Intel Reports First-Quarter 2018 Financial Results

 

News Summary:

  • Record first-quarter revenue was $16.1 billion, up 13 percent year-over-year1 on strength of Intel's data-centric* businesses, which accounted for 49 percent of first-quarter revenue.

  • Data-centric growth and operating margin leverage boosted earnings-per-share (EPS), which rose 53 percent year-over-year; non-GAAP EPS was up 32 percent year-over-year.

  • Intel is raising its full-year revenue and earnings outlook based on this strong start; expecting 2018 revenue of 

    $67.5 billion, up $2.5 billion from prior guidance.

    SANTA CLARA, Calif., April 26, 2018 -- Intel Corporation today reported first-quarter 2018 financial results.

    "Coming off a record 2017, 2018 is off to a strong start. Our PC business continued to execute well and our data- centric businesses grew 25 percent, accounting for nearly half of first-quarter revenue," said Brian Krzanich, Intel CEO. "The strength of Intel’s business underscores my confidence in our strategy and the unrelenting demand for compute performance fueled by the growth of data."

    “Compared to the first-quarter expectations we set in January, revenue was higher, operating margins were stronger and EPS was better," said Bob Swan, Intel CFO. "Our data-centric strategy is accelerating Intel’s transformation, and we’re raising our earnings and cash flow expectations for the year."

    Q1 2018 Financial Highlights

       

    GAAP

         

    Non-GAAP

     

    Q1 2018

    Q1 2017

    vs. Q1 2017

     

    Q1 2018

    Q1 2017

    vs. Q1 2017

    Revenue ($B)

    $16.1

    $14.8

    up 9%

     

    $16.1^

    $14.8^

    up 9%

    Gross Margin

    60.6%

    61.9%

    down 1.3 pts

     

    62.3%

    63.3%

    down 1 pts

    R&D and MG&A ($B)

    $5.2

    $5.4

    down 4%

     

    $5.2^

    $5.4^

    down 4%

    Operating Income ($B)

    $4.5

    $3.6

    up 23%

     

    $4.8

    $4.0

    up 21%

    Tax Rate

    11.1%

    22.3%

    down 11.2 pts

     

    11.7%

    22.3%^

    down 10.6 pts

    Net Income ($B)

    $4.5

    $3.0

    up 50%

     

    $4.2

    $3.2

    up 30%

    Earnings Per Share

    $0.93

    $0.61

    up 53%

     

    $0.87

    $0.66

    up 32%

     

    In the first quarter, the company generated approximately $6.3 billion in cash from operations, paid dividends of

    $1.4 billion and used $1.9 billion to repurchase 41 million shares of stock.

    1 Excluding McAfee

    * Data-centric businesses include DCG, IOTG, NSG, PSG and All Other, excluding McAfee

    ^ No adjustment on a non-GAAP basis

    Key Business Unit Revenue and Trends

    Q1 2018 vs. Q1 2017

    PC-centric CCG $8.2 billion up 3%

    DCG $5.2 billion up 24%

    IOTG $840 million up 17%

    Data-centric

    NSG $1.0 billion up 20%

    PSG $498 million up 17% up 25%*

     

    In the first quarter, Intel saw strong performance from data-centric businesses, which accounted for approximately half (49%) of Intel's revenue, an all-time high. The Data Center Group (DCG) achieved growth in all market segments and saw increasing adoption of Intel® Xeon® Scalable processors, including for artificial intelligence workloads. Non-Volatile Memory Solutions Group (NSG) revenue grew 20 percent as strong demand for storage continued. The Programmable Solutions Group (PSG) won new designs with server OEMs adding Intel’s field programmable gate array (FPGA) acceleration to their data center offerings, and strong demand from retail and video customers drove first-quarter growth in the Internet of Things Group (IOTG).

    The Client Computing Group (CCG) continued its strong execution and introduced a new lineup of high- performance mobile products including the 8th Gen Intel ® Core™ i9 processor and a new Intel Core platform extension that brings together the benefits of 8th Gen Intel Core processors with Intel ® Optane™ memory. We continue to make 14 nm process optimizations and architectural innovations in both data center and client products that will be coming this year. Intel is currently shipping low-volume 10 nm product and now expects 10 nm volume production to shift to 2019.

    In autonomous driving, Mobileye continued momentum with automotive customers and recently won a high-volume design for EyeQ*5. The company also began operating autonomous vehicle test cars in Israel with plans to expand the fleet to other geographies.

    A dditional information regarding Intel’s results can be found in the Q1'18 Earnings Presentation available at: www.intc.com/results.cfm .

