Intel Corporation, Q1 2007 Earnings Call, Apr-18-2007 - NasdaqGS:INTC

NasdaqGS:INTC

Here is a detailed summary of Paul Otellini's comments during the Q1 2007 Earnings Call:

1. Business Overview:

   • The first quarter marked another solid period for Intel's microprocessor business.
   • Units were in line with seasonal patterns and average selling prices (ASPs) held up well despite competitive pricing in the low-price segments of the market.
   • There was a flat quarter-to-quarter pricing in mobile and desktop segments, and a decline in server ASPs driven by a shift to dual and uniprocessor servers.

2. Product Performance:

   • Strong demand for core micro-architectural processors, which continue to ramp nicely.
   • Desktop segment was competitive, but Intel's pricing held firm as more Conroe processors were shipped in Q1 2007 than in the second half of 2006.
   • Momentum for vPro processor technology, which adds security and manageability features for IT and is now being deployed at over 200 companies and organizations.

3. Mobile and Server Platforms:

   • In mobile, Intel is shipping products in preparation for the next month's launch of the new Santa Rosa platform with volume shipments of the new Crestline chipset and continued strong demand for the Merom processor.
   • The platform will be branded Intel Centrino Duo for consumers and Intel Centrino Pro for businesses wanting to deploy the benefits of vPro technology in mobile.
   • Server platforms continue to shift to new technology, with another quarter of growth for Woodcrest and a near doubling of Clovertown quad-core shipments.

4. Technology and Manufacturing:

   • Intel believes that maintaining scale is essential through its strategy of ramping new manufacturing and platform technologies quickly, delivering high performance and low unit costs.
   • Intel is well along the path to introduce products based upon 45 nanometer technology later in 2007, including the use of breakthrough materials in its 45 nanometer process that will allow the introduction of faster and more power-efficient microprocessors.
   • Disclosed that the Penryn family of processors will offer leadership performance with gains of 15% to well over 45% when compared to today's best Core 2 Duo and Xeon processors.
   • Cache sizes will be 50% larger, yet die sizes will be 25% smaller.
   • Intel has six different microprocessors already running based upon this process, running a broad base of applications on five operating systems.
   • Disclosed plans for Nehalem, the next-generation micro-architecture for 45 nanometers, which will take performance, power, and cost leadership even further beginning in 2008.

5. Business Environment:

   • Intel is seeing good progress on unit cost and spending reductions.
   • Strong execution of 65 nanometer technology is being followed up by an innovative 45 nanometer technology and products.
   • Intel is planning for growth in the second half of the year and looks forward to sharing its future plans at the New York analysts meeting.

6. Response to Questions:

   • When asked about ASPs, Paul Otellini commented that prices held up well in the first quarter and that Intel raised its margin percentage for the year.
   • He noted that Intel continues to see a competitive price environment but finds itself in a better position than a year ago due to the differentiation of its products.
   • Regarding the Santa Rosa launch, he stated that Intel is shipping product to OEM customers in advance of the launch, ensuring they can build systems for the May launch. There was no anticipation of a stall in front of the launch.
   • He mentioned that corporations deploying vPro technology prefer to deploy it in large swaps at once to ensure all employees, both mobile and tethered to the desktop, have access to the technology.
   • When asked about market share, he deferred to market share forecasters but expressed confidence in Intel's performance based on the data that would soon be available.
   • Regarding the server business, he explained that the shift to dual and quad-core products, like Woodcrest and Clovertown, is driving the overall trend away from multiprocessor (MP) systems toward dual-processor (DP) systems.
   • He also addressed the impact of virtualization, stating that Intel sees it as a positive trend that helps ensure people have up-to-date hardware to run virtualized environments and that it does not see a slowdown in demand due to virtualization.
   • Regarding Vista, he reiterated his view that most companies will act like Intel, doing pilots and testing today but deploying when the service pack is released, likely in the fourth quarter timeframe.
   • When asked about the competitive impact of AMD's upcoming products, he stated that Intel has yet to see a demo of Barcelona and believes it can maintain its competitive lead in all segments.
   • He also provided insights into the channel business, noting that the channel excels in selling good value for the price and has been quick to adopt Intel's latest server and desktop technologies.
   • Finally, he discussed the server ASP decline, attributing it to the shift away from higher-priced multiprocessor systems to dual and quad-core systems.

These points summarize the key aspects of Paul Otellini's remarks during the Q1 2007 Earnings Call.

During the Q1 2007 Earnings Call for Intel Corporation, Kevin Sellers, the Director of Investor Relations, made several statements:

1. Opening Remarks:

   • Kevin thanked everyone for joining the call and provided guidance on accessing important information related to the call, including the earnings release, financial statements, and a replay of the call on Intel's investor website (www.intc.com).
   • He noted that if non-GAAP financial measures were used during the call, the appropriate GAAP financial reconciliations would be posted on the website.

2. Introduction of Speakers:

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

3. Forward-Looking Statements Disclaimer:

   • Kevin reminded listeners that the discussion contained forward-looking statements based on the company's current views and included risks and uncertainties. He directed listeners to the press release for more information on specific risk factors.

