Exhibit 99.1
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95054-1549
News ReleaseIntel Reports Record Quarterly Revenue of $15.8 Billion, Up 9 Percent Year-Over-Year;
Operating Profit of $4.5 Billion
News Summary:
| • | Strong top line growth with record revenue in the Data Center Group and Internet of Things Group |
| • | Solid earnings with GAAP net income of $3.4 billion, up 9 percent year-over-year; |
| • | Delivered 21 percent year-over-year growth in non-GAAP net income driven by strong execution and demand for our products |
| • | GAAP gross margin of 63.3 percent and non-GAAP gross margin of 64.8 percent |
SANTA CLARA, Calif., October 18, 2016 -- Intel Corporation today reported third-quarter GAAP revenue of $15.8 billion, operating income of $4.5 billion, net income of $3.4 billion and EPS of 69 cents. Intel reported non-GAAP operating income of $5.1 billion, net income of $3.9 billion and EPS of 80 cents. The company generated approximately $5.8 billion in cash from operations, paid dividends of $1.2 billion, and used $457 million to repurchase 13 million shares of stock.
“It was an outstanding quarter, and we set a number of new records across the business,” said Brian Krzanich, Intel CEO. “In addition to strong financials, we delivered exciting new technologies while continuing to align our people and products to our strategy. We’re executing well, and these results show Intel’s continuing transformation to a company that powers the cloud and billions of smart, connected devices."
Q3 Key Business Unit Trends
| • | Client Computing Group revenue of $8.9 billion, up 21 percent sequentially and up 5 percent year-over-year |
| • | Data Center Group revenue of $4.5 billion, up 13 percent sequentially and up 10 percent year-over-year |
| • | Internet of Things Group revenue of $689 million, up 20 percent sequentially and up 19 percent year-over-year |
| • | Non-Volatile Memory Solutions Group revenue of $649 million, up 17 percent sequentially and down 1 percent year-over-year |
| • | Intel Security Group revenue of $537 million, flat sequentially and up 6 percent year-over-year |
| • | Programmable Solutions Group revenue of $425 million, down 9 percent sequentially |
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| GAAP Financial Comparison | |||
| Quarterly Year-Over-Year | |||
| Q3 2016 | Q3 2015 | vs. Q3 2015 | |
| Revenue | $15.8 billion | $14.5 billion | up 9% |
| Gross Margin | 63.3% | 63.0% | up 0.3 point |
| R&D and MG&A | $5.1 billion | $4.8 billion | up 5% |
| Operating Income | $4.5 billion | $4.2 billion | up 6% |
| Tax Rate | 21.8% | 26.9% | down 5.1 points |
| Net Income | $3.4 billion | $3.1 billion | up 9% |
| Earnings Per Share | 69 cents | 64 cents | up 8% |
| Non-GAAP Financial Comparison | |||
| Quarterly Year-Over-Year | |||
| Q3 2016 | Q3 2015 | vs. Q3 2015 | |
| Revenue | $15.8 billion ^ | $14.5 billion ^ | up 9% |
| Gross Margin | 64.8% | 63.5% | up 1.3 points |
| R&D and MG&A | $5.1 billion ^ | $4.8 billion ^ | up 5% |
| Operating Income | $5.1 billion | $4.4 billion | up 18% |
| Net Income | $3.9 billion | $3.2 billion | up 21% |
| Earnings Per Share | 80 cents | 66 cents | up 21% |
| GAAP Financial Comparison | |||
| Quarterly Sequential | |||
| Q3 2016 | Q2 2016 | vs. Q2 2016 | |
| Revenue | $15.8 billion | $13.5 billion | up 17% |
| Gross Margin | 63.3% | 58.9% | up 4.4 points |
| R&D and MG&A | $5.1 billion | $5.2 billion | down 1% |
| Operating Income | $4.5 billion | $1.3 billion | up 239% |
| Tax Rate | 21.8% | 20.4% | up 1.4 points |
| Net Income | $3.4 billion | $1.3 billion | up 154% |
| Earnings Per Share | 69 cents | 27 cents | up 156% |
| Non-GAAP Financial Comparison | |||
| Quarterly Sequential | |||
| Q3 2016 | Q2 2016 | vs. Q2 2016 | |
| Revenue | $15.8 billion ^ | $13.5 billion^ | up 17% |
| Gross Margin | 64.8% | 61.8% | up 3.0 points |
| R&D and MG&A | $5.1 billion ^ | $5.2 billion^ | down 1% |
| Operating Income | $5.1 billion | $3.2 billion | up 60% |
| Net Income | $3.9 billion | $2.9 billion | up 36% |
| Earnings Per Share | 80 cents | 59 cents | up 36% |
^ No adjustment on a non-GAAP basis.
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Intel/Page 3
Business Outlook
Intel’s Business Outlook does not include the potential impact of any business combinations, asset acquisitions, divestitures, strategic investments and other significant transactions that may be completed after October 18.
