2024-12-23 09:19:16 :
The bosses of America’s multi-trillion-dollar tech giants typify 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 Do both, exercise unrestricted power; and make questionable sartorial choices. Second, the caretakers: Apple’s Tim Cook, Microsoft’s Satya Nadella, Amazon’s Andy Jassy, and Google parent Alphabet’s Sundar Pichai are all low-key, well-groomed 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 surged 40% in a week on better-than-expected prospects for its product line of custom artificial intelligence (AI) microprocessors for clients such as Google and Meta. 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 corporate IT across on-premises servers and computing clouds. system. While most other tech giants are emphasizing these links, when asked in a 2023 interview whether he had an overarching strategy for its 23 divisions, Broadcom responded with characteristic candor: I don’t want to say, 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 a decade older than Messrs. Cook and Huang, the eldest of the seven CEOs, and 30 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. Address this 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 sums 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. Chen 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”, so named for the neutron bomb that killed people but left the building intact and also looked like the Bertone boss next to Mother Teresa. He also looks like Mother Teresa after acquiring VMware, which makes virtualization programs, in late 2023. Thousands of employees were laid off, product range was reduced, and product prices were increased tenfold. In the most recent quarter, VMware’s sales nearly doubled from Q1 2024. The profit margin is as high as 70%, which is enviable.
New buyers of Broadcom’s AI chips are rumored to include OpenAI, a leading maker of cutting-edge AI models, and ByteDance, the Chinese owner of TikTok, who 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 chip prices falling 20% a year even as car prices rose 10%. “We are literally complicit in creating this distorted expectation of getting more for less,” he declared.
hock to tan
Broadcom’s customers will almost certainly complain, just like VMware’s customers, but there will also be a price to pay. 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 constraint on the development of artificial intelligence. Morningstar’s Mr. Kerwin predicts that custom chips will account for 20-25% of the “accelerated computing” market by 2027, up from perhaps 10-15% today. Mr Tan’s company will grab a lion’s share of that.
Mr. Chen hopes to reduce Broadcom’s reliance on artificial intelligence chips. Donald Trump’s first administration blocked his bid for 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.
© 2024, The Economist Newspapers Limited. all rights reserved. From The Economist, published with permission. Original content can be found at www.economist.com
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