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Broadcom Broadening Its Product Portfolio

Broadcom is continuing its moves into the white-hot optical networking sector and beefing up its products for telecom equipment companies. Today's purchase of optical chip maker NewPort Communications complements its purchase of communications chip company Silicon Spice last week. While Broadcom is growing fast through acquisitions, it will have to continue to demonstrate that it can integrate them.

By Chris Rugaber (TMF RFK)
August 14, 2000

High-speed chip designer and recent Daily Double Broadcom Corp. (Nasdaq: BRCM) announced today that it is purchasing privately held NewPort Communications for about $1.24 billion in stock, enabling the company to take another step into the white-hot optical networking market. Today's purchase continues an active acquisition strategy for Broadcom, which purchased the unfortunately named Silicon Spice last Monday, also for about $1.2 billion in stock.

NewPort, a next-door neighbor to Broadcom in Irvine, California, develops high-speed optical networking chips, and boasts an impressive customer roster, which includes Cisco Systems (Nasdaq: CSCO), Lucent Technologies (NYSE: LU), Alcatel (NYSE: ALA), JDS Uniphase (Nasdaq: JDSU), and Ciena Corp. (NYSE: CIEN).

Bulking Up the Product Portfolio
Currently, Broadcom's primary business is designing chips to speed Internet access for end users, through products such as digital set-top boxes, cable modems, and Ethernet switches for office networks. However, the company is looking to expand into fiber optic equipment and added an optical networking division this spring. In May, the company introduced a 10-gigabit per second (10Gbps) Ethernet chip for corporate local area networks (LANs) and wide-area networks (WANs). By the way, 10 gigabits of data per second is approximately equivalent to 210,000 typed pages.

NewPort recently developed a 10-gigabit chip for high-speed Internet backbone equipment, which matches the fastest speed currently used in fiber-optic networks. Broadcom CEO Henry Nicholas told Bloomberg that it was the development of this technology that spurred Broadcom to acquire the company. NewPort's capabilities, combined with Silicon Spice's voice-over-IP technologies, augment Broadcom's product offerings for networking equipment companies such as Cisco and Lucent.

Managing acquisitions
Today's move is Broadcom's eighth purchase this year, and thirteenth since last year. The company is growing quickly through acquisitions, purchasing new firms that are developing groundbreaking technologies and expanding their own capabilities as a result.

That strategy may remind readers of another network equipment company, namely Cisco. While Cisco is renowned for its ability to effectively integrate new companies into its operations, Broadcom may need more time to prove itself. The company has certainly been executing as of late, reporting doubling revenues and rapidly growing earnings last month.

Yet Broadcom doubled its numbers of employees last year, and is aiming to do so again this year. Keeping all its highly qualified engineers happy could be a challenge. Nevertheless, if Broadcom can integrate its many recent purchases as well as Cisco generally does, the company may continue its rapid, profitable growth.

Your Turn:
Let us know what you think of Broadcom's recent moves.

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