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Broadcom Corporation

Broadcom Corporation


5300 California Avenue
Irvine, California 92617
U.S.A.
Telephone: (949) 926-5000
Fax: (949) 296-5203
Web site: http://www.broadcom.com

Public Company
Incorporated:
1991
Employees: 5,827
Sales: $3.67 billion (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: BRCM
NAIC: 334413 Semiconductor and Related Device Manufacturing; 334419 Other Electronic Component Manufacturing

Broadcom Corporation is a major contributor in making communications possible through business networking, consumer broadband, and mobile and wireless services. The company specializes in designing high-speed integrated circuits, or chips, that are used in devices ranging from Bluetooth cell phone headsets to cable TV set-top boxes, cable modems, and local area network (LAN) cards to gigabit Ethernet switches to voice over Internet protocol (VoIP). Broadcom's strategy is to acquire smaller companies and integrate their technology through its engineering staff and extensive research and development (R&D) activities. As a "fabless" semiconductor manufacturer, the company farms out the actual fabrication of its chips. Cofounders Henry Samueli and Henry Nicholas each control about 30 percent of the voting stock of the company.

COMMUNICATIONS MARKETS: 199195

Broadcom was founded as a private company in 1991 by Henry T. Nicholas III, Ph.D., and Henry Samueli, Ph.D. The two men had 35 years combined experience in communications integrated circuits (ICs). Nicholas served as Broadcom's president and CEO, while Samueli was the company's vice-president of research and development. While working at TRW Inc., the pair gained experience in the Defense Department's Very High-Speed Integrated Circuit (VHSIC) program that later enabled them to create powerful silicon compilers for the quick design of commercial ICs. Samueli was a tenured electrical engineering professor at the University of California, Los Angeles, and Nicholas's doctoral program adviser.

The company's initial strategy was to focus on emerging markets in communications that used cable or wire. Using its design cell library and silicon compiler technology, it was able to quickly develop chip products, or ICs, for applications such as Fast Ethernet or advanced cable TV systems. Leveraging its military-based technology, Broadcom was able to accelerate the development of its commercial ICs.

Broadcom got its first big break in 1993 with a contract from Scientific-Atlanta, Inc., of Norcross, Georgia, which was supplying TV set-top boxes for Time Warner Corporation's experimental cable system in Orlando, Florida. Broadcom initially supplied Scientific-Atlanta with a three-chip set for digital demodulation in the set-top boxes, and within ten months had integrated the solution into one IC using a technology called quadrature-amplitude modulation (QAM).

For the first few years Broadcom relied on full-custom designs and licensing agreements for revenue as well as funding from its two founders. Its early customchip customers included Rockwell International, Analog Devices, and U.S. Air Force contractors producing Global Positioning Systems (GPSs). The small and relatively unknown company was able to gain such customers because of what its engineers accomplished and the quality of its engineering team, including the two founders.

In 1994 the company's revenues exceeded $5 million. It also received about $5 million in corporate financing from Intel Corporation, which was interested in Broadcom's Fast Ethernet chips for networking. In the fall of 1994 it began shipping volume production quantities of chips using the production capacities of American Microsystems Inc. of Pocatello, Idaho, and Taiwan Semiconductor Manufacturing Company. Revenues were expected to increase fourfold in 1995. Fast Ethernet, with 100-megabit/second ICs, was seen as a new market for potential growth. The company had about 50 employees.

SUPPORTING HIGH-SPEED INTERNET ACCESS: 1996

As Internet usage quickly expanded in 1996, regional Bell operating companies were competing with cable operators to become the dominant providers of Internet access. It was not yet clear whether cable modems hooked to coaxial cables or telephone modems with asymmetrical digital subscriber lines (ADSL) would become the dominant provider of Internet access. Broadcom was positioned to support both technologies. It was developing an ADSL transceiver for Northern Telecom (Nortel) and also rolling out a cable modem chip set for coaxial cable applications.

Using the same QAM technology that it used for its QAMLink line of devices for cable TV set-top boxes, Broadcom implemented QAM in cable modems and ADSL transceivers. Broadcom's QAMLink cable modem chip set provided 1,000 times the bandwidth then available over phone lines at 28.8 kilobits-per-second. Supporting the chip sets through strategic alliances with Broadcom were such original equipment manufacturers (OEMs) as General Instrument, Motorola, Hewlett-Packard, and Scientific-Atlanta.

By 1997 Broadcom's vision was to provide the technology to make the Internet accessible without a personal computer. The company was making the silicon chips inside nearly every cable modem and digital set-top box. Red Herring, a technology monthly, named Broadcom the best private company in the United States, and Nicholas and Samueli were named to the "Top 50 Cyber Elite" by Time Digital. It was estimated that cable companies deployed about 20,000 cable modems in 1996 and 100,000 in 1997. The demand for cable modems was expected to explode to one million in 1998. Each cable modem contained about $35 worth of Broadcom chips. For 1997 Broadcom reported a net loss of $1.2 million on revenues of $37 million.

