intc-20200926

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 26, 2020


			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
						For the transition period from to

Commission File Number 000-06217

INTEL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

94-1672743

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2200 Mission College Boulevard,

Santa Clara,

California

95054-1549

(Address of principal executive offices)

(Zip Code)

(408) 765-8080

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	INTC	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☑

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of September 26, 2020, the registrant had outstanding 4,098 million shares of common stock.

TABLE OF CONTENTS

THE ORGANIZATION OF OUR QUARTERLY REPORT ON FORM 10-Q

The order and presentation of content in our Form 10-Q differs from the traditional SEC Form 10-Q format. Our format is designed to improve readability and better present how we organize and manage our business. See "Form 10-Q Cross-Reference Index" within Other Key Information for a cross-reference index to the traditional SEC Form 10-Q format. To reflect our focus on transforming from a PC-centric¹ company to a data-centric company, we have presented our data-centric businesses¹ first in "Segment Trends and Results" within MD&A.

We have defined certain terms and abbreviations used throughout our Form 10-Q in "Key Terms" within the Consolidated Condensed Financial Statements and Supplemental Details.

The preparation of our Consolidated Condensed Financial Statements is in conformity with U.S. GAAP. Our Form 10-Q includes key metrics that we use to measure our business, some of which are non-GAAP measures. See "Non-GAAP Financial Measures" within MD&A for an explanation of these measures and why management uses them and believes they provide investors with useful supplemental information.


		Page
FORWARD-LOOKING STATEMENTS				1
OUR PANDEMIC RESPONSE				2
A QUARTER IN REVIEW				3
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND SUPPLEMENTAL DETAILS
	Consolidated Condensed Statements of Income		5
	Consolidated Condensed Statements of Comprehensive Income		6
	Consolidated Condensed Balance Sheets		7
	Consolidated Condensed Statements of Cash Flows		8
	Consolidated Condensed Statements of Stockholders' Equity		9
	Notes to Consolidated Condensed Financial Statements		10
	Key Terms		27

MANAGEMENT'S DISCUSSION AND ANALYSIS


	Segment Trends and Results		28





	Consolidated Results of Operations		35
	Liquidity and Capital Resources		40
	Contractual Obligations		41
	Quantitative and Qualitative Disclosures about Market Risk		41
	Non-GAAP Financial Measures		42

OTHER KEY INFORMATION
	Risk Factors		44
	Controls and Procedures		44

	Issuer Purchases of Equity Securities		45
	Exhibits		46
	Form 10-Q Cross-Reference Index		47

¹Intel's definition is included in "Key Terms" within the Consolidated Condensed Financial Statements and Supplemental Details.

Table of Contents

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipate," "expect," "intend," "anticipate," "plan," "mission," "opportunity," "future," "to be," "believes," "estimated," "continue," "likely," "may," "might," "potentially," "will," "would," "should," "could," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to future responses to and effects of COVID-19; projections of our future financial performance and demand; our anticipated growth and trends in our businesses or operations; projected growth and trends in markets relevant to our businesses; business plans; future products and technology and the expected availability and benefits of such products and technology; expected timing and impact of acquisitions, divestitures, and other significant transactions, including statements relating to the pending divestiture of our NAND memory business to SK hynix Inc. (SK hynix), NAND manufacturing and supply arrangements between Intel and SK hynix, and our expected use of proceeds from the divestiture; expected completion of restructuring activities; availability, uses, sufficiency, and cost of capital and capital resources, including expected returns to stockholders such as dividends and share repurchases; our valuation; the settlement of our ASR agreements; accounting estimates and judgments regarding reported matters, events and contingencies and our intentions with respect to such matters, events and contingencies, and the actual results thereof; future production capacity and product supply; the future purchase, use, and availability of products, components and services supplied by third parties, including third-party manufacturing services; tax-related expectations; uncertain events or assumptions; and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing, unless an earlier date is specified, and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report, our 2019 Form 10-K, and our Form 10-Q reports for the quarters ended March 28, 2020 and June 27, 2020, particularly the "Risk Factors" sections of such reports, as well as the risks and uncertainties described in our Form 8-K announcing our agreement to divest our NAND memory business to SK hynix, filed with the SEC on October 20, 2020. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Unless specifically indicated otherwise, the forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that have not been completed as of the date of this filing. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, unless an earlier date is specified, including expectations based on third-party information and projections that management believes to be reputable, and Intel does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.

