day, ladies and gentlemen, and thank you for standing by. And welcome to the Intel Corporation's 4th Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. 12 Earnings.
Earnings. As a reminder, this conference may be recorded. Now my pleasure to turn the floor over to Mark Henninger with Investor Relations. Please go ahead. Earnings.
Thank you,
Huey, and welcome, everyone, to Intel's Q4 2012 earnings conference call. By now, you should have received a copy of our earnings release and the CFO commentary that goes along with that. If you've not received both documents, they're currently available on our investor website, intc.com. Earnings. I'm joined today by Paul Adolini, our President and CEO and Stacy Smith, our Chief Financial Officer.
In a moment, we'll hear brief remarks from both of them followed by Q and A. Earnings. Before we begin, let me remind everyone that today's discussion contains forward looking statements based on the environment as we currently see it and as such earnings call 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 materially. Earnings call. If during the call we use any non GAAP financial measures or references, we'll post the appropriate GAAP financial reconciliation to our website, Earnings.com. And lastly, I'd like to highlight that this year and going forward, we'll be holding our Annual Investor Meeting in the fall rather than in May.
Earnings. We'll send out a save
the date notice this spring with all the important event logistics and we'll look forward to seeing you there. With that, earnings. Let me turn the call over to Paul.
Thanks, Mark, and good afternoon. In 2012, Intel generated almost $1,000,000,000 of net income every month. Earnings. This was in an environment of relatively soft PC demand and weak macroeconomic conditions. Earnings.
From a product perspective, 2012 was a year of significant transitions in our markets and a year of important milestones for Intel. Earnings. I'd like to take a moment to recap a few of the most significant developments. The data center group saw a comprehensive refresh across its product line last year. Wamley brought the Sandy Bridge architecture to servers for the first time, earnings call.
While the launches of Knight's Corner and Centerton in the 4th quarter expanded the range of DCG solutions from teraflops to a few watts. Earnings. Knight's Corner or Xeon PHY brings 60 cores and the familiar Intel architecture programming model Earnings to Supercomputing Applications. At 6 watts, Centerton is the industry's only low power micro server SoC Earnings that delivers critical enterprise features like 64 bit, ECC and virtualization. Earnings.
Over the last 12 months, we also worked with our industry partners to bring Ultrabooks to the mainstream, ramping from roughly 20 designs to more than 100 and 40. At CES last week, I was struck by our industry's renewed inventiveness. PC manufacturers are embracing innovation earnings as we are in the midst of a radical transformation of the computing experience with the blurring of form factors and the adoption of new user interfaces.
Earnings call.
It's no longer necessary to choose between a PC and a tablet. Convertibles and detachables combined with Windows 8 and Touch provide a 2 for 1, no compromise computing experience. Ultrabooks have also served to accelerate earnings call. For example, the volume of systems less than 1 inch thin Earnings Group grew 18 fold last year in the U. S.
And we expect to see the same trend continue around the world. Earnings. Last quarter, our customers also began shipping tablets based upon our CloverTrail SoC and Windows 8. Earnings. These systems boast up to 10 hours of battery life, 3 weeks of connected standby and come in a range of sleek ultralight form factors, earnings call, all while bringing the benefits of software compatibility with the millions of Windows applications written for Intel architecture.
Earnings. There are now 10 CloverTrail tablets shipping today with several more launching in the coming months. Earnings. 2012 was a milestone year for Intel architecture in smartphones with our customers now shipping 7 devices across 20 countries. Earnings.
These phones use our 32 nanometer Medfield SoC and are extremely competitive with the best arm designs on performance Earnings and Equal or Better Power and Battery Life. We saw the introduction of our 22 nanometer manufacturing process and along with it a revolutionary new tri gate or 3 d transistor technology. 22 nanometer products represented more than half of our volume in the 4th quarter as the rest of the industry works to ship its very first Trigate designs. Earnings. In July, we announced an important strategic relationship with ASML, which combined with our process technology expertise earnings.
We'll accelerate deployment of EUV and 450 millimeter technologies, helping to ensure the future of Moore's Law and our growing manufacturing leadership. Looking ahead to 2013, earnings. I'm excited about the strong pipeline of products we have coming to market. In the first half of this year, we will launch Haswell, Earnings, enabling one of the most significant changes to the PC since Centrino in 2003. ASVEL was designed from the ground up earnings to enable breakthrough innovations in form factor, battery life and usability.
It will deliver the Single largest generation to generation battery life improvement in Intel's history and is inspiring a new wave of ultra sleek, convertible touch based designs across our customer base. Later this year, we will ship 22 nanometer versions of our Xeon and Atom products for the data center, bringing the power, performance and efficiency benefits of 3 d transistor technology to our entire data center product line. In 2013, we'll also begin to deliver the industry's first 22 nanometer We are now shipping our single mode data LTE baseband to customers and over the course of the year earnings. We'll begin delivering multimode data and voice modems to customers, giving us a full complement of competitive technologies Earnings to grow our device business. Last but not least, we will begin our transition to 14 nanometers earnings as we begin the world's first 14 nanometer products towards the end of this year.
