BROADCOM CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________

COMMISSION FILE NUMBER 000-23993

BROADCOM CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)

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CALIFORNIA 33-0480482
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

16215 ALTON PARKWAY,
IRVINE, CALIFORNIA 92618-3616
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(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 450-8700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by a check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

Based on the closing sale price on Nasdaq National Market(R) on March
24, 2000, the aggregate market value of the voting stock held by nonaffiliates
of the registrant was $33,682,304,551. For the purposes of this calculation,
shares owned by officers, directors and 10% stockholders known to the registrant
have been deemed to be owned by affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

The Company has two classes of common stock authorized, the Class A
common stock and the Class B common stock. The rights, preferences and
privileges of each class of common stock are substantially identical in all
respects except for voting rights. Each share of Class A common stock entitles
its holder to one vote and each share of Class B common stock entitles its
holder to ten votes. In addition, holders of Class B common stock are entitled
to vote separately on the proposed issuance of additional shares of Class B
common stock in certain circumstances. As of March 24, 2000 there were
117,890,115 shares of Class A common stock outstanding and 95,760,736 shares of
Class B common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the
registrant's definitive proxy statement (the "Proxy Statement") for the Annual
Meeting of Shareholders to be held on April 27, 2000.

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BROADCOM CORPORATION

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS
Page
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PART I.

ITEM 1. Business........................................................1
ITEM 2. Properties......................................................15
ITEM 3. Legal Proceedings...............................................15
ITEM 4. Submission of Matters to a Vote of Security Holders.............17

PART II.

ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters.....................................................18
ITEM 6. Selected Consolidated Financial Data............................19
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Risk Factors..................20
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk......40
ITEM 8. Financial Statements and Supplementary Data.....................41
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................41

PART III.

ITEM 10. Directors and Executive Officers of the Registrant..............41
ITEM 11. Executive Compensation..........................................41
ITEM 12. Security Ownership of Certain Beneficial Owners and Management..41
ITEM 13. Certain Relationships and Related Transactions..................41

PART IV.

ITEM 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................41

OTHER INFORMATION.

Glossary of Technical Terms.....................................43

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Broadcom(R), QAMLink(R), Digi-(PHI)(TM), iLine10(TM) and the Broadcom pulse logo
are trademarks of Broadcom Corporation and/or its subsidiaries in the United
States and certain other countries. All other trademarks mentioned are the
property of their respective owners.

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CAUTIONARY STATEMENT

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INCLUDE, BUT ARE
NOT LIMITED TO, STATEMENTS CONCERNING PROJECTED REVENUES, EXPENSES, GROSS PROFIT
AND INCOME, THE NEED FOR ADDITIONAL CAPITAL, YEAR 2000 COMPLIANCE, MARKET
ACCEPTANCE OF OUR PRODUCTS, OUR ABILITY TO CONSUMMATE ACQUISITIONS AND INTEGRATE
THEIR OPERATIONS SUCCESSFULLY, OUR ABILITY TO ACHIEVE FURTHER PRODUCT
INTEGRATION, THE STATUS OF EVOLVING TECHNOLOGIES AND THEIR GROWTH POTENTIAL, OUR
PRODUCTION CAPACITY, OUR ABILITY TO MIGRATE TO SMALLER PROCESS GEOMETRIES, AND
THE SUCCESS OF PENDING LITIGATION. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON
OUR CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT OUR INDUSTRY,
MANAGEMENT'S BELIEFS, AND CERTAIN ASSUMPTIONS MADE BY US. WORDS SUCH AS
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES,"
"MAY," "WILL" AND VARIATIONS OF THESE WORDS OR SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. IN ADDITION, ANY STATEMENTS THAT REFER
TO EXPECTATIONS, PROJECTIONS OR OTHER CHARACTERIZATIONS OF FUTURE EVENTS OR
CIRCUMSTANCES, INCLUDING ANY UNDERLYING ASSUMPTIONS, ARE FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE
SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO
PREDICT. THEREFORE, OUR ACTUAL RESULTS COULD DIFFER MATERIALLY AND ADVERSELY
FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS. THE SECTION ENTITLED "RISK FACTORS" SET FORTH IN PART II, ITEM 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," OF THIS REPORT, AND SIMILAR DISCUSSIONS IN OUR OTHER SECURITIES AND
EXCHANGE COMMISSION ("SEC") FILINGS, DISCUSS SOME OF THE IMPORTANT RISK FACTORS
THAT MAY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. YOU
SHOULD CAREFULLY CONSIDER THOSE RISKS, IN ADDITION TO THE OTHER INFORMATION IN
THIS REPORT AND IN OUR OTHER FILINGS WITH THE SEC, BEFORE DECIDING TO INVEST IN
OUR COMPANY OR TO MAINTAIN OR INCREASE YOUR INVESTMENT. WE UNDERTAKE NO
OBLIGATION TO REVISE OR UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY
REASON.

IN THIS REPORT, ALL SHARE NUMBERS AND PER SHARE AMOUNTS HAVE BEEN
RETROACTIVELY ADJUSTED TO REFLECT OUR 2-FOR-1 STOCK SPLITS, EACH IN THE FORM OF
A 100% STOCK DIVIDEND, EFFECTIVE FEBRUARY 17, 1999 AND FEBRUARY 11, 2000,
RESPECTIVELY.

PART I.

ITEM 1. BUSINESS

Broadcom Corporation is the leading provider of highly integrated
silicon solutions that enable broadband digital transmission of voice, video and
data to and throughout the home and within the business enterprise. These
integrated circuits permit the cost effective delivery of high-speed,
high-bandwidth networking using existing communications infrastructures that
were not originally designed for the transmission of broadband digital content.
Using proprietary technologies and advanced design methodologies, we
design, develop and supply integrated circuits for a number of the most
significant broadband communications markets, including the markets for digital
cable set-top boxes, cable modems, high-speed office networks, home networking,
direct broadcast satellite and terrestrial digital broadcast, and digital
subscriber lines. Although the communications infrastructures of these markets
are very different, we have leveraged our core technologies and introduced
integrated circuits for each of these markets that deliver the cost and
performance levels necessary to enable the widespread deployment of broadband
transmission services. Our broadband transmission products consist primarily of
high-performance digital signal processing circuits that implement complex
communications algorithms, surrounded by precision high-speed analog-to-digital
and digital-to-analog converter circuits. Our products integrate comprehensive
systems solutions into single chips or chipsets, which:

o eliminate costly external components;

o reduce board space;

o simplify our customer's manufacturing process;

o lower our customer's system costs; and

o enable higher performance.

Customers currently shipping broadband communications equipment
incorporating our products include 3Com, Cisco Systems, General Instrument
(which was acquired by Motorola in January 2000), Hewlett-Packard, Motorola,
Nortel Networks, Pace, Samsung, Scientific-Atlanta and Thomson CE, among
others.

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INDUSTRY BACKGROUND

In recent years, there has been a dramatic increase in business and
consumer demand for high-speed access to multimedia information and
entertainment content, consisting of voice, video and data. This demand is being
driven by the growth of desirable information and entertainment content
accessible via the Internet and cable and data networks. The improved
availability and affordability of access devices such as digital set-top boxes,
PCs and other consumer appliances have also stimulated demand for high-speed
transmissions. Computer processor speeds have increased dramatically over the
last decade and, as a result, have significantly improved the rate at which
multimedia data can be processed. However, the rate at which such data can be
transmitted has not kept pace. This disparity has become known as the "bandwidth
gap" and has frustrated users and challenged solutions providers in a number of
markets.

The bandwidth gap has emerged in a variety of commercial and consumer
applications. Businesses are constantly seeking new ways to access and analyze
larger amounts of information to improve the quality of management decisions and
enhance customer and employee communications. Many businesses have deployed
local area networks, commonly known as LANs, which are principally based upon
the Ethernet standard. Ethernet is the predominant networking protocol used in
LANs for connecting devices at data rates of 10, 100 and 1000 Megabits
per second ("Mbps") by means of copper twisted pair cabling. Emerging trends
such as the convergence of voice, video and data along with the ever-increasing
volumes of electronic traffic are placing new demands on legacy LAN technologies
and infrastructures. Businesses would prefer to address these new demands
without incurring the cost of installing new cabling or switching network
technologies. In order to accommodate the need for more bandwidth, much of the
installed base of 10 Mbps Ethernet ports will need to be upgraded to higher
speed 100 and 1000 Mbps connections. Furthermore, real-time traffic such as
voice and video will not only place additional demands on network bandwidth, but
will also require intelligence and deterministic behavior provided by devices
referred to as switches. Switches provide dedicated bandwidth to each end-user,
versus repeaters, which share the bandwidth among end-users.

Individuals are also increasingly using their home PCs to access the
Internet and to telecommute. Consumer online usage is expected to increase
rapidly with the availability and market acceptance of low cost PCs (sub $1,000)
and the increased availability and improving quality of content. In addition,
the increasing number of next generation television set-top boxes, PCs and other
devices that feature integrated Internet access will contribute to the surging
demand for rapid access to information. As the volume of traffic continues to
grow, consumers are becoming increasingly frustrated with the low performance of
"last mile" remote access connections that are typically limited to data rates
of only 28.8 kbps to 56 kbps and require several minutes or hours to download
large multimedia-intensive files.

Business and residential PC users have not been the only ones affected
by the bandwidth gap. Cable television subscribers seeking more entertainment
options, including Internet access, and cable service providers seeking higher
revenue services beyond basic cable, have generally been frustrated by the
limited amount of programming that can be provided over the existing cable
infrastructure. The cable infrastructure historically also has not been able to
deliver interactive multimedia content. With the advent of digital television
and digital compression technologies such as MPEG, the conversion from analog
transmission to digital transmission enables a dramatic increase in the number
of channels available to the subscriber. In late 1996, cable television service
providers began offering expanded services, including digital programming
through new digital set-top boxes, as well as high-speed Internet access and
telecommuting through cable modems. A cable modem is a device that allows a
cable subscriber to transmit and receive data over coaxial cable. In order to
satisfy customer demand for increased programming and other entertainment
options, and to capitalize on the revenue growth opportunities associated with
these expanded services, service providers will have to deploy a new generation
of digital set-top boxes and headend equipment. A headend is the central
distribution point in a cable television system.

Much of the bandwidth gap is a result of the existing "last mile"
communications infrastructure, which was originally designed for lower speed
analog transmission rather than high-speed digital transmission. This
infrastructure consists primarily of copper twisted pair wiring, coaxial cable
and wireless communication connections. Copper twisted pair wiring was
originally intended for the transmission of narrowband analog voice while
coaxial cable was intended for delivery of one-way analog video signals. These
analog infrastructures have numerous impairments, which make broadband
transmission of digital data very difficult.

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Because it is impractical to replace these communications
infrastructures with entirely new infrastructures that are optimized for digital
data transmission, the fundamental challenge for service and equipment providers
is to enable broadband communications over existing infrastructures. These
providers are in a race to introduce new cost-effective technologies and
products into the broadband communications marketplace.

MARKETS

The principal broadband communications markets include:

Digital Cable Set-Top Boxes

The last decade has seen rapid growth in the quantity and diversity in
television programming. Despite ongoing efforts to upgrade the existing cable
infrastructure, an inadequate number of channels exist to provide the content
demanded by consumers. In an effort to increase the number of channels and to
provide higher picture quality, cable service providers began offering digital
programming in 1996 through the use of new digital cable set-top boxes. These
digital cable set-top boxes facilitate high-speed digital communications between
a subscriber's television and the cable network. Digital cable set-top boxes
currently able to support downstream (to the subscriber) transmission speeds of
up to 43 Mbps (North American standard) or 56 Mbps (international standard), and
several hundred MPEG-2 compressed digital television channels to be delivered to
the consumer. Additional applications for digital cable set-top boxes include
Internet access, interactive television, high definition television, audio
players and cable telephony. A new generation of digital cable set-top boxes is
being introduced to facilitate television Internet access, to support high
definition television and to provide a gateway for the distribution of voice,
video and data throughout the home and business.

Cable Modems

Cable television operators have been upgrading their systems to hybrid
fiber coaxial cable, commonly known as HFC in the telecommunications industry.
These upgraded HFC networks are able to support two-way communications,
high-speed Internet access and telecommuting through the use of a cable modem.
High-speed Internet access services, including @Home and RoadRunner, were
introduced in 1996 in conjunction with several cable system operators. These
services use cable modems to connect PCs to the cable network and have been
designed to achieve downstream transmission speeds of up to 43 Mbps (North
American standard) or 56 Mbps (international standard), and upstream (to the
network) transmission speeds of up to 10 Mbps. These transmission rates are
nearly 1,000 times faster than the fastest analog telephone modems (56 kbps
downstream and 28.8 kbps upstream) currently available. We believe the high
speeds of cable modems should enable an entirely new generation of
multimedia-rich content over the Internet and make telecommuting a productive
and effective means for work at home. Cable modems will allow cable operators to
expand their traditional video product offerings to include data and telephone
services. The cable industry's adoption of the Data Over Cable Service Interface
Specification, commonly known as DOCSIS, in 1997 made possible interoperability
between different manufacturers' cable modems and headend equipment across
different cable networks. The standard enables the cost-effective deployment of
cable modems via retail channels.

High-Speed Networking

A LAN is comprised of different types of equipment interconnected by
cables. Computers and servers via Network Interface Cards ("NICs"), repeaters,
switches and routers are all examples of networking equipment. Ethernet is a
computer networking protocol that describes a set of rules by which devices
connected to a LAN may communicate. Ethernet physical layer standards have been
established for different data rates (10, 100 and 1000 Mbps) and transmission
mediums (copper, fiber and coax cabling). 100 Mbps Ethernet is sometimes
referred to as Fast Ethernet, and 1000 Mbps is referred to as Gigabit Ethernet.

As communications bottlenecks have appeared in corporate LANs, new
technologies such as Fast Ethernet and Gigabit Ethernet are being employed to
replace older technologies such as 10Base-T Ethernet (10 Mbps) and Token Ring
(16 Mbps). As desktop connections continue to migrate to Fast Ethernet, we
believe that Gigabit Ethernet will emerge as the predominant technology for
servers and backbone infrastructures that support LANs, and will eventually
migrate to the desktop itself. We anticipate that a significant portion of the
installed base of 10Base-T

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Ethernet repeater/hub ports, switches and NICs will be upgraded to the faster
technologies. In addition, the need for dedicated and predictable bandwidth to
the desktop is driving a transition from legacy repeater to switch connections.
Switches will not only have the ability to provide dedicated bandwidth to each
connection, but will also provide routing functionality and possess the
intelligence to deal with differentiated traffic such as voice, video and data.

Home Networking

The proliferation of multi-PC households increases the need for home
networking solutions and lays the foundation for extending the reach of the
shared broadband Internet access, video transfer and voice at high speeds
throughout the home and small office. The industry's adoption of the Home
Phoneline Networking Alliance's (HomePNA(TM)) 2.0 standard for 10 Mbps home
networking technology has met this need by enabling the development of
affordable, easy-to-use networking solutions for the consumer. This standard
delivers a 10 Mbps data rate for home phoneline networking while maintaining
full backward compatibility and interoperability with existing HomePNA 1 Mbps
technology. We believe this standard will enable the ubiquitous delivery of
voice, video and data concurrently to any network-enabled appliance, PC or
consumer electronic device over ordinary phone lines at speeds of 10 Mbps and
higher and provides a complete, standards-based silicon platform for a host of
new consumer devices and applications.

DBS, Terrestrial Digital Broadcast and Broadband Fixed Wireless

Digital Broadcast Satellite, commonly known as DBS, is the primary
alternative to cable for providing digital television programming. DBS can be
used to transmit information at speeds of up to 90 Mbps. DBS broadcasts video
and audio data from satellites directly to digital set-top boxes in the home via
dish antennas. Due to the ability of DBS to provide television programming where
no cable infrastructure is in place, we believe that the U.S. market for DBS may
eventually be surpassed by the international market where the cable
infrastructure is generally less extensive.

Other broadband wireless technologies include:

o Terrestrial Digital Broadcast Television, the upgrade of analog
broadcast television to digital, which enables the delivery of high
definition television;

o Multichannel Multipoint Distribution System, commonly known as MMDS,
which uses microwave frequencies (below 10 GHz) to transmit voice,
video and data over two-way terrestrial digital microwave channels
to digital set-top boxes and wireless modems; and

o Local Multipoint Distribution System, commonly known as LMDS, which
uses even higher microwave frequencies (above 10 GHz) to transmit
voice, video and data to digital set-top boxes and wireless modems
over a shorter distance via a cellular-like network.

MMDS and LMDS are wireless systems that are currently being tested in
limited deployments. In the U.S. market, the MMDS and LMDS industry has
experienced significant license holder consolidation, which may lead to greater
investment in equipment and service for these markets. These new networks, which
are able to provide programming in areas that do not have cable, will also
require a digital set-top box or wireless modem.

We are currently developing products specifically for the MMDS and LMDS
(broadband fixed wireless) markets as part of an agreement with Cisco Systems
that we announced in October 1999.

Beginning in 1999, the FCC has mandated that the top four affiliated
television stations begin digital broadcasting and has required that all current
television broadcasters and their affiliates return the old analog spectrum by
the year 2006 for FCC auction. ABC, CBS and NBC have announced that they are
transmitting high definition television signals in some markets and will
continue to expand that offering in 2000 and in the future. We believe this
conversion to digital broadcasting will also require new digital set-top boxes
and television receivers.

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xDSL

Digital Subscriber Lines, commonly known as xDSL, represent a family of
broadband technologies that use the copper twisted pair wiring in the existing
telephone local loops to deliver high speed data transmission. xDSL speeds range
from 128 kbps to 52 Mbps depending on the distance between the central office
and the subscriber. These data rates are enabling a wide range of new services,
including high-speed Internet access, multi-line voice and digital television
delivery. Most major North American and European telephone operating companies
are deploying asymmetric DSL (ADSL) and symmetric DSL (SDSL) in selected areas
in their networks. There has also been a significant increase in the amount of
xDSL deployed in the Far East, notably in Korea. For the most part, ADSL is
targeted towards residential customers, while SDSL is offered to business
customers. The major Internet service providers are also embracing xDSL
technologies.

While ADSL and SDSL can provide high-speed Internet access and
multi-line voice, neither of these technologies is well suited for
transmission of entertainment quality video. Very High Bit-Rate DSL (VDSL)
is the latest technology in the DSL family to address this need. VDSL is now
in volume deployment in the U.S. and Canada. Capable of transmission rates four
to five times faster than the highest ADSL rates and leveraging increased fiber
build-outs by the operators, this technology enables telephone companies to
offer complete broadband service offerings delivering voice, video and data
services to the home over their existing wiring infrastructure.

* * *

These broadband communications markets are at different phases in their
evolution. High-speed networking is an established market that is currently
being upgraded, cable modems, digital cable and DBS set-top boxes are, on a
global basis, in an early growth phase, and the home networking and xDSL markets
are emerging.

The desire by equipment manufacturers and service providers to develop
these markets has created the need for new generations of semiconductor
solutions. Broadband transmission of digital information over existing
infrastructures requires highly integrated mixed-signal semiconductor solutions
to perform critical systems functions such as complex signal processing and
converting digital data to and from analog signals. Broadband communications
equipment requires substantially higher levels of system performance, in terms
of both speed and precision, that typically cannot be adequately addressed by
traditional semiconductor solutions developed for low speed transmission
applications. Moreover, solutions that are based on multiple discrete analog and
digital chips generally cannot achieve the cost-effectiveness, performance and
reliability required by the broadband communications markets. These requirements
are best addressed by new generations of highly integrated mixed-signal devices
that combine complex analog and digital functions with high performance
circuitry that can be manufactured in high volumes using cost-effective
semiconductor technologies.

THE BROADCOM SOLUTION

Broadcom Corporation is the leading provider of highly integrated
silicon solutions that enable broadband digital data transmission of voice,
video and data to and throughout the home and within the business enterprise.
Using our proprietary communications algorithms and protocols, advanced DSP
architectures, silicon compiler design methodologies and full-custom,
mixed-signal circuit design techniques, we have designed and developed
integrated circuits for some of the most significant broadband communications
markets. Our expertise in communications algorithms and our detailed
understanding of transmission media enable us to integrate complex systems
incorporating signal processing functions such as digital demodulation, adaptive
equalization and error correction in a single device. In addition, our broad
knowledge of advanced communications protocols enables us to design protocol
processing integrated circuits that seamlessly interface our mixed-signal
transceiver integrated circuits with higher-level networking layers for
communications applications.

We develop all of our products using low-cost, highly-manufacturable
complementary metal oxide semiconductor technologies, commonly known as CMOS,
that enable us to integrate comprehensive systems solutions into single chips,
thereby eliminating costly external components, reducing board space,
simplifying the customer's equipment manufacturing process, lowering customer
system costs and enabling higher performance. Our proprietary technology and
advanced design methodologies facilitate a high likelihood of first pass silicon
success, accelerated time-to-market, and ease of porting to multiple foundries.
Our design methodologies also allow us to rapidly and cost-effectively
incorporate proprietary features or intellectual property from our key strategic
customers into products that are exclusive to those customers, thereby enabling
them to differentiate their products.

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STRATEGY

Our objective is to be the leading provider of highly integrated
silicon solutions to the worldwide broadband communications markets. Key
elements of our strategy include the following:

Target Multiple High-Growth Broadband Communications Markets. Our
strategy is to identify rapidly growing broadband digital
communications markets and to develop highly integrated silicon
solutions for applications in those markets. Our initial products were
designed for the digital cable set-top box, cable modem and high-speed
networking markets, which require high-performance, feature-rich and
highly integrated semiconductor solutions. We have recently leveraged
our core technologies to design and develop semiconductor solutions for
the home networking, DBS, terrestrial digital broadcast, broadband
wireless and xDSL markets, which we believe have significant growth
potential.

Strengthen and Expand Strategic Relationships with Industry Leaders. We
have established strategic relationships with key equipment
manufacturers, including 3Com, Cisco Systems, General Instrument,
Hewlett-Packard, Motorola, Nortel Networks and Pace, which are market
and technology leaders within the broadband communications markets.
While we design products that can be used by multiple customers, our
proprietary design methodologies allow us to design custom features
rapidly based on either our own or our customers' intellectual
property. This capability enables our customers to improve their
time-to-market, differentiate their products and address new market
opportunities. We believe that these strategic relationships are
essential to our continued growth and to the further development and
acceptance of our technologies.

Extend Technology Leadership and Achieve Rapid Time-to-Market. We are
aggressively building on our technology leadership by investing
substantial research and development resources in all of our key
technology areas. We work closely with leading communications systems
companies to develop new and enhanced algorithms that address next
generation broadband market opportunities. Our strategy is to continue
to implement these algorithms in highly integrated, full-custom
integrated circuits using DSP architectures that optimize performance,
efficiency and cost. During product development, we leverage our
silicon compiler technologies and proprietary circuit libraries and
layouts of high-performance analog and digital chip building blocks,
to accelerate time-to-market for new products. Our silicon solutions
for each of these markets benefit from the same underlying core
technologies, providing us significant leverage in our ability to
address a diverse set of end user markets with a relatively focused
investment in research and development.

Drive Industry Standards. We actively participate in the formulation of
critical standards for the broadband communications markets. We believe
such participation provides us with several significant benefits,
including accelerating and expanding the development of markets for our
products by encouraging all market participants to focus their efforts
on developing products compliant with the standards. We also believe
our participation in the formulation of industry standards provides us
with valuable insight and relationships, which assists us to be early
to market with products incorporating the standards. We have
established strategic relationships with major networking equipment and
cable modem vendors and were a principal participant in formulating and
writing DOCSIS. These standards govern the end-to-end delivery of
high-speed data services over HFC cable networks and facilitate the
development of interoperable networking products, including cable
modems. Our active participation in this process helped us to be the
first provider of transmission and protocol chips to equipment
manufacturers developing DOCSIS compliant products. We are also
currently participating in the formulation and evolution of standards
for next generation cable modems, voice-over-cable, Gigabit Ethernet,
broadband fixed wireless, home networking systems and xDSL.

Focus on Highly Integrated Solutions. We believe our analog
mixed-signal technology and advanced design methodologies enable us to
offer silicon solutions that are more highly integrated than
competitive alternatives. High levels of integration and aggressive
product development roadmaps allow us to enhance the value-added
benefits of our products in our customers' systems. We believe
integration, which reduces the total component count in the system,
provides many fundamental benefits for our customers, including
streamlining their production flow, improving yields, saving board
space, shortening time-to-market, reducing production costs and
improving performance and reliability. These benefits have often helped
our customers to achieve faster and broader penetration within their
respective markets.

Engage in Strategic Acquisitions. To accelerate our time-to-market for
particular products and technologies, to facilitate and expedite our
entry into new or related broadband communications markets, and to meet
engineering staffing requirements, we engage in selective acquisitions
of other companies. Since January 1999 we have completed eight such
acquisitions, and we expect to undertake additional acquisitions in
2000 and in the future.

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CUSTOMERS AND STRATEGIC RELATIONSHIPS

We sell our products to leading manufacturers of broadband
communications equipment in each of our target markets. Because we leverage our
technology across different markets, certain of our integrated circuits may be
incorporated into equipment used in several different markets.

Customers currently shipping broadband communications equipment
incorporating our products include 3Com, Cisco Systems, General Instrument,
Hewlett-Packard, Motorola, Nortel Networks, Pace, Samsung, Scientific-Atlanta
and Thomson CE, among others.

As part of our business strategy, we periodically establish strategic
relationships with certain key customers. In September 1997, we entered into a
Development, Supply and License Agreement with General Instrument. This
agreement provides that we will develop chips for General Instrument's digital
cable set-top boxes and supply these chips to General Instrument for four years.
General Instrument agreed to purchase 100% of its requirements for components
containing transmission, communications or video decompression (MPEG) functions
for its digital cable set-top box subscriber products from us in the first year
of this agreement. General Instrument's purchase requirements are subject to our
good faith efforts to maintain our competitive position with respect to these
components. The percentage of its product requirements that General Instrument
must purchase from us declines each year over the term of the agreement to 45%
of General Instrument's requirements in 2001. General Instrument also granted us
a royalty-bearing, perpetual, nonexclusive, worldwide license to use its MPEG
and related technology.

From time to time, we have also entered into development agreements
with 3Com, Cisco Systems, Hewlett-Packard, Nortel Networks, Sony and others. We
have worked closely with these customers to co-develop products for these
customers.

