Intel Corporation (INTC) — Q1 2024 Form 10-Q
Business context and reporting period. The unaudited quarter ended March 30, 2024. Intel reported under a new internal foundry operating model, with revised segment reporting; prior-period segment figures were retrospectively adjusted, but consolidated financial statements were not changed.
Financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $12.724 billion | $11.715 billion |
| GAAP gross margin | $5.217 billion; 41.0% | $4.008 billion; 34.2% |
| GAAP operating income (loss) | $(1.069) billion; (8.4)% margin | $(1.468) billion; (12.5)% margin |
| Net income (loss) attributable to Intel | $(381) million | $(2.758) billion |
| Diluted EPS attributable to Intel | $(0.09) | $(0.66) |
| Operating cash flow | $(1.223) billion | $(1.785) billion |
| Adjusted free cash flow, non-GAAP | $(6.178) billion | $(8.764) billion |
Non-GAAP gross margin was 45.1%, versus 38.4%; non-GAAP diluted EPS was $0.18, versus $(0.04). Adjusted free cash flow is a non-GAAP measure defined by Intel as operating cash flow adjusted for specified capital expenditures, incentives, partner contributions, and finance-lease payments.
Revenue and segment trends
- Client Computing Group (CCG): $7.533 billion, up 31%. Higher notebook and desktop volumes reflected customer inventory normalization; average selling prices were roughly flat.
- Data Center and AI (DCAI): $3.036 billion, up 5%. Server average selling prices rose 25%, while server volume fell 13%, amid lower demand and competition.
- Network and Edge (NEX): $1.364 billion, down 8%, mainly due to 5G customers reducing inventories.
- Altera: $342 million, down 58%; Mobileye: $239 million, down 48%. Both faced customer inventory reductions.
- Intel Foundry: $4.369 billion of segment revenue, including $4.342 billion of intersegment revenue; operating loss was $2.474 billion. Consolidated revenue excludes intersegment sales.
Liquidity, debt, and capital allocation
At March 30, 2024, cash and cash equivalents were $6.923 billion and short-term investments were $14.388 billion, totaling $21.311 billion, down from $25.034 billion at December 30, 2023. Total debt was $52.450 billion, up from $49.266 billion. Current assets were $42.608 billion and current liabilities were $27.213 billion. Intel reported $793 million of commercial paper outstanding and no borrowings on its revolving credit facilities; it stated it believes funding is sufficient for business requirements over the next 12 months and longer term.
Capital expenditures, net of capital-related government incentives, were $4.955 billion in the quarter. Intel issued $2.6 billion of senior notes and expanded its committed credit facilities. It paid $529 million in dividends; no shares were repurchased. In April, the board declared a $0.125-per-share dividend payable June 1, 2024.
Material changes and unusual items
- Revenue increased 9% year over year; GAAP gross margin improved 6.8 percentage points. Intel attributed the improvement primarily to increased CCG revenue and lower period charges, partly offset by higher unit costs and lower Altera and Mobileye revenue.
- GAAP operating loss narrowed, but R&D and marketing, general, and administrative expenses together increased 10% to $5.9 billion. Restructuring and other charges were $348 million, including $129 million for employee severance and a $222 million non-cash Intel Foundry goodwill impairment.
- The tax line was a $282 million benefit versus a $1.610 billion provision in Q1 2023. Intel used a year-to-date actual effective tax rate because forecast variability made an annual rate unreliable.
- Intel recognized $205 million of net gains on equity investments, including an initial fair-value adjustment when Astera Labs shares became marketable. Equity-related gains and losses can fluctuate between periods.
- Intel’s Q1 revenue included approximately $1.6 billion of customer incentives, compared with approximately $900 million in Q1 2023. The company said Q1 2024 incentive impacts were contemplated in its Q2 guidance, but this filing text does not provide the guidance figures.
Outlook, developments, and risks
Intel launched Intel Foundry as a systems-foundry business and announced an expanded process roadmap, including evolutions of Intel 3, Intel 18A, and Intel 14A. It also launched Altera as a standalone FPGA business and opened Fab 9 in New Mexico. The U.S. Department of Commerce proposed up to $8.5 billion in direct CHIPS Act funding and up to $11.0 billion in loans; these were proposed amounts, not reported as funding received.
Management cited continued investment in R&D and manufacturing, alongside cost-efficiency efforts. Principal risks highlighted include intense competition and rapid technological change; execution, yield, and scaling risks in new products and processes; substantial manufacturing investment and uncertain returns; demand, supply-chain, and geopolitical uncertainty; and access to capital and government incentives.
Contingencies include a $1.0 billion accrued charge related to VLSI litigation and a $401 million accrued charge for an EC-imposed fine that Intel is appealing. Intel said it could not reasonably estimate potential losses above the VLSI accrual. A German court issued an injunction and recall order in the R2 patent matter; Intel appealed and could not estimate a potential loss. The filing also describes ongoing litigation and other proceedings with uncertain outcomes.
Intel reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether PC and data-center demand, customer inventory normalization, and pricing support sustained revenue and margin improvement.
- Whether Intel can reduce Foundry operating losses and execute its process roadmap and manufacturing buildout within expected cost and timing.
- How customer incentives, capital spending, government incentives, and working-capital needs affect cash generation and liquidity.
- Debt levels, financing requirements, and the sustainability of the dividend amid negative operating and adjusted free cash flow.
- Developments in VLSI, R2, and EC proceedings, including potential exposure beyond recorded accruals.
- The actual terms, timing, and conditions of proposed CHIPS Act support, and the Q2 guidance referenced but not quantified in this filing text.