Intel Reports Fourth-Quarter 2018 Financial Results

01/24/2019

Intel Reports Fourth-Quarter and Full-Year 2018 Financial Results
Announces Five Percent Increase to Quarterly Cash Dividend

News Summary:

  • Fourth-quarter revenue was $18.7 billion, up 9 percent year-over-year (YoY); and full-year revenue set an all-time record of $70.8 billion, up 13 percent YoY.
  • Delivered outstanding fourth-quarter earnings per share of $1.12 ($1.28 on a non-GAAP basis); achieved record full-year operating income, net income and EPS.
  • In 2018, Intel generated a record $29.4 billion cash from operations, generated $14.3 billion of free cash flow and returned nearly $16.3 billion to shareholders.
  • Expecting record 2019 revenue of approximately $71.5 billion and first-quarter revenue of approximately $16 billion.

SANTA CLARA, Calif., January 24, 2019 -- Intel Corporation today reported fourth-quarter and full-year 2018 financial results. The company also announced that its board of directors has approved a five percent increase in its cash dividend to $1.26 per-share on an annual basis.The board declared a quarterly dividend of $0.315 per-share on the company’s common stock, which will be payable on March 1 to shareholders of record on February 7.

“2018 was a truly remarkable year for Intel with record revenue in every business segment and record profits as we transform the company to pursue our biggest market opportunity ever,” said Bob Swan, Intel CFO and Interim CEO. “In the fourth quarter, we grew revenue, expanded earnings and previewed new 10nm-based products that position Intel to compete and win going forward. Looking ahead, we are forecasting another record year and raising the dividend based on our view that the explosive growth of data will drive continued demand for Intel products.”


Q4 2018 Financial Highlights

GAAP

Non-GAAP

Q4 2018

Q4 2017

vs. Q4 2017

Q4 2018

Q4 2017

vs. Q4 2017

Revenue ($B)

$18.7

$17.1

up 9%

$18.7^

$17.1^

up 9%

Gross Margin

60.2%

63.2%

down 3 pts

61.7%

64.9%

down 3.2 pts

R&D and MG&A ($B)

$5.0

$5.1

down 3%

$5.0^

$5.1^

down 3%

Operating Income ($B)

$6.2

$5.4

up 15%

$6.6

$6.0

up 10%

Tax Rate

7.8%

111.4%

n/m1

8.8%

21.2%

down 12.4 pts

Net Income (Loss) ($B)

$5.2

$(0.7)
due to tax impact

n/m1

$5.9

$5.2

up 14%

Earnings Per Share

$1.12

$(0.15)
due to tax impact

n/m1

$1.28

$1.08

up 18%

^ No adjustment on a non-GAAP basis
1 Not meaningful due to Q4'17 tax impacts

In the fourth quarter, the company generated approximately $6.9 billion in cash from operations, paid dividends of $1.4 billion and used $2.3 billion to repurchase 51 million shares of stock.


Full-Year 2018 Financial Highlights

GAAP

Non-GAAP

2018

2017

vs. 2017

2018

2017

vs. 2017

Revenue ($B)

$70.8

$62.8

up 13%

$70.8^

$62.8^

up 13%

Gross Margin

61.7%

62.3%

down 0.6 pts

63.3%

63.8%

down 0.5 pts

R&D and MG&A ($B)

$20.3

$20.5

down 1%

$20.3^

$20.4

flat 0%

Operating Income ($B)

$23.3

$18.1

up 29%

$24.5

$19.7

up 25%

Tax Rate

9.7%

52.8%

n/m1

11.0%

22.5%

down 11.5 pts

Net Income ($B)

$21.1

$9.6

n/m1

$21.5

$16.8

up 28%

Earnings Per Share

$4.48

$1.99

n/m1

$4.58

$3.46

up 32%

^ No adjustment on a non-GAAP basis
1 Not meaningful due to Q4'17 tax impacts

For the full year, the company generated a record $29.4 billion cash from operations, paid dividends of $5.5 billion and used $10.7 billion to repurchase 217 million shares of stock.


