Intel Reports Second Quarter 2019 Financial Results

07/25/2019

Intel Reports Second-Quarter 2019 Financial Results

News Summary:

  • Second-quarter revenue of $16.5 billion, down 3% year-over-year (YoY), exceeded April guidance. IOTG achieved record revenue. Data-centric revenue declined 7 percent; PC-centric revenue grew 1 percent YoY.
  • Second-quarter earnings-per-share (EPS) exceeded April guidance. GAAP EPS of $0.92 declined 12 percent YoY; non-GAAP EPS of $1.06 was up 2 percent.
  • Announced an agreement for Apple to acquire the majority of Intel’s smartphone modem business1.
  • Raising full-year revenue outlook to $69.5 billion, up $500 million from April guidance. Now expecting full-year GAAP EPS of $4.10 and raising full-year non-GAAP EPS outlook to $4.40.

SANTA CLARA, Calif., July 25, 2019 -- Intel Corporation today reported second-quarter 2019 financial results.

“Second quarter results exceeded our expectations on both revenue and earnings, as the growth of data and compute-intensive applications are driving customer demand for higher performance products in both our PC-centric and data-centric businesses,” said Bob Swan, Intel CEO. “Based on our outperformance in the quarter, we’re raising our full-year guidance. Intel’s ambitions are as big as ever, our collection of assets is unrivaled, and our transformation continues.”

Q2 2019 Financial Highlights

 

GAAP

 

Non-GAAP

 

Q2 2019

Q2 2018

vs. Q2 2018

 

Q2 2019

Q2 2018

vs. Q2 2018

Revenue ($B)

$16.5

$17.0

down 3%

 

$16.5^

$17.0^

down 3%

Gross Margin

59.8%

61.4%

down 1.6 pts

 

61.6%

63.0%

down 1.4 pts

R&D and MG&A ($B)

$5.0

$5.1

down 1%

 

$5.0^

$5.1^

down 1%

Operating Income ($B)

$4.6

$5.3

down 12%

 

$5.1

$5.6

down 8%

Tax Rate

11.5%

9.5%

up 2.1 pts

 

11.8%

11.7%

up 0.1 pt

Net Income ($B)

$4.2

$5.0

down 17%

 

$4.8

$4.9

down 3%

Earnings Per Share

$0.92

$1.05

down 12%

 

$1.06

$1.04

up 2%

In the second quarter, the company generated approximately $7.6 billion in cash from operations, paid dividends of $1.4 billion and used $3.0 billion to repurchase 67 million shares of stock.

Business Unit Summary

 

Key Business Unit Revenue and Trends

   

Q2 2019

vs. Q2 2018

PC-centric

CCG

$8.8 billion

up

1%

Data-centric

DCG

$5.0 billion

down

10%

Internet of Things

     

IOTG

$986 million

up

12%

Mobileye

$201 million

up

16%

NSG

$940 million

down

13%

PSG

$489 million

down

5%

   

down

7%*

Second-quarter revenue of $16.5 billion was $900 million higher than April guidance. Intel achieved 1 percent growth in the PC-centric business while data-centric revenue declined 7 percent.

The PC-centric business (CCG) was up 1 percent in the second quarter due to a strong mix of Intel's higher performance products, strength in the commercial segment, and customers buying ahead of possible tariff impacts. New, 10nm-based 10th Gen Intel® Core™ processors (code-named "Ice Lake") are now shipping, and expected to be in volume systems on retail shelves this 2019 holiday selling season.

Collectively, Intel's data-centric businesses declined 7 percent YoY in the second quarter. In the Data Center Group (DCG), the communications service provider segment grew 3 percent while the cloud segment declined 1 percent and enterprise and government revenue declined 31 percent. The Internet of Things Group (IOTG) achieved record revenue, up 12 percent YoY (23 percent excluding Wind River1) on broad strength and increased demand for higher performance processors. Mobileye achieved second-quarter revenue of $201 million, up 16 percent YoY on continued customer momentum. Intel's memory business (NSG) was down 13 percent YoY in a challenging pricing environment. Intel's Programmable Solutions Group (PSG) revenue was down 5 percent YoY in the second quarter.

