Intel Reports Fourth Quarter 2019 Financial Results

01/23/2020

Announces Five Percent Increase to Quarterly Cash Dividend

News Summary:

  • Record Fourth-quarter revenue was $20.2 billion, up 8 percent year-over-year (YoY). Full-year revenue set an all-time record of $72.0 billion, up 2 percent YoY on data-centric growth*.
  • Delivered outstanding fourth-quarter earnings per share (EPS) of $1.58 ($1.52 on a non-GAAP basis).
  • In 2019, Intel generated a record $33.1 billion cash from operations and $16.9 billion of free cash flow, and returned approximately $19.2 billion to shareholders.
  • Expecting record 2020 revenue of approximately $73.5 billion and first-quarter revenue of approximately $19.0 billion.

SANTA CLARA, Calif., January 23, 2020 -- Intel Corporation today reported fourth-quarter and full-year 2019 financial results. The company also announced that its board of directors approved a five percent cash dividend increase to $1.32 per share on an annual basis. The board declared a quarterly dividend of $0.33 per share on the company’s common stock, which will be payable on March 1 to shareholders of record on February 7.

“In 2019, we gained share in an expanded addressable market that demands more performance to process, move and store data,” said Bob Swan, Intel CEO. “One year into our long-term financial plan, we have outperformed our revenue and EPS expectations. Looking ahead, we are investing to win the technology inflections of the future, play a bigger role in the success of our customers and increase shareholder returns."

Q4 2019 Financial Highlights

GAAP

Non-GAAP

Q4 2019

Q4 2018

vs. Q4 2018

Q4 2019

Q4 2018

vs. Q4 2018

Revenue ($B)

$20.2

$18.7

up 8%

$20.2^

$18.7^

up 8%

Gross Margin

58.8%

60.2%

down 1.4 pts

60.1%

61.7%

down 1.6 pts

R&D and MG&A ($B)

$4.9

$5.0

down 1%

$4.9^

$5.0^

down 1%

Operating Income ($B)

$6.8

$6.2

up 9%

$7.2

$6.6

up 10%

Tax Rate

14.4%

7.8%

up 6.6 pts

13.6%

8.8%

up 4.8 pts

Net Income ($B)

$6.9

$5.2

up 33%

$6.7

$5.9

up 13%

Earnings Per Share

$1.58

$1.12

up 40%

$1.52

$1.28

up 19%

In the fourth quarter, the company generated approximately $9.9 billion in cash from operations, paid dividends of $1.4 billion and used $3.5 billion to repurchase 63 million shares of stock.

Full-Year 2019 Financial Highlights

Intel achieved record revenue while investing $13.4 billion in research and development and reducing spending to 27 percent of total revenue.

GAAP

Non-GAAP

2019

2018

vs. 2018

2019

2018

vs. 2018

Revenue ($B)

$72.0

$70.8

up 2%

$72.0^

$70.8^

up 2%

Gross Margin

58.6%

61.7%

down 3.2 pts

60.1%

63.3%

down 3.2 pts

R&D and MG&A ($B)

$19.5

$20.3

down 4%

$19.5^

$20.3^

down 4%

Operating Income ($B)

$22.0

$23.3

down 5%

$23.8

$24.5

down 3%

Tax Rate

12.5%

9.7%

up 2.8 pts

12.2%

11.0%

up 1.2 pts

Net Income ($B)

$21.0

$21.1

flat

$21.8

$21.5

up 1%

Earnings Per Share

$4.71

$4.48

up 5%

$4.87

$4.58

up 6%

For the full year, the company generated a record $33.1 billion cash from operations, paid dividends of $5.6 billion and used $13.6 billion to repurchase 272 million shares of stock.

