Broadcom Corp. (Nasdaq: BRCM) was founded by two guys named Henry, which makes it tempting to pair them against each other in a Jobs/Wozniak way, or like the mismatched partners in a cop flick. There's Henry Nicholas III, the smug CEO always feeding glib quotes to the press, and Henry Samueli, the serious CTO who keeps to the sidelines.

But that's not quite how it goes. Nicholas has a PhD, and Samueli, as Light Reading discovered during a recent California visit, is a warm and charismatic guy, and forcefully upbeat, despite the brutal conditions that faced communications chip vendors in 2002.

Yeah, Broadcom had just laid off about 15 percent of the staff (see Axe Falls at Broadcom), but it was the first major layoff in the company's 11-year history. Yeah, the company's growth spurt stopped, but revenues have been mercifully flat during the downturn, keeping Broadcom a $1 billion company. Maybe Samueli comes across a bit cocky, but that's part of the Broadcom way; Nicholas in particular is infamous for piling on the superlatives, and some analysts admit to rolling their eyes at Broadcom's PowerPoint theatrics.

Of course, you might be smug too, if you had Broadcom's kind of winning streak. The company started when the Henrys left PairGain Technologies Inc. in 1991 to develop chips for cable set-top boxes, leaving behind some lucrative stock options. The gamble paid off in 1998, when Broadcom's $24-a-share IPO jumped 123 percent in one day, finishing the year above $116.

Then, as 2000 unfolded, Broadcom went beyond superstar to superpower. A stock price exceeding $200 gave the company the fuel to keep pace as Intel Corp. (Nasdaq: INTC), Cisco Systems Inc. (Nasdaq: CSCO), and other giants began snapping up startups like jelly beans.

Obviously those days have ended, and Broadcom's stock price now hangs in the $16 range. The company's hardly in ruins, though, having expanded into a mini-empire touching on Ethernet, DSL, security, wireless, and even optical networking. And unlike Vitesse Semiconductor Corp. (Nasdaq: VTSS) or PMC-Sierra Inc. (Nasdaq: PMCS), which have had to drop some of the projects they acquired, Broadcom officials say they won't throw back any of the fish they've caught. Samueli says they're in it to lead each of those markets.

Technically, Samueli is still a professor of electrical engineering at UCLA, but Broadcom is his day job, and he's not about to trade back his swank office – with all its expensive dark-wood furniture – for the tin-can filing cabinets of academia. We stopped by on a sunny Southern California day (imagine that) to hear him explain why he doesn't think the fun is over.

— Craig Matsumoto, Senior Editor, Light ReadingLight Reading: So you guys have quite a few buildings out here.

Samueli: Five buildings, in the general area.

Light Reading: Are you going for the whole Cisco effect? [In San Jose, Cisco built its own neighborhood of more than 20 nearly identical buildings.]

Samueli: Not to that level. They have, what, a million square feet empty?

Light Reading: It would have been nice to meet you on the upswing so I could ask what it's like to be the Hot Young Company.

Samueli: Top of the world. Now we know how it feels to be on the bottom of the world. It's not so bad, because we built such a strong product and technology base over the last three years. We really weren't like the dotcom companies that were just fly-by-night companies. We had substance behind us. So we got to take advantage of the rise by leveraging our nice growth in stock price to buy all these companies and incorporate an enormous amount of new technology into Broadcom. That would have taken a hell of a lot longer to do any other way. The beauty of that era was, we were able to acquire 20-plus different companies.

Then when the downturn hit, we were still in pretty good position. In fact, for the last three years our revenue has been more or less flat. We had about $1 billion in 2000, $970 [million] or something in 2001, and we'll be at $1 billion this year, according to the analysts. Roughly three years of flat revenue which, in this downturn, is spectacular performance.

A lot of companies would tell you if they had to do it all over again, they wish the dotcom era never occurred. In our case, that's not true. I think we actually did benefit. We got more benefit on the upside than we lost on the downside. So we're still ahead of ourselves now.

Light Reading: A lot of the competition – companies like PMC and Vitesse – everyone's had to make cuts, but they seem to have cut into their future prospects. It doesn't look like you've had to do that.