For 1998 Broadcom forecast it would provide $30$45 worth of chips for two million digital cable set-top boxes. Demand, however, was dependent on the ability of cable systems to upgrade their infrastructures. Most systems were not designed for 500 channels or two-way communication with the Internet.

COMPANY PERSPECTIVES


"Connecting everything." Broadcom believes that one of our key competitive advantages is our broad base of core technologies encompassing the complete design space from systems to silicon. We have developed and continue to build on the following technology foundations: Proprietary communications systems algorithms and protocols; advanced digital signal processing (DSP) hardware architectures; system-on-a-chip design methodologies and advanced library development for both standard cell and full-custom integrated circuit design; high-performance radio frequency, analog and mixed-signal circuit design using industry-standard CMOS processes; high performance custom microprocessor architectures and circuit designs; extensive software reference platforms to enable complete system-level solutions.

GOING PUBLIC, INCREASE IN VALUATION

Broadcom went public in April 1998. It had grown to about 320 employees and boasted 36 Ph.D.s on its payroll. The company was popular with investors because it was making or preparing to make devices that supported high-speed voice and data transmission for computer networks, cable modems and digital TV set-top boxes, high-speed telephone modems, and direct broadcast satellite systems. In other words, Broadcom appeared to be positioned to play a big role in the convergence of computers, telephones, and television. Its two biggest customers were 3Com Corporation and General Instrument Corporation.

In the first six months following the initial public offering, Broadcom's stock doubled in price and occasionally traded above $72, three times its original price. In September 1998 the company issued another three million shares to the public. By January 1999 Broadcom's two founders were billionaires. At least 300 employees became millionaires, from engineers to receptionists. The firm's stock hit $100 in December 1998 and was approaching $200 a share in early January. The company's revenues for 1998 were $203.1 million and net income was $36.4 million.

SERIES OF ACQUISITIONS

In 1999 Broadcom began making a series of acquisitions that would expand its technological capabilities. In January 1999 Broadcom acquired start-up Maverick Networks, a developer of multilayer switching technology for enterprise networks, for about $104 million in stock. The acquisition of the two-year-old company gave Broadcom the means to enter the market for corporate enterprise switches.

In February Broadcom announced it would provide products for in-home networking that would transmit voice, video, and data at high speeds over existing telephone wires. The company dubbed its home networking technology MediaShare. Nortel Networks, anxious to maintain a competitive edge in the broadband arena, adopted very high speed digital subscriber line (DSL) technology that was jointly developed with Broadcom. Nortel said its new scalable DSL transceiver would support digital television, high-speed Internet access, videoconferencing, and multiple Internet protocol data streams.

In an effort to reach small- and medium-sized companies, Broadcom selected Insight Electronics as its first authorized distributor. Through Insight, which was selected because of its technical expertise, Broadcom products would be made available throughout North and South America. Up to this point Broadband's customer focus had been on large companies, such as Cisco Systems, Nortel Networks, 3Com, Motorola, and Scientific-Atlanta.

Broadcom acquired Epigram Inc., a leader in home networking silicon technology, in April 1999 for $316 million in stock. Home networking was still in its infancy, but analysts estimated the home networking market could reach $1.4 billion in four years. The acquisition helped boost Broadcom's market capitalization by more than $850 million as investors drove up the stock price. Purchasing Epigram all but assured Broadcom it would be first to market with its own home networking technology. Epigram's technology was widely expected to be the basis for the Home Phoneline Networking Alliance's 2.0 standard, an expectation that was confirmed by the Alliance's announcement in July 1999 that it had chosen technologies from Broadcom and Lucent Technologies as the basis for the next generation in home networks.

Broadcom introduced a new, faster chip (IC) that could transmit data, voice, and video signals on a copper line at one gigabit per second, ten times faster than existing technology and a speed then attained only on fiber-optic cables. Cisco Systems, 3Com, Nortel, Hewlett-Packard, and Dell were all developing products based on the new chip. Again, the company's stock soared on rumors of the announcements.

KEY DATES


1991:
Company founded by Dr. Henry T. Nicholas III and Dr. Henry Samueli.
1993:
Contract is won to supply Scientific-Atlanta with chip sets for cable TV set-top boxes.
1998:
Company goes public at $24 a share.
2000:
Broadcom's market capitalization exceeds $50 billion, and it begins acquiring other companies.
2001:
Its first gigabit Ethernet chips are introduced.
2002:
Company offers first low-cost solution for two-way, high-speed Internet access over satellite.
2006:
Decoder chip that read both Blu-ray and high definition DVD discs are introduced, and company enters applications processor market.

