When the Chips Are Down, He Steps Up
The shades were drawn, and the grim mathematics of a technology market slowdown were projected on a glowing slide screen.
Broadcom Corp. co-founder Henry Samueli studied the screen, and the voice of the 46-year-old, taciturn chief technologist took on an uncharacteristic edginess. “You can do back flips, and you’re still not going to salvage” the current financial quarter, Samueli told two dozen of his top engineers, whom he had gathered on a recent morning at Broadcom’s Irvine headquarters.
The engineers threw out suggestions for saving money, from sharing costly test equipment to forgoing their salaries in exchange for more Broadcom stock. But they knew layoffs were inevitable.
“We have to do it and get it out of the way and start with a clean slate,” Samueli said firmly. “We can’t keep talking about negative things. We have to start getting morale up.”
These are extraordinary times for technology innovators everywhere. For the first time in many years, companies are trimming back their research staffs as profits and stock prices fall.
Few have as tough a job as Samueli, an overachieving son of Holocaust survivors who grew up working the cash register at his parents’ East L.A. liquor store.
As chief technology officer, Samueli leads an army of more than 1,900 engineers. He must determine which projects can be cut and which should be fortified. His choices will be crucial; surrendering the wrong technological battlefronts today could hurt Broadcom’s ability to compete two years from now.
But many of Broadcom’s engineers have seen their millionaire dreams disappear as the company’s stock has shriveled from almost $275 a share last August to the $30 range lately. Motivating them is no easy task.
Not long ago, Broadcom’s soaring stock was fuel enough for good morale. The company was so busy getting its products out and buying businesses--Broadcom acquired 18 companies in less than two years--that it could almost afford not to be as innovative. Samueli spent much of his time trolling companies worldwide for cutting-edge technology and talented engineers. He and his better-known partner, Henry Nicholas III, built the fastest-growing chip maker ever.
Now, as Broadcom struggles to revive its sagging sales and restore confidence on Wall Street, the spotlight has turned to the brainy Samueli.
In public, the billionaire Samueli has drawn attention for his generous philanthropy but has been a nearly invisible counterpoint to Nicholas, his onetime student who is Broadcom’s chief executive. While the brash and outspoken Nicholas symbolized the hard-driving leader of the “new-economy” boom, Samueli was content to work behind the scenes, a calming father figure to his beloved engineers. When Nicholas made his overworked engineering staff cry, it was Samueli who rebuilt their confidence and set them back on task.
“The degree to which I push some of the engineers, Henry would never come close to that,” said Nicholas, 41. “But I would never be able to push them as hard as I do if I didn’t have Henry on the positive side.”
Playing a Growing Role
Nowadays Nicholas is out on the road, jousting for market share in a shrinking pool of business. Those left at the office are increasingly looking to Samueli for direction.
“The pressure is higher on him to have that vision and be able to plan multiple years in the future,” said Charles Reames, a senior engineering director who has known Samueli since the two were graduate students at UCLA in the late 1970s. “He’s aware that there’s much more visibility, that his role here is critical.”
In the investment community, Samueli is viewed in the same light as a Paul Allen, the No. 2 man who stood in the shadow of Bill Gates at Microsoft Corp. But in times like these, said technology analyst Charles Glavin, engineering leaders like Samueli are crucial.
“In downturns, Wall Street actually looks for more acceleration in technology than anything,” said Glavin, of Credit Suisse First Boston. “The way to differentiate yourself is by leveraging your technology. . . . Right now, this is the wheat separating from the chaff.
“This is a time that he can really shine.”
For Samueli, that means getting the most from his high-voltage engineering staff, which includes 228 PhDs, more than triple the number on Stanford’s electrical engineering faculty.
Samueli and Nicholas, both PhDs themselves, were pioneers of chips that help move data over copper telephone lines at breakneck speeds, connections now known as DSL. Since they founded the company in 1991, Broadcom has become the largest producer of chips for cable modems, and its sales topped $1 billion last year. After it went public in April 1998, the value of its shares multiplied by 46 in a little more than two years. Samueli and Nicholas saw their Broadcom stock holdings balloon to nearly $10 billion each.
But this year, technology spending slowed to a trickle, and so did the orders from Broadcom’s leading customers, including Cisco Systems, 3Com and Motorola, and ailing computer makers Dell and Gateway.
Since spring, Samueli has devoted his time to scrutinizing each of Broadcom’s technology units, while Nicholas examined them from a financial standpoint.
Keeping an Eye on the Big Picture
One area in which Samueli says he wants to devote more resources is software, to support the ever more complex chips Broadcom is developing. Samueli also must make sure that Broadcom’s engineering groups’ portfolios of projects complement one another but do not overlap.
Steve Tsubota, Broadcom’s senior director for broadband technologies, remembers the frequent late-night meetings in Samueli’s office not long ago, when they had the luxury of going over specific technical problems.
“Now he’s actually looking at the gestalt of the communications industry, what parts need to be put together and what are missing from our portfolio,” Tsubota said.
The choices weigh heavily on Samueli’s shoulders, but he seems almost grateful the economy has paused and given Broadcom time to gather itself.
“People thought the market would just go up forever, and that they would all become rich,” Samueli said. “They had these false expectations that their stocks would go up by a factor of four every year. It just doesn’t happen. That’s not life.”
Samueli knows that those aren’t comforting words to engineers who have lost millions of dollars, even if it was just on paper. So like many other technology firms, Broadcom just approved a plan that will allow workers to trade in their worthless stock options for new ones. And even though the company is trying to save money, Samueli has supported other special compensations to boost morale. For example, managers say he didn’t ask a single question about costs when two of Broadcom’s business units took more than 400 people on weekend ski trips to Mammoth in March.
