Intel Reports Fifth Consecutive Quarter of Record Revenue

Intel Corporation today reported its fifth consecutive quarter of record revenue, with double-digit revenue growth across all business segments.

On a Non-GAAP basis, revenue was $13.1 billion, operating income was $4.2 billion, net income was $3.2 billion, and EPS was 59 cents. On a GAAP basis, the company reported second-quarter revenue of $13.0 billion, operating income of $3.9 billion, net income of $3.0 billion, and EPS of 54 cents.

The company generated approximately $4.0 billion in cash from operations, paid cash dividends of $961 million, and used $2.0 billion to repurchase 93 million shares of common stock.

"We achieved a significant new milestone in the second quarter, surpassing $13.0 billion in revenue for the first time,” said Paul Otellini, Intel president and CEO. "Strong corporate demand for our most advanced technology, the surge of mobile devices and Internet traffic fueling data center growth, and the rapid rise of computing in emerging markets drove record results. Intel’s 23 percent revenue growth in the first half and our increasing confidence in the second half of 2011 position us to grow annual revenue in the mid-20 percent range.”

Non-GAAP results exclude certain acquisition accounting impacts and expenses related to acquisitions and the related income tax effects of these charges.

Q2 2011 Key Financial Information (GAAP)

• Business unit trends:

• PC Client Group revenue up 11 percent year-over-year.
• Data Center Group revenue up 15 percent year-over-year.
• Other Intel architecture group revenue up 84 percent year-over-year, including Embedded & Communications Group revenue up 25 percent year-over-year.
• Intel® Atom™ microprocessor and chipset revenue of $352 million, down 15 percent year-over-year.

• The acquisitions of McAfee Inc. and Infineon Wireless Solutions (now Intel Mobile Communications) contributed revenue of $1.0 billion in their first full-quarter of results.
• The platform average selling price (ASP) was approximately flat sequentially and up year-over-year.
• Gross margin was 61 percent, consistent with the company’s expectation.
• R&D plus MG&A spending was $3.9 billion, consistent with the company’s expectation.
• Net loss of $4 million from equity investments and interest and other, versus the company’s expectation of a $50 million net gain.
• The effective tax rate was 25 percent, below the company’s expectation of 29 percent.
• The company used $2.0 billion to repurchase 93 million shares of common stock.
• The second quarter of 2011 had 13 weeks of business, while the first quarter of 2011 had 14 weeks.

Business Outlook

Intel’s Business Outlook does not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed after July 20.

Q3 2011 (GAAP, unless otherwise stated)

• Revenue: $14.0 billion, plus or minus $500 million.
• Non-GAAP revenue: $14.1 billion, plus or minus $500 million, excluding certain acquisition-related accounting impacts.
• Gross margin percentage: 64 percent, plus or minus a couple percentage points.
• Non-GAAP gross margin percentage: 65 percent plus or minus a couple percentage points, excluding certain accounting impacts and expenses related to acquisitions.
• R&D plus MG&A spending: approximately $4.3 billion.
• Amortization of acquisition-related intangibles: approximately $75 million.
• Impact of equity investments and interest and other: gain of approximately $100 million.
• Depreciation: approximately $1.3 billion.

Full-Year 2011 (GAAP, unless otherwise stated)

• Gross margin percentage: 63 percent, plus or minus a couple percentage points, unchanged.
• Non-GAAP gross margin percentage: 64 percent, plus or minus a couple percentage points, excluding certain accounting impacts and expenses related to acquisitions, unchanged.
• Spending (R&D plus MG&A): $16.2 billion, plus or minus $200 million, up from the company’s previous expectation of $15.7 billion, plus or minus $200 million.
• Amortization of acquisition-related intangibles: approximately $260 million, unchanged.
• Tax rate: approximately 28 percent for the third and fourth quarters, below the company’s previous expectation of 29 percent.
• Depreciation: $5.2 billion, plus or minus $100 million, up from the company’s previous expectation of $5.0 billion, plus or minus $100 million.
• Capital spending: $10.5 billion, plus or minus $400 million, up from the company’s previous expectation of $10.2 billion, plus or minus $400 million.
• 2011 will have 53 weeks of business versus the typical 52 weeks.

For additional information regarding Intel’s results and Business Outlook, please see the CFO commentary at: www.intc.com/results.cfm.

Status of Business Outlook

Intel’s Business Outlook is posted on intc.com and may be reiterated in public or private meetings with investors and others. The Business Outlook will be effective through the close of business Sept. 16 unless earlier updated; except that the Business Outlook for amortization of acquisition-related intangibles, impact of equity investments and interest and other, and tax rate, will be effective only through the close of business on July 27. Intel’s Quiet Period will start from the close of business on Sept. 16 until publication of the company’s third-quarter earnings release, scheduled for Oct. 18. During the Quiet Period, all of the Business Outlook and other forward looking statements disclosed in the company’s news releases and filings with the SEC should be considered as historical, speaking as of prior to the Quiet Period only, and not subject to an update by the company.

