Wednesday, April 20, 2016

More on phoney Share Buy-Backs:

Today a quote from Aaron Tilley, Forbes Staff - on the Intel workforce cut:

“Reeling from a four-year decline in the PC market, Intel said Tuesday that it would cut 11% of its workforce — or about 12,000 employees. The news came as Intel reported financial results for the first quarter that were roughly in line with Wall Street estimates, but the company forecast weaker-than-expected sales for the current quarter. The cuts will save Intel, the world’s largest chipmaker, an estimated $1.4 billion annually once the are completed and allow the Santa Clara, Calif.-based company to refocus its resources on new areas of growth. The company will also take $1.2 billion restructuring charge.”

A few months ago on a post I was negative on share buybacks stating - the move makes the company's profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market. - but buybacks can also sap companies of cash that they could be using to grow for the future, no matter if the price of those shares rises or falls.

According to Intel, “As of April 2, 2016, $8.6 billion remained available for repurchase under the existing repurchase authorization limit and we have repurchased 4.8 billion shares at a cost of $106 billion since the program began in 1990.”.So far in Q1 this year (2016) Intel has shelled out 800 $million for share buybacks – while at the same time letting go bout 12,000 employees.

Clearly the interests of the employees and the shareholders are not aligned – the employees wish to have a long term job, and the shareholders only wish for the stock price to go up and the sooner the better. Also – when the share count shrinks – the company market cap gets smaller and companies do not shrink themselves to greatness.

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