Intel Corporation, Q1 2020 Earnings Call, Apr 23, 2020 - NasdaqGS:INTC

NasdaqGS:INTC

During the Intel Corporation Q1 2020 Earnings Call, Trey Campbell, the Former Head of Investor Relations, made the following statements:

1. Introduction:

   • Trey thanked the operator and welcomed everyone to Intel's first quarter earnings conference call.
   • He informed the attendees that they should have received a copy of the earnings release and the earnings presentation. If not, they were available on Intel’s investor website, intc.com.
   • Trey mentioned that he was joined by the CEO, Bob Swan, and the CFO, George Davis.
   • He stated that after brief remarks from Bob and George, there would be a Q&A session.

2. Forward-Looking Statements Disclaimer:

   • Trey reminded everyone that the discussion contained forward-looking statements based on the current environment and included risks and uncertainties. He advised referring to the press release for more information on specific risk factors that could cause actual results to differ materially.

3. GAAP and Non-GAAP Financial Measures:

   • Trey noted that Intel had provided both GAAP and non-GAAP financial measures for the quarter and that the discussion would focus on the non-GAAP measures.
   • He mentioned that the earnings presentation and earnings release on intc.com included full GAAP and non-GAAP reconciliations.

4. Handover to Bob Swan:

   • Trey handed over the call to Bob Swan, the CEO, to provide further remarks.

5. Q&A Introduction:

   • After Bob and George had spoken, Trey thanked them and moved on to the Q&A session.
   • He instructed the operator to introduce the first caller.

6. Final Remarks:

   • Trey thanked Bob for his closing remarks and thanked everyone for joining the call.

   • He wished everyone safety and looked forward to seeing them in person over the near term.

   • Trey asked the operator to wrap up the call.

George S. Davis, the Executive Advisor of Intel Corporation, provided insights into the financial performance and outlook for the company during the Q1 2020 Earnings Call on April 23, 2020. Below is a detailed summary of his comments:

Q1 2020 Results:

• Revenue: $19.8 billion, up 23% YoY.
• Data-Centric Revenue: $10.1 billion, up 34% YoY, representing 51% of total revenue.
• PC-Centric Revenue: $9.8 billion, up 14% YoY.
• Gross Margin: 62%, beating expectations due to strong platform revenue.
• Operating Margin: 38%, up 10 points YoY.
• EPS: $1.45, $0.15 above guidance.
• Operating Cash Flow: $6.2 billion.
• CapEx: $3.3 billion.
• Free Cash Flow: $2.9 billion, up 76% YoY.
• Share Repurchases: $4.2 billion.
• Dividends: $1.4 billion.

Segment Performance:

• Data Center Group (DCG):
  • Revenue: $7 billion, up 43% YoY.
  • Cloud: Up 53%.
  • Enterprise and Government: Up 34%.
  • Communication Service Providers: Up 33%.
  • Adjacencies: Up 35%.
• Internet of Things Group (IOTG):
  • Operating income declined 3%.
• Mobileye:
  • Revenue and operating income up 22% and 29%, respectively.
• Non-Volatile Memory Solutions Group (NSG):
  • Revenue grew 46%.
  • Operating loss: $66 million.
• Programmable Solutions Group (PSG):
  • Revenue grew 7%.
  • Operating income up 9%.
• Client Computing Group (CCG):
  • Revenue: $9.8 billion, up 14% YoY.
  • Notebook demand strength expected to continue into Q2.

Q2 2020 Outlook:

• Total Revenue: Expected to be $18.5 billion.
• PC-Centric: Approximately flat to slightly up YoY.
• Data-Centric: Up approximately 25% YoY.
• Operating Margin: Approximately 30%, down 1 point YoY.
• Gross Margins: Approximately 56%, down 6 points sequentially.
• EPS: Expected to be approximately $1.10 per share.

Full Year 2020:

• Not Guiding Full Year: Due to uncertainty driven by COVID-19.
• Headwinds:
  • Impact of a global recession on IOTG end markets.
  • Lower automotive production impacting Mobileye.
  • Slowing enterprise and government data center demand.
  • PC TAM weakening in H2.
• Tailwinds:
  • Strong demand for mobile compute and related infrastructure.
  • Mobile PCs, cloud, and network infrastructure above seasonal trends.

Response to Market Dynamics:

• Strengthened Liquidity: Issued $10.3 billion in debt.
• Total Cash Investment Balance: $20.8 billion.
• Free Cash Flow: Expected to be resilient.
• Capital Actions:
  • Disciplined spending initiatives.
  • Tight working capital oversight.

Gross Margin Decline in Q2:

• Half of the Impact: From Tiger Lake pre-PRQ reserves.
• Sequential and Year-Over-Year Impact: Primarily from Tiger Lake.
• Improved Performance on 10nm: Indicated by the volume of units reserved.
• Gross Margin Dynamics: Unchanged from previous outlook.

Capital Expenditure Guidance:

• $17 Billion Guidance: No significant changes.
• Discipline:
  • Wafer starts in line with true demand signals.
  • Capital spending aligned with capacity and technology development.
• Natural Lowering of CapEx: Regulatory requirements pushing out some capital spending.