Business Unit Summary

Key Business Unit Revenue and Trends

Q4 2018

vs. Q4 2017

2018

vs. 2017

             PC-centric

CCG

$9.8 billion

up

 10%

$37.0 billion

up

 9%

             Data-centric

DCG

$6.1 billion

up

 9%

$23.0 billion

up

 21%

IOTG

$816 million

down

 7%

$3.5 billion

up

 9%

NSG

$1.1 billion

up

 25%

$4.3 billion

up

 22%

PSG

$612 million

up

 8%

$2.1 billion

up

 12%

up

 9%*

up

 20%*

* Data-centric businesses include DCG, IOTG, NSG, PSG and All Other, excluding McAfee

In the fourth quarter, Intel achieved revenue growth in nearly every business segment, and in 2018 every segment of the business set new annual all-time revenue records.

The PC-centric business (CCG) was up 10 percent in the fourth quarter due to continued strong demand for Intel's higher performance products and strength in commercial and gaming. CCG expanded its product portfolio for 2019 with the recent launch of new 9th Gen Intel® Core™ processors and unveiled "Ice Lake" the upcoming, 10nm-based PC processor, which is expected to be in OEM systems on shelves for holiday, 2019.

Collectively, Intel's data-centric businesses grew 9 percent YoY in the quarter and 20 percent YoY in 2018. In the fourth quarter, DCG achieved 24 percent cloud segment growth and 12 percent communications service provider segment growth while enterprise revenue declined 5 percent. Intel recently announced that the new "Cascade Lake" family of high performance Intel® Xeon® processors with advanced AI and memory capabilities is now shipping.

Fourth-quarter Internet of Things Group (IOTG) revenue declined 7 percent YoY. However, excluding Wind River, which Intel divested in the second quarter, fourth-quarter IOTG revenue was up 4 percent YoY despite supply tightness. Record quarterly revenue in Intel's memory business (NSG) was up 25 percent YoY. Intel's Programmable Solutions Group (PSG) also achieved record quarterly revenue, up 8 percent YoY driven by strength in the data center and communications market segments.

Mobileye fourth-quarter revenue of $183 million was up 43 percent YoY as customer momentum continued. In 2018, Mobileye achieved 28 new design wins and 78 vehicle model launches.

Additional information regarding Intel’s results can be found in the Q4'18 Earnings Presentation available at: www.intc.com/results.cfm.


Business Outlook

Intel's guidance for the first-quarter and full-year 2019 includes both GAAP and non-GAAP estimates. Reconciliations between these GAAP and non-GAAP financial measures are included below.

Q1 2019

GAAP

Non-GAAP

Approximately

Approximately

Revenue

$16.0 billion

$16.0 billion^

Operating margin

27%

29%

Tax rate

14%

14%^

Earnings per share

$0.81

$0.87

Full-Year 2019

GAAP

Non-GAAP

Approximately

Approximately

Revenue

$71.5 billion

$71.5 billion^

Operating margin

32%

34%

Tax rate

13.5%

13.5%^

Earnings per share

$4.35

$4.60

Full-year capital spending

$15.5 billion

$15.5 billion^

Free cash flow

N/A

$16.0 billion

^ No adjustment on a non-GAAP basis

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 January 24, 2019. Actual results may differ materially from Intel’s Business Outlook as a result of, among other things, the factors described under “Forward-Looking Statements” below. Our guidance above reflects the divestiture of Wind River, which was completed during the second quarter of 2018.


Earnings Webcast

Intel will hold a public webcast at 2:00 p.m. PDT today to discuss the results for its fourth quarter of 2018. The live public webcast can be accessed on Intel's Investor Relations website at www.intc.com/results.cfm. The Q4'18 Earnings Presentation, webcast replay, and audio download will also be available on the site.

Intel plans to report its earnings for the first quarter of 2018 on April 25, 2019 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.


