10-QPeriod: Q1 FY2007

INTEL CORP Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 3, 2007For Securities:INTC

Summary

Intel Corporation reported net revenue of $8.85 billion for the first quarter of 2007, a slight decrease from $8.94 billion in the prior year's first quarter. While overall revenue was flat, this masked a notable shift in segment performance, with the Digital Enterprise Group seeing a revenue decline and the Mobility Group experiencing growth. Despite flat revenue, Intel's profitability was impacted by a decrease in gross margin to 50.1% from 55.3% year-over-year, primarily driven by declines in the Digital Enterprise and Flash Memory Groups. However, operating expenses were reduced significantly due to headcount reduction and efficiency efforts. The company also saw a substantial improvement in its effective income tax rate due to a settlement with the IRS. Diluted earnings per share rose to $0.28 from $0.23 in the prior year.

Key Highlights

  • 1Net revenue for Q1 2007 was $8.85 billion, down slightly from $8.94 billion in Q1 2006.
  • 2Gross margin percentage decreased to 50.1% in Q1 2007 from 55.3% in Q1 2006, impacting overall profitability.
  • 3Operating expenses were reduced by $677 million year-over-year, driven by lower R&D and M, G&A spending, and headcount reductions.
  • 4Diluted earnings per share increased to $0.28 in Q1 2007 from $0.23 in Q1 2006.
  • 5The company repurchased $400 million in common stock during the quarter, compared to $2.9 billion in the prior year's quarter, and declared a dividend of $0.225 per share.
  • 6Significant investments were made in new fabrication facilities in China and Vietnam, and retooling of a New Mexico facility.
  • 7Restructuring and asset impairment charges totaled $75 million in Q1 2007, primarily related to employee severance and an underperforming facility.

Frequently Asked Questions

The primary driver for the decrease in gross margin percentage to 50.1% from 55.3% year-over-year was the gross margin decline in the Digital Enterprise Group and the Flash Memory Group operating segments. This was attributed to factors such as lower average selling prices and higher start-up costs for new technologies.

Intel significantly reduced operating expenses through efficiency initiatives, including a reduction in headcount from 103,300 to 91,800 employees. Research and development spending decreased by 10% and marketing, general and administrative expenses decreased by 22% year-over-year.

A settlement with the U.S. Internal Revenue Service (IRS) resulted in a significant tax benefit. Intel recorded a $326 million tax benefit in the first quarter of 2007, which substantially lowered its effective income tax rate for the period.

Intel's cash position decreased during the quarter as cash used for investing and financing activities exceeded operating cash flow. The company returned $400 million to stockholders via share repurchases and $650 million through dividends. Capital expenditures are planned at approximately $5.5 billion for the full year 2007, supporting investments in new manufacturing facilities.