Broadcom Corp. seems to have outgrown the long shadows of its founders.
When cofounder Henry Samueli stepped down as chairman and took leave as its technology chief on March 14, Wall Street was unfazed.
Shares of the chipmaker did fall last week, but not because Broadcom said it was cooperating with a criminal probe of Samueli and others over stock options.
Instead, Broadcom’s shares fell in lockstep with a down week on Wall Street.
Samueli’s pulling back and Wall Street’s muted reaction reflects “a point in finality of a transition that started a long time ago,” said Cody Acree, managing director with Stifel Nicolaus & Co. in Dallas.
That transition is an evolution from the company’s early days in which Samueli and cofounder Henry Nicholas were Broadcom.
Back then, Samueli was considered the company’s engineering force, while Nicholas, who left in 2003, was notorious for his midnight meetings and brash leadership.
Chief Executive Scott McGregor represents Broadcom’s new era.
The former Royal Philips Electronics NV executive came to the chipmaker in 2004, after the company’s accounting issues. He’s brought big-company professionalism to Broadcom, which has four times the yearly revenue of what it had during the Nicholas-Samueli era.
While liked on Wall Street, McGregor has little of the flash or large persona of the company’s founders.
“Broadcom with Samueli and Nicholas was a different company than it is today,” Acree said. “It carried a different momentum and feel.”
Legal Issues
Samueli stepped down as chairman and took a leave of absence from his longtime post as chief technical officer after the Securities and Exchange Commission sued him and other current and past executives in what regulators called a “massive fraud scheme” to backdate stock options.
The SEC also sued Dull, Nicholas and former chief financial officer William Ruehle, who left in 2006.
All four have denied wrongdoing in the backdating of options at Broadcom from 1998 to 2003, which resulted in last year’s $2.2 billion in charges to past earnings.
For now, Samueli’s set to continue as an adviser to Chief Executive McGregor, something analysts see as little different from his role as chief technical officer.
“The executives at Broadcom may still seek out Samueli’s advice or want his perspective,” said Adam Benjamin, analyst at Jeffries & Co. in New York. “It was his baby.”
In a way, the lack of reaction to Samueli’s pullback is a testament to what he’s helped build at Broadcom.
“They have taken on more than 1,000 engineers in the last 12 months,” said John Dryden, analyst at Charter Equity Research in Las Vegas. “His leadership position will be a loss. But they have many guys in the batter’s box ready to take his place.”
Wall Street seems to have a lot of confidence in McGregor, who has spearheaded a big push into selling chips to the top makers of cell phones in the past year.
“I don’t think Broadcom is worth any less today than it was before Samueli left,” Acree said. “In the end, it’s very much a prove-it-to-me story. If they are able to make inroads into wireless, this change in upper management won’t matter a bit.”