Forward-Looking Statements

Intel’s Business Outlook and other statements 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," "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 estimates, forecasts, projections, uncertain events or assumptions, including statements relating to total addressable market (TAM) or market opportunity, future products and the expected availability and benefits of such products, and anticipated trends in our businesses or the markets relevant to them, also identify forward-looking statements. All forward-looking statements included in this release are based on management's expectations as of the date of this release and, except as required by law, Intel disclaims any obligation to update these forward-looking statements to reflect future events or circumstances. Forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. Intel presently considers the following to be among the 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; customer confidence or income levels, and the levels of customer capital spending; 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; changes in customer needs and emerging technology trends; and changes in the level of inventory at customers.
  • Intel's results 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 results may also be caused by the timing of Intel product introductions and related expenses, including marketing programs, 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 recession or slowing growth, military conflict and other security risks, natural disasters, infrastructure disruptions, health concerns, fluctuations in currency exchange rates, sanctions and tariffs, and continuing uncertainty regarding social, political, immigration, and tax and trade policies in the U.S. and abroad, including the United Kingdom's vote 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. In addition, in connection with our strategic transformation to a data-centric company, we have entered new areas and introduced adjacent products, where we face new sources of competition and uncertain market demand or acceptance of our products, and these new areas and products may not grow as projected.
  • 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, tax laws, or the market price of our common stock.
  • Intel's expected tax rate is based on current tax law, including current interpretations of the Tax Cuts and Jobs Act of 2017 (”TCJA”), and current expected income and may be affected by evolving interpretations of TCJA; changes in the volume and mix of profits earned across jurisdictions with varying tax rates; 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's results could be affected by gains or losses from equity securities and interest and other, which could vary depending on gains or losses on the change in fair value, sale, exchange, or impairments of equity and debt 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.
  • We or third parties regularly identify security vulnerabilities with respect to our processors and other products as well as the operating systems and workloads running on them. Security vulnerabilities and any limitations of, or adverse effects resulting from, mitigation techniques can adversely affect our results of operations, financial condition, customer relationships, prospects, and reputation in a number of ways, any of which may be material, including incurring significant costs related to developing and deploying updates and mitigations, writing down inventory value, a reduction in the competitiveness of our products, defending against product claims and litigation, responding to regulatory inquiries or actions, paying damages, addressing customer satisfaction considerations, or taking other remedial steps with respect to third parties. Adverse publicity about security vulnerabilities or mitigations could damage our reputation with customers or users and reduce demand for our products and services. A detailed description of these risks is set forth in the "Risk Factors" section of our most recent reports on Forms 10-K and 10-Q.
  • Intel's results could be affected by litigation or regulatory matters involving intellectual property, stockholder, consumer, antitrust, commercial, 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 the timing of closing of acquisitions, divestitures and other significant transactions.

Detailed information regarding these and other factors that could affect Intel's business and results is included in Intel's SEC filings, including the company's most recent reports on Forms 10-K and 10-Q, particularly the "Risk Factors" sections of those reports. Copies of these filings may be obtained by visiting our Investor Relations website at www.intc.com or the SEC's website at www.sec.gov.


About Intel

Intel (NASDAQ: INTC), a leader in the semiconductor industry, is shaping the data-centric future with computing and communications technology that is the foundation of the world’s innovations. The company’s engineering expertise is helping address the world’s greatest challenges as well as helping secure, power and connect billions of devices and the infrastructure of the smart, connected world - from the cloud to the network to the edge and everything in between. Find more information about Intel at newsroom.intel.com and intel.com.

Intel, the Intel logo, Intel Core, Intel Optane, and Xeon, 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.

CONTACTS: Tushar Jain Cara Walker
Investor Relations Media Relations
408-653-9488 503-696-0831
tushar.jain@intel.com cara.walker@intel.com

INTEL CORPORATION
CONSOLIDATED SUMMARY STATEMENT OF INCOME DATA

Three Months Ended

Twelve Months Ended


(In Millions, Except Per Share Amounts; Unaudited)

Dec 29,
2018

Dec 30,
2017(1)

Dec 29,
2018

Dec 30,
2017(1)

