Broadcoms Epigram Deal Buys Networking Expertise

Picking up on its cable-equipment customers' interest
in home networking, Broadcom Corp. swung a $316 million deal last week to buy fellow
chip-maker Epigram Inc., which specializes in that area.

Broadcom, which dominates the market for standards-based
cable-modem chips, decided to buy Epigram after taking some steps to add home-networking

Broadcom also needs to protect its turf in the face of
competition from other chip-makers, and its customers want to be able to offer end-to-end
solutions that tie together broadband-cable gateways such as modems and digital set-tops.

"They've all been talking to us about it, but at
the time, they didn't know that we were that close to Epigram," Broadcom vice
president of marketing Tim Lindenfelser said of the company's cable-equipment vendor

"At a minimum, a General Instrument [Corp.], for
example, would want to have at least a port on their set-top so that they can connect to
the network," he added.

Spurred both by the growth of multiple-personal-computer
households and the availability of broadband access to the Internet and other data
sources, the market for home-networking solutions could grow to $1 billion annually by
2002, according to Forrester Research Inc.

More than simply linking multiple PCs to a shared printer
or Internet connection, home networking is seen as a way to drive sales of other consumer
devices, such as DVD players, gaming machines and digital monitors, on which family
members would share video or other applications.

With an estimated 90 percent market share of cable-modem
silicon, Broadcom made its initial steps into home networking several months ago.

Responding to customer requests, Broadcom said in February
that it was working with Tut Systems Inc. to develop a network-interface card and
cable-modem reference design covered by a technology called "MediaShare." The
current Home Phoneline Networking Alliance (HomePNA) standard is based on Tut's

That approach was supposed to enable rate-adaptive
solutions delivering data at 10 megabits per second, or 10 times the speed specified by
HomePNA 1.0, with backward compatibility to Tut's 1.0-based systems.

Lindenfelser said the MediaShare initiative was aimed
primarily at promoting the 1-mbps protocol and keeping Epigram's 10-mbps
"iLine10" solution from becoming the new de facto standard.

Now, with Epigram's technology incorporated into an
upcoming HomePNA 2.0 standard that is backward-compatible, MediaShare is far less
important to Broadcom.

"It makes more sense to move all of our customers that
are interested in MediaShare to the Epigram solution," Lindenfelser said, adding that
the work that Broadcom has already done would be put on the back burner or used in its
current development of a 100-mbps solution.

Analysts also saidthat with other competitors
rapidly entering into similar initiatives --Lucent Technologies' Lucent
Microelectronics unit has been cross-licensing intellectual property with Epigram under
the auspices of HomePNA -- Broadcom alone did not have the resources to make a timely play
in the area.

"They did not really have the technology to get into
it," said Jay Srivatsa, senior industry analyst for Dataquest Inc. "But by
buying Epigram, they bought a big chunk of business in home networking."

Lindenfelser said integrating Broadcom's own
development efforts with Epigram's would be a lot easier than cross-licensing the

Broadcom is especially interested in Epigram's
software applications and drivers for smoothing consumer installations of networking gear
-- an area that Lindenfelser noted was the focus of about one-third of Epigram's

Acquiring Epigram also bolsters Broadcom's arsenal at
a time when competition is intensifying among chip-makers in the modem space, which
provides a direct link to in-home networking.

Conexant Inc. has announced plans to bring its analog-modem
expertise to the cable arena. And other silicon giants, such as Intel Corp. and Lucent,
have signaled their interest in acquiring Libit Signal Processing Ltd., Broadcom's
chief modem-chip rival.

Home networking "was a marketplace that somebody could
build a beachhead with and then move into our territory on the broadband side,"
Lindenfelser said. "They're so closely linked that it just made a lot of sense
to move forward with the acquisition."

Broadcom's initial solutions could encompass a
stand-alone NIC, although eventually, it will embed networking capabilities in cable
modems, digital set-tops and other devices with a combined Broadcom-Epigram chip set.

"This will provide a complete, standards-based silicon
platform for a host of new consumer devices and applications," Broadcom president
Henry Nicholas III said in announcing the deal.

Broadcom customers like GI and Scientific-Atlanta Inc. have
also announced approaches for integrating home networking into their advanced set-tops.

GI teamed up with Sony Corp. to develop the
"Aperios" operating system, which incorporates networking. And S-A plans to use
the "MediaWire" middleware solutions from Avio Inc., owned by Paul Allen's
Vulcan Ventures Inc., in its "Explorer 2000" set-top.

"Clearly, we're looking for silicon
solutions," said Bill Wall, technical director of S-A's subscriber-networks
unit. "But right now, the jury's still out on which home-networking technologies
are going to succeed. The consumer-electronics companies have been pushing [IEEE] 1394
technology, and we've been intrigued by Avio's technology."

Three-year-old Epigram, based in Sunnyvale, Calif., counts
3Com Corp. and Panasonic Consumer Electronics among its investors, and it has
relationships with virtually every major cable-network maker.

Epigram will become Broadcom's home-networking
division, under Epigram president and co-founder Jeff Thermond.

Broadcom agreed to exchange 4.6 million shares of its class
B common stock for all of Epigram's outstanding common and preferred shares, giving
the deal a value of about $316 million when announced.