Intel 2Q16 Earnings Call Notes

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Intel (INTC) Brian M. Krzanich on Q2 2016 Results

Preference for performance in data center

“In the data center, we’re seeing an ongoing preference for performance up and down the pricing stack. Average selling prices increased year over year in every microprocessor product segment from Atom and Xeon D SOCs at the low end, up through Xeon and Xeon Phi at the high end.”

The enterprise side for servers was more stable than it had been. Second half seasonal buying pattern expected

“The enterprise side was down only about 1%, which is a bit more stable than it has been. Second thing is we are ramping our Broadwell E server in the second half of the year, and so we expect strong demand. And we typically see an ASP uplift as people by up in the stack with these new server systems coming out. And we have customer signals that just indicate that there’s a second half seasonal buying pattern kicking in a bit as well. So those three things are the second half keys.”

The cloud is continuing to expand

“if you take a look at a broader view of this or just overall, our view of the data center and really the cloud continues to be that the cloud is going to continue to expand. It’s going to be driven by the many, many machines that connect to the cloud that drive orders of magnitude more data than what the average human creates today, and that’s getting to the cloud. ”

Strongest growing IoT are industrial and security applications

“The verticals that have been the strongest growing for us, especially in recent, has been industrial and in the security video type applications. Those have been the two real growers. We have a lot of I’ll call it longer-term growth vectors. Retail is a longer-term growth vector. And then you saw, as we mentioned on the call, the automotive ADAS section in the announcement with BMW.”

We are hearing from CIOs that there’s a comfort with conversion to Win 10 and want to do it on new hardware

“But we are hearing similar things around the enterprise conversion. It’s comfort with Windows 10, ability to make that transition, and wanting to do it on new hardware.”

Data growth will continue to be immense

“When I think of the cloud, the cloud that we have today is really built on the backs of people. It’s your Facebook data, it’s your Salesforce data, it’s your Twitter data. It’s all data that is really across the devices that we pretty much handle day to day. The current estimates are, if you look out into 2020, that average person will generate about 1.5 gigabytes a day of data off those devices, and those are going to be all your posts and pictures and all that kind of information. If you take a look at the average autonomous car in 2020, the estimates right now are it will throw off about 40 gigabytes a minute of data. If you take a look at the average autonomous drone doing some kind of scan, looking for somebody lost in the forest or scanning a mine, it’s going to throw off about 20 gigabytes a minute. If you take something like our replay technology that is filming in virtual reality, a basketball game or a football game, it’s throwing off 200 gigabytes a minute right now. And as we continue to refine the accuracy of that, that number will likely just grow. So it’s that growth in data and the need to both process it at the edge and then through the data center and into the cloud, to be able to store it, to be able to apply machine learning to all of those applications. Those all tell me that the cloud is going to continue to grow.”

Spending is lumpy but not slowing down

“It’s going to be lumpy. These guys don’t build out their data centers in a linear fashion. They build out a big chunk of overcapacity so that they can go and then sell that and have expansion space, and they don’t build for a while. And so I know people worry about is it slowing down? But these trends in data that tell me no, it’s not slowing down over the long term, and what you’re really going to see is just the buying patterns and the build-outs of the various structures that are going up.”

Stacy J. Smith – Chief Financial Officer & Executive Vice President

Second half seasonal uptick

“We have I think pretty good insight into the large cloud customers, and so we had some good insight into the buying patterns as those customers went from Q1 to Q2. And now as we look at the back half, we see several purchasing cycles kicking in for some of the large guys. So we expect that the cloud piece will accelerate as we get into the back half.”

PC inventory levels are pretty healthy

“So overall we continue to see inventory levels as being very healthy. I think that the PC, the worldwide PC supply chain has moved towards a stance of being fairly lean and fairly cautious, and we see that continuing. You would typically see an inventory burn in the second quarter. It was a little bit less of an inventory burn then what we expected. I think it goes back to Brian’s comments that he made at the beginning of the call that from their perspective, the PC market was a little better in Q2, so I think they probably just brought down inventory levels a little bit less”