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Recommend for optimal sources for Intel to raise $ 675 million The Intel Corporation is considered to be one of the world leaders in silicon innovations, the largest chip maker and, most of all, it is a leading producer of computer, networking, and communications products. Thats why it has constantly to explore new ways to advance how people work and live. Intel believes in innovations. It is the main principle of its policy.
But being involved in an industry that is characterized by constant uncertainty: rapid technological change, higher levels of inventories; the company takes the risk. First of all, risk connects with inventory obsolescence and that the value of inventory will fall. There is another factor that an innovation has no enough time to be tested and thats why there is a risk to produce defective items. Each project should be determined using the income approach. It includes discounts expected from future cash flows and an appropriate risk-adjusted rate of return. The difficulties from developing new projects include the complexity of the technology, cost and time to complete the remaining development efforts, the existence of any alternative future use or current technological feasibility etc.
For estimating future cash flows it is necessary to take into account the approximate life cycles of the products and the underlying technology, relevant market sizes and industry. According to the Financial Report of Intel, income, including acquisition-related costs, was $ 3. 1 billion in the second quarter of 1999. Net income and earnings per share in all second quarter include amounts of the previously announced charge to cost of sales and cover costs for the MTH motherboard replacement program. In 1999 - 2000, The Intel Corporation had to replace computer circuit boards with a defective memory part. Because of the large number of variables it was impossible to estimate the damage, but it is certain that the remove cost the company hundreds of millions of dollars as analysts said. As it was reported the problem caused because of a defective memory translator hub.
It is a component that sends signals from synchronous dynamic random access memory to the Intel 820 chip set. Chips and other circuitry are placed on a motherboard. Since November 1999, Intel has been replacing motherboards on personal computers shipped. Though the problem had great negative after-effects on Intel's financial performance but the corporation had not changed the forecasts.
Most of all, the company stopped shipments of the affected motherboards and found ways out. Intel had to spend extra cash to pay the costs of the recall such as remanufacture of the motherboards, replacement inventory, labor for parts replacement etc. But as usual, companies develop a worst-case scenario. It often happens in business world that a company has no a chance to identify or to avoid all possible scenarios. But it can assess a scenario and take steps to diminish negative impacts of various scenarios if they were to occur. At the end of the second quarter of 1999 when Intel had problems contingency plans for critical business operations had been developed.
The effectiveness of the plan was tested and in the fourth quarter and was continually refined. There were several optimal sources to raise additional cash. First of all, the company has to reduce prices; and the other way is to redirect its forces and develop new technologies. But, first of all, it is necessary to point the state of business in the Intel Corporation at the end of 90 s. As usual, it influences greatly the strategy the company has chosen. In the late 1990 s, the corporation made some strategic acquisitions.
It helped Intel to develop other areas that were outside its microprocessor core. Among them there were flash memory for mobile phones, networking building blocks and embedded control chips for laser printers. Most of all, Intel built up business-to-business e-commerce site that provided $ 1 billion per month in online sales by mid- 1999. Operating activities brought $ 7. 9 billion and were the main source of cash during the first nine months of 1999. The corporation purchased Dialogic, Shiva Corporation, Softcom Microsystems, Inc. , and Net Boost Corporation and till November, 1999, almost $ 333 million were spent on in-process research and development. In addition, Intel also purchased other businesses in smaller transactions.
The charge for purchased in-process research and development related to these other acquisitions was not significant and was included in research and development expenses during the period. It was expected to make approximately $ 85 million in the first quarter of the 2000. The reason was that the technological feasibility of products under development had not been established and thats why there was no future alternative. Consideration includes the cash paid and the value of stock issued and options assumed, less any cash acquired. Financing sources of cash during 1999 - 2000 were primarily $ 543 million in proceeds from the sale of shares mainly pursuant to employee stock plans. The other option is to reduce prices.
In the third quarter in 1999, net revenues enlarged by 7 % compared to the third quarter of 1998. It happened because unit volumes of microprocessors increased and it was partially due to lower prices. The lower unit costs in the third quarter of 1999 were achieved primarily through redesigned microprocessor products with lower-cost packaging, including packaging using fewer purchased components, as well as factory efficiencies and lower purchase prices on the purchased components. During that period revenues from sales of flash memory and embedded products has grown significantly. Most of all, the impact of new acquisitions played a great role and caused the rise of revenues from networking and communications products.
It helped to save almost $ 50 million. In spite of all difficulties, the Company's gross margin percentage increased to 59 % in the third quarter of 1999, up from 53 % in the third quarter of 1998. The improvement in gross margin was primarily a result of the sale of shares, incomes from new branches and technologies, lower unit costs of microprocessors and lower prices for microprocessors. In addition, improved demand and higher prices for flash memory in the third quarter of 1999 also contributed to the improvement in gross margin.
Bibliography: Brandt, Richard, Otis Port, and Robert D. Hof. (1988). Intel: The Next Revolution. Business Week, September 26, 1988, p. 74. Clark, Tim. (1992). Inside Intel's Marketing Machine.
Business Marketing, October 1992, pp. 14. Corcoran, Elizabeth. (1999). Reinventing Intel. Forbes, May 3, 1999. Is the Semiconductor Boom Too Much of a Good Thing for Intel? (2000). Business Week, April 23, 2000.
Yu, Albert. (1998). Creating the Digital Future: The Secrets of Consistent Innovation at Intel. New York: Free Press, 1998, 214 p.
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