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conference date: October 17, 2006
for quarter ending: September 30, 2006 (3rd quarter)
Overview: Revenues increased sequentially, but not year-over-year. Guidance is positive. Pricing pressure due to competition with AMD has lessened.
Basic data:
Revenues were $8.7 billion, up 9% sequentially from the 2nd quarter but down 12% from Q3 2005. Net income of $1.3 billion was up 47% sequentially but down 35% from Q3 2005. Earnings per share were 22 cents. Non-GAAP EPS was given as 27 cents.
Cash and short-term investments improved to $7.8 billion. $600 million paid in dividends.
$17.4 billion for stock buy back remains authorized.
Guidance: Excludes possible acquisitions and dispositions, including division sold to Marvell.
Q4 2006 revenues of $9.1 to $9.7 billion, up 8%. Gross margins near 50%. R&D + MG&A expenses of $2.7 to $2.8 billion.
For 2006 capital spending will total between $5.7 and $5.8 billion. R&D will be $5.9 billion (including about .5 billion in share-based compensation).
Conference Highlights:
Sales were above the midpoint predicted in July. Gained market segment share. Entire product line refreshed. Factories executing extremely well. 45nm development well on track.
Hopes to introduce a new microprocessor architecture every two years.
$100 million write-down of obsolete processor inventory.
Sequentially, total microprocessor units were higher, but ASP (average sale price) was lower. Chip set and motherboard units were higher. Flash units were lower.
Recent event announcements were recapitulated: quad-core server microprocessor release, crossover to 65nm process, Core processors released, WiMax chips, 50 nm NAND Flash memory chip samples.
Mobility group sold record units and gained client PC share.
Desktop remained very competitive; ramped new Core processors. Biggest ad campaign in years.
Comprehensive review of operations had been completed. Will be down to 95,000 employees by end of year, to 92,000 by mid 2007.
Server business was the bright spot with double digit sequential and year-to-year growth. ASPs were higher for servers.
Revenue growth was higher than seasonal averages in Europe, Americas and Japan, but slightly lower in Asia.
Gross margins 49.1% GAAP, 50.3% non-GAAP. Down sequentially due to lower ASPs.
Spending decreased 8% year-over-year. $98 million in restructuring charges including termination of employees.
$145 million sequential increase in inventories. Expect to be slightly lower by end of 4th Q.
Continues to cut costs.
Q&A:
Does gross margin guidance include inventory charges? 45nm startup charges, but no unusual reserves for inventory.
Conroe v. Pressler shipments: will continue to ship low-end chips. Performance desktop ramp is preceding as rapidly as possible.
Operating expenses are now about 30% of sales. Can we make that an assumption? Spending will be flat to slightly down for 2007.
Factory utilization? 90nm will be underloaded, some will convert to newer technology. Does not believe they have excess capacity.
Underload charge? Equals about 2 points of margin when combined with 45nm costs.
Expense cost run rate? Should be about $2 billion lower by mid-2007.
ASPs for next quarter? New products have higher ASPs, pricing pressure seems to be decreasing. Believes Q4 will show improvements over Q3.
NOR flash? Expects to grow in 4th quarter. NAND and NOR development teams have been combined, so they have flexibility to go where demand is. NOR is making good progress. With a little revenue growth and costs dropping this will be a good business.
End market demand? 4th quarter looks seasonally good. Results depend on ramping of Core 2 Duo into notebooks and servers, where margins are better.
Servers? Record quarter for Itanium, which is gaining against Sparc and Power. Regained share with customers like RACK.
As you regain share and competitor (AMD) increases capacity, could that recreate pricing pressure? You need to ask AMD. Intel is in good position because we are ahead with 65 and 45nm technology. The best products sell first.
Microsoft Vista? Vista is not something people are waiting for, but will have a major deployment. Will be adopted more quickly in consumer market than in enterprise.
Conroe did not ship heavily until September because of delay waiting for new integrated graphics chips.
45nm costs? Will have some information in January. Some increase in costs in 1st half of 2007.
Costs? Costs will improve with new products because dies are less expensive.
Centrino is in 3rd generation. 4th generation will add new chipsets.
Viiv is probably suffering from overall consumer market not being as robust as we thought a year ago. But nicely poised for end-of-year sales.
Asia-Pacific competitive dynamics? Desktops very competitive. Conroe had an early and strong channel uptake there. Multinationals were slower.
AMD - ATI combination? Does not change Intel's chipset plans. There was a shortage of 3rd party chip sets last year, so we are planning to increase capacity. Does not know what will happen with discrete graphics chip market.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but its possible. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2006 William P. Meyers