Broadcom Plans $66.5 Mln IPO for Internet Access Technology
Irvine, California, April 16 (Bloomberg) -- Broadcom Corp.'s
shares are expected to soar after the developer of semiconductors
for high-speed data transmission and Internet access completes an
initial public offering later today.
The expected price range for the shares was raised last week
to $18 to $20 from $10 to $12, a sign of keen interest in the
company. Morgan Stanley Dean Witter is leading securities firms
handling the sale.
The Irvine, California-based company plans to sell 3.5
million shares in an IPO that will give investors the chance to
bet on Broadcom's technology for greatly increasing Internet
access speeds over ordinary telephone and cable television lines.
''It is going to be sizzling, no question about it,'' said
Manish Shah, publisher of IPO Maven. ''I definitely think that
the stock could trade as high as $60 in the next two months,
considering what has happened in the last three months with
Internet IPOs such as Exodus and ISS Group.''
Shares of Exodus Communications Inc., a manager of Internet
systems for business clients, rose 84 percent in their first day
of trading on March 19. ISS Group Inc., a network security
company, also rose 84 percent when it started trading March 24.
Internet stocks have soared since last week, when Yahoo!
Inc. beat analysts' earnings expectations.
However, ''people should not forget that many other expected
leaders have also fizzled,'' Shah said. ''Six months from now
(Broadcom) could be back at around 10. The possibility is
definitely there.''
Broadcom develops products that allow high speed digital
data transmission over lines which were not intended for digital
data transmission.
Many Uses
The company has developed circuits for use with cable set-
top boxes, cable modems, high-speed networking, satellite and
earth-based broadcasts and telephone lines, among others.
''What investors are looking for is some way to expedite or
make broadband communications more efficient, and Broadcom is
expected to play a key role in that process,'' said Shah.
Broadband refers to data transmission at speeds greater than 1.5
million bits per second.
''The real key is that their technology is not only
applicable to cable broadband but also to xDSL technology, which
is basically where the bottleneck is right now in the
telecommunications area.'' The xDSL technology he referred to
permits high-speed data transmission over existing copper twisted
pair wiring used in local telephone lines. The technology could
allow high-speed Internet access, among other things.
''People are also looking for a company that can create
standardization in the broadband area, and . . . are hoping that
Broadcom may be one of those companies'' that do so.
Demand for high-speed access to Internet and cable and data
networks has increased dramatically in recent years, stimulated
by the growth of desirable content as well as lower prices for
personal computers and set-top boxes.
Broadcom's revenue grew to 73 percent in 1997 to $37 million
and has increased six-fold since 1995. The company lost $1.2
million last year after earning $3 million in 1996.
Competitors
Broadcom's competitors include Rockwell International Corp.,
Royal Philips Electronics NV, LSI Logic Corp., and VLSI
Technology Inc., among others. Customers currently shipping
broadband communications incorporating Broadcom's products
include General Instrument Corp., 3Com Corp., Bay Networks Inc.,
Cisco Systems Inc., Motorola Inc. and Scientific-Atlanta Inc..
Sales last year to General Instrument and 3Com (including
sales to their respective manufacturing subcontractors) accounted
for about 32 percent and 15 percent, respectively, of Broadcom's
revenue. Sales to the company's five largest customers accounted
for approximately 61.7 percent of Broadcom's total revenue in
1997.
General Instrument, Scientific-Atlanta and Intel Corp., each
own between 5.6 percent and 3.8 percent of the company, and are
not selling any of their shares as part of today's sale.
Broadcom plans to sell 2.75 million Class A shares, and
selling shareholders to sell 750,000 such shares. The company
will also sell 500,000 Class A shares directly to Cisco Systems
Inc., a major supplier of data networking products.
Class A shares have one-tenth the voting power of the
company's Class B shares, which are not publicly traded. Henry T.
Nicholas III and Henry Samueli, co-founders of Broadcom in 1991,
controlled 57 percent of the company's voting shares before the
sale, and 56 percent after today's sale.
Founders Retain Control
Dr. Nicholas was formerly Director of Microelectronics for
PairGain Technologies Inc. Dr. Samueli was one of the founders of
PairGain.
PairGain, based in Tustin, California, makes communications
systems that let network service providers send high-speed data,
video, and voice services more efficiently over copper telephone
lines.
Broadcom will use proceeds from the sale to pay off $2.5
million of bank loans and for general corporate purposes,
including working capital and purchases of capital equipment
needed for growth.
Broadcom will trade on the Nasdaq Stock Market under the
symbol ''BRCM.'' BT Alex. Brown Inc., Deutsche Morgan Grenfell
Inc. and Hambrecht & Quist LLC helped Morgan Stanley handle the
sale.
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