Intel didn't get a subsidy because they're poor, the subsidy exists because the US Government wants the company to do something (setup a fab on US soil) that is not necessarily in the shareholders best interest (cheaper to set up a fab elsewhere). The subsidy is the difference in both parties judge to be the cost of doing the expensive thing (that matches US strategic interests) vs the cheaper thing.
Are you suggesting the government buy Intel, or that they steal it from its current owners? You might have different opinions than I do about the morality of such a thing, but either way it would be disastrous as it would disincentivize all investment in things the US can steal.
The US could have required stock in Intel instead of taking nothing: Intel gets money, US gets influence over Intel. Just like it works everywhere else.
When giving a company like Intel money, you could give that in exchange for part of the company or for the company to do something for you.
For example, the US could give Intel $8B for about 4% of Intel (at today's market price). However, that wouldn't get them the new US chip fab that they want. It would get them 4% ownership of Intel.
Another example, the US could give Intel money to build them a supercomputer. The US would get a supercomputer, but it wouldn't get any ownership of Intel. When I buy Intel processors, I get a product, but no ownership of the company.
In this case, the US wants to buy a product: a US based fab. You might say "but the fab benefits Intel." You're totally right, but when I buy Intel processors it gives Intel capital they'll use for their benefit as well.
The real question is whether the US is overpaying for this fab or if the fab is even worth it. Could the US have gotten the product it wants cheaper? Is having new US based fabs worth paying for?
I think the answer to the latter is a resounding "yes" for strategic reasons. Tens of billions is a tiny drop in the bucket to help ensure something bad doesn't happen to one of the most important industries to US prosperity. We spend $850B/year on the military to try to ensure continued US security and prosperity. Giving Intel $8B is probably a bargain by comparison. Likewise, if you hate that Intel is being given $8B, you'll really hate how much Boeing, Lockheed, Raytheon, Northrop, and General Dynamics get from the government.
Sure, the US could have required Intel stock as part of the deal, but depending on the amount of stock, Intel would have likely rejected it. Should the US have offered $11-12B for 2% of Intel plus a US fab? If that's the case, why doesn't the US government simply buy stock in Intel today?
If your argument is that the US should end up with 20% of Intel for that cash, Intel would reject it. That's giving Intel a tiny fraction of what their stock is worth - 20% of Intel is worth $38B. If the government wanted to nationalize Intel, it'd probably cost them $210-250B. The government isn't just allowed to take something without just compensation. While Intel's market price is $188B, usually buying a whole company involves having to pay a premium over that.
The US has taken ownership stakes in companies in some scenarios. For example, the bank "bailouts" gave the US preferred stock with a dividend rate of 5% that would climb to 9% from 2008-2013. The government also got warrants to purchase common stock at a very low price. Recipients generally repaid what they were given and the government made billions off the stock warrants. In the case of the bank "bailouts", the government was giving the banks money to help save the banks and demanded ownership in return.
By contrast, Intel doesn't need help. The US government wants to get Intel to do something; the government wants to pay Intel to make them a product. Maybe the government could have gotten a better deal than $8B. However, given that few companies could legitimately create modern fabs and given that even companies like TSMC have been having difficulty at creating fabs in the US, $8B doesn't seem like a crazy amount of money to be offering as a carrot. It looks like the US is also spending $6B on Samsung and $5B on TSMC to get them to build fabs here.
If the US wanted ownership and a new fab, it would cost more than $8B. If the US wanted a new fab plus 10% of Intel, it'd likely cost them $25-30B.
The money isn’t in return for some stake in intel though. The money is in return for doing something sub-optimal to the interests of the shareholder. It’s compensation in return for a taking.
If you take without giving something back, that’s an actual taking and that’s illegal outside specific circumstances.
But you understand that as it is an aspect of the legal system, and one that is usually defined higher in the legal hierarchy that it can't be a thing that is defined later, right?
You shouldn't misuse words like you're intentionally doing. Why not go all the way and call it rape or something.
But now there is chance that Intel will at some point overtake TSMC again and most(?)/much of their production capacity would be in the US? That chance would no longer exist if the government nationalized Intel.. so what would be the point?
There are a lot of strings. Ironically I am questioning where or not I should sell my shares because of those strings. Some companies didn't take the CHIPS act money because of them too.
Not sure why what would matter. One party (US taxpayers) is paying another party (Intel shareholders) to do something specific. What recipients do with the money is their own problem.
EDIT: Sorry, read this as strings attached to what Intel could do with the money.
I would assume the subsidy is contingent on Intel actually setting up the fab and some output numbers, seems idiotic to do it any other way. Don't think this was a bailout or handout at all. I haven't seen the agreement though.
People generally see subsidies given to companies as a contract. Subsidies in general aren't a contract. People don't have to "do their part" when they benefit from a subsidy (like vote for a specific party because they subsidized the price of gas), and usually neither do companies.
> People don't have to "do their part" when they benefit from a subsidy (like vote for a specific party because they subsidized the price of gas), and usually neither do companies.
This is typically false, usually the subsidies are in the form of tax credits that are only awarded once you perform the desired action, or at least have to be paid back if you fail to do so. They don’t just cut a check and wash their hands.
This is true for individuals as well as corporations. When you do your taxes this year, take a look at credits like the renewable energy credit. You have to actually purchase insulation or solar panels to be eligible for the credit.
Given the criticality to National security interests, perhaps the US government should have brought the stick with heavy taxes / penalties for not having the US Based plant instead of the carrot of more corporate subsidies.
This is still a US based company, with US leadership
The US Government could pass a new ruling requiring all chips in all military hardware (or even all hardware used by any government agency) down to the smallest IoT shit needs to be made in the US by a US firm.
I doubt Intel would need any money or other incentive if the orders start coming in.
This is also why nobody ever wants to cut the DoD budget, it's basically the backbone of American manufacturing for everything. All the stuff our company makes for the military needs to be US made, despite us being able to get the same stuff from China for 1/10 the cost.
It's also a kick-your-door-down-and-go-prison offense if you try and skirt this. My company knows that first hand (unintentional, but the DoD doesn't care)
The military may not be a large enough customer to make such demands. Or perhaps a handful of companies would do it at 100x the cost of similar civilian products. It would turn into another $10k toilet seat fiasco.
The supply chain for military hardware is already under heavy scrutiny. I don’t think the CHIPS Act is about security; it’s about onshoring production so the US can avoid caring about Taiwan.
Purchase orders like this happen years out. Before the deliveries dry up, Intel's cash flow will dip and investors will riot until Intel is ready to do business in the US.
TSMC is looking to bail completely on the second fab / even intel is now looking at delaying. The problem we are running into is a lot of DEI language was included in the chips act which is making it hard for TSMC (and Intel) to comply. This is not a good PR move to say this outright so they will just give more generic "labor" shortages etc as the official reason.
The Japanese plant is less ambitious, using an older process on a smaller scale. The fact the Japanese plant was finished first says little about manufacturing in the US vs Japan.
I think you meant “aren’t manufacturing” and you are correct. It’s not cheap labor, except for the lowest end manufacturing. It’s that you can’t build anything in America anymore.
The government needs to address that instead of subsidizing one off efforts.
> it's selling out Americans in favor of cheap labor.
Perhaps American workers. But an alternate take is that American consumers got cheaper chips and PCs - which resulted in more being sold, more companies and people using them, greater efficiency and new ideas and perhaps a more productive economy.
It will be interesting in 5-10 years if the US needs to tax/block possibly cheaper and better components built outside the US being sold
Intel, like any other succesful company, prices its goods based on what the market will pay, not what it costs to make. Lower costs does not mean lower prices for customers, it means more profits for Intel.
> Intel, like any other succesful company, prices its goods based on what the market will pay, not what it costs to make
That may be true for Intel's CPUs but when products aren't produced by monopolies, those that have the cheapest costs and are in competition with others, often lower their prices to compete where the competitor can't. For example: AMD, graphics and motherboard parts
Well, I take it that it's always true and is a good lesson for anyone trying to set the price for their own product (like a hacked together side project one of us might be working on :) ).
My understanding is that the price should never be set based on production cost but on the value it brings to the customer. Thereby, a simple program you or I could hack together in a month, might have a cost of 10k in labor only cost, but if it would save the customer millions each year, they would pay a million for it.
So, you set the cost based on how much they are willing to pay, based on how much they would profit/save.
If another competitor offers a similar solution, you just undercut them by 10%, or invest another 10k for superior features.
Furthermore, up until at least a few years ago (i don't know how it is now) intel chips were more expensive than amd's, especially on server side, even accounting on performance/watt and intel adopted practices such as locking mobo to just one chipset and things like that. the situation might be different now tho
I believe that $77B as a fairly good cause for investors/other companies to set up shop and make investment into the US semiconductors market. According to random market statistic site, it is also currently growing by 10% each year.
Is that market so poor that subsidies really is needed on the basis of profitability?
A $77B market that's growing by 10% each year doesn't mean much when the government turns against you demands you do a bunch of expensive investments for nationalist reasons. See also: all the investors fleeing china because they were spooked by the tech crackdown/covid lockdowns. "Punishing a company because it's selling out Americans in favor of cheap labor" is basically the same thing but with a different coat of paint.
Intel is a product of Shockley, which was a product of Bell Labs, which was a product of “punishing” AT&T for “being American”.
AT&T would have zealously guarded the transistor patent and never have licenced it out to Motorola, TI, etc. if they only cared about maximising shareholder value.
We're always bending over backwards for a handful of companies instead of promoting a healthy market. We should of created a race with multiple companies to build the best chip factories.
> We should of created a race with multiple companies to build the best chip factories.
That's insanely expensive. Today the only companies that make leading edge chips are TSMC, Samsung, and Intel. Global Foundries (headquartered in US) dropped out a few years ago because it was too expensive. How on earth are you going to fund "a race with multiple companies to build the best chip factories"? It's going to cost multiples of whatever the intel subsidy is.
Multiples of $8 billion? Oh no, where would we find the money? If this is truly a national security issue, perhaps some of the DoD’s ~$150 billion R&D budget could go towards it.
Accelerated consolidation was policy for decades. Clinton Admin's dept of defence pushed it really hard, esp for defense contractors. To reduce costs, make our nat'l champions more competitive internationally, make our hair more luxuriant, and cure rickets. Because reasons.
Now the pendullum might finally be swinging back towards pro-competition and healthy open markets.
Wouldn't be easier for the US government to buy Intel shares rather than subsidies it? It should actually be mandatory for the government to own part of a company that is so critical to national and security interest.
Ideally this kind of subsidy would be paid any time the expected return on investment for the government was better than breaking even. It’s not about making sure only the most deserving get help, it’s about making sure everyone (including the most deserving) gets more.
Maybe or maybe not in term of net tax revenue, but it's certainly an investment with an expectation of the preferred outcome of national security, with some portion of the subsidy maybe being returned as taxes of various kinds.
Investing money is different when you can create it from nothing. Needless to say the intuitions one develops from investing while not being able to create money at will are not entirely applicable.
I think we're using different definitions. A "strategic investment for national security" only has "net negative value" is the overall expected outcome is negative. War is pretty expensive so it's worth spending a bit of money to avoid it, or at least sway the outcome.
The government doesn't want a dollar ROI in the sense of increased revenues because it defines the dollar. What happens to the local currency is just one factor in the overall considerations.
"Stock buybacks are a form of stock manipulation" - not really, they're a means of returning money to the shareholders while bypassing taxes on dividends.
(Not an expert on the US tax system as I'm a Brit, but it seems that the tax treatment of dividends depends on how long the stock is held, and can be taxed at income tax rates, while stock buybacks result in inflating the stock value which is always CGT. Not sure what the tax treatment is for institutional investors?)
NB that "returning money to the shareholders" is ultimately what companies are for, and we should completely expect them to do this because without it investors wouldn't invest in the first place. It's infinite zero-dividend growth that's weird (Amazon).
They're a means of "returning money", but they also pump up the stock price, to which managers' TCs are linked. Hence they are a form of manipulation.
Unlike dividends, they don't return money to all shareholders, but to those who sell shares, which are the wealthiest, unnecessarily increasing inequality.
Excessive buybacks and underinvestment are a big reason why Intel failed. Gelsinger (CEO) talked about this publicly. It's not just "returning money to shareholders", because it leads to perverse incentives and underinvestment. Under Otellini, Intel returned 109% of its profits to shareholders.
> They're a means of "returning money", but they also pump up the stock price […]
Stock prices are also effected by dividends:
> Dividends can affect the price of their underlying stock in a variety of ways. While the dividend history of a given stock plays a general role in its popularity, the declaration and payment of dividends also have a specific and predictable effect on market prices. After the ex-dividend date, the share price of a stock usually drops by the amount of the dividend.
>Unlike dividends, they don't return money to all shareholders,
That's false reasoning in so many level. Take every of your arguments and do counterfactual and you see.
