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Under "normal" circumstances, Intel generates so much free cash -- the amount of cash left after operating costs and capital expenditures -- that the company can easily support a generous dividend and fairly significant buyback activity.

During , however, I don't think investors should count on much in the way of share repurchase activity from the chip giant.

Remember Intel's Altera purchase? Intel announced earlier this year that it plans to acquire FPGA maker Altera NASDAQ: Intel has made it clear that it wants to operate its business at around a zero net cash balance.

Intel Corporation - Investor Relations - Stock Information & Resources - Dividends & Buybacks

During the company's most recent investor meeting, CFO Stacy Smith said the company expects to bring its net cash balance back to around zero by the end of This leaves very little room for the company to repurchase stock in the coming year. In fact, if Intel plans to be at zero net cash by the end of , I'd expect the company to report that it did very little in the way of share repurchase in the final quarter of As a long-term investor, I'm totally fine with that Although buybacks are nice in that they help reduce a company's share count boosting earnings per share for a given level of net income , I'm not going to complain if the company largely suspends its share repurchase program.

Share repurchases do, in fact, deliver value to shareholders, and I think investing in smart acquisitions that can significantly strengthen a company's business -- and I think Intel's Altera buy has the potential to do this -- are far more important over the long run than share buybacks. Indeed, if Altera allows Intel to generate billions more in additional high-margin revenue particularly once Intel integrates Altera's FPGAs with its Xeon processors , in time the company will be able to increase its dividend even further and will be able to return even fatter amounts of cash via the buyback.

What about a dividend increase in ? Since Intel should be back at around zero net cash at the end of , and since it's pretty likely Intel will forecast growth for , I'm comfortable in expecting yet another dividend increase for Ashraf Eassa owns shares of Intel.

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Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is.

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