This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Broadcom Drops After Dumping Head of Server Chips

Shares of Broadcom (BRCM) took it on the chin today after the company abruptly replaced the head of its server chip unit, citing arguments over strategy.

The news prompted two analysts to downgrade their ratings on the stock, saying the top-level dismissal could lead to other departures and give Intel (INTC - Get Report) an edge in the server chipset business.

In midafternoon trading, Broadcom stock fell $2.24, or 14.5%, to $13.16. Volume was heavy, at 28 million shares, or more than three times the normal trading. On a day that many tech stocks ebbed into the red, Intel was off slightly, down 21 cents, or 1.2%, to $17.68.

After the close Wednesday, the communications chipmaker said it will replace Raju Vegesna, the head of its ServerWorks subsidiary. Vegesna was co-founder and CEO at the time Broadcom acquired the unit in 2001. In an unusually blunt statement, CEO Alan "Lanny" Ross noted disagreements between management at Broadcom and ServerWorks "over a number of operational issues and the strategic direction of ServerWorks and how the business fits into Broadcom's long-term plans."

As a successor to Vegesna, Broadcom tapped Duane Dickhut, leader of Broadcom's broadband processor unit.

The ServerWorks subsidiary, which makes server chips, accounts for about a quarter of Broadcom's revenue and profits.

Wall Street reacted to the sudden management change with concern, particularly because it comes after other worrisome events at Broadcom. Since January, rattled investors have witnessed the exit of Broadcom's longtime CEO Henry Nicholas , as well as the head of investor relations. The company also recently suffered a loss in a patent lawsuit brought by Microtune (TUNE).

Though analysts generally sounded upbeat on Broadcom's near-term business prospects, predicting revenue growth in the current quarter, they cast the latest development as one more element of uncertainty that Broadcom certainly doesn't need.

Morgan Stanley analyst Mark Edelstone downgraded the stock from overweight to equal weight; his firm hasn't done any recent banking for the company. "Any mis-execution within the ServerWorks business unit could enable Intel to close the competitive gap that has existed in core logic I/O chipsets for servers," he cautioned in a note. Morgan Stanley doesn't have a recent banking relationship with Broadcom.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BRCM $0.00 0.00%
INTC $29.90 0.00%
AAPL $93.24 0.00%
FB $117.81 0.00%
GOOG $701.43 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs