Intel Corporation, Q2 2009 Earnings Call, Jul-14-2009 - SEHK:4335

SEHK:4335

During the Q2 2009 Earnings Call, Paul S. Otellini, the then-Chief Executive Officer of Intel Corporation, made several statements:

1. Second Quarter Results:

   • The second quarter results were better than expected, with strengthening demand throughout the quarter.
   • Global economic recovery is still in progress, but customer orders suggest increased confidence for a seasonal second half.

2. Consumer and Enterprise Purchases:

   • Consumer purchases led the way, with a strong rebound in mobile processor shipments.
   • Enterprise PC volumes remained weak, but server processor volumes were better than expected, driven by the strong ramp of Nehalem-based products.

3. Geographic Strength:

   • Intel saw strength in Asia-Pacific, particularly China, where stimulus programs continued to generate meaningful growth in the PC market.
   • The U.S. also had a strong quarter, while Europe's recovery lagged behind the U.S. and China.

4. New Products:

   • Nehalem-EP server processors launched at the end of Q1, and within one quarter, Nehalem made up over one-third of all dual-socket server shipments.
   • Intel expects the ramp to continue with Nehalem shipments crossing over the 50% mark in August.
   • The Nehalem-EX Processor line, the multiprocessor version of Nehalem, is expected to launch in the second half of the year and redefine the performance standard in that segment.
   • Atom™ revenue grew 65% this quarter, reflecting a snap-back after the inventory correction seen in late Q4 and Q1.
   • Atom™ is now expanding into nettops and embedded applications.
   • Intel's recently introduced consumer ultra-low voltage mobile processors are helping to create a new PC segment of ultra-thin, full-function notebooks.

5. Strategic Announcements:

   • The acquisition of Wind River is nearing completion, aiming to combine Intel's silicon capability with Wind River's software and services for the Embedded and Handheld market segments.
   • The collaboration with Nokia is deep and multifaceted, aimed at building products to compete effectively in the Handheld market segment.

6. Employee Execution and Efficiency:

   • He thanked the employees for their outstanding execution and attention to detail in a difficult economic environment.
   • Intel's efficiency progress and cost structure continue to be important advantages, and the company is operating with more speed and agility than ever before.

7. Inventory Levels:

   • In response to a question, he discussed the three levels of inventory that Intel sees: Intel's own inventory, distributor inventory, and inventory at OEMs and their reseller channels.
   • Inventory levels are in good shape, with Intel's inventory down by $900 million for the first half.
   • Distributor inventory is about flat quarter-on-quarter, suggesting it could use a little more inventory for the second half.
   • Inventory at OEMs and reseller channels is in good shape, with no likelihood of large inventory amounts.

8. Back-to-School Spending and Corporate Refresh:

   • He commented on the impact of back-to-school spending and the lack of expectations for a significant corporate refresh in 2009.
   • While expecting some back-to-school activity, Intel is not planning for a large-scale refresh this year.

9. ASP Trends and Atom™ Impact:

   • He discussed the trends in average selling prices (ASPs), noting that the industry is segmenting more discreetly than before.
   • Netbooks have a dilutive impact on ASPs, but Intel aims to build a managed margin.
   • Notebooks are displacing desktops, and notebooks are becoming cheaper.
   • Servers are expected to have an uplifting impact on ASPs due to a strong buildout of server capacity over the next few years.

10. Embedded Business:

    • He mentioned that the embedded business is a large ongoing business, well in excess of $1 billion, and it is growing fast.
    • The product margin within the embedded business is higher than what Intel gets in its core client business.

11. Atom™ ASP and Cannibalization:

    • He explained that Atom™ ASP is not expected to be materially different over the course of the year.
    • There is some cannibalization at the low end of notebooks, but it's a positive gross margin trade-off for Intel.

12. ASP Trends and Mainstream Notebook Segment:

    • He addressed the trend of decreasing average selling prices in notebooks, noting that as notebooks become cheaper, Intel integrates more onto a single chip to maintain good margins.

13. China and Emerging Markets:

    • He noted that netbook sales are still primarily in developed economies or tier-one cities in emerging markets.
    • Usage models are aligning around a principally Internet-based model, with the highest buyer satisfaction in these segments.

These statements provide insights into Intel's performance, strategy, and outlook during the second quarter of 2009.

Stacy J. Smith made numerous comments during the Q2 2009 Intel Corporation Earnings Call. Here’s a detailed summary of his statements:

Opening Remarks

• Financial Results: Second quarter sales were better than expected, with strong demand for microprocessors and chipsets contributing to $8 billion in revenue, a 12% sequential increase.
• Execution: The company executed strongly, with inventories down by an additional $240 million, improvements in throughput time and yields, and unit costs better than expected.
• Gross Margin Improvement: There was a 5.5 point improvement in gross margin quarter-to-quarter, despite the impact of the European Commission's $1.45 billion fine.
• Operating Loss: The operating loss of $12 million and a quarterly net loss of $398 million were primarily due to the EC fine. Excluding the fine, operating profit was $1.4 billion, up 122% from the first quarter, and net income was $1 billion, up 67% from the first quarter.
• Revenue Trends: Year-over-year revenue for the second quarter was down 15%, an improvement from the 26% year-over-year decline in the first quarter.

