Exhibit 99.1
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95054-1549
News ReleaseIntel Reports Record First-Quarter Revenue of $14.8 Billion
GAAP Operating Income of $3.6 Billion, Non-GAAP Operating Income of $3.9 Billion
Company Raises Full-Year Revenue and EPS Outlook
News Summary:
| • | Delivered year-over-year revenue growth, up 8 percent on a GAAP basis and 7 percent on a non-GAAP basis, and record first-quarter revenue |
| • | Growth businesses collectively grew double digits year-over-year; the memory business had record quarterly revenue and shipped first Intel® Optane™ products |
| • | Operating income was up 40 percent year-over-year on a GAAP basis and 20 percent on a non-GAAP basis |
and EPS was up 45 percent year-over-year on a GAAP basis and 22 percent on a non-GAAP basis, driven by higher platform average selling prices and lower platform unit cost
| • | Full-year outlook for revenue was raised $500 million and EPS was raised by 5 cents to $2.85 |
SANTA CLARA, Calif., April 27, 2017 -- Intel Corporation today reported first-quarter revenue of $14.8 billion, up 8 percent year-over-year on a GAAP basis and 7 percent on a non-GAAP basis. Operating income was $3.6 billion, up 40 percent year-over-year, and non-GAAP operating income was $3.9 billion, up 20 percent. EPS was 61 cents, up 45 percent year-over-year, and non-GAAP EPS was 66 cents, up 22 percent.
The company also generated approximately $3.9 billion in cash from operations, paid dividends of $1.2 billion, and used $1.2 billion to repurchase 35 million shares of stock. Intel’s board of directors has approved a $10 billion increase to Intel’s share buyback program, which brings the amount currently available for future buybacks to approximately $15 billion.
“The first quarter was another record quarter, coming off a record 2016. We continued to grow our company, shipped our disruptive new Optane memory technology, and positioned Intel to lead in new areas like artificial intelligence and autonomous driving,” said Brian Krzanich, Intel CEO. “The ASP strength we saw across nearly every segment of the business demonstrates continued demand for high-performance computing, which will only increase with the explosion of data.”
Q1 Key Business Unit Results and Trends Year-over-Year*
| • | Client Computing Group revenue of $8.0 billion, up 6 percent |
| • | Data Center Group revenue of $4.2 billion, up 6 percent |
| • | Internet of Things Group revenue of $721 million, up 11 percent |
| • | Non-Volatile Memory Solutions Group revenue of $866 million, up 55 percent |
| • | Intel Security Group revenue of $534 million, down 1 percent |
| • | Programmable Solutions Group revenue of $425 million, up 18 percent** |
“In the first quarter, we achieved growth across the business and increased capital returns with a five percent dividend raise while investing for future growth,” said Bob Swan, Intel CFO. “We’re off to a good start and raised our outlook for the year as we also look to further improve Intel’s operating efficiency.”
* The first quarter of 2016 had 14 weeks of business versus the typical 13 weeks.
** PSG revenue decreased 7% year-on-year after adjusting for a $99M deferred revenue write-down in Q1, 2016.
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| GAAP Financial Comparison | |||
| Quarterly Year-Over-Year | |||
| Q1 2017 | Q1 2016 | vs. Q1 2016 | |
| Revenue | $14.8 billion | $13.7 billion | up 8% |
| Gross Margin | 61.8% | 59.3% | up 2.5 points |
| R&D and MG&A | $5.4 billion | $5.5 billion | down 1% |
| Operating Income | $3.6 billion | $2.6 billion | up 40% |
| Tax Rate | 22.3% | 18.4% | up 3.9 points |
| Net Income | $3.0 billion | $2.0 billion | up 45% |
| Earnings Per Share | 61 cents | 42 cents | up 45% |
| Non-GAAP Financial Comparison | |||
| Quarterly Year-Over-Year | |||
| Q1 2017 | Q1 2016 | vs. Q1 2016 | |
| Revenue | $14.8 billion ^ | $13.8 billion | up 7% |
| Gross Margin | 63.2% | 62.7% | up 0.5 points |
| R&D and MG&A | $5.4 billion ^ | $5.4 billion | up 1% |
| Operating Income | $3.9 billion | $3.3 billion | up 20% |
| Net Income | $3.2 billion | $2.6 billion | up 22% |
| Earnings Per Share | 66 cents | 54 cents | up 22% |
^ No adjustment on a non-GAAP basis.