Additional information regarding Intel’s results can be found in the Q2'19 Earnings Presentation available at: www.intc.com/results.cfm.

Business Outlook

 

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

Q3 2019

GAAP

 

Non-GAAP

 

Approximately

 

Approximately

Revenue

$18.0 billion

 

$18.0 billion^

Operating margin

33%

 

35%

Tax rate for Q3 and Q4

13%

 

13%^

Earnings per share

$1.16

 

$1.24

Full-Year 2019

GAAP

 

Non-GAAP

 

Approximately

 

Approximately

Revenue

$69.5 billion

 

$69.5 billion^

Operating margin

30%

 

32%

Tax rate for Q3 and Q4

13%

 

13%^

Earnings per share

$4.10

 

$4.40

Full-year capital spending

$15.5 billion

 

$15.5 billion^

Free cash flow

N/A

 

$15.0 billion

Intel’s Business Outlook does not include the potential impact of our agreement to sell the majority of our smartphone modem business, announced today. Upon close, we expect a gain on divestiture of approximately $500 million net of tax, which will be excluded on a non-GAAP basis. Intel's Business Outlook also does not include any other business combinations, asset acquisitions, divestitures, strategic investments and other significant transactions that may be completed after July 25, 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.

Earnings Webcast

Intel will hold a public webcast at 2:00 p.m. PDT today to discuss the results for its second quarter of 2019. The live public webcast can be accessed on Intel's Investor Relations website at www.intc.com/results.cfm. The Q2'19 Earnings Presentation, webcast replay, and audio download will also be available on the site.

Intel plans to report its earnings for the third quarter of 2019 on October 24, 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, as well as decisions to exit product lines or businesses, 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 Optane, and Thunderbolt are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.

CONTACTS:

Brooke Wells

Cara Walker

 

Investor Relations

Media Relations

 

503-613-8230

503-696-0831

 

brooke.wells@intel.com

cara.walker@intel.com

 

INTEL CORPORATION

CONSOLIDATED SUMMARY STATEMENT OF INCOME DATA

   

Three Months Ended

 

Six Months Ended

(In Millions, Except Per Share Amounts; Unaudited)

 

Jun 29,
2019

 

Jun 30,
2018

 

Jun 29,
2019

 

Jun 30,
2018

NET REVENUE

 

$

16,505

   

$

16,962

   

$

32,566

   

$

33,028

 

Cost of sales

 

6,627

   

6,543

   

13,599

   

12,878

 

GROSS MARGIN

 

9,878

   

10,419

   

18,967

   

20,150

 

Research and development (R&D)

 

3,438

   

3,371

   

6,770

   

6,682

 

Marketing, general and administrative (MG&A)

 

1,589

   

1,725

   

3,122

   

3,625

 

R&D AND MG&A

 

5,027

   

5,096

   

9,892

   

10,307

 

Restructuring and other charges

 

184

   

   

184

   

 

Amortization of acquisition-related intangibles

 

50

   

50

   

100

   

100

 

OPERATING EXPENSES

 

5,261

   

5,146

   

10,176

   

10,407

 

OPERATING INCOME

 

4,617

   

5,273

   

8,791

   

9,743

 

Gains (losses) on equity investments, net

 

170

   

(203

)

 

604

   

440

 

Interest and other, net

 

(63

)

 

459

   

(124

)

 

357

 

INCOME BEFORE TAXES

 

4,724

   

5,529

   

9,271

   

10,540

 

Provision for taxes

 

545

   

523

   

1,118

   

1,080

 

NET INCOME

 

$

4,179

   

$

5,006

   

$

8,153

   

$

9,460

 
                 

EARNINGS PER SHARE - BASIC

 

$

0.94

   

$

1.08

   

$

1.82

   

$

2.03

 

EARNINGS PER SHARE - DILUTED

 

$

0.92

   

$

1.05

   

$

1.79

   

$

1.98

 
                 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:

               

BASIC

 

4,466

   

4,649

   

4,479

   

