William Lazonick and Matt Hopkins, writing at Institute for New Economic Thinking: Why has Intel fallen behind TSMC and SEC in semiconductor fabrication, and why is it unlikely to catch up? The problem is that Intel is engaged in two types of competition, one with companies like TSMC and SEC in cutting-edge fabrication technology and the other within Intel itself between innovation and financialization. The Asian companies have governance structures that vaccinate them from an economic virus known as “maximizing shareholder value” (MSV). Intel caught the virus over two decades ago. As we shall see, with the sudden appointment of Gelsinger as CEO this past winter, Intel sent out a weak signal that it recognizes that it has the disease.
In the years 2011-2015, Intel was in the running, along with TSMC and SEC, to be the fabricator of the iPhone, iPad, and iPod chips that Apple designed. While Intel spent $50b. on P&E and $53b. on R&D over those five years, it also lavished shareholders with $36b. in stock buybacks and $22b. in cash dividends, which together absorbed 102% of Intel’s net income. From 2016 through 2020, Intel spent $67b. on P&E and $66b. on R&D, but also distributed almost $27b. as dividends and another $45b. as buybacks. Intel’s ample dividends have provided an income yield to shareholders for, as the name says, holding Intel shares. In contrast, the funds spent on buybacks have rewarded sharesellers, including senior Intel executives with their stock-based pay, for executing well-timed sales of their Intel shares to realize gains from buyback-manipulated stock prices.
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