Intel 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Better than expected demand

“The second quarter exceeded our expectations. The improving economic environment, PC refresh, form factor innovation and the end-of-life of Windows XP combined to drive better than expected demand.”

Consumer segment remains challenging, especially in EM

“While there are some signs of renewed consumer interest and activity, the consumer segment remains challenging, primarily in the emerging markets.”

First 14nm systems on the shelves by holidays

“We also expect the first 14-nanometer Broadwell Core M processor-based systems including fanless two-in-ones will be on shelves for the holiday selling season, followed by broader OEM availability in the first half of 2015.”

GM increase because of volumes

“Gross margin of 64.5% was up almost five points from the first quarter and one a half points above our original Q2 guidance. The five-point increase relative to the first quarter is due to lower 14-nanometer start-up costs, higher platform volumes and lower platform unit costs.”

Think that enterprise boost lasts through the end of the year

“We see it at least lasting through this year we believe and that’s built into our forecast. So that’s as far as we’re looking out today.”

Think that innovation can drive consumer strength

“the Core M Broadwells, those are going to allow really a whole new class of system as we go out through the holidays and into next year where they’re two-in-one devices but they now become fanless, ultrathin, very portable, long-battery life, strong Core performance or Core like performance.”

Likely to be some cost increases in Q4

“When we get to Q4, we’re ramping multiple 14-nanometer factories simultaneously. We think we’ll see a little bit of an increase in cost in Q4.”

Currently shipping 14nm

“14-nanometer it’s going along exactly as we said in April. We said we would during this quarter qualify and we did qualify our 14-nanometer product and we actually are shipping product today to our customers and partners.”

New devices will transform the way people think about PC vs. tablet

“Those are going to be devices that we think will start to transform how people think about a two-in-one device in the PC versus the tablet. That’s what we focused on. ”

Customers are more optimistic about consumer than they have been for a while

“What we’re seeing from our customers is more optimism on the back half than we’ve seen in the last couple of years for the consumer segment, but we won’t see the sell through data on that for a while yet.”

It takes a couple of quarters to get to the right operating leverage on 14nm factories

“within a couple of quarters we’re getting to a point until the factories are ramped and then the cost would continue to come down for another 12 months or so after that.”

At these price points taking some share back from tablets

“I think it’s pretty clear to us that we are gaining some share and it’s not just from the traditional competitors. I think we’re seeing at these price points some shift back of tablet where we’re shipping a really nice two-in-one type touch enabled clam shell into these price points.”

Customers are also building inventories

“if you recall last year what we saw is that our customers were managing inventories very, very lean. I think they had very little confidence in a back half seasonal selling season and so part of it is just the year-on-year comparison. What they’re doing now is putting in more of a normal build for a more seasonal back half. And last year that was not the case. So it’s a combination of those two things.”

Seeing modems make their way into PCs

“we’re seeing modems work their way into PCs, for example, especially two-in-one devices. It’s going to probably start with Chromebooks. Chromebooks are best when they are connected and so all these connected requirements are going to drive modems into there, for example. ”

Mobile has been a struggle, but we have to have comm capability down the line

“if we don’t have the ability to integrate in comms, I think three, four years from now we are locked out of large segments of the market. So it’s a critical capability. That said we acknowledge that’s a big loss and our goal and our plans would suggest that we’ll have a significant improvement in this segment next year.”

Still the only company shipping 14 nm products

“if you still take a look at the 14-nanometer technology relative to what anything else is available out there, we’re still the only company on the planet who is shipping a (indiscernible) transistor of any geometry and we’re currently the only people out shipping 14-nanometer products. So I think our leadership is – we’ve got some window where people could still jump in and have a leadership product.”

Don’t have the trapped cash problem that others have

“The cash piece for us is less important than it is for maybe others because remember we generate cash all over the world but we also make investments all over the world. We have factories in Ireland and Israel and China and the U.S. and so we consume cash. We don’t end up with the same kind of trapped cash problem that companies do that have minimal operations outside the U.S.”