Intel Corporation, Q4 2009 Earnings Call, Jan-14-2010 - SEHK:4335

SEHK:4335

The "Unknown Speaker" in the transcript is not identified, and they only have one line:

"It was up in [indiscernible] (33:53)"

This statement appears to be a response to Glen Scott Yeung's (Citigroup Inc., Research Division) question regarding the Average Selling Price (ASP) change in Q4. The speaker indicates that the ASP was up, but the word following "up" is indiscernible in the recording.

During the Q4 2009 Earnings Call, Paul S. Otellini, the Former Chief Executive Officer, President, and Director of Intel Corporation, provided several insights and comments. Here’s a detailed summary of his statements:

Opening Remarks

• Q4 Results: Highlighted that the fourth quarter results marked a great year of execution and innovation for Intel.
• Year Overview: Noted that Intel started the year in one of the deepest recessions in its history and emerged with better products and technology, driving new demand for computing worldwide.
• Restructuring Efforts: Mentioned that restructuring efforts improved the operational efficiency of the company, enabling good results in challenging times and exceptional results in a stronger market.

Product and Market Performance

• Demand Picture: Observed broad-based strength across all regions and product categories, with notebooks leading the way.
• Product Mix: Noted that demand for Intel’s latest generation of processors (both PC and server) was particularly strong, providing an average selling price (ASP) uplift in the quarter.
• Inventory Levels: Reported that OEM component inventories were roughly flat quarter-on-quarter and below the level of a year ago. Distributor inventories were down sequentially, indicating efficient supply chain operations.

Product Segments

• Servers: Highlighted a very strong quarter for servers, driven by the value proposition of Nehalem, with a demand shift toward the high end of the performance stack, improving ASPs.
• Xeon Refresh: Announced plans to refresh the entire server product line with the new 32-nanometer Xeon in single, dual, and multiprocessor segments. Emphasized the significance of Nehalem EX, Intel’s multiprocessor version, as representing the biggest leap in performance in the history of the Xeon brand.
• Cloud Infrastructure: Stated that Intel remains in an excellent position to benefit from the build-out of cloud infrastructure and the reconfiguration of existing data centers for power and performance efficiency improvements.
• Atom Processor Business: Noted that the Atom processor business continued to perform well, both in netbooks and in winning new designs for growth initiatives. Highlighted strong Atom design momentum with over 80 netbook designs featuring the new Pine Trail platform.
• Embedded Space: Mentioned that Intel now has over 600 Atom-based design wins and over 2,500 design engagements across 230 customers, including 93 new customers.
• Handheld and Consumer Electronics: Discussed progress with handheld and consumer electronics platforms built around Atom cores, including the demonstration of the LG GW990, a smartphone built with the yet-to-be-released Atom Moorestown platform, which was awarded “best smartphone of the show” at CES.

Notebook Business

• Exceptional Performance: Noted that the notebook business had an exceptional quarter with very strong global demand.
• Product Strategy: Mentioned careful preparation for the shift to mobile and how Intel’s product strategy reflects this.
• CES Launches: Announced the formal launch of 27 new processors produced with Intel’s leading-edge 32-nanometer process technology at CES. These processors are the first mainstream PC processors to integrate the graphics engine onto the CPU.
• Graphics Engine: Highlighted the new graphics engine, which offers full HD video, mainstream gaming, and enhanced 3D capabilities.
• Early Demand: Reported that early demand for these products was excellent.

Closing Remarks

• Outlook: Concluded by stating that Intel had an outstanding quarter and entered 2010 in a very strong position.
• Competitive Positioning: Mentioned the delivery of breakthroughs in product offerings and competitive positioning through the Tick-Tock development model.
• 32-Nanometer Process Technology: Emphasized the importance of the recently launched 32-nanometer process technology, which would not only bring computing to new levels but also enable Intel to offer Atom system-on-chips into many new product categories.
• Momentum: Expressed pleasure with Intel’s current momentum and looked forward to an exciting year in 2010.

Question and Answer Session

• Mix Assumptions for 2010: Explained that the rich mix seen in Q4 would come back down to a more mixed range as Intel progresses across 2010, with mainstream and value versions of the 32-nanometer products.

• Inventory Levels: Clarified that the increase in inventory in Q4 was entirely due to the new 32-nanometer products, and that distributor inventory was down sequentially.

• Visibility into Inventories: Provided details on the visibility into distributor and OEM inventories, noting that Intel has 100% visibility into distributor inventory and good visibility into OEM inventories through hub systems.

• 2010 Outlook: Discussed the outlook for 2010, emphasizing a normal seasonal year off a very good Q4, with a modest recovery of corporate purchases of PCs.

• Server Technology ROI: Highlighted the extraordinary return on investment (ROI) associated with deploying new server technologies, with the new Xeon products offering 15-20:1 ROI.

• Price Elasticity: Commented on the dynamics of 2009, noting the mix shift to consumer and away from corporate, and the lack of a new hardware refresh cycle, which contributed to the drop in PC prices. Mentioned the potential for an improved sell-up cycle with the introduction of new core products.

• Netbooks and Atom: Addressed the dynamics of netbooks and Atom, noting that there has been no meaningful cannibalization of the notebook market by netbooks, and that netbooks are largely additive, entering market segments that were unaddressed prior to this.

• 32-Nanometer Products: Discussed the impact of 32-nanometer products on ASPs within the client group, noting that the 32-nanometer effect was pronounced, with Intel ramping these products pretty fast.

• Factory Loadings: Noted that Intel is in the sweet spot of loading, running nicely full, with the ability to respond to some upsize.

• Embedded Business: Commented on the growth of the embedded business, noting that it has grown at double-digit percentages for the past three years and is expected to continue outgrowing the company in terms of revenue.