> leads to perverse incentives and underinvestment
Investing is not alternative to paying dividends in any well managed company. Companies invest if they see better ROI for the investment than elsewhere. They give money back to shareholders (either dividends or buybacks) when they can't do better than markets.
The positive ROI may accrue primarily to the top executives who are in a position to directly make that decision. Especially in a field like semiconductor processing where risks are high on new investment, it is almost always a lower risk decision to buyback the stock. I don't know the specifics of Otellini's pay package, but I would assume that his tenure resulted in massive wealth for himself, so this is certainly rational economic behavior but severely damaged the company.
Well the other part is that a big part of share buybacks are simply "sanitizing" the dilution from stock based comps(which are increasingly the way that most people get paid).
Intel SBC was 3.2 billion in 2023, and there haven't been any buybacks I think the last 2-3 years? Quite a bit of dilution which doesn't really make long term investors happy.
Buybacks "pumping the stock price" is a common misconception, but not actually true (unless the buyback is executed at prices lower than fair value).
There are less shares outstanding afterwards, but there is also less cash, so if executed at fair prices there is no reason for the stock price to move.
Just think through an example of a simple company which is a pot of $1000, and can get 10% returns on it. There are 100 shares, so if investors want 10% returns, shares should trade at 10$ (P/B = 1). If the company repurchases half the shares, there will be only 50 shares but the company only has 500$ now, making each share still worth 10$ for 10% hurdle rates.
But companies are not pots of assets. What you are buying is assets - liabilities + predicted future cashflow * discount rate.
So a more realistic example would be a company with 100 shares, $1000 of cash, and $1000/yr stable income.
So before a buyback, 1 share grants you the benefits if whatever the company does with $10/yr of income. Whether it be dividends, reinvestment, etc.
If the share price is $25 and they spend half their cash on hand to buy 20 shares back, now one share gets you $12.50/year of income. Thus the share is worth more than it was before.
Disclaimer: Armchair finance / economics knowledge. Hope the above is correct.
> They're a means of "returning money", but they also pump up the stock price, to which managers' TCs are linked. Hence they are a form of manipulation.
Why would you say they're pumping up the stock price, rather than just raising the price? Is it a temporary pumping effect, like an Elon Musk tweet from 2017, or is it actually increasing the value of the remaining shares?
Let's say corp XYZ has 100 shares out, and they're owned by 50 people.
At any point, there are people trading, buying and selling those 100 shares. Buyer 51 comes along and wants to buy a share. He can only buy a share if one of the 50 owners are selling. So, he has to offer a price that'll convince one of the 50 to sell.
XYZ Corp decides to do a buyback. They buy 20 of those shares. In that moment, they will certainly create a spike in demand for the 20 shares.
But later on, now there are only 80 shares out. When buyer 52 comes along to buy a share, there are fewer shares, and fewer sellers. He might have to offer more than Buyer 51 to actually get a share for that reason.
> But later on, now there are only 80 shares out. When buyer 52 comes along to buy a share, there are fewer shares, and fewer sellers. He might have to offer more than Buyer 51 to actually get a share for that reason.
By buying that one share buyer 52 gets ownership of 1.25% of the company. Buyer 51 only got 1.00% of the company when they bought their share. You need to take that into account when comparing share prices.
That's not pumping stock, though, right? Pumping stock is artificially increasing the number of buyers, for a short period. You're describing reducing the number of sellers. Which may increase the price, or may not.
You could argue that the buyback itself, like the moment where the company actually buys the shares back, is a pump moment. they could have the demand far outstrip the typical demand in the moment. But long-term, the price should be higher as they have decreased supply.
Executives are always incentivized to increase share value; that’s their job. Note: it’s the board of directors that issues new shares not executives. Executives can sit on the board, but the two are not the same. Executives are actually appointed by the board.
The reason stock buybacks are viewed somewhat negatively is because it’s a lazy way to increase share value. Preferably executives would use the money to come up with new products/services to increase revenues. But if we’re talking about huge mega corporations, who already spend a lot of money on R&D, capex and/or acquisitions, then using some additional cash flow on buybacks makes sense.
In Intel’s case, the buyback merits some discussion because it is implied that government subsidies are being used to buyback shares which is not the intention of the subsidy.
Edit: IMO, I don’t think Intel underinvested, I believe they invested in many failed ventures and under their past and current leadership they are not able to grow the company in any meaningful way.
>Under Otellini, Intel returned 109% of its profits to shareholders.
Seems like everything is working as intended. What do you think that companies are supposed to do with their profits? Why do you think shareholders buy stocks in the first place?
> What do you think that companies are supposed to do with their profits?
With hindsight it's clear that it would have been better for shareholders if Otellini had reinvested more profit into R&D rather than returning it to shareholders. Intel has now lost their process node advantage to TSMC. Their CPUs are not competitive on power efficiency with AMD and Apple. This is leading to smaller profits and ultimately a worse outcome for shareholders.
Right, more R&D and more CAPEX. The question is not whether shareholders deserve any return on their investment (yes), the question is short term vs. long term focus. Same with Boeing (161% of Boeing profits given to shareholders 2013-2019, underinvestment in talent and safety).
Prior to the Bush era tax cuts, all dividends were taxed at the income rate, which I think explains the biggest motivation in the shift from dividends to buybacks in that era.
Nowadays, as you say, there is no difference in tax rates for qualified dividends. However, one big remaining benefit of buybacks is that a dividend forces one to incur a taxable event when the dividend is issued, even if one chooses to immediately re-invest the dividend in the company (as many people still in the accumulation phase of investing do). On the other hand, a buyback does not force those people to sell.
On the other hand, a buyback should lower the market cap of a stock, so cap-weighted index funds ought to sell and re-balance when a buyback is issued, so most index investors would seemingly end up selling. However, they end up being able to avoid most of the capital gains taxes by re-balancing through redemptions and heartbeat trades.
> On the other hand, a buyback should lower the market cap of a stock
You got it backwards. If a stock is priced fairly, a buyback is value-neutral. Reduction of the cash on hand is offset by the increase of future cash flow per share. It's dividends that reduce the market cap.
No, because the future cash flow per share is not reflected in the current market cap.
Perhaps you are thinking of share price instead: there it is true that dividends reduce share price, while buybacks are share-price neutral at least theoretically, though it is commonly believed by many people that they do affect price.
(Hence, under that same theoretical model, market cap must decrease if share price remains the same because market cap is total number of outstanding shares * share price. So if the former decreases while the latter stays the same, market cap must have decreased.)
The earnings per share certainly increases. But this is (at least theoretically) offset by the fact that the firm's assets have decreased. For example, if the buyback was paid for with cash, then prior to the buyback, the shares represented a claim of ownership not just on future earnings, but also on that cash reserve.
That said, this is all under a theoretical model (as in Miller-Modigliani theorem). In practice/empirically, there is reason to plausibly believe that e.g. the decision to announce a buyback has a signalling effect and so can increase share prices.
Is there a heuristic for how much of the value of a share is assigned to asset value vs forward looking earnings? Many of the ‘hot’ stocks like Nvidia seem almost all forward looking.
By buying stocks, the company transfers money out of the company and to shareholders. Of course the market cap should go down: the fundamental value of the company has gone down (they have less cash).
> NB that "returning money to the shareholders" is ultimately what companies are for
You have absorbed modern market brokenthink.
Companies are for creating goods or services to sell to other parties. They existed long before the idea of shareholders. Following your logic, companies pre-VOC had no existing purpose.
Businesses have always been for putting food on the table of their proprietors. We've got a few more levels of abstraction now, but the fundamental is the same.
Why does anyone work? Because they need or desire certain goods and services. They entire idea of a business falls flat if it does not produce stuff people want. It is of course true that from the perspective of the business owner running the business is how they work, how they get the stuff they want by making money to buy things, but putting the emphasize on that seems wrong to me, after all you can run a business without trying to make as much profit as possible but you can not run a business that produces nothing.
>you can run a business without trying to make as much profit as possible but you can not run a business that produces nothing
This is not an even comparison. A business that produces the minimum amount (0) of product/service should be compared against a business that produces the minimum amount (-$assets) of profit, which corresponds to 0 revenue. Neither business can be run, but the former can at least sit on its assets or pivot into actually making something.
A business can also produce too much and collapse (see Atari and DeLorean), but it can't collapse from too much profit.
It makes more sense to put the emphasis on profit, I think.
This was not intended to be one or at best in the following sense. Making products and making profits are two features of businesses, the first one is essential, the second one is dispensable. No products, no business. No profits, no problem. Even more, no profits is where every business would ideally be, in a functioning market competition should drive the margins towards zero, the price should be equal to the costs of production.
You can run a business with negative profit (say, to capture market share or using a loss leader), but you can’t run a business with negative production.
Production is essential to a business and profit is not, strange as that may seem.
What does negative production mean to you here? I can run an incineration business or a demolition derby, as long as I get paid to do so. If that doesn't count as negative production (because I'm producing space or entertainment value; potentially at a loss to acquire market share), what does? If negative production is a physical impossibility, the claim that you can't run a business with it doesn't tell us anything about business.
>> For the first companies, the privilege of incorporation, often via royal charter, was granted selectively to facilitate activities that contributed to the population’s welfare, such as the construction of roads, canals, hospitals and schools. Allowing shareholders to profit was seen as a means to that end. Companies were deeply interwoven within the country’s or town’s social fabric, and were meant to contribute to its collective prosperity. <<
That sounds like the economic system was created for the benefit of society and it did so by incentivizing people to create companies in exchange for profit. If someone taxes carbon and that causes me to reduce emissions, is my action altruistic or is the tax?
Pardon? It is the answer to the question of why companies exist. Companies exist to make profit; capitalism exists to enable for-profit companies to exist because they benefit society. If a company's goal wasn't to make profit, people wouldn't invest in it, and it wouldn't be a company.
If you don't care, why participate in a conversation about it and ask a sibling reply for a counterpoint?
Someone asked whether companies act out of altruism and you replied to say that they do (or did). A bit of a rug pull to then say 'who cares, the outcome is the same'.
But the outcomes are not the same. Tracing the conversation back, the top level comment pointed out that we should expect companies to give their profits to investors because they operate for profit. A company that exists to benefit society would be expected to put its profits towards bettering society, or at least towards its own ability to do so.
I argue that benefits to society are a side effect of profit-seeking, which capitalism takes advantage of to great effect. A company with no interest in improving the world will nevertheless wind up doing so, because they'll make money in exchange for providing utility, because the system is designed that way. Expecting a company to behave to benefit society instead of for profit will give you bad predictions when the two are at odds.
The author of that quote literally founded a company (Granito Group) to sell this message to sympathetic (obviously left leaning) organizations so that he could personally profit from it. Case closed.
> Companies are for creating goods or services to sell to other parties. They existed long before the idea of shareholders. Following your logic, companies pre-VOC had no existing purpose.
Sure, but the owners (sole proprietors, shareholders, partners, etc.) of most companies want to make profit selling those services and goods. The more money you make the more you can grow the company or reward yourself (as owner).
Companies never existed without shareholders. It's in the name: "company", ie a group of people. You're thinking about "ventures" or "businesses". Which would exist by decree of the sovereign, for example.
From a basic economics perspective, companies conduct buybacks when they have no other use for the money. Since re-investment supports shareholders on a longer timescale, Intel has essentially let the market know they don't have any other use for the money they have. The point of investing in a company is the funds to be used to generate wealth. If I invest in your company and you just give me back my money, what's the point of the company (especially if its money requiring extra leverage to produce). Buybacks are inefficient use of invested capital (see NVidia's stock price if you need a comparison for a more efficient use of cash and its effect on shareholder value).
Whether they are efficient or not entirely depends on the company. For every NVidia you can find another company (or ten) that reinvests inefficiently because managers tend to like building empires at the expense of their shareholders.
It is a silly notion there is anything wrong per se about stock buybacks. Just as you can sell stock when you need cash (and lose some control) it is simply buying stock back when you saved some cash (and regain control).
The only reason stock buybacks are thought of in negative light is that they seem to be a way for companies to not pay taxes... but the tax law is not companies' fault! It is our fault for the tax law to be this way!
Most people don't own individual stocks. So their audience just pictures top hat wearing capitalists when they hear stock buybacks. It's the same reason why tenants garner sympathy while landlords are quickly called slumlords.
Usually when people buy shares they are going to try and get the most shares for the least amount of money, but the incentives are a bit different for stock buybacks. I don't know if buybacks are large enough to "move the market" but I'd be curious to see details on how exactly orders are placed.
I'm a big believer that we need more non-profits that simple exist to employ people and provide goods and services. I realize this is just a charity and depends on the good will of people with capital.
It can be both at the same time. By buying out your stock, you alter the company's assets, but the price of the stock remains the same since you still have the same number of stocks issued. You just replaced your money assets with stock assets.