Intel/Page 3
Business Outlook
Intel’s Business Outlook and other forward-looking statements in this earnings release reflects management’s views as of April 27, 2017. Intel does not undertake, and expressly disclaims any duty, to update any such statement whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
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 April 27, 2017. Our guidance below reflects the divestiture of the Intel Security Group, which closed on April 3, 2017.
Our guidance for the second quarter and full-year 2017 include both GAAP and non-GAAP estimates. Reconciliations between these GAAP and non-GAAP financial measures are included below.
| Q2 2017 | GAAP | Non-GAAP | Range | ||
| Revenue | $14.4 billion | $14.4 billion ^ | +/- $500 million | ||
| Gross margin percentage | 62% | 63% | +/- a couple pct. pts. | ||
| R&D plus MG&A spending | $5.2 billion | $5.2 billion ^ | approximately | ||
| Restructuring and other charges | $100 million | $0 | approximately | ||
| Amortization of acquisition-related intangibles included in operating expenses | $40 million | $0 | approximately | ||
| Impact of equity investments and interest and other, net | $675 million | $300 million | approximately | ||
| Depreciation | $1.7 billion | $1.7 billion ^ | approximately | ||
| Operating income | $3.6 billion | $3.9 billion | approximately | ||
| Tax rate | 39% | 21% | approximately | ||
| Earnings per share | $0.53 | $0.68 | +/- 5 cents | ||
| Full-Year 2017 | GAAP | Non-GAAP | Range | ||
| Revenue | $60 billion | $60 billion ^ | approximately | ||
| Gross margin percentage | 62% | 63% | +/- a couple pct. pts. | ||
| R&D plus MG&A spending | $20.5 billion | $20.5 billion ^ | approximately | ||
| Restructuring and other charges | $200 million | $0 | approximately | ||
| Amortization of acquisition-related intangibles included in operating expenses | $150 million | $0 | approximately | ||
| Impact of equity investments and interest and other, net | $875 million | $500 million | approximately | ||
| Depreciation | $7.0 billion | $7.0 billion ^ | +/- $200 million | ||
| Operating income | $16.1 billion | $17.3 billion | approximately | ||
| Tax rate | 27% | 22% | approximately | ||
| Earnings per share | $2.56 | $2.85 | +/- 5% | ||
| Full-year capital spending | $12.0 billion | $12.0 billion ^ | +/- $500 million | ||
Restructuring and Other Charges Forecast
Total restructuring and other charges are expected to be $2.1 billion, down $200 million versus previously disclosed expectations. Approximately $2.0 billion has been realized to-date.
For additional information regarding Intel’s results and Business Outlook, please see the "CFO Commentary" document posted on our Investor Relations website at www.intc.com/results.cfm.
^ No adjustment on a non-GAAP basis.
Intel/Page 4
Status of Business Outlook
Effective today, Intel is changing its practice with respect to the status of Business Outlook. Business Outlook, as with other forward–looking statements disclosed in the company’s earnings releases, will reflect management’s views as of the date of the earnings release, and Intel will not undertake, and will expressly disclaim any duty, to update any statement made in its earnings releases, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.
Forward-Looking Statements
The above statements and any others in this release that refer to Business Outlook, 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," "would," "should," "could," 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. Such statements are based on management's expectations as of the date of this earnings release and involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied 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, sanctions and tariffs, 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 may fluctuate based on Intel's priorities for the use of cash for other purposes—such as investing in our business, including operational and capital spending, acquisitions, and returning cash to our stockholders as dividend payments—and because of changes in 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. |
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 planned acquisition of Mobileye N.V. are described in the “Forward Looking Statements” section of Intel’s press release entitled "Intel to Acquire Mobileye; Combining Technology and Talent to Accelerate the Future of Autonomous Driving" dated March 13, 2017, which risk factors are incorporated by reference herein. |
Additional information regarding 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, copies of which may be obtained by visiting our Investor Relations website at www.intc.com or the SEC's website at www.sec.gov.
Intel/Page 6
Earnings Webcast
Intel will hold a public webcast at 2:00 p.m. PDT today to discuss the results for its first quarter of 2017. The live public webcast can be accessed on Intel's Investor Relations website at www.intc.com/results.cfm. A webcast replay and audio download will also be available on the site.
