Have Orange County’s battling broadband titans, Broadcom Corp. and Conexant Systems Inc., awakened a sleeping giant?
Despite its dominance of the PC microprocessor industry, chip behemoth Intel Corp. has been a virtual no-show in the market for components used in high-speed communications devices such as cable and digital subscriber line modems.
That’s about to change.
The market has proved highly lucrative for Conexant, Lucent Technologies, Motorola, Broadcom, Texas Instruments, and a handful of smaller competitors in individual segments of the high-speed communications market, as businesses and consumers migrate to high-speed Internet connections and faster internal networks. And Intel, eager to find revenue streams less dependent on the ups and downs of a PC market expected to reach a plateau soon, has made no secret of its intention to take a piece of the broadband action.
While the company for years has cooperated with other technology manufacturers to hasten the adoption of high-speed Internet and networking standards, it has not played a significant role in building the silicon innards for such devices.
But last month Intel acquired Fremont-based DSL chip designer Ambient Technologies Inc. for $150 million in cash. That came only a few months after the company expanded its “networking silicon” business and acquired Level One Communications Inc. as part of an ongoing strategy to become a “building-block supplier” to the Internet. Intel purchased about a dozen other companies in 1999 to bolster its position in the networking and digital signal processing arenas, two strongholds of Broadcom and Conexant.
“The focus isn’t really away from the PC or anything, but rather to new opportunities created by the Internet,” said Tom Beermann, an Intel spokesman. “There are many different segments throughout the market and at various times we will compete with both of those companies.”
Dominant Player
If it were any other company, the news would drown in a sea of similar announcements from a variety of companies also hoping to cash in. But Intel’s market dominance and longstanding relationships with others in the industry have turned the heads of industry observers, who have watched Intel dominate other markets it has entered.
“There’s no question that Intel, with all their billions, will have a presence,” said Will Strauss, an analyst for chip-industry market-research firm Forward Concepts. “They can buy their way into the market,they could probably buy Broadcom or Conexant if they really wanted to.”
When asked about his company’s competition, Conexant chief executive Dwight Decker rattles off several names, but Intel doesn’t warrant a mention.
“Our focus is to out-execute our broad-based competitors, and use our broad portfolio to leverage our smaller competitors,” he said.
Broadcom’s smaller size and newness in the market, however, puts it in a more vulnerable position.
Unlike Conexant, which produces about half of its products with company-owned plants, and Intel, which is well known for its near-flawless manufacturing operations, Broadcom leans heavily on outside manufacturers.
Broadcom’s Risk
“Risk factors” mentioned in Broadcom’s most recent annual report include its reliance on two outside foundries, adding that production shortfalls by either one could adversely affect its business.
And with Cisco, General Instruments and 3Com representing more than half of Broadcom’s overall sales, a well-connected company such as Intel could pose a significant threat.
Officials at Broadcom weren’t available for comment, but in securities filings they readily acknowledged that competitors’ longer histories, brand recognition and in-house fabrication facilities could put their company at a disadvantage.
Incidentally, Intel and Broadcom are partners in the home networking arena through an agreement Intel had made with Epigram Inc., which was acquired by Broadcom last year. Intel’s plan to have a bigger presence in that market is likely to put it on a collision course with its younger partner.
Still, the significance of Intel’s entry into the market might be overstated. Broadcom and Conexant have held their own in a battle royal of big-name competitors already in the market. And despite Intel’s position in the PC marketplace, it’s still a newbie when it comes to broadband technology.
“You’ve got two great companies there,” Strauss said. “The Broadcom people are a lot faster on their feet than Intel, and Conexant knows more about (digital signal processing) than Intel’s even thought about.” n
