英特爾 (INTC) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the Intel Corporation's fourth-quarter 2012 earnings conference call.

At this time, all participants are in the listen-only mode.

Later we'll conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference may be recorded.

It's now my pleasure to turn the floor over to Mark Henninger with Investor Relations.

Please go ahead.

Thank you, Julian, and welcome, everyone, to Intel's fourth-quarter 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 are currently available on our investor website, INTC.com.

I'm joined today by Paul Otellini, 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&A.

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, 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.

If during the call we use any non-GAAP financial measures or references, we'll post the appropriate GAAP financial reconciliation to our website, INTC.com.

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.

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, let me turn the call over to Paul.

Thanks, Mark, and good afternoon.

In 2012, Intel generated almost $1 billion of net income every month.

This was in an environment of relatively soft PC demand and weak macroeconomic conditions.

From a product perspective, 2012 was a year of significant transitions in our markets, and a year of important milestones for Intel.

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.

Romley brought the Sandy Bridge architecture to servers for the first time, while the launches of Knights Corner and Centrogen in the fourth quarter expanded the range of DCG solutions from teraflops to a few watts.

Knights Corner, or Xeon Phi, brings 60 cores and the familiar Intel architecture programming model to super computing applications.

At six watts, Centrogen is the industry's only low power microserver SOC that delivers critical enterprise features like 64 bit, ECC, and virtualization.

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 140.

At CES last week I was struck by our industry's renewed inventiveness.

PC manufacturers are embracing innovation, 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.

It's no longer necessary to choose between a PC and a tablet.

Convertibles and detachables, combined with Windows 8 and Touch, provide a two-for-one, no-compromise computing experience.

Ultrabooks have also served to accelerate the trend towards thinner and lighter notebooks.

For example, the volume of systems less than one inch thin grew 18-fold last year in the US, and we expect to see the same trend continue around the world.

Last quarter, our customers also began shipping tablets based upon our Clover Trail SOC and Windows 8. These systems boast up to 10 hours of battery life, three weeks of connected standby, and come in a range of sleek, ultra light form factors, all while bringing the benefits of software compatibility with the millions of Windows applications written for Intel architecture.

There are now 10 Clover Trail tablets shipping today, with several more launching in the coming months.

2012 was a milestone year for Intel architecture in smartphones, with our customers now shipping seven devices across 20 countries.

These phones use our 32-nanometer Medfield SOC, and are extremely competitive with the best ARM designs on performance, 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 3D transistor technology.

22-nanometer products represented more than 50% of our volume in the fourth quarter, as the rest of the industry works to ship its very first Tri-gate designs.

In July, we announced an important strategic relationship with ASML, which, combined with our process technology expertise, will 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, 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, enabling one of the most significant changes to the PC since Centrino in 2003.

Haswell was designed from the ground up 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 base 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 3D transistor technology to our entire data center product line.

In 2013, we'll also begin to deliver the industry's first 22-nanometer tablet and smartphone SOCs to OEMs.

We are now shipping our single mode data LTE baseband to customers, and over the course of the year we'll begin delivering multi-mode data and voice modems to customers, giving us a full complement of competitive technologies to grow our device business.

Last, but not least, we will begin our transition to 14 nanometers, as we begin the world's first 14-nanometer products towards the end of this year.

We see the industry in a period of transition and hyper-innovation.

We are well positioned to take advantage of these trends across the spectrum of computing, from the lowest power portable devices to the most powerful data center servers, and everywhere in between.

With that, let me turn the meeting over to Stacy.

Thanks, Paul.

The fourth quarter came in consistent with our expectations.

For 2012, although our financial results were below our expectations entering the year, we launched leadership products in every major business segment, and we extended our manufacturing leadership.

In 2012, revenue was $53.3 billion, gross margin was 62%, operating income was $14.6 billion, net income was $11 billion, and earnings per share was $2.13.

For the year, the business continued to generate significant cash, with almost $19 billion of cash from operations.

We increased the dividend per share by 7%, resulting in over $4 billion in dividends paid, and repurchased roughly $5 billion of stock.

We continue to invest in our manufacturing leadership.

We purchased $11 billion in capital assets, primarily building and equipping leading edge factories, and made a $3 billion strategic equity investment in ASML.

Lastly, we took advantage of record low interest rates and borrowed $6 billion.