Amedia Inc., a design engineering firm and developer of advanced silicon technology that was based in India, was acquired. Then Broadcom purchased HotHaus Technologies of Vancouver, British Columbia, for $280 million in stock. HotHaus made software for embedded digital signal processors. The acquisition added to Broadcom's portfolio of ICs for broadband applications in DSL, cable modem, and wireless environments. The company hoped to bring VoIP to the home through an outside provider's broadband network, such as a cable operator, a DSL service provider, or via satellite provider. The VoIP market was forecast to exceed $1.8 billion by 2003, up from $290 million in 1999.

In August 1999 Broadcom acquired AltoCom Inc., a maker of software-based modems, or "soft modems," for $180 million in stock. The acquisition gave Broadcom access to another area of Internet technology, enabling Broadcom to build chips that would work with both cable and phone lines.

In October 1999 Nicholas and Samueli formed a partnership with Marvin Winkler, chairman of Gotcha International, to launch the Broadband Interactive Group (BIG). The privately held group planned to use Broadcom's high-speed communications chips to deliver interactive programming about sports and surfing. While Broadband was manufacturing interactive TV chips for cable set-top boxes, hardly anyone was using that technology, because hardly anyone was offering interactive TV services. BIG's goal was to create a demand for such services. It purchased all of Gotcha's media operations, including Gotcha TV, Gotcha.com, and three magazines. BIG filed for bankruptcy in 2001. With the company achieving market dominance in Fast Ethernet as well as high-speed data transmission to cable modems, Wall Street sent Broadcom's stock surging in November 1999. With its stock price rising over $200 a share, the company's market capitalization was approaching $22 billion. The rise came in anticipation of a stock split, which often precedes a run-up in a company's stock price. By January 2000, the stock was trading at more than $300 a share. A two-for-one split was subsequently announced for February 11.

Broadcom continued acquiring companies in 2000. In January it acquired BlueSteel Networks Inc., a maker of chips that scramble and unscramble data sent over the Internet, for $123 million in stock at the stock's closing price of $328.50. BlueSteel's high-performance security processors protected Internet transmissions from hackers. Broadcom noted a growing trend to include security in every application across networks, especially for consumers who wanted to participate in areas such as electronic commerce and home banking.

In March Broadcom acquired Digital Furnace Corporation, an Atlanta, Georgia-based developer of software that increased the flow of information over cable lines, for about $136 million in stock. Digital Furnace's software compressed data sent over cable lines, thus tripling the capacity of cable networks equipped with Broadcom's high-speed communication chips. That same month Broadcom acquired Stellar Semiconductor for about $162 million. Stellar was a Silicon Valley designer of three-dimensional (3D) video chips. Its cable modem chips could accelerate 3D graphics by reducing the amount of data and time it took cable TV set-top boxes to display 3D pictures on TV screens.

Following the February stock split, Broadcom's stock continued to soar, reaching nearly $250 a share. The company's market capitalization was more than $50 billion. But the good times were about to end.

FROM BROADBAND TO WIRELESS

Broadcom continued to acquire smaller companies, including its largest, chip supplier ServerWorks for $957 million in January 2001. As president and CEO Henry Nicholas explained to Electronic Engineering Times, the acquisitions "have been made with the objective of connecting every computer in every market over every medium."

However, with the crash of technology stocks, Broadcom lost much of its luster. As venture capital dried up, so did much of Broadcom's sales, which had been to start-up ventures. The company reported losses of $2.7 billion in 2001 and $2.2 billion in 2002. Although it was the dominant provider of chips for the cable market, with its chips in 80 percent of all cable modems and set-top boxes, competition had been growing, and some analysts questioned whether Broadcom had paid too much for some of its many acquisitions.

The company responded with networking products, moving from chips that accessed data through modems to one that transported data across networks. It introduced its chips designed for DSL networks, its gigabit Ethernet chips, and the first "pre-g" chips for the latest standard for high-speed data transmission. Networked computers were no longer just in offices. Now they were being found in homes as well, and Broadcom's chips were used in new Wi-Fi networking equipment to connect those computers.

In November 2002, the board hired Alan "Lanny" Ross as chief operating officer. With a goal of streamlining the company, Ross laid off 500 workers and scaled back or unloaded unprofitable acquisitions.

