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Broadcom Downgraded at Wedbush

It cites issues with acquired start-ups.
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was strengthening Monday afternoon despite Wedbush Morgan's lowering its investment rating on the shares to hold and cut its 2004 revenue and earnings estimates.

The brokerage attributed its lowered opinion to concerns about start-ups Broadcom acquired in 1999 and 2000. Wedbush noted that it was aware of lowered expectations for Broadcom's ServerWorks unit when it upgraded the shares to buy in May, but new concerns cloud its outlook.

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"We were willing to live with the low expectations management set for ServerWorks in 2004 ($200 million

in revenue, down from over $300 million in 2003) and hoped for upside; we did not expect other problems to come up with the start-ups BRCM acquired in 1999-2000 such as Sibyte," it wrote. "This could mean corporate performance will be uneven and much weaker in the second half of the fourth quarter than we estimated; unless IT spending growth in 2004 is closer to 10% (rather than the 4% to 5% growth expected by IDC)."

Wedbush said it still expects strong growth in BRCM's non-ServerWorks business, putting revenue at $782 million in 2002, $1.27 billion in 2003 and $1.8 billion in 2004.

Broadcom was recently up 34 cents, or 1.3%, to $26.76.