Today Intel agreed to pay rival chipmaker AMD $1.25 billion to settle a raft of ongoing litigation going back decades. AMD accused Intel of anti-competitive practices, which sparked an antitrust investigation. By settling now with AMD, Intel could avoids paying out billions more down the line and being branded a monopolist by the government for abusing its 80 percent PC-chip market share.
The size of the settlement is as close to an admission of guilt we’ll ever hear from Intel. It still maintains its innocence, as any prudent corporation would, but you don’t pay out $1.25 billion just to avoid the hassle of a trial. And while $1.25 billion is an enormous sum which will help shore up AMD’s balance sheet, it amounts to only 10 percent of Intel’s $12.9 billion in cash and short term investments.
Just to put the size of the settlement in context, last year Intel’s revenues were $38 billion. Last quarter alone, it was making roughly $104 million a day. At that rate, Intel brings in $1.25 billion every 12 days. It can absorb the settlement pretty easily.
I don’t know how the financial structure of a major company such as Intel is set up, but If I lost 12 days of revenue I would be dead in the water. I can only imagine the balancing act is even more impressive at intel.
I can’t imagine any business not breaking a sweat saying “you make no money for the next two weeks”.
edit:
AMD should invest that cash flow in Intel stocks. That way intel keeps operating cash and AMD has a better insight into operations of Intel.
Is that legal?
awesome thinking. if i had a job to offer, you’d be hired.
ROFL
I would imagine Intel has a lot in the bank.
They have 12 bill cash on hand.
That’s a very different story from what you’re saying.
misleading to use revenue. you can make a trillion dollars of revenue every day but still be at a loss in income. horribly misleading article
+1 to this. They payment comes out of bottom line, not topline.
yeah. how about MARGIN instead ?
Indeed, if revenue = overall profit my family would earn almost $4m/year.
Another +1. It’s the same argument Joe the Plumber managed to apply to taxable income, it’s not really a good mistake to make when you’re reporting business matters.
$1.25b is about the profit intel made from the first two quarters of their 2009 financial year. That’s a massive blow to any company
“Intel’s $12.9 billion in cash and short term investments”
Intel can float that money without too much hassle.
The number for the cash on hand is more telling or reported profit in a quarter. Using a revenue figure is not quite right.
There are groups of businesses that have high revenue, but do not earn a large profit (e.g. Agriculture earns pennies of profit on $ revenues). The 12 day figure is misleading and wrong.
+1
That is an absurd amount of money. I wonder if it would of been better if they dragged it out and got their extra billions. It’s like instant gratification getting the 1.25 Billion but like the article states, that’s cake walk for Intel and they would of paid more down the road.
I can’t believe they have that much control over the industry. It’s definitely hurting consumers, seeing how we only have 2 major competitors in the CPU arena.
that’s assuming AMD has money to pay its lawyers
Re “It can absorb the settlement pretty easily.”, you mean it can absorb the cash component easily. What’s unknown is whether there are other restrictions or terms in the settlement agreement that could prove costly down the road. Terms of an agreement can be more painful than a cash payment.
The stock price impact to Intel is telling. It’s off by $0.02 as of this second and that’s on a down day in the market overall.
Yes, Intel is a master at flirting with the edge of becoming a monopoly. Bending is better than breaking, and better they spend money on technical innovation (@AMD) than legal overhead. This is not the first iteration of payout and veiled cooperation to AMD (dating back to ‘82). They are keeping AMD just alive enough to prevent FTC action, but not advanced enough to become a real competitive threat. The root of this era was that AMD pushed ahead in performance with AMD64 and thusly Intel had to resort to business tactics over technology advantage to maintain market share. Now that they have an edge on cores and 32nm technology again, then business terms must be softer to keep AMD viable. Competition is good and with Linux, GoogleOS and ARM based chips coming from multiple sources the market is becoming much more efficient. Let’s hope that IBM 32nm is as good as it’s touted to be, and that there is vigilance in the community to avoid another cycle.
i should have gotten into the PC-chip market.
Revenue vs Profit
Intel’s revenue was 38 billion. That wasn’t its profit. It didn’t ‘make’ 38 billion or 104 million per day.
someone needs to take an accounting class. you need to figure out how much intel is making in profit per day to pay down 1.25 billion.
