Talking Business with Gordon E. Moore of Intel

Talking Business with Gordon E. Moore of Intel

What I.B.M.'s Stake Means

By Thomas J. Lueck
The New York Times

January 18, 1983

The announcement last month by I.B.M. that it would purchase 12 percent of the Intel Corporation was regarded as a milestone in the nation's electronics industry. By investing $250 million in newly issued Intel shares, the world's largest computer maker is taking a major financial interest in the well-being of one of its biggest suppliers and one of the nation's most innovative semiconductor makers.

For Intel, the agreement comes at a time when the recession has reduced earnings, and follows a five-year period in which several large semiconductor companies in this country have been acquired, many by foreign concerns.

Thus, most analysts believe that I.B.M.'s investment is intended to fuel Intel's growth and allow it to remain independent. But the December agreement gives I.B.M. an option of buying up to 30 percent of Intel's shares. And because I.B.M. is by far the largest customer for Intel's products, some analysts question whether such a holding would give it too much control over Intel.

In an interview, Gordon E. Moore, Intel's chairman, discussed what the transaction means for his company: Q. What will the immediate impact of I.B.M.'s investment be? A. It takes a lot of the uncertainty out of our planning. This is a very capital-intensive industry, and with this large an amount coming in at one time, we can look forward, keep moving the direction we want, and not have to worry about where the next $100 million is coming from.

Q. How do you plan to spend the money? A. Capital spending is the most pressing area. Last year, we spent $130 million in research and development, and we would hope to maintain that level under any circumstances. But spending for plant and equipment also needs to be supported, and I.B.M. has satisfied that need for us over the short term.

Q. What led up to this unusual transaction? A. It grew out of a series of discussions between the two companies over many months. It was clear that I.B.M. wanted to be assured of having a strong independent vendor. We need cash. The agreement resulted mainly from those things.

Q. Were you concerned about a hostile takeover attempt by another company? A. That has been a consideration, but never a really pressing issue here. It is true that a lot of other companies in our industry have been taken over, and there aren't many independents left. There are a raft of start-ups, and I suppose many of them will be acquired. But in our case, anybody considering a hostile takeover would have a difficult job. There would be a huge amount of good will in the balance, and anybody approaching us in an unfriendly way would have to wonder whether our best people would stay.

Q. Couldn't it be argued that I.B.M., your biggest customer, would effectively control Intel if its holding were increased to 30 percent of your shares? A. No. The agreement was set up very carefully to assure our independence. Even if I.B.M. buys 30 percent of the shares, it will still only have one seat on our board of directors. We are determined to stay independent, and I.B.M. wants us to be

Q. Are your other customers, including computer companies in competition with I.B.M., afraid that this agreement will give I.B.M. special treatment from Intel? A. We've been very careful on that point, and we've contacted the people we thought might be the most concerned. The response has generally been favorable. We've assured them that the agreement does not give I.B.M. any special relationship.

Q. How serious is the current threat that Japanese semiconductor manufacturers will get a bigger share of the world market while American companies are scaling back? A. The Japanese are well positioned in several markets, and the threat is real as long as U.S. companies fail to have sufficient profitability. They can't maintain market share with the margins they are getting now.

Q. When do you expect an upturn for Intel and other American companies? A. We saw an upturn early in 1982, then a slump. I don't see another upturn yet, and that means it's at least a few months away. I.B.M. has solved our problems for a little while, but we're going to have to return to higher earnings if we're going to continue to grow.

Illustrations: photo of Gordon E. Moore