is expected to close this quarter, subject to closing conditions and regulatory approvals, AMCC said.