We see the industry in a period Transition and Hyper Innovation. We are well positioned to take advantage of these trends across the spectrum of computing earnings call from the lowest power portable devices to the most powerful data center servers and everywhere in between. Earnings. With that, let me turn the meeting over to Stacy.
Thanks, Paul. The 4th quarter came in consistent with our expectations. Earnings. For 2012, although our financial results were below our expectations entering the year, we launched leadership products earnings in every major business segment, and we extended our manufacturing leadership. In 2012, revenue was $53,300,000,000 earnings.
Gross margin was 62 percent, operating income was $14,600,000,000 net income was $11,000,000,000 earnings per share was $2.13 For the year, the business continued to generate significant cash earnings with almost $19,000,000,000 of cash from operations. We increased the dividend per share by 7%, resulting in over $4,000,000,000 in dividends paid earnings and repurchased roughly $5,000,000,000 of stock. We continue to invest in our manufacturing leadership. Earnings. We purchased $11,000,000,000 in capital assets, primarily building and equipping leading edge factories and made a $3,000,000,000 strategic equity investment Earnings and ASML.
Lastly, we took advantage of record low interest rates and borrowed $6,000,000,000 earnings. Total cash investments ended the year at roughly $18,000,000,000 up approximately $3,000,000,000 from a year ago. Earnings. Revenue of $53,300,000,000 was down 1% from a year ago and below the expectations we had at the start of the year. Earnings.
Worldwide GDP growth was significantly less than we had thought entering the year, and the PC market segment was impacted by the growth of tablets. Earnings. Our PC client group was down 3% from a year ago. The data center group grew 6% year over year as a richer mix of products earnings. And significant growth in the Internet cloud segment of our business was partially offset by weakness in the enterprise server market.
Earnings. Gross margin of 62% in 2012 was flat to 2011, at the high end of our historical range for the 3rd year in a row. Earnings call. Our investments in industry leading manufacturing process technology continued to pay off through leadership products and a highly responsive factory network.
Earnings call.
We invested over $10,000,000,000 in research and development in 2012, up almost $2,000,000,000 from a year ago. Earnings. The increase was driven by investments in Ultrabooks, the data center, phones and tablets. Earnings. In addition, we made investments in core capabilities like security, SoCs and extending our process technology leadership.
Earnings. Spending as a percent of revenue was 34%. 4th quarter revenue finished at $13,500,000,000 earnings. We believe the worldwide PC supply chain saw a continued reduction in inventory levels in the 4th quarter earnings as customers reduced inventory of older generation PCs. Gross margin of 58% earnings was up one point from expectations and down 5 points from the 3rd quarter.
The drop from the 3rd quarter was driven primarily by excess capacity charges earnings. As a result of the aggressive tactical actions we took to reduce inventory levels and to redirect space and equipment to 14 nanometer. Earnings. Our inventories decreased almost $600,000,000 from the 3rd quarter as a result of these actions. Earnings.
Separately, we started production on our next generation microarchitecture product, code named Haswell, which we expect to qualify for sale this quarter. Earnings. This production prior to qualification for sale resulted in an increase in inventory write offs. Earnings. Operating income for the Q4 was $3,200,000,000 with earnings per share of $0.48 earnings.
As we look forward to the Q1 of 2013, we are forecasting the midpoint of the revenue range at $12,700,000,000 earnings, down 6% from the 4th quarter. This forecast is in line with the average seasonal decline for the Q1. Earnings. We are forecasting the midpoint of the gross margin range for the Q1 to be flat at 58% as the impact of higher factory start up costs earnings. And lower volumes are offset by lower excess capacity charges and the qualification for sale of Haswell.
Earnings. Turning to 2013, we are planning for revenue growth in the low single digits and forecasting the midpoint of our gross margin range at 60%. Earnings. Capital spending for our core business is expected to be roughly flat to 2012. Additionally, we will spend roughly $2,000,000,000 to start building our first 450 millimeter development facility.
We are forecasting spending for the year at $18,900,000,000 a earnings release from 2012. This is the full year impact of the increase to investments in R and D that occurred in 2012 Earnings and Annual Salary Increases for 2013. As a result of the significant progress we made in 2012 across all of our product lines, earnings. I enter 2013 optimistic about our long term prospects. A year ago, we were just introducing the concepts of ultrabooks to the world.
Earnings. Today, the market has been redefined with thin, light, powerful Ultrabooks and convertibles. A year ago, Intel was not shipping products into the tablet earnings. Today, we have Clovitrol tablets shipping in the market, delivering performance and power benefits versus what our competitors can do. Earnings.
And in 2013, we will ramp our next generation tablet SoC, code named Baytrail, in both the Windows and Android markets. Earnings. Intel is now inside 7 shipping smartphone designs. And here again, the 3rd party benchmarks show earnings. That we are not only capable of matching the competition in power efficiency, we are leading them.
