Intel Cuts Fab Buildout by $4B to Pay Billions in Dividends
semianalysis.substack.com
semianalysis.substack.com
A 5% year over year increase in dividends that are a Very Big Deal to institutional investors that likely make up a large majority of their shareholders and hold the stock BECAUSE of those dividends.
Meanwhile, capex is still ongoing and the reduce in spending could just as easily be seen as a bearish response to potentially poor new development plans. What if project costs were exceeding mid-term profit projections? Or potentially never going to be profitable? What if... ad infinitum.
Responsible stewardship of a company like Intel requires accounting for a great many variables that do not get conveyed directly to shareholders. That dynamic is why representatives are a thing. That is why there are boards of directors.
The fact that the government is handing them a subsidy, the fact that they cut some new development projects, and the fact that shareholder dividends saw a 5% increase can, and from my layman's perspective, probably are completely and totally unrelated, and questioning the validity of any one of those things due to the presence of the others goes into the territory of "need more info".
Now Intel has been forced to use an accounting trick to avoid losses that would have been the double of those reported:
"In the quarter ended in June, which we expect to be a very good one for AMD and Nvidia, Intel did not do so good. Revenues were down just a smidgen under 22 percent to $15.32 billion, gross margins were off 50.1 percent to $5.58 billion, and even with a $455 million benefit from taxes that Intel was keeping in its back pocket for a rainy day it posted a $454 million net loss. This is real red ink, and if it didn’t have that benefit and it had to pay some taxes, it could have easily been over $1 billion in losses."
From:
https://www.nextplatform.com/2022/07/29/intel-let-the-chips-...
It looks like now it should have been the time to prioritize saving their future over dividends.
Does anyone believe Intel's problems are a lack of capital?
Prudent leadership would be lowering dividends, as ATT did. For Intel to grow them, implies a diversion, IMHO.
They are about to receive billions for their Ohio project from the public. Instead of using their own funds, they are paying out more money to their fat cats while taking money from the public.
They should be completely ineligible for public money now.
It makes sense to cut back on investment if they think there will be an oversupply of chips. In which case, returning the money to shareholders doesn't seem wrong, if they don't have a good way to invest it?
It doesn't show much confidence in their ability to succeed and regain market share, though.
https://appleinsider.com/articles/21/10/18/intel-ceo-hopes-t...
Something is deeply wrong with our economic/legal system.
Why do semi-making jobs pay so poorly when they literally underpin everything? But kids out of college make 150k mashing NPM packages together?
I blame free trade and the fact that the fed is allowed to engage in quantitative easing for a lot of these issues. Why care about the country when you can just play financial games instead?
Also yeah QE, billions and trillions with no place to invest so why not give few billions to startups with charismatic CEO and a good story.
If a company is able to make profit from their business, then ownership of that company is valuable, regardless of whether they return that profit to you in the form of dividends or not.
The argument is that all companies go out-of-business at some point, eventually. With no way to extract money (e.g. dividends), their long-term value is 0. In the meantime, buying and selling is a zero-sum-game.
This argument is incorrect for two reasons:
1) Dividends are one way to extract value. Another is mergers, acquisitions, and spin-offs. For example, if Musk had bought Twitter with no dividends, shareholders would make money. If Google were split into 50 mini-companies, and Microsoft acquired one of those, shareholders would make money. There are many other ways to extract value
2) Like dollars, shares act as a fiat currency of sorts. We can all keep our saving there if we all keep believing.
If a company isn't in the profit-making business, that's a place for shareholder activism, though. That can be a pool of small investors, or they can be bought by a Berkshire-Hathaway, who can reorganize them for profitability, and resell them.
This doesn't fix the issue. Unless one of those spin-offs eventually makes a profit and pays a dividend, you're still engaging in a zero-sum game. You just offloaded the bag to someone else, either the owners of the merged company, or the acquirer.
> 2) Like dollars, shares act as a fiat currency of sorts. We can all keep our saving there if we all keep believing.
That doesn't stop it from being a zero-sum game, though. We already have fiat currency that is superior in every way, so what actual benefit to the shareholder over holding fiat?
