Intel Corporation, Q2 2007 Earnings Call, Jul-17-2007 - SEHK:4335

SEHK:4335

Paul Otellini, the CEO of Intel Corporation during the Q2 2007 Earnings Call, provided the following insights and commentary:

1. Q2 Performance Overview:

   • Intel delivered solid financial results in a competitive environment.
   • Revenues and operating profits exceeded expectations.
   • Orders strengthened, and revenue was above the midpoint of expectations.
   • Restructuring efforts led to strong growth in operating profits, up 26% from the previous year.

2. Operational Performance:

   • The factory network continued to deliver world-class yields, lower unit costs, and faster throughput times.
   • Factory throughput times were reduced, enabling Intel to meet customer demand with lower inventory on hand.
   • New products were iterated more quickly, decreasing the time to healthy silicon.
   • Shorter throughput times allowed Intel to start new wafers closer to customer needs, improving demand signals and responsiveness.

3. Product Area Highlights:

   • Servers:
     • Strong acceptance of Xeon Quad Core processors, with unit shipments doubling in Q2.
     • Over a million Quad Core server processors shipped since the November launch.
     • Server units and revenue were up by double-digit percentages sequentially and year-over-year.
     • Caneland platform for multi-processing servers to be launched later in Q3.
   • Mobile:
     • Revenues up by more than 20% year-over-year.
     • Launched Santa Rosa platform with over 230 design wins globally, which is ramping quickly.
     • Mobile represented 40% of client shipments in Q2.
   • Desktop:
     • Unit demand was higher than seasonal with strength across the board.
     • Revenue was lower year-over-year.
     • Channel business remained strong and grew in a seasonally down quarter, with inventories lower and well within goals.
     • Launched a new desktop version of the Core 2 Extreme, marking the 14th Quad Core microprocessor SKU.
   • Chipsets:
     • All-time unit record with sequential growth across desktop, mobile, and server.
     • Strong bookings for Q3, indicating solid second-half demand.
     • Launched 3 series chipset family, providing socket compatibility for Penryn.
   • Flash:
     • NAND business saw a jump in units, densities, and ASPs.
     • NOR demand was weaker than expected, resulting in margin pressure.

4. Technology Leadership:

   • On track to ramp the world's first 45 nanometer logic process in the second half of the year.
   • Manufacturing organization delivering faster factory throughput times, higher yields, and improved equipment utilization.
   • Capital spending forecast lowered by $600 million without compromising the ability to service the computing industry.

5. Future Outlook:

   • Product and technology advantages will continue to provide differentiation and growth opportunities.
   • Penryn product family and 45 nanometer process launch expected to extend Intel's lead.
   • Focus on the priorities of delivering compelling products, executing on 45 nanometer technology ramp, and attacking costs.

6. Competitive Environment:

   • Pricing remained competitive, notably in the low end of the PC marketplace.
   • Intel's technology leadership provided relative stability in the server and performance notebook categories.
   • Low end of the consumer notebook market is very competitive.

7. Second Half Expectations:

   • Expectation for a seasonally stronger second half.
   • Expansion of growth in notebooks and servers globally.
   • Particular interest in notebooks, with rapid transition from Napa to Santa Rosa.
   • Expansion in MP presence in servers.

8. Closing Remarks:

   • Excitement about extending technology leadership with the 45 nanometer manufacturing line and Penryn.

   • Development of Nehalem microarchitecture for 2008.

   • Extension of Intel architecture into mobile internet devices, consumer electronics, and parallel processing.

   • Look forward to sharing more at the Intel Developer Forum in September.

During the Intel Corporation Q2 2007 Earnings Call, Kevin Sellers, the Director of Investor Relations, made the following statements:

1. Opening Remarks:

   • Thanked the operator and welcomed everyone to Intel's Q2 2007 earnings conference call.
   • Reminded attendees about important information regarding the earnings posted on the investor website, intc.com:
     • Earnings release and updated financial statements were posted for those needing access.
     • A replay of the call would be posted at around 5:00 Pacific time and remain available for approximately two months.
     • Any non-GAAP financial measures or references used during the call would be reconciled with GAAP financials on the website.

