Analyst Conference Summary

conference date: October 14, 2014
for quarter ending: September 30, 2014 (third quarter 2014)

Forward-looking statements

Overview: Record revenue shows Intel is still a semiconductor leader.

Basic data (GAAP):

Revenue was $14.6 billion, up 5% sequentially from $13.8 billion and up 8% from $13.5 billion year-earlier.

Net income was $3.3 billion, up 19% sequentially from $2.8 billion and up 10% from $3.0 billion year-earlier.

GAAP EPS was $0.66, up 20% sequentially from $0.55 and up 14% from $0.58 year-earlier.

Guidance:

Q4 revenue between $14.2 and $15.2 billion, with gross margin in the 64% ballpark, about $45 million in restructuring charges, $65 million for acquisition related amortization, other income of $175 million, and $1.9 billion of depreciation. 28% tax rate.

Conference Highlights:

"The worldwide PC supply chain appears to be healthy, with inventory levels appropriate in anticipation of the fourth quarter retail cycles." Results were consistent with Intel's expectations. Shipped over 100 million devices for the first time.

PC Client group revenue was $9.2 billion, up 9% y/y despite average selling prices (ASPs) down 5% y/y. Within the group Desktop units were up 6% and ASPs were up 2%. Notebook units were up 21% but ASPs down 10%. Core M products launched and systems will soon be available.

Data Center group revenue was $3.7 billion, up 16% y/y on units up 6% and ASPs up 9%. Led by HPC and cloud service providers. E5 product launched. Making custom sku's for customers, which is also driving growth.

Internet of Things group revenue was $530 million, up 14% y/y.

Mobile and Communications group had revenue of $1 million, down 100% y/y. Claims 15 million tablet volume in quarter. $1 billion of operating loss for this group. [WPM: $ million be a misprint? Can't they give away mobile processors? Down 98% from Q2, so must have claimed revenue in q2 for tablets that shipped in Q3. See second question below for contra-dollar accounting]

Software and Services had revenue of $558 million, up 2% y/y.

Other segments had revenue of $575 million, up 14% y/y.

14 nm yields improved, but are behind targets. Plans to lead the world to 10 nm.

$5.7 billion cash from operations. Over $4 billion used for stock repurchases.

Q&A:

Units in PC client group, what is driving growth against a flat market? Third party data needs adjusting for other form factors. We gained share in Q2, we probably continued to gain share in Q3. Our customers are putting in place a normal supply line; last year they were managing inventories low.

Mobile and Communications lack of profitability, trend? Our products and engineering are ahead of the financials. We have been figuring out how to get into this market. We brought out the Bay Trail cost-reduced part, which are beginning to show up in systems. Sophia, 3G version should be out by the end of the year, and LTE version early next year. Cost efficiency is very important in this ecosystem. Sometime in 2015 the contra-revenue should start being driven out of the system as Sophia is introduced. But we won't be profitable next year.

Q4 seasonality? We have not been building ahead for q4, just building appropriately for normal Q4 expectations. We are guiding 1% up from Q3, which is normal for the last few years.

Margins should improve a bit in Q4 because more of the 14 nm costs were in Q3.

Cloud spend? Cloud space does tend to be lumpy, but we are projecting 15% y/y growth, which is our expected growth rate.

Consumer demand, effect of iPhone 6 on consumers' ability to spend in Q4? We are predicting a typical seasonal Q4. We don't see an impact from iPhone 6, it does not compete with PCs. We saw only moderate consumer demand in Q3, just a bit of market share gain and inventory build at the end market.

Profitability of core PC Client group? This year we have a great product portfolio, with i5 and i7 good plus ability to sell units at low end of market due to 22 nm advantage.

Are you getting beyond tablet cannibalization? No, just some seasonal growth. Mature markets are stronger than emerging markets, which are still soft.

IDC classes CPU sales categories somewhat differently than Intel, which counts the Surface Pro as a client, not a mobile device.

We are comfortable with our current inventory, and can adjust it in either direction if necessary. We are predicting a standard consumer PC holiday season, neither strong nor weak.

After the Microchip (negative) announcement we did check on end demand and there was nothing unusual out there.

Mobile strategy currently as mainly about partnering with companies that can sell through. It also adds IP that can be used in other spaces.

We should get past our 40 million tablet shipments for the year, but not likely to get much past that. We subsidize this space, which is the contra-income. Net revenue should be around the same in the mobile space as Q3.

Tablets, Android vs. Windows? Mix played out as we forecast, about 80% Android.

XP upgrade cycle the only growth driver? We see a number of things driving the buys, including the age of computers, form factors, and pricing, not just the need to upgrade Windows.

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