World domination: but at what price? - Company Business and Marketing

Semiconductor company Broadcom is in the midst of a buying spree and is evaluating its mission in the process.

These are critical times for the highly rated Broadcom corp., of Irvine, california. The semiconductor company, seeking to do for broadband communications what Intel corp. has done for the personal computer, has been rapidly expanding the breadth of its broadband portfolio. Broadcom averaged one acquisition per month last year. Six months ago the company had one engineering team in Europe--now it has five.

Analysts say this drive for global presence could stretch the company's management skills and technology base to the limit.

"[Irvine is driving growth] at a ferocious rate," said Brad Smith, vice president. section chief at communications analysts RHK Inc. of San Francisco, california. "[Broadcom] is extremely aggressive in its acquisition model. [trying] to gain a mass and move the company as fast as possible."

But Mark Edelstone, managing director at investment bank Morgan Stanley Dean Witter & Co., of San Francisco, while rating Broadcom "as probably the best company in the semiconductor industry." raises a word of caution about such drive: "One wonders how long their employees can maintain the pace." he said.

Company strengths

Broadcom's market strengths include cable modem and digital set-top box devices, and gigabit Ethernet chips in enterprise networking.

The company reported revenues of $1.1 billion in 2000, more than doubling its revenues in 1999. Over half of this comes from its supply of components to three equipment vendors: 3com, Motorola and cisco Systems.

"We believe ultimately there will be three communications integrated circuit companies dominating the market," said Jeremy Bunting, a principal analyst at Thomas Weisel Partners, LLC. In San Francisco. One will be Broadcom, he said; the other PMC-Sierra, Inc. of Burnaby, canada. which concentrates on Internet infrastructure markets; while the third company is as yet unidentified.

The crux of Broadcom's expertise is mixed signal design: an ability to place analog and digital circuitry on one device. This is tricky to do but brings cost savings as one chip will do what otherwise would require several chips.

"In 20 years every electronics device will be connected to the network," said Dr. Henry Samueli, Broadcom's chief technology officer. "Our mission is to provide the devices at the subscriber end and the core, enabling broadband end-to-end connectivity."

Two recent acquisitions show the pace and the diversity of technologies Broadcom is having to digest to keep this strategy on track. Last month it spent $957 million on high-speed input/output server device company, ServerWorks corp. of Santa clara. california.

"You have heard of fiber-to-the desktop, this is fiber-to-the-CPU," said RHK's Smith. ServerWorks gives Broadcom a strong foothold in the emerging storage area network market.

Broadcom has moved to bolster its position in digital subscriber line (DSL) devices. Until last November's $600 million acquisition of Element 14, the cambridge. England-based digital subscriber line startup, Broadcom only addressed the DSL market through devices for the emerging very high speed digital subscriber line (VDSL).

With Element 14. it is now going after the asymmetric DSL (ADSL) market, which accounts for 85% of the total DSL device market. According to Stan Bowland, former chief executive of Element 14 and now vice president of Broadcom's DSL unit, the company only has two DSL products. In the next six months it will send for manufacture 10 further DSL chip designs.

Despite mixed signal expertise, Broadcom has yet to fully address wireless. "Wireless is a major initiative." said Samueli. "We are doing Bluetooth and are looking at wireless LANS." What about the cellular market? "I never exclude any market," he said, but stressed that Broadcom has more pressing priorities. However, since broadband mobile services will appear over time, he hinted it was a market Broadcom could not ignore. "The wireless area will expand more and more," he said.

                The tally up to now: Broadcom's acquisition
                           frenzy over the year
Date          Company
1 March 2000  Stellar Semiconductor
31 May 2000   Pivotal Technologies
19 July 2000  Innovent Systems
8 August 2000 Altima Communications
3 Oct 2000    NewPort Communications
6 Oct 2000    Silicon Spice
24 Nov 2000   Element 14
13 Dec 2000   Allayer Communications
18 Dec 2000   SiByte Inc.
5 Jan 2001    VisionTech Ltd.
8 Jan 2001    ServerWorks
Date          Applications
1 March 2000  3D graphics devices
31 May 2000   Devices for wired and wireless environments
19 July 2000  Bluetooth
8 August 2000 LAN
3 Oct 2000    WAN/Sonet devices
6 Oct 2000    VolP
24 Nov 2000   DSL chipsets and communications processors
13 Dec 2000   Communications devices for LANs, MANs and WANs
18 Dec 2000   Communications processors
5 Jan 2001    Digital video/audio MP2 compression and decompression chips
8 Jan 2001    Input/output devices for server and network appliances
Total acquisition costs of $8.7 billion
Source: Broadcom, MSDW

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COPYRIGHT 2001 Gale Group