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Intel (INTC)

Q4 2011 Earnings Call

January 19, 2012 5:30 pm ET

Executives

Mark Henninger -

Stacy J. Smith - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Paul S. Otellini - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

John Pitzer - Crédit Suisse AG, Research Division

Alex Gauna - JMP Securities LLC, Research Division

Glen Yeung - Citigroup Inc, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

Christopher J. Muse - Barclays Capital, Research Division

Uche X. Orji - UBS Investment Bank, Research Division

Srini Pajjuri - Credit Agricole Securities (USA) Inc., Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Mark Lipacis - Jefferies & Company, Inc., Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Quarter 4 2011 Intel Corporation Earnings Conference Call. My name is Misty, and I will be your coordinator for today. [Operator Instructions] 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, Mark Henninger, Director of Investor Relations. Please proceed, sir.

Mark Henninger

Thank you, Misty, and welcome, everyone to Intel's Fourth Quarter 2011 Earnings Conference Call. By now, you should have received a copy of our earnings release and the CFO commentary that goes along with that. If you've not received both documents, they are currently available on our investor website, intc.com.

I'm joined today by Paul Otellini, our President and CEO; and Stacy Smith, our Chief Financial Officer. In a moment, we'll hear a brief remarks from both of them followed by Q&A.

By way of announcement, we'll be hosting our annual Investor Day at our headquarters in Santa Clara on Thursday, May 10, and we look forward to seeing many of you there.

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

Paul S. Otellini

Thanks, Mark, and good afternoon everyone. 2011 was a year of records, milestones and breakthroughs. I want to begin by highlighting a few of the most significant. We reinvented the transistor with our 3-D Tri-Gate technology. We unveiled a new generation of personal computers, the Ultrabook. We closed 2 large acquisitions: McAfee and Infineon Wireless Solutions. We broke ground on the world's first 14-nanometer fabs, D1X in Oregon and Fab 42 in Arizona. And our 2011 revenue and earnings were the best in Intel's history.

We surpassed $50 billion in revenue for the first time, after crossing $40 billion for the first time just last year. This was our second consecutive year of more than 20% revenue growth. Since 2009, we have added $19 billion to the top line. The investments we've made to innovate and to expand our capabilities are paying off. Let me highlight a few examples.

As the volume of traffic crossing the Internet continues to explode, this has left companies and individuals searching for simple ways to store, manage and access this flood of information. This mega trend led to a fantastic year for our Data Center Group, with revenue up 17% on record microprocessor units, exceeding $10 billion for the first time. But this wasn't just servers. Storage revenue was up 42% to a new record high, and our Embedded Communications Infrastructure business was up 18%, also to a new record high.

Volume shipments of our Sandy Bridge server product, code-named Romley, have begun. We also demonstrated Knights Corner, the first single-chip coprocessor capable of delivering a teraflop of computing power.

Turning now to our PC business. We saw record notebook microprocessor units in 2011, as the PC Client Group grew 17%, fueled by demand in the enterprise and emerging markets, and PC users' appetites for higher performance and more energy-efficient computing. The result was a second consecutive year of rising ASPs, as our mix of core CPUs increased to nearly 70%. Sandy Bridge microprocessors accounted for approximately 40% of the company's total revenue.

Emerging markets now account for 2 out of every 3 incremental units of PC demand, a shift that's rewarding Intel and the PC companies that have a long-standing, deep presence in these markets.

Looking back at the last 12 months of reported data, emerging markets like India and Indonesia grew 22% and 37%, respectively. China, now the largest PC market in the world, represents 20% of all PC demand, and grew a remarkable 15%. Even with that, China has a household penetration rate of just 35%, versus almost 90% in the U.S. China is the world's largest market for mobile phones with more than 950 million subscribers. It's also at the forefront of the smartphone boom and will be the home of the world's first 32-nanometer smartphone.

Last week at CES, Lenovo announced the K800 smartphone based on our Medfield SoC. The K800 will be available on the China Unicom network in Q2, and will showcase Intel architecture in a phone with very competitive battery life and outstanding performance.

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