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Technology Stocks : Broadband Communications Technologies

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To: energy_investor who wrote (28)	5/14/1998 12:20:00 AM
From: ftth	of 36

[BRCM] Bargaining Power over Suppliers..........PART I Broadcom's primary external suppliers are the IC foundries and the packaged device assembly and test houses. Their bargaining power over these suppliers is initially favorable (when they are out "shopping" for the capabilities) because there are many alternative suppliers available for the volume levels they will be ordering. This initially favorable status helps them obtain favorable terms for the contract. However, once the decision is made and the agreement is completed, the bargaining power drops to moderate. Broadcom has some leverage afterwards, in that the suppliers want to keep their quantity business, but the suppliers also know that Broadcom must be somewhat flexible because switching fabs in midstream is risky and time-consuming. There is a limit to how much the fab can push back on Broadcom (for example, a bigger customer pays up to get their goods processed sooner, bumping those that were in line ahead of them), and the company has qualified a second source for both fab and assembly/test. Whether they could switch to the second source in a heartbeat depends on the backlog of allocated fab and assembly/test time at the second source, as well as how much Broadcom is willing to "pay up" for short-notice services. Still, they have a plan in place to cover such cases, and probably continue to check into alternatives on occasion, to make sure they are still getting favorable terms. Even though the terms of their agreement are likely favorable compared to other suppliers (presumably that's why they chose them), it is likely in my opinion that at some point they will get "bumped" from the fab or assembly/test queue. The lack of leverage in that respect is what prevents me from giving their bargaining power over these suppliers a favorable overall rating. Bargaining power over these suppliers is only moderate because they can be squeezed, and probably at the most inopportune times.

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