working capital management final

INTEL : MANAGING WORKING CAPITAL

INTRODUCTION

• Intel was the leader in the microprocessor industry in early 2004.

• Launched over 450 products & services.• Intel’s success attributed to technology,

management & its unbroken leadership chain.

• Realized the increasing importance of WORKING CAPITAL MANAGEMENT.

HISTORY

• 1968 – Bob Noyce and Gordon Moore found Intel• 1971 – A new era in integrated Electronics• 1974 – The Intel 8080 microprocessor • 1981 – Intel wins the IBM PV Account• 1989 – Advancing Human Welfare• 1991 – Intel is a household name• 2000 – Pentium 4• 2003 – Introducing Intel Centrino mobile technology

PRODUCTS

• About 450 different productsProcessorsChipsetsMemory chipsBoards and platformsOptical devicesSoftware

NET REVENUE

ADVANCED MICRO DEVICES(AMD)

• AMD was founded in 1969, headquartered at Sunnyvale, CA.

• AMD is a customer-centric innovation company, a processing solutions powerhouse.

• AMD works with computing, wireless, and consumer electronics companies to create smarter choices for customers—from individual consumers to the largest commercial enterprises.

Cont…

• Combined revenue by segment• FY2007 $6,013mn

Computation Products 68.1%Graphics and Chipsets 22.6%Consumer Electronics 7.3%Embedded Products 2.0%

CONFLICT BETWEEN INTEL & AMD

• Intel licensed technology to AMD to make their own version of the 80286 chip.

• Intel made attempts to protect technology of its highly successfully 386 & 486 chips when AMD captured 52% of that market.

• AMD sued Intel for breach of contract.

• They later settled several court cases.

• AMD got the micro code license & Intel was awarded US$ 58 mn in damages.

And the battle continues…

WORKING CAPITAL MANAGEMENT

DEFINITION

• It is the difference between current assets and current liabilities.

• The portion of current assets financed with long term funds.

• Measure of liquidity.

OBJECTIVE

• To manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained.

OPERATING CYCLE

Phase 3

CASH

RECEIVABLES

INVENTORYPhase 1

Phase 2

DETERMINATION OF OPERATING CYCLE(INTEL)

Raw material holding period = 360*Stock of raw material cost of raw material consumedWIP holding period = 360*stock of WIP Cost of goods manufacturedFinished goods holding period = 360*stock of finished goods cost of goods soldDebtors collection period = 360*debtors credit sales(-)Creditors payment period = 360*creditors purchases

2002

5.97

36.55

18.42

34.08

(41.31)

53.71

2001

6.32

35.13

18.68

35.36

(47.22)

48.27

2007

9.90

28.52

27.41

6.17

(46.17)

25.83

DETERMINATION OF OPERATING CYCLE(AMD)

Raw material holding period = 360*Stock of raw material cost of raw material consumedWIP holding period = 360*stock of WIP Cost of goods manufacturedFinished goods holding period = 360*stock of finished goods cost of goods soldDebtors collection period = 360*debtors credit sales(-)Creditors payment period = 360*creditors purchases

2002

3.89

43.59

26.48

67.67

(60.26)

81.37

2007

4.61

42.30

28.89

61.43

(96.84)

40.39

2001

3.68

32.90

16.31

91.72

(42.40)

102.21

WORKING CAPITAL RATIOS

CURRENT RATIO

2001 2002 20070

0.5

1

1.5

2

2.5

3 2.682.86

2.13

1.711.47

1.93

IntelAMD

QUICK RATIO

2001 2002 20070

0.5

1

1.5

2

2.5

32.34

2.52

1.791.5

1.16

1.62IntelAMD

INVENTORY TURNOVER RATIO

2001 2002 20070

1

2

3

4

5

6

75.98 5.9

5.01

6.8

4.86

3.25 IntelAMD

SUGGESTIONS

• The recent financial crisis has led to :Tightening in credit markets Low level of liquidity in financial markets

This could result in insolvency of key suppliers leading to product delays. Hence Intel should maintain higher inventory levels to avoid stock outs.

• Proper risk management policy.

Cont...

• Improvement in creditors payment period.

• Proper planning of production schedule.

• Maintenance of debtors credit policy.• Constant innovations.

THANK YOU