> That can be a pool of small investors, or they can be bought by a Berkshire-Hathaway, who can reorganize them for profitability, and resell them.
Right, so you mean, eventually the company can be made to pay dividends, which is kind of besides the point?
No. It doesn't.
I have a modest bit of savings. I hope to never spend it. I live frugally, since I see no upside to living lavishly. My savings means I can have the job I want. If my boss doesn't like what I do, they can fire me. If I lose my job, I'm not bankrupt, and have time to find another job. Money has less sway over me. Historically, that's actually been super-beneficial to my career, since I could focus on long-term things over short-term ones, and that's always eventually been recognized.
That only requires my wealth to be liquid if a situation comes up.
If I had more savings, I wouldn't need to work for anyone, though. I could do startups and things a lot ore freely. There would be no control over me. I'm pretty good at bootstrapping and operating in the black, but at this stage, the risk profile is too high for me to do this.
Moving up from there, if I had a trillion dollars in wealth, I'd live the same lifestyle, but my wealth would not only free me from control others have over me, but would allow me to control others. I could, for example, hire people to solve hunger, disease, education, or war.
At almost no point do I need actual fiat money.
There's an upside to having my wealth backed by factories, land, and other means of production. As a means of value-store, shares are in every way superior to fiat currency. Fiat currencies tend to inflate, while shares tend to grow in value because they're backed by something real.
Ultimately, there is no perfect value store. Nation-states also don't survive forever, and fiat currencies disappear too. There is value to a robust short-term (e.g. long enough to last my retirement) value store. I do understand that it's all zero sum, in the sense that if WWIII comes up, the zombie apocalypse, or rapture, neither shares nor money will have any meaning.
As a means of exchange, I agree fiat beats shares. I keep a small portion of my money in fiat, and a large portion in shares.
As a footnote, in the acquisition scenario, someone ultimately gets something they want. If I have a company with 1000 acres of land, five pieces of mining equipment, and so on, at the very end, it gets carved up into that stuff. That stuff has real, tangible value.
> You're asking if one abstraction (ownership of a piece of a factory, land, or other business) ever needs to be converted into another (fiat money) to be worthwhile.
I'm really, really not. I'm saying that the act of buying a share with money you already have is zero-sum if that share can never be expected to pay back some sort of dividend.
Shares are only superior as value-stores to fiat currency because they have an expected value higher than their cost. The reason they do so is either because you expect to be able to sell them for more to the next sucker (zero-sum), or because you expect some kind of benefit out of it (dividends of some sort). But beyond that, there are plenty of zero-sum stores of value, like gold, Bitcoin, or unproductive land.
In a fictional world where shares never pay any dividends, they are strictly worse than fiat currency. They are absolutely subject to inflation - it's called share dilution, and it happens all the time. They are not inherently tied to the means of production, because if they did, you could expect to extract some surplus value from the means of production - for them not be able to pay dividends they must be in some intrinsic way alienated from production, whether by speculation or whatever else may be.
> As a footnote, in the acquisition scenario, someone ultimately gets something they want. If I have a company with 1000 acres of land, five pieces of mining equipment, and so on, at the very end, it gets carved up into that stuff. That stuff has real, tangible value.
It only has real, tangible value beyond the price you paid for it if you manage to get some productive out of it and extract a surplus out of a production eventually down the line (profit, dividends, etc...). If it remains a dead asset, its value is unrealized and zero-sum.
Imagine 2 companies (A and B) raise $1 each from investors in their IPOs (first capital raised). A does well over a decade and has $20 cash on balance sheet with no debt. A acquires B and pays $15 in cash for it.
A then dies a slow death over 50 years, never paying a dividend. $2 went in, $15 came out.
Shares have no durable inherent value outside the expectation of profit. Without a dividend, or some tax-efficient simile to them, the expected value of a share you don't sell is exactly zero.
If all the expected value of a share comes from selling for every actor, then selling and buying that share is a zero-sum game by definition.
Congress passed the act.
Congress allied with Intel and the other companies. As representatives of the American people, of course.
Congress has exceptional results with investing.
