Broadcom to Record Expenses Related to Unit

Broadcom Corp. said Friday that severance for three executives in its ServerWorks unit and costs related to the division’s purchase would reduce second-quarter pretax profit by $129 million.

Severance for Raju Vegesna, removed as head of ServerWorks in March, and two others will result in an $88-million expense, spokesman Bill Blanning said. Broadcom will have a $41-million cost for the ServerWorks purchase because it agreed to pay more for the business if the unit reached certain profit goals.

Irvine-based Broadcom, the nation’s biggest maker of cable-modem chips, replaced Vegesna with Duane Dickhut, citing disagreements about the direction of the unit that contributes about a fourth of the company’s $1 billion in annual sales. Analysts said at the time that the shake-up raised concerns about the future course of the subsidiary.

The decision to remove Vegesna caused a 16% plunge in Broadcom’s stock March 27 and came two months after Chief Executive Henry Nicholas quit. On Friday, Broadcom shares rose $1.08 to $18.96 in Nasdaq trading.

The $88-million severance expense was related to accelerated vesting of stock options for Vegesna, Ken McMaster and Kimball Brown.

Their options, which have a lower value than when issued, could be exercised for a profit today, company spokesman Glenn Josephson said.

Broadcom said last month that it would allow employees to exchange some worthless stock options, those with exercise prices of $23.58 or higher, for options with lower strike prices. Shares of Broadcom, which has had 11 straight quarterly net losses, have plunged from a high of $274.75 in August 2000.

The $41-million payment related to the ServerWorks purchase will be made to original employees and shareholders of the business because it exceeded profit targets after the 2001 acquisition, Josephson said. The company wouldn’t say what those goals were.

Vegesna founded ServerWorks before selling it to Broadcom for $2.57 billion.