A small number of customers have historically accounted for a
substantial portion of our revenue. Sales to General Instrument (including sales
to its manufacturing subcontractors) represented approximately 27.5% of our
revenue in 1999 and approximately 35.5% of our revenue in 1998. Sales to 3Com
(including sales to its manufacturing subcontractors) represented approximately
18.1% of our revenue in 1999 and approximately 26.8% of our revenue in 1998.
Sales to Cisco (including sales to its manufacturing subcontractors) represented
approximately 10.6% of our revenue in 1999. Sales to our five largest customers
represented approximately 67.0% of our revenue in 1999 and approximately 74.2%
of our revenue in 1998. General Instrument was acquired by Motorola, Inc. in
January 2000. The loss of any key customer could materially and adversely affect
our business, financial condition and results of operations.

PRODUCTS

Our six primary product lines encompass:

o high-speed communications and MPEG video/audio/graphics devices for
the digital cable television set-top box market;

o high-speed data transmission and media access control devices for
the cable modem market;

o 10/100/1000Base-T Ethernet transceivers, integrated repeater
controllers, integrated switch controllers and proprietary
application specific integrated circuits ("ASICs") for the
high-speed networking market;

o controllers and integrated transceivers and v.90 soft modem software
for the home networking market;

o receivers and MPEG video/audio/graphics devices for the DBS and
terrestrial digital broadcast markets; and

o broadband transceivers for the xDSL market.

We also develop and sell reference platforms designed around our
integrated circuit products that represent application examples for
incorporation into our customers' equipment. By providing these reference
platforms, we can assist our customers in achieving easier and faster
transitions from initial prototype designs through final production releases.
These reference platforms enhance the customer's confidence that our products
will meet their market requirements and product introduction schedules.

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Digital Cable Set-Top Boxes

We offer a suite of silicon solutions for digital cable set-top boxes
and cable headends which encompass the high-speed transmission, reception and
decompression of digital audio and video multimedia signals. These products are
also applicable to the terrestrial digital broadcast markets. Our QAMLink(R)
transmission products integrate the core functionality required of advanced
communications transceiver devices including modulators and demodulators for
quadrature amplitude modulation, commonly known as QAM, and quadrature phase
shift keying, commonly known as QPSK. QAM is a digital modulation technique that
allows very efficient transmission of data over media with limited available
bandwidth. QSPK is a digital modulation technique that is widely employed in DBS
transmission systems. Our QAMLink transmission products also integrate adaptive
equalization, which corrects for distortion in the transmission media, forward
error correction, which corrects for errors that occur in the transmitted data,
and high-speed analog-to-digital and digital-to-analog conversion. We have
designed these products to meet both international and North American
communications standards for cable networks. Several of these products also
incorporate additional set-top box functionality such as cable network protocol
processing for entitlement and tiered programming access and input/output device
control.

In the fourth quarter of 1999, we introduced our first single-chip High
Definition (HD) MPEG-2 video and graphics multimedia device. This device
incorporates all of the processing capabilities necessary to decode and display
a MPEG-2 digital television data stream and subsequently reconstruct an analog
HD studio quality television signal that can be displayed on a standard or HD
television receiver. This chip integrates MPEG-2 video decompression, Dolby AC3
audio compression, MPEG-2 transport processing, studio quality 2D and 3D
graphics, analog video reconstruction and other necessary video-graphics related
functions required to deliver video and audio to a television. We believe our
combination of transmission and MPEG silicon solutions, licensed MIPS
microprocessor cores and graphics technology will provide all of the significant
silicon functionality of most existing digital cable set-top boxes with the
exceptions of the security functions and memory.

Our principal products for digital cable set-top boxes include the
BCM3116 (downstream QAM receiver), BCM3120 (universal set-top box transceiver),
BCM3125 (universal set-top box transceiver), BCM3300 (integrated DOCSIS cable
modem chip) and the BCM7010 (MPEG system on a chip).

Cable Modems

We have leveraged our core transmission technologies that were
developed for the cable set-top box market and adapted them to the development
of a family of products that enable digital data to be delivered over an HFC
cable network at downstream speeds of up to 56 Mbps and upstream speeds of up to
10 Mbps. These products incorporate modulation, adaptive equalization and error
correction technologies similar to those of our digital set-top box products and
thereby achieve robust and reliable transmission, especially in the noisy and
interference-prone upstream direction. The cable modem product family includes
solutions for both the cable headend and subscriber. We have also expanded our
core technology offerings in this area to include a DOCSIS Media Access
Controller, commonly known as a MAC, which controls the upstream and downstream
data flow over the cable network as well as a RISC central processing unit
(CPU), Universal Serial Bus (USB) interface, and Ethernet and IP security
functions. In December 1999 we introduced the BCM3350 single-chip cable modem,
which integrates all the essential functions of a DOCSIS cable modem into a
single chip, including the DOCSIS-based upstream and downstream physical layers,
DOCSIS MAC, 10/100BaseT Ethernet physical layer and Ethernet MAC, a USB
transceiver, a RISC CPU and IP security functions. This device allows cable
modems to provide data telephony services over the cable network using the
Internet Protocol. With our comprehensive offering of silicon solutions for both
the cable modem and cable headend, designed to the DOCSIS specification, we are
capable of supplying our customers with complete end-to-end silicon solutions
for their DOCSIS products.

Our principal products for cable modems include the BCM3037 (universal
QPSK/QAM burst modulator), BCM3116 (downstream QAM receiver), BCM3118
(downstream QAM receiver), BCM3137 (headend QPSK/QAM burst receiver), BCM3220
(DOCSIS media access controller) and the BCM3300 (single chip DOCSIS cable
modem)

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High-Speed Networking

Our networking products provide the core functionality required for
building Ethernet NICs, repeater/hubs and switches which support the Ethernet,
Fast Ethernet and Gigabit Ethernet standards. Our Digi-(PHI)(TM) transceivers
are the basic elements required to implement an Ethernet connection. The
Digi-(PHI) architecture incorporates our patent-pending DSP processing
algorithms combined with high-speed analog-to-digital and digital-to-analog
converters to create a highly-robust and cost-effective solution. In addition to
the DSP-based architecture, the family of Digi-(PHI) transceiver products
feature low power and low voltage (2.5 Volts) operation, making them suitable
for high port density switches and hubs, as well as PCI2.2 compliant mobile and
desktop adapter cards and computer motherboards. We also offer a variety of
integrated repeater and switch controller devices, to provide a broad suite of
Fast Ethernet products to meet the demands of the adapter card, repeater/hub,
switch, network peripheral and router markets. In addition, we develop and
produce proprietary ASICs combining our customer's intellectual property with
our advanced Digi-(PHI) transceiver and other communication cores.

Our principal high-speed networking products include the BCM5208 (quad
10/100Base-T transceiver), BCM5308 (nine port 10/100Base-T switch), BCM 5903
(single chip 10/100Base-T transceiver with integrated MAC) and BCM5904 (single
chip 10/100Base-T transceiver with integrated MAC ASIC).

Home Networking

Our home networking products are built around the iLine10(TM) chipset
family, which networks data and multi-media applications at rates of 10 Mbps
over the ordinary phone lines found in any home. iLine10 products use QAM
modulation to send Ethernet data frames over ordinary phone wires in the home,
without disturbing the ability to use the same phone wires for both regular
phone service and ADSL broadband Internet access simultaneously. iLine10 enabled
products include adapter cards and dongles for personal computers, add-in
modules for home broadband gateways, and specialized chipsets and drivers for
Internet appliances. Our principal home networking products include the BCM4100
(integrated iLine10 analog front-end transceiver) and the BCM4210
(fully-integrated iLine10 MAC/PHY device).

Additionally our AltoCom subsidiary licenses v.90 soft modem
technology. The AltoCom software is very efficient in its modulation algorithms,
resulting in lower CPU utilization and lower power consumption compared to
competitive alternatives. As a result, over 20 companies have licensed the
AltoCom software for use in Internet appliances, xDSL gateways and other
devices.

DBS and Terrestrial Digital Broadcast

Our products for the DBS market are designed to meet the needs of
satellite set-top box providers and incorporate the functionality necessary to
receive, demodulate and decode a broadband QPSK signal, including advanced
forward error correction. These products can be programmed to accommodate
satellite standards such as DSS, the DIRECTV standard; DVB, the international
standard; and Primestar. These products can operate at any data rate from 2 to
90 Mbps. Our MPEG system on a chip, the BCM7010, employs the MPEG-2 standard,
which enables it to be used in either digital cable set-top boxes or DBS set-top
boxes. Our principal DBS and terrestrial digital broadcast product is the
BCM4200 (QSPK receiver for DSS and DVB digital satellite reception).

xDSL

Our product for DSL transmission incorporates the functionality to
enable data to be transmitted and received at high speed over the existing
copper twisted pair wiring in the telephone local loops. Our BCM6010 currently
offers the industry's only single-chip mixed-signal silicon solution that can be
configured to operate at data rates spanning ISDN (128 kbps) to VDSL (52 Mbps),
thereby accommodating the needs of a wide variety of xDSL market segments in a
single chip. This solution offers network operators the ability to initially
install high-speed ADSL data services on the existing local loop plant and
subsequently offer higher data rates for video-related services on an upgraded
plant. We have leveraged our mixed-signal and DSP processing design expertise
developed for cable television and wireless products to develop the BCM6010
(scalable xDSL QAM transceiver for twisted-pair applications).

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Our future success will depend upon our ability to develop new silicon
solutions for existing and new markets, introduce such products in a timely and
cost-effective manner, and achieve design wins. We may not be able to develop or
introduce new products in a timely and cost-effective manner or in sufficient
quantities to meet customer demand. In addition, it is possible that new
products may not satisfy customer requirements or achieve market acceptance.

CORE TECHNOLOGIES

We believe that one of our key competitive advantages is our broad base
of core technologies encompassing the complete design space from systems to
silicon. We have developed and continue to build on four primary technology
foundations:

o proprietary communications systems algorithms and protocols;

o advanced DSP hardware architectures;

o silicon compiler design methodologies and advanced cell library
development for both standard cell and full-custom integrated
circuit design; and

o high performance analog and mixed-signal circuit design using
industry standard CMOS processes.

Communications Algorithms and Protocols

We have been an innovator in developing advanced modulation and coding
systems and integrating them onto a single chip. These include QAM, VSB and QPSK
receivers incorporating digital demodulation, adaptive equalization and
sophisticated forward error correction techniques. These receivers incorporate
novel signal processing algorithms to facilitate robust performance in severely
distorted channels. These core transmission algorithms are broadly applicable to
our products in the areas of satellite, terrestrial wireless, digital cable
set-top box, cable modem, xDSL and home networking. We introduced the industry's
first DOCSIS physical layer and media access control chips for cable modems, the
industry's first 52 Mbps VDSL transceiver, as well as the industry's first 10
Mbps home phoneline networking solution. We have also developed the world's
first all-DSP based transceiver chips for Fast Ethernet LAN applications. This
Digi-(PHI) transceiver core has been used in a number of our single, quad, hex
and octal channel transceiver products for Ethernet (10/100Base-TX)
applications. Our DSP algorithmic expertise has also been extended and applied
to the development of the world's first Gigabit copper twisted pair transceiver.
In addition to data transmission algorithms, we have developed significant
expertise in networking protocols which we have applied to the development of
MAC devices for cable modems and interactive set-top box applications as well as
Ethernet MAC controllers and switching and packet filtering techniques for Fast
Ethernet and Gigabit Ethernet Internet Protocol (IP) networks. We have also
developed innovative techniques for digital video processing in the areas of
standard definition and high definition MPEG decompression, digital audio
decoding, advanced 2D and 3D graphics for set-top boxes, and NTSC digital video
encoders and decoders. Next generation IP networks have very demanding Quality
of Service (QoS) requirements for supporting low latency transport of voice
traffic, and we have incorporated our substantial algorithm, protocol and
software expertise for voice processing into a wide variety of Voice over IP
(VoIP) products.

Digital Signal Processing Hardware Architectures

We have developed cost-effective, single-chip broadband transceivers by
mapping complex communications algorithms into low-complexity DSP hardware
architectures. We are a technology leader in the area of low-complexity,
high-performance silicon embedded algorithms. We have individually implemented
these communications algorithms in full-custom logic rather than the
conventional approach of running all of the algorithms in firmware on a single
general purpose programmable DSP architecture. This design approach is combined
with silicon compiler-based design methodologies which generate the custom logic
functions. This results in chips that are less complex and less expensive to
manufacture than conventional implementations. One particular area where we have
developed leading DSP technology is in digital adaptive equalization. Equalizers
are key components in all of our transceiver products. We believe that the speed
and density of our equalizers help to distinguish our products in the
marketplace. Our single-chip, mixed-signal adaptive DSP transceiver for Gigabit
Ethernet achieves an unprecedented throughput of over 250 billion operations per
second.

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Silicon Compiler Design Methodologies

We have developed proprietary silicon compiler technologies that enable
designers to implement chips using a high level of abstraction yet produce
area-efficient integrated circuit layouts and achieve short design cycles. The
cells that are synthesized from this process can be individually optimized for
functionality, performance, topology, electrical characteristics and
manufacturing process portability. We have designed compilers for standard
cells, arithmetic processing, memories and analog building blocks. In addition,
we have created compilers to manage the implementation of higher level functions
such as digital filters, adaptive equalizers, modulators, demodulators and
numerically controlled oscillators/direct digital frequency synthesizers. We
believe that these silicon compiler capabilities accelerate time-to-market by
improving designer productivity and by providing functional blocks that can be
reused in multiple products. In addition, these compiler techniques
significantly reduce errors, thereby frequently resulting in first pass silicon
success. We have also developed, and continue to improve and expand, our own
proprietary set of circuit and layout libraries for both standard cell and
full-custom integrated circuits.

Full-Custom Analog and Mixed-Signal Circuit Design

We have developed significant analog and mixed-signal circuit
expertise. We have achieved a level of circuit performance in standard CMOS
process technologies that is normally associated with more expensive special
purpose silicon fabrication technologies. All of our high-performance analog
building blocks are implemented in the same low-cost single poly CMOS
technologies as the digital semiconductor circuitry. In addition to achieving
high performance, our analog-to-digital and digital-to-analog converters are
among the lowest die area devices in the industry, which makes them well suited
for integration into high volume mixed-signal products. Virtually all of our
transmission products incorporate a mixed-signal analog front-end. In addition
to our baseband mixed-signal circuit expertise, we have developed a substantial
base of expertise in CMOS RF design. We have introduced the world's first
all-CMOS RF tuner for cable TV receivers. This device incorporates a wide
variety of sophisticated RF building blocks, including low noise amplifiers,
highly linear amplifiers and mixers, wideband phase-locked loop frequency
synthesizers, low phase noise oscillators and on-chip RF filters.

RESEARCH AND DEVELOPMENT

We have assembled a core team of experienced engineers and
technologists, many of whom are leaders in their particular field or discipline.
As of March 1, 2000 approximately two-thirds of our 744 research and development
employees had advanced degrees. Our work force includes approximately 100
employees with Ph.D.s. These employees are involved in advancing our core
technologies, as well as applying these core technologies to our product
development activities in the areas of broadband communications in our target
markets. The transmission solutions for each of these markets benefit from the
same underlying core technologies, which enables us to leverage our ability to
address various broadband communications markets with a relatively focused
investment in research and development.

We believe that the achievement of higher levels of integration and the
introduction of new products in our target markets is essential to our growth.
As a result, we plan to continue to increase research and development staffing
levels in 2000. We have established additional design centers in Tempe, Arizona,
San Diego, Sunnyvale and San Jose, California, Atlanta, Georgia, Bunnik, the
Netherlands, and Singapore. As a result of our 1999 acquisitions of Armedia,
Inc. and HotHaus Technologies Inc., we also undertake design and development
activities in India and software design and development in Canada, respectively.
We anticipate establishing additional design centers in the United States and
other countries in the future.

MANUFACTURING

Wafer Fabrication

We manufacture our products using standard CMOS process techniques. The
standard nature of these processes permits us to engage independent silicon
foundries to fabricate our integrated circuits. By subcontracting our
manufacturing requirements, we are able to focus our resources on design and
test applications where we believe we have greater competitive advantages. This
strategy also eliminates the high cost of owning and operating a semiconductor
wafer fabrication facility.

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Our Operations and Quality Engineering Group closely manages the
interface between manufacturing and design engineering. While our design
methodology typically creates smaller than average die for a given function, it
also generates full-custom integrated circuit designs. As a result, we are
responsible for the complete functional and parametric performance testing of
our devices, including quality. We employ a fully staffed operations and quality
organization similar to a vertically integrated semiconductor manufacturer. We
also arrange with our foundries to have online work-in-progress control, making
the manufacturing subcontracting process transparent to our customers.

Our key silicon foundries are Taiwan Semiconductor Manufacturing
Corporation in Taiwan and Chartered Semiconductor Manufacturing in Singapore.
While we primarily use two independent foundries, few of our components are
manufactured at both foundries at any given time. Any inability of one of our
foundries to provide the necessary capacity or output could result in
significant production delays and could materially and adversely affect our
business, financial condition and results of operations. While we currently
believe we have adequate capacity to support our current sales levels, we
continue to work with our existing foundries to obtain more production capacity
and we intend to qualify new foundries to provide additional production
capacity. It is possible that adequate foundry capacity may not be available on
acceptable terms, if at all. In the event a foundry experiences financial
difficulties, or if a foundry suffers any damage or destruction to its
facilities, or in the event of any other disruption of foundry capacity, we may
not be able to qualify alternative manufacturing sources for existing or new
products in a timely manner.

Our products are currently fabricated with .5 micron, triple layer
metal, .35 micron, quad layer metal, and .22 micron, five layer metal, feature
sizes. We continuously evaluate the benefits, on a product by product basis, of
migrating to a smaller geometry process technology in order to reduce costs. Our
experience to date with the migration of products to smaller geometry processes
has been favorable, but we could experience difficulties in future process
migration. Other companies in our industry have experienced difficulty
transitioning to new manufacturing processes and, consequently, have suffered
reduced yields or delays in product deliveries. We believe that the transition
of our products to smaller geometries will be important for us to remain
competitive. Our business, financial condition and results of operations could
be materially and adversely affected if any such transition is substantially
delayed or inefficiently implemented.

Assembly and Test

One of our independent foundries or independent wafer probe test
subcontractors conducts our wafer probe testing. Following completion of the
wafer probe tests, the die are assembled into packages and the finished products
are tested by one of our three key subcontractors: ASAT Ltd. in Hong Kong, ST
Assembly Test Services in Singapore and Amkor Technology in the Philippines and
South Korea. While we have not experienced any material disruption in supply
from assembly subcontractors to date, we could experience assembly problems in
the future. The availability of assembly and testing services from these
subcontractors could be materially and adversely affected in the event a
subcontractor experiences financial difficulties, if a subcontractor suffers any
damage or destruction to its respective facilities, or in the event of any other
disruption of assembly and testing capacity.

Quality Assurance

The broadband communications industry demands high-quality and
reliability of the semiconductors incorporated into their equipment. We focus on
product reliability from the initial stage of the design cycle through each
specific design process, including layout and production test design. In
addition, we subject our designs to in-depth circuit simulation at temperature,
voltage and processing extremes before initiating the manufacturing process.

We prequalify each assembly and foundry subcontractor. This
prequalification process consists of a series of industry standard environmental
product stress tests, as well as an audit and analysis of the subcontractor's
quality system and manufacturing capability. We also participate in quality and
reliability monitoring through each stage of the production cycle by reviewing
electrical and parametric data from our wafer foundry and assembly
subcontractors. We closely monitor wafer foundry production to ensure consistent
overall quality, reliability and yield levels. In cases where we purchase wafers
on a fixed cost basis, any improvement in yields can reduce our cost per chip.

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As part of our total quality program, we have applied for and received
ISO 9000 certification, a comprehensive International Standards Organization
specified quality system. All of our principal independent foundries and package
assembly facilities are also ISO 9000 certified.

Product Distribution

Historically we had distributed products to our customer through an
operations and distribution center located in Irvine, California. In 1999, we
established an international distribution center in Singapore. This new facility
puts us closer to our suppliers and certain key customers and improves our
ability to meet our customers' needs. While our Irvine facility will continue to
ship product to U.S. destinations, the transition of our international customers
to the Singapore facility was essentially completed by the end of 1999.

SALES AND MARKETING

Our sales and marketing strategy is to achieve design wins with
technology leaders in each of the our targeted broadband communications markets
by, among other things, providing superior field application and engineering
support. We market and sell our products in the United States through a direct
sales force, which has largely been established within the last three years. Our
direct sales force is based out of offices located in Irvine and San Jose,
California, Houston and Plano, Texas, Canton and Needham, Massachusetts,
Chicago, Illinois, Scarborough, Maine and Atlanta, Georgia.

We dedicate sales managers to principal customers to promote close
cooperation and communication. We also provide our customers with reference
platform designs, which enable our customers to achieve easier and faster
transitions from the initial prototype designs through final production
releases. We believe these reference platform designs also significantly enhance
our customer's confidence that our products will meet their market requirements
and product introduction schedules.

We also market and sell our products internationally through a direct
sales force based out of regional sales offices located in Japan, The
Netherlands, Singapore, France and United Kingdom, as well as through a network
of independent distributors and representatives in Germany, Israel, Japan, Korea
and Taiwan. We select these independent entities based on their ability to
provide effective field sales, marketing communications and technical support to
our customers. All international sales to date have been denominated in U.S.
dollars.

BACKLOG

Our sales are made primarily pursuant to standard purchase orders for
delivery of products. Due to industry practice which allows customers to cancel
or change orders with limited advance notice prior to shipment, we believe that
backlog is not a reliable indicator of future revenue levels.

COMPETITION

The broadband communications markets and semiconductor industries are
intensely competitive and are characterized by rapid technological change,
evolving standards, short product life cycles and price erosion. We believe that
the principal factors of competition for integrated circuit providers to these
industries include:

o product capabilities;

o level of integration;

o reliability;

o price;

o time-to-market;

o standards compliance;

o system cost;

o intellectual property;

o customer support; and

o reputation.

We believe that we compete favorably with respect to each of these
factors.

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We compete with a number of major domestic and international suppliers
of equipment in our target broadband communications markets, which competition
has resulted and may continue to result in declining average selling prices for
our products. In all of our target markets, we also may face competition from
newly established competitors and suppliers of products based on new or emerging
technologies. We also expect to encounter further consolidation in the markets
in which we compete.

Many of our competitors operate their own fabrication facilities and
have longer operating histories and presence in key markets, greater name
recognition, larger customer bases and significantly greater financial, sales
and marketing, manufacturing, distribution, technical and other resources than
we do. As a result, these competitors may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements or devote greater
resources to the promotion and sale of their products. Current and potential
competitors have established or may establish financial or strategic
relationships among themselves or with existing or potential customers,
resellers or other third parties. Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share. In addition, competitors may develop technologies in
the future that more effectively address the transmission of digital information
through existing analog infrastructures at a lower cost. Increased competition
could result in pricing pressures, decreased gross margins and loss of market
share and may materially and adversely affect our business, financial condition
and results of operations.

INTELLECTUAL PROPERTY

Our success and future revenue growth will depend, in part, on our
ability to protect our intellectual property. We rely primarily on patent,
copyright, trademark and trade secret laws, as well as nondisclosure agreements
and other methods, to protect our proprietary technologies and processes. These
measures may not provide meaningful protection for our intellectual property. We
have received 11 United States patents and have filed over 250 United States
patent applications. We may not receive any additional patents as a result of
these applications or future applications. Even if additional patents are
issued, any claims allowed may not be sufficiently broad to protect our
technology. In addition, any existing or future patents could be challenged,
invalidated or circumvented, and any right granted under such patents may not
provide us with meaningful protection. The failure of any patents to adequately
protect our technology would make it easier for our competitors to offer similar
products. In connection with our participation in the development of various
industry standards, we may be required to license certain of our patents to
other parties, including competitors, that develop products based upon the
adopted industry standards. We also generally enter into confidentiality
agreements with our employees and strategic partners, and typically control
access to and distribution of our documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use our products, services or technology without
authorization, to develop similar technology independently or to design around
our patents. In addition, effective copyright, trademark and trade secret
protection may not be available or may be limited in certain foreign countries.
We have also entered into agreements with certain of our customers and granted
these customers the right to use our proprietary technology in the event we
default in our contractual obligations, including product supply obligations,
and fail to cure the default within a specified period of time. Moreover, we
often incorporate the intellectual property of our strategic customers into our
designs, and we have certain obligations with respect to the non-use and
non-disclosure of their intellectual property. It is possible that the steps
taken by us to prevent misappropriation or infringement of our intellectual
property or our customers' intellectual property may not be successful.
Moreover, we may need to engage in litigation in the future to enforce our
intellectual property rights or the rights of our customers, to protect our
trade secrets or to determine the validity and scope of proprietary rights of
others, including our customers. Such litigation could result in substantial
costs and diversion of our resources and could materially and adversely affect
our business, financial condition and results of operations.

Companies in the semiconductor industry often aggressively protect and
pursue their intellectual property rights. From time to time, we have received,
and may continue to receive in the future, notices that claim we have

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infringed upon, misappropriated or misused other parties' proprietary rights.
In March 2000 Intel Corporation and its subsidiary Level One Communications Inc.
filed a lawsuit against us alleging misappropriation of trade secrets, unfair
competition and tortious interference with existing contractual relations in
connection with our recent hiring of three former Intel employees. In 1999 we
settled litigation with Stanford Telecommunications, Inc. that related to the
alleged infringement of one of Stanford's patents by several of our cable modem
products. In 1999 we prevailed in litigation with Sarnoff Corporation and
NxtWave Communications, Inc., formerly Sarnoff Digital Communications, Inc.,
which alleged that we misappropriated and misused certain of their trade secrets
in connection with our hiring of five former Sarnoff employees. Our subsidiary,
AltoCom, is the defendant in patent litigation brought by Motorola, Inc.
relating to software modem technology. Although we are defending the pending
litigation vigorously, it is possible that we will not prevail in pending or
future lawsuits. In addition, we may be sued in the future by other parties who
claim that we have infringed their patents or misappropriated or misused their
trade secrets, or who may seek to invalidate one of our patents. Any of these
claims may materially and adversely affect our business, financial condition and
results of operations. For example, in a patent or trade secret action, a court
could issue an injunction against us that would require us to withdraw or recall
certain products from the market or redesign certain products offered for sale
or under development. In addition, we may be liable for damages for past
infringement and royalties for future use of the technology. We may also have to
indemnify certain customers and strategic partners under our agreements with
such parties if a third party alleges or if a court finds that we have infringed
upon, misappropriated or misused another party's proprietary rights. Even if
claims against us are not valid or successfully asserted, these claims could
result in significant costs and a diversion of management and personnel
resources to defend. In that event, our business, financial condition and
results of operations would likely be materially and adversely affected. If any
claims or actions are asserted against us, we may seek to obtain a license under
a third party's intellectual property rights. However, we may not be able to
obtain a license on commercially reasonable terms, if at all.