Business Unit Summary

Key Business Unit Revenue and Trends

Q4 2019

vs. Q4 2018

2019

vs. 2018

DCG

$7.2 billion

up

19%

$23.5 billion

up

2%

Internet of Things

IOTG

$920 million

up

13%

$3.8 billion

up

11%

Data-centric

Mobileye

$240 million

up

31%

$879 million

up

26%

NSG

$1.2 billion

up

10%

$4.4 billion

up

1%

PSG

$505 million

down

17%

$2.0 billion

down

6%

up

15%*

up

3%*

PC-centric

CCG

$10.0 billion

up

2%

$37.1 billion

flat

Fourth-quarter revenue set an all-time quarterly record of $20.2 billion, which was $1 billion higher than October guidance led by record data-centric revenue, up 15 percent YoY. PC-centric revenue was up 2 percent YoY.

Intel's collection of data-centric businesses achieved record revenue in the fourth quarter, led by record Data Center Group (DCG) revenue. DCG revenue grew 19 percent YoY in the fourth quarter, driven by robust demand from cloud service provider customers and a continued strong mix of high-performance 2nd-Generation Intel® Xeon® Scalable processors. Intel acquired Habana Labs in the fourth quarter, strengthening its artificial intelligence portfolio for the data center. Internet of Things Group (IOTG) revenue was up 13 percent on strength in retail and transportation. Mobileye achieved record revenue, up 31 percent YoY on increasing ADAS adoption. Intel's memory business (NSG) was up 10 percent YoY on continued NAND and Intel® Optane™ bit growth. PSG fourth-quarter revenue was down 17 percent YoY.

In the fourth quarter, the PC-centric business (CCG) was up 2 percent on higher modem sales and desktop platform volumes. Major PC manufacturers have introduced 44 systems featuring the new, 10nm-based 10th Gen Intel® Core™ processors (previously referred to as "Ice Lake"), and momentum continues to build for Project Athena. Project Athena-verified devices have been tuned, tested and verified to deliver fantastic system-level innovation and benefits spanning battery life, consistent responsiveness, instant wake, application compatibility and more. Intel has verified 26 Project Athena designs to date.

Additional information regarding Intel’s results can be found in the Q4'19 Earnings Presentation available at: www.intc.com/results.cfm.

Business Outlook

Intel's guidance for the first-quarter and full-year 2020 includes both GAAP and non-GAAP estimates. Reconciliations between these GAAP and non-GAAP financial measures are included below.

Q1 2020

GAAP

Non-GAAP

Approximately

Approximately

Revenue

$19.0 billion

$19.0 billion^

Operating margin

33%

35%

Tax rate

13%

13%^

Earnings per share

$1.23

$1.30

Full-Year 2020

GAAP

Non-GAAP

Approximately

Approximately

Revenue

$73.5 billion

$73.5 billion^

Operating margin

31%

33%

Tax rate

13%

13%^

Earnings per share

$4.71

$5.00

Cash from operations

$33.5 billion

N/A

Full-year capital spending

$17.0 billion

$17.0 billion^

Free cash flow

N/A

$16.5 billion

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 23, 2020. 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 fourth quarter of 2019. The live public webcast can be accessed on Intel's Investor Relations website at www.intc.com/results.cfm. The Q4'19 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 2020 on April 23, 2020 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," "guidance," "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 technology and the expected availability and benefits of such products and technology, 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 can cause actual results to differ materially from the company's expectations.

  • Demand for Intel's products is highly variable and can 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 and computing capacity at customers.
  • Intel's results can 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 can 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 can result in restructuring and asset impairment charges.
  • Intel's results can 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, political disputes, 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 can also be affected by the formal or informal imposition by countries of new or revised export and/or import and doing-business regulations, which can 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 do not always grow as projected.
  • The amount, timing and execution of Intel's stock repurchase program 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 and other 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 can 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 can be affected by gains or losses from equity securities and interest and other, which can 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) can 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 can be affected by litigation or regulatory matters involving intellectual property, stockholder, consumer, antitrust, commercial, disclosure and other issues. An unfavorable ruling can 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 can be affected by the timing of closing of acquisitions, divestitures and other significant transactions. In addition, these transactions do not always achieve our financial or strategic objectives and can disrupt our ongoing business and adversely impact our results of operations. We may not realize the expected benefits of portfolio decisions due to numerous risks, including unfavorable prices and terms; changes in market conditions; limitations due to regulatory or governmental approvals, contractual terms, or other conditions; and potential continued financial obligations associated with such 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 Corporation. Intel, the Intel logo, and other Intel marks are trademarks of Intel Corporation or its subsidiaries. Other names and brands may be claimed as the property of others.