Once you cancel the stocks you bought back, the rest of the shares will hold a more significant percentage of the company and increase in value.
But this is one part of the equation. The other part is that your stock is inside a market, and buyers and sellers combined determine its price. If you keep buying your stock, you create buying pressure, helping keep the price from falling.
Stock buy backs functionally work no different them dividends at the end of the day. Your returns instead of getting issued as cash from a dividend are in the form of higher share value. Taxed as short term or long term capital gains vs dividend.
Its a form of stock manipulation if you mean that buying stock increases the value of the stock. It doesn't mean its a form of manipulation in some kind of illegal unethical way that i think this comment thread is trying to make it sound.
It's stock manipulation, we just chose not to see it as such. Just like alcohol is objectively a hard drug but we just chose not to categorize it as such.
Is a company issuing its own stock (i.e. selling) also market manipulation? It brings the price down. Buyback is the reverse operation.
The difference from actual price manipulation, is that the price change in issues and buybacks is a permanent effect of the material change of the number of outstanding shares, not a fledging effect of the change in trade volume, i.e. the intrinsic value of the stock goes up or down.
edit: of course buybacks, like dividends, decrease the value of a company, and issuing stock increase it, so it is not clear cut.
Why is me buying my own book to bring it to the best seller list any different than any other purchaser?
Stocks are supposed to be a share of ownership in a company, and the price goes up and down because being an owner of a company goes up and down in desirability, based on how well the company is doing.
Just like with buying your own book, buying your own stock artificially increases the desirability.
that's an argument for why best seller lists are stupid.
companies can create new stock anytime out of thin air, and that decreases the price. why can't they do the opposite?
some owners of the company decide to buy stocks from the others, thus consolidating ownership. that's what stock buyback is.
note, the argument for taxing buybacks is completely different, and valid. (and it might make sense, it might not, it depends on the circumstances. externalities tax (pollution, tax on induced traffic, etc), LVT (land value tax) and wealth tax would be much better, than taxing transactions.)
This is a misunderstanding of what stock buybacks are. Companies do not buy their stock from themselves. They buy the stock from participants in the market.
Following your example, it'd be like the author of a book buying the book they wrote from someone else. If the author chooses to pay someone else 1000$ for their book, they can, but they will be wasting money.
A company doing a stock buyback is trading off their own capital (they have to spend it, it's not an infinite money glitch where they buy it from themselves) to get back shares of the company itself at the then-market-price. The market chooses whether that's a good trade. It may not
The company is in charge of itself. Everything it does alters the price.
Bought back shares strictly increase the price for existing shareholders as it takes them off the market. The entire concept is mainly due to stupidity in tax law that ends up double taxing direct dividends.
Stock buybacks are heavily regulated. They need to be tracked and publicly reported and the plans for buybacks need to be announced by the company ahead of time.
Because it’s independent of other price signaling mechanisms. The company doesn’t buy the stock because it thinks that stock is a good investment, it does so because of how it influences future prices.
Ignoring inflation if a company issues the same inflation adjusted dividend forever say 1% at current prices. In theory the stock should stay roughly the same over the next hundred or thousand years. However, with a buyback the stock would increase constantly forever with endless stock splits.
The second option is great for long term owners in terms of taxes, but it’s also manipulation of the stock price.
Companies can have net profits and be terrible investments.
The exact same company can be a great investment at 10$, and a terrible investment at 10,000$. You can’t separate stock price from if something is a good investment or not.
The example I gave was low risk 1% dividend, that’s not a stock I would want to own. Net result the company, which has inside information, should expect the price to correct ie fall at some point and thus be a poor investment until that point. That doesn’t prevent them from buying it because the goal isn’t a positive ROI.
> NB that "returning money to the shareholders" is ultimately what companies are for
And here I thought companies are there to provide me, the consumer, and the customer, with useful products and services.
If the purpose is return of money to shareholders, then the best strategy is to over leverage the company, spend every penny on stock buybacks, then default on all obligations to suppliers, pension funds and customers.
Because you can fund stock buybacks with debt, but you could not do that with dividends.
We have made economic destruction profitable and it’s happening across our economy - water companies in UK are going bankrupt because they have huge debt that they took out just for stock buybacks, and not for anything else, and now interest rates are up. Same thing happened with airlines, and many other firms.
It's always been "both"? (specifically for the PLC-type company). People invest in the expectation of a return, to be achieved by doing business. It's usually phrased as "maximize shareholder value", which is ambiguous about the timeframe, but for most cases the value is understood to be over the indefinite future. Not that that stops people from taking short term decisions which can be bad in the long term.
> Because you can fund stock buybacks with debt, but you could not do that with dividends.
There are plenty of companies with large debs that pay dividends on the US market, such as Ford.
The overleveraged self-destruction is bad, but that tends to be a feature of private equity deals where there is a single majority owner doing it on purpose (e.g. Maplin, Jaguar Land Rover). Harder to do with a publicly owned company where the investors can see what you are doing and may sue you.
The UK water companies should never have been privatized in the first place. They're dysfunctional because water isn't a normal market and arguably can't be, so they're ripe for this kind of looting of the state by capital depletion.
Just want to mention since many commentors on this seem to miss this, three important points about stock buybacks missed by the back and forth partisan talking points on this comment:
1. They only make sense when the stock is undervalued and aren’t purely driven by taxes. If the stock is undervalued, then investors benefit by owning more of the company for less. If the stock is overvalued, then investors don’t benefit. The overall value of the price compared to its long term real value is important. There is a basic problem with this, because company executives probably never want to admit that their stock is overvalued.
2. Companies with strong incomes relative to their price can afford to do buybacks or with strong cash positions are the ones that make sense to do buybacks. Companies like this might be overvalued. When you see companies internet companies with zero income doing buybacks it makes very little sense and only established companies. Companies with strong financial positions relative to their stock price are more likely to be undervalued.
3. Because of the discounted cash value of income model for dividends where the value of a stock is based on future income and cash flow, dividends generally have to be stable and regular to ascribe significant value to a stock, which is why companies that have built up large cash balances but don’t expect to regularly pay dividends opt for buybacks, because they don’t want to create the constant pressure to regularly pay dividends.
1. Stock buybacks are always anti-dilutive regardless of the value of the stock, and so investors always benefit as future earnings are concentrated amongst fewer shares (all other things being equal). It's true that a lower price/value increases the magnitude of this effect, but the effect is always present.
2. Zero income stocks can still do buybacks when they're returning capital raised from shareholders to shareholders (this is essentially just partially reversing a funding round, which again undoes some of the dilution).
3. Companies can be deemed to be significantly valuable without paying any dividends. Companies that have a long history of paying dividends but then suddenly stop tend to be in distress, which is then reflected in their share price.
These statements might be logically true, but I feel the logic ignores the overall strategic factors involved in buying back stock and that management needs to consider whether the stock is over or under valued, whether earnings are strong enough for this to make logical sense and the supply and demand among investors for dividend stocks and the ultimate value of a single lump sum distributed to investors vs the value of increased future earnings to the investor from the anti-dilutive impact of buying back stock.
Discussing only the tax strategy as is happening in this thread is really stepping over some really important strategic operational factors.
Tax just depends on how long it's held and if it is part of a major index. If you held long enough and it's part of a major index it is taxed the same as a stock buyback would (assuming you sold).
Trading stock isn't investing. There's no reason for companies to give money to shareholders that simply bought their shares on the stock market. The company doesn't profit from that.
Stock buybacks only pass money to those shareholders whose stock the company buys back. The buyback may raise the overall market price of the stock, but it also might not.
NB that "returning money to the shareholders" is ultimately what companies are for [...]
This could not be further from the truth. Companies - and actually the entire economy - only exists for one purpose, to satisfy the needs of the people, to efficiently produce good and service that people need or desire. Profits are just means to the end, a control signal to steer the economy. Not that they are not important, but they are not why we have companies.
> "returning money to the shareholders" is ultimately what companies are for
That's what shareholders want you to think. But societally and economically companies are mostly for everything else. If no company ever paid a single dividend or never bought back any of its stock nothing bad would happen. There are a lot of companies doing exactly that.
But if companies stopped doing everything else they do that they are supposedly not for, the economy would end.
Who would invest in or create a company that would never pay a dividend and never bought back its stock? How would shareholders ever yield gains from their investment?
Short of some entity buying all stock and taking the company private (to then withdraw profits), there would be no way to return profits to shareholders.
The companies currently not doing those things are in a growth phase, with the expectation that in the future they probably will be issuing dividends/buybacks.
When company goes public its shares become tokens in the casino. Shreholders can sell their shares to people who want to gamble with them. And just one reason is sufficient for people to want to take a gamble and purchase them. It's enough that they believe that they'll be able to sell it for more later.
And they are not wrong. As long as the name on the token takes a prominent place in public consciousness people will flock to it and early investors will be able to sell it for more. If you want to see what's sufficient for people to invest in something look at shiba inu crypto token or WIF.
Who would create a company for 100k if it can sell it to gamblers for millions when it goes public? Plenty of people. There's whole industry of angel investors fuelled by thay dynamic.
> The companies currently not doing those things are in a growth phase, with the expectation that in the future they probably will be issuing dividends/buybacks.
Berkshire-Hathaway has only paid dividends once since Buffet took over, and is the highest priced stock listed on the NYSE.
For them to be effective at returning money to shareholders, the action of buying stock is intended to take stock out of supply thus increasing share price value. Exactly as you say.
Yet, this is clearly a form of stock manipulation, as it's an action to manipulate the share price.
Whilst it is stock manipulation, it's debatable if it should be legal.
I believe it should be legal, it's an efficient way to increase share value without adding to someone's income, thus often carries no immediate taxable obligation.
However one could argue that these methods of moving wealth around without taxable events triggering adds to the fuel for calls to tax unrealised gains on all stock.
So in the long run we are all worse off.
Those laws will likely come regardless, as a way to fight the billionaire class, so stopping stock buybacks at this stage is unlikely to do anything.
It does effectively legalize a form of insider trading though, a company would never do a massive stock buyback right before dropping bad news because the stocks they are now holding goes down in the price.
> not really, they're a means of returning money to the shareholders while bypassing taxes on dividends.
This is actually a new idea. Prior to a change by the Reagan administration in 1982, they were considered to be an illegal form of market manipulation. Dividends served the purpose of dumping excess funds to shareholders.
>NB that "returning money to the shareholders" is ultimately what companies are for
That's debatable in many instances of the modern economic system. Of course, some instances of capitalism focus on that particular goal you've mentioned, but that wasn't always the case and it still isn't, depending on the socio-economic circumstances.
No one needs $8 billion in subsidies. But that’s how we run the United States now. There’s no longer comprehensive legislation trying to solve a particular (perceived) problem. Instead we just drop money from the sky on various people and companies.
There’s a pandemic? Quick, cut 80% of the country a check.
The childcare industry is structurally understaffed and unprofitable, let’s just cut them all checks!
Higher education keeps on growing to larger and larger percentages of GDP? That’s okay we’ll just cut checks blank tuition checks and then forgive all the loans.
China is signaling that it might invade Taiwan. That’s a tough one. Hmm. I got it, let’s cut a check to semiconductor manufacturers!
My question shouldn't imply I disagree, but what's the alternative to allocating capital to industries or problems where government wants to drive change?
Take loan forgiveness—-the loans themselves are not the underlying root issue. They are a tertiary effect of a credentialism spiral and insane cost growth at institutions that don’t face true market pressures. Just dropping money on borrowers is not even attempting to fix the underlying problem. It’s so unambitious it invites cynicism.
And how do you propose the government try to fix credentialism?
For all the talk about how useless degrees are, companies still choose to require them, especially the companies helmed by “college is a scam” zealots.
Companies have to still require them because they are a valuable signal and it’s free to them. Kids have to go because companies require them.
This is what a peacock spiral looks like. Government is fundamentally for breaking these kind of incentive failures. Not supercharging them through blank check forgivable loans.
Agreed the loan behavior exacerbates the issue rather than mitigates it, but “the current solution is bad” doesn’t necessarily mean the same agent is able to produce a good solution. If you’re certain the government is capable of breaking it: how?
I have ideas but if I post them, I’m guessing you are going to pattern match me to some ideological category and try to debate from that point of view.
That’s not my point at all. It’s that all our federal politicians and political parties have had their ambitions shrunk down to nothing.
No one at all is saying—-hey this credentialism thing is a serious problem, vote for us and here’s how we’ll attack it. Even if someone was proposing an idea I totally hated, I would at least appreciate the effort to actually solve a real problem.
If you think credentialism is impossible for the government to make a difference on, pick something else. Anywhere you look for the last 14 years we’ve had few to no ambitious proposals.
Errmmm... okay. The Biden administration actually has both talked extensively and taken several concrete steps against credentialism. Effective? I personally do not know. But it's blatantly false to say no one is talking about it or attempting to fix it.
