10-QPeriod: Q2 FY2015

INTEL CORP Quarterly Report for Q2 Ended Jun 27, 2015

Filed July 27, 2015For Securities:INTC

Summary

Intel Corporation's second-quarter 2015 10-Q filing reveals a mixed financial performance with a notable decline in revenue and operating income compared to the prior year's quarter. While the company experienced a revenue decrease driven primarily by weaker demand in the Client Computing Group (CCG), particularly for desktop and notebook platforms, it saw growth in its Data Center Group (DCG) and Internet of Things Group (IOTG). A significant development during the quarter was Intel's announcement of its definitive agreement to acquire Altera Corporation for approximately $16.7 billion, aiming to bolster its presence in the data center and IoT markets. The company also highlighted its ongoing strategic transformation, with growth segments like DCG, IOTG, and Non-Volatile Memory Solutions Group contributing substantially to revenue and operating profit. Intel is actively managing its operational efficiency, evidenced by a reduction in capital expenditures for 2015 and ongoing restructuring programs aimed at realigning resources. Despite the revenue headwinds, the company generated strong operating cash flow and maintained a healthy cash position, supporting its dividend payouts and share repurchase activities.

Financial Highlights

55 data points
Beta

Revenue

$13.20B

62.5% Gross Margin

Net Income

$2.71B

20.5% Net Margin

EPS (Diluted)

$0.55

Total Assets

$90.49B

Cash & Equivalents

$4.45B

Free Cash Flow

$1.67B

Financial Statements
Beta
Revenue$13.20B
Cost of Revenue$4.95B
Gross Profit$8.25B
R&D Expenses$3.09B
SG&A Expenses$1.95B
Operating Expenses$5.35B
Operating Income$2.90B
Interest Expense$53.00M
Net Income$2.71B
EPS (Basic)$0.57
EPS (Diluted)$0.55
Shares Outstanding (Basic)4.76B
Shares Outstanding (Diluted)4.91B

Key Highlights

  • 1Net revenue for Q2 2015 was $13.2 billion, a decrease of 5% compared to Q2 2014, primarily due to lower demand in the Client Computing Group (CCG).
  • 2Operating income decreased by 25% year-over-year to $2.9 billion, impacted by lower gross margins and increased R&D spending.
  • 3Intel announced a definitive agreement to acquire Altera Corporation for approximately $16.7 billion, a strategic move to enhance its data center and IoT offerings.
  • 4The Data Center Group (DCG) showed resilience with a 10% increase in net revenue, driven by growth in cloud computing and networking infrastructure.
  • 5Restructuring charges increased significantly to $250 million in Q2 2015, primarily related to workforce reductions under a new 2015 restructuring program.
  • 6Capital expenditures for 2015 were revised downwards by $1.0 billion to $7.7 billion, reflecting manufacturing efficiencies and a strategic shift in next-generation process technology.
  • 7The company ended the quarter with a strong liquidity position, including $13.9 billion in cash, cash equivalents, short-term investments, and trading assets.

Frequently Asked Questions

Intel's net revenue for Q2 2015 was $13.2 billion, a decrease of 5% compared to $13.8 billion in Q2 2014. This decline was primarily attributed to lower unit sales in the Client Computing Group (CCG), specifically in desktop and notebook platforms, due to challenging macroeconomic conditions and a weaker PC market. This was partially offset by growth in the Data Center Group (DCG) and the Non-Volatile Memory Solutions Group.

Intel announced its agreement to acquire Altera Corporation for approximately $16.7 billion in an all-cash transaction. This strategic acquisition is expected to enhance Intel's capabilities in the data center and Internet of Things (IoT) markets by combining Intel's products and manufacturing prowess with Altera's leading field-programmable gate array (FPGA) technology. The deal is subject to regulatory and shareholder approvals.

Operating income for Q2 2015 was $2.9 billion, a 25% decrease from $3.8 billion in Q2 2014. This decline was largely due to a lower gross margin percentage (62.5% in Q2 2015 vs. 64.5% in Q2 2014), driven by higher platform unit costs and lower platform unit sales, particularly in CCG. Increased Research and Development (R&D) spending also contributed to the lower operating income. However, a significantly lower effective tax rate (9.3% in Q2 2015 vs. 28.7% in Q2 2014), due to a tax refund claim and a decision to indefinitely reinvest foreign earnings, helped mitigate the impact on net income, which decreased by only 3%.

For Q3 2015, Intel forecasts revenue midpoint of $14.3 billion, an 8% increase from Q2 2015, with gross margin midpoint expected at 63%. For the full year 2015, the company now expects revenue to be down approximately 1% from 2014, revising its PC market outlook downwards. Despite this, robust growth is still expected in DCG, IOTG, and Non-Volatile Memory Solutions Group to offset the decline in CCG. Capital spending for the full year 2015 is forecast to be $7.7 billion, down $1.0 billion from previous expectations, reflecting manufacturing efficiencies and strategic adjustments to next-generation process technology.