7 times in 3 years! The rise of Broadcom and the iron-fisted CEO Chen Fu Yang

At chip giant Broadcom, CEO Hock Tan has propelled an unremarkable semiconductor company to a trillion-dollar market value through iron-fisted management and precise acquisitions, with its stock price soaring nearly sevenfold over the past three years.

On December 5th, tech media The Information published a lengthy article detailing the story of Broadcom and its iron-fisted CEO Hock Tan. The article notes that the 74-year-old CEO is known for his extremely pragmatic style—cutting benefits, strictly controlling costs, and focusing on profits—while becoming one of the few challengers to Nvidia in the AI chip market through custom chip business.

According to the report, after spending $84 billion to acquire VMware, Hock Tan announced his management philosophy to new employees through his signature "coffee chat." When an employee asked whether Broadcom offered benefits like childcare or marriage counseling, he replied, "Why would I do that? I'm not your dad." In the following months, about half of VMware's 38,000 employees were laid off, and only 5 out of 18 office buildings were retained, with even the coffee machines removed.

This ruthless efficiency has brought tangible performance growth to Broadcom. Last year, the company's sales exceeded $50 billion, growing over 50% in two years, and this year it is expected to surpass $60 billion. Its custom chip business has won important clients such as Google, OpenAI, and Meta, accounting for about 60% of the company's revenue, making Broadcom one of the 11 trillion-dollar companies globally.

The article also points out that the risks are significant. Whether AI spending can be sustained, competitors like Marvell catching up, and clients seeking cheaper alternatives could all shake Broadcom's position. Under the new compensation structure, Hock Tan could earn a stock award worth about $700 million if he can increase AI revenue to $120 billion by the end of 2030, a goal that the market generally believes he can achieve.

The "Diamonds and Trash" Philosophy of Acquisition Machines

The article states that Hock Tan has acquired at least 11 companies over the past 15 years, applying the same rigorous methodology in each integration. Philippe Laffont, co-founder and head of hedge fund Coatue Management, summarized:

"He is the absolute best at identifying interesting acquisition targets, acquiring them, and applying a private equity-style script."

Hock Tan himself describes this method as identifying "diamonds" and "trash." After acquiring VMware, he reduced the product portfolio from 8,000 to just 4, retaining the product lines he deemed most useful for data center customers.

He divested VMware's workplace virtualization tools division and, after attempting to sell the Carbon Black cybersecurity business, merged it into Symantec—after previously laying off about 80% of the employees.

Internally, Hock Tan established a ruthless performance evaluation mechanism. At quarterly all-hands meetings, he always presents a slide ranking departments by revenue growth, marking the bottom third of departments with a red line. He referred to it as the "doom line"—any department that remains below this line for several consecutive quarters is considered to be underperforming, and employees worry about becoming the next round of layoffs.**

Despite this uncertainty, Broadcom's voluntary turnover rate is only 2.9%, slightly higher than Nvidia's 2.7%. Several former employees attribute this to the company's high compensation, which includes a significant amount of valuable restricted stock units.

The company rarely hires interns or recent graduates, preferring to hire an experienced engineer to do the work of several junior employees. Unlike many tech companies that have hundreds of vice presidents, Broadcom has fewer than 30 vice presidents and senior vice presidents.

Additionally, at the company's recent headquarters in Palo Alto, there are no free sodas, and even supplies like stationery are in short supply. "You have to buy your own rubber bands or markers," said a former employee, "and you'd better remember to take them back to your desk, or they'll be taken."

Custom Chips: Nvidia's Challenger

The article states, After the launch of ChatGPT, Broadcom was once seen as a dull, slow-growing chip business that almost experienced a rebirth overnight. The company focuses on the custom chip business, specifically application-specific integrated circuits (ASICs), which are designed to perform a single task more efficiently and cheaply than Nvidia's general-purpose chips. This makes Broadcom one of the few credible challengers to Nvidia's dominance in the chip market.

Google is Broadcom's most well-known long-term customer, having collaborated since 2016. Typically, customers bring chip blueprints to Broadcom, which is responsible for physical design and manufacturing, collaborating with companies like TSMC. Broadcom's level of involvement varies depending on the partnership—Google handles more high-level technical designs due to its expertise, while Broadcom also assists with this work in collaborations with other companies.

In the past three years, Broadcom has signed several major deals, including collaborations with OpenAI and Meta. In February of last year, Chen Fu Yang was appointed to Meta's board of directors. According to sources, Microsoft is currently in talks with Broadcom about designing future chips, which could mean Microsoft is shifting business away from another custom chip manufacturer, Marvell.

