Yet Another Banner Day for Broadcom
Broadcom Corp.’s stunning growth reached new heights Tuesday as the Irvine chip maker notched its best year ever and its stock rocketed more than $33 a share--enriching the company’s co-founders by nearly $600 million each in just a single day.
The one-day, 11% stock surge came as Broadcom announced a two-for-one split in its shares and that it was swallowing up yet another company in its relentless bid to dominate the burgeoning market for network devices, which help people do everything from shop on the Web to make phone calls over the Internet.
For the year, Broadcom said sales topped $500 million, putting it on a pace to become the fastest-growing chip company ever, ahead of even giant Intel Corp.
Tuesday’s stock jump marked the latest in a series of run-ups in Broadcom’s shares in recent weeks, boosting the value of the founders’ shares as well as hundreds of other employees who have become millionaires, at least on paper.
Indeed, Broadcom co-founders Henry T. Nicholas III and Henry Samueli have seen the value of their stock soar nearly $2 billion each since late November, reaching $5.9 billion each with the stock’s gain Tuesday.
Analysts say investors’ enthusiasm for Broadcom and rival chip makers such as Conexant Systems Inc. in Newport Beach stems from soaring consumer demand for sophisticated data communications systems, such as cellular phones and high-speed networks for accessing the Internet.
Broadcom’s communication chips are the tiny pieces of silicon that enable various machines in a person’s life--PCs, cell phones, television, other hand-held devices--to talk to one another.
As many envision it, these chips will someday enable teenagers to download digital music into their car stereos; homemakers to use a television remote control to shop for groceries on the Web; and traveling executives to flip on their home security systems through their laptop computers.
By spotting this trend early, analysts say, Broadcom has established itself as a leading player in the networking arena. And by riding Wall Street’s fascination for such stocks, Broadcom has leveraged its spectacular gains to make numerous key acquisitions over the last year--a strategy that Broadcom apparently plans to continue.
On Tuesday, Broadcom said it agreed to buy closely held Blue-Steel Networks Inc. for $110.7 million in stock. The deal will allow Broadcom to add security features to its high-speed chips.
The acquisition will bolster Broadcom’s portfolio of technology products, said Nicholas, the chief executive officer. The deal is expected to close within two months.
“Security is a serious issue for cable networks, and it’s a key thing that consumers want to have,” said Allen Leibovitch, a senior analyst with the research group International Data Corp.
Broadcom officials attributed the company’s spectacular growth of late to its expanded product lines, as well as the exploding use of the Internet for high-speed phone, video and data traffic.
Broadcom’s latest quarterly profits quadrupled, beating analysts’ expectations, and sales more than doubled from the same period in 1998.
Tuesday’s flood of bullish news is a remarkable parallel to what Broadcom did a year ago. After announcing strong year-end earnings and its first stock split, Broadcom
picked up a string of five companies between January and August--all small engineering firms, all with cutting-edge technologies that filled in gaps.
“Broadcom is smart not to go after the bigger companies, because big acquisitions are hard to digest,” said Karuna Uppal, a senior industry analyst with the Yankee Group.
Thanks to the recent stock performance and the pending split, analysts say Broadcom is gearing itself up for a buying splurge. Industry watchers say that given Broadcom’s dominance in the home-networking market, the chip-maker may target companies that develop wireless technologies.
Nicholas declined to comment on future deals but acknowledged Broadcom’s penchant for smaller players. Buying a big company is like “adopting a teenager,” he said. “It’s hard to raise them with the same values as everyone else.”
Broadcom’s profits for the three months ended Dec. 31 hit $36.9 million, up from $8 million from the fourth quarter of 1998. Revenue totaled $160.8 million in the quarter, up from $74.6 million.
For the year, profits surged to $105.8 million, from $24.6 million in 1998. The results excluded one-time charges of $22.5 million for mergers and legal matters. Yearly revenue rose to $518.2 million, from $216.5 million in 1998.
Broadcom said Tuesday its two-for-one stock split will be effective Feb. 11, for shareholders of record on Jan. 31. On Tuesday the stock climbed to a 52-week high of $332.13 before settling back a bit to close at $328.50 on Nasdaq trading.
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On a Roll
Broadcom Corp. co-founders Henry T. Nicholas III and Henry Samueli have seen their company shares soar since Broadcom went public less than two years ago.
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Date Est. Stock Value (each founder) *Apr. 17, 1998 $ 650 million Nov. 22, 1999 1.8 billion Dec. 17, 1999 3.9 billion Dec. 28, 1999 5.0 billion Jan. 18, 2000 5.9 billion
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*Stock market debut
SOURCE: Los Angeles Times.
