BROADCOM CORP, S-1, 1998-02-05

BROADCOM CORP
S-1, 1998-02-05

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1998
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

BROADCOM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
CALIFORNIA 3674 33-0480482
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF
INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>

16251 LAGUNA CANYON ROAD
IRVINE, CALIFORNIA 92618
(714) 450-8700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

HENRY T. NICHOLAS, III
CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BROADCOM CORPORATION
16251 LAGUNA CANYON ROAD
IRVINE, CALIFORNIA 92618
(714) 450-8700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
BRUCE R. HALLETT, ESQ. LARRY W. SONSINI, ESQ.
ELLEN S. BANCROFT, ESQ. JAMES N. STRAWBRIDGE, ESQ.
LEE J. LESLIE, ESQ. JOSE F. MACIAS, ESQ.
BROBECK PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI
4675 MACARTHUR COURT, SUITE 1000 PROFESSIONAL CORPORATION
NEWPORT BEACH, CALIFORNIA 92660 650 PAGE MILL ROAD
(714) 752-7535 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C>
===============================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF REGISTRATION
TO BE REGISTERED OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------------------

Class A Common Stock, $.0001 par value
(2).................................. $53,880,000 $15,895
===============================================================================================
</TABLE>

(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
registration fee.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

EXPLANATORY NOTE

This Registration Statement covers the registration of (i) shares of
Class A Common Stock offered by the Company and the Selling Shareholders
pursuant to an underwritten public offering (the "Public Offering") and (ii)
500,000 shares of Class A Common Stock offered to Cisco Systems, Inc. by the
Company in a concurrent offering that is not underwritten (the "Cisco
Offering"). Therefore, this Registration Statement contains two forms of
prospectus: one to be used in connection with the Public Offering (the "Public
Offering Prospectus") and the other to be used in connection with the concurrent
Cisco Offering (the "Cisco Prospectus"). The Public Offering Prospectus and the
Cisco Prospectus are identical in all respects except for the front cover pages,
the tables of contents, the descriptions of the plan of distribution and the
descriptions of legal matters. These sections of the Cisco Prospectus are
included herein after the final page of the Public Offering Prospectus and are
labeled "Alternate Page for Cisco Prospectus" and "Alternate Sections for Cisco
Prospectus." Final forms of each prospectus will be filed with the Securities
Exchange Commission under Rule 424(b).
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

PROSPECTUS (Subject to Completion)

Issued February 5, 1998
Shares

LOGO
CLASS A COMMON STOCK
------------------------

OF THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, SHARES
ARE BEING SOLD BY THE COMPANY AND SHARES ARE BEING SOLD BY THE SELLING
SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING SHAREHOLDERS.
THE COMPANY HAS TWO CLASSES OF COMMON STOCK: CLASS A COMMON STOCK AND CLASS B
COMMON STOCK (COLLECTIVELY, THE "COMMON STOCK"). THE SHARES OF COMMON STOCK ARE
SUBSTANTIALLY IDENTICAL EXCEPT THAT THE HOLDERS OF CLASS A COMMON STOCK ARE
ENTITLED TO ONE VOTE PER SHARE, AND THE HOLDERS OF CLASS B COMMON STOCK ARE
ENTITLED TO TEN VOTES PER SHARE, ON ALL MATTERS SUBMITTED TO A VOTE OF THE
SHAREHOLDERS. EACH SHARE OF CLASS B COMMON STOCK IS CONVERTIBLE AT THE OPTION OF
THE HOLDER INTO ONE SHARE OF CLASS A COMMON STOCK, AND GENERALLY WILL
AUTOMATICALLY CONVERT INTO ONE SHARE OF CLASS A COMMON STOCK UPON TRANSFER OF
THE CLASS B COMMON STOCK FROM ITS ORIGINAL HOLDER. SEE "DESCRIPTION OF CAPITAL
STOCK." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR
A DISCUSSION OF FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE. APPLICATION WILL BE MADE TO LIST THE SHARES OF CLASS A COMMON
STOCK OFFERED HEREBY ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "BRCM."
------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

PRICE $ A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
Total(3)................. $ $ $ $
</TABLE>

- ------------

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."

(2) Before deducting expenses payable by the Company estimated at $ .

(3) The Company and certain Selling Shareholders have granted the
Underwriters an option, exercisable within 30 days from the date hereof,
to purchase up to an aggregate of additional Shares at the price
to public less underwriting discounts and commissions for the purpose of
covering over-allotments, if any. If the Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, proceeds to Company and proceeds to Selling Shareholders
will be $ , $ , $ and $ , respectively. See
"Underwriters."
------------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1998
at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
------------------------

MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
DEUTSCHE MORGAN GRENFELL
HAMBRECHT & QUIST

, 1998
<PAGE> 4

[Color work: Broadcom logo in the center of the page surrounded by five boxes
labeled "High-Speed Networking," "Cable Modems," "DBS Wireless," "xDSL" and
"Cable Set-Top Boxes." Caption at bottom of the page reads "Silicon Solutions
Enabling Broadband Communications."]

INSIDE GATEFOLD

[Color work: Broadcom logo appears in the upper left hand corner of the page,
next to a caption that reads "Silicon Solutions Enabling Broadband
Communications."] [A structure labeled "Enterprise Communications" appears on
the left side of the gatefold and contains graphics showing switches, a
repeater/hub and an enterprise router. A structure labeled "Network Service
Providers" appears in the center of the gatefold and includes graphics labeled
"Satellite," "Terrestrial Wireless," "Telco Twisted Pair" and "Coax Cable"
leading to a house labeled "Residential Communications." The house contains
different rooms which identify devices labeled "Cable Set-Top Box," "DBS Set-Top
Box," "VDSL Set-Top Box," "HDTV," "Cable Modem" and "ADSL Modem."] [The
following paragraphs are located in the bottom part of the gatefold under the
caption "Products requiring broadband solutions:"

High-Speed Networking is critical to easing the communications
bottlenecks in enterprise networks. Fast Ethernet (100Mbps) and Gigabit
Ethernet (1000 Mpbs) are being introduced to replace older Ethernet (10
Mbps) and Token Ring (16Mbps) technologies.

Cable Modems connect PCs to the cable network and provide Internet
access at speeds that are up to 1000 times faster than today's fastest
analog modems.

Cable Set-top Boxes facilitate high-speed digital communications between
a subscriber's television and the cable network, permitting delivery of
several hundred MPEG compressed digital channels.

Direct Broadcast Satellite (DBS) and Terrestrial Wireless technologies
broadcast digital video and data over high bandwidth satellites and
microwave links directly to set-top boxes in the home.

xDSL represents a family of newer broadband technologies, which operate
over the existing copper twisted pair wiring in telephone local loops.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITERS."

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.

THE COMPANY

Broadcom is a leading developer of highly integrated silicon solutions which
enable broadband digital data transmission to the home and within the business
enterprise. The Company's products enable the transmission of broadband data
over existing communications infrastructures, most of which were not originally
intended for digital data transmission. Using proprietary technologies and
advanced design methodologies, the Company has designed and developed integrated
circuits for some of the most significant broadband communications markets,
including the markets for cable set-top boxes, cable modems, high-speed
networking, direct broadcast satellite and terrestrial wireless, and xDSL.
Although the communications infrastructures of these markets are very different,
the Company has leveraged its core technologies and introduced silicon solutions
for each market that deliver the cost and performance levels necessary to enable
the widespread deployment of broadband transmission services. The Company's
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. The Company's products integrate comprehensive systems
solutions into single chips or chip-sets, thereby eliminating costly external
components, reducing board space, simplifying the customer's manufacturing
process, lowering the customer's system costs and enabling higher performance.
Customers currently shipping broadband communications equipment incorporating
the Company's products include 3Com, Bay Networks, Cisco Systems, General
Instrument (formerly known as NextLevel Systems), Motorola and
Scientific-Atlanta.

The Company was incorporated in California in August 1991. The Company's
executive offices are located at 16251 Laguna Canyon Road, Irvine, California
92618, and its telephone number is (714) 450-8700.

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered........................... shares, including shares by the Company and
shares by the Selling Shareholders
Common Stock to be outstanding after this
offering(1)(2):
Class A Common Stock (one vote per share)............ shares
Class B Common Stock (ten votes per share)........... shares
Total.............................................. shares
Use of proceeds........................................ General corporate purposes, including working capital,
and repayment of debt. See "Use of Proceeds."
Proposed Nasdaq National Market symbol................. BRCM
</TABLE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.............................................................. $1,138 $3,636 $6,107 $21,370 $36,955
Gross profit............................................................... 1,138 2,929 4,709 13,510 22,029
Total operating expense.................................................... 1,127 2,690 4,822 9,208 24,267
Income (loss) from operations.............................................. 11 239 (113) 4,302 (2,238)
Net income (loss).......................................................... 12 237 4 3,016 (1,173)
Diluted earnings (loss) per share(3)....................................... $ .00 $ .01 $ .00 $ .09 $ (.04)
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $22,116 $
Total assets......................................................................... 45,244
Total debt........................................................................... 2,693
Total shareholders' equity........................................................... 33,392
</TABLE>

- ------------

(1) Based on the number of shares outstanding as of December 31, 1997. Excludes
(i) 5,243,932 shares of Class B Common Stock issuable upon the exercise of
options outstanding as of December 31, 1997 at a weighted average exercise
price of $2.10 per share and (ii) 9,547,058 shares of Class A Common Stock
available for issuance under the Company's other employee benefit plans. See
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Note 5 of Notes to Financial Statements.

(2) Includes 500,000 shares of Class A Common Stock to be sold by the Company to
Cisco Systems, Inc. ("Cisco Systems") concurrent with this offering pursuant
to the exercise of Cisco Systems' option to purchase Common Stock at a price
per share equal to the initial public offering price, net of underwriting
discounts and commissions.

(3) See Note 1 of Notes to Financial Statements for an explanation of the
calculation of earnings (loss) per share.

(4) Adjusted to reflect the sale of (i) the shares of Class A Common Stock
offered by the Company hereby at an assumed initial public offering price of
$ per share and the application of the net proceeds therefrom, and
(ii) 500,000 shares of Class A Common Stock to Cisco Systems concurrent with
this offering pursuant to the exercise of Cisco Systems' option to purchase
Common Stock at a price per share equal to the initial public offering
price, net of underwriting discounts and commissions. See "Sale of Shares to
Cisco Systems," "Use of Proceeds" and "Capitalization."

3
<PAGE> 6

NO PERSON IS AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING
SHAREHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 5
Sale of Shares to Cisco Systems........ 15
Use of Proceeds........................ 15
Dividend Policy........................ 15
Capitalization......................... 16
Dilution............................... 17
Selected Financial Data................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 25

<CAPTION>
PAGE
----
<S> <C>
Management............................. 42
Certain Transactions................... 52
Principal and Selling Shareholders..... 53
Description of Capital Stock........... 54
Shares Eligible for Future Sale........ 56
Underwriters........................... 58
Legal Matters.......................... 59
Experts................................ 60
Additional Information................. 60
Glossary of Technical Terms............ 61
Index to Financial Statements.......... F-1
</TABLE>

------------------------

The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent accountants and
quarterly reports containing unaudited financial information for the first three
quarters of each year.

------------------------

Broadcom and QAMLink are registered trademarks of the Company. This
Prospectus also includes trademarks of companies other than the Company.

------------------------

Except as otherwise noted herein, information in this Prospectus assumes
(i) the conversion of all outstanding shares of Preferred Stock into an
aggregate of 8,453,517 shares of Class B Common Stock upon consummation of this
offering, (ii) the recapitalization of the Company in February 1998 to effect
the conversion into Class B Common Stock of all shares of the Company's common
stock issued and outstanding or reserved for issuance prior to February 1998,
(iii) no exercise of outstanding options to purchase shares of Class B Common
Stock, of which options to purchase 5,243,932 shares were outstanding at
December 31, 1997, (iv) the completion of a three-for-two stock split of the
Company's Class B Common Stock to be effected in the form of a stock dividend in
February 1998 and (v) no exercise of the Underwriters' over-allotment option.

4
<PAGE> 7

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Class
A Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. The factors that may cause such a difference include, but are not
limited to, those discussed below in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."

Fluctuations in Results of Operations. The Company's quarterly results of
operations have fluctuated significantly in the past and may continue to
fluctuate in the future based on a number of factors, many of which are not in
the Company's control. Among other things, the Company's results of operations
have fluctuated in the past due to competitive pressures on selling prices; the
volume of product sales; the timing and cancellation of significant customer
orders; lengthy sales cycles; pricing concessions on volume sales; fluctuations
in manufacturing yields; changes in product and customer mix; intellectual
property disputes; the Company's ability to develop, introduce and market new
products and technologies on a timely basis; introduction of products and
technologies by the Company's competitors; market acceptance of the Company's
and its customers' products; and the amount and timing of recognition of
development revenue. The Company's results of operations may also fluctuate in
the future due to a number of factors, including, but not limited to, those
listed above as well as general business conditions in the semiconductor
industry and the broadband communications markets; availability of foundry
capacity and raw materials; the quality of the Company's products; the timing of
investments in research and development; the Company's ability to expand and
implement its sales and marketing programs; the level of orders received that
can be shipped in a quarter; currency fluctuations; and general economic
conditions. The Company intends to increase its operating expenses significantly
in 1998. Because a large portion of the Company's operating expense, including
rent, salaries and capital lease expenses, is fixed and difficult to reduce or
modify, if total revenue does not meet expectations, the material adverse effect
of any revenue shortfall will be magnified by the fixed nature of these
operating expenses. Based on the foregoing or other factors, it is possible that
in some future periods the Company's reported or anticipated operating results
will fail to meet or exceed the expectations of analysts or investors. In such
event, the price of the Company's Class A Common Stock would likely be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Rapid Technological Change; Dependence on Emerging Markets. The
semiconductor industry and the broadband communications markets are
characterized by rapidly changing technology, frequent new product introductions
and evolving industry standards. Virtually all of the Company's current product
revenue is derived from sales of products for the cable set-top box, cable modem
and high-speed networking markets. These markets are characterized by intense
competition, rapid technological change and short product life cycles. In
particular, the cable set-top box, cable modem and high-speed networking markets
continue to undergo a period of rapid growth and consolidation. The Company's
business, financial condition and results of operations would be materially and
adversely affected in the event of a significant slowdown in these or other
broadband communications markets. The Company's success will depend on the
ability of its customers to develop new products and enhance existing products
for the broadband communications markets and to successfully introduce and
promote such products. There can be no assurance that the broadband
communications markets will develop as expected by the Company. The failure of
new markets to develop or the failure of the products in these markets to gain
widespread acceptance could have a material adverse effect on the Company's
business, financial condition and results of operations. Products for broadband
communications applications are generally based on industry standards, which are
continually evolving. The emergence of new industry standards could render
products of the Company or its customers unmarketable or obsolete and may
require the Company to incur substantial unanticipated costs to comply with any
such new standards. Moreover, the Company's past sales and profitability have
resulted, to a significant extent, from its ability to anticipate changes in
technology and industry standards and to develop and introduce new and enhanced
products. The Company's continued ability to adapt to such changes and
anticipate future standards will be a significant factor in maintaining or
improving its competitive position and its prospects for growth. The

5
<PAGE> 8

Company has in the past invested substantial resources in emerging technologies,
such as 100Base-T4 for high-speed networking, for which the market did not
ultimately meet the Company's expectations. There can be no assurance that the
Company will be able to anticipate the evolving standards in the semiconductor
industry and, in particular, the broadband communications markets, or that the
Company will be able to successfully develop and introduce new products into
such markets. The failure of the Company to anticipate technological change and
introduce new products that achieve market acceptance could materially and
adversely affect the Company's business, financial condition and results of
operations. See "Business--Markets" and "--Core Technologies."

Dependence on Development of New Products. The Company's future success
will depend upon its ability to develop new silicon solutions for existing and
new markets, introduce such products in a timely and cost-effective manner and
have such products selected for design into new products of leading equipment
manufacturers ("design wins"). The development of these new devices is highly
complex, and from time to time the Company has experienced delays in completing
the development and introduction of new products. Successful product development
and introduction depends on a number of factors, including, among other things,
accurate prediction of market requirements and evolving standards, accurate new
product definition, timely completion and introduction of new product designs,
availability of foundry capacity, achievement of high manufacturing yields and
market acceptance of the Company's and its customers' products. Furthermore,
there can be no assurance that the Company will be able to introduce new
products in a timely and cost-effective manner or in sufficient quantities to
meet customer demand or that such products will satisfy customer requirements or
achieve market acceptance. In particular, the Company's current MPEG chip is
presently produced on an interim basis by another manufacturer. The Company is
currently redesigning this chip to be manufactured at its foundries. The Company
has licensed the MPEG technology from General Instrument and expects to
introduce the next generation of this chip during the first half of 1998. If the
Company is not able to launch this product successfully, the Company could lose
significant sales to one of its key customers, and the Company's business,
financial condition and results of operations could be materially and adversely
affected. The Company's or its customers' failure to develop and introduce new
products successfully and in a timely manner would materially and adversely
affect the Company's business, financial condition and results of operations.
See "Business--Strategy."

The Company's new products are generally incorporated into customers'
products or systems at the design stage. Achieving a design win often requires
significant expenditures by the Company without any assurance of success.
Moreover, design wins frequently precede the generation of volume sales, if any,
by six months or more. The value of any design win largely depends upon the
commercial success of the customer's product and on the extent to which the
design of the customer's electronic system accommodates components manufactured
by the Company's competitors. There can be no assurance that the Company will
continue to achieve design wins or that the products for which the Company
achieves design wins will be commercially successful. See "Business--Strategy,"
"--Customers and Strategic Relationships," "--Products" and "--Research and
Development."

Customer Concentration. A relatively small number of customers has
accounted for a significant portion of the Company's total revenue to date, and
the Company expects that this trend will continue for the foreseeable future. In
particular, sales to General Instrument and 3Com (including sales to their
respective manufacturing subcontractors) accounted for approximately 31.9% and
14.6%, respectively, of the Company's total revenue in 1997. Moreover, sales to
General Instrument and 3Com (including sales to their respective manufacturing
subcontractors) represented approximately 24.9% and 24.3%, respectively, of the
Company's total revenue in the fourth quarter of 1997. Sales to the Company's
five largest customers (including sales to their respective manufacturing
subcontractors) represented approximately 62.0% and 69.9% of the Company's total
revenue in 1997 and the fourth quarter of 1997, respectively. Accordingly, the
Company's future results of operations will continue to be substantially
dependent on the success of its largest customers. Any reduction or delay in
sales of the Company's products to one or more of these key customers could have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will retain
its largest customers or that it will be able to recruit additional key
customers. The loss of one or more of the Company's largest customers or the
inability of the Company to

6
<PAGE> 9

successfully develop relationships with additional key customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Most of the Company's customers can cease incorporating the Company's
products in their own products with limited notice to the Company and with
little or no penalty. The Company's agreements with its customers typically do
not require minimum purchases. In addition, certain of the Company's customers
offer or may offer products (designed by themselves or third parties) that
compete with those offered by the Company. Many of the Company's customers have
pre-existing relationships with current or potential competitors of the Company,
which may affect such customers' purchasing decisions. In addition, the
Company's longstanding relationship with certain of its larger customers may
affect the purchasing decisions of other potential customers who compete with
these customers. The Company's customers face intense competition from other
manufacturers that do not use the Company's products. Further, some of the
Company's customers have most favored nation pricing arrangements, which could
materially adversely affect the Company's average selling prices and gross
margins in the event of product pricing decisions that trigger such
arrangements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Customers and Strategic
Relationships."

Dependence On Key Personnel. The Company's success depends to a significant
extent upon the continued service of its executive officers and other key
management and technical personnel and on its ability to continue to attract,
retain and motivate qualified personnel, particularly experienced mixed-signal
circuit designers and systems applications engineers. The competition for such
employees is intense. The loss of the services of one or more of the Company's
key employees or the Company's failure to attract, retain and motivate qualified
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. In particular, the loss of the
services of Henry Nicholas, the Co-Chairman, President and Chief Executive
Officer, or Dr. Henry Samueli, the Co-Chairman, Vice President of Engineering
and Chief Technical Officer, could materially and adversely affect the Company.
The Company has obtained $2.5 million key man life insurance policies covering
each of Mr. Nicholas and Dr. Samueli, the proceeds of which would be payable to
the Company in the event of death of either of such officers. There are no
employment contracts with any of the Company's employees. See
"Business--Employees" and "Management--Executive Officers and Directors."

Dependence on Independent Foundries. The Company does not own or operate a
fabrication facility, and substantially all of its semiconductor device
requirements are currently supplied by two outside foundries, Taiwan
Semiconductor Manufacturing Corporation ("TSMC") in Taiwan and Chartered
Semiconductor Manufacturing ("Chartered") in Singapore. There are significant
risks associated with the Company's reliance on these two outside foundries,
including the lack of ensured wafer supply, limited control over delivery
schedules, quality assurance, manufacturing yields and production costs, and the
unavailability of or delays in obtaining access to key process technologies. In
addition, the manufacture of integrated circuits ("ICs") is a highly complex and
technologically demanding process. Although the Company works closely with its
foundries to minimize the likelihood of reduced manufacturing yields, the
Company's foundries have from time to time experienced lower than anticipated
manufacturing yields, particularly in connection with the introduction of new
products and the installation and start-up of new process technologies.

The Company provides its foundries with rolling forecasts of its production
requirements; however, the ability of each foundry to provide semiconductor
devices to the Company is limited by the foundry's available capacity. Although
the Company has entered into contractual commitments to supply specified levels
of products to certain of its customers, the Company does not have a long-term
volume purchase agreement or a guaranteed level of production capacity with any
of its existing foundries. The Company places its orders on a purchase order
basis, and these foundries may allocate capacity to the production of other
companies' products while reducing deliveries to the Company on short notice. In
particular, foundry customers that are larger and better financed than the
Company or that have long-term agreements with the Company's foundries may cause
such foundries to reallocate capacity in a manner adverse to the Company. In
addition, if the Company chooses to use a new foundry, several months are
typically required to complete the qualification process before the Company can
begin shipping the new foundry's products. Although the Company currently
utilizes two independent foundries, most of the Company's components are not
manufactured at both foundries at any

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<PAGE> 10

given time. Any inability of one of the foundries to provide the necessary
components could result in significant delays and could have a material adverse
effect on the Company's business, financial condition and results of operations.
In the event of a disruption, the Company may not be able to qualify alternative
manufacturing sources for existing or new products in a timely manner. Even the
Company's current outside foundries would need to have certain manufacturing
processes qualified in the event of disruption at another foundry, which the
Company may not be able to accomplish in a timely enough manner to prevent an
interruption in supply of the affected products. There can be no assurance that
any such sources would be able to produce ICs with acceptable manufacturing
yields. Furthermore, there can be no assurance that the Company's foundries will
continue to deliver sufficient quantities of semiconductor devices on a timely
basis or will not experience lower than expected manufacturing yields in the
future, either of which could materially and adversely affect the Company's
business, financial condition and results of operations. See
"Business--Manufacturing."

Limited Operating History. The Company was incorporated in August 1991 but
did not begin shipping products until 1994. Accordingly, the Company has a
limited operating history upon which investors may evaluate the Company and its
prospects. The Company's recent revenue growth may not be sustainable and should
not be considered indicative of future revenue growth, if any. There can be no
assurance that the Company will be profitable in any future period. The
Company's prospects must be considered in light of the risks, challenges and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in intensely competitive and rapidly
evolving markets such as the semiconductor industry and the broadband
communications markets. To address these risks, the Company must, among other
things, successfully increase the scope of its operations, respond to
competitive and technological developments, continue to attract, retain and
motivate qualified personnel and continue to commercialize products
incorporating innovative technologies. There can be no assurance that the
Company will be successful in addressing these risks and challenges. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Dependence on Third-Party Subcontractors for Assembly and
Test. Substantially all of the Company's products are assembled and tested by
one of two third-party subcontractors, ASAT Ltd. ("ASAT") in Hong Kong and ST
Assembly Test Services ("STATS") in Singapore. The Company does not have
long-term agreements with either of these suppliers. As a result of this
reliance on third-party subcontractors for assembly and testing of its products,
the Company cannot directly control product delivery schedules, which could lead
to product shortages or quality assurance problems that could increase the costs
of manufacture, assembly or testing of the Company's products. Due to the amount
of time normally required to qualify assemblers and testers, if the Company is
required to find alternative manufacturing assemblers or testers of its
components, shipments could be delayed. Any problems associated with the
delivery, quality or cost of the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Manufacturing."

Reliance on Strategic Relationships. The Company has relied on in the past,
and intends to continue to form in the future, strategic relationships with
certain of its customers who are technology leaders in the Company's target
markets. These relationships often involve the proposed development by the
Company of new products involving significant technological challenges. Since
the proposed product under development may offer potential competitive
advantages to the strategic partner, considerable pressure is frequently placed
on the limited resources of the Company to meet development schedules. While an
essential element of the Company's strategy involves establishing such
relationships, these projects utilize substantial amounts of the Company's
limited resources, and could materially detract from or delay the completion of
other important development projects. Delays in development could impair the
relationship between the Company and its strategic partners. Moreover, there can
be no assurance that customers of the Company will not develop their own
solutions for products currently supplied by the Company, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations. See "Business--Customers and Strategic Relationships."

