Intel Corporation, Q3 2009 Earnings Call, Oct-13-2009 - SEHK:4335

SEHK:4335

During the Q3 2009 Earnings Call, Paul S. Otellini, who was the Chief Executive Officer at Intel Corporation at the time, provided several insights and updates:

1. Financial Performance:

   • He expressed satisfaction with Intel's third-quarter performance, attributing the success to having the right products at the right cost and time for a recovering global economy.
   • Noted that the strength in Intel's business remains primarily consumer-driven, with broad-based demand across all geographies.

2. Mobile Business:

   • Highlighted a particularly strong quarter for the mobile business, with the sequential unit growth rate of notebook processors and chipsets exceeding that of Atom processors and chipsets.
   • Stated that while Atom and netbooks are important growth drivers, the traditional notebook business remains a primary driver of revenue growth.

3. Server Segment:

   • Mentioned the acceptance of Nehalem in the enterprise sector, despite overall weak enterprise spending.
   • Emphasized that Nehalem's compelling value proposition is generating growth opportunities even in a down economy and will be a strong profit driver for Intel in the coming quarters.

4. Regional Performance:

   • Noted that China had a particularly strong quarter and continued to show strength during the Golden Week.
   • Mentioned that the U.S. continued to benefit from strong consumer sales, with the back-to-school cycle exceeding expectations.
   • Reported that Japan showed very healthy growth, and Europe's growth was slightly above seasonal trends.

5. Inventory Levels:

   • Addressed concerns about inventory levels and sell-through, stating that channel sales out have shown healthy sequential growth for three consecutive quarters, exceeding the activity seen in Q3 2008.
   • Noted that inventory in the channel remains slightly below normal levels, reflecting good sell-through and disciplined inventory management.
   • Mentioned that at Intel's large OEM customers, component inventories are roughly half the peak level of late 2008 and have been approximately flat throughout 2009.

6. Factory Network:

   • Praised the performance of Intel's factory network, noting that internal inventories continue to run lean.
   • Mentioned that factory throughput improvements provide the company with the ability to respond to demand changes more quickly and effectively.
   • Highlighted significant product cost declines, reflecting improved loadings, better equipment reuse, and exceptional yields.

7. Process Technology Leadership:

   • Highlighted Intel's process technology leadership, mentioning that the company had shipped over 200 million 45-nanometer processors to date.
   • Announced the beginning of volume production of Intel's newest process technology at 32 nanometers, incorporating second-generation high-k metal gate transistors.
   • Noted that the 32-nanometer process technology allows Intel to accelerate system-on-chip implementations to the Intel Architecture, providing new growth opportunities.

8. Closing Remarks:

   • Concluded by emphasizing the role of Intel's process technology leadership in product differentiation and its importance in the marketplace.

During the Q3 2009 Intel Corporation Earnings Conference Call, Stacy J. Smith made several statements regarding the company's financial performance and outlook. Here is a detailed summary of his comments:

Opening Remarks

• Financial Results: Stacy highlighted that a combination of strong execution and a strengthening market led to exceptional financial results. He noted that the Microprocessor and Chipset businesses experienced the largest sequential third-quarter revenue growth in over 30 years.
• Gross Margin: Gross margin percent of 58% was up nearly seven points from the second quarter.
• Operating Profit and Net Income: Operating profit was up 80% and net income was up 77%, excluding the impact of the $1.45 billion European Commission fine taken in the second quarter.
• PC Market Recovery: The PC Market segment is recovering nicely, with microprocessor revenue (excluding Atom) growing 23% since the market bottomed in the first quarter.
• Atom Growth: Atom microprocessors and associated chipsets grew to $415 million in revenue in the third quarter and $1 billion year-to-date.
• Gross Margin Benefits: Exceptional execution in the third quarter resulted in a significant reduction in costs, leading to a 58% gross margin, a nearly seven-point increase from the third quarter.
• Capital Forecast: Due to capital reuse and achieving efficiencies, Intel’s capital forecast of $4.5 billion is now less than the annual depreciation run rate.
• Operating Expenses Control: Spending for R&D and MG&A as a percent of revenue improved 2.5 percentage points to 29%.
• Employee Count: The number of employees increased by less than 300 people in the third quarter, including the completion of the Wind River acquisition.
• Profit and Cash Generation: Third-quarter operating profit was $2.6 billion, up 80% from $1.4 billion (excluding the EC fine). Total cash investments ended the quarter at $12.9 billion, $1.6 billion higher than the second quarter.
• Cash Flow from Operations: Cash flow from operations was approximately $4 billion.
• Fourth Quarter Forecast: For the fourth quarter, Intel is forecasting a seasonal increase in revenue, taking the midpoint of its forecast range to $10.1 billion, a 23% increase from the fourth quarter of 2008. The midpoint of the gross margin range is forecasted to increase another 4.5 points to 62%.