In 2012, we built on the strength of our data center offering, earnings. And we expect to return to double digit revenue growth in 2013. And lastly, we built on our manufacturing lead and are well into the ramp of our 22 nanometer factories and will start production on the 14 nanometer process this year. This puts us significantly ahead of the competition. Earnings.
The combination of new products and design wins across all segments and our manufacturing leadership will benefit our business in the quarters to come. Earnings. With that, let me turn it back over to Mark. All right. Thank you, Paul and Stacy.
We'll now move on to Q and A and as is our normal practice,
Our first question comes from the line of Ross Seymore with Deutsche Bank. Please go ahead. Earnings.
And for Paul, if I look back between
the last two years and
then heading into what you just guided to for 2013, it seems like your CapEx and your OpEx earnings. I guess if I partner that together with where the stock's trading valuation wise, it really looks like investors are dubious earnings. As to when any returns are going to come from those investments. So I guess the question after that is, when do you see the investments come or the return on these earnings. How long do you think this investment stays last?
And what are some of the mile markers we should look for to see those returns being generated?
Well, there's two parts earnings. The CapEx this year, I mean, 2 large parts of the CapEx this year, Ross. One is, you're starting to see our first significant investments in bricks and mortar and some for the 450 millimeter transition, which happens later part of this decade. We have to make those investments earlier. Earnings.
Those are now that we've solidified our relationship and contractual relationship with ASML, it gives us line of sight to that conversion and therefore now in a better position to predict the exact timing and deploy capital for that. So I would treat that as more of an extraordinary or extraordinary event that's not related to the day to day business in terms of volume in 'fourteen, 'fifteen, 'sixteen. The earnings. CapEx that we are projecting on a base level, then if you look at 13 minuteus the $2,000,000,000 is $11,000,000,000 which is about what we spent last year. Earnings.
And as I look forward into the business in 'fourteen and 'fifteen as we finish up the 14 nanometer factories and begin deployment and equipping of the 10 nanometer factories. We need those factories principally for our view of the computing market. Earnings. And in that I would include tablets and certainly the data center. So as we look at it, it gets used.
Earnings. Remember the leading edge capacity is the lowest cost for us on a per unit basis, the highest performance and the lowest power. Earnings. So regardless of what you think the size of the market is, the leading edge fabs are the single greatest asset that we have.
Earnings. I guess, as my one follow-up, just playing off of that, is the capacity that you're going to have, and I realize the 450 stuff isn't coming until later, but Is most of the incremental capacity for your core PC related business or when you say computing is it more DCG and I guess the word computing could even include tablets Earnings and Smartphones.
Yes, when I'm talking about that I was specifically including the enterprise business, data center business, Earnings. The PC business as we've known it and as it's evolving and I would include tablets in that because as we look forward, it's very difficult Earnings. To distinguish between a detachable clamshell notebook and a tablet. Earnings. The form factors are going to blur here.
The performance requirements are going to be the same spectrum of performance requirements that we think we've seen Earnings in PC space over the last few years. I kept phones separately out of that discussion because I think the relative Earnings. Volume in phones in terms of this deployment of CapEx is still relatively small.
Great. Thank you. Earnings. Thank you, sir. Our next question comes from the line of Stephen Muse with Barclays.
Please go ahead. Your line is now open.
Yeah, good afternoon. Thank you for taking my question. I guess as a follow-up Ross' question on CapEx. If we exclude that $2,000,000,000 on $450,000,000 and we look at the core spending, can you talk about the spending on bricks and mortar Earned last year and anticipated this year as a percentage and also how we should think about equipment spend as part of that?
Earnings. Sure. Hi, CJ. This is Stacy. I'll take that.
Yes, let me break out that capacity related CapEx earnings. In a couple of different ways. First, if you look at it by process, it's very much driven by building for the peak of 14 nanometer earnings. And then it's the start of the investment in 10 nanometer. So just building on what Paul said, if you think about that, it's really building for units that we expect earnings call.
In 2014 and 2015 because that's where you start to see the peak of 14 nanometer and the start of the ramp of 10. In terms of the breakout between what's earnings. For facilities versus what's for equipment, as I had showed at the investor meeting back in May, Earnings. We're seeing that the facility related spending is coming back and a higher proportion is coming down and the higher proportion of that CapEx
earnings. And just as part of that, are you capitalizing investment in ASML or the R and D investment in ASML?
Earnings. No. No, that's not a capital expense. It was an investment expense. Earnings.
Okay, great.
And I guess as my follow-up, in terms of the guidance for low single digit top line growth in 2013, earnings. Can you walk through the underlying assumptions, particularly as it relates to your outlook for PCs and the DCG Group?
Earnings. Yes. We said on the I said in my prepared remarks, we expect the data center group to return to double digit revenue growth. And just diving into that, it's the cloud data center plus our participation in earnings. Portions of the market like storage and some of the networking sections of the market.
