Intel Fourth-Quarter Revenue $10.2 Billion
Intel Corporation today announced fourth-quarter revenue of $10.2 billion, operating income of $3.3 billion, net income of $2.5 billion and earnings per share (EPS) of 40 cents. Revenue was below the company’s updated expectation of $10.4 billion to $10.6 billion primarily due to lower than expected desktop processor unit shipments and prices.
"2005 was our third consecutive year of double-digit revenue and earnings growth, leading to the best operating results in the company’s history," said Intel President and CEO Paul Otellini. "Although we fell below our expectations for the fourth quarter, we enter 2006 with exciting new products like the Intel(R) Core(TM) Duo and Viiv(TM). Our industry-leading 65nm process technology is ramping dual-core processors into high volume with an expected crossover in performance segments by mid-year. We expect 2006 will be another year of growth for Intel as we ramp platforms for notebooks, the digital home, the digital office and emerging markets."
Q4 2005 vs. Q3 2005 vs. Q4 2004 ------------------- ------------------ --------------- --------------- Revenue $10.2 billion +2% +6% Operating Income $3.3 billion +7% +14% Net Income $2.5 billion +23% +16% EPS 40 cents +25% +21% ------------------- ------------------ --------------- --------------- Note: Results for the third quarter of 2005 included a tax item and legal settlement that together lowered EPS by 6 cents.
For 2005, Intel achieved record revenue of $38.8 billion, record operating income of $12.1 billion, net income of $8.7 billion and EPS of $1.40. Intel paid record cash dividends of nearly $2 billion and used a record $10.6 billion to repurchase 418.4 million shares of common stock.
2005 2004 Change ------------------- ------------------ --------------- --------------- Revenue $38.8 billion $34.2 billion + 13.5% Operating Income $12.1 billion $10.1 billion + 19% Net Income $8.7 billion $7.5 billion + 15% EPS $1.40 $1.16 + 21%
Financial Review
Fourth-quarter gross margin was 61.8 percent, slightly below the company’s updated expectation of 63 percent, plus or minus a point, primarily due to lower than expected revenue, a slight shift in the overall product mix to non-microprocessor products, and some inventory valuation adjustments to reflect lower unit costs. The effective tax rate of 29.1 percent was below the expected rate of 31 percent primarily due to tax benefits for export sales and estimated R&D tax credits.
Sales Patterns
Revenue in the company’s Asia Pacific region was essentially flat sequentially while revenue in the Americas region was sequentially lower. These results primarily reflect lower than expected demand for our desktop products among certain OEM customers.
Q4 2005 vs. Q3 2005 vs. Q4 2004 ------------------- ------------------ --------------- --------------- Asia-Pacific $5.1 billion Flat +16% Americas $1.8 billion -3.5% -10% Europe $2.3 billion +14% Flat Japan $945 million +2% +11%
Key Product Trends (Sequential)
– Total microprocessor units were higher, setting a new record.
The average selling price (ASP) was slightly lower.
– Chipset units set a record.
– Motherboard units were higher.
– Flash units set a record. The ASP was higher.
– Application processor units for products such as cellular
phones and PDAs were lower.
Recent Highlights
– Intel’s board of directors approved a 25 percent increase in
the quarterly cash dividend to 10 cents per share beginning
with a dividend expected to be declared in the first quarter
of 2006 and authorized the repurchase of up to $25 billion in
shares of common stock under the company’s ongoing stock
repurchase program.
– Intel launched a new generation of consumer PC platforms under
the Intel(R) Viiv(TM) name that will help make it easier to
download, manage and view digital entertainment and
information on PCs, TVs and handheld devices. Plans to bring
premium digital media to Intel Viiv technology-based PCs and
devices were announced by companies including AOL, ClickStar,
DirecTV, ESPN, Google, MTV, NBC and Turner Broadcasting.
– Intel launched its next-generation Intel(R) Centrino(R) Duo
mobile technology platform that includes a power-efficient
dual-core processor called the Intel Core Duo processor that
is also being used by Apple Computer in its first Intel-based
desktop and notebook systems.