> The Department of Labor (DOL) is announcing an Advanced Manufacturing Registered Apprenticeship Accelerator Series that will support hundreds of employers to speed the development and launch of Registered Apprenticeship programs in high-demand occupations, such as industrial manufacturing technicians, robotics technicians, and industrial maintenance mechanics. Since the beginning of this Administration, the number of apprentices in advanced manufacturing Registered Apprenticeship programs has increased by 10 percent—and this effort will build on that growth.
The administration has backed numerous apprenticeship programs like BioFabUSA that explicitly do not require college degrees.
The administration created "Investing in America Workforce Hubs" in several cities to attract private investment into programs that, again, prioritize high-quality jobs that do not require college degrees.
So it is simply untrue that no one is saying credentialism is a problem and trying to attack it. The current administration talks about this to no end and has attempted dozens and dozens of substantial attacks on it.
Again, if you have ideas other than grant funding and tax incentives, I'm truly curious to hear them.
Thanks for ellaborating! Although de-regulation and regulation have other properties, I'd posit they are in essense are forms of capital allocation.
When you regulate an industry you require more capital investment from that industry, either by investing in new processes, implementing compliance mechanisms, maybe hiring extra quality-assurance people or having to dispose of trash in a better way, etc. Regulation mostly implies more investment by the participants in that specific segment of the market, it's like a reverse capital injection, or an added tax.
The same way de-regulation is like giving that segment of the market a cash bonus because they can relax processes that require money to run and operate more efficiently.
More importantly regulation and deregulation also add or remove rules, so they change the behavior of the participants. If you want to have the same effect of regulation and deregulation but not by driving change in rules of operation (maybe because as the government you don't know yet which rules to create - or the different political factions cannot agree), an easier way is to directly give money, and depending on how you allocate it, I think it can be a fair way to do it.
Another way of thinking about this as a system is imagining the case where you want to promote investment in the semi-conductor industry but not at the expense of processes. Said another way, what would you de-regulate in the semiconductor industry to have the same effect as a capital injection to the leading semiconductor companies in your country? Surely you're not proposing them to be able to use more dangerous chemicals and dispose them however they want, or other types of de-regulation? It would reduce the barriers to entry and help semiconductor companies, but with negative externalities. Messing with regulations always has this potential for unpredictable secondary effects.
I'm not convinced regulation/deregulation is in principle superior to just allocating money pools with fair rules to access them. I'm obviously against nepotism and influence peddling as part of the money allocation process and I'm not defending the injection into Intel specifically, which probably suffered from a big amount of influence peddling.
Tuition has only exploded because of unlimited government-backed student loans. They created this problem with the "good intentions" of providing everyone an opportunity to study any subject at any price regardless of job prospects. The problem isn't credentialism per se, although a large number of people were advised to go to college for the most generic stuff on the theory that "any" college degree doubles your lifetime earnings no matter what you study.
Regulations is one of the major reason semiconductor industry shifted overseas. US used to be the undisputed leader in semiconductor manufacturing. If you think Intel will stay regardless of US regulation, you are definitely wrong.
China will always allow manufacturing with minimal regulations.
The government as the strongest central power identifying weak or struggling areas of the country that needs help makes sense. That's like primary advantage of central power in the first place. The issue is that things like lobbying ends up shifting that focus over to already strong parts of the country that wants even more.
> There’s no longer comprehensive legislation trying to solve a particular (perceived) problem.
Of course, there is, but some problems are different and difficult. Why are they difficult? Because it's hard to find an alternative solution that ticks all these boxes: one that is socially acceptable to all parties involved, does not incur additional problems or direct costs to any specific party or group of interest, and does not disrupt the market, among other considerations. You also need to take into account current laws, the social contract, and politics. Sometimes, the most efficient, easiest, least disruptive, and most acceptable solution is simply to allocate funds to address the problem.
Which law, passed after the ACA, would you say best reflects Congress identifying a serious national problem and attempting to comprehensively deal with it?
Sure, but what is the alternative? Government subsidies keep the whole thing afloat, there is no removing them. And obviously that is by design.
There is a marginal utility to increasing funding, but that isn't the point, the point is that the subsidies guarantee that the receiver is dependent on the sender.
If Intel is so important to national security, it should be nationalized. If Intel is not willing to willingly invest into U.S. manufacturing, it can be targeted with tariffs. A corporate handout by the taxpayer is not what should happen, though. And yes, stock buybacks are a form of market manipulation. That's why they were banned before Reagan.
Funnily enough, SEC unbanned stock buybacks by using the Chevron deference, which is currently being challenged in courts. EPA being unable to regulate climate change might be offsetted by a minor win of making SEC not ignore law anymore by asserting its legitimacy.
Nationalizing is unlikely to increase productivity and innovation.
There’s multiple competing goals here and we need to think about how to achieve them.
If we think that Intel is fixed and unlikely to need to change, perhaps nationalize and then just operate it as it slowly declines. But that’s also going to make other chip companies less likely to invest in the US as few investors want their investments nationalized.
The purpose of these economic investments isn’t primarily moral justice (although I think that should be part of the calculation). The purpose is to increase US chip production.
It seems quite silly to think that nationalizing Intel would lead to greater US chip production.
China is banning Intel and AMD chips from their gov't use. When they catch up with tsmc in 7nm, they'll likely make an import ban on all U.S. chips. Who then will AMD and Intel sell to? Aging European population? Africa as it develops? Africans are likely to buy Chinese chips, seeing for all the material infrastructure China invests in.
Intel and AMD will only sell to American-alligned countries, which are declining. Seizing the company and milking till it runs dry is the right move.
Intel had all the capital it needed to innovate. It did not. The company is unable, despite all the cash it has on hand. It's a lost cause. One hopes AMD continues innovating.
This is completely delusional. China isn't the entire world and trashing your own manufacturing because one market might somewhat soon see increased competition is a legitimately insane policy proposal.
Also Intel did innovate, very clearly so and they don't compete with AMD when it comes to manufacturing at all.
AMD has 1.5x larger market cap than Intel. All in 7 or so years where it was near bankruptcy. During AMD's weakness, Intel had near monopoly position on chips. It racked up all the cash it could. It hasn't innovated ever since. Chiplets came from AMD, 6 cores as minimum standard came from AMD (Intel sold 4 core entry CPUs well into Zen era because that's all you need!). Affordable motherboards (together with partners) and strong commitment to socket longevity came from AMD (AM4 is still supported and new products with 5600x3d are still released). In reference, Intel before AMD's Zen would release a new socket for each yearly release.
And in fabs, Intel just isn't nowhere close. How's the 12nm++++++++++++ going?
China is 5.2B of AMD's sales (2022). That's 65% of U.S.' with enormous growth potential as Chinese middle class gets richer. Europe is 1.77B of AMD's revenue. How does the capex investment equation play out when your 5.5B of sales just disappears into thin air?
Market caps are literally made up by how investors feel. Intel and AMD aren't competitors in manufacturing semiconductors, as in they literally do not compete in that market.
AMD isn't manufacturing, they are totally irrelevant when it comes to the discussion.
>It hasn't innovated ever since.
What are you on about? This is ridiculous. Do you know anything at all about this subject.
The main problem of course is that the US government is so dependent on a single company because they allowed the instruction set to be protected IP since forever, allowed imports from countries without demanding they provide the same labor and environmental protections and they didn't invest in a well educated population that would allow for new advancements to be homegrown.
If the buybacks are undesirable they should tax them. If Intel is trying to divest they should start working towards alternatives and put the government contracts towards companies that do not create these issues.
The instruction set has nothing to do with semiconductor fabrication...
The reason Intel is the only one is because cutting-edge chip making is arguably the most capital intensive and challenging industry in the world. There are literally only three companies on Earth who do it.
For general computing in desktops and servers x86 has had close to a monopoly for the last 20 years. Arguing that this does not influence the semiconductor industry is a more bold take than arguing that it does...
It would be unfair to only put tariffs on Intel. Maybe tariffs could be part of the solution to retain essential production capacity in the US though. It should have been done before production left, though. Right now there is very little production left in the US for anything.
they reduce the supply of stock available, that is a difference. If its material is a different question, I'd argue it is but don't have data to back that up.
If a company has to buy back 10 billion in stock over a fixed time period market participates should be able to drive up the stock price knowing they will have a buyer (the company) to sell to later.
Option 1: 2% dividend. I have 100 stocks worth $98 each + $200 =$10000. Stock value drops immediately.
Option 2: equal sized buyback: I have 100 stocks worth of $100 each = $1000. Buyback does not increase the stock value immediately. Company pays $200 for those who sell, but owns the stocks (or shareholders 'own them') so it's net neutral. This reduces the number of shares outstanding, thereby inflating (positive) future earnings per share. This typically leads to the value increasing.
In a hand wavy theoretical sense you can maybe say it "just" delays taxation, but shareholders aren't going to go out of their way to ensure that they sell at a price that incurs the equivalent taxation.
And then a tax that sort of directly relates back to the cashflow of the company is not equivalent to a tax that is based on the capital gains that shareholders end up with.
Because without it they will build somewhere cheaper to operate and then U.S. doesn’t have a fab if/when China absorbs Taiwan.
It’s not that difficult of a concept. And no, like others will inevitably suggest you can’t just legislate a multinational company to build its facilities onshore because you need them to. If you need something from a company you make it worthwhile, which is what’s happening here.
> And no, like others will inevitably suggest you can’t just legislate a multinational company to build its facilities onshore because you need them to.
It’s weird that people have forgotten this is a thing the government can do.
Even weirder that people have forgotten about the concept of second order effects.
Which would cost the nation more?
a) Setting a modern precedent that any company doing business in the U.S. can suddenly be treated as if they’re somehow owned by the U.S. government and forced to make capital expenditures against their will.
b) A $8 billion subsidy that will eventually be recouped or at least offset by economic benefits.
I was just pointing out the silliness of acting as if a possible thing that’s been done before is impossible. I wasn’t advocating a course of action.
Pretty much every time we arrange things to favor or necessitate domestic production in an industry, it’s done in the name of security (defense contracting and agriculture come to mind). Including semiconductors in that category is not crazy, and there is certainly more than one way to bring about those incentives.
> Setting a modern precedent that any company doing business in the U.S. can suddenly be treated as if they’re somehow owned by the U.S. government and forced to make capital expenditures against their will.
It's amazing how many people on here seem to think that the first response to China should be to turn the US into China and start doing state-directed capitalism. Maybe "disappear" a few dissident CEOs.
No kidding. I never thought I would see a thread on here polluted with people saying the United States should start behaving like an authoritarian communist apparatus and nationalize or arbitrarily coerce corporations versus coming to a mutually beneficial financial arrangement.
I'm just impressed by how people are willing to, out of ignorance or... whatever, write things that obviously not true and then caricature other commentators as communists. I imagine this level of dialog exists on Fox News websites or something, but you should try harder here.
For what it’s worth I wasn’t referencing you specifically. There were, at the time of my last reply, people elsewhere in this comment section advocating for exactly what I mentioned. My apologies.
Well, no? You can always target the company wirh crippling import tariffs unless it gets onto a roadmap to re-shore the strategic production you want them to.
Of course, whether it works or not depends on your leverage as a country: the US should easily pull it off, it's the legislator that doesn't want to play that card for political positioning reasons.
Crippling tariffs on the thing you’re trying to secure access to. And what happens when China says to Intel “here’s 60 billion a year, don’t worry about America just keep doing what you do best”?
>And no, like others will inevitably suggest you can’t just legislate a multinational company to build its facilities onshore because you need them to.
Of course you can. But if you do, you have to accept the consequences.
Again and again people here pretend that just becythe government does it there will be no consequences.
Capturing TSMC intact by force is .. unlikely. Assuming it survives the fighting, there's definitely both Taiwanese and US factions advocating for blowing it up. https://press.armywarcollege.edu/cgi/viewcontent.cgi?article... ; all it would take is one patriotic officer in the retreat to decide to deny it to the enemy by chucking a grenade in the clean room, and the equipment is toast. Russia burnt down Moscow to deny it to Napoleon, and Hitler ordered that the same be done to Paris (but in that case the officers decided not to obey).
A more likely scenario is simply that threats and internal political pressure cause Taiwan to ""voluntarily"" unify with the mainland.
$8bn buys you about one (1) fab, but you also need the staff and institutional knowledge to run it, so realistically it has to go to some company that is already operating a similar fab.
True. It comes down to whether or not it will cost more than $8 billion to attempt.
And what would the enforcement mechanism be? “Sorry Intel, if you’re not going to play along with our attempt to coerce you into making sure we have a supply of chips then we’re not going to allow you to sell chips here.” Seems a bit self-defeating.
tariffs and or new taxes on the chips imported from other countries would have served that same purpose - without the need for more billions of corporate welfare.
Stock buybacks are just a form of dividends. It's still subject to taxation via capital gains tax.