It's both unit and ASP based on the strength of our product line and sell up. Earnings. And then for the kind of core PC market, the traditional PC market, we have pretty modest expectations around units earnings. And we think where the growth comes from are these devices that sit in the middle, so the convertibles, that's kind of the best of the tablet and the PC and then our beginning of earnings. Thank
you, sir. Earnings. Our next question comes from the line of David Wong with Wells Fargo. Please go ahead. Your line is open.
Thanks very much. The $2,000,000,000 for future 4 50 millimeter production. Is this an ongoing expense? Will you need to put in a similar amount next year?
Yes. So as Paul said, what earnings. Change over the course of 2013 is the industry consortium around 450, triangulated on first earnings. Equipment to be available in 2015, which is why people are starting to talk about pilot lines in that timeframe. And frankly, a lot of that was enabled by our investment earnings.
And ASML allowed kind of the alignment around that timeline. And so when we look at 2015 as the time where we can have equipment available, earnings. We want to start the production or the construction of a development facility. That's typically a couple of year cycle and so I'd earnings. There's some facility related spending next year that's kind of in the range of what we're spending this year, and then we won't get into the capital related spending for this into the back half of the decade.
Earnings. The production related capital spending into the back half of the second.
Great. Earnings. Thanks. And the beginning of the 10 nanometer spending that you'll be doing with this year,
Earnings. I think I'll save that disclosure for our technologists. Earnings. We tend to be pretty close to the vest with those kinds of things for obvious reasons, David.
Great. Thanks so much.
Earnings. Thank you, sir. Our next question comes from Vivek Arya with Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Earnings. Thanks for taking my question. Paul, there are some reports about Intel potentially manufacturing earnings. Some ASICs for Cisco. My question is not about Cisco per se, but it's really a broader question.
Is Intel fundamentally set up earnings from an operational or a financial perspective to become a specialized foundry and what would be some of the financial metrics and the kind of end markets that you would target?
Earnings. Well, my view on this Vivek hasn't changed since the analyst meeting, investor meeting in May, so I can reiterate that earnings. We are very interested in being a selective foundry manufacturer for certain customers. Earnings. We don't see ourselves as a general purpose foundry or competing with the general purpose foundries.
The kinds of things we would do would certainly not we would not earnings call. We would certainly consider business that would enable and strengthen relationships with strategic partners. Earnings. The kinds of things that we've announced so far have been in the programmable logic area, which is an area that Intel is not in today. So earnings.
That makes perfect sense and those kinds of companies need leading edge technology. So that's the pattern earnings. So yes, we are in a position to be able to handle those kinds of customers. It's we've been building up that capability for several years now and we're now going into production. I described this I think in May Earnings as a crawl, walk, run strategy, and we're still in the crawl part of it.
And to the second part
of the question around our expectations around return, earnings. I mean, it's pretty simple. We want to to the extent that we engage with these foundry customers, we want to make money at it. We want to get
earnings. And as my follow-up, earnings. We have recently started seeing an increased adoption of ARM's Cortex A15 Processors. And I believe earlier earnings. Today, TSMC spoke about their optimism with the 20 nanometer process ramping up next year at a faster pace than they had ramped 28 nanometer.
So, my question is, do you see the competition catching up in terms of performance or in general, how should we view the computing landscape? Earned. Thank you.
No, I don't. I view us as now that we've matched the power performance the power battery life curves earnings. And we're still on 32 nanometers as we move to 22 and 2014, you'll see us accelerate. We've looked at the A15. We look at the A15 specs, earnings.
And we know our own silicon in terms of Baytrail and CloverTrail Plus and we're very comfortable that we can maintain a performance lead here. Microarchitecture is hard and it's something We've got 30 years of experience at. And these devices are simply becoming very small computers and that's what Intel is exceptional at. Thank you.
Earnings. Thanks, Peter.
Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Please go ahead. Your line is open. Earnings.
Great. Thank you. Just to follow-up on the foundry question, you did say at the Analyst Meeting that you hadn't earmarked any of the capital spending Earnings for foundry. Is that still the case when you look at the 2013 spending?
Yes. I mean, other than the 2 small customers or 3 small customers that you've heard of, earnings.
Okay, great. And if you talk about getting your historic returns, earnings. What does that imply on the price per wafer that you would charge relative to what other foundries charge on an apples to apples basis or is that too difficult to think about because you're in a process noted?
Well, I mean we're pricing real time with customers. So it's not per wafer. Most people are now pricing earnings. The foundries are pricing per die or per millimeter squared and that tends to be the model that we would use here too for the most part depending on the level of technology we're talking about. Earnings.
And the pricing here earnings. It's going to be value based pricing. I mean, obviously, it has to be competitive, but the value that we bring in terms of the technology is, I think, pretty exceptional.
Earnings. Great. Thank you very much. Thank you, sir. Our next question comes from the line of Stacy Rasgon with Sanford Bernstein.
