Operating cash flow
Intel (INTC) is seeing strong growth from its data-centric business, which is driving its revenues and profits in dollar terms. These profits are converting into higher cash flows. Its operating cash flow rose 18.0% sequentially and 57.5% YoY (year-over-year) to $7.4 billion in the second quarter.
Intel’s second half is stronger than its first half in terms of revenues and cash flows as seasonal demand increases. The company generated operating cash flow of $13.7 billion in the first half and expects to generate another $16.0 billion operating cash flow in the second half, as its implied operating cash flow for fiscal 2018 stands at $30.0 billion, up 36.0% YoY.
While Intel’s cash flow increased, so did its capex (capital expenditure). The company is investing in advanced technology to maintain its product leadership. As advanced technologies are capital intensive, it increased its capex from $12.0 billion in 2017 to $15.0 billion in 2018.
Intel is investing in advanced technology as it helps it increase its ASPs (average selling price) as well as its profit margins and cash flows. Micron Technology (MU) increased its capex from $5.0 billion in 2017 to $8.0 billion in 2018 to achieve product leadership and reduce the cost gap with its competitors.
Intel has invested another $1.0 billion capital in the third quarter to increase its 14nm (nanometer) capacity to address the CPU (central processing unit) supply shortage. The company spent $7.4 billion capital in the first half and is expected to spend another $7.6 billion in the second half.
Intel’s first priority is to invest in the business and then give returns to shareholders through dividends and share buyback. In the first half, it generated $6.3 billion of FCF (free cash flow) and returned $8.6 billion to shareholders. The company’s FCF was low in the first half and high in the second half. So, its shareholders’ returns are above 100.0% FCF in the first half and below 100.0% FCF in the second half.
After deducting capex from its operating cash flow, Intel expects to generate FCF of $15.0 billion in fiscal 2018. Next, we’ll look at Intel’s business segments.
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