Intel 2Q15 Earnings Call Notes

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We see excitement for Windows 10 and saw growth in high end PC segment

“we continue to see excitement in the industry for the launch of these products and Windows 10. And while there were year-over-year declines in desktop and notebook volume, we saw record Core desktop mix due to growth in the high-end segment and record Core i7 mix overall for the PC business.”

Data Center business performed

“The Data Center business continued to perform, growing 10% over Q2 last year, and we remain on track to grow this business by more than 15% year over year.”

PC demand weakened further, so inventories declined less than expected. Now expecting revenue decline for full year

“While our overall billings roughly matched our forecast, PC supply chain inventories declined at a slower rate than we expected, as PC demand weakened further. While we are expecting a seasonal second half, we’re now forecasting total revenue to decline by about 1% for the full year, down from our prior expectation of approximately flat.’

Why they bought Altera

“We see four key strategic drivers behind this acquisition. First, we believe we can enhance Altera’s base FPGA ARM-based business substantially. We plan to do this through our leadership in Moore’s Law and our ability to execute designs using our tools and silicon more quickly, allowing us to continue to support and develop their ARM-based products. Second, history tells us that the FPGA vendor who is first to a manufacturing process node enjoys a market segment share advantage over the life of that node. Finally, integrating Altera’s world-class technology with Intel architecture in the high-growth data center and Internet of Things market segments will create new product categories and capabilities. ”

Moore’s law slowed down to 2.5 years but not dead

“The last two technology transitions have signaled that our cadence today is closer to 2.5 years than two. To address this cadence, in the second half of 2016 we plan to introduce a third 14-nanometer product, code named Kaby Lake, built on the foundations of the Skylake micro-architecture but with key performance enhancements. Then in the second half of 2017, we expect to launch our first 10-nanometer product, code named Cannonlake. We expect that this addition to the roadmap will deliver new features and improved performance and pave the way for a smooth transition to 10-nanometers.”

Financing ~50% of the Altera acquisition

“Over the next two to three quarters, we expect to complete the acquisition of Altera for $16.7 billion. The financing plan for this acquisition is to issue $7 billion to $9 billion in new long-term debt and finance the remaining balance with our cash and short-term commercial paper.”

Weaker PC than previously expected

” Our expectations are that the PC market is going be weaker than previously expected. We continue to forecast robust growth rates in the Data Center Group, Internet of Things Group, and NAND businesses, which we expect to mostly offset the PC decline.”

Now expecting PCs down high single digits

“if you zoom out, our view of the PC market now is down in the high single digits. And our view a quarter ago was a PC market that was down in the more mid-single digits. So we’ve definitely brought down our expectations of the PC market overall for the year, but you’re still seeing a little bit of that inventory lumpiness.”

Server slowed a bit. THe headwinds are macroeconomic

“we do not expect a large recovery of the enterprise as we go through the remainder of this year. You said it. The headwinds are the macroeconomic, companies looking at how do they spend their capital and when do they deploy their capital, being careful about that. All those things are causing enterprise to be a bit weaker, and we didn’t say there would be a big recovery of that.”

It’s continuing to get more difficult as you try to scale to smaller and smaller nodes

“on all of these technologies, each one has its own recipe of complexity and difficulty, 14-nanometer to 10-nanometer same thing that happened from 22-nanometer to 14-nanometer. The lithography is continuing to get more difficult as you try and scale and the number of multi-pattern steps you have to do is increasing. This is the longest period of time without a lithography node change. ”

We don’t think we’re losing our lead in Moore’s law

“we believe, even with this 2017, our lead in Moore’s Law will not change dramatically. We believe we’ll continue to lead with roughly the same leadership position that we have today. We base that on, one, what really counts when I talk about 2017, that’s not samples, that’s not small volume. That’s converting over to Cannonlake and producing a large percentage of our CPUs in volume in the second half of 2017. So there’s a bit of definition. When we say second half of 2017 we’re talking about millions of units and large volumes.”

Enterprise weakness is macroeconomic and we’re not predicting a big boom in 2H

“we’re seeing an enterprise market that’s weaker than expected. We’re not expecting a lot of incremental strength there. It’s more macroeconomic driven than anything else, and we’re not predicting a big macroeconomic boom in the back half. But that’s being offset by a cloud market primarily, but also networking and storage that is stronger than what we expected.”

The cloud gets a boost from weak Macro

“the same dynamic that causes the enterprise to be a little bit weaker, those macroeconomics, drives businesses and organizations to move their workloads to the cloud”

PC has always had a fairly decent tie ot GDP and I think global GDP has been a little bit of a stall

“In general, I think if you look at it, the PC has always had a fairly decent tie to GDP, both for the countries that we sell in. but then I think if you just look at the worldwide GDP, so worldwide GDP growth has slowed, especially in areas like China, where a lot of growth in PCs was occurring. But even in the mature areas like the U.S. and Western Europe, that has caused it to slow down a bit more. I think there has been a little bit of a stall.”

Long term I still think there are great form factors coming so we can keep PC flat I think

“Long term, I still think it’s a great form factors we have coming, we’re going to be talking about all-day battery lives, no wires. We’ve got some great thin form factors. The fact that there’s very little difference between a two-in-one device and a tablet and the ability to take back that volume onto the PC, all those things put together, I still stick with the forecast that we can keep this stable, that it will be over the long haul relatively flat.”

It has always been our plan to hold PC flat and grow other areas

“that’s how we built our growth strategy. Our growth strategy was hold the PC as close to flat as we can and growing the Data Center, growing IoT, growing NAND and memory.”

I think Windows 10 will be a boost

” over the long haul, I think Windows 10 will be a boost for the PC market. It will take some of the negativity about Windows 8 out of that marketplace, and I think it will be a real positive for us”

Customers kept inventories pretty normal, we think their confidence improved towards the end of the Q

“our belief was that customers would burn off inventory levels in advance of Windows 10 and then replenish inventory levels in the third quarter. What we actually saw was much more normal than that. We saw customers maintain inventory levels. I think their confidence in the overall PC market grew some as they worked through the quarter and got towards the end of the quarter.”

We’re going to bring in new technology at 7 nm that could get us back to tick-tock/strong>

“At 7-nanometer, we’re trying to bring in EUV. Depending on the health of that, we could be at two years, we could be at 2.5 years, and that will change this answer. So we’ll give more insight into this in the Q4 investor meeting.”

We wont be able to give a signal on it until late next year

“we won’t be able to give a signal to that until, my guess, late next year at the earliest.”