Analyst Conference Summary


conference date: April 14, 2015 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2015 (Q1; first quarter 2015)

Forward-looking statements

Overview: The data indicates Intel is a dinosaur, going nowhere. However the datacenter segment is still growing; maybe they should spin it off.

Basic data (GAAP):

Revenue was $12.8 billion, down 13% sequentially from $14.7 billion and flat from $12.8 billion year-earlier.

Net income was $2.0 billion, down 46% sequentially from $3.7 billion and up 3% from $1.9 billion year-earlier.

GAAP EPS (diluted) was $0.41, down 45% sequentially from $0.74 and up 8% from $0.38 year-earlier.


For Q2 2015 revenue is expected between $12.7 and $13.7 billion, with gross margin within a couple of points of 62%. Operating expense about $4.9 billion, plus $120 million for restructuring and $60 million of acquisition-related amortization. Interest and other $60 million gain. $2.0 billion depreciation. Tax rate near 20%.

Full Year 2015 revenue about flat from 2014 (was $55.9 billion), at 61% gross margin. R&D plus MG&A about $19.7 billion. $250 million amortization, $8 billion depreciation. Tax rate rising to 25% for 3rd and 4th quarters. Capital spending $8.2 billion to $9.3 billion, less than normal.

Conference Highlights:

PC segment revenue was down sequentially and y/y, but that was offset by growing datacenter, Internet of Things (IoT) and memory segment revenue, to end flat y/y. Appreciating U.S. dollar did not help.

PC Client group revenue was $7.4 billion, down 16% sequentially and down 8% y/y. Just plain slow demand for desktop computers. But notebook volume grew 3% y/y. Now shipping 14 nm CPUs in high volumes. Mobile product portfolio was expanded, including Cherry Trail. Tablet shipments were up y/y. Looking forward to the release of Windows 10 this summer. Believes there was an inventory supply burn in Q1, which will continue in Q2.

Data Center group revenue was $3.7 billion, down 10% sequentially but up 19% y/y. Continues to see high demand in high-performance computing (HPC) and cloud, as well as in telco.

Internet of Things group revenue was $533 million, down 10% sequentially and up 11% y/y.

Software and Services had revenue of $534 million, down 4% sequentially and down 3% y/y.

Other segments had revenue of $615 million, up 13% y/y. NAND segment was strong.

Gross margin was 60.5%, down sequentially from 65.4% but up from 59.6% year-earlier.

Cash and equivalents balance $14.0 billion. $4.4 billion cash from operations. $0.75 billion used for stock repurchases. $1.1 billion was paid out in dividends. Debt about $13.2 billion.

Cost of sales was $5.05 billion, leaving $7.73 billion in gross profit. R&D expense was $3.00 billion. Marketing general and administrative was $1.95 billion. With restructuring and amortization total operating expense came to $5.1 billion. Leaving operating income of $2.62 billion. Gain on equity investment was $32 million. Interest and other income was $26 million. Tax provision about $681 million.


Back half of 2015, implied margins vs. revenue? Yes, about 61% both in first and second half of year. Offsetting higher 2H volume will be 10 nm startup costs. Utilization rates on 22 nm factories are going down as 14 nm introduced.

Merger and Acquisition strategy, cash use? Can't comment on rumors. The strategy has not changed. The priority is reinvesting in the current business, followed by buy-backs and dividends.We don't time the buy-back to stock prices.

Is 2015 guidance implication for trends? We are seeing mid-single digit PC unit decline. Normally in Q2 we would see an inventory build, but we currently assume the burn will continue to be lean before the Windows 10 introduction.

Capital expense in 2015? Each ramp has its own characteristics. The declining unit PC demand means we can move more capital from 22 nm to 14 nm. We are seeing nice demand migration to 14 nm, which is having good rates.

Inventory level, why is there not an overhang? We expected dollar values to come down due to 14 nm costs coming down.

Buy backs, what is the cash balance target? In general the target is zero net cash. We are comfortable where we are.

On plan for 10 nm? We have said nothing previously about our timing for 10 nm, and will not give it until a later date.

Contra payments in mobile? We are on track for an $800 million cost reduction. It will be due to Sophia, with its competitive bill of materials, and so no contra revenues. Sophia is now shipping, illustrating how fast we can move now. Our investments will also be lower going forward.

How do you see cloud demand going forward? It is a lumpy business, large cloud providers buy large amounts all at once. We believe the long-term growth rate is about 15% or so. Big data is driving some of the growth. We are confident we can continue to grow this business.

2 in 1 platform adoption? We were happy with Core M holiday sales. It is truly fanless. There are a lot more device choices on the market in Q1, with more on the way, and uptake has been very good. Combined with tablet offerings, the consumer has many choices. Sky Lake introduction will improve battery life.

Are you building 22 nm inventory in Q2? No. We are cutting 22 nm utilization rates in Q2 in order to keep inventory down, and converting to 14 nm and preparing for 10 nm. Those Q2 products produced will be more expensive than newer products, which will hurt Q3 margins when they sell through.

Question expressed doubts about Q3 and Q4 positive seasonality enough to get up to flat y/y revenue? The real issue is the PC segment. Believes inventories will be quite low at end of Q2, resulting in inventory rebuild in Q3. Due to Windows 10.

Questioner believes tablet sales will fall, along with PCs? We hit our tablet number for Q1, and believe we will see share growth as our new products are introduced. We also expect growth in NAND, IoT, and the datacenter business.

Capital intensity as we move down moore's law, vs. cap ex guidance? There are over 600 million PCs greater than 4 years old, and at some point those systems will flip over. In the long term capital intensity will go up per node. Through 7 nm we can offset some costs by increased density. So our normalized run rates runs around $7 to $8 billion. This year we are benefitting from our confidence in 14 nm, and less PC demand. So 2015 is an unusually low level of cap ex.

NAND business? Most of the NAND we sell goes into datacenters. We have started 3D NAND, which we see as a game changer. We have a great parntership with Micron, and invest through them, into their efficient factory model.

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Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2015 William P. Meyers