Broadcom to Buy Silicon Spice in Stock Deal

In its largest and perhaps most important acquisition to date, Broadcom Corp. said Monday it would buy Silicon Spice Inc. in Northern California in a stock deal valued at more than $1.2 billion.

Analysts said the deal will give Broadcom a powerful new presence in the fast-growing market for products that help carry information over wide areas, rather than within a single office or home. It will also help Broadcom, the Irvine communications chip maker, strengthen its position in the delivery of voice, video and data over a single network.

Silicon Spice, a private firm in Mountain View that counts Cisco Systems Inc. as one of its investors and customers, develops chips that connect traditional telephone networks to networks that carry packets of information such as the Internet. Voice and data communications are increasingly being carried over the same network, a practice known as convergence.

The deal is Broadcom’s second acquisition in eight days and its 12th since going public in April 1998. Henry Nicholas III, Broadcom chairman and chief executive, described the latest purchase as its most strategic and important.

“This gives us access to the backbone of all carrier networks,” Nicholas said. It opens up “a multibillion-dollar market.”

“This is like a beachhead for their assault” into the wide area networks that bridge cities and regions to one another, said Alex Gauna, market analyst at Banc of America Securities.

Broadcom’s stock closed Monday at $247.94, up $9, or nearly 4%.

Under terms of the deal, Broadcom said it will issue 5 million shares in exchange for Silicon Spice. Broadcom expects to record a one-time write-off in the third quarter for expenses related to the deal.

Silicon Spice, founded by three alumni from the Massachusetts Institute of Technology in 1997, is headed by Vinod Dham, widely considered the architect of Intel’s Pentium program. Dham will remain with the company, becoming the manager of a new Broadcom carrier access unit. The firm has 126 employees.

Broadcom is a leading maker of chips in products that bring high-speed communications in to the home or business, such as digital TV set-top boxes and cable modems.

Jim Liang, an analyst at WR Hambrecht & Co., said this deal “really positions the company more towards the core of the networks, rather than the edges,” such as the homes and offices.

The market for voice over the Internet is in its early stages. Liang estimates that chips that enable the technology, such as those developed by Silicon Spice, will be a $750-million market in 2001.

The merger, which is expected to close within 60 days, has been approved by the boards of directors of both companies.