Broadcom's Brain Trust

Engineers and Co-Chairs Samueli and Nicholas each own 23% of one of the year's hottest IPOs

Henry T. Nicholas III and Henry Samueli, co-founders of Broadcom Corp., the fast-growing maker of communications chips, have much more than just their first names in common. When Broadcom went public on Apr. 17, the two Henrys shared in the riches of one of the most successful initial public offerings this year: The stock's 123% jump the first day was second only to the all-time record 249% gain racked up by in late July. So far, their combined stake--each holds 23%--has soared in value to $1.5 billion.

Their newfound wealth is based on another fortunate similarity: co-chairmen Nicholas, 38, who is also CEO, and Samueli, 43, have long shared a common view of the future direction of communications technology. When they founded Broadcom in 1991, they were convinced that quicker communications would drive the convergence of computers, television, and telephones. So they set out to develop the microchips that would tie together these disparate technologies and allow the speedy transfer of massive amounts of data. It was a prescient move. Now trading at around 70, Broadcom's share price has been pushed skyward by the proposed merger of AT&T and cable giant Tele-Communications Inc., which promises to accelerate the use of cable TV for phone and Internet service in the home.

EARLY TO MARKET. Even if that deal never happens, business is booming for Broadcom. Early on the scene with its chips, it already dominates fledgling markets for the electronic brains that control digital set-top boxes and cable modems. Altogether, analysts expect Broadcom to earn $28 million this year on a 300% jump in sales, to $150 million.

Samueli and Nicholas first met at TRW Inc. in 1981. Samueli designed communications systems; Nicholas designed chips. Both were working on a huge Defense Dept. program to advance the state of the art for integrated circuits for communications applications. In 1985, as Nicholas was earning his part-time masters degree at the University of California at Los Angeles, Samueli left TRW to become a full-time professor there. With his research centered on furthering the automated design of communications chips, it was only natural that Nicholas became Samueli's first PhD candidate.

By 1988, when Samueli and three other scientists co-founded PairGain Technologies Inc. to speed data transmission over telephone lines, Nicholas went along to design the chips. But Samueli and Nicholas also had a broader vision. They wanted to figure out how to compress data so more of it could be sent over not only telephone lines but also over TV cables, corporate data networks, and even over the air and via satellite broadcasts. There was a problem, though. Doing so would mean competing with PairGain's customers. Still, they were so certain of their idea that three years later, Samueli and Nicholas quit PairGain--and walked away from millions of dollars in stock options--to start Broadcom.

For Samueli, founding Broadcom was the culmination of a boyhood dream. "I knew I was going to be an electrical engineer in seventh grade," he says. In an electric shop class at Hollywood's Bancroft Junior High School, he decided to build a shortwave radio with five tubes. "The rest of us were just learning to do splices, and here he was building this complicated radio," says Gregory B. Gershuni, a lifelong friend. "Building that radio put me on the path that got me where I am today," says Samueli. "I did not deviate, not one iota."

Nicholas also showed a scientific bent early on, though his career path was more circuitous. Growing up in Malibu, Calif., he dreamed of becoming a test pilot. "He had a mad-scientist lab in his garage to experiment with rocket fuel," says Andrew R. Coulson, a childhood friend who later roomed with Nicholas for six years during and after college. "We used to stay up all night mixing chemicals." Nicholas, Coulson, and another friend even taught themselves aerodynamics and calculus during junior high so they could design rockets that would shoot higher than off-the-shelf models. Although Nicholas made it into the U.S. Air Force Academy, his boyhood dream ended when he grew taller than its 6 ft., 4 in. limit for pilots.

"YIN AND YANG." These days, Nicholas and Samueli's success in piloting Broadcom is very much thanks to their particular chemistry. Employees describe Samueli as the inspirational leader, the thoughtful, humble, benevolent professor who lets you find the solution so you'll grow. Nicholas is the tough coach who yells at his players to hit new heights and is quick to assign blame when they don't reach them. Colleagues say the two function together so seamlessly, they routinely finish each other's sentences. "They're sort of the yin and yang of Broadcom," says Steve K. Tsubota, who heads the company's cable-TV unit. "If you took either one out of the development of Broadcom, we wouldn't be a tenth as successful as we are."

Nicholas, who goes by "Nick," is clearly in charge of running the company, reversing the old professor-student mentoring relationship. "He's the CEO, and he likes being in charge," Samueli says. "We need Nick's style for working in the business world." It's Nicholas who insists on everyone wearing a suit and tie at all times. He talks a mile a minute, peppering his speech with wisecracks. And he's always pushing the limits, at work and at play. On skis, Nicholas will tackle any hill, and he has broken a collarbone to prove it. A bit of a boaster, he claims that when his wife, Stacey, had their third child, "I delivered it myself." Says Stacey, a former chip designer who worked for him at TRW: "Well, it was really the nurses and Nick."

Samueli, who took a leave of absence from UCLA to serve as Broadcom's chief technical officer, is quiet and understated. A better skier than Nicholas, Samueli will never brag after effortlessly gliding down a double-diamond slope. He prefers to let someone else initiate conversations. "Some people can't handle the fact that he never talks," says his wife, Susan, an IBM programmer he met at a synagogue dance.

NO VENTURE CAPITAL. Samueli's reputation among fellow scientists has helped attract a formidable technical team. "He's very focused and he very quickly makes the right decisions all day, every day," says William J. Kaiser, chair of UCLA's electrical-engineering department. "I don't know anyone else like that in the business or academic communities." It also helped that the founders accepted no venture capital, so they could offer unusually large stock options as a lure. "They compensated people with life-changing amounts of stock," says Tsubota. The proof is in the IPO. More than 70% of the company's then 300 employees became millionaires.

Often the enticements didn't end there. To lure world-class scientist Klaas Bult, then with Philips Electronics, Samueli arranged for Bult to talk with UCLA; the school offered him a tenured professorship, with Broadcom funding his research and an outside consulting contract. "Then, it was only a matter of time," Nicholas says. Two years later, Bult decamped for a full-time job at Broadcom. "That type of person is not looking for a job," Nicholas says. All told, 80% of the company's 239 engineers have advanced degrees, 44 with PhDs, and five of them are tenured professors. Quips Samueli: "If our markets head south, we'll open a university."

That isn't likely to happen anytime soon. True, several years ago, the big push for convergence got off to a false start amid much hype and confusion. But the AT&T-TCI deal makes it look as if it will really happen this time. To keep the Broadcom rocket on its trajectory, Nicholas and Samueli expect to solidify links to such fast-growing network customers as 3Com, Cisco Systems, and Bay Networks even as they secure their leadership in the nascent market for cable gear. So far, at least, the two Henrys seem to have all the right stuff.

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