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Broadcom to Acquire Epigram in Stock Deal

April 26, 1999|P.J. HUFFSTUTTER and JONATHAN GAW | TIMES STAFF WRITERS

Stepping into the forefront of the burgeoning market for high-speed home networks, Irvine-based chip maker Broadcom Corp. said Sunday that it will buy Silicon Valley's Epigram Inc. for $316 million in stock.

Broadcom would issue 4.6 million Class B shares for privately held Epigram, a small Sunnyvale, Calif., engineering firm known for developing high-speed networking technology that can send data over existing phone lines in homes and small offices.

The high-tech industry is racing to roll out products that will enable people to connect all of their consumer electronic devices together--from PCs and stereos to microwaves and home security systems. Analysts say the pending deal gives Broadcom an edge over other semiconductor firms jumping into this fast-growing part of the chip business, which makes possible broadband communications services such as virtual-reality malls and movies on demand.

Intel Corp., hoping to bridge the worlds of PCs and high-speed networking, has in the last year made a series of strategic investments. They include the recently announced $2.2-billion acquisition of Level One Communications, a leading maker of communications components for telecom and home-networking equipment.

Broadcom "now really has put themselves into a unique position, because of their dominance in the cable modem and set-top box market," said Michael Wolf, industry analyst for Instat, a Scottsdale, Ariz.-based research group. "This fills out their technology portfolio."

Though the lure of high-speed connectivity and "gee whiz" features may be strong, consumer have been slow to buy into such systems. The hurdle so far has been cost, as consumers have had to spend thousands of dollars retrofitting their houses with expensive wiring. Hoping to speed up the adoption rate, the Home Phoneline Networking Alliance has developed a technology standard that lets high-speed data run over phone lines and doesn't interfere with existing services.

Today's standard--data traveling at one megabit per second, or about 20 times the speed of a 56K modem--is being pushed to go faster. The industry consortium is expected to select a 10mb standard later this year, and analysts predict that Epigram's technology will be used as its basis.

Broadcom predicts that once the bandwidth is expanded, consumers will be able to pipe high-speed Internet service through a cable set-top box or modem and link TVs to personal computers. The company expects to roll out products using Epigram's technology by the end of the year, officials said.

"People were claiming in 1997 there was no cable modem market. Now there are more than a million cable modems [being used] in the world, and the thirst for them is exploding," said Henry Nicholas, chief executive for Broadcom. "We're right at the same spot with home networks as we were with cable modems 18 months ago."

Analysts say it's smart for Broadcom to bank on the future of home networking, as faster Internet access, cheap prices for PCs and "plug and play" network tools drive demand for these connections. The home-networking market is projected to reach $1.5 billion by 2002, according to a recent Forrester Research report.

The Epigram purchase is scheduled to close by the end of July, pending Epigram's owners' approval. Epigram would become one of four divisions of Broadcom, the world's largest maker of chips for cable television set-top boxes and cable modems.

Industry watchers were surprised by Sunday's news, as most experts had expected Epigram to go public and take advantage of Wall Street's love affair with technology stocks.

"I've been getting calls on a daily basis from bankers for quite a while," said Jeff Thermond, president and chief executive of the 54-employee Epigram. "At a time when getting . . . [products] out to market means everything, this deal seemed to make more sense to us. We have really complementary products and corporate cultures, and that will help us be more successful in the end."

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P.J. Huffstutter can be reached via e-mail at p.j.huffstutter@latimes.com.

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