10-QPeriod: Q2 FY2012

INTEL CORP Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 1, 2012For Securities:INTC

Summary

Intel Corporation's (INTC) second quarter and first half of 2012 results show modest revenue growth year-over-year, though the company revised its full-year revenue outlook downwards due to anticipated slower consumer market recovery and moderating growth in emerging markets. For the second quarter, net revenue increased by 4% year-over-year to $13.5 billion, driven by strength in the PC Client Group and Data Center Group. However, operating expenses, particularly R&D and Marketing, General & Administrative (MG&A), saw significant increases, impacting operating income. Despite this, the company maintained a strong gross margin percentage. Intel also announced a significant strategic investment in ASML Holding N.V. to accelerate the development of 450mm wafer technology and EUV lithography. Key financial metrics for the first half of 2012 indicate a 2% revenue increase to $26.4 billion, with strong contributions from the PC Client and Data Center segments, and the acquired McAfee business. While gross margin improved, higher operating expenses and a decrease in earnings per share compared to the prior year warrant investor attention. The company continues to focus on advancing its process technology and strategic investments for future growth.

Financial Highlights

51 data points
Beta

Revenue

$13.50B

63.4% Gross Margin

Net Income

$2.83B

20.9% Net Margin

EPS (Diluted)

$0.54

Total Assets

$72.35B

Cash & Equivalents

$5.22B

Free Cash Flow

$2.08B

Financial Statements
Beta
Revenue$13.50B
Cost of Revenue$4.95B
Gross Profit$8.55B
R&D Expenses$2.51B
SG&A Expenses$2.13B
Operating Expenses$4.72B
Operating Income$3.83B
Interest Expense$21.00M
Net Income$2.83B
EPS (Basic)$0.56
EPS (Diluted)$0.54
Shares Outstanding (Basic)5.02B
Shares Outstanding (Diluted)5.20B

Key Highlights

  • 1Net revenue for Q2 2012 was $13.5 billion, a 4% increase year-over-year, driven by the PC Client Group and Data Center Group.
  • 2Full-year 2012 revenue outlook revised downwards to 3%-5% growth from a previous expectation of high single-digit growth.
  • 3Gross margin percentage improved to 63.4% in Q2 2012 from 60.6% in Q2 2011, indicating improved pricing power and cost management.
  • 4Research and Development (R&D) and Marketing, General & Administrative (MG&A) expenses increased by 27% and 12% respectively in Q2 2012, impacting operating income.
  • 5Intel announced a significant strategic investment of approximately $1.0 billion in R&D funding and $3.1 billion in equity in ASML Holding N.V. to accelerate 450mm wafer and EUV lithography development.
  • 6Diluted earnings per share for Q2 2012 were $0.54, flat compared to Q2 2011, but down from $1.11 in the first half of 2011 to $1.07 in the first half of 2012.
  • 7The company generated $7.7 billion in cash from operating activities in the first half of 2012 and returned $1.1 billion to stockholders via dividends in Q2 2012, while also repurchasing $1.1 billion in stock.

Frequently Asked Questions

Intel revised its full-year 2012 revenue outlook downwards to 3% to 5% growth, a decrease from the previously expected high single-digit growth. This revision is attributed to anticipated customer inventory management due to a slower-than-expected recovery of consumer market growth in Western Europe and North America, moderating growth in emerging markets (particularly China and Brazil), and the timing of Microsoft's Windows 8 operating system launch.

The PC Client Group (PCCG) saw a 4% revenue increase driven by higher notebook volume, while the Data Center Group (DCG) experienced a 15% revenue increase due to strong demand for server platforms. However, the 'Other Intel Architecture Operating Segments' experienced a 20% revenue decline, primarily due to lower average selling prices in the Intel Mobile Communications (IMC) business. Software and Services revenue increased by $75 million, largely driven by the McAfee business.

Intel's agreements with ASML Holding N.V. involve significant R&D funding (€829 million) and equity investment (€2.5 billion) over five years. The primary goal is to accelerate the development of 450mm wafer technology and extreme ultra-violet (EUV) lithography. This strategic move aims to shorten the deployment schedule for this advanced technology by up to two years, potentially leading to significant cost savings and productivity improvements in future semiconductor manufacturing.

Operating expenses, particularly Research and Development (R&D) and Marketing, General & Administrative (MG&A), saw substantial increases in the second quarter of 2012. R&D spending rose by 27% year-over-year, driven by costs associated with next-generation 14nm process technology, 450mm wafer development, and increased headcount. MG&A expenses increased by 12% due to higher marketing initiatives and compensation. While these investments are crucial for future innovation, they have put pressure on operating income.