Please
go ahead. Your line is open.
Earnings. Hi, guys. Thanks for taking my questions. It sounds to me like you're guiding traditional PCs down a ton this year earnings. And yet you seem to be making a very big bet on revenue growth into 2014 because it seems like this slug of CapEx doesn't really start getting depreciated until then.
Earnings. So how much, I guess, do you need to take in terms of share within tablets or how much of that tablet market earnings. Needs to be eaten up by your convertible PCs in order, I guess, to fill that big debt in 2014 that you seem to be making Earnings and avoid the underutilization that may otherwise happen from the CapEx that you're spending.
Yes. I guess I'd earnings. Take issues with the characterization of guiding PCs down a ton and then some big snapback.
You said revenues were up 2% with data center earnings. From the double digits, which implies that the and phones and tablets ramping, which implies that the core PC business is down.
No. So I said earnings. For the company, it's low single digits in terms of our expected revenue growth. Data center up in the back end of the double digits. Earnings.
You still end up with client growth when you go through that. And I think the point that Paul was making earlier is a really important one, which is Earnings. The lines between a traditional notebook, a convertible, a tablet, I think have blurred to earnings. That is a market for computing and we are expecting some unit. Now Q1, we think is kind of seasonally down.
That's what we guided. Earnings. But when we get into the back half and you have a combination of new products in the market and an improving macroeconomic environment, I think that's a fairly earnings. Reasonable assumption on the year. As we think out into the future, we kind of are thinking of it as just more or less earnings.
Normal growth consistent with what we've historically seen from a unit standpoint. It's just growth across a much wider range of devices than what we've historically supported. Earnings. I don't know if I want to add anything to that.
Okay. And I guess to follow-up on that, I mean my math suggests that you're guiding depreciation this year Earnings. At a $1,700,000,000 quarterly run rate, which is kind of flat, which suggests to me that the CapEx that you're the incremental CapEx you're spending this year doesn't actually start getting earnings. Appreciated next year, which again tells me that you're looking for a fairly solid amount of growth in 2014 to cover that. At the same time, I know you talked about Phones and data center and PCs and everything adding to that.
But the data center business, you sell what, right now, 16,000,000 chips a year, something like that, which can't sell a fab. Earnings. You have phones which Paul admitted, we're probably still going to be small then and you have tablets where the dies are a lot smaller. So unless you're driving tons and tons of volume, it's actually not a ton of wafer volume. Earnings.
So what sort of growth, I guess, what sort of is it enough to is sort of your historical level of unit growth enough to fill CapEx you're putting in and what gives you confidence that you can even have that same kind of historical level of unit growth?
Well, I think it is and I think that earnings. We have line of sight into what our customers are designing around Haswell, which is this year's innovative new core product Earnings and Broadwell, which is next year's. We know the specs on those. The customers know the specs on those. I've seen the prototypical prototypes of the industrial designs.
Earnings. They're really exciting products. Our customers have not had this level of performance and this kind of form factor before. So earnings. To some extent, we're branch predicting that that level of product will generate sufficient excitement to keep the client growth going.
We're not in any of our numbers none of our numbers are we projecting an inflection point upwards or downwards. We see renewed growth around these new form factors.
Got it. Do you have room to modulate CapEx down, I guess,
through the year for the year?
I want to make sure we make time for everybody
on that.
Okay. You
bet. Thanks, guys. Appreciate it. Earnings.
Thank you, sir. Our next question comes from Sandeep with the ISI Group. Please go ahead. Your line is earnings. Yes.
Hi. A couple of questions.
One question on the on what happened in Q4. Earnings. Seems like your PC client units were down 4%, so third party data for PCs was up 2% to 3% sequentially depending on who you look at. Was this mainly an inventory drain? And perhaps if you could talk just broadly about the inventory picture at your customers, Paul, as
you exited the 4th quarter?
Earnings. Yes, I'll take that. Yes, we think that there was an inventory drain in the worldwide Earnings. Supply chain for PCs in the 4th quarter. Our channel checks would suggest that a lot of older generation kind of Windows earnings.
PCs were burned off in the quarter. When we look overall at inventory levels across earnings. All the downstream inventory, we think it's a healthy level of inventory. It looks appropriate for how we see demand. And then in terms of our own inventory levels, obviously, we reduced them earnings.
Significantly in the Q4.
Okay. And then for my follow-up, it's on ASPs. They're up both in the data center and the PC client group. Earnings. Any particular dynamic at work?
I know in the 3rd quarter data center ASPs are weak because of the mix. If you could shed any light on both those categories. Thank you.
Sure. In the data center, as I said in my comments, Earnings. The big driver was Romley, with shipping which is the Sandy Bridge server part. That drove the mix up and it drove the mix to MP up and that earnings to help drive the overall richness of the data center business. On PCs, what we saw was strength in the core product line, Earnings.