EMPLOYEES

As of March 1, 2000 we had 1,120 full-time employees and 27 contract
and temporary employees, including 744 employees engaged in research and
development, 134 engaged in sales and marketing, 115 engaged in manufacturing
operations and 154 engaged in finance, legal and general administration
activities. Our employees are not represented by any collective bargaining
agreement, and we have never experienced a work stoppage. We believe our
employee relations are good.

ITEM 2. PROPERTIES

We lease three adjacent buildings in Irvine, California that comprise
our corporate headquarters and include our administration, sales and marketing,
research and development, and operations departments. In addition, we have
leases for engineering design centers in San Diego, California and Tempe,
Arizona. We also lease facilities in Atlanta, Georgia which house our
Residential Broadband Group, and various facilities in Santa Clara County,
California for our Digital Video Technology Group, Enterprise Switching Group
and Home Networking Group.

Internationally, we lease a design center in the Netherlands and an
international distribution and design center in Singapore, as well as facilities
in Vancouver and Toronto, Canada for our Packet Telephony Group and in
Bangalore, India for our Digital Video Technology Group.

These leases comprise an aggregate of 414,934 square feet and have
terms expiring on or prior to December 2005. We believe that our current
facilities, together with planned expansions, will be adequate for at least the
next twelve months.

ITEM 3. LEGAL PROCEEDINGS

In December 1996 Stanford Telecommunications, Inc. ("STI") filed an
action against the Company in the United States District Court for the Northern
District of California. STI alleged that several of the Company's cable modem
products infringed one of STI's patents. In May 1999 the Company brought a
separate action against STI and an STI subsidiary in California Superior Court
for misappropriation of certain Company trade secrets. In June 1999 the parties
entered into a settlement agreement and agreed to dismiss with prejudice all
claims and counterclaims in both actions. Under the terms of the settlement
agreement, STI granted to the Company a worldwide, non-exclusive, royalty-free
license to STI's rights in patents and patent applications, and all inventions
conceived, through the date of the agreement, relating to any transmitter or
receiver technology, or design or invention capable of use over a coaxial cable
transmission medium, excluding patent claims specifically claiming Code Division
Multiple Access ("CDMA") inventions. The Company also obtained the option to
acquire licenses on commercially reasonable terms to STI's patent claims based
upon CDMA inventions capable of use over a coaxial cable transmission

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medium, and STI agreed not to bring any future action against the Company, its
suppliers or customers for patent infringement or trade secret misappropriation
resulting from commercial use of any of the Company's existing technology,
designs or products. In connection with the settlement, the Company made a
one-time payment to STI and the parties exchanged mutual releases. Neither party
admitted any liability in connection with the various actions.

In April 1997 Sarnoff Corporation and Sarnoff Digital Communications,
Inc., now known as NxtWave Communications, Inc., (collectively, "Sarnoff") filed
a complaint in New Jersey Superior Court against the Company and five former
Sarnoff employees now employed by the Company asserting claims against the
former employees for breach of contract, misappropriation of trade secrets, and
breach of the covenant of good faith and fair dealing, and against the Company
for inducing such actions. The complaint also asserted claims against the
Company and the former employees for unfair competition, misappropriation and
misuse of trade secrets and confidential, proprietary information of Sarnoff,
and tortious interference with present and prospective economic advantage, as
well as a claim against the Company alleging that it "illegally pirated"
Sarnoff's employees. In early 1999 the Court found in the Company's favor on all
liability, causation and damages issues. Sarnoff appealed the Court's orders but
the appeal was later dismissed at Sarnoff's request.

In July 1997 the Company commenced an action against Sarnoff in the
California Superior Court alleging breach of contract, fraud, misappropriation
of trade secrets, false advertising, trade libel, intentional interference with
prospective economic advantage and unfair competition. The claims center on
Sarnoff's violation of a non-disclosure agreement entered into with the Company
with respect to limited use of certain of the Company's technology and on
inaccurate comparisons that the Company believes Sarnoff has made in its product
advertising and in statements to potential customers and others. This action was
removed to the United States District Court for the Central District of
California, and was stayed pending resolution of the New Jersey action described
in the preceding paragraph. Following the decision in the New Jersey action,
Sarnoff filed a motion for summary judgment in the California case on the basis
that the issues therein had been or should have been previously litigated in the
New Jersey action under the New Jersey "entire controversy" doctrine. Following
oral argument in August 1999, the California District Court granted Sarnoff's
motion and dismissed the Company's claims on the grounds that they should have
been brought as part of the New Jersey action. The Company believes that the
California action involves facts, circumstances and claims unrelated to those at
issue in the New Jersey action, and has filed an appeal of the District Court's
ruling. No discovery has yet occurred in the case.

In March 1998 Scott O. Davis, the Company's former Chief Financial
Officer, filed a complaint in California Superior Court against the Company and
its Chief Executive Officer, Henry T. Nicholas III, alleging claims for fraud
and deceit, negligent misrepresentation, breach of contract, breach of fiduciary
duty, constructive fraud, conversion, breach of the implied covenant of good
faith and fair dealing, and declaratory relief. The claims related to Mr. Davis'
alleged ownership of 26,000 shares of Series D preferred stock originally
purchased by Mr. Davis in March 1996 (which shares would have converted into
312,000 shares of Class B common stock upon consummation of the Offering). The
purchase agreement between the Company and Mr. Davis contained a provision
permitting the Company to repurchase the shares in the event that Mr. Davis did
not continue to be employed by the Company for a certain period of time. After
Mr. Davis resigned in June 1997, the Company exercised its repurchase right. Mr.
Davis' complaint alleged that the repurchase right should not be enforceable
under several legal theories and sought unspecified damages and declaratory
relief. The Company asserted certain counterclaims against Mr. Davis. In March
1999 the parties entered into a settlement agreement and agreed to dismiss with
prejudice all of the claims and counterclaims in the case. The settlement was
approved by the Court in April 1999. The terms of the settlement are
confidential but the Company believes that they do not have a material effect on
its business, results of operations, financial condition or equity.

In September 1998 Motorola, Inc. ("Motorola") filed a complaint in
United States District Court for the District of Massachusetts against AltoCom
(and co-defendant, PC-Tel, Inc.), asserting that (i) AltoCom's V.34 and V.90
compliant software modem technology infringes several patents owned by Motorola,
(ii) AltoCom induces its V.34 and V.90 licensees to infringe such patents, and
(iii) AltoCom contributorily infringes such patents. The complaint sought a
preliminary and permanent injunction against AltoCom as well as the recovery of
monetary damages, including treble damages for willful infringement. In October
1998 Motorola affirmatively dismissed its case in the District of Massachusetts
and filed a substantially similar complaint in the United States District Court
for the District of Delaware. AltoCom has filed an answer and affirmative
defenses to the District of Delaware complaint.

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AltoCom has also asserted a counterclaim requesting declaratory relief that
AltoCom has not infringed the Motorola patents and that such patents are invalid
and/or unenforceable as well as a counterclaim requesting declaratory and
injunctive relief based on breach of contract theory. AltoCom believes that it
has strong defenses to Motorola's claims on invalidity, noninfringement and
inequitable conduct grounds. The parties are currently engaged in discovery in
the action. A hearing on patent claims construction is scheduled to commence in
June 2000 and a three-week trial is scheduled to begin in February 2001. AltoCom
became a subsidiary of the Company on August 31, 1999. In September 1999 PC-Tel,
Inc., the co-defendant in the case, reached a settlement with Motorola.

Although AltoCom believes that it has strong defenses and is defending
the action vigorously, a finding of infringement by AltoCom as to at least one
of the patents in this action could lead to liability for monetary damages
(which could be trebled in the event that the infringement were found to have
been willful), the issuance of an injunction requiring that AltoCom withdraw
various products from the market, and indemnification claims by AltoCom's
customers or strategic partners, each of which events could have a material
adverse effect on AltoCom's, and possibly the Company's, business, results of
operations and financial condition.

On March 8, 2000 Intel Corporation and its subsidiary Level One
Communications, Inc. (collectively, "Intel") filed a complaint in California
Superior Court asserting claims against the Company for misappropriation of
trade secrets, unfair competition and tortious interference with existing
contractual relations by the Company in connection with its recent hiring of
three former Intel employees. The complaint seeks injunctive relief, damages,
exemplary damages and attorneys' fees. The litigation is in its early stages. A
preliminary injunction hearing is currently scheduled for April 28, 2000. The
Company has asserted and believes that Intel's claims are meritless and is
vigorously defending the action.

The Company is also involved in other legal proceedings, claims and
litigation arising in the ordinary course of business.

The Company's pending lawsuits involve complex questions of fact and
law and could require the expenditure of significant costs and diversion of
resources to defend. Although management currently believes the outcome of the
Company's outstanding legal proceedings, claims and litigation will not have a
material adverse effect on the Company's business, results of operations or
financial condition, the results of litigation are inherently uncertain, and an
adverse outcome is at least reasonably possible. The Company is unable to
estimate the range of possible loss from outstanding litigation, and no amounts
have been provided for such matters in the accompanying consolidated financial
statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) A Special Meeting of Shareholders of the Company was held on
November 22, 1999.

(b) Not applicable.

(c) (1) To approve the amendment of the Company's Amended and Restated
Articles of Incorporation to increase the aggregate number of
authorized shares of Class A common stock thereunder from
200,000,000 shares to 400,000,000 shares and to increase the
aggregate number of authorized shares of Class B common stock
thereunder from 100,000,000 to 200,000,000 shares.

Class A Shares Class B Shares Class B Votes Total Votes
-------------- -------------- ------------- -----------

For 62,038,060 86,968,114 869,681,140 931,719,200
Against 14,624,750 3,000 30,000 14,654,750
Abstain 97,182 12,770 127,700 224,882

(2) To approve the amendment of the Company's Amended and Restated
Articles of Incorporation to permit the issuance of additional
shares of Class B common stock upon the approval of at least
two-thirds of the members of the Board of Directors then in
office.

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Class A Shares Class B Shares Class B Votes Total Votes
-------------- -------------- ------------- -----------

For 25,012,576 86,599,696 865,996,960 891,009,536
Against 16,591,988 227,280 2,272,800 18,864,788
Abstain 205,096 48,770 487,700 692,796
Broker non-votes 34,950,332 108,138 -- --

(3) To approve an amendment of the Company's 1998 Stock Incentive
Plan:

(a) to increase the number of shares of Class A common stock
reserved for issuance under this plan by an additional
20,000,000 shares; and

(b) to revise the automatic share increase provisions of this plan
so that the number of shares of Class A common stock by which
the share reserve is to increase automatically on the first
trading day in January each year will be increased to 4.5% of
the total number of shares of Class A common stock and Class B
common stock outstanding on the last trading day of December
in the immediately preceding calendar year, beginning with the
January 3, 2000 annual increase, subject to an annual share
limit.

Class A Shares Class B Shares Class B Votes Total Votes
-------------- -------------- ------------- -----------

For 22,890,812 86,603,480 866,034,800 888,925,612
Against 18,665,762 259,432 2,594,320 21,260,082
Abstain 189,560 12,770 127,700 317,260
Broker non-votes 35,013,858 108,202 -- --

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

The Company's Class A common stock is traded on the Nasdaq National
Market under the symbol "BRCM." The following table sets forth, for the periods
indicated, the high and low sale prices for the Class A common stock on the
Nasdaq National Market, adjusted to reflect our 2-for-1 stock splits effective
February 17, 1999 and February 11, 2000, respectively:

Fiscal Year 1998 High Low
---------------- ------- ------

First Quarter
Second Quarter $ 19.16 $ 11.75
Third Quarter 22.44 11.75
Fourth Quarter 33.75 14.50

Fiscal Year 1999 High Low
---------------- ------- -------

First Quarter $ 47.81 $ 23.13
Second Quarter 72.63 29.00
Third Quarter 74.75 50.75
Fourth Quarter 144.50 53.50
Fiscal Year 2000
First Quarter (through March 3, 2000) $235.69 $110.88

As of March 3, 2000 there were approximately 895 record holders of the
Company's Class A common stock and approximately 720 record holders of the
Company's Class B common stock. On March 3, 2000 the last reported sale price of
the Class A common stock on the Nasdaq National Market was $232.88 per share.

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The Company's Class B common stock is not publicly traded. Each share
of Class B common stock is convertible at any time at the option of the holder
into one share of Class A common stock and is automatically converted upon sale
and most other transfers.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on shares of its
capital stock. The Company currently intends to retain all of its earnings, if
any, for use in its business and in acquisitions of other businesses, products
or technologies and does not anticipate paying any cash dividends in the
foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(In thousands, except per share data)

CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenue $518,183 $216,456 $ 42,341 $23,874 $ 6,624
Cost of revenue 209,837 91,403 15,563 8,175 1,572
-------- -------- -------- ------- -------
Gross profit 308,346 125,053 26,778 15,699 5,052
Operating expense:
Research and development 108,579 51,090 21,545 7,541 3,807
Selling, general and administrative 56,601 32,939 11,410 4,364 2,295
Merger-related costs 15,210 -- -- -- --
Litigation settlement costs 17,036 -- -- -- --
-------- -------- -------- ------- -------
Income (loss) from operations 110,920 41,024 (6,177) 3,794 (1,050)
Interest and other income, net 8,402 4,154 91 165 98
-------- -------- -------- ------- -------
Income (loss) before income taxes 119,322 45,178 (6,086) 3,959 (952)
Provision (benefit) for income taxes 36,035 20,586 (157) 1,514 3
-------- -------- -------- ------- -------
Net income (loss) $ 83,287 $ 24,592 $ (5,929) $ 2,445 $ (955)
======== ======== ======== ======= =======
Basic earnings (loss) per share (1) $ .42 $ .15 $ (.05) $ .02 $ (.01)
======== ======== ======== ======= =======
Diluted earnings (loss) per share (1) $ .36 $ .12 $ (.05) $ .02 $ (.01)
======== ======== ======== ======= =======

DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(In thousands)

CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents $173,966 $ 72,511 $33,031 $ 9,780 $2,688
Working capital 305,265 131,666 35,734 9,920 2,276
Total assets 585,309 260,581 60,890 21,575 7,021
Long-term debt, including current
portion 1,056 11,352 4,743 1,476 1,336
Convertible preferred stock -- -- 28,617 6,084 3,150
Total shareholders' equity 498,699 215,503 45,010 15,483 4,326

- -------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the calculation of earnings (loss) per share. Adjusted to reflect our
2-for-1 stock splits, each in the form of a 100% stock dividend, effective
February 17, 1999 and February 11, 2000, respectively.

The table above sets forth our selected consolidated financial data. We
prepared this information using the consolidated financial statements of
Broadcom Corporation for the five years ended December 31, 1999, which have been
restated to include the operations of Maverick Networks, Epigram, Inc., Armedia,
Inc., HotHaus Technologies Inc., and AltoCom, Inc. on a pooling-of-interests
basis as if they had combined with Broadcom prior to the beginning of each
period presented.

You should read this selected consolidated financial data along with
the Consolidated Financial Statements and related Notes contained in this Report
and in our subsequent reports filed with the SEC, as well as the section of this
Report and our other reports titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO, CONTAINED
ELSEWHERE IN THIS REPORT, BEFORE DECIDING TO INVEST IN OUR COMPANY OR TO
MAINTAIN OR INCREASE YOUR INVESTMENT. IN THIS REPORT, ALL SHARE NUMBERS AND PER
SHARE AMOUNTS HAVE BEEN RETROACTIVELY ADJUSTED TO REFLECT OUR 2-FOR-1 STOCK
SPLITS, EACH IN THE FORM OF A 100% STOCK DIVIDEND, EFFECTIVE FEBRUARY 17, 1999
AND FEBRUARY 11, 2000, RESPECTIVELY.

OVERVIEW

We are the leading provider of highly integrated silicon solutions that
enable broadband digital transmission of voice, video and data to and throughout
the home and within the business enterprise. These integrated circuits permit
the cost effective delivery of high-speed, high-bandwidth networking using
existing communications infrastructures that were not originally designed for
the transmission of broadband digital content. Using proprietary technologies
and advanced design methodologies, we design, develop and supply integrated
circuits for a number of the most significant broadband communications markets,
including the markets for digital cable set-top boxes, cable modems, high-speed
office networks, home networking, direct broadcast satellite and terrestrial
digital broadcast, and digital subscriber lines. From our inception in 1991
through 1994, we were primarily engaged in product development and the
establishment of strategic customer and foundry relationships. During that
period, we generated the majority of our revenue from development work performed
for key customers. We began shipping our products in 1994, and subsequently our
revenue has grown predominately through sales of our semiconductor products. We
intend to continue to enter into development contracts with key customers, but
expect that development revenue will constitute a decreasing percentage of our
total revenue. We also generate a small percentage of our product revenue from
sales of software and software support and sales of system-level reference
designs.

We recognize product revenue at the time of shipment. Provision is
concurrently made for estimated product returns, which historically have been
immaterial. Our products typically carry a one-year warranty. We recognize
development revenue when earned. Revenue from licensed software is recognized at
the time of shipment, provided that we have vendor-specific objective evidence
of the fair value of each element of the software offering. Revenue from
post-contract customer support and any other future deliverables is deferred and
earned over the support period or as contract elements are delivered.

The percent of our revenue derived from independent customers located
outside of the United States was approximately 17.2% in 1999, 17.2% in 1998 and
19.6% in 1997. All of our revenue to date has been denominated in U.S. dollars.
See Note 10 of Notes to Consolidated Financial Statements.

From time to time, our key customers have placed large orders causing
our quarterly revenue to fluctuate significantly. We expect these fluctuations
will continue in the future. Sales to our five largest customers, including
sales to their respective manufacturing subcontractors, represented
approximately 67.0% of our revenue in 1999, 74.2% of our revenue in 1998 and
56.2% of our revenue in 1997. We expect that our key customers will continue to
account for a significant portion of our revenue for 2000 and in the future.

Our gross margin has been affected in the past, and may continue to be
affected in the future, by various factors, including, but not limited to, the
following:

o our product mix;

o the position of our products in their respective life cycles;

o competitive pricing strategies;

o the mix of product revenue and development revenue; and

o manufacturing cost efficiencies and inefficiencies.

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For example, newly-introduced products generally have higher average
selling prices and gross margins, both of which typically decline over product
life cycles due to competitive pressures and volume pricing agreements. Our
gross margin and operating results in the future may continue to fluctuate as a
result of these and other factors.

The sales cycle for the test and evaluation of our products can range
from three to six months or more, with an additional three to six months or more
before a customer commences volume production of equipment incorporating our
products. Due to these lengthy sales cycles, we may experience a significant
delay between increasing expenses for research and development and selling,
general and administrative efforts, and the generation of corresponding revenue,
if any. Furthermore, during 2000 and thereafter, we intend to continue to
increase our investment in research and development, selling, general and
administrative functions and inventory as we expand our operations. We
anticipate that the rate of new orders may vary significantly from month to
month. Consequently, if anticipated sales and shipments in any quarter do not
occur when expected, expenses and inventory levels could be disproportionately
high, and our operating results for that quarter and, potentially future
quarters, would be materially and adversely affected.

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data
expressed as a percentage of revenue for the periods indicated:

YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------ ------ -----
Revenue ................................ 100.0% 100.0% 100.0%
Cost of revenue ........................ 40.5 42.2 36.8
----- ----- -----
Gross profit ........................... 59.5 57.8 63.2
Operating expense:
Research and development .......... 21.0 23.6 50.9
Selling, general and administrative 10.9 15.2 26.9
Merger-related costs .............. 2.9 -- --
Litigation settlement costs ....... 3.3 -- --
----- ----- -----
Income (loss) from operations .......... 21.4 19.0 (14.6)
Interest and other income, net ......... 1.6 1.9 .2
----- ----- -----
Income (loss) before income taxes ...... 23.0 20.9 (14.4)
Provision (benefit) for income taxes ... 6.9 9.5 (.4)
----- ----- -----
Net income (loss) ...................... 16.1% 11.4% (14.0)%
===== ===== =====

YEARS ENDED DECEMBER 31, 1999 AND 1998

Effects of Pooling-of-Interests Transactions. On May 31, 1999 we
completed the acquisitions of Maverick Networks, Epigram, Inc. and Armedia, Inc.
On August 31, 1999 we completed the acquisitions of HotHaus Technologies Inc.
and AltoCom, Inc. Each of the acquisitions was accounted for as a pooling of
interests. Accordingly, our historical consolidated financial statements and the
discussion and analysis of financial condition and results of operations for
prior periods have been restated to include the operations of these five
companies as if they had combined with our company at the beginning of the first
period presented. Included in revenue and net income for 1999 were revenue and
net losses aggregating $8.3 million and $8.8 million, respectively, from
Maverick, Epigram, Armedia, HotHaus and AltoCom incurred prior to the respective
closings of the transactions.

Revenue. Revenue consists of product revenue generated principally by
sales of our semiconductor products and, to a lesser extent, from sales of
software and software support and development revenue generated under
development contracts with our customers. Revenue for 1999 was $518.2 million,
an increase of $301.7 million or 139.4% as compared with revenue of $216.5
million in 1998. The growth in revenue resulted mainly from increases in volume
shipments of our semiconductor products for the high-speed networking market,
digital cable set-top boxes and cable modems.

Gross Profit. Gross profit represents revenue less the cost of revenue.
Cost of revenue includes the cost of purchasing the finished silicon wafers
processed by independent foundries, and costs associated with assembly, test and
quality assurance for those products, as well as costs of personnel and
equipment associated with manufacturing

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support and contracted development work. Gross profit for 1999 was $308.3
million or 59.5% of revenue, an increase of $183.3 million or 146.6% from gross
profit of $125.1 million or 57.8% of revenue in 1998. The increase in gross
profit was mainly attributable to the significant increase in the volume of
semiconductor product shipments. The increase in gross profit as a percentage of
revenue was driven by cost reductions from our suppliers as well as lower than
expected rates of price erosion in our major markets. We expect that gross
profit as a percentage of revenue will decline in future periods due to higher
anticipated silicon wafer costs and as volume-pricing agreements and competitive
pricing strategies continue to take effect. In addition, our gross margin may be
affected by the future introduction of certain lower margin products.

Research and Development Expense. Research and development expense
consists primarily of salaries and related costs of employees engaged in
research, design and development activities, costs related to engineering design
tools, and subcontracting costs. Research and development expense for 1999 was
$108.6 million or 21.0% of revenue, an increase of $57.5 million or 112.5% as
compared with research and development expense of $51.1 million or 23.6% of
revenue in 1998. The increase in absolute dollars was primarily due to the
addition of personnel and the investment in design tools for the development of
new products and the enhancement of existing products. The decline in research
and development expense as a percentage of revenue reflected a significant
increase in revenue during 1999. We expect that research and development expense
in absolute dollars will continue to increase for the foreseeable future.

Selling, General and Administrative Expense. Selling, general and
administrative expense consists primarily of personnel-related expenses,
professional fees, trade show expenses and facilities expenses. Selling, general
and administrative expense for 1999 was $56.6 million or 10.9% of revenue, an
increase of $23.7 million or 71.8% as compared with selling, general and
administrative expense of $32.9 million or 15.2% of revenue in 1998. The
increase in absolute dollars reflected higher personnel-related costs resulting
from the hiring of sales and marketing personnel, senior management and
administrative personnel, and increased occupancy, legal and other professional
fees, including increased expenses for litigation. The decline in selling,
general and administrative expense as a percentage of revenue reflected a
significant increase in revenue during 1999. We expect that selling, general and
administrative expense in absolute dollars will continue to increase for the
foreseeable future to support the planned continued expansion of our operations
and periodic changes in our infrastructure to support increased headcount,
acquisition and integration activities, and international operations.

Merger-Related Costs. Merger-related costs consist primarily of
transaction costs, such as fees for investment bankers, attorneys, accountants
and other related fees and expenses, and certain restructuring costs related to
the disposal of duplicative facilities and assets and the write-down of
unutilized assets. Merger-related costs of approximately $15.2 million in 1999
were incurred in connection with the acquisitions of Maverick, Epigram, Armedia,
HotHaus, and AltoCom. No comparable merger-related costs were incurred in the
year-earlier period.

Litigation Settlement Costs. Litigation settlement costs consist
primarily of settlement fees and associated attorneys' fees, expenses and court
costs. Litigation settlement costs of approximately $17.0 million were incurred
in 1999. No comparable litigation settlement costs were incurred in 1998.

Deferred Compensation. We recorded approximately $5.0 million and $7.6
million of deferred compensation in 1999 and 1998, respectively. Of these
amounts, approximately $5.0 million in 1999 and $2.3 million in 1998 represent
deferred compensation related to the grant of stock options to certain employees
of acquired companies. Deferred compensation represents the difference between
the fair value of the common stock for accounting purposes and the exercise
price of such options at the date of grant. We have presented these amounts as a
reduction of shareholders' equity and are amortizing these amounts ratably over
the respective vesting periods of the applicable options. We amortized to
expense an aggregate of $3.8 million of deferred compensation in 1999 and $1.8
million in 1998.

Interest and Other Income, Net. Interest and other income, net reflects
interest earned on average cash and cash equivalents and investment balances,
less interest on our long-term debt and capital lease obligations. Interest and
other income, net for 1999 was $8.4 million as compared with $4.2 million in
1998. This increase was principally due to increased cash balances available to
invest resulting from the consummation of our initial public offering and sale
of shares to Cisco Systems, Inc. in April 1998, a follow-on offering in October
1998, and cash generated by operations.

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Provision for Income Taxes. Our effective tax rate was 30.2% for 1999
and 45.6% for 1998. The federal statutory rate was 35% for both periods. Our
1999 effective tax rate was reduced by tax benefits associated with research and
development credits. Our 1998 effective tax rate was increased by our inability
to recognize the tax benefits of Epigram, Armedia and HotHaus net operating
losses incurred during 1997 and 1998. We utilize the liability method of
accounting for income taxes as set forth in Financial Accounting Standards Board
("FASB") Statement No. 109, Accounting for Income Taxes. See Note 4 of Notes to
Consolidated Financial Statements.

At December 31, 1999 and 1998 we provided a valuation allowance of $6.9
million against a portion of certain acquired net operating losses, due to
uncertainty regarding their future realization. The utilization of such losses
is subject to stringent limitations under the Internal Revenue Code. There is no
valuation allowance provided on the remainder of our deferred tax assets, as we
believe it is more likely than not that these assets will be realized. The
primary basis for this conclusion is the expectation of future income from our
ordinary and recurring operations.