Risks Associated with Intellectual Property Protection. The Company's
success and future revenue growth will depend, in part, on its ability to
protect its intellectual property. The Company relies primarily on

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<PAGE> 11

patent, copyright, trademark and trade secret laws, as well as nondisclosure
agreements and other methods to protect its proprietary technologies and
processes. There can be no assurance that such measures will provide meaningful
protection for the Company's proprietary technologies and processes. The Company
has been issued two United States patents and has filed eight United States
patent applications. There can be no assurance that any patent will issue as a
result of these applications or future applications, or, if issued, that any
claims allowed will be sufficiently broad to protect the Company's technology.
In addition, there can be no assurance that any existing or future patents will
not be challenged, invalidated or circumvented, or that any right granted
thereunder would provide meaningful protection to the Company. The failure of
any patents to provide protection to the Company's technology would make it
easier for the Company's competitors to offer similar products. The Company also
generally enters into confidentiality agreements with its employees and
strategic partners, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products, services or technology without authorization, develop
similar technology independently or design around the Company's patents. In
addition, effective copyright, trademark and trade secret protection may be
unavailable or limited in certain foreign countries. Certain of the Company's
customers have entered into agreements with the Company pursuant to which such
customers have the right to use the Company's proprietary technology in the
event the Company defaults in its contractual obligations, including product
supply obligations, and fails to cure the default within a specified period of
time. Moreover, the Company often incorporates the intellectual property of its
strategic customers into its designs, and the Company has certain obligations
with respect to the non-use and non-disclosure of such intellectual property.
There can be no assurance that the steps taken by the Company to prevent
misappropriation or infringement of the intellectual property of the Company or
its customers will be successful. Moreover, litigation may be necessary in the
future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets or to determine the validity and scope of proprietary
rights of others, including its customers. Such litigation could result in
substantial costs and diversion of the Company's resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The semiconductor industry is characterized by vigorous protection of and
pursuit of intellectual property rights. From time to time, the Company has
received, and may continue to receive in the future, notices of claims of
infringement of other parties' proprietary rights. The Company is currently
involved in litigation with Stanford Telecommunication, Inc. ("STI") concerning
the Company's alleged infringement of one of STI's patents. There can be no
assurance that the Company will prevail in this action, or that other actions
alleging infringement by the Company of third-party patents or invalidity of the
patents held by the Company will not be asserted or prosecuted against the
Company, or that any assertions of infringement or prosecutions seeking to
establish the invalidity of Company-held patents will not materially and
adversely affect the Company's business, financial condition and result of
operations. Irrespective of the validity or successful assertion of such claims,
the Company would likely incur significant costs and diversion of its resources
with respect to the defense of such claims, which could also have a material
adverse effect on the Company's business, financial condition and result of
operations. If any claims or actions are asserted against the Company, the
Company may seek to obtain a license under a third party's intellectual property
rights. There can be no assurance that under such circumstances a license would
be available on commercially reasonable terms, if at all. See
"Business--Intellectual Property" and "--Legal Proceedings."

Lengthy Sales Cycle. The Company's sales cycle involves test and evaluation
of its products by the potential customer and design of the customer's equipment
to incorporate the Company's products. The sales cycle for the test and
evaluation of the Company's products can range from three to six months or more
and it can take an additional six months or more before a customer commences
volume production of equipment that incorporates the Company's products. Because
of this lengthy sales cycle, the Company may experience a delay between
increasing expenses for research and development and sales and marketing efforts
and the generation of higher revenues, if any, from such expenditures. In
addition, the delays inherent in such lengthy sales cycle raise additional risks
of customer decisions to cancel or change product plans, which could result in
the loss of anticipated sales by the Company. Achieving a design win provides no
assurance that such customer will ultimately ship products incorporating the
Company's products. The Company's business, financial condition and results of
operations could be materially adversely affected if a significant customer

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<PAGE> 12

curtails, reduces or delays orders during the Company's sales cycle or chooses
not to release products employing the Company's products. See "--Customer
Concentration," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Manufacturing."

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. The Company competes with a number of major domestic and international
suppliers of equipment in the markets for cable set-top boxes, cable modems,
high-speed networking, DBS and terrestrial wireless, and xDSL, which competition
has resulted and may continue to result in declining average selling prices for
the Company's products. The Company currently competes in the cable television
set-top box with Rockwell, Philips, LSI Logic and VLSI Technologies for
communication devices and with SGS-THOMSON, LSI Logic and C-Cube in the MPEG
segment. The Company expects other major semiconductor manufacturers to enter
the market as the digital broadcast television and other digital cable
television markets become more established. A number of companies, including LSI
Logic, Rockwell and Toshiba, have announced that they are developing and plan to
introduce MCNS/DOCSIS compliant products in 1998, which could result in
significant competition in the cable modem market. In the high-speed networking
market, the Company principally competes with established suppliers including
Lucent Technologies, Level One, National Semiconductor and Advanced Micro
Devices ("AMD"). The Company's principal competitors in the DBS market include
LSI Logic, Philips, SGS-THOMSON and VLSI Technologies, and the Company's
principal competitors in the xDSL market include Analog Devices, Alcatel,
Motorola and Globespan. The Company also may face competition from suppliers of
products based on new or emerging technologies. Many of the Company's
competitors operate their own fabrication facilities and have longer operating
histories and presence in key markets, greater name recognition, access to
larger customer bases and significantly greater financial, sales and marketing,
manufacturing, distribution, technical and other resources than the Company. As
a result, such 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 than the Company. 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, the Company's competitors may in the
future develop technologies which more effectively address the transmission of
digital information through existing analog infrastructures at a lower cost.
There can be no assurance that the Company will be able to compete successfully
against current or potential competitors, or that competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Competition."

Transition to Smaller Geometry Process Technologies. The Company
continuously evaluates the benefits, on a product-by-product basis, of migrating
to smaller geometry process technologies in order to reduce costs and has
commenced migration of certain products to smaller geometry processes. The
Company believes that the transition of its products to increasingly smaller
geometries will be important for the Company to remain competitive. Other
companies in the industry have experienced difficulty in migrating to new
manufacturing processes and, consequently, have suffered reduced yields, delays
in product deliveries and increased expense levels. Moreover, the Company is
dependent on its relationships with its foundries to migrate to smaller geometry
processes successfully. No assurance can be given that the Company's future
process migrations will be achieved without difficulties. The Company's
business, financial condition and results of operations could be materially and
adversely affected if any such transition is substantially delayed or
inefficiently implemented. See "Business--Manufacturing."

Order and Shipment Uncertainties. The Company's sales are generally made
pursuant to individual purchase orders that may be canceled or deferred by
customers on short notice without significant penalty. Cancellation or deferral
of product orders could result in the Company holding excess inventory, which
could have a material adverse effect on the Company's profit margins and
restrict its ability to fund its operations. The Company recognizes revenue upon
shipment of products to the customer. Refusal of customers to accept shipped
products or delays or difficulties in collecting accounts receivable could
result in significant charges against income, which could have a material
adverse effect on the Company's business, financial condition and

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<PAGE> 13

results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Cyclicality of the Semiconductor Industry. The Company provides
semiconductor devices to the broadband communications markets. The semiconductor
industry is highly cyclical and subject to rapid technological change and has
been subject to significant economic downturns at various times, characterized
by diminished product demand, accelerated erosion of average selling prices and
production over-capacity. The semiconductor industry also periodically
experiences increased demand and production capacity constraints. As a result,
the Company may experience substantial period-to-period fluctuations in future
results of operations due to general semiconductor industry conditions, overall
economic conditions or other factors. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

Risks Associated with Expansion of International Business
Activities. Approximately 15.4% of the Company's total revenue in 1997 was
derived from sales to independent customers based outside the United States. In
addition, the Company often ships products to its domestic customers'
international manufacturing divisions. Further, the Company currently procures a
substantial portion of its manufacturing, assembly and test services from
suppliers located outside the United States. Accordingly, the Company is subject
to risks inherent in international operations, which include, but are not
limited to, the imposition of governmental controls, exposure to different legal
standards (particularly with respect to intellectual property), burdens of
complying with a variety of foreign laws, export license requirements, future
import and export restrictions, unexpected changes in regulatory requirements,
foreign technical standards, political, social and economic instability, trade
restrictions, changes in tariffs, difficulties in staffing and managing
operations, difficulties in collecting receivables and potentially adverse tax
consequences. Demand for the Company's products could also be adversely affected
by seasonality of international sales and economic conditions in the Company's
primary overseas markets. All of the Company's international sales to date have
been denominated in U.S. dollars. As a result, an increase in the value of the
U.S. dollar relative to foreign currencies could make the Company's products
less competitive in international markets. There can be no assurance that the
risks associated with the Company's international operations will not materially
adversely affect the Company's business, financial condition and results of
operations in the future or require the Company to modify significantly its
current business practices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Product Complexity. Products as complex as those offered by the Company
frequently contain errors, defects and bugs when first introduced or as new
versions are released. The Company has in the past experienced such errors,
defects and bugs. Delivery of products with production defects or reliability,
quality or compatibility problems could significantly delay or hinder market
acceptance of such products, which could damage the Company's reputation and
adversely affect the Company's ability to retain its existing customers and to
attract new customers. Moreover, such errors, defects or bugs could cause
problems, interruptions, delays or a cessation of sales to the Company's
customers. Alleviating such problems may require significant expenditures of
capital and resources by the Company. There can be no assurance that, despite
testing by the Company, its suppliers or its customers, errors, defects or bugs
will not be found in new products after commencement of commercial production,
resulting in additional development costs, loss of, or delays in, market
acceptance, diversion of technical and other resources from the Company's other
development efforts, claims by the Company's customers or others against the
Company, or the loss of credibility with the Company's current and prospective
customers. Any such event could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Core
Technologies" and "--Manufacturing."

Management of Expanded Operations. The Company has experienced a period of
rapid growth and expansion which has placed, and continues to place, significant
strain on its resources. To accommodate this growth, the Company will be
required to implement a variety of new and upgraded operational and financial
systems, procedures and controls, including the improvement of its accounting
and other internal management systems, all of which may require substantial
management effort. There can be no assurance that such efforts can be
accomplished successfully. In addition, this growth, as well as the Company's
product development and selling, general and administrative activities, has
necessitated an increase in the number of the Company's

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<PAGE> 14

employees, resulting in increased responsibilities for the Company's management.
If the Company sustains its growth in the future, it will need to continue to
implement and improve its operational, financial and management information
systems and to hire, train, motivate and manage its expanding employee base.
There can be no assurance that the Company's systems, procedures and controls
will be adequate to support the Company's operations. Any failure to improve the
Company's operational, financial and management information systems, or to hire,
train, motivate or manage its employees could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Risks Associated with Government Regulation. The Federal Communications
Commission (the "FCC") has broad jurisdiction over each of the Company's target
markets. Although the Company's products are not directly subject to current
regulations of the FCC or any other federal or state communications regulatory
agency, much of the equipment into which the Company's products are incorporated
is subject to direct government regulation. Accordingly, the effects of
regulation on the Company's customers or the industries in which they operate
may, in turn, adversely impact the Company's business, financial condition and
results of operations. FCC regulatory policies affecting the ability of cable
operators or telephone companies to offer certain services and other terms on
which these companies conduct their businesses may impede sales of the Company's
products. For example, the Company has in the past experienced delays when
products incorporating its chips failed to comply with FCC emissions
specifications. In addition, the Company's business, financial condition and
results of operations may also be adversely affected by the imposition of
certain tariffs, duties and other import restrictions on components that the
Company obtains from non-domestic suppliers or by the imposition of export
restrictions on products that the Company sells internationally. The Company may
also be subject to regulation by countries other than the United States. Changes
in current laws or regulations or the imposition of new laws and regulations in
the United States or elsewhere, could materially adversely affect the Company's
business, financial condition and results of operations.

Risks Associated with Potential Acquisitions. As part of its business
strategy, the Company expects to review acquisition prospects that would
complement its existing product offerings, augment its market coverage or
enhance its technological capabilities. Although the Company has no current
agreements or negotiations underway with respect to any material acquisitions,
the Company may make acquisitions of businesses, products or technologies in the
future. However, there can be no assurance that the Company will be able to
locate suitable acquisition opportunities. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, large
one-time write-offs, the incurrence of debt and contingent liabilities or
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect the Company's results of operations or
the price of the Company's Class A Common Stock. Furthermore, acquisitions
entail numerous risks, including difficulties in the assimilation of operations,
personnel, technologies, products and the information systems of the acquired
companies, diversion of management's attention from other business concerns,
risks of entering geographic and business markets in which the Company has no or
limited prior experience and potential loss of key employees of acquired
organizations. Since the Company has not made any material acquisitions in the
past, no assurance can be given as to the ability of the Company to successfully
integrate any businesses, products, technologies or personnel that might be
acquired in the future, and the failure of the Company to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Control by Directors, Executive Officers and Their Affiliates. Upon
consummation of this offering, the Company's directors and executive officers
will own approximately % of the outstanding Common Stock and % of the
total voting control of the Company (or % of the total voting control if
the Underwriters' over-allotment option is exercised in full). In particular,
upon consummation of this offering, the two founders of the Company, Henry
Nicholas and Dr. Henry Samueli, will own an aggregate of approximately % of
the outstanding Common Stock and % of the total voting control of the
Company (or % of the total voting control if the Underwriters' over-allotment
option is exercised in full). Accordingly, such persons will have sufficient
voting power to control the outcome of matters (including the election of a
majority of the Board of Directors, and any merger, consolidation or sale of all
or substantially all

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<PAGE> 15

of the Company's assets) submitted to the shareholders for approval and will
also have control over the management and affairs of the Company. As a result of
such control, certain transactions may not be possible without the approval of
such shareholders. These transactions include proxy contests, mergers involving
the Company, tender offers, open market purchase programs or other purchases of
Class A Common Stock that could give shareholders of the Company the opportunity
to realize a premium over the then prevailing market price for their shares of
Class A Common Stock. See "Principal and Selling Shareholders."

Year 2000 Compliance. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date field,
without considering the impact of the upcoming change in the century. As a
result, such systems and applications could fail or create erroneous results
unless corrected so that they can process data related to the year 2000. The
Company relies on its systems, applications and devices in operating and
monitoring all major aspects of its business, including financial systems (such
as general ledger, accounts payable and payroll modules), customer services,
infrastructure, embedded computer chips, networks and telecommunications
equipment and end products. The Company also relies, directly and indirectly, on
external systems of business enterprises such as customers, suppliers,
creditors, financial organizations, and of governmental entities, both domestic
and international, for accurate exchange of data. The Company's current estimate
is that the costs associated with the year 2000 issue, and the consequences of
incomplete or untimely resolution of the year 2000 issue, will not have a
material adverse effect on the result of operations or financial position of the
Company in any given year. However, despite the Company's efforts to address the
year 2000 impact on its internal systems, the Company has not fully identified
such impact or whether it can resolve it without disruption of its business and
without incurring significant expense. In addition, even if the internal systems
of the Company are not materially affected by the year 2000 issue, the Company
could be affected through disruption in the operation of the enterprises with
which the Company interacts.

Future Capital Needs; Uncertainty of Additional Funding. The Company
anticipates that its existing capital resources, including the net proceeds of
this offering, will be adequate to satisfy its current capital requirements
through 1998. The Company's future capital requirements will depend on many
factors, including, but not limited to, the levels at which the Company
maintains inventory, the market acceptance of the Company's products, the levels
of promotion and advertising required to launch such products and attain a
competitive position in the marketplace, the extent to which the Company invests
in new technology and improvements to its existing technology and the response
of competitors to the products based on the Company's technology. To the extent
that the funds generated by this offering, together with existing resources, and
any future earnings are insufficient to fund the Company's activities, the
Company may need to raise additional funds through public or private financing.
No assurance can be given that additional financing will be available or that,
if available, any such financing can be obtained on terms favorable to the
Company and its shareholders. If adequate funds are not available, the Company
may be required to curtail its operations significantly or to obtain funds
through arrangements with strategic partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
markets. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the then existing shareholders of the
Company, including purchasers of the Class A Common Stock in this offering,
would be reduced. Such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

No Prior Market; Stock Price Volatility. Prior to this offering, there has
been no public market for the Company's Common Stock. Consequently, the initial
public offering price will be determined by negotiations among the Company, the
Selling Shareholders and the representatives of the Underwriters based upon
factors that may not be indicative of future market performance. There can be no
assurance that an active public market for the Class A Common Stock will develop
or be sustained after this offering or that the market price of the Class A
Common Stock will not decline below the initial public offering price. The
trading price of the Company's Class A Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in results of
operations, announcements of technological innovations or new products by the
Company or its competitors, general conditions in the semiconductor,
telecommunications and data communi-

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<PAGE> 16

cations equipment markets, changes in earnings estimates or buy/sell
recommendations by analysts, or other events or factors. In addition, the public
stock markets have experienced extreme price and trading volume volatility,
particularly in high technology sectors of the market. 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. These broad market fluctuations may adversely affect the
market price of the Company's Class A Common Stock. See "Underwriters."

Broad Management Discretion in Use of Proceeds. While the Company expects
to use the net proceeds of this offering for general corporate purposes, the
Company has not yet identified specific uses for such net proceeds, except that
the Company intends to pay approximately $2.5 million to its senior lender to
repay in full its term loan. Accordingly, the Company's management will retain
broad discretion as to the allocation of the net proceeds of this offering.
There can be no assurance that the proceeds will be utilized in a manner that
the shareholders deem optimal, or that the proceeds can or will be invested to
yield a significant return. See "Use of Proceeds."

Potential Effect of Anti-Takeover Provisions. The Company's Articles of
Incorporation and Bylaws contain provisions that may discourage or prevent
certain types of transactions involving an actual or potential change in control
of the Company, including transactions in which the shareholders might otherwise
receive a premium for their shares over then current market prices, and may
limit the ability of the shareholders to approve transactions that they may deem
to be in their best interests. In addition, the Company has outstanding Class B
Common Stock, which entitles each holder to ten votes per share on all matters
presented for a shareholder vote. The Board of Directors also has the authority
to fix the rights and preferences of shares of the Company's Preferred Stock and
to issue such shares without a shareholder vote. It is possible that the
provisions in the Company's Articles of Incorporation and Bylaws, the existence
of super voting rights held by insiders and the ability of the Board of
Directors to issue Preferred Stock may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
shareholders, may discourage bids for the Company's Class A Common Stock at a
premium over the market price of the Class A Common Stock and may adversely
affect the market price of the Class A Common Stock and the voting and other
rights of the holders of Class A Common Stock. See "Description of Capital
Stock."

Dilution. Purchasers of the Class A Common Stock in this offering will
suffer an immediate and substantial dilution of $ per share in the net
tangible book value of the Common Stock from the initial public offering price.
Moreover, to the extent outstanding options or warrants to purchase the
Company's Common Stock are exercised in the future, there will be further
dilution. See "Dilution."

Shares Eligible for Future Sale. Sales of substantial amounts of Class A
Common Stock in the public market after this offering could adversely affect the
market price of the Class A Common Stock. Upon completion of this offering, the
Company will have shares of Class A Common Stock and
shares of Class B Common Stock outstanding. Of this amount, the shares
offered hereby will be available for immediate sale in the public market as of
the date of the Prospectus. Approximately additional shares will be
available for sale in the public market following the expiration of a 180 day
lockup period (unless such lockup obligation is waived earlier by Morgan Stanley
& Co. Incorporated in its sole discretion), subject in some cases to compliance
with the volume and other limitations of Rule 144. In addition, the holders of
shares (including options exercisable into shares) of Class B Common
Stock are entitled to certain rights with respect to registration of such shares
for sale in the public market. The Company also intends to file a registration
statement covering the sale of shares of Class A Common Stock reserved for
issuance under its stock benefit plans. See "Principal and Selling
Shareholders," "Shares Eligible for Future Sale" and "Underwriters."

14
<PAGE> 17

SALE OF SHARES TO CISCO SYSTEMS

Cisco Systems has exercised its option to purchase 500,000 shares of Class
A Common Stock concurrent with this offering at a price per share equal to the
initial public offering price, net of underwriting discounts and commissions
(the "Net Price"). Such option was granted to Cisco Systems in connection with a
development agreement entered into between the Company and Cisco Systems
effective September 1996. See "Certain Transactions--Development Agreement with
Cisco Systems."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of
Class A Common Stock offered by the Company hereby, assuming an initial public
offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, will be $ ($ if the Underwriters'
over-allotment option is exercised in full). The primary purposes of this
offering are to obtain additional equity capital, create a public market for the
Company's Class A Common Stock, facilitate future access by the Company to
public equity markets and provide increased visibility for the Company in the
marketplace. The Company intends to use up to $2.5 million of the net proceeds
of this offering to repay outstanding advances under the Company's Loan and
Security Agreement with Silicon Valley Bank ("SVB"). This term loan matures in
June 2000 and bears interest at SVB's prime rate as announced from time to time
plus 0.5%. See Note 3 of Notes to Financial Statements. The proceeds from the
term loan were used for general working capital requirements. The balance of the
net proceeds will be used for general corporate purposes, including working
capital and capital purchases such as test equipment and leasehold improvements
associated with the Company's planned facilities expansion. Pending such uses,
the Company intends to invest its net proceeds of this offering in short-term,
investment-grade, interest-bearing securities. Management of the Company will
have broad discretion concerning the allocation and use of all of the net
proceeds of the offering to be received by the Company. The Company may use a
portion of the net proceeds of this offering for the acquisition of businesses,
products and technologies that are complementary to those of the Company. As of
the date of this Prospectus, the Company has not engaged in any agreements or
negotiations regarding any material acquisition.

The Company will not receive any proceeds from the sale of Class A Common
Stock by the Selling Shareholders.

DIVIDEND POLICY

The Company has never paid cash dividends on shares of its capital stock.
The Company currently intends to retain any future earnings for use in its
business and does not anticipate paying cash dividends in the future.
Furthermore, the term loan with SVB currently prohibits the payment of cash
dividends without the prior consent of SVB.

15
<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company at
December 31, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect
the automatic conversion of all outstanding shares of Preferred Stock into an
aggregate of 8,453,517 shares of Class B Common Stock upon consummation of this
offering, and (iii) as adjusted to give effect to the sale of shares
of Class A Common Stock by the Company in this offering at an assumed initial
public offering price of per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, and 500,000 shares of Class A Common Stock by the Company to
Cisco Systems at the Net Price.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion(2)...................... $ 1,595 $ 1,595 $
------- ------- -------
Shareholders' equity:
Preferred Stock, $.0001 par value; 10,000,000 shares
authorized; 3,567,839 shares issued and outstanding,
actual; no shares issued and outstanding, pro forma and
pro forma as adjusted................................... 28,617
Class A Common Stock, $.0001 par value; 200,000,000 shares
authorized; no shares issued and outstanding, actual and
pro forma; shares issued and outstanding,
pro forma as adjusted...................................
Class B Common Stock, $.0001 par value; 100,000,000 shares
authorized; 31,501,560 shares issued and outstanding,
actual; 39,955,077 shares issued and outstanding, pro
forma and pro forma as adjusted......................... 3 4
Additional paid-in capital................................. 7,017 35,633
Notes receivable from employees............................ (3,362) (3,362)
Deferred compensation...................................... (981) (981)
Retained earnings.......................................... 2,098 2,098
-------
Total shareholders' equity................................. 33,392 33,392
------- ------- -------
Total capitalization............................... $34,987 $ 34,987 $
======= ======= =======
</TABLE>

- ------------

(1) Based on shares outstanding as of December 31, 1997. Excludes (i) 5,243,932
shares of Class B Common Stock issuable upon exercise of options outstanding
at December 31, 1997 at a weighted average exercise price of $2.10 per share
and (ii) 9,547,058 shares of Class A Common Stock reserved for issuance
under the Company's employee benefit plans. See Notes 1, 5 and 9 of Notes to
Financial Statements.

(2) See Note 3 of Notes to Financial Statements.

16
<PAGE> 19

DILUTION

The net tangible book value of the Company as of December 31, 1997 was
approximately $ , or $ per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
After giving effect to the conversion of all outstanding Preferred Stock into an
aggregate of 8,453,517 shares of Class B Common Stock, the pro forma net
tangible book value of the Company as of December 31, 1997 would have been
$ or $ per share of Common Stock. After giving effect to the
sale of the shares of Class A Common Stock offered by the Company hereby
at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company, and the sale of 500,000 shares of
Class A Common Stock to Cisco Systems at the Net Price, the pro forma net
tangible book value of the Company, as adjusted, at December 31, 1997 would have
been $ or $ per share of Common Stock. This amount represents
an immediate increase in such net tangible book value of $ per share to
existing shareholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........ $
Net tangible book value at December 31, 1997......... $
Increase attributable to Cisco Systems...............
Increase attributable to new investors...............
--------
Adjusted pro forma net tangible book value after this
offering and the sale of shares to Cisco Systems.....
--------
Dilution per share to new investors.................... $
========
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price per share paid by
existing shareholders and to be paid by Cisco Systems and purchasers of the
shares offered by the Company hereby (assuming an initial public offering price
$ per share before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company).

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)......... % $ % $
Cisco Systems....................
New investors....................
------- ----- ------- -----
Total.................. 100.0% $ 100.0%
======= ===== ======= =====
</TABLE>

- ------------

(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to or % (or or
% if the Underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to or
% (or or % if the Underwriters' over-allotment option is
exercised in full). See "Principal and Selling Shareholders."

As of December 31, 1997, options to purchase 5,243,932 shares of Class B
Common Stock were outstanding at a weighted average exercise price of $2.10 per
share. The computations in the foregoing tables assume no exercise of these
options. To the extent these options are exercised, there will be further
dilution to new investors. See "Management--Employee Benefit Plans" and Note 5
of Notes to Financial Statements.

17
<PAGE> 20

SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
the Prospectus. The balance sheet data as of December 31, 1996 and 1997 and the
statement of operations data for the years ended December 31, 1995, 1996 and
1997 have been derived from the audited financial statements of the Company
included elsewhere in this Prospectus. The balance sheet data as of December 31,
1994 and 1995 and the statement of operations data for the year ended December
31, 1994 have been derived from audited financial statements of the Company not
included herein. The balance sheet data as of December 31, 1993 and the
statement of the Company operations data for the year ended December 31, 1993
have been derived from unaudited financial statements not included herein, which
unaudited financial statements were prepared by management of the Company on the
same basis as the audited financial statements included elsewhere herein and, in
the opinion of the Company, include all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the information set forth
below.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Revenue:
Product revenue........................... $ -- $1,554 $4,317 $18,981 $31,668
Development revenue....................... 1,138 2,082 1,790 2,389 5,287
------ ------ ------ ------- -------
Total revenue............................... 1,138 3,636 6,107 21,370 36,955
Cost of revenue............................. -- 707 1,398 7,860 14,926
------ ------ ------ ------- -------
Gross profit................................ 1,138 2,929 4,709 13,510 22,029
Operating expense:
Research and development.................. 875 1,746 2,687 5,662 16,204
Selling, general and administrative....... 252 944 2,135 3,546 8,063
------ ------ ------ ------- -------
Total operating expense..................... 1,127 2,690 4,822 9,208 24,267
------ ------ ------ ------- -------
Income (loss) from operations............... 11 239 (113) 4,302 (2,238)
Interest and other income, net.............. 12 41 120 213 290
Net loss on sale of investments............. (8) (42) -- -- --
------ ------ ------ ------- -------
Income (loss) before income taxes........... 15 238 7 4,515 (1,948)
Provision (benefit) for income taxes........ 3 1 3 1,499 (775)
------ ------ ------ ------- -------
Net income (loss)........................... $ 12 $ 237 $ 4 $ 3,016 $(1,173)
====== ====== ====== ======= =======
Basic earnings (loss) per share(1).......... $ .00 $ .01 $ .00 $ .12 $ (.04)
====== ====== ====== ======= =======
Diluted earnings (loss) per share(1)........ $ .00 $ .01 $ .00 $ .09 $ (.04)
====== ====== ====== ======= =======
Supplemental pro forma diluted loss per
share(1).................................. $ (.03)
=======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
----- ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 49 $ 100 $1,990 $ 4,657 $22,116
Working capital.............................. (223) 1,958 2,247 5,529 26,262
Total assets................................. 473 3,144 4,509 14,367 45,244
Long-term debt, including current portion.... 61 85 49 216 2,693
Convertible preferred stock.................. -- 2,161 3,150 6,084 28,617
Total shareholders' equity................... 24 2,474 3,475 9,770 33,392
</TABLE>

- ------------

(1) See Note 1 of Notes to Financial Statements for an explanation of the
calculation of earnings (loss) per share.

