While returning cash was a worthwhile goal, Moore recognized that cash availability was an essential component of the firm’s overall strategy and that future cash needs were very uncertain. He knew that the company faced considerable competitive pressure over the next few years. Imitations of Intel’s proprietary microprocessor products had recently obtained substantial market share. Furthermore, the production and development of new Intel products required ever-larger up-front expenditures.
In 1992 alone, Intel was expecting to spend over $700 million on research and development (R&D) and approximately $1. 2 billion on new plant and equipment. The rapid rate of innovation in Intel’s business meant that it would be extremely costly—perhaps even fatal—to delay or scrimp on these expenditures. Moore was also concerned with the stock market’s response to recent competitive pressures. Intel’s stock had over the last few weeks been trading at a price of $42. 50 per share—a price-earnings (P/E) ratio of under 11, far below the P/E of about 20 for the Standard and Poors’ 500.
Some outside analysts seemed to be pessimistic about Intel’s ability to keep its profits high. Notwithstanding these concerns, Moore asked Intel’s Chief Financial Officer, Harold Hughes, and Treasurer, Arvind Sodhani, to determine whether Intel’s current capital structure was appropriate. Moore also wanted to know what alternatives might be available for disbursing cash to shareholders. Do No 1The largest firm in all of U. S. history never to have paid a dividend was Digital Equipment Corporation, which in 1987 had a market capitalization as high as $26. billion. However, by December 1991, DEC’s market capitalization had fallen below Intel’s, to $6. 7 billion. Professor Kenneth A. Froot prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1992 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www. hbsp. harvard. edu.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. tC op yo In late December 1991, Intel Corporation’s cofounder and Chairman of the Board, Gordon Moore, was rethinking the company’s capital-structure and cash-disbursement policies. The company had just completed an extremely successful five-year period during which annual revenues had grown almost fourfold.
Now the firm found itself with cash balances (net of long-term debt) of $2. 4 billion—well over one-third of total assets of $6. 3 billion. With a market capitalization of almost $9 billion, Intel had become one of the largest firms in the United States never to have paid a dividend. 1 Moore wondered whether the firm he founded in 1968 had grown sufficiently mature to begin returning some of its cash to investors, perhaps by beginning to pay dividends or repurchasing shares of stock. This document is authorized for use only by members of mbabbs. org. rP os t 1 292-106 www. mbabbs. org Company Background
Intel Corporation, 1992 Intel was founded in 1968 by Moore and the recently deceased Robert Noyce (coinventor of the integrated circuit and vice chairman of Intel until 1988). The company quickly established a reputation as a leading innovator in the design, development, and manufacture of semiconductors. In 1969, Intel produced the world’s first static random access memory (SRAM). This was followed by the 1024-bit dynamic random access memory (DRAM) in 1970. Intel DRAMs, which rapidly grew in capacity, quickly became the industry standard and were by 1972 the largest-selling semiconductor components in the world.
In addition, Intel introduced in 1971 the first erasable programmable readonly memory (EPROM) chip. This was an important innovation because it created a versatile and inexpensive data-storage medium. Intel soon was the leading supplier of successive generations of EPROMs. Intel’s most important early breakthrough, however, came in the early 1970s. That breakthrough was the microprocessor, a logic product that ultimately would become the “computer inside the personal computer. ” Upon its development, Intel proclaimed that microprocessor chips would “usher in a new era of integrated electronics. Yet the innovation came years ahead of the development of its most popular end-use product—the personal computer. Indeed, Intel underestimated the importance of its technology, missing the opportunity to commercialize its early stand-alone personal computer to compete with Apple, whose first 8-bit machine was introduced in 1978. Throughout the 1970s, Intel continued to innovate, creating a second generation of TM TM microprocessors, the i8088 and i8086 . In 1980, the i8088 was chosen as the computational centerpiece of IBM’s first microcomputer, the PC.
Later, IBM decided to base its more advanced AT TM TM computer on Intel’s i80286 and its even more advanced PS/2 on Intel’s i80386DX . IBM’s sheer size and open-architecture policy quickly made its PC and AT important standards, in turn propelling Intel’s microprocessors into a position of dominance. Do In spite of such lapses, by 1991 Intel had become the world’s second-largest manufacturer of integrated circuits, with estimated 1991 integrated-circuit revenues of almost $4. 1 billion, and the world’s largest metal-oxide-silicon (MOS) manufacturer. Exhibit 1 reports revenue data on Intel’s largest competitors. Although based in the United States, Intel operated 40 major manufacturing and development facilities on 3 continents and had 90 sales offices in over 21 nations. Gordon Moore, with his gentle and deferential manner, had become perhaps the most-respected figure in the semiconductor industry (in addition to one of its richest, with holdings of about 7% of Intel’s stock). Exhibits 2 and 3 provide recent financial information on Intel. 2MOS was the newer and more efficient of two processes for making integrated circuits. 2 No
However, the focus on rapidly developing product markets with steep learning curves created risks. A major mistake or delay in a product could result in Intel falling permanently behind its competitors. In one example, Intel’s failure to produce a viable 256K DRAM product in the mid1980s, after being the world leader in DRAMs in the 1970s, led to its permanent withdrawal from DRAM design and production activities. tC During its first 15 years, Intel’s record of innovation had been impressive. According to one observer, Intel was responsible for 16 of the 22 major breakthroughs in microelectronics between 1971 and 1981.
The pace of the firm’s technological innovation was exemplified by “Moore’s Law,” which had become an industrywide benchmark. The law held that the number of components on a chip doubled every two years. To fund this continuing innovation, Intel’s strategy had been to withdraw from product segments that had matured and to redirect resources toward new products, which sold at premium prices. This document is authorized for use only by members of mbabbs. org. op yo rP os t Intel Corporation, 1992 www. mbabbs. org Products 292-106 In 1991, Intel’s mission was to be the leading “building-block supplier to the new computer industry. To fulfill this mission, management believed the firm had to invest in the design, development, and manufacture of a variety of advanced microcomputer components and related products at various levels of integration. Exhibit 4 gives details on sales and operating margins for Intel’s various product lines. Memory (10% of sales) Intel supplied a broad line of memory components, including EPROMs, DRAMs and SRAMs (both produced in recent years by subcontractors for Intel), and flash memories (introduced by Intel in 1988). Flash memories were easier and faster to update than EPROMs because they could be reprogrammed after installation.
Microprocessors and coprocessors (52% of sales) Processor and logic products performed the central and peripheral data-processing functions for microcomputers. Intel produced several families of processors for personal computers (see Exhibit 5). The higher-performance microprocessors in the 32-bit i386 and i486 families were also powerful enough to be used in minicomputers, parallel-processing systems, and engineering workstations. The most recent addition to the i386 family was Intel’s i386SL, a microprocessor designed for portable computers and introduced in 1990.