YEARS ENDED DECEMBER 31, 1998 AND 1997

Revenue. Revenue for 1998 was $216.5 million, an increase of $174.1
million or 411.2% as compared with revenue of $42.3 million in 1997. This growth
in revenue was derived mainly from increases in volume shipments of our
semiconductor products for the high-speed networking market, digital cable
set-top boxes and cable modems.

Gross Profit. Gross profit for 1998 was $125.1 million or 57.8% of
revenue, an increase of $98.3 million or 367% from gross profit of $26.8 million
or 63.2% of revenue in 1997. The increase in gross profit was mainly
attributable to the significant increase in the volume of product shipments. The
decrease in gross profit as a percentage of revenue was largely driven by volume
pricing agreements on products for the high-speed networking market.

Research and Development Expense. Research and development expense for
1998 was $51.1 million or 23.6% of revenue, an increase of $29.5 million or
137.1% as compared with research and development expense of $21.5 million or
50.9% of revenue in 1997. The increase in absolute dollars was primarily due to
the addition of personnel and the investment in design tools for the development
of new products and the enhancement of existing products. The decline in
research and development expense as a percentage of revenue reflected a
significant increase in revenue during 1998.

Selling, General and Administrative Expense. Selling, general and
administrative expense for 1998 was $32.9 million or 15.2% of revenue, an
increase of $21.5 million or 188.7% as compared with selling, general and
administrative expense of $11.4 million or 26.9% of revenue in 1997. The
increase in absolute dollars reflected higher personnel-related costs resulting
from the hiring of sales and marketing personnel, senior management and
administrative personnel, and increased occupancy, legal and other professional
fees, including increased expenses for litigation. The decline in selling,
general and administrative expense as a percentage of revenue reflected a
significant increase in revenue during 1998.

Deferred Compensation. We recorded approximately $7.6 million and $1.2
million of deferred compensation in 1998 and 1997, respectively. Of the 1998
amount, approximately $2.3 million represents deferred compensation related to
the grant of stock options to certain employees of acquired companies. Deferred
compensation represents the difference between the fair value of the common
stock for accounting purposes and the exercise price of such options at the date
of grant. We have presented these amounts as a reduction of shareholders' equity
and are amortizing these amounts ratably over the respective vesting periods of
the applicable options. We amortized to expense an aggregate of $1.8 million of
deferred compensation in 1998 and $66,000 in 1997.

Interest and Other Income, Net. Interest and other income, net reflects
interest earned on average cash and cash equivalents and investment balances,
less interest on our long-term debt and capital lease obligations. Interest and
other income, net for 1998 was $4.2 million compared to $91,000 in 1997. This
increase was principally due to increased cash balances available to invest
resulting from the consummation of our initial public offering and sale of
shares to Cisco Systems, Inc. in April 1998, and a follow-on offering in October
1998.

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Provision (Benefit) for Income Taxes. Our effective tax rate (benefit)
was 45.6% in 1998 and (2.6)% in 1997. The federal statutory tax rates were 35%
in 1998 and 34% in 1997. Our effective tax rate was increased in 1998, and our
benefit was reduced in 1997, by our inability to recognize the tax benefit of
Epigram, Armedia and HotHaus net operating losses incurred during both periods.
See Note 4 of Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations through a
combination of sales of equity securities and cash generated by operations. At
December 31, 1999 we had $305.3 million in working capital, $260.2 million in
cash and cash equivalents and short-term investments, and $9.4 million in
long-term investments.

Operating activities provided cash of $66.1 million in 1999. This was
primarily the result of net income, the non-cash impact of depreciation and
amortization, growth in accounts payable and other accrued liabilities,
partially offset by increases in accounts receivable, inventory, deferred tax
assets and prepaids and other assets. Operating activities used cash of $4.0
million in 1998 and $6.7 million in 1997.

Cash used in operating activities in 1998 was primarily the result of
increases in accounts receivable, inventory, deferred tax assets and prepaids
and other assets, partially offset by net income, the non-cash impact of
depreciation and amortization and growth in accounts payable. Cash used in
operating activities in 1997 was primarily attributable to a net loss, growth in
accounts receivable, inventory, and a decrease in income taxes payable, which
more than offset growth in accounts payable and the non-cash impact of
depreciation and amortization.

Investing activities used cash in the amount of $18.4 million in 1999
for the net purchase of held-to-maturity investments and $29.2 million for the
purchase of capital equipment to support our expanding operations. Investing
activities used cash of $106.2 million in 1998 for the net purchase of
held-to-maturity investments and the purchase of capital equipment to support
our expanding operations. Investing activities used cash of $8.1 million in
1997, primarily for the purchase of capital equipment.

Cash provided by financing activities was $83.0 million in 1999, which
was primarily the result of $51.7 million in tax benefits related to stock
option exercises and $37.6 million in net proceeds from issuances of common
stock. Cash provided by financing activities in 1998 was $149.7 million,
primarily the result of $79.2 million in aggregate net proceeds from our initial
public offering and sale of Class A common stock to Cisco Systems in April 1998,
$30.5 million in net proceeds from our follow-on offering in October 1998, $25.2
million in tax benefits related to stock option exercises and $14.7 million in
net proceeds from other issuances of common stock. Cash provided by financing
activities was $38.1 million in 1997, primarily from the sale of convertible
preferred stock and common stock and the establishment of a revolving credit
facility and term loan.

We believe that cash and cash equivalents and investments on hand,
together with cash that we generate from our operations, will be sufficient to
meet our capital needs for at least the next twelve months. However, it is
possible that we may need to raise additional funds to fund our activities
beyond the next year or to consummate acquisitions of other businesses, products
or technologies. We could raise such funds by selling more stock to the public
or to selected investors, or by borrowing money. In addition, even though we may
not need additional funds, we may still elect to sell additional equity
securities or obtain credit facilities for other reasons. We may not be able to
obtain additional funds on terms that would be favorable to our shareholders and
us, or at all. If we raise additional funds by issuing additional equity or
convertible debt securities, the ownership percentages of existing shareholders
would be reduced. In addition, the equity or debt securities that we issue may
have rights, preferences or privileges senior to those of the holders of our
common stock.

We had commitments totaling approximately $4.0 million as of December
31, 1999 primarily for the purchase of engineering design tools, computer
hardware and information systems infrastructure. During 1999 we spent $29.5
million on capital equipment to support our expanding operations. We expect that
we will spend more than this amount during 2000 to purchase additional
engineering design tools, computer hardware, test equipment, information systems
and leasehold improvements, as our operations continue to expand and as we
integrate and upgrade the capital equipment and facilities of acquired
companies. We may finance these purchases from our cash and cash equivalents and
investments on hand, cash generated from our operations, borrowings, equity
offerings, or a combination thereof. See Note 6 of Notes to Consolidated
Financial Statements.

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Although we believe we have sufficient capital to fund our activities
for at least the next twelve months, our future capital requirements may vary
materially from those now planned. The amount of capital that we will need in
the future will depend on many factors, including:

o the market acceptance of our products;

o the levels of promotion and advertising that will be required to
launch our new products and achieve and maintain a competitive
position in the marketplace;

o volume price discounts;

o our business, product, capital expenditure and research and
development plans and product and technology roadmaps;

o the levels of inventory and accounts receivable that we maintain;

o capital improvements to new and existing facilities;

o technological advances;

o our competitors' response to our products; and

o our relationships with suppliers and customers.

In addition, we may require additional capital to accommodate planned
growth, hiring, infrastructure and facility needs or to consummate acquisitions
of other businesses, products or technologies.

YEAR 2000 COMPLIANCE

Many existing computer systems, software applications and embedded
computer chips, software and firmware in control devices use only two digits to
identify a year in the date field. These systems, applications and control
devices need to accept four digit entries to distinguish 21st Century dates from
20th Century dates. In addition, they may not correctly process "leap year"
dates or may fail to recognize February 29, 2000 as a leap year date as a result
of an exception to the calculation of leap years that will occur in the Year
2000 and otherwise occurs only once every 400 years. As a result, these systems
and applications had to be upgraded to comply with the Year 2000 requirements or
risk system failure, miscalculations or other disruptions to normal business
activities.

To date we have not experienced any Year 2000 problems in our computer
systems or operations. However, we cannot yet assess the extent of the Year 2000
impact and cannot be sure that we will not experience unanticipated residual
consequences from latent Year 2000 problems.

We have assessed the impact that the Year 2000 problem may have on our
operations and have identified the following four key areas of our business that
may be affected:

Products. We have evaluated each of our current products and believe
that they do not contain date sensitive functionality. However, we cannot
determine whether any of our customers' products into which our products are
incorporated contain latent Year 2000 problems because we have little or no
control over the design, production and testing of our customers' products.

Internal Infrastructure. We have completed a full review of the
systems, transaction processing computer applications and devices used by us to
operate and monitor all major aspects of our business, including financial
systems (such as general ledger, accounts payable and payroll), security
systems, customer services, infrastructure, materials requirement planning,
master production scheduling, networks and telecommunications systems and other
systems with embedded computer chips, and believe that our internal
infrastructure is Year 2000 compliant.

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However, we may experience latent Year 2000 problems as a result of the
interaction between our own systems and products and the systems and products of
third parties.

Third-Party Suppliers. We rely, directly and indirectly, on external
systems utilized by our third-party suppliers for the management and control of
fabrication and the assembly and testing of substantially all of our products.
We have completed surveys and on-site visits of the two independent foundries,
Taiwan Semiconductor Manufacturing Corporation and Chartered Semiconductor
Manufacturing, that fabricate substantially all of our semiconductor devices in
current production. In addition, we have completed surveys and on-site visits of
the three subcontractors, ASAT Ltd., ST Assembly Test Services and Amkor
Technology, that assemble and test substantially all of our current products.
These key suppliers have responded to us that their systems are Year 2000
compliant. However, any failure of these or other third parties to resolve any
residual Year 2000 problems in a timely manner could materially disrupt our
business. Any such disruption could negatively impact our sales, harm our
relationships with our customers, and materially and adversely affect our
business, results of operations and financial condition.

We also rely on the external systems of other third parties such as
creditors, financial institutions, governmental entities and other suppliers,
both domestic and international, to provide us with services and accurate data.
Our business could be materially and adversely affected if any of these third
parties experience disruptions in their operations or if an economic crisis or
general widespread problems result from systems that are not Year 2000
compliant.

Facility and Laboratory Related Systems. We have reviewed systems such
as heating, sprinklers, elevators, test equipment and security at our facilities
and labs and believe that these systems are Year 2000 compliant. However, these
systems may also be affected by latent Year 2000 problems.

To date, we have incurred approximately $80,000 in expenditures in
connection with identifying and addressing specific Year 2000 compliance issues,
excluding the cost of routine upgrades to systems, software applications and
control devices. We could incur additional costs in addressing any residual Year
2000 issues, which could have a material and adverse effect on our business.

We have developed contingency plans to address those Year 2000 issues
that may pose a significant risk to our on-going operations. These plans include
buffer inventories for certain products, implementation of manual procedures to
compensate for system deficiencies, and contract IS resources to immediately
address issues should they arise. However, any contingency plans we implement
may not succeed or may not be adequate to meet our needs without materially
impacting our operations. In addition, the delays and inefficiencies inherent in
conducting operations in an alternative manner could materially and adversely
affect our business, results of operations and financial condition. More
specifically, if we or our third party suppliers were to lose the ability to
manufacture, assemble, test and ship product as a result of Year 2000 related
issues, we would be exposed to missing customer shipments and potentially losing
revenues and profits.

ACQUISITIONS

On February 29 and March 1, 2000 we completed the acquisitions of
Digital Furnace Corporation, BlueSteel Networks, Inc. and Stellar Semiconductor,
Inc. These merger transactions will be accounted for as poolings-of-interests,
and we will take a charge for merger-related expenses in the fiscal year ending
December 31, 2000. We do not anticipate that the merger-related expenses will
have a significant impact on our consolidated financial position and results of
operations. Our consolidated financial statements presented in the future will
be restated to include the financial position and results of operations of the
acquired companies. See Note 13 of Notes to Consolidated Financial Statements.

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RISK FACTORS

BEFORE DECIDING TO INVEST IN OUR COMPANY OR TO MAINTAIN OR INCREASE YOUR
INVESTMENT, YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN THIS REPORT AND IN OUR OTHER FILINGS WITH
THE SEC, INCLUDING OUR SUBSEQUENT REPORTS ON FORMS 10-Q AND 8-K. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO AFFECT OUR BUSINESS OPERATIONS. IF ANY OF
THESE RISKS ACTUALLY OCCUR, THAT COULD SERIOUSLY HARM OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS. IN THAT EVENT, THE MARKET PRICE FOR OUR
CLASS A COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY. AS A RESULT, WE MAY
FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS,
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

Our quarterly revenues and operating results have fluctuated
significantly in the past and may continue to vary from quarter to quarter due
to a number of factors, many of which are not within our control. If our
operating results do not meet the expectations of securities analysts or
investors, our stock price may decline. Fluctuations in our operating results
may be due to a number of factors, including the following:

o the volume of our product sales and pricing concessions on volume
sales;

o the timing, rescheduling or cancellation of significant customer
orders;

o the gain or loss of a key customer;

o the qualification, availability and pricing of competing products
and technologies and the resulting effect on sales and pricing of
our products;

o silicon wafer pricing and the availability of foundry and assembly
capacity and raw materials;

o our ability to specify, develop, complete, introduce, market and
transition to volume production new products and technologies in a
timely manner;

o the timing of customer-industry qualification and certification of
our products and the risks of non-qualification or
non-certification;

o the rate at which our present and future customers and end users
adopt Broadcom technologies in our target markets;

o the rate of adoption and acceptance of new industry standards in our
target markets;

o the effects of new and emerging technologies;

o intellectual property disputes and customer indemnification claims;

o the risks inherent in our acquisitions of technologies and
businesses, including the timing and successful completion of
technology and product development through volume production,
integration issues, costs and unanticipated expenditures, changing
relationships with customers, suppliers and strategic partners,
potential contractual, intellectual property or employment issues,
accounting treatment and charges, and the risks that the acquisition
cannot be completed successfully or that anticipated benefits are
not realized;

o the effectiveness of our product cost reduction efforts;

o fluctuations in our manufacturing yields and other problems or
delays in the fabrication, assembly, testing or delivery of our
products;

o the risks of producing products with new suppliers and at new
fabrication and assembly facilities;

o risks and uncertainties associated with our international
operations;

o problems or delays that we may face in shifting our products to
smaller geometry process technologies and in achieving higher levels
of design integration;

o our ability to retain and hire key executives, technical personnel
and other employees in the numbers, with the capabilities and at the
compensation levels that we need to implement our business and
product plans;

o changes in our product or customer mix;

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o the quality of our products and any remediation costs;

o the effects of natural disasters and other events beyond our
control;

o the level of orders received that we can ship in a fiscal quarter;

o potential business disruptions, claims, expenses and other
difficulties resulting from "Year 2000" problems in computer-based
systems used by us, our suppliers or our customers;

o economic and market conditions in the semiconductor industry and the
broadband communications markets; and

o general economic and market conditions.

We intend to continue to increase our operating expenses in 2000 and in
the future. A large portion of our operating expenses, including rent, salaries
and capital lease expenditures, is fixed and difficult to reduce or change.
Accordingly, if our total revenue does not meet our expectations, we probably
would not be able to adjust our expenses quickly enough to compensate for the
shortfall in revenue. In that event, our business, financial condition and
results of operations would be materially and adversely affected.

Due to all of the foregoing factors, and the other risks discussed in
this report, you should not rely on quarter-to-quarter comparisons of our
operating results as an indication of future performance.

BECAUSE WE DEPEND ON A FEW SIGNIFICANT CUSTOMERS FOR A SUBSTANTIAL PORTION OF
OUR REVENUES, THE LOSS OF A KEY CUSTOMER COULD SERIOUSLY HARM OUR BUSINESS. IN
ADDITION, IF WE ARE UNABLE TO CONTINUE TO SELL EXISTING AND NEW PRODUCTS TO OUR
KEY CUSTOMERS IN SIGNIFICANT QUANTITIES OR TO ATTRACT NEW SIGNIFICANT CUSTOMERS,
OUR FUTURE OPERATING RESULTS COULD BE ADVERSELY AFFECTED.

We have derived a substantial portion of our revenues in the past from
sales to a relatively small number of customers. As a result, the loss of any
significant customer could materially and adversely affect our financial
condition and results of operations. Sales to General Instrument, 3Com, and
Cisco including sales to their respective manufacturing subcontractors,
accounted for approximately 27.5%, 18.1% and 10.6%, respectively, of our
revenue in the year ended December 31, 1999. Sales to our five largest
customers, including sales to their respective manufacturing subcontractors,
represented approximately 67.0% of our revenue in 1999, 74.2% of our revenue
in 1998 and 56.2% of our revenue in 1997. We expect that our key customers
will continue to account for a substantial portion of our revenues for 1999
and in the future. Accordingly, our future operating results will continue to
depend on the success of our largest customers and on our ability to sell
existing and new products to these customers in significant quantities.

We may not be able to maintain or increase sales to certain of our key
customers for a variety of reasons, including the following:

o Most of our customers can stop incorporating our products into their
own products with limited notice to us and suffer little or no
penalty.

o Our agreements with our customers typically do not require them to
purchase a minimum amount of our products.

o Many of our customers have pre-existing relationships with our
current or potential competitors that may affect their decision to
purchase our products.

o Our customers face intense competition from other manufacturers that
do not use our products.

o Some of our customers offer or may offer products that compete with
our products.

o Our longstanding relationships with some of our larger customers may
also deter other potential customers who compete with these
customers from buying our products.

In addition, in order to attract new customers or retain existing
customers, we may offer certain customers favorable prices on our products. If
these prices are lower than the prices paid by our existing customers, we would
have to offer the same lower prices to certain of our customers who have
contractual "most favored nation" pricing

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arrangements. In that event, our average selling prices and gross margins would
decline. The loss of a key customer, a reduction in our sales to any key
customer or our inability to attract new significant customers could materially
and adversely affect our business, financial condition or results of operations.

WE FACE INTENSE COMPETITION IN THE BROADBAND COMMUNICATIONS MARKETS AND
SEMICONDUCTOR INDUSTRY, WHICH COULD REDUCE OUR MARKET SHARE IN EXISTING MARKETS
AND AFFECT OUR ENTRY INTO NEW MARKETS.

The broadband communications markets and semiconductor industry are
intensely competitive. We expect competition to continue to increase in the
future as industry standards become well known and as other competitors enter
our target markets. We currently compete with a number of major domestic and
international suppliers of integrated circuits in the markets for digital cable
set-top boxes, cable modems, high-speed office networks, home networking, direct
broadcast satellite and terrestrial digital satellite, and digital subscriber
lines. This competition has resulted and may continue to result in declining
average selling prices for our products. In all of our target markets, we also
may face competition from newly established competitors and suppliers of
products based on new or emerging technologies. We also expect to encounter
further consolidation in the markets in which we compete.

Many of our competitors operate their own fabrication facilities and
have longer operating histories and presence in key markets, greater name
recognition, larger customer bases and significantly greater financial, sales
and marketing, manufacturing, distribution, technical and other resources than
we do. As a result, these competitors may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements. They may also be
able to devote greater resources to the promotion and sale of their products. In
addition, current and potential competitors have established or may establish
financial or strategic relationships among themselves or with existing or
potential customers, resellers or other third parties. Accordingly, it is
possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share. Existing or new competitors may also
develop technologies in the future that more effectively address the
transmission of digital information through existing analog infrastructures at
lower costs than our technologies. Increased competition has in the past and is
likely to continue to result in price reductions, reduced gross margins and loss
of market share. We cannot assure you that we will be able to continue to
compete successfully or that competitive pressures will not materially and
adversely affect our business, financial condition and results of operations.

OUR ACQUISITION STRATEGY MAY REQUIRE US TO MAKE SIGNIFICANT CAPITAL INFUSIONS,
BE DILUTIVE TO OUR EXISTING SHAREHOLDERS, AND RESULT IN DIFFICULTIES IN
ASSIMILATING AND INTEGRATING THE OPERATIONS, PERSONNEL, TECHNOLOGIES, PRODUCTS
AND INFORMATION SYSTEMS OF ACQUIRED COMPANIES.

A key element of our business strategy involves expansion through the
acquisition of businesses, products or technologies that would allow us to
complement our existing product offerings, expand our market coverage or enhance
our technological capabilities. Since January 1999 we have acquired Maverick
Networks, Epigram, Inc., Armedia, Inc., HotHaus Technologies Inc., AltoCom,
Inc., Digital Furnace Corporation, BlueSteel Networks, Inc. and Stellar
Semiconductor, Inc. We plan to continue to pursue acquisition opportunities in
2000 and in the future. Acquisitions may require significant capital infusions,
typically entail many risks and could result in difficulties in assimilating and
integrating the operations, personnel, technologies, products and information
systems of the acquired company. We may also encounter delays in the timing and
successful completion of the acquired company's technology and product
development through volume production, costs and unanticipated expenditures,
changing relationships with customers, suppliers and strategic partners, or
contractual, intellectual property or employment issues. In addition, the key
personnel of the acquired company may decide not to work for us. The acquisition
of another company or its products and technologies may also require us to enter
into a geographic or business market in which we have little or no prior
experience. These challenges could disrupt our ongoing business, distract our
management and employees and increase our expenses. In addition, acquisitions
may materially and adversely affect our results of operations because they may
require large one-time write-offs, increased debt or contingent liabilities,
substantial depreciation or deferred compensation charges or the amortization of
expenses related to goodwill and other intangible assets. We may seek to account
for acquisitions under the pooling-of-interests accounting method, but that
method may not be available. Any of these events could cause the price of our
Class A common stock to decline. Furthermore, if we issue equity or convertible
debt securities in connection with an acquisition, as in the case of our

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recent acquisitions, the issuance may be dilutive to our existing shareholders.
In addition, the equity or debt securities that we may issue could have rights,
preferences or privileges senior to those of the holders of our common stock.
Thus, for example, as a consequence of the pooling-of-interest rules, the
securities issued in each of the eight acquisitions described above were Class B
common stock, which has voting rights superior to our publicly-traded Class A
common stock.

We cannot assure you that we will be able to consummate any pending or
future acquisitions or that we will realize the benefits anticipated from these
acquisitions. In the future, we may not be able to find other suitable
acquisition opportunities that are available at attractive valuations. Even if
we do find suitable acquisition opportunities, we may not be able to consummate
the acquisitions on commercially acceptable terms. Moreover, due to our limited
acquisition experience, it may be difficult for us to successfully integrate any
acquired businesses, products, technologies or personnel, which could materially
and adversely affect our business, financial condition and results of
operations.

WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN THE SEMICONDUCTOR INDUSTRY
AND BROADBAND COMMUNICATIONS MARKETS IN ORDER TO REMAIN COMPETITIVE.

Our future success will depend on our ability to anticipate and adapt
to changes in technology and industry standards. We will also need to continue
to develop and introduce new and enhanced products to meet our customers'
changing demands. Substantially all of our product revenue in recent fiscal
quarters has been derived from sales of products for the high-speed office
network, digital cable set-top box and cable modem markets. These markets are
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and short product life cycles. In addition,
these markets continue to undergo rapid growth and consolidation. A significant
slowdown in any of these markets or other broadband communications markets could
materially and adversely affect our business, financial condition and results of
operations. Our success will also depend on the ability of our customers to
develop new products and enhance existing products for the broadband
communications markets and to introduce and promote those products successfully.
The broadband communications markets may not continue to develop to the extent
or in the timeframes that we anticipate. If new markets do not develop as we
anticipate, or if our products do not gain widespread acceptance in these
markets, our business, financial condition and results of operations could be
materially and adversely affected.

IF WE DO NOT ANTICIPATE AND ADAPT TO EVOLVING INDUSTRY STANDARDS IN THE
SEMICONDUCTOR INDUSTRY AND BROADBAND COMMUNICATIONS MARKETS, OUR PRODUCTS COULD
BECOME OBSOLETE AND WE COULD LOSE MARKET SHARE.

Products for broadband communications applications generally are based
on industry standards that are continually evolving. If new industry standards
emerge, our products or our customers' products could become unmarketable or
obsolete. We may also have to incur substantial unanticipated costs to comply
with these new standards. Our past sales and profitability have resulted, to a
large extent, from our ability to anticipate changes in technology and industry
standards and to develop and introduce new and enhanced products. Our ability to
adapt to these changes and to anticipate future standards, and the rate of
adoption and acceptance of those standards, will be a significant factor in
maintaining or improving our competitive position and prospects for growth. We
have in the past invested substantial resources in emerging technologies, such
as 100Base-T4 for high-speed networking, that did not achieve the market
acceptance that we had expected. Our inability to anticipate the evolving
standards in the semiconductor industry and, in particular the broadband
communications markets, or to develop and introduce new products successfully
into these markets could materially and adversely affect our business, financial
condition and results of operations.

IF WE ARE UNABLE TO DEVELOP AND INTRODUCE NEW PRODUCTS SUCCESSFULLY AND IN A
COST-EFFECTIVE AND TIMELY MANNER OR TO ACHIEVE MARKET ACCEPTANCE OF OUR NEW
PRODUCTS, OUR OPERATING RESULTS WOULD BE ADVERSELY AFFECTED.

Our future success will depend on our ability to develop new silicon
solutions for existing and new markets, introduce these products in a
cost-effective and timely manner and convince leading equipment manufacturers to
select these products for design into their own new products. Our quarterly
results in the past have been, and are expected in the future to continue to be,
dependent on the introduction of a relatively small number of new products and
the timely completion and delivery of those products to customers. The
development of new silicon devices is highly complex, and from time to time we
have experienced delays in completing the development and introduction of new
products. Our ability to develop and deliver new products successfully will
depend on various factors, including our ability to:

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o accurately predict market requirements and evolving industry
standards;

o accurately define new products;

o timely complete and introduce new product designs;

o timely qualify and obtain industry interoperability certification of
our products and our customers' products into which our products
will be incorporated;

o obtain sufficient foundry capacity;

o achieve high manufacturing yields; and

o gain market acceptance of our products and our customers' products.

If we are not able to develop and introduce new products successfully
and in a cost-effective and timely manner, our business, financial condition and
results of operations would be materially and adversely affected.

Our new products generally are incorporated into our customers'
products at the design stage. We have often incurred significant expenditures on
the development of a new product without any assurance that an equipment
manufacturer will select our product for design into its own product. The value
of our products largely depends on the commercial success of our customers'
products and on the extent to which those products accommodate components
manufactured by our competitors. We cannot assure you that we will continue to
achieve design wins. In addition, the equipment that incorporates our products
may never become commercially successful.