Intel, the Intel logo, 3D XPoint, Intel Atom, Intel Core, Intel Evo, Iris, 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.


						1

Table of Contents


OUR PANDEMIC RESPONSE

As we closely monitor the COVID-19 pandemic, our top priority remains protecting the health and safety of our employees. Our Pandemic Leadership Team regularly reviews and adapts our policies based on evolving research and guidance related to the virus. While essential operations continue in our factories and labs around the world, we have restricted travel and meetings, changed our business processes, published a wealth of information, and adapted to a world where many in our workforce are remote and those coming on-site are following new safety measures. We have a multi-phase plan to return to working on-site, and remain committed to delivering for our customers and supporting our communities. Our world-class safety standards and supply chain operations have to date allowed our factories to continue to operate safely and with mostly on-time deliveries. We will continue to actively monitor the situation and review our plans based on the requirements and recommendations of the federal, state, and local authorities.


			OUR PANDEMIC RESPONSE			2

Table of Contents


A QUARTER IN REVIEW

Total revenue of $18.3 billion was down $857 million year over year as our data-centric businesses declined 10%, partially offset by 1% growth in our PC-centric business. Data-centric revenue was down primarily due to COVID-related demand impacts. DCG ASPs declined on higher SoC volume and mix shift from the enterprise and government market segment to cloud service providers. We also experienced weaker demand for IOTG platform¹products. Our PC-centric business was slightly up, driven by strength in notebook demand, partially offset by lower desktop demand, and lower notebook ASP resulting from higher demand in consumer and education segments. Lower platform ASP and higher platform unit cost resulted in lower gross margin dollars and operating income, partially offset by platform volume growth and improved NAND pricing and cost. In the first nine months, we generated $25.5 billion of cash flow from operations and returned $18.4 billion to stockholders, including $4.2 billion in dividends and $14.2 billion in buybacks. Buybacks include those repurchased under ASR agreements entered into in Q3, of which $2.0 billion remains to be settled by the end of 2020.

REVENUE

OPERATING INCOME

DILUTED EPS

CASH FLOWS

■ PC-CENTRIC $B

■ DATA-CENTRIC $B

■ GAAP $B ■ NON-GAAP $B

■ GAAP ■ NON-GAAP

■ OPERATING CASH FLOW $B

■ FREE CASH FLOW $B

$18.3B

$5.1B

$5.4B

$1.02

$1.11

$25.5B

$15.1B

GAAP

non-GAAP²

GAAP

non-GAAP²

GAAP

non-GAAP²

Revenue down $857M or 4% from Q3 2019

Operating income down $1.4B or 22% from Q3 2019; Q3 2020 operating margin at 28%

Operating income down $1.5B or 22% from Q3 2019; Q3 2020 operating margin at 29%

Diluted EPS down $0.34 or 25% from Q3 2019

Diluted EPS down $0.31 or 22% from Q3 2019

Operating cash flow up $2.2B or 10% from YTD Q3 2019

Free cash flow up $3.4B or 29% from YTD Q3 2019

Decline in most data-centric businesses, partially offset by growth in our PC-centric business

Lower gross margin dollars from platform ASP decline, higher platform unit cost from increased mix of 10nm products, higher platform reserves, and lower sell-through of previously reserved non-qualified platform product, partially offset by higher platform unit volume, improved NAND pricing and cost, and lower spending

Lower gross margin dollars and higher tax rate, partially offset by lower shares outstanding

Higher net income, partially offset by working capital changes driven by accounts payable and other assets and liabilities; free cash flow increased due to higher operating cash flow and lower capital spending

¹See "Key Terms" within Consolidated Condensed Financial Statements and Supplemental Details.

