Investments may be classified into the following categories: Trading assets, Available-for-sale investments and Non-marketable equity securities and other investments. Certain marketable debt and equity securities are considered trading assets. They are subject to exchange rate and interest rate modifications, so the generated risk is mitigated through the use of derivative instruments.
The 'available-for-sale' includes another category of marketable debt and equity securities. These investments are reported at fair value on the balance sheet with unrealized gains and losses recorded in stockholders' equity, net of tax. If the securities are sold, their cost is calculated using a specific identification method. The gains and losses incurred as a result of selling debt securities are recorded in interest and other (net value). Should the available-for-sale investments be equity securities, they would be recorded in gains (losses) on equity securities. However, every decrease of the value of such securities (stocks) has to be considered permanent in order to be included in this category. The Intel 2001 report provides the criteria for making such a decision: "Marketable equity securities are presumed to be impaired if the fair value is less than the cost basis for six months, absent compelling evidence to the contrary."
Short-term investments is the technical term used to indicate debt securities with original maturities greater than three months and remaining maturities less than one year. Debt securities with remaining maturities greater than one year are included in other long-term investments. The importance of short-term investments is rather large, since companies could use this type of securities to create an additional profit, should the available amount of cash exceed the sums the company needs for growth. The technology sector is well-known for preferring not to pay dividends and for gathering huge amounts of cash. Microsoft and Cisco are excellent examples. Although Intel has a tradition of paying some dividends, it still likes to have a cash reserve. Short-term securities have a very high liquidity, because of their short maturity, and are often used the same way cash is....
This is why cash and short-term investments are often analyzed together. The unfavorable economic background of 2001 has made strong companies take advantage of their situation: "In perilous times, it doesn't pay to be timid. McKinsey [consultants, Palo Alto, CA] is urging high-tech firms to take advantage of their weakened competitors. Slash product prices. Extend markets by buying out aggressive, but cash starved innovators. Pump up spending on R& D. And capital expenditures.
Some companies are able to take at least some of these steps. In semiconductors, Micron Technology Inc., Boise, ID; Intel Corp., Santa Clara; and LSI Logic Corp., Milpitas, continue to boost their spending on capital expenditures. Solectron used its badly bruised stock to buy up Centennial Technologies Inc., Boston. The move, announced in January and closed in May, puts Solectron deeper into the manufacture of memory modules and cards."
The safety degree such very liquid reserves provide and the possibilities that a company has to finance its short- and long-term activities increase the appeal of cash and short-term investments. In an article published in the second half of 2001, praising companies who managed to obtain and keep these reserves, Intel is presented as a top player: "The deeper the pockets, the better. Among the companies with deep pockets are such granddaddies of the tech industry as Intel and IBM Corp. Ranked No. 11 on ELECTRoNic Business' EB300 list, page 18, Intel has more than $10 billion in cash and short-term investments. "We put money away for rainy days," says Howard High, a senior spokesman for Intel. Hence, Intel's ability to spend $4.2 billion on R& D. And $7.5 billion on capital expenditures this year as it pursues its mission of becoming the building block supplier for the Internet, according to company documents. That compares with $3.9 billion and $6.7 billion, respectively, for 2000."
The objectives that Intel wanted to achieve, respectively to provide the necessary equipment for connecting large networks and to contribute to the expansion of the Internet, under the "building block supplier for the Internet" slogan, made large amounts of cash and…
