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Technology Stocks : Broadband Communications Technologies

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To: energy_investor who wrote (28)	5/14/1998 12:23:00 AM
From: ftth	of 36

[BRCM] Bargaining Power over suppliers.........PART II Although not generally thought of in this sense, their engineering staff is essentially a supplier of services to the company (and a key supplier at that). The engineers are under no obligation to remain with the company, and can go to a competitor at any time. Stock options are a powerful tool to indirectly exert leverage over this "supplier" (assuming of course that the stock options are worth a significant amount), although it will take a few years of nice gains in the stock price for this to have the desired effect of "monetary handcuffs." Further down the road these handcuffs can actually be a negative, but that's unimportant at this juncture. So currently, bargaining power over this supplier is low (once they're in place), although that can easily be made a non-factor by offering attractive compensation packages and working environment so they have no desire to leave. As far as adding new "suppliers" to their engineering staff, they are clearly able to lure engineers from competitors (which is important for their growth prospects), so they do have leverage in that respect. This rates as favorable because no one holds a gun to these people's head to make them switch companies. The compensation package, working environment, and future prospects of the company are viewed as more favorable compared to their previous employer. These previous employers often initiate "sour grapes" lawsuits (Sarnoff labs and Rockwell are suing Broadcom for "illegally pirating their employees"). These suits are generally without a substantial basis, and these previous employers could generally better spend their time and money fixing the internal problems that their management is in denial of.

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