Intel plans to report its earnings for the second quarter of 2017 on July 27, 2017 promptly after close of market, and related materials will be available 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 and Intel Optane, are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries. Other names and brands may be claimed as the property of others.
Intel/Page 7
INTEL CORPORATION
CONSOLIDATED SUMMARY STATEMENT OF INCOME DATA
(In millions, except per share amounts)
| Three Months Ended | ||||||||||||
| Apr 1, 2017 | Dec 31, 2016 | Apr 2, 2016 | ||||||||||
| NET REVENUE | $ | 14,796 | $ | 16,374 | $ | 13,702 | ||||||
| Cost of sales | 5,649 | 6,269 | 5,572 | |||||||||
| GROSS MARGIN | 9,147 | 10,105 | 8,130 | |||||||||
| Research and development | 3,326 | 3,280 | 3,246 | |||||||||
| Marketing, general and administrative | 2,104 | 2,158 | 2,226 | |||||||||
| R&D AND MG&A | 5,430 | 5,438 | 5,472 | |||||||||
| Restructuring and other charges | 80 | 100 | — | |||||||||
| Amortization of acquisition-related intangibles | 38 | 41 | 90 | |||||||||
| OPERATING EXPENSES | 5,548 | 5,579 | 5,562 | |||||||||
| OPERATING INCOME | 3,599 | 4,526 | 2,568 | |||||||||
| Gains (losses) on equity investments, net | 252 | 18 | 22 | |||||||||
| Interest and other, net | (36 | ) | (104 | ) | (82 | ) | ||||||
| INCOME BEFORE TAXES | 3,815 | 4,440 | 2,508 | |||||||||
| Provision for taxes | 851 | 878 | 462 | |||||||||
| NET INCOME | $ | 2,964 | $ | 3,562 | $ | 2,046 | ||||||
| BASIC EARNINGS PER SHARE OF COMMON STOCK | $ | 0.63 | $ | 0.75 | $ | 0.43 | ||||||
| DILUTED EARNINGS PER SHARE OF COMMON STOCK | $ | 0.61 | $ | 0.73 | $ | 0.42 | ||||||
| WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: | ||||||||||||
| BASIC | 4,723 | 4,735 | 4,722 | |||||||||
| DILUTED | 4,881 | 4,881 | 4,875 | |||||||||
Intel/Page 8
INTEL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEET DATA
(In millions)
| Apr 1, 2017 | Dec 31, 2016 | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 4,934 | $ | 5,560 | ||||
| Short-term investments | 3,058 | 3,225 | ||||||
| Trading assets | 9,303 | 8,314 | ||||||
| Accounts receivable, net | 4,921 | 4,690 | ||||||
| Inventories | ||||||||
| Raw materials | 786 | 695 | ||||||
| Work in process | 3,412 | 3,190 | ||||||
| Finished goods | 1,603 | 1,668 | ||||||
| 5,801 | 5,553 | |||||||
| Assets held for sale | 5,138 | 5,210 | ||||||
| Other current assets | 2,903 | 2,956 | ||||||
| TOTAL CURRENT ASSETS | 36,058 | 35,508 | ||||||
| Property, plant and equipment, net | 36,911 | 36,171 | ||||||
| Marketable equity securities | 6,831 | 6,180 | ||||||
| Other long-term investments | 5,149 | 4,716 | ||||||
| Goodwill | 14,099 | 14,099 | ||||||
| Identified intangible assets, net | 9,157 | 9,494 | ||||||
| Other long-term assets | 7,443 | 7,159 | ||||||
| TOTAL ASSETS | $ | 115,648 | $ | 113,327 | ||||
| CURRENT LIABILITIES | ||||||||
| Short-term debt | $ | 5,073 | $ | 4,634 | ||||
| Accounts payable | 3,221 | 2,475 | ||||||
| Accrued compensation and benefits | 2,145 | 3,465 | ||||||
| Accrued advertising | 772 | 810 | ||||||
| Deferred income | 1,698 | 1,718 | ||||||
| Liabilities held for sale | 1,746 | 1,920 | ||||||
| Other accrued liabilities | 6,650 | 5,280 | ||||||
| TOTAL CURRENT LIABILITIES | 21,305 | 20,302 | ||||||
| Long-term debt | 20,678 | 20,649 | ||||||
| Long-term deferred tax liabilities | 2,285 | 1,730 | ||||||
| Other long-term liabilities | 3,658 | 3,538 | ||||||
| TEMPORARY EQUITY | 878 | 882 | ||||||
