The shades were drawn, and the grim mathematics of a technology market slowdown were projected on a glowing slide screen. Broadcom Corp. co-founder Henry Samueli studied the screen, and the voice of the 46-year-old, taciturn chief technologist took on an uncharacteristic edginess.
“You can do backflips, and you’re still not going to salvage” the current financial quarter, Samueli told two dozen of his top engineers, whom he had gathered on a recent morning at Broadcom’s Irvine, Calif., headquarters. The engineers threw out suggestions for saving money, from sharing costly test equipment to forgoing their salaries in exchange for more Broadcom stock.
But they knew layoffs were inevitable.
“We have to do it and get it out of the way and start with a clean slate,” Samueli said firmly. “We can’t keep talking about negative things. We have to start getting morale up.”
These are extraordinary times for technology innovators everywhere. For the first time in many years, companies are trimming back their research staffs as profits and stock prices fall. Few have as tough a job as Samueli, an overachieving son of Holocaust survivors who grew up working the cash register at his parents’ East Los Angeles liquor store.
As chief technology officer, Samueli leads an army of more than 1,900 engineers. He must determine which projects can be cut and which should be fortified. His choices will be crucial: Surrendering the wrong technological battlefronts today could hurt Broadcom’s ability to compete two years from now.
But many of Broadcom’s engineers have seen their millionaire dreams disappear as the company’s stock had shriveled to the $30 range from almost $275 a share last August. On Friday, the stock closed at $42.76.
Motivating them is no easy task. Not long ago, Broadcom’s soaring stock was fuel enough for good morale. The company was so busy getting its products out and buying businesses–acquiring 18 companies in less than two years–that it almost could afford not to be as innovative. Samueli spent much of his time trolling companies worldwide for cutting-edge technology and talented engineers.
Out of the shadows
He and his better-known partner, Henry Nicholas III, built the fastest-growing chipmaker ever. Now, as Broadcom struggles to revive its sagging sales and restore confidence on Wall Street, the spotlight has turned to the brainy Samueli.
In public, the billionaire has drawn attention for his generous philanthropy but has been a nearly invisible counterpoint to Nicholas, his one-time student who is Broadcom’s chief executive. While the brash and outspoken Nicholas symbolized the hard-driving leader of the “new-economy” boom, Samueli was content to work behind the scenes, a calming father figure to his beloved engineers.
When Nicholas made his overworked engineering staff cry, it was Samueli who rebuilt their confidence and set them back on task. “The degree to which I push some of the engineers, Henry would never come close to that,” said Nicholas, 41. “But I would never be able to push them as hard as I do if I didn’t have Henry on the positive side.”
Nicholas is out on the road, jousting for market share in a shrinking pool of business. Those left at the office are increasingly looking to Samueli for direction.
“The pressure is higher on him to have that vision and be able to plan multiple years in the future,” said Charles Reames, a senior engineering director who has known Samueli since the two were graduate students at UCLA in the late 1970s. “He’s aware that there’s much more visibility, that his role here is critical.”
A time to shine
In the investment community, Samueli is viewed in the same light as a Paul Allen, the No. 2 man who stood in the shadow of Bill Gates at Microsoft Corp. But in times like these, said Credit Suisse First Boston technology analyst Charles Glavin, engineering leaders like Samueli are crucial.
“In downturns, Wall Street actually looks for more acceleration in technology than anything,” Glavin said. “The way to differentiate yourself is by leveraging your technology. … Right now, this is the wheat separating from the chaff.
“This is a time that he can really shine.”
For Samueli, that means getting the most from his high-voltage engineering staff. Samueli and Nicholas were pioneers of chips that help move data over copper telephone lines at breakneck speeds, connections now known as digital subscriber lines. Since they founded the company in 1991, Broadcom has become the largest producer of chips for cable modems, and its sales topped $1 billion last year.
After it went public in April 1998, the value of its shares multiplied by 46 in a little more than two years. Samueli and Nicholas saw their Broadcom stock holdings balloon to nearly $10 billion each. But this year, technology spending slowed to a trickle, and so did the orders from Broadcom’s leading customers, including Cisco Systems, 3Com and Motorola, and ailing computer-makers Dell and Gateway.
Tough decisions
Since spring, Samueli has devoted his time to scrutinizing Broadcom’s technology units, while Nicholas examined them from a financial standpoint.
One area in which Samueli says he wants to devote more resources is software, to support the ever more complex chips Broadcom is developing. Samueli also must make sure that Broadcom’s engineering groups’ portfolios of projects complement one another but do not overlap.
Steve Tsubota, Broadcom’s senior director for broadband technologies, remembers the frequent late-night meetings in Samueli’s office not long ago, when they had the luxury of going over specific technical problems. “Now he’s actually looking at the gestalt of the communications industry, what parts need to be put together and what are missing from our portfolio,” Tsubota said.
The choices weigh heavily on Samueli’s shoulders, but he seems almost grateful the economy has paused and given Broadcom time to gather itself. “People thought the market would just go up forever, and that they would all become rich,” Samueli said. “They had these false expectations that their stocks would go up by a factor of four every year. It just doesn’t happen. That’s not life.”
Samueli knows that those aren’t comforting words to engineers who have lost millions of dollars, even if it was just on paper. So like many other technology firms, Broadcom just approved a plan that will allow workers to trade in their worthless stock options for new ones. And even though the company is trying to save money, Samueli has supported other special compensation to boost morale.
For example, managers say he didn’t ask a single question about costs when two of Broadcom’s business units took more than 400 people on weekend ski trips in March. But if engineers are distracted now by Broadcom’s sunken stock price, many were equally preoccupied when shares were flying high.
American success story
No one knows that better than Samueli, the son of working-class immigrants who suddenly became the 18th-richest person in America (along with Nicholas), only to see most of that wealth vanish in months.
“When my parents came to this country, they had nothing, literally nothing, in their pockets. They had to start from scratch,” Samueli said from his sleek Irvine office with a view of the Santa Ana Mountains. “We were very frugal. I learned that kind of a lifestyle, and even today, even though I have as much money as I want, I think twice.
“When I go to the store, I look at the prices, and I try to find the best deals. And I look for sales. It’s weird, but you can’t get that out of your genes.”
But Samueli and his wife, Susan, also have learned that the lifestyle of a billionaire can take over whether you mean it to or not. The family’s home in Corona del Mar, perched on a private oceanfront bluff, is teeming with security guards and housekeepers and personal trainers all hours of the day. Their Palm hand-helds are an obstacle course of social obligations and charity benefits.
Their two teenage daughters remember when their mother shopped at Target, Susan Samueli says. But their 6-year-old thinks nothing of riding in limousines or their private jet.
During the last three years, the couple has given away more than $100 million through their family foundation, including $30 million and $20 million respectively to the engineering schools at UCLA and the University of California at Irvine, which both now bear his name.
