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pww.comIntel Corporation, Q3 2006 Earnings Call, Oct-17-2006 - NasdaqGS:INTC

NasdaqGS:INTC

Paul Otellini [Executives] 💬

Paul Otellini, the CEO of Intel at the time, discussed various aspects of Intel's performance and strategies during the Q3 2006 earnings call. Here is a detailed summary of his remarks:

Overall Performance and Strategy

  • Q3 Performance: Described Q3 as a good quarter for Intel, noting that sales were above the midpoint of expectations and that Intel delivered over 6 million processors based on the new Core microarchitecture.
  • Product Line Refresh: Mentioned that Intel has introduced a wide array of new products, refreshing its entire product line from notebooks to desktops and from volume DP servers to Xeon, MP, and Itanium.
  • Core Microarchitecture Leadership: Noted that the industry recognizes Intel's clear leadership with the Core microarchitecture, and disclosed that Intel has shipped quad-core versions for revenue, which work in existing designs and boost energy performance by up to 50% in DP servers and about 70% in desktops and workstations.

Manufacturing and Technology

  • 65 Nanometer Process: Highlighted that Intel's factories have executed extremely well, with over 40 million 65 nanometer processors shipped and a crossover from 90 nanometer achieved.
  • 45 Nanometer Process: Announced that the 45 nanometer process development is on track for the second half of 2007, with plans to tape out the first of 15 45-nanometer processors in Q3 2006.
  • R&D Strategy: Outlined Intel's R&D strategy to introduce a new microarchitecture every two years, while shrinking the existing architectures in the intervening years.

Business Segments

  • Digital Enterprise: Noted that the server business generated higher revenue and record units driven by strong demand for new products in Xeon DP, MP, and Itanium. Also mentioned the launch of the vPro platform for business PCs and strong design wins and ecosystem support.
  • Mobility Group: Reported record unit shipments in the mobility group as mobile continues to take client PC share. Mentioned demonstrations of Intel's new Robeson technology, which places NAND flash on the motherboard for faster boots and resume, plus longer battery life.
  • Desktop Market Segment: Admitted that the desktop market segment remained very competitive but expressed satisfaction with the market's acceptance of Intel's strategy to move the Pentium product into lower price points as it ramps the new Core microarchitecture.

Cost Reduction Efforts

  • Comprehensive Review: Announced a comprehensive review of the company's operations aimed at making Intel a more nimble and efficient competitor. Noted that the headcount declined by over 2,600 during the quarter and that Intel is on track to reach 95,000 employees by the end of the year and 92,000 by mid-next year.
  • Cost Reduction Goals: Mentioned plans to reduce costs by $2 billion in 2007 and by $3 billion in 2008.

Future Outlook

  • Technology and Manufacturing Leadership: Stated that Intel is entering the strongest part of the year with technology and manufacturing leadership, ample leading-edge capacity, and a portfolio of new products across its mobile, desktop, and server businesses.

  • 45-Nanometer Transition: Emphasized the importance of being the first to 45 nanometer and delivering a new core or shrink every year.

  • Agility and Cost Structure: Mentioned the goal of becoming more agile and putting the right cost structure in place for future growth.

Alex Lenke [Executives] 💬

During the Intel Corporation Q3 2006 earnings call, Alex Lenke, the Investor Relations Manager, made the following statements:

  1. Opening Remarks:

    • Welcomed attendees to the Intel third quarter earnings conference call.
    • Introduced the executives present: CEO Paul Otellini and CFO Andy Bryant.
    • Provided a disclaimer regarding forward-looking statements and the Safe Harbor language.
    • Noted that the forward-looking statements do not reflect potential impacts of mergers, acquisitions, divestitures, or other business combinations after October 17, 2006.
    • Mentioned the availability of a reconciliation to GAAP financial measures on the Intel website if non-GAAP financial measures are used.

  2. Transferred Speaking Rights:

    • Handed over the call to Paul Otellini for further remarks.

