Intel Corporation FX Management Policy - Case Study Example

Intel Corporation The leader in semi-conductor chips, having the largest distribution of chips sets used around theworld and in almost every computer, Intel is the market leader who uses versatile systems around the globe to keep its business strong. Found in 1968, Intel is a portmanteau of Integrated Electronics, and is wide spread from not just making microprocessor chips but also graphic processors, flash memory, IC’s etc. The very advertising campaign used around the 90’s “Intel Inside” shows the power of Intel Corporation running the computers around the world. Intel simply runs the world. Its geographical outreach is all around the world, covering all continents and countries. With having more than 107,000 employed under Intel, the company has sales happening around the world around the clock. The head office located in Santa Clara manages operations of production of nine factories in the U.S, with the highest employment in Oregon and three overseas production houses, namely, China, Israel and Ireland. The assembly houses are then located in Costa Rica, China, U.S, Malaysia, Vietnam and Israel. Intel has been able to make profits from all these locations and through its versatility has been able to reach out the furthest of the locations. Having all these sites in mind, during the year 2013, Intel had total revenue of $52.7 billion with an operating income of $12.3 billion and net income of $9.6 billion. It generated around $20 billion in operations and paid dividends of $4.5 billion. Intel following the quarterly system had the maximum revenue from the last quarter of the year 2013 which helped it go 3% over 2012’s revenue. Intel’s FX Management Policy Having such a large business and money flow, companies such as Intel go through a much needed Foreign Exchange Management Policy. This policy ensures smooth flow of cash into a certain currency. With Intel’s offices around the globe, cash inflow is happening all the time, the requirement of that to be converted into a certain currency, in Intel’s case Dollar is compulsory. This enables the company to have all the account cleared into a one currency which makes treasury job easier and not spending or employing extra work force for converting currencies into dollars. By having a direct system to anything they buy or move, Intel corporations avoids many exposures for this management. From everything Intel moves and buys, the company uses a cross currency swap system, which enables them to change the currency at the same time into dollars. This system provides Intel to help change the currency at any particular business transaction and helps their financial systems to be decentralized. This enables the transactions to be financially independent while carrying out businesses avoiding the exposure of interests and economical exposures. The operating subsidiaries around the country make this payments by the currency swap system on the spot where as the business transaction is then transferred to Regional Offices and then later on to the head offices in U.S. The major exposures that are managed by Intel are that of translation, where with every transaction, Intel compiles a financial statement. These financial statements although have a much longer process are helpful as each and every currency exchange is within and helps to have different statements aligning to a set dollar rate of exchange. The decentralization is mostly regional wise as each region then has its own centralized system. This helps to avoid time gaps, and enables the growth of the company happening at all times, overnight and during the day. Intel has its major currency, about 50% of the cash inflow from East Asia and Central Asia; hence it requires some hedging methods. Intel relies mostly on swapping methodology. As the market is still much wide spread and has to run a major business it uses forward contracts to avoid problems in exposures relating to currency exchanges and interest rates. Most of these hedging methods are implemented throughout the year, and are variable to different locations. By the end as translation exposure is much comprehended in the head office, these problems take about a year to solve. When successful, Intel then starts spreading the methods over regional subsidiaries. Intel also uses marketable equity securities and other derivate instruments related to warrants and options. Intel tries its best not to reduce or eliminate its complete market exposure through only hedging activities. This is due to the fact that at times these can cause market loss as well. During 2012, Intel’s equity cost was $4 Billion with using all the hedging activities but after deliberate research it could have been reduced to $1.6 Billion. Intel goes through the financials every year and implements improvements throughout the coming year. As financial markets are volatile, Intel makes sure to not affect their company and other companies they invest in. Most recent Growth rate (CAGR) 1 year 5 years 10 years Book value of equity per share $11.15 12.6% 9.7% 6.9%       including aggregate dividends 21.7% 16.5% 11.3% EPS $1.83 -19.3% 8% 10.6% Annual dividends $0.90 3.4% 11.4% 27.3% Share price $24.76 Funding and Investing Intel tries to be competent to where it invests and plans to fund its name. Having billions of dollars worth of investments at stake, Intel uses different techniques geographically to positively forecast their investments. The company focuses majorly on holding financial derivative instruments to avoid the risk of currency exchange and interest rate risk. This is used to record fair value in all the current, long term and accrued assets. Intel uses a strategic investment program to acquire equity derivate instruments such as equity conversion rights and warrants associated with debt instruments. Intel thus invests to maximize ease and to profit both sides. It uses hedging to help secure its deals over a rate that profits Intel in the long run. By acquisition of companies and making the companies go large; Intel is determined to fund such individuals and corporations to reap profits not just in the short run but have a secure long run intake. Expanding more in countries it is required to have different systems accordingly to trading policies of countries around the world. The work load divided amongst countries enables the head office to have a refined data over all the business going on for the company. Offshore Investments Like any other company, Intel also focuses