    1 Excluding McAfee

    • Data-centric businesses include DCG, IOTG, NSG, PSG and All Other, excluding McAfee

      ^ No adjustment on a non-GAAP basis

      Business Outlook

      Intel's guidance for the second-quarter and full-year 2018 includes both GAAP and non-GAAP estimates. Reconciliations between these GAAP and non-GAAP financial measures are included below.

      Q2 2018

      GAAP

      Non-GAAP

      Range

      Revenue

      $16.3 billion

      $16.3 billion^

      +/- $500 million

      Operating margin

      28%

      30%

      approximately

      Tax rate

      14%

      13%

      approximately

      Earnings per share

      $0.85

      $0.85

      +/- 5 cents

      Full-Year 2018

      GAAP

      Non-GAAP

      Range

      Revenue

      $67.5 billion

      $67.5 billion^

      +/- $1.0 billion

      Operating margin

      29%

      31%

      approximately

      Tax rate

      13%

      13%^

      approximately

      Earnings per share

      $3.79

      $3.85

      +/- 5%

      Full-year capital spending

      $14.5 billion

      $14.5 billion^

      +/- $500 million

      Net capital deployed 1

      $12.5 billion

      $12.5 billion^

      +/- $500 million

      Free cash flow

      N/A

      $14.5 billion

      +/- $500 million

      1 Net capital deployed is full-year capital spending offset by expected prepaid supply agreements within NSG.

      Intel’s Business Outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures (except as noted below), strategic investments and other significant transactions that may be completed after April 26, 2018. Actual results may differ materially from Intel’s Business Outlook as a result of, among other things, the factors described under “Forward-Looking Statements” below. Our guidance above reflects the divestiture of Wind River, which we expect to close during the second quarter of 2018.

      Earnings Webcast

      Intel will hold a public webcast at 2:00 p.m. PDT today to discuss the results for its first quarter of 2018. The live public webcast can be accessed on Intel's Investor Relations website at www.intc.com/results.cfm. The Q1'18 Earnings Presentation, webcast replay, and audio download will also be available on the site.

      Intel plans to report its earnings for the second quarter of 2018 on July 26, 2018 promptly after close of market, and related materials will be available at www.intc.com/results.cfm . A public webcast of Intel’s earnings conference call will follow at 2:00 p.m. PDT at www.intc.com .

      ^ No adjustment on a non-GAAP basis.

      Forward-Looking Statements

      Intel’s Business Outlook and other statements in this release that refer to future plans and expectations are forward- looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," "would," "should," "could," and variations of such words and similar expressions are intended to identify such forward-looking statements.

      Statements that refer to or are based on projections, uncertain events or assumptions also identify forward-looking statements. All forward-looking statements included in this news release are based on management's expectations as of the date of this earnings release and, except as required by law, Intel disclaims any obligation to update these forward-looking statements to reflect future events or circumstances. Forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. Intel presently considers the following to be important factors that could cause actual results to differ materially from the company's expectations.

      • Demand for Intel's products is highly variable and could differ from expectations due to factors including changes in business and economic conditions; customer confidence or income levels; the introduction, availability and market acceptance of Intel's products, products used together with Intel products and competitors' products; competitive and pricing pressures, including actions taken by competitors; supply constraints and other disruptions affecting customers; changes in customer order patterns including order cancellations; and changes in the level of inventory at customers.

      • Intel's results could vary significantly from expectations based on capacity utilization; variations in inventory valuation, including variations related to the timing of qualifying products for sale; changes in revenue levels; segment product mix; the timing and execution of the manufacturing ramp and associated costs; excess or obsolete inventory; changes in unit costs; defects or disruptions in the supply of materials or resources; and product manufacturing quality/yields. Variations in results may also be caused by the timing of Intel product introductions and related expenses, including marketing programs, and Intel's ability to respond quickly to technological developments and to introduce new products or incorporate new features into existing products, which may result in restructuring and asset impairment charges.

      • Intel's results could be affected by adverse economic, social, political and physical/infrastructure conditions in countries where Intel, its customers or its suppliers operate, including military conflict and other security risks, natural disasters, infrastructure disruptions, health concerns, fluctuations in currency exchange rates, sanctions and tariffs, and continuing uncertainty regarding social, political, immigration, and tax and trade policies in the U.S. and abroad, including the United Kingdom's vote to withdraw from the European Union. Results may also be affected by the formal or informal imposition by countries of new or revised export and/ or import and doing-business regulations, which could be changed without prior notice.

