Intel Corporation (INTC)
Q2 2010 Earnings Call Transcript
July 13, 2010 5:30 pm ET

Executives

Kevin Sellers – VP, IR
Paul Otellini – President and CEO
Stacy Smith – SVP and CFO

Analysts

Uche Orji – UBS
Ross Seymore – Deutsche Bank
John Pitzer – Credit Suisse
Gus Richard – Piper Jaffray
Glen Yeung – Citi
Christopher Danely – JP Morgan
David Wong – Wells Fargo
Jim Covello – Goldman Sachs
Tim Luke – Barclays Capital
Craig Berger – FBR Capital Markets
Mark Lipacis – Morgan Stanley
Stacy Rasgon – Sanford Bernstein
Doug Freedman – Gleacher & Company
Sumit Dhanda – Banc of America/Merrill Lynch
Alex Gauna – JMP Securities
Kevin Cassidy – Stifel Nicolaus
Daniel Berenbaum – Auriga USA

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Q2 2010 Intel corporation earnings conference call. My name s Cassidy and I will be your coordinator for today. All lines have been placed on mute to prevent any back ground noise. After the speakers remark, there will be a Question and Answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. If you would like to withdraw your question press the pound key. 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 Relation. Please proceed sir.

Kevin Sellers

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

A few important items before we begin. We posted our earnings release, CFO commentary and updated financial statements to our investor website, intc.com, for anyone who still needs access to that information. 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. Following some brief prepared remarks from both Paul and Stacy we will 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. I also want to remind you of our Annual Intel Developers Forum is scheduled for September 13th through the 15th in San Francisco, and hope to see many of you there. For information on this event, please visit our website or contact Intel Investor Relations directly.

With that, let me now hand it over to Paul.

Paul Otellini

Thanks Kevin. In Q2, Intel posted its best quarterly results ever as the economics of the world continue to reflect renewed economic momentum. Intel growth continues to run ahead of economic growth, reflecting what we believe is a fundamental shift driven by internet adoption. Our second quarter was up 5% from Q1 versus a seasonal norm of down 2%.

In addition to continuing year-over-year growth in the consumer segments, this quarter we benefited from a broad-based return of the enterprise and small business segments. Our server business had a record quarter showing strong sequential unit growth and strength from customers opting for richer configurations that drove an improved mix within the server category.

The return on investment that our new server offerings deliver is extremely compelling and is a major reason for the strong demand we are experiencing. One example of the surging demand for servers is in the IP data centre segment, which grew 170% over Q2 of last year. As internet traffic continues to boom, the cloud build out is accelerating in order to keep pace.

In addition to servers, we also saw companies including small businesses refreshing their PC. Like servers, this too was broad-based and was an important driver of improving product mix within our PC business last quarter. Our Atom business also performed very well growing 16% sequentially. Two important drivers were responsible. First, there was an inventory correction in Q1 that has now normalized and second, we introduced dual core versions of Atom, which helped drive incremental demand and improve our mix within the Atom category. Since launching the Atom processor two years ago, we have shipped approximately 75 million Atoms and we still expect the industry to ship around 40 million net books this year. In terms of global demand for PCs, many third-party analysts are now projecting annual unit growth of around 20%. Our plans are consistent with this number. With the last five quarters we have seen PC sales, driven by consumer purchases, particularly notebooks. This trend is continuing, and in Q2 we saw a return of corporate purchases that offset seasonal and geographic patterns in the consumer segment.

Our outlook for the year remains robust and we are planning for a seasonal second half. One quick word about the status of inventories; Across the supply chain, we are very comfortably with the levels of inventory. In the channel, we saw a marked decline in inventories as currency volatility caused distributors to cut back on orders so inventories in the channel are very lean. As for inventories on our balance sheet, the increase was both conscious and important. Over 100% of the increase was from leading edge 32nm processors in anticipation of a seasonally stronger second half.