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0:00
Hello. I'm Dr. Michael McDonald.
I'm a professor of finance at
Fairfield University in
Fairfield, Connecticut,
and this case is Intel:
Understanding Business
Budgeting. Let's get started.
0:14
Now, operating a
business is a balance.
Firms generate cash
flows and then over
time they have to use
those cash flows to
do three things.
First, they have to
return and repay
outside capital to
lenders and bondholders.
That is, to the firms and
individuals that have
debt in the company.
Second, the company
has to invest for
the future via CapEx or
capital expenditures.
Then, third, they
have to provide
investment returns
to equity holders.
Stockholders or
equity holders are
ultimately the owners
of the company,
and they expect a return
on their investment.
These three competing priorities
all have to be met by
the firm in the long run
or the company won't
be successful.
Now the reality is
ultimately, a firm can rarely
do absolutely everything
they would like to do.
So, balancing among these
different options is critical,
and things can get
very difficult
when the economy
and sales decline.
1:21
Now, Intel is a household name
in computers and technology.
The firm is legendary
in many respects.
Intel makes microchips that
power computers of all sizes.
Along with long time,
but historically
much smaller rival,
AMD or Advanced Micro Devices,
Intel has a duopoly
in their market.
Essentially, this means
that these two firms,
Intel and AMD,
are the dominant players and
really the only players making
chips that go into computers.
There are other chip
makers out there,
Nvidia, for example,
but many of these other firms,
they specialize
in other types of
devices or in
specialized devices.
AMD and Intel are traditionally
the two firms providing
processors for computers.
Now, a duopoly like this can
lead to strong
profits for a firm,
but it also means the firm will
likely lack experience
dealing with
the hard choices that come along
with tough financial
circumstances and conditions.
Essentially, if you get used to
always having an easy
environment to compete in,
then when ultimately bad
times do come along,
it can be challenging for
the firm to deal with
those situations.
In 2023, we might argue that
that is where Intel is.