4,661

 

DILUTED

 

4,523

   

4,747

   

4,543

   

4,768

 

INTEL CORPORATION

CONSOLIDATED SUMMARY BALANCE SHEET DATA

(In Millions)

 

Jun 29,
2019

 

Dec 29,
2018

CURRENT ASSETS

 

(unaudited)

   

Cash and cash equivalents

 

$

2,867

   

$

3,019

 

Short-term investments

 

2,414

   

2,788

 

Trading assets

 

6,663

   

5,843

 

Total cash investments

 

11,944

   

11,650

 

Accounts receivable

 

6,233

   

6,722

 

Inventories

       

Raw materials

 

808

   

813

 

Work in process

 

5,612

   

4,511

 

Finished goods

 

2,276

   

1,929

 
   

8,696

   

7,253

 

Other current assets

 

2,366

   

3,162

 

TOTAL CURRENT ASSETS

 

29,239

   

28,787

 
         

Property, plant and equipment, net

 

51,377

   

48,976

 

Equity investments

 

4,629

   

6,042

 

Other long-term investments

 

3,577

   

3,388

 

Goodwill

 

24,583

   

24,513

 

Identified intangible assets, net

 

11,249

   

11,836

 

Other long-term assets

 

6,105

   

4,421

 

TOTAL ASSETS

 

$

130,759

   

$

127,963

 
         

CURRENT LIABILITIES

       

Short-term debt

 

$

3,726

   

$

1,261

 

Accounts payable

 

4,682

   

3,824

 

Accrued compensation and benefits

 

2,554

   

3,622

 

Other accrued liabilities

 

8,743

   

7,919

 

TOTAL CURRENT LIABILITIES

 

19,705

   

16,626

 
         

Debt

 

25,089

   

25,098

 

Contract liabilities

 

1,558

   

2,049

 

Income taxes payable, non-current

 

4,847

   

4,897

 

Deferred income taxes

 

1,783

   

1,665

 

Other long-term liabilities

 

2,583

   

2,646

 
         

TEMPORARY EQUITY

 

247

   

419

 
         

Stockholders' equity

       

Preferred stock

 

   

 

Common stock and capital in excess of par value

 

25,140

   

25,365

 

Accumulated other comprehensive income (loss)

 

(622

)

 

(974

)

Retained earnings

 

50,429

   

50,172

 

TOTAL STOCKHOLDERS' EQUITY

 

74,947

   

74,563

 

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

 

$

130,759

   

$

127,963

 

INTEL CORPORATION

SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION

   

Three Months Ended

(In Millions)

 

Jun 29,
2019

 

Jun 30,
2018

SELECTED CASH FLOW INFORMATION:

       

Operating activities:

       

Net cash provided by operating activities

 

$

7,587

   

$

7,413

 

Depreciation

 

$

2,150

   

$

1,730

 

Share-based compensation

 

$

470

   

$

387

 

Amortization of intangibles

 

$

404

   

$

392

 

Investing activities:

       

Additions to property, plant and equipment

 

$

(3,554

)

 

$

(4,530

)

Financing activities:

       

Repayment of debt and debt conversion

 

$

(172

)

 

$

(842

)

Repurchase of common stock

 

$

(3,049

)

 

$

(3,893

)

Payment of dividends to stockholders

 

$

(1,414

)

 

$

(1,400

)

         

EARNINGS PER SHARE OF COMMON STOCK INFORMATION:

       

Weighted average shares of common stock outstanding – basic

 

4,466

   

4,649

 

Dilutive effect of employee equity incentive plans

 

40

   

52

 

Dilutive effect of convertible debt

 

17

   

46

 

Weighted average shares of common stock outstanding – diluted

 

4,523

   

4,747

 
         

STOCK BUYBACK:

       

Shares repurchased

 

67

   

76

 

Cumulative shares repurchased (in billions)

 

5.3

   

5.1

 

Remaining dollars authorized for buyback (in billions)

 

$

11.7

   

$

7.2

 
         

OTHER INFORMATION:

       

Employees (in thousands)

 

110.2

   