The acquisition of Altera was completed in early fiscal year 2016. As a result of the Altera acquisition, we have acquisition-related charges that are primarily non-cash. Our guidance for the fourth quarter and full-year 2016 include both GAAP and non-GAAP estimates. Reconciliations between these GAAP and non-GAAP financial measures are included below.
| Q4 2016 | GAAP | Non-GAAP | Range | ||
| Revenue | $15.7 billion | $15.7 billion ^ | +/- $500 million | ||
| Gross margin percentage | 61% | 63% | +/- a couple pct. pts. | ||
| R&D plus MG&A spending | $5.2 billion | $5.2 billion ^ | approximately | ||
| Amortization of acquisition-related intangibles included in operating expenses | $40 million | $0 | approximately | ||
| Impact of equity investments and interest and other, net | $(100) million net loss | $(100) million ^ net loss | approximately | ||
| Depreciation | $1.5 billion | $1.5 billion ^ | approximately | ||
| Tax rate | 22% | 22% ^ | approximately | ||
| Full-Year 2016 | GAAP | Non-GAAP | Range | ||
| Restructuring and other charges | $2.0 billion | $0 | approximately | ||
| Full-year capital spending | $9.5 billion | $9.5 billion ^ | +/- $500 million | ||
Restructuring and Other Charges Forecast
Total Restructuring and Other charges are now expected to be $2.3 billion, with the majority of the remaining charges to be realized between now and the middle of 2017. Approximately $1.8 billion has been realized to-date and another $250 million is expected in Q4 2016.
For additional information regarding Intel’s results and Business Outlook, please see the CFO Commentary at: www.intc.com/results.cfm.
Status of Business Outlook
Intel’s Business Outlook is posted on intc.com and may be reiterated in public or private meetings with investors and others. The Business Outlook will be effective through the close of business on December 16 unless updated earlier; except that the Business Outlook for amortization of acquisition-related intangibles, impact of equity investments and interest and other, restructuring charges, and tax rate, will be effective only through the close of business on October 25. Intel’s Quiet Period will start from the close of business on December 16 until publication of the company’s fourth-quarter earnings release, scheduled for January 26. During the Quiet Period, all of the Business Outlook and other forward-looking statements disclosed in the company’s news releases and filings with the SEC should be considered as historical, speaking as of prior to the Quiet Period only and not subject to an update by the company.
^ No adjustment on a non-GAAP basis.
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Intel/Page 4
Forward-Looking Statements
The above statements and any others in this release that refer to future plans and expectations are forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," "should," and variations of such words and similar expressions are intended to identify such forward-looking statements. Statements that refer to or are based on projections, uncertain events or assumptions also identify forward-looking statements. Many factors could affect Intel's actual results, and variances from Intel's current expectations regarding such factors could cause actual results to differ materially from those expressed in these forward-looking statements. Intel presently considers the following to be important factors that could cause actual results to differ materially from the company's expectations.
| • | Demand for Intel's products is highly variable and could differ from expectations due to factors including changes in business and economic conditions; consumer confidence or income levels; the introduction, availability and market acceptance of Intel's products, products used together with Intel products and competitors' products; competitive and pricing pressures, including actions taken by competitors; supply constraints and other disruptions affecting customers; changes in customer order patterns including order cancellations; and changes in the level of inventory at customers. |
| • | Intel's gross margin percentage could vary significantly from expectations based on capacity utilization; variations in inventory valuation, including variations related to the timing of qualifying products for sale; changes in revenue levels; segment product mix; the timing and execution of the manufacturing ramp and associated costs; excess or obsolete inventory; changes in unit costs; defects or disruptions in the supply of materials or resources; and product manufacturing quality/yields. Variations in gross margin may also be caused by the timing of Intel product introductions and related expenses, including marketing expenses, and Intel's ability to respond quickly to technological developments and to introduce new products or incorporate new features into existing products, which may result in restructuring and asset impairment charges. |
| • | Intel's results could be affected by adverse economic, social, political and physical/infrastructure conditions in countries where Intel, its customers or its suppliers operate, including military conflict and other security risks, natural disasters, infrastructure disruptions, health concerns, fluctuations in currency exchange rates, and the United Kingdom referendum to withdraw from the European Union. Results may also be affected by the formal or informal imposition by countries of new or revised export and/or import and doing-business regulations, which could be changed without prior notice. |
| • | Intel operates in highly competitive industries and its operations have high costs that are either fixed or difficult to reduce in the short term. |
| • | The amount, timing and execution of Intel's stock repurchase program could be affected by changes in Intel's priorities for the use of cash, such as operational spending, capital spending, acquisitions, and as a result of changes to Intel's cash flows or changes in tax laws. |
| • | Intel's expected tax rate is based on current tax law and current expected income and may be affected by the jurisdictions in which profits are determined to be earned and taxed; changes in the estimates of credits, benefits and deductions; the resolution of issues arising from tax audits with various tax authorities, including payment of interest and penalties; and the ability to realize deferred tax assets. |
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Intel/Page 5
| • | Gains or losses from equity securities and interest and other could vary from expectations depending on gains or losses on the sale, exchange, change in the fair value or impairments of debt and equity investments, interest rates, cash balances, and changes in fair value of derivative instruments. |
| • | Product defects or errata (deviations from published specifications) may adversely impact our expenses, revenues and reputation. |
| • | Intel's results could be affected by litigation or regulatory matters involving intellectual property, stockholder, consumer, antitrust, disclosure and other issues. An unfavorable ruling could include monetary damages or an injunction prohibiting Intel from manufacturing or selling one or more products, precluding particular business practices, impacting Intel's ability to design its products, or requiring other remedies such as compulsory licensing of intellectual property. |
| • | Intel’s results may be affected by factors that could cause the implementation of, and expected results from, the restructuring plan announced on April 19, 2016, to differ from Intel’s expectations. A detailed description of risks associated with the restructuring plan and factors that could cause actual results of the restructuring plan to differ is set forth in the “Forward Looking Statements” section of Intel’s press release entitled “Intel Announces Restructuring Initiative to Accelerate Transformation” dated April 19, 2016, which risk factors are incorporated by reference herein. |
| • | Intel's results may be affected by the timing of closing of acquisitions, divestitures and other significant transactions. In addition, risks associated with our proposed transaction with TPG to collaborate to establish McAfee as an independent cybersecurity company are described in the “Forward Looking Statements” section of Intel’s press release entitled "Intel and TPG to Collaborate to Establish McAfee as Leading Independent Cybersecurity Company Valued at $4.2 Billion" dated September 7, 2016, which risk factors are incorporated by reference herein. |
A detailed discussion of these and other factors that could affect Intel's results is included in Intel's SEC filings, including the company's most recent reports on Forms 10-K and 10-Q.