But if engineers are distracted now by Broadcom’s sunken stock price, many were equally preoccupied when shares were flying high. No one knows that better than Samueli, the son of working-class immigrants who suddenly became the 18th-richest person in America (along with Nicholas), only to see most of that wealth vanish in months.
“When my parents came to this country, they had nothing, literally nothing in their pockets. They had to start from scratch,” Samueli said from his sleek Irvine office with a view of the Santa Ana mountains. “We were very frugal. I learned that kind of a lifestyle, and even today, even though I have as much money as I want, I think twice. When I go to the store, I look at the prices, and I try to find the best deals. And I look for sales. It’s weird, but you can’t get that out of your genes.”
But Samueli and his wife, Susan, also have learned that the lifestyle of a billionaire can take over whether you mean it to or not.
The family’s home in Corona del Mar, perched on a private oceanfront bluff, is teeming with security guards and housekeepers and personal trainers all hours of the day. Their Palm hand-helds are an obstacle course of social obligations and charity benefits.
Their two teenage daughters remember when their mother shopped at Target, Susan Samueli says. But the 6-year-old thinks nothing of riding in limousines or her father’s private jet.
Wealth a Blessing and a Burden
During the last three years, the couple have given away more than $100 million through their family foundation, including $30 million and $20 million respectively to the engineering schools at UCLA and UC Irvine, which both now bear his name.
To Samueli, his phenomenal financial success is a blessing. It also represents a bit of a burden to a man whose parents struggled to give him a good life and who are not around to see what their earnest younger son has achieved.
Samueli’s father, Aaron, was a dentist in Poland before World War II separated him from his three brothers. One brother was killed, and Aaron was sent to the Buchenwald concentration camp in Germany, where he was forced by the Nazis to extract gold fillings from the teeth of murdered prisoners. It was this unfathomable task that probably spared his life.
Samueli’s mother, Sala, and her siblings spent the war in hiding in an attic in a village in Poland. Just days after the war came to an end, Sala and her two sisters, out looking for food, returned to find their hiding place splattered with blood. Their four brothers had been murdered by fellow Poles.
Aaron met Sala in Poland after the war. They moved to Germany and had their first son, Leon. In 1951, Aaron and his brothers brought their wives to America and started over. Henry was born three years later in Buffalo, N.Y., and the Samuelis moved to California, where the family ran a liquor store on Whittier Boulevard.
Henry worked the cash register and stocked the shelves from the time he was 13. He graduated from Fairfax High School in West Hollywood when he was 16 and had a doctorate from UCLA 10 years later.
“All I had to do was study, so I did it well,” he said. “I am overcompensating for all the misery that they went through. I wanted to overcompensate and do as good as I can do, to prove to them, look, this is what can be done if you’re given that freedom.”
Samueli doesn’t talk much about what his parents went through, but he said the need to make amends for their suffering has always been with him. His friends and relatives see the loneliness in him.
His mother died of cancer in 1980 on her 57th birthday, just as Henry was finishing up his doctoral thesis. His father passed away in 1992. He lost his older brother to leukemia in 1998, six months after Broadcom’s phenomenal stock offering.
“What do you do with this honor if the people close to you are all gone?” said his sister-in-law, Barbara Samueli. “I don’t know who Henry goes to emotionally. I think he’s always leaned on himself.”
Today, Samueli has a lot of people leaning on him.
The engineers are looking to him for direction and reassurance. Investors and Wall Street analysts want to know that he can be the grown-up counterpart to his flashy partner, making the hard choices to cut where necessary without sacrificing the company’s technological future.
Certainly, Broadcom’s co-founders have seemed an unlikely partnership, but at every point in Samueli’s life there has been someone nearby playing the role of Henry Nicholas. His brother, Leon, was the life of the party, outgoing and funny with a personality as big as the great outdoors. His childhood friend, Gregory Gershuni, was the wild kid who got dirty when he played and who talked in class while Henry listened. His wife, Susan, 51, is outgoing and buoyant.
“He’s a very understated person,” she said. “He is quiet, and it’s easier to be quiet when you’re around somebody who is loquacious.”
Driven by Love of Technology
Yet Samueli is an eloquent spokesman for Broadcom’s technology. He explains it to the uninitiated with patience and compelling enthusiasm.
“I’ve always been a technologist. That’s what I want to do,” he said.
One notable day in April, when Broadcom’s stock closed at an all-time low of $21.47, Samueli left his office to speak at UCLA. He took to the lectern that afternoon like an old friend.
“When I started in this field, engineers were driving cabs,” he told the 120 or so students who packed the dusty lecture hall. “If you’re going to be an entrepreneur, don’t let the money be your driving factor. Let your love of the technology be your driving factor,” he said, encouraging his listeners to take advantage of the slowdown to finish their doctorates.
After his address, Samueli lingered in a darkening campus courtyard, patiently answering every last question from the students.
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Samueli Donations
A partial list of donations by Henry Samueli since 1999:
*--*
Recipient Amount (in millions) UCLA, School of Engineering and Applied Science $30.0 UCI, School of Engineering 20.0 O.C. Performing Arts Center 10.0 UCI, School of Engineering 6.0* UCI, College of Medicine 5.7 Ocean Institute in Dana Point 5.5 Opera Pacific 5.0 Temple Beth El, Aliso Viejo 3.0 Reform Synagogue in Israel 2.5 Chapman University 1.5 University Synagogue 1.0 UCLA Hillel Jewish organization 1.0 Opera Pacific 1.0
*--*
* Joint gift with Dwight Decker, CEO of Conexant Systems
Source: Times research
