An arguable capital budgeting decision in Intel’s Financial Plan 2013 Thursday 17 January 2013, Thomson Reuters, the world’s largest international multimedia news agency, has highlighted some concerns about Intel’s Financial Plan 2013. Noel Randewich, the report’s writer, thought Intel Corporation’s current-quarter revenue forecast disappointed Wall Street analysts. The reason behind is Intel will spend more $2 billion of its increased spending on expanding researching facility. This action is a controversial one because it has feedbacks from different sides. Essentially, one major worry is probably that the predicted personal computer market size is going to be smaller in 2013 while Intel lays a bet on very huge investment. However, Chief Executive Paul Otellini said that modern long-term assets could help Intel maintain the lowest cost as possible. On the other hand, some other Wall street analysts advocate Intel’s decision due to fact that it would be a plus for company ‘s operating efficiency.
Intel was founded in 1968 with a vision for semiconductor memory products. It is best known for producing the microprocessors found in many personal computers. The company also makes a range of other hardware including network cards, motherboards, and graphics chips. Yet Intel became reputed after Wintel alliance with Microsoft Corporation, which enabled Intel to possess 80% of personal computer chip market.
Back to the new event in the 2013 first quarter, the $2 billion investment on long-term assets belongs to capital budgeting decision type. Undoubtedly, it is very important decision because Intel has to face a great number of effects. The first clear limitation could be that Intel would run the operation under its capacity due to unused space of new plant as well as to the reduced market size. At the same time, another stumbling block might be that its higher fixed cost than previous years unquestionably harms the company’s bottom line. Intel estimated first-quarter revenue of $12.7 billion, plus or minus $500 million whereas analysts expected $12.91 billion for the current quarter.
Wall Street analysts assumed that Intel has been making a risk bet for 2013 and Intel should not expand its business while the PC chip market is not growing much. It is very reasonable for those analysts to think like that because Intel now has a absolutely strong competition with other competitors for the new market segment of mobile phone chip making. It has recently entered this market territory in 2012 and its market share for smart phones is less than 1 percent, trailing Qualcomm, Samsung Electronics, ARM and others. Therefore the whole market size for Intel is not really large when compared to some previous years.
However, Intel’s investment decision definitely holds positive aspects for the reason that the long-term implications of said decision is to keep the cost lowest on a per unit basis owing to the leading edge capacity. Besides this, a second plus point could be Intel has prepared a plan to raise the market share in the whole industry with a new facility of researching future manufacturing technology. It seems to be a sign of innovations, new products, new market share and of course higher returns in 2013.
In conclusion, this Intel’s capital budgeting decision is surely a bet but times and the company’s efforts itself will answer us how it can uphold the leading position in chip making industry in 2013 and following years.
Noel Randewich, Liana B. Baker. “Intel CEO to retire as chipmaker struggles with mobile.” Reuters.com, 19 Nov 2012. Web. 18 Jan 2013.
Noel Randewich. “ Intel weak outlook, spending hikes unnerve Wall Street.” Reuters.com, 17 Jan 2013. Web. 18 Jan 2013.
Patrick Darling. “Intel Reports Full-Year Revenue of $53.3 Billion, Net Income of $11.0 Billion.” Newsroom.intel.com, 17 Jan 2013. Web. 18 Jan 2013.
1. Are there any different pros and cons for Intel’s capital budgeting decision apart from ones said in the analysis? 2. With this new investment, give the probability that Intel can raise its share more 1% in smart phones chip making market. 3. How can Intel stabilize the profit margin after a huge investment in 2013 first quarter?