WE DEPEND ON TWO INDEPENDENT FOUNDRIES TO MANUFACTURE SUBSTANTIALLY ALL OF OUR
CURRENT PRODUCTS, AND ANY FAILURE TO OBTAIN SUFFICIENT FOUNDRY CAPACITY COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

We do not own or operate a fabrication facility. Two outside foundries,
Taiwan Semiconductor Manufacturing Corporation, or TSMC, in Taiwan and Chartered
Semiconductor Manufacturing, or Chartered, in Singapore, currently manufacture
substantially all of our semiconductor devices in current production. In
September 1999 TSMC's principal facility was affected by a significant
earthquake in Taiwan. As a consequence of this earthquake, TSMC suffered power
outages and equipment damage that impaired TSMC's wafer deliveries and, together
with strong demand, could result in wafer shortages and higher wafer pricing
industrywide.

Because we rely on outside foundries with limited capacity, we face
several significant risks, including:

o a lack of ensured wafer supply and potential wafer shortages and
higher wafer prices;

o limited control over delivery schedules, quality assurance and
control, manufacturing yields and production costs; and

o the unavailability of or potential delays in obtaining access to key
process technologies.

In addition, the manufacture of integrated circuits is a highly complex
and technologically demanding process. Although we work closely with our
foundries to minimize the likelihood of reduced manufacturing yields, our
foundries have from time to time experienced lower than anticipated
manufacturing yields. This often occurs during the production of new products or
the installation and start-up of new process technologies.

The ability of each foundry to provide us with semiconductor devices is
limited by its available capacity. Although we have entered into contractual
commitments to supply specified levels of products to certain of our customers,
we do not have a long-term volume purchase agreement or a guaranteed level of
production capacity with either TSMC or Chartered. Foundry capacity may not be
available when we need it or at reasonable prices. Availability of foundry
capacity has recently been reduced due to strong demand. We place our orders on
the basis of our customers' purchase orders, and TSMC and Chartered can allocate
capacity to the production of other companies' products and reduce deliveries to
us on short notice. It is possible that foundry customers that are larger and
better financed than we are, or that have long-term agreements with TSMC or
Chartered, may induce our foundries to reallocate capacity to them. Such a
reallocation could impair our ability to

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secure the supply of components that we need. Although we primarily use two
independent foundries, most of our components are not manufactured at both
foundries at any given time and some of our products may be designed to be
manufactured at only one. Accordingly, if one of our foundries is unable to
provide us with components as needed, we could experience significant delays in
securing sufficient supplies of those components. Any of these delays would
likely materially and adversely affect our business, financial condition and
results of operations. In addition, if either TSMC or Chartered experiences
financial difficulties, if either foundry suffers any damage to its facilities
or in the event of any other disruption of foundry capacity, we may not be able
to qualify an alternative foundry in a timely manner. Even our current foundries
would need to have new manufacturing processes qualified if there is a
disruption in an existing process. If we choose to use a new foundry or process,
it would typically take us several months to qualify the new foundry or process
before we can begin shipping products from it. If we cannot accomplish this
qualification in a timely manner, we may still experience a significant
interruption in supply of the affected products. We cannot assure you that any
of our existing or new foundries would be able to produce integrated circuits
with acceptable manufacturing yields. Furthermore, our foundries may not be able
to deliver enough semiconductor devices to us on a timely basis, or at
reasonable prices.

Maverick and Broadcom HomeNetworking, Inc., formerly known as Epigram,
Inc., have established relationships with foundries other than TSMC and
Chartered, and we are using these other foundries to produce the initial
products of Maverick and Broadcom HomeNetworking. We may utilize such foundries
for other products in the future. In using these new foundries, we will be
subject to all of the same risks described in the foregoing paragraphs with
respect to TSMC and Chartered.

WE MAY BE UNABLE TO RETAIN KEY TECHNICAL AND SENIOR MANAGEMENT PERSONNEL AND
ATTRACT ADDITIONAL KEY EMPLOYEES, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

Our future success depends to a significant extent upon the continued
service of our key technical and senior management personnel, in particular, our
co-founder, President and Chief Executive Officer, Dr. Henry T. Nicholas III,
and our co-founder, Vice President of Research & Development and Chief Technical
Officer, Dr. Henry Samueli. We do not have employment agreements with these
executives or any other key employees that govern the length of their service.
The loss of the services of Dr. Nicholas or Dr. Samueli, or certain other key
employees, would likely materially and adversely affect our business, financial
condition and results of operations. Our future success also depends on our
ability to continue to attract, retain and motivate qualified personnel,
particularly digital circuit designers, mixed-signal circuit designers and
systems applications engineers. Competition for these employees is intense. Our
inability to attract and retain additional key employees could have an adverse
effect on our business, financial condition and results of operations.

OUR INABILITY TO MANAGE OUR SIGNIFICANT RECENT AND ANTICIPATED FUTURE GROWTH
COULD STRAIN OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES, AND COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

During the past year, we have continued to significantly increase the
scope of our operations and expand our workforce, growing from 599 employees in
December 1998 to 1,147 employees as of March 1, 2000, including contract and
temporary employees and employees who joined us as the result of acquisitions.
This growth has placed, and our anticipated future growth of operations is
expected to continue to place, a significant strain on our management personnel,
systems and resources. We anticipate that we will need to implement a variety of
new and upgraded operational and financial systems, procedures and controls,
including the ongoing improvement of our accounting and other internal
management systems. We also will need to continue to expand, train, manage and
motivate our workforce. All of these endeavors will require substantial
management effort. In the future, we may need to expand our facilities or
relocate some or all of our employees or operations from time to time to support
our growth. These relocations could result in temporary disruptions of our
operations or a diversion of management's attention and resources. If we are
unable to effectively manage expanding operations, our business, financial
condition and results of operations could be materially and adversely affected.

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THE LOSS OF ANY OF THE THREE THIRD-PARTY SUBCONTRACTORS THAT ASSEMBLE AND TEST
SUBSTANTIALLY ALL OF OUR CURRENT PRODUCTS COULD DISRUPT OUR SHIPMENTS, HARM OUR
CUSTOMER RELATIONSHIPS AND ADVERSELY AFFECT OUR NET SALES.

Three third-party subcontractors, ASAT Ltd. in Hong Kong, ST Assembly
Test Services, STATS, in Singapore, and Amkor Technology in the Philippines and
Taiwan, assemble and test almost all of our current products. Because we rely on
third-party subcontractors to assemble and test our products, we cannot directly
control our product delivery schedules and quality assurance and control. This
lack of control has in the past, and could in the future, result in product
shortages or quality assurance problems that could increase our manufacturing,
assembly or testing costs. We do not have long-term agreements with ASAT, STATS
or Amkor. We typically procure services from these suppliers on a per order
basis. If either ASAT, STATS or Amkor experiences capacity constraints or
financial difficulties, if any subcontractor suffers any damage to its
facilities or in the event of any other disruption of assembly and testing
capacity, we may not be able to obtain alternative assembly and testing services
in a timely manner. Due to the amount of time that it usually takes us to
qualify assemblers and testers, we could experience significant delays in
product shipments if we are required to find alternative assemblers or testers
for our components. Any problems that we may encounter with the delivery,
quality or cost of our products could materially and adversely affect our
business, financial condition or results of operations.

We are continuing to develop relationships with additional third-party
subcontractors to assemble and test our products. In using these new
subcontractors, we will be subject to all of the same risks described in the
foregoing paragraph with respect to ASAT, STATS and Amkor.

AS OUR INTERNATIONAL BUSINESS EXPANDS, OUR BUSINESS, FINANCIAL CONDITION AND
OPERATING RESULTS COULD BE ADVERSELY AFFECTED AS A RESULT OF LEGAL, BUSINESS AND
ECONOMIC RISKS SPECIFIC TO INTERNATIONAL OPERATIONS.

We currently obtain substantially all of our manufacturing, assembly
and testing services from suppliers located outside of the United States. In
addition, approximately 17.2% of our revenue in each of the years ended December
31, 1999 and 1998 was derived from sales to independent customers outside the
United States. We also frequently ship products to our domestic customers'
international manufacturing divisions and subcontractors. In 1999 we established
an international distribution center in Singapore and a design center in The
Netherlands. As a result of our acquisition of HotHaus in August 1999, we now
undertake software design, development and marketing activities in Canada.
Furthermore, as a result of our acquisition of Armedia in May 1999, we also
undertake design and development activities in India. In the future, we intend
to continue to expand these international business activities and also to open
other design and operational centers abroad. International operations are
subject to many inherent risks, including:

o political, social and economic instability;

o trade restrictions;

o the imposition of governmental controls;

o exposure to different legal standards, particularly with respect to
intellectual property;

o burdens of complying with a variety of foreign laws;

o import and export license requirements and restrictions of the
United States and each other country in which we operate;

o unexpected changes in regulatory requirements;

o foreign technical standards;

o changes in tariffs;

o difficulties in staffing and managing international operations;

o fluctuations in currency exchange rates;

o difficulties in collecting receivables from foreign entities; and

o potentially adverse tax consequences.

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VARIOUS EXPORT LICENSING REQUIREMENTS, THE SEASONALITY OF INTERNATIONAL SALES OR
AN INCREASE IN THE VALUE OF THE U.S. DOLLAR RELATIVE TO FOREIGN CURRENCIES COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS OR REQUIRE US TO MODIFY OUR CURRENT
BUSINESS PRACTICES SIGNIFICANTLY.

Various government export regulations apply to the encryption or other
features contained in some of our products. We have applied for and received
several export licenses under these regulations, but we cannot assure you that
we will obtain any licenses for which we have currently applied or any licenses
that we may apply for in the future. If we do not receive the required licenses,
we may be unable to manufacture the affected products at our foreign foundries
or to ship these products to certain customers located outside the United
States. Moreover, the seasonality of international sales and economic conditions
in our primary overseas markets may negatively impact the demand for our
products abroad. All of our international sales to date have been denominated in
U.S. dollars. Accordingly, an increase in the value of the U.S. dollar relative
to foreign currencies could make our products less competitive in international
markets. Any one or more of the foregoing factors could materially and adversely
affect our business, financial condition or results of operations or require us
to modify our current business practices significantly. We anticipate that these
factors will impact our business to a greater degree as we further expand our
international business activities.

OUR FUTURE SUCCESS DEPENDS IN SIGNIFICANT PART ON STRATEGIC RELATIONSHIPS WITH
CERTAIN OF OUR CUSTOMERS. IF WE CANNOT MAINTAIN THESE RELATIONSHIPS OR IF THESE
CUSTOMERS DEVELOP THEIR OWN SOLUTIONS OR ADOPT A COMPETITOR'S SOLUTIONS INSTEAD
OF BUYING OUR PRODUCTS, OUR OPERATING RESULTS WOULD BE ADVERSELY AFFECTED.

In the past, we have relied on our strategic relationships with certain
customers who are technology leaders in our target markets. We intend to pursue
and continue to form these strategic relationships in the future. These
relationships often require us to develop new products that typically involve
significant technological challenges. Our partners frequently place considerable
pressure on us to meet their tight development schedules. Accordingly, we may
have to devote a substantial amount of our limited resources to our strategic
relationships, which could detract from or delay our completion of other
important development projects. Delays in development could impair our
relationships with our strategic partners and negatively impact sales of the
products under development. Moreover, it is possible that our customers may
develop their own solutions or adopt a competitor's solution for products that
they currently buy from us. If that happens, our business, financial condition
and results of operations could be materially and adversely affected.

WE MAY EXPERIENCE DIFFICULTIES IN TRANSITIONING TO SMALLER GEOMETRY PROCESS
TECHNOLOGIES OR IN ACHIEVING HIGHER LEVELS OF DESIGN INTEGRATION AND THAT MAY
RESULT IN REDUCED MANUFACTURING YIELDS, DELAYS IN PRODUCT DELIVERIES AND
INCREASED EXPENSES.

In order to remain competitive, we expect to transition our products to
increasingly smaller geometries. This transition will require us to redesign
certain products and modify the manufacturing processes for our products. We
continually evaluate the benefits, on a product-by-product basis, of migrating
to smaller geometry process technologies in order to reduce our costs, and we
have begun shifting certain products from .50 micron to .35 micron, .22 micron
and smaller geometry processes. In the past, we have experienced some
difficulties in shifting to smaller geometry process technologies or new
manufacturing processes. These difficulties resulted in reduced manufacturing
yields, delays in product deliveries and increased expenses. We may face similar
difficulties, delays and expenses as we continue to transition our products to
smaller geometry processes. We are dependent on our relationships with our
foundries to transition to smaller geometry processes successfully. We cannot
assure you that our foundries will be able to effectively manage the transition
or that we will be able to maintain our relationships with our foundries. If our
foundries or we experience significant delays in this transition or fail to
efficiently implement this transition, our business, financial condition and
results of operations could be materially and adversely affected. As smaller
geometry processes become more prevalent, we expect to integrate greater levels
of functionality, as well as customer and third party intellectual property,
into our products. However, we may not be able to achieve higher levels of
design integration or deliver new integrated products on a timely basis, or at
all.

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WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH COULD HARM OUR COMPETITIVE POSITION.

Our success and future revenue growth will depend, in part, on our
ability to protect our intellectual property. We primarily rely on patent,
copyright, trademark and trade secret laws, as well as nondisclosure agreements
and other methods, to protect our proprietary technologies and processes.
Despite our efforts to protect our proprietary technologies and processes, it is
possible that certain of our competitors or other parties may obtain, use or
disclose our technologies and processes. We currently hold 11 issued United
States patents and have filed over 250 United States patent applications. We
cannot assure you that any additional patents will be issued. Even if a new
patent is issued, the claims allowed may not be sufficiently broad to protect
our technology. In addition, any of our existing or future patents may be
challenged, invalidated or circumvented. Moreover, any rights granted under
these patents may not provide us with meaningful protection. If our patents do
not adequately protect our technology, then our competitors may be able to offer
products similar to ours. Our competitors may also be able to develop similar
technology independently or design around our patents. Moreover, because we have
participated in developing various industry standards, we may be required to
license some of our technology and patents to others, including competitors, who
develop products based on the adopted standards.

We generally enter into confidentiality agreements with our employees
and strategic partners. We also try to control access to and distribution of our
technologies, documentation and other proprietary information. Despite these
efforts, parties may attempt to copy, disclose, obtain or use our products,
services or technology without our authorization. As a result, our technologies
and processes may be misappropriated, particularly in foreign countries where
laws may not protect our proprietary rights as fully as in the United States.

In addition, some of our customers have entered into agreements with us
that grant them the right to use our proprietary technology if we ever fail to
fulfill our obligations under those agreements, including product supply
obligations, and do not correct this failure within a specified time period.
Moreover, we often incorporate the intellectual property of our strategic
customers into our own designs, and have certain obligations not to use or
disclose their intellectual property without their authorization. We cannot
assure you that our efforts to prevent the misappropriation or infringement of
our intellectual property or the intellectual property of our customers will
succeed. In the future, we may have to engage in litigation to enforce our
intellectual property rights, protect our trade secrets or determine the
validity and scope of the proprietary rights of others, including our customers.
This litigation may be very expensive, divert management's attention and
materially and adversely affect our business, financial condition and results of
operations.

INFRINGEMENT OR OTHER CLAIMS AGAINST US COULD ADVERSELY AFFECT OUR ABILITY TO
MARKET OUR PRODUCTS, REQUIRE US TO REDESIGN OUR PRODUCTS OR SEEK LICENSES FROM
THIRD PARTIES AND SERIOUSLY HARM OUR OPERATING RESULTS.

Companies in the semiconductor industry often aggressively protect and
pursue their intellectual property rights. From time to time, we have received,
and may continue to receive in the future, notices that claim we have infringed
upon, misappropriated or misused other parties' proprietary rights. In March
2000 Intel Corporation and its subsidiary Level One Communications, Inc. filed a
lawsuit against us alleging misappropriation of trade secrets, unfair
competition and tortious interference with existing contractual relations in
connection with our recent hiring of three former Intel employees. In 1999 we
settled litigation with Stanford Telecommunications, Inc. that related to the
alleged infringement of one of Stanford's patents by several of our cable modem
products. In 1999 we prevailed in litigation with Sarnoff Corporation and
NxtWave Communications, Inc., formerly Sarnoff Digital Communications, Inc.,
which alleged that we misappropriated and misused certain of their trade secrets
in connection with our hiring of five former Sarnoff employees. Our subsidiary,
AltoCom, is the defendant in patent litigation brought by Motorola, Inc.
relating to software modem technology. Although we are defending the pending
litigation vigorously, it is possible that we will not prevail in pending or
future lawsuits. In addition, we may be sued in the future by other parties who
claim that we have infringed their patents or misappropriated or misused their
trade secrets, or who may seek to invalidate one of our patents. Any of these
claims may materially and adversely affect our business, financial condition and
results of operations. For example, in a patent or trade secret action, a court
could issue an injunction against us that would require us to withdraw or recall
certain products from the market or redesign certain products offered for sale
or under development. In addition, we may be liable for damages for past
infringement and royalties for future use of the technology. We may also have to
indemnify certain customers and strategic partners under our agreements with
such parties if a third party alleges or if a court finds that we have infringed
upon, misappropriated or misused another party's proprietary rights. Even if
claims against us are not valid or successfully asserted, these claims could
result in significant costs and a diversion of management and personnel
resources to defend. In that event, our business, financial condition and
results of operations would likely be materially and adversely affected. If any
claims or actions are asserted against us, we may seek to obtain a license under
a third party's intellectual property rights. However, we may not be able to
obtain a license on commercially reasonable terms, if at all.

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OUR PRODUCTS TYPICALLY HAVE LENGTHY SALES CYCLES. A CUSTOMER MAY DECIDE TO
CANCEL OR CHANGE ITS PRODUCT PLANS, WHICH COULD CAUSE US TO LOSE ANTICIPATED
SALES. IN ADDITION, OUR AVERAGE PRODUCT CYCLES TEND TO BE SHORT AND, AS A
RESULT, WE MAY HOLD EXCESS OR OBSOLETE INVENTORY WHICH COULD ADVERSELY AFFECT
OUR OPERATING RESULTS.

After we have developed and delivered a product to a customer, our
customer will often test and evaluate our product prior to designing its own
equipment to incorporate our product. Our customer may need three to six months
or longer to test and evaluate our product and an additional three to six months
or more to begin volume production of equipment that incorporates our product.
Due to this lengthy sales cycle, we may experience delays from the time we
increase our operating expenses and our investments in inventory until the time
that we generate revenues for these products. It is possible that we may never
generate any revenues from these products after incurring such expenditures.
Even if a customer selects our product to incorporate into its equipment, we
have no assurances that such customer will ultimately market and sell their
equipment or that such efforts by our customer will be successful. The delays
inherent in our lengthy sales cycle increase the risk that a customer will
decide to cancel or change its product plans. Such a cancellation or change in
plans by a customer could cause us to lose sales that we had anticipated. In
addition, our business, financial condition and results of operations could be
materially and adversely affected if a significant customer curtails, reduces or
delays orders during our sales cycle or chooses not to release equipment that
contains our products.

While our sales cycles are typically long, our average product life
cycles tend to be short as a result of the rapidly changing technology
environment in which we operate. As a result, the resources devoted to product
sales and marketing may not generate material revenues for us, and from time to
time, we may need to write off excess and obsolete inventory. If we incur
significant marketing and inventory expenses in the future that we are not able
to recover, and we are not able to compensate for those expenses, our operating
results could be adversely affected. In addition, if we sell our products at
reduced prices in anticipation of cost reductions, and we still have higher cost
products in inventory, our operating results would be harmed.

BECAUSE WE ARE SUBJECT TO ORDER AND SHIPMENT UNCERTAINTIES, ANY SIGNIFICANT
CANCELLATIONS OR DEFERRALS COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

We typically sell products pursuant to purchase orders that customers
can generally cancel or defer on short notice without incurring a significant
penalty. Any significant cancellations or deferrals could materially and
adversely affect our business, financial condition and results of operations. In
addition, cancellations or deferrals could cause us to hold excess inventory,
which could reduce our profit margins and restrict our ability to fund our
operations. We recognize revenue upon shipment of products to a customer. If a
customer refuses to accept shipped products or does not timely pay for these
products, we could incur significant charges against our income. These charges
could materially and adversely affect our operating results.

THE COMPLEXITY OF OUR PRODUCTS COULD RESULT IN UNFORESEEN DELAYS OR EXPENSES AND
IN UNDETECTED DEFECTS OR BUGS, WHICH COULD ADVERSELY AFFECT THE MARKET
ACCEPTANCE OF NEW PRODUCTS AND DAMAGE OUR REPUTATION WITH CURRENT OR
PROSPECTIVE CUSTOMERS.

Highly complex products such as the products that we offer frequently
contain defects and bugs when they are first introduced or as new versions are
released. We have in the past experienced, and may in the future experience,
these defects and bugs. If any of our products contain defects or bugs, or have
reliability, quality or compatibility problems, our reputation may be damaged
and customers may be reluctant to buy our products, which could materially and
adversely affect our ability to retain existing customers or attract new
customers. In addition, these defects or bugs could interrupt or delay sales to
our customers. In order to alleviate these problems, we may have to invest
significant capital and other resources. Although our products are tested by our
suppliers, our customers and ourselves, we cannot assure you that our new
products will not contain defects or bugs. If any of these problems are not
found until after we have commenced commercial production of a new product, we
may be required to incur additional development costs and product recall, repair
or replacement costs. These problems may also result in claims

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against us by our customers or others. In addition, these problems may divert
our technical and other resources from other development efforts. Moreover, we
would likely lose, or experience a delay in, market acceptance of the affected
product or products, and we could lose credibility with our current and
prospective customers.

OUR OPERATING RESULTS MAY VARY SIGNIFICANTLY DUE TO THE CYCLICALITY OF THE
SEMICONDUCTOR INDUSTRY. ANY SUCH VARIATIONS COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK.

We operate in the semiconductor industry, which is cyclical and
subject to rapid technological change. From time to time, the semiconductor
industry has experienced significant economic downturns, characterized by
diminished product demand, accelerated erosion of prices and excess production
capacity. This industry also periodically experiences increased demand and
production capacity constraints. Accordingly, our quarterly results may vary
significantly as a result of the general conditions in the semiconductor
industry.

OUR CALIFORNIA FACILITIES AND THE FACILITIES OF ONE OF THE TWO INDEPENDENT
FOUNDRIES UPON WHICH WE RELY TO MANUFACTURE SUBSTANTIALLY ALL OF OUR CURRENT
PRODUCTS ARE LOCATED IN REGIONS THAT ARE SUBJECT TO EARTHQUAKES AND OTHER
NATURAL DISASTERS.

Our California facilities, including our principal executive offices,
are located near major earthquake fault lines. If there is a major earthquake or
any other natural disaster in a region where one of our facilities is located,
our business could be materially and adversely affected. In addition, TSMC, one
of the two outside foundries upon which we rely to manufacture substantially all
of our semiconductor devices, is located in Taiwan, a country that is also
subject to earthquakes. Any earthquake or other natural disaster in Taiwan could
materially disrupt TSMC's production capabilities and could result in our
experiencing a significant delay in delivery, or substantial shortage, of wafers
and possibly in higher wafer prices.

CHANGES IN CURRENT OR FUTURE LAWS OR REGULATIONS OR THE IMPOSITION OF NEW LAWS
OR REGULATIONS BY THE FCC, OTHER FEDERAL OR STATE AGENCIES OR FOREIGN
GOVERNMENTS COULD IMPEDE THE SALE OF OUR PRODUCTS OR OTHERWISE HARM OUR
BUSINESS.

The Federal Communications Commission has broad jurisdiction over each
of our target markets. Although current FCC regulations and the laws and
regulations of other federal or state agencies are not directly applicable to
our products, they do apply to much of the equipment into which our products are
incorporated. As a result, the effects of regulation on our customers or the
industries in which they operate may, in turn, materially and adversely impact
our business, financial condition and results of operations. FCC regulatory
policies that affect the ability of cable operators or telephone companies to
offer certain services or other aspects of their business may impede the sale of
our products. For example, in the past we have experienced delays when products
incorporating our chips failed to comply with FCC emissions specifications. We
and our customers may also be subject to regulation by countries other than the
United States. Foreign governments may impose tariffs, duties and other import
restrictions on components that we obtain from non-domestic suppliers and may
impose export restrictions on products that we sell internationally. These
tariffs, duties or restrictions could materially and adversely affect our
business, financial condition and results of operations. Changes in current laws
or regulations or the imposition of new laws and regulations in the United
States or elsewhere could also materially and adversely affect our business.

CERTAIN OF OUR DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATES CAN CONTROL
THE OUTCOME OF MATTERS THAT REQUIRE THE APPROVAL OF OUR SHAREHOLDERS, AND
ACCORDINGLY WE WILL NOT BE ABLE TO ENGAGE IN CERTAIN TRANSACTIONS WITHOUT THEIR
APPROVAL.

As of March 3, 2000 our directors and executive officers beneficially
owned approximately 34.7% of our outstanding common stock and 67.1% of the total
voting control held by our shareholders. In particular, as of March 3, 2000 our
two founders, Dr. Henry T. Nicholas III and Dr. Henry Samueli, beneficially
owned a total of approximately 32.9% of our outstanding common stock and 64.3%
of the total voting control held by our shareholders. Accordingly, these
shareholders currently have enough voting power to control the outcome of
matters that require the approval of our shareholders. These matters include the
election of a majority of our Board of Directors, the issuance of additional
shares of Class B common stock, and the approval

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of any significant corporate transaction, including a merger, consolidation or
sale of substantially all of our assets. In addition, these insiders currently
also control the management of our business. Because of their significant stock
ownership, we will not be able to engage in certain transactions without the
approval of these shareholders. These transactions include proxy contests,
mergers, tender offers, open market purchase programs or other purchases of our
Class A common stock that could give our shareholders the opportunity to receive
a higher price for their shares than the prevailing market price at the time of
such purchases.

OUR STOCK PRICE IS HIGHLY VOLATILE. ACCORDINGLY, YOU MAY NOT BE ABLE TO RESELL
YOUR SHARES OF COMMON STOCK AT OR ABOVE THE PRICE YOU PAID FOR THEM.

The market price of our Class A common stock has fluctuated
substantially in the past and is likely to continue to be highly volatile and
subject to wide fluctuations. Since our initial public offering in April 1998,
our Class A common stock has traded at prices as low as $11.75 and as high as
$253.00 per share. These fluctuations have occurred and may continue to occur in
response to various factors, many of which we cannot control, including:

o quarter-to-quarter variations in our operating results;

o announcements of technological innovations or new products by our
competitors, customers or us;

o general conditions in the semiconductor industry and
telecommunications and data communications equipment markets;

o changes in earnings estimates or investment recommendations by
analysts;

o changes in investor perceptions; or

o changes in expectations relating to our products, plans and
strategic position or those of our competitors or customers.

