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Stock Buybacks Slowing Down In Q2? Don't Make Intel Laugh

Tyler Durden's picture




 

Unlike others who focus on INTC's just announced revenue and EPS numbers (both of which beat), we were far more interested with what the company is actually doing with its operating cash flow, because keeping track of INTC's capital allocation decisions tells us much more about what the company thinks of the immediate future and its growth potential. Well, for anyone claiming in Q2 stock buybacks are about to slowdown, INTC has four words: "don't make me laugh." Because of the $5.5 billion in cash from operations, Intel promptly returned well over half to shareholders, of which $1.1 billion in the form of Dividends, and another $2.1 billion as stock buybacks.

How big is the $2.1 billion number in context? This big.

And don't worry: this runaway train isn't stopping any time soon - the company announced that the board has authorized a whopping $20 billion increase to its share repurchase program, and anticipates spending a massive $4 billion on stock buybacks in the next quarter alone!

So much for a pick up in CapEx spending at yet another company.

 

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Tue, 07/15/2014 - 16:32 | 4960422 SloMoe
SloMoe's picture

Buy high, buy higher...

Tue, 07/15/2014 - 16:49 | 4960480 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Intel is hosed. They were the big bullies on the block when the PC reigned supreme. With tablets and cell phones using ARM based technology, no manufacturer in their right mind would want to work with Intel. PC sales are also slipping. Game over.

Tue, 07/15/2014 - 16:57 | 4960500 aVileRat
aVileRat's picture

Umm. You may want to read that 13Q. The long term trend in ARM is limited by battery/mem capacity and eff. Which is stuck in 2001.

Yahoo on the other hand: How long will Marissa be given a free pass by the market. Numbers were horrible, yet she cans half the creative staff, doubles her compensation, content is showing negative (!!) growth when the mean is growing at 3% by mobile penetration (so she's not only underperforming but malinvesting) and stock is up ?

Yellen was right. Its a bubble. Tech needs to be taken out to the woodshed hard. Like 50% correction territory.

 

Tue, 07/15/2014 - 18:43 | 4960791 max2205
max2205's picture

That's awesome. ..wow

Tue, 07/15/2014 - 19:04 | 4960844 BlindMonkey
BlindMonkey's picture

50% correction? Then it would make total sense to buy back stock at all time highs. It reminds me of central banks buying gold at the peaks and selling at the lows.

Tue, 07/15/2014 - 17:19 | 4960544 Squid Viscous
Squid Viscous's picture

that would approximate my reasoning as well...  about $5 ago, wtf... same with CSCO HPQ MSFT AMD, etc. etc. they are all worth billions more than they were a few months ago, thanks to ol' yeller - "whats old is new again"

Tue, 07/15/2014 - 17:31 | 4960575 mamba-mamba
mamba-mamba's picture

They have real hard and soft assets. Even if the entire "intel architecture" business goes into decline, they are not wiped out. Hard assets include huge piles of cash, the best processor fabs in the world (which cost billions each to build).

Soft assets include the best fab engineers in the world, and undoubtedly a wide, private body of knowledge of extremely advanced fab technology.

In a worst case scenario, they could probably license ARM and just become the best ARM manufacturer in the world and still be profitable.

Tue, 07/15/2014 - 18:56 | 4960822 Luckhasit
Luckhasit's picture

Exactly, thanks.

Tue, 07/15/2014 - 17:31 | 4960577 mamba-mamba
mamba-mamba's picture

They have real hard and soft assets. Even if the entire "intel architecture" business goes into decline, they are not wiped out. Hard assets include huge piles of cash, the best processor fabs in the world (which cost billions each to build).

Soft assets include the best fab engineers in the world, and undoubtedly a wide, private body of knowledge of extremely advanced fab technology.

In a worst case scenario, they could probably license ARM and just become the best ARM manufacturer in the world and still be profitable.

Tue, 07/15/2014 - 17:55 | 4960647 SloMoe
SloMoe's picture

Didn't Intel get a license to ARM architecture, of sorts, when they bought DEC's StrongARM division?

Tue, 07/15/2014 - 18:50 | 4960808 pitz
pitz's picture

Even Intel's high-margin server chip business is extremely vulnerable to the ARM onslaught, as that's where ARM has set its sights next.  Unlike in the 1990s when other manufacturers, particularly Digital (with the Alpha AXP), and MIPS tried to knock them off (complete with NT ports), very little code run these days isn't highly portable to other platforms.  Especially with cloud computing, where you don't even need to have in-house programmers to do porting.

