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Inside Intel’s Cash Inflow and Outflow



Cash flow

Despite competition from Advanced Micro Devices (AMD), Intel (INTC) has improved its profit margins by reducing its operating expenses. These improved margins increased Intel’s operating cash flow 20% sequentially to $4.7 billion in fiscal 2Q17.

But this increase in cash flow is a shift away from the seasonal trend, as fiscal 2Q is a seasonally weak quarter wherein cash flows generally fall.

From this $4.7 billion cash flow, Intel spent $2.8 billion on capital expenditure or capex, leaving FCF (free cash flow) of $1.9 billion. The company spent $1.3 billion in dividend payments and $1.3 billion in stock repurchases, returning 137% of FCF to shareholders. The company funded the balance of $700 million from cash reserves.

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Cash and debt

Despite this, Intel’s cash reserves rose from $17.3 billion in fiscal 1Q17 to $25.9 billion in fiscal 2Q17. This increase of $8.6 billion came from the following sources:

  • It received $2.2 billion cash from proceeds from the sale of its Security business for ~$900 million and sale of some interest in ASML for ~$1.3 billion.
  • It raised new debt to the tune of $7.1 billion to fund the Mobileye acquisition, which received added to cash reserves.
  • It used $700 million cash to fund shareholder returns.

After adding long-term investments, Intel’s total cash reserves stood at $34 billion at the end of fiscal 2Q17, while its long term debt rose $7.1 billion to $32 billion.

In fiscal 3Q17, Intel’s cash reserves will likely fall to $18.8 billion, whereas its long-term debt should remain at $32 billion, resulting in a net debt position of $13.2 billion. Such high leverage reduces Intel’s flexibility to invest in long-term growth opportunities, but the company’s high cash flows have the capability to service such a huge debt without impacting profits.

By comparison, Nvidia (NVDA) has a net cash position of $3.6 billion, giving it more financial flexibility to invest in long-term opportunities without impacting its profit margins.

In the next part, we’ll explore what the analysts think about Intel’s future growth prospects.


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