Broadcom Corp. cofounder Henry Nicholas has high hopes for the chipmaker as it heads toward the new leadership and financial muscle expected to come with a proposed $37 billion sale to Avago Technologies Ltd.
Nicholas stepped down as chief executive in 2003 amid personal difficulties and has spent the past 12 years with no official role at the company.
He retained a 25% share of Broadcom’s voting stock, though, and has had more involvement in the Irvine-based company than most observers guessed in recent years.
“I’ve never been disinvolved—I’ve had a lot of informal involvement with a lot of employees,” Nicholas said in a recent interview with the Business Journal. “This is my baby.”
Nicholas’ role will be plainly evident if the sale to Avago goes through, as expected—he’s in line for the title of adviser to the combined company, which will take the name of Broadcom Ltd.
At the top of his want list: overtaking Santa Clara-based Intel Corp. for the title of the world’s largest chipmaker.
Indeed, rising to the top has always transfixed Nicholas, who aggressively recruited and hired hundreds of Broadcom’s first employees, traveling as far as the Netherlands, Taiwan and Singapore to sway them to relocate to Irvine with promises of stock options and research autonomy well before the company’s initial public offering in 1999 that turned hundreds of engineers into millionaires.
Broadcom’s cadre of engineers formed a foundation of tech talent in Orange County in the waning days of the aerospace era that would help transform the region into a hub for chipmakers and software designers.
“Our objective has always been for us to take what we were trying to do and become the dominant player,” said Nicholas, who launched the company in 1991 from a spare bedroom in his Redondo Beach home with Henry Samueli, his doctoral professor at University of California-Los Angeles at the time. “We’ve got the leadership now in place to take the company to the next level.”
Enter Avago President and Chief Executive Hock Tan, known as a no-nonsense pragmatist who shuns the spotlight and has a penchant for trimming the fat and unloading noncore business lines at acquired companies.
Tan will take the reins of Broadcom’s operations from current Chief Executive Scott McGregor, who will leave the company and is poised to receive $67 million in a severance package.
Tan, who spends most of his time at Avago’s U.S. base in San Jose—the company keeps a global headquarters in Singapore for tax purposes—has garnered kudos on Wall Street for initiating the deal for Broadcom.
It’s the biggest buy ever in the tech sector and the latest of several by Avago in a clear global consolidation trend among chipmakers.
Avago early last month closed a $660 million deal for Costa Mesa-based Emulex Corp., adding networking gear chips, adapters and related technology for the growing enterprise and data center infrastructure market. Last year, it acquired San Jose-based chip and software maker LSI Corp. for $6.6 billion in a move that brought it a leadership position in enterprise storage.
The company then sold LSI’s networking division to Intel for $650 million.
Under Tan’s watch, Avago has grown revenue more than 80% in the past two years to $4.2 billion while creating the most diversified chipmaker in the world.
“He has embodied a lot of the earlier cultural values we had at Broadcom,” Nicholas said. “He knows technology, he’s very much a businessman.”
Samueli—who holds 22% of Broadcom’s voting stock—will give up his post as chairman but gets a board seat at the combined company and retains his post as chief technology officer.
Nicholas will hold about 8% of Broadcom Ltd. if the deal goes through, while Samueli will have about 7%.
Samueli has been largely mum on the deal and was unavailable for comment last week.
Nicholas offered some broad views but shied away from discussing in detail his planned role at the combined company. He said he will “be involved in the strategic direction” and “as a very concerned shareholder.”
Initial indicators point to San Jose and Irvine remaining key operational centers for the company.
New Campus
Broadcom confirmed to the Business Journal that construction of its planned five-building campus next to Orange County Great Park that calls for 1.1 million square feet of space in the first-phase build out won’t be disrupted by the deal.
“I don’t see, facilities-wise, any huge changes,” Nicholas said.
The campus, which has the potential for nearly twice the space, could be in line for additional employees and expanding business lines once the dust settles.
“There are a number of synergies between the two companies,” Nicholas said. “Some of the less successful programs will be trimmed down, and some of the other ones will be tacked up.”
Broadcom Ltd. will have revenue of about $15 billion, placing it behind Intel, with $55.9 billion, and San Diego-based Qualcomm Corp., which posted sales of $27.5 billion in the last 12 months.
It will have a market value of about $77 billion, compared with Intel’s $153 billion and Qualcomm’s $112.3 billion.
Intel stands to further its lead when its $17 billion cash deal for San Jose-based programmable chip maker Altera Corp. is finalized. The company will add about $1.9 billion to the top line.
Nicholas didn’t seem fazed by Intel’s buy, calling the deal with Avago Broadcom’s ticket to the upper tier of the field.
“We are now the No. 3 semiconductor manufacturer on planet earth, with a market cap that’s 50% of Intel,” he said. “This gets us a lot closer and in position with the right team and management to take us from No. 3 to No. 1.”