Wed, 07/16/2014 - 06:02 | 4961937 KidHorn
KidHorn's picture

Not true. Under the hood if you dig deep enough the code that actualy runs is specific to the platform it's running on. Java has a runtime engine that can run on several platforms, but it can't compete performance wise with native code.

Wed, 07/16/2014 - 20:00 | 4965032 pitz
pitz's picture

C code is C code, pretty much portable to everything.  Etc.  In most cases, unless we're talking kernels, its just a matter of a recompile.  The ubiquity of Linux on everything and a common code base greatly simplifies everything.

Tue, 07/15/2014 - 18:51 | 4960810 Luckhasit
Luckhasit's picture

Intel is far from hosed.  Slowdown in pc shipments merely means that those pc manufactorers are circling the drain.  The best chips in the biz still say intel inside and unless those ARM processors start crunching x84 they're good.  

Did they miss out on a very lucrative market segment? Oh fuck yea they did.  Are they dying? Far from it.

Tue, 07/15/2014 - 20:39 | 4961121 pitz
pitz's picture

x86/x64 is to the point where its not even relevant any more. 

Tue, 07/15/2014 - 16:32 | 4960424 Shizzmoney
Shizzmoney's picture

They will continue to increase until the Fed raises rates (which will never happen).

Japan is the model, guys.  DOW 20k and S&P 2100 by August 2015.  

Tue, 07/15/2014 - 16:32 | 4960425 Bernoulli
Bernoulli's picture

Insanity inside

Tue, 07/15/2014 - 16:41 | 4960460 SloMoe
SloMoe's picture

Perfectly rational---if you're the one on the executive side of the stock-option bonanza.

Tue, 07/15/2014 - 16:34 | 4960426 NoDebt
NoDebt's picture

It's OK for Intel to slack off on CapEx.  Not like computer technology changes very rapidly.

Tue, 07/15/2014 - 16:50 | 4960486 seek
seek's picture

Actually they've found themselves with a fairly unqiue problem -- the market growth in PCs has been so slow that they had to kill off capex on new factories or they've be coping with massive oversupply and underutilization. This is the first quarter they've had any real upside in a long, long time.

They also introduced some new products last year that have tiny die sizes, so they can tweak their mix to get close to 100% utilization with the factories they have, and if demand spikes, they just downmix to the small parts and problem solved.

Tue, 07/15/2014 - 17:36 | 4960590 NoDebt
NoDebt's picture

I guess they can thank Microsoft for that "unique problem".  Microsoft slacked off, too, and produced Windows 8.  That disaster of an OS has probably done more to fuel the "death of the PC" than any other single factor.

Tue, 07/15/2014 - 17:39 | 4960598 fonzannoon
fonzannoon's picture

Nodebt check this one out. Hahahahaha. Too bad Tyler does not turn the spotlight onto this giant shit sandwich.

 

http://www.investmentnews.com/article/20140715/FREE/140719948?utm_source...

Tue, 07/15/2014 - 19:44 | 4960967 Muppet
Muppet's picture

The $10/share price model for non-traded REITs is commonplace as noted in the above link.  I've learned to ask to have fees waived and by doing so, receive 10.75 shares per $10 paid (7.5% discounted).  I suspect the fees are higher but am happy to get this.

The proposed legislation allows REITs not to show their true share cost until 18 months after funding has ended.  Well, every non-traded REIT that I have owned has not lasted 18 months beyond the end of funding.... the REIT has either been acquired or gone public.  As such, the proposed legislation seems meaningless IMO.

Tue, 07/15/2014 - 16:36 | 4960439 PoliticalRefuge...
PoliticalRefugeefromCalif.'s picture

Cannibalism will continue as long as there are at least two cannibals left.

Tue, 07/15/2014 - 16:42 | 4960461 kowalli
kowalli's picture

USA can still eat his right arm - state after state, so you are wrong

Tue, 07/15/2014 - 16:50 | 4960485 Argos
Argos's picture

Right out of Alice in Wonderland, you have to run as fast as you can to stay in the same spot.

Tue, 07/15/2014 - 16:52 | 4960489 Big Ben
Big Ben's picture

Despite all the share buybacks that Intel has been doing, shares outstanding are higher now than at the start of 2013:

http://ycharts.com/companies/INTC/shares_outstanding

When will people (including Tyler) learn that SHARE BUYBACKS DO NOT BENEFIT SHAREHOLDERS. Their sole purpose is to cover up all the shares that have been issued to management. They should be treated as "executive compensation" for accounting purposes.

