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goafrit
Buyback has no benefit. You cannot keep investors via that method. They take the ...
ismini.scouras
Academically, companies buy back their shares to increase shareholder value. But ...
Analog firms step up stock buybacks
Ismini Scouras
8/15/2012 2:08 PM EDT
Saving money
Traditionally, companies buy back their stock because they believe their shares are undervalued. For Intersil (Milpitas, Calif.), its dividend yield is higher than the interest rate it is getting on its cash, so for every share it repurchases it is saving money, analysts said.
Intersil said its stock repurchase program is designed to help reduce the dilution of its shares from employee options and grants. “The repurchase will offset the dilution we’ve experienced over the last four years,” said Intersil’s Brendan Lahiff.
The analog industry is currently at the bottom of the semiconductor cycle with overall demand expected to be flat over the next six months, according to analysts. Stock prices reflect that.
Analog chip makers tightened their belts beginning in 2008, but cost reductions are still occurring as seen by Intersil’s recent layoffs. It is unlikely that the analog sector will see significant increases in its workforce anytime soon.
For MagnaChip, a three-pronged approach to its cash utilization efforts includes not only a share buyback program, but investing in its foundry business while boosting its IP portfolio via acquisitions, said Robert Pursel, director of investor relations. MagnaChip is also using its cash to add headcount in its Cupertino, Calif., facility.
For the third quarter, MagnaChip expects revenue to increase between 7 percent and 11 percent, to $217 million to $225 million on a sequential basis.
Traditionally, companies buy back their stock because they believe their shares are undervalued. For Intersil (Milpitas, Calif.), its dividend yield is higher than the interest rate it is getting on its cash, so for every share it repurchases it is saving money, analysts said.
Intersil said its stock repurchase program is designed to help reduce the dilution of its shares from employee options and grants. “The repurchase will offset the dilution we’ve experienced over the last four years,” said Intersil’s Brendan Lahiff.
The analog industry is currently at the bottom of the semiconductor cycle with overall demand expected to be flat over the next six months, according to analysts. Stock prices reflect that.
Analog chip makers tightened their belts beginning in 2008, but cost reductions are still occurring as seen by Intersil’s recent layoffs. It is unlikely that the analog sector will see significant increases in its workforce anytime soon.
For MagnaChip, a three-pronged approach to its cash utilization efforts includes not only a share buyback program, but investing in its foundry business while boosting its IP portfolio via acquisitions, said Robert Pursel, director of investor relations. MagnaChip is also using its cash to add headcount in its Cupertino, Calif., facility.
For the third quarter, MagnaChip expects revenue to increase between 7 percent and 11 percent, to $217 million to $225 million on a sequential basis.
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GREAT-Terry
8/15/2012 10:04 PM EDT
I don't know the math behind repurchase, but some companies did that before while there was no sign of advantage at all, at least from their stock price.
I think if the company is strong in cash flow, the better way to spend the money is to further invest on human capital (recruit more talents) and acquire good value companies.
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Sheetal.Pandey
8/17/2012 7:21 AM EDT
So true
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Traces
8/17/2012 8:21 AM EDT
The maxim "buy low; sell high" should also apply when buying back your own stock, but, tragically, it usually doesn't. Study after study have shown that stock buybacks usually occur at a stock price peak, rather than at a nadir. If the stocks are so undervalued now, why weren't they even more undervalued at the stock market bottom, and why didn't you buy then instead of now?
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agk
8/17/2012 8:35 AM EDT
During stock peaks the economy is sound and more cash flow and cash balance. During stock price low the reverse is true and the is a financial block to repurchase it.
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ismini.scouras
8/17/2012 11:13 AM EDT
Academically, companies buy back their shares to increase shareholder value. But there could be other reasons, for instance, to prevent or make it harder for another company to take it over. I’m not at all suggesting that any of the companies mentioned in the article are acquisition targets, however. But it is something to think about. Also, semi companies are definitely being conservative with their R&D plans, and while the idea of using the cash to increase their engineering workforces and gear up for when the market returns to double-digit growth is one that would make sense, companies are still doing the opposite. And there are no indications (in the short-term anyway) that the trend will reverse itself in a big way.
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goafrit
8/17/2012 5:41 PM EDT
Buyback has no benefit. You cannot keep investors via that method. They take the value and when they are done, they dump the stock. The real deal is to make sure companies have good earnings.
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