By mid-2003, Nicholas had left the company, although he retained 35 percent of Broadcom's voting stock. Samueli remained as board chairman. The board selected Ross to serve as interim chief executive. Ross reorganized the company into four business groups: mobile and wireless; broadband communications; enterprise computing; and networking infrastructure. Before the end of the year, Broadcom introduced a new Wi-Fi chip tiny enough to be able to add wireless networking to all kinds of electronics equipment, such as cell phones and personal digital assistants (PDAs). Using the technology of an earlier acquisition it also moved into short-range personal networks, such as Bluetooth.

The year 2004 saw the company's first profit as it developed chips that combined both voice and Wi-Fi, making it possible to send voice and data through phone handsets. That year the company also moved into video and mobile multimedia processors with the acquisition of Alphamosaic. This technology made it possible to deliver video to mobile devices, and Broadcom chips were selected for Apple's video iPod.

NEW LEADERSHIP, NEW DIRECTIONS

In October 2004, Broadcom announced that Scott McGregor would become president and CEO, effective January 2005. At the time, McGregor was CEO of the semiconductor works of Dutch giant Philips. His background included leading the development of the Windows operating system. Later in 2005, Broadcom filed multiple suits against Qualcomm for patent infringement.

The company continued to make strategic acquisitions and to introduce new chips for products within its three major divisions: Consumer Broadband, Mobile and Wireless, and Business Networks. New chips included: the one in a set-top box that enabled France Telecom to broadcast the French Open Tennis Tournament in high definition TV (HDTV) over a DSL network; a chip that could be used for both Blu-ray and HD DVD discs, allowing a single player or computer to play either type of video disc the wireless chips for the controller in Nintendo's video-game player, Wii; and chips that made it possible to make free calls over Skype on wireless phones.

During 2007, the company settled or won its patent claims with Qualcomm and bought Global Locate, which made GPS chips and software. The breadth of its technologies, from cable and DSL modems to mobile multimedia to wireless local area networks (WLAN) to VoIP to controllers and PCs, made it possible for the company to weather the ups and downs of its various customers and markets. The company also had very strong research and development capabilities and extensive experience integrating different communication technologies onto a single chip. These factors all supported Broadcom's continued success in envisioning and providing for current and future wired and wireless communication devices.

David P. Bianco

Updated, Ellen D. Wernick

PRINCIPAL COMPETITORS

Intel Corporation; Marvell Technology Group Ltd.; Conexant Systems Inc.; STMicroelectronics N.V.; Infineon Technologies AG; Qualcomm Inc.; Texas Instruments Inc.

FURTHER READING

Arensman, Russ, "WiFi Winners: Broadcom, TI and Atheros Lead Booming WiFi Chip Market," Electronic Business, June 2004, p. 28.

Bartimo, Jim, "Broadcom: Pumping Network Iron," PC Magazine, October 19, 1999, p. 95.

Bellantonio, Jennifer, "Broadband Interactive Group Begins Liquidating Its Assets," Orange County Business Journal, October 22, 2001.

Biagi, Susan, "A.M. Report; Nortel Adopts Broadcom VDSL Chipset," Telephony, March 15, 1999.

Boslet, Mark, "Building an Empire, Chip by Chip," Industry Standard, January 1, 2001, p. 62.

"Broadcom Bets a Bundle on GPS," TelecomWeb News Digest, June 13, 2007.

"Broadcom Chip Could Ease Next-Generation DVD Wars," Broadcast Engineering, January 6, 2006.

"Broadcom Launches Legal Onslaught Against Qualcomm," InformationWeek, May 19, 2005.

"Broadcom, Verizon Wireless Kiss and Make Up," TelecomWeb News Digest, July 20, 2007.

"Broadcom Wins Patent Litigation Against Qualcomm," InformationWeek, May 29, 2007.

Campbell, Ronald, "Broadcom of Irvine, Calif., Celebrates Fame by Returning to Work," Knight-Ridder/Tribune Business News, May 14, 1998.

, "Irvine, Calif.-based Firm Prepares for Future of Home Networking," Knight-Ridder/Tribune Business News, May 2, 1999.

Cohen, Sarah, "Broadcom in Middle of Internet Access Fray," Electronic News, September 2, 1996, p. 14.

Elliott, Heidi, "Broadcom Gains Insight," Electronic News, April 19, 1999, p. 40.

"GAQ: Qualcomm's Legal Quagmire Explained," Network World, March 23, 2007.

Harbert, Tam, "High-Tech CEOs of the New Millennium: Where Are They Now?" Electronic Business, February 2001, p. 92.

Hesseldahl, Arik, "Another Broad Deal," Electronic News, January 24, 2000, p. 18.

McGrath, Dylan, Junko Yoshida, and Yoshiko Hara, "Next-Gen DVD War Pre-Empted?" Electronic Engineering Times, November 6, 2006, p. 1.

"Nicholas Out, Ross in As Broadcom Re-tools," CED, March 2003, p. 14.

