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Technology Stocks : Intel Corporation (INTC)
INTC 49.25+0.9%Feb 3 3:59 PM EST
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To: Joel R. Phillips who wrote (2030)7/2/1996 9:46:00 AM
From: Andrew Chow   of 186894
 
On Cap Ex & R&D -

You are correct that Capital expenditures are expensed later. However this occurs as depreciation, never as R&D. Generally all R&D is expensed as it occurs. It is interesting to note that recently it has become allowable for certain types of advertising costs to be capitalized (ie. not expensed in the current period - AMER is an aggressive user of this accounting "philosophy"). Consequently reported earnings for such advertisers is also "overstated" (using your convention for the term).

Anyway, getting back to INTC, the question is whether its earnings are "overstated". Is the heavy cap ex spending a cost that should be reflected in today's earnings? Or is it an investment that should be reflected on the balance sheet, because it can generate benefits down the road? Current thinking is that it is the latter, but with a very short lifespan (hence the short depreciation life span). That is in fact how INTC treats its cap ex spending.

Question to Mr. Hull: can you provide us with a schedule of future depreciation expenses from INTC's current asset base for the next couple of years? And how much additional depreciation expense is scheduled to occur from planned expansion in the next couple of years?
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