  3. Closing Remarks:

    • Thanked everyone for listening to the call.

    • Announced that a recorded playback of the call would be available at approximately 5 PM Pacific Time on the same day.

    • Provided the dial-in number and passcode for accessing the recorded playback.

    • Ended the call by thanking everyone again.

Andy Bryant [Executives] 💬

During the Q3 2006 Earnings Call, Andy Bryant, the CFO of Intel Corporation, provided various insights and updates. Here’s a detailed summary of his comments:

Opening Remarks

  • Financial Overview:

    • Revenue for Q3 was $8.7 billion, up 9% from Q2.
    • Gross margin percentage was 49.1% on a GAAP basis.
    • Spending was lower than forecasted, with R&D and MG&A totaling $2.8 billion, down 9% from Q2.
    • Net gains on equity securities and interest and other were $440 million.
    • Fully diluted earnings per share were $0.22.

  • Cost Reduction Efforts:

    • Headcount declined to just below 100,000 employees.
    • Restructuring charges for the quarter were $98 million.

  • Balance Sheet Highlights:

    • Inventories were $4.5 billion, up $145 million from Q2.
    • Total cash investments were $7.8 billion, up from $7.2 billion in Q2.
    • Capital spending was $1.2 billion.
    • Stock repurchases were $500 million.
    • Dividend payments were nearly $600 million.

Outlook for Q4

  • Revenue Forecast:

    • Expected to be between $9.1 billion and $9.7 billion, an increase of approximately 8%.
    • Assumes higher revenue from microprocessors, chipsets, and flash memory.

  • Gross Margin Forecast:

    • Expected to be 50%, plus or minus a couple of points.
    • Unit volumes and slightly lower unit costs will lift gross margin, offset by charges related to 90-nanometer networks and start-up costs for 45-nanometer process technology.

  • Spending Forecast:

    • Expected to be approximately $2.7 billion to $2.8 billion.
    • Spending should be approximately flat or slightly lower as cost reductions continue.

  • Restructuring Charges:

    • Expected to be approximately $125 million.

  • Headcount:

    • On track to reduce headcount to approximately 95,000 by year-end, including the effect of the planned sale of the communications and applications processor business.

  • R&D and Capital Spending:

    • Full-year R&D forecast lowered by $100 million to approximately $5.9 billion.
    • Capital spending forecast lowered by $400 million to $5.8 billion, plus or minus $100 million.

  • Tax Rate:

    • Estimated tax rate for Q4 is approximately 30%.

Question and Answer Session

  • Gross Margin Guidance for Q4:

    • Benefits from higher revenue and slightly lower unit costs, offset by under-load charges in 90-nanometer networks, start-up costs for 45-nanometer, and absence of reserves taken in Q3.

  • Expense Run Rate for 2007:

    • Unwilling to give a definitive number but hopes to keep expenses flat to slightly down through 2007.

  • Inventory Levels:

    • Inventory is transitioning into 65-nanometer products. Levels are managed to ensure the ability to meet customer demand.

  • Under-Utilization Charges:

    • No expectation for significant changes in factory loading for 2007.

  • Margins and Unit Costs for Q4:

    • Under-load and start-up charges equal to about 2 points of margin combined. Lower unit costs provide a small benefit.

  • Cost Savings:

    • Cost savings target of $2 billion by mid-2007 is compared to the run rate at the start of the program.

  • Flash Business:

    • NOR flash business showing improvement in efficiency and costs. NAND flash is in start-up phase with expected losses due to investment in engineering and manufacturing capability.

  • Long-Term Gross Margins:

    • Unwilling to give a long-term gross margin forecast. Will provide more insight into the next few quarters' margins at the end of the year.

  • Desktop ASP Stabilization:

    • Confidence in a firmer price environment due to the ramp of Core 2 Duo and other factors.

These points provide a comprehensive overview of Andy Bryant's remarks during the Q3 2006 Earnings Call.

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