Broadcom a Smash Hit in Its Wall Street Debut

By E SCOTT RECKARD

April 18, 1998 12 AM PT

TIMES STAFF WRITER

Shares of Broadcom Inc., which wants to put the Internet on your television set, nearly tripled in first-day trading Friday before easing back a notch in the most stellar stock-market debut of the year.

The trading frenzy enriched founders Henry T. Nicholas III and Henry Samueli to the point that they would be among the top 300 on the Forbes magazine list of the wealthiest Americans.

The first public offering of the Irvine firm’s stock hit a peak of $70 a share before closing at $53.63 in the Nasdaq market. It was priced at $24 a share.

The windfall put the value of the founders’ stock at $650 million each by the end of the day. That amount would rank the two executives below only billionaire land baron Donald L. Bren of the Irvine Co. and Getty Oil heiress Anne Catherine Getty-Earhart of Laguna Beach as Orange County’s richest residents.

They even eclipsed David Sun and John Tu, the celebrated Kingston Technology Corp. entrepreneurs who gained national fame for setting aside $100 million for employee bonuses after Kingston went public two years ago.

“It’s just so overwhelming what Henry and Nick have done. It’s still so unreal to me,” said Nicholas’ wife, Stacey.

The two Henrys, as they’re known at work, declined to comment Friday, citing government regulations imposing a so-called quiet period on companies selling stock to the public.

At Broadcom’s Laguna Canyon Road offices, employees drank champagne Friday as phones rang nonstop with congratulatory calls.

Samueli and Nicholas are longtime associates who live South County areas--Samueli near Ortega Highway in San Juan Capistrano and Nicholas at Nellie Gail Ranch in Laguna Hills.

Though many homes in Samueli’s gate-guarded neighborhood are in the $1-million-plus range, a neighbor wondered aloud Friday if the new mega-millionaire may soon move on to even greener pastures.

“Kind of wealthy, aren’t they,” said J.R. McEwen. “They might not live in here long.”

The day’s big splurge also put the value of Broadcom, a little-known data chip maker with $37 million in sales last year, at more than $2.3 billion.

By contrast, well-established computer disk maker Western Digital Corp. in Irvine, with $4.2 billion in sales last year, was valued on the stock market Friday at $1.6 billion--30% less than Broadcom.

Broadcom’s chips speed up Internet transmissions over ordinary phone and television lines not originally intended to carry high-speed digital signals.

The two Henrys want to put the Internet on the televisions of average Joes and Janes around the world, an immodest goal that analysts say may be achievable--and a story investors found irresistible.

“It’s the hottest deal of the year,” said Ryan Jacob, portfolio manager for the Internet Fund, a New York-based mutual fund.

The closing price was about five times the amount that the company and its underwriters originally had estimated the shares would bring.

Broadcom and five shareholders, including the two founders, sold 3.5 million shares, or about 8% of the total shares outstanding. It raised $78.1 million for the company and five key shareholders, with Nicholas and Samueli each receiving about $6.5 million before taxes.

The run-up underscores investors’ apparently insatiable taste for Internet-related companies. Jacobs said there have been at least four other “moon shot” stock offerings over the past year in which shares of such firms roughly doubled in the first day of trading.

But Broadcom is a particularly compelling story, analysts say, because it already has a steady and growing stream of sales--something many Internet firms can only dream about. Founded in August 1991, it has generally operated at a profit since 1993, though it lost $1.2 million last year.

Nicholas, Broadcom’s chief executive, predicted last fall that sales would soon reach $1 billion.

“We won’t be on your small-companies list,” he boasted to Forbes magazine. “At the rate we’re growing, we’re going to be on your big-companies list by the year 2000.”

Wall Street has long been anticipating Broadcom’s debut.

“I don’t think anyone is really surprised that it’s done so well,” said Eileen Ohnell, who follows initial public offerings for Renaissance Capital Corp. in Greenwich, Conn.

“They have a number of products across a number of interesting markets,” she said. “The business is very real, and they’re already just about at break-even.”