CONTACTS:

Brooke Wells
Investor Relations
503-613-8230
brooke.wells@intel.com

Cara Walker
Investor Relations
503-696-0831
cara.walker@intel.com

INTEL CORPORATION

CONSOLIDATED SUMMARY STATEMENT OF INCOME DATA AND OTHER INFORMATION

Three Months Ended

Twelve Months Ended

(In Millions, Except Per Share Amounts; Unaudited)

Dec 28,
2019

Dec 29,
2018

Dec 28,
2019

Dec 29,
2018

NET REVENUE

$

20,209

$

18,657

$

71,965

$

70,848

Cost of sales

8,331

7,430

29,825

27,111

GROSS MARGIN

11,878

11,227

42,140

43,737

Research and development (R&D)

3,384

3,433

13,362

13,543

Marketing, general and administrative (MG&A)

1,542

1,520

6,150

6,750

R&D AND MG&A

4,926

4,953

19,512

20,293

Restructuring and other charges

105

393

(72)

 

Amortization of acquisition-related intangibles

50

50

200

200

OPERATING EXPENSES

5,081

5,003

20,105

20,421

OPERATING INCOME

6,797

6,224

22,035

23,316

Gains (losses) on equity investments, net

617

(490)

 

1,539

(125)

 

Interest and other, net

654

(99)

 

484

126

INCOME BEFORE TAXES

8,068

5,635

24,058

23,317

Provision for taxes

1,163

440

3,010

2,264

NET INCOME

$

6,905

$

5,195

$

21,048

$

21,053

EARNINGS PER SHARE - BASIC

$

1.60

$

1.14

$

4.77

$

4.57

EARNINGS PER SHARE - DILUTED

$

1.58

$

1.12

$

4.71

$

4.48

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:

BASIC

4,319

4,549

4,417

4,611

DILUTED

4,373

4,619

4,473

4,701

Three Months Ended

(In Millions)

Dec 28,
2019

Dec 29,
2018

EARNINGS PER SHARE OF COMMON STOCK INFORMATION:

Weighted average shares of common stock outstanding – basic

4,319

4,549

Dilutive effect of employee equity incentive plans

42

43

Dilutive effect of convertible debt

12

27

Weighted average shares of common stock outstanding – diluted

4,373

4,619

STOCK BUYBACK:

Shares repurchased

63

51

Cumulative shares repurchased (in billions)

5.5

5.2

Remaining dollars authorized for buyback (in billions)

$

23.7

$

17.3

OTHER INFORMATION:

Employees (in thousands)

110.8

107.4

INTEL CORPORATION

CONSOLIDATED SUMMARY BALANCE SHEET DATA

(In Millions)