In addition, the market prices of securities of Internet-related and
other high technology companies have been especially volatile. This volatility
has significantly affected the market prices of securities of many technology
companies for reasons frequently unrelated to the operating performance of the
specific companies. Accordingly, you may not be able to resell your shares of
common stock at or above the price you paid. In the past, companies that have
experienced volatility in the market price of their securities have been the
subject of securities class action litigation. If we were the object of a
securities class action litigation, it could result in substantial losses and
divert management's attention and resources from other matters.

OUR PRODUCTS AND INTERNAL INFORMATION SYSTEMS AND THE PRODUCTS AND SYSTEMS OF
OUR CUSTOMERS AND THE THIRD PARTY SUPPLIERS WHO FABRICATE, TEST AND ASSEMBLE OUR
PRODUCTS MAY BE NEGATIVELY IMPACTED BY YEAR 2000 COMPLIANCE PROBLEMS.

Many existing computer systems, software applications and embedded
computer chips, software and firmware in control devices use only two digits to
identify a year in the date field. These systems, applications and control
devices need to accept four digit entries to distinguish 21st Century dates from
20th Century dates. In addition, they may not correctly process "leap year"
dates or may fail to recognize February 29, 2000 as a leap year date as a result
of an exception to the calculation of leap years that will occur in the Year
2000 and otherwise occurs only once every 400 years. As a result, these systems
and applications had to be upgraded to comply with the Year 2000 requirements or
risk system failure, miscalculations or other disruptions to normal business
activities.

We have evaluated our Year 2000 readiness, both in terms of the
compliance of our products and the compliance of our information systems and
applications which monitor all aspects of our business, including financial
systems, customer services, marketing information, infrastructure and
telecommunications equipment. We believe that our products and internal
information systems are Year 2000 compliant. To date we have not experienced any
Year 2000 problems in our computer systems or operations. However, we cannot yet
assess the extent of the Year 2000 impact and cannot be sure that we will not
experience unanticipated residual consequences of the change in centuries due to
the interaction between our own systems and products and the systems and
products of third parties. We believe our greatest exposure to residual Year
2000 risks relates to the readiness of the third party suppliers who fabricate,
assemble and test our products and of our customers, who incorporate our
products

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into their own products. Any failure of these third parties to resolve any
residual Year 2000 problems in a timely manner could materially disrupt our
business and affect the marketability of our products. Any such disruption could
negatively impact our sales, harm our relationships with our customers, and
materially and adversely affect our business, results of operations and
financial condition.

We also rely on the external systems of other third parties such as
creditors, financial organizations, governmental entities and other suppliers,
both domestic and international, to provide us with services and accurate data.
Our business could be materially and adversely affected if any of these third
parties experience disruptions in their operations or if an economic crisis or
general widespread problems result from systems that are not Year 2000
compliant.

Our contingency plans to address these issues may not be adequate to
meet our needs without disrupting our business or without causing delays and
inefficiencies inherent in conducting operations in an alternative manner. If we
fail to adequately address any Year 2000 problems that do emerge, our business,
financial condition and results of operations may be materially and adversely
affected.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE THROUGH THE ISSUANCE OF
ADDITIONAL EQUITY OR CONVERTIBLE DEBT SECURITIES OR BY BORROWING MONEY, AND
ADDITIONAL FUNDS MAY NOT BE AVAILABLE ON TERMS ACCEPTABLE TO US.

We believe that the cash, cash equivalents and investments on hand and
the cash we expect to generate from operations will be sufficient to meet our
capital needs for at least the next twelve months. However, it is possible that
we may need to raise additional funds to fund our activities beyond the next
year. We could raise these funds by selling more stock to the public or to
selected investors, or by borrowing money. In addition, even though we may not
need additional funds, we may still elect to sell additional equity securities
or obtain credit facilities for other reasons. We may not be able to obtain
additional funds on favorable terms, or at all. If adequate funds are not
available, we may be required to curtail our operations significantly or to
obtain funds through arrangements with strategic partners or others that may
require us to relinquish rights to certain technologies or potential markets. If
we raise additional funds by issuing additional equity or convertible debt
securities, the ownership percentages of existing shareholders would be reduced.
In addition, the equity or debt securities that we issue may have rights,
preferences or privileges senior to those of the holders of our common stock.

It is possible that our future capital requirements may vary materially
from those now planned. The amount of capital that we will need in the future
will depend on many factors, including:

o the market acceptance of our products;

o the levels of promotion and advertising that will be required to
launch our products and achieve and maintain a competitive position
in the marketplace;

o volume price discounts;

o our business, product, capital expenditure and research and
development plans and product and technology roadmaps;

o the levels of inventory and accounts receivable that we maintain;

o capital improvements to new and existing facilities;

o technological advances;

o our competitors' response to our products; and

o our relationships with suppliers and customers.

In addition, we may require additional capital to accommodate planned
growth, hiring, infrastructure and facility needs or to consummate acquisitions
of other businesses, products or technologies.

OUR ARTICLES OF INCORPORATION AND BYLAWS CONTAIN ANTI-TAKEOVER PROVISIONS THAT
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.

Our articles of incorporation and bylaws contain provisions that may
prevent or discourage a third party from acquiring us, even if the acquisition
would be beneficial to our shareholders. In addition, we have in the past issued
and will in the future issue shares of Class B common stock in connection with
certain acquisitions, upon exercise of certain stock options, and for other
purposes. Class B shares have superior voting rights entitling the holder
to ten

39

43

votes for each share held on matters that we submit to a shareholder vote (as
compared with one vote per share in the case of our publicly-held Class A common
stock). Our Board of Directors also has the authority to fix the rights and
preferences of shares of our preferred stock and to issue such shares without a
shareholder vote. It is possible that the provisions in our charter documents,
the existence of supervoting rights by holders of our Class B common stock, our
officers' ownership of a majority of the Class B common stock and the ability of
our Board of Directors to issue preferred stock may prevent parties from
acquiring us. In addition, these factors may discourage third parties from
bidding for our Class A common stock at a premium over the market price for this
stock. Finally, these factors may also materially and adversely affect the
market price of our Class A common stock, and the voting and other rights of the
holders of our common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment Portfolio

We do not use derivative financial instruments in our non-trading
investment portfolio. We place our investments in instruments that meet high
credit quality standards, as specified in our investment policy guidelines; the
policy also limits the amount of credit exposure to any one issue, issuer or
type of instrument. We do not expect any material loss with respect to our
investment portfolio.

The table below provides information about our non-trading investment
portfolio. For investment securities, the table presents principal cash flows
and related weighted average fixed interest rates by expected maturity dates.
Our investment policy requires that all investments mature in three years or
less, with a weighted average maturity of no longer than one year.

Principal (notional) amounts by expected maturity (at December 31,
1999):

FAIR VALUE
2000 2001 TOTAL 1999
-------- ------ -------- ----------
(IN THOUSANDS, EXCEPT INTEREST RATES)

Cash and cash equivalents............ $ 22,514 $ -- $ 22,514 $ 22,517
Weighted average rate............. 5.93% -- 5.93%
Investments ......................... $ 86,215 $9,351 $ 95,566 $ 95,293
Weighted average rate............. 4.59% 3.33% 4.47%
Total portfolio ..................... $108,729 $9,351 $118,080 $117,810
Weighted average rate............. 4.87% 3.33% 4.75%

40

44

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this item
are included in Part IV, Item 14 of this Form 10-K and are presented beginning
on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Identification of Directors. The information under the caption
"Election of Directors," appearing in the Proxy Statement, is incorporated
herein by reference.

(b) Identification of Executive Officers. The information under the
caption "Executive Officers and Key Employees," appearing in the Proxy
Statement, is incorporated herein by reference.

(c) Compliance with Section 16(a) of the Exchange Act. The information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance,"
appearing in the Proxy Statement, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information under the caption "Executive Compensation and Other
Information," appearing in the Proxy Statement, is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Ownership of Securities," appearing
in the Proxy Statement, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the heading "Certain Transactions," appearing in
the Proxy Statement, is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS.

The following consolidated financial statements, and related notes
thereto, of the Company and the Report of Independent Auditors are filed as part
of this Form 10-K.
Page
----

Report of Independent Auditors F-1

Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2

Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 F-3

Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997 F-4

Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F-5

Notes to Consolidated Financial Statements F-6

41

45

2. FINANCIAL STATEMENT SCHEDULES.

The following financial statement schedule of the Company is filed as
part of this Form 10-K. All other schedules have been omitted because they are
not applicable, not required, or the information is included in the consolidated
financial statements or notes thereto.

Page
----
Report of Independent Auditors on Financial Statement Schedule S-1

Schedule II - Consolidated Valuation and Qualifying Accounts S-2

3. EXHIBITS.

The exhibits listed on the accompanying index to exhibits immediately
following the financial statements are filed as part of, or hereby incorporated
by reference into, this Form 10-K.

(b) REPORTS ON FORM 8-K.

On November 24, 1999 the Company filed a report on Form 8-K/A to
provide restated historical consolidated financial statements to reflect the
pooled operations of HotHaus and AltoCom.

42

46

GLOSSARY OF TECHNICAL TERMS

Adaptive Equalization.............. Receiver technique for compensating for distortions in a transmission media.

ADSL............................... Asymmetric Digital Subscriber Line. Twisted-pair modem technology that
achieves data rates up to 8 Mbps downstream to the subscriber and 1 Mbps
upstream to the network at distances up to 18,000 feet.

Bandwidth.......................... A range of signal frequencies, measured in cycles per second or Hertz (Hz).
Also refers to the speed at which data is transmitted, measured in bits per
second (bps).

Broadband Communications........... Data transmission at speeds of greater than 1.5 Mbps.

CMOS............................... Complementary Metal Oxide Semiconductor. Technology used to manufacture
silicon integrated circuits.

DBS................................ Digital Broadcast Satellite. A broadband communications technology that
broadcasts digital television programming from satellites directly to dish
antennas.

DOCSIS............................. Data Over Cable Service Interface Specifications. Industry specification that
defines the technical equipment for high-speed cable modem and headend
equipment.

DSP................................ Digital Signal Processing.

Ethernet (10Base-T)................ Networking protocol widely used in LANs for connecting devices by means of
copper twisted pair wiring at speeds of 10 Mbps.

Fast Ethernet (100Base-T).......... An extension to the 10Base-T Ethernet network access method which operates at
100 Mbps.

FEC................................ Forward Error Correction. A receiver technique for correcting errors in the
received data.

GHz................................ GigaHertz. One billion cycles per second.

Gigabit Ethernet (1000Base-T)...... An extension to the 100Base-T Ethernet network access method which operates
at 1,000 Mbps or equivalently 1 Gbps.

Headend............................ The central distribution point in a cable television system. Typically serves
tens to hundreds of thousands of homes.

HFC................................ Hybrid Fiber Coax. Upgraded cable plant which uses a combination of fiber
optic cable in the backbone and coaxial cable in the subscriber feeder plant.

IC................................. Integrated Circuit.

kbps............................... Kilobits per second.

LAN................................ Local Area Network. A private data communications network linking a variety
of data devices such as computers and printers within an office or home
environment.

LMDS............................... Local Multipoint Distribution System. A broadband wireless communications
network that uses microwave frequencies above 10 GHz to transmit video and
data to residences over a cellular-like network at distances under a few
miles.

43

47

MAC................................ Media Access Control. Protocol for controlling the upstream and downstream
traffic flow in a local or wide area network.

Mbps............................... Megabits per second. Million bits per second.

MMDS............................... Multichannel Multipoint Distribution Service. A broadband wireless
communications network that uses microwave frequencies below 10 GHz to
transmit video and data to residences at distances up to tens of miles.

MPEG............................... Moving Picture Experts Group. Industry standard for compressing and
decompressing digital audio video signals.

NIC................................ Network Interface Card. Plug-in adapter card enables a computer to connect to
a LAN.

QAM................................ Quadrature Amplitude Modulation. A digital modulation technique that allows
very efficient transmission of data over media with limited available
bandwidth.

QPSK............................... Quadrature Phase Shift Keying. A digital technique which is widely employed
in direct broadcast satellite transmission systems.

RISC............................... Reduced Instruction Set Computer.

RF................................. Radio Frequency.

VDSL............................... Very High Bit-Rate Digital Subscriber Line. Twisted pair modem technology
that achieves data rates up to 52 Mbps downstream to the subscriber and 6
Mbps upstream to the network at distances up to 4,000 feet.

VSB................................ Vestigial Side Band. North American standard for broadcast HDTV.

WAN................................ Wide Area Network. A data communications network, such as the Internet, which
links a variety of data devices over a large geographical distance.

xDSL............................... Generic representation of the entire family of Digital Subscriber Line
technology spanning data rates from 128 kbps to 52 Mbps depending on the
distance between the central office and subscriber.

44

48

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Broadcom Corporation

We have audited the accompanying consolidated balance sheets of
Broadcom Corporation as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Broadcom Corporation at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.

/s/ Ernst & Young LLP

Orange County, California
January 18, 2000, except for
Note 13, as to which the
date is March 8, 2000

F-1

49

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
---------------------------
1999 1998
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents .............................. $ 173,966 $ 72,511
Short-term investments ................................. 86,215 34,344
Accounts receivable (net of allowances for doubtful
accounts and sales returns and allowances of
$7,673 in 1999 and $5,167 in 1998) .................. 91,457 42,279
Inventory .............................................. 19,177 7,325
Deferred taxes ......................................... 8,380 6,184
Income taxes receivable ................................ -- 3,069
Prepaid expenses ....................................... 12,132 6,932
--------- ---------
Total current assets ........................... 391,327 172,644
Property and equipment, net .............................. 47,099 31,600
Long-term investments .................................... 9,351 42,826
Deferred taxes ........................................... 127,740 6,721
Other assets ............................................. 9,792 6,790
--------- ---------
Total assets ................................... $ 585,309 $ 260,581
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................................. $ 44,860 $ 22,374
Wages and related benefits ............................. 14,571 3,135
Accrued liabilities .................................... 26,123 8,217
Current portion of long-term debt ...................... 508 7,252
--------- ---------
Total current liabilities ...................... 86,062 40,978
Long-term debt, less current portion ..................... 548 4,100
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $.0001 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - none in 1999 and 1998 -- --
Class A common stock, $.0001 par value:
Authorized shares--400,000,000
Issued and outstanding shares-- 110,402,852 in 1999
and 53,982,780 in 1998 ............................. 11 6
Class B common stock, $.0001 par value:
Authorized shares--200,000,000
Issued and outstanding shares-- 98,861,666 in 1999
and 143,855,302 in 1998 ............................. 10 14
Additional paid-in capital ............................. 413,218 206,912
Notes receivable from employees ........................ (1,543) (2,743)
Deferred compensation .................................. (8,089) (6,926)
Retained earnings ...................................... 95,092 18,240
--------- ---------
Total shareholders' equity ..................... 498,699 215,503
--------- ---------
Total liabilities and shareholders' equity ..... $ 585,309 $ 260,581
========= =========

See accompanying notes.

F-2

50

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
-------- -------- ---------

Revenue ............................. $518,183 $216,456 $ 42,341
Cost of revenue ..................... 209,837 91,403 15,563
-------- -------- ---------
Gross profit ........................ 308,346 125,053 26,778

Operating expense:
Research and development .......... 108,579 51,090 21,545
Selling, general and administrative 56,601 32,939 11,410
Merger-related costs .............. 15,210 -- --
Litigation settlement costs ....... 17,036 -- --
-------- -------- ---------
Income (loss) from operations ....... 110,920 41,024 (6,177)
Interest and other income, net ...... 8,402 4,154 91
-------- -------- ---------
Income (loss) before income taxes ... 119,322 45,178 (6,086)
Provision (benefit) for income taxes 36,035 20,586 (157)
-------- -------- ---------
Net income (loss) ................... $ 83,287 $ 24,592 $ (5,929)
======== ======== =========
Basic earnings (loss) per share ..... $ .42 $ .15 $ (.05)
======== ======== =========
Diluted earnings (loss) per share ... $ .36 $ .12 $ (.05)
======== ======== =========
Weighted average shares (basic) ..... 198,512 168,885 116,341
======== ======== =========
Weighted average shares (diluted) ... 232,285 204,631 116,341
======== ======== =========

See accompanying notes.

F-3

51

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- -------- ----------- ------ ----------

Balance at December 31, 1996 .... 2,093,839 $ 6,084 124,963,788 $12 $ 8,396
Shares issued in business
combinations ................. -- -- 6,968,036 1 10,660
Issuance of preferred stock,
net of issuance costs
of $36 ..................... 1,500,000 22,689 -- -- --
Repurchases of preferred stock (26,000) (156) -- -- --
Issuance of Class B common
Stock ...................... -- -- 1,140,000 -- 1,050
Exercise of stock options,
net of repurchases .......... -- -- 7,251,168 1 3,568
Tax benefit from exercise
of stock options ............ -- -- -- -- 191
Deferred compensation
related to grant of stock
options ..................... -- -- -- -- 1,156
Amortization of deferred
Compensation ............... -- -- -- -- --
Net loss ...................... -- -- -- -- --
---------- -------- ----------- --- --------
Balance at December 31, 1997 .... 3,567,839 28,617 140,322,992 14 25,021
Shares issued in business
combinations ................. -- -- 3,390,358 -- 7,158
Conversion of preferred
stock into Class B common
stock ...................... (3,567,839) (28,617) 33,814,068 3 28,614
Issuance of Class A common
stock in initial public
offering, net of offering
costs of $1,628 ............ -- -- 14,480,000 2 79,168
Issuance of Class A common
stock in follow-on
offering, net of offering
costs of $584 .............. -- -- 1,880,000 -- 30,548
Exercise of stock options,
net of Repurchases .......... -- -- 3,612,408 1 1,885

Employee stock purchase plan .. -- -- 338,256 -- 1,725
Repayment of notes receivable
from employees .............. -- -- -- -- --

Tax benefit from exercise
of stock options and
stock purchase .............. -- -- -- -- 25,171
Deferred compensation
related to grant of
stock options ............... -- -- -- -- 7,622
Amortization of deferred
compensation ............... -- -- -- -- --
Net income .................... -- -- -- -- --
---------- -------- ----------- --- --------
Balance at December 31, 1998 .... -- -- 197,838,082 20 206,912
Shares issued in business
combinations ................. -- -- 1,743,676 -- 18,179
Exercise of stock options,
net of repurchases .......... -- -- 8,945,672 1 24,015

Employee stock purchase plan .. -- -- 737,088 -- 5,016

Repayment of notes receivable
from employees ............. -- -- -- -- --

Tax benefit from exercise
of stock options and stock
purchase plan ............... -- -- -- -- 154,103
Deferred compensation related
related to grant of stock
options ..................... -- -- -- -- 4,993
Amortization of deferred
compensation ............... -- -- -- -- --
Net income .................... -- -- -- -- --
---------- -------- ----------- --- --------
Balance at December 31, 1999 .... -- $ -- 209,264,518 $21 $413,218
========== ======== =========== === ========

NOTES
RECEIVABLE TOTAL
FROM DEFERRED RETAINED SHAREHOLDERS'
EMPLOYEES COMPENSATION EARNINGS EQUITY
---------- ------------ -------- -------------

Balance at December 31, 1996 .... $ (748) $ -- $ 1,739 $ 15,483
Shares issued in business
combinations ................. -- -- -- 10,661
Issuance of preferred stock,
net of issuance costs
of $36 ..................... -- -- -- 22,689
Repurchases of preferred stock -- -- -- (156)
Issuance of Class B common
Stock ...................... -- -- -- 1,050
Exercise of stock options,
net of repurchases .......... (2,614) -- -- 955
Tax benefit from exercise
of stock options ............ -- -- -- 191
Deferred compensation
related to grant of stock
options ..................... -- (1,156) -- --
Amortization of deferred
Compensation ............... -- 66 -- 66
Net loss ...................... -- -- (5,929) (5,929)
-------- ------- -------- ---------
Balance at December 31, 1997 .... (3,362) (1,090) (4,190) 45,010
Shares issued in business
combinations ................. -- -- (2,162) 4,996
Conversion of preferred
stock into Class B common
stock ...................... -- -- -- --
Issuance of Class A common
stock in initial public
offering, net of offering
costs of $1,628 ............ -- -- -- 79,170
Issuance of Class A common
stock in follow-on
offering, net of offering
costs of $584 .............. -- -- -- 30,548
Exercise of stock options,
net of Repurchases .......... (191) -- -- 1,695
Employee stock purchase plan .. -- -- -- 1,725
Repayment of notes receivable
from employees .............. 810 -- -- 810
Tax benefit from exercise
of stock options and
stock purchase .............. -- -- -- 25,171
Deferred compensation
related to grant of
stock options ............... -- (7,622) -- --
Amortization of deferred
compensation ............... -- 1,786 -- 1,786
Net income .................... -- -- 24,592 24,592
------- ------- -------- ---------
Balance at December 31, 1998 .... (2,743) (6,926) 18,240 215,503
Shares issued in business
combinations ................. -- -- (6,435) 11,744
Exercise of stock options,
net of repurchases .......... -- -- -- 24,016
Employee stock purchase plan .. -- -- -- 5,016
Repayment of notes receivable
from employees ............. 1,200 -- -- 1,200
Tax benefit from exercise
of stock options and stock
purchase plan ............... -- -- -- 154,103
Deferred compensation related
related to grant of stock
options ..................... -- (4,993) -- --
Amortization of deferred
compensation ............... -- 3,830 -- 3,830
Net income .................... -- -- 83,287 83,287
------- ------- -------- ---------
Balance at December 31, 1999 .... $(1,543) $(8,089) $ 95,092 $ 498,699
======= ======= ======== =========

See accompanying notes.

F-4
52

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
--------- --------- --------

OPERATING ACTIVITIES
Net income (loss) ................................... $ 83,287 $ 24,592 $ (5,929)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................. 14,042 9,143 3,364
Amortization of deferred compensation .......... 3,830 1,786 66
Deferred taxes ................................. (20,765) (11,679) (707)
Change in operating assets and liabilities:
Accounts receivable .......................... (49,178) (31,614) (6,789)
Inventory .................................... (11,852) (4,613) (1,805)
Income taxes ................................. 9,248 (2,636) (2,245)
Prepaid expenses and other assets ............ (8,202) (11,571) (1,011)
Accounts payable ............................. 22,486 14,474 5,578
Other accrued liabilities .................... 23,163 8,115 2,755
--------- --------- --------
Net cash provided by (used in) operating activities . 66,059 (4,003) (6,723)

INVESTING ACTIVITIES
Purchases of property and equipment, net ............ (29,244) (29,079) (8,100)
Proceeds from sale of investments ................... -- 8,808 --
Purchases of investments ............................ (18,396) (85,978) --
--------- --------- --------
Net cash used in investing activities ............... (47,640) (106,249) (8,100)

FINANCING ACTIVITIES
Proceeds from long-term obligations ................. -- 4,535 3,779
Payments on long-term obligations ................... (6,797) (4,873) (647)
Payments on capital lease obligations ............... (654) (329) (448)
Proceeds from issuance of preferred stock ........... -- -- 22,689
Payments on repurchase of preferred stock ........... -- -- (156)
Net proceeds from initial public offering of
Class A common stock .............................. -- 79,170 --
Net proceeds from follow-on offering of
Class A common stock .............................. -- 30,548 --
Net proceeds from issuance of common stock .......... 37,634 14,700 12,666
Tax benefit from exercise of stock options and stock
purchase plan ..................................... 51,653 25,171 191

Proceeds from repayment of notes receivable from
employees ......................................... 1,200 810 --
--------- --------- --------
Net cash provided by financing activities ........... 83,036 149,732 38,074
--------- --------- --------
Increase in cash and cash equivalents ............... 101,455 39,480 23,251
Cash and cash equivalents at beginning of year ...... 72,511 33,031 9,780
--------- --------- --------
Cash and cash equivalents at end of year ............ $ 173,966 $ 72,511 $ 33,031
========= ========= ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid ....................................... $ 420 $ 493 $ 274
========= ========= ========
Income taxes paid ................................... $ 2,397 $ 9,890 $ 1,850
========= ========= ========

See accompanying notes.

F-5

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Broadcom Corporation (the "Company") is the leading provider of highly
integrated silicon solutions that enable broadband digital transmission of
voice, video and data to and throughout the home and within the business
enterprise. These integrated circuits permit the cost effective delivery of
high-speed, high-bandwidth networking using existing communications
infrastructures that were not originally designed for the transmission of
broadband digital content. Using proprietary technologies and advanced design
methodologies, the Company designs, develops and supplies integrated circuits
for a number of the most significant broadband communications markets, including
the markets for digital cable set-top boxes, cable modems, high-speed office
networks, home networking, direct broadcast satellite and terrestrial digital
broadcast, and digital subscriber lines.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.

In 1999 the Company established an international distribution center in
Singapore and a design center in the Netherlands and, as a result of
acquisitions, has software design, development and marketing activities in
Canada and design and development activities in India. At December 31, 1999
approximately $73.0 million of the Company's net assets were located outside of
the United States, primarily in Singapore.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the financial statements include the
allowance for doubtful accounts, sales returns and allowances, inventory
reserves, warranty reserves and income tax valuation allowances.

REVENUE RECOGNITION

Revenue from product sales is recognized at the time of shipment.
Provision is concurrently made for estimated product returns. Development
revenue is recognized when earned. Revenue from licensed software is recognized
at the time of shipment, provided the Company has vendor-specific objective
evidence of the fair value of each element of the software offering. Revenue
from post-contract customer support and any other future deliverables is
deferred and earned over the support period or as contract elements are
delivered.

CONCENTRATION OF CREDIT RISK

The Company sells the majority of its products throughout North
America, Europe and Asia. Sales to the Company's recurring customers are
generally made on open account while sales to occasional customers are typically
made on a prepaid or letter of credit basis. The Company performs periodic
credit evaluations of its ongoing customers and generally does not require
collateral. Reserves are maintained for potential credit losses, and such losses
have been minimal and within management's expectations.

The Company invests its excess cash in deposits with major banks, in
U.S. Treasury and U.S. agency obligations and in debt securities of corporations
with strong credit ratings and in a variety of industries. It is the Company's
policy to invest in instruments that have a final maturity of no longer than
three years, with a portfolio weighted average maturity of not more than one
year.

F-6

54

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist principally of cash and
cash equivalents, short-term and long-term investments, accounts receivable,
accounts payable, and borrowings. The Company believes all of the financial
instruments' recorded values approximate current values.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and short-term investments
with original maturities of ninety days or less.

