Intel Corporation Q2 2008 Earnings Conference Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: John Pitzer - Credit Suisse - Analyst : Thank you, good afternoon, guys. Just quickly on gross margins for the June quarter being below midpoint, pointing to the low end notebook market. Was that all Atom driven, or were you still selling some Celeron to that market? If it was all Atom how do we get comfortable about gross margin progression in September as Atom ramps and becomes a bigger percentage of the overall mix?

Question: John Pitzer - Credit Suisse - Analyst : Just real quick, guys. Just given the buybacks the first half of the year, what can we expect in the back half? You guys are going at a pretty significant clip relative to what did you in 2006 and 2007? What's kind of the philosophy there?

Question: John Pitzer - Credit Suisse - Analyst : Thanks, guys.

Question: Tim Luke - Lehman Brothers - Analyst : Thanks so much. Stacy, just in guiding a fairly solid revenue outlook in the 10 to 10.6, could you give us some framework for how you perceive the desktop area to be proceeding? Again, it sounds like you are expecting a fairly robust notebook and perhaps some lower end notebook forecast. Could you give us some color on desktop notebook server?

Question: Tim Luke - Lehman Brothers - Analyst : Just as a follow-up, obviously you're holding the gross margin for the full year guidance and guiding it up fairly meaningfully in the third quarter to the 58% range. Could you just provide a little bit more color on what gets you there, given the strength you are seeing in the lower end notebook segment and the mix there? Thanks.

Question: Tim Luke - Lehman Brothers - Analyst : Thank you.

Question: Glen Yeung - Citi - Analyst : Thanks. A question about the outlook for revenues. It's good in Q2. You're guiding strongly in Q3. To what extent is your confidence being helped by share gain and/or the Montevina launch? Does that give you some confidence in how you look at Q3?

Question: Glen Yeung - Citi - Analyst : Okay. Thanks.

Question: Glen Yeung - Citi - Analyst : Yes, I guess maybe just going on from that, that response, you talked about the low end of notebook market short of taking some mix in Q2. But now you've got Montevina coming forward for you in Q3. Does that sort of stem the shift towards low end or do you think it's really more a function of emerging markets versus Western markets?

Question: Ross Seymore - Deutsche Bank - Analyst : Hi, guys. Excuse me. I have a bit of a cold here. You talked about the pricing on the notebook side of the market. Can you tell a little bit about what's going on in pricing in desktops and servers, please?

Question: Ross Seymore - Deutsche Bank - Analyst : Just really quick on the ESO line, it seems like year-over-year your headcount is down a lot but the stock comp expense keeps going up. Can you give us a little bit of the background as to why that would happen and what your expectations are for that line going forward?

Question: James Covello - Goldman Sachs - Analyst : Good afternoon, guys. Thanks so much. First question, Paul, last quarter you gave us a little bit of color around the NAND business and your thoughts about fixing it one way or the other. I wonder if you can update us on where we are there.

Question: James Covello - Goldman Sachs - Analyst : Yes, if I could just follow up. On the Dreamworks win, could you just help us understand, in the competitive situation there, was that your products versus AMD's old products, before they introduced, say, the new Barcelona chip or was that decision made before AMD was able to ramp the new chip?

Question: James Covello - Goldman Sachs - Analyst : Terrific. Thank you so much.

Question: Sumit Dhanda - Banc of America Securities - Analyst : Yes, hi. First question for Stacy. Stacy, you noted that part of the, call it the small miss on gross margins was because of 1 point incremental drag from lower ASPs. Was that incremental to your expectations, because my recollection is, a couple of one-timers were disappearing, your inventory reserves in chip sets, NOR Flash was obviously contributing to better margins and you did have a better unit cost structure into the quarter so I was just curious about that?

Question: Sumit Dhanda - Banc of America Securities - Analyst : I just had one separate follow-up. On Atom there's been talk about constraints with respect to supplying the existing demand. Could you update us on what your sense is versus market expectations on your supply and is that constraining your outlook for Q3 in any way, shape or form?

Question: David Wong - Wachovia - Analyst : Thank you very much. Following up from the earlier question, as the Atom ramps in volume over the next two quarters, presumably primarily for notebooks, is the Atom neutral, below -- is the Atom gross margin, below, above or roughly equal to overall corporate gross margin?

Question: David Wong - Wachovia - Analyst : Great. Yes, one other thing. Did MP server processors and specifically Tigerton processor shipments grow sequentially in June? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: David Wong - Wachovia - Analyst : Great. Thanks.

Question: Uche Orji - UBS - Analyst : Paul, just a quick question on Atom. What is the relative gross margin of Atom versus Celeron? As we ramp this product in second half, do you see this possibly replacing the low end Celeron products in notebooks and if so what will the impact be on the net gross margins?

Question: Uche Orji - UBS - Analyst : Yes, I do, actually. Let me just circle back a little bit to Montevina. We saw a slight pushout. Obviously that doesn't -- shouldn't have impacted this quarter but is it possible, however, that in terms of the back-to-school field that we may have missed -- you may have missed some business as a consequence from and is that something you hope to recapture in Q3, hence the gross margin that impact that we see remaining strong? I just wanted to first of all understand -- fully understand what ever happened with that pushout. I understand it was something to do with the radio. If it's possible to clarify that, that would be helpful. Thanks.

Question: Uche Orji - UBS - Analyst : Thank you very much.

Question: Chris Daniels - JPMorgan - Analyst : Thanks, guys. I guess just a question out of curiosity on the ASP trends in laptops, so it seems that the emerging markets is what's drove the downward trend in ASPs. Seems to me the emerging markets have always been the big drivers there. So I guess I'm wondering why now would it cause this sudden downward trend in ASPs and why wouldn't that continue?

