Intel Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended April 2, 2022; comparison is with the three months ended March 27, 2021. Financial statements are unaudited and prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2022 | Prior comparable period | Change / context |
|---|---|---|---|
| Revenue | $18.353 billion | $19.673 billion | Down 7% |
| GAAP gross margin | $9.244 billion; 50.4% | $10.854 billion; 55.2% | Margin down 4.8 percentage points |
| GAAP operating income | $4.341 billion | $3.694 billion | Up; includes a $1.2 billion EC fine reversal benefit |
| GAAP net income | $8.113 billion | $3.361 billion | Significantly affected by investment and divestiture gains |
| GAAP diluted EPS | $1.98 | $0.82 | Up year over year |
| Non-GAAP gross margin | 53.1% | 58.8% | Down 5.7 percentage points |
| Non-GAAP diluted EPS | $0.87 | $1.34 | Down 35% |
| Operating cash flow | $5.891 billion | $5.348 billion | Up 10% |
| Adjusted free cash flow | $5.549 billion | $1.376 billion | Increase includes $4.561 billion McAfee sale proceeds |
| Capital expenditures | $4.604 billion | $3.972 billion | Higher year over year |
| Cash, short-term investments and loans receivable and other | $39.196 billion | $29.493 billion at Dec. 25, 2021 | Intel-defined total cash and investments |
| Total debt | $37.247 billion | $38.101 billion at Dec. 25, 2021 | Debt excludes no material obligations disclosed in this summary |
Operating cash flow improved partly on working-capital changes and the EC fine reversal. Investing cash use was $2.640 billion; financing cash use was $1.863 billion. Intel paid $1.487 billion in dividends and made no share repurchases during the quarter. Current assets were $62.568 billion and current liabilities were $29.322 billion.
Business trends and changes versus prior period
- Client Computing (CCG): Revenue was $9.294 billion, down 13%. Lower notebook and desktop unit sales, consumer and education demand, and the ongoing exit from the 5G smartphone modem business outweighed higher average selling prices. CCG operating income fell to $2.827 billion from $4.288 billion.
- Datacenter and AI (DCAI): Revenue rose 22% to $6.034 billion, supported by 28% higher server volume and hyperscale demand; lower server average selling prices partly offset growth. Operating income was $1.686 billion versus $1.706 billion.
- Network and Edge (NEX): Revenue increased 23% to $2.213 billion on cloud networking and edge demand. Operating income rose to $366 million from $243 million.
- Other segments: AXG revenue was $219 million and it reported a $390 million operating loss, attributed to reserves and roadmap investment. Mobileye revenue was $394 million, up from $377 million, while operating income declined to $148 million from $171 million. IFS revenue rose to $283 million, primarily from MBMW tool sales, and it reported a $31 million operating loss.
- Consolidated revenue also reflected the absence of prior-year NAND business revenue and a $584 million prepaid customer supply agreement revenue item recorded in Q1 2021. Gross margin was pressured by higher unit costs, Intel 4 ramp-related charges, inventory reserves, and lower CCG revenue, partly offset by stronger server, cloud networking, and edge revenue.
- Research and development plus marketing, general and administrative expense increased 23% to $6.1 billion, reflecting investment, corporate spending, and incentive-based compensation.
Outlook, management commentary, risks and unusual items
- Intel said it believes available funding is sufficient for business needs over the next 12 months and longer term. It expects substantial ongoing investment in manufacturing capacity and its process-technology roadmap; government incentives could affect the pace and size of planned investment. The supplied filing text does not provide a clear numerical near-term earnings or revenue forecast.
- Intel announced plans to invest up to €80 billion in the EU over the next decade, including an initial planned €17 billion German fab investment, and agreed to acquire Tower Semiconductor for approximately $5.4 billion, subject to regulatory approvals and other closing conditions. Certain termination circumstances could require a $353 million fee. Intel also agreed to acquire Granulate and continued preparations for a proposed Mobileye IPO.
- Unusual items materially influenced GAAP results: the $1.2 billion benefit from annulment of the EC fine; approximately $4.6 billion of McAfee sale gains; and a $1.1 billion pre-tax gain associated with the first closing of the NAND divestiture. The EC appealed the decision annulling its fine. Non-GAAP measures exclude specified items and should be considered alongside, not instead of, GAAP results.
- The NAND transaction’s second closing is expected no earlier than March 2025. Intel disclosed up to $500 million of annual and $1.5 billion aggregate exposure under incentives and penalties in its interim wafer manufacturing agreement with SK hynix; operating-plan discussions could affect related metrics and expectations.
- Material uncertainties include VLSI patent litigation, including a Texas jury award of $1.5 billion and $675 million in one case, with final judgment entered in April 2022 and remaining matters ongoing. Intel also described other patent, securities, and security-vulnerability proceedings for which potential losses could not be reasonably estimated.
- Risks highlighted include weaker economic or consumer demand, supply-chain and materials constraints, COVID-related disruptions including Shanghai port impacts, geopolitical conflict and sanctions, investment-market volatility, and the transition from LIBOR. Intel reported that disclosure controls were effective and that there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of GAAP earnings growth reflects recurring operations versus the McAfee and NAND gains and EC fine reversal; compare with non-GAAP results and review the company’s adjustment definitions.
- Whether CCG demand, notebook and desktop volumes, and gross-margin pressures improve, and whether DCAI and NEX growth can continue despite cost and pricing pressures.
- Planned manufacturing and process-technology spending, cash generation after capital expenditures, and the assumptions underlying management’s liquidity assessment and government incentives.
- Progress, funding and closing conditions for Tower and Granulate, the proposed Mobileye IPO, and the timing and exposures associated with the NAND transaction’s second closing.
- Developments in VLSI and other litigation, including any judgments, appeals, settlements, or potential product or operating restrictions.