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Intel/Page 6
Earnings Webcast
Intel will hold a public webcast at 2:00 p.m. PDT today on its Investor Relations website at www.intc.com. A webcast replay and audio download will also be available on the site.
Intel plans to report its earnings for the fourth quarter of 2016 on January 26. Concurrent with the earnings press release, the company plans to publish a commentary by Robert H. Swan, Intel CFO and executive vice president, at www.intc.com/results.cfm. A public webcast of Intel’s earnings conference call will follow at 2:00 p.m. PDT at www.intc.com.
About Intel
Intel (NASDAQ: INTC) expands the boundaries of technology to make the most amazing experiences possible. Information about Intel can be found at newsroom.intel.com and intel.com.
Intel, the Intel logo, Core, and Ultrabook are trademarks of Intel Corporation or its subsidiaries in the United States and other countries.
**Other names and brands may be claimed as the property of others.
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Intel/Page 7
INTEL CORPORATION
CONSOLIDATED SUMMARY STATEMENT OF INCOME DATA
(In millions, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Oct 1, 2016 | Sep 26, 2015 | Oct 1, 2016 | Sep 26, 2015 | |||||||||||||
| NET REVENUE | $ | 15,778 | $ | 14,465 | $ | 43,013 | $ | 40,441 | ||||||||
| Cost of sales | 5,795 | 5,354 | 16,927 | 15,352 | ||||||||||||
| GROSS MARGIN | 9,983 | 9,111 | 26,086 | 25,089 | ||||||||||||
| Research and development | 3,069 | 2,927 | 9,460 | 9,009 | ||||||||||||
| Marketing, general and administrative | 2,006 | 1,910 | 6,239 | 5,812 | ||||||||||||
| R&D AND MG&A | 5,075 | 4,837 | 15,699 | 14,821 | ||||||||||||
| Restructuring and other charges | 372 | 14 | 1,786 | 367 | ||||||||||||
| Amortization of acquisition-related intangibles | 74 | 68 | 253 | 198 | ||||||||||||
| OPERATING EXPENSES | 5,521 | 4,919 | 17,738 | 15,386 | ||||||||||||
| OPERATING INCOME | 4,462 | 4,192 | 8,348 | 9,703 | ||||||||||||
| Gains (losses) on equity investments, net | (12 | ) | 165 | 488 | 297 | |||||||||||
| Interest and other, net | (132 | ) | (104 | ) | (340 | ) | (91 | ) | ||||||||
| INCOME BEFORE TAXES | 4,318 | 4,253 | 8,496 | 9,909 | ||||||||||||
| Provision for taxes | 940 | 1,144 | 1,742 | 2,102 | ||||||||||||
| NET INCOME | $ | 3,378 | $ | 3,109 | $ | 6,754 | $ | 7,807 | ||||||||
| BASIC EARNINGS PER SHARE OF COMMON STOCK | $ | 0.71 | $ | 0.65 | $ | 1.43 | $ | 1.64 | ||||||||
| DILUTED EARNINGS PER SHARE OF COMMON STOCK | $ | 0.69 | $ | 0.64 | $ | 1.39 | $ | 1.59 | ||||||||
| WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: | ||||||||||||||||
| BASIC | 4,734 | 4,747 | 4,728 | 4,749 | ||||||||||||
| DILUTED | 4,877 | 4,876 | 4,872 | 4,900 | ||||||||||||
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Intel/Page 8
INTEL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEET DATA
(In millions)
| Oct 1, 2016 | Dec 26, 2015 | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 4,752 | $ | 15,308 | ||||
| Short-term investments | 3,270 | 2,682 | ||||||
| Trading assets | 9,747 | 7,323 | ||||||
| Accounts receivable, net | 4,952 | 4,787 | ||||||
| Inventories | ||||||||
| Raw materials | 688 | 532 | ||||||
| Work in process | 3,443 | 2,893 | ||||||
| Finished goods | 1,652 | 1,742 | ||||||
| 5,783 | 5,167 | |||||||
| Assets held for sale | 5,100 | 71 | ||||||
| Other current assets | 2,612 | 2,982 | ||||||
| TOTAL CURRENT ASSETS | 36,216 | 38,320 | ||||||
| Property, plant and equipment, net | 34,707 | 31,858 | ||||||
| Marketable equity securities | 6,022 | 5,960 | ||||||
| Other long-term investments | 4,189 | 1,891 | ||||||
| Goodwill | 13,868 | 11,332 | ||||||
| Identified intangible assets, net | 9,524 | 3,933 | ||||||
| Other long-term assets | 7,691 | 8,165 | ||||||
| TOTAL ASSETS | $ | 112,217 | $ | 101,459 | ||||
| CURRENT LIABILITIES | ||||||||
| Short-term debt | $ | 3,573 | $ | 2,634 | ||||
| Accounts payable | 3,181 | 2,063 | ||||||
| Accrued compensation and benefits | 3,110 | 3,138 | ||||||
| Accrued advertising | 820 | 960 | ||||||
| Deferred income | 1,724 | 2,188 | ||||||
