Infineon Technologies: Time to Cash in your Chips?

In late 2011, Infineon (IFX), a German semiconductor company, is sitting on a €2.4bn cash balance representing 40% of its assets. As part of a financial policy review, management is receiving conflicting advice from different quarters as to whether to pay out some of the cash holdings, how much and by which methods.

The issues covered include (1) the need to link financial policy to business fundamentals, (2) the costs and benefits of holding cash, and why highly cyclical, knowledge-based, capital-intensive companies like IFX need large cash reserves, (3) the mechanics and rationales for different payout methods (e.g., cash dividends, share buybacks, etc.).