If any of this is true....this is much much worse than I had thought:
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How Broadcom Is Keeping Margins From Falling
By Herb Greenberg
Senior Columnist
2/20/01 10:00 AM ET
Briefly:
Nifty note from Fechtor Detwiler on Friday on how some suppliers have "gotten rather creative" in their attempts to maintain their selling prices in the face of loosening supply. The report paid special attention to Broadcom (BRCM:Nasdaq - news - boards), and specifically noted that Fechtor has been told by "one of Broadcom's competitors" that Broadcom has been issuing customers warrants on its stock instead of price concessions. Another analyst recently told clients that several of Broadcom's acquisitions had boosted sales before they were acquired by giving warrants to customers that have since become warrants on Broadcom.
So, why care? Issuing warrants to customers, after all, isn't illegal. But any time a customer has a vested interest in making deals with a supplier, it gets into that gray area of related-party transactions. Perhaps more important, any time a company that is supposedly in a white-hot market has to start giving incentives, whether they're price cuts or warrants or whatever it may be, it suggests biz ain't so swell. A price cut is a price cut, no matter what form it takes, even warrants.
The impact, in the end, doesn't help investors. Just as lower prices would cut into profits, which would hurt the stock, warrants can have a similar stock-jarring effect: At some point, if and when they are exercised, Broadcom shareholders will see their stake in the company diluted. That's not a problem if business is booming and earnings are rising enough to offset the dilution. But to hear the short-sellers, "booming" is not the way to describe Broadcom's business for the foreseeable future.
Broadcom officials couldn't be reached.
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