4. Transition to Paul Otellini:

   • Kevin handed over the call to Paul Otellini to review the highlights of the quarter and discuss key strategies, products, and technologies.

5. Question-and-Answer Session:

   • Kevin Sellers announced the opening of the call for questions and answers after the presentations by Paul Otellini and Andy Bryant.

6. Closing Remarks:

   • Kevin Sellers thanked everyone for their participation and concluded the call by asking Paul Otellini to provide closing comments.

   • He thanked the attendees for their questions and mentioned that Intel would be holding an Analyst Meeting in New York on May 3rd, where they would share more information about the company's future plans.

During the Q1 2007 Earnings Call, Andy Bryant, the Chief Financial Officer of Intel Corporation, provided several insights and details about the company's financial performance and outlook. Here is a detailed summary of his remarks:

Financial Performance Overview

• Gross Margins: Better than expected, with a gross margin percentage of 50.1%, which was 0.5% higher than the previous quarter.
• Cost Reductions: Reported excellent results in cutting spending, which is $0.5 billion lower than the first quarter of 2006.
• Revenue: $8.9 billion, within the forecasted range and down 9% from the fourth quarter. Microprocessor units were down seasonally, and average selling prices (ASPs) for microprocessors were slightly lower overall.

Detailed Financial Results

• Digital Enterprise Group: Revenue of $4.8 billion, down 8% from the fourth quarter, primarily due to lower unit volume from sales of microprocessors and chipsets.
• Mobility Group: Revenue of $3.3 billion, down 8% from the fourth quarter, primarily due to lower unit volumes of microprocessors.
• Year-over-Year Comparison: Total revenue was approximately flat compared to a year ago, with lower revenue from the Digital Enterprise and Flash Memory groups and higher revenue from the Mobility Group.
• Gross Margin Percentage: 5 points lower than the first quarter of 2006, primarily due to lower average selling prices for microprocessors.

Cost Structure and Efficiency

• Research and Development (R&D) and Marketing, General, and Administrative (MG&A): Approximately $2.7 billion, in line with the forecast and down 6% from the fourth quarter.
• Restructuring and Asset Impairment Charges: $75 million in the first quarter.
• Expense Reduction: Spending for R&D and MG&A is down 17% from the first quarter of 2006, and as a percentage of revenue, spending has declined by nearly six points.
• Employee Count: Down by more than 11,000 (11%) to 92,000.

Balance Sheet and Cash Position

• Total Inventories: Approximately flat with the fourth quarter, with finished goods down and work in process and raw materials up.
• Cash Investments: Comprised of cash, short-term investments, and fixed income trading assets, ended the quarter at $8.6 billion, nearly $1 billion less than the fourth quarter.
• Capital Spending: $1.4 billion.
• Dividends Payments: $650 million.
• Stock Repurchases: $400 million.

Outlook for the Second Quarter

• Revenue Forecast: Between $8.2 billion and $8.8 billion, a decrease of 4% from the first quarter and anticipated growth of 6% year-over-year.
• Gross Margin Percentage: Expected to be 48%, plus or minus a couple of points, impacted by lower revenue, lower sell-through of previously reserved products, and higher start-up costs.
• Spending Forecast: R&D and MG&A in the second quarter should be approximately $2.6 billion to $2.7 billion, approximately flat with the first quarter.
• Restructuring and Asset Impairment Charges: Expenses of approximately $60 million expected in the second quarter.

Full Year Outlook

• Manufacturing Start-Up Costs: Concentrated in the first half, with these costs being lower in the third quarter than in the second quarter.
• Gross Margin Forecast: Raised to 51%, plus or minus a few points, due to lower unit costs and average selling prices for microprocessors.
• R&D and MG&A Spending: R&D spending forecasted to be approximately $5.6 billion, and MG&A spending forecasted to be approximately $5.1 billion.
• Tax Rate: Expected to be 31% for each of the remaining quarters in the year.

Additional Insights

• Unit Cost and Product Leadership: Focus on delivering products that customers find compelling, executing superbly with 45-nanometer technology, and attacking costs on all fronts.
• Gross Margin Impact: Discussed the impact of previously reserved inventory on gross margins, noting that the sale of previously reserved inventory contributed one point of good news margin.
• Startup Costs: Explained that startup costs were just under three percentage points, negatively impacting gross margin in the first quarter.
• Under-Load Charges: Mentioned that under-load charges were one point better in the first quarter compared to the fourth quarter.
• 45-Nanometer Process: Addressed the introduction of the 45-nanometer product, stating that the cost envelope for those products can be very competitive, and that the ramp will be at least as fast as the 65-nanometer ramp was.
• Inventory Management: Commented on inventory levels and management, noting that inventory should be dead flat and that the company is confident in its ability to absorb capacity.
• Product Differentiation: Highlighted the importance of product differentiation, particularly in performance, power envelopes, and platform strategy, including Centrino and vPro technologies.

Andy Bryant provided a detailed and comprehensive overview of Intel's financial performance and outlook, emphasizing the company's focus on technology leadership, operational efficiencies, and strategic initiatives.