It incorporated a power management unit that extended battery life up to 10 hours. The high-performance i486 family was introduced in 1989. Intel was also developing two even more advanced processors, the P5 (referred to by analysts as the i586) and the P6. These chips were expected to include networking and digital-video-interface circuitry directly on the microprocessor and were scheduled to become available in mid-1992 and late-1993, respectively. In addition to these processors, Intel introduced the i860 microprocessor in 1989, which was designed for high-speed multiprocessing systems and technical workstations.
Intel also made coprocessors for various applications: graphics, disk drives, keyboards, printers, networks, and highspeed mathematical calculations. Microcontrollers, peripherals, and systems (38% of sales) Do No Microcontrollers were designed to be embedded within an application and to be programmed to control the operation of that application. They typically integrated a centralprocessing unit (CPU), memory, and other features on a single chip and were used in computer and communications systems, automobile-control applications, robotics, electronic instrumentations, home video machines, and other applications.
Intel’s technological leadership in microprocessors gave it certain competitive advantages in designing and marketing integrated microcomputer systems based on Intel products. Intel microprocessors were also at the heart of the company’s design and development of parallelprocessing supercomputers, which began in 1986. tC op yo This document is authorized for use only by members of mbabbs. org. rP os t 3 292-106 www. mbabbs. org Intel’s Microprocessor Competitors Intel Corporation, 1992 In the late 1970s, before a standard microprocessor technology had emerged, semiconductor producers typically cross-licensed products with competing companies.
Intel’s sales contracts often stipulated that Intel facilitate the development of second sources for its i8088, i8086, and i80286 microprocessors. The company therefore licensed the i8088 and i8086 to 12 competitors and the i80286 to 4. These competing producers commanded a substantial fraction of industry microprocessor sales. Indeed, by the end of 1990, Intel had garnered only 19% of i8088 unit sales (against 51% by Advanced Micro Devices (AMD) and 13% by Siemens), 23% of i8086 family unit sales (against 23% by AMD and 37% by NEC), and 41% of i80286 unit sales (against 37% by AMD and 10% by Siemens).
Meanwhile, the design, development, and production costs of successive generations of microprocessors were rising rapidly. In just a few years, Intel’s development expenses went from $100 million for the i386, to $300 million for the i486, to an estimated $500 million for the P5, and to perhaps $600 million for the P6. The costs of building state-of-the-art fabrication facilities (fabs) and equipment capable of producing 32-bit (and beyond) processors were increasing even more rapidly.
Intel’s capital spending on plant and equipment rose from $422 million in 1989, to $680 million in 1990, to an estimated $948 million in 1991, and to an expected $1. 2 billion in 1992 (see Exhibit 3). These setup costs also represented an ever-increasing fraction of total production costs. For example, analysts estimated that Intel’s marginal costs for the i486 would fall from about $75 per unit in 1990 to about $6 per unit by 1993 as more sophisticated fabs were employed and learning-by-doing effects made existing processes more efficient. Such dramatic declines in marginal costs were very common for new microprocessor products.
The economics of microprocessor production combined with the emergence of the X86 family as the dominant industry standard gave Intel the strategic leverage it needed to change its licensing policies. Beginning with the i386 family, which was introduced in 1986, the company refused to grant second-source contracts to customers other than IBM, which retained the right to manufacture the i386 for some of its own machines. Demand for Intel’s i386 microprocessors seemed to be less price sensitive than that of earlier processors because there were no competing suppliers.
Partly as a result, Intel’s operating margins for microprocessors began to rise beginning in 1987 as the i386 product cycle moved into its “ramp-up” phase (see Exhibit 4). Net income increased from a loss of $203 million in 1986 to an expected $819 million in 1991. Intel’s decision to produce its newer microprocessors exclusively raised competitive challenges. One source of competition came from imitations (commonly, but inaccurately, called clones) of Intel’s products. Intel had already seen imitations of its mathematics coprocessors take considerable market power and market share away.
In general, imitations were much less expensive to develop than the original processor and tended to appear after demand for the original had already ramped-up. This timing allowed imitators to avoid the costly development and marketacceptance phases of the life cycle and to align their product features with more recent changes in demand. Exhibit 6 depicts the time profile of a typical microprocessor life cycle. (Industry analysts believe that life cycles for newer processors are considerably shorter than that shown in Exhibit 6. ) In Intel’s experience, imitators tended to enter when (and if) the product reached the “growth” or rampup phase.
Exhibit 7 presents time-series data on both shipments and the installed base of various microprocessors. In one example of a late-entry imitation, AMD began shipping its i386SX- and i386DXcompatibles in December 1990, almost five years after Intel introduced the originals. By that time, the i386 family was roughly between the growth and maturity phases of the life cycle (see Exhibit 6), with Intel’s i386 sales having reached an annual rate of about $1. 2 billion on volume of about 12 million units. AMD’s chips, however, had somewhat higher operating speeds and better power usage than comparable Intel processors.
With a selling price slightly below Intel’s, AMD’s share of monthly i386 shipments had shot up to about 30% at the end of 12 months’ time. AMD sold Do 4 No tC This document is authorized for use only by members of mbabbs. org. op yo rP os t Intel Corporation, 1992 www. mbabbs. org 292-106 By the end of 1991, the number of companies that sold imitation products had grown dramatically. Chips and Technologies had recently announced a group of chips that mimicked the functions of the i386, and Cyrix was expected to do the same in the near future.
AMD and NexGen Microsystems were expected to introduce i486-compatible processors during 1992. Imitating an existing processor’s functions was less expensive and time-consuming than designing the original— analysts reported that Chips and Technologies created its imitation i386 for about $50 million, which was reportedly what AMD needed to spend on each of its i386- and i486-compatibles. Exhibit 8 reports general financial information as well as data on net cash assets for several of Intel’s competitors. Another competitive threat was posed by alternative CPUs that did not attempt compatibility with Intel’s products.
Motorola’s 68000 family of CPUs, used principally on Apple machines, had for several years been a potentially threatening alternative. Furthermore, several high-performance reduced-instruction-set-computing (RISC) processors had recently been introduced: the ACE consortium would use a product of NEC and Siemens, the MIPS chip; Fujitsu had built the SPARC chip for Sun Microsystems; and a recent Apple/IBM alliance would use the Motorola-built, IBMdesigned RS6000 series as a platform. Some informed observers believed that these processors might have performance advantages over Intel’s X86 microprocessors.
