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Intel Corporation (INTC)

Q3 2010 Earnings Call Transcript

October 12, 2010 5:30 pm ET

Executives

Kevin Sellers – VP, IR

Paul Otellini – President & CEO

Stacy Smith – SVP & CFO

Analysts

David Wong – Wells Fargo

Mark Lipacis – Morgan Stanley

Stacy Rasgon – Sanford Bernstein

John Pitzer – Credit Suisse

Glen Yeung – Citi

Craig Berger – FBR Capital Markets

Hans Mosesmann – Raymond James

Ambrish Srivastava – Bank of Montreal

Ross Seymore – Deutsche Bank

Christopher Danely – JP Morgan

Tim Luke – Barclays Capital

James Covello – Goldman Sachs

Uche Orji – UBS

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Q3 2010 Intel Corporation earnings conference call. My name is Selema and I will be your coordinator for today. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Kevin Sellers, VP of Investor Relations. Please proceed, sir.

Kevin Sellers

Thank you, Selema, and welcome everyone to Intel’s third quarter 2010 earnings conference call. I am joined today by Paul Otellini, our President and CEO; and Stacy Smith, our Chief Financial Officer.

As is customary, Intel has posted the earnings release and updated financial statements, including the CFO commentary to our investor Website, www.intc.com, in case anyone still needs access to that information. If at any time during this call, we use any non-GAAP financial measures or references, we will post the appropriate GAAP financial reconciliations to our Website intc.com. Following brief prepared remarks from both Paul and Stacy, we will be happy to take questions.

As we begin, 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.

So with that, let me hand it over to Paul.

Paul Otellini

Thanks, Kevin. We are pleased with the financial results we achieved during the third quarter. We realized new records in revenue and operating income in a marketplace filled with uncertainty. Our investments in product and technology leadership and focus on operational efficiencies have better prepared us for improved financial performance in any market environment.

This was very evident in our microprocessor revenue, which was up a healthy 25% year-over-year, due in large part to the strong demand for higher-end offerings in our product lineup. We exit Q3 firmly on track to deliver our best year ever and this is something we are all very proud of. 2010 is proving to be an unusual year in terms of the revenue patterns. We have not seen the typical quarter-to-quarter seasonality that often accompanies our business; instead we have seen steady growth as the year has progressed.

Overall, we still expect PC units to grow roughly 18% this year, and the industry is now shipping over 1 million PCs a day, which is an amazing milestone. While there were some softness in the consumer market segments at Western Europe and the U.S., other regions such as China as well as the channel had solid results. The enterprise segment remains steady and consistent, and our mix from this segment continues to be a source of strength to our profitability.

Our results in the server segment highlights the importance in value of performance leadership. Demand for our high-performance Westmere and Nehalem-EX processors drove server microprocessor revenue up over 30% year-over-year. Shipments into the cloud segment are up a very strong 200% from a year ago and up 50% from just last quarter. Our storage business is up 29% year-over-year, emphasizing that the Xeon product family is not just for servers but it has become an important brand in the data center.

The third quarter was also notable for the continued progress we are making in our embedded business. We set microprocessor unit and revenue records in this segment with improved ASPs this quarter. Our embedded and communications business is now on track to deliver over $1 billion in gross margin this year, with operating margins greater than 30%. We are excited about several new categories for smart computing where we are leading with our silicon solutions. The smart TV category is launching this month in the United States with exciting product introductions from Sony and Logitech based on Google TV running on an Intel Atom microprocessor.

The CE industry is excited about this new opportunity to deliver a seamless Internet plus television experience for consumers in the living room. Smart TVs are a great example of how Intel architecture can bring a great computing experience, not just to PCs but to any device that computes and connects to the Internet.

There are also several new categories where we are leading the transformation to smart, digital signs, in-vehicle infotainment, retail and ATM solutions just to name a few. I know that the big question on everyone’s mind is how Intel will respond to new computing categories where Intel currently has little presence, specifically tablets.

Let me take a minute and give you my perspective on this. We think tablets are exciting and we fully welcome their arrival. Apple has done a wonderful job reinventing the category. We believe that like netbooks, tablets will expand the term for computing overall with a new form factor and new uses that bring computing to even more aspects of our lives. Will they impact PC sales? Sure. At the margin, they probably will. Consumers will have a limited amount of discretionary income and some will choose to purchase a tablet instead of upgrading at existing PC or purchasing a netbook in any given period.

Read the rest of this transcript for free on seekingalpha.com