"Philips Chip Chief to Take Over at Broadcom," eWeek, October 26, 2004.

Quain, John R., "Wi-Fi Here, Wi-Fi There: A Mini Chip Could Put Wireless Everywhere," PC Magazine, October 28, 2003, p. 25.

Ristelhueber, Robert, "Broadcom Buys Startup for $104M," Electronic News, February 1, 1999, p. 16.

Rosen, Carol, "Broadcom Turns Defense Technology Knowhow into Communication ICs," Electronic Business Buyer, March 1995, p. 57.

Simons, Andrew, "Family, Business Led Broadcom Chief to Step Down," Los Angeles Business Journal, February 3, 2003, p. 13.

Traylor, Polly Schneider, "Broadcom Inside," Electronic Business, January 2006, p. 44.

Wade, Will, "Intel, Broadcom Eye Same Turf at Network Core," Electronic Engineering Times, April 2, 2001, p. 6.

Woolley, Scott, "Cellular Obsession," Forbes, April 25, 2005, p. 52.

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Broadcom Corporation

Broadcom Corporation

16215 Alton Parkway
P.O. Box 57013
Irvine, California 92619-7013
U.S.A.
Telephone: (949) 450-8700
Fax: (949) 450-8710
Web site: http://www.broadcom.com

Public Company
Incorporated: 1991
Employees: 500
Sales: $518.2 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: BRCM
NAIC: 334413 Semiconductor and Related Device Manufacturing; 334419 Other Electronic Component Manufacturing

Broadcom Corporation is one of several companies contributing to the infrastructure that will bring high-speed Internet and other services directly to homes and offices. The company specializes in designing high-speed integrated circuits (ICs), or chips, that are used in applications such as cable TV set-top boxes, cable modems, and local area network (LAN) cards. The company also provides key technology and products in emerging broadband markets such as digital subscriber loop (DSL), fixed wireless, direct broadcast satellite, and terrestrial digital broadcast. Extremely popular with investors since going public in 1998, the company has used its stock to acquire smaller high-tech companies and integrate their technology.

Communications Markets: 1991-95

Broadcom was founded as a private company in 1991 by Henry T. Nicholas III, Ph.D., and Henry Samueli, Ph.D. The two men had 35 years combined experience in communications integrated circuits (IC). Nicholas was Broadcoms president and CEO, while Samueli was the companys vice-president of research and development. While working at TRW Inc., the pair gained experience in the Defense Departments Very High-Speed IC (VHSIC) program that later enabled them to create powerful silicon compilers for the quick design of commercial integrated circuits (ICs). Samueli was a tenured electrical engineering professor at UCLA and Nicholass doctoral program adviser.

The companys basic strategy was to focus on emerging markets in communications that used cable or wire. Using its design cell library and silicon compiler technology, it was able to quickly develop chip products, or integrated circuits (ICs), for applications such as Fast Ethernet or advanced cable TV systems. Leveraging its military-based technology, Broadcom was able to accelerate the development of its commercial ICs.

Broadcom got its first big break in 1993 with a contract from Scientific-Atlanta, Inc. of Norcross, Georgia, which was supplying TV set-top boxes for Time Warner Corp.s experimental cable system in Orlando, Florida. Broadcom initially supplied Scientific-Atlanta with a three-chip set for digital demodulation in the set-top boxes, and within ten months had integrated the solution into one IC using a technology called quadrature-amplitude modulation (QAM).

For the first few years Broadcom relied on full-custom designs and licensing agreements for revenue as well as funding from its two founders. Its early custom-chip customers included Rockwell International, Analog Devices, and U.S. Air Force contractors producing global positioning systems. The small and relatively unknown company was able to gain such customers because of what its engineers accomplished and the quality of its engineering team, including the two founders.

In 1994 the companys revenues exceeded $5 million. It also received about $5 million in corporate financing from Intel Corporation, which was interested in Broadcoms Fast Ethernet chips for networking. In the fall of 1994 it began shipping volume production quantities of chips using the production capacities of American Microsystems Inc. of Pocatello, Idaho, and Taiwan Semiconductor Manufacturing Co. Revenues were expected to increase fourfold in 1995. Fast Ethernet, with 100-megabit/second ICs, was seen as a new market for potential growth. The company had about 50 employees.

Supporting High-Speed Internet Access: 1996

As Internet usage quickly expanded in 1996, regional Bell operating companies were competing with cable operators to become the dominant providers of Internet access. It was not yet clear whether cable modems hooked to coaxial cables or telephone modems with asymmetrical digital subscriber lines (ADSL) would become the dominant provider of Internet access. Broadcom was positioned to support both technologies. It was developing an ASDL transceiver for Northern Telecom (Nortel) and also rolling out a cable modem chipset for coaxial cable applications.

