Broadcom Drops on Motorola's Choice of Another Chip

With nothing but coffee in their nervous stomachs, investors took one look at Broadcom's (BRCM) morning and clutched their bellies.

The communications chipmaker lost as much as 20% of its share price in Tuesday morning trading after customer Motorola (MOT) announced that a Texas Instruments (TXN) chip would power one of its next-generation cable modems. In recent trading, the chipmaker had made up some losses and was down 12.7%.

Given that Motorola makes up a large portion of Broadcom sales, investors want to see Broadcom chips in Motorola products. Being edged out on a big account by a giant like TI is definitely bad news for Broadcom, although the announcement covers just one cable modem, and does not necessarily signal the breakdown of Broadcom's relationship with Motorola. Investors could not be consoled, nonetheless.

In the first quarter of 2002, Broadcom notched $238.8 million in revenue -- 14% of which came from customer Motorola, according to Pacific Growth Equities' Jim Liang. Liang estimates that 7% to 8% of Broadcom's sales comes from Motorola cable modems, with the remainder of the chips sold to the communications giant going into set-top boxes. While 7% to 8% of revenue is quite a sliver to have jeopardized, Liang insists that the market is overreacting because Tuesday's deal was for just one cable modem model and doesn't wipe out all of Broadcom's business with Motorola.

"This isn't a black and black, lose-lose situation. One platform and one product line has chosen TI as a chip supplier. I think the loss to Broadcom should be much less than 7% of its revenue," Liang says, noting that the news is being accepted with the distracted hysteria surrounding most tech stocks these days. "People have to sell first, ask questions later."

Indeed, the market was already braced Tuesday morning for bad news, given that communications equipment giant Cisco (CSCO) reports quarterly results after the bell. Investors' sensitive bellies sent Xilinx (XLNX) down 4%, saw Applied Micro Circuits (AMCC) tumble 5% and docked 7% from PMC-Sierra (PMCS).

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