18
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those projected in the forward-looking statements as a result of certain
factors, including those discussed in "Risk Factors," "Business" and elsewhere
in this Prospectus. The Company assumes no obligation to update the
forward-looking statements or such factors.

OVERVIEW

The Company is a leading developer of highly integrated silicon solutions
which enable broadband digital data transmission to the home and within the
business enterprise. The Company's products enable the transmission of broadband
data over existing communications infrastructures, most of which were not
originally intended for digital data transmission. Using proprietary
technologies and advanced design methodologies, the Company has designed and
developed ICs for some of the most significant broadband communications markets
including cable set-top boxes, cable modems, high-speed networking, DBS and
terrestrial wireless, and xDSL. From the Company's inception in 1991 through
1994, it was primarily engaged in product development and the establishment of
strategic customer and foundry relationships. During this period, the Company
generated the majority of its total revenue from development work performed for
key customers. The Company began shipping its products in 1994, and subsequently
the Company's total revenue has grown predominately through sales of its
semiconductor products. The Company intends to continue to enter into
development contracts with key customers, but expects development revenue will
constitute a decreasing percentage of its total revenue. The Company also
generates a small percentage of its product revenue from sales of its system
level reference designs.

The Company recognizes product revenue at the time of shipment. Provision
is concurrently made for estimated product returns. Development revenue is
recognized when earned. Approximately 15.4% of the Company's total revenue in
1997 was derived from independent customers located outside of the United
States. All of the Company's revenue to date has been denominated in U.S.
dollars. See Note 8 of Notes to Financial Statements.

From time to time, the Company's key customers have placed large orders
causing quarterly revenue to fluctuate significantly, which fluctuations are
likely to continue in the future. For example, in the fourth quarter of 1997,
sales of the Company's networking products increased to over $7.0 million from
$1.0 million in the previous quarter. More than half of this increase was
attributable to sales to a single customer. Sales to the Company's largest five
customers (including sales to their respective manufacturing subcontractors)
accounted for 62.0% and 67.6% of the Company's total revenue for 1997 and 1996,
respectively. The Company expects that a small number of customers will continue
to account for a significant portion of the Company's total revenue for the
foreseeable future. See "Risk Factors--Customer Concentration" and
"Business--Customers and Strategic Relationships."

Various factors have in the past affected and may continue in the future to
affect the Company's gross margin, including, but not limited to, the Company's
product mix, the position of the Company's products in their respective life
cycles and the mix of the Company's product revenue and development revenue. 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. The Company's gross
margin and operating results in the future may continue to fluctuate as a result
of these and other factors. See "--Quarterly Results of Operations" and "Risk
Factors--Fluctuations in Results of Operations."

The sales cycle for the test and evaluation of the Company's 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
the Company's products. Due to such lengthy sales cycles, the Company may
experience a delay between increasing expenses for research and development and
selling, general and

19
<PAGE> 22

administrative efforts, and the generation of corresponding revenue, if any.
Furthermore, in 1998, the Company intends to increase significantly its
investment in research and development, selling, general and administrative
functions and inventory as it expands its operations. The Company anticipates
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 the Company's operating results for that quarter and, potentially, future
quarters would be materially and adversely affected. "See Risk
Factors--Fluctuations in Results of Operations" and "--Lengthy Sales Cycle."

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Revenue:
Product revenue............................................... 70.7% 88.8% 85.7%
Development revenue........................................... 29.3 11.2 14.3
----- ----- -----
Total revenue................................................... 100.0 100.0 100.0
Cost of revenue................................................. 22.9 36.8 40.4
----- ----- -----
Gross profit.................................................... 77.1 63.2 59.6
Operating expense:
Research and development...................................... 44.0 26.5 43.9
Selling, general and administrative........................... 35.0 16.6 21.8
----- ----- -----
Total operating expense......................................... 79.0 43.1 65.7
----- ----- -----
Income (loss) from operations................................... (1.9) 20.1 (6.1)
Interest and other income, net.................................. 2.0 1.0 0.8
----- ----- -----
Income (loss) before income taxes............................... 0.1 21.1 (5.3)
Provision (benefit) for income taxes............................ -- 7.0 (2.1)
----- ----- -----
Net income (loss)............................................... 0.1% 14.1% (3.2)%
===== ===== =====
</TABLE>

Total Revenue. Total revenue consists of product revenue generated
principally by sales of the Company's semiconductor products and development
revenue generated under development contracts with the Company's customers.
Total revenue for 1997 was $37.0 million, an increase of $15.6 million or 72.9%
from 1996. Total revenue for 1996 was $21.4 million, an increase of $15.3
million or 249.9% from $6.1 million in 1995. In each year, the increase was
primarily due to the introduction of new products and to a higher volume of
shipments of existing products to manufacturers of cable set-top boxes and
networking customers selling Fast Ethernet hubs and switches.

Gross Profit. Gross profit represents total revenue less the cost of
revenue. Cost of revenue includes the cost of purchasing the finished silicon
wafers processed by the Company's independent foundries and costs associated
with assembly, test and quality assurance for those products, as well as costs
of personnel and equipment associated with contracted development work. Gross
profit for 1997 was $22.0 million or 59.6% of total revenue, an increase of $8.5
million or 63.1% from 1996. Gross profit in 1996 was $13.5 million or 63.2% of
total revenue, an increase of $8.8 million or 186.9% from $4.7 million or 77.1%
of total revenue in 1995. In each year, the increase in absolute dollars was
largely due to higher total revenue. Gross margin declined in 1997 from 1996
primarily due to volume pricing concessions made in 1997 for cable set-top box
products. Gross margin declined in 1996 from 1995 largely due to a decline in
higher margin development revenue as a percentage of total revenue in 1996. The
Company anticipates that gross margin will continue to decline in the near
future as the Company shifts from introductory pricing for early generation
products to volume pricing and due to an anticipated shift towards lower margin
products.

20
<PAGE> 23

Research and Development Expense. Research and development expense consists
primarily of salaries and related costs of employees engaged in research, design
and development activities, as well as related subcontracting costs. Research
and development expense for 1997 was $16.2 million or 43.9% of total revenue, an
increase of $10.5 million or 186.2% from 1996. Research and development expense
for 1996 was $5.7 million or 26.5% of total revenue, an increase of $3.0 million
or 110.7% from 1995 expense of $2.7 million or 44.0% of total revenue in 1995.
In each year, the increase in absolute dollars was primarily due to the addition
of personnel for the development of new products and the enhancement of existing
products, as well as payments to outside consultants where specific resources
were needed in the development process. The Company expects that research and
development expense in absolute dollars will increase in each year for the
foreseeable future.

Selling, General and Administrative Expense. Selling, general and
administrative expense consists primarily of employee related expenses,
professional fees, trade show expenses and facilities expenses. Selling, general
and administrative expense for 1997 was $8.1 million or 21.8% of total revenue,
an increase of $4.5 million or 127.4% from 1996. Selling, general and
administrative expense for 1996 was $3.5 million or 16.6% of total revenue, an
increase of $1.4 million or 66.1% from $2.1 million or 35.0% of total revenue in
1995. In each year, the increase in absolute dollars principally reflected
higher personnel related costs resulting from a net increase in sales and
marketing personnel to address each of the Company's target markets. These
increases were also due in part to the hiring of senior level management and
administrative personnel and increased occupancy, legal and other professional
fees.

Deferred Compensation. In connection with the grant of certain stock
options to employees during 1997, the Company recorded aggregate deferred
compensation of approximately $1.0 million, representing the difference between
the deemed value of the Class B Common Stock for accounting purposes and the
option exercise price of such options at the date of grant. Such amount is
presented as a reduction of shareholders' equity and amortized ratably over the
vesting period of the applicable options. Amortization of deferred compensation
recorded in 1997 was $66,000. The Company currently expects to record
amortization of deferred compensation of approximately $66,000 per quarter
through September 30, 2001.

Interest and Other Income, Net. Interest and other income, net reflects
interest earned on average cash, cash equivalents and short-term investment
balances, less interest on the Company's term loan. Interest and other income,
net for 1997 was $290,000, an increase of $77,000 or 36.2% from 1996. Interest
and other income, net for 1996 was $213,000, an increase of $93,000 or 77.5%
from $120,000 in 1995. In each year, the increase was primarily due to interest
earned on higher levels of short-term investments and cash balances, partially
offset by interest expense incurred on higher average debt balances.

Provision (Benefit) for Income Taxes. The Company accrues a provision for
federal and state income tax at applicable statutory rates. The Company's
effective tax rates were approximately 40%, 33% and 43% for 1997, 1996 and 1995,
respectively. In each year, the difference between the Company's effective tax
rate and the federal statutory tax rate of 34% was primarily related to state
income taxes and research and development tax credits. The Company utilizes the
liability method of accounting for income taxes as set forth in Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. See Note 2
of Notes to Financial Statements.

21
<PAGE> 24

QUARTERLY RESULTS OF OPERATIONS

The following table presents selected quarterly financial information for
each of the eight quarters through December 31, 1997. This information is
unaudited but, in the opinion of the Company's management, reflects all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of this information in accordance
with generally accepted accounting principles. Such quarterly results are not
necessarily indicative of future results of operations.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue....................... $3,692 $4,565 $ 4,590 $6,134 $ 3,959 $ 4,210 $ 8,096 $15,403
Development revenue................... 347 442 1,000 600 1,072 1,185 1,159 1,871
------ ------ ------ ------ ------- ------- ------- -------
Total revenue........................... 4,039 5,007 5,590 6,734 5,031 5,395 9,255 17,274
Cost of revenue......................... 1,719 2,010 2,215 1,916 2,534 2,276 4,047 6,069
------ ------ ------ ------ ------- ------- ------- -------
Gross profit............................ 2,320 2,997 3,375 4,818 2,497 3,119 5,208 11,205
Operating expense:
Research and development.............. 856 1,048 1,449 2,309 2,686 3,519 5,503 4,496
Selling, general and administrative... 578 817 1,041 1,110 1,142 1,399 2,670 2,852
------ ------ ------ ------ ------- ------- ------- -------
Total operating expense................. 1,434 1,865 2,490 3,419 3,828 4,918 8,173 7,348
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) from operations........... 886 1,132 885 1,399 (1,331) (1,799) (2,965) 3,857
Interest and other income (expense),
net................................... 19 52 45 97 60 3 (41) 268
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before income taxes....... 905 1,184 930 1,496 (1,271) (1,796) (3,006) 4,125
Provision (benefit) for income taxes.... 300 393 309 497 (508) (718) (1,202) 1,653
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)....................... $ 605 $ 791 $ 621 $ 999 $ (763) $(1,078) $(1,804) $ 2,472
====== ====== ====== ====== ======= ======= ======= =======
Basic earnings (loss) per share(1) $ 0.02 $ 0.03 $ 0.02 $ 0.04 $ (0.03) $ (0.04) $ (0.07) $ 0.09
====== ====== ====== ====== ======= ======= ======= =======
Diluted earnings (loss) per share(1).... $ 0.02 $ 0.02 $ 0.02 $ 0.03 $ (0.03) $ (0.04) $ (0.06) $ 0.07
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>

- ---------------

(1) See Note 1 of Notes to Financial Statements for an explanation of the
calculation of earnings (loss) per share.

The following table sets forth, for the periods indicated, the percentage
of total revenue represented by each item in the Company's statement of
operations.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue....................... 91.4% 91.2% 82.1% 91.1% 78.7 % 78.0 % 87.5% 89.2%
Development revenue................... 8.6 8.8 17.9 8.9 21.3 22.0 12.5 10.8
----- ----- ----- ----- ----- ----- ----- -----
Total revenue........................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue......................... 42.6 40.2 39.6 28.5 50.4 42.2 43.7 35.1
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............................ 57.4 59.8 60.4 71.5 49.6 57.8 56.3 64.9
Operating expense:
Research and development.............. 21.2 20.9 26.0 34.3 53.4 65.2 59.5 26.0
Selling, general and administrative... 14.3 16.3 18.6 16.4 22.7 25.9 28.8 16.6
----- ----- ----- ----- ----- ----- ----- -----
Total operating expense................. 35.5 37.2 44.6 50.7 76.1 91.1 88.3 42.6
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations........... 21.9 22.6 15.8 20.8 (26.5) (33.3) (32.0) 22.3
Interest and other income (expense),
net................................... 0.5 1.0 0.8 1.4 1.2 -- (0.5) 1.6
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes....... 22.4 23.6 16.6 22.2 (25.3) (33.3) (32.5) 23.9
Provision (benefit) for income taxes.... 7.4 7.8 5.5 7.4 (10.1) (13.3) (13.0) 9.6
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....................... 15.0% 15.8% 11.1% 14.8% (15.2)% (20.0)% (19.5)% 14.3%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

Total Revenue. Quarterly revenue increased throughout 1996 as a result of
the introduction of new products and higher unit shipments of the Company's
existing products in the cable set-top box, cable modem and high-speed
networking markets and generally reflected higher revenue from development
programs. The

22
<PAGE> 25

decrease in total revenue from $6.7 million in the fourth quarter of 1996 to
$5.0 million in the first quarter of 1997 was primarily due to a reduction of
unit shipments of 100Base-T4 high-speed networking products and pricing
concessions to a major customer for cable set-top boxes. The increase in total
revenue to $9.3 million in the third quarter of 1997 largely resulted from the
introduction of new products and increased unit shipments of existing cable
set-top box and cable modem products. The increase in total revenue to $17.3
million in the fourth quarter of 1997 was primarily due to the first significant
volume shipments of the Company's 100Base-TX high-speed networking products, as
well as $2.5 million of revenue from a take or pay contract with a significant
customer.

Gross Profit. As a percentage of total revenue, gross profit increased to
71.5% in fourth quarter 1996 as a result of a favorable product mix and a
significant increase in the volume of product shipments over the previous
quarters, which allowed fixed manufacturing costs to be spread over a larger
product base. In the first quarter of 1997, gross profit decreased to 49.6% of
total revenue as a result of an unfavorable product mix and pricing concessions
to a major customer for cable set-top boxes. Gross profit increased to 64.9% of
total revenue in the fourth quarter of 1997 as a result of volume shipments of
high-speed networking products and a significant increase in the volume of
product shipments generally.

Operating Expense. Research and development expense increased in absolute
dollars through the third quarter of 1997 to facilitate the expansion of
introduction of new products by the Company. Research and development expense in
the third quarter of 1997 included a substantial non-recurring engineering
charge and, as a result, research and development expense in the fourth quarter
of 1997 was lower than in the prior quarter. Selling, general and administrative
expense has also increased in absolute dollars as the Company has expanded its
infrastructure to accommodate the Company's expanding operations. In the third
and fourth quarters of 1997, the Company also incurred significant legal
expenses in conjunction with pending litigation and the negotiation of large
customer contracts. See "Business--Litigation."

The Company's quarterly results of operations have fluctuated significantly
in the past and may continue to fluctuate in the future based on a number of
factors, not all of which are in the Company's control. In particular, the
Company's results of operations have fluctuated in the past due to, among other
things, competitive pressures on selling prices; the volume of product sales;
the timing and cancellation of significant customer orders; lengthy sales
cycles; pricing concessions on volume sales; fluctuations in manufacturing
yields; changes in product mix; intellectual property disputes; the Company's
ability to develop, introduce and market new products and technologies on a
timely basis; introduction of products and technologies by the Company's
competitors; market acceptance of the Company's and its customers' products; and
the amount and timing of recognition of development revenue. The Company's
results of operations may also fluctuate in the future based on a number of
factors, including, but not limited to those listed above, as well as general
business conditions in the semiconductor industry and the broadband
communications markets; availability of foundry capacity and raw materials; the
quality of the Company's products; the timing of investments in research and
development; the Company's ability to expand and implement its sales and
marketing programs; the level of orders received that can be shipped in a
quarter; currency fluctuations; and general economic conditions. As a result of
the foregoing factors, the Company believes period to period comparisons are not
necessarily meaningful and should not be relied upon as indicative of future
results.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations through a
combination of private sales of equity securities and cash generated by
operations. At December 31, 1997, the Company had $26.3 million in working
capital and $22.1 million in cash and cash equivalents. The Company's operating
activities used cash in the amount of $2.6 million in 1997, and generated cash
in the amount of $3.2 million and $1.1 million in 1996 and 1995, respectively.

Cash used in operating activities in 1997 was primarily attributable to a
net loss, growth in accounts receivable and 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. Cash provided by operating
activities in 1996 was primarily attributable to net income and growth in
accounts payable and income taxes payable,

23
<PAGE> 26

which more than offset growth in accounts receivable. Cash provided by operating
activities in 1995 was primarily attributable to a decrease in accounts
receivable, growth in accounts payable, and the non-cash impact of depreciation
and amortization.

The Company's investing activities used cash of $7.1 million in 1997, $3.7
million in 1996 and $116,000 in 1995, primarily for the purchase of capital
equipment. During 1998, the Company plans to continue to invest approximately
$15.0 million in additional capital equipment to support its operations. Cash
provided by financing activities was $27.1 million in 1997, $3.2 million in 1996
and $949,000 in 1995, primarily from the sale of convertible preferred stock
and, in 1997, the establishment of a revolving credit facility and term loan.

In March 1995, the Company entered into a Loan and Security Agreement with
SVB which, as amended, provides for a $3.0 million term loan and a $3.0 million
revolving credit facility. This agreement also includes a $500,000 letter of
credit, provided that sufficient credit is available under the two facilities.
The availability of funds under the revolving credit facility is based on
eligible accounts receivable balances. At December 31, 1997, $2.5 million was
outstanding under the term loan and no amounts were outstanding under the
revolving credit facility or the letter of credit. The term loan matures in June
2000 and bears interest at SVB's prime rate plus 0.5%. Borrowings under the
revolving credit facility and the term loan are secured by substantially all of
the Company's assets. The revolving credit facility and the term loan contain
significant financial and operating covenants, including limitations on the
ability of the Company to incur additional indebtedness and restrictions on,
among other things, the Company's ability to pay cash dividends or take certain
other corporate actions. See Note 3 of Notes to Financial Statements.

As of December 31, 1997, the Company had no material commitments other than
commitments of approximately $2.1 million for the purchase of test equipment.
See Notes 3 and 4 of Notes to Financial Statements.

The Company believes that the net proceeds of this offering, together with
internally generated cash flow and funds available under its credit facilities,
will be sufficient to meet its working capital and capital expenditure
requirements through 1998. The Company's future capital requirements will depend
on many factors, including, but not limited to, the levels at which the Company
maintains inventory, the market acceptance of the Company's products, the levels
of promotion and advertising required to launch such products and attain a
competitive position in the marketplace, volume pricing concessions, the extent
to which the Company invests in new technology and improvements to its existing
technology and the response of competitors to the products based on the
Company's technology. To the extent that the funds generated by this offering,
together with existing resources and future earnings, are insufficient to fund
the Company's future activities, the Company may need to raise additional funds
through public or private financing. No assurance can be given that additional
financing will be available or that, if available, it can be obtained on terms
favorable to the Company and its shareholders. See "Use of Proceeds."

24
<PAGE> 27

BUSINESS

Broadcom is a leading developer of highly integrated silicon solutions
which enable broadband digital data transmission to the home and within the
business enterprise. The Company's products enable the transmission of broadband
data over existing communications infrastructures, most of which were not
originally intended for digital data transmission. Using proprietary
technologies and advanced design methodologies, the Company has designed and
developed ICs for some of the most significant broadband communications markets,
including the markets for cable set-top boxes, cable modems, high-speed
networking, DBS and terrestrial wireless, and xDSL. Although the communications
infrastructures of these markets are very different, the Company has leveraged
its core technologies and introduced silicon solutions for each market that
deliver the cost and performance levels necessary to enable the widespread
deployment of broadband transmission services. The Company's 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. The Company's products integrate comprehensive systems solutions into
single chips or chip-sets, thereby eliminating costly external components,
reducing board space, simplifying the customer's manufacturing process, lowering
the customer's system costs and enabling higher performance. Customers currently
shipping broadband communications equipment incorporating the Company's products
include 3Com, Bay Networks, Cisco Systems, General Instrument, Motorola and
Scientific-Atlanta.

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 data, voice and video. This demand is being
driven by the growth of desirable information and entertainment content
accessible via the Internet and cable and data networks. Demand has also been
stimulated by the improved availability and affordability of access devices such
as set-top boxes, PCs and other consumer appliances. Computer processor speeds
over the last decade have increased dramatically and, as a result, 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 ("LANs") which are principally based upon 10Base-T Ethernet
technology. Dell'Oro Group estimates that the worldwide installed base of
10Base-T Ethernet hub and switch ports was 185 million in 1997. The
proliferation of LAN usage within corporate networks has resulted in volumes of
electronic traffic that are rapidly outgrowing the ability of legacy LAN
technologies and infrastructures to readily transmit the traffic and has
exacerbated the bandwidth gap for businesses. As such, much of the installed
base of Ethernet ports will require upgrading to higher speeds as the
infrastructure continues to grow.

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. International Data Corporation ("IDC")
estimates that between 1995 and 1997 the number of devices that had access to
the Internet grew from approximately 15.4 million to 64.4 million and
anticipates that the number of such devices will grow to over 232 million by
2000. Similarly, the available content on the Internet is also increasing
rapidly. IDC estimates that the number of web pages for Internet devices to
access grew from approximately 18.1 million in 1995 to approximately 250.5
million in 1997, and is expected to increase to 2.3 billion by 2000. 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.

25
<PAGE> 28

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, as well as the inability of that infrastructure 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. According to Paul Kagan Associates, Inc.
("Kagan"), approximately 600,000 of the cable subscribers in the United States
used digital cable set-top boxes in 1997, and approximately 9.5 million U.S.
cable subscribers will have digital cable set-top boxes by 2001. 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.

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, including limited spectrum,
noise, dispersion and multipath reflections, which make broadband transmission
(greater than 1.5 Mbps) of digital data very difficult.

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. The principal segments
that define this marketplace include:

Cable Set-Top Boxes. Cable operators are deploying digital cable set-top
boxes to facilitate high-speed digital communications between a
subscriber's television and the cable network. Cable set-top boxes are
currently able to support downstream (to the subscriber) transmission
speeds of up to 56 Mbps, thereby enabling several hundred MPEG-2 compressed
digital television channels to be delivered to the consumer. Additional
applications for digital cable set-top boxes are expected to include
Internet access, interactive television and high definition television
("HDTV").

Cable Modems. Cable modems connect PCs to the cable network and can
achieve downstream transmission speeds of up to 56 Mbps and upstream (to
the network) transmission speeds of up to 20 Mbps. These transmission rates
are almost 1,000 times faster than the fastest analog telephone modems (56
kbps downstream and 28.8 kbps upstream) currently available. 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.

High-Speed Networking. As communications bottlenecks have appeared in
corporate LANs, technologies such as Fast Ethernet (100 Mbps) and Gigabit
Ethernet (1,000 Mbps) are being employed to replace older technologies such
as 10Base-T Ethernet (10 Mbps) and Token Ring (16 Mbps). As desktops
continue to migrate to Fast Ethernet, the Company believes that Gigabit
Ethernet will emerge as the predominant backbone and server communications
technology, and will eventually migrate to the desktop.

Direct Broadcast Satellite and Terrestrial Wireless. DBS is the primary
alternative to cable for providing digital television programming and can
be used to transmit information at speeds of up to 90 Mbps. DBS broadcasts
video and audio data from satellites directly to set-top boxes in the home
via dish antennas. Other broadband wireless technologies include (i)
terrestrial digital broadcast television, the upgrade of analog broadcast
television to digital which enables the delivery of HDTV, (ii) Multichannel
Multipoint

26
<PAGE> 29

Distribution Systems ("MMDS"), which use microwave frequencies (2.5 GHz) to
transmit digital video signals over terrestrial wireless channels to
digital set-top boxes, and (iii) Local Multipoint Distribution Systems
("LMDS"), which use even higher microwave frequencies (28 to 38 GHz) to
transmit video and data to digital set-top boxes over a shorter distance
via a cellular-like network.

Digital Subscriber Lines (xDSL). xDSL represents a family of newer
broadband technologies which use the copper twisted pair wiring in the
existing telephone local loops to deliver transmission speeds ranging from
128 kbps to 52 Mbps depending on the distance between the central office
and the subscriber. These data rates are expected to enable a wide range of
new services including high-speed Internet access and digital television.

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 IC solutions developed for low speed transmission applications.
Moreover, solutions that are based on multiple discrete analog and digital ICs
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 digital
signal processing ("DSP") circuitry that can be manufactured in high volumes
using cost-effective semiconductor technologies.

THE BROADCOM SOLUTION

The Company is a leading developer of highly integrated silicon solutions
which enable broadband digital data transmission to the home and within the
business enterprise. Using its proprietary communications algorithms and
protocols, unique DSP architectures, silicon compiler design methodologies and
full-custom, mixed-signal circuit design techniques, the Company has designed
and developed ICs for some of the most significant broadband communications
markets, which include cable set-top boxes, cable modems, high-speed networking,
DBS and terrestrial wireless, and xDSL. The Company's expertise in
communications algorithms and its detailed understanding of transmission media
enables the implementation of complex systems incorporating signal processing
functions such as digital demodulation, adaptive equalization and error
correction in a single device. In addition, the Company's comprehensive
knowledge of advanced communications protocols enables the Company to design
protocol processing ICs that seamlessly interface its mixed-signal transceiver
ICs with higher-level networking layers for communications applications.
Finally, the Company's systems level communications expertise has enabled it to
establish a viable long-term product roadmap that permits its customers to
achieve rapid time-to-market over multiple generations of equipment.