²See "Non-GAAP Financial Measures" within MD&A.


			A QUARTER IN REVIEW			3

Table of Contents

BUSINESS SUMMARY

•Decline in our data-centric businesses was primarily driven by COVID-related demand impacts on the DCG enterprise and government market segment, IOTG, and NSG. DCG ASPs declined on higher SoC volume and mix shift from enterprise and government to cloud service providers. The data-centric decline was partially offset by higher platform volume with continued strength in cloud service providers, and improved NAND pricing and cost.

•Growth in our PC-centric business was driven by strength in notebook demand, partially offset by lower desktop demand, lower notebook ASP resulting from higher demand for consumer and education PCs, and LTE modem volume decline.

•We launched our new processor family for laptops, 11th Gen Intel^® Core^TM processors with Intel^® Iris^® X^e graphics leveraging our new 10nm SuperFin process technology. We also introduced the Intel^® Evo^TM platform brand for designs powered by 11th Gen Intel^® Core^TM processors. Intel^® Evo^TM technology is verified, measured, and tested against specifications and key experience indicators as part of the next edition of our laptop innovation program Project Athena.

•We announced new IoT enhanced processors, Intel Atom^® x6000E Series and 11th Gen Intel^® Core^TMfor IOT, which are designed to solve customers' challenges at the edge.

•On October 19, 2020, we signed an agreement with SK hynix to divest of our NAND memory business, including our NAND memory fabrication facility in Dalian, China and certain related equipment and tangible assets (the “Fab Assets”), our NAND solid-state drive business (the “NAND SSD Business”), and our NAND memory technology and manufacturing business (the “NAND Business”), for total consideration of $9.0 billion in cash. We intend to use proceeds from the transaction to invest in our long-term growth priorities. The transaction will occur over two closings, the second of which is expected to occur no earlier than March 2025.


			A QUARTER IN REVIEW			4

Table of Contents


CONSOLIDATED CONDENSED STATEMENTS OF INCOME


	Three Months Ended						Nine Months Ended
(In Millions, Except Per Share Amounts; Unaudited)	Sep 26, 2020		Sep 28, 2019		Sep 26, 2020		Sep 28, 2019
Net revenue	$	18,333	$	19,190	$	57,889	$	51,756
Cost of sales	8,592		7,895		25,625		21,494
Gross margin	9,741		11,295		32,264		30,262
Research and development	3,272		3,208		9,901		9,978
Marketing, general and administrative	1,435		1,536		4,423		4,758
Restructuring and other charges	(25)		104		146		288
Operating expenses	4,682		4,848		14,470		15,024
Operating income	5,059		6,447		17,794		15,238
Gains (losses) on equity investments, net	56		318		212		922
Interest and other, net	(74)		(46)		(416)		(170)
Income before taxes	5,041		6,719		17,590		15,990
Provision for taxes	765		729		2,548		1,847
Net income	$	4,276	$	5,990	$	15,042	$	14,143
Earnings per share—basic	$	1.02	$	1.36	$	3.55	$	3.18
Earnings per share—diluted	$	1.02	$	1.35	$	3.52	$	3.14

Weighted average shares of common stock outstanding:
Basic	4,188		4,391		4,233		4,450
Diluted	4,211		4,433		4,269		4,507

See accompanying notes.


