Intel Corporation (INTC) — Q3 2022 Form 10-Q
Reporting period: Quarter ended October 1, 2022; year-to-date figures cover the first nine months of fiscal 2022. Unaudited financial statements are prepared under U.S. GAAP.
Business context and results
Intel cited a deteriorating macroeconomic environment, slowing consumer demand, persistent inflation and higher interest rates, alongside customer inventory reductions in data centers. Q3 revenue was $15.338 billion, down 20% year over year. CCG and DCAI declined, while NEX grew; reported revenue also lacked the prior-year NAND business contribution.
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue | $15.338B | $19.192B | Down 20% |
| Gross margin | $6.535B; 42.6% | $10.746B; 56.0% | Down 13.4 percentage points |
| Operating income (loss) | $(175)M | $5.227B | Turned to loss |
| Net income | $1.019B | $6.823B | Down 85% |
| Diluted EPS, GAAP | $0.25 | $1.67 | Down $1.42 |
| Diluted EPS, non-GAAP | $0.59 | $1.45 | Down 59% |
| Gross margin, non-GAAP | 45.9% | 58.3% | Down 12.4 percentage points |
Non-GAAP figures are company-defined supplemental measures and are not substitutes for GAAP results.
Segments and material changes
- CCG: Revenue of $8.124B, down 17%. Notebook unit sales fell 28%, principally in consumer and education; segment operating income fell 54% to $1.655B.
- DCAI: Revenue of $4.209B, down 27%. Server volume fell 29% as enterprise customers reduced inventories; lower server ASPs also reflected customer mix and competition. Operating income declined to $17M from $2.293B.
- NEX: Revenue of $2.266B, up 14%, supported by 5G, Ethernet and Edge demand; operating income fell to $75M from $511M.
- Mobileye: Revenue rose 38% to $450M, primarily on higher EyeQ demand; operating income was $142M. AXG revenue was $185M with a $378M operating loss; IFS revenue was $171M with a $103M operating loss.
Lower revenue, higher unit costs, inventory reserves and manufacturing ramp charges reduced gross margin. R&D and marketing, general and administrative expense totaled $6.046B, up about 10% year over year, as Intel continued strategic and process-technology investments.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $7.730B, versus $24.053B a year earlier. Capital expenditures were $19.145B; adjusted free cash flow was negative $7.139B, versus positive $12.567B. Intel attributed weaker operating cash generation to lower earnings after noncash adjustments and unfavorable working-capital changes.
- At October 1, cash and cash equivalents were $4.529B and short-term investments were $18.030B. Company-defined total cash and investments, including loans receivable and other, were $23.028B, down from $29.493B at year-end 2021.
- Total debt was $39.523B, up from $38.101B at year-end 2021. Intel issued $6.0B of senior notes in Q3, including a $1.3B green bond. Its $5.0B revolving credit facility had no borrowings outstanding; no commercial paper was outstanding.
- Intel said it believed funding sources were sufficient for business requirements over the next 12 months and longer term. It paid $4.488B in dividends during the first nine months and made no share repurchases during Q3.
Outlook, management commentary and notable items
- Intel expected macroeconomic uncertainty and challenging market conditions to extend into 2023. It described a flatter-than-usual revenue pattern for the remainder of 2022. The filing refers to Q4 and full-year 2022 guidance in the October 27, 2022 Form 8-K but does not provide the guidance figures in the supplied text.
- Customer incentives and purchases ahead of Q4 price increases contributed approximately $1.5B to Q3 revenue; Intel said these effects were contemplated in its Q4 and full-year guidance. This pull-forward could affect subsequent-period demand.
- A Q3 restructuring program generated $607M of severance and benefit charges. Intel expected substantial completion by the end of the first half of 2023, subject to change. Total Q3 restructuring and other charges were $664M.
- Intel recorded a $559M Optane inventory impairment in the first nine months and began winding down the business. The first nine months also included a $4.6B gain and cash proceeds from selling its remaining McAfee stake, and a $1.0B pretax gain associated with the first NAND divestiture closing. These items materially affect period comparisons.
- Intel and Brookfield agreed to a 51%/49% partnership in Arizona Fab LLC, which Intel will consolidate. The entity expects to invest up to $30B in Arizona manufacturing infrastructure. Intel must use the new capacity at specified minimum levels or face penalties. Closing was expected by year-end 2022, subject to conditions.
- Intel expected Mobileye’s Q4 IPO and concurrent private placement to yield about $0.9B net proceeds; it expected to retain roughly 94% ownership and continue consolidating Mobileye.
- Contingencies: Intel had appealed a $2.175B VLSI patent judgment, plus approximately $162M in prejudgment interest and post-judgment interest. Intel had previously accrued $2.2B for VLSI matters and said any losses above that amount were expected to be immaterial to the financial statements. The EC had appealed the annulment of its prior fine; Intel said the potential loss could not be reasonably estimated. Other legal matters also have uncertain outcomes.
Most important facts for investors to verify
- Whether demand, customer inventories and the approximately $1.5B of Q3 purchase pull-forward affect Q4 and 2023 revenue.
- Progress in restoring gross margin, controlling inventory and unit costs, and ramping Intel 4 and Intel 7 manufacturing.
- Capital expenditure, operating cash flow and liquidity trends relative to Intel’s manufacturing investment commitments and debt.
- Execution and costs of the restructuring program, and the terms, funding and capacity-utilization obligations of the Brookfield Arizona Fab arrangement.
- Developments in the VLSI cases and EC appeal, and completion and proceeds of the Mobileye IPO and remaining NAND divestiture closing.