IBM Sells $300 Million of Intel Shares, Ending Stake in Supplier

IBM said it sold just over $300 million of Intel Corp. shares Friday, ending its direct investment in the firm it selected as the key supplier of electronic circuits for its popular personal computers launched in 1981.

International Business Machines Corp. said it would have an $80-million after-tax profit on the sale of the Intel stock, which it bought over a period starting five years ago to shore up Intel’s finances.

Salomon Bros., which handled the IBM trade, said it was the largest block of shares ever crossed in over-the-counter trading. It said unidentified institutional holders bought the block of 5,884,500 shares at $52.50 a share, down $3 from the previous close.

“It was bought by about a hundred different institutions,” the trader said. Intel later cut the loss to close down $2.50 at $53. IBM closed 25 cents higher at $166.50.

Analysts were divided as to whether IBM’s sale was well-timed, since the semiconductor industry appears to be in the midst of its first sustained growth period in two years.

“If IBM had waited a while, it could have gotten a higher price,” said Paine Webber analyst Andrew Kessler.

Thomas Kurlak of Merrill Lynch said his price target for Intel is $65 to $70.

The sale represents just under 5% of Santa Clara, Calif.-based Intel’s outstanding total stock. While IBM nominally holds title to another 7.8 million shares, or a bit over 6% of the Intel total, those shares are pledged to holders of IBM convertible debt.

IBM said it will maintain a “strong and productive business relationship” with Intel, which has grown into the leading U.S. microprocessor maker because of its special status as IBM’s supplier.

An IBM spokeswoman said the stock sale was a business investment decision.

“We felt it was the right time to do it,” she said. “IBM’s investment in Intel accomplished IBM’s objective to strengthen a major participant in the semiconductor industry.”

Some analysts said IBM should not be faulted for selling its Intel stock, even if it does continue to rise.

“It’s never wrong to sell a stock after it has doubled,” said Jay Stevens of Dean Witter Reynolds.

Analysts also said it was unlikely that IBM’s move indicated that it expects a downturn in the chip market or that it needs cash.

Instead, they said Intel, which makes the microprocessors for all IBM personal computers, no longer needs the financial backing that IBM offered when it was struggling in the early 1980s.

“Intel is standing on its own two feet and is doing quite well,” said Kessler of Paine Webber.

IBM accounts for an estimated 10% of Intel’s sales. But Intel also sells processors to many of the IBM clones that have taken an increasing share of the personal computer market.

At one time, IBM owned 20% of Intel’s stock, purchased for $642.7 million. In June, however, it sold 8.9 million shares, or about 7.5% of Intel’s outstanding stock, back to Intel for $361.6 million. After that transaction, IBM retained 13.7 million shares of Intel, or 11.5% of the outstanding stock.

INTEL AT A GLANCE

Santa Clara-based Intel is a major manufacturer of semiconductors, microprocessors and microcomputers.

6 mos. Year ended Dec. 31 June 30 1986 1985 1984 Revenue (billions) $0.83 $1.27 $1.37 $1.63 Net income (loss) (millions) $72.0 ($183) $1.6 $178.9

Assets: $2.08 billion

Employees: 18,000

Shares outstanding: 111 million

12-month price range: $18.00 - $55.50

Friday close (OTC): $53.00, down $2.50