10-QPeriod: Q3 FY2006

INTEL CORP Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 3, 2006For Securities:INTC

Summary

Intel Corporation reported its third-quarter 2006 financial results, showing a year-over-year revenue decline of 12% to $8.7 billion, primarily driven by a significant decrease in microprocessor average selling prices. Despite the revenue dip, the company's gross margin held relatively steady on a non-GAAP basis when excluding share-based compensation. Operating income saw a substantial decline compared to the previous year, impacted by lower revenue and increased R&D and marketing expenses, though the company is undergoing a restructuring initiative aimed at future cost savings. Notable financial activities during the quarter include a $600 million investment in Clearwire Corporation, a WiMAX network provider, as part of Intel's strategy to support wireless technology development. The company also continued its share repurchase program, buying back $500 million in common stock and declaring a dividend of $0.20 per share. Intel is actively managing its cost structure through a significant restructuring plan expected to yield substantial savings in the coming years.

Key Highlights

  • 1Net revenue for Q3 2006 decreased by 12% year-over-year to $8.7 billion, largely due to lower microprocessor average selling prices.
  • 2Gross margin percentage declined to 49.1% from 59.7% in Q3 2005, impacted by pricing and cost of sales.
  • 3Operating income decreased significantly by 56% year-over-year to $1.37 billion.
  • 4The company recorded $98 million in restructuring charges related to employee severance and benefit arrangements, expecting significant annual cost savings.
  • 5Intel made a strategic investment of $600 million in Clearwire Corporation to support WiMAX network development.
  • 6Share-based compensation expense, adopted in Q1 2006 under SFAS No. 123(R), totaled $335 million in Q3 2006, compared to zero in Q3 2005.
  • 7Cash and cash equivalents decreased to $4.47 billion from $7.32 billion at the beginning of the year, reflecting significant investing and financing activities.

Frequently Asked Questions

Intel reported net revenue of $8.7 billion, a 12% decrease compared to the same period in 2005. Gross margin was $4.3 billion, and operating income was $1.37 billion. Diluted earnings per share were $0.22.

Intel adopted SFAS No. 123(R) in Q1 2006. For Q3 2006, share-based compensation accounted for $335 million in expenses, impacting cost of sales, R&D, and SG&A. This resulted in a $0.05 reduction in diluted EPS compared to the prior year when no such expense was recognized.

Intel made a strategic investment of $600 million in Clearwire Corporation, a provider of wireless high-speed internet, as part of its strategy to support WiMAX network development. The company also completed two divestitures and has a third pending, as part of a broader restructuring plan aimed at improving operational efficiency.

Intel is implementing a restructuring plan designed to improve operational efficiency, which includes employee severance and benefit arrangements. The company incurred $98 million in restructuring charges in Q3 2006 and expects to record additional charges in Q4 2006 and 2007, totaling approximately $255 million in the next 12 months, which are estimated to result in significant annual cost savings.