Server Road Map:

• Cooper Lake Deemphasized: More focus on Ice Lake server.
• Cascade Lake Refresh: Simple upgrade for customers.
• Ice Lake: Expected in the second half of the year.

10nm Mix Exiting the Year:

• No Crossover Point Expected: 10nm mix will not surpass older nodes.
• Strong Tiger Lake Demand Signals:
  • Accelerating the ramp and adoption faster than initially planned.

PC Market in Q1:

• 14% YoY Growth: Partly due to work-at-home and learn-at-home dynamics.
• Notebook Volumes: Up over 20%.
• Strong Demand Signals: Even with supply chain challenges.

Gross Margins:

• Structural Impact: More 10nm demand than initially forecasted.
• Temporary Impact: Pre-PRQ reserve action reversing in the second half.

Channel Inventory:

• Focused on Understanding Dislocation: Monitoring sell-through closely.
• End-Customer Demand: Remains strong according to customer feedback.
• Potential Inventory Correction: Uncertainty regarding the second half of the year.

Supply and Demand Balance:

• Capacity Growth: Mid-20% growth in capacity.
• Output: On track for high single-digit unit increase.
• Shortages: Able to keep pace with accelerating demand.
• Inventory Levels: Not yet replenished to desired levels.

Closing Remarks:

• Purpose: Create world-changing technology that enriches lives.

• Strategy Resolute: Built to withstand challenges.

• Diversified Portfolio: Leveraged to major technology inflections.

• Financial Strength: Significant and durable free cash flows.

• Team: 110,000 people operating as one team.

• Emerging Stronger: Guided by cultural values, competitive advantages, and financial strength.

During the earnings call, Robert Holmes Swan, the Former CEO & Director of Intel Corporation, made the following comments:

1. Introduction and Q1 Performance Overview:

   • He thanked Trey Campbell, the Head of Investor Relations, and introduced the call.
   • Noted that Intel had an outstanding Q1 2020 despite challenging circumstances.
   • Highlighted that Intel generated $19.8 billion in revenue, expanded operating margin by 10 points, and delivered $1.45 in earnings per share.
   • Mentioned that the data-centric businesses grew by 34% and now represent approximately 51% of the company's revenue, while the PC-centric business grew by 14%.

2. Employee Recognition and Safety Measures:

   • Praised Intel employees and supply chain partners for keeping the business operating during the unprecedented challenge posed by COVID-19.
   • Gave special recognition to on-site personnel in factories and labs.
   • Emphasized that ensuring the safety and well-being of the global workforce is the company's top priority.
   • Announced that Intel is investing more than $100 million in additional benefits to aid and support employees.

3. Intel’s Role During COVID-19:

   • Stated that Intel's purpose is to create world-changing technology that enriches the lives of every person on earth.
   • Noted that Intel technology runs 95% of the world's internet communication and government digital infrastructure.
   • Described how Intel's products and capabilities are supporting telemedicine, medical research, robotics for patient care, and artificial intelligence for public health.

4. Community Support and Philanthropic Efforts:

   • Announced a $50 million global pandemic response technology initiative to combat COVID-19.
   • Mentioned that Intel is providing $10 million towards coronavirus relief in communities where the company has a significant presence.
   • Committed to donating over 1 million items of personal protective equipment.

5. Strategic Priorities:

   • Reiterated that Intel's long-term strategy is to deliver the world's best semiconductors for an increasingly data-centric world.
   • Mentioned that Intel is focused on accelerating the growth of the company, improving execution, and thoughtfully deploying capital.
   • Noted that Intel has transformed to grow its share in the largest market opportunity in its history.

6. Business Trends and Growth Areas:

   • Discussed growth in cloud and networking businesses, where Intel is helping customers transform how they move, store, and process data.
   • Highlighted the success of the Medical Informatics' Sickbay platform powered by Intel technology.
   • Mentioned Mobileye's landmark design win with a major Asian OEM.
   • Described Intel's work with Lenovo and BGI Genomics to accelerate the analysis of genomic characteristics of COVID-19.

7. Product Roadmap and Execution:

   • Mentioned that Intel has made strong progress on 10-nanometer-based product introductions, including the new Intel Atom P5900 SoC, Snow Ridge.
   • Announced the upcoming debut of the next-generation mobile processor, Tiger Lake, using the second-generation 10-nanometer process.
   • Expected initial production shipments of the 10-nanometer-based Xeon Scalable product, Ice Lake, in the latter part of 2020.

8. Capital Allocation and Liquidity:

   • Noted that Intel generates significant cash flow and has an excellent balance sheet.
   • Mentioned that Intel repurchased $4.2 billion in shares during the quarter.
   • Announced raising $10.3 billion in debt to strengthen liquidity and the suspension of share buybacks.

9. Closing Remarks:

   • Reaffirmed Intel's purpose and strategy.

   • Emphasized the company's diversified portfolio of businesses and its resilience.

   • Expressed confidence that Intel will emerge from the situation even stronger.