Why is Warren Buffett Changing Strategies and Dumping Intel?
Warren Buffett, critic of so-called high-frequency trading, took profits from Berkshire Hathaway’s (NYSE:BRK.A) Intel (NASDAQ:INTC) investment, selling its shares less than a year after their purchase. Beyond eschewing the traditional buy-hold strategy of the firm’s chairman, Berkshire’s sale of Intel signals PC-market weakness.
According to National Association of Insurance Commissioners data compiled by Bloomberg, Berkshire purchased 11.5 million shares of California-based Intel for an average price of $22 each throughout the second half of 2011. The firm sold its shares through May 8 of this year, for an average price of $27.25 and a total profit of $60 million.
Describing his investment strategy in a 1989 letter to shareholders, Buffett wrote, “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” Because the Intel sale exhibits a new investment strategy, analysts at Bloomberg see it as a sign of new management at Berkshires, as Buffett hands more responsibility over the $86.2 billion stock portfolio to deputiesTed Weschler and Todd Combs.
While the Omaha, Nebraska-based Berkshire was built by Buffett through acquisitions and the slow accumulation of large stakes in companies like American Express (NYSE:AXP), Coca-Cola (NYSE:KO), and Wells Fargo (NYSE:WFC), liquidating the full stake in Intel allowed the firm to avoid the stock’s 15 percent loss over the past four months.
The world’s largest manufacturer of semiconductors cut its third-quarter sales estimate last week from $13.8 billion to $14.8 billion down to $12.9 billion to $13.5 billion, and cited declining demand as the reason behind the lowered projections. Declining demand has forced PC makers to reduce orders for Intel chips recently, when normally orders increase this time of year to support the holiday shopping season.
Several factors have contributed to lowered Intel chip demand. Microsoft (NASDAQ:MSFT) has decided to design its new Windows operating system to allow chip technology other than Intel’s. Furthermore, analysts have expressed concern that the PC market may not grow this year as consumers purchase more smartphones and tablet computers.
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