Intel threatens Broadcom stronghold

ServerWorks' lead in server chipset sales has made it a stronghold in owner Broadcom's business. But now its position is weakening, say analysts, as Intel lays siege.

ServerWorks is the dominant seller to server makers of chipsets, which connect processors to memory, networking and other computer subsystems. But Intel has begun making inroads, and two of its upcoming chipsets--code-named Lindenhurst and Twin Castle--pose a particular threat for 2004, according to analysts.

"Intel's becoming a lot more aggressive at getting a bigger chunk of that chipset market," IDC researcher Mark Melenovsky said.

On Monday, U.S. Bancorp Piper Jaffray analyst Ashok Kumar said Dell and Hewlett-Packard, the top sellers of servers with Intel processors, have agreed to use Lindenhurst and Twin Castle in their servers to be released next year. In addition, IBM plans to incorporate Lindenhurst into its 2004 models.

Such interest is prompting analysts to predict a successful campaign for Intel. The company's share of the server chipset market "could reach as high as 25 (percent) to 30 percent or more by year-end," according to a CIBC World Markets report released last week.

"We believe it is now clear that ServerWorks will lose share in both 2003 and 2004," the report's authors said.

Given that ServerWorks accounts about 50 percent of Irvine, Calif.-based Broadcom's operating earnings, according to Wedbush Morgan Securities analyst David Wu, such a loss of chipset business could be painful.

Broadcom, Intel, HP, Dell and IBM declined to comment for this story.

Chipsets are one of the few areas where profit can be extracted from server products, IDC's Melenovsky said.

They are a crucial component in servers, for many reasons. For example, they heavily influence the performance and reliability of critical subsystems such as memory, hard drives and networking. They are key to building multiprocessor systems, where many chips contend simultaneously for system resources. They are the mechanism by which faster interfaces--such as the new PCI Express or PCI-X 2.0--are introduced to the market.

The Twin Castle is a significant new product for Intel, as it marks its entry into the market for four-processor chipsets for servers. The company's current E7501 "Plumas" and E7505 "Placer" chipsets are designed, like Lindenhurst, for dual-processor servers.

Twin Castle is built to work with "Potomac," a version of Intel's Xeon MP processor built using a 90-nanometer manufacturing process--the first such chip created for multiprocessor machines. Lindenhurst is paired with Intel's "Nocona" Xeon DP, a 90-nanometer-process chip for dual-processor systems.

While Intel's efforts are going into this chipset push, ServerWorks' energy is dedicated to dealing with profound corporate change. Broadcom ousted the unit's CEO, Raju Vegesna, in March. It is now integrating the division more tightly with the rest of its business, which chiefly focuses on communications chips.

ServerWorks' own rise to power had come as Intel, based in Santa Clara, Calif., struggled with its own server chipsets. The products were hampered by technical glitches and by designs based around Rambus memory technology, which wasn't popular in the server market. Broadcom acquired ServerWorks in 2001. Before that, the start-up had planned its own initial public offering.

ServerWorks' chipset record isn't unblemished, though. Earlier this month, the company disclosed a problem with its Grand Champion LE chipset.

In addition, Unix server seller Sun Microsystems said last week that a ServerWorks glitch had delayed its lower-end V210 and V240 servers, leading to a $50 million order backlog.

Intel's chipset designers are privy to important technical details, such as the specifications of the bus, or data pathway, that joins processors and chipsets. But ServerWorks signed a long-term partnership with Intel that will give it access to such information through 2008.

"Based on conversations with industry participants, we believe that Intel has been slow to give ServerWorks technical details of the Nocona processor bus interface, which has led to product delays at ServerWorks," Oppenheimer analyst Quinn Bolton said.

Piper Jaffray's Kumar agreed that ServerWorks "no longer has the cooperation of Intel." This, in part, is because ServerWorks backed PCI-X 2.0 connection technology, while Intel preferred PCI Express as a way to plug high-speed network cards, and other devices, into servers. Kumar downgraded Broadcom to "underperform" Monday.