Scott McGregor has opened his playbook to Broadcom Corp. workers since taking over the chipmaker nearly a year ago.
The chief executive periodically writes an internal blog for the Irvine-based company’s employees, charting his recent trips or thoughts on his progress at Broadcom.
“When I started out in my career, I always wondered what the CEO did,” McGregor said. “I knew they got paid more than I did,I didn’t quite understand what exactly their daily job was.”
McGregor’s blog is part education, part strategy. He wants Broadcom’s employees to be on the same page as the company grows.
Broadcom is a complex company with 22 chip businesses that generally cover communications, including mobile and wireless, digital entertainment and networking.
The boom in consumer electronics has been good to Broadcom, which designs chips for cable and satellite set-top boxes, cable modems, digital TVs, cell phones and voice over Internet Protocol devices, among others.
The chipmaker, which is on track to post about $2.6 billion in sales this year, is looking to double that to $5 billion in coming years. At a recent check of $16 billion, Broadcom is Orange County’s largest public company by market value.
Despite its size, McGregor has tried to keep the company aggressive and nimble, especially in the fast-growing market for consumer electronics. At the same time, he’s brought maturity to a technology company once saddled with a rock ‘n’ roll image.
McGregor has a lot to prove in the competitive semiconductor industry. So far, he’s earned kudos for his efforts.
“If you look at Broadcom over the last 12 months, in terms of the company’s growth trajectory and profitably, they seem to be executing very well,” said Jim Liang, an analyst with SG Cowen & Co. in San Francisco. “I think there is a transition to becoming a mature, dominant, bellwether semiconductor company. For that, you need a leader that is focused on a diversified, long-term franchise.”
Broadcom’s operating profit rose 57% to $94 million in the third quarter, versus a year ago. Sales were up 8% to $695 million, beating analysts’ estimates.
The cofounders of the company,Henry “Nick” Nicholas and Henry Samueli,said McGregor has their approval.
“Henry and I were under a lot of pressure (to make a good hire),” Nicholas said. “I could not be happier.”
McGregor took over in January from Alan “Lanny” Ross, who led the company through one of the semiconductor industry’s worst downturns. Ross, who was named interim chief executive in early 2003, never became the company’s permanent chief executive.
The company had been led by Nicholas since its founding in 1991. Nicholas earned a reputation for his brash, hard-driving leadership style. He did get results, helping take the company from startup to about $1 billion in yearly sales.
Nicholas, who still holds about 30% of Broadcom’s voting shares, stepped down to attend to his marriage. It was a surprise to many.
McGregor’s buttoned-down approach is much more Ross than Nicholas. He formerly headed Philips Semiconductors, a unit of Netherlands-based Royal Philips Electronics NV.
Consumer Electronics Background
Analysts say McGregor’s experience at consumer electronics maker Philips suits Broadcom well. The company is seeing big growth from its wireless phones and digital entertainment businesses in particular.
After 20 years of the chip industry being dominated by the personal computer market, consumer electronics are poised to be the sector’s big growth driver during the next five years, analysts say.
“Scott has positioned the company squarely in the sweet spot of the industry,” S. G. Cowen’s Liang said.
One example: Broadcom’s new agreement with Cupertino-based Apple Computer Inc.
Soon after McGregor arrived, Apple talked to Broadcom about providing chips for its iPod digital music devices that have video capabilities.
While it typically takes chip companies two years or more to develop their designs, Broadcom pushed hard to come up with the iPod chips in less than a year. Broadcom expects to see revenue from the deal in the fourth quarter.
The company has continued its tradition of acquiring chip designers under McGregor. Broadcom said in October it would pay $21.6 million for Fremont-based Athena Semiconductors Inc., which designs chips for mobile phones to receive TV signals.
In the summer, Broadcom announced its buy of Mountain View-based Siliquent Technologies Inc. for $76 million. Siliquent designs devices that boost the performance of networks and storage devices.
The company also has been aggressive on the patent front, filing high-profile lawsuits against wireless chip designer Qualcomm Inc.
Broadcom filed a patent infringement suit and unfair trade practices complaint against San Diego-based Qualcomm in spring. Broadcom claimed Qualcomm’s devices infringe on 10 of its patents related to wired and wireless communications and multimedia chip technologies.
It was a “decisive” move by Broadcom to expand in the high-growth wireless sector, said Aalok Shah, an analyst with D.A. Davidson & Co. in Portland, Ore.
McGregor’s start has been a hit on Wall Street, with Broadcom shares up nearly 50% since he took over. But given his short tenure, McGregor can take only so much credit for the company’s results.
“Lanny did a phenomenal job of putting in the processes and really taking us to a mature level as a bigger company,” said Samueli, Broadcom’s chairman and chief technical officer.
Ross cut hundreds of workers, steered Broadcom into a new market,chips, software and controllers for data storage,and restructured the company into a few main groups.
Striking a Balance
McGregor wants the company to have a sort of “small” feel, making it a place where engineers and marketing gurus have the freedom and incentive to try new things. At the same time, he wants employees to work on projects geared to the company’s goals.
“I think in the past, we had a lot of bottoms-up strategies, and they weren’t tied together,” McGregor said. “The goal is to tie them all together,and also to improve communication in the company.”
McGregor writes the internal blog on his own. He’s also held the line on keeping a maximum of five levels between himself and any employee at Broadcom.
McGregor will get more scrutiny in the next few years as his efforts play out.
“It’s still too early to tell,” D.A. Davidson’s Shah said. “This Qualcomm thing could still blow up in his face.”
Samueli pointed to the typical time it takes for a product to go from lab to market.
“Two years from now we’ll judge Scott the same way (we judged Ross),” Samueli said. “It takes a long time for your improvements to cover the whole business.”