Total cash investments ended the year at roughly $18 billion, up approximately $3 billion from a year ago.

Revenue of $53.3 billion was down 1% from a year ago, and below the expectations we had at the start of the year.

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.

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 and significant growth in the Internet Cloud segment of our business was partially offset by weakness in the enterprise server market.

Gross margin of 62% in 2012 was flat to 2011, at the high end of our historical range for the third year in a row.

Our investments in industry-leading manufacturing process technology continued to pay off through leadership products and a highly responsive factory network.

We invested over $10 billion in research and development in 2012, up almost $2 billion from a year ago.

The increase was driven by investments in ultrabooks, the data center, phones, and tablets.

In addition, we made investments in core capabilities like security, SOCs, and extending our process technology leadership.

Spending as a percent of revenue was 34%.

Fourth-quarter revenue finished at $13.5 billion, in line with our expectations.

We believe the worldwide PC supply chain saw a continued reduction in inventory levels in the fourth quarter, as customers reduced inventory of older generation PCs.

Gross margin of 58% was up 1 point from expectations, and down 5 points from the third quarter.

The drop from the third quarter was driven primarily by excess capacity charges as a result of the aggressive tactical actions we took to reduce inventory levels, and to redirect space and equipment to 14-nanometer.

Our inventories decreased almost $600 million from the third quarter as a result of these actions.

Separately, we started production on our next generation micro architecture product, code named Haswell, which we expect to qualify for sale this quarter.

This production prior to qualification for sale resulted in an increase in inventory write-offs.

Operating income for the fourth quarter was $3.2 billion, with earnings per share of $0.48.

As we look forward to the first quarter of 2013, we are forecasting the midpoint of the revenue range at $12.7 billion, down 6% from the fourth quarter.

This forecast is in line with the average seasonal decline for the first quarter.

We are forecasting the midpoint of the gross margin range for the first quarter to be flat at 58%, as the impact of higher factory start up costs and lower volumes are offset by lower excess capacity charges and the qualification for sale of Haswell.

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%.

Capital spending for our core business is expected to be roughly flat to 2012.

Additionally, we will spend roughly $2 billion to start building our first 450-millimeter development facility.

We are forecasting spending for the year at $18.9 billion, a $700 million increase from 2012.

This is the full-year impact of the increase to investments in R&D that occurred in 2012, and annual salary increases for 2013.

As a result of the significant progress we made in 2012 across all of our product lines, I enter 2013 optimistic about our long-term prospects.

A year ago we were just introducing the concepts of ultrabooks to the world.

Today, the market has been redefined with thin, light, powerful ultrabooks and convertibles.

A year ago, Intel was not shipping products into the tablet market.

Today we have Clover Trail tablets shipping in the market, delivering performance and power benefits versus what our competitors can do.

And in 2013 we will ramp our next generation tablet SOC, code named Bay Trail, in both the Windows and Android Markets.

Intel is now inside seven shipping smartphone designs, and here again the third-party benchmarks show 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, 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.

The combination of new products and design wins across all segments, and our manufacturing leadership, will benefit our business in the quarters to come.

With that, let me turn it back over to Mark.

All right.

Thank you, Paul and Stacy.

We'll now move on to Q&A, and as is our normal practice, we ask each participant to ask one question and just one follow-up, if you have one.

Can we please go ahead and introduce our first questioner?

Yes, sir, Our first question comes from the line of Ross Seymore with Deutsche Bank.

Please go ahead.

This is 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 are outgrowing revenues.

I guess if I partner that together with where the stock's trading valuation-wise, it really looks like investors are dubious as to when any returns come from those investments.

So I guess the question after that is, when do you see the return on these investments coming?

How long do you think this investment stage lasts?

And what are some of the mile markers we should look for to see those returns being generated?

Well, there's two parts to the CapEx this year, I mean, two large parts to the CapEx this year, Ross.

One is, you're starting to see our first significant investments in bricks and mortar and some equipment for the 450-millimeter transition, which happens latter part of this decade.

We have to make those investments earlier.

Those are, now that we've solidified our contractual relationship with ASML, it gives us line-of-sight to that conversion, and therefore are 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 event that's not related to the day-to-day business in terms of volume in '14, '15, '16.