| Stockholders' equity | ||||||||
| Preferred stock | — | — | ||||||
| Common stock and capital in excess of par value | 25,890 | 25,373 | ||||||
| Accumulated other comprehensive income (loss) | 863 | 106 | ||||||
| Retained earnings | 40,091 | 40,747 | ||||||
| TOTAL STOCKHOLDERS' EQUITY | 66,844 | 66,226 | ||||||
| TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY | $ | 115,648 | $ | 113,327 | ||||
Intel/Page 9
INTEL CORPORATION
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In millions)
| Q1 2017 | Q4 2016 | Q1 2016 | ||||||||||
| CASH INVESTMENTS: | ||||||||||||
| Cash and short-term investments | $ | 7,992 | $ | 8,785 | $ | 5,988 | ||||||
| Trading assets | 9,303 | 8,314 | 9,103 | |||||||||
| Total cash investments | $ | 17,295 | $ | 17,099 | $ | 15,091 | ||||||
| CURRENT DEFERRED INCOME: | ||||||||||||
| Deferred income on shipments of components to distributors | $ | 1,461 | $ | 1,475 | $ | 1,318 | ||||||
| Deferred income from software, services and other | 237 | 243 | 1,314 | |||||||||
| Total current deferred income | $ | 1,698 | $ | 1,718 | $ | 2,632 | ||||||
| SELECTED CASH FLOW INFORMATION: | ||||||||||||
| Operating activities: | ||||||||||||
| Depreciation | $ | 1,625 | $ | 1,582 | $ | 1,619 | ||||||
| Share-based compensation | $ | 397 | $ | 308 | $ | 448 | ||||||
| Amortization of intangibles | $ | 321 | $ | 348 | $ | 396 | ||||||
| Investing activities: | ||||||||||||
| Additions to property, plant and equipment | $ | (1,952 | ) | $ | (3,530 | ) | $ | (1,346 | ) | |||
| Acquisitions, net of cash acquired | $ | — | $ | (319 | ) | $ | (14,569 | ) | ||||
| Investments in non-marketable equity investments | $ | (422 | ) | $ | (70 | ) | $ | (182 | ) | |||
| Financing activities: | ||||||||||||
| Repayment of debt | $ | — | $ | (1,500 | ) | $ | — | |||||
| Repurchase of common stock | $ | (1,242 | ) | $ | (533 | ) | $ | (793 | ) | |||
| Proceeds from sales of common stock to employees | $ | 329 | $ | 84 | $ | 343 | ||||||
| Payment of dividends to stockholders | $ | (1,229 | ) | $ | (1,233 | ) | $ | (1,228 | ) | |||
| EARNINGS PER SHARE OF COMMON STOCK INFORMATION: | ||||||||||||
| Weighted average shares of common stock outstanding - basic | 4,723 | 4,735 | 4,722 | |||||||||
| Dilutive effect of employee equity incentive plans | 58 | 50 | 66 | |||||||||
| Dilutive effect of convertible debt | 100 | 96 | 87 | |||||||||
| Weighted average shares of common stock outstanding - diluted | 4,881 | 4,881 | 4,875 | |||||||||
| STOCK BUYBACK: | ||||||||||||
| Shares repurchased | 35 | 15 | 27 | |||||||||
| Cumulative shares repurchased (in billions) | 4.9 | 4.9 | 4.8 | |||||||||
| Remaining dollars authorized for buyback (in billions) | $ | 5.5 | $ | 6.8 | $ | 8.6 | ||||||
| OTHER INFORMATION: | ||||||||||||
| Employees (in thousands) | 106.9 | 106.0 | 112.4 | |||||||||
Intel/Page 10
INTEL CORPORATION
SUPPLEMENTAL OPERATING SEGMENT RESULTS
(In millions)
| Three Months Ended | ||||||||||||
| Apr 1, 2017 | Dec 31, 2016 | Apr 2, 2016 | ||||||||||
| Net Revenue | ||||||||||||
| Client Computing Group | ||||||||||||
| Platform | $ | 7,397 | $ | 8,356 | $ | 7,199 | ||||||
| Other | 579 | 773 | 350 | |||||||||
| 7,976 | 9,129 | 7,549 | ||||||||||
| Data Center Group | ||||||||||||
| Platform | 3,879 | 4,306 | 3,707 | |||||||||
| Other | 353 | 362 | 292 | |||||||||
| 4,232 | 4,668 | 3,999 | ||||||||||
| Internet of Things Group | ||||||||||||
| Platform | 632 | 617 | 571 | |||||||||
| Other | 89 | 109 | 80 | |||||||||