Financial Details

• Microprocessor Revenue: Microprocessor revenue, including Atom™, was better than seasonal patterns on higher volume and lower average selling prices.
• Atom™ Revenue: Revenue for Atom™-based microprocessors and associated chipsets was $362 million, up 65% from the first quarter.
• Gross Margin: Gross margin dollars were $4.1 billion, $800 million higher than the first quarter. Gross margin percentage of 51% was 5.5 points higher than the first quarter.
• Spending: Spending for R&D and MG&A was approximately $2.6 billion, slightly higher than the first quarter due to higher marketing spending.
• Restructuring and Asset Impairment Charges: $91 million in restructuring and asset impairment charges were recorded.
• Employee Count: The number of employees decreased by 2,000 from the first quarter to 80,500, primarily due to previously-announced factory actions.
• Cash Position: Total cash investments ended the quarter at $11.3 billion, $1 billion higher than the first quarter.
• Cash Flow: Cash flow from operations was more than $3 billion, while capital spending was $981 million.

Outlook

• Third Quarter Guidance: Revenue expected to be about $8.5 billion ± $400 million, with a midpoint increase of 6% from the second quarter.
• Gross Margin Percentage: Expected to be 53% ± a couple of points, with anticipated improvements in the CPU business contributing to a higher sales volume and lower unit cost.
• Spending: Spending for R&D and MG&A in the third quarter should be approximately $2.8 billion, $200 million higher than the second quarter.
• Restructuring and Asset Impairment Charges: Expected expenses of approximately $40 million.
• Capital Spending: Forecasted to be approximately $1.2 billion.
• Tax Rate: Expected to be 23% for the third and fourth quarters.

Balance Sheet Strength

• Inventory Levels: Total inventories were down an additional $240 million.
• Capital Efficiency: Allowed the company to reduce its capital expenditure forecast by $500 million from the previous year.

Question and Answer Session

• Inventory Levels: Stacy confirmed that inventory levels are lower than desired, but the company has unutilized capacity and can respond to supply needs.
• Gross Margin Profile: Stacy indicated that the company can achieve gross margins at the upper end of the 50% to 60% range.
• ASP Trends: Stacy explained that the relative weakness in the Enterprise segment compared to the Consumer segment affected average selling prices.
• Fourth Quarter Guidance: Stacy provided insight into the factors affecting the fourth quarter, including the impact of 32nm charges, startup costs, and excess capacity charges.
• Revenue Range: Stacy discussed the wider revenue range for the third quarter, citing economic volatility and the weak enterprise market.
• NAND Flash Contribution: NAND flash contributed less than a point to the gross margin line in Q2, with costs continuing to come down.
• Utilization Rates: Stacy provided an overview of utilization rates, noting that they would be consistent with the investor meeting projections.
• Embedded Business: Stacy highlighted the profitability and growth of the embedded business, emphasizing the positive impact of the Wind River acquisition.

These statements cover Stacy J. Smith's contributions to the earnings call, providing insights into Intel's financial performance, strategic outlook, and market trends.

During the Q2 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. Opening Remarks:

   • Introduced the call and welcomed attendees.
   • Identified himself and other executives present: Paul S. Otellini (Chief Executive Officer) and Stacy J. Smith (Chief Financial Officer).
   • Reminded participants about the forward-looking statements and the risks and uncertainties involved.
   • Mentioned that Intel's earnings release and updated financial statements were posted on the investor website.

2. Handoff to Paul Otellini:

   • Provided a brief summary of the financial performance, noting that the second quarter results were better than expected.
   • Highlighted the demand strengthening throughout the quarter and the customer signals indicating increased confidence for a seasonal second half.
   • Passed the call over to Paul Otellini, the CEO, for further remarks.

3. Handoff to Questions:

   • After Stacy Smith's presentation, thanked her and Paul Otellini for their remarks.
   • Announced the transition to the question-and-answer session.
   • Established the rules for the Q&A session, limiting each participant to one question and a follow-up.
   • Requested the operator to introduce the first questioner.

4. Moderating Questions:

   • Throughout the Q&A session, Kevin Sellers prompted analysts for follow-up questions after their initial queries.
   • He ensured the smooth flow of the session, directing questions to the appropriate executive and keeping track of the number of questions asked.

5. Closing Remarks:

   • After the final question, thanked everyone for participating in the call.
   • Announced the start of the quiet period for the third quarter and the date of the Third Quarter Earnings Conference Call.
   • Concluded the call by thanking attendees and wishing them a good night.

These statements summarize the contributions made by R. Kevin Sellers during the earnings call.