You can find this article at: redherring.com
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The siliconization of broadband
Broadcom
(Nasdaq: BRCM)
Broadcom sits at the sweetest spot in the communications space: it manufactures semiconductors -- what the company calls "silicon solutions" -- for every segment of the broadband environment, including digital set-top boxes, cable modems, local area networking, digital subscriber lines, and direct satellite broadcasting. It's an emerging niche that Broadcom CEO Henry Nicholas calls "the mother of all market opportunities." Broadcom is a well-run, ferociously aggressive market pioneer in a business where it alone has figured out how to drive down chip costs and still remain wildly profitable. In fact, the California-based firm is so hard-driving that it's not unheard of for management to have strategy meetings at three o'clock in the morning. "These guys are maniacal, they're crazy, and they have an expandable addressable market like no other company I've ever seen," says Paul Weinstein, semiconductor analyst with Credit Suisse First Boston.
We first saw promise in Broadcom in 1997 when we named it the best overall private company of the year. It hasn't disappointed us since. In addition to an aggressive acquisition strategy -- it recently purchased HotHaus Technologies and AltoCom, makers of communications software; Epigram, a company that specializes in home networking technologies; and Maverick Networks, a networking chip company -- Broadcom has locked down major contract wins with General Instruments for cable set-top boxes and 3Com (Nasdaq: COMS) and Cisco (Nasdaq: CSCO) for networking equipment chips. In October the company also announced a joint program with Cisco to develop an integrated circuit for the broadband fixed wireless market; this would solve the "line of sight" problem in wireless communications and bring the Internet anywhere on the planet.
This worth looking forward to!
Not surprisingly, Broadcom's business is ramping up at an unbelievable clip. From $21 million in 1996, sales have risen to $421 million over the last 12 months. Moreover, its third-quarter net income of $27.2 million, or $0.26 per share, was 225 percent above year-ago levels of $0.08 a share. The youngest company in our top ten, Broadcom will need to continue to execute its expansion plans in the multibillion-dollar market for broadband chip solutions if it is to be the long-term winner we think it will be. An already hefty $17.9 billion valuation and a 2000 price/earnings ratio of 144 is admittedly rich for such a young stock, but as Joe Osha, semiconductor analyst with Merrill Lynch (NYSE: MER) deadpans, "The industry trends are in its favor." |