Correct. The $1.25 bn is being paid out of their accumulated cash, from profits.
It should be compared to Intel’s earnings which of course are not $1.25 bn every 12 days. It takes Intel about 2 months to earn this much, or about 60 days earnings.
Their recently quarterly profits were $1.9 bn, so it’s as if 66% of the quarter’s profits went up in smoke. Put it is way, if their profits went from $1.9 bn in one quarter to 0.65 in the next, it would be regarded as a disaster.
It’s a huge hit to the company, and as Eric mentioned, the settlement may encourage other plaintiffs to hold out for more.
2008 net income, 5.29B ( http://finance....ncome-statement )
So as everyone else said, yes, 1.25B is a lot (over 23% of profits based on last year).
It seems like time and time again TC fails to understand financials.
They’re not going to be paying out of revenue – they are paying out of profit.
Erick clearly didn’t go to biz school. Seems like his math is off. First, it’s far more than 12 days. Second, it wouldn’t be a loss of revenue, it’s an increase in costs/expenditures. Someone needs to learn how to read a balance sheet. This kind of increase in expenditures for the year can offset profit to a loss for the year.
Third, a settlement like this means a lot more to equity than it does to cash assets. Even with a surplus, Intel’s capital will take a giant slash.
Fourth, Intel barely earned $5.3b last year alone and will likely not see $4.5b this year. That means with forecasted costs increasing to $3.9b, Intel will ultimately see a very small profit, which is bad news to shareholders.
Intel is taking a gamble on the fact that AMD will drop all lawsuits and complaints world-wide, and assuming the EU does not kill Intel with fees for anti-trust issues, the capital gain will be smaller than it has ever been in the past.
Obviously Intel can absorb this settlement. They wouldn’t have settled otherwise. But describing it as “pretty easily” is incredibly short sighted and frankly lazy.
Wonder what Erick will say when his boss says he can go 12 days without pay.
Seriously, leave the finance stats to the finance blogs.
For them to be able to pay this with 12 days worth of revenue would imply that they would have to cut ALL other spending for 12 days.
Are they going to not pay their staff for 12 days? Or their rent? Or their loans/interest?
What matters here is how long it would have taken then to make an additional $1.25 billion *Profit*, not revenue – and that’s obviously far more than 12 days.
sorry Erick, but it doesn’t take a person in finance to understand the money you receive for something isn’t the same as the money you make on that something.
Yes, but how many days of profit?
You are assuming that revenue = profits, which is not true in the hardware business. It is much less profitable than software. Intel made 2.2 billion in profit last year (according to yahoo! finance) so this settlement does hurt them a lot.
http://finance....com/q/co?s=INTC
If I am not mistake, this would be an expense (balance sheet needs to balance so if you take off cash, you need to have a liability (expense) or lower retained earnings – I think it is an expense), which lowers your profits and therefore your tax liability.
This would be great timing for Intel to take the hit. They have been “hiding” profits from the US government (IRS) for years. They do this by charging themselves higher manufacturing costs in other countries with lower tax brackets, one example, Intel Israel. Intel Israel (where corporate tax bracket is 10% – or at least for them) would charge them $100k per wafer instead of $10K so Intel USA would only have a small profit of say $10K (instead of $90k) and Intel Israel would record the huge profit (and pay the lower tax bill). I visited the Main Intel Israel offices in Kiryat Gat and they do not hide the fact they do this.
The IRS is starting to go after corporation for doing this because the US government needs the money. Because of this settlement, Intel USA could now claim lower profits and push the US government to get the IRS off their backs or else they would need to take drastic moves (layoff in the USA).
Good point that net of taxes this charge of 1.25 would be much lower that the actual difference. If the tax rate is 30% (I have no idea what the actual rate is) – then this would only lower net income by $875 million.
It is not at all easy for Intel. 1.25 is JUST revenue. It has LOTS of costs in running the business.
So 1.25billion is lets say what it can save in 3 months!! NOW worse off is to hand that to a competitor.
Moreover investors and shareholders are not happy with losing out on the 1.25 billion also!!
good point
You should retract this article. Our submit an update.
That is just a silly claim.
You don’t pay out cash from your top line (revenue) you pay it from your bottom line (profit).
Making that much in revenue has nothing to hint on how long it takes Intel to make that much money to be able to pay it…
good observation