Broadcom Stumbles After Report

Broadcom Corp.’s stock fell more than 8% on Monday, apparently fallout from reports that Motorola Inc. is moving to acquire General Instrument Corp., a major Broadcom customer.

Aiming to ease investor concern, Irvine-based Broadcom insisted that a Motorola-General Instrument deal would help its business, bringing Motorola’s retail distribution to a market dominated by Broadcom chips that facilitate high-speed Internet connections.

Broadcom Chief Financial Officer William J. Ruehle said the company has been assured by General Instrument, its biggest customer, that Broadcom remains its key partner for digital set-top box chips.

General Instrument made up 31.7% of Broadcom’s sales for the six months ended June 30.

Ruehle discounted the notion that because Motorola makes communications chips, it would displace Broadcom’s offerings inside GI’s digital set-top boxes.

“That sort of says, ‘A chip is a chip is a chip,’ which isn’t true,” he said, noting that Motorola already buys all of its cable-modem chips from Broadcom.

General Instrument is under contract to buy a certain percentage of its set-top box chips from Broadcom through 2001, Ruehle said.

“GI is still obligated to give us a very significant portion of their business,” he said. “If [a combined Motorola-GI] were going to produce some of their own chips, the person that would get squeezed would be their second source.”

So far, General Instrument has given Broadcom all of its digital set-top box chip business. However, Ruehle said General Instrument may give some business to European chip maker STMicroelectronics by the fourth quarter.

Broadcom has a multiyear contract with General Instrument that began in 1998, guaranteeing Broadcom a certain level of business, based on a sliding scale, CS First Boston analyst Paul Weinstein said.

In 2001, the final year of the contract, General Instrument must give Broadcom at least 45% of its business, Ruehle said.

Ruehle said he had discussions Monday with General Instrument but that the company has neither confirmed nor denied the Motorola deal, reported Monday by the Los Angeles Times, which put the value of the deal at $9.5 billion.

Analysts at Merrill Lynch, Morgan Stanley and Bank of America reiterated their positive ratings on Broadcom’s stock Monday, but that didn’t help the shares, which fell 8%, to $109.94.

General Instrument fell $2.81, to $49.69 after earlier rising as high as $54.44. Motorola shares fell $8.38, or 8.5%, to $90.38, partly on concern that an acquisition might distract the company from its effort to streamline its chip business, analysts said. Both companies declined to comment on the deal, which also was reported in the Wall Street Journal.