• Carrier Channel: Discussed the carrier channel, noting that carriers became a significant portion of netbook volume in Q4, with expectations that the carrier model will be efficient in emerging markets, contributing to netbook growth.

• Capacity: Stated that Intel does not see any capacity issues on the horizon, with plans for a very high-end robust growth from a capacity standpoint.

Stacy J. Smith made several comments during the Q4 2009 Intel Corporation Earnings Conference Call. Here is a detailed list:

1. Fourth Quarter Performance:

   • Noted that the fourth quarter was one of Intel's most profitable quarters ever.
   • Highlighted the combination of solid execution, the ramp of innovative new products, and a healthy consumer market contributing to the success.
   • Reported fourth quarter revenue of $10.6 billion, up 28% from the previous year, marking the largest year-on-year percent increase in more than a decade.

2. Financial Results:

   • Mentioned that the financial results reflected significant improvements in cost structure and higher microprocessor average selling prices.
   • Stated that the gross margin percent of 65% was up seven points from the third quarter and was the highest in Intel's history.
   • Announced $2.5 billion in operating profit and $2.3 billion in net income for the fourth quarter.

3. Microprocessor Revenue:

   • Noted that microprocessor revenue, excluding Atom, grew 42% since the market bottomed in the first quarter.
   • Mentioned that Atom microprocessors and associated chipsets reached $438 million in revenue in the fourth quarter and $1.4 billion for the year.

4. Gross Margin Impact:

   • Explained that the fourth quarter gross margin benefited from lower inventory write-offs, improving costs, and an exceptional product lineup, including the first products manufactured on Intel's 32-nanometer process technology.
   • Mentioned that total inventories increased by $450 million due to the new 32-nanometer products.

5. Capital Expenditures:

   • Highlighted that despite capital expenditures used to achieve efficiencies, Intel was able to ramp its 32-nanometer process technology and still bring down its capital forecast from the beginning of the year.
   • Reported that capital purchases for the year were $4.5 billion, down from the original forecast of around $5.2 billion and less than the annual depreciation run rate.

6. Operating Expenses:

   • Stated that operating expenses remained tightly controlled, with spending for R&D and MG&A as a percent of revenue remaining constant at 29%.
   • Mentioned that the number of employees decreased by 1,000 people in the fourth quarter due to planned factory actions announced earlier in 2009.

7. Cash Position:

   • Noted that total cash, investments, and trading assets ended the quarter at $13.9 billion, $1 billion higher than the third quarter.
   • Reported that cash flow from operations was more than $3 billion.

8. First Quarter Forecast:

   • Mentioned that Intel is forecasting a seasonal decrease in revenue for the first quarter, with the midpoint of the forecast range at $9.7 billion, a 36% increase from the first quarter of 2009.
   • Stated that the midpoint of the gross margin range is forecasted to decrease four points from the fourth quarter to 61%.

9. 2010 Outlook:

   • Mentioned that Intel is forecasting continued strong gross margin for 2010, with the midpoint of the annual forecast at 61%.
   • Noted that the improvements made to Intel's cost structure and efficiency levels have led to exceptional financial results and serve as a strong foundation for 2010.

10. Response to Analyst Questions:

    • Provided details on the mix assumptions for the first quarter and full-year 2010 gross margin guidance.
    • Clarified Intel's visibility into the supply chain and inventory levels.
    • Discussed the seasonality of gross margins and expectations for corporate spending.
    • Addressed the impact of new growth streams on the operating model and operating income.
    • Explained the flatness of operating expenses in the context of various factors, including R&D investments and acquisitions.
    • Provided insights into the average selling price (ASP) trends and the impact of 32-nanometer products on ASPs.
    • Detailed the components contributing to the gross margin guidance for the first quarter and the full year.
    • Discussed the factors that could make the 61% gross margin assumption conservative.

These comments provide insight into Intel's financial performance, strategic outlook, and management's views on various aspects of the business.

During the Q4 2009 Intel Corporation Earnings Conference Call, R. Kevin Sellers, who was the Vice President of Sales & Marketing Group and Director of Creative Services & Digital Marketing at the time, made the following statements:

1. Introduction:

   • Welcomed everyone to the Intel's Fourth Quarter 2009 Earnings Conference Call.
   • Mentioned that he was joined by CEO Paul Otellini and CFO Stacy Smith.
   • Noted that the earnings release and updated financial statements were released at approximately 1:15 Pacific Daylight Time and can be found on the investor website, www.intc.com.

2. Additional Management Commentary:

   • Continued the practice of posting additional management commentary from CFO Stacy Smith to the investor website.
   • This commentary was posted at approximately 1:30 p.m., Pacific Daylight Time, and contains added detail about the quarterly performance that was previously reviewed and prepared remarks during the conference call.

3. Forward-Looking Statements Reminder:

   • Reminded everyone that the discussion contained forward-looking statements based on the environment as they currently saw it, and as such, included risks and uncertainties.
   • Directed listeners to refer to the press release for more information on the specific risk factors that could cause actual results to differ materially.
   • Noted that if there were any non-GAAP financial references made during the call, the appropriate GAAP financial reconciliations would be posted to the investor website.

4. Handover to Paul Otellini:

   • Handed over the call to Paul Otellini for comments, followed by brief remarks from Stacy Smith.

5. Conclusion:

   • Thanked everyone for joining the call.

   • Provided details about the Quiet Period for the first quarter, which would begin at the close of business on February 26, 2010.

   • Announced the schedule for the first quarter earnings conference call, which was set for Tuesday, April 13, 2010.

   • Concluded the call by thanking everyone and wishing them a good night.