Broadcom grabs Intel by ServerWorks balls

Perils of the Building Blocks approach

Analysis As we reported yesterday, Broadcom paid over $1 billion for ServerWorks, a company which provides essential chipsets for much of the server and workstation range Intel now supports.

But the deal has ramifications for the entire industry, given the bitter competition between Broadcom and Intel, and because the deal will also give the former company access to some of the latter's technology and licences.

Although Intel and Broadcom settled their differences over patent issues last year, both firms are attempting to hog the same, potentially lucrative, territory.

Broadcom's speciality is selling broadband integrated silicon for data, voice and video, an area in which Intel has a strong interest and which is also highly profitable compared to, for example, Celerons chips.

ServerWorks chipsets, on the other hand, were and are being used by Intel in much of its server and workstation lineup through to 2002, until the Santa Clara company can successfully release and support its up-and-coming 860 and 870 chipsets.

The firm, also called Reliance, has close relationships with other major vendors including HP,Big Blue, and Compaq, and so Broadcom's acquisition is also likely to give these leaders in the lucrative x86-based server market, pause for thought.

Further, Intel has committed itself to a long strategic relationship with ServerWorks and the Broadcom acquisition leaves it in a potentially embarrassing situation.

Because of the takeover, Intel folk will have to sit down and chin-wag with Broadcom folk, something that they would not wish to have happened.

Sometime ago we speculated whether ServerWorks was an acquisition target for Intel itself, a firm which in recent years has had a reputation for rapaciously acquiring firms it considers important to its "building block" approach.

However, Intel buying ServerWorks would have prompted protests from other industry players, eager to nail the chip giant on the anti-trust hook again. That's one thing that senior lawyers at Intel will do everything in their power to avoid now or in the future.

Further, although it has a relatively low profile in these times of the Megahurts Wars, server technology is a lucrative cash cow for Intel and anything that threatens that corporate stuff is something Intel will take very seriously.

Although Broadcom, based in a nicer part of California, has a relatively low profile compared to Chipzilla, it is something of a darling for Wall Street and seems hell-bent on continuing an acquisition trail of its own. ®

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