Broadcom at Lehman Brothers Global Technology Conference - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

ARNAB CHANDA, ANALYST, LEHMAN BROTHERS: Good afternoon and thank you for coming. This is the third day, the last day of our Lehman Brothers Annual Global Tech Conference. And we (indiscernible) make sure that we have two of the best companies at the very end, just to make sure that you're still here and excited. And certainly the two companies -- Broadcom certainly has definitely a lot to talk about. So, we are very pleased to have Scott McGregor, President and CEO of Broadcom, to give us the keynote. This is the second year in a row he has done it, and I should say that this is, obviously, a rare honor for us, and we appreciate the opportunity. Thank you.

SCOTT MCGREGOR, PRESIDENT AND CEO, BROADCOM CORPORATION: Thanks, Arnab. It's a pleasure to be here today. I'm going to spend about 15 minutes on a short presentation; then we'll go over to a fireside chat. Arnab will ask me a few questions, and then we'll turn it over to you as well. So, if you have questions, you can start thinking of them.

What I'd like to do initially is to cover a couple things that may be on your minds. When we've had our one-on-ones, we've heard a lot of people ask about inventories. And I'd like to clarify that a little bit; what's going on; what we see overall in the world right now.

We believe that the semiconductor industry did get into a bit of an inventory situation. We had long lead times, up to 20 weeks for substrates, for example in the early part of 2006. We're seeing that now as they over-ordered -- a lot of customers over-ordered, and now they got receipt of those products, and it will take a few quarters to burn through that.

One of the things that we did very early is we saw this at the end of Q2 and rapidly adjusted our own internal inventories. And when we reported our Q3 revenues, we also reported that we had adjusted our inventories by $55 million down to what we consider an ideal level. And I can tell you that we still believe we are on track for Q4 to close out Q4 with inventories approximating an ideal level for us. So, we feel very comfortable with that. We can't give you anymore color in terms of our customers, but we'll do that when we announce our Q4 earnings.

Another thing that may be on your mind is the various issues around stock options and re-filing our financials. I don't have a specific update for you today, but things are going well and making good progress, and we'll get those on file as soon as we can. That's a top priority for the Company.

I'd like to spend the rest of the presentation today on why we win, how we win, and where we're going to win in the future.

At Broadcom we believe there are a lot of things contributing to convergence right now. You have technologies that people use in the home, and you can see a number of these listed here. There are technologies that people use at work, and technologies that people use on the go. And at Broadcom, we believe that we want to bring all of this together and allow devices that intermix all of these different kinds of technologies, to allow people to get access to information of all forms -- voice, data, video -- and be connected at home, at work and on the go. So, our goal is to be part of all of these transactions, all of these connections, and to enhance that experience. We want to be the number-one communications semiconductor company, both wired and wireless.

In order to do that we need a strong engineering team. And you can see here a graph of our engineering team over the years. 72% of all our employees do engineering, which is the same ratio you might see in a startup company, although we're a lot larger than a startup company. You can think of Broadcom as a flotilla of giant startup companies, all working together on this convergence problem.

We have about the same number of Ph.D.s as a university. That contributes the strength to our R&D. And we have a very lean sales, manufacturing and G&A organization that runs typically around 9% of our total revenues.

Our products in 1997 started out in the broadband area with cable modems and cable set-top boxes. We added five in the networking space. In the five years that followed we filled out our platform considerably; in the broadband space, adding DSL as well as cable; in the enterprise space, filling out all the various pieces of switches -- processors, servers and security and whatnot. And we also in 2002 began to get in the mobile handset business.

Today we've dramatically filled out the broadband area, moving into things like digital television, Blu-ray, HD DVD and satellite set-top boxes; in enterprise, continued to add to that portfolio and grow. And we've made a very significant investment in the mobile and wireless space in BlueTooth and wireless LAN, in VoIP, and especially in the cellular handset.

We used to anecdotally talk about how Broadcom had this uncanny ability to enter a market and within a short number of years achieve a number-one market position. We often gave a few examples. What we did in the last few months is we sat down and we said let's look at all of our major markets, and find from when we entered the market until when we achieved the number-one position, how long did that take? And you can see here we have, I believe, an unparalleled track record of entering markets and establishing a number-one market share. And these are not easy markets. And if you recall, some of these earlier markets that were very big competitors in the space -- entrenched competitors -- Broadcom is extremely good at execution, extremely good at IT, which enables us to get into these spaces.

I put three markets at the top -- digital TV, 3G cellular, and Blu-ray HD DVD -- which are markets we aspire to have a number-one position in, and we'll see -- hopefully we'll put up a chart here in a few years with some more number-one positions in it.

As a result of success in these markets, we've also achieved a lot of success in the fabless semiconductor business. We have become the highest-volume fabless semiconductor supplier. So, we are the largest customer for many of the wafer manufacturers, the foundries, which gives us clout and ability to work cooperatively with them on technology, on prices and on quality of service.

So, in terms of how we sell our platforms and how do we grow, one of the ways we do it is we increase our silicon footprint. And here's an example of an ADSL2+ gateway. What you see here is a board that has a number of chips on it. In a variety of our groups at Broadcom, we do all of these chips on the board. So, we have a switch, we have 802.11G on this board, we have the ADSL2+ modem itself, and we have the line drivers. So, we are able to get a good …