Subsidy is just a way to create an incentive for Intel to build manufacturing facilities in the US. It's not paid because Intel lacks funds, but to ensure that factories are built in the US and not elsewhere. Intel can do whatever it wants with the money received from subsidies, provided it fulfills its obligations.
Jobs aren't particularly important in this schema, but they are a nice talking point for politicians to show that at least part of the money paid via subsidies will return to American workers.
It doesn't need it, it's simply in a position where it can get it. From their perspective it's free money.
It's the same situation with car manufacturers, they do this all the time. They get massive subsidies (usually in the form of permanent tax breaks) by pitting the governments of prospective factory sites against each other.
(It's actually a form of the prisoner's dillema: governments would benefit in the net if no-one offered these subisdies, but the prize for defecting is just too great so someone always does.)
I always thought of "stock buybacks" as a form of "debt payment". Stocks are created by companies out of thin air, as a tech worker I am (partially) paid in stocks. Those stocks aren't purchased by my company on the open market, they are manifested -- diluting shareholder stock.
Buybacks put a payment on that "loan". I doubt people would be so up in arms about companies paying off their debt, even prematurely. The number I'm more interested in is total stock buybacks / total stocks issued, which of course is never reported.
So the article seems complete, but literally doesn't even mention continuous dilution due to employee compensation or related issues. It only mentions "issuing stock" like it's a single event instead of a continuous process.
Equity is specifically NOT a debt, but you're right that it's just the mirror image of stock issuance. See my other comment about it being a means of returning money to investors like dividends.
Yes you’re wrong - it’s literally not paying back debt. It’s an attempt to appease stockholders because their actual financials can’t keep up, thus reducing the price of the stock, thus reducing the compensation packages of the executives and wealth of the board, who is also elected by shareholders.
I mean I get that argument too. But is what I said wrong? Isn't stock being continually issued, diluting the value over time? If buybacks were _never_ done, wouldn't it keep getting diluted forever?
Edit: for instance, if Google has 200,000 employees and is granting an average of $50,000 stock per year, that is $10 billion. So id be okay with buybacks of that size.
The actual buybacks are much bigger if memory serves, so that seems like manipulation like you're saying
One thing that bothers me about the current economy is that most tech workers are are paid in stock and most Americans are required to invest to retire.
This is basically a net fiscal transfer from regular Americans to tech workers, since tech stocks are typically the default investment when retirement is more than a decade away, artificially raising the price of tech stocks.
Tech workers sell now while the price is artificially high and everyone else is left gambling later after all the tech workers have cashed out.
That shows the dominance of the financial market and the economic power over the structures of society. We find completely normal hundreds of billions be redirected to the owners of the capital but we would find an anomaly to think of a technological project that could bring real progress and costed that much.
$152B in buybacks and the stock is still not trading high. Still not interested. Feels like Intel is basically at the GE stage of impending decline due to over corporatization.
> Intel CEO Pat Gelsinger hauled in $179 million in 2021, most of it coming from stock-related compensation.
When I see statements like this, I know to stop reading.
No he didn't make $179M. He was awarded PSUs that will mature only if Intel stock hits a certain price (in a window of N years). Not only did it not hit that price, it has been down considerably. The grants will likely expire before Intel's price hits those goals (I think the lowest target is in the 80 dollars).
His actual compensation that year? About $10M - quite a bit of it being a sign on bonus.
Here's an unpopular opinion: If the US government - or some European government for that matter - wants companies to start building semiconductor fabrication plants within their borders they should not start offering them carrots like this $8B subsidy, instead they should:
- go lighter on the sticks of onerous environmental regulations
- do their best to recreate an academic culture which centres around competence and expertise instead of political indoctrination and activism
It is not likely to be a lack of money which keeps these plants from being built there, it is the threat of being buried in regulative paperwork and the decade of delay which that comes with because of some critter being found living on the plot where the plant is to be built. It is the regulations around the use of all the nasty chemicals involved in semiconductor fabrication which make it more profitable to build those plants elsewhere. Also, it is the fact that many western universities have been or are in the process of being captured by political activists who turn these institutions from seats of learning into agitprop factories where merit takes a backseat to unalienable characteristics like race, sex and sexual orientation.
Given that we here in 'the west' insist on having access to the products of these factories I'd say it is more than hypocritical to insist these be manufactured elsewhere because doing so here is too damaging to the environment and the people working in those factories.
Seems to me that the CHIPS act doesn't go far enough to build up domestic competition.
What would be the consequences if the government nationalised / heavily subsidised Intel ramp up domestic chip production? Or split Intel up to create new national champions?
This state intervention seem to be working out well for China in electric vehicles and solar. The US risks squandering its technological advantage by pursuing half way measures.
Nationalisation would be incredibly bipartisan unpopular in the US. Everybody seems to hate the idea of the Federal government running random businesses. It would probably also immediately implode from pay issues.
Subsidy is what's happening, but people have (correctly) noticed that since Intel is profitable this is really a giveaway to Intel shareholders.
The subsidy isn't economic stimulus it's done in the name of national defense. The chip shortage of a few years ago hampered production of many industries including military. The money is to accelerate domestic chip production because we actually just need the chips.
Lot of talk about trivia. A billion here, a billion there, it doesn't add up very fast in a trillion-dollar budget.
Let's talk about important things instead. Like defense, or infrastructure or schools. Not dropping nickels into Intel's tin cup so they'll do what we want. That's business as usual -spending govt money to get things done is pretty much all it's for.
If you claim something is a "low quality article" you need to make more clear what you mean by "the author doesn’t even know what a stock buyback is" since the summary of the author on stock buy backs is quite clear and concise.
I don't mind the US govt giving $8B to build out a US based fab. I mind when the US based fab doesn't get built or is just built for show but can't churn competitive chips.
Both Boeing and Intel are showing their incompetence. US should give Nvidia $8B to build their AI GPUs on US soil.
Can high end silicon products put under export control?
I think that’s what the US government does for commercially vital resources. It might also as a side effect, force the production on the US soil as well.
I think I'm on the other side of this argument. The US operates a fairly laissez faire capitalist system. The US has decided that it wants to encourage chip production in the US. There are a number of ways to do this - you can put restrictions on imports, you can create tax cuts locally, or you can create federal initiatives to incentive companies to do more in the US. There are pros and cons to all of them, but it's important to understand the US isn't doing Intel a favour - there is something the US government wants - strategic capacity to produce high tech chips, and it's spending money in the open market to achieve that. It could have gone down the other routes, but there's good reason not to. You impose tariffs? Maybe Intel just decreases production, you create tax cuts? You get exactly the same accusations of state subsidy. But what's happening here isn't a subsidy, it's a transaction, Intel is delivering something the US government is willing to pay for.
If they don’t get free money they won’t build US fabs because it doesn’t make economic sense. It’s pretty simple really. If you want them in the US you need to pay them the difference of what it would cost them to build elsewhere.
>the political establishment actually buys the corporate line that halting mass layoffs would make corporations uncompetitive, which is total nonsense... In Germany, the workers used their power to persuade Siemens management to agree to no forced layoffs...
In another article (Why Europe is a laggard in tech):
>Today, investment in tech research and development in Europe is only one-fifth of what it is in the US... Investment in AI is around 50 times higher in the US than in Europe. European tech is falling behind its competitors at an alarming rate. How did we get here? https://www.ft.com/content/d4fda2ec-91cd-4a13-a058-e6718ec38...
Reward investors - get more investment. Treat them badly get less.
It's as if this person has no understanding of business or economics or the heart of man...... Subsidies/grants are given out to get a business to do something that isn't in the business' interest or is too low a probability of a high payout to be considered without what is essentially a bribe from the government. In this case, those grants are driving massive malinvestment in excess semiconductor fab capacity in locations and at capacity levels that currently don't make a lot of sense for said investment from a business perspective. They will only pay off if China gets uppity enough to wreck the Taiwan/Asian supply chain/production capacity. From a business perspective, overbuilding like that for the chance of China doing something stupid is foolish because you risk large losses as excess capacity kills your pricing ability and if the low probability event happens your existing capacity would be worth even more without the excess capacity you are building, which blunts the upside.
From the government perspective 8 billion in grants is a no brainer because it is driving a multiplier of investment (last I saw was around 100 billion) that will blunt the negative effects of China doing something stupid and ensure you maintain enough supply to handle military and some civilian semiconductor demand in that rare event.
That Intel buys back stock is irrelevant. They are doing that because it is in their shareholders self interest for them to do so, because the investment opportunities (i.e. the building more fabs the subsidy is inducing) makes less sense than just giving shareholders their money back in a tax efficient manner. In some sense all of this type of article is formulaic in its stupidity. It's always "Why aren't you guys doing communism/fascism/dictatorship?" to which the correct response that is never discovered in the article is "because the last few hundred years of history have shown us it works far better to let individuals make their own choices and reap the benefits and costs of doing so, as innovation is far higher in that system and economics can drive failure of ideas/businesses rather than political choices, which self regulates to a better outcome, as long as you deal with the monopoly corner cases with effective antitrust regulation."
Oh come on. Yes, Intel has huge revenues, because it produces physical goods that have high R&D and unit costs.
And yes, of course they returned money to investors in the last 35 years, they were a very successful company. You'd hope they try to remind people that they have a history of success! They've not done any buybacks since Q1 2021.
I don't understand. The only way this looks to free up the $8B for stock buybacks is if Intel was already going to invest in doing all of this already and specifically here.
Can they reallocate capital to stock buybacks if they were already going to do this, yes! Could I find anything prior to this bill to indicate any competitive reason for Intel to do this in the USA? No.
Article just reads as written by one who is anti-corporate, rise up and this is why one must be anti-work because the government only cares about lining the pockets of corporations.
If the company won't accept money in one of those 3 forms they probably don't need it.
For example, the US could give Intel $8B for about 4% of Intel (at today's market price). However, that wouldn't get them the new US chip fab that they want. It would get them 4% ownership of Intel.
Another example, the US could give Intel money to build them a supercomputer. The US would get a supercomputer, but it wouldn't get any ownership of Intel. When I buy Intel processors, I get a product, but no ownership of the company.
In this case, the US wants to buy a product: a US based fab. You might say "but the fab benefits Intel." You're totally right, but when I buy Intel processors it gives Intel capital they'll use for their benefit as well.
The real question is whether the US is overpaying for this fab or if the fab is even worth it. Could the US have gotten the product it wants cheaper? Is having new US based fabs worth paying for?
I think the answer to the latter is a resounding "yes" for strategic reasons. Tens of billions is a tiny drop in the bucket to help ensure something bad doesn't happen to one of the most important industries to US prosperity. We spend $850B/year on the military to try to ensure continued US security and prosperity. Giving Intel $8B is probably a bargain by comparison. Likewise, if you hate that Intel is being given $8B, you'll really hate how much Boeing, Lockheed, Raytheon, Northrop, and General Dynamics get from the government.
Sure, the US could have required Intel stock as part of the deal, but depending on the amount of stock, Intel would have likely rejected it. Should the US have offered $11-12B for 2% of Intel plus a US fab? If that's the case, why doesn't the US government simply buy stock in Intel today?
If your argument is that the US should end up with 20% of Intel for that cash, Intel would reject it. That's giving Intel a tiny fraction of what their stock is worth - 20% of Intel is worth $38B. If the government wanted to nationalize Intel, it'd probably cost them $210-250B. The government isn't just allowed to take something without just compensation. While Intel's market price is $188B, usually buying a whole company involves having to pay a premium over that.
The US has taken ownership stakes in companies in some scenarios. For example, the bank "bailouts" gave the US preferred stock with a dividend rate of 5% that would climb to 9% from 2008-2013. The government also got warrants to purchase common stock at a very low price. Recipients generally repaid what they were given and the government made billions off the stock warrants. In the case of the bank "bailouts", the government was giving the banks money to help save the banks and demanded ownership in return.
By contrast, Intel doesn't need help. The US government wants to get Intel to do something; the government wants to pay Intel to make them a product. Maybe the government could have gotten a better deal than $8B. However, given that few companies could legitimately create modern fabs and given that even companies like TSMC have been having difficulty at creating fabs in the US, $8B doesn't seem like a crazy amount of money to be offering as a carrot. It looks like the US is also spending $6B on Samsung and $5B on TSMC to get them to build fabs here.
If the US wanted ownership and a new fab, it would cost more than $8B. If the US wanted a new fab plus 10% of Intel, it'd likely cost them $25-30B.
“More Intel stock” is not in the list of things the government prioritizes. For good reason.
Plus, Intel doesn’t want to be saddled with bureaucratic partners.
Why make a deal more expensive and unattractive to both parties? Better to keep the deal focused on what is actually trying to be achieved.
That's certainly not the case, though.
And a seat on the board retains its fiduciary duty to the company.
It doesn’t allow the government to usurp the company and its resources for its own ends at the expense of other shareholders
If you take without giving something back, that’s an actual taking and that’s illegal outside specific circumstances.