Although the company can work directly with chip foundries like TSMC and handle all chip designs itself, this approach carries higher risks. Broadcom has been deeply involved in chip design for thirty years, and its custom products are known for their quality, allowing it to charge premium prices. However, the high costs have also prompted some customers to seek alternatives.

Previously, Broadcom's aggressive negotiation strategy led Amazon to switch to competitor Marvell, and Google has also added MediaTek as a second chip design partner.

Chen Fu Yang predicted last December that AI could bring Broadcom between $60 billion and $90 billion in new revenue by 2027. According to JP Morgan, the chip collaboration announced with OpenAI in October could generate up to $300 billion in revenue over the next few years.

In October of this year, Anthropic announced plans to use 1 million tensor processing units (TPUs)—chips co-designed by Broadcom and Google. Meta is also currently in talks with Google, planning to invest billions of dollars in TPUs for its data centers by 2027

The Iron-Fisted Path from Malaysia to Silicon Valley

Little is known about Chen Fuyang himself. He grew up on Penang Island in Malaysia, coming from a modest background. His early life was marked by the Malayan Emergency—a violent guerrilla war between British colonial forces and independence-supporting "rebels."

As a teenager, Chen Fuyang originally wanted to become a doctor, but high SAT scores earned him a scholarship to the Massachusetts Institute of Technology, changing the trajectory of his life. He arrived in the United States in 1971 and obtained bachelor's and master's degrees in mechanical engineering in 1975. He then earned an MBA from Harvard University and held financial positions at General Motors and PepsiCo.

In the 1980s, he worked in Asia for nearly a decade, first at a building materials group in Malaysia and then at an investment company in Singapore. After returning to the U.S., he served as vice president of finance at PC manufacturer Commodore International before its bankruptcy, and then became CEO of Integrated Circuit Systems, leading a major restructuring and selling the company for $1.7 billion in 2005.

This deal caught the attention of Silver Lake and KKR. In 2006, the two firms hired Chen Fuyang to lead the chip company Avago, which was spun off from HP, and tasked him with cutting redundancies.

A former executive recalled that during an early offsite meeting at Avago, Chen Fuyang loaded the executives onto a bus and took them to a local airport hotel. "Most people would choose luxurious venues for offsite activities; I felt we didn't even have food and water."

In 2016, Chen Fuyang completed his biggest deal: acquiring the more well-known Broadcom for $37 billion. The following year, he initiated a hostile takeover of Qualcomm for $120 billion. However, the Trump administration blocked the deal on national security grounds, fearing that Qualcomm, headquartered in the U.S., would fall into the hands of Broadcom, which was then registered in Singapore. A month later, Broadcom moved its registration to the U.S.

After the Qualcomm deal fell through, Chen Fuyang decided to seek growth through acquisitions of software companies. From 2019 to 2022, Broadcom's stock price rose by 150%, far exceeding the Nasdaq's approximately 55% increase.

Who Will Succeed Him?

Questions remain about the sustainability of Broadcom's AI chip business and overall AI spending, and the 74-year-old Chen Fuyang may soon face another long-term question: who will succeed him?

In September of this year, Chen Fuyang stated during a quarterly earnings call that he plans to serve as CEO "at least" until 2030. A former Broadcom executive predicted that Chen Fuyang would work until his death. "He will become the Charlie Munger of the tech world."

However, there are signs that Broadcom has begun to consider the post-Chen Fuyang era. Charlie Kawwas, president of Broadcom's Semiconductor Solutions Group, has recently appeared more frequently at Wall Street events and earnings calls.

Kawwas holds a Ph.D. in electrical and computer engineering and joined the company through Broadcom's acquisition of LSI Corp. in 2014. He has served as chief sales officer and chief operating officer and was promoted to president in 2022 In a podcast conversation released on the OpenAI YouTube channel in October, Kawwas sat to the right of Chen Fuyang, talking with OpenAI CEO Sam Altman and President Greg Brockman.

Kawwas emphasized that he speaks with his counterparts at OpenAI at least once a week. Brockman praised, "I feel that every time I call Charlie, he is trying to ensure capacity in different parts of the world, trying to find ways to help us achieve our goals together."

But if the views of Broadcom investor Laffont are representative, many are still not ready to let go of this long-time leader. Laffont said, "Every day I think about it, I pray that he takes his vitamins and eats healthily."

Ken Hao, Chairman of Silver Lake and a Broadcom director who has known Chen Fuyang for twenty years, believes that the key to Chen Fuyang's outstanding performance lies in "focusing on first principles that do not come from conventional wisdom, or in other words, not copying others."