Tue, 07/15/2014 - 17:01 | 4960510 Tyler Durden
Tyler Durden's picture

They benefit shareholders: see CYNK for what happens when there is a constant bid in a thin tape. And yes, they benefit management as we reported here: Why CEOs Love Buybacks (In 1 Simple Chart)

Tue, 07/15/2014 - 17:56 | 4960646 Big Ben
Big Ben's picture

Was CYNK buying back its own shares? If so, where did they get the money considering that they only had one employee and didn't seem to be engaging in any kind of business?

It always irks me when anyone (usually in the sell-side press) describes buybacks as "returning money to shareholders".

Tue, 07/15/2014 - 17:12 | 4960516 Squid Viscous
Squid Viscous's picture

buybacks are kind of like when you're the last guy alive in the lifeboat, should you shoot the last flares in a potentially productive attempt to rescue yourself, or just succumb to the depths of non-humanity and start eating the dead bodies next to you...

PS- didn't see the cannibalism reference above, but great minds think alike...

Tue, 07/15/2014 - 17:01 | 4960498 Squid Viscous
Squid Viscous's picture

where is "I am a Man, really I am" ? should be gloating on the Apple/ IBM "news" announced...  Apple is almost back to where he told everyone else to buy about 2 years ago lol... good use of capital

Tue, 07/15/2014 - 17:13 | 4960531 cora
cora's picture

Everybody is dumping USD

Tue, 07/15/2014 - 17:29 | 4960569 shouldvekilledthem
shouldvekilledthem's picture

They should start discounting that oversupply. I don't have incentive to upgrade otherwise.

 

I remember the days when new generation of CPUs and videocards (later GPUs) made sense to purchase.

 

How ironic that these so called regulated markets got flooded with shady business tactics (like renaming) and price fixing.

 

Tue, 07/15/2014 - 17:33 | 4960582 GooseShtepping Moron
GooseShtepping Moron's picture

"[The] company announced that the board has authorized a whopping $20 billion increase to its share repurchase program, and anticipates spending a massive $4 billion on stock buybacks in the next quarter alone!"

I honestly thought that was a joke when I first read it; then my eyes nearly popped out of their sockets when I realized that it wasn't. $20 billion in share repurchases? Based on their last quarter results ($5.5 million cash from operations), that's an entire year's worth of cash devoted solely to buying back shares already at nosebleed levels. How levered up is this share repurchase program?

Tue, 07/15/2014 - 18:06 | 4960672 Handful of Dust
Handful of Dust's picture

Time for directors and management to cahs in their chips while the stock pumped high.

 

It's Management Boooyaaa! [MB]

Tue, 07/15/2014 - 18:34 | 4960762 I Write Code
I Write Code's picture

Well, it just occurred to me what is going on here.  First, Intel is up to their necks in capex anyway, they have billions in new technology facilities they've already bet the company on, and increasing the budget for hookers and blow would probably slow down capex.

But Intel executed a marvelous piece of PR over the last few months that has boosted the stock price over 30% now, while their actual current sales have barely kept up.  So what this excessive buyback now is, is an attempt to support the current overvalued stock price long enough that the new capex comes online and really *earns* the current share price.

Otherwise they could have boosted the dividend a few pennies instead, and just held onto the rest for a year or so, it might come in handy.

I'm long a few shares of Intel but am torn about taking some profits now, or just riding through and hoping they make the next step up, maybe this time next year.

Tue, 07/15/2014 - 19:14 | 4960886 PoliticalRefuge...
PoliticalRefugeefromCalif.'s picture

Put it all on 36 black and spin the wheel, don't worry the table isn't rigged.

Yep, something is in the wind- the hard part of bailing out is to do it without the passengers noticing.

Wed, 07/16/2014 - 07:50 | 4962041 AdvancingTime
AdvancingTime's picture

Money has become so cheap to borrow that many people are now arguing that you must take it even if you don't know what to do with it. It is hard to imagine how much this is distorting the economy, markets, and reality in general. A total disconnect between life on main street and the financial world is occurring and it is putting the economy in a very dangerous place.

This money has found its way into stock buy backs. It is often hard to determine what is true, but a report on Bloomberg that 32 Trillion dollars in funds were held in offshore accounts around the world made me shutter. How safe is this money, and what exactly is it doing? Can you say Cyprus? More on this subject in the article below.

 

http://brucewilds.blogspot.com/2013/05/cheap-money-more-and-more-and-mor...

Do NOT follow this link or you will be banned from the site!