Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, ladies and gentlemen. Thank you, very much, for your patience, and welcome to the first quarter 2007 Intel Corporation earnings conference call. My name is Bill, and I will be your conference coordinator for today. At this time, all participants are in a listen-only mode. However, we will be conducting a question and answer session towards the end of today's conference. [OPERATOR INSTRUCTIONS] As a reminder, today's conference is being recorded for replay purposes.
I would now like to turn the call over to your host for today's presentation, Mr. Kevin Sellers, Director of Investor Relations. Please proceed sir.
KEVIN SELLERS, DIRECTOR, IR, INTEL CORPORATION: Thank you, Bill, and welcome everyone to our Q1 2007 earnings conference call. Before I begin, I want to point you to our investor website, Intc.com, for some important information related to today's conference call. First our earnings release and updated financial statements are available there for anyone who still needs access.
Second, a replay of today's call will be posted there at around 5:00 Pacific Time, and will remain there for about two months. And lastly, if during this call we use any non-GAAP financial measures, we will post the appropriate GAAP financial reconciliations there as well.
Joining me on today's call are Paul Otellini, Chief Executive Officer, and Andy Bryant, Chief Financial Officer. In a moment, Paul will review the highlights of the quarter and comment on our key strategies, products, and technologies, with Andy providing more details on our financial performance, and business outlook.
As we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we see it today, and as such does include risks and uncertainties, please refer to our press release for more information on the specific risk factors that could cause actual results to differ.
So with that Paul, let me hand it over to you.
PAUL OTELLINI, PRESIDENT, CEO, INTEL CORPORATION: Thanks, Kevin. The first quarter marked another solid period for our microprocessor business. Units were in-line with seasonal patterns, and ASPs held up well despite competitive pricing in the low-price segments of the market.
In general, we saw flat quarter to quarter pricing in mobile and desktop segments, and a decline in server ASPs, driven by a shift to dual and uni processor servers. We continue to see strong demand for our core microarchitecture processors, all of which continue to ramp nicely. We are pleased with our operating performance, with lower microprocessor unit costs, higher margins, good inventory management, and lower spending resulting from our structural cost efforts, which are running ahead of our projections. Flash was weaker however, driven by lower NOR units and NAND pricing.
The desktop segment was competitive this quarter, but our pricing held firm as we shipped more Conroe processors in the first quarter than in the second half of 2006. We are very pleased with the momentum of our V-pro processor technology, which adds a number of security and manageability features for IT, and is now being deployed at over 200 companies and organizations.
In mobile, we are shipping product in preparation for next month's launch of the new Santa Rosa platform, with volume shipments of the new Crestline chipset, and continued strong demand for our Maron processor. The platform will be branded Intel Centrino Duo for consumers, and Intel Centrino Pro for businesses that wants to deploy the benefits of our vPro technology in mobile as well.
Our server platforms also continue to shift to new technology, with another quarter of growth for Woodcrest, and a near doubling of Clovertown Quad-Core shipments. Our belief is that maintaining scale is essential to our strategy of ramping new manufacturing and platform technologies quickly, delivering high performance and low unit costs.
Today's product leadership is built around our 65-nanometer technologies, and we are well along the path to introduce products based upon 45-nanometer technology later this year. To that end we have announced the use of breakthrough materials in our 45-nanometer process that will allow us to introduce faster, and more power efficient microprocessors, that pack more features into smaller die.
We have disclosed this week that our Penryn family of processors will offer leadership performance with gains of 15 to well over 45%, when compared to today's best Core2 Duo and Xeon processors. Cache sizes will be 50% larger, yet die sizes will be 25% smaller.
We have six different microprocessors already running based upon this process, and they are running a broad base of applications on five operating systems. We also disclosed plans for Nehalem, our next generation microarchitecture for 45-nanometers, which will take our performance, power and cost leadership even further beginning in 2008.
In summary, the R&D cadence that we discussed at last April's Analyst's meeting is providing us with the very best products in the marketplace, giving us strong momentum and relatively stable pricing in a competitive business environment. We are seeing good progress on unit cost and spending reductions, and our strong execution at 65 nanometers is being followed up by an innovative 45-nanometer technology and products. We are planning for growth in the second half of the year, and look forward to sharing our future plans at our New York Analyst's meeting.
With that, let me turn the call over to Andy.
ANDY BRYANT, CFO, INTEL CORPORATION: Thanks, Paul. This was another quarter of progress marked by products well received by customers, major advances in process and manufacturing technologies, and comprehensive cost savings.
Gross margin for the quarter was better than we expected, and we can report excellent results over the last year in cutting spending, which is $0.5 billion lower than the first quarter of 2006. Looking beyond the transitional second quarter, we see an improving second half as the strength of products and process technologies carry today. We expect gross margin to improve significantly in the second half, with a percentage in the low 50s range, and we have raised our forecast for the full year.
Revenue for the first quarter was $8.9 billion, within the range forecast in January and down 9% from the fourth quarter. The total number of microprocessor units was down and approximately seasonal. Average selling prices for microprocessors were slightly lower overall. Unit volumes of chipsets, motherboards and Flash memory were lower than the fourth quarter.
More than half of total revenue, $4.8 billion came from the Digital Enterprise Group. Revenue for this group was approximately 8% lower than the fourth quarter, primarily due to lower unit buying from sales of microprocessors and chipsets. The mobility group accounted for more than a third of total revenue. This revenue of $3.3 billion was down 8% from the fourth quarter, primarily due to lower unit volumes of microprocessors. Compared to a year ago, total revenue was approximately flat. Revenue from the Digital Enterprise and Flash Memory Groups was lower, and revenue from the Mobility Group was higher.
Gross margin dollars were 4.4 billion, 378 million lower than the fourth quarter. Gross margin percentage of 50.1% was above the midpoint of our forecast, and 0.5 point higher than the fourth quarter. While lower revenue and higher manufacturing start-up costs reduced gross margin, this was more than offset by increases in gross margins, due to lower microprocessor unit costs and the sale of previously reserved products and inventory. In a year to year comparison, gross margin percentage is 5 points lower than the first quarter of 2006, primarily a result of lower average selling prices for microprocessors.
R&D and MG&A were approximately $2.7 billion, in-line with the forecast and down 6% from the fourth quarter. In addition we had restructuring and asset impairment charges of $75 million. The progress we have made in cutting expenses is most apparent in a year to year comparison. Spending for R&D and MG&A is down 17% from the first quarter of 2006, and as a percent of revenue spending has declined by nearly 6 points. The number of employees is down by more than 11,000, or 11% to 92,000.
Interest and other income is significantly lower than the fourth quarter, when we realized a gain of $482 million from the sale of the Company's communications and applications processor business. The provision for taxes in the first quarter was also significantly …