Not all semiconductor industry companies are being downgraded and missing estimates. Broadcom President and CEO Scott McGregor recently spoke with Electronic Business about how the connectivity company is maintaining its market placement and growing on that in the challenging economic environment.
Electronic Business: What's Broadcom's biggest challenge right now?
McGregor: Broadcom's biggest challenges and our biggest opportunities remain similar. One is just executing on the designs. We do fairly complex designs with lots of IP in them and putting them all together is what we do well. So on the execution side, we're seeing a tremendous amount of convergence going on with different functionality going into the same chip. A great example of that are things like our combination products where we'll take things like Bluetooth, FM, and wireless LAN and put them on the same chip. Another example is a chip we did recently for LG, which has both Blu-ray and the ability to download you Netflix subscription on the same box. Those kinds of things are exciting and are big opportunities and challenges all at the same time.
Electronic Business: You stated on Broadcom's Q3 call that Broadcom is a product driven company but that it is "not entirely immune from the current issues present in the economy." Many of the end markets Broadcom's technologies play in are consumer electronics based. Are you concerned about the possible impact of lower consumer spending?
McGregor: We read the same headlines that you do so we are, of course, concerned about the overall spending of consumers, and IT spend, as well. Broadcom is a product driven company. Our overall results tend to be a mix of both of the product stuff and of the macro environment. We can't control the macro environment, but we do have the ability to control through our own efforts the product side.
Electronic Business: I believe Broadcom was just awarded its 3,000th patent. Is that correct?
McGregor: Yes. We put a great deal of energy into that. Not only do we create a lot of great cores and chips, but the side effect of that has been that we create a lot of intellectual property. I think the patents reflect that. In fact, by a number of metrics, some organizations have awarded us patent evaluations that say we are in the top 10 of all technology companies throughout the world.
Electronic Business: There are R&D dollars being cut left and right. Are you concerned at all that innovation will suffer in this economic situation, not specifically at Broadcom, but throughout the semiconductor industry?
McGregor: There's a risk that the semiconductor industry will reduce the level of innovation if they have to reduce the level of spending. But at Broadcom we believe innovation is very important to our long-term future, we are very committed to that. Interestingly, about three-quarters of all employees at Broadcom are engineers.
Electronic Business: Can you describe Broadcom's talent and hiring strategy going into 2009? I believe you said on the Q3 call that Broadcom is cutting back on new hiring.
McGregor: On the call we said we had frozen our headcount, so we aren't adding additional headcount at this point. I think we are going to watch the economy and see how things go over the next few months and make a decision based on that.
Electronic Business: But no layoffs?
McGregor: We have not announced anything on layoffs.
Electronic Business: Do you have any advice to the now thousands of qualified engineers out there who have been laid off?
McGregor: Obviously, they'll be looking for jobs and opportunities. Many companies continue to backfill headcount so there are always some opportunities even in a downturn. But there's also a great opportunity to hone your skills. If [someone] has time, it's a great opportunity to learn more.
Electronic Business: FBR Capital Markets recently named Broadcom as one of the best positioned companies to expand during the economic downturn, in part by buying lesser competitors.
McGregor: Broadcom was very fortunate to enter this current economic downturn having had one of the best quarters we've ever had. We have excellent cash, more than $2 billion. We generate a lot of cash from our ongoing operations, so when we see difficult economic times there are often opportunities that come about as a result. On one hand, it's sad to see companies struggle. On the other hand, that can create opportunity for us on the M&A [merger and acquisition] side.
Electronic Business: Is Broadcom's M&A strategy changing at all as we move into 2009?
McGregor: No, our M&A strategy doesn't change at all. We continue to look for excellent teams of engineers with excellent technology that either fills an area of business that we are looking for or augments areas to let us get into new spaces. I think what's happening is the price tag for doing so of that has improved.
Electronic Business: Are there any specific space Broadcom is already playing in that you see extra opportunity for in 2009?
McGregor: If you look at some of the recent acquisitions we've done, you get a sense of what's important to us. We see the broadband space in the general sense as very important. When we look at the living room and the appliances you have in the home, there's everything from set-top boxes to last-mile technologies. It's interesting because we see the TV becoming a much smarter device over time, connecting to the Internet, having a lot of additional capabilities. That was the logic behind the acquisition we did with the AMD DTV team to bolster our position there and allow us to move into that market more quickly, bringing on a lot more talented people. That ties in well with Broadcom's traditional strengths in networking, wireless connectivity, and other things. We saw GPS as a core technology. So Global Locate was another key acquisition for us, where we brought in GPS capability. That was filling a particular technology; the AMD acquisition was accelerating our growth opportunities in a market we were already in.
Electronic Business: What are your expectations for CES this year? Do you think there will be less foot traffic because of the economy?
McGregor: I would expect CES to have fewer, more-focused people this year, just because companies are trying to save money on travel. Trade shows are an easy target to save money on. But on the other hand, what we are seeing is in an economic downturn is that the designs that people do go forward with are more important to them, they are looking for more value more features. CES, by the way, is usually a great show for us. We often introduce a lot of new technology and show what we can do. Fewer, more serious customers works out well for us.
Suzanne Deffree, Managing Editor, News - Electronic Business