Intel Corporation — FY2011 Form 10-K
Business context and reporting period. Intel designs and manufactures processors, platforms, and related software and services for PCs, data centers, mobile devices, and embedded applications. This filing covers the fiscal year ended December 31, 2011, a 53-week year; 2010 was a 52-week year. Fourth-quarter figures refer to the three months ended December 31, 2011.
Key financial metrics
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $54.0 billion | $43.6 billion |
| Gross margin | $33.8 billion; 62.5% | $28.5 billion; 65.3% |
| Operating income | $17.5 billion | $15.6 billion |
| Net income | $12.9 billion | $11.5 billion |
| Diluted EPS | $2.39 | $2.01 |
| Cash from operations | $21.0 billion | $16.7 billion |
| Capital expenditures | $10.8 billion | $5.2 billion |
- Fourth-quarter revenue was $13.9 billion, gross margin $9.0 billion, net income $3.36 billion, and diluted EPS $0.64.
- At year-end, cash, cash equivalents, short-term investments, and marketable debt instruments in trading assets totaled $14.8 billion. Short- and long-term debt totaled $7.3 billion; stockholders’ equity was $45.9 billion.
- Intel repurchased $14.1 billion of shares and paid $4.1 billion in dividends during 2011. The declared annual dividend per share was $0.7824.
Material changes versus the prior comparable period
- Revenue rose 24% year over year, with growth in the PC Client and Data Center businesses; acquisitions of McAfee and Infineon’s Wireless Solutions business contributed approximately $3.6 billion of revenue growth.
- Gross margin percentage fell 2.8 percentage points, primarily due to higher 22nm factory start-up costs and acquisition effects. Start-up costs increased approximately $1.0 billion year over year.
- PC Client revenue increased 17% to $35.4 billion; Data Center revenue increased 17% to $10.1 billion. Other Intel architecture revenue rose 64% to $5.0 billion, but that segment shifted from $270 million operating income to a $577 million operating loss. Software and services revenue reached $1.9 billion, largely reflecting McAfee, while the segment remained loss-making.
- R&D expense increased 27% to $8.35 billion. Property, plant and equipment, net, rose to $23.6 billion from $17.9 billion, reflecting heavy manufacturing investment. Long-term debt increased to $7.1 billion from $2.1 billion, following $5.0 billion of senior note issuance.
Outlook, commentary, risks, and unusual items
- Management forecast a 2012 gross margin of 64%, an increase of 1.5 percentage points, and capital spending of $12.5 billion. It expected R&D investment to rise by approximately $1.8 billion. The filing text does not provide a clear numeric 2012 revenue forecast.
- Management cited emerging-market PC demand, data-center and cloud infrastructure growth, and product launches including Ultrabook systems, 22nm Ivy Bridge processors, a new server platform, and Intel-powered smartphones and tablets as 2012 opportunities.
- Thailand flooding and the resulting hard-drive shortage reduced fourth-quarter revenue as customers cut inventories; management expected the shortage to continue affecting the business in first-quarter 2012.
- Intel estimated total costs of $733 million for the Intel 6 Series Express Chipset design issue; it recorded charges in 2010 and 2011 and reported a remaining accrual of $64 million at year-end 2011.
- Key risks include unpredictable demand and product mix, intense competition and execution in mobile markets, manufacturing yield or capacity disruptions, reliance on suppliers, and exposure to major customers. HP represented 19% and Dell 15% of 2011 revenue.
- Intel reported ongoing antitrust and consumer class-action matters. It said potential losses on the class actions could not be reasonably estimated. In February 2012, it announced a $6.5 million settlement with New York, without admitting wrongdoing or agreeing to change business practices. The European Commission fine of $1.447 billion had been paid in 2009; Intel’s appeal remained pending.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Verify whether 2012 gross-margin and capital-spending forecasts were achieved, and how 22nm and subsequent factory costs affected margins and cash generation.
- Track the hard-drive supply disruption’s effect on first-quarter 2012 revenue, customer inventories, and later demand.
- Assess whether mobile and other Intel architecture businesses improved profitability after their 2011 operating loss, and whether acquisitions produced expected strategic and financial benefits.
- Review the scale and timing of share repurchases, dividends, and debt repayment against the investment portfolio and manufacturing commitments.
- Follow the outcomes of antitrust/class-action proceedings and any changes in the chipset-design accrual or other contingencies.