			FINANCIAL STATEMENTS			Consolidated Condensed Statements of Income			5

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended						Nine Months Ended
(In Millions; Unaudited)	Sep 26, 2020		Sep 28, 2019		Sep 26, 2020		Sep 28, 2019
Net income	$	4,276	$	5,990	$	15,042	$	14,143
Changes in other comprehensive income, net of tax:


Net unrealized holding gains (losses) on derivatives	206		(115)		257		138
Actuarial valuation and other pension benefits (expenses), net	11		9		34		26
Translation adjustments and other	(5)		6		49		88
Other comprehensive income (loss)	212		(100)		340		252
Total comprehensive income	$	4,488	$	5,890	$	15,382	$	14,395

See accompanying notes.


			FINANCIAL STATEMENTS			Consolidated Condensed Statements of Comprehensive Income			6

Table of Contents


CONSOLIDATED CONDENSED BALANCE SHEETS


(In Millions)	Sep 26, 2020		Dec 28, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	3,356	$	4,194
Short-term investments	2,987		1,082
Trading assets	11,910		7,847
Accounts receivable	7,140		7,659
Inventories	9,273		8,744

Other current assets	2,119		1,713
Total current assets	36,785		31,239

Property, plant and equipment, net of accumulated depreciation of $80,084 ($73,321 as of December 28, 2019)	59,205		55,386
Equity investments	3,679		3,967
Other long-term investments	2,720		3,276
Goodwill	26,955		26,276
Identified intangible assets, net	9,881		10,827
Other long-term assets	6,036		5,553
Total assets	$	145,261	$	136,524

Liabilities, temporary equity, and stockholders’ equity
Current liabilities:
Short-term debt	$	504	$	3,693
Accounts payable	5,159		4,128
Accrued compensation and benefits	3,197		3,853


Other accrued liabilities	13,252		10,636
Total current liabilities	22,112		22,310

Debt	36,059		25,308
Contract liabilities	1,381		1,368
Income taxes payable, non-current	4,811		4,919
Deferred income taxes	2,995		2,044
Other long-term liabilities	3,349		2,916
Contingencies (Note 13)
Temporary equity	—		155
Stockholders’ equity:
Preferred stock	—		—
Common stock and capital in excess of par value, 4,098 issued and outstanding (4,290 issued and outstanding as of December 28, 2019)	23,335		25,261
Accumulated other comprehensive income (loss)	(940)		(1,280)
Retained earnings	52,159		53,523
Total stockholders’ equity	74,554		77,504
Total liabilities, temporary equity, and stockholders’ equity	$	145,261	$	136,524

See accompanying notes.


			FINANCIAL STATEMENTS			Consolidated Condensed Balance Sheets			7

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


	Nine Months Ended
(In Millions; Unaudited)	Sep 26, 2020		Sep 28, 2019

Cash and cash equivalents, beginning of period	$	4,194	$	3,019
Cash flows provided by (used for) operating activities:
Net income	15,042		14,143
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	7,925		6,647
Share-based compensation	1,393		1,290


Amortization of intangibles	1,311		1,211
(Gains) losses on equity investments, net	(105)		(395)



Changes in assets and liabilities:
Accounts receivable	525		(156)
Inventories	(570)		(1,376)
Accounts payable	355		728
Accrued compensation and benefits	(488)		(365)
Prepaid supply agreements	(91)		(674)
Income taxes	493		435
Other assets and liabilities	(296)		1,769
Total adjustments	10,452		9,114
Net cash provided by operating activities	25,494		23,257
Cash flows provided by (used for) investing activities:
Additions to property, plant and equipment	(10,392)		(11,547)

Purchases of available-for-sale debt investments	(6,323)		(2,028)

Maturities and sales of available-for-sale debt investments	5,037		3,118
Purchases of trading assets	(14,744)		(5,769)
Maturities and sales of trading assets	11,227		5,467



Sales of equity investments	339		1,414



Other investing	(256)		(575)
Net cash used for investing activities	(15,112)		(9,920)
Cash flows provided by (used for) financing activities:
Increase (decrease) in short-term debt, net	—		835