Dec 28,
2019

Dec 29,
2018

CURRENT ASSETS

     Cash and cash equivalents

$

4,194

$

3,019

     Short-term investments

1,082

2,788

     Trading assets

7,847

5,843

     Total cash investments

13,123

11,650

     Accounts receivable

7,659

6,722

     Inventories

          Raw materials

840

813

          Work in process

6,225

4,511

          Finished goods

1,679

1,929

8,744

7,253

     Other current assets

1,713

3,162

TOTAL CURRENT ASSETS

31,239

28,787

Property, plant and equipment, net

55,386

48,976

Equity investments

3,967

6,042

Other long-term investments

3,276

3,388

Goodwill

26,276

24,513

Identified intangible assets, net

10,827

11,836

Other long-term assets

5,553

4,421

TOTAL ASSETS

$

136,524

$

127,963

CURRENT LIABILITIES

     Short-term debt

$

3,693

$

1,261

     Accounts payable

4,128

3,824

     Accrued compensation and benefits

3,853

3,622

     Other accrued liabilities

10,636

7,919

TOTAL CURRENT LIABILITIES

22,310

16,626

Debt

25,308

25,098

Contract liabilities

1,368

2,049

Income taxes payable, non-current

4,919

4,897

Deferred income taxes

2,044

1,665

Other long-term liabilities

2,916

2,646

TEMPORARY EQUITY

155

419

Stockholders' equity

     Preferred stock

     Common stock and capital in excess of par value

25,261

25,365

     Accumulated other comprehensive income (loss)

(1,280)

 

(974)

 

     Retained earnings

53,523

50,172

TOTAL STOCKHOLDERS' EQUITY

77,504

74,563

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

$

136,524

$

127,963

 

INTEL CORPORATION

CONSOLIDATED SUMMARY STATMENT OF CASH FLOWS

Twelve Months Ended

(In Millions)

Dec 28,
2019

Dec 29,
2018

Cash and cash equivalents, beginning of period

$

3,019

$

3,433

Cash flows provided by (used for) operating activities:

     Net income

21,048

21,053

     Adjustments to reconcile net income to net cash provided by operating activities:

          Depreciation

9,204

7,520

          Share-based compensation

1,705

1,546

          Amortization of intangibles

1,622

1,565

          (Gains) losses on equity investments, net

(892)

 

155

          (Gains) losses on divestitures

(690)

 

(497)

 

          Changes in assets and liabilities:

               Accounts receivable

(935)

 

(1,714)

 

               Inventories

(1,481)

 

(214)

 

               Accounts payable

696

211

               Accrued compensation and benefits

91

(260)

 

               Customer deposits and prepaid supply agreements

(782)

 

1,367

               Income taxes

885

(1,601)

 

               Other assets and liabilities

2,674

301

          Total adjustments

12,097

8,379

Net cash provided by operating activities

33,145

29,432

Cash flows provided by (used for) investing activities:

     Additions to property, plant and equipment

(16,213)

 

(15,181)

 

     Acquisitions, net of cash acquired

(1,958)

 

(190)

 

     Purchases of available-for-sale debt investments

(2,268)

 

(3,843)

 

     Sales of available-for-sale debt investments

238

195

     Maturities of available-for-sale debt investments

3,988

2,968

     Purchases of trading assets

(9,162)

 

(9,503)

 

     Maturities and sales of trading assets

7,178

12,111

     Purchases of equity investments

(522)

 

(874)

 

     Sales of equity investments

2,688

2,802

     Proceeds from divestitures

911

548

     Other investing

715

(272)

 

Net cash used for investing activities

(14,405

)

(11,239

)

     Cash flows provided by (used for) financing activities:

     Issuance of long-term debt, net of issuance costs

3,392

423

     Repayment of debt and debt conversion

(2,627)

 

(3,026)

 

     Proceeds from sales of common stock through employee equity incentive plans

750

555

     Repurchase of common stock

(13,576)

 

(10,730)

 

     Payment of dividends to stockholders

(5,576)

 

(5,541)

 

     Other financing

72

(288)

 

Net cash provided by (used for) financing activities

(17,565)

 

(18,607)

 

Net increase (decrease) in cash and cash equivalents

1,175

(414)

 

Cash and cash equivalents, end of period

$

4,194

$

3,019

INTEL CORPORATION

SUPPLEMENTAL OPERATING SEGMENT RESULTS

Three Months Ended

Twelve Months Ended

(In Millions)