NET REVENUE

$

18,657 

$

17,053 

$

70,848 

$

62,761 

Cost of sales

7,430 

6,275 

27,111 

23,663 

GROSS MARGIN

11,227 

10,778 

43,737 

39,098 

Research and development (R&D)

3,433 

3,253 

13,543 

13,035 

Marketing, general and administrative (MG&A)

1,520 

1,842 

6,750 

7,452 

R&D AND MG&A

4,953 

5,095 

20,293 

20,487 

Restructuring and other charges

— 

195 

(72

)

384 

Amortization of acquisition-related intangibles

50 

53 

200 

177 

OPERATING EXPENSES

5,003 

5,343 

20,421 

21,048 

OPERATING INCOME

6,224 

5,435 

23,316 

18,050 

Gains (losses) on equity investments, net

(490

)

1,211 

(125

)

2,651 

Interest and other, net

(99

)

(611

)

126 

(349

)

INCOME BEFORE TAXES

5,635 

6,035 

23,317 

20,352 

Provision for taxes

440 

6,722 

2,264 

10,751 

NET INCOME (LOSS)

$

5,195 

$

(687

)

$

21,053 

$

9,601 

 

EARNINGS PER SHARE - BASIC

$

1.14 

$

(0.15

)

$

4.57 

$

2.04 

EARNINGS PER SHARE - DILUTED

$

1.12 

$

(0.15

)

$

4.48 

$

1.99 

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:

BASIC

4,549 

4,683 

4,611 

4,701 

DILUTED

4,619 

4,683 

4,701 

4,835 

1Cost of sales, operating expenses, and interest and other, net have been retrospectively restated due to the adoption of ASU 2017-07 in the first quarter of 2018.



INTEL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEET DATA


(In Millions)

Dec 29,
2018

Dec 30,
2017

CURRENT ASSETS

Cash and cash equivalents

$

3,019 

$

3,433

Short-term investments

2,788 

1,814

Trading assets

5,843 

8,755

Total cash investments

11,650 

14,002

Accounts receivable

6,722 

5,607

Inventories

Raw materials

813 

738

Work in process

4,511 

4,213

Finished goods

1,929 

2,032

7,253 

6,983

Other current assets

3,162 

2,908

TOTAL CURRENT ASSETS

28,787 

29,500

 

Property, plant and equipment, net

48,976 

41,109

Equity investments

6,042 

8,579

Other long-term investments

3,388 

3,712

Goodwill

24,513 

24,389

Identified intangible assets, net

11,836 

12,745

Other long-term assets

4,421 

3,215

TOTAL ASSETS

$

127,963 

$

123,249

 

CURRENT LIABILITIES

Short-term debt

$

1,261 

$

1,776

Accounts payable

3,824 

2,928

Accrued compensation and benefits

3,622 

3,526

Deferred income

— 

1,656

Other accrued liabilities

7,919 

7,535

TOTAL CURRENT LIABILITIES

16,626 

17,421

 

Debt

25,098 

25,037

Contract liabilities

2,049 

Income taxes payable, non-current

4,897 

4,069

Deferred income taxes

1,665 

3,046

Other long-term liabilities

2,646 

3,791

 

TEMPORARY EQUITY

419 

866

 

Stockholders' equity

Preferred stock

— 

Common stock and capital in excess of par value

25,365 

26,074

Accumulated other comprehensive income (loss)

(974

)

862

Retained earnings

50,172 

42,083

TOTAL STOCKHOLDERS' EQUITY

74,563 

69,019

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

$

127,963 

$

123,249

INTEL CORPORATION
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION

Three Months Ended

 
(In Millions)

Dec 29,
2018

Dec 30,
2017

SELECTED CASH FLOW INFORMATION:

Operating activities:

Net cash provided by operating activities

$

6,900 

$

7,241 

Depreciation

$

2,100 

$

1,762 

Share-based compensation

$

343 

$

307 

Amortization of intangibles

$

393 

$

378 

Investing activities:

Additions to property, plant and equipment

$

(3,890

)

$

(4,069

)

Financing activities:

Repayment of debt and debt conversion

$

(1,098

)

$

(6,578

)