| Liabilities held for sale | 1,881 | 56 | ||||||
| Other accrued liabilities | 5,804 | 4,607 | ||||||
| TOTAL CURRENT LIABILITIES | 20,093 | 15,646 | ||||||
| Long-term debt | 24,043 | 20,036 | ||||||
| Long-term deferred tax liabilities | 1,211 | 954 | ||||||
| Other long-term liabilities | 2,869 | 2,841 | ||||||
| TEMPORARY EQUITY | 886 | 897 | ||||||
| Stockholders' equity | ||||||||
| Preferred Stock | — | — | ||||||
| Common stock and capital in excess of par value | 25,070 | 23,411 | ||||||
| Accumulated other comprehensive income (loss) | 400 | 60 | ||||||
| Retained Earnings | 37,645 | 37,614 | ||||||
| TOTAL STOCKHOLDERS' EQUITY | 63,115 | 61,085 | ||||||
| TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY | $ | 112,217 | $ | 101,459 | ||||
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Intel/Page 9
INTEL CORPORATION
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In millions)
| Q3 2016 | Q2 2016 | Q3 2015 | ||||||||||
| CASH INVESTMENTS: | ||||||||||||
| Cash and short-term investments | $ | 8,022 | $ | 8,186 | $ | 14,184 | ||||||
| Trading assets | 9,747 | 9,503 | 6,659 | |||||||||
| Total cash investments | $ | 17,769 | $ | 17,689 | $ | 20,843 | ||||||
| CURRENT DEFERRED INCOME: | ||||||||||||
| Deferred income on shipments of components to distributors | $ | 1,553 | $ | 1,484 | $ | 918 | ||||||
| Deferred income from software, services and other | 171 | 1,323 | 1,242 | |||||||||
| Total current deferred income | $ | 1,724 | $ | 2,807 | $ | 2,160 | ||||||
| SELECTED CASH FLOW INFORMATION: | ||||||||||||
| Operating activities: | ||||||||||||
| Depreciation | $ | 1,543 | $ | 1,522 | $ | 2,060 | ||||||
| Share-based compensation | $ | 324 | $ | 364 | $ | 309 | ||||||
| Amortization of intangibles | $ | 385 | $ | 395 | $ | 215 | ||||||
| Investing activities: | ||||||||||||
| Additions to property, plant and equipment | $ | (2,463 | ) | $ | (2,286 | ) | $ | (1,206 | ) | |||
| Acquisitions, net of cash acquired | $ | (532 | ) | $ | (50 | ) | $ | (14 | ) | |||
| Investments in non-marketable equity investments | $ | (230 | ) | $ | (481 | ) | $ | (340 | ) | |||
| Equity investment in Tsinghua Unigroup Ltd. | $ | — | $ | — | $ | (966 | ) | |||||
| Financing activities: | ||||||||||||
| Repurchase of common stock | $ | (457 | ) | $ | (804 | ) | $ | (1,029 | ) | |||
| Proceeds from sales of common stock to employees & excess tax benefit | $ | 520 | $ | 259 | $ | 228 | ||||||
| Issuance of long-term debt, net of issuance costs | $ | — | $ | 2,734 | $ | 7,986 | ||||||
| Payment of dividends to stockholders | $ | (1,231 | ) | $ | (1,233 | ) | $ | (1,140 | ) | |||
| EARNINGS PER SHARE OF COMMON STOCK INFORMATION: | ||||||||||||
| Weighted average shares of common stock outstanding - basic | 4,734 | 4,729 | 4,747 | |||||||||
| Dilutive effect of employee equity incentive plans | 47 | 49 | 48 | |||||||||
| Dilutive effect of convertible debt | 96 | 88 | 81 | |||||||||
| Weighted average shares of common stock outstanding - diluted | 4,877 | 4,866 | 4,876 | |||||||||
| STOCK BUYBACK: | ||||||||||||
| Shares repurchased | 13 | 26 | 35 | |||||||||
| Cumulative shares repurchased (in billions) | 4.8 | 4.8 | 4.8 | |||||||||
| Remaining dollars authorized for buyback (in billions) | $ | 7.3 | $ | 7.8 | $ | 9.9 | ||||||
| OTHER INFORMATION: | ||||||||||||
| Employees (in thousands) | 105.6 | 106.5 | 106.5 | |||||||||
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Intel/Page 10
INTEL CORPORATION
SUPPLEMENTAL OPERATING SEGMENT RESULTS
(In millions)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Oct 1, 2016 | Sep 26, 2015 | Oct 1, 2016 | Sep 26, 2015 | |||||||||||||
| Net Revenue | ||||||||||||||||
| Client Computing Group | ||||||||||||||||
| Platform | $ | 8,258 | $ | 8,094 | $ | 22,395 | $ | 22,280 | ||||||||
| Other | 634 | 412 | 1,384 | 1,183 | ||||||||||||
| 8,892 | 8,506 | 23,779 | 23,463 | |||||||||||||
| Data Center Group | ||||||||||||||||
| Platform | 4,164 | 3,857 | 11,589 | 10,842 | ||||||||||||
| Other | 378 | 283 | 979 | 831 | ||||||||||||
| 4,542 | 4,140 | 12,568 | 11,673 | |||||||||||||
| Internet of Things Group | ||||||||||||||||
| Platform | 605 | 501 | 1,673 | 1,450 | ||||||||||||
