RESEARCH TRIANGLE PARK – Earnings conference calls typically are full of “thanks for taking my question” and execs responding that they are so glad to hear from an analyst or two and praising the questions asked. But sometimes the calls are candid, such as the following exchange between Stacy Rasgon of Bernstein Research and Intel CEO Bob Swan and CFO George Davis.
Here’s the exchange, according to a transcript from business news site SeekingAlpha:
Rasgon: I want to ask about the acceleration in 10-nanometer [semiconductors[. Is this really because yields are getting better and there is higher demand, or because you’re trying to offset the 7-nanometer delay? Because it’s hitting the margins big time, which doesn’t really tie in my head to like yields getting hugely better versus where you thought they were going to be in January. So, how do we think about the drivers of that 7-nanometer acceleration in light of the 7 — or 10-nanometer acceleration in light of the 7-nanometer delay, given what’s going on with margins?
Davis: Hey Stacy …Maybe I’ll just cover it in general on the margin picture for the year. So, this clearly — it’s having an impact there. The acceleration is really definitionally tied to the fact that we’re growing faster than we expected in 2020 and where part of that growth is a higher mix on the PC side and I would say on the comms and 5G ASIC side, higher demand for products that are on 10-nanometer than we have forecast for the year. So, that’s why you’re seeing a little less flow-through on revenue than we would have expected for the year. It’s a positive growth story in that. Again, we’re seeing customers attracted to the 10-nanometer product.
Rasgon: Wait a minute. If I look at your annual guidance now versus [Technical Difficulty] higher, but it’s actually lower in the second half versus what you had implied when you first gave the annual guidance six months ago. How does that imply that demand is higher versus where you were, given you’ve actually lowered the second half?
Davis: It’s the demand for 10-nanometer products within the mix of our overall revenue space.
Swan: Well, I think I’ll start with our full year demand relative to where we were at the beginning of the year is our guidance is up by $1.5 billion in revenue.
Rasgon: Yes. But you just…
Swan: Let me just finish this. I think it’s a good question that maybe if you could give me a chance to answer it. So, full year demand to the Company is higher. Secondly, the yields for 10-nanometer, we’ve kind of said are in line with what we expected coming into the year through the first six months. And we feel pretty good about where we are on yields. Third, the overall demand for our products on PC side and for the 5G SoC in the comms sector is higher than we expected. That is part of the contribution to the $1.5 billion of higher revenue for the year. And as we accelerate 10 faster, both because customers are demanding it more, the implications are that our margins all else equal, will be lower. …”