| 721 | 726 | 651 | ||||||||||
| Non-Volatile Memory Solutions Group | 866 | 816 | 557 | |||||||||
| Intel Security Group | 534 | 550 | 537 | |||||||||
| Programmable Solutions Group | 425 | 420 | 359 | |||||||||
| All other | 42 | 65 | 50 | |||||||||
| TOTAL NET REVENUE | $ | 14,796 | $ | 16,374 | $ | 13,702 | ||||||
| Operating income (loss) | ||||||||||||
| Client Computing Group | $ | 3,031 | $ | 3,523 | $ | 1,885 | ||||||
| Data Center Group | 1,487 | 1,881 | 1,764 | |||||||||
| Internet of Things Group | 105 | 182 | 123 | |||||||||
| Non-Volatile Memory Solutions Group | (129 | ) | (91 | ) | (95 | ) | ||||||
| Intel Security Group | 95 | 103 | 85 | |||||||||
| Programmable Solutions Group | 92 | 80 | (200 | ) | ||||||||
| All other | (1,082 | ) | (1,152 | ) | (994 | ) | ||||||
| TOTAL OPERATING INCOME | $ | 3,599 | $ | 4,526 | $ | 2,568 | ||||||
In the third quarter of 2016, we announced our planned divestiture of ISecG, which closed on April 3, 2017, subsequent to the first quarter of 2017. We intend to recast our operating segment results to reflect the divestiture of ISecG to "all other" 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, 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 workload-optimized platforms and related products designed for enterprise, cloud, and communication infrastructure market segments. |
| • | Internet of Things Group. Includes platforms designed for Internet of Things market segments, including retail, transportation, industrial, video, buildings and smart cities, along with a broad range of other market segments. |
| • | Non-Volatile Memory Solutions Group. Includes Intel® Optane™ SSD products and 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. |
| • | Programmable Solutions Group. Includes programmable semiconductors primarily field-programmable gate array (FPGAs) and related products for a broad range of market segments, including communications, data center, 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 non-reportable segments; |
| • | 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 Chief Operating Decision Maker (CODM), who is our Chief Executive Officer; |
| • | 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 multi-chip package. Our remaining primary product lines are incorporated in "other."
Intel/Page 11
INTEL CORPORATION
SUPPLEMENTAL PLATFORM REVENUE INFORMATION
| Q1 2017 | Q1 YTD 2017 | |||
| compared to Q4 2016 | compared to Q1 YTD 2016 | |||
| Client Computing Group Platform | ||||
| Unit Volumes | (13)% | (4)% | ||
| Average Selling Prices | 2% | 7% | ||
| Data Center Group Platform | ||||
| Unit Volumes | (7)% | (1)% | ||
| Average Selling Prices | (3)% | 6% | ||
Client Computing Group Notebook, Desktop and Tablet Platform Key Drivers
Q1 2017 compared to Q1 2016:
- Notebook platform volumes increased 1%
- Notebook platform average selling prices increased 7%
- Desktop platform volumes decreased 7%
- Desktop platform average selling prices increased 2%
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.
Gains or losses from divestiture: We are expecting a gain in 2017 as a result of our planned divestiture of the Intel Security Group. We have excluded this expected gain for purposes of calculating certain non-GAAP measures. We believe making these adjustments facilitate a better evaluation of our current operating performance and comparisons to past operating results.
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.