– Intel and Micron Technology formed IM Flash Technologies, a
company that will produce NAND flash memory for storing
digital data in devices such as iPod(a) music players.
– The company announced plans for Fab 28 in Israel, a 45nm,
300mm wafer factory scheduled for operations in 2008.
Business Outlook and Risk Factors Regarding Forward-Looking Statements
The following expectations do not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed after Jan. 16. Intel is adding additional items to its full-year Business Outlook and is discontinuing the practice of making scheduled mid-quarter Business Updates.
2006 Outlook
– Revenue: Expected to be 6 percent to 9 percent higher than
$38.8 billion in 2005.
– Gross margin: 57 percent, plus or minus a few points (58
percent, plus or minus a few points, excluding share-based
compensation effects of approximately 1 percent).
– R&D: Approximately $6.5 billion (approximately $6 billion
excluding share-based compensation effects of approximately
$500 million).
– MG&A: Approximately $6.6 billion (approximately $6 billion
excluding share-based compensation effects of approximately
$600 million).
– Capital spending: $6.9 billion, plus or minus $200 million.
– Tax rate: Approximately 32 percent.
– Depreciation: $4.7 billion, plus or minus $100 million.
– Amortization of acquisition-related intangibles and costs:
Approximately $40 million.
Q1 2006 Outlook
– Revenue: Expected to be between $9.1 billion and $9.7 billion.
– Gross margin: 59 percent, plus or minus a couple of points (60
percent, plus or minus a couple of points, excluding
share-based compensation effects of approximately 1 percent).
– Expenses (R&D plus MG&A): Approximately $3.3 billion
(approximately $3 billion excluding share-based compensation
effects of approximately $300 million).
– Gains from equity investments and interest and other:
Approximately $140 million.
– Tax rate: Approximately 32 percent.
– Depreciation: $1 billion, plus or minus $100 million.
– Amortization of acquisition-related intangibles and costs:
Approximately $20 million.
The above statements and any others in this document that refer to plans and expectations for the first quarter, the year and the future involve a number of risks and uncertainties. Many factors could cause Intel’s actual results to differ materially from current expectations, including the following:
– Intel operates in intensely competitive industries that are
characterized by a high percentage of costs that are fixed or
difficult to reduce in the short term, and by product demand
that is highly variable. Revenue and the gross margin
percentage are affected by the demand for and market
acceptance of Intel’s products; the availability of sufficient
inventory of Intel products and related components from other
suppliers to meet demand; pricing pressures; actions taken by
Intel’s competitors; and Intel’s ability to respond quickly to
technological developments and to incorporate new features
into its products. Factors that could cause demand to be
different from Intel’s expectations include changes in
customer order patterns, including order cancellations;
changes in the level of inventory at customers; and changes in
business and economic conditions.
– The gross margin percentage could vary from expectations based
on changes in revenue levels; product mix and pricing;
variations in inventory valuation, including variations
related to the timing of qualifying products for sale; excess
or obsolete inventory; manufacturing yields; changes in unit
costs; capacity utilization; impairments of long-lived assets,
including manufacturing, assembly/test and intangible assets;
and the timing and execution of the manufacturing ramp and
associated costs, including start-up costs.
– Dividend declarations and the dividend rate are at the
discretion of Intel’s board of directors, and plans for future
dividends may be revised by the board. Intel’s dividend and
stock buyback programs could be affected by changes in its
capital spending programs, changes in its cash flows and
changes in tax laws, as well as by the level and timing of
acquisition and investment activity.
– Expenses, particularly certain marketing and compensation
expenses, vary depending on the level of demand for Intel’s
products and the level of revenue and profits.
– The tax rate expectation is based on current tax law and
current expected income and assumes Intel continues to receive
tax benefits for export sales. The tax rate may be affected by
the closing of acquisitions or divestitures; 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; and the ability to realize deferred tax
assets.
