10-QPeriod: Q3 FY2015

INTEL CORP Quarterly Report for Q3 Ended Sep 26, 2015

Filed October 28, 2015For Securities:INTC

Summary

Intel Corporation (INTC) reported its third-quarter and year-to-date results for the period ending September 25, 2015. For the third quarter, net revenue was $14.465 billion, flat compared to the prior year. However, gross margin decreased to 63.0% from 65.0% year-over-year, impacting operating income, which fell by 8% to $4.192 billion, and net income, which decreased by 6% to $3.109 billion. Year-to-date, net revenue declined 2% to $40.441 billion, with a similar trend in gross margin and operating income. Despite a challenging PC market, Intel saw growth in its Data Center Group and IoT Group segments. The company also announced its intention to acquire Altera Corporation for approximately $16.7 billion, a significant strategic move aimed at strengthening its position in the data center and IoT markets. Cash flow from operations remained strong at $13.590 billion year-to-date, providing ample liquidity. Intel continued to return capital to shareholders through dividends and share repurchases. The company ended the period with a robust cash position of $20.8 billion, including cash, short-term investments, and trading assets, bolstered by new debt issuance to help finance the pending Altera acquisition. This filing highlights Intel's efforts to navigate a shifting market landscape, emphasizing growth in new areas while managing the decline in its traditional PC segment.

Financial Highlights

56 data points
Beta

Revenue

$14.46B

63.0% Gross Margin

Net Income

$3.11B

21.5% Net Margin

EPS (Diluted)

$0.64

Total Assets

$98.55B

Cash & Equivalents

$7.07B

Free Cash Flow

$4.53B

Financial Statements
Beta
Revenue$14.46B
Cost of Revenue$5.35B
Gross Profit$9.11B
R&D Expenses$2.93B
SG&A Expenses$1.91B
Operating Expenses$4.92B
Operating Income$4.19B
Interest Expense$116.00M
Net Income$3.11B
EPS (Basic)$0.65
EPS (Diluted)$0.64
Shares Outstanding (Basic)4.75B
Shares Outstanding (Diluted)4.88B

Key Highlights

  • 1Q3 2015 net revenue was $14.465 billion, flat year-over-year, driven by stable platform average selling prices despite lower unit sales in the Client Computing Group.
  • 2Gross margin declined to 63.0% in Q3 2015 from 65.0% in Q3 2014, primarily due to higher platform unit costs and lower unit sales.
  • 3Data Center Group (DCG) achieved record net revenue and showed strong year-over-year growth of 12% in Q3 2015, indicating continued expansion in cloud and enterprise markets.
  • 4Intel announced a definitive agreement to acquire Altera Corporation for approximately $16.7 billion, a significant move to enhance its presence in the FPGA and data center solutions market.
  • 5Year-to-date net cash provided by operating activities was $13.590 billion, demonstrating strong operational cash generation.
  • 6The company ended Q3 2015 with $20.8 billion in cash, cash equivalents, short-term investments, and trading assets, providing substantial financial flexibility.
  • 7Restructuring charges of $367 million were incurred in the first nine months of 2015, reflecting ongoing efforts to optimize operations and align resources.

Frequently Asked Questions

For Q4 2015, Intel forecasted revenue midpoint of $14.8 billion, up 2% from Q3 2015, with a gross margin midpoint of 62%. For the full year 2015, they expected capital spending midpoint of $7.3 billion. While Data Center Group (DCG) and Internet of Things Group (IOTG) were expected to show strong growth, the annual growth rate for these businesses was projected to be lower than initially expected due to weaker macroeconomic growth, with DCG expected to grow in the low double digits.

The decrease in gross margin, both for the quarter and year-to-date, was primarily attributed to higher platform unit costs as 14nm products became a larger proportion of sales. Additionally, lower platform unit sales and the period charge treatment of 14nm production costs in Q3 2014 also contributed to the decrease compared to the prior year.

Intel intends to finance the acquisition of Altera, valued at approximately $16.7 billion, through a combination of long-term debt issuance (including $8.0 billion of senior unsecured notes issued in Q3 2015) and existing cash and investments.

The Client Computing Group (CCG) saw a year-over-year revenue decrease due to lower unit sales, although average selling prices increased. The Data Center Group (DCG) showed strong revenue growth, driven by the cloud computing market. The Internet of Things Group (IOTG) also experienced revenue growth. Software and Services operating segments revenue was relatively flat.