104.2

 

INTEL CORPORATION

SUPPLEMENTAL OPERATING SEGMENT RESULTS

   

Three Months Ended

 

Six Months Ended

(In Millions)

 

Jun 29,
2019

 

Jun 30,
2018

 

Jun 29,
2019

 

Jun 30,
2018

Net Revenue

               

Client Computing Group

               

Platform

 

$

7,925

   

$

8,065

   

$

15,749

   

$

15,680

 

Adjacency

 

916

   

663

   

1,678

   

1,268

 
   

8,841

   

8,728

   

17,427

   

16,948

 

Data Center Group

               

Platform

 

4,553

   

5,100

   

9,035

   

9,924

 

Adjacency

 

430

   

449

   

850

   

859

 
   

4,983

   

5,549

   

9,885

   

10,783

 

Internet of Things

               

IOTG

 

986

   

880

   

1,896

   

1,720

 

Mobileye

 

201

   

173

   

410

   

324

 
   

1,187

   

1,053

   

2,306

   

2,044

 
                 

Non-Volatile Memory Solutions Group

 

940

   

1,079

   

1,855

   

2,119

 

Programmable Solutions Group

 

489

   

517

   

975

   

1,015

 

All Other

 

65

   

36

   

118

   

119

 

TOTAL NET REVENUE

 

$

16,505

   

$

16,962

   

$

32,566

   

$

33,028

 
                 

Operating income (loss)

               

Client Computing Group

 

$

3,737

   

$

3,234

   

$

6,809

   

$

6,025

 

Data Center Group

 

1,800

   

2,737

   

3,641

   

5,339

 

Internet of Things

               

IOTG

 

294

   

243

   

545

   

470

 

Mobileye

 

53

   

44

   

121

   

54

 
   

347

   

287

   

666

   

524

 
                 

Non-Volatile Memory Solutions Group

 

(284

)

 

(65

)

 

(581

)

 

(146

)

Programmable Solutions Group

 

52

   

101

   

141

   

198

 

All Other

 

(1,035

)

 

(1,021

)

 

(1,885

)

 

(2,197

)

TOTAL OPERATING INCOME

 

$

4,617

   

$

5,273

   

$

8,791

   

$

9,743

 

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 Thunderbolt™ products.
  • 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.
  • Mobileye includes computer vision and machine learning-based sensing, data analysis, localization mapping and driving policy technology for advanced driver assistance systems (ADAS) and autonomous driving.
  • 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.

All other category includes revenue, expenses, and charges such as:

  • results of operations from non-reportable segments not otherwise presented;
  • historical results of operations from divested businesses;
  • 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

   

Q2 2019

 

Q2 2019

 

YTD 2019

   

compared to
Q1 2019

 

compared to
Q2 2018

 

compared to
YTD 2018

Client Computing Group Platform

           

Notebook platform volumes

 

15%

 

(2)%

 

(4)%

Notebook platform average selling prices

 

(9)%

 

3%

 

8%

Desktop platform volumes

 

(4)%

 

(11)%

 

(9)%

Desktop platform average selling prices

 

(2)%

 

5%

 

6%

             

Data Center Group Platform

           

Unit volumes

 

(2)%

 

(12)%

 

(10)%

Average selling prices

 

4%

 

2%

 

1%

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 included in the table 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.

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, rather than our core operations. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

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. We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures. We believe that these costs do not reflect our current operating performance. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

Gains or losses from divestiture: We divested Wind River in Q2 2018 and recognized an associated gain. Our non-GAAP earnings per share figures exclude this impact 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 operating performance and comparisons to our past operating performance.

Tax Reform adjustment: During Q2 2018, we made an adjustment to our U.S. Tax Cuts and Jobs Act (Tax Reform) provisional tax estimates that we recorded in Q4 2017. We exclude this provisional tax adjustment when calculating certain non-GAAP measures. We believe excluding this adjustment facilitates a better evaluation of our current operating performance and comparisons to past operating performance.

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.

