Intel Corporation (INTC) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 25, 2021 (52 weeks). This is an annual report, not a standalone fourth-quarter filing. Comparisons below are primarily with FY2020.
Business context and results
Intel designs and manufactures semiconductor products, with Client Computing Group (CCG) and Data Center Group (DCG) as its reportable segments. Its strategy, IDM 2.0, combines internal manufacturing, greater use of third-party foundries, and development of Intel Foundry Services (IFS). Results were achieved amid industry-wide component, substrate, and foundry-capacity constraints.
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $79.024 billion | $77.867 billion | Up 1.5% (reported as 1%); CCG, IOTG and Mobileye strength partly offset by DCG and NSG declines. |
| Gross margin | $43.815 billion; 55.4% | $43.612 billion; 56.0% | Gross profit was nearly flat; percentage declined. |
| Operating income | $19.456 billion; 24.6% | $23.678 billion; 30.4% | Down 18%; includes $2.2 billion VLSI litigation charge and higher R&D and process-ramp costs. |
| Net income | $19.868 billion | $20.899 billion | Down 5%; FY2021 benefited from a lower effective tax rate. |
| Diluted EPS | $4.86 GAAP; $5.47 non-GAAP | $4.94 GAAP; $5.10 non-GAAP | GAAP down 2%; non-GAAP up 7%. Non-GAAP excludes specified items, including restructuring and other charges. |
| Operating cash flow | $29.991 billion | $35.384 billion | Down 15%, primarily from working-capital changes and settlement of a prepaid customer supply agreement. |
| Free cash flow | $11.258 billion | $21.125 billion | Down 47%, reflecting lower operating cash flow and higher capital spending. |
| Capital expenditures | $18.733 billion | $14.259 billion | Increased to support manufacturing expansion and the process roadmap. |
Segments and material changes
- CCG: Revenue rose 1% to $40.511 billion. Notebook and desktop platform volumes each increased 8%, while notebook ASPs declined 6%. Operating income decreased 3% to $14.672 billion.
- DCG: Revenue fell 1% to $25.821 billion and operating income fell 34% to $6.997 billion. Lower ASPs and competitive pressure weighed on results; cloud-service-provider revenue declined 19%, partly offset by enterprise/government recovery and communications growth.
- IOTG and Mobileye: Revenue increased 33% to $3.998 billion and 43% to $1.386 billion, respectively, as demand recovered. Mobileye reported record revenue and 41 new ADAS design wins.
- NSG: Revenue declined $1.1 billion to $4.306 billion, mainly from lower NAND ASPs and the transfer of Optane to DCG. Reported operating profit rose to $1.369 billion, substantially reflecting the absence of NAND depreciation while assets were held for sale; it also includes the segment’s changing scope.
- PSG: Revenue increased 4% to $1.934 billion, with recovery partly offset by component, substrate, and foundry constraints.
Liquidity, debt and capital allocation
- Intel reported $29.493 billion in total cash and investments, a management-defined non-GAAP liquidity measure, versus $27.034 billion a year earlier. Total debt was $38.101 billion, versus $36.401 billion.
- Cash and cash equivalents were $4.827 billion; current assets were $57.718 billion and current liabilities $27.462 billion.
- Stockholders’ equity was $95.391 billion. The company had no commercial paper or revolving-credit-facility borrowings outstanding at year-end; the facility is $5.0 billion.
- Intel paid $5.644 billion in dividends and repurchased $2.415 billion of shares in FY2021, versus $14.229 billion of repurchases in FY2020. Management expects future repurchases to be significantly below recent years and intends to maintain the dividend.
Outlook, management commentary and notable items
- Management expects long-term revenue growth to reach 10%–12% year over year by the end of its five-year horizon as supply normalizes and investments add capacity. It expects non-GAAP gross margins of 51%–53% over the next several years before improving. These are long-term expectations, not near-term quarterly guidance.
- Capital expenditures are expected to remain above historical levels for several years and to pressure free cash flow in the short term. Intel had $22.3 billion of capital expenditure commitments for 2022 and said expected 2022 capital spending would exceed that amount.
- IDM 2.0 investments include two new Arizona fabs (announced investment of $20 billion), two planned Ohio fabs (more than $20 billion), and approximately $10.5 billion to equip New Mexico and Malaysia sites for advanced packaging. Execution, construction costs, capacity utilization, yields, and returns are material uncertainties.
- The first closing of the NAND divestiture to SK hynix occurred December 29, 2021, after fiscal year-end. SK hynix paid $7.0 billion; a further $2.0 billion is expected at a second closing no earlier than March 2025, subject to conditions. Intel expects full deconsolidation of the NAND OpCo business in Q1 2022.
- FY2021 included a $2.2 billion VLSI litigation charge. A Texas jury had awarded VLSI $2.175 billion; Intel disputed the claims and was pursuing post-trial remedies and appeals. Separately, on January 26, 2022, the European General Court annulled the European Commission’s rebate finding and fine; an appeal remained possible.
- The effective tax rate fell to 8.5% from 16.7%, primarily due to one-time benefits from restructuring certain non-US subsidiaries and a greater share of income in non-US jurisdictions.
- CEO Pat Gelsinger joined in February 2021; David Zinsner became CFO in January 2022. Intel also announced its intention to IPO newly issued Mobileye shares while retaining majority ownership.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Inventory valuation was identified as a critical audit matter.
Principal risks and contingencies
- Intensifying competition in CPUs and data centers, including from AMD, ARM-based designs, Apple, NVIDIA, and customer-developed chips; management acknowledged competitive pressure on DCG ASPs and revenue.
- Process-technology and product-roadmap execution risk, including potential delays, yield shortfalls, product defects, and the challenge of reaching stated process-performance goals.
- Industry supply shortages, supplier concentration, construction delays, and large long-term purchase commitments or prepayments could constrain output or create excess costs if demand falls short.
- Customer concentration is significant: Dell, Lenovo, and HP represented 43% of FY2021 revenue. China accounted for 27% of revenue by customer billing location.
- VLSI and other IP disputes, cybersecurity and product-security vulnerabilities, export controls and geopolitical tensions, and COVID-19-related workforce or supply disruptions could adversely affect results. Intel said it could not reasonably estimate potential losses for several pending matters.
Investor verification priorities
- Track manufacturing-roadmap milestones, yields, capacity ramps, and whether IDM 2.0 investment produces competitive products and returns.
- Assess the sustainability of margins and free cash flow as capital spending rises; distinguish reported GAAP results from non-GAAP measures and their exclusions.
- Monitor DCG competitiveness, customer demand and concentration, and whether industry supply constraints ease as expected.
- Verify completion and accounting effects of the NAND transaction’s second closing, including the expected proceeds and deconsolidation timing.
- Follow developments in the VLSI litigation and other contingencies, and assess any resulting cash, earnings, or product restrictions.