Scott McGregor, president and CEO of Broadcom, sat down with Electronic News and Electronic Business to talk about the future of electronics, inventory glitches and new business and technology models. What follows are excerpts of that conversation.

Q: Is the innovation in consumer electronics coming in hardware or software these days?
McGregor: A long time ago, the innovation was provided by the box builders. They specified the components and told component makers what to make. You had what I call the frowning curve where the value was created by the box builders and the service and component suppliers weren’t participating. Over time it’s shifted to the smiling curve, where the component suppliers pretty much design the architectures, or at least implement them, and the service guys make a significant portion of the money. The box builders have gotten hollowed out.

Q: It doesn’t seem like there are too many left.
McGregor: Well, that’s not entirely true. Somebody has to make these devices. There are still PC makers. But if you look at Intel and Microsoft as component suppliers and the channel that delivers the PCs, both of those guys make a lot of money. It’s very hard for the box builders to make money. It’s the same with set-top boxes and cell phones. With cell phones, the operators now are trying to reduce the value of the brand on cell phones and work with the component suppliers to create the value equation so it’s just an assembly operation for phones.

Q: Broadcom has created a chip that shields consumers from the format wars between HD DVD and Blu-ray. Will that strategy continue in other areas, such as vague Bluetooth standards?
McGregor: I think so. Broadcom believes in standards. We support standards and we work closely with standards organizations. We believe standards create bigger markets. As a semiconductor supplier, bigger markets are good. Many times there are competing standards, or there are fights between different proposed de facto standards. The fight in optical disks between the HD DVD camp and the Blu-ray camp will be resolved the same way the CD +R and –R were resolved. There will be combo devices. At the end of the day, the consumer doesn’t want to get involved in this battle, but they don’t want to own the next Betamax. If they can be assured they’re buying a player that will play anything, that will be a hot market. Thanksgiving sales were big for HDTVs and gaming platforms. When people get these big, beautiful TVs home, the first thing they’re going to do is upgrade their cable or satellite. Then they’re going to notice when they put in a DVD it doesn’t look as good as their cable or satellite, which is going to create quite a demand for these HD DVD or Blu-ray players.

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