Samueli: No, and there's one very simple reason for that – our diversity. We are addressing virtually all broadband communications markets, and they are very focused on one segment, and unfortunately they are focused on a segment that is dead. The optical space doesn't exist today, and if that's your only product line, you've got a problem. Optical is a miniscule portion of our revenue. Even if it went to zero, it would still not affect us. It's purely because of our diversity that we're able to ride through downturns in any individual market segment, because we're addressing 10 different markets and it all averages out quite nicely.

Light Reading: As you were buying smaller companies, did you have that level of diversity in mind?

Samueli: To the level of diversity today, no. The market just presented nice opportunities, given our nicely valued stock. If the dotcom era hadn't occured, we wouldn't have expanded into that many markets, clearly. We wouldn't have had the opportunity to do that.

Light Reading: It seemed like there was almost an arms race among companies...

Samueli: Yeah.

Light Reading: ...trying to make sure they had one of everything.

Samueli: Absolutely. It was a very competitive time for acquisitions. Cisco probably led the way with the most, but Broadcom was clearly way up there. Certainly, as far as a semiconductor company goes, we were among the tops in terms of acquisitions.

And you're right, it was very much like an arms race, with people trying to build up as much capability as they could. Because the market was purely valuing companies on their potential: It had nothing to do with earnings; it had nothing to do with revenue, even. They just looked at how many engineers you brought in today through that acquisition, and you'd get credit for $1 million an engineer.

It was amazing, it was insane, but you've got to play the game by the rules. I'm very good at playing games. I'll play by any rules that somebody throws at me, and that was the rule of the day: Acquire technology, because you get value for more technology. Today, the market has changed the game, and we've changed the way we play the game.

Light Reading: Now that the boom is over, how is your outlook on the future different than it might have been two years ago?

Samueli: Clearly, the outlook for the future is much more mild growth. There are still hot markets and cold markets, but they're somewhat rational. Today, for example, a hot market would be wireless LAN. That's probably the hottest market we're in. But it's a rational market. People place purchase orders, they buy products. Hype creates insane overvaluations. I feel comfortable that the 802.11 market is very real; it's not just overblown hype.

Other markets are just stable. The cable market – cable modems, set-top boxes – very nice, healthy markets. And there are other markets that we just entered, like cellular, which is a huge market opportunity for us. That's a very nicely growing market.

In networking, Gigabit Ethernet is also a very hot market for us, because we are a leader in that market from both the transmission side as well as the switching side.

Light Reading: The switching side, I know, but are you leading on the PHY and MAC side too?

Samueli: Absolutely. We were the first company to introduce a Gigabit Ethernet transceiver, literally two years ahead of anybody else. We had 100 percent of the market for two years. And today we have the leading products in the industry and the leading market share in the industry, both at the PHY and MAC layer as well as the switching layer. That's historically been one of the strongest markets at Broadcom.

Light Reading: I guess the argument against you on the PHY-and-MAC transceiver side is that nobody's been a repeat first-place in Ethernet from one generation to the next.

Samueli: Well, I would argue that we are first place in Fast Ethernet, in 10/100 [Mbit/s]...

Light Reading: That would be the superstition, then – that because you led in 10/100, that as Gigabit Ethernet unfolds, something's gonna happen.

Samueli: That's not the case. We broke the mold, I guess. We don't give up markets very easily, and once we're first, you've got a problem when you're second, because you're not gonna catch up.

Light Reading: Do you see much catchup potential from Marvell and Intel [on the PHY/MAC side]?

Samueli: They're working hard at it, but I don't see our position weakening. We're getting stronger over time. Our product portfolio is broadening; our customer design wins are expanding at a substantial rate. A lot of it has to do with having a broad portfolio. So we can go into these systems vendors and give them everything they need. We don't just say, "We only have a Gigabit Ethernet transceiver. Oh, you want a cable chip? You've got to go to somebody else for that."

Cisco just recently announced that they're going to be cutting, I don't know, 70 percent of their suppliers out, because they just can't deal with that many suppliers. They want to have [just] a few strategic suppliers for anything.