      • Intel operates in highly competitive industries and its operations have high costs that are either fixed or difficult to reduce in the short term.

      • The amount, timing and execution of Intel's stock repurchase program may fluctuate based on Intel's priorities for the use of cash for other purposes such as investing in our business, including operational and capital spending, acquisitions, and returning cash to our stockholders as dividend payments and because of changes in cash flows, tax laws, or the market price of our common stock.

      • Intel's expected tax rate is based on current tax law, including current interpretations of the Tax Cuts and Jobs Act of 2017 (”TCJA”), and current expected income and may be affected by evolving interpretations of TCJA; the jurisdictions in which profits are determined to be earned and taxed; changes in the estimates of credits, benefits and deductions; the resolution of issues arising from tax audits with various tax authorities, including payment of interest and penalties; and the ability to realize deferred tax assets.

      • Intel's results could be affected by gains or losses from equity securities and interest and other, which could vary depending on gains or losses on the change in fair value, sale, exchange, or impairments of equity and debt investments, interest rates, cash balances, and changes in fair value of derivative instruments.

      • Product defects or errata (deviations from published specifications) may adversely impact our expenses, revenues and reputation.

      • Security vulnerability issues may exist with respect to our processors and other products as well as the operating systems and workloads running on them. Mitigation techniques, including software and firmware updates, may not operate as intended or effectively resolve these vulnerabilities. In addition, we may be required to rely on third parties, including hardware, software, and services vendors, as well as end users, to develop and deploy mitigation techniques, and the effectiveness of mitigation techniques may depend solely or in part on the actions of these third parties. Security vulnerabilities and/or mitigation techniques, including software and firmware updates, may result in adverse performance, reboots, system instability, data loss or corruption, unpredictable system behavior, or the misappropriation of data by third parties. We have and may continue to face product claims, litigation, and adverse publicity and customer relations from security vulnerabilities and/or mitigation techniques, including as a result of side-channel exploits such as “Spectre” and “Meltdown,” which could adversely impact our results of operations, customer relationships, and reputation. Separately, the publicity around recently disclosed security vulnerabilities may result in increased attempts by third parties to identify additional vulnerabilities, and future vulnerabilities and mitigation of those vulnerabilities may also adversely impact our results of operations, customer relationships, and reputation.

      • Intel's results could be affected by litigation or regulatory matters involving intellectual property, stockholder, consumer, antitrust, disclosure and other issues. An unfavorable ruling could include monetary damages or an injunction prohibiting Intel from manufacturing or selling one or more products, precluding particular business practices, impacting Intel's ability to design its products, or requiring other remedies such as compulsory licensing of intellectual property.

      • Intel's results may be affected by the timing of closing of acquisitions, divestitures and other significant transactions.

    Additional information regarding these and other factors that could affect Intel's results is included in Intel's SEC filings, including the company's most recent reports on Forms 10-K and 10-Q, copies of which may be obtained by visiting our Investor Relations website at www.intc.com or the SEC's website at www.sec.gov.

    About Intel

    Intel (NASDAQ: INTC) expands the boundaries of technology to make the most amazing experiences possible. Information about Intel can be found at newsroom.intel.com and intel.com.

    Intel, the Intel logo, Intel Core, Intel Optane, and Xeon, are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.

    *Other names and brands may be claimed as the property of others.

    CONTACTS: Sarah Salava Cara Walker Investor Relations Media Relations

    503-264-5709 503-696-0831

    sarah.a.salava@intel.com cara.walker@intel.com

    CONSOLIDATED SUMMARY STATEMENT OF INCOME DATA

     

    Three Months Ended

     

    (In Millions, Except Per Share Amounts; Unaudited)

    Mar 31,

    2018

    Apr 1,

    2017

     

    NET REVENUE

    $ 16,066

    $ 14,796

    Cost of sales

    6,335

    5,636

    GROSS MARGIN

    9,731

    9,160

    Research and development

    3,311

    3,311

    Marketing, general and administrative

    1,900

    2,099

    R&D AND MG&A

    5,211

    5,410

    Restructuring and other charges

    80

    Amortization of acquisition-related intangibles

    50

    38

    OPERATING EXPENSES 1

    5,261

    5,528

    OPERATING INCOME

    4,470

    3,632

    Gains (losses) on equity investments, net

    643

    252

    Interest and other, net 1

    (102)

    (69)

    INCOME BEFORE TAXES

    5,011

    3,815

    Provision for taxes

    557

    851

    NET INCOME (LOSS)

    $ 4,454

    $ 2,964

     

    BASIC EARNINGS PER SHARE OF COMMON STOCK

     

    $ 0.95

     

    $ 0.63

    DILUTED EARNINGS PER SHARE OF COMMON STOCK

    $ 0.93

    $ 0.61

     

    WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:

       

    BASIC

    4,674

    4,723

    DILUTED

    4,790

    4,881

    1 Operating expenses and interest and other, net have been retrospectively restated due to the adoption of ASU 2017-07 in the first quarter of 2018.