Repurchase of common stock

$

(2,266

)

$

(4

)

Payment of dividends to stockholders

$

(1,368

)

$

(1,278

)

 

EARNINGS PER SHARE OF COMMON STOCK INFORMATION:

Weighted average shares of common stock outstanding - basic

4,549 

4,683 

Dilutive effect of employee equity incentive plans

43 

— 

Dilutive effect of convertible debt

27 

— 

Weighted average shares of common stock outstanding - diluted

4,619 

4,683 

 

STOCK BUYBACK:

Shares repurchased

51 

— 

Cumulative shares repurchased (in billions)

5.2 

4.9 

Remaining dollars authorized for buyback (in billions)

$

17.3 

$

13.2 

 

OTHER INFORMATION:

Employees (in thousands)

107.4 

102.7 

INTEL CORPORATION
SUPPLEMENTAL OPERATING SEGMENT RESULTS

Three Months Ended

Twelve Months Ended


(In Millions)

Dec 29,
2018

Dec 30,
2017(1)

Dec 29,
2018

Dec 30,
2017(1)

Net Revenue

Client Computing Group

Platform

$

8,531 

$

8,063 

$

33,234 

$

31,226 

Adjacency

1,291 

891 

3,770 

2,777 

9,822 

8,954 

37,004 

34,003 

Data Center Group

Platform

5,594 

5,095 

21,155 

17,439 

Adjacency

475 

487 

1,836 

1,625 

6,069 

5,582 

22,991 

19,064 

Internet of Things Group

Platform

746 

719 

3,065 

2,645 

Adjacency

70 

160 

390 

524 

816 

879 

3,455 

3,169 

Non-Volatile Memory Solutions Group

1,107 

889 

4,307 

3,520 

Programmable Solutions Group

612 

568 

2,123 

1,902 

All Other

231 

181 

968 

1,103 

TOTAL NET REVENUE

$

18,657 

$

17,053 

$

70,848 

$

62,761 

Operating income (loss)

Client Computing Group

$

3,665 

$

3,263 

$

14,222 

$

12,919 

Data Center Group

3,055 

2,992 

11,476 

8,395 

Internet of Things Group

189 

260 

980 

650 

Non-Volatile Memory Solutions Group

(19

)

31 

(5

)

(260

)

Programmable Solutions Group

162 

156 

466 

458 

All Other

(828

)

(1,267

)

(3,823

)

(4,112

)

TOTAL OPERATING INCOME

$

6,224 

$

5,435 

$

23,316 

$

18,050 

1Cost of sales, operating expenses, and interest and other, net have been retrospectively restated due to the adoption of ASU 2017-07 in the first quarter of 2018.

Revenue for our reportable and non-reportable operating segments is primarily related to the following product lines:

  • CCG includes platforms designed for end-user form factors, focusing on higher growth segments of 2-in-1, thin-and-light, commercial and gaming, and growing adjacencies such as WiFi and modem.
  • DCG includes workload-optimized platforms and related products designed for cloud, enterprise, and communication infrastructure market segments.
  • IOTG includes high-performance compute solutions for targeted verticals and embedded applications in market segments such as retail, manufacturing, health care, energy, automotive, and government.
  • NSG includes Intel® Optane™ technology and 3D NAND flash memory, primarily used in solid-state drives (SSDs).
  • PSG includes programmable semiconductors, primarily field-programmable gate arrays (FPGAs), and related products for a broad range of markets, such as communications, data center, industrial, and military.

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 not otherwise presented, including Mobileye results;
  • historical results of operations from divested businesses, including Intel Security Group (ISecG) results;
  • results of operations of start-up businesses that support our initiatives, including our foundry business;
  • amounts included within restructuring and other charges;
  • a portion of employee benefits, compensation, and other expenses not allocated to the operating segments; 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 platform products. Platform products incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multi-chip package based on Intel® architecture. Our remaining primary product lines are incorporated in "adjacency."



