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O.C. BUSINESS PLUS

Broadcom Announces Loss, Layoffs --Job Cut Size and Sites Unknown

Technology: One-third of the Irvine company's work force is in Orange County. Demand for its high-speed chips is down.

April 19, 2001|KAREN ALEXANDER | TIMES STAFF WRITER

Rapidly falling sales at Broadcom Corp. prompted the high-speed communications chip maker Wednesday to say that it will make "material" cuts in its work force and post a loss for the second quarter.

The unspecified number of job cuts, the first since the Irvine company went public three years ago, comes as lower demand has stalled its rapid growth and sent its stock price reeling from last year's dizzying heights.

The company would not say how many employees would be laid off or where the cuts will come. It had 2,706 employees at the end of March, including 945 in Orange County.

Broadcom posted first-quarter earnings that met reduced expectations, both from the company and analysts. It earned $24.2 million, or 9 cents a share, excluding acquisition-related expenses and payroll taxes on stock options exercised by employees.

That was down 46% from $44.9 million, or 18 cents a share, earned in last year's first three months, excluding similar nonrecurring expenses. Quarterly sales rose 66% to $318.1 million this year from $191.6 million last year.

But the continuing sales slump will drag the company down further in the current three-month period. William Ruehle, the company's chief financial officer, said the company will likely post a loss of 7 cents to 9 cents a share for the second quarter, excluding one-time charges, and that revenue will likely fall 23% from the previous three months.

"We are now reviewing all of our areas of business and making hard decisions about where to accelerate our investments and where to cut back," Ruehle said.

The extent of Broadcom's expected loss in the current quarter is "shocking, but Broadcom is not alone," said analyst Charles Glavin of investment bank Credit Suisse First Boston.

"Ironically, Broadcom can actually use this downturn to consolidate and streamline its recent acquisitions," Glavin said. "Many of the leading companies like Broadcom are really just trying to survive 2001 and realign themselves for 2002."

A month ago Broadcom lowered earnings expectations to reflect weakened demand from its three major customers: Cisco Systems Inc., Motorola Inc. and 3Com Corp.

On Wednesday, Broadcom said that only two customers each represented more than 10% of its revenue in the first quarter. Motorola accounted for 19.8% and 3Com for 15.1%. Cisco, which accounted for 17% of Broadcom's sales in the third quarter of last year, now represents less than 10%.

"We are seeing declines in some of the core markets we serve," said Broadcom's chief executive, Henry T. Nicholas III.

Nicholas said the company, the industry leader in cable-modem chips, is seeing lower demand for cable TV set-top boxes and cable modems, but "substantial uptake" in demand for new products such as chips for networking and wireless products, and high-speed digital subscriber lines.

Details of the job cuts will be made by the end of June, Nicholas said. In a conference call with analysts, he said only that the company will make "material head count reductions to reduce overall staff and expenses." The company will continue to hire in strategic areas, even as it cuts back in others, he said.

"Those companies that were hoping for normal attrition to lower their head counts probably didn't see it because the softness in the market is so broad and extended that nobody's leaving," Glavin said. "Therefore, even good and experienced management like Bill Ruehle have unfortunately been cornered into making very tough decisions."

Broadcom picked up 300 employees in the first three months by closing its last two acquisitions in a buying spree that used its once highflying stock price as currency. It struck 12 deals last year and one more in January.

In January, it completed the acquisition of VisionTech Ltd. in Herzliya, Israel, for shares worth $693 million. The company makes chips for interactive television. And in the last deal, Broadcom paid $1.4 billion to acquire ServerWorks Corp., a Santa Clara company that develops chips for computer-network servers and storage systems.

In a big day for stocks, spurred by a rate cut from the Federal Reserve Board, Broadcom gained $4.61 to close at $34.01 a share on Nasdaq. The price is far off its high of $274.75 in August.

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