All of the Company's products are implemented in low-cost,
highly-manufacturable CMOS technologies which enable the integration of
comprehensive systems solutions into single-chip ICs, thereby eliminating costly
external components, reducing board space, simplifying the customer's equipment
manufacturing process, lowering customer system costs and enabling higher
performance. The Company's proprietary technology and advanced design
methodologies result in a high likelihood of first pass silicon success,
accelerated time-to-market, and ease of porting to multiple foundries. The
Company's design methodologies also allow it to rapidly and cost-effectively
incorporate proprietary features or intellectual property from its key strategic
customers into products that are exclusive to those customers, thereby enabling
them to differentiate their products. Customers currently shipping broadband
communications equipment that incorporates the Company's products include 3Com,
Bay Networks, Cisco Systems, General Instrument, Motorola and
Scientific-Atlanta.

27
<PAGE> 30

STRATEGY

The Company's objective is to be the leading provider of highly integrated
silicon solutions to the worldwide broadband communications markets. Key
elements of the Company's strategy include the following:

Target Multiple High-Growth Broadband Communications Markets. The
Company's strategy is to identify rapidly growing broadband digital
communications markets and to develop highly integrated silicon solutions
for applications in those markets. The Company's initial products were
designed for the cable set-top box, cable modem and high-speed networking
markets, which require high-performance, feature-rich and highly integrated
semiconductor solutions. The Company has recently leveraged the core
technologies it developed for these markets to design and develop
semiconductor solutions for the DBS and terrestrial wireless, and xDSL
markets, which it believes have significant growth potential.

Strengthen and Expand Strategic Relationships with Industry Leaders. The
Company has established or is establishing strategic relationships with key
equipment manufacturers, including 3Com, Bay Networks, Cisco Systems,
General Instrument, Motorola and Scientific-Atlanta, which are market and
technology leaders within the broadband communications markets. While the
Company designs products that can be used by multiple customers, the
Company's proprietary design methodologies allow it to rapidly design
custom features based on either the Company's or its customers'
intellectual property. This capability enables the Company's customers to
improve their time-to-market, differentiate their products and address new
market opportunities. The Company believes that these strategic
relationships are essential to its continued growth and to further
development and acceptance of its technologies.

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

Drive Industry Standards. The Company participates actively in the
formulation of critical standards for the broadband communications markets.
The Company believes such participation provides it with several
significant benefits, including (i) accelerating and expanding the
development of markets for the Company's products by encouraging all market
participants to focus their efforts on developing products compliant with
the standards, and (ii) providing valuable insight and relationships, which
assist the Company in being early to market with products incorporating the
standards. The Company has established strategic relationships with major
networking equipment and cable modem vendors and was a principal
participant in formulating and writing the Multimedia Cable Network Systems
Data Over Cable Services Interface Specifications ("MCNS/DOCSIS") for the
end-to-end delivery of high-speed data services over hybrid fiber coax
("HFC") networks, which facilitate the development of interoperable
networking products, including cable modems. The Company's active
participation in this process enabled it to be the first provider of
transmission and protocol ICs to equipment manufacturers developing
MCNS/DOCSIS compliant products. The Company is also currently participating
in the formulation and evolution of standards for Fast Ethernet, Gigabit
Ethernet and xDSL systems.

Focus on Highly Integrated Solutions. The Company believes its analog
mixed-signal technology and advanced design methodologies enable it to
offer silicon solutions that are more highly integrated than competitive
alternatives. High levels of integration and aggressive product development
roadmaps allow the Company to enhance the value-added benefits of its
products in its customers' systems. Integration, which reduces the total
component count in the system, provides many fundamental benefits for the

28
<PAGE> 31

Company's 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 enabled the Company's customers to achieve faster and broader
penetration within their respective markets.

MARKETS

The increased demand for the high-speed delivery of data and video services
is forcing equipment vendors and service providers to race to provide solutions
to close the bandwidth gap. The Company's silicon solutions address the
bandwidth gap in multiple communications markets. While the communication
infrastructures of these markets are very different, the Company has been able
to leverage many of its core technologies across multiple markets in various
product implementations. Many industry analysts project high growth rates for
the markets served by the Company's products even though such markets are at
different phases in their evolution. High-speed networking is an established
market that is currently going through an upgrade; cable and DBS set-top boxes
are, on a global basis, in an early growth phase, and the cable modem and xDSL
markets are emerging.

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 picture quality that is comparable to DBS, cable service providers began
offering digital programming in 1996 through new digital cable set-top boxes.
Kagan estimates that 600,000 of the 65 million homes in the United States that
subscribed to cable in 1997 used digital cable set-top boxes, and projects that
such number will increase to 9.5 million by 2001. General Instrument, in
particular, recently announced its agreement to provide leading multiple cable
system operators with an aggregate of 15 million digital cable set-top boxes
over the next three to five years. The Company believes a new generation of
digital cable set-top boxes will be introduced in the near future to facilitate
television Internet access and to support HDTV.

Cable Modems

Cable television operators are upgrading their coaxial cable trunk systems
(backbones) to fiber to create HFC networks. These upgraded 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, RoadRunner and MediaOne, were introduced in 1996 in conjunction with
several MSOs. Kagan estimates that high-speed Internet service was available to
11.4 million homes in 1997 and predicts that this service will be extended to
45.7 million homes in the United States by 2001. In-Stat estimates that the
number of cable modems shipped worldwide will increase from 171,000 units in
1997 to 10.0 million by 2001. The cable industry's adoption of the MCNS/DOCSIS
specifications in 1997 for the end-to-end delivery of high-speed data services
is anticipated to enable interoperability between different manufacturers' cable
modems and headend equipment across different cable networks. This
interoperability should facilitate the creation of a retail market for cable
modems.

High-Speed Networking

The high-speed networking equipment market is undergoing a rapid transition
from 10Base-T Ethernet to Fast Ethernet (100Base-T) transceivers, with Gigabit
Ethernet (1000Base-T) anticipated to be introduced in 1998. Dell'Oro Group
estimates that the number of 100Base-T repeater/hub ports sold worldwide is
expected to grow from 5.6 million in 1997 to 23 million by 2001, and the number
of switch ports is expected to grow from 5.2 million to 64 million during the
same period. IDC predicts the number of 100Base-T network interface cards
("NIC") sold worldwide will grow from 11.5 million units in 1997 to 39 million
units by 2001. As the networking market transitions to Fast Ethernet and Gigabit
Ethernet, it is anticipated that a significant portion of the installed base of
10Base-T repeater/hub ports, switches and NICs will be upgraded to the faster
technologies.

29
<PAGE> 32

Direct Broadcast Satellite and Terrestrial Wireless

The Carmel Group estimates that there were approximately 6.6 million DBS
subscribers in the United States in 1997 and predicts that this market will grow
to 17.1 million subscribers by 2001. Because of the ability of DBS to provide
television programming where no cable infrastructure is in place, it is expected
that the U.S. market for DBS may eventually be surpassed by the international
market where the cable infrastructure is generally less extensive. The Carmel
Group estimates that the number of subscribers worldwide will grow from 10.3
million in 1997 to 53.1 million in 2001. Other wireless offerings such as MMDS
and LMDS are currently being tested in limited deployments. These new networks,
which are able to provide programming in areas that do not have cable, will also
require a digital set-top box. 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 will begin transmitting HDTV in the fall of 1998. This
conversion to digital broadcasting will also require new set-top boxes and
television receivers.

Digital Subscriber Lines (xDSL)

xDSL is a family of technologies for high-speed data transmission over
existing copper twisted pair wiring in the telephone local loops. Several
Regional Bell Operating Companies ("RBOCs"), including Southwestern Bell, Bell
Atlantic, Bell South and U S West, and several international telephone
companies, including Bell Canada, British Telecom and Deutsche Telekom, have
conducted field trials, deployed or announced plans to conduct trials or deploy
xDSL services in select markets for high-speed Internet access and
telecommuting. Certain Internet service providers are also embracing xDSL
technologies. In January 1998, Compaq, Intel, Microsoft and several RBOCs
announced they would coordinate their efforts to create an interoperable xDSL
standard for 1.5 Mbps transmission. Dataquest Incorporated estimates that the
number of xDSL modems manufactured worldwide will increase from 385,000 units in
1997 to 4.9 million units in 2001. Asymmetric DSL ("ADSL"), which can provide
transmission at speeds of up to 8 Mbps, and Very-high-bit-rate DSL ("VDSL"),
which can provide transmission at speeds of up to 52 Mbps, represent the xDSL
technologies that have recently attracted the most interest from the service
providers. VDSL modems are still in the development stage, but represent a
promising medium for broadband communications.

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<PAGE> 33

CUSTOMERS AND STRATEGIC RELATIONSHIPS

The Company sells its products to leading manufacturers of data
communications equipment in each of the Company's target markets. Equipment
manufacturers from which the Company recognized aggregate revenue of at least
$100,000 in 1997 included, among others:

<TABLE>
<S> <C>
----------------------------------------------------------------------------------------
MARKETS CUSTOMERS
----------------------------------------------------------------------------------------
Cable Set-Top Boxes Ericsson
General Instrument
Scientific-Atlanta
----------------------------------------------------------------------------------------
Cable Modems 3Com
Bay Networks
Cisco Systems
Com21
General Instrument
Hybrid Networks
Motorola
Scientific-Atlanta
----------------------------------------------------------------------------------------
High-Speed Networking 3Com
Accton Technology
Adaptec
Alantec/Fore
Bay Networks
Cabletron
Cisco Systems
Digital Equipment Corporation
D-Link
Standard Microsystems
----------------------------------------------------------------------------------------
DBS and Terrestrial Wireless General Instrument
Italtel
Samsung
----------------------------------------------------------------------------------------
xDSL General Instrument (NextLevel Communications)
Nortel
----------------------------------------------------------------------------------------
</TABLE>

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

The Company has also entered into development agreements with 3Com, Cisco
Systems, Nortel and DirecTV, pursuant to which the Company is working closely
with these customers to co-develop products for these customers.

A small number of customers have historically accounted for a substantial
portion of the Company's total revenue. Sales to General Instrument and 3Com
(including sales to their respective manufacturing subcontractors) accounted for
approximately 31.9% and 14.6%, respectively, of the Company's total revenue in
1997.

31
<PAGE> 34

Sales to General Instrument and 3Com (including sales to their respective
manufacturing subcontractors) represented approximately 24.9% and 24.3%,
respectively, of the Company's total revenue in the fourth quarter of 1997.
Sales to the Company's five largest customers represented approximately 62.0%
and 69.9% of the Company's total revenue in 1997 and the fourth quarter of 1997,
respectively. The loss of any key customer could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors--Customer Concentration."

PRODUCTS

The Company's five primary product lines encompass: (i) high-speed
communications and MPEG video/audio devices for the cable television set-top box
market, (ii) high-speed data transmission and media access control devices for
the cable modem market, (iii) 10/100Base-T Ethernet transceivers and repeater
controllers for the high-speed networking market, (iv) receivers and MPEG
video/audio devices for the DBS and terrestrial wireless markets, and (v)
broadband twisted pair transceivers for the xDSL market. The Company also
develops and sells reference platforms designed around its IC products that
represent application examples for incorporation into its customers' equipment.
By providing these reference platforms, the Company can assist its customers in
achieving easier and faster transitions from initial prototype designs through
final production releases. These reference platforms significantly enhance the
customer's confidence that the Company's products will meet their market
requirements and product introduction schedules.

Cable Set-Top Boxes

The Company offers 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 wireless markets. The Company's QAMLink
transmission products integrate the core functionality required of advanced
communications transceiver devices including modulators and demodulators for
quadrature amplitude modulation ("QAM") and quadrature phase shift keying
("QPSK"), adaptive equalization, forward error correction and high-speed
analog-to-digital and digital-to-analog conversion. These products have been
designed 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.

The Company plans to introduce its first single-chip MPEG multimedia device
in the first half of 1998 that incorporates all of the processing capabilities
necessary to decode and decompress an MPEG-2 digital television data stream and
subsequently reconstruct an analog studio quality television signal that can be
displayed on a standard television receiver. This IC will integrate MPEG-2 video
decompression, Dolby AC3 audio decompression, MPEG-2 transport processing,
on-screen display, analog video reconstruction and other necessary MPEG related
functions required to deliver video and audio to a television. The combination
of the Company's transmission and MPEG silicon solutions will provide all of the
significant silicon functionality of most existing digital cable set-top boxes
with the exception of the security functions, the general purpose microprocessor
and memory.

Cable Modems

The Company has leveraged its 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
20 Mbps. These products incorporate similar modulation, adaptive equalization
and error correction technologies as the 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 also
includes both a headend and a subscriber media access controller ("MAC") device
that controls the upstream and downstream data flow over the HFC network. The
Company's cable modem products have been designed to conform to the MCNS/DOCSIS
specifications. The combination of the transmission and MAC ICs provides a
complete end-to-end silicon platform for the Company's customers to build
headend systems and subscriber modems.

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<PAGE> 35

The Company's principal products for cable set-top boxes and cable modems
include the following:

<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
PRODUCT FUNCTION INTRODUCTION DATE
- ----------------------------------------------------------------------------------------------------
BCM3033 Universal headend QAM modulator. Fourth Quarter 1996
- ----------------------------------------------------------------------------------------------------
BCM3036 Upstream QPSK/QAM burst transmitter. Fourth Quarter 1996
- ----------------------------------------------------------------------------------------------------
BCM3037 Upstream QPSK/QAM burst transmitter for MCNS/DOCSIS applica- Third Quarter 1997
tions.
- ----------------------------------------------------------------------------------------------------
BCM3115 Downstream QAM receiver for North American set-top box Fourth Quarter 1995
applications. Includes QPSK control channel receiver.
- ----------------------------------------------------------------------------------------------------
BCM3116 Downstream QAM receiver for North American set-top box and Fourth Quarter 1997
MCNS/DOCSIS applications.
- ----------------------------------------------------------------------------------------------------
BCM3118 Downstream QAM receiver for international applications. Fourth Quarter 1996
- ----------------------------------------------------------------------------------------------------
BCM3120 Universal set-top box transceiver for both North American and First Half 1998*
international applications. Includes downstream QAM receiver,
QPSK control channel receiver, peripheral device interfaces and
upstream QPSK/QAM transmitter.
- ----------------------------------------------------------------------------------------------------
BCM3137 Headend QPSK/QAM burst receiver for MCNS/DOCSIS applications. First Half 1998*
- ----------------------------------------------------------------------------------------------------
BCM3210 Headend MCNS/DOCSIS MAC for downstream and upstream traffic First Half 1998*
flow. Includes data encryption and decryption.
- ----------------------------------------------------------------------------------------------------
BCM3220 Subscriber MCNS/DOCSIS cable modem MAC for downstream and Fourth Quarter 1997
upstream traffic flow. Includes data encryption and decryption.
- ----------------------------------------------------------------------------------------------------
BCM3900 Downstream QAM receiver for North American set-top box Fourth Quarter 1996
applications. Includes QPSK control channel receiver and
peripheral device interfaces.
- ----------------------------------------------------------------------------------------------------
BCM7010 MPEG system on a chip. Integrates MPEG-2 video decompression, First Half 1998*
Dolby AC3 audio decompression, MPEG transport, on-screen
display, analog video reconstruction and other MPEG related
functions for delivering video and audio to a television.
- ----------------------------------------------------------------------------------------------------
</TABLE>

- ---------------

* Estimated date of initial commercial sampling.

High-Speed Networking

The Company's networking products provide the core functionality required
for building Fast Ethernet (100Base-T) adapter cards, repeater/hubs and
switches. The Company's transceivers, which are the basic elements required for
implementing a high-speed Ethernet port, incorporate the Company's embedded DSP
algorithms combined with high-speed analog-to-digital and digital-to-analog
converters to create a highly-integrated mixed-signal solution. In addition to
the DSP based architecture, features of the 100Base-T transceiver products
include low power and low voltage operation (3.3 Volts) making them suitable for
personal computer motherboards and CardBus/PCMCIA adapter cards applications for
laptop PCs. The Company also offers a variety of repeater controller and
management devices, thereby providing a broad suite of Fast Ethernet products to
meet the demands of the adapter card, repeater/hub, switch and router markets.

33
<PAGE> 36

The Company's principal networking products include the following:

<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
PRODUCT FUNCTION INTRODUCTION DATE
- ----------------------------------------------------------------------------------------------------
BCM5012 100Base-T managed repeater controller. Incorporates 13 repeater Fourth Quarter 1995
ports, MAC port, microprocessor port, and a port for stacking
hubs. Interfaces to external transceivers.
- ----------------------------------------------------------------------------------------------------
BCM5020 100Base-T network management processor. Incorporates statistical Second Quarter 1997
analysis of network traffic to enable control of repeating hubs
by network management software.
- ----------------------------------------------------------------------------------------------------
BCM5100 Single-channel 10/100Base-T4 transceiver. Incorporates a Third Quarter 1996
10Base-T and 100Base-T4 transceiver for Category 3, 4 and 5
twisted pair cabling.
- ----------------------------------------------------------------------------------------------------
BCM5201 Single-channel 10/100Base-TX transceiver. Incorporates a First Quarter 1998
10Base-T and 100Base-TX transceiver for Category 5 twisted pair
cabling.
- ----------------------------------------------------------------------------------------------------
BCM5203 Quad 100Base-TX transceiver. Contains four 100Base-TX Fast Second Quarter 1997
Ethernet transceivers.
- ----------------------------------------------------------------------------------------------------
BCM5205 Quad 100Base-TX integrated repeater. Incorporates four Second Quarter 1997
100Base-TX transceivers, MII port, repeater controller and
repeater management functions.
- ----------------------------------------------------------------------------------------------------
BCM5208 Quad 10/100Base-T transceiver. Integrates four Third Quarter 1997
10Base-T/100Base-TX transceivers. 100Base-FX is also supported
at each port through an external fiber optic transceiver.
- ----------------------------------------------------------------------------------------------------
</TABLE>

Direct Broadcast Satellite and Terrestrial Wireless

The Company's 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 (DirecTV), DVB (international) and Primestar,
and can operate at any data rate from 2 to 90 Mbps. The Company's MPEG system on
a chip (BCM7010) will employ the MPEG-2 standard, which enables it be used in
either cable set-top boxes or DBS set-top boxes.

The Company's principal DBS products include the following:

<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------
PRODUCT FUNCTION INTRODUCTION DATE
- -------------------------------------------------------------------------------------------
BCM4200 QPSK receiver for DSS (DirecTV) and DVB (international) First Quarter 1997
digital satellite reception. Accommodates data rates from
2 to 90 Mbps.
- -------------------------------------------------------------------------------------------
BCM4201 Universal QPSK receiver for DSS, DVB and Primestar First Half 1998*
digital satellite reception. Accommodates data rates from
2 to 90 Mbps.
- -------------------------------------------------------------------------------------------
BCM7010 MPEG system on a chip. Integrates MPEG-2 video First Half 1998*
decompression, Dolby AC3 audio decompression, MPEG
transport, on-screen display, analog video reconstruction
and other MPEG related functions for delivering video and
audio to a television.
- -------------------------------------------------------------------------------------------
</TABLE>

- ---------------
* Estimated date of initial commercial sampling.

Digital Subscriber Lines (xDSL)

The Company's product for xDSL 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. The Company believes it
currently offers the industry's only single-chip 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 IC. 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

34
<PAGE> 37

data rates for video related services on an upgraded plant. The Company has
leveraged its mixed-signal and digital signal processing design expertise
developed for cable television and wireless products to develop the following
QAM transceiver product for the xDSL market.

The Company's future success will depend upon its 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. There can be no
assurance that the Company will be able to develop or introduce new products in
a timely and cost-effective manner or in sufficient quantities to meet customer
demand or that such products will satisfy customer requirements or achieve
market acceptance. See "Risk Factors--Dependence on Development of New
Products."

CORE TECHNOLOGIES

The Company believes that one of its key competitive advantages is its
broad base of core technologies encompassing the complete design space from
systems to silicon. The Company has developed and continues to build on four
primary technology foundations: (i) proprietary communications systems
algorithms and protocols, (ii) advanced digital signal processing hardware
architectures, (iii) silicon compiler design methodologies and advanced cell
library development for both standard cell and full-custom IC design, and (iv)
high performance analog and mixed-signal circuit design using industry standard
CMOS processes.

Communications Algorithms and Protocols

The Company was an innovator in integrating a high-speed QAM digital
demodulator with an adaptive equalizer and forward error correction into a
single IC. In addition, the Company has continued to make system advances in the
areas of FEC, QAM and QPSK modulation and demodulation, variable rate
transmitters and receivers, digital clock and carrier recovery techniques and
adaptive equalization algorithms. The Company has also designed and deployed
fully integrated, DSP-based transceiver chips for Fast Ethernet LAN
applications. The Company has developed a compact core transceiver module that
employs high performance 125 MBaud digital equalizers and high-speed
analog-to-digital converters and clock recovery circuits. This core module has
been used in a number of the Company's single channel and quad transceiver
products for Fast Ethernet (100Base-TX) applications including NICs, switches
and repeaters. This DSP transceiver expertise is now being extended and applied
to the development of a Gigabit copper twisted pair transceiver. In addition to
data transmission algorithms, the Company has developed significant expertise in
networking protocols which it has applied to the development of MAC devices for
cable modems and interactive set-top box applications as well as repeater
controllers for Fast Ethernet applications. The Company has introduced the
industry's first MCNS/DOCSIS MAC ICs for cable modems.

Digital Signal Processing Hardware Architectures

The Company has developed cost-effective, single-chip broadband
transceivers by mapping complex communications algorithms into low-complexity
DSP hardware architectures. The Company is a technology leader in the area of
low-complexity, high-performance "silicon embedded algorithms" whereby the
communications algorithms are individually implemented 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 ICs that are less complex
and less expensive to manufacture than conventional implementations. One
particular area where the Company has developed leading DSP technology is in
digital adaptive equalization. Equalizers are key components in all of the
Company's transceiver products. The

35
<PAGE> 38

Company believes that the speed and density of its equalizers help to
distinguish its products in the marketplace. The Company is currently developing
a single-chip, mixed-signal adaptive DSP transceiver for Gigabit Ethernet, which
the Company expects will perform in excess of 100 billion operations per second.

Silicon Compiler Design Methodologies

The Company has developed proprietary silicon compiler technologies that
enable designers to implement ICs using a high level of abstraction yet produce
area-efficient IC 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. The Company has designed compilers for standard cells, arithmetic
processing, memories and analog building blocks. In addition, the Company has
created compilers to manage the implementation of higher level functions such as
digital filters, adaptive equalizers, modulators, demodulators, numerically
controlled oscillators and direct digital frequency synthesizers. The Company
believes 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. The Company has also developed, and continues to improve and expand its
own proprietary set of circuit and layout libraries for both standard cell and
full-custom ICs.

Full-Custom Analog and Mixed-Signal Circuit Design

The Company has developed significant analog and mixed-signal circuit
expertise. The Company has 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 the Company's high
performance analog building blocks are implemented in the same low-cost CMOS
technologies as the digital IC circuitry. In addition to achieving very high
performance, the Company's 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. The Company's
10-bit, 50 Msample/sec analog-to-digital converter received the Best Paper Award
of the 1997 International Solid State Circuits Conference, a prestigious
semiconductor conference. This converter was integrated onto the same die as the
Company's broadband QAM receiver, which the Company believes was the first such
mixed-signal QAM receiver product ever demonstrated (BCM3118). The Company has
also developed very high-speed 125 MHz analog-to-digital converters for Fast
Ethernet transceivers and 200 MHz digital-to-analog converters for cable
modulator applications. All of these data converters were designed for
integration with high-speed digital circuits in conventional CMOS technologies.
The Company has also evaluated experimental IC designs and is in the development
phase of producing other analog functions such as low noise RF amplifiers,
linear high-gain RF amplifiers, RF mixers, frequency synthesizers, RF
phase-locked loops and other building blocks to enable higher levels of system
integration.

RESEARCH AND DEVELOPMENT

The Company has assembled a core team of experienced engineers and
technologists, many of whom are leaders in their particular field or discipline.
As of January 31, 1998, approximately 80% of the Company's 158 research and
development engineers had advanced degrees, including 35 with Ph.D.s. These
engineers are involved in advancing the Company's core technologies, as well as
applying these core technologies to the Company's product development activities
in the areas of broadband communications and digital video technology for cable
set-top boxes, cable modems, high-speed networking, DBS and terrestrial
wireless, and xDSL. The transmission solutions for each of these markets benefit
from the same underlying core technologies, which enables the Company to
leverage its ability to address various broadband communications markets with a
relatively focused investment in research and development.

The Company believes that the achievement of higher levels of integration
and the introduction of new products in its target markets is essential to its
growth. As a result, the Company plans to increase research and development
staffing levels in 1998. Research and development expense for 1997, 1996 and
1995 was

36
<PAGE> 39

approximately $16.2 million, $5.7 million and $2.7 million, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

MANUFACTURING

Wafer Fabrication

The Company's products are manufactured in standard CMOS processes, which
permit the Company to engage independent silicon foundries to fabricate its ICs.
By subcontracting its manufacturing requirements, the Company is able to focus
its resources on design and test applications where the Company believes it has
greater competitive advantages and to eliminate the high cost of owning and
operating a semiconductor wafer fabrication facility.

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

The Company's key silicon foundries are TSMC in Taiwan and Chartered in
Singapore. While the Company currently uses two independent foundries, few of
the Company's components are manufactured at both foundries at any given time.
Any inability of one of its foundries to provide the necessary capacity or
output could result in significant production delays and could have a material
adverse effect on the Company's business, financial condition and results of
operations. While the Company currently believes it has adequate capacity to
support its current sales levels, the Company continues to work with its
existing foundries to obtain more production capacity and it intends to qualify
new foundries to provide additional production capacity. There can be no
assurance that adequate foundry capacity will be available on acceptable terms,
if at all. See "Risk Factors--Dependence on Independent Foundries."

The Company's foundries currently manufacture all of the Company's products
except for the Company's current MPEG chip, which is presently produced on an
interim basis by another manufacturer. The Company is presently redesigning this
chip to be manufactured at its foundries. The Company has licensed the MPEG
technology from General Instrument and expects to introduce the next generation
of this chip (BCM7010) beginning in the first half of 1998. See "Risk
Factors--Dependence on Development of New Products."

