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Inside Intel’s Cash Inflow and Outflow

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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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