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

To: Stoctrash who wrote (1549)	5/10/1999 9:40:00 PM
From: Maya	Respond to of 6531

Here it is FredE. But with tomorrow's expected big announcement, this article will not matter: Broadcom Braces for Competition By Marcy Burstiner Staff Reporter 5/10/99 7:00 AM ET SAN FRANCISCO -- It's good to be king. It's even better to be king with a 100% market share. Broadcom (BRCM:Nasdaq) has taken that crown, dominating the market for chips used in digital set-top boxes and cable modems. But Broadcom's digital kingdom is under siege on several fronts. The company is battling a patent suit from competitor Stanford Telecommunications (STII:Nasdaq). Stanford Telecom is also seeking an injunction to bar Broadcom from selling cable-modem products that Stanford claims are based on standards drawn from its patents. And that's just the tip of it. Broadcom faces several new competitors, including Israeli chipmaker Libit, which reportedly is being wooed by Lucent (LU:NYSE) for acquisition, and analog modem chip leader Conexant (CNXT:Nasdaq). Stanford Telecom Executive Vice President Gary Wolf says Stanford is in talks with other companies over partnerships to produce cable-modem chips. "We plan to be in this market," Wolf says. Conexant and French concern STMicroelectronics (STM:NYSE ADR), meanwhile, are sampling set-top box chips. And a slew of chip companies plan to enter this market, including C-Cube Microsystems (CUBE:Nasdaq), National Semiconductor (NSM:NYSE), LSI Logic (LSI:NYSE) and Intel (INTC:Nasdaq). An Intel spokesperson acknowledged that the company is currently talking with set-top boxmakers. Salomon Smith Barney analyst Clark Westmont says that one boxmaker he spoke with told him it was considering Intel chips for its products. Broadcom CFO William Ruehle says he's keenly aware of the changing market. "We see everyone as possible competition," he says. "Our goal is to [always] have 100% market share. We know that's not reality, but we don't give up even 1% without a fight." Dataquest expects unit sales of set-top boxes to grow 53% in 1999 from 20 million units in 1998. Cahner's In-Stat projects that the market for cable-modem chips will jump from $39 million in 1998 to at least $200 million by 2002. Together, cable-modem and set-top box products, which account for about 60% of Broadcom's revenue, with the rest coming from networking products, helped to boost Broadcom's first-quarter revenue to $96 million from $35.3 million the year before. Profits for the quarter almost tripled year on year to $19.3 million. That profit growth will likely slow as chip prices come down. "Margins are near a peak and they will be coming down absolutely," says Salomon's Westmont. Broadcom has repeatedly tried to soften expectations. "They keep telling you that their target gross profit is 50%," down from the current 58% in the first quarter, says Mark Weiss, an analyst for the $100 million Amerindo Technology Fund, which has held Broadcom shares since its April 1998 IPO. "They have had expanding gross margins but they are saying that won't continue." Future growth in cable modems and set-top boxes, the thinking goes, is tied to the need for fast Internet connections and interactive TV. Until now, that relationship to the Internet has pushed the stock higher. Broadcom's stock has traded more in line with Internet leaders than its fellow chip companies. Its 34% spike from Jan. 5 to Jan. 8 coincided with a 33% rise in Yahoo! (YHOO:Nasdaq), while communications chip bellwether Linear Technology (LLTC:Nasdaq) rose just 1.3%. Analysts say the company can't be immune from the product price volatility that often afflicts modem chipmakers. "If you look at the markets Broadcom targets, they are commodity-oriented markets, and those can be brutal on the pricing environment," Westmont says. "The cable-modem market is just that, a modem market." Conexant knows about the dangers of depending on the modem market. It was spun off of Rockwell (ROK:NYSE) in January, partly because of mounting losses caused by a stagnant market for analog modems, which account for half of Conexant's revenue. If Broadcom is expected to stay on top, it will need to stay one step ahead of technology changes. "The question is whether the market will continue to evolve such that being the first will have any merit," Westmont says. Broadcom's strength, Amerindo's Weiss points out, is the ability to integrate many functions on its chips. This is why, Ruehle says, Broadcom recently announced its purchase of home-networking company Epigram. Consumers will want all their home computers and televisions to connect through a single cable modem or set-top box. And that, Broadcom's defenders say, will set the company apart. "Cable modems, set-top boxes and home networking," Weiss says. "Combine all these together and I don't know how other companies will compete."