This should clear a bit on LEVL, INTC and BRCM rumor.
Update on Broadcom, Intel, and Level One Communications
Salomon Smith Barney
Friday, May 21, 1999
--SUMMARY:----Semiconductors
--OPINION-------------------------------------------------------------------
Another Wall Street firm yesterday asserted that Broadcom has displaced
Level One Communications across all of Cisco's LAN product line. Cisco
has been Level One's largest customer at just over 10% of sales for the
last few quarters. Since Intel is poised to buy Level One (at a 0.86
share exchange ratio) in the June/July time frame, the loss of Cisco as a
customer would have been a material event.
We spoke with contacts at Cisco, Level One, and Intel yesterday, and this
is what we found:
According to our sources at Cisco, it remains committed to using Level
One as a supplier. Investor Relations at Cisco even suggested to us that
'someone' should write a note supporting Level One (so we obliged). In
any case, we believe individual program managers make component choices
at Cisco, and such a dramatic sweep as depicted yesterday is extremely
unlikely.
Intel's investor relations made it clear to us yesterday that Intel is
dedicated to the Level One transaction and is pleased with the work the
company is doing. Contractually, we believe Intel has little recourse to
re-negotiate the price of the deal. We believe stock market events such
as yesterday's may even increase Intel's desire to play a spoiler to
Broadcom.
According to Level One, the current quarter is matching expectations and
the book-to-bill ratio is tracking above unity.
Broadcom is doing extremely well in the datacom component market,
including doing a lot of business with Cisco (its third largest customer
at just over 10% of sales). Broadcom has gained share against Level One,
particularly at accounts like Nortel (Bay) and Hewlett-Packard. The
hype, unfortunately, can sometimes get a little carried away. For
example, Broadcom's Gigabit Ethernet announcement last week was actually
at least five months behind the original schedule (see
techweb.com and will
likely be a small percentage of its sales for quite some time.
Broadcom is a juggernaut that is capable of delivering some of the
strongest upside to estimates in our coverage universe. It is a very
aggressive company that is executing exceptionally well, and it is
attacking fast growing markets. We believe it is one of the best chip
companies to emerge in the last ten years, although there will be room
for other suppliers in its markets. In our opinion, yesterday's
controversy was a tempest in a teapot. |