Principally going into ultrabooks and laptops and a little more weakness than we would have first thought In the bottom of the PC market in our Celeron and Pentium product lines. Thank you.
Thank you, sir. Our next question comes from Glenn Young with Citi. Please go ahead. Your line is now open.
Thank you. I guess question for you, Paul, on The potential for hybrids or even just ultra books in the second half of 'thirteen and being a point out of this, earnings. I think we're starting to see a bifurcation where we're selling these small tablets and they seem to be selling well. And actually the 10 inches tablet maybe not earnings. Selling as well as one would have expected.
And then what are your thoughts on how opening up opportunity for the laptop, the Ultrabook, the hybrid to make a bit of a comeback? Earnings.
Yes, I think coming out of CES, the trends are pretty clear earnings. Certainly in Asia in terms of the buying patterns. Phones are getting bigger and you saw the quote, phablet, which is a phone tablet sort of form factor emerge, which are 6 even 7 inch phones. And then, of course, the shift of tablets earnings. And I think that's probably what you're going to see is that the market will bifurcate between sort of the 5 to 7 inch type of products and the 10 plus inch type of products.
And the 10 plus inch type of products, particularly as you get to 12, 13 inches earnings. Are going to be more classic PC level of performance and now enabled by these convertible detachable form factors earnings. That only gets thinner as Haswell and Broadwell come on.
Yes, interesting. All right. And maybe as a follow-up, Stacy, just trying to think through earnings. The cash balance that Intel is comfortable working with because it is a lot of spending coming up in a year where it's kind of anemic revenue growth. What's the level of cash which you feel comfortable?
And is there any need I know you raised that recently. Any need you think to have to do that again at some point during the course of the year?
Earnings. Not need, but we would certainly look opportunistically like we have been, earnings. And we certainly have capacity if we ever wanted to, but I think it's instructive to just look at where we are. If you just take Q4, which we would say was a Earnings. Relatively tough quarter at the top line, macroeconomic weakness, the impact of tablets on our business.
We generated $6,000,000,000 of cash flow from operations. Earnings. We had $2,500,000,000 of CapEx. We paid a little over $1,000,000,000 in dividends. So we're generating plenty of cash rush to invest in our business and to pay the dividend and protect the dividend.
So I'm not worried about it earnings. From that standpoint and as I model out 2013, I get to a similar model where I'm generating more cash than I need for those two things. Earnings. In terms of the cash balance that I'm comfortable with, I'm comfortable with how much cash we have today. I could live with a little bit earn.
Less also and we make those decisions tactically as we go forward.
Okay, thanks.
Thanks, Glenn.
Thank you, sir. Next question in queue comes from the line of Greg Reeder with FBR Capital Markets. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my call. I wonder if you could update us on your acquisition of Infineon Neon wireless, it's been almost a couple of years and specifically where you are with 4 gs LTE, where you are with an integrated baseband plus ADAM part, and When we can expect to see more progress in handsets? Thanks.
Sure. Well, Infineon is doing well. They are Earnings. Well on their way to an LTE solution. I talked about that in my commentary.
But to reiterate, what I said was that we're shipping earnings. The data mode now, the dual data mode and the voice mode shipping later this year. Earnings. First LTE phones, I would expect launched early next year principally around MWC14. Earnings.
We believe we have a very competitive solution. The Infineon team is known for earnings. Not necessarily being first to market, but being really good at engineering a very solid solution and being cost Effective and cost competitive, and I think that they're
doing a very good job
on the specs of this product. In terms of integrated solutions, you'll see
earnings. Craig, if I could just add to that, too, Paul talked about our road map side. The thing I'm struck by in this space earnings. .:] is how hungry it is that the customers are to work with us in this space. So, yes, I think it's a nice combination of we've earnings.
Got a good rollout of products across the year, and it looks like people are really lining up to have us as one of their key partners.
Just following up
earnings call. On this topic
of conversation, any plans to do anything more interesting strategically in terms of Putting them in PCs or any plans to develop Bluetooth, Wi Fi, GPS, NFC to integrate down the road? And earnings. Lastly, do you expect growth from Infineon in 2013? Thank you so much.
Well, on the middle one, all of the above. Earnings. We have many of those technologies in house now and we are doing levels of integration that makes sense at the right time. In terms of PCs, the problem has not been technical. Earnings.
The problem has been price, and most PC manufacturers would prefer for IP RFP and royalty basis base reasons to not build that into their PCs and to have it be either an add in chip
earnings growth. Thank you.
Yes, sorry, Greg. Yes, sorry, we forgot the last part. Yes, I would expect that as earnings. The LTE solutions are ramping in the marketplace. We'll start to see growth.
So I don't think it's going to be much in 'thirteen and then it kind of goes from there.
Thank you so much.
Thanks, Craig. Earnings.
Thank you, sir. Our next question comes from Mark Lipogas with Jefferies. Please go ahead. Your line is open. Thanks for taking my question.