– Gains or losses from equity securities and interest and other
could vary from expectations depending on equity market levels
and volatility; gains or losses realized on the sale or
exchange of securities; impairment charges related to
marketable, non-marketable and other investments; interest
rates; cash balances; and changes in fair value of derivative
instruments.
– Intel’s results could be impacted by unexpected economic,
social and political conditions in the countries in which
Intel, its customers or its suppliers operate, including
security risks, possible infrastructure disruptions and
fluctuations in foreign currency exchange rates.
– Intel’s results could be affected by adverse effects
associated with product defects and errata (deviations from
published specifications), and by litigation or regulatory
matters involving intellectual property, stockholder,
consumer, antitrust and other issues, such as the litigation
and regulatory matters described in Intel’s SEC reports.
– Intel’s results could be affected by the amount, type, and
valuation of share-based awards granted as well as the amount
of awards cancelled due to employee turnover.
A more detailed discussion of these and other factors that could affect results is contained in Intel’s SEC filings, including the report on Form 10-Q for the quarter ended Oct. 1, 2005.
Status of Business Outlook
During the quarter, Intel’s corporate representatives may reiterate the Business Outlook during private meetings with investors, investment analysts, the media and others. From the close of business on March 3 until publication of the company’s first-quarter 2006 earnings release on April 19, Intel will observe a "Quiet Period" during which the Business Outlook disclosed in the company’s press releases and filings with the SEC on Forms 10-K and 10-Q should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company.
Earnings Webcast
Intel will hold a public webcast at 2:30 p.m. PST today on its Investor Relations Web site at www.intc.com, with a replay available until April 19.
Intel, the world leader in silicon innovation, develops technologies, products and initiatives to continually advance how people work and live. Additional information about Intel is available at www.intel.com/pressroom.
Intel, the Intel logo, Intel Core, Intel Viiv and Intel Centrino are trademarks or registered trademarks of Intel Corporation or its subsidiaries in the United States and other countries.
(a) Other names and brands may be claimed as the property of others.
INTEL CORPORATION CONSOLIDATED SUMMARY INCOME STATEMENT DATA (In millions, except per share amounts) Three Months Twelve Months Ended Ended ---------------- ----------------- Dec. 31, Dec. 25, Dec. 31, Dec. 25, 2005 2004 2005 2004 -------- -------- -------- -------- NET REVENUE $10,201 $9,598 $38,826 $34,209 Cost of sales 3,901 4,221 15,777 14,463 -------- ------- -------- -------- GROSS MARGIN 6,300 5,377 23,049 19,746 -------- ------- -------- -------- Research and development 1,362 1,214 5,145 4,778 Marketing, general and administrative 1,606 1,225 5,688 4,659 Amortization of acquisition-related intangibles and costs 23 38 126 179 -------- ------- -------- -------- OPERATING EXPENSES 2,991 2,477 10,959 9,616 -------- ------- -------- -------- OPERATING INCOME 3,309 2,900 12,090 10,130 Losses on equity securities, net (25) (3) (45) (2) Interest and other, net 178 130 565 289 -------- ------- -------- -------- INCOME BEFORE TAXES 3,462 3,027 12,610 10,417 Income taxes 1,009 904 3,946 2,901 -------- ------- -------- -------- NET INCOME $ 2,453 $2,123 $ 8,664 $ 7,516 ======== ======= ======== ======== BASIC EARNINGS PER SHARE $ 0.41 $ 0.34 $ 1.42 $ 1.17 ======== ======= ======== ======== DILUTED EARNINGS PER SHARE $ 0.40 $ 0.33 $ 1.40 $ 1.16 ======== ======= ======== ======== COMMON SHARES OUTSTANDING 6,008 6,294 6,106 6,400 COMMON SHARES ASSUMING DILUTION 6,081 6,352 6,178 6,494 INTEL CORPORATION CONSOLIDATED SUMMARY BALANCE SHEET DATA (In