Linear Technology Case
Linear Technology
Linear Technology is a technology company that focuses on the different elements of semiconductors. The company mostly focuses on analog products within the semiconductor portion of the electronic industry. Linear Technology was unique in their payout policy in the sense that they started with announcing dividends and then continued onto repurchasing. Linear started dividends to gain the respect of investors as well as show that buying shares in the company of Linear was less risky than all the other technology companies. Additionally, they repurchase stocks to offset the employee stock options that the company had as a large component of the employee compensation, which helped Linear in the years of low or slow sales.
As stated in the case description, Linear has a strong cash flow as a company. In the basis of the financial needs for Linear Company, as a whole they need to make sure they are able to cover the executive stock option costs, as well as their capital investment in the fabrications facilities. In the case it is stated that Linear spent $200 million for new analog fabrication facilities, so therefore that expense would be a large and important financial need. Additionally, they need to keep some money set aside for expansion in the future. Since they don’t appear to be focusing on acquisitions at this point in time, they do not need to consider that in the financial needs, however if acquisitions do appear in the future they will be needed to take under consideration. Companies are supposed to drive value by growing the value of the company and the stock or by returning cash to shareholders. In the case of returning case to shareholders, it would be recommended as long as it is in line with the future strategic growth plan. As far as this particular case, there is nothing that indicates a specific growth plan in the near future but it can be presumed to have some expansion in the future. Overall, it would be a good recommendation to return cash to shareholders as long as the executive stock options, fabrication investments, and strategic growth plans for the future have all be met. A benefit to paying out cash to shareholders is that it shows strength in the company as a whole. By showing strength in the company, share prices in turn with will increase because investors seek higher dividends. Companies with higher dividends are seen are more valuable. A disadvantage to returning cash to shareholders is if Linear is unable to meet their dividend rate, they will be greatly punished and penalized causing their stock price to rapidly decrease. Additionally higher dividend means less cash in the business for future growth, which limits possible expansions in the future. In the terms of tax consequences, they should be relatively minimal since most of their investments are short-term investments. Typically, in the business world, short-term investments usually only have a