The CapEx that we are projecting on a base level, then, in $13 billion minus the $2 billion is $11 billion, which is about what we spent last year, and as I look forward into the business in '14 and '15 as we finish up the 14-nanometer factories and begin deployment of the construction and equipping of the 10-nanometer factories, we need those factories, principally for our view of the computing market, and in that I would include tablets, and certainly the data center.

So as we look at it, it gets used.

Remember the leading edge capacity is the lowest cost for us on a per unit basis.

The highest performance and the lowest power.

So regardless of what you think the size of the market is, those leading edge fabs are the single greatest asset that we have.

I guess as my one follow-up, just playing off 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 and smartphones?

Yes.

When I'm talking about that, I was specifically including the enterprise business, data center business, 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 to distinguish between a detachable clamshell notebook and a tablet.

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 in PC space over the last few years.

I kept phones separately out of that discussion because I think the relative volume in phones in terms of this deployment of CapEx is still relatively small.

Great.

Thank you.

Thank you, sir.

Our next question comes from the line of C.J. Muse with Barclays.

Please go ahead.

Your line is now open.

Yes, good afternoon.

Thank you for taking my question.

I guess as a follow-up to Ross' question on CapEx.

If we exclude that $2 billion on 450 and we look at the core spending, can you talk about the spending on bricks and mortar last year and anticipated this year as a percentage, and also how we should think about equipment spend as part of that?

Sure.

Hi, C.J., this is Stacy.

I'll take that.

Yes, let me break out that capacity-related CapEx 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, 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 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 for facilities versus what's for equipment, as I had showed at the Investor Meeting back in May, we're seeing that the facility-related spending is coming back in a higher -- is coming down and the higher proportion of that CapEx is for equipment.

And just as part of that, are you capitalizing investment in ASML or the R&D investment in ASML?

No.

No, that's not a capital expense.

It was an investment expense.

Okay, great.

And I guess as my follow-up, in terms of the guidance for low single digit top line growth in '13, can you walk through the underlying assumptions, particularly as it relates to your outlook for PCs and the DCG Group?

Yes.

We said on the, or 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 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 out.

And then for the kind of core PC market, the traditional PC market, we have pretty modest expectations around units, 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 participation across the tablet market.

Very helpful, thank you.

Sure.

Thank you, sir.

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 billion for future 450-millimeter production, is this an ongoing expense?

Will you need to put in a similar amount next year?

Yes.

So as Paul said, what changed over the course of 2013 is the industry consortium around 450 triangulated on first equipment to be available in 2015, which is why people are starting to talk about pilot lines in that time frame, and frankly a lot of that was enabled by our investment in 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, 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 expect 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, the production-related capital spending into the back half of this decade.

Great, thanks.

And the beginning of the 10-nanometer spending that you'll be doing with this year, does that assume immersion lithography or EUV?

I think I'll save that disclosure for our technologists.

We tend to be pretty close to the vest with those kinds of things for obvious reasons, David.

Great.

Thanks very much.

Thank you, sir.

Our next question comes from Vivek Arya with Bank of America, Merrill Lynch.

Please go ahead.

Your line is now open.

Thanks for taking my question.

Paul, there are some reports about Intel potentially manufacturing some ASICs for Cisco.

My question is not about Cisco per se, but it's really a broader question, is that is Intel fundamentally set up 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?

Well, my view on this, Vivek, hasn't changed since the Analyst Meeting, Investor Meeting in May.

So I can reiterate that for you.

We are very interested in being a selective foundry manufacturer for certain customers.

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 take business that would enable a competitor.

We would certainly consider business that would enable and strengthen relationships with strategic partners.

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 that makes perfect sense, and those kinds of companies need leading edge technology.

So that's the pattern for which we would do this.

So yes, we are in a position to be able to handle those kinds of customers.

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 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, I mean it's pretty simple.

To the extent we engage with these foundry customers, we want to make money at it.

We want to get paid in terms of margin, and we want to get a return on our invested capital that's commensurate with our technology leadership.

Got it.

Thank you, and as my follow-up, we have recently started seeing an increased adoption of ARM's Cortex-A15 processors, and I believe earlier 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?

Thank you.

No, I don't.

I view us as now that we've matched the power performance, the power battery life curves, and we're still on 32-nanometers as we move to 22 and 14, you'll see us accelerate.