on having a global monopoly, with its different competitors such as AMD; it is still the largest manufacture of semi conductor chip sets. This only encourages the company to go larger than ever. Having minimum credit rating in mind, Intel is much focused on investing in Asia, especially in China, Japan, Singapore, Korea and Malaysia. The company encourages with countries government to regulate different business ventures in terms of bonds etc. It focuses to have premium over the assets the countries bank hold to reap profits. Having about 30% of total income of Intel coming directly from China, many factors play role while investing into the country. These policies have been much stricter for the European countries. Intel investments in the European countries went considerably down for the past four years. The total investment in countries such as Spain, Portugal, and Greece are out due to non economics stability. The decision for the European market has been taken by the regional body of managers along with the corporate heads of the Head offices in the U.S. The decision formally being practiced for now almost two years have been majorly due to market problems around most of Europe. Intel although extremely wide spread is still much conservative when taking care of investing offshore, wherever the country is to reach market problems, it becomes defensive and tries to cut business. The decisions specifically related to Europe became much more concerning during the end of 2012. Region % Investment % Income Asia 34 36 Europe 12 15 Americas 50 45 Africa 4 4 Investing around countries requires a stable banking relation. As money plays the most important role while the production happens, Intel goes for low credit rating and tries to fulfill its needs by sitting and resolving matters with the counter party. Intel believes in solving their problems accordingly to locations. Having employees from certain countries working for Intel, the interest of Intel are protected around the globe. Such an example of major offshore management investing was when Cash heads was shifted from China to India and Singapore, where same talent could be reached saving Intel much of the investments giving better results. Investments such as these help Intel to grow their geographical outreach. As Europe is going through economical crises, Intel is limited majorly to U.K, Germany, France, Switzerland, Norway, and Ireland. The acquisitions are another way of how Intel invests around the world. Powering thousand of companies, Intel is always in search to help research more dimensions towards reaping profits. These long term investments are helpful in a longer run to have maximum profits and have a positive impact of the company. Intel has a very small number of acquired companies; all of them are related towards having faster computer systems and also help in productivity of Intel as a whole. Conclusion The past two years for Intel Corporation have been of much change. As every year brings in different laws and newer market strategies, Intel tries to keep it on the top. Since 2012, Intel’s revenue has been slowly growing. The complete assets have been slowly declining as they have been limited towards producing chips for only microprocessor computers. Hence, financially the market strategy is still changing for Intel and they are still on toward growing. Through proper managing of financial risks and changing locations, Intel has benefited from having skilled professionals on a low cost that has been financially rewarding. Although at times, major business can have trust issues, hence legally bound and only running on the demand of companies, Intel can have an adverse affect if they don’t diversify. Market of computers and microprocessors have been constantly shifting and it is important for Intel to diversity and go into mobile innovation sooner before they go through a major technological and financial crises. Intel if follows the same strategy globally will face challenges, especially in the areas of Europe. There are many companies waiting towards benefiting Intel and to be benefited by Intel but due to the conservational approach towards investing in those economically challenged countries Intel can miss out the opportunities towards further expansion. The risk management hedges followed by Intel are much important to Intel’s structure. They help to regularize the major sum of money inflow. Intel need revision of these processes, as they learned from moving into India that they could have less cost and have easier processes with low credit rate they could expand and use the same amount of money into expansion. The main goal of Intel is to sell more and reach out to every company and a household using a computer that utilizes and runs on Intel chips, for this very reason, Intel is to make sure that they constantly find financial solutions. They are also supposed to not limit themselves towards using just these techniques to solve their issues but to think logically towards investment solutions. Intel has been a pioneer amongst giving microprocessor and making tasks easier for companies, business, and logistical ventures to empower their solutions. To keep the brand name, Intel would require expanding to a further more dimensions. Intel is still to step in micro smart phone technologies. There is billions of dollars worth of income for Intel laying there. The risk management would be at large but as Intel already has production houses in most of the countries it would help them to have trading advantages. They swap system of currency exchange and already having parties waiting for them to step into this line of business can be a great start up for Intel to maximize their profits and show that they can fully utilize these systems towards their growth. Intel’s foreign exchange policy is much stable because of the dimensional hedges it uses. This can still be amended as too much reliance can affect equity of the Intel’s securities and warrants. Having large production, Intel need to figure out more liquid ways to transfer money into Dollars, the conversion is to only help Intel for such a time. Intel can also look into other currency as main mode of transfer for helping them have a stable economic profit. References "Risk Factors." Intel 2012 Annual Report. (2012). Web. 3 Mar. 2014. . "Quantitative and Qualitative Disclosures." Intel 2012 Annual Report. (2013) Web. 3 Mar. 2014. . "Form 10-K." Form 10-K. U.S Security and Exchange Commission, 26 June 2009. Web. 2 Mar. 2014. . Read More