It's just that the groups that can do eminent domain tend to both have guns and be in charge of the local legal system.
Which means they get to define the rules and make up their own name for when its them doing the thieving. ;)
You shouldn't misuse words like you're intentionally doing. Why not go all the way and call it rape or something.
EDIT: Sorry, read this as strings attached to what Intel could do with the money.
I would assume the subsidy is contingent on Intel actually setting up the fab and some output numbers, seems idiotic to do it any other way. Don't think this was a bailout or handout at all. I haven't seen the agreement though.
This is typically false, usually the subsidies are in the form of tax credits that are only awarded once you perform the desired action, or at least have to be paid back if you fail to do so. They don’t just cut a check and wash their hands.
This is true for individuals as well as corporations. When you do your taxes this year, take a look at credits like the renewable energy credit. You have to actually purchase insulation or solar panels to be eligible for the credit.
https://thehill.com/opinion/4517470-dei-killed-the-chips-act...
This is still a US based company, with US leadership
I doubt Intel would need any money or other incentive if the orders start coming in.
This is also why nobody ever wants to cut the DoD budget, it's basically the backbone of American manufacturing for everything. All the stuff our company makes for the military needs to be US made, despite us being able to get the same stuff from China for 1/10 the cost.
It's also a kick-your-door-down-and-go-prison offense if you try and skirt this. My company knows that first hand (unintentional, but the DoD doesn't care)
Punishing a company just because it's american.
Look at TSMC. It started setting up US operations years ago and is expecting to complete many years from now.
OTOH they started setting up in Japan about a year or so ago and are already cranking out chips.
TSMC is looking to bail completely on the second fab / even intel is now looking at delaying. The problem we are running into is a lot of DEI language was included in the chips act which is making it hard for TSMC (and Intel) to comply. This is not a good PR move to say this outright so they will just give more generic "labor" shortages etc as the official reason.
The government needs to address that instead of subsidizing one off efforts.
Perhaps American workers. But an alternate take is that American consumers got cheaper chips and PCs - which resulted in more being sold, more companies and people using them, greater efficiency and new ideas and perhaps a more productive economy.
It will be interesting in 5-10 years if the US needs to tax/block possibly cheaper and better components built outside the US being sold
That may be true for Intel's CPUs but when products aren't produced by monopolies, those that have the cheapest costs and are in competition with others, often lower their prices to compete where the competitor can't. For example: AMD, graphics and motherboard parts
My understanding is that the price should never be set based on production cost but on the value it brings to the customer. Thereby, a simple program you or I could hack together in a month, might have a cost of 10k in labor only cost, but if it would save the customer millions each year, they would pay a million for it.
So, you set the cost based on how much they are willing to pay, based on how much they would profit/save.
If another competitor offers a similar solution, you just undercut them by 10%, or invest another 10k for superior features.
Is that market so poor that subsidies really is needed on the basis of profitability?
AT&T would have zealously guarded the transistor patent and never have licenced it out to Motorola, TI, etc. if they only cared about maximising shareholder value.
That's insanely expensive. Today the only companies that make leading edge chips are TSMC, Samsung, and Intel. Global Foundries (headquartered in US) dropped out a few years ago because it was too expensive. How on earth are you going to fund "a race with multiple companies to build the best chip factories"? It's going to cost multiples of whatever the intel subsidy is.
And if you really wanted to cover all "critical" industries, even this would be a drop (or maybe a puddle) in the ocean.
Now the pendullum might finally be swinging back towards pro-competition and healthy open markets.
To coerce otherwise nonprofitable behavior from Intel instead of paying for desired changes?
Shareholders and talent will flee.
The same way that they can restrict the export of certain technologies to certain countries.
This is really just the typical international racket of the rich getting richer.
The government does not want return of investment. The government wants to lose money so that national security gets better.
The government doesn't want a dollar ROI in the sense of increased revenues because it defines the dollar. What happens to the local currency is just one factor in the overall considerations.
(Not an expert on the US tax system as I'm a Brit, but it seems that the tax treatment of dividends depends on how long the stock is held, and can be taxed at income tax rates, while stock buybacks result in inflating the stock value which is always CGT. Not sure what the tax treatment is for institutional investors?)
NB that "returning money to the shareholders" is ultimately what companies are for, and we should completely expect them to do this because without it investors wouldn't invest in the first place. It's infinite zero-dividend growth that's weird (Amazon).
Unlike dividends, they don't return money to all shareholders, but to those who sell shares, which are the wealthiest, unnecessarily increasing inequality.
Excessive buybacks and underinvestment are a big reason why Intel failed. Gelsinger (CEO) talked about this publicly. It's not just "returning money to shareholders", because it leads to perverse incentives and underinvestment. Under Otellini, Intel returned 109% of its profits to shareholders.
Stock prices are also effected by dividends:
> Dividends can affect the price of their underlying stock in a variety of ways. While the dividend history of a given stock plays a general role in its popularity, the declaration and payment of dividends also have a specific and predictable effect on market prices. After the ex-dividend date, the share price of a stock usually drops by the amount of the dividend.
* https://www.investopedia.com/articles/investing/091015/how-d...
This has been know since (at least) 1955:
* https://www.jstor.org/stable/2976771
They are a form of manipulation we don’t normally care about. Definitely not illegal.
By this definition, productivity is manipulation. Or tax optimization is manipulation. Or IPOs are manipulation.
Typically this word is used to indicate unethical and illegal behavior. Not just typical organizational behavior.
That's false reasoning in so many level. Take every of your arguments and do counterfactual and you see.
> leads to perverse incentives and underinvestment
Investing is not alternative to paying dividends in any well managed company. Companies invest if they see better ROI for the investment than elsewhere. They give money back to shareholders (either dividends or buybacks) when they can't do better than markets.
Intel SBC was 3.2 billion in 2023, and there haven't been any buybacks I think the last 2-3 years? Quite a bit of dilution which doesn't really make long term investors happy.
This is all about buyback versus dividend. How it is that people are thinking wrong counterfactual?
There are less shares outstanding afterwards, but there is also less cash, so if executed at fair prices there is no reason for the stock price to move.
Just think through an example of a simple company which is a pot of $1000, and can get 10% returns on it. There are 100 shares, so if investors want 10% returns, shares should trade at 10$ (P/B = 1). If the company repurchases half the shares, there will be only 50 shares but the company only has 500$ now, making each share still worth 10$ for 10% hurdle rates.
So a more realistic example would be a company with 100 shares, $1000 of cash, and $1000/yr stable income.
So before a buyback, 1 share grants you the benefits if whatever the company does with $10/yr of income. Whether it be dividends, reinvestment, etc.
If the share price is $25 and they spend half their cash on hand to buy 20 shares back, now one share gets you $12.50/year of income. Thus the share is worth more than it was before.
Disclaimer: Armchair finance / economics knowledge. Hope the above is correct.
Why would you say they're pumping up the stock price, rather than just raising the price? Is it a temporary pumping effect, like an Elon Musk tweet from 2017, or is it actually increasing the value of the remaining shares?
At any point, there are people trading, buying and selling those 100 shares. Buyer 51 comes along and wants to buy a share. He can only buy a share if one of the 50 owners are selling. So, he has to offer a price that'll convince one of the 50 to sell.
XYZ Corp decides to do a buyback. They buy 20 of those shares. In that moment, they will certainly create a spike in demand for the 20 shares.
But later on, now there are only 80 shares out. When buyer 52 comes along to buy a share, there are fewer shares, and fewer sellers. He might have to offer more than Buyer 51 to actually get a share for that reason.
By buying that one share buyer 52 gets ownership of 1.25% of the company. Buyer 51 only got 1.00% of the company when they bought their share. You need to take that into account when comparing share prices.
The reason stock buybacks are viewed somewhat negatively is because it’s a lazy way to increase share value. Preferably executives would use the money to come up with new products/services to increase revenues. But if we’re talking about huge mega corporations, who already spend a lot of money on R&D, capex and/or acquisitions, then using some additional cash flow on buybacks makes sense.
In Intel’s case, the buyback merits some discussion because it is implied that government subsidies are being used to buyback shares which is not the intention of the subsidy.
Edit: IMO, I don’t think Intel underinvested, I believe they invested in many failed ventures and under their past and current leadership they are not able to grow the company in any meaningful way.
This seems like a good incentive. Executives of course don't have to have any shares, although they probably will, but that's not "toxic".
I know that toxic is now the blandest word in the language due to overuse, but even given that this seems distortional.
Seems like everything is working as intended. What do you think that companies are supposed to do with their profits? Why do you think shareholders buy stocks in the first place?
With hindsight it's clear that it would have been better for shareholders if Otellini had reinvested more profit into R&D rather than returning it to shareholders. Intel has now lost their process node advantage to TSMC. Their CPUs are not competitive on power efficiency with AMD and Apple. This is leading to smaller profits and ultimately a worse outcome for shareholders.
Nowadays, as you say, there is no difference in tax rates for qualified dividends. However, one big remaining benefit of buybacks is that a dividend forces one to incur a taxable event when the dividend is issued, even if one chooses to immediately re-invest the dividend in the company (as many people still in the accumulation phase of investing do). On the other hand, a buyback does not force those people to sell.
On the other hand, a buyback should lower the market cap of a stock, so cap-weighted index funds ought to sell and re-balance when a buyback is issued, so most index investors would seemingly end up selling. However, they end up being able to avoid most of the capital gains taxes by re-balancing through redemptions and heartbeat trades.
You got it backwards. If a stock is priced fairly, a buyback is value-neutral. Reduction of the cash on hand is offset by the increase of future cash flow per share. It's dividends that reduce the market cap.
Perhaps you are thinking of share price instead: there it is true that dividends reduce share price, while buybacks are share-price neutral at least theoretically, though it is commonly believed by many people that they do affect price.
(Hence, under that same theoretical model, market cap must decrease if share price remains the same because market cap is total number of outstanding shares * share price. So if the former decreases while the latter stays the same, market cap must have decreased.)
Uhh...what?
Buybacks are a return of value. Share prices adjust accordingly to the updated proportion of outstanding stock.
Might want to select a new username, friend.
That said, this is all under a theoretical model (as in Miller-Modigliani theorem). In practice/empirically, there is reason to plausibly believe that e.g. the decision to announce a buyback has a signalling effect and so can increase share prices.
You have absorbed modern market brokenthink.
Companies are for creating goods or services to sell to other parties. They existed long before the idea of shareholders. Following your logic, companies pre-VOC had no existing purpose.
This is not an even comparison. A business that produces the minimum amount (0) of product/service should be compared against a business that produces the minimum amount (-$assets) of profit, which corresponds to 0 revenue. Neither business can be run, but the former can at least sit on its assets or pivot into actually making something.
A business can also produce too much and collapse (see Atari and DeLorean), but it can't collapse from too much profit.
It makes more sense to put the emphasis on profit, I think.
This was not intended to be one or at best in the following sense. Making products and making profits are two features of businesses, the first one is essential, the second one is dispensable. No products, no business. No profits, no problem. Even more, no profits is where every business would ideally be, in a functioning market competition should drive the margins towards zero, the price should be equal to the costs of production.
Production is essential to a business and profit is not, strange as that may seem.
Out of autruism? If not, it's to make money for owners. Shareholders are sort of owners thus to make money for shareholders.
>> For the first companies, the privilege of incorporation, often via royal charter, was granted selectively to facilitate activities that contributed to the population’s welfare, such as the construction of roads, canals, hospitals and schools. Allowing shareholders to profit was seen as a means to that end. Companies were deeply interwoven within the country’s or town’s social fabric, and were meant to contribute to its collective prosperity. <<
https://qz.com/work/1188731/the-idea-that-companies-should-b...
If you don't care, why participate in a conversation about it and ask a sibling reply for a counterpoint?
The argument is that the company exists to benefit society.
Profit exists as a side effect of having investors.
But the outcomes are not the same. Tracing the conversation back, the top level comment pointed out that we should expect companies to give their profits to investors because they operate for profit. A company that exists to benefit society would be expected to put its profits towards bettering society, or at least towards its own ability to do so.
I argue that benefits to society are a side effect of profit-seeking, which capitalism takes advantage of to great effect. A company with no interest in improving the world will nevertheless wind up doing so, because they'll make money in exchange for providing utility, because the system is designed that way. Expecting a company to behave to benefit society instead of for profit will give you bad predictions when the two are at odds.
Sure, but the owners (sole proprietors, shareholders, partners, etc.) of most companies want to make profit selling those services and goods. The more money you make the more you can grow the company or reward yourself (as owner).
1. Company issues stock in order raise capital
2. Company uses capital to grow business
3. Company returns money to stock purchases as risk-reward for purchasing stock
Buy-backs are what a company _should_ do once the capital it raised has had a positive ROI
And here I thought Intel was for producing computer chips. Silly me. I forget the entirety of human history was just an elaborate pyramid scheme.