   

Q3 2019 Outlook

 

Full-Year 2019

         
   

Approximately

 

Approximately

GAAP OPERATING MARGIN

 

33

%

 

30

%

Amortization of acquisition-related intangible assets

 

2

%

 

2

%

NON-GAAP OPERATING MARGIN

 

35

%

 

32

%

         

GAAP DILUTED EARNINGS PER COMMON SHARE

 

$

1.16

   

$

4.10

 

Amortization of acquisition-related intangible assets

 

0.08

   

0.30

 

Restructuring and other charges

 

0.02

   

0.06

 

Ongoing mark-to-market on marketable equity securities

 

   

(0.02

)

Income tax effect

 

(0.02

)

 

(0.04

)

NON-GAAP DILUTED EARNINGS PER COMMON SHARE

 

$

1.24

   

$

4.40

 

(In Billions)

 

Full-Year 2019

     

GAAP CASH FROM OPERATIONS

 

$

30.5

 

Additions to property, plant and equipment

 

(15.5

)

FREE CASH FLOW

 

$

15.0

 

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

 

Six Months Ended

(In Millions, Except Per Share Amounts)

Jun 29,
2019

 

Jun 30,
2018

 

Jun 29,
2019

 

Jun 30,
2018

GAAP GROSS MARGIN

$

9,878

   

$

10,419

   

$

18,967

   

$

20,150

 

Amortization of acquisition-related intangible assets

287

   

275

   

568

   

550

 

NON-GAAP GROSS MARGIN

$

10,165

   

$

10,694

   

$

19,535

   

$

20,700

 
               

GAAP GROSS MARGIN PERCENTAGE

59.8

%

 

61.4

%

 

58.2

%

 

61.0

%

Amortization of acquisition-related intangible assets

1.7

%

 

1.6

%

 

1.7

%

 

1.7

%

NON-GAAP GROSS MARGIN PERCENTAGE

61.6

%

 

63.0

%

 

60.0

%

 

62.7

%

               

GAAP OPERATING INCOME

$

4,617

   

$

5,273

   

$

8,791

   

$

9,743

 

Amortization of acquisition-related intangible assets

337

   

325

   

668

   

650

 

Restructuring and other charges

184

   

   

184

   

 

NON-GAAP OPERATING INCOME

$

5,138

   

$

5,598

   

$

9,643

   

$

10,393

 
               

GAAP TAX RATE

11.5

%

 

9.5

%

 

12.1

%

 

10.2

%

Other

0.2

%

 

2.2

%

 

0.1

%

 

1.5

%

NON-GAAP TAX RATE

11.8

%

 

11.7

%

 

12.1

%

 

11.7

%

               

GAAP NET INCOME

$

4,179

   

$

5,006

   

$

8,153

   

$

9,460

 

Amortization of acquisition-related intangible assets

337

   

325

   

668

   

650

 

Restructuring and other charges

184

   

   

184

   

 

(Gains) losses from divestiture

   

(494

)

 

   

(494

)

Ongoing mark-to-market on marketable equity securities

179

   

235

   

(74

)

 

(371

)

Tax Reform

   

(181

)

 

   

(181

)

Income tax effect

(94

)

 

48

   

(98

)

 

51

 

NON-GAAP NET INCOME

$

4,785

   

$

4,940

   

$

8,833

   

$

9,116

 
               

GAAP DILUTED EARNINGS PER COMMON SHARE

$

0.92

   

$

1.05

   

$

1.79

   

$

1.98

 

Amortization of acquisition-related intangible assets

0.08

   

0.07

   

0.15

   

0.14

 

Restructuring and other charges

0.04

   

   

0.04

   

 

(Gains) losses from divestiture

   

(0.10

)

 

   

(0.10

)

Ongoing mark-to-market on marketable equity securities

0.04

   

0.05

   

(0.02

)

 

(0.08

)

Tax Reform

   

(0.04

)

 

   

(0.04

)

Income tax effect

(0.02

)

 

0.01

   

(0.02

)

 

0.01

 

NON-GAAP DILUTED EARNINGS PER COMMON SHARE

$

1.06

   

$

1.04

   

$

1.94

   

$

1.91

 
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