01—Abstract
Summary
Summary of the 10-Q filed August 1, 2016. Cited figures are marked; the original filing is the authoritative source.
Intel Corporation (INTC) reported its second-quarter and first-half 2016 financial results, marked by a significant strategic shift and acquisition.
Revenue for the second quarter of 2016 saw a modest increase of 3% year-over-year to $13.5 billiona, driven by higher average selling prices and the inclusion of Altera Corporation's results following its acquisition in Q1 2016. However, net income and earnings per share declined substantially due to a significant restructuring charge of $1.4 billion related to a transformation from a PC-centric to a cloud and connected devices company, and increased amortization expenses from acquisitions. The company is actively restructuring its business, with a focus on accelerating its transformation, which involves facility closures and headcount reductions.
Despite the profitability headwinds from restructuring and acquisition costs, Intel continued to generate strong operating cash flow. The company ended the period with a substantial cash balance, though lower than the prior year due to the Altera acquisition.
Intel's long-term debt increased significantly to fund the acquisition. Investors should note the strategic pivot and the associated costs, which are impacting current profitability but are aimed at future growth in data center and connected device markets.
02—Key points
Key Highlights
- Net revenue for Q2 2016 increased by 3% to $13.5 billion compared to Q2 2015, aided by higher average selling prices (ASPs) and the Altera acquisition.
- Net income for Q2 2016 significantly decreased by 51% to $1.3 billion, largely due to a substantial $1.4 billion restructuring charge related to the 2016 Restructuring Program.
- Diluted earnings per share (EPS) decreased by 51% to $0.27 in Q2 2016, reflecting the impact of restructuring charges and acquisition-related costs.
- The company announced and commenced a '2016 Restructuring Program' aimed at transforming from a PC company to one powering the cloud and smart, connected devices, involving facility closures and headcount reduction.
- The acquisition of Altera Corporation for $14.5 billion closed in December 2015, and its results are now consolidated, contributing $465 million in revenue and a $62 million operating loss in Q2 2016.
- Operating income for Q2 2016 decreased by 54% year-over-year to $1.3 billion, primarily due to the significant restructuring and acquisition-related charges.
- Cash provided by operating activities remained strong at $7.9 billion for the first six months of 2016, though investing activities showed a significant outflow of $19.7 billion, mainly due to acquisitions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Intel Corp kept $0.10.
- Revenue$13.53B100.0%
- Cost of revenue−$5.56B41.1%
- Gross profit$7.97B58.9%
- Operating costs−$6.66B49.2%
- Operating income$1.32B9.7%
- Interest, other & tax$12.0M0.1%
- Net income$1.33B9.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed August 1, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $13.53B$14.46B | −6.4% |
| Cost of Revenue | $5.56B$5.35B | +3.8% |
| Gross Profit | $7.97B$9.11B | −12.5% |
| R&D Expenses | $3.15B$2.93B | +7.4% |
| SG&A Expenses | $2.01B$1.91B | +5.1% |
| Operating Expenses | $6.66B$4.92B | +35.3% |
| Operating Income | $1.32B$4.19B | −68.6% |
| Interest Expense | $187.00M$116.00M | +61.2% |
| Net Income | $1.33B$3.11B | −57.2% |
| EPS (Basic) | $0.28$0.65 | −56.9% |
| EPS (Diluted) | $0.27$0.64 | −57.8% |
| Shares Outstanding (Basic) | 4.73B4.75B | −0.4% |
| Shares Outstanding (Diluted) | 4.87B4.88B | −0.2% |
05—Questions
Frequently Asked Questions
What is the impact of the Altera acquisition on Intel's financials?
The acquisition of Altera Corporation, completed in December 2015, contributed $465 million in revenue and incurred a $62 million operating loss in the second quarter of 2016. The acquisition also resulted in significant goodwill ($5.4 billion) and identified intangible assets ($7.6 billion) on the balance sheet, increasing amortization expenses and impacting profitability in the short term.
Why did Intel's net income and EPS decline so significantly in Q2 2016?
The substantial decline in net income and EPS was primarily driven by a $1.4 billion restructuring charge associated with the '2016 Restructuring Program.' This program is part of Intel's strategic shift to move beyond its PC-centric business towards cloud and connected devices, and it involves significant costs related to facility closures and workforce reductions.
How is Intel's business strategy evolving, and what are the key segments driving this change?
Intel is transforming from a PC-centric company to one focused on powering the cloud and billions of smart, connected computing devices. Key segments driving this strategy include the Data Center Group (DCG), Internet of Things Group (IOTG), Programmable Solutions Group (PSG), and Non-Volatile Memory Solutions Group (NSG), alongside the Client Computing Group (CCG).
What is the outlook for Intel's operating segments, particularly regarding growth and profitability?
The Client Computing Group (CCG) saw a revenue decline but an increase in operating income due to higher ASPs and cost efficiencies. The Data Center Group (DCG) showed revenue growth, driven by cloud and communication service providers, though operating income slightly decreased. The Non-Volatile Memory Solutions Group (NSG) experienced revenue and operating losses due to pricing pressures. The newly formed Programmable Solutions Group (PSG) generated revenue but reported an operating loss due to acquisition-related charges. Intel Security Group (ISecG) showed solid revenue and operating income growth.
06—Continue