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pww.comIntel Corporation, Q4 2005 Earnings Call, Jan-17-2006 - SEHK:4335

SEHK:4335

Paul Otellini [Executives] 💬

Paul Otellini provided the following comments during the Intel Corporation Fourth Quarter 2005 Earnings Conference Call:

  1. Summary of 2005:

    • 2005 was a record year for Intel in terms of revenue and operating income, marking the third straight year of double-digit growth.
    • The company underwent a major reorganization around platform solutions, which began to yield results with the launch of Centrino Duo for notebooks and Viiv for the digital home.
    • Notable accomplishments included entering the fast-growing demand segment with a new relationship with Apple and shipping millions of dual-core processors, including the first built on Intel's 65-nanometer process technology.

  2. Fourth Quarter Results:

    • Fourth quarter results set records with new highs in revenue and operating income, surpassing the $10 billion revenue level for the first time.
    • The company saw strong demand for notebook platforms and shipped record units of mobile, desktop, and server CPUs.
    • Results in the last part of the quarter fell below expectations due to constraints in internal chipsets and overestimating third-party suppliers' ability to ramp supply.
    • End demand for desktop PCs weakened over the course of the quarter, impacting expected turns business from OEM and channel customers.

  3. Impact on Outlook and Guidance:

    • The shortfall in the fourth quarter was a combination of factors, including internal chipset constraints and weaker-than-expected demand.
    • Intel believes OEM customers increased their CPU inventories rather than decreasing them, resulting in a lower-than-seasonal expectation for Q1 2006.
    • The company will no longer provide mid-quarter updates and will focus on providing annual and quarterly guidance to communicate long-term strategies and trends more effectively.

  4. Future Outlook:

    • Despite the fourth quarter not finishing as strongly as expected, Intel looks to another solid year of growth in 2006, thanks to a strong product roadmap.
    • 65-nanometer process technology is healthy and ramping, with exciting new dual-core products such as Core Duo entering high-volume production.
    • Intel expects the majority of shipments in performance segments to be dual-core by mid-year and will launch a new microarchitecture in the second half of 2006.
    • The company remains confident in long-term growth opportunities in mobility, the digital home, digital office, and emerging markets.

  5. Competitive Position:

    • Intel plans to retake market share over the course of 2006, with the product portfolio strengthening in mobile and desktop as the company shifts aggressively to dual-core processors.
    • Two server platforms will launch in 2006, including the Bentley platform for customer shipments in Q2 and a second-generation 65-nanometer platform in the second half of the year.

  6. Repositioning and Branding:

    • The "Leap Ahead" tagline is a corporate identifier rather than part of the branding or merchandising program at the ingredient brand level.
    • The Intel Inside program will continue to focus on the existing nomenclature, with a new logo design that is more elegant and modern.

  7. Product Strategy:

    • Intel sees performance per watt as crucial in desktops, particularly consumer desktops, and servers, leading to the introduction of more energy-efficient processors in small form factor designs.
    • The Core Duo brand, initially aimed at notebooks, will expand to the desktop market, with products optimized for performance per watt.

  8. Revenue and Share Gain:

    • Intel aims to regain market share over the course of 2006, with the product roadmap and competitive advantages enabling the company to achieve this goal.
    • The revenue and share gain targets are sufficient to allow Intel to regain market share, considering the competitive landscape and pricing dynamics.

  9. Capacity and Technology:

    • Intel is ramping up 65-nanometer technology and investing in 45-nanometer capacity, which will help maintain leadership in providing silicon to a growing global market.

    • The company's investments in new manufacturing capabilities and product development demonstrate confidence in the future of innovation.

Doug Lusk [Executives] 💬

During the Intel Corporation Fourth Quarter 2005 Earnings Conference Call, Doug Lusk, the Director of Investor Relations, provided the following statements:

  1. Opening Remarks:

    • Introduced the call and welcomed attendees.
    • Provided instructions for asking questions and seeking audio assistance.
    • Introduced Paul Otellini, CEO, and Andy Bryant, CFO.

  2. Safe Harbor Language:

    • Reminded listeners that the call contained forward-looking statements subject to risks and uncertainties.
    • Mentioned that the forward-looking statements did not reflect potential impacts of mergers, acquisitions, or other business combinations after January 16, 2006.
    • Noted the use of non-GAAP financial measures and provided guidance on reconciliations.

  3. Changes in Guidance Process:

    • Announced changes in the company's guidance process:
      • Moving away from mid-quarter updates.
      • Providing annual and quarterly guidance.
      • Starting to provide annual revenue and spending projections in January.