INTEL CORPORATION
SUPPLEMENTAL PLATFORM REVENUE INFORMATION

Q4 2018
compared to Q3
2018

Q4 2018
compared to Q4
2017

YTD 2018
compared to YTD
2017

Client Computing Group Platform

Notebook platform volumes

(10)%

1%

4%

Notebook platform average selling prices

3%

6%

3%

Desktop platform volumes

(7)%

(8)%

(6)%

Desktop platform average selling prices

5%

13%

11%

 

Data Center Group Platform

Unit Volumes

(3)%

9%

13%

Average Selling Prices

2%

1%

7%

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 and measuring our performance.

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 for each adjustment. We also provide a non-GAAP financial measure of free cash flow, as described below. 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:

  • Inventory valuation adjustments: 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 exclude the expected profit margin component that is recorded under business combination accounting principles associated with our acquisition of Mobileye. 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 intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. We record charges related 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.
  • Other acquisition-related charges: Other acquisition-related charges exclude the impact of other charges associated with the acquisition of Mobileye. These charges primarily include bankers' fees, compensation-related costs, and valuation charges for stock-based compensation incurred related to the acquisition. We believe these adjustments are useful to investors as an additional means to reflect the spending trends of our business.

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 ISecG 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.

Ongoing mark-to-market on marketable equity securities: We exclude gains and losses resulting from ongoing mark-to-market adjustments of our marketable equity securities, after the initial mark-to-market adjustment is recorded upon a security becoming marketable, when calculating certain non-GAAP measures, as we do not believe this volatility correlates to our core operational performance. Consequently, our non-GAAP earnings per share figures exclude these impacts to facilitate an evaluation of our current performance and comparisons to our past operating performance.

Gains or losses from divestitures: We divested ISecG in Q2 2017 and Wind River in Q2 2018. We exclude gains or losses and related tax impacts resulting from divestitures when calculating certain non-GAAP measures. We believe making these adjustments facilitates a better evaluation of our current operating performance and comparisons to our past operating performance.

Tax Reform adjustment: We recognized a higher income tax expense in Q4 2017 as a result of Tax Reform and have made adjustments to the original estimate in 2018. We exclude the Q4 2017 provisional tax estimate and 2018 provisional tax adjustments relating to the transition tax on our previously untaxed foreign earnings and the remeasurement of our deferred income taxes to the new U.S. statutory tax rate for purposes of calculating certain non-GAAP measures. We believe making this adjustment facilitates a better evaluation of our current operating performance and comparisons to past operating results.

Free cash flow: We reference a non-GAAP financial measure of free cash flow, which is used by management when assessing our sources of liquidity, capital resources, and quality of earnings. We believe this non-GAAP financial measure is helpful to investors in understanding our capital requirements and provides an additional means to reflect the cash flow trends of our business.



INTEL CORPORATION
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 measures disclosed by the company have limitations and should not be considered a substitute for, or superior to, the financial measures 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 adjustments 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.

Q1 2019 Outlook

Full-Year 2019

Approximately

Approximately

GAAP OPERATING MARGIN

27 

%

32 

%

Amortization of acquisition-related intangible assets

%

%

NON-GAAP OPERATING MARGIN

29 

%

34 

%

 

EARNINGS PER SHARE - DILUTED

$

0.81 

$

4.35 

Amortization of acquisition-related intangible assets

0.07 

0.29 

Income tax effect

(0.01

)

(0.04

)

NON-GAAP EARNINGS PER SHARE - DILUTED

$

0.87 

$

4.60 

 

(In Billions)

Full-Year 2019

GAAP CASH FROM OPERATIONS

$

31.5 

Additions to property, plant and equipment

 

 

(15.5

)

FREE CASH FLOW

$

16.0 

INTEL CORPORATION
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

Twelve Months Ended


(In Millions, Except Per Share Amounts)

Dec 29,
2018

Dec 30,
2017(1)

Dec 29,
2018

Dec 30,
2017(1)

GAAP GROSS MARGIN

$

11,227 

$

10,778 

$

43,737 

$

39,098 

Inventory valuation adjustments

— 

28 

— 

55 

Amortization of acquisition-related intangible assets

279 

262 

1,105 

912 

NON-GAAP GROSS MARGIN

$

11,506 

$

11,068 

$

44,842 

$

40,065 

 