Earnings. The question I have is on your if you could share with us your view on price elasticity in the client PC market earnings in either an aggregate or on the notebook side. And I guess what I'm wondering is for the better part of last earnings. The model seemed to be you drop your prices something on the order of like 5%, 6% a year. Earnings.
You get you drive like and then that drove 10% to 12% unit growth and you got mid single digit revenue growth. And then in 2010 2011, you crushed
earnings.
J. Rice:] 'eighteen is low single
digit growth and I'm wondering if you think there's elasticity in the market and if you expect to drive your ASPs down in order to drive that Earnings. Thank you.
I don't think there's classic Mark, thank you. I don't think there's classic elasticity in the there isn't much elasticity in the classic Form Factors. What we saw actually if you wind the tape back earlier than your comments, What we saw was a similar kind of price elasticity in the desktop in the '80s '90s. When PCs broke $1,000 Earnings. Volume went dramatically up and then the desktop PC continued to drop down until it stabilized at sort of the price points where minimum margin was available earnings for all the players.
And the cheapest desktop was a $2.99 sort of model or something like that. Earnings. Notebooks went the same way. First notebooks were $3,000 Now notebooks are $2.99 to $12.99 in terms of the sweet spot. And I think earnings.
People will buy based upon their need within those price points, but it's very difficult for me to see them going earnings from $2.99 to $99 The bill of materials just doesn't support it. What we're likely to see and what we saw in the 4th quarter, Earnings. In fact, in the Windows 8 touch enabled models was the people were willing to spend a little bit more to get a more capable product. Earnings. And that's certainly been true in the Apple model for many, many years and I think that there is a model of getting paid for innovation.
Intel's Core product line has always shown that. Now you're starting to see it I think in the system level price points as well.
Earnings. Thank you. For a follow-up if I may, EUV, do you guys have a view on when you can expect to start equity that into the factories. Thanks.
Yes. Again, this is like the immersion question, it's one that earnings. We keep those things pretty close to our vest, so it's not what I'm prepared to talk about.
Fair enough. Thank you.
Thanks, Mark.
Thank you, earnings, sir. Our next question comes from Ramesh Chau with Nomura. Please go ahead. Your line is open.
Yes. Thanks a lot. Stacy, take earnings. The 10 year median for revenue growth starting in Q2, I only get to flat revenue growth for 2013. Earnings.
So it looks like you're expecting a better than seasonal quarter. Could you talk a little bit about just how the year may play out in terms of trajectory? Earnings.
Yes. I don't think you mean better than seasonal quarter for Q1. I think you mean a better than a back half to stronger earnings. That normal seasonality, is
that what
you mean? Right. Yes, yes. And that's consistent with our view. Earnings.
And 1st and foremost, it comes down to if you look at consensus GDP estimates, the consensus today is that there's a pretty significant Strengthening in the worldwide economy over the course of the back half of this year. Over that same 10 years, the first correlation of our business is GDP growth. Earnings. And then beyond that, it's the kinds of things that Paul has been talking about. You have Haswell coming into the marketplace, Windows 8 gaining traction, Touch earnings.
Gaming traction. So you have these great devices that are coming in that are convertibles and kind of the best of the PC and the tablet experience. And then Earnings. We become more and more represented across both the Windows tablet section of the market and Android over the course of 2013. Earnings.
The combination of that puts us into a situation where we believe we have kind of more than seasonal second half.
I'm a little confused on how to think about earnings. Q2, it seems like seasonality is changing. The 10 year median is down 1%, but I've noticed just over the last couple of years, Earnings. Q2 has been actually up anywhere from 1% to 5%. How do you guys look at it?
We'll talk about Q2 in 90 days. Earnings. Thanks, Roman. Thank you, sir. Earnings.
We're going to go ahead and take 2 more questions if you would please.
Yes, sir. Our next question comes from the line of John Pitzer with Credit Suisse. Please go ahead. Your line is open.
Earnings. Yes, good afternoon guys. Thanks for letting me ask the question. Paul, in 2011, the emerging market was perhaps a better cushion than investors thought earnings call. For the core PC business in 2012, it was kind of maybe a bigger headwind than people thought coming into the year.
Kind of curious when you look
at the 2013 guide, earnings. How are you thinking about emerging market? Was 12 all just about decelerating GDP? Or do you think there was some interplay of some white box tablets starting earnings. To cannibalize within that region as well.
I think that in particular in China, the market dynamics are not much different earnings. At least in the Tier 1, Tier 1, Tier 3 cities different than the U. S. So yes, there's clearly some tablet sales that impacted earnings. Low end or first time buyer PCs in China.
But I think the bigger issue is was in China and in Brazil last year, which are the 2 largest emerging market countries, earnings. Was there overall economic health? Remember Brazil started seeing inflation that slowed down PC sales. China went earnings. The growth dropped and they had a regime change.
And we saw people stalling around what the policies would be post regime change and so forth. Earnings. And now as we look into 2013, as Stacy said, China is still outgrowing earnings. Any other large economy in the world, and I think we'll be a driver for PC sales. We've been earnings.