Using the same QAM technology that it used for its QAMLink line of devices for cable TV set-top boxes, Broadcom implemented QAM in cable modems and ADSL transceivers. Broadcoms QAMLink cable modem chipset provided 1,000 times the bandwidth then available over phone lines at 28.8 kilobits-per-second. Supporting the chipsets through strategic alliances with Broadcom were such original equipment manufacturers (OEMs) as General Instrument, Motorola, Hewlett-Packard, and Scientific-Atlanta.

By 1997 Broadcoms vision was to provide the technology to make the Internet accessible without a personal computer. The company was making the silicon chips inside nearly every cable modem and digital set-top box. Red Herring, a technology monthly, named Broadcom the best private company in the United States, and Nicholas and Samueli were named to the Top 50 Cyber Elite by Time Digital. It was estimated that cable companies deployed about 20,000 cable modems in 1996 and 100,000 in 1997. The demand for cable modems was expected to explode to one million in 1998. Each cable modem contained about $35 worth of Broadcom chips. For 1997 Broadcom reported a net loss of $1.2 million on revenues of $37 million.

For 1998 Broadcom forecast it would provide $30-$45 worth of chips for two million digital cable set-top boxes. Demand, however, was dependent on the ability of cable systems to upgrade their infrastructures. Most systems were not designed for 500 channels or two-way communication with the Internet.

Going Public, Rising in Valuation: 1998-2000

Broadcom went public in April 1998. It had grown to about 320 employees and boasted 36 Ph.D.s on its payroll. The company was popular with investors, because it was making or preparing to make devices that supported high-speed voice and data transmission for computer networks, cable modems and digital TV set-top boxes, high-speed telephone modems, and direct broadcast satellite systems. In other words, Broadcom appeared to be positioned to play a big role in the convergence of computers, telephones, and television. Its two biggest customers were 3Com Corporation and General Instrument Corporation.

In the first six months following the IPO, Broadcoms stock doubled in price and occasionally traded above $72, three times its original price. In September 1998 the company issued another three million shares to the public. By January 1999 Broadcoms two founders were billionaires. At least 300 employees became millionaires, from engineers to receptionists. The firms stock hit $100 in December 1998 and was approaching $200 a share in early January. The companys revenues for 1998 were $203.1 million and net income was $36.4 million.

Series of Acquisitions: 1999

In 1999 Broadcom began making a series of acquisitions that would expand its technological capabilities. In January 1999 Broadcom acquired startup Maverick Networks, a developer of multi-layer switching technology for enterprise networks, for about $104 million in stock. The acquisition of the two-year-old company gave Broadcom the means to enter the market for corporate enterprise switches.

In February Broadcom announced it would provide products for in-home networking that would transmit voice, video, and data at high speeds over existing telephone wires. The company dubbed its home networking technology MediaShare. Nortel Networks, anxious to maintain a competitive edge in the broadband arena, adopted very high speed digital subscriber line (DSL) technology that was jointly developed with Broadcom. Nortel said its new scalable DSL transceiver would support digital television, high-speed Internet access, videoconferencing, and multiple Internet protocol data streams.

In an effort to reach small and medium sized companies, Broadcom selected Insight Electronics as its first authorized distributor. Through Insight, which was selected because of its technical expertise, Broadcom products would be made available throughout North and South America. Until now Broad-bands customer focus had been on large companies, such as Cisco Systems, Nortel Networks, 3Com, Motorola, and Scientific-Atlanta.

Company Perspectives:

Broadcom believes that one of its key competitive advantages is its broad base of core technologies encompassing the complete design space from systems to silicon. The company has developed and continues to build on four primary technology foundations: proprietary communications systems algorithms and protocols; advanced digital signal processing hardware architectures; silicon compiler design methodologies and advanced cell library development for both standard cell and full-custom IC design; high-performance analog and mixed-signal circuit design using industry-standard CMOS processes.

Broadcom acquired Epigram Inc., a leader in home networking silicon technology, in April 1999 for $316 million in stock. Home networking was still in its infancy, but analysts estimated the home networking market could reach $1.4 billion in four years. The acquisition helped boost Broadcoms market capitalization by more than $850 million as investors drove up the stock price. Purchasing Epigram all but assured Broadcom it would be first to market with its own home networking technology. Epigrams technology was widely expected to be the basis for the Home Phoneline Networking Alliances 2.0 standard, an expectation that was confirmed by the Alliances announcement in July 1999 that it had chosen technologies from Broadcom and Lucent Technologies as the basis for the next generation in home networks.

