Intel Corporation (INTC)’s Cash Generation Gives Confidence to Return Money to Shareholders


Intel Corporation (NASDAQ:INTC)’s stock has seen unprecedented growth in the last 1 year. The stock price has increased by 35% in 2014 to $35 per share. They reported a second quarter gross margin of 64.5%, which was 1.5% more than their original estimate of 63%. Intel CFO and Executive VP, Stacy Smith talked on ‘TheStreet’ about the company’s strategy.

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Smith thinks that Intel Corporation (NASDAQ:INTC) could maintain such high gross margins, mainly due to leadership in products. He pointed out that innovation is the key aspect behind the company’s success in achieving such high standards. He said that they can use their manufacturing capability to bring out the best innovative products to the market and create a lot of value to the shareholders.

Intel Corporation (NASDAQ:INTC) has been a good steward to shareholders capital. Smith thinks that they could do it mainly due to the rich cash flow in the organization.

“If you look over the last 4-5 years, we have returned about $45 billion of cash to shareholders. We do it through a combination of dividend and buyback. What gives us the confidence is just the cash generation of our business and we really do look at our shareholders as this is their money. So we try to pay industry leading dividend. In addition, we bring down our cash balance by buying back stock and that’s the other way we return cash to shareholders. So, we try to do both and I think the shareholders really appreciate it,” Smith said.

Intel Corporation (NASDAQ:INTC)’s foundry business was not able to meet the shareholders expectations. Smith pointed out that they could manufacture complex semi-conductors through the manufacturing capability that they possess. In the case of servers, PC’s and tablets, they could manufacture and take it to market on their own, but in other segments like Field Programmable Gate Array (FPGA), they partner with some other company like Altera to bring the product to the market. He added that foundry is an adjunct to rest of the business, instead of considering it as a separate entity.

Intel Corporation (NASDAQ:INTC) acquired McAfee in 2010 through a $7.68 billion deal. Many shareholders still don’t get the logic behind that acquisition. Smith said that the purpose of the acquisition was to integrate hardware with software and provide a highly secured product to the consumers. He added that few products with that integration has been launched and more products will be launched in the next 12 months.

Among the top shareholders of Intel Corporation (NASDAQ:INTC) is Fisher Asset Management, led by Ken Fisher. As of 30 June, 2014, Fisher holds around 18.9 million company shares.

Disclosure: None

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