The Company's devices are currently fabricated using CMOS process
technology with 0.5 micron, triple layer metal and 0.35 micron, quad layer metal
feature sizes. The Company continuously evaluates the benefits, on a product by
product basis, of migrating to a smaller geometry process technology in order to
reduce costs. The Company's experience to date with the migration of products to
smaller geometry processes has been favorable, but there can be no assurance
that future process migration will be achieved without difficulty. Other
companies in the industry have experienced difficulty in effecting transitions
to new manufacturing processes and, consequently, have suffered reduced yields
or delays in product deliveries. The Company believes that the transition of its
products to smaller geometries will be important for the Company to remain
competitive. The Company's business, financial condition and results of
operations could be materially and adversely affected if any such transition is
substantially delayed or inefficiently implemented. See "Risk
Factors--Transition to Smaller Geometry Process Technologies."

Assembly and Test

Wafer probe testing is performed by one of the foundries or by the
Company's wafer probe test subcontractors. Following completion of the wafer
probe tests, the die are assembled into packages and the finished products are
tested by one of the Company's two subcontractors: ASAT in Hong Kong and STATS
in Singapore. While the Company has not experienced any material disruption in
supply from assembly subcontractors to date, there can be no assurance that
assembly problems will not occur in the future. See "Risk Factors--Dependence on
Third-Party Subcontractors for Assembly and Test."

37
<PAGE> 40

Quality Assurance

The data communications industry demands high-quality and reliability of
the semiconductors incorporated into their equipment. The Company focuses on
product reliability from the initial stage of the design cycle through each
specific design process, including layout and production test design. In
addition, the Company's designs are subjected to in-depth circuit simulation at
temperature, voltage and processing extremes before being committed to silicon.

The Company prequalifies 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. The Company also participates in
quality and reliability monitoring through each stage of the production cycle by
reviewing electrical and parametric data from its wafer foundry and assembly
subcontractors. The Company closely monitors wafer foundry production to ensure
consistent overall quality, reliability and yield levels. In cases where the
Company purchases wafers on a fixed cost basis, any improvement in yields can
reduce the Company's cost per IC.

As part of its total quality program, the Company plans to apply for ISO
9001 certification, a comprehensive International Standards Organization
specified quality system. The Company's objective is to exceed ISO 9001
requirements, especially in the areas of continuous improvements and customer
satisfaction. All of the Company's principal independent foundries and package
assembly facilities have achieved ISO 9000 certification.

SALES AND MARKETING

The Company's sales and marketing strategy is to achieve design wins with
technology leaders in each of the Company's targeted broadband communications
markets by, among other things, providing superior field application and
engineering support. The Company markets and sells its products in the United
States through a direct sales force, which has largely been established within
the last year, based out of four regional sales offices located in Irvine and
San Jose, California, Atlanta, Georgia and Garwood, New Jersey. Sales managers
are dedicated to principal customers to promote close cooperation and
communication. The Company also provides its customers with reference platform
designs, which enable its customers to achieve easier and faster transitions
from the initial prototype designs through final production releases and
significantly enhance the customer's confidence that the Company's products will
meet their market requirements and product introduction schedules.

The Company also markets and sells its products internationally through a
direct sales force based out of regional sales offices located in Singapore and
the Netherlands, as well as through a network of independent distributors and
representatives in France, Israel, Germany, Japan, Taiwan and Korea. The Company
selects these independent entities based on their ability to provide effective
field sales, marketing communications and technical support to the Company's
customers. All international sales to date have been denominated in U.S.
dollars.

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. The Company
believes that the principal factors of competition for silicon providers to
these industries are product capabilities, level of integration, reliability,
price, time-to-market, system cost, intellectual property, customer support and
reputation. The Company believes it competes favorably with respect to each of
these factors.

The Company competes with a number of major domestic and international
suppliers of equipment in the markets for cable set-top boxes, cable modems,
high-speed networking, DBS and terrestrial wireless, and xDSL, which competition
has resulted and may continue to result in declining average selling prices for
the Company's products. The Company currently competes in the cable set-top box
market with Rockwell, Philips, LSI Logic and VLSI Technologies for communication
devices and with SGS-THOMSON, LSI

38
<PAGE> 41

Logic and C-Cube in the MPEG segment. The Company expects other major
semiconductor manufacturers to enter the market as digital broadcast television
and other digital cable television markets become more established. A number of
companies, including LSI Logic, Rockwell and Toshiba, have announced that they
are developing and will introduce MCNS/DOCSIS compliant products in 1998, which
could result in significant competition in the cable modem market. In the
high-speed networking market, the Company principally competes with established
suppliers including Lucent Technologies, Level One, National Semiconductor and
AMD. The Company's principal competitors in the DBS market include LSI Logic,
Philips, SGS Thomson and VLSI Technologies. The Company's principal competitors
in the xDSL market include Analog Devices, Alcatel, Motorola and Globespan. The
Company also may face competition from suppliers of products based on new or
emerging technologies.

Many of the Company's competitors operate their own fabrication facilities
and have longer operating histories and presence in key markets, greater name
recognition, access to larger customer bases and significantly greater
financial, sales and marketing, manufacturing, distribution, technical and other
resources than the Company. As a result, such 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 than the Company. 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, the Company's
competitors may in the future develop technologies which more effectively
address the transmission of digital information through existing analog
infrastructures at a lower cost. There can be no assurance that the Company will
be able to compete successfully against current or potential competitors, or
that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.

INTELLECTUAL PROPERTY

The Company's success and future revenue growth will depend, in part, on
its ability to protect its intellectual property. The Company relies primarily
on patent, copyright, trademark and trade secret laws, as well as nondisclosure
agreements and other methods to protect its proprietary technologies and
processes. There can be no assurance that such measures will provide meaningful
protection for the Company's intellectual property. The Company has been issued
two United States patents and has filed eight United States patent applications.
There can be no assurance that any patent will issue as a result of these
applications or future applications or, if issued, that any claims allowed will
be sufficiently broad to protect the Company's technology. In addition, there
can be no assurance that any existing or future patents will not be challenged,
invalidated or circumvented, or that any right granted thereunder would provide
meaningful protection to the Company. The failure of any patents to provide
protection to the Company's technology would make it easier for the Company's
competitors to offer similar products. The Company also generally enters into
confidentiality agreements with its employees and strategic partners, and
generally controls access to and distribution of its documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products, services
or technology without authorization, develop similar technology independently or
design around the Company's patents. In addition, effective copyright, trademark
and trade secret protection may be unavailable or limited in certain foreign
countries. Certain of the Company's customers have entered into agreements with
the Company pursuant to which such customers have the right to use the Company's
proprietary technology in the event the Company defaults in its contractual
obligations, including product supply obligations, and fails to cure the default
within a specified period of time. Moreover, the Company often incorporates the
intellectual property of its strategic customers into its designs, and the
Company has certain obligations with respect to the non-use and non-disclosure
of such intellectual property. There can be no assurance that the steps taken by
the Company to prevent misappropriation or infringement of the intellectual
property of the Company or its customers will be successful. Moreover,
litigation may be necessary in the future to enforce the intellectual property
rights of the Company or its customers, to protect the Company's trade secrets
or to determine the validity and scope of proprietary rights of others,
including its customers. Such litigation could result in substantial costs and

39
<PAGE> 42

diversion of the Company's resources and could have a material adverse affect on
the Company's business, financial condition and results of operations.

The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights. From time to time, the Company has
received, and may continue to receive in the future, notices of claims of
infringement of other parties' proprietary rights. The Company is currently
involved in litigation with STI concerning the Company's alleged infringement of
one of STI's patents. There can be no assurance that the Company will prevail in
this action, or that other actions alleging infringement by the Company of
third-party patents or invalidity of the patents held by the Company will not be
asserted or prosecuted against the Company, or that any assertions of
infringement or prosecutions seeking to establish the invalidity of Company-held
patents will not materially and adversely affect the Company's business,
financial condition and result of operations. Irrespective of the validity or
successful assertion of such claims, the Company would likely incur significant
costs and diversion of its resources with respect to the defense of such claims,
which could also have a material adverse effect on the Company's business,
financial condition and results of operations. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license under a
third party's intellectual property rights. There can be no assurance that under
such circumstances a license would be available on commercially reasonable
terms, if at all. See "--Legal Proceedings."

EMPLOYEES

As of January 31, 1998, the Company had 217 full-time employees and 19
contract employees, including 158 employees engaged in research and development,
30 engaged in sales and marketing, 26 engaged in manufacturing operations and 22
engaged in general administration activities. The Company's employees are not
represented by any collective bargaining agreement, and the Company has never
experienced a work stoppage. The Company believes its employee relations are
good.

PROPERTIES

The Company leases two facilities in Irvine, California, which have
approximately 17,000 square feet and 26,300 square feet pursuant to two leases
which expire in July 2000 and December 1998, respectively. The Company also
leases an additional 1,700 square feet in Irvine, California on a month-to-month
basis. These three facilities comprise the Company's corporate headquarters and
include the Company's administration, sales and marketing, and research and
development departments. The Company is currently in negotiations to lease an
additional 31,000 square feet in Irvine, California to expand its corporate
headquarters, and is seeking to lease approximately 100,000 additional square
feet. The Company believes that suitable additional space will be available on
commercially reasonable terms.

The Company also leases a 9,400 square foot facility in Atlanta, Georgia,
which houses the Company's Residential Broadband Business Unit. This lease
terminates in May 2002. In addition, the Company leases a 2,600 square foot
facility in San Jose, California on a month-to-month basis for the Company's
Digital Video Technology Group. The Company believes its current facilities,
together with its planned expansion, will be adequate through 1998.

LEGAL PROCEEDINGS

In December 1996, STI filed an action against the Company in the United
States District Court for the Northern District of California alleging that the
Company infringed one of STI's patents (the " '352 Patent"). The complaint seeks
an injunction against the Company, as well as the recovery of monetary damages,
including treble damages for willful infringement. The Company has filed an
answer and affirmative defenses to STI's complaint, denying the allegations in
STI's complaint, and has asserted a counterclaim requesting declaratory relief
that the Company is not infringing the '352 Patent and that the '352 Patent is
invalid and unenforceable. The Company believes that it has strong defenses to
STI's claims on both invalidity and noninfringement grounds. The Company and STI
are currently conducting discovery in this case and are awaiting a date for the
claims construction hearing. Pursuant to local court rules, the Company has
notified

40
<PAGE> 43

STI and the court of legal opinions upon which the Company is relying or may
rely to support its defense to STI's allegation of willful infringement.

In April 1997, Sarnoff Corporation and Sarnoff Digital 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 (the
"Former Employees") 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. These
claims relate to the alleged disclosure of certain technology of Sarnoff to the
Company. The complaint also asserts 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 it "illegally pirated" Sarnoff's employees. The complaint seeks
to preliminarily and permanently enjoin the Company and the Former Employees
from utilizing any alleged Sarnoff trade secrets, and to restrain the Former
Employees from violating their statutory and contractual duties of
confidentiality to Sarnoff by precluding them from working for six months in any
capacity relating to certain of the Company's programs. The Company has filed an
answer and is vigorously defending itself in this action. In May 1997, the Court
denied Sarnoff's request for a temporary restraining order. The Company
commenced its own lawsuit against Sarnoff in the Orange County Superior Court of
California alleging breach of contract, fraud, misappropriation of trade
secrets, false advertising, trade libel, intentional interference with
prospective economic advantage and unfair competition. This action was removed
to the United States District Court, Central District of California and was
stayed pending resolution of the New Jersey action.

In December 1997, Rockwell Semiconductor Systems, Inc. ("RSSI") filed a
complaint in California Superior Court against the Company asserting
misappropriation of trade secrets, breach of duty of loyalty, tortious
interference with prospective business advantage, unfair business practices and
unfair competition. These alleged claims related to the Company's hiring of
several former employees of RSSI. The complaint seeks to preliminarily and
permanently restrain the Company from employing a certain former employee of
RSSI and disclosing or utilizing any alleged RSSI trade secrets. The complaint
also seeks unspecified damages. In connection with the complaint, RSSI filed a
motion for preliminary injunction. The Company is vigorously defending such
motion and expects a hearing will be held on such motion in February 1998.

Any results of litigation are inherently uncertain, and there can be no
assurance that the Company will prevail in any of these lawsuits. Any suit or
proceeding involving the Company or its intellectual property could be costly,
could result in a diversion of management's efforts and could prohibit the
Company from marketing such technology without a license, which license may not
be available on acceptable terms, if at all. Any of these factors could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Intellectual Property" and "Risk Factors--Risks
Associated with Intellectual Property Protection."

41
<PAGE> 44

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The following table sets forth certain information regarding the executive
officers, directors and key employees of the Company as of December 31, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Henry T. Nicholas, III.................. 38 Co-Chairman, President and Chief Executive Officer
Henry Samueli, Ph.D..................... 43 Co-Chairman, Vice President of Engineering and Chief
Technical Officer
William J. Ruehle....................... 55 Vice President, Chief Financial Officer and Secretary
Tim M. Lindenfelser..................... 37 Vice President of Marketing
Martin J. Colombatto.................... 39 Vice President and General Manager, Networking
Business Unit
Vahid Manian............................ 37 Vice President of Manufacturing Operations
Aurelio E. Fernandez.................... 43 Vice President of Worldwide Sales
Nariman Yousefi......................... 38 Director of Engineering, Networking Business Unit
Steve K. Tsubota........................ 39 Director of Cable-TV Business Unit
Charles P. Reames, Ph.D................. 40 Director of Cable and Satellite Systems
Myron S. Eichen(2)...................... 69 Director
Alan E. Ross(1)......................... 63 Director
Werner F. Wolfen(1)(2).................. 67 Director
</TABLE>

- ------------

(1) Member of Audit Committee

(2) Member of Compensation Committee

Henry T. Nicholas, III, co-founded the Company and has served as its
President, Chief Executive Officer and Co-Chairman since the Company's
inception. From 1988 through 1991, Mr. Nicholas was first a consultant and then
the Director of Microelectronics for PairGain Technologies, Inc. ("PairGain"), a
telecommunications equipment manufacturer, and was the founder of PairGain's
microelectronics organization. Prior to joining PairGain, Mr. Nicholas held
various senior management positions with TRW's Microelectronics Center between
1982 and 1989. Mr. Nicholas attended the United States Air Force Academy, and
received a B.S. and M.S. in Electrical Engineering from the University of
California, Los Angeles.

Henry Samueli co-founded the Company and has served as its Co-Chairman,
Vice President of Engineering and Chief Technical Officer since the Company's
inception. Since 1985, Dr. Samueli has also been a professor in the Electrical
Engineering Department at the University of California, Los Angeles, where he
supervises advanced research programs in broadband communications circuits and
has published more than 100 papers on the subject. Dr. Samueli was the Chief
Scientist and one of the founders of PairGain and he consulted for PairGain from
1988 to 1994. From 1980 until 1985, Dr. Samueli was employed in various
engineering management positions in the Electronics and Technology Division of
TRW. Dr. Samueli received a B.S., M.S. and Ph.D. in Electrical Engineering from
the University of California, Los Angeles.

William J. Ruehle has served as the Company's Vice President and Chief
Financial Officer since joining the Company in June 1997. Mr. Ruehle was
employed by SynOptics Communications, Inc. ("SynOptics") as Vice President and
Chief Financial Officer from 1987 until it merged with Wellfleet Communications
Incorporated ("Wellfleet") in 1994 that created Bay Networks, Inc. ("Bay
Networks"), a networking communications company. Following the merger, Mr.
Ruehle was promoted to Executive Vice President and served as Chief Financial
Officer of Bay Networks until January 1997. Mr. Ruehle received a B.A. in
Economics from Allegheny College and an M.B.A. from Harvard Business School.

Tim M. Lindenfelser has served as the Company's Vice President of Marketing
since joining the Company in February 1994. During the past four years until
December 1997, Mr. Lindenfelser also served as

42
<PAGE> 45

Vice President of Worldwide Sales. Prior to joining the Company, Mr.
Lindenfelser was employed by Brooktree Corporation, a semiconductor
manufacturer, from November 1988 until February 1994, where he was responsible
for all marketing and new business development for the Communications Strategic
Business Unit. Mr. Lindenfelser received a B.S.E.E. from the University of
Minnesota and an M.B.A. from the University of San Diego.

Martin J. Colombatto joined the Company in July 1996 as its Director of
Marketing for Broadband Access, and became the Vice President and General
Manager of the Networking Business Unit in December 1997. Prior to joining the
Company, Mr. Colombatto held various sales positions with LSI Logic Corp., a
semiconductor manufacturer, including Director, North American Sales
Communication Segment, from August 1995 to July 1996; Director, European Sales
Communication and Consumer Segment, from April 1992 to July 1995; and Regional
Sales Manager from August 1987 to June 1992. Mr. Colombatto received a B.S. from
the California Polytechnic University, Pomona.

Vahid Manian joined the Company in January 1996 as its Director of
Operations and became the Vice President of Manufacturing Operations in December
1997. Prior to that, Mr. Manian served as the Director of Operations at Silicon
Systems, Inc. from November 1983 to January 1996, where he led the
implementation, production ramp and qualification of advanced PRML-read channel
ICs. Mr. Manian received a B.S.E.E. and an M.B.A. from the University of
California, Irvine.

Aurelio E. Fernandez has served as the Vice President of Worldwide Sales
since joining the Company in December 1997. From November 1996 to December 1997,
Mr. Fernandez served as the Senior Vice President of Sales at Exar Corporation,
a semiconductor manufacturer. From November 1994 to November 1996, Mr. Fernandez
served as the Senior Vice President of Sales at ICWorks, Inc., a semiconductor
manufacturer. Prior to that, Mr. Fernandez served in a number of positions, most
recently as Vice President of Telecom Sales, at VLSI Technology, Inc., a
semiconductor manufacturer. Mr. Fernandez received a B.S.E.E. from the
University of Florida and an M.B.A. from Florida Atlantic University.

Nariman Yousefi joined the Company in 1994 as the Director of the
Networking Business Unit. Prior to joining the Company, he served as an
Engineering Manager at Standard Microsystems Corporation, a networking equipment
manufacturer, from 1988 to 1994. Mr. Yousefi received his B.S.E.E. from the
University of California, Davis and an M.S.E.E. from the University of Southern
California.

Steve K. Tsubota joined the Company in March 1995 as its Director of the
Cable-TV Business Unit. Prior to joining the Company, Mr. Tsubota served as
Director of Product Marketing of Summit Design, Inc., an EDA company, from
February 1994 to February 1995. From February 1991 to January 1994, he served as
the Marketing Manager for the IC Group of Mentor Graphics Corporation, an EDA
company, and from June 1985 to March 1990, Mr. Tsubota held various marketing,
sales and engineering positions at Silicon Compiler Systems Corporation, an EDA
company. Mr. Tsubota received a B.S.E.E. and M.S.E.E. from the University of
California, Los Angeles.

Charles P. Reames joined the Company in June 1993 as its Director of Modem
Technology and most recently as the Director of Cable and Satellite Systems
since October 1995. Prior to joining the Company, Dr. Reames served in various
engineering positions in the Electronics and Technology Division of TRW from
June 1985 through June 1993. Dr. Reames received a B.S. in Engineering from the
California Institute of Technology and an M.S. and Ph.D. in Electrical
Engineering from the University of California, Los Angeles.

Myron S. Eichen has served as an advisor to the Board of Directors since
1994. Mr. Eichen has served as a director of the Company since February 1998.
Mr. Eichen is presently a director of Rokenbok Toy Company and has founded and
served as a director for a number of companies including Brooktree Corporation
(now a division of Rockwell International), a semiconductor manufacturer, and
Proxima Corporation, an equipment manufacturer.

Alan E. Ross has been a director of the Company since November 1995. Mr.
Ross is a Board member of several companies in the semiconductor industry,
including World Wide Semiconductor Manufacturing Corporation, Gambit Automated
Design, Inc., Artest Inc., and ADC Telecommunications, Inc. In addition, Mr.
Ross served as President of Rockwell Semiconductor Systems, Inc. from 1988 to
1996.

43
<PAGE> 46

Werner F. Wolfen has been a director of the Company since July 1994, when
he joined the Board of Directors as the nominee of a group of investors. Mr.
Wolfen is a Senior Partner at the law firm of Irell & Manella LLP and was
Co-Chairman of the firm's Executive Committee from 1981 to 1995. Irell & Manella
LLP has represented the Company in several transactional and litigation matters
and currently represents the Company in certain litigation and contractual
matters. Mr. Wolfen received a J.D. from the University of California Boalt Hall
School of Law in 1953.

BOARD COMMITTEES

The Board of Directors has a Compensation Committee and an Audit Committee.

Compensation Committee. The Compensation Committee of the Board of
Directors reviews and makes recommendations to the Board regarding the Company's
compensation policies and all forms of compensation to be provided to executive
officers and directors of the Company, including, among other things, annual
salaries and bonuses, and stock option and other incentive compensation
arrangements. In addition, the Compensation Committee reviews bonus and stock
compensation arrangements for all other employees of the Company. As part of the
foregoing, the Compensation Committee also administers the Company's 1998 Plan.
The current members of the Compensation Committee are Messrs. Ross and Eichen.

Audit Committee. The Audit Committee of the Board of Directors reviews and
monitors the corporate financial reporting and the internal and external audits
of the Company, including, among other things, the Company's internal audit and
control functions, the results and scope of the annual audit and other services
provided by the Company's independent auditors and the Company's compliance with
legal matters that have a significant impact on the Company's financial reports.
The Audit Committee also consults with the Company's management and the
Company's independent auditors prior to the presentation of financial statements
to shareholders and, as appropriate, initiates inquiries into aspects of the
Company's financial affairs. In addition, the Audit Committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with, the Company's independent auditors. The current members of
the Audit Committee are Messrs. Ross and Wolfen.

DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS

Directors of the Company do not receive cash compensation for their service
as directors. Each nonemployee Director typically receives an option to purchase
15,000 shares of Class A Common Stock upon joining the Board of Directors, and
will be granted an option to purchase an additional 3,000 shares of Class A
Common Stock each year thereafter. See "Management--Employee Benefit Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors currently consists of
Messrs. Ross and Eichen. No interlocking relationship exists between any member
of the Company's Board of Directors or the Compensation Committee and any member
of the board of directors or compensation committee of any other company, and no
such interlocking relationship has existed in the past.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS

None of the Company's executive officers have employment agreements with
the Company. Accordingly, the employment of any such executive officer may be
terminated at any time at the discretion of the Board of Directors.

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<PAGE> 47

EXECUTIVE COMPENSATION

The following table sets forth for the year ended December 31, 1997 all
compensation received for services rendered to the Company in all capacities by
the Company's Chief Executive Officer and the only other executive officer of
the Company whose salary plus bonus exceeded $100,000 in 1997 (collectively, the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY OPTIONS
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Henry T. Nicholas, III............................................ $165,000(1) 375,000
Co-Chairman, President and
Chief Executive Officer
Henry Samueli, Ph.D. ............................................. 165,000(1) 375,000
Co-Chairman, Vice President of
Engineering and Chief Technical Officer
</TABLE>

- ------------

(1) Effective January 1, 1998, the annual salaries of Mr. Nicholas and Dr.
Samueli were each reduced to $110,000.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information concerning the grant of
stock options to each of the Named Executive Officers during the fiscal year
ended December 31, 1997.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(1)
OPTIONS TO EMPLOYEES PRICE ----------------------
NAME GRANTED IN 1997 PER SHARE EXPIRATION DATE 5% 10%
- --------------------------- ----------- ---------------- ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Nicholas, III..... 375,000(2) 7.2% $ 1.25(3) 06/22/07 $221,494 $630,348
Henry Samueli, Ph.D........ 375,000(2) 7.2 1.25(3) 06/22/07 221,494 630,348
</TABLE>

- ------------

(1) The 5% and 10% assumed rates of appreciation are prescribed by the rules and
regulations of the Commission and do not represent the Company's estimate or
projection of the future trading prices of its Common Stock. Actual gains,
if any, on stock option exercises are dependent on numerous factors,
including the future performance of the Company, overall conditions and the
option holder's continued employment with the Company throughout the entire
vesting period and option term, which factors are not reflected in this
table.

(2) Options were granted on June 23, 1997 under the 1994 Plan and are
immediately exercisable. All of the shares of Common Stock that are issuable
upon exercise of unvested options are subject to repurchase by the Company.
The shares underlying the options vest and the Company's repurchase right
lapses in 48 equal monthly installments commencing January 1, 1998.

(3) The exercise price is equal to 110% of the fair market value of the Common
Stock on the date of grant, as determined by the Board of Directors.

45
<PAGE> 48

AGGREGATED OPTIONS EXERCISED IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table provides information with respect to the Named
Executive Officers concerning unexercised options held as of December 31, 1997.
No options were exercised during the last fiscal year by any of the Named
Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Henry T. Nicholas, III.................. 375,000 -- $ 2,531,250 --
Henry Samueli, Ph.D..................... 375,000 -- 2,531,250 --
</TABLE>

- ------------

(1) Represents the difference between the fair market value of the shares of
Common Stock underlying the options at December 31, 1997 ($8.00 per share,
as determined by the Board of Directors) and the exercise price of such
options ($1.25 per share).

EMPLOYEE BENEFIT PLANS

1998 Stock Incentive Plan

The Company's 1998 Stock Incentive Plan (the "1998 Plan") is intended to
serve as the successor equity incentive program to the 1994 Plan (the
"Predecessor Plan"). The 1998 Plan was adopted by the Board of Directors and the
shareholders of the Company on February 3, 1998. The 1998 Plan is to become
effective on the date the Underwriting Agreement for the proposed Offering is
executed (the "Plan Effective Date"). A total of 8,797,058 shares of Class A
Common Stock have been authorized for issuance under the 1998 Plan. Such share
reserve consists of (i) the number of shares which remain available for issuance
under the Predecessor Plan on the Plan Effective Date, excluding the shares
subject to outstanding options, and (ii) an additional increase of 3,000,000
shares of Class A Common Stock. To the extent any unvested shares of Class B
Common Stock issued under the Predecessor Plan are repurchased by the Company
after the Plan Effective Date, at the exercise price paid per share, in
connection with the holder's termination of service, those repurchased shares
will be added to the reserve of Class A Common Stock available for issuance
under the 1998 Plan. In addition, the number of shares of Class A Common Stock
reserved for issuance under the 1998 Plan will automatically increase on the
first trading day of each calendar year, beginning in calendar year 1999, by an
amount equal to 3% percent of the total number of shares of Class A Common Stock
outstanding on the last trading day of the immediately preceding calendar year.
In no event, however, may any one participant in the 1998 Plan receive option
grants, separately exercisable stock appreciation rights or direct stock
issuances for more than 1,500,000 shares of Class A Common Stock in the
aggregate per calendar year.

