Conexant Firing a Round in Cable Modem Battle
The war over the burgeoning cable modem market is poised to explode today as chip maker Conexant Systems Inc. unveils a technology blueprint that company officials say promises to one-up rival Broadcom Corp., especially if it gets industry approval later in the week.
Newport Beach-based Conexant will unveil a how-to guide, known in the industry as a “reference design,” for cable modem manufacturers. It provides details about all of Conexant’s silicon and software products needed for building the guts of one of these high-speed Internet devices.
Cable modems are part of a long-promised, Jetson-like future: high-speed Internet devices that will allow consumers to enjoy everything from instant Web access to video-on-demand, and to be connected to home networks that link everything from computers to refrigerators.
The market for cable modems is relatively small but exploding. Just over 2 million modems were shipped worldwide this year, more than double the 978,000 units rolled out in 1998, according to recent findings by Cahners In-Stat Group, an Arizona-based research firm.
By next year, manufacturers are expected to ship another 3.66 million, growing this year’s $630 million market to more than $1.1 billion worldwide.
Conexant’s design marks the first time a semiconductor manufacturer has offered both pieces to the modem puzzle, the hardware of the chips and flexible software programs, to create a fully functioning cable modem.
What Conexant has--and Broadcom, so far, doesn’t--is the software piece. Conexant’s design incorporates all the network-management and protocol needed for the modem to do various tasks, such as manage data or be hooked into home-networking devices.
“Right now, manufacturers can take our technology, throw in some memory, wrap a plastic box around it and go,” said Scott Keller, product manager for Conexant’s cable modem group. “Broadcom’s design doesn’t do that. You look at their reference design, and all you can do is evaluate the power of their chips.”
Waiting for a Stamp of Approval
Today’s announcement also is expected to bring public the battle between Conexant and Irvine-based Broadcom that has been privately brewing for months, where multibillion-dollar opportunities have led to cutthroat maneuvering and behind-the-scenes sniping between executives at the neighboring firms.
“Broadcom has had a terrific run all on its own, but they knew they couldn’t go on forever without facing real competition,” said Mike Paxton, a Cahners analyst. “Still, this is all a huge gamble, because everyone’s waiting to see what happens on Thursday.”
That is when CableLabs, the research arm of the cable industry, will announce whether Conexant’s designs meet industrywide standards and will work with competing products.
Without this stamp of approval, modem manufacturers won’t use Conexant’s technical designs inside their products aimed at the U.S. market, analysts said.
The cable industry, which traditionally has bought equipment from suppliers and leased it to customers on a monthly basis, is starting to sell its products on the retail market.
The reason, in part, is to offset the cost of rolling out a host of competitive new services such as high-speed Internet access and long-distance phone service. Advanced cable modems cost operators about $150 apiece; set-top devices cost anywhere from $200 to $450.
To convince consumers that this won’t be another fiasco such as the VHS-versus-Beta VCR war, the cable industry has spent several years standardizing equipment so people can use the same store-bought modem or cable set-top box no matter where they live--or what cable company provides their service.
Broadcom has dominated this market to date because it was the first out of the gate with a full chip set for modems that was approved to meet the standards set by CableLabs. That edge helped the company seal a slew of deals to supply chips to manufacturers including giant General Instrument Corp.
Broadcom’s cable modem solution, which it presents as an all-in-one package to manufacturers, incorporates some of its own software and some developed by Cisco Systems Inc. Broadcom’s focus is on “building the best silicon in the world,” company officials said Friday.
A Good Chance of Stealing the Market
If Conexant’s reference design performs as advertised and gets the industry’s standardized stamp of approval, Conexant has a good chance of stealing market share from Broadcom, analysts said. Manufacturers, looking for a competitor to drive down chip costs, are searching for a second source for modem chips and system designs.
Conexant officials said they are confident the design will pass CableLabs’ rigorous tests. And within the next two weeks, Conexant will announce that it has stolen “at least one of Broadcom’s major cable-modem customers,” according to industry sources,
“Worse-case scenario is we don’t pass on Thursday. Then we’ll definitely pass in the next wave,” Keller said. “That means manufacturers will still be able to roll out cable modems with our technology inside by April.”
Broadcom officials, who said they were unaware of Conexant’s announcement as of Friday, denied that any of their customers were changing camps.
“Nobody gets approval the first time [they present a reference design] to CableLabs,” said Tim M. Lindenfelser, vice president of marketing at Broadcom. “No one.”
The rivalry among these large semiconductor firms is born out of a fundamental shift in the technological landscape. Both companies recognize that the future isn’t in making more powerful computers; it’s in clearing up the clogged arteries of the networks that send and receive large amounts of data.
Yet the cultures of the two companies are diametrically opposite, as are the personalities of their leaders.
Multibillionaire Henry T. Nicholas III, chief executive and co-founder of Broadcom, enjoys being outrageous. This year, he’s branched out into areas such as extreme-sports TV shows, surf apparel and has considered making a bid for Walt Disney Co.’s Angels baseball and Mighty Ducks hockey teams.
Broadcom revolves around the vision of Nicholas--and fellow co-founder Henry Samueli--that people want information, and gobs of it, to flood seamlessly in and out of their lives. It could be related to work (data, e-mail, spreadsheets), fun (music, movies, shopping) or a combination of both.
Dwight Decker, chief executive of Conexant, is a quiet and shy man who spent years under the corporate wing of Rockwell International Corp., the once-giant aerospace firm. While Broadcom bets on the future, Conexant is focusing on what’s happening right now: Technological convergence is great, but someone still must make chips for the modems and cell phones that people use today.
Publicly, both Nicholas and Decker express admiration for each other and the corporations they head.
Privately, however, the two executives and their staffs have spent months hurling insults and ridiculing their counterparts.
Broadcom employees dismiss Conexant as “too slow” to be a serious threat, and Decker as a “a scientist with a ridiculously huge ego.”
Conexant officials, meanwhile, describe Nicholas as “evil” and “the antichrist,” and Broadcom as “arrogant beyond belief.”
Companies’ Stock Prices Rise
Much of this verbal jockeying also rolls into the products they build. Both Conexant and Broadcom are expected today to unveil television-tuner chips that are smaller and cheaper than normal ones.
The chips are about the size of a fingernail; traditional tuners--known as “cans” in industry slang--sometimes resemble sardine tins and have as many as 200 parts. Each tuner works and reduces signal interference, say analysts. Each tuner uses a different type of technology, with benefits and drawbacks. Each tuner will save cable modem manufacturers money.
“They are nothing,” said Mehrdad Nayebi, general manager of Broadcom’s radio-frequency business unit. “We’re going to blow them out of the water.”
Despite the antagonism, shares of both Broadcom and Conexant have surged recently. Broadcom has rocketed 89% since Oct. 19, closing at $207.75 a share Friday on Nasdaq. Conexant’s stock has gained 95% in the same period, to $62.13 on Friday, also on Nasdaq.
Analysts say investors’ enthusiasm for the stocks is based on soaring consumer demand for sophisticated data communications systems, such as cellular phones and high-speed networks for accessing the Internet at work and home.
