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Intel Expects to Earn Record Cash Flows in 2019

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Cash flows

Previously, we learned that Intel (INTC) improved its operating leverage by investing in high-growth markets, thereby improving its profit margins and cash flows. Its operating cash flow increased 33% YoY (year-over-year) to $22.5 billion, but its FCF (free cash flow)—the cash left after deducting capital spending—rose 38% YoY to a record $14.3 billion in 2018.

Intel’s FCF rose faster than its operating cash flow as it improved its return on investment. In 2018, Intel generated $14.3 billion in FCF by spending $15.2 billion in capex.

In 2019, Intel expects to increase its FCF by 12% YoY to a record $16 billion by increasing its capital spending 2% YoY to $15.5 billion. It’s increasing its dividend per share by 5% YoY to $1.26 in 2019 in anticipation of record cash flows.

Capital spending

On Intel’s fourth-quarter earnings call, its CFO and interim CEO, Bob Swan, talked about its capital spending plan for 2019. Swan stated that the company will increase its spending on logic and reduce its spending on memory even though its partner Micron (MU) is set to buy its stake in the flash memory joint venture that produces 3D XPoint-based Optane memory products.

On the memory front, Intel built memory capacity at its China plant in 2017 and 2018. In 2019, it will focus its capital on Optane capacity by investing in a technology development facility in New Mexico. The investment in the new facility will reduce its gross capital spending on memory. Other memory chip makers Samsung (SSNLF), SK Hynix, and Western Digital (WDC) have also reduced their capital spending to reduce oversupply in the negative-AND space.

On the logic front, Intel will prioritize its capital spending based on customers’ needs. Firstly, it will build sufficient capacity to meet the demand for 14 nm (nanometer) products. Secondly, it will invest in ramping up its 10 nm production in 2019 and building its 10 nm capacity in 2020, as it plans to produce most of its products—such as CPUs, GPUs, modems, memory chips, and field programmable gate arrays—on the 10 nm node. Lastly, it will invest in future nodes, particularly in the 7 nm node.

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