Broadcom: Standing Room Only

Broadcom isn’t looking for a slice of the
semiconductor pie. The company has been slaving in the kitchen this year in
an effort to establish itself as the Mrs. Smith of chipmakers. It’s
strategy is simple. Don’t waste precious time in a fast moving industry
organically building a smorgasbord of technology offerings. Buy them instead.


Since mid-summer of last year, Broadcom has collected an impressive
collection of 13 acquisitions, with 8 coming just since the turn of the
millennium. Last week, the company added Silicon Spice to its bulging
portfolio in a $1.2 billion stock-swap, and network circuit manufacturer Altima Communications was welcomed into
the fold back in July in a half billion dollar land-grab.


The latest inductee to join the high-growth club is privately-held NewPort Communications in a handsome
$1.32 billion stock deal, or 5.5 million Broadcom shares. The upstart hit
the jackpot with its foresight to fashion itself a fiber-optic network chip
designer in the mid-90s. With today’s capacity hungry consumers and
investors, optical networking has recently come into its own.


For any apathetic armchair investors, here’s the skinny on optical
networking using a broad brush stroke. The technology works by sending data
in the form of light pulses that piggyback on glass strands of optical
fiber, manufactured by bellwethers like Lucent . The
technology has been in use for years, but in the mid-90s a new twist on
fiber caused its popularity to balloon. That new twist is called dense
wavelength division multiplexing (DWDM), and here’s why it’s such a crowd
pleaser.


DWDM makes it possible for telecoms to carry multiple frequencies of light
on just a single fiber strand, meaning higher capacity on the existing
infrastructure, eliminating much of the added costs associated with
installing fatter pipes. The concept is similar to the digital subscriber
line (DSL) outbreak that turned existing copper telephone lines into gold,
by moving high-speed data across existing infrastructure.


Here’s three reasons why optical networkers are hotter than a grease fire.
PC chipmakers are doubling performance nearly every 18 months, while Web
traffic is doubling roughly every nine months. Today, optical networking
equipment performance is doubling every 10 months. That’s helping capacity
keep pace with booming traffic spurred in part by faster PCs, and
naturally, individuals’ insatiable demand for high-speed Internet access.


NewPort brings its low power crackerjack digital transceiver for use in
optical networking to the table in this latest buyout, and Broadcom had
only to cross the street to its old headquarters to arrive at NewPort’s
doorstep. After trying unsuccessfully to recruit its founders years
earlier, Broadcom finally made an offer NewPort couldn’t refuse.


This is a super deal for NewPort to strike while the iron’s hot, and
another thoughtful step in Broadcom’s master consolidation plan to be the
one-stop shop for chips used in communications networks. With the firm’s
stock on a moonshot, Broadcom is showing real smarts to swap its richly
valued currency for high octane start-ups. If the music stops and investor
enthusiasm should wane, smaller rivals will be scrambling for chairs while
Broadcom will be sitting pretty with room to spare.


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