Furthermore, there was concern that the large Japanese companies might price their RISC processors very aggressively in order to gain market share. Intel’s response to these competitive challenges was fourfold. First, Intel used the legal system to defend vigorously what it believed to be infringements of its intellectual property rights. In early 1991, Intel sued AMD for illegal use of Intel’s microcode in its processors. The case was originally to come to trial in February 1992, although AMD had filed for a continuance to delay the trial until April 1992.
In January 1991, Intel had also filed a preliminary injunction in the U. S. District Court in Sherman, Texas against Cyrix Corporation, a Texas-headquartered firm. Intel sought to prohibit Cyrix from shipping its cloned math coprocessors and claimed that Cyrix was infringing on Intel’s patents. The case was not expected to go to trial until 1993. Intel was also pursuing actions against several companies such as USLI and Cyrix that had allegedly copied patented Intel circuits in their microprocessors and that were not licensed by Intel to do so. These ompanies argued that they could employ Intel circuits without violating the patent law, provided that they used fabs owned by companies that were licensed by Intel. Court decisions in these cases were expected soon. Second, Intel responded to “me-too” competitors with a major advertising thrust (see Exhibit 2 for advertising expense data). The “Intel Inside” campaign, which would cost almost $100 million per year, attempted to gain better premium-brand recognition. In addition, Intel tried to exploit its continuity as a producer of microprocessors in its “pull” campaign.
This was intended to attract consumers to the i486’s easy upgradeability feature—a feature that no other supplier currently offered. Intel’s third competitive response was to speed up the product cycle by switching consumers to its “second-wave” 32-bit microprocessors, the i386SL and i486 family. Analysts anticipated that the newer i386SL, with its advanced power-management circuitry, would displace a substantial portion of the demand for first-wave i386 imitations. First-wave 386 processors were increasingly used in the large and rapidly growing portable- and laptop-computer market, where power-management features were crucial.
However, due to a certain software bug, demand for Intel’s i386SL had thus far been disappointing. Intel also began to encourage vendors and OEM manufacturers to switch from 386 processors to Intel’s new 1. 2-million-transistor i486 family through price cuts and greater 5 Do No tC This document is authorized for use only by members of mbabbs. org. op yo rP os t approximately $145 million worth of imitation i386s in the last quarter of 1991 alone (about 27. 5% of the last-quarter’s market of $2. 1 billion in annualized sales). See Exhibit 7 for data on the industrywide number of units shipped.
Late entry into successful markets was the strategy of W. J. Sanders, AMD’s flamboyant chairman and Chief Executive Officer (CEO). He kept AMD focused on high-volume products and well behind the cutting edge. 292-106 www. mbabbs. org Intel Corporation, 1992 Intel’s final strategy for confronting potential competitors was its aggressive spending on R&D, equipment, and fabs to produce its chips. The company wanted to be strong in process technology and production capacity and to use those strengths together with its design capability as competitive weapons.
In spite of Intel’s responses, many informed observers worried about the company’s ability to continue its rapid growth and sustain its generous margins. Analysts argued that if AMD could successfully clone the i486, others could and would do so as well. Rumors were already circulating that AMD would announce its 486-compatible chip earlier than expected and soon thereafter would raise substantial outside money for additional fabs. Even if AMD failed to build its own facilities, suitable state-of-the-art fabs could be rented from companies that produced less profitable semiconductors such as DRAMs and EPROMs.
Analysts also knew that although the best known names in the PC business—Compaq, IBM, Dell, NEC, and Toshiba (together representing about 30% of microcomputer sales)—had thus far purchased microprocessors only from Intel, it was not clear whether they would continue to do so. The stock market seemed to treat the competitive threats to Intel with increasing seriousness. From the time of the announcement of the i386 in early 1986 until the recognition that AMD was successfully shipping its imitation in mid-1991, Intel’s stock price rose from approximately $13 to $59 per share. By the fall of 1991, however, the stock had fallen to the low $40s. See Exhibit 11 for information on stock prices. ) Given 1991 anticipated earnings of $819 million, Intel’s P/E was less than 11. Intel’s management had become concerned about the market’s increasingly negative view of Intel’s competitive positioning. No Do Intel became a public corporation in 1971, the year it recorded its first net profit. Even at that time, Intel carried almost no debt on its books. As of December 31, 1971, Intel’s net worth and total assets were $13,456,344 and $14,839,755, respectively. The firm’s policy was to issue debt only when and if the terms were attractive.
For example, in the fall of 1983, Intel issued $110 million of 20-year 6 tC This document is authorized for use only by members of mbabbs. org. op yo Financial History Intel attempted to counter the competitive threat from RISC-based chips by emphasizing performance and portability. It was believed that high-speed i486 and P5 chips would at least match the performance of recently introduced RISC products. Furthermore, Intel had an advantage over other microprocessor platforms in the sheer size of the previously installed base—85 million existing X86-based PCs, with more than 50,000 software applications and $40 billion invested in software.
Exhibit 10 shows that, as of 1991, all major operating systems for microcomputers ran (or were soon to run) on Intel designs. No other type of microprocessor had more than two operating systems designed for it. The result was that Intel architecture had become the “port of choice,” according to Andrew Grove, Intel’s CEO. rP os t availability. Demand for i486 processors had begun to accelerate but was hampered by some observers’ skepticism about the chips’ performance. (See Exhibit 7 for data on shipments. ) In spite of these delays, one analyst expected shipments of the i386SL to rise from a negligible number of units in 1990 to 1. million in 1992, and those of the i486 family to rise from 0. 3 million units in 1990 to 3. 7 million in 1992. In addition to accelerating the life cycle for existing processors, Intel had moved up the introduction date of the P5 and P6, further shortening future life cycles. Intel’s forecast of microprocessor sales by type is reported in Exhibit 9. It predicted a rapid decline in shipments of 8and 16-bit processors. Intel Corporation, 1992 www. mbabbs. org 292-106 Intel’s debt issues often contained equity-linked components. For example, in August 1980, the firm issued $150 million in 20-year 7% convertible subordinated debentures.
These debentures were called on September 14, 1983, and one month later the bonds were converted into 5 million shares at approximately $30 per share. Intel also issued 10-year notes in May 1985 and April 1987 ($236. 5 million of zero-coupon, 11. 75% notes and $110 million of 8. 125% notes, respectively). Both sets of notes were sold with detachable warrants, which yielded an additional $27. 1 and $90. 4 million in cash, respectively. The warrants from the note issues were exercised in 1990, resulting in the issuance of 14. 15 million shares at an average price of $27. 80 per share.
