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Technology Stocks : Broadcom (BRCM) -- Ignore unavailable to you. Want to Upgrade?

To: Martin A. Haas, Jr. who wrote (3271)	12/16/1999 11:04:00 PM
From: jay silberman	Read Replies (1) \| Respond to of 6531

investors.com Date :12/16/1999 Author : Copyright :Investor's Business Daily Title :THE CHIP SOLUTION - Company Helps Build Bandwidth, Sales By Creating Small ‘Roads' diNew America Top Left for 12-16-99 Seven years ago, the founders of Broadcom Corp. thought they saw the future. It was a world connected by high-speed transmissions of voice, video and data that would make the way computers and televisions are used today seem quaint tomorrow. But there was a problem. Existing channels weren't built for the high-speed digital transmissions needed for next-generation broadband services. Ripping out old cable and phone lines for pricey fiber optics and the like would be too costly. Broadcom's engineers figured a way around that problem. They harnessed signaling processes in a single chip so that existing cable and phone lines could be used. Since 1994, when it shipped its first Ethernet chips, Broadcom has moved into the forefront of the broadband movement. It's carved out a niche in chips that continues to grow at megabit and, now, gigabit speed. 1,200% Jump From $37 million in 1997, sales are expected to reach roughly $500 million this year - a leap of more than 1,200%. The stock, which trades as BRCM at 202, has followed a similar path. The company's market value has quadrupled in price this year alone. Analysts expect the company to continue to outperform, growing at nearly 45% over the next five years. Some analysts have upped their earnings forecast after profits in the last two quarters beat their estimates. Earnings were 26 cents for the third quarter ended Sept. 30, compared with 5 cents a year ago. First Call has the consensus for this year at 85 cents. For 2000, the estimate is $1.27, and $1.62 in 2001. Chief executive Henry Nicholas compares the dawn of today's broadband revolution to the early days of the automobile age or the television era. "Without roads, an investment in Ford would have been useless," said Nicholas. "We are the ones building the roads." Broadcom's strategic customers include 3Com Corp., Cisco Systems Inc., General Instrument Corp., Nortel Networks Corp., Scientific-Atlanta Inc. and Motorola Inc. Hidden Roads Of course, Broadcom's "roads" are hidden, since they are actually tiny chips embedded in such things as digital set-top boxes. In the last year alone, Broadcom has come out with a slew of new silicon chips that the company says are better and faster than earlier ones. With so many millions of circuits on its chips, Broadcom's products have become "systems on a chip," said Tim Lindenfelser, vice president of marketing. By building on its core metal-oxide semiconductor technologies, the company can churn out new versions quickly. Take the company's new BCM5400 transceiver chip. It allows manufacturers for the first time to make networking equipment that delivers data at gigabit speeds. That's 100 to 1,000 times faster than before. Chips needed for high-speed networking in the business sector account for 40% of Broadcom's revenue. Sales for digital set-top boxes make up another 40%. Other products including cable modems for the home - which allow for high-speed Internet access over cable lines - account for a 20% slice. "They are all turbo-growth areas," said George Kelly, managing director of Morgan Stanley Dean Witter. "This company does not address modestly growing markets." $3 Billion Market Analysts say Broadcom's market should grow to $3 billion by 2002, from $1 billion in 1998. While they now account for a smaller percent of revenue than business networking, the cable and digital set-top businesses are growing the fastest. And Broadcom has more than an 80% market share in both of those sectors. Of the nearly 70 million cable subscribers that will be converted to digital operations over the next several years, only 6 million have been converted to date. Broadcom's chips are in nearly all of them. The potential also is enormous for high-speed Internet access over cable. Broadcom is the dominant player in that early-stage market as well. And when cable and set-top boxes converge to enable such things as interactive TV, Broadcom already has a chip that will do the trick for that. "The television will take on many of the attributes of the computer and the computer will take on attributes of TV," said Nicholas. No Rivals Lindelfelser says the company has no rivals competing against them on both cable and set-top boxes. But Broadcom does have rivals gearing up. Analyst Allen Leibovitch of International Data Corp., says chip leader Intel Corp. has been on an "acquisition binge" to get into Broadcom's territory. And in that niche, local area networks, cable modems and upcoming digital signal processing chips have been targeted. "Intel is the biggest threat to Broadcom at this time," Leibovitch said. But Broadcom isn't sitting back. Since January, it's acquired five companies to strengthen its position in the communications sector for both home and business. By doing so, it's doubled its number of employees, from 400 to 800. With the purchase last April of Epigram Inc., Broadcom was able to tap into the explosive home networking market. What's next? One new avenue is wireless. In October, Broadcom and Cisco said they would work together to develop a single-chip wireless modem for Internet access. Tuner On A Chip And earlier this month, Broadcom unveiled what it called the world's first "tuner on a chip." That means the company can expand its business to placement in the TV sets themselves, VCRs and DVDs - in short, anything that requires a channel changer. "It is a really, really big deal," said Leslie Ellis, analyst with Paul Kagan Associates. Ellis noted, though, that Conexant announced its own version of the world's first tuner on a chip the same day as Broadcom. "It took the wind out of Broadcom's (announcement)," she said. But Nicholas says Broadcom's chip is the bigger deal. Why? The tiny tuner, he says, is the only tuner that meets government power dissipation rules for delivering telephone service over cable lines. That hasn't happened yet, but companies such as AT&T are already laying the groundwork for that day. And when that day comes, says Nicholas, Broadcom will have chips ready and waiting.