Dec 28,
2019

Dec 29,
2018

Dec 28,
2019

Dec 29,
2018

Net Revenue

     Data Center Group

          Platform

6,587

5,594

21,441

21,155

          Adjacency

626

475

2,040

1,836

7,213

6,069

23,481

22,991

     Internet of Things

           IOTG

920

816

3,821

3,455

          Mobileye

240

183

879

698

1,160

999

4,700

4,153

Non-Volatile Memory Solutions Group

1,217

1,107

4,362

4,307

Programmable Solutions Group

505

612

1,987

2,123

Client Computing Group

     Platform

$

8,553

$

8,531

$

32,681

$

33,234

     Adjacency

1,457

1,291

4,465

3,770

10,010

9,822

37,146

37,004

All Other

104

48

289

270

TOTAL NET REVENUE

$

20,209

$

18,657

$

71,965

$

70,848

Operating income (loss)

     Data Center Group

3,471

3,055

10,227

11,476

     Internet of Things

           IOTG

243

189

1,097

980

           Mobileye

57

37

245

143

300

226

1,342

1,123

Non-Volatile Memory Solutions Group

(96)

 

(19)

 

(1,176)

 

(5)

 

Programmable Solutions Group

85

162

318

466

Client Computing Group

$

4,088

$

3,665

$

15,202

$

14,222

All Other

(1,051)

 

(865)

 

(3,878)

 

(3,966)

 

TOTAL OPERATING INCOME

$

6,797

$

6,224

$

22,035

$

23,316

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

  • 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, industrial, smart infrastructure, and vision.
  • 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 memory and storage products like Intel® Optane™ technology and Intel® 3D NAND technology, primarily used in SSDs.
  • PSG includes programmable semiconductors, primarily FPGAs and structured ASICs, and related products for communications, cloud and enterprise, and embedded market segments.
  • 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 connectivity, graphics, and memory.

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 CPU and chipset, an SoC, or a multichip package, based on Intel® architecture. Our non-platform, or adjacent products, can be combined with platform products to form comprehensive platform solutions to meet customer needs.

INTEL CORPORATION

SUPPLEMENTAL PLATFORM REVENUE INFORMATION

Q4 2019

Q4 2019

YTD 2019

compared to
Q3 2019

compared to
Q4 2018

compared to
YTD 2018

Data Center Group Platform

Unit volumes

15%

12%

(3)%

Average selling prices

(2)%

5%

5%

Client Computing Group Platform

Notebook platform volumes

(1)%

(1)%

(5)%

Notebook platform average selling prices

—%

—%

5%

Desktop platform volumes

11%

7%

(6)%

Desktop platform average selling prices

(3)%

(4)%

3%

INTEL CORPORATION

EXPLANATION OF NON-GAAP MEASURES

In addition to disclosing financial results in accordance with U.S. GAAP, this document contains references to the non-GAAP financial measures 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 one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated.

Acquisition-related adjustments: Acquisition-related adjustments exclude charges related to 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. Charges related to the amortization of these intangibles are recorded within both cost of sales and operating expenses in our U.S. GAAP financial statement and are primarily associated with the acquisitions of Mobileye in 2017 and Altera in 2016. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions.

Our non-GAAP adjustments exclude these charges to facilitate a better evaluation of our current operating performance and comparison 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, pension charges, and costs associated with the exit of the 5G smartphone modem business. We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures. 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 our 5G smartphone modem business in 2019 and Wind River in 2018. We exclude gains or losses and related tax impacts resulting from divestitures when calculating certain non-GAAP measures. These adjustments facilitate a better evaluation of our current operating performance and comparisons to our past operating performance.

Ongoing mark-to-market on marketable equity securities: When calculating certain non-GAAP measures, 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, 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.

