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Broadcom ousts ServerWorks chief

ServerWorks founder and leader Raju Vegesna is ousted because of disagreements over operational issues, such as the strategic direction the subsidiary should take.

Chipmaker Broadcom shook up the Intel server market Wednesday, ousting the head of its ServerWorks subsidiary, a crucial supplier of components to IBM, Hewlett-Packard and Dell Computer.

Broadcom, which makes communications and networking chips, replaced ServerWorks founder Raju Vegesna with Duane R. Dickhut, who joined Broadcom in January, the Irvine, Calif.-based company said Wednesday.

"Recently, there have been disagreements between the ServerWorks and Broadcom management teams over a number of operational issues and the strategic direction of ServerWorks and how the business fits into Broadcom's long-term plans," Broadcom Chief Executive Alan "Lanny" Ross said in a statement.

"In view of concern over these issues, we felt that Broadcom's long-term interests would be best served by the actions we have taken today," Ross said.

The change doesn't bode well for Broadcom, with ServerWorks being one of its strongest divisions, said UBS Warburg securities analyst Alex Gauna.

"In my opinion this will be a negative for Broadcom," Gauna said. "I think Raju was a very capable manager and engineer, and I think his skills and customer relationships will be missed by Broadcom."

Differences between Broadcom management and Vegesna included "product vision, road map, what products and technologies would be integrated with others, and how to best present the company's total capabilities to customers," Bill Reuhle, Broadcom's chief financial officer, said in an interview.

ServerWorks brought in hundreds of millions of dollars in revenue annually, Ruehle said. Given the magnitude of that revenue, Vegesna's removal "could be cataclysmic for 2004," Gauna said.

Vegesna couldn't immediately be reached for comment.

ServerWorks makes chipsets, which join a server's main processor to memory, other processors and input-output systems. The company's chief competitor is Intel. Broadcom acquired the Silicon Valley start-up in 2001.

Servers are crucial computers that handle network chores such as company finances or e-mail, and Intel servers are an increasingly important part of that overall market. Gartner projects that Intel servers will be the single largest part of the market in 2003.

Dickhut previously led Broadcom's Broadband Processor group and joined the company in January from Sonicblue. He's had extensive experience in the server market, running the Intel server group at Digital Equipment.

Ripple effect?
Vegesna's ouster could have implications for others at ServerWorks. "Raju had a close and loyal cadre of executives working for him," Insight64 analyst Nathan Brookwood said.

Indeed, a "handful" of other ServerWorks personnel are losing their jobs as a result of the action, Reuhle said, declining to say whether they may be reassigned to new positions.

Voice mail for David Pulling, ServerWorks' vice president of marketing, and Kimball Brown, vice president of business development, said neither executive works for Broadcom anymore.

There have been cases in which ServerWorks and Broadcom were able to bundle their products together, but "there are other possibilities that haven't been adequately addressed," Ruehle said.

Successful cooperation included incorporation of gigabit-per-second Ethernet chips into the server chipsets, Brookwood said.

Intel's processors have been used in ever more powerful servers, but the Santa Clara, Calif., chipmaker struggled to produce server chipsets in the late 1990s and has relied on ServerWorks for much of its push into the server market. Now, though, that reliance is decreasing.

ServerWorks chipsets in the past have been used in about 85 percent to 90 percent of server designs using Intel processors, Gauna said. Today, they're "more like 75 percent with the current round and heading lower," he said.

One key problem for ServerWorks in the future could be the arrival of a faster connection between processors and the chipset, a connection called the front-side bus. Intel announced an agreement with ServerWorks in 2000 that gives the company access to Intel's bus designs through 2008, but Gauna said Intel isn't likely to help ServerWorks with a coming front-side bust that runs at a speed of 800MHz.

ServerWorks "can reverse-engineer the front-side bus, but it's not looking like they're going to get Intel's help at this time," Gauna said.

Intel and ServerWorks don't see eye to eye when it comes to the future way that expansion cards such as network cards will plug into servers, a task currently handled by PCI technology. Intel, along with Dell, favors a switch as soon as possible to a successor called PCI Express. ServerWorks, along with key allies HP and IBM, prefers a less radical successor called PCI-X 2.0, with later versions of PCI Express as a longer-term possibility.