The company also maintained several liberal stock option plans, which generated cash through the exercise of employee options and direct-share purchases. During 1990—not an atypical year—options were exercised on 2. 9 million shares, generating approximately $42 million in cash. In that year, employees also purchased an additional 1. 4 million shares under Intel’s stock participation plan, resulting in an additional inflow of $39. 3 million. In an effort to offset the steady dilution from the stock purchase and option plans, in August 1990, management authorized the repurchase of up to 20 million shares.
Repurchases would be performed by the treasurer and would take place in the open market or in privately negotiated transactions. After consulting with Moore and others, Arvind Sodhani soon executed the repurchase of approximately 3. 2 million shares at a total cost of $102. 4 million. However, as management was hesitant to buy back shares at a price much above $40 per share, the repurchase activity soon came to a halt. With the stock price stalled in the low $40s, some analysts began to interpret Intel’s reluctance to repurchase as a negative signal about the firm’s future prospects.
Although Sodhani did not repurchase additional shares directly, he did perform a “conditional” repurchase in November 1991. That is, Intel privately sold about 3. 5 million tradeable put warrants to some of its institutional investors for approximately $14 million. Each warrant gave its holder the right to sell one share of common stock back to Intel at $40 per share in one year’s time. The repurchase was considered conditional because investors would not rationally elect the repurchase unless the stock price was below $40 per share on the warrants’ expiration date.
In April 1989, Intel undertook several steps to strengthen its independence and to protect it from potential hostile acquirers. Specifically, Intel issued to its existing stockholders a set of commonstock-purchase rights, which would trade in a one-to-one ratio with existing shares of common stock. The rights could be exercised or traded separately from the shares of stock they represented only if Do No respectively. 3During that year the average U. S. Treasury medium- and long-term bond yields were 10. 45% and 11. 11% tC op yo Intel had also issued stock during the last decade, although never publicly.
On February 7, 1983, IBM purchased 12. 5 million newly issued shares in Intel (equivalent to approximately 13% of previously outstanding shares) for $250 million. IBM, which accounted for 8. 6% of Intel revenues in 1983, had clear incentives to strengthen Intel’s balance sheet. In June 1987, however, IBM was persuaded to terminate its investment in Intel, and Intel repurchased and retired 13,350,000 shares from IBM for $361. 6 million, or about $27 per share. In August 1987, Intel also issued 9 million oneyear warrants for $63. 3 million. In August 1988, the warrants were exercised at a price of $30 per share, yielding Intel another $268. million in cash net of fees. Exhibit 11 shows the timing of these equity-linked transactions. This document is authorized for use only by members of mbabbs. org. rP os t 7 adjustable-rate industrial revenue bonds, with an average interest rate of just under 8%. 3 In connection with these bonds, Intel was obliged to spend $110 million to finance expansion in Puerto Rico. To ensure that adequate debt financing would be available if suddenly needed, the company and its subsidiaries kept bank credit lines in place, currently allowing for over $900 million in borrowing capacity. 92-106 www. mbabbs. org Intel Corporation, 1992 During the 1980s, Intel’s net cash position grew steadily. Between 1980 and 1982, the ratio of long-term debt to total assets stood at approximately 20%, and the firm’s cash position was negligible. After IBM’s stock purchase and the 1985 issuance of 10-year notes, Intel’s cash and equivalents plus long-term investments (which consisted of liquid investments in bonds rated AA or higher) less longterm debt rose to approximately 15% of total assets in December 1986. By December 1991, this ratio had grown to approximately 38%.
This was in spite of the fact that, during the 1986-to-1991 period, Intel had experienced very rapid growth, with revenues increasing at a compound annual rate of over 30%. Intel’s competitors kept proportionately much smaller cash balances (see Exhibit 9), although several large firms in the industry, such as IBM, held larger absolute amounts. As Moore contemplated these developments, he wondered whether Intel’s cash balances had grown unnecessarily large. At $2. 4 billion, the firm could fund its planned investment expenditures out of cash for almost two and one-half years without using any cash flow from operations.
Although there remained great uncertainty about the level of these flows, earnings estimates from analysts suggested that operations would continue to generate cash—indeed, perhaps in substantial amounts. Exhibit 12 presents cash flow forecasts based on several analysts’ expectations of future earnings. Harold Hughes and Arvind Sodhani weighed the arguments for and against a change in cash disbursement policies. Both believed that Intel’s cash was an important competitive weapon and that, with the economy in recession, “cash was king. It seemed to Hughes and Sodhani that the costs of holding cash were small, especially in view of the high returns Intel’s treasury had earned on its cash balances. For several years, Hughes and Sodhani had posted returns of approximately 170 basis points over U. S. Treasury bills without investing in securities rated below AA (see Exhibit 2). This excess after-tax income in 1990 alone came to about $18 million. Nonetheless, Hughes and Sodhani started to explore several cash disbursement options that were open to Intel. First, Intel could continue or expand its market-repurchase program.
In practice, however, open-market repurchases were executed only when management could agree that the stock price was unduly low. Hughes and Sodhani knew that such consensus was difficult to achieve. One alternative was to undertake a formal fixed-price tender offer, in which Intel would publicly announce an offer to buy back shares at a given price. Another repurchase possibility was a Dutch auction, in which shareholders submitted schedules that reported the number of shares they would tender at each price across a range of prices.
Intel would then choose the number of shares it wanted to repurchase by picking a single price at which to buy. A second alternative was for Intel to declare a 40? -per-share ($84 million total) annual dividend on its common stock. Dividends were controversial within Intel. While some favored dividends, others, such as Hughes and Sodhani, opposed them because dividends were a taxdisadvantaged means of disbursing corporate cash and represented an ongoing commitment that could be potentially difficult to maintain.
Indeed, Hughes and Sodhani speculated that the market might react negatively to a dividend, perhaps pushing the stock price down even further. Do 4The statuary and case law pertaining to such Rights issues was highly developed in the State of Delaware, where Intel was incorporated beginning in mid-1989. 8 No tC This document is authorized for use only by members of mbabbs. org. op yo The Decision rP os t certain events occurred. For example, under one of the rights’ provisions, at any time after an entity acquired more than 20% but less than 50% of Intel’s stock, Intel had the option to exchange the rights (other than those held by he acquirer) for shares of common stock, with an exchange ratio of one to one. 4 This gave Intel the ability to dilute substantially a potential acquirer’s holdings and therefore create a large disincentive to attempt a hostile takeover. Intel Corporation, 1992 www. mbabbs. org 292-106 A final alternative was a package of two less conventional securities. For the first, Intel would distribute to shareholders a two-year put warrant, one warrant for each share of stock. Each warrant would be tradeable and give its holder the right to sell 0. shares of stock back to Intel at the end of two years’ time at a price of $50 per share. Thus, for example, if Intel’s stock price was $40 per share in two years, Intel would be obliged to buy back 208. 99/10 = 20. 9 million shares at $50 each (or a total of $1 billion) from those who held the warrants. Investors who were not interested in holding the warrants could sell them in the open market at an expected price of about 60? per warrant. The second security in the package was $1 billion of 10-year convertible subordinated debentures with a 5% coupon.