On the Plan Effective Date, outstanding options under the Predecessor Plan
will be incorporated into the 1998 Plan, and no further option grants will be
made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1998 Plan to those options. Except as otherwise
noted below, the incorporated options have substantially the same terms as will
be in effect for grants made under the Discretionary Option Grant Program of the
1998 Plan.

The 1998 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Class A Common Stock at an exercise price not less
than 85% of their fair market value on the grant date, (ii) the Stock Issuance
Program under which such individuals may, in the Plan Administrator's
discretion, be issued shares of Class A Common Stock directly, through the
purchase of such shares at a price not less than 100% of their fair market value
at the time of issuance or as a bonus tied to the performance of services, (iii)
the Salary Investment Option Grant Program which may, in the Plan
Administrator's sole discretion, be activated for one or more calendar years
and, if so activated, will allow executive officers and

46
<PAGE> 49

other highly compensated employees the opportunity to apply a portion of their
base salary to the acquisition of special below-market stock option grants, (iv)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of Class A Common Stock at an exercise price equal to 100% of their fair
market value on the grant date and (v) the Director Fee Option Grant Program
which may, in the Plan Administrator's sole discretion, be activated for one or
more calendar years and, if so activated, will allow non-employee Board members
the opportunity to apply a portion of the retainer fee otherwise payable to them
in cash each year to the acquisition of special below-market option grants.

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. The Compensation Committee will also have the
exclusive authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option Grant
Program in the event that program is activated for one or more calendar years,
but neither the Compensation Committee nor the Board will exercise any
administrative discretion with respect to the option grants made under the
Salary Investment Option Grant Program or under the Automatic Option Grant and
Director Fee Option Grant Programs for the non-employee Board members. All
grants under those three latter programs will be made in strict compliance with
the express provisions of each such program.

The exercise price for the shares of Class A Common Stock subject to option
grants made under the 1998 Plan may be paid in cash or in shares of Class A
Common Stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may provide financial assistance
to one or more optionees in the exercise of their outstanding options or the
purchase of their unvested shares by allowing such individuals to deliver a
full-recourse promissory note in payment of the exercise price and any
associated withholding taxes incurred in connection with such exercise or
purchase.

The Plan Administrator will have the authority to effect the cancellation
of outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based on the fair market value per share of Class A Common Stock on
the new grant date.

Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Class A Common Stock subject to the surrendered option over (ii) the aggregate
exercise price payable for such shares. Such appreciation distribution may be
made in cash or in shares of Class A Common Stock. None of the incorporated
options from the Predecessor Plan contain any stock appreciation rights.

In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation. The Plan Administrator will have complete discretion to grant one
or more options under the Discretionary Option Grant Program which will become
fully exercisable for all the option shares in the event those options are
assumed in the acquisition and the optionee's service with the Company or the
acquiring entity terminates within a designated period following such
acquisition. The vesting of outstanding shares under the Stock Issuance Program
may be accelerated upon similar terms and conditions. The Plan Administrator
will also have the authority to grant options which will immediately vest upon
an acquisition of the Company, whether or not those options are assumed by the

47
<PAGE> 50

successor corporation. The Plan Administrator is also authorized under the
Discretionary Option Grant and Stock Issuance Programs to grant options and to
structure repurchase rights so that the shares subject to those options or
repurchase rights will immediately vest in connection with a change in control
of the Company (whether by successful tender offer for more than 50% of the
outstanding voting stock or a change in the majority of the Board by reason of
one or more contested elections for Board membership), with such vesting to
occur either at the time of such change in control or upon the subsequent
termination of the individual's service within a designated period following
such change in control. The options incorporated from the Predecessor Plan will
immediately vest in full upon an acquisition of the Company by merger or asset
sale, unless those options are assumed by the successor entity.

In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $10,000 nor more than $50,000. If such election is approved by the Plan
Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Class A Common Stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of Class A Common Stock on the
grant date. The option will be exercisable at a price per share equal to
one-third of the fair market value of the option shares on the grant date. As a
result, the total spread on the option shares at the time of grant (the fair
market value of the option shares on the grant date less the aggregate exercise
price payable for those shares) will be equal to the amount of salary invested
in that option. The option will vest in a series of twelve successive equal
monthly installments over the calendar year for which the salary reduction is to
be in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of the Company.

Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at any time after the Plan Effective Date will
automatically receive an option grant for 15,000 shares of Class A Common Stock
on the date such individual joins the Board, provided such individual has not
been in the prior employ of the Company. In addition, on the date of each Annual
Shareholders Meeting held after the Plan Effective Date, each non-employee Board
member who is to continue to serve as a non-employee Board member will
automatically be granted an option to purchase 3,000 shares of Class A Common
Stock, provided such individual has served on the Board for at least six months.

Each automatic grant for the non-employee Board members will have a term of
ten years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all of
the option shares; however, any unvested shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
should the optionee cease Board service prior to vesting in those shares. The
shares subject to each initial 15,000 share automatic option grant will vest in
a series of four successive equal annual installments upon the individual's
completion of each year of Board service over the four year period measured from
the option grant date. Each annual 3,000 share automatic option grant will vest
upon the individual's completion of one year of Board service measured from the
grant date. However, the shares subject to each automatic grant will immediately
vest in full upon certain changes in control or ownership of the Company or upon
the optionee's death or disability while a Board member.

Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of Class A Common Stock on the grant date. As a
result, the total spread on the option (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the portion of the retainer fee invested in that
option. The option will become exercisable for the option shares in a series of
twelve

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<PAGE> 51

successive equal monthly installments over the calendar year for which the
election is to be in effect. However, the option will become immediately
exercisable for all the option shares upon (i) certain changes in the ownership
or control of the Company or (ii) the death or disability of the optionee while
serving as a Board member.

The shares subject to each option under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will immediately
vest upon (i) an acquisition of the Company by merger or asset sale or (ii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or a change in the majority of the Board effected
through one or more contested elections for Board membership.

Limited stock appreciation rights will automatically be included as part of
each grant made under the Automatic Option Grant, Salary Investment Option Grant
and Director Fee Option Grant Programs and may be granted to one or more
officers of the Company as part of their option grants under the Discretionary
Option Grant Program. Options with such a limited stock appreciation right may
be surrendered to the Company upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock. In return for
the surrendered option, the optionee will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the excess
of (i) the highest price per share of Class A Common Stock paid in connection
with the tender offer over (ii) the exercise price payable for such share.

The Board may amend or modify the 1998 Plan at any time, subject to any
required shareholder approval. The 1998 Plan will terminate on the earliest of
(i) December 31, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.

As of December 31, 1997, options to purchase 5,243,932 shares of Class B
Common Stock were outstanding under the Predecessor Plan at a weighted average
exercise price of $2.10 per share.

1998 Employee Stock Purchase Plan

The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board and approved by the shareholders in February 1998 and will
become effective immediately upon the execution of the Underwriting Agreement
for this offering. The Purchase Plan is designed to allow eligible employees of
the Company and participating subsidiaries to purchase shares of Class A Common
Stock, at semi-annual intervals, through their periodic payroll deductions under
the Purchase Plan, and a reserve of 750,000 shares of Class A Common Stock has
been established for this purpose.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the execution date of the Underwriting Agreement
and will end on the last business day in April 2000. The next offering period
will commence on the first business day in May 2000, and subsequent offering
periods will commence as designated by the Plan Administrator.

Individuals who are eligible employees (scheduled to work more than 20
hours per week for more than five calendar months per year) on the start date of
any offering period may enter the Purchase Plan on that start date or on any
subsequent quarterly entry date (the first business day of February or September
each year). Individuals who become eligible employees after the start date of
the offering period may join the Purchase Plan on any subsequent semi-annual
entry date within that offering period.

Payroll deductions may not exceed 15% of total compensation, and the
accumulated payroll deductions of each participant will be applied to the
purchase of shares on his or her behalf on each semi-annual purchase date (the
last business day in April and October each year) at a purchase price per share
equal to 85% of the lower of (i) the fair market value of the Class A Common
Stock on the participant's entry date into the offering period or (ii) the fair
market value on the semi-annual purchase date. In no event, however, may any one
participant purchase more than 1,500 shares, nor may all participants in the
aggregate purchase more than 150,000 shares on any one semi-annual purchase
date.

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<PAGE> 52

Should the fair market value per share of Class A Common Stock on any
purchase date be less than the fair market value per share on the start date of
the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day, with all participants in the terminated offering to be automatically
transferred to the new offering period.

In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Class A Common Stock on
the participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Class A Common Stock
immediately prior to such acquisition.

The Purchase Plan will terminate on the earlier of (i) the last business
day of January 2008, (ii) the date on which all shares available for issuance
under the Purchase Plan shall have been sold pursuant to purchase rights
exercised thereunder or (iii) the date on which all purchase rights are
exercised in connection with an acquisition of the Company by merger or asset
sale.

The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, certain amendments to the Purchase Plan may require shareholder
approval.

401(k) Profit Sharing Plan

The Company has an employee profit sharing plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code
(the "401(k) Plan"). The 401(k) Plan allows eligible employees to defer up to
20% of their pre-tax earnings, subject to the Internal Revenue Service annual
contribution limit. At the Company's discretion, the Company may make matching
contributions to the 401(k) Plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Articles of Incorporation limit the personal liability of its
directors for monetary damages to the fullest extent permitted by the California
General Corporation Law (the "California Law"). Under the California Law, a
director's liability to a company or its shareholders may not be limited (i) for
acts or omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iii) for any
transaction from which a director derived an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of a serious injury to the Company or its shareholders, (v)
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Company or its
shareholders, (vi) under Section 310 of the California Law concerning contacts
or transactions between the Company and a director, or (vii) under Section 316
of the California Law concerning directors' liability for improper dividends,
loans and guarantees. The limitation of liability does not affect the
availability of injunctions and other equitable remedies available to the
Company's shareholders for any violation by a director of the director's
fiduciary duty to the Company or its shareholders.

The Company's Articles of Incorporation also include an authorization for
the Company to indemnify its "agents" (as defined in Section 317 of the
California Law) through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this provision, the Company's
Bylaws provide for indemnification of the Company's directors, officers and
employees. In addition, the Company may, at its discretion, provide
indemnification to persons whom the Company is not obligated to indemnify. The
Bylaws also allow the Company to enter into indemnity agreements with individual
directors, officers, employees and other agents. These indemnity agreements have
been entered into with all directors and executive officers and provide the
maximum indemnification permitted by law. These agreements, together with the
Company's Bylaws and Articles of Incorporation, may require the Company, among
other things, to indemnify these directors or executive officers (other than for
liability resulting from willful misconduct of a culpable nature), to advance
expenses to them as they are incurred, provided that they undertake to repay the
amount advanced

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<PAGE> 53

if it is ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' and officers' insurance if available
on reasonable terms. Section 317 of the California Law and the Company's Bylaws
make provision for the indemnification of officers, directors and other
corporate agents in terms sufficiently broad to indemnify such persons, under
certain circumstances, for liabilities (including reimbursement of expense
incurred) arising under the Securities Act. The Company is not aware of any
pending litigation or proceeding involving any director, officer, employee or
agent of the Company in which indemnification will be required or permitted.
Moreover, the Company is not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification. The Company believes that
the foregoing indemnification provisions and agreements are necessary to attract
and retain qualified persons as directors and executive officers.

The Company, with the approval of its Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
offering.

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CERTAIN TRANSACTIONS

Since January 1, 1995, there has not been any transaction or series of
similar transactions to which the Company was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of the Company's voting securities,
or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest, other than the transactions
described below.

Series D Preferred Stock Financing. In February 1996, the Company issued
and sold an aggregate of 493,839 shares of Series D Preferred Stock for an
aggregate purchase price of $2,963,034 or $6.00 per share. The investors in such
shares included, among others, (1) Werner F. Wolfen, a director of the Company,
who purchased 24,644 shares of Series D Preferred Stock, (2) Alan E. Ross, a
director of the Company, who purchased 5,000 shares of Series D Preferred Stock,
(3) Myron S. Eichen, a director of the Company, who purchased 24,644 shares of
Series D Preferred Stock and (4) a trust controlled by Leon M. Samueli and
Barbara Jane Samueli, relatives of Henry Samueli (the Company's Co-Chairman,
Vice President of Engineering and Chief Technical Officer), which purchased
30,000 shares of Series D Preferred Stock. Upon the consummation of this
offering, each share of Series D Preferred Stock will automatically convert into
three shares of the Company's Class B Common Stock.

Series E Preferred Stock Financing. In September 1997, the Company issued
and sold an aggregate of 1,500,000 shares of Series E Preferred Stock to General
Instrument for an aggregate purchase price of $22.7 million or $15.15 per share.
Upon the consummation of this offering, each share of Series E Preferred Stock
will automatically convert into 1.5 shares of the Company's Class B Common
Stock. In connection with this financing, General Instrument and the Company
entered into a Development, Supply and License Agreement, pursuant to which,
among other things, the Company has agreed to supply to General Instrument, and
General Instrument has agreed to purchase from the Company, a specified
percentage of General Instrument's silicon requirements for its digital cable
set-top box subscriber products. For 1997, the Company's sales to General
Instrument (and its subcontractor) were approximately $11.8 million, or 31.9% of
total revenue. See "Business--Customers and Strategic Relationships."

Development Agreement with Cisco Systems. Effective September 1996, the
Company entered into a development agreement with Cisco Systems, pursuant to
which the Company granted to Cisco Systems an option to purchase shares of the
Company's Class A Common Stock at the Net Price. Cisco Systems exercised this
option and will purchase 500,000 shares at the closing of this offering. In
addition, Cisco Systems has agreed that it will be subject to certain
restrictions following this offering, including (1) a one-year lock-up period
during which the shares cannot be transferred, (2) a restriction on selling more
than a certain number of shares per quarter during the first year following
termination of the initial one-year lock-up period, (3) a notification
obligation should Cisco Systems desire to sell more than a specified number of
shares after the one-year lock-up period, (4) a three-year standstill agreement
preventing Cisco Systems from acquiring more than 10% of the Company's Common
Stock, and (5) a seven-year voting agreement with respect to certain matters,
which includes an obligation to vote its shares in favor of all directors
nominated by the Board of Directors of the Company. Some of these restrictions
may terminate early upon certain events, such as an acquisition of the Company.
For 1997, the Company's sales to Cisco Systems were approximately $2,000,000, or
5.4% of total revenue. See "Business--Customers and Strategic Relationships" and
"Sale of Shares to Cisco Systems."

Sale of Common Stock to Irell & Manella. In October 1997, the Company
issued and sold an aggregate of 225,000 shares of Class B Common Stock to Irell
& Manella LLP for an aggregate purchase price of $1,050,000 or $4.67 per share.
Werner F. Wolfen, a director of the Company, is a Senior Partner at Irell &
Manella. Irell & Manella has represented and continues to represent the Company
in various legal matters. During 1997, the Company paid approximately $1.2
million to Irell & Manella for legal services rendered by that firm.

Officer Promissory Notes. Between March 1995 and December 1997, the Company
entered into non-interest bearing, full-recourse promissory notes with certain
of its officers and directors to finance the purchase of Class B Common Stock
upon exercise of stock options. See "Management--Executive Compensation" and
"Employee Benefit Plans--1998 Stock Incentive Plan." All of the notes are
full-recourse, secured by the shares purchased and are due and payable upon the
earlier of the stated due date or the termination of such officer's employment
with the Company. In December 1997, Aurelio E. Fernandez executed a $1,800,000
non-interest bearing full-recourse promissory note that is due in December 2002
in connection with the exercise of a stock option. In July 1997, William J.
Ruehle executed a $467,500 non-interest bearing full-recourse promissory note
that is due in July 2002 in connection with the exercise of a stock option.

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<PAGE> 55

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information as of December 31, 1997
regarding beneficial ownership of the Company's Common Stock, as adjusted to
reflect the sale of shares of Class A Common Stock offered hereby and
500,000 shares of Class A Common Stock to Cisco Systems concurrent with this
offering, by (i) each person (or group of affiliated persons) known by the
Company to own beneficially more than 1,000,000 shares of Class B Common Stock
or 5% of the Class A Common Stock, (ii) each of the Company's directors and
Named Executive Officers, (iii) the Company's directors and executive officers
as a group, and (iv) each of the Selling Shareholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES BENEFICIALLY
----------------------------------- SHARES OF OWNED AFTER OFFERING
PERCENT OF CLASS A ------------------------------------
NUMBER OF NUMBER OF TOTAL COMMON NUMBER OF NUMBER OF PERCENT OF
CLASS A CLASS B VOTING STOCK CLASS A CLASS B TOTAL VOTING
NAME OF BENEFICIAL OWNERS SHARES SHARES POWER(1) OFFERED(2) SHARES SHARES POWER (1)
- ----------------------------------- --------- ---------- ---------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry T. Nicholas, III(3).......... -- 11,475,000(4) 28.5
Henry Samueli, Ph.D.(3)............ -- 11,475,000(4) 28.5
Werner F. Wolfen................... -- 550,632(5) 1.3
Myron S. Eichen.................... -- 345,351 *
Alan E. Ross....................... -- 105,000 *
General Instrument
Corporation(6)................... -- 2,250,000 5.6
Intel Corporation.................. -- 1,576,800 3.9
Scientific-Atlantic, Inc........... -- 1,500,000 3.8
Cisco Systems, Inc.(7)............. 500,000(8) -- * 500,000
All executive officers and
directors as a group(7
persons)(9)...................... -- 26,460,221 62.1%
All other selling shareholders.....
</TABLE>

- ------------

(1) The number of shares beneficially owned and the percentage of shares
beneficially owned are based on (i) 39,955,077 shares of Class B Common
Stock and no shares of Class A Common Stock outstanding as of December 31,
1997, and (ii) shares of Class B Common Stock and shares of Class A
Common Stock outstanding upon consummation of this offering. Beneficial
ownership is determined in accordance with the rules and regulations of the
Commission. Shares of Common Stock subject to options that are currently
exercisable or exercisable within 60 days of December 31, 1997 are deemed to
be outstanding and beneficially owned by the person holding such options for
the purpose of computing the number of shares beneficially owned and the
percentage ownership of such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, and subject to
applicable community property laws, such persons have sole and voting
investment power with respect to all shares of the Company's Common Stock
show as beneficially owned by them.

(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an aggregate of shares from the Company and up to an aggregate of
shares from the Selling Shareholders. If such option is exercised, the
Company will sell approximately % of the additional shares and the
Selling Shareholders will sell the balance.

(3) The address for Mr. Nicholas and Dr. Samueli is 16251 Laguna Canyon Road,
Irvine, California 92618. Mr. Nicholas and Dr. Samueli will each sell
shares in this offering and additional shares if the
Underwriters' over-allotment option is exercised in full.

(4) Includes 375,000 shares of Class B Common Stock issuable pursuant to options
that are currently exercisable.

(5) Includes (i) 45,000 shares held by the Estate of Lawrence P. Wolfen, of
which Mr. Wolfen serves as executor. Mr. Wolfen disclaims beneficial
ownership of these shares. Also includes 300,000 shares of Class B Common
Stock held on behalf of the partners of Irell & Manella LLP, of which Mr.
Wolfen's participation in the beneficial interest therein is less than 5% of
the shares.

(6) The address for General Instrument Corporation is 2200 Byberry Road,
Hatboro, PA 19040.

(7) The address for Cisco Systems, Inc. is 170 West Tasman Drive, San Jose,
California 95134.

(8) Consists of shares of Class A Common Stock issuable under an option that
Cisco Systems has exercised. See "Sales of Shares to Cisco Systems."

(9) Includes an aggregate of 1,020,000 shares of Class B Common Stock issuable
pursuant to options that are currently exercisable or are exercisable within
60 days of December 31, 1997.

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<PAGE> 56

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 200,000,000 shares
of Class A Common Stock, 100,000,000 shares of Class B Common Stock and
10,000,000 shares of Preferred Stock.

The following summary of the capital stock of the Company and certain
provisions of the Company's Articles of Incorporation and Bylaws does not
purport to be complete and is qualified in its entirety by the provisions of the
Articles of Incorporation and Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.

COMMON STOCK

The Company is authorized to issue 300,000,000 shares of Common Stock,
$0.0001 par value, of which 200,000,000 shares have been designated as Class A
Common Stock and 100,000,000 shares have been designated as Class B Common
Stock. At December 31, 1997, 39,955,077 shares of Class B Common Stock were
deemed outstanding and held of record by approximately 173 holders, and no
shares of Class A Common Stock were outstanding.

Voting Rights. Holders of Class A Common Stock are entitled to one vote per
share and holders of Class B Common Stock are entitled to ten votes per share.
Holders of Common Stock will vote together as a single class on all matters
submitted to a vote of shareholders, except (i) as otherwise required by law and
(ii) in the case of a proposed issuance of shares of Class B Common Stock, which
issuance shall require the affirmative vote of the holders of the majority of
the outstanding Class B Common Stock shares. Under the Company's Articles of
Incorporation and Bylaws, holders of Common Stock will not have cumulative
voting rights after the Company becomes a "listed corporation" (as defined in
California Corporations Code Section 301.5) and, therefore, holders of shares
representing a majority of the voting power of Common Stock can elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.

Dividends. Holders of record of shares of Common Stock are entitled to
receive such dividends when, if and as may be declared by the Board of Directors
out of funds legally available for such purposes, subject to the rights of
preferred shareholders and the terms of any existing or future agreements
between the Company and its debtholders. No dividends may be declared or paid on
any share of any class of Common Stock, unless such dividend, at the same rate
per share, is simultaneously declared or paid on each share of the other class
of Common Stock. In the case of a stock dividend or distribution, holders of
Class A Common Stock are entitled to receive the same percentage dividend or
distribution as holders of Class B Common Stock and vice versa, except that
stock dividends and distributions shall be made in shares of Class A Common
Stock to the holders of Class A Common Stock and in shares of Class B Common
Stock to the holders of Class B Common Stock unless the Company's Board of
Directors determines in its discretion that it is more desirable to distribute
shares of Class A Common Stock with respect to Class B Common Stock. The Company
presently intends to retain future earnings, if any, for use in the operation
and expansion of its business and does not anticipate paying cash dividends in
the foreseeable future. In addition, the Company's credit facility prohibits the
payment of cash dividends without the prior consent of SVB.

Convertibility. Each share of Class B Common Stock is convertible, at the
option of its holder, into one fully paid and nonassessable share of Class A
Common Stock at any time. The Class A Common Stock is not convertible into Class
B Common Stock. Each share of Class B Common Stock shall automatically be
converted into one share of Class A Common Stock in the event such share shall
be transferred (including, without limitation, by way of sale, assignment,
exchange, gift, bequest, appointment or otherwise) to any person or entity other
than a Permitted Transferee (as such term is defined in the Articles of
Incorporation).

Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of Class A Common Stock are entitled to share ratably with
the holders of Class B Common Stock in all assets available for distributions
after payment in full to creditors and holders of Preferred Stock.

Other Provisions. The holders of Common Stock are not entitled to
preemptive or subscription rights. In any merger, consolidation or business
combination, the consideration to be received per share by holders of

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<PAGE> 57

Class A Common Stock is identical to that received by holders of Class B Common
Stock. No class of Common Stock may be subdivided, consolidated, reclassified or
otherwise changed unless the other class of Common Stock concurrently is
subdivided, consolidated, reclassified or otherwise changed in the same
proportion and in the same manner. All outstanding shares are, and the shares of
Class A Common Stock offered hereby will be upon issuance, validly issued, fully
paid and nonassessable.

PREFERRED STOCK

The Company's Articles of Incorporation authorize 10,000,000 shares of
Preferred Stock, $0.0001 par value, which may be issued in series from time to
time with such designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions thereof, to the extent that such
are not fixed in the Company's Articles of Incorporation, as the Board of
Directors determines. The rights, preferences, limitations and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The Board of Directors
may authorize the issuance of Preferred Stock with rights senior to the Common
Stock with respect to the payment of dividends and the distribution of assets on
liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of Preferred Stock are outstanding. The
Board of Directors, without shareholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock. The Company believes that the Preferred Stock will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs that might
arise. Having such authorized shares available for issuance will allow the
Company to issue shares of Preferred Stock without the expense and delay of a
special shareholders' meeting. Although the Company's Board of Directors has no
intention at the present time of doing so, it could issue a series of Preferred
Stock, the terms of which, subject to certain limitations imposed by the
securities laws, could impede the completion of a merger, tender offer or other
takeover attempt. The Company's Board of Directors will make any determination
to issue such shares based on its judgment as to the best interests of the
Company and its shareholders at the time of issuance. The Company's Board of
Directors, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt or other transaction that some, or a majority,
of the shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then market price
of such stock.

REGISTRATION RIGHTS

Upon consummation of this offering, the holders of approximately 31,122,267
shares of Common Stock (the "Registrable Securities") will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. In the event that the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other securityholders, the holders of Registrable Securities are entitled to
notice of such registration and are entitled to include their Registrable
Securities in such registration, subject to certain marketing and other
limitations. The Company is generally obligated to bear the expenses, other than
underwriting discounts and sales commissions, of these registrations. The
Company may in certain circumstances defer such registrations and the
underwriters have the right, subject to certain limitations, to limit the number
of Registrable Securities included in such registrations.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock is U.S. Stock
Transfer Corporation. Its telephone number is (818) 502-1404.

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<PAGE> 58

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.

Upon completion of this offering, the Company will have outstanding an
aggregate of shares of Common Stock (based upon shares outstanding at
December 31, 1997), assuming no exercise of the Underwriters's over-allotment
option. Of these shares, all of the shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless such shares are purchased by "Affiliates." The remaining shares of
Common Stock held by existing shareholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act ("Restricted Shares"),
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Section 4(1) or Rules 144,
144(k) or 701 promulgated under the Securities Act, which rules are summarized
below. As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the Restricted Shares will be available
for sale in the public market as follows: (i) no shares will be eligible for
immediate sale on the date of this Prospectus; (ii) shares will be
eligible for sale upon expiration of the lock-up agreements 180 days after the
date of this Prospectus; and (iii) shares will be eligible for sale at
various times upon expiration of a one-year holding period and, with respect to
certain shareholders, any contractual restrictions on transfer.