| Other | 84 | 80 | 239 | 223 | ||||||||||||
| 689 | 581 | 1,912 | 1,673 | |||||||||||||
| Non-Volatile Memory Solutions Group | 649 | 655 | 1,760 | 1,943 | ||||||||||||
| Intel Security Group | 537 | 506 | 1,611 | 1,473 | ||||||||||||
| Programmable Solutions Group | 425 | — | 1,249 | — | ||||||||||||
| All other | 44 | 77 | 134 | 216 | ||||||||||||
| TOTAL NET REVENUE | $ | 15,778 | $ | 14,465 | $ | 43,013 | $ | 40,441 | ||||||||
| Operating income (loss) | ||||||||||||||||
| Client Computing Group | $ | 3,327 | $ | 2,433 | $ | 7,123 | $ | 5,447 | ||||||||
| Data Center Group | 2,110 | 2,130 | 5,639 | 5,672 | ||||||||||||
| Internet of Things Group | 191 | 150 | 403 | 382 | ||||||||||||
| Non-Volatile Memory Solutions Group | (134 | ) | 51 | (453 | ) | 215 | ||||||||||
| Intel Security Group | 115 | 97 | 297 | 134 | ||||||||||||
| Programmable Solutions Group | 78 | — | (184 | ) | — | |||||||||||
| All other | (1,225 | ) | (669 | ) | (4,477 | ) | (2,147 | ) | ||||||||
| TOTAL OPERATING INCOME | $ | 4,462 | $ | 4,192 | $ | 8,348 | $ | 9,703 | ||||||||
During the first quarter of 2016, we formed the Programmable Solutions Group (PSG) as a result of our acquisition of Altera. Additionally, we formed the New Technology Group (NTG), which includes products designed for wearables, cameras, and other market segments (including drones). All prior-period amounts have been retrospectively adjusted to reflect the way we internally manage and monitor segment performance starting in fiscal year 2016 and include other minor reorganizations. In the third quarter of 2016, we announced our planned divestiture of our Intel Security business and expect to close the transaction in the second quarter of 2017.
Revenue for our reportable and non-reportable operating segments is primarily related to the following product lines:
| • | Client Computing Group. Includes platforms designed for notebooks (including Ultrabook™ devices), 2 in 1 systems, desktops (including all-in-ones and high-end enthusiast PCs), tablets, phones, wireless and wired connectivity products, and mobile communication components. |
| • | Data Center Group. Includes platforms designed for the enterprise, cloud, communications infrastructure, and technical computing segments. |
| • | Internet of Things Group. Includes platforms designed for Internet of Things market segments, including retail, transportation, industrial, and buildings and home use, along with a broad range of other market segments. |
| • | Non-Volatile Memory Solutions Group.Includes NAND flash memory products primarily used in solid-state drives. |
| • | Intel Security Group.Includes security software products designed to deliver innovative solutions that secure computers, mobile devices, and networks around the world from the latest malware and emerging online threats. |
| • | Programmable Solutions Group. Includes programmable semiconductors (primary field-programmable gate array) and related products for a broad range of market segments, including communications, networking and storage, industrial, military, and automotive. |
We have sales and marketing, manufacturing, engineering, finance, and administration groups. Expenses for these groups are generally allocated to the operating segments, and the expenses are included in the following operating results.
All other category includes revenue, expenses, and charges such as:
| • | results of operations from NTG; |
| • | amounts included within restructuring and other charges; |
| • | a portion of profit-dependent compensation and other expenses not allocated to the operating segments; |
| • | divested businesses for which discrete operating results are not regularly reviewed by our CODM; |
| • | results of operations of start-up businesses that support our initiatives, including our foundry business; and |
| • | acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill. |
A substantial majority of our revenue is generated from the sale of platforms. Platforms incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multichip package. Our remaining primary product lines are incorporated in "other."