The bonds would be convertible at the end of two years into 13. 3 million shares of Intel common stock at a conversion price of $75 per share. Moore wondered about the implications of these measures for the company’s future competitive position and for shareholder value. Do No tC op yo This document is authorized for use only by members of mbabbs. org. rP os t 9 Nevertheless, dividends would give shareholders income on their holdings without their having to sell shares. 292-106 www. mbabbs. org Intel Corporation, 1992 1976 TI Intel NEC Gen’l Inst.
National Hitachi AMI Mostek Motorola Rockwell $MM 135 132 74 68 67 63 59 56 55 50 1981 Intel NEC Motorola TI Hitachi National Toshiba Fujitsu Mostek Gen’l Inst. $MM 491 438 372 350 288 255 250 218 210 141 1987 NEC Toshiba Intel Hitachi Fujitsu Motorola Mitsubishi TI Matsushita OKI op yo 566 Source: Dataquest, 1992 Do 10 No tC This document is authorized for use only by members of mbabbs. org. rP os t $MM 1991 NEC $MM 2,006 4,742 1,566 Intel 4,059 3,587 1,473 Toshiba 3,910 1,236 Hitachi TI 1,014 Motorola 3,096 986 2,667 811 593 Mitsubishi AMD 2,121 165 784 1,185 158 VLSI Tech.
Chips & Tech. Exhibit 1 Top Integrated Circuit Manufacturers, Worldwide Revenues ($ millions) 292-106 -11- Exhibit 2 December 1990 2,875 1,295 1,580 618 260 28 417 38 99 359 224 85 139 17 46 10 (5) (7) 298 100 178 62 540 228 28 482 195 30 496 180 24 359 142 16 329 131 14 103 75 28 17 18 2 30 0 1,907 872 1,035 1,265 687 578 1,365 784 581 1,629 774 855 1,122 539 583 900 467 432 December 1989 December 1988 December 1987 December 1986 December 1985 December 1984 December 1983 December 1982 December 1981 789 395 393 301 116 14 93 63 30 15 21 5 40 13
Do December 1980 855 350 504 272 96 12 232 49 183 8 9 0 185 89 Annual Income Statements December 1991(E) 3,921 1,638 2,283 775 318 55 3,127 1,440 1,687 Sales Cost of goods sold 1,133 517 94 805 171 174 159 109 849 365 55 4,779 1,898 2,881 SG & A, of which: R&D advertising expense 1,151 292 858 102 203 27 986 336 583 192 629 176 288 112 (175) 9 601 102 154 (70) 594 78 102 11 246 66 61 46 (135) 39 42 (42) (60) 26 53 27 250 15 57 6 237 211 838 1,383 618 121 No tC 453 0 453 2. 51 180. 54 11. 52 2. 06 1. 38 168. 3 7. 76 3. 41 248 650 0 650 3. 19 199. 65 17. 99 2. 14 2. 50 13. 81 2. 06 184. 52 391 391 0 Operating income before depreciation Depreciation, depletion, and amortization 1,498 418 Operating profit Interest expense Interest income Other nonoperating income 1,080 105 194 26 www. mbabbs. org Pretax income Total income taxes 1,195 376 Income before extraordinary items and discontinued operations extraordinary 176 73 (183) 10 (173) items 819 0 This document is authorized for use only by members of mbabbs. rg. Net income 819 op yo 2 0 198 0 2 198 -0. 99 176. 66 7. 22 1. 94 0. 01 174. 12 8. 16 2. 39 1. 13 170. 75 7. 97 2. 34 116 0 30 0 40 0 185 0 116 30 27 97 0. 70 167. 55 0. 22 136. 09 0. 20 131. 30 0. 74 128. 21 6. 60 4. 06 3. 72 3. 38 4. 18 3. 19 2. 02 3. 97 Earnings per share (fully diluted) Common shares outstanding 3. 62 208. 99 Book value per share Market-to-book ratio (end of year) 21. 14 2. 01 Source: Intel Corp. 1991 figures include casewriter estimates. rP os t 292-106 -12- Exhibit 3
December 1990 1,090 569 347 157 1,431 1,536 645 891 262 13 2,597 0 81 79 18 73 72 88 307 390 271 134 19 146 113 20 757 518 730 691 74 326 128 89 15 1,364 585 779 264 13 2,080 1,338 490 848 267 12 2,152 1,165 386 778 272 21 2,029 801 297 504 217 26 1,680 1,024 1,024 958 933 528 697 236 462 51 16 1,056 0 75 39 0 56 52 223 197 68 17 971 506 366 126 619 439 236 138 373 298 198 154 361 364 171 128 231 354 219 154 389 303 152 89 85 221 122 100 December 1989 December 1988 December 1987 December 1986 December 1985 December 1984 December 1983 December 1982 December 1981 115 180 97 67 460 591 179 412 0 0 872 0 32 32 0 46 53 172 150 44 18
Annual Balance Sheet ($ millions) Do December 1980 128 196 91 32 447 447 126 321 0 0 767 0 12 12 4 55 46 147 150 23 14 671 689 1,275 0 1,306 2,597 362 0. 26 302 0. 22 1,275 2,080 155 0. 17 1,421 0 1,421 2,152 236 0. 17 631 491 177 375 143 345 128 305 1,360 0 1,122 0 552 0 488 0 433 0 1,360 1,122 552 488 433 2,029 1,680 1,056 872 767 388 145 138 157 156 0. 18 0. 28 -0. 06 -0. 04 -0. 03 1,785 710 415 209 2,163 1,970 December 1991(E) Assets: Cash and equivalents Net receivables Inventories Other current assets 3,119 2,249 965 1,284 508 39 3,994 117 335 115 25 206 0 112 62 15 118 4 84 57 3 85 0 66 80 40 117 1,898 775 1,122 422 36 3,550 ,277 698 422 207 Total Current Assets 2,814 1,156 1,658 561 38 5,276 16 140 165 167 337 83 67 0 217 153 156 308 3,604 Gross PP&E Accumulated depreciation Net PP&E Long-term investmentsa Other assets Total Assets 0 173 245 152 536 122 1,314 345 126 0 1,404 2,188 3,592 0 3,592 5,376 680 0. 37 0. 30 422 3,994 3,550 2,549 2,080 2,549 0 2,080 0 1,306 0 1,011 1,538 861 1,219 540 766 412 111 0 479 56 0 298 105 6 287 132 12 921 934 882 374 121 96 100 86 193 209 241 464 3,723 1,560 2,163 480 46 6,292 No tC op yo
