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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Noel who wrote (145903)	10/23/2001 4:00:09 PM
From: Ali Chen	Read Replies (2) \| Respond to of 186894

Noel, "your model may be simplistic" Of course it is simplistic, but it is also more realistic. For many reasons. "These options were granted several years ago when Intel stock was presumably much lower. How do you account for that?" I don't. There is no need to. The grant of options does not bear any cost for the company until an employee decides to exercise his option. Therefore the cost to fulfill that obligation is incurred only at the moment of option exercise, not at the moment the obligation was assumed. "I think it is fairer to account for stock options as an expense using Black-Sholes rather than as a stock buyback replacement." I think it is a matter of terminological confusion, and I hope not on my part. "Employee stock option plan" has nothing in common with speculating with "securities options". "Also, the company gets to write off the taxes"... which makes the practice of excessive stock option compensation plans even more deceptive with regard to such GAAP parameters like absolute "earnings" and EPS. "Secondly, your assertion is true for the entire tech industry. Have you looked at the numbers for Microsoft, Cisco, Sun, etc.?" Yes, Forbes Magazine compiled a list of top companies whos actual earnings were heavily misrepresented by this accounting malpractice. I belive the companies you mention are in the list. But you are incorrect about the entire industry. The whole point was about the scale of these buybacks. If the $$$ amount of buyback does not significantly change the earnings outcome, who cares. However, if a $400M in "repoprted" profits is actually a loss of $600M, as it is in the current Intel's case, the things are quite different. Wouldn't you agree? "They may not be buying back as much stock as Intel but the stock dilution due to options still counts." That's the point: the stock dilution accounts for their options, so the EPS remains a fair metrics. Regards, - Ali