Intel purchased 2.68 million shares of VLSI stock for $11.61 a share in 1995 as part of a larger investment in the semiconductor maker, said Tom Waldrop, an Intel spokesman. Intel sold the shares on October 1, 1997, for $35.50 a share, rendering an overall gain of approximately $66 million. Capital gains, however, are mitigated by a series of call-and-put options the company purchased to insulate itself from swings in the stock price.
The two companies came together on the Polar Chipset, an integrated chipset from VLSI coupled with an Intel 386 microprocessor core. Intel purchased 5 million shares of VLSI in 1992. The Polar project was completed in 1995. At that time, Intel sold its 5 million shares and then exercised a warrant to purchase the shares sold this week.
Ironically, VLSI stands out as one of the companies that have been most hurt by Intel's aggressive expansion outside its main microprocessor market. A few years ago, VLSI was one of the main providers of chipsets to computer manufacturers. Since Intel entered the market, VLSI's share has shrunk to single digits.
"That [chipsets] was 50 percent of our business 18 months ago. It's now 5 percent," a VLSI spokesperson told CNET last month. "Intel started making motherboards and chipsets...Half of our chipset business went away."
(Intel is an investor in CNET: The Computer Network.)
Waldrop denied that the transaction related to Intel's recent investigation by the Federal Trade Commission. Under securities law, Intel was obligated to hold the shares purchased in 1995 for a minimum of two years. Timing, therefore, was coincidental.