Intel (INTC) Tops Q2 EPS by 5c

(Updated - July 15, 2015 4:05 PM EDT)

Intel (NASDAQ: INTC) reported Q2 EPS of $0.55, $0.05 better than the analyst estimate of $0.50. Revenue for the quarter came in at $13.2 billion versus the consensus estimate of $13.04 billion.

Summary
The second quarter revenue of $13.2B was in line with the expectation that we provided in our prior Outlook. The Client Computing Group revenue was up 2% quarter over quarter and down 14% on a year-on-year basis. The Data Center Group was up 5% quarter over quarter and up 10% on a year-on-year basis. Gross margin of 62.5% was up 2.0 points from the first quarter and up 0.5 point from our Outlook. Operating income for the second quarter was $2.9B, down $0.9B, or 25% on a year-on-year basis. The tax rate for the quarter was 9.3%, a 16.2 point reduction from the prior quarter, driven by a one-time refund claim and our decision to indefinitely reinvest certain prior years' non-U.S. earnings. Earnings per share was $0.55, flat on a year-on-year basis.

As we look forward to the third quarter of 2015, we are forecasting the midpoint of the revenue range at $14.3B, up 8% from the second quarter. This forecast is at the higher end of the average seasonal increase for the third quarter. We are forecasting the midpoint of the gross margin range for the third quarter to be 63%, up 0.5 point from the second quarter.

Turning to the full year 2015, we are forecasting revenue to be down approximately 1% from 2014, down from our prior Outlook of approximately flat. We are forecasting the midpoint of the gross margin range for the full year 2015 to be 61.5%, up 0.5 point from our prior Outlook. The second quarter 2015 results when compared to the second quarter from a year ago were the following:

• Revenue was $13.2B was down $0.6B (5%) from $13.8B
• Gross margin of 62.5% was down 2.0 points from 64.5%
• Operating income of $2.9B was down $0.9B (25%) from $3.8B
• Net income of $2.7B was down $0.1B (3%) from $2.8B
• Earnings per share was flat at $0.55

Q3 Outlook:

Intel's Business Outlook for the third quarter does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments and other significant transactions that may be completed after July 15. The midpoint of the forecast ranges will be referred to when making comparisons to specific periods.
Revenue
Revenue is expected to be $14.3B, plus or minus $500M in the third quarter. (The Street consensus is at $14.1 billion.) The midpoint of this range is up 8% from the second quarter, at the higher end of the average seasonal range increase for the third quarter.
Gross Margin
Gross margin in the third quarter is expected to be 63%, plus or minus a couple of points, up 0.5 point from the second quarter.
Gross Margin Reconciliation: Q2'15 to Q3'15 Outlook (62.5% to 63% +/- a couple points, up 0.5 point) [note: point attributions are approximate]
• +1.5 points: Lower platform* write-offs (primarily on 14nm products)
• +1.0 point: Higher platform* volume
• - 1.5 points: Higher platform* unit costs (primarily on higher mix of 14nm products)
Spending
Spending for R&D and MG&A in the third quarter is expected to be approximately $4.9B, down from the second quarter.
Depreciation is forecast to be approximately $2.0B, flat to the second quarter.
Restructuring charges are forecast to be approximately $175M.
Amortization of acquisition-related intangibles is forecast to be approximately $70M.
Other Income Statement Items
Gains and losses from equity investments and interest and other income are expected to be a net gain of
approximately $100M, compared to a net gain of $87M in the second quarter.

2015 Outlook
The Outlook for full year 2015 does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments and other significant transactions that may be completed after July 15. The midpoint of the forecast ranges will be referred to when making comparisons to specific periods.
Revenue
Revenue for the year is expected to be down approximately 1% from 2014, down from our previous expectation of approximately flat. (The Street sees FY15 revenue of $54.77 billion.)
Gross Margin
Gross margin for the year is expected to be 61.5%, plus or minus a couple points, up 0.5 point from our previous expectation of 61%. This increase is primarily a result of lower factory start-up costs on 10nm.
Spending
Spending for R&D and MG&A for the year is expected to be approximately $19.8B plus or minus $400M, up $100M from our previous expectation of $19.7B plus or minus $400M. This $100M increase is primarily driven by acquisition related integration expenses. Depreciation is forecast to be approximately $7.9B plus or minus $100M, down $100M from our previous expectation of $8.0B plus or minus $100M.

Amortization of acquisition-related intangibles is forecast to be approximately $265M, up from our previous expectation of $250M.
Other Income Statement Items
The tax rate for each of the third and fourth quarters is expected to be 26%, up from our previous expectation of 25%.

For earnings history and earnings-related data on Intel (INTC) click here.

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