Drawing from Israel’s Hi-Tech Well

In the Bible, we learn how the ancients drew from the wells of the Holy Land, supporting their flocks and families with the nurturing water of the Land of Israel. Today, visitors to the Land also draw from Israel’s wells – but today’s wells are stocked with silicon chips, not water.

A good example is Broadcom, which is the biggest fabless semiconductor company in the world. It is also one of the biggest tech foreign investors in Israel – and those two facts go together for a reason, says Dr. Shlomo Markel, Vice-President of Broadcom and director of the company’s Israel operations. “Out of the 50 or so acquisitions Broadcom has made in recent years, seven have been of Israeli companies,” says Markel. “Israeli companies are innovative, and work on next-generation technology. Often they are just starting out, so they aren’t necessarily profitable. But it’s the technology we’re interested in, not the company balance sheet.”

It’s part of what can be broadly termed the “Broadcom way,” a different way to do business in the hi-tech world. While many hi-tech startups turned conglomerates have long given up their lean, mean startup ways, Broadcom has taken great pains to retain that culture – and Israel is a big part of the company’s story. It’s a tale of how a huge multinational gets a big added value from Israeli technology – and how Israel technology developed at small startups gets top billing on the movie marquee of a top hi-tech company.

Markel says that Broadcom, which has 8,300 employees and had a revenue of $4.49 billion in 2009, sees itself as a startup – but a well-funded one, which can afford to acquire companies that it feels will help it move forward. “We buy companies not because of their financials, but because of their technology and patents,” Markel says. “We try to keep the startup culture a constant in our company, in order to encourage innovation. One of the reasons we have acquired so many startups is to tap into that startup spirit. It’s part of our culture, our DNA.”

And oh yeah, says Markel – because it isn’t interested in the financials, Broadcom often leaves the companies it acquires alone to continue innovating, “the workers stay on and get absorbed into the broader corporate structure, but continue to work as part of their startup.” The emphasis on startup culture is one reason why Broadcom feels so comfortable in Israel, says Markel; you sort of just get inspired to innovate just by hanging around here in Israel!

Not as much of a household name as some of its hi-tech sisters, Broadcom is one of the world’s biggest sellers of telecommunication products and semiconductors. Among its more well-known products it makes are the video processor chip for Apple’s 5th generation iPod, and the WiFi+Bluetooth combo chip for Apple iPhone 3GS and iPod touch second generation. That chip was at the center of egg-on-face scandal in which the Communications Ministry banned iPads for being “incompatible with Israeli standards” ( HYPERLINK “http://tinyurl.com/6alxf8k”http://tinyurl.com/6alxf8k) – while allowing iDigital, the Apple reseller in Israel, to freely sell iPhones and iPods which contained the same chip. Altogether, Broadcom has about 14,000 patents.

Broadcom’s most recent acquisition in Israel was Percello, which makes femtocells (a femtocell is a small cellular base station that connects to a service provider’s network via broadband and can support mulitple cellphones, extending coverage indoors or in areas with weak signals). Acquiring Percello last November, Broadcom paid $86 million for the company – in cash. Before that (in late 2009), the company bought Dune Networks of Yaqum, which makes a chipset that can be used to build and manage a network fabric for large-scale computer environments, such as cloud computing centers and large scale data grids. And before that, it was Kfar Sava’s M-Stream, whose products employ advanced error correction algorithms to cell phone calls with weak signals, and reconstructs lost information to restore reception quality.

Once acquired, a new member of the Broadcom family finds itself integrated directly into the corporate division that its product specializes in, says Markel – broadband, infrastructure, wireless (bluetooth, wifi, etc.) or mobile platforms. Unlike nearly every other multinational, Broadcom does not set up its corporate structure based on geographical divisions (Europe, Middle East, etc.); divisions are based on their technology area.

While the structure issue seems like a piece of corporate trivia, Markel says it’s actually an important guidepost to Broadcom’s philosophy – staying on target as a technology-focused powerhouse. Markel himself reports to Broadcom co-founder and CTO, Dr. Henry Samueli – and at Broadcom, he says, CTO is a very, very important job. That focus on technology means that the company makes different choices than many of its corporate peers; there’s none of that “automatic downsizing” that usually takes place when a small startup is acquired by a larger shark. “Right now there are 20% more workers at Dune than there were last year, before we acquired them,” says Markel. “That’s far different than what happens at most large corporations.”

Besides his other duties at Broadcom (M&A, investments, and R&D road maps), Markel also keeps an eye on Israel operations for the company. Israel is one of Broadcom’s most important assets – and the company shows its love in all sorts of ways, big and little. “For example, Israel is one of the most frequently-visited destinations for Broadcom executives,” says Markel. “You rarely find more than one or two on a visit to any of the other countries where we have acquired companies – England, India, and others – but there always seems to be a crowd here.” Israel, the top people at Broadcom realize, has a great potential for future growth in all the areas the company is working in. It’s a symbiotic relationship, one that benefits both Israel – and the rest of the hundreds of millions of people Broadcom’s products serve.