millions) Dec. 31, Oct. 1, Dec. 25, 2005 2005 2004 -------- -------- -------- CURRENT ASSETS Cash and short-term investments $11,314 $11,951 $14,061 Trading assets 1,458 1,982 3,111 Accounts receivable 3,914 3,748 2,999 Inventories: Raw materials 409 381 388 Work in process 1,662 1,434 1,418 Finished goods 1,055 1,000 815 -------- -------- -------- 3,126 2,815 2,621 Deferred tax assets and other 1,382 1,228 1,266 -------- -------- -------- Total current assets 21,194 21,724 24,058 Property, plant and equipment, net 17,111 16,825 15,768 Marketable strategic equity securities 537 520 656 Other long-term investments 4,135 3,047 2,563 Goodwill 3,873 3,814 3,719 Other assets 1,464 1,430 1,379 -------- -------- -------- TOTAL ASSETS $48,314 $47,360 $48,143 ======== ======== ======== CURRENT LIABILITIES Short-term debt $ 313 $ 252 $ 201 Accounts payable and accrued liabilities 6,453 6,654 6,050 Deferred income on shipments to distributors 632 692 592 Income taxes payable 2,008 1,901 1,163 -------- -------- -------- Total current liabilities 9,406 9,499 8,006 LONG-TERM DEBT 2,106 432 703 DEFERRED TAX LIABILITIES 620 753 855 STOCKHOLDERS' EQUITY 36,182 36,676 38,579 -------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,314 $47,360 $48,143 ======== ======== ======== INTEL CORPORATION SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION (In millions) Q4 2005 Q3 2005 Q4 2004 -------- -------- -------- GEOGRAPHIC REVENUE: Asia-Pacific $5,132 $5,124 $4,421 50% 52% 46% Americas $1,836 $1,903 $2,047 18% 19% 21% Europe $2,288 $2,007 $2,277 23% 20% 24% Japan $945 $926 $853 9% 9% 9% CASH INVESTMENTS: Cash and short-term investments $11,314 $11,951 $14,061 Trading assets - fixed income (1) 1,095 1,632 2,772 -------- -------- -------- Total cash investments $12,409 $13,583 $16,833 INTEL CAPITAL PORTFOLIO: Marketable strategic equity securities $537 $520 $656 Other strategic investments 595 553 513 -------- -------- -------- Total Intel Capital portfolio $1,132 $1,073 $1,169 TRADING ASSETS: Trading assets - equity securities offsetting deferred compensation (2) $363 $350 $339 Total trading assets - sum of 1+2 $1,458 $1,982 $3,111 SELECTED CASH FLOW INFORMATION: Depreciation $1,050 $1,055 $1,144 Amortization of acquisition-related intangibles & costs $23 $29 $38 Capital spending ($1,359) ($1,282) ($1,031) Stock repurchase program ($3,137) ($2,500) ($2,000) Proceeds from sales of shares to employees, tax benefit & other $211 $444 $168 Dividends paid ($482) ($486) ($252) Net cash used for acquisitions ($88) ($22) $0 EARNINGS PER SHARE INFORMATION: Average common shares outstanding 6,008 6,062 6,294 Dilutive effect of stock options 64 82 58 Dilutive effect of convertible debt 9 N/A N/A Common shares assuming dilution 6,081 6,144 6,352 STOCK BUYBACK: Shares repurchased 118.0 93.6 89.0 Cumulative shares repurchased 2,604.9 2,486.9 2,186.5 Dollars authorized for buyback (in billions) $25.0 N/A N/A Remaining dollars authorized for buyback (in billions) $21.9 N/A N/A OTHER INFORMATION: Employees (in thousands) 99.9 96.0 85.0 INTEL CORPORATION SUPPLEMENTAL OPERATING RESULTS AND OTHER INFORMATION ($ in millions) Q4 Q3 Q2 Q1 Q4 OPERATING SEGMENT INFORMATION: 2005 2005 2005 2005 2004 ---------------------------------- ------- ------ ------ ------ ------ Digital Enterprise Group Microprocessor revenue 4,929 4,936 4,603 4,944 5,256 Chipset, motherboard and other revenue 1,476 1,434 1,398 1,417 1,517 Net revenue 6,405 6,370 6,001 6,361 6,773 Operating income 2,449 2,162 2,012 2,383 2,450 ---------------------------------- ------- ------ ------ ------ ------ Mobility Group Microprocessor revenue 2,400 2,331 2,056 1,917 1,710 Chipset and other revenue 705 639 566 517 425 Net revenue 3,105 2,970 2,622 2,434 2,135 Operating income 1,547 1,431 1,221 1,131 951 ---------------------------------- ------- ------ ------ ------ ------ Flash Memory Group Net revenue 600 572 528 578 643 Operating loss (12) (30) (80) (32) (57) ---------------------------------- ------- ------ ------ ------ ------ All Other Net revenue 91 48 80 61 47 Operating loss (675) (463) (504) (450) (444) ---------------------------------- ------- ------ ------ ------ ------ Total Net revenue 10,201 9,960 9,231 9,434 9,598 Operating income 3,309 3,100 2,649 3,032 2,900 ---------------------------------- ------- ------ ------ ------ ------ INTEL CORPORATION SUPPLEMENTAL OPERATING RESULTS AND OTHER INFORMATION (CONTINUED) ($ in millions) OPERATING SEGMENT INFORMATION: 2005 2004 2003 ---------------------------------------------- ------- ------- ------- Digital Enterprise Group Microprocessor revenue 19,412 19,426 17,991 Chipset, motherboard and other revenue 5,725 5,352 5,068 Net revenue 25,137 24,778 23,059 Operating income 9,006 8,851 8,017 ---------------------------------------------- ------- ------- ------- Mobility Group Microprocessor revenue 8,704 5,667 4,120 Chipset and other revenue 2,427 1,314 966 Net revenue 11,131 6,981 5,086 Operating income 5,330 2,833 1,743 ---------------------------------------------- ------- ------- ------- Flash Memory Group Net revenue 2,278 2,285 1,608 Operating loss (154) (149) (152) ---------------------------------------------- ------- ------- ------- All Other Net revenue 280 165 388 Operating loss (2,092) (1,405) (2,075) ---------------------------------------------- ------- ------- ------- Total Net revenue 38,826 34,209 30,141 Operating income 12,090 10,130 7,533 During the first quarter of 2005, the company reorganized its operating segments to bring all major product groups in line with the company's strategy to design and deliver technology platforms. The operating segments after the first quarter reorganization included the Digital Enterprise Group, the Mobility Group, the Digital Home Group, the Digital Health Group and the Channel Platforms Group. In the fourth quarter of 2005, the company added the Flash Memory Group. The Digital Enterprise Group and the Mobility Group are reportable operating segments. The Flash Memory Group, Digital Home Group, Digital Health Group and Channel Platforms Group operating segments do not meet the quantitative thresholds for reportable segments; however, the Flash Memory Group is reported separately as management believes this information is useful to readers. The Digital Home Group, Digital Health Group and Channel Platforms Group operating segments are included within the "all other" category. All prior period amounts have been adjusted retrospectively to reflect the new organizational structure and certain minor reorganizations effected through the fourth quarter of 2005. The Digital Enterprise Group operating segment's products include microprocessors and related chipsets and motherboards designed for the desktop (including consumer desktop) and enterprise computing market segments, communications infrastructure components such as network processors and embedded microprocessors, wired connectivity devices and products for network and server storage. The Mobility Group operating segment's products include microprocessors and related chipsets designed for the notebook computing market segment, wireless connectivity products, application and cellular processors used in cellular handsets and handheld computing devices, and cellular baseband chipsets. The Flash Memory Group operating segment's products include NOR flash memory products designed for cellular phones and embedded form factors. Revenue for the "all other" category primarily consists of microprocessors and related chipsets sold by the Digital Home Group. The "all other" category includes certain corporate-level operating expenses, including a portion of profit-dependent bonus and other expenses not allocated to the operating segments. "All other" also includes the results of operations of seed businesses that support the company's initiatives. Finally, "all other" includes acquisition-related costs. In 2003, acquisition-related costs included a goodwill impairment charge of $611 million.