The only reason stock buybacks are thought of in negative light is that they seem to be a way for companies to not pay taxes... but the tax law is not companies' fault! It is our fault for the tax law to be this way!
It seems to me that in that case, tax law is their fault.
Just allows owners to time the tax hit.
Usually when people buy shares they are going to try and get the most shares for the least amount of money, but the incentives are a bit different for stock buybacks. I don't know if buybacks are large enough to "move the market" but I'd be curious to see details on how exactly orders are placed.
I'm a big believer that we need more non-profits that simple exist to employ people and provide goods and services. I realize this is just a charity and depends on the good will of people with capital.
Once you cancel the stocks you bought back, the rest of the shares will hold a more significant percentage of the company and increase in value.
But this is one part of the equation. The other part is that your stock is inside a market, and buyers and sellers combined determine its price. If you keep buying your stock, you create buying pressure, helping keep the price from falling.
Its a form of stock manipulation if you mean that buying stock increases the value of the stock. It doesn't mean its a form of manipulation in some kind of illegal unethical way that i think this comment thread is trying to make it sound.
The difference from actual price manipulation, is that the price change in issues and buybacks is a permanent effect of the material change of the number of outstanding shares, not a fledging effect of the change in trade volume, i.e. the intrinsic value of the stock goes up or down.
edit: of course buybacks, like dividends, decrease the value of a company, and issuing stock increase it, so it is not clear cut.
Stocks are supposed to be a share of ownership in a company, and the price goes up and down because being an owner of a company goes up and down in desirability, based on how well the company is doing.
Just like with buying your own book, buying your own stock artificially increases the desirability.
companies can create new stock anytime out of thin air, and that decreases the price. why can't they do the opposite?
some owners of the company decide to buy stocks from the others, thus consolidating ownership. that's what stock buyback is.
note, the argument for taxing buybacks is completely different, and valid. (and it might make sense, it might not, it depends on the circumstances. externalities tax (pollution, tax on induced traffic, etc), LVT (land value tax) and wealth tax would be much better, than taxing transactions.)
So at any point, a company can devalue existing shares that people have already purchased? That also sounds like a problem.
companies on stock exchanges usually do stock splits, etc. (and based on bylaws majority or 2/3rs or more of existing owners need to approve.)
What's the best-seller list in this case?
Following your example, it'd be like the author of a book buying the book they wrote from someone else. If the author chooses to pay someone else 1000$ for their book, they can, but they will be wasting money.
A company doing a stock buyback is trading off their own capital (they have to spend it, it's not an infinite money glitch where they buy it from themselves) to get back shares of the company itself at the then-market-price. The market chooses whether that's a good trade. It may not
Bought back shares strictly increase the price for existing shareholders as it takes them off the market. The entire concept is mainly due to stupidity in tax law that ends up double taxing direct dividends.
Ignoring inflation if a company issues the same inflation adjusted dividend forever say 1% at current prices. In theory the stock should stay roughly the same over the next hundred or thousand years. However, with a buyback the stock would increase constantly forever with endless stock splits.
The second option is great for long term owners in terms of taxes, but it’s also manipulation of the stock price.
The exact same company can be a great investment at 10$, and a terrible investment at 10,000$. You can’t separate stock price from if something is a good investment or not.
The example I gave was low risk 1% dividend, that’s not a stock I would want to own. Net result the company, which has inside information, should expect the price to correct ie fall at some point and thus be a poor investment until that point. That doesn’t prevent them from buying it because the goal isn’t a positive ROI.
CEOs are constantly attempting to manipulate the stock price by trying their best to do a good job.
And here I thought companies are there to provide me, the consumer, and the customer, with useful products and services.
If the purpose is return of money to shareholders, then the best strategy is to over leverage the company, spend every penny on stock buybacks, then default on all obligations to suppliers, pension funds and customers.
Because you can fund stock buybacks with debt, but you could not do that with dividends.
We have made economic destruction profitable and it’s happening across our economy - water companies in UK are going bankrupt because they have huge debt that they took out just for stock buybacks, and not for anything else, and now interest rates are up. Same thing happened with airlines, and many other firms.
> Because you can fund stock buybacks with debt, but you could not do that with dividends.
There are plenty of companies with large debs that pay dividends on the US market, such as Ford.
The overleveraged self-destruction is bad, but that tends to be a feature of private equity deals where there is a single majority owner doing it on purpose (e.g. Maplin, Jaguar Land Rover). Harder to do with a publicly owned company where the investors can see what you are doing and may sue you.
The UK water companies should never have been privatized in the first place. They're dysfunctional because water isn't a normal market and arguably can't be, so they're ripe for this kind of looting of the state by capital depletion.
1. They only make sense when the stock is undervalued and aren’t purely driven by taxes. If the stock is undervalued, then investors benefit by owning more of the company for less. If the stock is overvalued, then investors don’t benefit. The overall value of the price compared to its long term real value is important. There is a basic problem with this, because company executives probably never want to admit that their stock is overvalued.
2. Companies with strong incomes relative to their price can afford to do buybacks or with strong cash positions are the ones that make sense to do buybacks. Companies like this might be overvalued. When you see companies internet companies with zero income doing buybacks it makes very little sense and only established companies. Companies with strong financial positions relative to their stock price are more likely to be undervalued.
3. Because of the discounted cash value of income model for dividends where the value of a stock is based on future income and cash flow, dividends generally have to be stable and regular to ascribe significant value to a stock, which is why companies that have built up large cash balances but don’t expect to regularly pay dividends opt for buybacks, because they don’t want to create the constant pressure to regularly pay dividends.
2. Zero income stocks can still do buybacks when they're returning capital raised from shareholders to shareholders (this is essentially just partially reversing a funding round, which again undoes some of the dilution).
3. Companies can be deemed to be significantly valuable without paying any dividends. Companies that have a long history of paying dividends but then suddenly stop tend to be in distress, which is then reflected in their share price.
Discussing only the tax strategy as is happening in this thread is really stepping over some really important strategic operational factors.
That is one theory of corporate governance:
* https://en.wikipedia.org/wiki/Shareholder_value
* https://en.wikipedia.org/wiki/Friedman_doctrine
There are others:
* https://en.wikipedia.org/wiki/Stakeholder_theory
* https://corpgov.law.harvard.edu/2012/06/26/the-shareholder-v...
* https://sloanreview.mit.edu/article/the-shareholders-vs-stak...
Otherwise it's taxed as income.
This could not be further from the truth. Companies - and actually the entire economy - only exists for one purpose, to satisfy the needs of the people, to efficiently produce good and service that people need or desire. Profits are just means to the end, a control signal to steer the economy. Not that they are not important, but they are not why we have companies.
That's what shareholders want you to think. But societally and economically companies are mostly for everything else. If no company ever paid a single dividend or never bought back any of its stock nothing bad would happen. There are a lot of companies doing exactly that.
But if companies stopped doing everything else they do that they are supposedly not for, the economy would end.
Short of some entity buying all stock and taking the company private (to then withdraw profits), there would be no way to return profits to shareholders.
The companies currently not doing those things are in a growth phase, with the expectation that in the future they probably will be issuing dividends/buybacks.
And they are not wrong. As long as the name on the token takes a prominent place in public consciousness people will flock to it and early investors will be able to sell it for more. If you want to see what's sufficient for people to invest in something look at shiba inu crypto token or WIF.
Who would create a company for 100k if it can sell it to gamblers for millions when it goes public? Plenty of people. There's whole industry of angel investors fuelled by thay dynamic.
Berkshire-Hathaway has only paid dividends once since Buffet took over, and is the highest priced stock listed on the NYSE.
Yet, this is clearly a form of stock manipulation, as it's an action to manipulate the share price.
Whilst it is stock manipulation, it's debatable if it should be legal.
I believe it should be legal, it's an efficient way to increase share value without adding to someone's income, thus often carries no immediate taxable obligation.
However one could argue that these methods of moving wealth around without taxable events triggering adds to the fuel for calls to tax unrealised gains on all stock.
So in the long run we are all worse off.
Those laws will likely come regardless, as a way to fight the billionaire class, so stopping stock buybacks at this stage is unlikely to do anything.
Rule 10b-18 is designed to prevent companies from using buybacks to manipulate the market, stating that share buy backs must meet 4 conditions:
1. all shares must be purchased during a single day and from a single broker or via a single deal
2. larger companies cannot authorize buybacks within the last 10mins of the day and smaller companies can't authorize them within the last 30 mins
3. companies have to buy back their stocks at a price lower than or equal to the highest independent bid
4. companies can't buy back more than 25% of the average daily volume
This is actually a new idea. Prior to a change by the Reagan administration in 1982, they were considered to be an illegal form of market manipulation. Dividends served the purpose of dumping excess funds to shareholders.
That's debatable in many instances of the modern economic system. Of course, some instances of capitalism focus on that particular goal you've mentioned, but that wasn't always the case and it still isn't, depending on the socio-economic circumstances.
There’s a pandemic? Quick, cut 80% of the country a check.
The childcare industry is structurally understaffed and unprofitable, let’s just cut them all checks!
Higher education keeps on growing to larger and larger percentages of GDP? That’s okay we’ll just cut checks blank tuition checks and then forgive all the loans.
China is signaling that it might invade Taiwan. That’s a tough one. Hmm. I got it, let’s cut a check to semiconductor manufacturers!
Take loan forgiveness—-the loans themselves are not the underlying root issue. They are a tertiary effect of a credentialism spiral and insane cost growth at institutions that don’t face true market pressures. Just dropping money on borrowers is not even attempting to fix the underlying problem. It’s so unambitious it invites cynicism.
For all the talk about how useless degrees are, companies still choose to require them, especially the companies helmed by “college is a scam” zealots.
This is what a peacock spiral looks like. Government is fundamentally for breaking these kind of incentive failures. Not supercharging them through blank check forgivable loans.
Agreed the loan behavior exacerbates the issue rather than mitigates it, but “the current solution is bad” doesn’t necessarily mean the same agent is able to produce a good solution. If you’re certain the government is capable of breaking it: how?
That’s not my point at all. It’s that all our federal politicians and political parties have had their ambitions shrunk down to nothing.
No one at all is saying—-hey this credentialism thing is a serious problem, vote for us and here’s how we’ll attack it. Even if someone was proposing an idea I totally hated, I would at least appreciate the effort to actually solve a real problem.
If you think credentialism is impossible for the government to make a difference on, pick something else. Anywhere you look for the last 14 years we’ve had few to no ambitious proposals.
> The Department of Labor (DOL) is announcing an Advanced Manufacturing Registered Apprenticeship Accelerator Series that will support hundreds of employers to speed the development and launch of Registered Apprenticeship programs in high-demand occupations, such as industrial manufacturing technicians, robotics technicians, and industrial maintenance mechanics. Since the beginning of this Administration, the number of apprentices in advanced manufacturing Registered Apprenticeship programs has increased by 10 percent—and this effort will build on that growth.
The administration has backed numerous apprenticeship programs like BioFabUSA that explicitly do not require college degrees.
The administration created "Investing in America Workforce Hubs" in several cities to attract private investment into programs that, again, prioritize high-quality jobs that do not require college degrees.
So it is simply untrue that no one is saying credentialism is a problem and trying to attack it. The current administration talks about this to no end and has attempted dozens and dozens of substantial attacks on it.
Again, if you have ideas other than grant funding and tax incentives, I'm truly curious to hear them.
When you regulate an industry you require more capital investment from that industry, either by investing in new processes, implementing compliance mechanisms, maybe hiring extra quality-assurance people or having to dispose of trash in a better way, etc. Regulation mostly implies more investment by the participants in that specific segment of the market, it's like a reverse capital injection, or an added tax.
The same way de-regulation is like giving that segment of the market a cash bonus because they can relax processes that require money to run and operate more efficiently.
More importantly regulation and deregulation also add or remove rules, so they change the behavior of the participants. If you want to have the same effect of regulation and deregulation but not by driving change in rules of operation (maybe because as the government you don't know yet which rules to create - or the different political factions cannot agree), an easier way is to directly give money, and depending on how you allocate it, I think it can be a fair way to do it.
Another way of thinking about this as a system is imagining the case where you want to promote investment in the semi-conductor industry but not at the expense of processes. Said another way, what would you de-regulate in the semiconductor industry to have the same effect as a capital injection to the leading semiconductor companies in your country? Surely you're not proposing them to be able to use more dangerous chemicals and dispose them however they want, or other types of de-regulation? It would reduce the barriers to entry and help semiconductor companies, but with negative externalities. Messing with regulations always has this potential for unpredictable secondary effects.
I'm not convinced regulation/deregulation is in principle superior to just allocating money pools with fair rules to access them. I'm obviously against nepotism and influence peddling as part of the money allocation process and I'm not defending the injection into Intel specifically, which probably suffered from a big amount of influence peddling.
