UClamping Down on the Buyback Wave

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Human beings might be the smartest species to ever grace the earth, but all that hasn’t proved enough to keep them from making a mistake. This dynamic has already popped up on the surface quite a few times throughout our history, and to be fair with you, each testimony has practically forced us to look for a defensive cover. We will, however, solve our conundrum in the most fitting fashion once we bring dedicated regulatory bodies into the fold. Having a well-defined authority across each and every area was a game-changer, as it instantly gave us a safety cushion against our many shortcomings. This birthed some serious utopia in its wake, but at the same time, the whole thing was very short-lived. You see, the moment technology got its layered nature to take over the scene; it allowed everyone an unprecedented chance to exploit others for their own benefit, while also shielding them from any potential consequences. This would expectantly go on to overwhelm our governing forces, and therefore send them back to the drawing board. However, the stated one won’t be the last coin flip we’ll ever witness. In fact, a comeback on the regulators’ part has turned more and more evident in the recent days, and assuming the trend is real; a new request to the US Commerce Department should only solidify this shift moving forward.

A group of Democratic lawmakers has formally requested U.S. Commerce Department to take additional steps to ensure semiconductor companies are not using government subsidies to conduct stock buybacks. This request follows up on Biden administration’s decision of shelling out $52 billion in government funding to boost semiconductor manufacturing and research, as well as a 25% investment tax credit for chip plants estimated to be worth $24 billion. Now, while the stated move was supposed to ease the global semiconductor shortage, the plan, as it appears to be, was not foolproof.

“Without strict controls, we are concerned that CHIPS funding may result in a subsidy for additional buybacks, enriching executives and stockholders at taxpayers’ expense while undermining the goals of the legislation,” said the letter signed by Senators Elizabeth Warren and Tammy Baldwin and Representatives Sean Casten, Jamaal Bowman, Pramila Jayapal, and Bill Foster.

The Commerce Department, in response to the letter, has issued a reassurance, stating it will, from here onwards, “give preference in awards to companies who commit to make future investments that grow the domestic semiconductor industry … and not engage in stock buybacks.”

This concern that the government funding is being used to facilitate aggressive stock buybacks is actually well-founded. These big-scale U.S. semiconductor companies have already spent hundreds of billions on the stated operation over the recent years, with a prime example of the same evident in how Intel has spent more than a whopping $100 billion on buybacks since 2005. Hence, if a timely action is not taken, an added financial incentive of such sort might just end up fuelling the fire beyond all limits.

 

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