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.
| Q2 2017 Outlook | 2017 Outlook | |||||||||
| GAAP GROSS MARGIN PERCENTAGE | 62 | % | +/- a couple pct. pts. | 62 | % | +/- a couple pct. pts. | ||||
| Adjustment for amortization of acquisition-related intangibles | 1 | % | 1 | % | ||||||
| NON-GAAP GROSS MARGIN PERCENTAGE | 63 | % | +/- a couple pct. pts. | 63 | % | +/- a couple pct. pts. | ||||
| GAAP RESTRUCTURING AND OTHER CHARGES ($ in Millions) | $ | 100 | approximately | $ | 200 | approximately | ||||
| Adjustment for restructuring and other charges | (100 | ) | (200 | ) | ||||||
| NON-GAAP RESTRUCTURING AND OTHER CHARGES | $ | — | $ | — | ||||||
| GAAP AMORTIZATION OF ACQUISITION-RELATED INTANGIBLES IN OPERATING EXPENSES ($ in Millions) | $ | 40 | approximately | $ | 150 | approximately | ||||
| Adjustment for amortization of acquisition-related intangibles | (40 | ) | (150 | ) | ||||||
| NON-GAAP AMORTIZATION OF ACQUISITION-RELATED INTANGIBLES IN OPERATING EXPENSES | $ | — | $ | — | ||||||
| GAAP OPERATING INCOME ($ in Billions) | $ | 3.6 | approximately | $ | 16.1 | approximately | ||||
| Adjustment for restructuring and other charges | 0.1 | 0.2 | ||||||||
| Adjustment for amortization of acquisition-related intangibles | 0.2 | 1.0 | ||||||||
| NON-GAAP OPERATING INCOME | $ | 3.9 | approximately | $ | 17.3 | approximately | ||||
| GAAP IMPACT OF EQUITY INVESTMENTS AND INTEREST AND OTHER, NET ($ in Millions) | $ | 675 | approximately | $ | 875 | approximately | ||||
| (Gains) losses from divestiture | (375 | ) | (375 | ) | ||||||
| NON-GAAP IMPACT OF EQUITY INVESTMENTS AND INTEREST AND OTHER, NET ($ in Millions) | $ | 300 | approximately | $ | 500 | approximately | ||||
| GAAP TAX RATE | 39 | % | approximately | 27 | % | approximately | ||||
| Adjustment for the divestiture of Intel Security | (18 | )% | (5 | )% | ||||||
| NON-GAAP TAX RATE | 21 | % | approximately | 22 | % | approximately | ||||
| GAAP EARNINGS PER SHARE | $ | 0.53 | +/- 5 cents | $ | 2.56 | +/- 5% | ||||
| Adjustment for restructuring and other charges | 0.02 | 0.04 | ||||||||
| Adjustment for amortization of acquisition-related intangibles | 0.05 | 0.19 | ||||||||
| (Gains) losses from divestiture | (0.08 | ) | (0.08 | ) | ||||||
| Income tax effect | 0.16 | 0.14 | ||||||||
| NON-GAAP EARNINGS PER SHARE | $ | 0.68 | +/- 5 cents | $ | 2.85 | +/- 5% | ||||
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 | |||||||||||
| ($ in Millions, except per share amounts) | Apr 1, 2017 | Dec 31, 2016 | Apr 2, 2016 | ||||||||
| GAAP NET REVENUE | $ | 14,796 | $ | 16,374 | $ | 13,702 | |||||
| Deferred revenue write-down | — | — | 99 | ||||||||
| NON-GAAP NET REVENUE | $ | 14,796 | $ | 16,374 | $ | 13,801 | |||||
| GAAP GROSS MARGIN | $ | 9,147 | $ | 10,105 | $ | 8,130 | |||||
| Deferred revenue write-down, net of cost of sales | — | — | 64 | ||||||||
| Inventory valuation | — | — | 226 | ||||||||
| Amortization of acquisition-related intangibles | 209 | 232 | 235 | ||||||||
| NON-GAAP GROSS MARGIN | $ | 9,356 | $ | 10,337 | $ | 8,655 | |||||
| GAAP GROSS MARGIN PERCENTAGE | 61.8 | % | 61.7 | % | 59.3 | % | |||||
| Deferred revenue write-down, net of cost of sales | — | % | — | % | 0.1 | % | |||||
| Inventory valuation | — | % | — | % | 1.6 | % | |||||
| Amortization of acquisition-related intangibles | 1.4 | % | 1.4 | % | 1.7 | % | |||||
| NON-GAAP GROSS MARGIN PERCENTAGE | 63.2 | % | 63.1 | % | 62.7 | % | |||||