Question: Chris Daniels - JPMorgan - Analyst : Why wouldn't that continue or why wouldn't you continue to have ASP pressure going forward?

Question: Chris Daniels - JPMorgan - Analyst : Okay. Thanks. I guess for my follow-up, Paul, could you just give us your sense on demand out there. We all read the papers and stuff like that. It seems like we all understand what's going on in the U.S. What are you seeing in particular out there in China as far as demand goes?

Question: Hans Mosesmann - Raymond James - Analyst : Paul, can you explain what the direction is going forward in terms of chip sets put by third parties? Historically there used to be various players like VIA and ATI and even NVIDIA. Now that some of those guys can't do that for lots of reasons, what is the strategy going forward? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Hans Mosesmann - Raymond James - Analyst : Yes, can you remind us in terms of tick tock hit that you get in terms of gross margins when you ramp early next year, the 32-nanometer node in terms of -- what's the usual, kind of the gross margin hit in terms of points that you would expect because of that?

Question: Hans Mosesmann - Raymond James - Analyst : A couple of points basically in the first half of next year?

Question: Hans Mosesmann - Raymond James - Analyst : But front end loaded?

Question: John Barton - Cowen - Analyst : Thank you very much. Paul, you talked about better than expected strength on the Atom Processor. When I think about sources of demand I put it in basically three buckets. Incremental first time buyers with lower price points, increased number of notebook PCs per person and thirdly potential substitution. I think you already touched on the fact that you don't believe any substitution is happening. The demand in those first two buckets, how would you split that out?

Question: John Barton - Cowen - Analyst : I do. If you thing about the basic metrics of semiconductors, you've got the price lever, the computing, performance lever and then the power consumption lever. I think what I just heard you say is a major catalyst for adoption of Atom is certainly the price at a reduced computing performance. How much is the computing performance, limited adoption and--?

Question: John Barton - Cowen - Analyst : Thank you.

Question: Cody Acree - Stifel Nicolaus - Analyst : Thanks, guys for taking the questions and congratulations. Back on the Atom acceptance, obviously coming in very strong. Can you talk maybe Stacy about the offsets of Atom's adoption, the curve of that pricing versus what you're seeing in the upside to 45-nanometer cost cuts?

Question: Cody Acree - Stifel Nicolaus - Analyst : So, you're getting improvement to gross margins because of cost reductions coming down, 45-nanometer ramp, Atom coming up, it's got a lesser gross margin mix impact so how do those two offset each other maybe as we look into the next few quarters?

Question: Cody Acree - Stifel Nicolaus - Analyst : So even with the Atom adoption, even with the overall cost reductions coming -- priced -- ASPs coming down, you're still well outrunning those? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Cody Acree - Stifel Nicolaus - Analyst : And then lastly, can you -- I know that you said you would start to characterize it as Atom starts to become more meaningful, just getting into a ramp, Atom is getting a lot of attention here and will likely continue. Can you characterize even weeks ahead, months ahead of where you thought you would be percentage ahead of where you thought you would be or when you thought we might be able to get a little more data?

Question: Cody Acree - Stifel Nicolaus - Analyst : Versus maybe your expectations going into the quarter?

Question: Cody Acree - Stifel Nicolaus - Analyst : Thanks, guys.

Question: John Lau - Jefferies & Company - Analyst : Great. Thanks. Paul, in taking a step back, your guidance was very strong, especially in light of the uncertainty out there. Can you give us what the normal seasonality is? And more importantly whether that guidance is based on the feedback that you get. How comfortable are you with the visibility this year versus the prior years, given the uncertainty? Thank you.

Question: John Lau - Jefferies & Company - Analyst : Yes, and I know that there has been a lot of questions on some of the products but can you give us a quick schedule if Larrabee, is that still on track with your expectations and the same thing at the end of this year? Is that how that's working out?

Question: John Lau - Jefferies & Company - Analyst : Thank you.

Question: Srini Pajjuri - Merrill Lynch - Analyst : Thank you. Stacy, a couple of clarifications on the gross margin, first on the NAND side, what kind of an impact is NAND having on your gross margins now? If you were to exit NAND today, how would that impact your gross margin?

Question: Srini Pajjuri - Merrill Lynch - Analyst : By how much is my question.

Question: Srini Pajjuri - Merrill Lynch - Analyst : And then my follow-up is I guess pretty much all of last year and earlier this year you saw a pretty good benefit from mix shift to notebooks and now it seems like the notebook CPU pricing is close or even below the pricing of the desktop CPUs. My question is are the margins still better in notebooks for you, compared to your desktop segment?

Question: Michael McConnell - Pacific Crest Securities - Analyst : If we look at the gross margin guidance for the year, 57% and the implied margins of 58% and then 60% in Q4, how much is built in or in those forecasts that corporate adoption of Montevina will be healthy and kind of the same level that we see with Santa Rosa?

Question: Michael McConnell - Pacific Crest Securities - Analyst : Let me ask this one another way Stacy, so your mix on notebooks is similar to what you saw in Q2, can you still get to 57% for the year?

Question: Michael McConnell - Pacific Crest Securities - Analyst : Okay. And then Paul, one last comment, just on the healthy chip set strength you saw in Q2. Any comments on what you're seeing in Q3?

Question: Michael McConnell - Pacific Crest Securities - Analyst : Thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Brian Piccioni - BMO Capital Markets - Analyst : Thank you for taking my question. Obviously Atom has been a lot of the questions of this call. We mostly focused on the net book market for Atom. Sort of curious, what do you expect the embedded market to be relative to net book sales? And as a follow-on, wondering if you have to make any ASP compromises for embedded applications?

Question: Brian Piccioni - BMO Capital Markets - Analyst : Super. . Thank

Question: Brian Piccioni - BMO Capital Markets - Analyst : Yes. Thank you.