INTC CFO Commentary on Fourth-Quarter and Full Year 2010 Results
Summary
2010 was by far our most profitable year. In 2010 demand for microprocessors resulted in record
revenue of $43.6B, up 24% year over year. We saw strong market growth in both the business and
consumer PC market segments. Additionally the server market segment was particularly strong. The
strength of our product portfolio drove a richer mix of products resulting in an increase in average
selling prices. Record volumes, and higher average selling prices coupled with our lowest platform cost
delivered a gross margin of 66%. Operational expenses remained in tight control with spending as a
percent of revenue dropping to 29.5%. Operating profit of $15.9B, was 36.5% as a percent of revenue.
Net income was $11.7B with earnings per share reaching $2.05.
The fourth quarter was a solid finish to 2010. We achieved record quarterly revenue of $11.5B despite a
continuation of the softness we saw in the consumer market segment starting in the middle of the year.
Demand strength in the enterprise market segment, specifically the server market segment, led to record
microprocessor revenue. The strength in enterprise demand in combination with the launch of our
Sandy Bridge product line led to gross margin of 67.5% and record operating income of $4.3B. Net
income of $3.4B and earnings per share of $0.59 were up 10%* and 7%* respectively from a year ago
when you exclude the impact of the AMD settlement in the fourth quarter of 2009. Both are records. The
strength of our business model and execution can be seen in two metrics; operating profit as a percent of
revenue was the highest in over 10 years at 37.9%, and quarterly revenue per employee was at an alltime
high of $139k.
Comparing the fourth quarter of 2010 to the fourth quarter of 2009 (including the impact of the $1.25B
AMD settlement taken in the fourth quarter of 2009):
• Operating income of $4.3B was up 74% from $2.5B
• Operating income as a percent of revenue was up 14 points to 38%
• Net income of $3.4B was up 48% from $2.3B
• Earnings per share of $0.59 was up 47% from $0.40
Revenue
Revenue of $11.5B was up 3% sequentially in line with expectations versus an average seasonal
increase of approximately 8%. Microprocessor average selling prices, both including and excluding
Intel® Atom™ processors, were up slightly compared to the third quarter. The enterprise market
segment was strong, specifically the server segment, as a result of strength in both the corporate and data
center segments. As anticipated, inventory levels across the supply chain came down in the fourth
quarter as customers continue to manage to lean inventory levels. On a billings basis, the Americas and
Europe performed seasonally while Japan and Asia performed worse than seasonal. On a year-over-year
basis, revenue for the fourth quarter was up 8%.
Intel architecture group fourth quarter revenue of $11.0B was up 3% sequentially and 8% year over
year:
? The PC Client Group had revenue of $8.0B, flat from the third quarter. Year over year, PC Client
Group revenue was up 3.5%
? The Data Center Group had revenue of $2.5B, up 15% from the third quarter. Year over year, Data
Center Group revenue was up 24%.
? The other Intel architecture group had revenue of $0.5B, flat from the third quarter. Year over year,
the other Intel architecture group’s revenue increased 21%.
Intel architecture group 2010 revenue of $42.1B was up 24% year over year:
? The PC Client Group had revenue of $31.6B, up 21% year over year.
? The Data Center Group had revenue of $8.7B, up 35% from 2009.
? The other Intel architecture group had revenue of $1.8B, up 27% year over year.
Intel Atom microarchitecture revenue, including microprocessors and associated chipsets, was $391M,
flat from the third quarter. Full year 2010 Intel Atom microarchitecture revenue, including
microprocessors and associated chipsets, was $1.6B, up 8% from 2009.
Gross Margin
Gross margin dollars were $7.7B, $0.4B higher than the third quarter. Gross margin of 67.5% was 1.6
points higher than the third quarter and up 0.5 points compared to the midpoint of the Outlook provided
in October.
Gross Margin Reconciliation: Q3’10 to Q4’10 (65.9% to 67.5%, up 1.6 points)
[note: point attributions are approximate]
? + 1.5 points: Lower inventory write-offs (primarily qualification for sale of Sandy Bridge
products and sales of previously written-off products)
? + 1.0 point: Higher platform** average selling prices
? - 1.0 point: Increase in costs associated with taking older technology offline and startup costs
The midpoint of the forecast ranges will be referred to when making comparisons to specific periods.
Gross Margin Reconciliation: Q4’10 Outlook provided in October to Q4’10 (67% +/- couple points to
67.5%, up 0.5 point)
[note: point attributions are approximate]
? + 1.0 point: Higher platform** average selling prices
? - 0.5 point: Higher other cost of sales (primarily costs associated with taking older technology
offline)
In a year-over-year comparison, gross margin percent for Q4’10 is 3 points higher than Q4’09. The
increase is primarily due to higher platform** average selling prices.
Gross margin percent for full year 2010 is 66%, up 10 points from full year 2009. The increase is
primarily driven by reduction in excess capacity charges, higher average selling prices, lower platform
costs, and higher volumes.
Spending
Spending for R&D and MG&A was $3.4B, up 6% from the third quarter and $200M higher than the
Outlook provided in October. Versus outlook, the higher spending is primarily due to the Nvidia
settlement, and higher revenue and profit dependent spending. Spending as a percentage of revenue was
29.5%, up slightly from the third quarter. Depreciation was in line with expectations at $1.1B.
Other Income Statement Items
Gains and losses on equity investments and interest and other income was a net gain of $140M, higher
than the $115M gain in the third quarter and higher than our Outlook of a $20M net gain. Relative to
our Outlook, the fourth quarter was higher primarily due to the gains on sales of equity securities.
The provision for taxes in the fourth quarter was at a 24.5% tax rate, lower than the forecast of 31%
primarily due to the extension of the R&D tax credit.
Balance Sheet and Cash Flow Items
Cash flow from operations in the fourth quarter was over $5.5B. On the balance sheet, total cash
investments^^ ended the quarter at $21.5B, $1.2B higher than the third quarter. During the fourth
quarter, we paid $879M in dividends, purchased $1.9B in capital assets, and repurchased $1.5B in stock.
Total inventories increased by approximately $400M. Over 100% of the increase in inventory can be
attributed to the qualification for sale and ramp of the Sandy Bridge product line. In total, inventory
units were down in the fourth quarter.
For 2010, total cash investments^^ grew by $7.6B. We generated approximately $16.7B in cash from
operations, purchased $5.2B in capital assets, paid $3.5B in dividends, and repurchased $1.5B in stock.
For the year inventories are up nearly $900M.
Other Items
We added approximately 800 employees in the fourth quarter bringing the number of employees to
82.5k.
** CPU and chipset, excluding Intel Atom microprocessors and chipsets
^^ Cash and cash equivalents, short-term investments, and marketable debt instruments included in
trading assets |