Broadcom introduced a new, faster chip (IC) that could transmit data, voice, and video signals on a copper line at one gigabit per second, ten times faster than existing technology and a speed then attained only on fiber optic cables. Cisco Systems, 3Com, Nortel, Hewlett-Packard, and Dell were all developing products based on the new chip. Again, the companys stock soared on rumors of the announcements.

Amedia Inc., a design engineering firm and developer of advanced silicon technology that was based in India, was acquired. Then Broadcom purchased HotHaus Technologies of Vancouver, British Columbia, for $280 million in stock. HotHaus made software for embedded digital signal processors. The acquisition added to Broadcoms portfolio of ICs for broadband applications in DSL, cable modem, and wireless environments. The company hoped to bring Voice Over IP to home through an outside providers broadband network, such as a cable operator, a DSL service provider, or via satellite provider. The Voice Over IP market was forecast to exceed $1.8 billion by 2003, up from $290 million in 1999.

In August 1999 Broadcom acquired AltoCom Inc., a maker of software-based modems, or soft modems, for $180 million in stock. The acquisition gave Broadcom access to another area of Internet technology, enabling Broadcom to build chips that would work with both cable and phone lines.

Rumors began circulating in the summer of 1999 that Broadband cofounder Henry Nicholas would purchase the California Angels and the Anaheim Mighty Ducks from the Walt Disney Company. In August 1999 he gave the University of California-Irvines rowing team a $1.28 million stock donation, the largest athletic donation in UCIs history. By mid-1999 70 percent of the 300 employees when the company went public were millionaires or better.

In October 1999 Nicholas and Samueli formed a partnership with Marvin Winkler, chairman of Gotcha International, to launch the Broadband Interactive Group (BIG). The privately held group planned to use Broadcoms high-speed communications chips to deliver interactive programming about sports and surfing. While Broadband was manufacturing interactive TV chips for cable set-top boxes, hardly anyone was using that technology, because hardly anyone was offering interactive TV services. BIGs goal was to create a demand for such services. It purchased all of Gotchas media operations, including Gotcha TV, Gotcha.com, and three magazines. The three partners also discussed the possibility of forming a group to run the day-today operations of the Angels and the Ducks with the Walt Disney Co. Finally, though, Nicholas had to put an end to the rumors that the group was planning to buy the two sports teams.

Perhaps relieved that Nicholas and Samueli were not interested in owning a professional sports team, Wall Street sent Broadcoms stock surging in November 1999. With its stock price rising over $200 a share, the companys market capitalization was approaching $22 billion. The rise came in anticipation of a stock split, which often precedes a run-up in a companys stock price. By January 2000, the stock was trading at more than $300 a share. A two-for-one split was subsequently announced for February 11.

At the end of 1999 Henry Samueli, together with his wife Susan, donated $20 million to the University of California-Irvines engineering program and $30 million to the engineering program at University of California-Los Angeles (UCLA).

Broadcom continued acquiring companies in 2000. In January it acquired BlueSteel Networks Inc., a maker of chips that scramble and unscramble data sent over the Internet, for $123 million in stock at the stocks closing price of $328.50. BlueSteels high-performance security processors protected Internet transmissions from hackers. Broadcom noted a growing trend to include security in every application across networks, especially for consumers who wanted to participate in areas such as electronic commerce and home banking.

In March Broadcom acquired Digital Furnace Corp., an Atlanta, Georgia-based developer of software that increased the flow of information over cable lines, for about $136 million in stock. Digital Furnaces software compressed data sent over cable lines, thus tripling the capacity of cable networks equipped with Broadcoms high-speed communication chips. That same month Broadcom acquired Stellar Semiconductor for about $162 million. Stellar was a Silicon Valley designer of 3D video chips. Its cable modem chips could accelerate 3D graphics by reducing the amount of data and time it took cable TV set-top boxes to display three-dimensional pictures on TV screens.

Following the February stock split, Broadcoms stock continued to soar, reaching nearly $250 a share. The companys market capitalization was more than $50 billion. As a result of its acquisitions in 1999, Broadcom reported revenues of $518.2 million that year, nearly two-and-a-half times 1998 revenue; net income reached $83.3 million, more than three times 1998s net income. Broadcom continued to be popular with investors and was positioned as a supplier of high-speed chips to the growing communications industry.

Dates:

1991:
Company is founded by Henry T. Nicholas III, Ph.D., and Henry Samueli, Ph.D.
1993:
Wins contract to supply Scientific-Atlanta with chip sets for cable TV set-top boxes.
1997:
Named Best Private Company by Red Herring magazine.
1998:
Company goes public at $24 a share.
2000:
Companys market capitalization exceeds $50 billion.

Principal Competitors

LSI Logic Corporation; VLSI Technology Inc.; Advanced Micro Devices, Inc.; AT&T; Motorola Inc.; National Semiconductor Corporation; Hughes Electronics Corporation; Raytheon Company; Texas Instruments Inc.; Intel Corporation; Conexant Systems Inc.

