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THE BOSSES of America’s trillion-dollar technology giants represent two CEO archetypes. First, the eccentric visionary founder: Mark Zuckerberg of Meta, Elon Musk of Tesla and Jensen Huang of Nvidia are obsessed with their products; wield untrammelled power thanks to the strength of their will, the size of their shareholding, or both; and make questionable sartorial choices. Second, the caretaker: Tim Cook of Apple, Satya Nadella of Microsoft, Andy Jassy of Amazon and Sundar Pichai of Alphabet, Google’s corporate parent, are low-key, sensibly attired hired guns who mostly take great existing products and turn them into fabulous businesses.
Hock Tan of Broadcom, which joined the trillion-dollar club on December 13th, does not fit neatly into either category. The company’s market value surged by 40% in a week owing to brighter-than-expected prospects for its line in designing custom artificial-intelligence (AI) microprocessors for clients such as Google and Meta. This immediately drew comparisons to Mr Huang and Nvidia, whose own AI chips have propelled its market capitalisation to $3.4trn over the past couple of years. Yet Broadcom is, true to its name, much broader than that. And Mr Tan cuts a distinct figure in the world of big tech.
Besides the sexy AI processors, Broadcom sells everything from worthy but dull wireless-networking chips to equally worthy and duller “virtualisation” software for managing company IT systems across in-house servers and the computing cloud. Whereas most other tech titans play up the links between their various units, Broadcom is a proudly disjointed conglomerate. Asked in an interview in 2023 whether he had an overarching strategy for its 23 divisions, Mr Tan responded with characteristic candour: “The answer, I hate to say, is ‘no’.”
Mr Tan is unlike his fellow 21st-century technology bosses in a number of revealing ways. He was born in Malaysia, not exactly a hotbed of global C-suite talent. He is a decade or so older than Messrs Cook and Huang, the eldest of the Magnificent Seven’s CEOs, and three decades Mr Zuckerberg’s senior. You will be hard-pressed to find a photograph of him wearing anything but a starched shirt and a sober jacket.
His method is likewise singular—for despite his professed lack of strategy he is nothing if not methodical. William Kerwin of Morningstar, a firm of analysts, likens it to that of the buy-out barons who first recruited Mr Tan in 2006 to run what was then Avago, a privately held chip-designer. Identify a mature business, ideally one that is critical for customers. Buy it at a decent price. Cut it to the bone by reducing the workforce, eliminating less lucrative products and slashing research-and-development budgets. Jack up prices for captive clients. Harvest the cash. Fork lots of it out to shareholders through dividends and share repurchases, which big tech tends to shun. Take what is left and repeat.
Mr Tan recoils at comparing Broadcom to private equity. True, his penchant for takeovers ($150bn-worth since Avago went public in 2009), an obsession with cashflow and an impatience with underperformers recall the buy-out industry. But above all, in the words of Doug O’Laughlin of SemiAnalysis, a research firm, he is a “capital-R ruthless” operator, getting down and dirty in ways that pinstripe-suited financiers do not.
A more apt comparison than private-equity moguls may be Jack Welch, who ranked, yanked and dealt his way to becoming an icon of late-20th-century capitalism at General Electric. Except that Mr Tan is a much more disciplined dealmaker than Welch, who strayed so far from GE’s industrial bread and butter as to buy the NBC television network and make a reckless foray into finance that ultimately brought GE low under his successors in the 2000s.
“Neutron Jack”, so nicknamed after the neutron bomb that kills people but leaves buildings intact, also looks like Mother Teresa next to the pink-slip-happy Broadcom boss. After the acquisition in late 2023 of VMware, which makes virtualisation programs, he sacked several thousand staff, narrowed the product range and raised prices for what remained as much as ten-fold. In the latest quarter VMware’s sales were nearly double those in the first quarter of 2024. Its operating margin is an enviable 70%.
New buyers of Broadcom’s AI chips, which are rumoured to include OpenAI, a leading builder of cutting-edge AI models, and ByteDance, TikTok’s Chinese owner, should brace for similar treatment. In early December, while accepting a lifetime-achievement award from the Global Semiconductor Alliance, a trade body, Mr Tan chastised his industry for being “naive” in accepting a 20% decline in chip prices every year even as car prices rose 10%. “We are really complicit in creating this rather distorted expectation of paying less for more,” he declared.
In hock to Tan
Broadcom’s customers will almost certainly, like VMware’s, grumble but pay up. They all want to reduce their dependence on Nvidia, whose graphics-processing units are not exactly cheap and more power-hungry than Broadcom’s at a time when energy is becoming a constraint on the growth of AI. Mr Kerwin of Morningstar expects custom chips to account for 20-25% of the market for “accelerated computing” by 2027, up from perhaps 10-15% today. Mr Tan’s company will grab a lion’s share of that.
Mr Tan, for his part, will want to reduce Broadcom’s reliance on AI chips. Having been stymied by Donald Trump’s first administration from buying Qualcomm, a large chip-design rival, in 2018, he may steer clear of semiconductor deals and instead spring another software surprise. One thing, though, will not change. In Mr Tan’s tech-dom, cash will remain king—as well as queen, prince, princess and the rest of the royal household.
© 2024, The Economist Newspaper Limited. All rights reserved. From The Economist, published under licence. The original content can be found on www.economist.com
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