Highlights From INTC's Q2 Conference Call: Another Record Revenue Quarter

Intel (NASDAQ: INTC) reported Q2 EPS of $0.59, $0.08 better than the analyst estimate of $0.51. Revenue for the quarter came in at $13.1 million versus the consensus estimate of $12.82 billion. Shares are down $0.28 (-1.24%) today.

Highlights From INTC's Q2 Conference Call:

• (Paul S. Otellini) I'm very pleased to report another record revenue quarter for the company. In May we met with many of you at our annual investor meeting and laid out our strategy and the opportunities we have before us. The trends that are driving the growth of our business that we described then are playing out as expected.
  
• In a comparison of our second quarter results versus Q2 of last year, we saw strong double-digit revenue growth across every business segment. For example, the data center business is up 15%, embedded is up 25%, NAND is up 15%, and our PC Client business is up 11%.
  
• If we look at the channel, which is an excellent proxy for emerging market strength, our channel revenue is up 17% versus last year. In summary, this was a very strong quarter across all of our product lines and around the world.
  
• The Data Center Group had another very strong quarter with CPU revenues topping the $2 billion mark for the third consecutive quarter. Demand for our Westmere EX family that was launched in April is very healthy and this helped to strengthen server ASPs in the quarter.
  
• At our investor day, we talked a lot about how the Data Center business was more than just servers. To highlight that, microprocessor unit shipments for storage applications set a record and were up 38% from a year ago. Also we grew our networking revenue 40% from a year ago. The non-server parts of our Data Center business are growing at an exceptional rate.
  
• We shipped over 1 million units of Atom processors into embedded applications for the first time ever, which is an increase of 76% from a year ago.
  
• Overall, we witnessed very broad-based strength in our Embedded segment with the fastest growth coming from the medical imaging segment up 50%, print imaging up 48%, communications up 40%, and industrial applications up 20%.
  
• McAfee turned in a very solid quarter with revenue beating our expectations. It was a second quarter record for McAfee in terms of revenue. Additionally the number of large deals signed was almost double that of Q1.
  
• Lastly, the PC client group also had a very good quarter. Demand for Sandy Bridge processors has been very strong, with the ramp rate of Sandy Bridge ahead of the previous generation products by 20%. Today, two thirds of all the products that we ship into PC clients are Core i3, i5 or i7.
  
• Our guidance for the third quarter assumes a growth in the mature market consumer segments of the business. At this point in the year we believe that PC unit growth will be around 8% to 10%, down a bit from our earlier view but above that in revenue as enterprise PC purchases continue to drive a very rich mix.
  
• In looking at the last three months of reported PC shipments, you can see why we're so optimistic about the emerging markets opportunity. For example, Turkey and Indonesia are up over 70% each. India is up 17%. Russia's up 15%. And China is up 14%. The latest data on Latin America also showed growth of 12%.
  
• Our 22-nanometer process technology remains on track for high volume production later this year and will provide substantial improvements in power consumption and performance.
  
• (Stacy J. Smith) The second quarter was strong and better than expected, resulting in our first-ever quarter with greater than $13 billion in revenue. From a market standpoint, the quarter played out as expected, with strength in emerging markets and enterprise, offset by softness in the mature market consumer segment.
  
  As a result of the acquisitions of McAfee and the Infineon wireless division, we will provide non-GAAP financial information in addition to GAAP for 2011 to provide additional visibility into the operational results of the company.
  
• On a non-GAAP basis we achieved record revenue of $13.1 billion. Gross margin of $8.1 billion was also a record with a gross margin of 62%.
  
• Operating profit of $4.2 billion was up 6% from a year ago. Net income of $3.2 billion and earnings per share of $0.59 were up 10% and 16% respectively from a year ago. The rest of my comments will use GAAP financials unless otherwise called out.
  
• Our business growth has accelerated over the past few years. Second quarter revenue of over $13 billion is up approximately $2.3 billion when compared to the second quarter of 2010 equating to 21% growth. The acquisitions of McAfee and the Infineon wireless division contributed approximately $1 billion of the $2.3 billion increase from a year ago.
  
• Gross margin in the second quarter was 61%, slightly down from the first quarter. As expected, our 22-nanometer startup costs peaked in the second quarter and our costs were slightly higher as we ramped incremental factories on our 32-nanometer process technology.
  
• As we look forward to the third quarter of 2011, we are forecasting the midpoint of the revenue range at $14 billion, up 7% to the second quarter and in line with historical seasonality. We are forecasting the midpoint of the gross margin range to be up from the second quarter at 64%.
  
• The cash generation of our business remains strong with cash flow from operations of $4 billion in the second quarter. On top of investing in our business, we are increasing the amount of free cash flow allocated to the dividend and actively repurchasing shares, consistent with the philosophy we outlined in May.
  
• Our Embedded business is growing at a rapid pace as the demand for both performance and low power from the Internet of Things drives architectural conversions for Intel. Emerging markets already make up more than half of our revenue, and as the technology that we sell becomes more affordable to billions of consumers, we will continue to see robust growth from emerging markets.
  
• These are the market forces that drove first half revenue growth of 23% from the first half of 2010 and these are the market forces that give us confidence as we enter the second half of 2011.
  
• (Q&A) Just a question on your total PC unit forecast that you're looking at. I guess if you're not really looking for anything different than seasonal and your full year guidance appears to be about the same, how do we reconcile a weaker addressable market to the fact that your guidance has not changed? (A) Well, our guidance is in revenue dollars, and I said pretty clearly that one of the things we're seeing is less strength in the netbook segment and stronger strength in the overall mix of PCs. In fact, our PC client business, notebooks and desktops, non-netbooks, is running double digits.
  
• And I guess on that front in the PC client side of things, it looks like the Core mix keeps rising. It's about 20% I believe of mix now. How high do you think that can go and how long do you think it would take to get there? (A) Well, I think I said that two-thirds of our PC shipments were Core i3, 5 and 7, the branded portions of the, of the product line. So the numbers wasn't 20%. It was 66.5%.
  
• First on the geographic trends, seems like I hear on the mature markets that the Americas seemed to do a lot better than Europe in the quarter if you just look at sequential sales growth. Any thoughts on the dichotomy there, especially given that North America had a tough comp as did Europe with the extra week in Q1? (A) Well, you have to be a little careful of that data because it's billings data, Sumit. And now we're in a situation that the worldwide supply chain builds and bills most of the notebooks in APAC. So I wouldn't draw too much of a conclusion from the billings data. I do think we'd say that the consumer in North America was a smidge stronger than the consumer in Europe in the second quarter and emerging markets across both regions was strong. (A) And enterprise PC sales it's strong and good and the server sales in North America are good. (A) Yeah. Yeah, and that's a good point that Paul made. You tend to see more of the servers bill directly in the market so that also probably drives the North American numbers a little bit.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• BJ's Wholesale Club (BJ) Tops Q2 EPS by 19c, Beats on Revenue; Offers FY27 EPS Guidance
• Ross Stores (ROST) Tops Q2 EPS by 72c, Beats on Revenue
• Flowers Foods (FLO) Misses Q2 EPS by 3c; Offers Guidance