Intel Corp. should have the boasting rights. It’s the biggest chipmaker by sales, market value and – arguably –brand recognition but in terms of cash and term liquid investments Intel isn’t the world’s richest semiconductor manufacturer. That title belongs to Qualcomm Inc., which in the March quarter reported not just more cash than any other chipmaker but also zero long-term debts and a business that continues to thrive even under regulatory pressures.
On the OEM side of the electronics industry, Apple Inc. is by far the globe’s richest company. It leads in sales and market value and has a cash hoard unrivaled by any other publicly-traded company. With almost $188 billion in cash, short- and long-term investments and other long-term assets as at the end of its latest quarter, Apple has more liquid resources than all publicly-owned semiconductor companies combined. The company’s fiscal 2014 revenue of $183 billion was approximately 54 percent of all semiconductor sales ($335.8 billion) reported by the Semiconductor Industry Association for 2014, making Apple one of the biggest chip buyers globally.
The 5 Richest Semiconductor Companies identified by Electronics Purchasing Strategies together had $77 billion in cash and other liquid investments on their balance sheets at the end of their latest quarter. All of them are based in North America and together account for a sizeable share of the global semiconductor market on a revenue basis. At the end of their latest fiscal years, the companies reported combined sales of $97.5 billion, representing slightly less than one-third of global semiconductor sales.
The companies, by ranking, are Qualcomm, Intel, Broadcom, Nvidia and Altera. The five chipmakers are represented in key segments of the electronics industry and supply components to OEMs involved in automotive, computing, communications, consumer, data-center, gaming, medical, industrial and packaging solutions. Some companies that reported larger revenues and fatter cash accounts for their recent fiscal year did not make Electronics Purchasing Strategies’ 5 Richest Semiconductor Manufacturers list because they also posted huge long-term debts.
Electronics Purchasing Strategies selected only publicly-owned companies for consideration and also excluded chipmakers that have extensive OEM operations, including companies like Samsung Electronics and most Japanese semiconductor vendors that are part of larger enterprises. The methodology used to determine the companies’ actual cash position involved stripping out long-term debts from cash, short- and long-term investments and other “long-term assets” on publicly available balance sheets.
Qualcomm had net cash of $32.6 billion, putting it in first place; Intel came second with $16.6 billion; Broadcom followed with $4.1 billion; Nvidia fourth with $3.5 billion and; Altera No. 5 with $3.2 billion. The five companies had a total of nearly $17 billion in long-term debts, mainly contributed by Intel, which reported $12 billion in long-term debt at the end of the June quarter.
That pile of debts across the electronics industry will continue to rise. U.S-based chipmakers and other electronics and information technology enterprises have been adding to their debt loads in recent years to take advantage of low borrowing rates and as part of efforts to boost shareholder value by buying back their stocks. Rather than repatriate funds kept overseas – generated from surging sales to customers in Asia, for example – these companies now borrow extensively from bond investors and use these for stocks repurchase.
By leaving cash overseas they avoid paying hefty taxes on foreign earnings. Apple, for example, has boosted borrowings to buy shares and pay dividends and in the latest quarter reported more than $40 billion in long-term debts, up from $16.5 billion in fiscal 2013 and zero in the prior two years.
Like Apple, Intel too leads its industry segment in sales and market capitalization. The company reported $56 billion in sales for 2014, accounting for approximately 9 percent of global semiconductor revenue. Intel continues to lead the chip market in other ways, too. It has one of the industry’s biggest R&D budgets ($11.4 billion for 2014) and capital expenditure. It's gross profit margin is amongst the highest in the semiconductor industry and has consistently been above 60 percent for years. Intel’s cash, short- and long-term investments and other long-term assets fell slightly in the first quarter to $28.7 billion from $29.3 billion at the end of 2014 but it remains one of the richest companies in the semiconductor market.
Intel’s $12.1 billion in long-term debts pulled it behind Qualcomm on the richest semiconductor companies’ ranking. With zero debt at the end of its latest quarter, Qualcomm easily rose to the top of the richest global semiconductor list.
Qualcomm’s debt position is about to change, however. The company has expanded its share buyback activities and recently “announced a new $15 billion stock repurchase program” that includes plans to “repurchase $10 billion of common stock within 12 months, in addition to our current commitment to return a minimum of 75 percent of free cash flow to stockholders through stock repurchases and dividends,” according to a statement announcing March quarter results.
The company is financing some of the stock repurchase by issuing new debts. Zacks Equity Research said Qualcomm has recently “taken a $10 billion corporate loan, issued in eight parts.” The bonds have maturity dates ranging from 3 to 30 years.
“These fixed-rate notes have interest rates varying from as low as 1.4% on $1.25 billion due in 2018 to as high as 4.8% on $1.5 billion due in 2045. With the Federal Reserve expected to raise interest rates later this year, Qualcomm will likely benefit from low borrowing costs,” Zacks said.
Qualcomm’s cash flow turned negative in the just-ended quarter due to the payment of a regulatory fine to Chinese authorities and a supply chain-related commitment, CFO George Davis said, during a conference call to discuss the earnings.
“Fiscal second quarter cash flow from operations was negative at approximately $650 million this quarter reflecting a long-term capacity prepayment of approximately $950 million as part of our supply chain cost reduction initiatives and the payment of the approximately $975 million China fine,” Davis said.
The company may have to set money aside for other potential payments in coming quarters because of continuing regulatory reviews of its operations by governments in Europe and elsewhere. These actions, coupled with Qualcomm’s recent $10 billion bond purchase, could result in Intel snatching back the title of the richest semiconductor company by the end of the current quarter.