Intel board approves $25bn share buy-back

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The board of Intel, the world's largest semiconductor maker, on Thursday approved the biggest share buy-back in the company's history, with $25bn allotted to its stock repurchase programme.

Other cash-rich technology companies such as Microsoft, Dell and IBM have also instituted buy-backs.

Standard & Poor's rating services reported last month that investment-grade high-technology issuers had cut their cash balances by $10bn, or 11 per cent, over the past year, with much of the money being spent on buy-backs. Intel said it was also increasing its quarterly cash dividend by 25 per cent to 10 cents per share from the first quarter of 2006.

Intel shares rose 1.77 per cent on the news to close at $25.24 on the Nasdaq. They fell 27 per cent in 2004 and were languishing below $23 at the start of the month.

Share buy-backs can boost share prices because they reduce the number of shares in the market, help offset the exercising of stock options and increase earnings per share.

However, they can also signal the maturity and slowing growth of a company, although Intel has forecast a third consecutive year of double-digit revenue growth in 2005.

“It's a mixed message,” said Apjit Walia, semiconductor analyst at RBC Capital Markets. “Usually when companies are growing aggressively they need their cash to continue to grow, so this shows that Intel's growth component is going down.

“Near term, it underscores that management believes the intrinsic value of the company is higher than at these [share price] levels and that the business is doing well.”

Intel has spent $49bn on repurchases of 2.5bn shares since its share buy-back programme began in 1990.

It spent a record $7.5bn last year and has already spent $7.5bn in the first three quarters of this year. The $25bn figure includes $7.8bn approved under previous authorisations.

“Today's announcement signals our confidence in the growth, earnings and cash-generating potential of our business,” said Paul Otellini, chief executive.

S&P said that in spite of attempts to reduce levels, high-tech companies continued to accumulate cash.

“We estimate that aggregate excess liquidity within the group of high-technology issuers is roughly unchanged [on 2004], at about $40bn,” it said. “Companies that still have substantial excess liquidity for their rating level include Dell, EMC Corp, Hewlett-Packard, Intel, IBM and Motorola.”

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