Risk Factors

The above statements and any others in this document that refer to plans and expectations for the third quarter, the year and the future are forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates,” "expects,” "intends,” "plans,” "believes,” "seeks,” "estimates,” "may,” "will,” "should” and their variations identify forward-looking statements. Statements that refer to or are based on projections, uncertain events or assumptions also identify forward-looking statements. Many factors could affect Intel’s actual results, and variances from Intel’s current expectations regarding such factors could cause actual results to differ materially from those expressed in these forward-looking statements. Intel presently considers the following to be the important factors that could cause actual results to differ materially from the company’s expectations.

• Demand could be different from Intel's expectations due to factors including changes in business and economic conditions, including supply constraints and other disruptions affecting customers; customer acceptance of Intel’s and competitors’ products; changes in customer order patterns including order cancellations; and changes in the level of inventory at customers.
• Intel operates in intensely competitive industries that are characterized by a high percentage of costs that are fixed or difficult to reduce in the short term and product demand that is highly variable and difficult to forecast. Revenue and the gross margin percentage are affected by the timing of Intel product introductions and the demand for and market acceptance of Intel's products; actions taken by Intel's competitors, including product offerings and introductions, marketing programs and pricing pressures and Intel’s response to such actions; and Intel’s ability to respond quickly to technological developments and to incorporate new features into its products.
• The gross margin percentage could vary significantly from expectations based on capacity utilization; variations in inventory valuation, including variations related to the timing of qualifying products for sale; changes in revenue levels; product mix and pricing; the timing and execution of the manufacturing ramp and associated costs; start-up costs; excess or obsolete inventory; changes in unit costs; defects or disruptions in the supply of materials or resources; product manufacturing quality/yields; and impairments of long-lived assets, including manufacturing, assembly/test and intangible assets.
• Expenses, particularly certain marketing and compensation expenses, as well as restructuring and asset impairment charges, vary depending on the level of demand for Intel's products and the level of revenue and profits.
• The tax rate expectation is based on current tax law and current expected income. The tax rate may be affected by the jurisdictions in which profits are determined to be earned and taxed; changes in the estimates of credits, benefits and deductions; the resolution of issues arising from tax audits with various tax authorities, including payment of interest and penalties; and the ability to realize deferred tax assets.
• Gains or losses from equity securities and interest and other could vary from expectations depending on gains or losses on the sale, exchange, change in the fair value or impairments of debt and equity investments; interest rates; cash balances; and changes in fair value of derivative instruments.
• The majority of Intel’s non-marketable equity investment portfolio balance is concentrated in companies in the flash memory market segment, and declines in this market segment or changes in management’s plans with respect to Intel’s investments in this market segment could result in significant impairment charges, impacting restructuring charges as well as gains/losses on equity investments and interest and other.
• Intel's results could be affected by adverse economic, social, political and physical/infrastructure conditions in countries where Intel, its customers or its suppliers operate, including military conflict and other security risks, natural disasters, infrastructure disruptions, health concerns and fluctuations in currency exchange rates.
• Intel’s results could be affected by the timing of closing of acquisitions and divestitures.
• Intel's results could be affected by adverse effects associated with product defects and errata (deviations from published specifications), and by litigation or regulatory matters involving intellectual property, stockholder, consumer, antitrust and other issues, such as the litigation and regulatory matters described in Intel's SEC reports. An unfavorable ruling could include monetary damages or an injunction prohibiting us from manufacturing or selling one or more products, precluding particular business practices, impacting Intel’s ability to design its products, or requiring other remedies such as compulsory licensing of intellectual property.

A detailed discussion of these and other factors that could affect Intel’s results is included in Intel’s SEC filings, including the report on Form 10-Q for the quarter ended April 2, 2011.

Earnings Webcast

Intel will hold a public webcast at 2:30 p.m. PDT today on its Investor Relations web-site at www.intc.com. A webcast replay and MP3 download will also be made available on the site.

Intel plans to report its earnings for the third quarter of 2011 on Tuesday, Oct. 18, 2011. Immediately following the earnings report, the company plans to publish a commentary by Stacy J. Smith, vice president and chief financial officer, at www.intc.com/results.cfm. A public webcast of Intel’s earnings conference call will follow at 2:30 p.m. PDT at www.intc.com.

Intel (NASDAQ: INTC) is a world leader in computing innovation. The company designs and builds the essential technologies that serve as the foundation for the world’s computing devices. Additional information about Intel is available at newsroom.intel.com and blogs.intel.com.

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