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pww.comIntel Corporation, Q2 2010 Earnings Call, Jul-13-2010 - NasdaqGS:INTC

NasdaqGS:INTC

Paul S. Otellini [Former Chief Executive Officer, President and Director] 💬

During the Q2 2010 Earnings Call, Paul S. Otellini, the Former Chief Executive Officer, President, and Director of Intel Corporation, provided several insights and comments:

  1. Quarterly Results: Intel posted its best quarterly results ever in Q2 2010, with growth continuing to run ahead of economic growth, reflecting a fundamental shift driven by Internet adoption.

  2. Economic Momentum: The economies of the world continue to reflect renewed economic momentum, and Intel's growth continues to run ahead of this momentum.

  3. Seasonal Trends: The second quarter was up 5% from Q1, versus a seasonal norm of down 2%.

  4. Consumer Segments: There was a continuation of year-over-year growth in the Consumer segments, and this quarter, Intel benefited from a broad-based return of the Enterprise and Small Business segments.

  5. Server Business: The Server business had a record quarter, showing strong sequential unit growth and strength from customers opting for richer configurations that drove an improved mix within the Server category. The return on investment that new Server offerings deliver is extremely compelling and a major reason for strong demand.

  6. IP Data Center Segment: The IP Data Center segment grew 170% over Q2 of the previous year. As Internet traffic continues to boom, the cloud build-out is accelerating to keep pace.

  7. PC Refresh: Companies, including small businesses, are refreshing their PCs. This was broad-based and an important driver of improving product mix within Intel's PC business last quarter.

  8. Atom Business: The Atom business performed very well, growing 16% sequentially. An inventory correction in Q1 that has now normalized and the introduction of dual-core versions of Atom helped drive incremental demand and improved mix within the Atom category.

  9. Global Demand for PCs: Many third-party analysts are now projecting annual unit growth of around 20% for global demand for PCs. Intel's plans are consistent with this number.

  10. PC Sales Trends: For the last five quarters, PC sales have been driven by Consumer purchases, particularly notebooks. This trend is continuing. In Q2, Intel saw a return of Corporate purchases that offset seasonal and geographic patterns in the Consumer segment.

  11. Inventory Status: Across the supply chain, Intel is very comfortable with the levels of inventory. In the channel, there was a marked decline in inventories as currency volatility caused distributors to cut back on orders, so inventories in the channel are very lean.

  12. Balance Sheet Inventories: The increase in inventories on Intel's balance sheet was both conscious and important. Over 100% of the increase was from leading-edge 32 nanometer processors in anticipation of a seasonally stronger second half.

  13. Integrated Business Model: Intel's integrated business model of both product design and manufacturing provided advantages that were very evident in the second quarter financial results. Product costs continue to decline, and when combined with an innovative product lineup, Intel is able to enjoy healthy financial returns.

  14. Sandy Bridge Product Family: Paul Otellini is excited about the Sandy Bridge product family. Due to the very strong reception of Sandy Bridge, Intel has accelerated its 32 nanometer factory ramp and raised its CapEx guidance to meet anticipated demand.

  15. September IDF Conference: Intel will share more details about the new architecture at the September IDF Conference in San Francisco.

These comments provide a comprehensive overview of Intel's performance and outlook during the second quarter of 2010.

Stacy J. Smith [Independent Director] 💬

During the Q2 2010 Earnings Call, Stacy J. Smith, who is referred to as the Independent Director in the transcript but was actually the Chief Financial Officer at the time, provided the following comments:

  1. Financial Highlights:

    • Revenue of $10.8 billion, up 34% year-over-year.
    • Gross margin of 67%, up four points from Q1.
    • Operating profit of $4 billion, reaching 37% of revenue.
    • Revenue per employee was $134,000, a record high.
    • Strong product mix with the continued ramp of new 32 nanometer products.
    • Microprocessor unit sales increased slightly above seasonal norms, and average selling prices were up slightly quarter-over-quarter.
    • All geographies performed better than normal seasonal patterns.

  2. Server Market Segment:

    • Particularly strong, with customer demand for new products leading to a richer mix.
    • Data Center Group achieved revenue of $2.1 billion and operating profit of $1.1 billion, the first time operating profit exceeded $1 billion in this segment.

  3. Gross Margin:

    • Gross margin of 67% was higher than expected due to higher platform revenue and better-than-expected costs.
    • The factory network delivered the lowest ever platform cost while accelerating the 32 nanometer process technology ramp.

  4. Cash Flow and Investments:

    • Generated approximately $3.5 billion of cash flow from operations in Q2.
    • Total cash investments grew by $1.4 billion to approximately $18 billion.
    • Paid nearly $900 million in dividends and purchased over $1 billion in capital assets.
    • Increased total inventories by $350 million.

  5. Third Quarter Forecast:

    • Midpoint of the forecast for Q3 is $11.6 billion.
    • Forecasted revenue increase of 8% in Q3 is slightly below the average seasonal increase.
    • Forecasted gross margin range midpoint to be flat at 67%.

  6. Annual Gross Margin Forecast:

    • Forecasting a record annual gross margin.
    • Midpoint of the annual forecast increased from 64% to 66%.

  7. Cost Structure Transformation:

    • Demonstrated the powerful financial results that can be generated when leadership products and a world-class cost structure are coupled with an overall healthy end market.

  8. Inventory Comments:

    • Inventory increase was both conscious and important, with over 100% of the increase coming from leading-edge 32 nanometer processors.
    • Inventory levels are appropriate relative to the 32 nanometer ramp and expected demand in the second half of the year.
    • Expects inventory to flatten out in the third quarter.

  9. Gross Margin Guidance:

    • Guidance for Q3 gross margin is based on higher platform revenue, offset by inventory write-offs for the Sandy Bridge product and other small items.
    • Could see some upside if there is further mix-related improvement.
    • Detailed the Q4 gross margin guidance, including the impact of Sandy Bridge qualification, unit cost increases, and the ramp of the next big 32 nanometer factory.

  10. Profit Sharing Plan:

    • The profit-sharing plan is expected to be at a record high level due to the improved earnings performance.
    • The spending increase for the year is largely driven by revenue and profit-dependent components.

  11. Average Selling Price (ASP):

    • ASP is not expected to be a big driver of gross margin changes in Q3.
    • ASP is not anticipated to have a significant impact on gross margin in Q3, which is typically seasonally stronger in the consumer segment.

  12. Product Mix and 32 Nanometer Transition:

    • The 32 nanometer transition involves building inventory on both older and newer products.
    • Unit cost graph by quarter shows an uptick in Q4 and more in Q1 and Q2 due to the next big 32 nanometer factory coming online.

  13. IM Flash and Capacity Addition:

    • Continues to drive financial performance of the IM Flash business with a great cost structure and a cautious approach to capacity addition.
    • Decision on participation in Singapore will be made later in the year.

These comments provide insight into Intel's financial performance, product mix, and strategic outlook during the second quarter of 2010.

R. Kevin Sellers [Former Vice President of Sales & Mktg Group and Director of Creative Services & Digital Mktg] 💬

During the Q2 2010 Earnings Call for Intel Corporation, R. Kevin Sellers, who was the Former Vice President of Sales & Marketing Group and Director of Creative Services & Digital Marketing, made the following statements:

  1. Opening Remarks:

    • Gave the opening remarks, thanking the operator and welcoming everyone to the call.
    • Introduced himself and the other executives present: Paul Otellini, President and CEO, and Stacy Smith, Chief Financial Officer.
    • Mentioned that the earnings release, CFO commentary, and updated financial statements were posted on Intel's Investor website.
    • Noted that if non-GAAP financial measures were used during the call, the appropriate GAAP financial reconciliations would be posted on the website.
    • Reminded listeners that the discussion contained forward-looking statements and referred them to the press release for specific risk factors.
    • Announced the upcoming Annual Intel Developers Forum scheduled for September 13 through 15 in San Francisco.

  2. Transition to Paul Otellini:

    • Handled the transition to Paul Otellini, CEO, stating, "Let me now hand it over to Paul."

  3. Closing Remarks:

    • Closed the call by thanking everyone for joining and provided details about the Quiet Period for the third quarter, which would begin at the close of business on Friday, August 27.

    • Announced the date for the third quarter earnings conference call, which was scheduled for Tuesday, October 12, 2010.

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

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