Intel CFO comments in interview to Bloomberg.
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Intel CFO: Obama Repatriation Tax Proposal ‘Lipstick on a Pig’
By Tiernan Ray
Intel CFO Stacy Smith visits Barron's offices, February 4th, 2015.
Intel CFO Stacy Smith visits Barron’s offices.
Intel (INTC) chief financial officer Stacy Smith was in New York Wednesday and was kind enough to stop by Barron’s offices for a chat.
One of the areas where Smith was most passionate was on the topic of President Barack Obama‘s proposal that U.S. companies pay a 14% tax to repatriate their overseas earnings.
Barron’s magazine executive editor Fleming Meeks asked Smith, “What do you make of President Obama’s proposal to allow companies to repatriate overseas cash at 14%. Do you think there’s any seriousness to that?”
Said Smith, “I’m from Texas, so I’ll use the Texasism: it’s kind of lipstick on a pig.”
Smith went on to say,
We need fundamental tax reform that helps companies like Intel that are big manufacturers. We are unique in that we do our highest-end manufacturing in the United States, by and large, that’s where our largest factories are. We need something that helps make us competitive on a worldwide stage. And if you look at it, we actually have tax policy that is punitive toward companies like us that create jobs in the U.S., that export outside the U.S., that manufacture in the U.S., and it makes us less competitive with a company like a Samsung [Electronics (005930KS)] or TSMC [Taiwan Semiconductor Manufacturing (TMS)], which are the people we compete with on a worldwide stage, because they have much more pro-business tax policies. So I think repatriation is one of the things that needs to be dealt with, but it needs to be dealt with in the context of a fundamental changing of our tax policy that helps companies that want to, in my opinion, do the right thing, create jobs in the U.S., and be competitive on a worldwide playing field.
Fleming pressed the point, asking “So, in the meantime, what do you do? You’re not just waiting for tax policy to change. In the meantime, what do you do with your cash overseas, etc.?”
What we do is run our business, at the highest level. We are somewhat unique in that we are a worldwide company, so we generate a lot of cash in the U.S., we generate a lot of cash outside the U.S. But because we build our own manufacturing facilities, we have uses for cash outside the U.S. So, for example, we have factories in Ireland and Israel and China, and so we take the cash we generate outside the U.S. and we invest it in factories we build outside the U.S.
Fleming did his best to press Smith even further about what Intel might do if it suddenly got a tax holiday, asking “Is that cash that could be invested here in the U.S.?” But Smith avoided answering directly what the company would do in such an event, instead replying:
We generate a lot of cash. If you just look at last year as an illustration, we generated $20 billion of cash from operations. We spend about $10 billion in capex, so even net of everything, we generated $10 billion of free cash flow. We generate cash in the U.S., we generate cash outside the U.S. In both of those cases we generate more cash than we need to invest in factories. So we are not cash-constrained is the short answer.
