Knight Ridder/Tribune Business News
Aug. 12 -- IRVINE, Calif. -- Networking chip maker Broadcom Corp. said Wednesday that it will pay $180 million in stock for AltoCom Inc., a maker of software-based modems or "soft modems."
The deal will give Broadcom another area of Internet communications technology. It also will pit Broadcom against the larger Conexant of Newport Beach.
"I welcome that (competition) ... I'm fully prepared to eat someone else's young," said Jeff Thermond, general manager of Broadcom's networking group.
The rivalry between the two centers on how the Internet will reach into homes. Broadcom is betting on broadband, the same system that transmits cable television signals, while Conexant is heavily invested in traditional modems that use phone lines.
Broadcom's pending purchase of the privately held AltoCom allows it to hedge its bets. Mountain View-based AltoCom's technology will enable Broadcom to build chips that will work with both cable and phone lines.
"We still believe very strongly in broadband, but we believe in having a backup capability," Thermond said.
Broadcom said it is working with PC makers to include soft modems as an option that's cheaper than a regular modem.
"Things are so bad in the PC industry, they're taking nickels and shaving them," Thermond said.
The acquisition allows Broadcom to tap the soaring value of its stock to acquire technology, said F. Drake Johnstone of Davenport and Co. in Richmond, Va. Broadcom's shares have increased almost tenfold since the company went public in 1998, and its market capitalization is $10 billion, the second-highest of any company based in Orange County.
But some analysts doubt if Broadcom, which posted a profit of $36 million on revenue of $203 million in 1998, can match up against Conexant, a company six times its size. "I don't see them going head-to-head with Conexant in the PC business," said Joseph Osha of Merrill Lynch.
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