Liabilities: Long-term debt: current portion Notes payable Accounts payable Taxes payable Accrued expenses Deferred income on shipment to distributors Total Current Liabilities 363 144 0 1,228 www. mbabbs. org Long-term debt Deferred taxes Investment tax credit Equity: Common stock + capital surplusb Retained earningsb 1,411 3,007 This document is authorized for use only by members of mbabbs. org. 948 0. 38 Common equity Put warrants 4,418 140 Total Equity 4,558 Total Liabilities and Equity 6,292
Capital Expenditures: (Cash + Long-term investments – Long-term debt) / assets Source: Intel Corp. 1991 figures include casewriter estimates. a Long-term investments are held almost exclusively in investment-grade bonds. b Surplus on Common stock and Retained earnings accounts are restated from company reports in order that the retained earnings account above be consistent with the income statement in Exhibit 1. rP os t Intel Corporation, 1992 www. mbabbs. org 292-106 Exhibit 4 Analyst Estimates of Market Segments 1987 to 1991 ($ millions) 1987 1988 1989
Segment Sales: EPROMS SRAM Other Memory 8086 Family 80286 80386 80486 80586 i860 Coprocessors Other Microprocessors 8-bit microcontrollers 16-bit microcontrollers Microcontrollers Processor Support Graphics/Disk Controllers Communications Peripherals OEM PC Other Systems Systems Total 130 103 102 335 69 275 210 0 0 0 81 37 672 220 180 137 537 39 202 538 0 0 0 175 35 989 op yo 200 67 267 255 110 365 245 120 365 94 58 53 205 145 73 84 302 0 682 682 160 80 75 315 45 702 747 0 428 428 1907 2875 3126 41 97 25 23 60 81 275 71 50 117 594 50 262 68 61 116 557 246 12% 14 9 11 14 13 15% 28 19 17 17 21 10% 22 19 19 16 18
Operating Profit: Memory Microprocessors Microcontrollers Peripherals Systems Total tC No Operating Margin: Memory Microprocessors Microcontrollers Peripherals Systems Total Do Source: Analyst estimates, Morgan Stanley. This document is authorized for use only by members of mbabbs. org. rP os t 1990 1991 265 140 120 525 252 116 133 501 228 113 131 472 29 98 822 22 0 18 163 22 1174 18 63 1084 338 0 70 233 48 1854 223 143 366 159 79 63 301 175 723 898 3920 12 41 1361 713 0 65 255 54 2501 195 177 372 222 122 117 461 295 723 1018 4824 57 500 62 65 174 858 51 776 46 91 123 1087 11% 27 17 22 19 22 11% 31 12 20 12 23 13 92-106 www. mbabbs. org Intel Microprocessor Product Line Introduction Date June 1978 Clock speed 5MHz 8MHz 10MHz 5MHz 8MHz 8MHz 10MHz 12MHz 16MHz 20MHz 25MHz 33MHz 16MHz 20MHz Mips Price Per chipa $5. 50 $6. 00 $16. 00 $3. 00 $4. 00 $8. 00 $8. 00 $8. 00 $156. 00 $156. 00 $156. 00 $195. 00 $57. 00 $85. 50 Intel Corporation, 1992 Chip Name i8086 Internal bus 16-bit 0. 33 0. 66 0. 75 0. 33 0. 66 1. 20 1. 50 2. 66 6. 00 7. 00 8. 50 11. 40 2. 50 4. 20 i8088 June 1979 16-bit i286 February 1982 16-bit i386DX i386SX June 1988 January 1989 op yo 32-bit 16-bit 4. 21 5. 30 $135. 00 $189. 0 32-bit 16-bit 20. 00 27. 00 40. 70 $428. 00b $428. 00 $644. 00 $214. 00c $242. 00d $333. 00e 32-bit 32-bit 13. 00 16. 50 20. 00 32-bit 32-bit October 1985 February 1987 April 1988 April 1989 32-bit i386SL October 1990 September 1991 April 1989 May 1990 June 1991 September 1991 April 1991 September 1991 20MHz 25MHz 25MHz 33MHz 50MHz 16MHz 20MHz 25MHz i486DX i486SX Source: Intel Corp. and PC Week (Nov. 1981). Note: a. Based on purchase of 1,000 chips. b. Low-power version costs $471. c. Low-power version costs $235. d. Low-power version costs $266. e. Low-power version costs $366. Do 14 No tC
This document is authorized for use only by members of mbabbs. org. rP os t External bus Number of transistors 29,000 Typical use 16-bit Portable computing 8-bit 29,000 Portable computing 16-bit 130,000 Portable computing 32-bit 275,000 Desktop computing 275,000 Entry-level desktop and portable computing Portable computing Desktop computing and servers Desktop computing 855,000 1,200,000 1,185,000 Exhibit 5 Intel Corporation, 1992 www. mbabbs. org 292-106 Do No tC op yo 15 This document is authorized for use only by members of mbabbs. org. rP os t Exhibit 6 Microprocessor Product Life Cycle 292-106 www. mbabbs. rg Intel Corporation, 1992 1981 Intel Micro-based Units shipped Installed base 8088, 8086 Units shipped Installed base 80286 Units shipped Installed base 80386 Units shipped Installed base 80486 Units shipped Installed base Motorola Micro-based Units shipped Installed base RISC Units shipped Installed base 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 1982 1983 1984 1985 1986 0. 2 0. 2 1. 0 1. 2 2. 6 3. 7 4. 6 9. 2 6. 1 15. 1 0. 2 0. 2 0. 9 1. 1 2. 4 3. 5 4. 1 8. 7 4. 5 13. 1 0. 0 0. 0 0. 0 0. 0 0. 1 0. 1 0. 4 0. 5 1. 6 2. 0 0. 0 0. 0 op yo 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 4 0. 