10 Chip Makers Paid Nearly $8 Billion in Stock Options. Why Investors Should Care.

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Chip makers are coming at the global shortage head-on.

Intel

is spending $20 billion on new crops.

Samsung

is pouring $116 billion into its foundry capability over the subsequent decade. And

Taiwan Semiconductor Manufacturing

is investing $100 billion over three years to develop its chip fabrication capabilities.

But the businesses are additionally ponying up massive bucks on one thing else that may be simply as essential to their backside line as one other manufacturing unit, but not easy to put a finger on: stock-based compensation.

To get a greater sense of how a lot stock-option grants price the semiconductor trade, Barron’s screened the PHLX Semiconductor index, or Sox, for the 10 paying out essentially the most.

First, a bit about stock-option grants, that are the chance for workers to purchase shares. They can run into some huge cash, significantly if the per-share value rises. The grant value stays the identical so if the market worth goes up, the worker is paying much less for the inventory.

Unlike a brand new manufacturing unit or extra machines to extend output, firms take into account stock-option grants as noncash prices. Often firms current non-GAAP, or adjusted, earnings figures, which exclude gadgets corresponding to inventory compensation.

Asking traders to make use of nonstandard measures to guage an organization’s monetary efficiency isn’t incorrect. But worker inventory funds do have an effect on shareholders—by dilution if the corporate doesn’t purchase again extra inventory than it issued, and thru prices corresponding to tax bills.

Startups which have simply gone public normally have excessive inventory compensation to allow them to appeal to high expertise. More mature companies use inventory compensation to retain workers: If choices vest yearly, it’s an excellent motive to remain the subsequent one—to get the payout.

Broadcom

(ticker: AVGO) was on the high of the Sox, paying out $1.98 billion in stock-option grants in its final fiscal yr. In the chip maker’s newest incomes report, out earlier this month, share-based compensation contributes to changes that amounted to greater than half of per-share GAAP revenue. If the corporate handed out the identical share compensation to its 21,000 workers, every would obtain $94,095 value of inventory.

Coming in second by lower than $100 million is Intel (INTC). Employing a military of 110,600, the Silicon Valley stalwart paid out $1.85 billion in share compensation in its newest yr. If the quantity was divided evenly, every worker would obtain $16,763.

Nvidia

(NVDA), which advanced from videogame graphics processor designer to an organization that additionally makes information middle chips, took third place with $1.four billion. An equal payout for every of Nvidia’s 18,975 employees could be $73,623

And

Qualcomm

(QCOM) paid out $1.21 billion to take the No. four spot. The quantity for every of its 41,000 employees—once more, divided equally—could be $29,561.

Following Qualcomm, inventory compensation bills take a dive. The subsequent six firms—

NXP Semiconductors

(NXPI),

Micron Technology

(MU),

Applied Materials

(AMAT),

Advanced Micro Devices (AMD),

Marvell (MRVL), and

Texas Instruments

(TXN)—fall throughout the vary of $384 million to $224 million.

Advanced Micro Devices (AMD) and Marvell made the display screen though they’re chip designers however don’t manufacture semiconductors themselves. Advanced Micro Devices took eighth place with $274 million and Marvell (MRVL) ranked ninth, paying out $241.5 million.

Bringing up the rear was veteran tech big Texas Instruments, with $224 million.

We ran the numbers. Now, it’s as much as the traders to resolve how a lot weight they need to give to an organization’s prices tied to inventory compensation.

Write to Max A. Cherney at max.cherney@barrons.com