Intel Talks Finances And Growth At Investor Meeting 2011

Subject: General Tech | May 18, 2011 - 05:29 PM |
Tagged: revenue, Intel, cagr

Intel held its annual Investor Meeting today, where the chip maker talked software, the state of the business, as well as new hardware and leveraging microarcitecture leadership. This installment focuses on the business growth and financial aspects.

With 43,905 United States employees and a rank of 62 on the 2010 Fortune 500 list, Intel is a huge company.  And with an over $10 billion dollar Q1 2011, Intel is doing quite well.

During the investor meeting, Intel's CFO (Chief Financial Officer) Stacy Smith took the stage to talk about the company's financial performance and how the company is growing. One of the first points that he talked about was Intel's design and manufacturing advantages. Intel spends a great deal of it's capitol on R&D (research and development). and this investment in itself and the amount of research that is completed, allows the chip maker to maintain it's x86 market leadership. The company has also started acquiring other companies in an effort to differentiate itself from its competitors. For example, the recent McAfee acquisition has brought security and software engineers to Intel's portfolio, and will allow them to create security software solutions that can easily be paired with their hardware.


Intel also stated that it is growing, and expects to sell even more hardware thanks to emerging markets and the rise in "cloud computing" requiring larger and more numerous data centers.  The chart above shows Intel's CAGR (compound annual growth rate), which is a number created by taking the nth root of the total percentage growth rate with "n" being the total number of years calculated.  It is a way for companies to describe the rate of investment growth if it grew at a steady rate (which is unlikely to happen in real life due to a dynamic and constantly changing market).  Including the company's projections for 2011, Intel is looking at a 12% CAGR for revenue and a 35% CAGR in EPS or earnings per share.

Paul S. Otellini, who is the President and Chief Executive Officer for Intel reaffirmed Intel's growth by stating that 74.5 quintillion transistors shipped in 2010.  This rapid rise in growth can be attributed to cloud computing demands for more data centers, emerging markets adopting more computers, and Intel's interest in the mobile market.

The historic part of the graph above shows the rise in traditional servers from 1995 to its highesd point in 2010 as the Internet becomes further adopted and more and more applications execute server side.  The right side of the graph; however, shows Intel's projections for the future from 2010 to 2015.  They expect to see a massive increase in processor growth for data center market thanks to an influx of new cloud computing applications and networked storage.  Intel also stated that the company's latest Xenon processors are no longer second to Itanium for mission critical applications, and thus Intel expects a rise in Core processors for mission critical servers.  In 2010 alone, the company had $8.4B in revenue and $4.4B of operating profit.  In 2013, Intel forecasts a 15% growth in revenue with operating margins at ~50% for the data center group.

From the PC Client Group, which encompasses both desktops and laptops, Intel had almost $7 million dollars for Q1 2011 revenue, which is at least $1 million more than Q1 2010.  Further, their reported Q1 revenue for 2011 is the highest that it has ever been between Q1 2008 and Q1 2010.  Their operating margins have also increased compared to 2008, with a 17% CAGR.  Intel also revisited the issue of high R&D budgets, and showed that the overall cost across platform segments have declined since 2008.  As research cost for new technologies increase, the cost to make wafers decreases.  Intel forecasts that for the Performance, Mainstream, and Atom platforms, the costs will continue to decrease into 2011 and 2012 while the Value platform will see a slight increase in 2011 and remain stable into 2012.

Emerging markets are also responsible for the company's growth.  Intel stated that "you will see a rapid increase in PC penetration rates in China, Latin America, and Eastern Europe."  Both Brazil and Eastern Europe are projected to reach 80% PC penetration in 2015, for example.  China is expected to attain a 40% penetration rate, while India will have 10%.  Intel stated that this is possible thanks to falling prices in computers along with rising incomes worldwide.  Once a country's incomes reach a level where 4 to 8 weeks is enough to purchase a PC, the penetration rate sees a rapid increase.  Currently, Intel has determined 4.2 WOI (weeks of income) are necessary to purchase a PC worldwide, which is much lower than the 9.9 weeks of income necessary the previous year.  In 2014, Intel projects that only 2.3 weeks of income will be necessary.  Inside the worldwide WOI spectrum, North America has the lowest WOI each year, followed by Japan and Western Europe.  India and China have historically had the highest WOI; however, Intel projects that by 2014, the countries will have greatly reduced their WOI at 10.3 and 2.6 respectively.

While data centers, emerging markets are responsible for the majority of Intel's projected growth, Intel also has both the embedded and software and services group.  On the embedded side, Intel is expecting a 11% CAGR between 2010 and 2013.  In 2010, the embedded group saw $1.5 billion dollars in revenue, and Intel projects almost $2 billion dollars in revenue in 2011.  Intel has stated that they are "making significant investments in SoC, tablet, and smart phone R&D" and that they "expect market segment share gains and growing businesses in tablets, smart phones (application and base band processors), and connected CE (consumer electronics) devices."

The Software and Services Group also accounts for a small portion of Intel's revenue.  The company's software acquisitions include McAfee, Wind River, and Havok among others.  The group is a rapidly growing part of Intel, with a projected $3 billion dollars of revenue in 2013 compared to $330 million dollars in revenue in 2010.  The group is an "upside opportunity as we embed additional security features into hardware and software," according to Intel.

Further, Intel showed a glimpse of it's NAND Solutions Group, and indicated that it forecasts a slightly increased operating profit for 2011 which coincides with Intel lowering the Cost/GB of NAND based devices (such as SSDs) compared to the industry leader.

As a company that diversifies it's products, leads the x86 markets, and invests heavily in itself with acquisitions and R&D, Intel is a profitable company that shows no signs of slowing it's growth.

Source: Intel