FREE ESSAY ON INTEL 1998 FINANCIAL STATUS

INTEL 1998 FINANCIAL STATUS

David Pawlowski
Intel 1998 Financial Status
Company Info:
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. 
Industry:
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%
Accounts receivable 
Turnover (21177/191) = 110.9%
Gross profit margin (21177-11836)/21177 = 44%
Operating profit 
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.