The race between Orange County’s broadband titans has taken a significant turn over the past two months as shares in Broadcom Corp. rebound mightily from spring’s tech downturn and those of Conexant Systems Inc. continue to stagger.
Since July, Irvine-based Broadcom shares have gained about 45% to around 270 while Newport Beach-based Conexant’s have fallen more than 20% to around 37 during the same period. That has added more than $18 billion to Broadcom’s market capitalization, which as of late last week stood at about $60 billion. Conexant, meanwhile, has lost more than $2.7 billion of its market value, which last week stood at about $9 billion.
The highly competitive companies have been joined at the hip in the perception of many local industry observers and media. The cross-county rivals, after all, are betting their futures on demand for high-speed Internet access and the hardware that makes those super-fast connections possible.
But Broadcom has for some time been valued much higher by Wall Street, and that gap is widening.
The companies compete directly in the cable modem market, where Broadcom heavily dominates, and in set-top boxes. With its recent acquisition of Silicon Spice, Broadcom could wind up competing indirectly in Conexant’s business of selling chips used in banks of modems used by Internet access providers. And each has its eyes set on voice-over-Internet, high-speed networking and the burgeoning fiber-optics arenas.
But for many investors, the similarities end there.
Investors have overwhelmingly applauded Broadcom’s recent investments, the latest being the $1.28 billion purchase of NewPort Communications, an Irvine company in the fiber-optics market.
Many see Broadcom mimicking networking powerhouse Cisco Systems Inc., the San Jose equipment maker that has grown largely through what most observers call shrewd acquisitions.
So far, the strategy appears to be paying off for Broadcom, which has purchased 13 companies in the past two years.
“Conexant is moving into some hot markets, but to some they’re still perceived as an older company best known for modems,” said Will Strauss, president of Tempe, Ariz., chip market research firm Forward Concepts. “They need to do a better job of positioning themselves. It might take something as dramatic as spinning off the modem business, though it might be such a cash cow they can’t afford to get rid of it.”
Conexant owes much of its current market position to its traditional modem business, which according to its most recent quarterly report still accounts for about 36% of overall sales, compared with about 50% last year.
That market has been on the wane as the older technology becomes a commodity and computer users migrate to higher-speed connections such as cable modems and digital subscriber lines.
Though Conexant also is involved in those higher-speed technologies, it has its work cut out for it changing its slow-lane perception, Strauss said. n