If Americans considered Congress an ally…
With representation like this, who needs a ruling class?
We have to either change this, or rely on a different kind of entity for economic activity. Because abandoning companies to be cannibalized by the financial class, or colonized from abroad, does not lead to prosperity.
"Abandoning a company to be cannibalized" means stunting growth which is useless to greedy shareholders. If the shareholder was okay with not having growth they wouldn't be invested in the first place.
The main problem with allegiance to shareholders is the craving for financial growth at any cost, including deviation from the company's goals or disregard for users in profitable ways. A paper-clip maximizer.
But companies aren’t thinking about context. Money for shareholder means satisfied shareholder. The end.
Companies have to make sure most shareholders are happy. Or more accurately, that those holding the most shares are happy.
That won’t be employees. It won’t be individuals. It will be other companies.
Companies are allied with the companies that hold most of their shares.
But companies are basically people so companies basically care about people. Really companies just care about companies.
Save for the super elite, individuals aren’t on the radar. They get dividends incidentally.
This all becomes an even bigger mess because companies can’t keep other companies (and politicians) happy if people aren’t supporting the companies, through purchases.
But if the politicians can just provide a little support, by way of taxpayers…
If you're holding for 10 or 20 years, you may well be considering things like "If we spend a dollar in R&D today, we get back twenty later", but the guy who's bailing after the next earnings report wants that dollar on today's books. We do a questionable job serving tha long-term investor.
On a long enough term, most of the social-ethical-envrironmental investment strategies that are seen as niche can also be seen as prudent-- are you sacrificing the value of investors in 2050 by keeping a cavalier attitude on climate change today, or paying your contractors so poorly that they'll be unable to buy your future products?
We have the short/long term capital gains tax divide, but there's no reason we couldn't tax short term gains at a much higher rate than conventional income, explicitly to force people to demand long-term corporate perspective.
That's not a law, just a moderately recent convention: Milton Friedman in the 70s claimed that a company existed only for the good of its shareholders. And of course we've seen examples of this attitude from time immemorial.
But remember the famous 1950s quote from the then CEO of GM: "what was good for our country was good for General Motors, and vice versa.” People usually twist it around the other way and claim that the company was saying it was more important than the country, but that's not what Wilson said. He made that statement as part of a speech (congressional testimony IIRC) saying that business needed to serve society.
But every publicly available statement made by a CEO is PR. Like it or not. Not always done with that intent, but usually with it in mind.
Sure, the impact to employees has been felt more recently. But the attitude has been there before they were companies and employees. Kingdoms and subjects, plantations and slaves, whatever the case may be. Very old. This is just the latest skin. There’s always those parties that go against the current.
So to respond to your CEO reference, I’ll throw out a more modern one. I’m having to go on what little I’ve gathered from the media, but Dan Price seems like the real deal. Even with what I said above. Can’t know, but the look is good. I buy it. I want to believe, even after learning I shouldn’t.
Good companies can exist. Good people exist, and can lead companies. All of which can serve society, and benefit all individuals.
“Can” isn’t enough. And there are far too few that ARE.
And your example reinforces my point. There is a sickness that spread from the Reagan era, but recognizing it is crucial to treating it.
But the problem did not start in the Reagan era. It simply evolved. And it still does. Recognizing the problem is critical. I don’t believe you have. Not that I’m claiming any different of myself. I’m ok with that personally.
I keep scratching my head on the insistence of many that we should look backwards for the advice on how to go forwards. Look backwards to see mistakes, sure, but this seeming obsession with the words of powerful men, typically long dead ones, a quote from a CEO, a political book, a religious one, the medium doesn’t matter nor does the subject.
But there’s always a wise dead guy that needs consideration. If not more.
It is puzzling to me.
That is the nominal one. But I feel more ofent than not the real alligience is to the board and lower manager class.
Beyond that? Loyalty is to the biggest investors. Other companies. The CEO answers to the board, and the board tends to answer or connect to those companies. Sure, they profit, but that’s a pittance compared to the real money. Managers below that get their fraction of a fraction. And everyone else drools because that’s still real money to an individual.