We've looked at the A15.

We looked at the A15 specs, and we know our own silicon in terms of Bay Trail and Clover Trail Plus, and we're very comfortable that we can maintain a performance lead here.

Micro architecture 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.

Okay, thank you.

Thanks, Vivek.

Thank you.

Our next question comes from the line of Joe Moore with Morgan Stanley.

Please go ahead.

Your line is open,

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 for foundry.

Is that still the case when you look at the 2013 spending?

Yes, I mean other than the two small customers, or three small customers that you've heard of, it's not driving our CapEx.

Okay, great, and if you talk about getting your historic returns, 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 a process --?

Well, I mean, we're pricing real time with customers.

So it's not per wafer.

Most people are now pricing -- the foundries are pricing per dye 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, and the pricing here is going to be value-based pricing.

Obviously it has to be competitive, but the value that we bring in terms of the technology is, I think, pretty exceptional.

Great.

Thank you very much.

Thank you, sir.

Our next question comes from the line of Stacey Rasgon with Sanford Bernstein.

Please go ahead.

Your line is open.

Hi guys.

Thanks for taking my questions.

It sounds to me like you're guiding traditional PCs down a ton this year, 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.

So how much, I guess, do you need to take in terms of share within tablets, or how much of that tablet market needs to be eaten up by your convertible PCs in order, I guess, to fill that big bet in 2014 that you seem to be making, and avoid the underutilization that may otherwise happen from the CapEx that you're spending?

Yes.

I guess I'd 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 up in the double digits, and phones and tablets ramping, which implies the core PC business is down.

No.

So I said for the Company it's low single digits in terms of our expected revenue growth.

Data Center up, back into the double digits.

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 the lines between a traditional notebook, a convertible tablet, I think have blurred to the point that it's a market for computing, and we are expecting some unit growth.

Now Q1 we think is kind of seasonally down.

That's what we guided, 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 reasonable assumption on the year.

As we think out into the future, we kind of are thinking of it as just more or less 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.

I don't know if you want to add anything to that.

I guess to follow-up on that, I mean my math suggests that you're guiding depreciation this year at a $1.7 billion quarterly run rate, which is kind of flat, which suggests to me that the CapEx, that your incremental CapEx you're spending this year doesn't actually start getting depreciated 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 million chips a year, something like that, which can't fill a fab.

You have phones, which Paul admitted were probably still going to small.

Then you have tablets where the dies are a lot smaller.

So unless you're driving tons and tons of volume, it is actually not a ton of wafer volume.

So what sort of growth, I guess, what sort -- is sort of your historical level of unit growth enough to fill the CapEx you're putting in, and what gives you confidence that you could even have that same kind of historical level of unit growth?

Well I think it is.

I think we have line-of-sight into what our customers are designing around Haswell, which is this year's innovative new core product and Broadwell, which is next year's.

And we know the specs on those, the customers know the specs on those.

I've seen the prototypes of the industrial designs.

They are really exciting products.

Our customers have not had this level of performance and this kind of form factor before.

So 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, in none of our numbers are we projecting an inflection point upwards or downwards.

We see renewed growth around these new form factors.

Got it, and you have room to modulate CapEx down?

(Multiple speakers) want to make sure we make time for everybody.

Okay, you bet.

Thanks guys, appreciate it.

Thank you, sir.

Our next question comes from (inaudible) with the ISI Group.

Please go ahead, your line is open.

Yes.

Hi, a couple questions.

One question on what happened in Q4, seems like your PC client units were down 4%, sort of 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 fourth quarter?

Yes, I'll take that.

Yes, we think that there was a inventory drain in the worldwide supply chain for PCs in the fourth quarter.

Our channel checks would suggest that a lot of older generation kind of Window 7 PCs were burned off in the quarter.

When we look overall at inventory levels across 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've reduced them significantly in the fourth quarter.

Okay, and then for my follow-up, it's on ASPs.

They're up both in the Data Center and the PC Client Group.

Any particular dynamic at work?

I know in the third 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, 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 helped drive the overall richness of the Data Center business.

On PCs, what we saw was strength in the core product line, principally going into ultrabooks and laptops, and a little more weakness than we would have first thought in the bottom of the PC market, and in our Celeron and Pentium product lines.

Thank you.

Thank you, sir.

