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) 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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV