Intel Corporation, Q3 2008 Earnings Call, Oct-14-2008 - NasdaqGS:INTC

NasdaqGS:INTC

Stacy J. Smith [Executives] 💬

Stacy J. Smith provided detailed insights into Intel's financial performance and outlook during the Q3 2008 earnings call. Here is a summary of his remarks:

Financial Highlights:
- Intel had a strong third quarter with record revenue, operating income of over $3 billion, gross margin of 59%, and an operating margin of 30%.
- Revenue of $10.2 billion was up 8% from the second quarter, in line with average seasonal trends.
- Microprocessor revenue excluding Atom was in line with seasonal patterns on flat average selling prices.
- Third quarter revenue for Atom-based microprocessors and associated chipsets was approximately $200 million.
- The mobility group accounted for over 45% of total revenue, with $4.7 billion in revenue, up 23% from the second quarter.
- Geographically, Asia-Pacific and Japan experienced better than seasonal revenue growth at approximately 12% each.
Gross Margin:
- Gross margin of 58.9% was up 3.5 points from the second quarter and up over 7.5 points from the third quarter of 2007.
- A couple of points of the increase came from lower microprocessor unit costs and about a point came from microprocessor volume increases in the third quarter.
- Gross margin was up nearly a point versus the midpoint of the outlook range set in July on lower-than-expected microprocessor unit costs.
Spending:
- Spending on R&D and MG&A was $2.9 billion, flat to the forecasted range and flat to the second quarter.
- There was a net loss of $265 million from gains/losses on equity investments and interest and other income, higher than the outlook net loss of $30 million, due to volatile conditions in the memory market segment.
Tax Provision:
- The provision for taxes in the third quarter was at a 29% effective tax rate, lower than the 33% previously forecasted, primarily due to a tax reorganization enabling the recognition of previously unrecognized non-U.S. losses.
Cash and Investments:
- Total cash investments comprised of cash, short-term investments, and fixed income trading assets ended the quarter at $11.8 billion, approximately $275 million higher than the second quarter.
- The credit quality of the fixed income investment portfolio remained high, with other than temporary losses during this tough credit environment minor at under $15 million in the third quarter.
Cash Flow:
- Cash flow from operations was over $3 billion.
- Capital spending was nearly $1.4 billion, dividend payments were nearly $800 million, and stock repurchases were $2.1 billion.
Fourth Quarter Outlook:
- The financial crisis is creating a high degree of uncertainty around fourth quarter demand, resulting in a broader than normal range of possible outcomes for fourth quarter revenue, ranging from $10.1 billion to $10.9 billion.
- Expectation for gross margin percentage in the fourth quarter is 59%, plus or minus a couple of points, flat to the third quarter.
- Spending for R&D and MG&A in the fourth quarter should be approximately $2.9 billion, flat to the third quarter.
- Expected restructuring and asset impairment charges of approximately $250 million, including a $200 million restructuring charge related to the shutdown of 200-millimeter NAND manufacturing facilities.
- Estimate for gains and losses from equity investments and interest and other income is a net loss of $50 million.
- Forecast for the effective tax rate for the fourth quarter is 29%, reflecting the R&D tax credit recently signed into law.
Full Year Forecast:
- Spending for R&D and MG&A for the full year is now forecasted to be approximately $11.5 billion, down from the prior forecast of $11.7 billion.
- Forecast for capital expenditures has been reduced by $200 million to $5 billion, plus or minus $100 million.
- Full-year gross margin is approximately 57%, consistent with the prior forecast.
Competitive Position:
- Despite the economic outlook deteriorating over the past quarter, Intel's competitive position has strengthened, with a strong product portfolio and manufacturing leadership.
- Intel's healthy cash flow generation, strong balance sheet, and focus on improving efficiency over the past two years have put the company in an outstanding position to emerge even stronger from the economic downturn.

Throughout the call, Stacy J. Smith provided detailed financial analysis and insight into Intel's performance and outlook, emphasizing the company's strong financial position and strategic initiatives.