  4. Transition to Q&A:

    • Thanked Andy Bryant and handed over the call to the operator for the Q&A session.

  5. Closing Remarks:

    • Thanked everyone for attending the call.

    • Provided information on how to access the recorded playback of the call.

Andy Bryant [Executives] 💬

Andy Bryant provided detailed insights into Intel's financial performance for the fourth quarter and full year of 2005, as well as the outlook for 2006. Here is a detailed summary of his statements:

Financial Performance Overview

  • 2005: Record year for Intel with double-digit growth in revenue and operating income.
  • Q4 2005: Record revenue and operating income, but results fell below expectations.
  • Revenue: $10.2 billion, at the low end of the forecast range, with 6% growth YoY.
  • Gross Margin Dollars: $6.3 billion, up 6% QoQ and 17% YoY.
  • Gross Margin Percentage: 61.8%, improved 2 points QoQ and substantially YoY.
  • Spending (R&D + MG&A): $3 billion, consistent with forecasts and up 5% QoQ.
  • Employees: Increased to 100,000 at the end of December, up from 85,000 YoY.

Business Segment Results

  • Digital Enterprise Group: Flat QoQ, down 5% YoY.
  • Mobility Group:
    • Revenue from mobile microprocessors up 3% QoQ, 40% YoY.
    • Revenue from mobile chipsets and other products up 66% YoY.
    • Operating profit up 8% QoQ, 63% YoY.
  • Flash Memory Business: Revenue up 5% QoQ, flat YoY for the entire year.

Non-Operating Items

  • Effective Tax Rate: 29.1%.
  • Earnings Per Share: $0.40, well above $0.32 in Q3, which included a legal settlement charge.
  • Inventory: $3.1 billion, up over $300 million QoQ.
  • Cash Investments: $12.4 billion, a decrease of $1.2 billion QoQ after stock repurchases, capital spending, and dividend payments.
  • Long-Term Debt: Grew to $2.1 billion, up from $432 million, following the issuance of $1.6 billion in convertible securities.

Outlook for Q1 2006

  • Revenue: Expected to be between $9.1 and $9.7 billion, indicating a sequential decline of 8%.
  • Gross Margin Percentage: Forecast at 59% ± a couple of points.
  • Spending (R&D + MG&A): Approximately $3.3 billion, including $300 million of share-based compensation.
  • Depreciation: $1.1 billion ± $100 million.
  • Amortization of Acquisition-Related Intangibles: Approximately $20 million.
  • Equity Investments and Interest Income: Net gain of $140 million.

Full-Year 2006 Outlook

  • Revenue Growth: 6 to 9% led by mobile computing and emerging markets.
  • Gross Margin Percentage: 57% ± a few points.
  • Capital Spending: Targeted at $6.9 billion, an increase of 19% over 2005.
  • Research and Development: Plan to spend approximately $6.5 billion, up from $5.1 billion in 2005.
  • Total Spending: Forecast at $13.1 billion, including the impact of share-based compensation.

Inventory Build

  • Q4 Inventory Build: Between 250 and $300 million excess inventory at customers' hands.
  • Impact on Q1: Expectation for a further build in Q1, with plans to reduce inventory levels later in the year.

Other Points

  • Safe Harbor Statement: Discussed the risks associated with forward-looking statements and the impact of acquisitions or divestitures.

  • Non-GAAP Measures: Mentioned the use of non-GAAP financial measures and provided guidance on reconciliations.

  • Mid-Quarter Updates: Announced the discontinuation of mid-quarter updates to focus on long-term strategies and trends.

  • Product Roadmap: Highlighted the strong product roadmap, including the ramp of 65-nanometer technology and dual-core products.

  • IM Flash Technologies: Discussed the impact of the joint venture on Intel's financials and the reporting structure.

  • Cost Structure: Addressed the alignment of revenue growth with cost structure and the potential for margin pressure.

  • CapEx and R&D Spending: Explained the rationale behind increased spending and investment in 45-nanometer technology.

  • Gross Margin Dynamics: Provided insights into factors impacting gross margin, including start-up costs, unit costs, and average selling prices.

  • Inventory Management: Addressed questions regarding inventory levels and management, including the impact of chipset constraints and customer inventory builds.

  • Convertible Securities: Discussed the issuance of convertible securities and the rationale behind the decision.

  • Capacity Risk: Addressed the risk of overcapacity in light of demand softness and ongoing fab ramping.

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