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 1 0. 5 0. 5 0. 7 1. 3 0. 9 2. 2 1. 2 3. 4 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 Source: Infocorp (1992). Do 16 No tC This document is authorized for use only by members of mbabbs. org. rP os t 1987 1988 1989 1990 1991 8. 8 23. 5 11. 9 34. 4 15. 7 47. 8 18. 6 62. 6 20. 7 77. 7 5. 1 17. 9 5. 0 22. 0 4. 7 24. 7 3. 4 24. 7 2. 3 22. 8 3. 3 5. 2 5. 7 10. 9 7. 6 18. 4 7. 2 25. 3 6. 8 31. 2 1. 2 1. 5 3. 3 4. 7 7. 8 5. 5 10. 3 12. 5 0. 0 0. 0 0. 0 0. 0 0. 1 0. 1 1. 3 1. 3 1. 6 5. 0 1. 8 6. 4 2. 6 8. 4 3. 0 10. 7 0. 0 0. 0. 0 0. 1 0. 2 0. 3 0. 3 0. 6 Exhibit 7 Shipments and Installed Base of Various Microprocessors (MM units), 1981 to 1991 292-106 -17- Exhibit 8 Advanced Micro Devices 1987 1988 1989 1990 1991(E) Chips and Technologies 1987 1988 1989 Do No 1990 1991 997 (48) 105 138 235 1,114 136 -0. 13 0. 7 -7. 3 0 24. 88 7. 50 6. 21 Selected Financial Data, 1987 to 1991 Sales Net income Cash flow Capital expenditures Cash Total assets Long-term debt (Long-term debt – cash)/market value of equity (%) Years of casha Return on equity (%) Cash dividend High price Low price Book/share P/E ratio Market value Shares (millions) Beta C 2,875 453 664 477 1,393 3,550 479 -0. 21 1. 9 21. 8 0 37. 25 19. 25 11. 52 9 4,288 180. 54 1. 74 3,127 391 628 422 1,598 3,994 412 -0. 19 2. 8 15. 3 0 36. 00 22. 88 13. 81 17 6,366 184. 52 1. 68 775 78. 51 1. 96 Intel 1,907 248 347 302 881 2,597 298 -0. 13 1. 9 13. 4 0 41. 83 13. 83 7. 76 19 4,461 168. 33 1. 67 3,921 650 943 680 2,346 5,376 345 -0. 26 2. 9 18. 1 0 52. 00 28. 00 17. 99 12 7,687 199. 65 1. 70 4,779 819 1,215 873 2,757 6,292 363 -0. 49 2. 7 22. 8 0 59. 00 37. 00 21. 14 11 8,882 208. 99 1. 75 1,126 19 173 132 287 1,081 130 -0. 3 1. 2 3. 0 0 16. 88 7. 13 5. 91 78 690 79. 95 1. 90 1,105 46 182 159 279 1,122 126 -0. 24 1. 0 6. 7 0 10. 50 7. 13 6. 39 18 639 81. 14 1. 94 1,059 (54) 75 304 115 1,112 131 0. 04 -0. 1 -8. 4 0 11. 38 3. 63 5. 63 -401 82. 34 1. 69 IBM 54,217 5,258 8,785 4,304 6,967 63,688 3,858 -0. 05 0. 7 13. 7 2,654 175. 88 102. 00 64. 09 13 68,960 597. 05 0. 75 59,681 5,806 9,362 5,390 6,123 73,037 8,518 0. 03 -0. 4 13. 9 2,609 129. 50 104. 25 66. 99 13 71,875 589. 74 0. 81 This document is authorized for use only by members of mbabbs. org.
Sales Net income Cash flow Capital expenditures Cashb Total assets Long-term debt (Long-term debt – cash)/market value of equity (%) Years of casha Return on equity (%) Cash dividend High price Low price Book/share P/E ratio Market value Shares (millions) Beta op yo 1,175 (59) 188 142 128 -155 –0. 2 -0 –6. 70 –83. 60 1. 92 80 13 14 2 30 51 1 -1. 09 18. 5 48. 8 0 37. 75 8. 25 2. 03 14 322 13. 01 — 141 22 24 7 48 95 3 -0. 17 6. 8 33. 2 0 21. 25 10. 75 4. 79 8 261 13. 92 — 218 33 38 5 59 141 6 -0. 16 10. 8 31. 4 0 26. 25 13. 25 7. 30 7 339 14. 44 2. 13 293 29 29 14 72 202 9 -0. 21 4. 7 1. 9 0 23. 50 5. 25 9. 31 10 306 14. 39 1. 2 225 (10) 2 9 38 159 7 -0. 30 3. 6 -8. 4 0 13. 25 6. 00 8. 51 -103 13. 44 2. 12 www. mbabbs. org 62,710 3,758 7,998 6,414 4,961 77,734 10,825 0. 11 -0. 9 9. 8 2,752 130. 88 93. 38 67. 01 15 54,094 574. 70 0. 85 69,018 5,020 10,237 6,509 4,551 87,568 11,943 0. 11 -1. 1 14. 1 2,774 123. 13 94. 50 74. 96 11 64,567 571. 39 0. 75 64,700 2,425 8,696 6,580 4,700 -11,991 -1. 1 -2,803 –74. 60 –572. 14 0. 74 Note: a”Years of Cash” reports the number of years of current investment expenditures that can be funded by net cash balances– (Cash – Long-term Debt) / Capital Expenditures bCash balances for Intel include Long-term Investments. P os t 292-106 -18- Exhibit 8 (continued) Do No LSI Logic Corp. 1987 1988 1989 ————–1990 1991 1989 Motorola, Inc. 1987 1988 1990 262 11 50 174 267 699 188 -0. 20 0. 5 3. 5 0 17. 25 6. 50 7. 70 37 395 40. 05 2. 30 1991(E) Sales Net income Cash flow Capital expenditures Cash Total assets Long-term debt (Long-term debt – cash)/market value of equity (%) Years of casha Return on equity (%) Cash dividend High price Low price Book/share P/E ratio Market value Shares (millions) Beta tC –1. 71 6,295 366 756 628 780 4,427 624 -0. 05 0. 2 21. 3 58 60. 00 34. 50 21. 36 10 3,306 80. 5 1. 31 6,522 292 745 863 637 4,804 618 -0. 01 0. 0 14. 9 59 46. 75 28. 13 24. 10 12 2,924 81. 50 1. 50 379 25 77 101 204 787 192 -0. 03 0. 1 7. 2 0 13. 63 7. 25 8. 20 19 435 40. 46 1. 95 547 (25) 63 114 153 765 204 0. 18 -0. 4 -8. 4 0 12. 38 6. 25 7. 24 -293 41. 07 1. 76 655 (33) 67 62 159 784 190 0. 12 -0. 5 -12. 3 0 13. 00 5. 13 6. 55 -263 42. 06 1. 48 VLSI Technology 172 8 32 50 103 271 81 -0. 09 0. 4 5. 7 0 20. 25 7. 13 6. 15 36 246 22. 86 2. 11 221 7 36 55 75 303 84 0. 04 -0. 2 4. 5 0 11. 38 5. 88 6. 40 29 200 23. 48 1. 84 288 1 38 39 55 318 85 0. 17 -0. 8 0. 3 0 10. 3 6. 38 6. 42 369 178 24. 17 1. 69 6,707 308 802 689 258 5,321 344 0. 01 -0. 1 10. 2 83 74. 00 34. 50 23. 