Software Firm Is Latest Addition to Broadcom Portfolio

By P.J. HUFFSTUTTER

Feb. 29, 2000 12 AM PT

TIMES STAFF WRITER

Chip developer Broadcom Corp. said Monday it will buy a small Atlanta software company for about $136 million in stock, marking its latest purchase in a shopping spree for cutting-edge technology begun more than a year ago.

Digital Furnace Corp., which has developed the means to boost cable modem performance by as much as three times, is the seventh firm the Irvine manufacturer has bought since January of 1999.

Altogether, Broadcom, which has a market value of $37.8 billion, has spent more than $1 billion in stock to broaden its technology portfolio.

So far, say analysts, the company’s aggressive culture and targeted acquisition model is working well. Today, nine out of 10 cable modems on the market use Broadcom chips, they said.

The buying spree also reflects an industrywide push to provide consumers with high-speed online connections that also enable them, among other things, to make telephone calls over the Net without lags in the conversation. Such delays occur now because too much information is being squeezed through cable networks.

Digital Furnace will give Broadcom the ability to sell chips that can overcome the clogging.

By incorporating Digital Furnace’s technology into Broadcom’s cable modem chips, “you can have more subscribers with less delays, and make everyone happy,” said Kimberly Funasaki, a senior analyst with the research firm International Data Corp.

“It’s a small acquisition for Broadcom, but it’s key if they want to keep their market leader position in the cable market,” she said.

Broadcom said it expects in the next few weeks to roll out Digital Furnace’s technology to cable companies. They, in turn, will put the new chips into new cable modems and use software to upgrade older modems.

By 2005, about 26 million homes will have cable modems and 20% of U.S. households will use phones connected through cable-TV lines, according to Forrester Research.

Broadcom also said it plans to incorporate Digital Furnace’s technology in its other high-speed networking chips, such as products used in wireless and telephone-based services.

Broadcom’s communication chips are the tiny pieces of silicon that enable various machines--televisions, personal computers, cellular telephones and other hand-held devices--to talk to one another.

Broadcom officials expect the acquisition of Digital Furnace, which has a staff of 35, will close by the end of this quarter.

Digital Furnace was founded in 1998 by several researchers from Georgia Tech.

“We had funded some of their research [at the university] . . . and collaborated with them, giving them access to our hardware in exchange for information” about their technology, said Henry T. Nicholas III, chief executive of Broadcom.

A few months ago, he said, “we realized they had a product that worked, and that it was time to bring them into the fold.”

Targeting small companies, Broadcom last year picked up a string of five engineering and research firms, many based in Northern California. Last month, it reached an agreement to acquire BlueSteel Networks Inc. in Mountain View for $110.7 million in stock.

Like Digital Furnace, BlueSteel Networks will enable Broadcom to bolster its technology portfolio and improve security over cable networks.

Broadcom released news of the acquisition after the stock market closed. It price dropped $9.50 a share Monday to end up at $181.50.

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Building Broadcom

Broadcom Corp. has gone on a shopping spree to buy technology and increase its hold as the dominant force in communications chips. Here are the seven companies it has bought:

Date: Feb. 28, 2000

Company: Digital Furnace*

Location: Atlanta

Price in Stock: $136 million

Date: Jan. 18, 2000

Company: Blue-Steel Networks Inc.*

Location: Mountain View

Price in Stock: $110.7 million

Date: Aug. 11, 1999

Company: AltoCom Inc.

Location: Mountain View

Price in Stock: $170 million