R. Kevin Sellers [Executives] 💬

R. Kevin Sellers, Vice President of Investor Relations at Intel, made several remarks during the earnings call:

Introduction: He welcomed everyone to Intel's third quarter 2008 earnings conference call and introduced the executives present, including Chief Executive Officer Paul Otellini and Chief Financial Officer Stacy Smith.
Webcast and Replay Information: He informed the audience that the call was being webcast live and that a replay would be posted to Intel's website at around 5:00 p.m. Pacific Time and would remain there for approximately two months.
Agenda Overview:
- Paul Otellini would provide comments on the quarter and the macro environment.
- Stacy Smith would discuss the financial performance and the fourth quarter outlook.
Non-GAAP Financial Measures: He mentioned that if non-GAAP financial measures were used during the call, appropriate GAAP financial reconciliations would be posted to Intel's investor website after the call.
Forward-Looking Statements Reminder: He reminded the attendees that the discussion contained forward-looking statements based on the current environment and included risks and uncertainties.
Technical Difficulties: During the call, he acknowledged technical difficulties and communicated with the operator to address the feedback problems.
Closing Remarks:
- He thanked everyone for joining the call.
- He announced the quiet period for the fourth quarter would begin at the close of business on November 28th and end on December 4th with a mid-quarter update.
- He mentioned the re-initiation of the quiet period at the close of business on December 12th.
- He scheduled the fourth quarter earnings conference call for January 15, 2009.
- He expressed gratitude for attendance and concluded the call.

Paul S. Otellini [Executives] 💬

During the Q3 2008 Earnings Call, Paul S. Otellini, the Chief Executive Officer of Intel Corporation, shared several insights and updates:

Introduction and Apologies:
- He apologized for technical difficulties at the beginning of the call.
- He thanked everyone for joining the call.
Financial Results:
- Intel delivered strong financial results for Q3, marking the fifth consecutive quarter of record quarterly revenue.
- Revenue grew 8% over the second quarter, and operating income grew 37% to just over $3 billion.
Microprocessor Shipments:
- Intel shipped an all-time record number of microprocessors, driven by strength in the mobile segment.
- Atom microprocessor and related chipset revenues were approximately $200 million this quarter.
Average Selling Prices (ASPs):
- Total microprocessor ASP was lower than Q2 but was approximately flat without Atom, reflecting strength in the core business.
Chipset Business:
- The chipset business had record units and revenues in the quarter.
Product Lineup:
- Intel's product lineup is well-positioned across the spectrum of computing.
Nehalem Product Family:
- Intel began shipments of the Nehalem product family during the third quarter and expected to formally launch these products in November.
- Nehalem brings a new microarchitecture and new performance features, extending Intel's performance leadership in microprocessors.
Atom Microprocessor Family:
- There is strong acceptance of Intel's Atom microprocessor family, designed for new mobile Internet form factors at attractive system price points with healthy product margins for Intel.
Operational Actions:
- Intel undertook important actions in 2006 and 2007 to prepare for changing economic conditions.
- Intel's current employee base is approximately 20,000 lower than its peak in 2006, and the company has removed over $3 billion in spending.
- Intel's business model generates strong cash flows, with Q3 operating cash flows of over $3 billion and a current cash position of approximately $12 billion.
NAND Operations:
- Last week, Micron announced the joint decision to shut down 200-millimeter NAND operations.
- The IMFF planned Singapore fab is now on hold as Intel continues to take actions to reduce supply in light of current market conditions.
- Intel launched its solid-state drive (SSD) product family in Q3 to outstanding reviews and is currently ramping those products, giving Intel a lead in the higher-margin segment of the NAND business.
Market Outlook:
- Q3 played out mostly as expected, with some softness in September in the corporate segment while the consumer segment was more seasonal.
- Inventories in total seem in reasonable shape, with Taiwan and channel customers cutting back and some OEMs building a bit.
- Consumer traffic overall is light at this point in the quarter, but there is continued healthy interest in notebooks and netbooks.
- The financial crisis is creating some uncertainty that may impact Intel's business, but the extent of that impact is difficult to quantify.
- Intel has widened the outlook range for Q4 to reflect the boundaries of the risks and decided to provide a formal mid-quarter update on December 4th to give additional information about Q4 business trends as the business and financial conditions unfold.
Competitive Position:
- Intel's competitive position has strengthened despite the deteriorating economic outlook.
- Intel's strong product portfolio continues to improve, and its manufacturing leadership maintains a generation-ahead advantage over competition.
- Intel's healthy cash flow generation, strong balance sheet, and focus on improving efficiency over the past two years have put the company in an outstanding position to emerge even stronger from the economic downturn.