All officers, directors and option holders and substantially all
shareholders of the Company have agreed not to sell or otherwise transfer any
shares of Common Stock or any other securities of the Company for a period of at
least 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year (including the holding period of any prior owner except an
Affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately
shares immediately after this offering); or (ii) the average weekly trading
volume of the Class A Common Stock on the Nasdaq National Market during the four
calendar weeks preceding the filing of a notice on Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
Affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" may therefore be sold immediately
upon the completion of this offering. In general, under Rule 701 of the
Securities Act as currently in effect, any employee, consultant or advisor of
the Company who purchases shares from the Company pursuant to Rule 701 in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell, unless contractually restricted, such shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
compliance with certain restrictions, including the holding period, contained in
Rule 144.

The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock of
the Company, the personal circumstances of the sellers and other factors. Prior
to this offering, there has been no public market for the Common Stock, and
there can be no assurance that a significant public market for the Common Stock
will develop or be sustained after this offering. Any future sale of substantial
amounts of Common Stock in the open market may adversely affect the market price
of the Common Stock offered hereby.

56
<PAGE> 59

Pursuant to a Registration Rights Agreement among the Company and certain
of its shareholders, holders of 31,122,267 shares of Common Stock will be
entitled to certain piggy-back registration rights with respect to such shares.
See "Description of Capital Stock--Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchases by Affiliates). During the 180-day period after the date of this
Prospectus, the Company has agreed not to file any registration statement with
respect to the registration of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable into Common Stock, other than a
Registration Statement on Form S-8 covering securities issuable under the 1994
Plan and the 1998 Plan, without the prior written consent of Morgan Stanley &
Co. Incorporated.

The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under the
1994 Plan and the 1998 Plan. See "Management--Employee Benefit Plans." Such
registration statement is expected to be filed and become effective as soon as
practicable after the effective date of this offering. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company, be available for sale in
the open market, unless such shares are subject to vesting restrictions with the
Company or the lock-up agreements described above. As of December 31, 1997,
options to purchase 5,243,932 shares of Class B Common Stock were issued and
outstanding. See "Management--Executive Compensation" and "--Employee Benefit
Plans."

57
<PAGE> 60

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
(the "Underwriting Agreement"), the Underwriters named below (the
"Underwriters") for whom Morgan Stanley & Co. Incorporated, BT Alex. Brown
Incorporated, Deutsche Morgan Grenfell Inc. and Hambrecht & Quist LLC are acting
as representatives (the "Representatives") have severally agreed to purchase,
and the Company and the Selling Shareholders have agreed to sell to them,
severally, the respective number of shares of Class A Common Stock set forth
opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................
BT Alex. Brown Incorporated...........................................
Deutsche Morgan Grenfell Inc..........................................
Hambrecht & Quist LLC.................................................

-------
Total.......................................................
=======
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Class A Common Stock offered hereby (other
than those covered by the Underwriters' over-allotment option described below)
if any such shares are taken.

The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After
the initial offering of the shares of Class A Common Stock, the offering price
and other selling terms may from time to time be varied by the Representatives.

Pursuant to the Underwriting Agreement, the Company and certain Selling
Shareholders have granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an aggregate of
shares of Class A Common Stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase solely for the purpose of covering
over-allotments, if any, made in connection with this offering of the shares of
Class A Common Stock. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares of Class A Common Stock as the
number set forth next to such Underwriter's name in the preceding table bears to
the total number of shares of Class A Common Stock set forth next to the names
of all Underwriters in the preceding table.

The Representatives have informed the Company that they do not intend sales
to discretionary accounts to exceed five percent of the total number of shares
of Class A Common Stock offered by them.

The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.

58
<PAGE> 61

The Company has agreed not to offer, pledge, sell or grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to purchase,
lend or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock, or enter into any
swap or similar agreement that transfers, in whole or in part, the economic risk
of ownership of the Common Stock, for a period of 180 days after the date of
this Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated, subject to certain limited exceptions.

See "Shares Eligible for Future Sale" for a description of certain
arrangements by which officers, directors, shareholders and option holders of
the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of this
Prospectus without the prior consent of Morgan Stanley & Co. Incorporated.

At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to ten percent of the shares of Class A
Common Stock offered hereby (not including shares subject to the Underwriters'
over-allotment option) for certain parties who have expressed an interest in
purchasing such shares in this offering. The number of shares of Class A Common
Stock available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the same
basis as other shares offered hereby.

In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters may
overallot in connection with this offering, creating a short position in the
Class A Common Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an Underwriter or a dealer for distributing the Class A Common Stock
in this offering, if the syndicate repurchases previously distributed Class A
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Class A Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.

PRICING OF OFFERING

Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price for the Class A Common Stock
will be determined by negotiation among the Company, the Selling Shareholders
and the Representative of the Underwriters. Among the factors to be considered
in determining the initial public offering price will be an assessment of the
future prospects of the Company and its industry in general; sales, earnings and
certain other financial and operating information of the Company in recent
periods; and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Prospectus is subject
to change as a result of market conditions and other factors.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Brobeck Phleger & Harrison
LLP, Newport Beach, California. Certain legal matters relating to this offering
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.

59
<PAGE> 62

EXPERTS

The financial statements and schedules of the Company at December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act (the "Registration
Statement") with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock, reference is made to the Registration
Statement and the exhibits and schedules filed therewith. Statements contained
in this Prospectus as to the contents of any contract of other document referred
to are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission in
Washington, D.C. and copies of all or any part thereof may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's
Regional Offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may be obtained at prescribed
rates by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains an
Internet site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission.

60
<PAGE> 63

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).

Bandwidth Gap.............. The disparity between the computer processor's
speed of processing data and the communication
infrastructure's speed of transmitting data.

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

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

Ethernet (10Base-T)........ Networking standard for the access method 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.

Gbps....................... Gigabits per second. Billion bits per second.

GHz........................ GigaHertz. Billion cycles per second.

Gigabit Ethernet........... An extension to the 100Base-T Ethernet network
access method which operates at 1,000 Mbps or 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. Thousand bits 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.

61
<PAGE> 64

LMDS....................... Local Multipoint Distribution Service. A broadband
wireless communications network that uses
millimeter wave frequencies around 28 to 38 GHz to
transmit video and data to residences over a
cellular-like network at distances under a few
miles.

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.

MCNS/DOCSIS................ Multimedia Cable Network System/Data Over Cable
Service Interface Specifications. Industry
specification that defines the technical
requirements for high-speed cable modem and headend
equipment.

MMDS....................... Multichannel Multipoint Distribution Service. A
broadband wireless communications network that uses
microwave frequencies around 2.5 GHz to transmit
video to residences at distances up to tens of
miles.

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

NIC........................ Network Interface Card. Plug-in adapter card that
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 modulation
technique which is widely employed in direct
broadcast satellite transmission systems.

VDSL....................... Very High-Speed 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.

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 the
subscriber.

62
<PAGE> 65

BROADCOM CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2

FINANCIAL STATEMENTS
Balance Sheets at December 31, 1996 and 1997.......................................... F-3
Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997......... F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1996 and
1997................................................................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 66

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Broadcom Corporation

We have audited the accompanying balance sheets of Broadcom Corporation as
of December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 financial position of Broadcom Corporation at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.

/s/ Ernst & Young LLP
Orange County, California
January 16, 1998, except for
Notes 1 and 9, as to which
the date is February 4, 1998

F-2
<PAGE> 67

BROADCOM CORPORATION

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY
----------------- DECEMBER 31,
1996 1997 1997
------- ------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 4,657 $22,116
Accounts receivable (net of allowance for doubtful accounts
of $100 in each of 1996 and 1997)......................... 3,722 9,913
Inventory.................................................... 854 2,705
Deferred taxes............................................... 519 1,090
Income taxes receivable...................................... -- 433
Prepaid expenses............................................. 227 262
------- -------
Total current assets................................. 9,979 36,519
Property and equipment, net.................................... 4,298 8,449
Other assets................................................... 90 276
------- -------
Total assets......................................... $14,367 $45,244
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable....................................... $ 2,140 $ 7,380
Wages and related benefits................................... 372 846
Income taxes payable......................................... 1,812 --
Accrued liabilities.......................................... 57 933
Current portion of long-term debt............................ 69 1,098
------- -------
Total current liabilities............................ 4,450 10,257
Long-term debt, less current portion........................... 147 1,595
Commitments and contingencies
Shareholders' equity:
Convertible Preferred Stock $0.0001 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 2,093,839 in 1996 and
3,567,839 in 1997 (pro forma--none)..................... 6,084 28,617 $ --
Class A Common Stock, $0.0001 par value:
Authorized shares--200,000,000............................
Issued and outstanding shares--none in 1996 and 1997 (pro
forma--none)............................................
Class B Common Stock, $0.0001 par value:
Authorized shares--100,000,000
Issued and outstanding shares--29,403,768 in 1996 and
31,501,560 in 1997 (pro forma--39,955,077).............. 3 3 4
Additional paid-in capital................................... 1,160 7,017 35,633
Notes receivable from employees.............................. (748) (3,362) (3,362)
Deferred compensation........................................ -- (981) (981)
Retained earnings............................................ 3,271 2,098 2,098
------- ------- -------
Total shareholders' equity........................... 9,770 33,392 $33,392
=======
------- -------
Total liabilities and shareholders' equity........... $14,367 $45,244
======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 68

BROADCOM CORPORATION

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Revenue:
Product revenue.............................................. $4,317 $18,981 $31,668
Development revenue.......................................... 1,790 2,389 5,287
------ ------- -------
Total revenue........................................ 6,107 21,370 36,955
Cost of revenue................................................ 1,398 7,860 14,926
------ ------- -------
Gross profit................................................... 4,709 13,510 22,029

Operating expense:
Research and development..................................... 2,687 5,662 16,204
Selling, general and administrative.......................... 2,135 3,546 8,063
------ ------- -------
Total operating expense.............................. 4,822 9,208 24,267
------ ------- -------
Income (loss) from operations.................................. (113) 4,302 (2,238)
Interest and other income, net................................. 120 213 290
------ ------- -------
Income (loss) before income taxes.............................. 7 4,515 (1,948)
Provision (benefit) for income taxes........................... 3 1,499 (775)
------ ------- -------
Net income (loss).............................................. $ 4 $ 3,016 $(1,173)
====== ======= =======
Basic earnings (loss) per share................................ $ 0.00 $ 0.12 $ (0.04)
====== ======= =======
Diluted earnings (loss) per share.............................. $ 0.00 $ 0.09 $ (0.04)
====== ======= =======
Supplemental pro forma diluted net loss per share.............. $ (0.03)
=======
</TABLE>

See accompanying notes.

F-4
<PAGE> 69

BROADCOM CORPORATION

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

<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------- ------------------- PAID-IN FROM DEFERRED RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EMPLOYEES COMPENSATION EARNINGS EQUITY
--------- ------- ---------- ------ ---------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994............ 1,100,000 $ 2,161 22,995,000 $2 $ 60 $ -- $ -- $ 251 $ 2,474
Issuance of
Preferred
Stock, net of
issuance costs
of $11........ 500,000 989 -- -- -- -- -- -- 989
Exercise of
stock
options....... -- -- 5,100,000 1 339 (332) -- -- 8
Net income...... -- -- -- -- -- -- -- 4 4
--------- ------- ---------- --- ------ ------- ------ ------- -------
Balance at
December 31,
1995............ 1,600,000 3,150 28,095,000 3 399 (332) -- 255 3,475
Issuance of
Preferred
Stock, net of
issuance costs
of $29........ 493,839 2,934 -- -- -- -- -- -- 2,934
Exercise of
stock options,
net of
repurchases... -- -- 1,308,768 -- 761 (416) -- -- 345
Net income...... -- -- -- -- -- -- -- 3,016 3,016
--------- ------- ---------- --- ------ ------- ------ ------- -------
Balance at
December 31,
1996............ 2,093,839 6,084 29,403,768 3 1,160 (748) -- 3,271 9,770
Issuance of
Preferred
Stock, net of
issuance costs
of $36........ 1,500,000 22,689 -- -- -- -- -- -- 22,689
Repurchases of
preferred
stock......... (26,000) (156) -- -- -- -- -- -- (156)
Issuance of
Class B Common
Stock......... -- -- 285,000 -- 1,050 -- -- -- 1,050
Exercise of
stock options,
net of
repurchases... -- -- 1,812,792 -- 3,569 (2,614) -- -- 955
Tax benefit from
exercise of
stock
options....... -- -- -- -- 191 -- -- -- 191
Deferred
compensation
related to
grant of stock
options....... -- -- -- -- 1,047 -- (1,047) -- --
Amortization of
deferred
compensation.. -- -- -- -- -- -- 66 -- 66
Net loss........ -- -- -- -- -- -- -- (1,173) (1,173)
--------- ------- ---------- --- ------ ------- ------ ------- -------
Balance at
December 31,
1997............ 3,567,839 $28,617 31,501,560 $3 $7,017 $ (3,362) $ (981) $ 2,098 $33,392
========= ======= ========== === ====== ======= ====== ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 70

BROADCOM CORPORATION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................. $ 4 $ 3,016 $(1,173)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 451 897 3,039
Amortization of deferred compensation.................... -- -- 66
Deferred taxes........................................... (48) (416) (571)
Change in operating assets and liabilities:
Accounts receivable.................................... 547 (2,982) (6,191)
Inventory.............................................. (242) (461) (1,851)
Other assets........................................... (32) (251) (221)
Accounts payable....................................... 443 1,276 5,240
Income taxes payable................................... (23) 1,835 (2,245)
Other accrued liabilities.............................. (43) 285 1,350
------- ------- -------
Net cash provided by (used in) operating activities........... 1,057 3,199 (2,557)

INVESTING ACTIVITIES
Purchases of property and equipment........................... (1,112) (3,747) (7,132)
Proceeds from sales of investments available-for-sale......... 996 -- --
------- ------- -------
Net cash used in investing activities......................... (116) (3,747) (7,132)

FINANCING ACTIVITIES
Proceeds from bank term loan.................................. -- -- 3,000
Payments on bank term loan.................................... -- -- (500)
Payments on capital lease obligations......................... (48) (64) (81)
Proceeds from issuance of Preferred Stock..................... 989 2,934 22,689
Payments on repurchase of Preferred Stock..................... -- -- (156)
Proceeds from issuance of Class B Common Stock................ 8 345 2,196
------- ------- -------
Net cash provided by financing activities..................... 949 3,215 27,148
------- ------- -------
Increase in cash and cash equivalents......................... 1,890 2,667 17,459
Cash and cash equivalents at beginning of year................ 100 1,990 4,657
------- ------- -------
Cash and cash equivalents at end of year...................... $ 1,990 $ 4,657 $22,116
======= ======= =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid................................................. $ 8 $ 26 $ 191
======= ======= =======
Income taxes paid............................................. $ 125 $ 79 $ 1,850
======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 71

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

In anticipation of an initial public offering of the Company's Class A
Common Stock, in February 1998, the Board of Directors approved the amendment
and restatement of the articles of incorporation to authorize 200,000,000 shares
of Class A Common Stock, 100,000,000 shares of Class B Common Stock and
10,000,000 shares of Preferred Stock. Upon consummation of the initial public
offering, each share of Series A, B, C and D Preferred Stock will convert into
three shares of Class B Common Stock, and each share of Series E Preferred Stock
will convert into 1.5 shares of Class B Common Stock. Effective with the
amendment of the articles of incorporation, outstanding stock options at
December 31, 1997 will be exercisable for shares of Class B Common Stock. The
shares of Class A and Class B Common Stock will be substantially identical,
except that holders of Class A Common Stock will be entitled to one vote for
each share held, and holders of Class B Common Stock will be entitled to ten
votes for each share held on all matters submitted to a vote of the
shareholders. The Board of Directors also approved a 3-for-2 split of the
Company's Common Stock to be effected in the form of a stock dividend. All share
and per share amounts in the accompanying financial statements have been
retroactively restated to reflect these changes in the Company's capital
structure.

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, inventory reserves and income tax valuation
allowances.

STATEMENT OF CASH FLOWS

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

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchase of equipment through capital leases................ $ 12 $231 $ 58
Notes receivable from employees issued in connection with
exercise of stock options................................. 332 416 2,614
</TABLE>

REVENUE RECOGNITION

Revenue from product sales is recognized at the time of shipment. Provision
is made currently for estimated product returns. Development revenue is
recognized when earned.

F-7
<PAGE> 72

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS

The Company accounts for its investments in marketable securities under
Financial Accounting Standards Board (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 Company's
investments have been classified as available-for-sale and are carried at fair
value. 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 at December 31:

<TABLE>
<CAPTION>
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Work in process........................................... $ 579 $ 2,315
Finished goods............................................ 1,024 2,076
------ -------
1,603 4,391
Less reserve for excess and obsolete inventory............ (749) (1,686)
------ -------
$ 854 $ 2,705
====== =======
</TABLE>

PROPERTY AND EQUIPMENT

Property and equipment is carried at cost. Depreciation and amortization
have been provided on the straight-line method over the assets' estimated useful
lives ranging from two to seven years. Property and equipment were comprised of
the following at December 31:

<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Office furniture......................................... $ 176 $ 273
Computer equipment....................................... 5,621 12,563
Leasehold improvements................................... 145 296
------- -------
5,942 13,132
Less accumulated depreciation and amortization........... (1,644) (4,683)
------- -------
$ 4,298 $ 8,449
======= =======
</TABLE>

LONG-LIVED ASSETS

Effective January 1, 1996, the Company adopted 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.
Implementation of Statement No. 121 was immaterial to the financial statements
of the Company.

STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its employee stock options

F-8
<PAGE> 73

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
because the alternative fair value accounting provided for under FASB Statement
No. 123, Accounting for Stock-Based Compensation, requires use of option
valuation models that were not developed for use in valuing employee stock
options.

EARNINGS PER SHARE

In 1997, the FASB issued Statement No. 128, Earnings Per Share, which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to fully diluted earnings per
share. All earnings per share amounts for all periods have been presented to
conform with the Statement No. 128 requirements. In accordance with the
accounting rules of the Securities and Exchange Commission (SEC), stock options
issued by the Company during the 12 month period prior to the proposed initial
public offering at prices below the anticipated public offering price have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method and the anticipated public offering
price, even when antidilutive. Furthermore, pursuant to SEC Staff policy,
supplemental pro forma diluted loss per share has been presented for the year
ended December 31, 1997 to show the effect of the conversion of convertible
preferred shares that will automatically convert upon completion of the
Company's initial public offering using the as if converted method based on
estimated conversion rates at the effective date of the offering.

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Numerator: Net income (loss)........................... $ 4 $ 3,016 $ (1,173)
========== ========== ==========
Denominator:
Weighted-average shares outstanding.................. 25,618,500 28,840,023 30,212,796
Less: nonvested common shares outstanding............ (3,888,092) (3,900,591) (3,761,223)
---------- ---------- ----------
Denominator for earnings per common share.............. 21,730,408 24,939,432 26,451,573
Effect of dilutive securities:
Nonvested common shares.............................. -- 1,061,356 --
Stock options........................................ -- 417,156 --
Convertible Preferred Stock.......................... 4,550,000 6,158,057 --
Common equivalent stock issued pursuant to Staff
Accounting Bulletin No. 83........................ 2,784,908 2,784,908 2,784,908
---------- ---------- ----------
Denominator for diluted earnings per common share...... 29,065,316 35,360,909 29,236,481
========== ==========
Effect of conversion of convertible preferred stock
on closing of initial public offering............. 6,659,926
----------
Denominator for supplemental pro forma diluted earnings
per share............................................ 35,896,407
==========
Basic earnings (loss) per share...................... $ 0.00 $ 0.12 $ (0.04)
========== ========== ==========
Diluted earnings (loss) per share.................... $ 0.00 $ 0.09 $ (0.04)
========== ========== ==========
Supplemental pro forma diluted loss per share........ $ (0.03)
==========
</TABLE>

F-9
<PAGE> 74

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENDITURES

Research and development expenditures are expensed in the period incurred.

WARRANTY

The Company provides a one-year warranty on all products and records a
related provision for estimated warranty costs at the date of sale. The Company
had no reserve for estimated warranty liability at December 31, 1995 and 1996,
and had a reserve of $150,000 at December 31, 1997.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist principally of cash and cash
equivalents, receivables, accounts payable, and borrowings. The Company believes
all of the financial instruments' recorded values approximate current values.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income generally represents all changes in shareholders' equity except those
resulting from investments by distributions to shareholders. Statement No. 130
is effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented.

Also in June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, which requires publicly-held
companies to report financial and descriptive information about its operating
segments in financial statements issued to shareholders for interim and annual
periods. The statement also requires additional disclosures with respect to
products and services, geographical areas of operations, and major customers.
Statement No. 131 is effective for fiscal years beginning after December 15,
1997 and requires restatement of earlier periods presented.

2. INCOME TAXES

The Company utilizes the liability method of accounting for income taxes as
set forth in 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.

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
---- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal provision (benefit) for income taxes...... $ 2 $1,535 $(662)
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit....................... 1 218 40
Benefit of research and development tax credits........... (7) (270) (229)
Other..................................................... 7 16 76
--- ------ -----
Total provision (benefit) for income taxes.................. $ 3 $1,499 $(775)
=== ====== =====
</TABLE>

F-10
<PAGE> 75

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. INCOME TAXES (CONTINUED)
The federal and state income tax provision (benefit) is summarized as
follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
---- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................. $ 50 $1,578 $(205)
State.................................................... 1 337 1
---- ------ -----
51 1,915 (204)
Deferred:
Federal.................................................. (48) (409) (631)
State.................................................... -- (7) 60
---- ------ -----
(48) (416) (571)
---- ------ -----
$ 3 $1,499 $(775)
==== ====== =====
</TABLE>

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 are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book depreciation.................. $ (33) $(54) $ --
Deferred tax assets:
Book depreciation in excess of tax depreciation.................. -- -- 60
Research and experimentation tax credit carryforwards............ 164 -- 141
Net operating loss carryforwards................................. -- -- 5
Reserves and accruals not currently deductible for tax
purposes...................................................... 73 447 1,208
State tax, net of federal benefit................................ -- 117 --
Other............................................................ -- 9 9
Valuation allowance.............................................. (101) -- (333)
----- ---- ------
Net deferred tax assets............................................ $ 103 $519 $1,090
===== ==== ======
</TABLE>

The reduction in the valuation allowance in 1996 was primarily due to the
utilization of research and experimentation tax credit carryforwards. The
increase in the valuation allowance in 1997 was entirely related to the state
deferred tax assets because of the uncertainty of the effect of anticipated
stock option exercises on future state taxable income. Any future benefits
recognized from any reduction of the valuation allowance will result in a
reduction of income tax expense.

At December 31, 1997, the Company had approximately $91,000 of state net
operating loss carryforwards and $141,000 of state research credit
carryforwards. These state net operating loss carryforwards and research credit
carryforwards will expire in 2002 and 2012, respectively.

3. LONG-TERM DEBT

In March 1995, the Company entered into a Loan and Security Agreement with
Silicon Valley Bank (SVB) which, as amended in June 1997, provides for a $3.0
million term loan and a $3.0 million revolving credit facility. A $500,000
letter of credit facility is also provided in the agreement provided that
sufficient

F-11
<PAGE> 76

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. LONG-TERM DEBT (CONTINUED)
credit is available under the other two facilities. During 1997, the full amount
of the $3.0 million term loan facility was utilized at an interest rate of SVB's
prime rate as announced from time to time plus 0.5%. At December 31, 1997, $2.5
million was outstanding under the term loan facility which matures in June 2000.
The borrowing base for the revolving credit facility is equal to 80% of the
Company's eligible accounts receivable from United States customers. Interest on
this facility is equal to SVB's prime rate announced from time to time. At
December 31, 1997, no amounts were outstanding under the revolving credit or
letter of credit facilities, which expire on April 5, 1998.

The Loan and Security Agreement prohibits the payment of cash dividends,
limits the amount of additional indebtedness the Company may incur, and contains
certain minimum net worth, profitability and various other financial ratio
requirements. Substantially all of the Company's assets are collateral under the
loan and security agreement.

The following is a summary of the Company's long-term debt and other loans
at December 31:

<TABLE>
<CAPTION>
1996 1997
---- -------
(IN THOUSANDS)
<S> <C> <C>
Silicon Valley Bank term loan collateralized by substantially all
of the Company's assets, payable in varying monthly installments
at a current rate of 9.3%........................................ $ -- $ 2,500
Capitalized lease obligations payable in varying monthly
installments at rates from 10.4% to 22.3%........................ 216 193
---- -------
216 2,693
Less current portion of long-term debt............................. (69) (1,098)
---- -------
$147 $ 1,595
==== =======
</TABLE>

Principal payments on long-term debt are as follows: $1,098,000 in 1998;
$1,041,000 in 1999; $537,000 in 2000; $16,000 in 2001; and $1,000 in 2002.

Interest expense for the years ended December 31, 1995, 1996 and 1997 was
$8,000, $26,000 and $171,000, respectively.

4. COMMITMENTS

The Company has entered into operating leases for its computer equipment
and facilities with varying terms and escalation clauses. Future minimum
payments under noncancelable operating leases with initial terms of one year or
more are as follows: $656,000 in 1998; $327,000 in 1999; $244,000 in 2000;
$140,000 in 2001; and $48,000 in 2002.

Rent expense for the years ended December 31, 1995, 1996, and 1997
aggregated $177,000, $325,000 and $739,000, respectively.

The Company had commitments totaling approximately $2.1 million as of
December 31, 1997 for the purchase of test equipment.

F-12
<PAGE> 77

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. SHAREHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

Preferred Stock consists of the following at December 31, 1997:

<TABLE>
<CAPTION>
SHARES SHARES ISSUED LIQUIDATION
SERIES AUTHORIZED AND OUTSTANDING PREFERENCE
----------------------------------------------- ---------- --------------- -----------
<S> <C> <C> <C>
A.............................................. 500,000 500,000 $ 1,000,000
B.............................................. 600,000 600,000 1,200,000
C.............................................. 500,000 500,000 1,000,000
D.............................................. 500,000 467,839 2,807,034
E.............................................. 1,800,000 1,500,000 22,725,000
Undesignated................................... 6,100,000 -- --
---------- --------- -----------
10,000,000 3,567,839 $28,732,034
========== ========= ===========
</TABLE>

Each share of Series A, B, C and D Preferred Stock is convertible into
three shares of Class B Common Stock. Each share of Series E Preferred Stock is
convertible into 1.5 shares of Class B Common Stock. Such shares may be
converted at any time at the option of the holder and automatically convert into
Class B Common Stock in the event of an underwritten public offering of the
Company's Common Stock as long as the value of the Company for purposes of the
public offering is not less than $45,000,000.