Light Reading: Obviously you can do a lot in CMOS [the most common manufacturing process for silicon chips]. Do you have any interest in getting into things like silicon germanium [SiGe]?

Samueli: Not at all.

Light Reading: Is that because you can do everything you want in CMOS?

Samueli: Exactly. We haven't found a problem yet that we can't solve in CMOS. We're doing our Bluetooth radios in CMOS, our 802.11 radios in CMOS – 802.11b, g, and a, which is at 5 GHz – we're doing our CMOS tuners for cable modems, we're doing tuners for set-top boxes in CMOS, and we're now working on radios for cellular. Every application out there where people have historically used BiCMOS or bipolar or SiGe, we found that we can do it in CMOS.

Including the 10-Gig optical stuff [i.e., 10 Gbit/s electrical transceivers targeted at optical networking, developed by Broadcom acquiree NewPort Communications]... When we started that project several years ago, the NewPort guys, they were told they're crazy, they're out of their minds. Nortel and Lucent laughed at them and threw them out, said: "What, are you guys nuts? Go home." They wouldn't believe them until they came in with working silicon they could show. Now our CMOS 10-Gbit transceivers outperform their SiGe counterparts.

Light Reading: Agere Systems said something similar about theirs – that it outperformed the comparable SiGe part they had. Does that mean people caught up to NewPort?

Samueli: We started a revolution. People use us as a model because we do things that most people think are impossible. Certainly in the 10-Gig optical, it was a revolutionary change we introduced there, and now everybody has jumped on the bandwagon. Thank goodness we have a strong IP [intellectual property] portfolio there.

Light Reading: Don't you get any resentment from the rest of the industry about saying things like that?

Samueli: Absolutely. They're all jealous and they resent us. [Laugher all around.] Well, I'm sorry... I apologize. What can I say? We go out of our way to hire the very smartest people we can find. It's a magnet, just like Bell Labs used to be a magnet for the top communications engineers. Broadcom has now become a magnet for the top communications IC designers. So, sure, our competitors are jealous and they try to emulate us. Great! I wish them luck.

Light Reading: In wireless, what do you think Broadcom's role is going to be?

Samueli: 802.11, very exciting market for us. Just the recent introduction of our 802.11g product, which is a backwards-compatible "b" chipset that gets to 54 Mbit/s, is very exciting for Broadcom, and we are getting design wins all over the place now with that product. It's a no-brainer because you get "b" anyway, and you get the 54 Mbit/s on top of that. That's going to keep us busy for a while.

Beyond that, I'm sure people are going to start looking at 100-plus Mbit solutions for wireless LAN. There's never an end to speed. As the wired world went from 10 to 100 to 1000, now looking at 10,000 – 10-Gig Ethernet – you're gonna see the same thing in the wireless world where you have the 11-Mbit... Well, it started way back. 802.11 was originally a 1-Mbit solution, then 2, then 11, then 54, then it'll be 100, or 200, who knows what. There's no end to the R&D gravy train that goes on in wireless. So we'll be investing for a long time there.

Light Reading: Cellular is a little more established, so what can you do coming in at this point?

Samueli: Integration. Cost. Drive the cost down through integration. If you looked at a cell phone even a couple of years ago: hundreds and hundreds of components in this thing. The basebands are starting to get more and more integrated, but there's still a lot of discrete components on the RF and analog side, and we're gonna start pulling that all in and move towards a roadmap of a single-chip cell phone.

Light Reading: Care to guess when the single-chip cell phone happens?

Samueli: It's probably two to three years away.

Light Reading: Will I be able to dial it?

Samueli: [not really laughing] It's going to be an issue of ergonomics to decide how big it's gonna be. It's not gonna be limited by the physical components on the board.

Light Reading: What were the recent layoffs like?

Samueli: It was very painful, obviously. It's never easy to have a reduction in force.

Light Reading: Was this your first sizeable layoff?