INVESTMENTS

The Company accounts for its investments in debt securities under FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Management determines the appropriate classification of such
securities at the time of purchase and reevaluates such classification as of
each balance sheet date. The investments are adjusted for amortization of
premiums and discounts to maturity and such amortization is included in interest
income. Realized gains and losses and declines in value judged to be other than
temporary are determined based on the specific identification method and are
reported in the statement of operations.

INVENTORY

Inventory is stated at the lower of cost (first-in, first-out) or
market and consists of the following:

DECEMBER 31,
-------------------
1999 1998
------- ------
(IN THOUSANDS)
Work in process...................... $11,878 $3,546
Finished goods....................... 7,299 3,779
------- ------
$19,177 $7,325
======= ======
PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation and
amortization are provided using the straight-line method over the assets'
estimated useful lives ranging from two to seven years. Property and equipment
are comprised of the following:

DECEMBER 31,
---------------------
1999 1998
--------- --------
(IN THOUSANDS)
Leasehold improvements.................................. $ 5,982 $ 744
Office furniture and equipment.......................... 6,413 4,064
Machinery and equipment................................. 17,404 8,228
Computer software and equipment......................... 37,794 25,445
Construction in progress................................ 4,478 5,330
--------- --------
72,071 43,811
Less accumulated depreciation and amortization.......... (24,972) (12,211)
-------- --------
$ 47,099 $ 31,600
======== ========
LONG-LIVED ASSETS

The Company accounts for long-lived assets in accordance with FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present.

F-7

55

INCOME TAXES

The Company utilizes the liability method of accounting for income
taxes as set forth in FASB Statement No. 109, Accounting for Income Taxes. Under
the liability method, deferred taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and has adopted the disclosure-only alternative of FASB Statement No.
123, Accounting for Stock-Based Compensation. Options granted to non-employees,
as defined, have been accounted for at fair market value in accordance with
Statement No. 123.

EARNINGS PER SHARE

Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
year. Diluted earnings per share is calculated by adjusting outstanding shares,
assuming any dilutive effects of options, warrants and convertible securities.

The following table sets forth the computation of earnings (loss) per
share:

YEARS ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Numerator: net income (loss) ........................... $ 83,287 $ 24,592 $ (5,929)
========= ========= =========
Denominator:
Weighted average shares outstanding .................. 204,546 180,438 131,386
Less: nonvested common shares outstanding ............ (6,034) (11,553) (15,045)
--------- --------- ---------
Denominator for basic earnings (loss) per common share . 198,512 168,885 116,341
Effect of dilutive securities:
Nonvested common shares .............................. 4,798 7,156 --
Stock options ........................................ 28,967 20,123 --
Convertible preferred stock .......................... -- 8,453 --
Warrants ............................................. 8 14 --
--------- --------- ---------
Denominator for diluted earnings (loss) per common share 232,285 204,631 116,341
========= ========= =========
Basic earnings (loss) per share ...................... $ .42 $ .15 $ (.05)
========= ========= =========
Diluted earnings (loss) per share .................... $ .36 $ .12 $ (.05)
========= ========= =========

RESEARCH AND DEVELOPMENT EXPENDITURES

Research and development expenditures are expensed in the period
incurred.

WARRANTY

The Company provides a one-year warranty on most products and records a
related provision for estimated warranty costs at the date of sale. The
estimated warranty liability at December 31, 1999 and 1998 was $3.7 million and
$2.0 million, respectively.

COMPREHENSIVE INCOME

FASB Statement No. 130, Reporting Comprehensive Income, establishes
standards for reporting and displaying comprehensive income and its components
in the consolidated financial statements. For the years ended December 31, 1999,
1998 and 1997, the Company did not have any components of comprehensive income
as defined in Statement No. 130.

F-8

56

SEGMENTS OF A BUSINESS ENTERPRISE

FASB Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information, establishes standards for the way that public business
enterprises report information about operating segments in annual consolidated
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement No.
131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company operates in one
segment, broadband communications.

STATEMENT OF CASH FLOWS

For purposes of the statement of cash flows, the Company considers
investment securities with original maturities of ninety days or less to be cash
equivalents.

The following table sets forth certain non-cash transactions excluded
from the statements of cash flows:

YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- ---- ------
(IN THOUSANDS)

Purchase of equipment through capital leases ....... $ 297 $992 $ 583
Notes receivable from employees issued in
connection with exercise of stock options ........ -- 191 2,614
Non-interest bearing notes payable converted
to common stock .................................. 3,142 -- --
Tax benefit from exercise of stock options and stock
purchase plan ................................... 102,450 -- --

RECLASSIFICATIONS

Certain amounts in the 1998 and 1997 consolidated financial statements
have been reclassified to conform to the current year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998 the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which establishes new standards
for recording derivatives in interim and annual financial statements. This
statement requires recording all derivative instruments as assets or
liabilities, measured at fair value. Statement No. 133 is effective for fiscal
years beginning after June 15, 2000. Management does not anticipate that the
adoption of the new statement will have a significant impact on the consolidated
results of operations or financial position of the Company.

2. BUSINESS COMBINATIONS

Pooling-of-Interests Transactions

On May 31, 1999 the Company completed the acquisitions of Maverick
Networks ("Maverick"), Epigram, Inc. ("Epigram"), and Armedia, Inc. ("Armedia").
Maverick develops highly integrated silicon for multi-layer switching equipment
in enterprise networks, Epigram makes advanced semiconductor products for
high-speed home networking, and Armedia is a developer of high performance
digital video decoders. In connection with the acquisitions, the Company issued
12,727,644 shares of its Class B common stock and reserved an additional
1,332,924 shares of its Class B common stock for issuance upon exercise of
outstanding employee stock options, warrants and other rights assumed by the
Company.

On August 31, 1999 the Company completed the acquisitions of HotHaus
Technologies Inc. ("HotHaus") and AltoCom, Inc. ("AltoCom"). HotHaus is a
provider of OpenVoIP(TM) (Voice over Internet Protocol) embedded

F-9

57

communications software that enables transmission of digital voice, fax and data
packets over data networks, including the Internet. AltoCom offers complete
software data/fax modem implementations for general purpose embedded processors,
PC CPUs and digital signal processors. In connection with the acquisitions, the
Company issued 6,723,142 shares of its Class B common stock and reserved an
additional 516,526 shares of its Class B common stock for issuance upon exercise
of outstanding employee stock options and other rights assumed by the Company.

Each of the acquisitions was accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements have been restated
to include the pooled operations of Maverick, Epigram, Armedia, HotHaus, and
AltoCom (collectively, the "Acquired Companies"). A reconciliation of revenue,
net income (loss) and diluted earnings (loss) per share originally reported for
the years ended December 31, 1998 and 1997 to the restated amounts presented in
the accompanying Consolidated Statements of Operations is as follows:

YEARS ENDED DECEMBER 31,
------------------------
1998 1997
---------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

Revenue
Broadcom (as originally reported).......... $ 203,095 $ 36,955
Maverick, Epigram and Armedia ............. 200 913
HotHaus and AltoCom ....................... 13,161 4,473
--------- --------
Total ................................ $ 216,456 $ 42,341
========= ========

Net income (loss)
Broadcom (as originally reported).......... $ 36,398 $ (1,173)
Maverick, Epigram and Armedia ............. (14,774) (5,379)
HotHaus and AltoCom ....................... 2,968 623
--------- --------
Total ................................ $ 24,592 $ (5,929)
========= ========
Diluted earnings (loss) per share
Broadcom (as originally reported).......... $ .19 $ (.01)
Maverick, Epigram and Armedia ............. (.08) (.05)
HotHaus and AltoCom ....................... .01 .01
--------- --------
Total ................................ $ .12 $ (.05)
========= ========

The restated consolidated financial statements give effect to the
business combinations as if they had occurred prior to the beginning of each
period presented and reflect adjustments made to (i) conform the accounting
policies of the combined companies and (ii) eliminate intercompany accounts and
transactions.

The historical numbers of shares of the Acquired Companies' respective
common stock and common stock equivalents have been converted to equivalent
shares of the Company's common stock based on the applicable exchange ratios
used to convert the respective outstanding shares of each Acquired Company on
the respective acquisition dates.

Included in revenue for the year ended December 31, 1999 were aggregate
revenues of $8.3 million from the Acquired Companies incurred prior to the
respective closings of the acquisitions. Included in net income for the year
ended December 31, 1999 were aggregate net losses of $8.8 million from the
Acquired Companies incurred prior to the respective closings of the
acquisitions.

AltoCom recorded approximately $6.4 million and $2.2 million in the
years ended December 31, 1999 and 1998, respectively, representing accretion to
redemption value of its preferred stock. Such amounts have been presented as
reductions to retained earnings in the accompanying Consolidated Statements of
Shareholders' Equity.

Merger-Related Costs

In connection with the acquisitions of the Acquired Companies, the
Company recorded approximately $15.2 million in charges during the year ended
December 31, 1999 for direct and other merger-related costs and certain
restructuring programs. Merger transaction costs of approximately $11.9 million
consisted primarily of fees for

F-10

58

investment bankers, attorneys, accountants and other related charges.
Restructuring costs of approximately $3.3 million included provisions for the
disposal of duplicative facilities and assets, write-down of unutilized assets,
and adjustments to conform accounting policies to those of the Company.

3. INVESTMENTS

At December 31, 1999 all of the Company's investments were in
commercial paper and state, municipal and county government bonds, and were
classified as held-to-maturity. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity investments are stated at cost,
adjusted for amortization of premiums and discounts to maturity. A summary of
held-to-maturity securities by balance sheet caption at December 31, 1999 is as
follows:

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
Cash equivalents ....... $ 22,514 $3 $ -- $ 22,517
Short-term investments . 86,215 1 (185) 86,031
Long-term investments .. 9,351 - (89) 9,262
-------- -- ----- --------
Securities classified as
held-to-maturity ..... $118,080 $4 $(274) $117,810
======== == ===== ========

Scheduled maturities of held-to-maturity investments at December 31,
1999 were as follows:

AMORTIZED FAIR
COST VALUE
--------- --------
(IN THOUSANDS)
Debt securities maturing within:
One year ..................... $108,729 $108,548
Two years .................... 9,351 9,262
-------- --------
$118,080 $117,810
======== ========

4. INCOME TAXES

A reconciliation of the provision (benefit) for income taxes at the
federal statutory rate compared to the Company's effective tax rate follows:

YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)

Statutory federal provision (benefit) for income taxes $ 41,763 $ 15,812 $(2,069)
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit ................ (174) 783 40
Benefit of research and development tax credits .... (14,906) (3,640) (229)
Losses of acquired companies not benefited ......... -- 4,326 2,041
Tax rate differential on foreign earnings .......... 7,736 3,068 --
Non-deductible expenses ............................ 2,495 -- --
Tax exempt interest ................................ (845) (458) --
Other .............................................. (34) 695 60
-------- -------- -------
Total provision (benefit) for income taxes ........... $ 36,035 $ 20,586 $ (157)
======== ======== =======

F-11

59

The income tax provision (benefit) consisted of the following
components:

YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- -------- -----
(IN THOUSANDS)
Current:
Federal............... $ 131,297 $ 27,182 $ 413
State................. 23,574 5,216 1
Foreign............... 4,379 -- --
--------- -------- -----
159,250 32,398 414
Deferred:
Federal............... (99,374) (9,169) (631)
State................. (23,841) (2,643) 60
--------- -------- -----
(123,215) (11,812) (571)
--------- -------- -----
$ 36,035 $ 20,586 $(157)
========= ======== =====

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred taxes were as follows:

DECEMBER 31,
--------------------------
1999 1998
--------- --------
(IN THOUSANDS)

Deferred tax assets:
Book depreciation in excess of tax depreciation .......... $ 566 $ 1,376
Research and development tax credit carryforwards ........ 25,994 3,710
Net operating loss carryforwards ......................... 104,817 7,926
Reserves and accruals not currently deductible
for tax purposes ...................................... 10,567 6,216
California manufacturer's investment credit carryforward . 1,056 479
Other .................................................... 9 87
Valuation allowance ...................................... (6,889) (6,889)
--------- --------
Net deferred tax assets .................................... $ 136,120 $ 12,905
========= ========

At December 31, 1999 the Company had federal and state net operating
loss carryforwards of $277.1 million and $145.9 million, respectively, which
begin to expire in 2010 and 2003, respectively. These net operating losses are
primarily the result of tax deductions related to employee stock option
exercises. At December 31, 1999 the Company had federal and state research and
development credit carryforwards of $18.3 million and $12.7 million,
respectively, which begin to expire in 2010. Additionally, at December 31, 1999,
the Company had California manufacturer's investment credit carryforwards of
$1.1 million, which begin to expire in 2006.

The Company maintains a valuation allowance against certain of its
acquired net operating losses from Epigram, Armedia and HotHaus, incurred in
1998 and 1997, due to uncertainty regarding their future realization. The
utilization of such losses is subject to stringent limitations under the
Internal Revenue Code. The Company has not provided a valuation allowance
against the remainder of its deferred tax assets as management believes these
assets will be realized against income in future years. Any future reductions in
the valuation allowance will reduce tax expense in future years.

5. LONG-TERM DEBT

In August 1999 the Company entered into a revolving line of credit
arrangement with a bank which can be renewed annually through August 2003 and
whereby the Company may borrow up to $1.2 million at an interest rate based on
the bank's cost of funds plus 75 basis points. No amounts were borrowed under
this line of credit during the year ended December 31, 1999.

F-12

60

The following is a summary of the Company's long-term debt and other
loans, including debt and loans assumed upon acquisition of the Acquired
Companies:

DECEMBER 31,
-------------------------
1999 1998
-------- --------
(IN THOUSANDS)

Long-term notes at rates from 10.75% to 12.25% secured by
certain of the Company's assets ...................... $ -- $ 3,512
Non-interest bearing notes payable ...................... -- 6,427
Capitalized lease obligations payable in varying monthly
installments at rates from 8.8% to 14.7% ............. 1,056 1,413
-------- --------
1,056 11,352
Less current portion of long-term debt .................. (508) (7,252)
-------- --------
$ 548 $ 4,100
======== ========

Interest expense for the years ended December 31, 1999, 1998 and 1997
was $546,000, $467,000, and $261,000, respectively.

6. COMMITMENTS

The Company leases its facilities and certain engineering design tools
and information systems equipment under operating lease agreements expiring
through 2005. Future minimum payments under noncancelable operating leases with
initial terms of one year or more were as follows: $30.3 million in 2000; $28.9
million in 2001; $23.5 million in 2002; $8.3 million in 2003; $4.5 million in
2004; and $4.2 million thereafter.

The Company had commitments totaling approximately $4.0 million as of
December 31, 1999 primarily for the purchase of engineering design tools and
computer hardware and for information systems infrastructure.

Rent expense for the years ended December 31, 1999, 1998 and 1997
aggregated $6.1 million, $2.9 million and $1.1 million, respectively.

7. SHAREHOLDERS' EQUITY

COMMON STOCK

In September 1999 the Board of Directors approved an increase in the
number of authorized shares of Class A common stock from 200,000,000 to
400,000,000 and in the number of authorized shares of Class B common stock from
100,000,000 to 200,000,000. This increase was approved by the shareholders on
November 22, 1999. The shares of Class A common stock and Class B common stock
are substantially identical, except that holders of Class A common stock are
entitled to one vote for each share held, and holders of Class B common stock
are entitled to ten votes for each share held on all matters submitted to a vote
of the shareholders. In addition, holders of Class B common stock are entitled
to vote separately on the proposed issuance of additional shares of Class B
common stock in certain circumstances. The Class A common stock and Class B
common stock are sometimes collectively referred to herein as the "common
stock."

STOCK SPLIT

The Company effected a 2-for-1 split of its Class A common stock and
Class B common stock, in the form of a 100% stock dividend, on February 17,
1999. The Company previously effected a 3-for-2 split of its common stock on
March 9, 1998. All share numbers and per share amounts contained in these notes
and in the accompanying consolidated financial statements have been
retroactively restated to reflect these changes in the Company's capital
structure.

SALE OF SHARES TO CISCO SYSTEMS, INC.

In February 1998 Cisco Systems, Inc. ("Cisco Systems") exercised its
option to purchase 2,000,000 shares of Class A common stock upon consummation of
the Company's initial public offering at a price per share equal to the initial
public offering price, net of underwriting discounts and commissions. Such
option was granted to Cisco Systems in connection with the Development and
License Agreement entered into between the Company and Cisco Systems effective
in September 1996, as amended on February 3, 1998.

F-13

61

INITIAL PUBLIC OFFERING AND FOLLOW-ON OFFERING

In April 1998 the Company completed its initial public offering (the
"Offering") of 16,100,000 shares of its Class A common stock. Of these shares,
the Company sold 12,480,000 shares and selling shareholders sold 3,620,000
shares, at a price of $6.00 per share. In addition, the Company sold 2,000,000
shares of Class A common stock to Cisco Systems, in a concurrent registered
offering that was not underwritten, at a price of $5.58 per share. The Company
received aggregate net proceeds from the Offering and the sale of shares to
Cisco Systems of approximately $79.2 million in cash (net of underwriting
discounts and commissions and offering costs). Upon consummation of the
Offering, all outstanding shares of the Company's convertible preferred stock
were automatically converted into an aggregate of 33,814,068 shares of Class B
common stock.

In October 1998 the Company completed a follow-on public offering. Of
the 13,800,000 shares of Class A common stock offered, the Company sold
1,880,000 shares and selling shareholders sold 11,920,000 shares, at a price of
$17.25 per share. The Company received net aggregate proceeds of approximately
$30.5 million after deducting underwriting discounts and commissions and
offering costs.

CONVERTIBLE PREFERRED STOCK

Upon consummation of the Offering in April 1998, each outstanding share
of Series A, B, C and D preferred stock was converted into twelve shares of
Class B common stock, and each outstanding share of Series E preferred stock was
converted into six shares of Class B common stock. As of December 31, 1999 and
1998, no shares of preferred stock were outstanding. The Company is authorized
to issue up to 10,000,000 shares of preferred stock.

ISSUANCE OF WARRANTS

In April 1998 the Company issued a Class A common stock Purchase
Warrant (the "Warrant") to Brobeck, Phleger & Harrison LLP, counsel to the
Company, to purchase up to 40,000 shares of the Company's Class A common stock
at an exercise price of $6.00 per share. In May 1999 Brobeck, Phleger & Harrison
LLP exercised the Warrant, which resulted in the net issuance of 34,184 shares
of Class A common stock.

EMPLOYEE STOCK PURCHASE PLAN

The Company has an employee stock purchase plan for all eligible
employees. Under the plan, employees may purchase shares of the Company's Class
A common stock at six-month intervals at 85% of fair market value (calculated in
the manner provided under the plan). Employees purchase such stock using payroll
deductions, which may not exceed 15% of their total cash compensation. In fiscal
1999 and 1998, 737,088 and 338,256 shares, respectively, were issued under the
plan at average prices of $6.81 and $5.10, respectively. At December 31, 1999,
1,924,656 shares were available for future issuance.

STOCK OPTION PLANS

The Company has in effect several stock-based plans under which
non-qualified and incentive stock options have been granted to employees,
non-employee board members and other non-employees. The Company's 1998 Stock
Incentive Plan (the "1998 Plan") is the successor equity incentive program to
the Company's 1994 Stock Option Plan (the "1994 Plan") and the Company's 1998
Special Stock Option Plan (together, the "Predecessor Plans").

The Board of Directors or the Plan Administrator determines
eligibility, vesting schedules and exercise prices for options granted under the
plans. Options generally have a term of 10 years and vest and become exercisable
at the rate of 25% after one year and ratably on a monthly basis for three years
thereafter.

Options granted under the 1994 Plan were exercisable immediately upon
issuance. The Company has reserved the right to repurchase all unvested shares
held by a participant upon the participant's termination, at the original

F-14

62

purchase price. At December 31, 1999 there were 10,858,342 unvested options
outstanding under the 1994 Plan that were exercisable.

At the discretion of the Board of Directors or the Plan Administrator,
the Company may make secured loans to option holders in amounts up to the
exercise price of their options plus related taxes or permit the option holder
to pay the exercise price in installments over a determined period. The Company
did not make any loans to option holders during 1999. During 1998 and 1997, the
Company loaned $191,000 and $2,614,000, respectively, to employees for the
exercise of options. These notes are full-recourse, are secured by the shares of
stock issued upon exercise, are interest bearing with rates ranging from 5.6% to
6.5%, are due between three and five years from the exercise date, and must be
ratably repaid upon sale of the issued shares of stock.

As of December 31, 1999, 74,044,490 shares of common stock were
reserved for issuance under the 1998 Plan, including outstanding options granted
under Predecessor Plans. The number of shares of Class A common stock reserved
for issuance under the 1998 Plan automatically increases in January each year.
Beginning in 2000, the increase will be equal to 4.5% of the total number of
shares of common stock outstanding on the last trading day of the preceding
year, subject to an annual share limit.

In October 1999 the Board of Directors approved the 1999 Special Stock
Option Plan (the "1999 Plan") and reserved an aggregate of 1,000,000 shares of
Class A common stock for issuance under that plan. Employees, independent
consultants and advisors in the service of the Company or any of its
subsidiaries who are neither officers of the Company nor members of the Board at
the time of the option grant are eligible to participate in the plan. The
exercise price of options granted under the 1999 Plan can be less than the fair
market value of the underlying common stock on the grant date. In 1999, 40,542
options were granted under the 1999 Plan, to certain employees of acquired
companies in connection with assumed employment agreements, at a
weighted-average exercise price of $2.84. The 1998 Plan, 1999 Plan and
Predecessor Plans are collectively referred to herein as the "Broadcom Plans."

As a result of the Company's acquisitions of Maverick, Epigram,
Armedia, HotHaus and AltoCom, the Company assumed stock options granted under
stock option plans established by each Acquired Company (collectively, the
"Acquired Company Plans"). In accordance with its general practice, the Company
also granted options under the Broadcom Plans to employees hired from the
Acquired Companies. As of December 31, 1999, 1,307,674 shares of Class B common
stock were reserved for issuance upon exercise of outstanding options assumed
under the Acquired Company Plans.

F-15

63

COMBINED OPTION PLAN ACTIVITY

Activity under the Broadcom Plans and the Acquired Company Plans during
1999, 1998 and 1997 is set forth below:

OPTIONS OUTSTANDING
--------------------------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER OF PRICE EXERCISE
FOR GRANT SHARES PER SHARE PRICE
----------- ----------- ------------- ------

Balance at December 31, 1996 ................. 5,733,000 8,304,554 $ .02-$ .28 $ .21
Additional shares reserved ................. 38,400,000 -- -- --
Options granted under Broadcom Plans ....... (21,321,600) 21,321,600 .29- 2.00 .63
Options granted under Acquired Company Plans -- 1,562,210 .02- 6.96 .26
Options canceled ........................... 44,244 (69,458) .08- .29 .15
Options exercised .......................... -- (9,009,168) .02- 2.00 .42
----------- ----------- ------------- ------
Balance at December 31, 1997 ................. 22,855,644 22,109,738 .02- 6.96 .54
Additional shares reserved ................. 20,000,000 -- -- --
Options granted under Broadcom Plans ....... (27,788,700) 27,788,700 2.50- 30.19 11.34
Options granted under Acquired Company Plans -- 1,551,350 .02- 10.44 .93
Options canceled ........................... 1,586,300 (1,602,792) .08- 12.25 1.89
Option shares repurchased .................. 12,000 -- -- --
Options exercised .......................... -- (3,947,302) .02- 15.53 .61
----------- ----------- ------------- ------
Balance at December 31, 1998 ................. 16,665,244 45,899,694 .02- 30.19 7.03
Additional shares reserved ................. 22,619,168 -- -- --
Options granted under Broadcom Plans ....... (23,015,952) 23,015,952 2.80- 122.84 52.31
Options granted under Acquired Company Plans -- 502,558 .02- 49.76 8.11
Options canceled ........................... 504,086 (524,546) .02- 89.53 25.39
Option shares repurchased .................. 2,750 -- -- --
Options exercised .......................... -- (9,316,790) .02- 54.50 2.67
----------- ----------- ------------- ------
Balance at December 31, 1999 ................. 16,775,296 59,576,868 $ .02-$122.84 $25.05
=========== =========== ============= ======

The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of December
31, 1999 were as follows:

OUTSTANDING
------------------------------------------------
WEIGHTED AVERAGE EXERCISABLE
REMAINING -------------------------------
RANGE OF NUMBER OF CONTRACTUAL LIFE WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
EXERCISE PRICES SHARES (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------- ---------- ---------------- ---------------- ----------- ---------------

$ .02 to $ .28 6,792,488 7.07 $ .26 6,792,488 $ .26
$ .31 to $ 2.50 15,032,796 8.04 $ 1.74 8,355,234 $ 1.23
$ 2.80 to $ 20.45 12,982,032 8.73 $17.10 1,473,114 $ 10.76
$ 20.73 to $ 46.53 13,354,444 9.27 $38.04 867,204 $ 33.40
$ 46.78 to $ 122.84 11,415,108 9.75 $64.32 98,298 $ 53.00

Additional information relating to the Broadcom Plans and the Acquired
Company Plans was as follows:

DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------

Nonvested common shares subject to repurchase 3,962,528 9,045,838 16,399,550
Weighted average repurchase price ........... $.53 $.35 $.25
Unvested options outstanding ................ 52,848,872 42,458,970 20,334,650
Vested options outstanding .................. 6,727,996 3,440,724 1,775,088
Total reserved common stock shares for
stock option plans ........................ 76,352,164 62,564,938 44,965,382

The Company recorded approximately $5.0 million and $7.6 million of net
deferred compensation in the years ended December 31, 1999 and 1998,
respectively, for the difference between the exercise price of certain stock

F-16

64

options granted and the fair value of the underlying common stock. Of these
amounts, approximately $5.0 million in 1999 and $2.3 million in 1998 represent
deferred compensation related to the grant of stock options to certain employees
of the Acquired Companies. Deferred compensation is presented as a reduction to
shareholders' equity and is amortized ratably over the respective vesting
periods of the applicable options. The Company amortized an aggregate of $3.8
million and $1.8 million of deferred compensation in 1999 and 1998,
respectively.

PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION PLANS

Pro forma information regarding results of operations and net income
(loss) per share is required by FASB Statement No. 123 for stock-based awards to
employees as if the Company had accounted for such awards using a valuation
method permitted under Statement No. 123.

The value of the Company's stock-based awards granted to employees
prior to the Company's initial public offering in April 1998 was estimated using
the minimum value method, which does not consider stock price volatility.
Stock-based awards granted subsequent to the initial public offering have been
valued using the Black-Scholes option pricing model. Among other things, the
Black-Scholes model considers the expected volatility of the Company's stock
price, determined in accordance with Statement No. 123, in arriving at an option
valuation. Estimates and other assumptions necessary to apply the Black-Scholes
model may differ significantly from assumptions used in calculating the value of
options granted prior to the initial public offering under the minimum value
method.