26 21 6,433 129. 30 1. 47 8,250 445 988 873 340 6,710 343 0. 00 -0. 0 13. 2 87 54. 63 35. 88 26. 02 12 5,447 129. 70 1. 49 9,620 498 1,148 1,094 433 7,686 755 0. 04 -0. 3 13. 1 99 62. 50 39. 50 28. 16 15 7,612 130. 40 1. 55 10,885 499 1,289 1,256 577 8,742 792 0. 03 -0. 2 11. 7 100 88. 38 49. 13 32. 32 14 6,898 131. 70 1. 48 11,400 450 1,267 1,128 627 -794 –0. 1 -100 –35. 05 –131. 95 1. 49 www. mbabbs. org This document is authorized for use only by members of mbabbs. rg. Texas Instruments 5,594 309 637 463 663 4,256 487 -0. 04 0. 4 14. 9 55 80. 25 36. 25 21. 95 15 4,383 78. 62 1. 09 6,567 (39) 502 909 412 5,048 715 0. 10 -0. 3 -2. 1 59 44. 00 22. 50 22. 46 -3,108 81. 78 1. 43 6,600 (170) 398 500 416 -950 –1. 0 -59 –17. 10 –81. 99 1. 58 Sales Net income Cash flow Capital expenditures Cash Total assets Long-term debt (Long-term debt – cash)/market value of equity (%) Years of casha Return on equity (%) Cash dividend High price Low price Book/share P/E ratio Market value Shares (millions) Beta op yo 325 (13) 36 35 35 327 89 0. 48 -1. 5 -8. 0 12. 25 3. 00 5. 86 @NM 113 25. 11 1. 63 410 9. 5 57 50 41 -100 –1. 2 -0 –6. 30 –25. 81 1. 99 Source: Value Line and Standard and Poors Note: a”Years of Cash” reports the number of years of current investment expenditures that can be funded by net cash balances– (Cash – Long-term Debt) / Capital Expenditures bCash balances for Intel include Long-term Investments rP os t Intel Corporation, 1992 www. mbabbs. org 292-106 Exhibit 9 Intel X86 Family Sales Note: First Wave 32-Bit CPUs include i386DX and i3865SX. Second Wave 32-Bit CPUs include i386SL and the i486 family. Do No C op yo 19 This document is authorized for use only by members of mbabbs. org. rP os t 292-106 www. mbabbs. org Portability of Various Microprocessor Platforms Intel Corporation, 1992 Microprocessor Platform X86 Operating System Software: DOS Windows 32-Bit OS/2 UNIX Microsoft Windows NT# Apple/IBM New OS# Sunsoft Solaris 2. 0# x x x x x x x 68000 MIPS x x # software currently being designed. Do 20 No tC This document is authorized for use only by members of mbabbs. org. op yo Source: Intel Corp. rP os t SPARC RS/6000 x x x x x x Exhibit 10 Intel Corporation, 1992 www. mbabbs. rg 292-106 tC Do 31-Dec-90 31-Jan-91 28-Feb-91 29-Mar-91 30-Apr-91 31-May-91 28-Jun-91 31-Jul-91 30-Aug-91 30-Sep-91 31-Oct-91 29-Nov-91 20-Dec-91 op yo Recent End-of-Month Stock Prices INTEL AMD 4. 875 7. 250 8. 125 10. 500 12. 250 13. 500 12. 000 11. 125 12. 375 9. 375 12. 750 14. 375 17. 000 CHIPS & TECHNOLOGY 7. 250 10. 125 11. 250 10. 750 10. 000 9. 750 7. 625 8. 000 8. 875 9. 125 8. 125 8. 000 7. 750 38. 500 45. 750 47. 750 46. 750 49. 250 55. 750 46. 500 47. 000 49. 500 42. 250 40. 625 41. 000 42. 500 No This document is authorized for use only by members of mbabbs. rg. rP os t 21 Exhibit 11 Stock Price History and Recent End-of-Month Stock Prices 292-106 www. mbabbs. org Estimates of Future Cash Flows 1991 1992 Intel Corporation, 1992 Depreciation Worksheet Earnings estimates from analysts: Average Pessimistic Capital Expenditures: Land and Buildings Machinery and Equipment Depreciation Expense Net Additions to PPE Decrease in Net Working Capital Shares issued, @$40, 3M/yr Put warrants issued Paydown of Long-Term Debt to 0 Annual Change in Casha: Average % of Estimated Revenues Pessimistic % of Estimated Revenues 19 819 (948) (237) (711) 418 (530) (58) 120 14 0 862 485 (1,200) (240) (960) 666 (534) (11) 120 0 (91) op yo 365 8% 365 8% 346 9% 1 0% 606 12% 198 2% 2,394 2,394 2,740 2,395 3,346 2,593 6,292 7,169 8,309 38% 38% 38% 33% 40% 31% Cash Balance plus Long-Term Investments less Long-Term Debt: Average Pessimistic Total Assets Total Cash/Total Assets: Average Pessimistic tC Source: Intel Corporation, and casewriter and analyst estimates. Note: Do 22 No Annual change in cash is equal to estimated Earnings and Net additions to PP&E + decrease in Net working capital + proceeds from shares and warrants issued + cost of paying down long-term debt. Capital Expenditures are assumed to grow at 15% per year. Depreciation: Straight line over 3. 5 years for machinery and equipment and 25 years for plant and property. Capital spending is also depreciated for six months in the year made. Net working capital: calculated as current assets – current liabilities – cash and cash equivalents.
In 1990 and 1991 NWC was 28% and 24% of earnings, respectively. Estimates for 19921995 assume that NWC remains at 25% of average estimated earnings. This document is authorized for use only by members of mbabbs. org. rP os t 1993 1994 1995 1,028 595 1,166 700 1,339 900 (1,380) (1,587) (1,746) (276) (1,104) 971 (409) (317) (1,270) 1,044 (543) (349) (1,397) 1,235 (511) (42) 120 0 (91) (35) 120 0 (91) (43) 120 0 (90) 617 11% 221 3% 815 12% 426 4% 3,964 2,815 9,335 4,779 3,241 10,694 42% 30% 45% 30% Exhibit 12