Holders of the Company's Series A, B, C, D and E Preferred Stock are
entitled to noncumulative annual dividends of $0.20 per share in preference to
holders of Common Stock when declared by the Board of Directors. No such cash
dividends have been declared since the inception of the Company.

In the event of the liquidation of the Company, holders of Series A, B, C,
D and E Preferred Stock are entitled to receive an amount per share equal to the
original issuance price plus declared and unpaid dividends, prior and in
preference to any distribution of assets to holders of Common Stock.

The holders of Series A, B, C, D and E Preferred Stock have the right to
purchase additional shares of stock in order to maintain their ownership
percentage in the event of certain future sales of stock by the Company.

Holders of Series A, B, C, D and E Preferred Stock are entitled to the same
number of votes per share on any and all matters submitted to a shareholders
vote as the Class B Common Stock into which the Preferred Stock is convertible.

COMMON STOCK

In October 1997, the Company issued and sold an aggregate of 225,000 shares
of Class B Common Stock to Irell & Manella LLP for an aggregate purchase price
of $1,050,000. Werner F. Wolfen, a director of the Company, is a Senior Partner
at Irell & Manella. Irell & Manella has in the past represented and continues to
represent the Company in various legal matters.

STOCK OPTIONS

Under the Company's Amended and Restated 1994 Stock Option Plan (the 1994
Plan), a Committee consisting of two or more members of its Board of Directors
is authorized to grant options to purchase the Company's Class B Common Stock to
its employees, members of the Board of Directors, and certain consultants.
Incentive options are granted at a price equal to 100% of the fair market value
at the date of grant (at least 85% of the fair market value for nonqualified
options) and vested options are exercisable for a period determinable by the
Committee that is not to exceed ten years from the date of grant.

F-13
<PAGE> 78

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
The options are exercisable immediately upon issuance and generally have a
term of ten years. The Company reserves the right to purchase all unvested
shares held by the participant upon the participant's termination at the
original purchase price. Fully vested shares not purchased by the participant
within three months after termination are cancelled and returned to the plan.
The vesting schedule is determined by the Board of Directors at the time of
issuance. Stock options generally vest at the rate of 25% after one year and
ratably on a monthly basis for three years thereafter.

At the discretion of the Committee, 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. Until the Company's Common Stock is registered with the
Securities and Exchange Commission, the Company has the right of first refusal
to purchase at fair market value any shares of Common Stock issued under the
1994 Plan. During 1995, 1996 and 1997, the Company loaned $332,000, $416,000 and
$2,614,000 to employees for the exercise of options, respectively. These notes
are full-recourse, are secured by the shares of stock, are generally
non-interest bearing, are due between three and five years from the exercise
date and must be repaid upon sale of the underlying shares of stock.

During 1995, 1996 and 1997, the Company's Board of Directors approved an
increase in the number of common shares reserved and available for issuance
under the 1994 Plan by 1,650,000 shares, 4,500,000 shares and 9,600,000 shares,
respectively (or from 3,750,000 shares in 1995 to 19,500,000 shares in 1997).

Activity under the 1994 Plan is set forth below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
SHARES WEIGHTED-
AVAILABLE NUMBER OF PRICE AVERAGE
FOR GRANT SHARES PER SHARE EXERCISE PRICE
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994.......... 492,000 3,258,000 $ 0.07 $ 0.07
Additional shares reserved.......... 1,650,000 -- -- --
Options granted..................... (1,942,500) 1,942,500 0.07 0.07
Options canceled.................... 3,000 (3,000) 0.07 0.07
Options exercised................... -- (5,100,000) 0.07 0.07
---------- ---------- ----------- -----
Balance at December 31, 1995.......... 202,500 97,500 0.07 0.07
Additional shares reserved.......... 4,500,000 -- -- --
Options granted..................... (3,269,250) 3,269,250 0.07 - 1.13 0.73
Shares repurchased from previously
exercised options................ 5,532 -- -- --
Options exercised................... -- (1,314,300) 0.07 - 1.13 0.51
---------- ---------- ----------- -----
Balance at December 31, 1996.......... 1,438,782 2,052,450 0.07 - 1.13 0.85
Additional shares reserved.......... 9,600,000 -- -- --
Options granted..................... (5,172,900) 5,172,900 1.13 - 8.00 2.50
Options canceled.................... 11,061 (11,061) 0.50 - 1.13 0.79
Shares repurchased from previously
exercised options................ 157,565 -- -- --
Options exercised................... -- (1,970,357) 1.13 - 8.00 1.87
---------- ---------- ----------- -----
Balance at December 31, 1997.......... 6,034,508 5,243,932 $ .07 - $8.00 $ 2.10
========== ========== =========== =====
</TABLE>

F-14
<PAGE> 79

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of December
31, 1997 were as follows:

<TABLE>
<CAPTION>
OUTSTANDING
-------------------------------------------------
WEIGHTED AVERAGE EXERCISABLE
NUMBER OF REMAINING ------------------------------
RANGE OF SHARES CONTRACTUAL LIFE WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.07 to $1.00.............. 698,325 8.37 $ 0.62 698,325 $ 0.62
$1.13 to $1.25.............. 3,014,707 9.28 $ 1.16 3,014,707 $ 1.16
$3.00 to $5.00.............. 1,296,900 9.82 $ 4.00 1,296,900 $ 4.00
$8.00....................... 234,000 9.99 $ 8.00 234,000 $ 8.00
</TABLE>

Additional information relating to the 1994 Plan is as follows at December
31:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Nonvested common shares subject to repurchase..... 3,888,092 3,900,591 3,761,223
Weighted average repurchase price................. $0.07 $0.21 $1.05
Unvested options outstanding...................... 90,000 1,997,271 5,044,106
Total reserved Class B Common Stock shares for
stock option plans.............................. 300,000 3,491,232 11,278,440
</TABLE>

The Company recorded deferred compensation of $1,047,000 during the year
ended December 31, 1997 for the difference between the exercise price and the
deemed value of certain of the Company's stock options granted under the 1994
Plan. These amounts are being amortized by charges to operations over the
vesting periods of the individual stock options, which are generally four years.
In the year ended December 31, 1997, $66,000 was amortized to expense.

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 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.

Stock-based awards to employees under the Plan during the years ended
December 31, 1995, 1996 and 1997 were valued using the minimum value method,
assuming no expected dividends, a weighted-average expected life of 3.5 years
and a weighted-average risk-free interest rate of 6.0%. Should the Company
complete an initial public offering of its common stock, stock-based awards
granted thereafter will be 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 estimated fair value. The minimum value method does not consider
stock price volatility. Further, certain other assumptions necessary to apply
the Black-Scholes model may differ significantly from assumptions used to
calculate the value of stock-based awards under the minimum value method.

F-15
<PAGE> 80

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
The weighted-average minimum values of options granted to employees during
1995, 1996 and 1997 were $0.02, $0.18 and $1.12, respectively. For pro forma
purposes, the estimated minimum 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:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
----- ------ -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Pro forma:
Net income (loss)...................................... $ 1 $2,944 $(1,736)
Basic earnings (loss) per share........................ $0.00 $ 0.12 $ (0.07)
Diluted earnings (loss) per share...................... $0.00 $ 0.08 $ (0.06)
</TABLE>

6. 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. No contributions were made by the
Company in 1996 or 1997.

7. LITIGATION

The Company is involved in legal proceedings, claims and litigation arising
in the ordinary course of business. Certain of these matters relate to
intellectual property rights that involve complex questions of fact and law and
could require the expenditure of significant costs and diversion of resources to
defend. In management's opinion, the outcome of such legal proceedings, claims
and litigation will not have a material adverse effect on its financial position
or results of operations. However, any results of litigation are inherently
uncertain, and there can be no assurance the Company will prevail in these
matters.

8. SEGMENT, SIGNIFICANT CUSTOMER AND SUPPLIER INFORMATION

The Company operates in one industry segment, broadband communications.
During 1995, 1996 and 1997, the Company had a total of five customers whose
revenue represented a significant portion of total revenue in certain or all
years. Revenue from two of these customers was approximately 13.9% and 11.3% of
total revenue in 1995. Revenue from another customer represented approximately
13.8% in 1995, 27.9% in 1996, and 31.9% in 1997 of total revenue for the
respective year. Revenue from a fourth customer accounted for approximately
16.1% of total revenue in 1996. Revenue from a fifth customer was approximately
15.2% in 1996 and 14.6% in 1997 of total revenue for the respective year.

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

The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Credit losses
have been within management's expectations and amounts provided for doubtful
accounts.

F-16
<PAGE> 81

BROADCOM CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. SEGMENT, SIGNIFICANT CUSTOMER AND SUPPLIER INFORMATION (CONTINUED)
Export revenue to all foreign customers as a percent of total revenue was
as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Europe............................................... 10.5% 6.1% 5.2%
Asia................................................. 10.1 2.9 6.7
Other................................................ 1.9 3.5 3.5
---- ---- ----
22.5% 12.5% 15.4%
==== ==== ====
</TABLE>

The Company does not own or operate a fabrication facility, and
substantially all of its semiconductor device requirements are currently
supplied by two outside foundries in Asia. 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, and
the delivery, quality or cost of the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations.

9. SUBSEQUENT EVENTS

SALE OF SHARES TO CISCO SYSTEMS

On February 3, 1998, Cisco Systems, Inc. (Cisco) exercised its option to
purchase 500,000 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 in connection with the Development and License
Agreement entered into between the Company and Cisco and effective in September
1996, as amended on February 3, 1998.

1998 STOCK INCENTIVE PLAN

The 1998 Stock Incentive Plan (the 1998 Plan) was adopted on February 3,
1998 to serve as the successor equity incentive program to the Company's 1994
Plan. A total of 8,797,058 shares of Class A Common Stock and 5,481,382 shares
of Class B Common Stock have been authorized for issuance under the 1998 Plan.
On the 1998 Plan effective date, outstanding options under the 1994 Plan will be
incorporated into the 1998 Plan, and no further option grants will be made under
the 1994 Plan.

1998 EMPLOYEE STOCK PURCHASE PLAN

The 1998 Employee Stock Purchase Plan (the Purchase Plan) was adopted on
February 3, 1998, which allows employees to designate up to 15 percent of their
total compensation to purchase shares of the Company's Class A Common Stock at
85% of fair market value. 750,000 shares of Class A Common Stock have been
reserved for issuance under the Purchase Plan.

F-17
<PAGE> 82

LOGO
<PAGE> 83

[ALTERNATE PAGE FOR CISCO PROSPECTUS]

PROSPECTUS (Subject to Completion)
Issued February 5, 1998

500,000 Shares

LOGO
CLASS A COMMON STOCK.

------------------------

THIS PROSPECTUS RELATES TO THE 500,000 SHARES OF CLASS A COMMON STOCK TO BE SOLD
BY THE COMPANY TO CISCO SYSTEMS, INC. THE COMPANY HAS TWO CLASSES OF COMMON
STOCK: CLASS A COMMON STOCK AND CLASS B COMMON STOCK (COLLECTIVELY, THE "COMMON
STOCK"). THE SHARES OF COMMON STOCK ARE SUBSTANTIALLY IDENTICAL EXCEPT THAT THE
HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE, AND THE
HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO TEN VOTES PER SHARE, ON ALL
MATTERS SUBMITTED TO A VOTE OF THE SHAREHOLDERS. EACH SHARE OF CLASS B COMMON
STOCK IS CONVERTIBLE AT THE OPTION OF THE HOLDER INTO ONE SHARE OF CLASS A
COMMON STOCK, AND GENERALLY WILL AUTOMATICALLY CONVERT INTO ONE SHARE OF CLASS A
COMMON STOCK UPON TRANSFER OF THE CLASS B COMMON STOCK FROM ITS ORIGINAL HOLDER.
SEE "DESCRIPTION OF CAPITAL STOCK." PRIOR TO THIS OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED
THAT THE OFFERING PRICE TO CISCO SYSTEMS, INC. WILL BE BETWEEN $ AND
$ PER SHARE. APPLICATION WILL BE MADE TO LIST THE SHARES OF CLASS A
COMMON STOCK OFFERED HEREBY ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"BRCM."

------------------------

ALL REFERENCES HEREIN TO "THIS OFFERING," "OFFERED HEREBY," "THE OFFERING MADE
HEREBY" AND "SELLING SHAREHOLDERS" REFER TO THE COMPANY'S INITIAL PUBLIC
OFFERING OF CLASS A COMMON STOCK.

------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.

------------------------

[ALTERNATIVE SECTIONS FOR CISCO PROSPECTUS]

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............. 3
Risk Factors................... 5
Sale of Shares to Cisco
Systems...................... 15
Use of Proceeds................ 15
Dividend Policy................ 15
Capitalization................. 16
Dilution....................... 17
Selected Financial Data........ 18
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................... 19
Business....................... 25

<CAPTION>
PAGE
----
<S> <C>
Management..................... 42
Certain Transactions........... 52
Principal and Selling
Shareholders................. 53
Description of Capital Stock... 54
Shares Eligible for Future
Sale......................... 56
Plan of Distribution........... 58
Legal Matters.................. 58
Experts........................ 58
Additional Information......... 58
Glossary of Technical Terms.... 59
Index to Financial
Statements................... F-1
</TABLE>

LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby
will be passed upon for the Company by Brobeck Phleger & Harrison LLP,
Newport Beach, California.

The following section will replace the "Underwriters" section of the Public
Offering Prospectus:

PLAN OF DISTRIBUTION

The shares being registered hereunder are being issued and sold
by the Company to Cisco Systems pursuant to a stock purchase agreement
entered into upon exercise of an option granted to Cisco Systems in
conjunction with a development agreement. This offering is not being
underwritten. See "Sale of Shares to Cisco Systems" and "Certain
Transactions."
<PAGE> 85

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD registration fees. All of
the expenses below will be paid by the Company.

<TABLE>
<CAPTION>
ITEM
-------------------------------------------------------------------
<S> <C>
Registration fee................................................... $ 15,895
NASD filing fee.................................................... 5,888
Nasdaq National Market listing fee................................. *
Blue sky fees and expenses......................................... *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer Agent and Registrar fees.................................. *
Miscellaneous...................................................... *
-------
Total.................................................... $ *
=======
</TABLE>

- ------------

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Articles of Incorporation limit the personal liability of its
directors for monetary damages to the fullest extent permitted by the California
General Corporation Law (the "California Law"). Under the California Law, a
director's liability to a company or its shareholders may not be limited (1) for
acts or omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interest of the Company or its shareholders or that involve
the absence of good faith on the part of the director, (iii) for any transaction
from which a director derived an improper personal benefit, (iv) for acts or
omissions that show a reckless disregard for the director's duty to the Company
or its shareholders in circumstances in which the director was aware, or should
have been aware, in the ordinary course of performing a director's duties, of a
risk of a serious injury to the Company or its shareholders, (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Company or its shareholders, (vi) under
Section 310 of the California Law concerning contacts or transactions between
the Company and a director, or (vii) under Section 316 of the California Law
concerning directors' liability for improper dividends, loans and guarantees.
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to the Company's shareholders for any
violation by a director of the director's fiduciary duty to the Company or its
shareholders.

The Company's Articles of Incorporation also include an authorization for
the Company to indemnify its "agents" (as defined in Section 317 of the
California Law), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this provision, the Company's
Bylaws provide for indemnification of the Company's directors, officers and
employees. In addition, the Company, at its discretion, may provide
indemnification to persons whom the Company is not obligated to indemnify. The
Bylaws also allow the Company to enter into indemnity agreements with individual
directors, officers, employees and other agents. These indemnity agreements have
been entered into with all directors and executive officers and provide the
maximum indemnification permitted by law. These agreements, together with the
Company's Bylaws and Articles of Incorporation, may require the Company, among
other things, to

II-1
<PAGE> 86

indemnify these directors or executive officers (other than for liability
resulting from willful misconduct of a culpable nature), to advance expenses to
them as they are incurred, provided that they undertake to repay the amount
advanced if it is ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' and officers' insurance if available
on reasonable terms. Section 317 of the California Law and the Company's Bylaws
make provision for the indemnification of officers, directors and other
corporate agents in terms sufficiently broad to indemnify such persons, under
certain circumstances, for liabilities (including reimbursement of expense
incurred) arising under the Securities Act.

The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
offering.

There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Company believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Company and its officers and
directors, and by the Company of the Underwriters, for certain liabilities
arising under the Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following is a summary of transactions by the Registrant since January
1, 1995 involving sales of the Registrant's securities that were not registered
under the Securities Act:

1. In March 1995, the Registrant issued and sold 500,000 shares of Series C
Preferred Stock to Scientific-Atlanta, Inc. at a price per share of $2.00. Each
share of Series C Preferred Stock will convert into three shares of Class B
Common Stock upon consummation of this offering.

2. In February 1996, the Registrant issued and sold an aggregate of 493,839
shares of Series D Preferred Stock to 22 accredited individual investors and
strategic partners at a price per share of $6.00. Each share of Series D
Preferred Stock will convert into three shares of Class B Common Stock upon
consummation of this offering.

3. In June 1997, the Registrant issued and sold 60,000 shares of Class B
Common Stock to the Regents of the University of New Mexico ("UNM") in
connection with a License Agreement between UNM and the Registrant. The shares
were issued as part of the Registrant's consideration to UNM in return for a
license grant.

4. In September 1997, the Registrant issued and sold 1,500,000 shares of
Series E Preferred Stock to General Instrument Corporation at a price per share
of $15.15. This transaction was undertaken in connection with a Development,
Supply and License Agreement between General Instrument and the Registrant. Each
share of Series E Preferred Stock will convert into 1.5 shares of Class B Common
Stock upon consummation of this offering.

5. In October 1997, the Registrant issued and sold 225,000 shares of Class
B Common Stock to Irell & Manella LLP at a price per share of $4.67, or an
aggregate purchase price of $1,050,000.

6. From time to time since the implementation of the 1994 Plan, the
Registrant issued nonqualified stock options to purchase Common Stock at
exercise prices ranging from $0.07 to $10.00 per share to eligible officers,
directors, consultants and employes of the Registrant as described in the
Prospectus. Such optionees did not pay any cash consideration for these options.
Such options did not involve a "sale" of securities; and, therefore,
registration was not required. During the period referred to above, the
Registrant issued 5,589,771 shares of Class B Common Stock upon the exercise of
options under the 1994 Plan.

The sale and issuance of securities set forth above were deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof or Rule 701 adopted thereunder. The recipients of the

II-2
<PAGE> 87

securities in each of the transactions set forth in above represented their
intention to acquire such securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the share certificates and instruments used in such
transactions. All recipients received adequate information about the Registrant
at the time of the acquisition of such securities or had access, through
employment or other relationships with the Registrant, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4.1* Specimen certificate representing shares of Class A Common Stock of the
Registrant.
5.1* Form of Opinion of Brobeck Phleger & Harrison LLP.
10.1* Form of Indemnification Agreement for Directors of the Registrant.
10.2* Form of Indemnification Agreement for Officers of the Registrant.
10.3* 1994 Amended and Restated Stock Option Plan, together with form of Stock Option
Agreement (and related Notice of Grant of Option) and form of Stock Purchase
Agreement.
10.4* 1998 Stock Incentive Plan, together with form of Stock Option Agreement (and
related Notice of Grant of Option), form of Stock Purchase Agreement and form
of Stock Issuance Agreement.
10.5* 1998 Employee Stock Purchase Plan.
10.6* Loan and Security Agreement dated March 23, 1995 between the Registrant and
Silicon Valley Bank, as amended; Collateral Assignment, Patent Mortgage and
Security Agreement dated March 23, 1995 between the Registrant and Silicon
Valley Bank; and Financing Statement and Security Agreement dated March 23,
1995 between the Registrant and Silicon Valley Bank.
10.7* Standard Form Office Lease dated April 30, 1995 between the Registrant and
Laguna Canyon, Inc., as amended.
10.8* Development, Supply and License Agreement dated September 29, 1997 between the
Registrant and General Instrument Corporation, formerly known as NextLevel
Systems, Inc.
11.1 Statement Regarding Computation of Earnings Per Share (contained in Note 1 of
Notes to Financial Statements).
23.1 Consent of Independent Auditors.
23.2* Consent of Brobeck Phleger & Harrison LLP (contained in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page on page II-5).
27.1 Financial Data Schedule.
</TABLE>

- ------------

* To be filed by Amendment.

II-3
<PAGE> 88

(b) FINANCIAL STATEMENT SCHEDULES

(1) Report of Independent Auditors on Financial Statement Schedule

(2) Schedule II--Valuation and qualifying accounts

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.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 89

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on the 5th day of February, 1998.

BROADCOM CORPORATION

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

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint Henry T. Nicholas, Henry Samueli and William J. Ruehle, and each of
them, his true and lawful attorney-in-fact and agent, 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 (including post-effective
amendments) to this Registration Statement, or any related registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, 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
connection therewith, 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 Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <C> <S>

/s/ HENRY T. NICHOLAS, III Co-Chairman, President and February 5, 1998
- --------------------------------------------- Chief Executive Officer
Henry T. Nicholas, III (principal executive officer)

/s/ HENRY SAMUELI Co-Chairman, Vice President of February 5, 1998
- --------------------------------------------- Engineering and
Henry Samueli Chief Technical Officer

/s/ WILLIAM J. RUEHLE Vice President, Chief February 5, 1998
- --------------------------------------------- Financial Officer and
William J. Ruehle Secretary
(principal financial and
accounting officer)

/s/ ALAN E. ROSS Director February 5, 1998
- ---------------------------------------------
Alan E. Ross

/s/ WERNER F. WOLFEN Director February 5, 1998
- ---------------------------------------------
Werner F. Wolfen

/s/ MYRON S. EICHEN Director February 5, 1998
- ---------------------------------------------
Myron S. Eichen
</TABLE>

II-5
<PAGE> 90

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

Board of Directors
Broadcom Corporation

We have audited the financial statements of Broadcom Corporation as of
December 31, 1996 and 1997, and for each of the three years in the period ended
December 31, 1997, and have issued our report thereon dated January 16, 1998,
except for Notes 1 and 9, as to which the date is February 4, 1998 (included
elsewhere in this Registration Statement). Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. 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 16, 1998, except for
Notes 1 and 9, as to which
the date is February 4, 1998

S-1
<PAGE> 91

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

BROADCOM CORPORATION

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts.... $ 50,000 $ 40,000 $ -- $ 50,000 $ 40,000
Reserve for excess and obsolete
inventory........................ -- 55,000 -- -- 55,000
------- --------- --- ------- ---------
Total......................... $ 50,000 $ 95,000 $ -- $ 50,000 $ 95,000
======= ========= === ======= =========
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts.... $ 40,000 $ 84,000 $ -- $ 24,000 $ 100,000
Reserve for excess and obsolete
inventory........................ 55,000 1,055,000 -- 361,000 749,000
------- --------- --- ------- ---------
Total......................... $ 95,000 $1,139,000 $ -- $385,000 $ 849,000
======= ========= === ======= =========
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts.... $100,000 $ -- $ -- $ -- $ 100,000
Reserve for excess and obsolete
inventory........................ 749,000 1,028,000 -- 91,000 1,686,000
------- --------- --- ------- ---------
Total......................... $849,000 $1,028,000 $ -- $ 91,000 $1,786,000
======= ========= === ======= =========
</TABLE>

S-2
<PAGE> 92

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NO. PAGE
- ------- ------------------------------------------------------------------ ----------------
<S> <C> <C>
1.1* Form of Underwriting Agreement....................................
3.1* Amended and Restated Articles of Incorporation of the
Registrant........................................................
3.2* Bylaws of the Registrant..........................................
4.1* Specimen certificate representing shares of Class A Common Stock
of the Registrant.................................................
5.1* Form of Opinion of Brobeck Phleger & Harrison LLP.................
10.1* Form of Indemnification Agreement for Directors of the
Registrant........................................................
10.2* Form of Indemnification Agreement for Officers of the
Registrant........................................................
10.3* 1994 Amended and Restated Stock Option Plan, together with form of
Stock Option Agreement (and related Notice of Grant of Option) and
form of Stock Purchase Agreement..................................
10.4* 1998 Stock Incentive Plan, together with form of Stock Option
Agreement (and related Notice of Grant of Option), form of Stock
Purchase Agreement and form of Stock Issuance Agreement...........
10.5* 1998 Employee Stock Purchase Plan.................................
10.6* Loan and Security Agreement dated March 23, 1995 between the
Registrant and Silicon Valley Bank, as amended; Collateral
Assignment, Patent Mortgage and Security Agreement dated March 23,
1995 between the Registrant and Silicon Valley Bank; and Financing
Statement and Security Agreement dated March 23, 1995 between the
Registrant and Silicon Valley Bank................................
10.7* Standard Form Office Lease dated April 30, 1995 between the
Registrant and Laguna Canyon, Inc., as amended....................
10.8* Development, Supply and License Agreement dated September 29, 1997
between the Registrant and General Instrument Corporation,
formerly known as NextLevel Systems, Inc..........................
11.1 Statement Regarding Computation of Earnings Per Share (contained
in Note 1 of Notes to Financial Statements).......................
23.1 Consent of Independent Auditors...................................
23.2* Consent of Brobeck Phleger & Harrison LLP (contained in Exhibit
5.1)..............................................................
24.1 Power of Attorney (contained on signature page on page II-5)......
27.1 Financial Data Schedule...........................................
</TABLE>

- ------------

* To be filed by Amendment.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated January 16, 1998, except for Notes 1 and 9, as to which
the date is February 4, 1998 in the Registration Statement (Form S-1) and
related Prospectus of Broadcom Corporation to be filed on or about February 4,
1998.

/s/ Ernst & Young LLP
Orange County, California
February 4, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,116
<SECURITIES> 0
<RECEIVABLES> 10,013
<ALLOWANCES> 100
<INVENTORY> 2,705
<CURRENT-ASSETS> 36,519
<PP&E> 13,132
<DEPRECIATION> 4,683
<TOTAL-ASSETS> 45,244
<CURRENT-LIABILITIES> 10,257
<BONDS> 0
0
28,617
<COMMON> 3
<OTHER-SE> 4,772
<TOTAL-LIABILITY-AND-EQUITY> 45,244
<SALES> 31,668
<TOTAL-REVENUES> 36,955
<CGS> 14,926
<TOTAL-COSTS> 14,926
<OTHER-EXPENSES> 24,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (290)
<INCOME-PRETAX> (1,948)
<INCOME-TAX> (775)
<INCOME-CONTINUING> (1,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,173)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)

</TABLE>