The fair value of the Company's stock-based awards granted to employees
prior to the initial public offering was estimated assuming no expected
dividends, a weighted average expected life of 3.5 years, a weighted average
risk-free interest rate of 6.0% and no expected volatility. The fair value of
options granted after the initial public offering was estimated assuming no
expected dividends, a weighted average expected life of one year from vest date
in 1999 and 1.5 years from vest date in 1998, a weighted average risk-free
interest rate of 6.0% in 1999 and 5.0% in 1998, and an expected volatility of
.80 in 1999 and .74 in 1998. The fair value of employee stock purchase rights
was estimated assuming no expected dividends, a weighted average expected life
of 17 months in 1999 and 15 months in 1998, a weighted average risk-free
interest rate of 6.0% in 1999 and 5.0% in 1998, and an expected volatility of
.80 in 1999 and .74 in 1998.

The weighted average fair value of options granted during 1999, 1998
and 1997 was $31.35, $6.26 and $.18, respectively. The weighted average fair
value of employee stock purchase rights granted in 1999 and 1998 was $4.60 and
$3.08, respectively. For pro forma purposes, the estimated value of the
Company's stock-based awards to employees is amortized over the vesting period
of the underlying instruments. The results of applying Statement No. 123 to the
Company's stock-based awards to employees would approximate the following:

YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net income (loss)
As reported............................. $ 83,287 $24,592 $(5,929)
Pro forma............................... (105,566) 7,263 (6,548)
Basic earnings (loss) per share
As reported............................. $ .42 $ .15 $ (.05)
Pro forma............................... (.53) .04 (.06)
Diluted earnings (loss) per share
As reported............................. $ .36 $ .12 $ (.05)
Pro forma............................... (.53) .04 (.06)

F-17

65

8. EMPLOYEE BENEFIT PLANS

The Company sponsors a defined contribution 401(k) Savings and
Investment Plan, which was established in 1996, covering substantially all of
the Company's employees, subject to certain eligibility requirements. At its
discretion, the Company may make contributions to the plan. The Company made no
contributions to this plan in 1999, 1998 and 1997.

9. LITIGATION

In December 1996 Stanford Telecommunications, Inc. ("STI") filed an
action against the Company in the United States District Court for the Northern
District of California. STI alleged that several of the Company's cable modem
products infringed one of STI's patents. In May 1999 the Company brought a
separate action against STI and an STI subsidiary in California Superior Court
for misappropriation of certain Company trade secrets. In June 1999 the parties
entered into a settlement agreement and agreed to dismiss with prejudice all
claims and counterclaims in both actions. Under the terms of the settlement
agreement, STI granted to the Company a worldwide, non-exclusive, royalty-free
license to STI's rights in patents and patent applications, and all inventions
conceived, through the date of the agreement, relating to any transmitter or
receiver technology, or design or invention capable of use over a coaxial cable
transmission medium, excluding patent claims specifically claiming Code Division
Multiple Access ("CDMA") inventions. The Company also obtained the option to
acquire licenses on commercially reasonable terms to STI's patent claims based
upon CDMA inventions capable of use over a coaxial cable transmission medium,
and STI agreed not to bring any future action against the Company, its suppliers
or customers for patent infringement or trade secret misappropriation resulting
from commercial use of any of the Company's existing technology, designs or
products. In connection with the settlement, the Company made a one-time payment
to STI and the parties exchanged mutual releases. Neither party admitted any
liability in connection with the various actions.

In April 1997 Sarnoff Corporation and Sarnoff Digital Communications,
Inc., now known as NxtWave Communications, Inc., (collectively, "Sarnoff") filed
a complaint in New Jersey Superior Court against the Company and five former
Sarnoff employees now employed by the Company asserting claims against the
former employees for breach of contract, misappropriation of trade secrets, and
breach of the covenant of good faith and fair dealing, and against the Company
for inducing such actions. The complaint also asserted claims against the
Company and the former employees for unfair competition, misappropriation and
misuse of trade secrets and confidential, proprietary information of Sarnoff,
and tortious interference with present and prospective economic advantage, as
well as a claim against the Company alleging that it "illegally pirated"
Sarnoff's employees. In early 1999 the Court found in the Company's favor on all
liability, causation and damages issues. Sarnoff appealed the Court's orders but
the appeal was later dismissed at Sarnoff's request.

In July 1997 the Company commenced an action against Sarnoff in the
California Superior Court alleging breach of contract, fraud, misappropriation
of trade secrets, false advertising, trade libel, intentional interference with
prospective economic advantage and unfair competition. The claims center on
Sarnoff's violation of a non-disclosure agreement entered into with the Company
with respect to limited use of certain of the Company's technology and on
inaccurate comparisons that the Company believes Sarnoff has made in its product
advertising and in statements to potential customers and others. This action was
removed to the United States District Court for the Central District of
California, and was stayed pending resolution of the New Jersey action described
in the preceding paragraph. Following the decision in the New Jersey action,
Sarnoff filed a motion for summary judgment in the California case on the basis
that the issues therein had been or should have been previously litigated in the
New Jersey action under the New Jersey "entire controversy" doctrine. Following
oral argument in August 1999, the California District Court granted Sarnoff's
motion and dismissed the Company's claims on the grounds that they should have
been brought as part of the New Jersey action. The Company believes that the
California action involves facts, circumstances and claims unrelated to those at
issue in the New Jersey action, and has filed an appeal of the District Court's
ruling. No discovery has yet occurred in the case.

In March 1998 Scott O. Davis, the Company's former Chief Financial
Officer, filed a complaint in California Superior Court against the Company and
its Chief Executive Officer, Henry T. Nicholas III, alleging claims for fraud
and deceit, negligent misrepresentation, breach of contract, breach of fiduciary
duty, constructive fraud, conversion, breach of the implied covenant of good
faith and fair dealing, and declaratory relief. The claims related

F-18

66

to Mr. Davis' alleged ownership of 26,000 shares of Series D preferred stock
originally purchased by Mr. Davis in March 1996 (which shares would have
converted into 312,000 shares of Class B common stock upon consummation of the
Offering). The purchase agreement between the Company and Mr. Davis contained a
provision permitting the Company to repurchase the shares in the event that Mr.
Davis did not continue to be employed by the Company for a certain period of
time. After Mr. Davis resigned in June 1997, the Company exercised its
repurchase right. Mr. Davis' complaint alleged that the repurchase right should
not be enforceable under several legal theories and sought unspecified damages
and declaratory relief. The Company asserted certain counterclaims against Mr.
Davis. In March 1999 the parties entered into a settlement agreement and agreed
to dismiss with prejudice all of the claims and counterclaims in the case. The
settlement was approved by the Court in April 1999. The terms of the settlement
are confidential but the Company believes that they do not have a material
effect on its business, results of operations, financial condition or equity.

In September 1998 Motorola, Inc. ("Motorola") filed a complaint in
United States District Court for the District of Massachusetts against AltoCom
(and co-defendant, PC-Tel, Inc.), asserting that (i) AltoCom's V.34 and V.90
compliant software modem technology infringes several patents owned by Motorola,
(ii) AltoCom induces its V.34 and V.90 licensees to infringe such patents, and
(iii) AltoCom contributorily infringes such patents. The complaint sought a
preliminary and permanent injunction against AltoCom as well as the recovery of
monetary damages, including treble damages for willful infringement. In October
1998 Motorola affirmatively dismissed its case in the District of Massachusetts
and filed a substantially similar complaint in the United States District Court
for the District of Delaware. AltoCom has filed an answer and affirmative
defenses to the District of Delaware complaint. AltoCom has also asserted a
counterclaim requesting declaratory relief that AltoCom has not infringed the
Motorola patents and that such patents are invalid and/or unenforceable as well
as a counterclaim requesting declaratory and injunctive relief based on breach
of contract theory. AltoCom believes that it has strong defenses to Motorola's
claims on invalidity, noninfringement and inequitable conduct grounds. The
parties are currently engaged in discovery in the action. A hearing on patent
claims construction is scheduled to commence in June 2000 and a three-week trial
is scheduled to begin in February 2001. AltoCom became a subsidiary of the
Company on August 31, 1999. In September 1999 PC-Tel, Inc., the co-defendant in
the case, reached a settlement with Motorola.

Although AltoCom believes that it has strong defenses and is defending
the action vigorously, a finding of infringement by AltoCom as to at least one
of the patents in this action could lead to liability for monetary damages
(which could be trebled in the event that the infringement were found to have
been willful), the issuance of an injunction requiring that AltoCom withdraw
various products from the market, and indemnification claims by AltoCom's
customers or strategic partners, each of which events could have a material
adverse effect on AltoCom's, and possibly the Company's, business, results of
operations and financial condition.

The Company is also involved in other legal proceedings, claims and
litigation arising in the ordinary course of business.

The Company's pending lawsuits involve complex questions of fact and
law and could require the expenditure of significant costs and diversion of
resources to defend. Although management currently believes the outcome of the
Company's outstanding legal proceedings, claims and litigation will not have a
material adverse effect on the Company's business, results of operations or
financial condition, the results of litigation are inherently uncertain, and an
adverse outcome is at least reasonably possible. The Company is unable to
estimate the range of possible loss from outstanding litigation, and no amounts
have been provided for such matters in the accompanying consolidated financial
statements.

10. SIGNIFICANT CUSTOMER AND SUPPLIER INFORMATION

During 1999, 1998 and 1997, the Company had a total of three customers
whose revenue represented a significant portion of the Company's revenue in
certain or all years. Revenue from one customer represented approximately 27.5%
in 1999, 35.5% in 1998 and 27.9% in 1997 of the Company's revenue for the
respective year. Revenue from a second customer was approximately 18.1% in 1999,
26.8% in 1998 and 12.8% in 1997 of the Company's revenue for the respective
year. Revenue from a third customer accounted for approximately 10.6% of the
Company's revenue in 1999.

No other customer represented more than 10% of the Company's annual
revenue in these years.

F-19

67

Export revenue to all foreign customers as a percent of total revenue
was as follows:

YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
Europe...................................... 5.4% 4.4% 6.3%
Asia........................................ 11.7 7.3 8.9
Other....................................... 0.1 5.5 4.4
---- ---- ----
17.2% 17.2% 19.6%
==== ==== ====

The Company does not own or operate a fabrication facility. Two outside
foundries in Asia currently supply substantially all of the Company's
semiconductor devices in current production. Any sudden demand for an increased
amount of semiconductor devices or sudden reduction or elimination of any
existing source or sources of semiconductor devices could result in a material
delay in the shipment of the Company's products. In addition, substantially all
of the Company's products are assembled and tested by one of two third-party
subcontractors in Asia. The Company does not have long-term agreements with any
of these suppliers. Any problems associated with the fabrication facilities or
the delivery, quality or cost of the Company's products could have a material
adverse effect on the Company's business, results of operations and financial
condition.

11. RELATED PARTY TRANSACTIONS

ISSUANCE OF COMMON STOCK

Pursuant to an agreement dated as of October 31, 1997, the Company
issued and sold an aggregate of 900,000 shares of Class B common stock to Irell
& Manella LLP for an aggregate purchase price of $1.1 million. Werner F. Wolfen,
a director of the Company, served until December 31, 1998 as a Senior Partner of
Irell & Manella LLP, and currently is Senior Partner Emeritus of that firm.
David A. Dull, the Company's Vice President of Business Affairs, General Counsel
and Secretary, was a Partner of Irell & Manella LLP until March 1998. Irell &
Manella LLP has represented and continues to represent the Company in various
legal matters.

ENGAGEMENT AGREEMENT WITH IRELL & MANELLA LLP

Irell & Manella LLP has represented and continues to represent the
Company in various legal matters pursuant to an engagement agreement dated as of
January 1, 1997, and amended as of January 1, 1998. Under the engagement
agreement, the Company agreed to pay Irell & Manella LLP a fixed fee plus costs
for the firm's legal services rendered from and after January 1, 1998 with
respect to certain litigation matters. Irell & Manella LLP has agreed to render
legal services to the Company on most other matters at reduced rates from the
firm's standard rates for the two-year period commencing January 1, 1998. During
1999, 1998 and 1997, the Company paid approximately $2.0 million, $2.9 million
and $1.2 million, respectively, to Irell & Manella LLP for legal services
rendered by that firm. At December 31, 1999, approximately $869,000 was due to
Irell & Manella LLP.

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

We have prepared the following summarized unaudited quarterly financial
data using the consolidated financial statements of Broadcom, which have been
restated to include the operations of Maverick, Epigram, Armedia, HotHaus, and
AltoCom, on a pooling-of-interests basis as if they had combined with Broadcom
prior to the beginning of each period presented:

DILUTED
GROSS NET EARNINGS
REVENUE PROFIT INCOME PER SHARE
-------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FISCAL YEAR 1999

First Quarter....................... $ 99,980 $59,165 $16,494 $.07
Second Quarter...................... 119,027 71,298 2,723 .01
Third Quarter....................... 138,353 82,835 27,200 .12
Fourth Quarter...................... 160,823 95,048 36,870 .15

FISCAL YEAR 1998

First Quarter....................... $37,120 $23,037 $5,310 $.03
Second Quarter...................... 49,244 27,817 6,096 .03
Third Quarter....................... 55,474 30,576 5,172 .02
Fourth Quarter...................... 74,618 43,623 8,014 .04

F-20

68

13. SUBSEQUENT EVENTS

STOCK SPLIT

In January 2000 the Board of Directors approved a 2-for-1 split of the
Company's common stock, effected in the form of a 100% stock dividend. Holders
of the Company's Class A common stock received one additional share of Class A
common stock for each share held on the record date of January 31, 2000. The
additional shares were distributed on February 11, 2000. A comparable stock
dividend was distributed to holders of the Company's Class B common stock. All
share and per share amounts in the accompanying consolidated financial
statements have been retroactively restated to reflect this change in the
Company's capital structure.

INCREASES IN AUTHORIZED COMMON STOCK AND IN COMMON STOCK RESERVED FOR STOCK
OPTIONS

In January 2000 the Board of Directors approved an increase in the
number of authorized shares of Class A common stock from 400,000,000 to
800,000,000 and in the number of authorized shares of Class B common stock from
200,000,000 to 400,000,000. In February 2000 the Board of Directors approved an
amendment to the Company's 1998 Stock Incentive Plan, as amended, to increase
the number of shares of Class A common stock reserved for issuance under this
plan by an additional 15,000,000 shares. These matters will be submitted to a
vote of the shareholders at the Annual Meeting of Shareholders.

ACQUISITIONS

On February 29 and March 1, 2000 the Company completed the acquisitions
of Digital Furnace Corporation, BlueSteel Networks, Inc., and Stellar
Semiconductor, Inc. Digital Furnace develops communications algorithms and
software that increase the capacity of existing broadband networks for
interactive services, BlueSteel develops high-performance Internet security
processors for e-commerce and VPN (Virtual Private Network) applications, and
Stellar develops 3D graphics technology.

The Company issued in aggregate 2,015,307 shares of its Class B common
stock in exchange for all shares of the acquired companies' preferred stock and
common stock and reserved an additional 330,294 shares of its Class B common
stock for issuance upon exercise of employee stock options and other rights
assumed by the Company. These merger transactions will be accounted for as
poolings-of-interests, and the Company will take a charge for merger-related
expenses in the fiscal year ending December 31, 2000. The Company's consolidated
financial statements presented in the future will be restated to include the
financial position and results of operations of the acquired companies.

LITIGATION

On March 8, 2000 Intel Corporation and its subsidiary Level One
Communications, Inc. (collectively, "Intel") filed a complaint in California
Superior Court asserting claims against the Company for misappropriation of
trade secrets, unfair competition and tortious interference with existing
contractual relations by the Company in connection with its recent hiring of
three former Intel employees. The complaint seeks injunctive relief, damages,
exemplary damages and attorneys' fees. The litigation is in its early stages. A
preliminary injunction hearing is currently scheduled for April 28, 2000. The
Company has asserted and believes that Intel's claims are meritless and is
vigorously defending the action.

F-21
69

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following Exhibits are attached hereto and incorporated herein by
reference.

EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 (8) Strategic Alliance Agreement and Plan of Merger by and between
Broadcom Corporation, Mavnet Acquisition Corp. and Maverick
Networks.

2.2 (5) Merger Agreement and Plan of Reorganization by and among
Broadcom Corporation, Epic Acquisition Corp. and Epigram, Inc.

2.3 (6) Acquisition Agreement by and among Broadcom Corporation,
Broadcom (BVI) Limited, HH Acquisition (formerly 585573 B.C.
LTD.), HH Acquisition II (formerly 3030814 Nova Scotia ULC)
and HotHaus Technologies Inc.

3.1 (1) Amended and Restated Articles of Incorporation of the
Registrant.

3.2 Bylaws of the Registrant, as amended through February 29,
2000.

10.1 (1) Form of Indemnification Agreement for the Directors and
Officers of the Registrant.

10.3 (1) 1994 Amended and Restated Stock Option Plan, together with
form of Stock Option Agreement, form of Stock Purchase
Agreement, form of promissory note and form of stock pledge
agreement.

10.4 (3) 1998 Stock Incentive Plan, together with forms of Stock Option
Agreements, Notice of Grant, Stock Issuance Agreement, Stock
Purchase Agreement and related Addenda.

10.4.1 (7) 1998 Stock Incentive Plan, as amended and restated through
February 29, 2000.

10.5 (4) 1998 Employee Stock Purchase Plan, form of ESPP Stock Purchase
Agreement and Enrollment/Change Form.

10.8+ (1) Development, Supply and License Agreement dated September 29,
1997 between the Registrant and General Instrument
Corporation, formerly known as NextLevel Systems, Inc.

10.9 (1) Stock Purchase Agreement dated February 3, 1998 between the
Registrant and Cisco Systems, Inc.

10.10 (1) Registration Rights Agreement dated February 26, 1996 among
the Registrant and certain of its shareholders, as amended.

10.12 (1) 1998 Special Stock Option Plan, together with form of Stock
Option Agreement and form of Stock Purchase Agreement.

10.13 (1) Stock Purchase Agreement dated October 31, 1997 between the
Registrant and Irell & Manella LLP.

10.14+ (1) Engagement Agreement dated January 1, 1997, as amended,
between the Registrant and Irell & Manella LLP.

10.15 (2) Industrial Lease (Single Tenant; Net) dated August 7, 1998
between the Registrant and The Irvine Company.

11.1 Statement Regarding Computation of Earnings Per Share
(contained in Note 1 of Notes to Consolidated Financial
Statements).

21.1 Subsidiaries of the Company.

23.1 Consent of Independent Auditors.

27.1 Financial Data Schedule.

27.2 Restated 1998 and 1997 Financial Data Schedule.
- ----------

(1) Incorporated by reference to the similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No.
333-45619).

(2) Incorporated by reference to the similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No.
333-65117).
70

(3) Incorporated by reference to Exhibits 99.1 through 99.11 to the
Registration Statement on Form S-8 filed by the Registrant (Reg. No.
333-60763).

(4) Incorporated by reference to Exhibits 99.12 through 99.14 to the
Registration Statement on Form S-8 filed by the Registrant (Reg. No.
333-60763).

(5) Incorporated by reference to Exhibit 2.2 to the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.

(6) Incorporated by reference to Exhibit 2.1 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.

(7) Incorporated by reference to the Appendix to the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on
April 27, 2000, filed by the Registrant on March 27, 2000.

(8) Incorporated by reference to Exhibit 2.1 to the Annual Report on
Form 10-K for the year ended December 31, 1998.

+ Confidential treatment has previously been granted by the Commission
for certain portions of the referenced exhibit pursuant to Rule 406.

FINANCIAL STATEMENT SCHEDULES

(1) Report of Independent Auditors on Financial Statement Schedule S-1

(2) Schedule II -- Valuation and Qualifying Accounts S-2

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

71

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on March 30, 2000.

BROADCOM CORPORATION

By: /s/ Henry T. Nicholas III
-------------------------------------
Henry T. Nicholas III, Ph.D.
President, Chief Executive Officer
and Co-Chairman

POWER OF ATTORNEY

We, the undersigned officers and directors of Broadcom Corporation, do
hereby constitute and appoint Henry T. Nicholas III, Ph.D., and William J.
Ruehle, and each of them, our true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby, ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated:

Signature Title Date
- --------- ----- ----

President, Chief Executive Officer and March 30, 2000
/s/ Henry T. Nicholas III Co-Chairman (principal executive officer)
- -----------------------------------------
Henry T. Nicholas III, Ph.D.

/s/ Henry Samueli Vice President of Research & Development, March 30, 2000
- ----------------------------------------- Chief Technical Officer and Co-Chairman
Henry Samueli, Ph.D.

/s/ Myron S. Eichen Director March 30, 2000
- -----------------------------------------
Myron S. Eichen

/s/ Alan E. Ross Director March 30, 2000
- -----------------------------------------
Alan E. Ross

/s/ Werner F. Wolfen Director March 30, 2000
- -----------------------------------------
Werner F. Wolfen

/s/ William J. Ruehle Vice President and Chief Financial Officer March 30, 2000
- ----------------------------------------- (principal accounting officer)
William J. Ruehle

72

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

Board of Directors and Shareholders
Broadcom Corporation

We have audited the consolidated financial statements of Broadcom
Corporation as of December 31, 1999 and 1998, and for each of the three years in
the period ended December 31, 1999, and have issued our report thereon dated
January 18, 2000 (except for Note 13, as to which the date is March 8, 2000).
Our audits also included the financial statement schedule listed in Item 14(a).
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Orange County, California
January 18, 2000

S-1

73

SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

BROADCOM CORPORATION
(IN THOUSANDS)

BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ---------- ----------

Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts and sales
returns and allowances ................ $ 5,167 $ 7,973 $ -- $5,467 $ 7,673
Reserve for excess and obsolete inventory 4,783 233 -- 1,741 3,275
Reserve for warranty ....................... 2,022 1,856 -- 217 3,661
------- ------- ----- ------ -------
Total .............................. $11,972 $10,062 $ -- $7,425 $14,609
======= ======= ===== ====== =======
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts and sales
returns and allowances ............... $ 721 $ 7,923 $ -- $3,477 $ 5,167
Reserve for excess and obsolete inventory 1,686 4,154 -- 1,057 4,783
Reserve for warranty ....................... 150 1,872 -- -- 2,022
------- ------- ----- ------ -------
Total .............................. $ 2,557 $13,949 $ -- $4,534 $11,972
======= ======= ===== ====== =======
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts and sales
returns and allowances ................ $ 147 $ 574 $ -- $ -- $ 721
Reserve for excess and obsolete inventory 749 1,028 -- 91 1,686
Reserve for warranty ....................... -- 150 -- -- 150
------- ------- ----- ------ -------
Total .............................. $ 896 $ 1,752 $ -- $ 91 $ 2,557
======= ======= ===== ====== =======

S-2

74

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 (8) Strategic Alliance Agreement and Plan of Merger by and between
Broadcom Corporation, Mavnet Acquisition Corp. and Maverick
Networks.

2.2 (5) Merger Agreement and Plan of Reorganization by and among
Broadcom Corporation, Epic Acquisition Corp. and Epigram, Inc.

2.3 (6) Acquisition Agreement by and among Broadcom Corporation,
Broadcom (BVI) Limited, HH Acquisition (formerly 585573 B.C.
LTD.), HH Acquisition II (formerly 3030814 Nova Scotia ULC)
and HotHaus Technologies Inc.

3.1 (1) Amended and Restated Articles of Incorporation of the
Registrant.

3.2 Bylaws of the Registrant, as amended through February 29,
2000.

10.1 (1) Form of Indemnification Agreement for the Directors and
Officers of the Registrant.

10.3 (1) 1994 Amended and Restated Stock Option Plan, together with
form of Stock Option Agreement, form of Stock Purchase
Agreement, form of promissory note and form of stock pledge
agreement.

10.4 (3) 1998 Stock Incentive Plan, together with forms of Stock Option
Agreements, Notice of Grant, Stock Issuance Agreement, Stock
Purchase Agreement and related Addenda.

10.4.1 (7) 1998 Stock Incentive Plan, as amended and restated through
February 29, 2000.

10.5 (4) 1998 Employee Stock Purchase Plan, form of ESPP Stock Purchase
Agreement and Enrollment/Change Form.

10.8+ (1) Development, Supply and License Agreement dated September 29,
1997 between the Registrant and General Instrument
Corporation, formerly known as NextLevel Systems, Inc.

10.9 (1) Stock Purchase Agreement dated February 3, 1998 between the
Registrant and Cisco Systems, Inc.

10.10 (1) Registration Rights Agreement dated February 26, 1996 among
the Registrant and certain of its shareholders, as amended.

10.12 (1) 1998 Special Stock Option Plan, together with form of Stock
Option Agreement and form of Stock Purchase Agreement.

10.13 (1) Stock Purchase Agreement dated October 31, 1997 between the
Registrant and Irell & Manella LLP.

10.14+ (1) Engagement Agreement dated January 1, 1997, as amended,
between the Registrant and Irell & Manella LLP.

10.15 (2) Industrial Lease (Single Tenant; Net) dated August 7, 1998
between the Registrant and The Irvine Company.

11.1 Statement Regarding Computation of Earnings Per Share
(contained in Note 1 of Notes to Consolidated Financial
Statements).

21.1 Subsidiaries of the Company.

23.1 Consent of Independent Auditors.

27.1 Financial Data Schedule.

27.2 Restated 1998 and 1997 Financial Data Schedule.
- ----------

(1) Incorporated by reference to the similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No.
333-45619).

(2) Incorporated by reference to the similarly numbered exhibit to the
Registration Statement on Form S-1 filed by the Registrant (Reg. No.
333-65117).
75

(3) Incorporated by reference to Exhibits 99.1 through 99.11 to the
Registration Statement on Form S-8 filed by the Registrant (Reg. No.
333-60763).

(4) Incorporated by reference to Exhibits 99.12 through 99.14 to the
Registration Statement on Form S-8 filed by the Registrant (Reg. No.
333-60763).

(5) Incorporated by reference to Exhibit 2.2 to the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.

(6) Incorporated by reference to Exhibit 2.1 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.

(7) Incorporated by reference to the Appendix to the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on
April 27, 2000, filed by the Registrant on March 27, 2000.

(8) Incorporated by reference to Exhibit 2.1 to the Annual Report on
Form 10-K for the year ended December 31, 1998.

+ Confidential treatment has previously been granted by the Commission
for certain portions of the referenced exhibit pursuant to Rule 406.