2. Introduction of Executives:

   • Introduced Chief Executive Officer Paul Otellini and Chief Financial Officer Andy Bryant, who would be presenting during the call.

3. Forward-Looking Statements Disclaimer:

   • Noted that the discussion contained forward-looking statements based on the environment as seen at the time, including risks and uncertainties.
   • Directed listeners to the press release for more information on specific risk factors that could cause actual results to differ materially.

4. Transition to Paul Otellini:

   • Handed over the call to Paul Otellini for his review of the quarter's highlights and commentary on the company's execution.

5. Q&A Session:

   • Announced the opening of the call for questions and answers, stating that they would take as many questions as time permitted.

6. Closing Remarks:

   • Thanked the final questioner, Krishna Shankar, and the operator, Melanie.

   • Indicated the end of the call and turned the time over to Paul Otellini for closing comments.

During the Intel Corporation Q2 2007 Earnings Call, Andy Bryant, the Chief Financial Officer, provided insights into the company's financial performance and outlook. Here is a detailed summary of his comments:

Financial Performance Overview:

• Despite a competitive environment, Intel achieved year-to-year growth in the quarter with higher revenue and operating profit.
• Revenue was up 8% in the second quarter compared to the same period in 2006.
• The microprocessor business experienced double-digit revenue growth, driven by notebooks and servers.
• Notebook and server microprocessor and chipset revenues grew over 22%.
• Gross margin percentage was 47%, approximately 3 points lower than the previous quarter due to lower average selling prices and manufacturing start-up costs.

Financial Details:

• Second-quarter revenue was $8.7 billion, down 2% from the first quarter.
• Microprocessor unit volumes were slightly higher, but average selling prices were lower.
• Chipset and flash memory product unit volumes were higher than in the first quarter, while motherboard unit volumes were lower.
• Digital Enterprise Group revenue decreased 2% due to lower desktop microprocessor revenue and divestitures, partially offset by higher server and chipset unit volumes.
• Mobility Group revenue was flat from the first quarter, with slightly lower microprocessor revenue offset by higher chipset revenue.
• Gross margin percentage was 47%, down from 50% in the first quarter.
• Lower average selling prices and higher start-up costs reduced the gross margin percentage.
• Research and Development (R&D) and Marketing, General, and Administrative (MG&A) expenses were approximately $2.6 billion, in line with the forecast and flat with the first quarter.
• Restructuring and asset impairment charges were $82 million.
• Fully diluted earnings per share were $0.22, with tax items adding $0.03 to earnings per share.
• Total inventories were down more than 5% from the first quarter.
• Cash, short-term investments, and fixed-income trading assets totaled $10.2 billion, up $1.6 billion from the first quarter.
• Capital spending was $1.3 billion, dividend payments were $650 million, and stock repurchases were $100 million.

Outlook for the Third Quarter:

• Revenue forecasted to be between $9 billion and $9.6 billion.
• Gross margin percentage forecasted to be 52% plus or minus a couple of points.
• R&D and MG&A spending forecasted to be approximately $2.7 billion to $2.8 billion.
• Restructuring and asset impairment charges expected to be approximately $150 million.
• Full-year gross margin outlook maintained at 51% plus or minus a few points.
• Full-year R&D spending forecast increased by $100 million to $5.7 billion.
• Full-year MG&A spending forecast remains at $5.1 billion.
• Capital spending target reduced by $600 million to $4.9 billion plus or minus $200 million.
• Effective tax rate forecasted to be 29% for the remaining quarters of the year.

Key Priorities:

• Deliver products that customers find compelling.
• Execute superbly with the ramp of 45 nanometer technology.
• Attack costs on all fronts, including factories, R&D, and MG&A.

Response to Questions:

• Addressed questions regarding inventory trends, utilization rates, and the impact of 45 nanometer product costs on gross margin.

• Discussed the company's strategy for managing the NOR flash business and the impact on margins.

• Provided insights into the company's approach to addressing the competitive low-end market and maintaining margins.

• Explained the company's focus on operational efficiency and cost management.