Issuance of long-term debt, net of issuance costs	10,247		650
Repayment of debt and debt conversion	(4,525)		(1,478)
Proceeds from sales of common stock through employee equity incentive plans	897		797
Repurchase of common stock	(12,229)		(10,100)
Accelerated share repurchase forward agreements	(2,000)		—

Payment of dividends to stockholders	(4,215)		(4,214)



Other financing	605		1,089
Net cash provided by (used for) financing activities	(11,220)		(12,421)

Net increase (decrease) in cash and cash equivalents	(838)		916
Cash and cash equivalents, end of period	$	3,356	$	3,935

Supplemental disclosures of noncash investing activities and cash flow information:
Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities	$	2,752	$	2,376


Cash paid during the period for:
Interest, net of capitalized interest	$	459	$	312
Income taxes, net of refunds	$	1,986	$	1,334

See accompanying notes.


			FINANCIAL STATEMENTS			Consolidated Condensed Statements of Cash Flows			8

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CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY


	Common Stock and Capital in Excess of Par Value					Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(In Millions, Except Per Share Amounts; Unaudited)	Shares	Amount
Three Months Ended

Balance as of June 27, 2020	4,253	$	25,516	$	(1,152)	$	57,646	$	82,010
Net income	—	—		—		4,276		4,276
Other comprehensive income (loss)	—	—		212		—		212
Employee equity incentive plans and other	12	385		—		—		385
Share-based compensation	—	452		—		—		452
Temporary equity reduction	—	—		—		—		—
Convertible debt	—	—		—		—		—

Repurchase of common stock	(166)	(993)		—		(7,007)		(8,000)
Accelerated share repurchase forward agreements	—	(2,000)		—		—		(2,000)
Restricted stock unit withholdings	(1)	(25)		—		—		(25)
Cash dividends declared ($0.66 per share)	—	—		—		(2,756)		(2,756)
Balance as of September 26, 2020	4,098	$	23,335	$	(940)	$	52,159	$	74,554

Balance as of June 29, 2019	4,430	$	25,140	$	(622)	$	50,429	$	74,947


Net income	—	—		—		5,990		5,990
Other comprehensive income (loss)	—	—		(100)		—		(100)
Employee equity incentive plans and other	13	466		—		—		466
Share-based compensation	—	427		—		—		427
Temporary equity reduction	—	80		—		—		80
Convertible debt	—	(278)		—		—		(278)

Repurchase of common stock	(92)	(523)		—		(3,966)		(4,489)
Restricted stock unit withholdings	(1)	(22)		—		(6)		(28)
Cash dividends declared ($0.63 per share)	—	—		—		(2,773)		(2,773)

Balance as of September 28, 2019	4,350	$	25,290	$	(722)	$	49,674	$	74,242

Nine Months Ended

Balance as of December 28, 2019	4,290	$	25,261	$	(1,280)	$	53,523	$	77,504
Net income	—	—		—		15,042		15,042
Other comprehensive income (loss)	—	—		340		—		340
Employee equity incentive plans and other	54	1,014		—		—		1,014
Share-based compensation	—	1,393		—		—		1,393
Temporary equity reduction	—	155		—		—		155
Convertible debt	—	(750)		—		—		(750)

Repurchase of common stock	(237)	(1,413)		—		(10,696)		(12,109)
Accelerated share repurchase forward agreements	—	(2,000)		—		—		(2,000)
Restricted stock unit withholdings	(9)	(325)		—		(135)		(460)
Cash dividends declared ($1.32 per share)	—	—		—		(5,575)		(5,575)
Balance as of September 26, 2020	4,098	$	23,335	$	(940)	$	52,159	$	74,554

Balance as of December 29, 2018	4,516	$	25,365	$	(974)	$	50,172	$	74,563
Net income	—	—		—		14,143		14,143
Other comprehensive income (loss)	—	—		252		—		252
Employee equity incentive plans and other	52	869		—		—		869
Share-based compensation	—	1,287		—		—		1,287
Temporary equity reduction	—	253