Hi Rick,
Thanks much. Hope you and all of our friends have a great holiday weekend.
BRCM:
Saw below article, Rick? Agree with the author's last sentence.
always,
di
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redherring.com
>>>Intel parries market threat with legal attack
Like a kid losing badly in a playground game, Intel (Nasdaq: INTC) pointed at Broadcom (Nasdaq: BRCM) Wednesday and said in desperation, "You're cheating."
One way of telling that a semiconductor company is getting really paranoid (even by Andy Grove's standards) is when it starts dusting off the patent portfolio and scouring the landscape for infringements and violations. In a strongly worded lawsuit, Intel accused Broadcom of infringing on at least five patents concerning video and high-speed networking products, going so far as to say that Broadcom had a "carefully crafted plan" to build its business around Intel's intellectual property. Broadcom said the suit was bunk.
They're so cute at this age.
LAWSUITS A LA CARTE
These are heady times indeed for high-tech patent lawyers. So far this week, each day has seen a new patent-oriented lawsuit between semiconductor rivals, and the week isn't even over yet. Surprisingly, Wednesday's suit du jour did not involve Rambus (Nasdaq: RMBS), like the previous two days' had. Instead, Intel claimed that Broadcom pilfered patented technologies and coerced its employees into divulging trade secrets. And for good measure, the chip giant upped the ante in its separate and ongoing litigation against Via Technologies, adding new patent-infringement claims on Thursday.
Intel and Broadcom have a long history together, most of which has been contentious. Though Intel was an early investor in Broadcom, the company no longer has a financial stake in its rival, and has been turning up the legal heat over the past year. Since March, when Intel received a temporary restraining order from the Superior Court of California barring Broadcom from using Intel trade secrets, the relationship between the two has turned ugly.
Intel made no attempts to settle the patent issues with Broadcom directly, instead choosing to move straight into litigation. Intel spokesperson Chuck Mulloy said, "There is no indication that Broadcom was willing to coöperate with us in the past, so why waste our time?" With no love lost between the two companies, Broadcom spokesperson Bill Blanning took issue with Intel's lack of dialogue in the matter. Mr. Blanning first heard of the lawsuit when a reporter called him to discuss it.
SOUR GRAPES?
What looks suspect is the fact that the suit covers technologies in which Intel has not had a great deal of success. Broadcom has had Intel's number in the cable set-top box and high-speed access markets, dominating the field. As a result, it makes Intel's legal gripes look like sour grapes.
While both stocks have gained more than 80 percent so far this year, it seems that investors are clearly more enamored of Broadcom. Intel is currently trading at about 41 times estimated 2001 earnings, while Broadcom has a multiple close to 200 times 2001 estimates. Analysts expect Broadcom's earnings to increase at a 47 percent rate annually over the next three to five years, well above the estimated growth rate of 21 percent for Intel.
"I have to wonder what Intel is up to, given the fact that part of the suit has to do with video, which is not a market in which they have done that much," says Joe Osha, analyst at Merrill Lynch. "And in networking they have tried quite hard. But the source of Broadcom's competitiveness has been getting to market with products first. So how can you say they have been using Intel IP? I don't get it." Mr. Osha, who follows both stocks, rates Broadcom a Near-Term Buy and Intel a Near-Term Accumulate.
To be fair to Intel, the semiconductor market is heavily dependent on the protection of intellectual property. In fact, Broadcom's business is entirely based on its research and development, as it does not produce its own chips and does not own any fabrication facilities. It is a business based solely on intellectual property. Naturally, litigation and patent infringement become core business practices for these companies. At the same time, litigation can also be used as an effective weapon to stifle competition, much like Intel did throughout the 1990s with Cyrix (now owned by Via) and AMD (NYSE: AMD).
SPIN CITY
For its part, Intel freely distributed copies of the lawsuit -- which reads more like a press release than a legal document -- to journalists the world over on Wednesday. Broadcom's sky-high stock promptly plummeted on heavy trading in response to the strongly worded document, losing as much as 5 percent on the news, before rebounding on Thursday. Intel's stock remained relatively unaffected by the announcement, a sign the market has grown weary of patent lawsuits that never seem to produce a clear winner.
"People are concerned, but if you look over time, you can't find any significant impact of these kind of lawsuits," says Mr. Osha. "There is no evidence of companies competing successfully purely on IP that they have put a firewall around, as opposed to having a decent business model. Stuff like this does not impact my fundamental analysis."
But the filing of the suit itself is indicative of Intel's lack of success in the hot communications chip market. The winner of a race rarely complains that the loser cheated.<<< |
