The bosses of America’s multi-trillion-dollar tech giants epitomize two types of CEOs. First, the eccentric and visionary founders: Meta’s Mark Zuckerberg, Tesla’s Elon Musk, and Nvidia’s Jensen Huang are all obsessed with their products; by sheer force of will, size of their holdings, or both And there are, exercising unrestricted power; and making questionable clothing choices. Second, the Guardians: Apple’s Tim Cook, Microsoft’s Satya Nadella, Amazon’s Andy Jassy, and Google parent Alphabet’s Sundar Pichai are all low-key, well-dressed mercenaries; Most of them take existing great products and turn them into fabulous businesses.
Broadcom’s Hock Tan joined the trillion-dollar club on December 13, but he doesn’t quite fit into either category. The company’s market value soared 40% in a week as prospects for its product line of custom artificial intelligence (AI) microprocessors for clients such as Google and Meta turned out to be better than expected. That immediately drew comparisons between Huang and Nvidia, whose own artificial intelligence chips have pushed its market value to $3.4 trillion over the past few years. However, as its name suggests, Broadcom’s business scope goes far beyond that. Mr. Chen holds a unique position in the big tech world.
In addition to its sexy AI processors, Broadcom sells everything from valuable but boring wireless networking chips to equally valuable but boring “virtualization” software for managing across on-premises servers and computing clouds Company IT systems. , the answer is ‘no’.
Mr. Chen is different from other 21st-century technology bosses in many ways. He was born in Malaysia, not exactly a hotbed of global executive talent. He is about ten years older than Messrs. Cook and Huang, the eldest of the Group of Seven CEOs, and thirty years older than Zuckerberg. You’d be hard-pressed to find a picture of him wearing nothing but a starched shirt and a plain jacket.
His approach is equally unique—despite his professed lack of strategy, he is nothing if not methodical. William Kerwin of analyst firm Morningstar compared it to the situation of the buyout tycoons who first hired Mr. Chen in 2006 to run Avago, a then-private chip design company. Identify a mature business, preferably one that is critical to your customers. Buy it at a reasonable price. Solve the problem once and for all by reducing the workforce, eliminating less profitable products, and slashing R&D budgets. Increase prices for dedicated customers. Harvest cash. Distributing large amounts of money to shareholders through dividends and stock buybacks, something big tech companies tend to avoid. Remove the rest and repeat.
Mr. Chen was reluctant to compare Broadcom to private equity. To be sure, his enthusiasm for acquisitions (Avago is worth $150 billion since it went public in 2009), obsession with cash flow and impatience with underperforming companies are reminiscent of the buyout industry. But above all, he was, in the words of Doug O’Laughlin of the research firm SemiAnalysis, a “capital ruthless” operator whose nasty and dirty ways were characterized by wearing thin Not something a financier in a striped suit would do.
A more apt metaphor than private equity tycoon might be Jack Welch, who through ranking, pulling, and trading became an icon of GE’s late-20th-century capitalism. The difference is that Mr. Tan was a more disciplined dealmaker than Welch, who distanced himself from GE’s industrial bread and butter, acquiring the NBC television network and making a reckless foray into finance that ultimately made GE It floundered under its successors in the 2000s.
Neutron Jack, named after the neutron bomb, killed people but left the building intact and looked like the Bertone boss next to Mother Teresa. After VMware, he also looks like Mother Teresa. twice the quarter.
New buyers of Broadcom’s AI chips are rumored to include leading cutting-edge AI model maker OpenAI and TikTok’s Chinese owner ByteDance, and they should be prepared for similar treatment. In early December, while accepting a lifetime achievement award from trade body Global Semiconductor Alliance, Mr Tan criticized his industry for being “naive” in accepting that chip prices are falling 20% a year even as car prices rise 10%. are indeed complicit in this twisted expectation of getting more for less.
hock to tan
Broadcom’s customers will almost certainly complain, just like VMware’s customers, but will pay a price. They all hope to reduce their reliance on Nvidia, whose graphics processing units are not cheap and consume more power than Broadcom’s at a time when energy has become a limiting factor in the development of artificial intelligence. Morningstar’s Kerwin predicts that customized chips will account for 20-25% of the “accelerated computing” market by 2027, up from 10-15% currently.
Mr. Chen hopes to reduce Broadcom’s reliance on artificial intelligence chips. Donald Trump’s first administration blocked him from buying big chip design rival Qualcomm in 2018, so he may eschew semiconductor deals in favor of another software surprise. But one thing won’t change. In Mr. Chen’s tech world, cash is still king, as are queens, princes, princesses and other royals.
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