Intel Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 26, 2021. Financial statements are unaudited and prepared under U.S. GAAP. Comparisons are with the corresponding 2020 periods.
Business context and results
Intel reported revenue across Client Computing (CCG), Data Center (DCG), Internet of Things (IOTG and Mobileye), NAND memory (NSG), and Programmable Solutions (PSG). CCG and DCG are its reportable segments. Intel’s planned sale of its NAND business to SK hynix remained pending.
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Revenue | $19.631B | $19.728B | Down $97M (0.5%) |
| Gross margin | $11.206B; 57.1% | $10.507B; 53.3% | Margin up 3.8 points |
| Operating income, GAAP | $5.546B; 28.3% margin | $5.697B; 28.9% margin | Down 3% |
| Net income | $5.061B | $5.105B | Down 1% |
| Diluted EPS, GAAP | $1.24 | $1.19 | Up 4% |
| Operating income, non-GAAP | $5.856B; 31.6% margin | $5.635B; 31.0% margin | Up 4% |
| Diluted EPS, non-GAAP | $1.28 | $1.14 | Up 12% |
Non-GAAP measures exclude specified items, including NAND results, acquisition-related amortization, restructuring and other charges, and certain investment mark-to-market adjustments. They are supplemental, not substitutes for GAAP results.
Segments and material changes
- CCG: Revenue rose 6% to $10.109B, reflecting strong notebook demand and desktop recovery; lower ASPs and declining adjacent revenue partly offset growth. Operating income increased 32% to $3.760B.
- DCG: Revenue fell 9% to $6.455B, with lower ASPs, platform volume and adjacent revenue amid competition and comparison with strong COVID-related demand in Q2 2020. Operating income declined 37% to $1.941B.
- IOTG and Mobileye: Revenue increased to $984M and $327M, respectively, as demand and vehicle production recovered.
- NSG: Revenue declined 34% to $1.098B, mainly from lower ASPs and volume. Operating income increased to $402M, helped by lower unit costs and no depreciation on NAND assets classified as held for sale.
- Six-month results: Revenue was $39.304B versus $39.556B; operating income was $9.240B versus $12.735B; net income was $8.422B versus $10.766B; and diluted EPS was $2.06 versus $2.50. Results included a $2.2B VLSI litigation charge recorded in Q1 2021.
Cash flow, liquidity and debt
- For the first six months, operating cash flow was $14.294B, down from $17.315B. Capital expenditures were $7.574B, versus $6.676B; reported free cash flow was $6.720B, down from $10.639B. Free cash flow excludes additions to held-for-sale NAND property, plant and equipment.
- Cash and investments, as defined by Intel, totaled $26.493B at June 26, 2021, versus $27.034B at year-end 2020. Cash and cash equivalents were $4.746B.
- Total debt was $35.409B, down from $36.401B at year-end; the balance sheet showed $3.695B of short-term debt and $31.714B of long-term debt. Intel had no borrowings under its $5B revolving facility and no commercial paper outstanding.
- Six-month financing included $2.821B of dividends and $2.415B of share repurchases. No shares were repurchased in Q2. Management said it believed funding was sufficient for business needs over the next 12 months.
Outlook, developments and risks
- Intel said strong PC demand was expected to continue, but be tempered by industry-wide component and substrate constraints. The filing provides no clear numerical revenue or EPS guidance in the supplied text.
- Intel announced a planned $3.5B investment in its Rio Rancho, New Mexico site for advanced packaging manufacturing. It also launched 3rd Gen Xeon Scalable and 11th Gen Core H-series processors.
- The SK hynix NAND transaction provides for $9B in total cash consideration in two closings: $7B at the initial closing, not before November 1, 2021, and $2B no earlier than March 2025. Government approvals and other customary conditions remained outstanding.
- Intel accrued $2.2B related to VLSI litigation. A jury had awarded VLSI $2.175B in one Texas case; Intel planned to challenge the verdict. Further VLSI proceedings and claims remained pending. Other disclosed legal matters include security-vulnerability, patent and securities litigation; Intel said it could not estimate potential losses for several proceedings.
- Q2 restructuring and other charges were $346M, including $282M of asset impairments related to shutdowns of two non-strategic businesses. Six-month charges were $2.555B, primarily reflecting the VLSI accrual.
Important facts for investors to verify
- Progress and financial impact of the manufacturing and process-technology investments, including supply constraints and competitive performance in DCG.
- Completion timing, approvals, consideration and ongoing manufacturing arrangements for the NAND sale.
- Developments in VLSI and other litigation, including any additional accruals, judgments, appeals or settlements.
- Cash generation, capital spending, debt, and the basis and reconciliation of non-GAAP results and free cash flow.
- Whether PC demand and component availability support management’s expectations in subsequent periods.