Question and Answer Session

• Internal Inventory: Stacy explained that Intel's internal inventory is lower than he would like and that the company plans to grow inventories modestly in the fourth quarter to replenish stocks and prepare for the transition to 32-nanometer technology.
• Fourth Quarter Gross Margin Outlook: Stacy clarified that the company expects a slightly richer mix of CPU shipments in the fourth quarter, which, coupled with increased volume, accounts for about a point of the gross margin increase. He also noted that Intel will be out of excess capacity charges by the end of the fourth quarter.
• Capacity Utilization and 2010 Growth: Stacy stated that factory utilization is right on what he calls the optimal range, between 80% and 90%. He also mentioned that the significant increase in capacity going into 2010 is to continue ramping the 32-nanometer factories.
• Operating Expenses: Stacy indicated that Intel believes it can continue to improve spending as a percent of revenue through its efficiency efforts.
• Server Replacement Cycle: Stacy commented that the economics of the data center are driving the volume for Nehalem servers, as customers are swapping out older servers for newer, more efficient Nehalem servers.
• Atom-related Products: Stacy reported that Atom and associated chipsets generated over $400 million in revenue in the quarter, with year-to-date sales reaching over $1 billion.
• CULV Impact: Stacy clarified that Intel is not predicting a richer mix in the CPU market but rather a shift toward more CPUs being sold in the fourth quarter.
• Gross Margin Sustainability: Stacy noted that while the 62% gross margin is impressive, it may not be the new normal, and Intel expects gross margins to fluctuate between 50% and 60% over the long term.
• Fourth Quarter Guidance Range: Stacy explained that the wider guidance range is due to the symmetry between the top and bottom ends of the revenue and gross margin ranges.
• Microprocessor Unit Shipments: Stacy agreed that over the course of the year, Intel's microprocessor unit shipments plus those of its competitors should equal PC unit shipments.
• Server Microprocessor Revenues: Stacy confirmed that well over half of the DP sales were in Nehalem and did not have the MP server revenue growth number available.
• Server Microprocessor Revenue Trend: Stacy stated that the trend of server microprocessor revenues as a percentage of total microprocessor revenues has not been consistently increasing over the past five years.
• Enterprise Client Strength: Stacy clarified that the strength in the enterprise sector has been primarily in the server part of the business, not the client part.

These statements provide a comprehensive overview of Stacy J. Smith’s contributions to the Q3 2009 earnings call.

During the Q3 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 Third Quarter 2009 Earnings Conference Call.
   • Mentioned that he was joined by Paul Otellini, the Chief Executive Officer, and Stacy Smith, the Chief Financial Officer.
   • Noted that the earnings release and updated financial statements were released at approximately 1:15 Pacific Daylight Time and can be found on Intel's investor website, intc.com.

2. Changes to Earnings Process:

   • Announced a change to the earnings process by posting additional management commentary and contacts about quarterly results earlier in the day on Intel's investor website.
   • Explained that this change was made to create a better understanding of the results prior to the call and to improve the interactive dialogue with management during the meeting.
   • Requested feedback to continue improving disclosure practices.

3. Forward-Looking Statements:

   • Reminded everyone that the discussion contained forward-looking statements based on the current environment, which includes risks and uncertainties.
   • Directed participants to the press release for more information on specific risk factors.

4. GAAP Financial Reconciliations:

   • Noted that if non-GAAP financial references were made during the call, the appropriate GAAP financial reconciliations would be posted on Intel's investor website.

5. Transition to Paul Otellini:

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

6. Question-and-Answer Session:

   • Limited each questioner to one question to allow more people to ask questions.
   • After Stacy Smith's response to a question, Kevin Sellers interrupted to clarify that the questioner had asked multiple questions and suggested addressing the first question.

7. Conclusion:

   • Thanked everyone for joining the call.

   • Announced that the Quiet Period for the fourth quarter would begin at the close of business on Wednesday, November 25.

   • Scheduled the fourth quarter earnings conference call for Thursday, January 14, 2010.

   • Ended the call by thanking participants and wishing them good night.