Pleasantly surprised by the data center growth in China. They're deploying fairly large earnings. Amounts of servers for infrastructure build out and that's helped our overall revenue picture in that country. Earnings. Thanks, Paul.
That's helpful. And as a follow-up, Stacy, on the OpEx side, Other IA in the quarter is now annualizing on almost a 12. $2,000,000,000 operating loss. As you think about kind of the OpEx, is this now the right run rate for all the new initiatives and earnings. How do we think about that other IA category maybe marching towards a breakeven number as tablets, phones become a bigger part of the revenue stream?
Earnings.
Yes. We're not increasing we're not making incremental investments in 2013. And so if If you look at 'thirteen, we expect employment to be pretty flat. So I think that the answer to your question is, yes, we think we're investing at the right level. Earnings.
We do have an increase in OpEx as we go from 12% to 13% and that's just the full year impact of the R and D investments that we earnings. Talked about in 2012 and that's investments that are really being driven by Ultrabooks and tablets and phones and our SoC capability as well as our process technology Earnings. And it's interesting. I think that it's when you look at our performance in the business, Earnings. We've got some great products in the market.
I think 2013 will be a year where we're fighting and hopefully winning some big designs. Earnings. I think you'll see many of those designs coming to the market in the tablet space, as we've talked about, in the phone space. The volume will grow over time, and we expect
earnings. J.
Rice:] Great. Thanks, guys.
J.
Rice:] Sure.
Earnings. Thank you. And our final question will come from the line of Sean Lessner with Macquarie. Please go ahead. Your line is open.
Great. Thanks for Squeezing me in, guys. First question on gross margins. They were a little bit it looks like they were a little bit better. I was wondering if you could share with us you said your utilization rates earnings.
I think 50% in Q4. I was wondering if you could share this, where they landed and what you expect the trajectory to be in Q1 and maybe even beyond if you can. Earnings.
Sure. Yes, we came in at a gross margin level a little bit earnings call. Better than expected in the Q4. And it played out from a utilization standpoint pretty much as we expected. Earnings.
We brought the loadings down to the factories significantly. It was below 50%. We redirected Earnings Equipment intercepts some of the leading edge process technology, and we managed to bring inventory levels down on the order of $600,000,000 which was all consistent with what we said. Earnings. As we go into Q1, the forecast for gross margin is roughly flat.
What you're seeing there in terms of excess capacity is we'll continue to see an improvement in excess capacity. And we're going to start to see the increase in start up costs and those rough order, those two things offset. Earnings. And there's a couple of other puts and takes, but it ends up with a flat gross margin. As I think through then the shape for the year, which was the last part of your question, Earnings.
When I get to Q2, I think what happens is we see the further reduction in the excess earnings. Capacity charges, in fact, they'll be pretty much gone in Q2. But Q2 is where we will peak in terms of the start up costs. And I think that the start up cost impact is a little bit more than the reduction in the excess capacity. So I'd expect gross margin in Q2, earnings.
Everything else being equal to be kind of flat to down. And then we put 60% out for the year. So you should think about the second half expectations of gross margin earnings. Back into the low 60s. And when I think about the drivers of that, it's the reduction in start up costs because we peak in Q2 and they start to come down.
Earnings. It's increases in volume, which would be consistent with the seasonal second half and then our costs come down over the course of the back Half of this year and those are the 3 tailwinds that I project get me back up above 60%.
Okay, great. Thanks. And if I might, I have a Question on
some of the other I
mean, if you we load in the low single digit revenue growth you have for this year and we throw in the double digit data center and we throw in a single digit growth in PC client, that means the rest of your business must be falling something like 8% year over year for calendar 'thirteen. And some of these segments like the earnings. Other IA group includes some of your growth areas like you've been talking about in tablets and smartphones. Can you share with us your build plan not your build plan, but earnings. Your plan for the year or how you're thinking about some of these other groups over the course of the year?
Yes. First,
earnings. I don't get
to the same math and so we'll just start there. We talked about both the PCCG group and we've talked about the data center group, but earnings. When we kind of run through the rest of the businesses, earnings. We would expect to start to see some progress in tablets over the course of the year. I think earnings.
We'll be winning designs, but it's not going to move the needle from a revenue standpoint. We talked about iMC earnings. In terms of I think that growth returns to that business as LTE ramps, which is really come out in time or the end of this year and Earnings. Into next year, we expect embedded, we'll see some growth. It's been a nice growth engine for us and we think NAND grows.
Earnings. I think I hit them all there. I don't think I missed anything. Great. Thanks, Sean.
Earnings. All right. Thank you, Huey, and thank you all for joining us today.
Huey, please go ahead
and wrap up our call.
Yes, sir. Ladies and gentlemen, this does conclude today's conference. Earnings. Thank you for your participation and have a wonderful day. Attendees you may disconnect at this time.