Broadcom wins regardless of tech battle’s outcome

Scott McGregor, the chief executive of chip developer Broadcom Corp., is happy to talk about the expanding list of uses for his company’s products — smart cars, for instance — and new innovations that will fuel his company’s growth for years to come.

Just don’t ask which cellphone he carries in his pocket.

Broadcom, based in Irvine, designs and sells chips that are used in Apple Inc.’s iPhone as well as in smartphones that use Google Inc.’s Android operating system, the iPhone’s chief rival.

“I carry a variety of smartphones,” McGregor said, politely declining to say which was in his pocket this day. “I deliberately cycle around different phones. I think it’s important for me.”

Today, most people find Broadcom’s technology in their pockets, purses, homes and offices. Broadcom chips are in most high-end smartphones, Apple’s iPad, laptops, routers, cable television boxes and even desktop computers.

More than 99% of all Internet traffic goes through at least one Broadcom chip, McGregor said.

Co-founded in 1991 by Henry Samueli and Henry T. Nicholas III, Broadcom has grown into one of the largest technology companies in the world with $8 billion in sales last year. Full disclosure: The company’s board of directors includes Eddy Hartenstein, publisher and chief executive of The Times.

Broadcom weathered a rocky stretch after Nicholas and Samueli were prosecuted in a stock-options backdating case. Samueli resigned as chairman in 2008 but returned to the post in 2009 after a judge dismissed the charges. He also is the company’s chief technology officer. Charges against Nicholas, who stepped down as chief executive in 2003, also were dropped.

The latest

Broadcom began shipping its fifth generation, or 5G, Wi-Fi family of semiconductors last year, months ahead of its competition.

They were included in routers by Netgear Inc., Belkin International Inc., Buffalo Technology Inc. and others, as well as the Asus brand of notebook computers. HTC Corp. recently said its Android HTC One smartphones will use Broadcom’s 5G chips.

The 5G technology helps wireless devices work faster and carries signals farther with reduced battery drain than previous generations, the company said.

“We have a great track record of creating better chips than our competitors,” McGregor said.

Of its roughly 11,300 employees, about 8,700 are in research and development. More than 850 Broadcom employees have doctorates. That’s a lot of brain power trying to make the Internet work better on phones and laptops.

“The Internet is groaning under the volume of streaming movies,” McGregor said. “There’s a lot of hard work to make the Internet go as fast as it goes.”

Broadcom also has found a home in the automobile industry. New cars increasingly include technology that gives drivers access to video as well as music and other data stored in their mobile phones.

BMW is using Broadcom’s technology in its 2013 X5 sport utility vehicle. Hyundai uses it too. And if McGregor gets his way, his favorite automaker, electric-car manufacturer Tesla Motors Inc., will carry his company’s chips too.

Progress

Broadcom reported $8 billion in sales last year, the highest in the more than two decades it has been in business. Its fourth-quarter profit of 43 cents a share beat analysts’ estimates. The company rewarded investors by increasing its quarterly dividend 10% to 11 cents a share.

Challenges

In a highly competitive industry, the company said it must produce products that are faster, better and, ideally, cheaper than the competition. It also supplies industries that experience fluctuating demands.

It recently estimated, for instance, that sales for the first three months of this year will be about $1.9 billion, which was less than some analysts had expected. The reason, analysts said, could be related to Apple’s sluggish sales.

The good news for Broadcom is its revenue is not tied exclusively to Apple.

“While the battle between Apple and Samsung will wage on, we continue to view [chip] suppliers as a good way to avoid choosing the winner,” Citigroup analyst Glen Yeung said in a research note.

Analyst opinions

Forty-two analysts have the stock as a buy, four as a hold and three recommend selling it. The average one-year target price is $40.45.

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