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conference date: April 17, 2007 at 2:30 PM
for quarter ending: March 31, 2006 (1st quarter)
Overview: Expected seasonal weakness. Very confident about competition with AMD.
Basic data:
$8.9 billion revenue was down 9% sequentially, and down 1% year-over year.
Net income of $1.6 billion, up 7% sequentially and up 19% from Q1 2006.
EPS $0.27 per share, up 4% sequentially and 17% year-over-year.
Cash and equivalents at $8.6 billion, down $1 billion sequentially.
Guidance:
Revenue $8.2 to $8.8 billion in typically seasonally slow Q2. Gross margins 48% plus or minus 2% due to startup costs and pricing.
Manufacturing startup costs will be concentrated in first half of year. So gross margins will improve to 52% to 54% in secong half. $5.6 billion in R&D spending for full year. Tax rate expected at 31%.
Conference Highlights:
Business remains competitive. Need to continue to generate new products while cutting costs.
Total microprocessor units were sequentially lower and prices (ASPs) were slightly lower due mainly to server ASPs. Chipset, motherboard and flash were also lower sequentially.
Quad core shipments doubled. Needs to maintain scale to innovate quickly and keep unit costs lower. 45 nm process will be introduced earlier this year. All products now at 65 nm.
Nahalem (sp?) 45 nm architecture will continue momentum in 2008. OEM customers are receiving Santa Rosa processors for launch in May.
Gross margins at 50.1% was better than expected and will improve significantly. Spending was cut by $0.5 billion over year-earlier.
Pricing was down but better than expected for microprocessors but unit costs for microprocessors was lower.
Digital enterprise group revenue was down.
Employees down by 11% or 11,000 year-over-year, to 92,000.
Inventories flat.
Spent $400 million on stock repurchases.
Q&A:
ASPs held up well, but for new products? Will continue to see competitive product environment. As product differentiation improves pricing by competitor [AMD] won't matter so much.
Margins? From Q4 to Q1 margins were up slightly. With 9% revenue drop you would expect margins to be down. But unit production costs were cut enough to make up for the revenue drop. 1% was due to sale of product that was previously reserved. Increased startup costs cost 3% of gross margins.
Revenue outlook for Q2, 4% down is a bit more than seasonal? Average seasonal is between 3 and 4. Still some overhang out there. Flash business has been a struggle and still is competitive.
NOR flash business? Profits eluded us in that business in Q1. Focusing to general purpose products rather than OEM.
Resale channel? A very strong quarter in channel in Q1 [compare to AMD, which did poorly].
45 nm gross margin impacts? Eventually will have good cost envelopes, but not ready to make specific predictions.
Inventory build for second half? For Q2 up modestly. Would like to keep it flat.
Pricing for notebooks and Conroes? Agregate ASPs for notebooks and desktops was flat. Some mix shift and core 2 duo is further adopted. Price moves are always scheduled in to move most advanced technology through stack. Average price depends on ability to drive demand to the newer products.
Inventory reserves? Forecast assumes no additional inventory reserves.
Market share? Believes Intel will be pleased when the data rolls in.
Virtualization and multiple processor impact? Quad core dual processors essentially make an 8 way. So multiple processor servers are declining. Server demand over 3 or 4 years: problem is deploying sufficient capacity. Believes will see significant server growth between now and 2010.
Vista? In corporate space deployment will not start until Q4. They are buying Vista ready machines to get ready for deployment. Almost all new consumer products are running Vista.
Differention color? Mainly performance and performance per what. Moving to new platform technologies. Like new graphics engines, LAN, etc.
AMD Barcelona impact? Yet to see a demo of Barcelona. Will be able to maintain competitive lead, even though it will be a more competive product. Will maintain lead in all segments all year.
OEM business color? Systems integrators are very innovative and competitive. They have moved rapidly to Intel and we plan to continue to serve them. OEM business not weak.
NAND flash? Still in investment stage of business. Pricing environment in last 3 quarters has been extremely competitive, but prices have firmed up in the last 6 weeks. Business appears to have right long term value to continue to invest in it.
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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 it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers
