Intel Reports Third-Quarter 2019 Financial Results

News Summary:

• Third-quarter revenue of $19.2 billion set a new record and exceeded July guidance, driven by record data-centric revenue*, which grew 6 percent year-over-year (YoY). PC-centric revenue declined 5 percent YoY, consistent with guidance.
• Third-quarter earnings-per-share (EPS) exceeded July guidance. GAAP EPS of $1.35 declined 2 percent YoY; non-GAAP EPS of $1.42 was up 1 percent.
• Year-to-date, Intel has generated a record $23.3 billion cash from operations, generated $11.7 billion of free cash flow and returned approximately $14.3 billion to shareholders.
• Raising full-year revenue outlook to $71 billion, up $1.5 billion from July guidance. Now expecting full-year GAAP EPS of $4.42 and raising full-year non-GAAP EPS outlook to $4.60.

SANTA CLARA, Calif., October 24, 2019 -- Intel Corporation today reported third-quarter 2019 financial results.

“We've been on a multiyear journey to reposition Intel’s portfolio to take advantage of the exponential growth of data. Our third-quarter financial performance underscores our progress as our data-centric businesses turned in their best performance ever, making up almost half our total revenue in a record quarter,” said Bob Swan, Intel CEO. “Our priorities are accelerating growth, improving our execution and deploying capital for attractive returns. We now expect to deliver a fourth record year in a row.”

Q3 2019 Financial Highlights

	GAAP				Non-GAAP
	Q3 2019	Q3 2018	vs. Q3 2018		Q3 2019	Q3 2018	vs. Q3 2018
Revenue ($B)	$19.2	$19.2	flat		$19.2^	$19.2^	flat
Gross Margin	58.9%	64.5%	down 5.6 pts		60.4%	65.9%	down 5.6 pts
R&D and MG&A ($B)	$4.7	$5.0	down 7%		$4.7^	$5.0^	down 7%
Operating Income ($B)	$6.4	$7.3	down 12%		$6.9	$7.6	down 9%
Tax Rate	10.8%	10.4%	up 0.4 pt		10.8%	11.9%	down 1.2 pts
Net Income ($B)	$6.0	$6.4	down 6%		$6.3	$6.5	down 3%
Earnings Per Share	$1.35	$1.38	down 2%		$1.42	$1.40	up 1%

Intel today announced its board of directors has approved a $20 billion increase in its stock repurchase program authorization. In the third quarter, the company generated approximately $10.7 billion in cash from operations, paid dividends of $1.4 billion and used $4.5 billion to repurchase 92 million shares of stock.

Business Unit Summary

	Key Business Unit Revenue and Trends
		Q3 2019	vs. Q3 2018
PC-centric	CCG	$9.7 billion	down	5%
Data-centric	DCG	$6.4 billion	up	4%
	Internet of Things
	IOTG	$1.0 billion	up	9%
	Mobileye	$229 million	up	20%
	NSG	$1.3 billion	up	19%
	PSG	$507 million	up	2%
			up	6%*

Third-quarter revenue of $19.2 billion was $1.2 billion higher than July guidance and set an all-time quarterly record, driven by record data-centric revenue, up 6 percent YoY. PC-centric revenue was in-line with expectations, down 5 percent compared to last year.

The PC-centric business (CCG) was down 5 percent in the third quarter on lower year-on-year platform volume, partially offset by a strong mix of Intel's higher performance products as the commercial segment of the PC market remained strong. Major PC manufacturers introduced systems featuring the new, 10nm-based 10th Gen Intel® Core™ processors (code-named "Ice Lake"). Eighteen new Ice Lake-powered system designs have shipped to date, with a total of 30 designs expected to launch in 2019. The company also announced new 10th Gen Intel® Core™ mobile PC processors (formerly code-named "Comet Lake") and new Intel® Xeon® W and X-Series processors for workstations and high-end desktops.

Collectively, Intel's data-centric businesses achieved record revenue in the third quarter, up 6 percent YoY. The Data Center Group (DCG) delivered record revenue driven by a strong mix of high-performance Intel® Xeon® processors and growth in every segment of the business. The communications service provider segment grew 11 percent while the cloud segment returned to growth, up 3 percent, and enterprise and government revenue grew 1 percent. The Internet of Things Group (IOTG) also achieved record revenue, up 9 percent on strength in retail and transportation. Mobileye achieved record revenue, up 20 percent YoY on increasing ADAS adoption. Intel's memory business (NSG) also achieved record revenue, up 19 percent YoY. The Programmable Solutions Group (PSG) shipped the first 10nm-based Intel® Agilex™ FPGAs in the third quarter. PSG third-quarter revenue was up 2 percent YoY.

Additional information regarding Intel’s results can be found in the Q3'19 Earnings Presentation available at: www.intc.com/results.cfm.

Business Outlook

 

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

Q4 2019	GAAP		Non-GAAP
	Approximately		Approximately
Revenue	$19.2 billion		$19.2 billion^
Operating margin	31.5%		33.5%
Tax rate	15.0%		13.5%
Earnings per share	$1.28		$1.24

Full-Year 2019	GAAP		Non-GAAP
	Approximately		Approximately
Revenue	$71.0 billion		$71.0 billion^
Operating margin	30.0%		32.5%
Tax rate	12.5%		12.0%
Earnings per share	$4.42		$4.60
Cash from operations	$32.0 billion		N/A
Full-year capital spending	$16.0 billion		$16.0 billion^
Free cash flow	N/A		$16.0 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 October 24, 2019, except for the planned divestiture of the majority of our smartphone modem business and the pending sale of Intel's interest in the IM Flash Technologies, LLC joint venture, which are both expected to close in the fourth quarter of 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 third quarter of 2019. The live public webcast can be accessed on Intel's Investor Relations website at www.intc.com/results.cfm. The Q3'19 Earnings Presentation, webcast replay, and audio download will also be available on the site.

Intel plans to report its earnings for the fourth quarter of 2019 on January 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," "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. In addition, these transactions could fail to achieve our financial or strategic objectives, disrupt our ongoing business, and adversely impact our results of operations. We also 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. Risks associated with the planned divestiture of the majority of Intel’s smartphone modem business are described in the “Forward-Looking Statements” section of Intel’s press release titled “Apple to Acquire Majority of Intel’s Smartphone Modem Business,” dated July 25, 2019.

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.

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