Intel Corporation (INTC)
Q3 2009 Earnings Call
October 13, 2009 5:30 pm ET
R. Kevin Sellers - Vice President, Investor Relations
Paul S. Otellini - President, Chief Executive Officer, Director
Stacy J. Smith - Chief Financial Officer, Vice President
Uche Orji - UBS
Sumit Dhanda - Banc of America Merrill Lynch
Craig Berger - FBR Capital Markets
Daniel Berenbaum - Auriga USA
John Pitzer - Credit Suisse
Glen Yeung - Citigroup
Chris Danely - J.P. Morgan
Gus Pritchard - Piper Jaffray
Doug Freedman - Broadpoint
John Barton - Cowen & Company
Manish Goyle - C.R.E.F.
Brendan Furlong - Miller Tabak
Tristan Gerra - Robert W. Baird
Ross Seymore - Deutsche Bank
Tim Luke - Barclays Capital
James Covello - Goldman Sachs
David Wong - Wells Fargo
Mark Lipacis - Morgan Stanley
Alex Gauna - JMP Securities
Previous Statements by INTC
» Intel Q2 2009 Earnings Call Transcript
» Intel Corp. Q1 2009 Earnings Call Transcript
» Intel Corp. Q4 2008 Earnings Call Transcript
R. Kevin Sellers
Thank you and welcome everyone to Intel's third quarter 2009 earnings conference call. I am joined today by our Chief Executive Officer, Paul Otellini, and Chief Financial Officer Stacy Smith.
Our earnings release and updated financial statements were released today at approximately 1:15 Pacific Daylight time and can be found on our investor website, intc.com.
This quarter we introduced a change to our earnings process by posting earlier today to our investor website additional management commentary and context about our quarterly results. This was done in an effort to create better understanding of the results prior to the call, something we felt would improve the interactive dialog with management during this meeting. We hope this change is helpful and as always would love to hear your feedback so we can continue to try and improve our disclosure practices.
As we begin our call, let me remind everyone that today’s discussion contains forward-looking statements based on the environment as we currently see it and as such does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.
If during our call today there are any non-GAAP financial references made, we will post the appropriate GAAP financial reconciliations on our investor website. So with that, let me hand it over to Paul for some comments followed by brief remarks from Stacy. Paul.
Paul S. Otellini
Thanks, Kevin. We are very pleased with the company’s third quarter. The strong financial performance is a result of having the right products at the right cost at the right time for a recovering global economy. The strength in our business remains primarily consumer driven with broad-based demand across all geographies. Our mobile business had a particularly strong quarter -- in fact, we saw the sequential unit growth rate of notebook processors and chipsets actually exceed the growth rate of Atom processors and chipsets. While Atom and netbooks are important growth drivers for us, our traditional notebook business remains one of the primary drivers of revenue growth and we expect that to continue in the future.
In the server segment, we are pleased with the acceptance of Nehalem in the enterprise. While overall enterprise spending remains weak, the compelling value proposition of Nehalem is generating growth opportunities even in a down economy and will be a strong profit driver for Intel in the coming quarters.
On a regional basis, China had a particularly strong quarter and continued to show strength during the just completed Golden Week. The U.S. continued to ride strong consumer sales with the back-to-school cycle exceeding our expectations. Sequentially, Japan showed very healthy growth and Europe growth was slightly above seasonal trends.
I know that many of you listening today are concerned about inventory levels and the state of sell-through around the world. Let me share just a couple of important data points.
First, our channel sales out have shown healthy sequential growth for three quarters in a row, with channel sales out this quarter actually exceeding the activity we saw in Q3 of 2008.
Inventory in the channel remains slightly below normal levels, reflecting both good sell-through as well as disciplined inventory management.
At our large OEM customers, component inventories are roughly half the peak level of late last year and have been approximately flat throughout 2009. Much of this is due to our implementation of inventory hubs, where we hold the inventory for our large OEM customers who then pull inventory only as needed. This helps our customers better manage their inventory levels while giving us increased visibility into real-time system production levels.
We watched supply chain inventory very carefully and believe the pipeline has been appropriately rebuilt to support increased end demand and yet remains well below the peak we saw at the end of 2008.
I also want to highlight the excellent performance of our factory network. Our internal inventories continue to run quite lean, with factory throughput improvements providing us with the ability to respond to demand changes far more quickly and effectively than ever before.
Our product cost declines are significant and are a reflection of improved loadings, better equipment re-use, and exceptional yields. All of this leads to better-than-expected costs across our newer technologies, allowing us to expand margins in a difficult economic environment.
In closing, let me briefly mention the biggest drive of our product differentiation in the marketplace and that is our process technology leadership. At our IDF event last month in San Francisco, I shared that we had shipped over 200 million 45-nanometer processors to date. I am very pleased to note that this quarter, we begin volume production of our newest process technology at 32-nanometers. Our 32-nanometer process is stunning technology that incorporates second generation of high [K] metal gate transistors. As we ramp this new technology, we will be refreshing our entire product line, providing better performance, lower costs, and lower power consumption for all of our platforms. Importantly, 32-nanometer process technology also allows us to accelerate system on-chip implementation to the Intel architecture, providing Intel with new growth opportunities in the coming years.