    CONSOLIDATED SUMMARY BALANCE SHEET DATA

     

    (In Millions) Mar 31,

    Dec 30,

    2018 2017

    CURRENT ASSETS

    Cash and cash equivalents

    (unaudited)

    $ 3,554

     

    $ 3,433

    Short-term investments

    2,020

    1,814

    Trading assets

    10,623

    8,755

    Accounts receivable

    4,879

    5,607

    Inventories

    Raw materials

     

    1,242

     

    1,098

    Work in process

    3,750

    3,893

    Finished goods

    2,154

    1,992

     

    7,146

    6,983

    Other current assets

    3,408

    2,908

    TOTAL CURRENT ASSETS

    31,630

    29,500

     

    Property, plant and equipment, net

     

    43,735

     

    41,109

    Equity investments

    9,481

    8,579

    Other long-term investments

    3,435

    3,712

    Goodwill

    24,346

    24,389

    Identified intangible assets, net

    12,355

    12,745

    Other long-term assets

    3,614

    3,215

    TOTAL ASSETS

    $ 128,596

    $ 123,249

     

    CURRENT LIABILITIES

    Short-term debt

     

    $ 3,842

     

    $ 1,776

    Accounts payable

    4,415

    2,928

    Accrued compensation and benefits

    2,118

    3,526

    Deferred income

    1,698

    Other accrued liabilities

    9,586

    7,535

    TOTAL CURRENT LIABILITIES

    19,961

    17,421

     

    Debt

     

    24,770

     

    25,037

    Contract liabilities

    2,479

    Income taxes payable, non-current

    5,774

    4,069

    Deferred income taxes

    1,564

    3,046

    Other long-term liabilities

    3,082

    3,791

    TEMPORARY EQUITY

    801

    866

    Stockholders' equity Preferred stock

     

     

    Common stock and capital in excess of par value

    26,430

    26,074

    Accumulated other comprehensive income (loss)

    (683)

    862

    Retained earnings

    44,418

    42,083

    TOTAL STOCKHOLDERS' EQUITY

    70,165

    69,019

    TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

    $ 128,596

    $ 123,249

    SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION

     

     

    (In Millions)

    Mar 31,

    2018

    Apr 1,

    2017

     

    CASH INVESTMENTS:

       

    Cash and short-term investments

    $ 5,574

    $ 7,992

    Trading assets

    10,623

    9,303

    Total cash investments

    $ 16,197

    $ 17,295

     

    Three Months Ended

     

    Mar 31,

    2018

    Apr 1,

    2017

    SELECTED CASH FLOW INFORMATION:

       

    Operating activities:

       

    Net cash provided by operating activities

    $ 6,284

    $ 3,898

    Depreciation

    $ 1,806

    $ 1,625

    Share-based compensation

    $ 433

    $ 397

    Amortization of intangibles

    $ 390

    $ 321

    Investing activities:

       

    Additions to property, plant and equipment

    $ (2,910)

    $ (1,952)

    Financing activities:

       

    Repurchase of common stock

    $ (1,914)

    $ (1,242)

    Payment of dividends to stockholders

    $ (1,400)

    $ (1,229)

    EARNINGS PER SHARE OF COMMON STOCK INFORMATION:

       

    Weighted average shares of common stock outstanding - basic

    4,674

    4,723

    Dilutive effect of employee equity incentive plans

    65

    58

    Dilutive effect of convertible debt

    51

    100

    Weighted average shares of common stock outstanding - diluted

    4,790

    4,881

    STOCK BUYBACK:

       

    Shares repurchased

    41

    35

    Cumulative shares repurchased (in billions)

    5.0

    4.9

    Remaining dollars authorized for buyback (in billions)

    $ 11.3

    $ 5.5

    OTHER INFORMATION:

       

    Employees (in thousands)

    103.7

    106.9

    SUPPLEMENTAL OPERATING SEGMENT RESULTS

     

    Three Months Ended

     

    (In Millions) Net Revenue

    Client Computing Group

    Mar 31,

    2018

    Apr 1,

    2017

     