China will always allow manufacturing with minimal regulations.
I have very little knowledge over their current effectiveness or use.
Of course, there is, but some problems are different and difficult. Why are they difficult? Because it's hard to find an alternative solution that ticks all these boxes: one that is socially acceptable to all parties involved, does not incur additional problems or direct costs to any specific party or group of interest, and does not disrupt the market, among other considerations. You also need to take into account current laws, the social contract, and politics. Sometimes, the most efficient, easiest, least disruptive, and most acceptable solution is simply to allocate funds to address the problem.
Which law, passed after the ACA, would you say best reflects Congress identifying a serious national problem and attempting to comprehensively deal with it?
There is a marginal utility to increasing funding, but that isn't the point, the point is that the subsidies guarantee that the receiver is dependent on the sender.
You’re free to believe what you want, but you should probably reevaluate your position when it’s parroting 1:1 what Chinese bots are spreading.
Funnily enough, SEC unbanned stock buybacks by using the Chevron deference, which is currently being challenged in courts. EPA being unable to regulate climate change might be offsetted by a minor win of making SEC not ignore law anymore by asserting its legitimacy.
There’s multiple competing goals here and we need to think about how to achieve them.
If we think that Intel is fixed and unlikely to need to change, perhaps nationalize and then just operate it as it slowly declines. But that’s also going to make other chip companies less likely to invest in the US as few investors want their investments nationalized.
The purpose of these economic investments isn’t primarily moral justice (although I think that should be part of the calculation). The purpose is to increase US chip production.
It seems quite silly to think that nationalizing Intel would lead to greater US chip production.
Intel and AMD will only sell to American-alligned countries, which are declining. Seizing the company and milking till it runs dry is the right move.
Intel had all the capital it needed to innovate. It did not. The company is unable, despite all the cash it has on hand. It's a lost cause. One hopes AMD continues innovating.
Also Intel did innovate, very clearly so and they don't compete with AMD when it comes to manufacturing at all.
And in fabs, Intel just isn't nowhere close. How's the 12nm++++++++++++ going? China is 5.2B of AMD's sales (2022). That's 65% of U.S.' with enormous growth potential as Chinese middle class gets richer. Europe is 1.77B of AMD's revenue. How does the capex investment equation play out when your 5.5B of sales just disappears into thin air?
AMD isn't manufacturing, they are totally irrelevant when it comes to the discussion.
>It hasn't innovated ever since.
What are you on about? This is ridiculous. Do you know anything at all about this subject.
If the buybacks are undesirable they should tax them. If Intel is trying to divest they should start working towards alternatives and put the government contracts towards companies that do not create these issues.
The reason Intel is the only one is because cutting-edge chip making is arguably the most capital intensive and challenging industry in the world. There are literally only three companies on Earth who do it.
Stock buybacks are not different from dividends, except for tax reasons.
If a company has to buy back 10 billion in stock over a fixed time period market participates should be able to drive up the stock price knowing they will have a buyer (the company) to sell to later.
Before:
I own 100 stocks worth $100 each. =$10000.
Option 1: 2% dividend. I have 100 stocks worth $98 each + $200 =$10000. Stock value drops immediately.
Option 2: equal sized buyback: I have 100 stocks worth of $100 each = $1000. Buyback does not increase the stock value immediately. Company pays $200 for those who sell, but owns the stocks (or shareholders 'own them') so it's net neutral. This reduces the number of shares outstanding, thereby inflating (positive) future earnings per share. This typically leads to the value increasing.
Kind of weird to impose a tax and then also have an easy way around it.
Here in EU we can buy US index funds not available for US citizens where dividends are reinvested without tax. For us it does not matter that much.
And then a tax that sort of directly relates back to the cashflow of the company is not equivalent to a tax that is based on the capital gains that shareholders end up with.
It’s not that difficult of a concept. And no, like others will inevitably suggest you can’t just legislate a multinational company to build its facilities onshore because you need them to. If you need something from a company you make it worthwhile, which is what’s happening here.
It’s weird that people have forgotten this is a thing the government can do.
Which would cost the nation more?
a) Setting a modern precedent that any company doing business in the U.S. can suddenly be treated as if they’re somehow owned by the U.S. government and forced to make capital expenditures against their will.
b) A $8 billion subsidy that will eventually be recouped or at least offset by economic benefits.
Pretty much every time we arrange things to favor or necessitate domestic production in an industry, it’s done in the name of security (defense contracting and agriculture come to mind). Including semiconductors in that category is not crazy, and there is certainly more than one way to bring about those incentives.
It's amazing how many people on here seem to think that the first response to China should be to turn the US into China and start doing state-directed capitalism. Maybe "disappear" a few dissident CEOs.
Of course, whether it works or not depends on your leverage as a country: the US should easily pull it off, it's the legislator that doesn't want to play that card for political positioning reasons.
Of course you can. But if you do, you have to accept the consequences.
Again and again people here pretend that just becythe government does it there will be no consequences.
Would $8B be better used for a startup instead of IBM? Or is $8B far too low for a new company.
A more likely scenario is simply that threats and internal political pressure cause Taiwan to ""voluntarily"" unify with the mainland.
$8bn buys you about one (1) fab, but you also need the staff and institutional knowledge to run it, so realistically it has to go to some company that is already operating a similar fab.
And what would the enforcement mechanism be? “Sorry Intel, if you’re not going to play along with our attempt to coerce you into making sure we have a supply of chips then we’re not going to allow you to sell chips here.” Seems a bit self-defeating.
Subsidy is just a way to create an incentive for Intel to build manufacturing facilities in the US. It's not paid because Intel lacks funds, but to ensure that factories are built in the US and not elsewhere. Intel can do whatever it wants with the money received from subsidies, provided it fulfills its obligations.
Jobs aren't particularly important in this schema, but they are a nice talking point for politicians to show that at least part of the money paid via subsidies will return to American workers.
It's the same situation with car manufacturers, they do this all the time. They get massive subsidies (usually in the form of permanent tax breaks) by pitting the governments of prospective factory sites against each other.
(It's actually a form of the prisoner's dillema: governments would benefit in the net if no-one offered these subisdies, but the prize for defecting is just too great so someone always does.)
I always thought of "stock buybacks" as a form of "debt payment". Stocks are created by companies out of thin air, as a tech worker I am (partially) paid in stocks. Those stocks aren't purchased by my company on the open market, they are manifested -- diluting shareholder stock.
Buybacks put a payment on that "loan". I doubt people would be so up in arms about companies paying off their debt, even prematurely. The number I'm more interested in is total stock buybacks / total stocks issued, which of course is never reported.
Am I wrong here?
Stock Buybacks: Why Do Companies Buy Back Shares? https://www.investopedia.com/ask/answers/042015/why-would-co...
KEY TAKEAWAYS
Companies do buybacks for various reasons, including company consolidation, equity value increase, and looking more financially attractive.
The downside to buybacks is they are typically financed with debt, which can strain cash flow.
Stock buybacks can have a mildly positive effect on the economy overall.
Search for 'stock buy back' https://www.investopedia.com/search?q=stock+buy+back
That’s obviously wrong. What follows will be wrong. You’re welcome.
Edit: for instance, if Google has 200,000 employees and is granting an average of $50,000 stock per year, that is $10 billion. So id be okay with buybacks of that size.
The actual buybacks are much bigger if memory serves, so that seems like manipulation like you're saying
This is basically a net fiscal transfer from regular Americans to tech workers, since tech stocks are typically the default investment when retirement is more than a decade away, artificially raising the price of tech stocks.
Tech workers sell now while the price is artificially high and everyone else is left gambling later after all the tech workers have cashed out.
Seriously, it's hyper-partisan ideological brain damage material solely meant to foster clicks and outrage.
original title is: "Intel Brags of $152 Billion in Stock Buybacks Over Last 35 Years."
Current HN title made me think that they plan to spend $152 b on buyback in the future
When I see statements like this, I know to stop reading.
No he didn't make $179M. He was awarded PSUs that will mature only if Intel stock hits a certain price (in a window of N years). Not only did it not hit that price, it has been down considerably. The grants will likely expire before Intel's price hits those goals (I think the lowest target is in the 80 dollars).
His actual compensation that year? About $10M - quite a bit of it being a sign on bonus.
- go lighter on the sticks of onerous environmental regulations
- do their best to recreate an academic culture which centres around competence and expertise instead of political indoctrination and activism
It is not likely to be a lack of money which keeps these plants from being built there, it is the threat of being buried in regulative paperwork and the decade of delay which that comes with because of some critter being found living on the plot where the plant is to be built. It is the regulations around the use of all the nasty chemicals involved in semiconductor fabrication which make it more profitable to build those plants elsewhere. Also, it is the fact that many western universities have been or are in the process of being captured by political activists who turn these institutions from seats of learning into agitprop factories where merit takes a backseat to unalienable characteristics like race, sex and sexual orientation.
Given that we here in 'the west' insist on having access to the products of these factories I'd say it is more than hypocritical to insist these be manufactured elsewhere because doing so here is too damaging to the environment and the people working in those factories.
What would be the consequences if the government nationalised / heavily subsidised Intel ramp up domestic chip production? Or split Intel up to create new national champions?
This state intervention seem to be working out well for China in electric vehicles and solar. The US risks squandering its technological advantage by pursuing half way measures.
Subsidy is what's happening, but people have (correctly) noticed that since Intel is profitable this is really a giveaway to Intel shareholders.
Doing it themselves would be silly when you can direct the market to do it for you.
Stock buybacks are undertaken as the return the company can get on the cash returned is lower than they think shareholders want.
Subsidies exist to get the company to invest in a project where the return would otherwise be inadequate for shareholders.
I suppose you could force a company to invest in a project that was perceived to have inadequate returns but that seems a little unfair?
Let's talk about important things instead. Like defense, or infrastructure or schools. Not dropping nickels into Intel's tin cup so they'll do what we want. That's business as usual -spending govt money to get things done is pretty much all it's for.
https://ycharts.com/companies/INTC/stock_buyback
They need subsidies because the US and Europe can't afford to have all leading edge chips manufactured in Taiwan and South Korea.
Both Boeing and Intel are showing their incompetence. US should give Nvidia $8B to build their AI GPUs on US soil.
I think that’s what the US government does for commercially vital resources. It might also as a side effect, force the production on the US soil as well.
I'm not justifying or excusing Intel, and the subsidy is insane, but "Intel did things over the past 3 and a half decades" isn't a point.
>...Intel produces totally useless stock buybacks.
>the political establishment actually buys the corporate line that halting mass layoffs would make corporations uncompetitive, which is total nonsense... In Germany, the workers used their power to persuade Siemens management to agree to no forced layoffs...
In another article (Why Europe is a laggard in tech):
>Today, investment in tech research and development in Europe is only one-fifth of what it is in the US... Investment in AI is around 50 times higher in the US than in Europe. European tech is falling behind its competitors at an alarming rate. How did we get here? https://www.ft.com/content/d4fda2ec-91cd-4a13-a058-e6718ec38...
Reward investors - get more investment. Treat them badly get less.
Imho pretty stupid use of public funds. Somehow people don’t learn lessons from history, even recent history.
From the government perspective 8 billion in grants is a no brainer because it is driving a multiplier of investment (last I saw was around 100 billion) that will blunt the negative effects of China doing something stupid and ensure you maintain enough supply to handle military and some civilian semiconductor demand in that rare event.
That Intel buys back stock is irrelevant. They are doing that because it is in their shareholders self interest for them to do so, because the investment opportunities (i.e. the building more fabs the subsidy is inducing) makes less sense than just giving shareholders their money back in a tax efficient manner. In some sense all of this type of article is formulaic in its stupidity. It's always "Why aren't you guys doing communism/fascism/dictatorship?" to which the correct response that is never discovered in the article is "because the last few hundred years of history have shown us it works far better to let individuals make their own choices and reap the benefits and costs of doing so, as innovation is far higher in that system and economics can drive failure of ideas/businesses rather than political choices, which self regulates to a better outcome, as long as you deal with the monopoly corner cases with effective antitrust regulation."
USG is worried about a monopoly chip provider becoming unavailable. So the solution is to find another monopoly chip provider?
USG should invest in a competitive semiconductor industry to break the monopolies.
Record profits and wage stagnation. For decades. Coincidence?
Imagine if just 5% of those buybacks went to employees. That'd be (more) fair, right?
And yes, of course they returned money to investors in the last 35 years, they were a very successful company. You'd hope they try to remind people that they have a history of success! They've not done any buybacks since Q1 2021.
Can they reallocate capital to stock buybacks if they were already going to do this, yes! Could I find anything prior to this bill to indicate any competitive reason for Intel to do this in the USA? No.
Article just reads as written by one who is anti-corporate, rise up and this is why one must be anti-work because the government only cares about lining the pockets of corporations.
There's no world where both the buybacks and the subsidy both make sense.