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Intel/Page 11
INTEL CORPORATION
SUPPLEMENTAL PLATFORM REVENUE INFORMATION
| Q3 2016 | Q3 2016 | Q3 YTD 2016 | ||||
| compared to Q2 2016 | compared to Q3 2015 | compared to Q3 YTD 2015 | ||||
| Client Computing Group Platform | ||||||
| Unit Volumes | 17% | (4)% | (11)% | |||
| Average Selling Prices | 2% | 6% | 12% | |||
| Data Center Group Platform | ||||||
| Unit Volumes | 13% | 12% | 9% | |||
| Average Selling Prices | (1)% | (3)% | (2)% | |||
Client Computing Group Notebook, Desktop and Tablet Platform Key Drivers
Q3 2016 compared to Q3 2015:
- Notebook platform volumes increased 4%
- Notebook platform average selling prices increased 3%
- Desktop platform volumes decreased 6%
- Desktop platform average selling prices were flat
- Tablet platform volumes decreased
First nine months of 2016 compared to the first nine months of 2015:
- Notebook platform volumes decreased 1%
- Notebook platform average selling prices increased 2%
- Desktop platform volumes decreased 5%
- Desktop platform average selling prices increased 2%
- Tablet platform volumes decreased
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Intel/Page 12
INTEL CORPORATION
EXPLANATION OF NON-GAAP MEASURES
In addition to disclosing financial results in accordance with U.S. generally accepted accounting principles (GAAP), this earnings release contains references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.
Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects. Income tax effects have been calculated using an appropriate tax rate. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated.
Acquisition-related adjustments: The non-GAAP financial measures disclosed by the company exclude certain business combination accounting adjustments and certain expenses related to acquisitions as follows:
| • | Revenue and gross margin: Non-GAAP financial measures exclude the impact of the deferred revenue write-down, amortization of acquisition-related intangible assets that impact cost of sales, and the inventory valuation adjustment. |
| ◦ | Deferred revenue write-down: Sales to distributors are made under agreements allowing for subsequent price adjustments and returns and are deferred until the products are resold by the distributor. Business combination accounting principles require us to write down to fair value the deferred revenue assumed in our acquisitions as we have limited performance obligations associated with this deferred revenue. Our GAAP revenues and related cost of sales for the subsequent reselling by distributors to end customers after an acquisition do not reflect the full amounts that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustments made in the first quarter of 2016 eliminate the effect of the deferred revenue write-down associated with our acquisition of Altera. We believe these adjustments are useful to investors as an additional means to reflect revenue and gross margin trends of our business. |
| ◦ | Inventory valuation adjustment: Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustments to our cost of sales in the first half of 2016 exclude the expected profit margin component that is recorded under business combination accounting principles associated with our acquisition of Altera. We believe the adjustments are useful to investors as an additional means to reflect cost of sales and gross margin trends of our business. |
| • | Amortization of acquisition-related intangible assets: Amortization of acquisition-related intangible assets consists of amortization of intangibles assets such as developed technology, trade names, and customer relationships acquired in connection with business combinations. We record charges relating to the amortization of these intangibles within both cost of sales and operating expenses in our GAAP financial statements. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance. |
| • | R&D plus MG&A spending: Non-GAAP R&D plus MG&A spending excludes the impact of other charges associated with the acquisition of Altera, which primarily includes bankers fees, compensation-related costs, and valuation charges for Altera's stock based compensation incurred in the first quarter of 2016. |
Restructuring and other charges: Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include asset impairments, pension charges, and costs associated with the Intel Security Group planned divestiture. We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures. We believe that these costs do not reflect our current operating performance. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.
Constant currency effect on revenue: Constant currency results assume foreign revenues are translated from foreign currencies to the U.S. dollar, net of the effect of foreign currency hedges, at rates consistent with those in the comparable period. We believe this is a useful metric that facilitates comparison to our historical performance for the Intel Security Group operating segment.
Gross cash, net cash and other longer term investments: We reference non-GAAP financial measures of gross cash, net cash and other longer term investments, which are used by management when assessing our sources of liquidity and capital resources. We believe these non-GAAP financial measures are helpful to investors in understanding our capital structure and how we manage our resources.
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Intel/Page 13
SUPPLEMENTAL RECONCILIATIONS OF GAAP OUTLOOK TO NON-GAAP OUTLOOK
Set forth below are reconciliations of the non-GAAP financial measure to the most directly comparable GAAP financial measure. The non-GAAP financial measure disclosed by the company has limitations and should not be considered a substitute for, or superior to, the financial measure prepared in accordance with GAAP, and the financial outlook prepared in accordance with GAAP and the reconciliations from this Business Outlook should be carefully evaluated. Please refer to "Explanation of Non-GAAP Measures" in this document for a detailed explanation of the adjustment made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.