| GAAP R&D plus MG&A SPENDING | $ | 5,430 | $ | 5,438 | $ | 5,472 | |||||
| Other acquisition-related charges | — | — | (100 | ) | |||||||
| NON-GAAP R&D plus MG&A SPENDING | $ | 5,430 | $ | 5,438 | $ | 5,372 | |||||
| GAAP OPERATING INCOME | $ | 3,599 | $ | 4,526 | $ | 2,568 | |||||
| Deferred revenue write-down, net of cost of sales | — | — | 64 | ||||||||
| Inventory valuation | — | — | 226 | ||||||||
| Amortization of acquisition-related intangibles | 247 | 273 | 325 | ||||||||
| Restructuring and other charges | 80 | 100 | — | ||||||||
| Other acquisition-related charges | — | — | 100 | ||||||||
| NON-GAAP OPERATING INCOME | $ | 3,926 | $ | 4,899 | $ | 3,283 | |||||
| GAAP NET INCOME | $ | 2,964 | $ | 3,562 | $ | 2,046 | |||||
| Deferred revenue write-down, net of cost of sales | — | — | 64 | ||||||||
| Inventory valuation | — | — | 226 | ||||||||
| Amortization of acquisition-related intangibles | 247 | 273 | 325 | ||||||||
| Restructuring and other charges | 80 | 100 | — | ||||||||
| Other acquisition-related charges | — | — | 100 | ||||||||
| Income tax effect | (73 | ) | (70 | ) | (132 | ) | |||||
| NON-GAAP NET INCOME | $ | 3,218 | $ | 3,865 | $ | 2,629 | |||||
| GAAP DILUTED EARNINGS PER COMMON SHARE | $ | 0.61 | $ | 0.73 | $ | 0.42 | |||||
| Deferred revenue write-down, net of cost of sales | — | — | 0.01 | ||||||||
| Inventory valuation | — | — | 0.05 | ||||||||
| Amortization of acquisition-related intangibles | 0.05 | 0.06 | 0.07 | ||||||||
| Restructuring and other charges | 0.01 | 0.02 | — | ||||||||
| Other acquisition-related charges | — | — | 0.02 | ||||||||
| Income tax effect | (0.01 | ) | (0.02 | ) | (0.03 | ) | |||||
| NON-GAAP DILUTED EARNINGS PER COMMON SHARE | $ | 0.66 | $ | 0.79 | $ | 0.54 | |||||
Intel/Page 15
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) | Apr 1, 2017 | Dec 31, 2016 | ||||||
| GAAP CASH AND CASH EQUIVALENTS | $ | 4,934 | $ | 5,560 | ||||
| Short-term investments | 3,058 | 3,225 | ||||||
| Trading assets | 9,303 | 8,314 | ||||||
| Total cash investments | $ | 17,295 | $ | 17,099 | ||||
| GAAP OTHER LONG-TERM INVESTMENTS | $ | 5,149 | $ | 4,716 | ||||
| Loans receivable and other | 1,010 | 996 | ||||||
| Reverse repurchase agreements with original maturities greater than approximately three months | 250 | 250 | ||||||
| NON-GAAP OTHER LONGER TERM INVESTMENTS | $ | 6,409 | $ | 5,962 | ||||
| NON-GAAP GROSS CASH | $ | 23,704 | $ | 23,061 | ||||
| ($ in Millions) | Apr 1, 2017 | Dec 31, 2016 | ||||||
| GAAP CASH AND CASH EQUIVALENTS | $ | 4,934 | $ | 5,560 | ||||
| Short-term investments | 3,058 | 3,225 | ||||||
| Trading assets | 9,303 | 8,314 | ||||||
| Total cash investments | $ | 17,295 | $ | 17,099 | ||||
| Short-term debt | (5,073 | ) | (4,634 | ) | ||||
| Unsettled trade liabilities and other | (229 | ) | (119 | ) | ||||
| Long-term debt | (20,678 | ) | (20,649 | ) | ||||
| NON-GAAP NET CASH (excluding other longer term investments) | $ | (8,685 | ) | $ | (8,303 | ) | ||
| GAAP OTHER LONG-TERM INVESTMENTS | $ | 5,149 | $ | 4,716 | ||||
| Loans receivable and other | 1,010 | 996 | ||||||
| Reverse repurchase agreements with original maturities greater than approximately three months | 250 | 250 | ||||||
| NON-GAAP OTHER LONGER TERM INVESTMENTS | $ | 6,409 | $ | 5,962 | ||||
| NON-GAAP NET CASH (including other longer term investments) | $ | (2,276 | ) | $ | (2,341 | ) | ||