Broadcom may leave Lucent on sidelines

Both Broadcom and Lucent make communication chips for high-speed networks--via digital subscriber line (DSL) and cable modems--and see Epigram's technology as a way to distribute video and voice throughout the home using broadband connections.

Lucent got a leg up on the competition last month when it licensed Epigram's technology and agreed to collaborate with the start-up for a next-generation home networking standard, allowing consumers to connect their PCs and peripherals by plugging them into existing telephone jacks. Broadcom was working on a rival submission.

But Broadcom's $316 million acquisition of Epigram will give the chipmaker an early lead in the emerging home networking market, analysts say. Epigram's technology will most likely become the next networking standard and allow Broadcom to release chipsets faster than Lucent and its other competitors.

"Lucent has licensed Epigram's technology, but they have to come up to speed on it. Broadcom now has Epigram's employees, who know all the ins-and-outs of the technology and can get that integrated," said analyst Karuna Uppal, of the Yankee Group.

Broadcom executives plan to create chipsets that combine its cable and DSL technology with Epigram's home networking technology to create an all-in-one product.

Announced Sunday, the Broadcom buyout is another example of how close partners can suddenly turn into direct competitors in a merger-mad technology world. Following the announcement of the deal, Broadcom executives sounded almost gleeful in stealing Lucent's thunder.

"There's a lot of value in making your competitor shell-shocked," said Tim Lindenfelser, Broadcom's vice president of marketing.

A Lucent spokesman, as well as Epigram executives, say the Broadcom purchase does not affect their existing relationship and that both will honor the deal signed last month. In the partnership, both Lucent and Epigram licensed technology from each other, but they say the intellectual property was strictly on phone technology and that Broadcom does not gain access to sensitive Lucent technology.

Analyst Michael Wolf, of Cahners In-Stat Group, however, recalls that when the deal was struck, Lucent and Epigram executives said they had planned on helping each other develop home networking products.

"It's unclear where their future collaboration efforts stand at this point since Broadcom is ultimately calling the shots," he said.

Uppal agrees. "Lucent doesn't want to do any joint development now," she said. "They don't want Broadcom to have access to that since they compete in the same spaces."

Lucent makes chipsets for DSL modems, while Broadcom makes chipsets for both DSL and cable modems. They sell the chipsets to companies, such as 3Com and General Instrument, which make set-top boxes and cable modems.

The next-generation home networking standard reaches speeds of up to 10 Mbps. That figure is important because it's 10 times faster than current technology and offers sufficient bandwidth to handle video downloads, such as MPEG2 video streams for DVD players.

Analysts believe Broadcom's purchase of Epigram will speed up the standards process, which is expected to be completed in the second quarter.

Tut Systems, which created the first phoneline home networking standard, was working on a next-generation standard with Broadcom. But following Broadcom's purchase of Epigram, Tut executives said the company--whose products include high-speed Net access to multiple dwelling units--will no longer submit a separate standard.

The home networking standards group, called the Home Phoneline Networking Alliance, requires that the final standard be licensed to all participants, so they can all compete on the implementation of the technology. The consortium is made up of more than 70 companies, including Broadcom, Lucent, AMD, and Intel.

Sal D'Auria, president and chief executive of Tut, said all the companies will work together to create the new standard. "Lots of people are interested in a melting pot approach," he said. "We just want the best technology."

In separate news, Lucent today announced it has created chips that allow telephone service providers the ability to provide simultaneous Internet and voice services to eight times as many consumers as before.