Further Reading

Ascierto, Jerry, and Arik Hesseldahl, Broadcom Acquires AltoCom; Releases First Product from Maverick Acquisition, Electronic News (1991), August 23, 1999, p. 18.

Bartimo, Jim, Broadcom: Pumping Network Iron, PC Magazine, October 19, 1999, p. 95.

Biagi, Susan, A.M. Report; Nortel Adopts Broadcom VDSL Chipset, Telephony, March 15, 1999.

Broadcom Enters Home Networking with MediaShare, Electronic News (1991), February 15, 1999, p. 23.

Campbell, Ronald, Broadcom of Irvine, Calif., Celebrates Fame by Returning to Work, Knight-Ridder/Tribune Business News, May 14, 1998.

, Broadcom of Irvine, Calif., Makes the Computer Chips in Most Cable Modems, Knight-Ridder/Tribune Business News, October 31, 1997.

, California-Based Broadcom to Sell More Stock to Public, Knight-Ridder/Tribune Business News, September 30, 1998.

, Group Chooses Technology of Broadcom, Lucent for Future Home Networks, Knight-Ridder/Tribune Business News, July 27, 1999.

, Irvine, Calif.-Based Broadcom Demonstrates New, Super-Fast Chip, Knight-Ridder/Tribune Business News, May 13, 1999.

, Irvine, Calif.-Based Broadcom Reaches New Financial Heights, Knight-Ridder/Tribune Business News, January 8, 1999.

, Irvine, Calif.-Based Firm Prepares for Future of Home Networking, Knight-Ridder/Tribune Business News, May 2, 1999.

Cohen, Sarah, Broadcom in Middle of Internet Access Fray, Electronic News (1991), September 2, 1996, p. 14.

Elliott, Heidi, Broadcom Gains Insight, Electronic News (1991), April 19, 1999, p. 40.

Farnsworth, Chris, Broadcom Co-Founder Donates $20 Million to California College, Knight-Ridder/Tribune Business News, December 21, 1999.

, Broadcom Co-Founders, Media-Company Executive Launch Interactive-TV Firm, Knight-Ridder/Tribune Business News, October 3, 1999.

, California Billionaire Denies Reports of Offers on Hockey, Baseball Teams, Knight-Ridder/Tribune Business News, October 6, 1999.

, Chip Maker Broadcom to Buy Mountain View, Calif.-Based Software Firm, Knight-Ridder/Tribune Business News, August 11, 1999.

, Irvine, Calif.-Based Communications-Chipmaker Buys Designer, Knight-Ridder/Tribune Business News, March 1, 2000.

, Irvine, Calif.-Based Communications-Chip Maker Sees Stock Price Soar, Knight-Ridder/Tribune Business News, November 22, 1999.

, Irvine, Calif., Communications-Chip Maker Buys Internet-Security Firm, Knight-Ridder/Tribune Business News, January 19, 2000.

, Irvine, Calif. Firm Acquires Atlanta-Based Software Developer, Knight-Ridder/Tribune Business News, March 1, 2000.

, Orange County, Calif., Tech Firm Broadcom Announces Purchase, Stock Split, Knight-Ridder/Tribune Business News, January 20, 2000.

, Orange County, Calif., Technology Stocks Do Well Amid Downturn, Knight-Ridder/Tribune Business News, March 9, 2000.

Farnsworth, Chris, and Barbara Kingsley, Internet Firm Gives Irvine, Calif., Crew Team $1.28 Million in Stock, Knight-Ridder/Tribune Business News, August 22, 1999.

Hesseldahl, Arik, Another Broad Deal, Electronic News (1991), January 24, 2000, p. 18.

, Broadcom Acquires Epigram, Electronic News (1991), May 3, 1999, p. 36.

, Broadcom Acquires HotHaus, Electronic News (1991), July 26, 1999, p. 30.

, Broadcom Makes Stellar Acquisition, Electronic News (1991), March 6, 2000, p. 14.

Lashinsky, Adam, San Jose Mercury News, Calif., Silicon Street Column, Knight-Ridder/Tribune Business News, June 21, 1998.

Ristelhueber, Robert, Broadcom Buys Startup for $104M, Electronic News (1991), February 1, 1999, p. 16.

Rosen, Carol, Broadcom Turns Defense Technology Knowhow into Communication ICs, Electronic Business Buyer, March 1995, p. 57.

Sanders, Edmund, Modem Chip Maker Broadcom Becomes Top Public Firm in Orange County, Calif., Knight-Ridder/Tribune Business News, January 11, 1999.

David P. Bianco

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