| ($ in Millions) | Q4 2016 Outlook | ||||
| GAAP Gross Margin Percentage | 61 | % | +/- a couple pct. pts. | ||
| Adjustment for amortization of acquisition-related intangibles | 2 | % | |||
| Non-GAAP Gross Margin Percentage | 63 | % | +/- a couple pct. pts. | ||
| GAAP Amortization of acquisition-related intangibles in operating expenses | $ | 40 | approximately | ||
| Adjustment for amortization of acquisition-related amortization | (40 | ) | |||
| Non-GAAP Amortization of acquisition-related intangibles in operating expenses | $ | — | |||
| ($ in Billions) | 2016 Full-Year Outlook | ||||
| GAAP Restructuring and other charges | $ | 2.0 | approximately | ||
| Adjustment for restructuring and other charges | (2.0 | ) | |||
| Non-GAAP Restructuring and other charges | $ | — | |||
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Intel/Page 14
SUPPLEMENTAL RECONCILIATIONS OF GAAP ACTUALS TO NON-GAAP ACTUALS
Set forth below are reconciliations of the non-GAAP financial measure to the most directly comparable GAAP financial measure. The non-GAAP financial measure disclosed by the company has limitations and should not be considered a substitute for, or superior to, the financial measure prepared in accordance with GAAP, and the reconciliations from GAAP to Non-GAAP actuals should be carefully evaluated. Please refer to "Explanation of Non-GAAP Measures" in this document for a detailed explanation of the adjustment made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| ($ in Millions, except per share amounts) | Oct 1, 2016 | Jul 2, 2016 | Sep 26, 2015 | Oct 1, 2016 | Sep 26, 2015 | ||||||||||||||
| GAAP NET REVENUE | $ | 15,778 | $ | 13,533 | $ | 14,465 | $ | 43,013 | $ | 40,441 | |||||||||
| Deferred revenue write-down | — | — | — | 99 | — | ||||||||||||||
| NON-GAAP NET REVENUE | $ | 15,778 | $ | 13,533 | $ | 14,465 | $ | 43,112 | $ | 40,441 | |||||||||
| GAAP GROSS MARGIN | $ | 9,983 | $ | 7,973 | $ | 9,111 | $ | 26,086 | $ | 25,089 | |||||||||
| Deferred revenue write-down, net of cost of sales | — | — | — | 64 | — | ||||||||||||||
| Inventory valuation | — | 161 | — | 387 | — | ||||||||||||||
| Amortization of acquisition-related intangibles | 235 | 235 | 76 | 705 | 271 | ||||||||||||||
| NON-GAAP GROSS MARGIN | $ | 10,218 | $ | 8,369 | $ | 9,187 | $ | 27,242 | $ | 25,360 | |||||||||
| GAAP GROSS MARGIN PERCENTAGE | 63.3 | % | 58.9 | % | 63.0 | % | 60.6 | % | 62.0 | % | |||||||||
| Deferred revenue write-down, net of cost of sales | — | % | — | % | — | % | — | % | — | % | |||||||||
| Inventory valuation | — | % | 1.2 | % | — | % | 0.9 | % | — | % | |||||||||
| Amortization of acquisition-related intangibles | 1.5 | % | 1.7 | % | 0.5 | % | 1.7 | % | 0.7 | % | |||||||||
| NON-GAAP GROSS MARGIN PERCENTAGE | 64.8 | % | 61.8 | % | 63.5 | % | 63.2 | % | 62.7 | % | |||||||||
| GAAP R&D plus MG&A SPENDING | $ | 5,075 | $ | 5,152 | $ | 4,837 | $ | 15,699 | $ | 14,821 | |||||||||
| Other acquisition related charges | — | — | — | (100 | ) | — | |||||||||||||
| NON-GAAP R&D plus MG&A SPENDING | $ | 5,075 | $ | 5,152 | $ | 4,837 | $ | 15,599 | $ | 14,821 | |||||||||
| GAAP OPERATING INCOME | $ | 4,462 | $ | 1,318 | $ | 4,192 | $ | 8,348 | $ | 9,703 | |||||||||
| Deferred revenue write-down, net of cost of sales | — | — | — | 64 | — | ||||||||||||||
| Inventory valuation | — | 161 | — | 387 | — | ||||||||||||||
| Amortization of acquisition related intangibles | 309 | 324 | 144 | 958 | 469 | ||||||||||||||
| Restructuring and other charges | 372 | 1,414 | 14 | 1,786 | 367 | ||||||||||||||
| Other acquisition related charges | — | — | — | 100 | — | ||||||||||||||
| NON-GAAP OPERATING INCOME | $ | 5,143 | $ | 3,217 | $ | 4,350 | $ | 11,643 | $ | 10,539 | |||||||||
| GAAP NET INCOME | $ | 3,378 | $ | 1,330 | $ | 3,109 | $ | 6,754 | $ | 7,807 | |||||||||
| Deferred revenue write-down, net of cost of sales | — | — | — | 64 | — | ||||||||||||||
| Inventory valuation | — | 161 | — | 387 | — | ||||||||||||||
| Amortization of acquisition related intangibles | 309 | 324 | 144 | 958 | 469 | ||||||||||||||
| Restructuring and other charges | 372 | 1,414 | 14 | 1,786 | 367 | ||||||||||||||
| Other acquisition related charges | — | — | — | 100 | — | ||||||||||||||
| Income tax effect | (173 | ) | (370 | ) | (62 | ) | (675 | ) | (177 | ) | |||||||||
| NON-GAAP NET INCOME | $ | 3,886 | $ | 2,859 | $ | 3,205 | $ | 9,374 | $ | 8,466 | |||||||||
| GAAP DILUTED EARNINGS PER COMMON SHARE | $ | 0.69 | $ | 0.27 | $ | 0.64 | $ | 1.39 | $ | 1.59 | |||||||||
| Deferred revenue write down, net of cost of sales | — | — | — | 0.01 | — | ||||||||||||||
| Inventory valuation | — | 0.03 | — | 0.08 | — | ||||||||||||||
| Amortization of acquisition related intangibles | 0.06 | 0.07 | 0.03 | 0.19 | 0.10 | ||||||||||||||
| Restructuring and other charges | 0.08 | 0.29 | — | 0.37 | 0.08 | ||||||||||||||
| Other acquisition related charges | — | — | — | 0.02 | — | ||||||||||||||
| Income tax effect | (0.03 | ) | (0.07 | ) | (0.01 | ) | (0.14 | ) | (0.04 | ) | |||||||||
| NON-GAAP DILUTED EARNINGS PER COMMON SHARE | $ | 0.80 | $ | 0.59 | $ | 0.66 | $ | 1.92 | $ | 1.73 | |||||||||
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Intel/Page 15
SUPPLEMENTAL RECONCILIATIONS OF CONSTANT CURRENCY
Set forth below is a reconciliation of our operating results for the Intel Security Group operating segment on a constant currency basis. This non-GAAP financial measure should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Please refer to "Explanation of Non-GAAP Measures" in this document for a detailed explanation of the adjustment made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.
