Intel is accelerating its $20 billion stock buyback strategy because of lower share values, and soon plans to buy up $10 billion worth of stock.
Despite sharp upticks in Q2 revenues ($19 billion, +20%) and net income ($5.1 billion, +22%), Intel's shares have dived nearly 20% in the last month due to the delay of its 7nm process to 2022.
Intel believes its shares are worth more than their recent trade values, so the company is spending $10 billion of its cash reserves to buy up 166 million shares of its stock. The motivation here is to raise stock prices by reducing the amount of shares on the market, thereby reducing dilution of the share value.
This is a good sign for morale, and investors have responded positively; Intel's shares have jumped 4% after the announcement.
"While the macro-economic environment remains uncertain, Intel shares are currently trading well below our intrinsic valuation, and we believe these repurchases are prudent at this time," Chief Executive Bob Swan said.
As outlined by Forbes, Intel has strong plans for its FinFET 10nm process, including new graphics, CPU, and memory architectures for the server and mainstream consumer markets.
Under the terms of the ASR agreements, Intel will receive an initial share delivery of approximately 166 million shares, with the final settlement scheduled to occur by the end of 2020. The final number of shares to be repurchased by Intel will be based on the volume-weighted average stock price of Intel's common stock during the term of the agreements, less a discount and subject to adjustments.
Intel is funding the share repurchases under the ASR agreements with existing cash resources. Strong operating results in the first half of 2020 have contributed to a healthy liquidity balance, which gives Intel the ability to invest in the business during a period of economic uncertainty while also returning capital to stockholders through dividends and these share repurchases. Intel intends to complete the $2.4 billion balance of its planned $20 billion share repurchases and return to its historical capital return practices when markets stabilize.
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