GAAP GROSS MARGIN PERCENTAGE

60.2 

%

63.2 

%

61.7 

%

62.3 

%

Inventory valuation adjustments

— 

%

0.2 

%

— 

%

0.1 

%

Amortization of acquisition-related intangible assets

1.5 

%

1.5 

%

1.6 

%

1.4 

%

NON-GAAP GROSS MARGIN PERCENTAGE

61.7 

%

64.9 

%

63.3 

%

63.8 

%

 

GAAP R&D PLUS MG&A SPENDING

$

4,953 

$

5,095 

$

20,293 

$

20,487 

Other acquisition-related charges

— 

— 

— 

(113

)

NON-GAAP TOTAL DIRECT EXPENSES

$

4,953 

$

5,095 

$

20,293 

$

20,374 

 

GAAP OPERATING INCOME

$

6,224 

$

5,435 

$

23,316 

$

18,050 

Inventory valuation adjustments

— 

28 

— 

55 

Amortization of acquisition-related intangible assets

329 

315 

1,305 

1,089 

Other acquisition-related charges

— 

— 

— 

113 

Restructuring and other charges

— 

195 

(72

)

384 

NON-GAAP OPERATING INCOME

$

6,553 

$

5,973 

$

24,549 

$

19,691 

 

GAAP TAX RATE

7.8 

%

111.4 

%

9.7 

%

52.8 

%

Divestiture of Intel Security

— 

%

— 

%

— 

%

(3.6

)%

Tax Reform

— 

%

(90.2

)%

— 

%

(26.7

)%

Other

1.0 

%

— 

%

1.3 

%

— 

%

NON-GAAP TAX RATE

8.8 

%

21.2 

%

11.0 

%

22.5 

%

 

GAAP NET INCOME

$

5,195 

$

(687

)

$

21,053 

$

9,601 

Inventory valuation adjustments

— 

28 

— 

55 

Amortization of acquisition-related intangible assets

329 

315 

1,305 

1,089 

Other acquisition-related charges

— 

— 

— 

113 

Restructuring and other charges

— 

195 

(72

)

384 

Ongoing mark-to-market on marketable equity securities

508 

— 

129 

— 

(Gains) losses from divestitures

— 

— 

(494

)

(387

)

Tax Reform

— 

5,444 

(294

)

5,444 

Income tax effect

(130

)

(114

)

(102

)

454 

NON-GAAP NET INCOME

$

5,902 

$

5,181 

$

21,525 

$

16,753 

 

EARNINGS PER SHARE - DILUTED

$

1.12 

$

(0.15

)

$

4.48 

$

1.99 

Inventory valuation adjustments

— 

0.01 

— 

0.01 

Amortization of acquisition-related intangible assets

0.07 

0.06 

0.28 

0.22 

Other acquisition-related charges

— 

— 

— 

0.02 

Restructuring and other charges

— 

0.04 

(0.02

)

0.08 

(Gains) losses from divestitures

— 

— 

(0.11

)

(0.08

)

Ongoing mark-to-market on marketable equity securities

0.11 

— 

0.03 

— 

Tax Reform

— 

1.14 

(0.06

)

1.13 

Income tax effect

(0.02

)

(0.02

)

(0.02

)

0.09 

NON-GAAP EARNINGS PER SHARE - DILUTED

$

1.28 

$

1.08 

$

4.58 

$

3.46 

1Cost of sales, operating expenses, and interest and other, net have been retrospectively restated due to the adoption of ASU 2017-07 in the first quarter of 2018.

Twelve Months Ended


(In Millions)

Dec 29,
2018

GAAP CASH FROM OPERATIONS

$

29,432 

Additions to property, plant and equipment

(15,181

)

FREE CASH FLOW

$

14,251 

 

GAAP CASH USED FOR INVESTING ACTIVITIES

$

(11,239

)

GAAP CASH USED FOR FINANCING ACTIVITIES

$

(18,607

)