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Computer industry

Intel Shares Rally After I.B.M. Stops Pentium Shipments

Strategic Insights

— 1 min read

Intel shares rebounded from a decline of over $4.50 after International Business Machines Corporation (I.B.M.) announced that it had stopped shipments of personal computers using Intel's Pentium microprocessor. The move was caused by I.B.M.'s internal research showing that a flaw in the Pentium would cause math errors far more often than Intel had acknowledged. Despite the setback, Intel defended its chip and closed the day at $60.375, down $2.375.

Key Takeaways:

  • Intel shares fell $4.50 to $58.25 before trading was halted, but rebounded to close at $60.375, down $2.375.
  • I.B.M. stopped shipments of Pentium-based computers due to internal research showing a flaw in the chip would cause math errors more often than Intel had acknowledged.
  • Andrew S. Grove, Intel's president and CEO, questioned the validity of I.B.M.'s testing methodology, stating that if the problem was as severe as I.B.M. claimed, it would have shown up thousands of times, but hadn't.
  • Companies like Gateway 2000, Dell Computer, and Compaq Computer, which use Pentium chips, fell in value but did not stop shipments like I.B.M.
  • Analysts like David Wu and Michael Murphy recommended buying Intel shares, with Mr. Murphy also advising purchasing shares of Seagate Technology and Apple Computer Inc.
  • Analysts like Bruce Lupatkin and Daniel L. Klesken, while expressing concerns about the Pentium issue, still recommended buying Intel shares, with Mr. Klesken calling it a "temporary glitch."

Statistics:

  • Intel shares fell $4.50 to $58.25 before trading was halted.
  • Intel shares rebounded to close at $60.375, down $2.375.
  • Compression Computer shares fell 37.5 cents to $22.
  • Dell Computer shares fell $1.25 to $39.625.
  • Compaq Computer shares fell 87.5 cents to $39.
  • Apple Computer Inc. shares rose 25 cents to $36.50.
  • Advanced Micro devices shares fell 50 cents to $23.25.
  • Cyrix Corporation shares fell 75 cents to $30.

Sources:

  • International Business Machines Corporation (I.B.M.)
  • Andrew S. Grove, Intel's President and CEO
  • David Wu, analyst at S. G. Warburg
  • Michael Murphy, editor of the California Technology Stock Letter
  • Bruce Lupatkin, analyst at Hambrecht & Quist
  • Daniel L. Klesken, analyst at Robertson Stephens & Company
  • Intel Corporation
  • Gateway 2000
  • Dell Computer
  • Compaq Computer
  • Apple Computer Inc.
  • Advanced Micro devices
  • Cyrix Corporation

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