Analyst Conference Summary

semiconductor technology

conference date: April 27, 2017 @ 2:00 PM Pacific Time
for quarter ending: April 1, 2017 (Q1; first quarter 2017)

Forward-looking statements

Overview: Solid revenue growth and super profit growth based on IoT and new memory products.

Basic data (GAAP):

Revenue was $14.8 billion, down 10% sequentially from $16.4 billion and up 8% from $13.7 billion year-earlier.

Net income was $3.0 billion, down 16% sequentially from $3.56 billion, and up 50% from $2.0 billion year-earlier.

GAAP EPS (diluted) was $0.61, down 16% sequentially from $0.73, but up 45% from $0.42 year-earlier.

Guidance:

For Q2 2017 revenue $14.4 billion +/- $0.5 billion. EPS $0.53 GAAP, $0.68 non-GAAP, +/- $0.05.

For full year 2017, revenue approximately $60 billion. EPS $2.56 GAAP, $2.85 non-GAAP, +/- 5%.

Conference Highlights:

Brian Krzanich, CEO said “The ASP strength we saw across nearly every segment of the business demonstrates continued demand for high-performance computing, which will only increase with the explosion of data."

Non-GAAP numbers: Net income $3.2 billion, down 18% sequentially from $3.9 billion, but up 23% from $2.6 billion year-earlier. Diluted EPS $0.66, down 16% sequentially from $0.79 and up 22% from $0.54 year-earlier. [Intel usually only gives GAAP numbers. They gave non-GAAP numbers this quarter to account for the Altera acquisition.] 63.2% gross margin.

Client Computing group revenue was $8.0 billion, down 12% sequentially from $9.1 billion, and up 6% from year-earlier. ASP was up 7% on richer mix. Expects mid-single digit TAM decline in 2017, offset by higher ASPs. Operating profit grew over 60% y/y, partly from 14 nm unit cost decrease.

Data Center group revenue was $4.2 billion, down 10% sequentially from $4.67 billion, and up 6% from $ billion year-earlier. Enterprise was down 3%, while cloud was up. Skylake will be launched this summer, with improved (2x) floating point calculations. $1.5 billion operating profit, down 16% y/y, due to cost allocation shift vs. Client group.

Internet of Things group revenue was $721 million, down 1% sequentially from $726 million, and up 11% from $ million year-earlier. Industrial, video, and auto demand were all up. Expects to be the global leader in autonomous driving. $105 million operating profit.

Memory segment (NAND) had revenue of $866 million, up 6% sequentially from $816 million and up 55% from year-earlier. 3D Crosspoint memory is now Optane. Demand outpaced supply. Operating loss of $129 million due to startup costs for new capacity.

Security Group was spun off on April 3, called McAfee, in joint venture with TPG Capital. Revenue was $534 milion, down 1% y/y. $95 million operating profit.

Programmable Solutions Group (formerly Altera) revenue was $425 million, up 1% sequentially from $420 million. Up 18% from year-earlier when it was Altera, except down 7% y/y after adjustment of Q1, 2016. This was due to datacenter segment weakness. $92 million operating profit, flat y/y.

GAAP gross margin was 61.8%, up sequentially from 61.7%, and up from 59.3% year-earlier.

Cash and equivalents balance $17.3 billion, up sequentially from $17.1 billion. $3.9 billion cash from operations. $1.2 billion used for stock repurchases. $1.2 billion was paid out in dividends. Debt about $25.8 billion. Capital expense was $2 billion. $397 million share-based compensation. Buyback additional authorization of $10 billion made.

Cost of sales was $5.65 billion, leaving $9.15 billion in gross profit. R&D expense was $3.33 billion. Marketing general and administrative was $2.10 billion. With restructuring of $80 million and amortization of $38 million, total operating expense came to $5.55 billion. Leaving operating income of $3.60 billion. Gain on equity investment was $252 million. Interest and other expense was $36 million. Tax provision about $851 million.

Goal is to transform the company from PC-centric to device and cloud enabled.

Q&A:

Datacenter growth rate issues? We are still committed to high single digit growth for the year. This year Q1 was 1 week less than in 2016, and is always seasonally low.

AMD competition? Each quarter we say we are concerned about the high ASPs. Guidance assumes a slight decline. But we are continuing to improve our roadmap, and the demand for our high-end products remains very high. We are not seeing any unusual competition for Q1 or Q2.

30% op ex goal for 2020? We had good progress in 2016 and in Q1 2017. It is about driving efficiencies while driving growth.

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