Intel Security Group Operating Segment
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| ($ in Millions) | Oct 1, 2016 | Sep 26, 2015 | % Change | Oct 1, 2016 | Sep 26, 2015 | % Change | ||||||||||||||||
| GAAP Net Revenue | 537 | 506 | 6 | % | 1,611 | 1,473 | 9 | % | ||||||||||||||
| Constant currency adjustment | (1 | ) | 11 | |||||||||||||||||||
| Non-GAAP Net Revenue, constant currency adjusted | $ | 536 | $ | 506 | 6 | % | $ | 1,622 | $ | 1,473 | 10 | % | ||||||||||
| GAAP Operating Income | 115 | 97 | 19 | % | 297 | 134 | 122 | % | ||||||||||||||
| Constant currency adjustment | (6 | ) | (8 | ) | ||||||||||||||||||
| Non-GAAP Operating Income, constant currency adjusted | $ | 109 | $ | 97 | 12 | % | $ | 289 | $ | 134 | 116 | % | ||||||||||
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Intel/Page 16
SUPPLEMENTAL RECONCILIATIONS OF GAAP CASH AND CASH EQUIVALENTS TO NON-GAAP GROSS CASH AND NON-GAAP NET CASH RESULTS
Set forth below are reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. The non-GAAP financial measures disclosed by the company have limitations and should not be considered a substitute for, or superior to, financial measures prepared in accordance with GAAP, and the financial results prepared in accordance with GAAP and reconciliations from these results should be carefully evaluated. Please refer to "Explanation of Non-GAAP Measures" in this document for a detailed explanation of the adjustments made to comparable GAAP measures, the ways management uses these non-GAAP measures, and the reasons why management believes these non-GAAP measures provide useful information for investors.
| ($ in Millions) | Oct 1, 2016 | Jul 2, 2016 | Dec 26, 2015 | |||||||||
| GAAP CASH AND CASH EQUIVALENTS | $ | 4,752 | $ | 3,885 | $ | 15,308 | ||||||
| Short-term investments | 3,270 | 4,301 | 2,682 | |||||||||
| Trading assets | 9,747 | 9,503 | 7,323 | |||||||||
| Total cash investments | $ | 17,769 | $ | 17,689 | $ | 25,313 | ||||||
| GAAP OTHER LONG-TERM INVESTMENTS | $ | 4,189 | $ | 3,567 | $ | 1,891 | ||||||
| Loans receivable and other | 1,224 | 1,566 | 1,170 | |||||||||
| Reverse repurchase agreements with original maturities greater than approximately three months | 250 | 350 | 1,000 | |||||||||
| NON-GAAP OTHER LONGER TERM INVESTMENTS | $ | 5,663 | $ | 5,483 | $ | 4,061 | ||||||
| NON-GAAP GROSS CASH | $ | 23,432 | $ | 23,172 | $ | 29,374 | ||||||
| ($ in Millions) | Oct 1, 2016 | Jul 2, 2016 | Dec 26, 2015 | |||||||||
| GAAP CASH AND CASH EQUIVALENTS | $ | 4,752 | $ | 3,885 | $ | 15,308 | ||||||
| Short-term investments | 3,270 | 4,301 | 2,682 | |||||||||
| Trading assets | 9,747 | 9,503 | 7,323 | |||||||||
| Total cash investments | $ | 17,769 | $ | 17,689 | $ | 25,313 | ||||||
| Short-term debt | (3,573 | ) | (4,560 | ) | (2,634 | ) | ||||||
| Unsettled trade liabilities and other | (79 | ) | (275 | ) | (99 | ) | ||||||
| Long-term debt | (24,043 | ) | (24,053 | ) | (20,036 | ) | ||||||
| NON-GAAP NET CASH (excluding other longer term investments) | $ | (9,926 | ) | $ | (11,199 | ) | $ | 2,544 | ||||
| GAAP OTHER LONG-TERM INVESTMENTS | $ | 4,189 | $ | 3,567 | $ | 1,891 | ||||||
| Loans receivable and other | 1,224 | 1,566 | 1,170 | |||||||||
| Reverse repurchase agreements with original maturities greater than approximately three months | 250 | 350 | 1,000 | |||||||||
| NON-GAAP OTHER LONGER TERM INVESTMENTS | $ | 5,663 | $ | 5,483 | $ | 4,061 | ||||||
| NON-GAAP NET CASH (including other longer term investments) | $ | (4,263 | ) | $ | (5,716 | ) | $ | 6,605 | ||||