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Comment by d_silin | Hacker News Reader

"Revenue will shrink from $77.7B to ~$74B and gross margins will fall all the way to 51% to 53% for the next few years"

A far cry from betting the farm, really.

Gross margin of 52% of 74bln of revenue is 38.5 bln gross profit. You take out 6 bln SG&A expenses (this is about what they have been spending the last couple of years), 26.5 billion of capital expenditures and 15 billion of R&D you end up burning 9 billion dollars of cash for the year. If they actually pay their dividend, that will be another 5.5 billion for a total of about 14.5 billion dollars of cash used up. That is a very risky situation to be in. One hears about startups burning cash but not in the billions.

You have to ask Intel shareholders who have been used to a very reliable cash generating business that buys back a lot of shares, and pays nice dividends to use up 9 billion of their money in an year in the hopes that things turn around some time in the future.

I am not sure what exactly constitutes betting the farm, but they are getting into some very risky territory.

How big is their war chest? $9B would literally be pennies on the dollar to a company like Apple (>$1T reserves?). I doubt Intel’s is that big, but it might be big enough not to worry investors too much.

34.5 bln cash 40 bln debt.

Apple has cash and cash equivalents of $40B in their latest quarter, far cry from $1T.

The thing with market cap is, most of it is decided by the last trade price, which can be very volatile. With deep order book on index and household name like Apple, that volatility doesn't show up until a black swan event like it did in March 2020.

Apple has $200B, not $20B cash on hand.

From the horse's mouth.

https://www.apple.com/newsroom/pdfs/FY21_Q2_Consolidated_Fin...

One could count marketable securities as cash equivalents for the purpose of discussion here. They can be readily converted to cash on the time scale that is relevant to this thread.

No you can't, the ones that are considered equivalent are included in the line item for cash/cash equivalents.

marketable securities are volatile and don't hold their value exactly when there is a liquidity crisis. Even including these securities, totals to about $60B quite shy of either $200B or $1T

These securities are marked to market, which means you can sell them for roughly that value over a reasonable amount of time. There's also 134B of non-current marketable securities based on the statements you cited, which brings the total to around $200B.

The equivalence standard you used is the accounting standard, which means you can get the exact amount in cash overnight if you so desire. It's too strict when considering what financial resources you have in making long term capital investments.

Sorry for some reason Apple’s market cap number popped into my head.

$9B is still small against Apple’s $200B, but fairly large against Intel’s $34B. So yeah I’d be scared.

There is certainly risk, but what kind of company would Intel be if they couldn't reliably deploy 9 bln in capital improvements over the course of the year to meet a quickly changing competitive landscape? Not a company I'd want to invest in...

It is significantly less risky if you assume, safely I think, that the US will funnel subsidies towards Intel in an effort to redomesticate semiconductor manufacturing. Even more so if you believe, again rightly I think, that the US will deem Intel a national security asset and too important to fail.

I think Intel has some rough times ahead, but there are extra-market forces at work.

Would appear to be much riskier to not pursue the path. Stock buybacks are not how a company ultimately thrives, especially when their core business is slowly eroding.

Why the focus on dividends? Nvidia doesnt pay jack and their stock and business seems to be doing fine

Paying good dividends is a way to make the stock attractive if you are already dominant in your market and investors do not see much room for growth.

betting the carpet in the house adjacent to the farm

That's actually abysmal considering how much the TAM will be growing in the next few years. Their stock price today reflects how abysmal this news is.

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