Tax Reform adjustment: We recognized a higher income tax expense in Q4 2017 as a result of Tax Reform and made adjustments to the original estimate during 2018. We exclude the provisional tax estimate and adjustments when calculating certain non-GAAP measures. These adjustments facilitate 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. 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 2020 Outlook

Full-Year 2020

Approximately

Approximately

GAAP OPERATING MARGIN

 

33%

 

31%

Acquisition-related adjustments

 

2%

 

2%

NON-GAAP OPERATING MARGIN

 

35%

 

33%

GAAP DILUTED EARNINGS PER COMMON SHARE

$

1.23

$

4.71

Acquisition-related adjustments

0.08

0.33

Income tax effect

(0.01)

 

(0.04)

 

NON-GAAP DILUTED EARNINGS PER COMMON SHARE

$

1.30

$

5.00

(In Billions)

Full-Year 2020

GAAP CASH FROM OPERATIONS

$

33.5

Additions to property, plant and equipment

(17.0)

 

FREE CASH FLOW

$

16.5

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 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.

Three Months Ended

Twelve Months Ended

(In Millions, Except Per Share Amounts)

Dec 28,
2019

Dec 29,
2018

Dec 28,
2019

Dec 29,
2018

GAAP GROSS MARGIN

$

11,878

$

11,227

$

42,140

$

43,737

Acquisition-related adjustments

268

279

1,124

1,105

NON-GAAP GROSS MARGIN

$

12,146

$

11,506

$

43,264

$

44,842

GAAP GROSS MARGIN PERCENTAGE

58.8

%

60.2

%

58.6

%

61.7

%

Acquisition-related adjustments

1.3

%

1.5

%

1.6

%

1.6

%

NON-GAAP GROSS MARGIN PERCENTAGE

60.1

%

61.7

%

60.1

%

63.3

%

GAAP OPERATING INCOME

$

6,797

$

6,224

$

22,035

$

23,316

Acquisition-related adjustments

318

329

1,324

1,305

Restructuring and other charges

105

393

(72)

 

NON-GAAP OPERATING INCOME

$

7,220

$

6,553

$

23,752

$

24,549

GAAP TAX RATE

14.4

%

7.8

%

12.5

%

9.7

%

Other

(0.8)

%

1.0

%

(0.3)

%

1.3

%

NON-GAAP TAX RATE

13.6

%

8.8

%

12.2

%

11.0

%

GAAP NET INCOME

$

6,905

$

5,195

$

21,048

$

21,053

Acquisition-related adjustments

318

329

1,324

1,305

Restructuring and other charges

105

393

(72)

 

(Gains) losses from divestiture

(690)

 

(690)

 

(494)

 

Ongoing mark-to-market on marketable equity securities

(89)

 

508

(277)

 

129

Tax Reform

(294)

 

Income tax effect

114

(130)

 

(14)

 

(102)

 

NON-GAAP NET INCOME

$

6,663

$

5,902

$

21,784

$

21,525

GAAP DILUTED EARNINGS PER COMMON SHARE

$

1.58

$

1.12

$

4.71

$

4.48

Acquisition-related adjustments

0.07

0.07

0.29

0.28

Restructuring and other charges

0.02

0.09

(0.02)

 

(Gains) losses from divestiture

(0.16)

 

(0.16)

 

(0.11)

 

Ongoing mark-to-market on marketable equity securities

(0.02)

 

0.11

(0.06)

 

0.03

Tax Reform

(0.06)

 

Income tax effect

0.03

(0.02)

 

(0.02)

 

NON-GAAP DILUTED EARNINGS PER COMMON SHARE

$

1.52

$

1.28

$

4.87

$

4.58

Twelve Months Ended

(In Millions)

Dec 28,
2019

GAAP CASH FROM OPERATIONS

$

33,145

Additions to property, plant and equipment

(16,213)

 

FREE CASH FLOW

$

16,932

GAAP CASH USED FOR INVESTING ACTIVITIES

$

(14,405)

 

GAAP CASH USED FOR FINANCING ACTIVITIES

$

(17,565)

 

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