Intel 1998 Financial Status
Intel Corp was founded in 1968, in the state of California. Intel is an independent company; it is not a subsidiary, nor does it have subsidiaries. Furthermore, it is well known for its microprocessors for PCs, chipsets, flash memory, embedded control chips, and network communications products. The purchasers of the products are original equipment manufacturers, PC users, and other manufacturers. Intel makes computer hardware including motherboards, microprocessors, and chips. It is responsible for approximately 90% of the computer microprocessors.
In 1971 the 4004 was Intel’s first microprocessor. This breakthrough invention powered the Busicom calculator and paved the way for embedding intelligence in inanimate objects as well as the personal computer. Then in 1974 the 8080 became the brains of the first personal computer–the Altair, allegedly named for a destination of the Starship Enterprise from the StarTrek television show. Computer hobbyists could purchase a kit for the Altair for $395. Within months, it sold tens of thousands, creating the first PC back orders in history. In 1989 the 486TM generation really meant you go from a command-level computer into point-and-click computing. I could have a color computer for the first time and do desktop publishing at a significant speed,” recalls technology historian David K.Allison of the Smithsonian’s National Museum of American History. The Intel 486TM processor was the first to offer a built-in math coprocessor, which speeds up computing because it offers complex math functions from the central processor. Then in 1993 the Pentium® processor allowed computers to more easily incorporate “real world” data such as speech, sound, handwriting and photographic images. The name Pentium®, mentioned in the comics and on television talk shows, became a household word soon after introduction. In 1999 the Pentium® III XeonTM processor extends Intel’s offerings to the workstation and server market segments, providing additional performance for e-Commerce applications and advanced business computing. The processors incorporate the Pentium® III processor’s 70 SIMD instructions, which enhance multimedia and streaming video applications. The Pentium® III XeonTM processor’s advance cache technology speeds information from the system bus to the processor, significantly boosting performance. It is designed for systems with multiprocessor configurations.
Intel has only one competitor, and it is a multinational corporation with offices based in over 10 countries. In addition, the company employs 64,500 people, and its annual net income in 1998 was 26,273,000,000 dollars. Its shares are traded on NASDAQ and the Swiss Exchange. Furthermore, the stock ticker symbol is INTC. Thus, we consider Intel to be a large company.
Economic, Social, Legal and Political Environment:
Intel is growing steadily with the economy. Legal battles for patent, infringements, and trust laws could cost the company billions of dollars. Intergraphs claims infringement on five of their patents by Intel. Intergraph believes they are entitled to 2.2 billion dollars for Intel’s alleged patent infringement and they believe they are entitled to 500 million for violation of antitrust laws. Intel has counter filed a lawsuit against Intergraph claiming that they violated seven of Intel’s patents. In addition, Techsearch has filed a lawsuit against Intel for patent infringement. Techsearch will be entailed to 2-8 billion dollars if their lawsuit is successful. While the outcome of these lawsuits is uncertain at this time, Intel believes that the outcome of these lawsuits will be favorable to the financial success of the company and have no material adverse effect on the financial position of the company. Intel is unable to take into account any set amount of expense or loss of net income due to these uncertainties.
Intel is also currently under investigation by the EPA in California for allegedly contaminating ground water at one of their former plant sites. Intel has made agreements with some of the other companies on the EPA’s “superfund” list and has traded tax leases with these companies in exchange for them covering most of the cost of this potential clean up for which they would be responsible. This clean up is expected to cost a minimal amount of money for Intel and is not expected to have any material adverse effect on the company’s financial position.
All divisions of the computer industry including hardware has been growing rapidly in the last ten years due to widespread use of personal computers and the incorporation of computers into all industries and jobs. Demand for computer products remains strong and will remain strong because of constant advances in computer technology and the need for businesses to stay on the cutting edge to avoid being left behind. Intel’s main competitor is AMD. AMD has had negative net income for the past four years or from 1996 through 1999. While the asset turnover of both companies is similar, Intel has consistently had higher asset turnover through recent years. The main reason why AMD has had negative net income is because they invested in research and development that was expensed from total sales. The long term debt of AMD has also increased while the long term debt of Intel has fallen dramatically. AMD has a high debt to equity ratio compared with Intel and has a lot higher financial leverage which increases the risk for AMD because they are making negative income and still required to cover interest payments. While it may seem that AMD is on the decline, their research and development is going to pay off in future years. They have recently come out with a microprocessor that will outperform any that Intel currently produces. AMD also came out with a larger chip that would be useful to companies but would be too powerful for everyday PC users and small businesses. In their thirst for power, consumers are predicted to gobble up these super powerful microprocessors. The future of competition between these two companies is uncertain due to the combination of AMD’s poor financial performance in recent years and their developments in produced chips that are presently superior to Intel.
Financing, Investing and Operating Information:
ROE: 21177/29182 = 72.6%
Financial Leverage: 38938/29182 = 1.33
Debt to Equity: 884/29182 = 2.9%
Debt to Assets: 884/38938 = 2.3%
Return on assets (5206/38938) = 13.4%
Profit margin (5206/21177) = 24.6%
Asset turnover (21177/38938) = 54.4%
Operating cash flow
To total assets (7910/38938) = 20.3%
Inventory turnover (11836/1626) = 7.3%
Turnover (21177/191) = 110.9%
Gross profit margin (21177-11836)/21177 = 44%
Margin (7013/21177) = 33%
Return on equity lets us know that for every dollar invested $0.73 is made.
Asset turnover is a measure of effectiveness and thus Intel is pretty effective, but profit margin is a measure of efficiency and this % is low so Intel is not very efficient. Return on assets tells us that $0.13 is earned forever dollar of assets.
The financial leverage
Intel has a low debt to equity ratio, which is typical of a volatile industry such as computers. While the technology is advancing rapidly and constantly changing, Intel must keep enough assets to be able to cover all liabilities. Intel has low financial leverage because while more debt in capital structure would increase return on equity it would also increase the risk of the company.
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