Samueli: Yes, the first sizeable layoff that Broadcom has ever done: 500 people out of 3,000 [including temps and contractors], so that's a pretty significant percentage. And a company like Broadcom, that has very talented engineers to begin with – when you go that deep, you're not just cutting low performers. You're cutting some very talented engineers, and it's always painful to do that. But you don't have a choice. I mean, we have to live with the economic realities here, that these markets are very slow to turn around. So we have to become profitable. We can't wait for the markets to recover. We thought we could. We were waiting until this point...

Light Reading: You lasted this long.

Samueli: Exactly. We were one of the last holdouts. But it just became imperative that we had to return to profitability, which meant cutting expenses. We did the layoff, and as difficult as it was, I think it's the right thing for the company, and in the end, we'll be much better for it.

Light Reading: I notice in the press release, it very carefully mentioned you didn't cut any products.

Samueli: We just trimmed back our R&D investment in [some] product lines, like the optical space.

Light Reading: So NewPort's 40-Gbit/s stuff, obviously, is on the shelf.

Samueli: Sure. The new R&D, definitely. So we're just focusing on existing products, getting the design wins, transitioning them to production – and once the production ramps up, then invest in the next-generation version. But all the product lines that we had, we're still supporting our customers.

Light Reading: Was that a conscious attempt to preserve your product breadth?

Samueli: Yeah, because the technology was fantastic across the board, so it didn't make sense to terminate a product line that had tremendous technology sitting there, with design wins sitting there, when you could just cut back to a point where you're just waiting for the product to recover. Again, financially we're still a healthy company, so we can afford to sustain these product lines until the market recovers and just focus the large R&D efforts on the product lines that are generating revenue today. Our diversity is allowing them to do that. It's been a huge benefit, the fact that we're able to, in spite of losing 500 people, maintain the complete product line. We're pretty fortunate in that respect.

Light Reading: If your competition weren't all in the same boat, I'd ask if this was their chance to leapfrog you...

Samueli: That's the whole point. If we can't afford to invest in that product line, it's not likely somebody else can. Light Reading: So, looking out five or 10 years, assuming things get back to a "normal" pace of growth – no dotcom stuff, no recessions – what would you like to see Broadcom grow up into?

Samueli: I think we would like to see all the product lines that we're entering mature. And get to a point where all of these new products become like our cable modem and set-top box space – where we are the leader in the market, and every product out there is using Broadcom silicon.

Light Reading: Does it get less fun when a market becomes more mature?

Samueli: No, actually it doesn't. It's actually a lot of fun to see your chips in every product that's being sold out there.

Light Reading: But you don't get to spout these head-turning numbers like 10-Gig CMOS, 40-Gig whatever...

Samueli: Sure. It's a different level of integration at that point. You're right, it's less dramatic, but I think a nice mix. You always have to have new markets that you're going into. But you need a lot of mature markets to keep the company healthy financially.

Light Reading: Are you still on leave from UCLA?

Samueli: Yes. Virtually permanent. [He's been on leave since 1995.]

Light Reading: Oh. I was gonna ask you if you ever had plans to go back.

Samueli: No. No, I'm enjoying myself too much now. I've been on full leave since '95, so it's been seven years now.

Light Reading: You know, every search I do on Broadcom that includes you and Henry Nicholas brings up all these Anaheim Angels and Mighty Ducks stories –

Samueli [a grinning deadpan]: You've got to be kidding! That's a frightening thought.

Light Reading: Were you guys part owners or something? [The Angels and Ducks are Orange County's professional baseball and hockey teams, respectively, both majority-owned by The Walt Disney Co.]

Samueli: No! It was a rumor that circulated, that we were going to buy – Disney was looking to sell...

Light Reading: Still are, I guess.

Samueli: But they started the process three or four years ago, and because of this dotcom boom, Broadcom became very visible, and Nick [Henry Nicholas] and I became visible, and wealthy. And hence, they figured we were perfect buyers.

Light Reading: Local heroes.

Samueli: Exactly. So the rumors got out there, there were all sorts of newspaper articles. But it was all rumors.

Light Reading: Well, considering the World Series [Anaheim beat the San Francisco Giants after a stunning comeback], do you wish you had –

Samueli: No, no! That's a distraction I don't need right now. It's OK. When I retire someday, 20 years from now, I'll buy a sports team, but not today.