    Platform

    $ 7,615

    $ 7,397

    Adjacency

    605

    579

     

    8,220

    7,976

    Data Center Group

       

    Platform

    4,824

    3,879

    Adjacency

    410

    353

     

    5,234

    4,232

    Internet of Things Group

       

    Platform

    719

    632

    Adjacency

    121

    89

     

    840

    721

    Non-Volatile Memory Solutions Group

    1,040

    866

    Programmable Solutions Group

    498

    425

    All Other

    234

    576

    TOTAL NET REVENUE

    $ 16,066

    $ 14,796

    Operating income (loss) Client Computing Group

     

    $ 2,791

     

    $ 3,031

    Data Center Group

    2,602

    1,487

    Internet of Things Group

    227

    105

    Non-Volatile Memory Solutions Group

    (81)

    (129)

    Programmable Solutions Group

    97

    92

    All Other

    (1,166)

    (954)

    TOTAL OPERATING INCOME

    $ 4,470

    $ 3,632

     

    In the third quarter of 2017, Intel completed its tender offer for the outstanding ordinary shares of Mobileye B.V. (Mobileye), formerly known as Mobileye N.V. In the second quarter of 2017, Intel completed its divestiture of Intel Security Group (ISecG). The results of Mobileye and ISecG are reported within the "All Other" category.

    Revenue for our reportable and non-reportable operating segments is primarily related to the following product lines:

  • CCG is responsible for all aspects of the client computing continuum, which includes platforms designed for end-user form factors, focusing on high growth segments of 2-in-1, thin-and-light, commercial and gaming, and growing adjacencies as well as connectivity technologies.

  • DCG develops workload-optimized platforms for compute, storage, network, and related functions, which are designed for and sold into the enterprise and government, cloud, and communications service providers market segments.

  • IOTG develops and sells high-performance Internet of Things compute solutions for retail, automotive, industrial, and video surveillance market segments, along with a broad range of other embedded applications. These market-driven solutions utilize silicon and software assets from our data center and client businesses to expand our compute footprint into Internet of Things market segments.

  • NSG offers lntel ® Optane and lntel ® 3D NAND technologies, which drive innovation in solid-state drives (SSDs). The primary customers are

    enterprise and cloud-based data centers, users of business and consumer desktops and laptops, and a variety of embedded and Internet of Things application providers.

  • PSG offers programmable semiconductors, primarily field-programmable gate arrays (FPGAs) and related products for a broad range of market segments, including communications, data center, industrial, military, and automotive.

    We have sales and marketing, manufacturing, engineering, finance, and administration groups. Expenses for these groups are generally allocated to the operating segments and the expenses are included in the following operating results.

    All other category includes revenue, expenses, and charges such as:

  • results of operations from non-reportable segments not otherwise presented;

  • historical results of operations from divested businesses;

  • results of operations of start-up businesses that support our initiatives, including our foundry business;

  • amounts included within restructuring and other charges;

  • a portion of employee benefits, compensation, and other expenses not allocated to the operating segments; and

  • acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.

    A substantial majority of our revenue is generated from the sale of platform products. Platform products incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multi-chip package. Our remaining primary product lines are incorporated in "adjacency."

    Supplemental Platform Revenue Information

     

     

    Q1 2018

    compared to Q4

    Q1 2018

    compared to Q1

     

    Client Computing Group Platform

    2017

    2017

    Notebook platform volumes

    (8)%

    4%

    Notebook platform average selling prices

    3%

    1%

    Desktop platform volumes

    (13)%

    (6)%

    Desktop platform average selling prices

    9%

    7%

     

    Data Center Group Platform

     

    Unit Volumes

    (2)%

    16%

    Average Selling Prices

    (3)%

    7%


    EXPLANATION OF NON-GAAP MEASURES

    In addition to disclosing financial results in accordance with U.S. generally accepted accounting principles (GAAP), this earnings release contains references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.

    Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated.

    Acquisition-related adjustments: The non-GAAP financial measures disclosed by the company exclude certain business combination accounting adjustments and certain expenses related to acquisitions as follows:

    • Amortization of acquisition-related intangible assets : Amortization of acquisition-related intangible assets consists of amortization of intangibles assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. We record charges relating to the amortization of these intangibles within both cost of sales and operating expenses in our GAAP financial statements. Amortization charges for our acquisition- related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

Restructuring and other charges: Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include asset impairments, pension charges, and costs associated with the Intel Security Group divestiture. We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures. We believe that these costs do not reflect our current operating performance. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

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