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All's Well or Better for 2 O.C. Tech Giants

Broadcom Tops Forecasts as Its Market Share Grows


Broadcom Corp., the industry's fastest-growing semiconductor maker, reported third-quarter earnings Wednesday that far exceeded the forecasts of industry analysts and posted revenue that more than doubled sales from a year ago.

Without one-time expenses from the Irvine-based company's aggressive acquisition strategy, Broadcom earned $78.7 million, or 30 cents a share, compared with net income of $24.6 million, or 10 cents a share, for last year's third quarter.

That beat analysts' expectations of 24 cents a share, according to a survey by First Call/Thomson Financial.

Quarterly sales rose to $319.2 million from $139.6 million a year ago, the company said.

However, the one-time charges from acquisitions and taxes paid on employee stock options resulted in the company's first quarterly net loss, which was $19.4 million, or 9 cents a share.

Broadcom shares fell $14.88, nearly 7%, to $209.38 in Nasdaq trading Wednesday, but rose as high as $219.06 a share in after-hours trading following the earnings report. The stock has more than quintupled in value in the last 12 months.

"Broadcom's was a phenomenal performance," said analyst Arun Veerappan of Robertson Stephens brokerage in San Francisco. "They came out dramatically strong, even for the markets they play in. This is a clear case of them gaining market share."

The company said it posted a net loss for the first time because of a shift in accounting methods that mirrors changes adopted throughout the technology sector.

Henry T. Nicholas III, Broadcom's chief executive, said in a conference call with analysts that the company's long-term outlook is better than it has ever been.

"For the first time in our history, we now have the ability to provide to our customers complete end-to-end voice, video and data solutions," Nicholas said.

The company, which develops products to speed information over a wide range of Internet networking technologies, aims to be a one-stop shop for chips that facilitate high-speed multimedia broadband communications.

Sales to its top customer, Motorola Inc., accounted for 23% of Broadcom's revenue, said William Ruehle, Broadcom's chief financial officer. That was followed by sales to Cisco Systems Inc., at 17%, and 3Com Corp., at 13%, he said.

Veerappan said he was particularly impressed by Broadcom's quarterly growth in sales to Cisco, which went up 50% from the second quarter and 60% and 45%, respectively, from each of the previous two quarters.

Broadcom has gained market share and increased revenue with its acquisitions and ability to beat its rivals by introducing new chips for a wide range of networking equipment, which is a surging market fueled by heavy demand for high-speed computer and digital cable-TV access.

Its acquisitions have helped Broadcom widen its reach in fast-growing segments of the market, from cable modems and TV set-top boxes to equipment for building networks over wide areas. Broadcom has used its high-flying stock to purchase 15 companies since it went public almost two years ago.

In the third quarter, Broadcom completed its acquisition of Innovent Systems Inc. for $457.1 million in stock and announced three new acquisitions: Altima Communications Inc. for $581.4 million and Silicon Spice and NewPort Communications Inc. for $1.2 billion each. Earlier this month, the company said it would buy Element 14 Inc. of Cambridge, England, for about $641 million and Allayer Communications of San Jose for $276 million.

The aggressive posture toward acquisitions is risky, but "something you have to do" to stay ahead in the fast-paced networking market, Veerappan said.

"We're playing with rocket fuel in this industry," he said. "It's growing at a dramatically fast pace, and to be a player you have to take a risk."

So far, the company has managed to stay ahead of the curve by applying technology from slowing markets into new growth areas.

Nicholas said, for example, that with slower growth forecasted for cable modems, the company will use the technology in so-called home gateway products, which allow individuals to link equipment like televisions and computers into an integrated network accessible from the office.

"You phase out of markets by being the very entity that renders those markets obsolete," Nicholas said.

The strategy has paid off for investors, who have seen the stock more than triple in the last year.

"I believe this company is the next Intel," said shareholder Stan Niewiarowski of Chatsworth.


Many technology stocks reported strong earnings but little gain in the market. C6

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