Broadcom’s opening was even more impressive because it came on a day when many Internet stocks lost ground. Shares of Excite Inc., an Internet software company, fell $15.81, or 17.4%, to $75.31, after it reported an unexpectedly large loss, and the prices of Infoseek Corp., Lycos Inc., Netscape Communications Corp. and Yahoo Inc. were also down.

Broadcom’s semiconductors for high-speed data transmission are used in devices such as cable TV boxes, cable modems and digital satellite signal decoders.

“Basically, they’re shoving more stuff down the same old pipelines,” Ohnell said.

Its customers include major technology companies such as 3Com Corp. and Motorola Inc. Investors like the fact that several customers, including Intel Corp., Cisco Systems Inc., General Instrument Corp. and Scientific-Atlanta Inc., are part owners in the company, Jacob said.

Samueli, 43, the company’s chief engineer, has been an electrical engineering professor since 1985 at UCLA, where he was Nicholas’ advisor on a doctorate program. He was part of an analog circuit design group at UCLA touted on its Web site as “lone cowboys, brave pioneers, creative and independent types, in contrast to the herd animals of the digital world.”

Samueli later helped start PairGain Technologies Inc., a Tustin maker of telecommunications gear. Nicholas worked there as a consultant and later director of microelectronics.

Nicholas, 38, a 6-foot-6 sometime bungee jumper, worked with his former mentor at TRW Inc. in the early 1980s designing super-fast circuits for the military.

Like other cutting-edge companies, Broadcom is zealously protective of its technologies and workers. It has been involved in several lawsuits over alleged infringements, , including one by Costa Mesa cable modem maker Rockwell Semiconductor Systems Inc.

And one ex-employee, former chief financial officer Scott Davis, has filed a lawsuit alleging Broadcom cheated him out of stock, a claim that can only become more intense after Friday’s smashing stock market debut.

Times correspondent Leslie Earnest, researcher Lois Hooker and Bloomberg News contributed to this report.

* HAPPY PARTNERS: Founders’ wives share rich experience. A31

Broadcom’s Big Debut

Broadcom Inc. shares more than doubled during Friday’s market debut. The stock, priced at $24, jumped 124% to close at $53.68. Its first-day share-price percentage increase is among the 10 highest since 1962.

Friday Trading

Offer price: $24.00

Opening price 11:30 a.m.: $62.00

12:30 p.m.: $58.38

1:30 p.m.: $57.38

2:30 p.m.: $57.38

3:30 p.m.: $56.63

Close price: 53.63

Highest price: $70.00

Lowest price: $53.13

How Broadcom Compares

*--*

Offer First-day % Date Company price close Increase 1. Nov. 17, 1995 Secure Computing $16.00 $48.25 202% 2. April 24, 1997 Univec Inc. 3.50 9.06 159 3. April 12, 1996 Yahoo! 13.00 33.00 154 4. Aug. 19, 1996 Netsmart Technologies 4.00 10.00 150 5. April 30, 1996 Planning Sciences Intl 10.00 24.13 142 6. May 13, 1986 Home Shopping Network 18.00 42.63 137 7. April 17, 1998 Broadcom Inc. 24.00 53.63 124 8. Mar. 10, 1995 Tivoli Systems 14.00 30.75 120 9. Nov. 17, 1995 Embryo Development 5.00 10.88 118 10. Sept. 19, 1986 Enviropact Inc. 3.25 6.75 108

*--*

Source: Securities Data; Researched by JANICE JONES DODDS / Los Angeles Times

Hot-Shot IPOs

At $24 a share, Irvine-based Broadcom Inc.’s offering price was one of the highest in California in more than two years. Since 1995, 234 California companies have made initial public offerings. Here are the ones priced at at least $24:

PMI Group, San Francisco. Private mortgage insurance,title insurance

Date: April 10, 1995

Offering price: $34.00

Shares (millions): 21.5

Xylan Corp., Calabasas. Computer networking

Date: March 11, 1996

Offering price: $26.00

Shares (millions): 4.2

Beringer Wine Estates Holdings, St. Helena.Varietal wines

Date: Oct. 28, 1997

Offering price: $26.00

Shares (millions): 5.1