Intel Corporation,

Intel Corporation,

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Harvard Business School 9-292-106
Rev. March 24, 1993

Intel Corporation, 1992

While returning cash was a worthwhile goal, Moore recognized that cash availability was an essential component of the firm's overall strategy and that future cash needs were very uncertain. He knew that the company faced considerable competitive pressure over the next few years. Imitations of Intel's proprietary microprocessor products had recently obtained substantial market share. Furthermore, the production and development of new Intel products required ever-larger up-front expenditures. In 1992 alone, Intel was expecting to spend over $700 million on research and development (R&D) and approximately $1.2 billion on new plant and equipment. The rapid rate of innovation in Intel's business meant that it would be extremely costly—perhaps even fatal—to delay or scrimp on these expenditures. Moore was also concerned with the stock market's response to recent competitive pressures. Intel's stock had over the last few weeks been trading at a price of $42.50 per share—a price-earnings (P/E) ratio of under 11, far below the P/E of about 20 for the Standard and Poors' 500. Some outside analysts seemed to be pessimistic about Intel's ability to keep its profits high. Notwithstanding these concerns, Moore asked Intel's Chief Financial Officer, Harold Hughes, and Treasurer, Arvind Sodhani, to determine whether Intel's current capital structure was appropriate. Moore also wanted to know what alternatives might be available for disbursing cash to shareholders.

Do

No

1The largest firm in all of U.S. history never to have paid a dividend was Digital Equipment Corporation, which

in 1987 had a market capitalization as high as $26.6 billion. However, by December 1991, DEC's market capitalization had fallen below Intel's, to $6.7 billion.

Professor Kenneth A. Froot prepared this case as the basis for class discussion rather than to illustrate either effective or...