Intel Reports Record Quarterly Revenue of $15.8 Billion, Up 9 Percent Year-Over-Year; Operating Profit of $4.5 Billion

10/18/2016

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

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%

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.

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.
  • 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.

 

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.

CONTACTS:

Bhargavi Wadhwa

Cara Walker


Investor Relations

Media Relations


408-765-6469

503-696-0831


bhargavi.wadhwa@intel.com

cara.walker@intel.com

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


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


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


 


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."

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

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.

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

$



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


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

%

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


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