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Broadcom braces for new challenges

With the Intel lawsuits now behind it, the chipmaker is gearing up for two challenges: how to increase revenue and how to clear the technological hurdles that face the industry.

With the Intel lawsuits now settled, Broadcom is gearing up for two looming challenges: how to increase revenue and how to get over the technological hurdles that face the chip industry.

Broadcom needs to diversify into new chip areas such as the automotive or storage markets, Alan E. "Lanny" Ross, the company's CEO, said in an interview with CNET News.com on Friday, after the chipmaker announced it had settled a series of legal disputes with Intel.

"We're at $2 billion in revenue, but what worries me is how to get to $3 billion and then how to get to $4 billion," he said.

The push to diversify comes at a crucial time for Irvine, Calif.-based Broadcom. Although it was one of the fastest-growing semiconductor companies in the late 1990s, the communications chip specialist has been heavily hit by the technology meltdown.

But Broadcom's revenue is actually climbing. Its second-quarter revenue of $377.9 million represented a substantial increase over its revenue of $258.2 million in the same period of 2002. Pricing pressure and an influx of competitors, however, are having an impact on the markets for wireless chips and server chipsets, two of Broadcom's staple products.

The company is emerging from an executive shuffle. Ross, a longtime board member, became CEO in January when founder and then CEO Henry Nicholas resigned to spend more time with his family.

Broadcom also ousted the management team at ServerWorks, its chipset subsidiary, in March.

"The (corporate) culture has been modified," Ross said, noting that there is now a greater emphasis on operations and execution.

"When the company was at a half-billion (dollars) or less, (Henry Nicholas') style was to be active with the customer base?The company needed a little bit of tender, loving care," he said. "Things don't gather dust anymore."

While Ross declined to discuss specific plans, he said Broadcom is giving "close scrutiny" to the consumer electronics market, the automotive market and the industrial market. Companies in these three sectors are examining how to incorporate Internet and wireless functionality into their products, according to many analysts.

In addition, Broadcom is not represented in a significant way in the storage industry, Ross noted. He also indicated that it is interested in making baseband radios, which intercept signals for cell phones.

Two markets the company won't enter, however, are aerospace and military contracting.

Broadcom won't likely try to compete with Intel in the market for PC processors or PC chipsets, either. The settlement between the two companies gives Broadcom access to all its rival's intellectual property. The scope of the agreement, however, was primarily broad in order to ward off the possibility of further litigation.

Settling the Intel cases was one of the first tasks Ross decided to tackle as CEO.

"I immediately went to work to conclude the litigation," he said. "Competing in court was not where we wanted to be."

Tackling 90-nanometer
In the short run, the company will also have to get through one of the looming challenges that faces the semiconductor industry: 90-nanometer manufacturing. At the moment, cutting-edge chips are made on the 130-nanometer manufacturing process, which means that the average size of features on a chip is 130 nanometers. (A nanometer is a billionth of a meter.)

Several companies experienced difficulties in moving production to a 130-nanometer process and had to delay products because of low manufacturing yields and product glitches. The shift to 90-nanometer is expected to be even worse.

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Crosstalk, a disturbance that occurs when signals inside a chip get scrambled, "is one of the enemies waiting for (the industry) at 90-nanometer," Ross said.

The financial risks in chip production these days are also huge. The reticule--the blueprint used to delineate where circuits go on a chip--can cost $1 million or more to make. "If you have a glitch or a huge error, that is a million-dollar mistake," Ross said.

Still, Broadcom has worked extensively with the developers of semiconductor design tools to mitigate any potential problems, according to Ross.