Our next question comes from Glen Yeung with Citi.

Please go ahead.

Your line is now open.

Thank you.

I guess a question for you, Paul, on the potential for hybrids, or even just ultrabooks in the second half of '13, and (inaudible).

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-inch tablet maybe not selling as well as one would have expected.

I wonder if that's somehow opening up opportunity for the laptop, the ultrabook, the hybrid to make a bit of a comeback?

Yes.

I think coming out of the CES, the trends are pretty clear, and certainly in Asia in terms of the buying patterns.

Phones are getting bigger, and you saw the, quote, fablets, which is a phone/tablet form factor emerge, which are six-, even seven-inch phones, and then of course the shift of tablets from 10 to 7 inches.

And I think that's probably what you're going to see, is 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 are going to more classic PC level of performance, and now enabled by these convertible, detachable form factors that only get thinner as Haswell and Broadwell come on.

Yes, interesting.

All right, and maybe as a follow-up.

Stacy, just trying to think through the cash balance that Intel's 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 at 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?

Not need but we would certainly look opportunistically like we have been, 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 relatively tough quarter at the top line, macroeconomic weakness, the impact of tablets on our business, we generated $6 billion of cash flow from operations, we had $2.5 billion of CapEx, we paid a little over $1 billion dollars in dividends.

So we're generating plenty of cash to invest in our business and to pay the dividend and protect the dividend.

So I'm not worried about it 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.

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 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 Craig Berger 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 you acquisition of Infineon Wireless.

It's been almost a couple of years, and specifically where you are with 4G LTE, where you are with an integrated baseband plus Atom part, and when we could expect to see more progress in handsets?

Thanks.

Sure.

Well, Infineon is doing well.

They are 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 the data mode now.

We'll have the dual data mode and the voice mode shipping later this year.

First LTE phones, I would expect launched early next year, principally around MWC 14.

We believe we have a very competitive solution.

The Infineon team is known for 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 spec to this product.

In terms of integrated solutions, you'll see higher levels of integration from us next year.

Craig, if I could just add to that too.

Paul talked about our road map site.

The thing I'm struck by in this space is how hungry it is that the customers are to work with us in this space.

So I think it's a nice combination of we've got a good rollout of products across here, and it looks like people are really lining up to have us as one of their key partners.

Just following up 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 lastly do you expect growth from Infineon in 2013?

Thank you so much.

Well on the middle one, all of the above.

We have many of those technologies in-house now, and we are doing levels of integration that make sense at the right time.

In terms of PCs, the problem has not been technical.

The problem has been price, and most PC manufactures would prefer for IP and royalty-based reasons to not build that into their PCs, and to have it be either an add-in chip through a slot or an add-in service through a dongle.

Growth in '13?

Thank you.

Oh, sorry, we forgot that.

I would expect that as 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 '13, and then it kind of goes from there.

Thank you so much.

Thanks, Craig.

Thank you, sir.

Our next question comes from Mark Lipacis with Jefferies.

Please go ahead, your line is open.

Thanks for taking my question.

The question I have is on your -- if you could share with us your view on price elasticity in the client PC market, in either an aggregate or on the notebook side, and I guess what I'm wondering is for the better part of the last decade the model seem to be you drop your prices something on the order of like 5%, 6% a year.

You drive like, and then that drove 10% to 12% unit growth, and you got mid-single digit revenue growth, and then in '10 and '11, you crushed the revenue growth.

Your prices went up, but your unit growth really did not.

Now in '12 we have a down year.

'13 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 elasticity.

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 and '90s.

When PCs broke $1000, 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 for all of the players, and the cheapest desktop was a $299 sort of model, or something like that.

Notebooks went the same way.

First notebooks were $3000.

Now notebooks are $299 to $1299 in terms of the sweet spots, and I think people will buy based upon their need within those price points, but if -- it's very difficult for me to see them going from $299 to $99.

The bill of materials just doesn't support it.

And what we're likely to see, and what we saw in the fourth quarter, in fact in the Windows 8 Touch-enabled models, was that people were willing to spend a little bit more to get a more capable product, 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.

Thank you.

For a follow-up, if I may, EUV.

Do you guys have a view on when you can expect to start putting that into the factories?

Thanks.

Yes.

Again, this is like the emerging question.

It's one that we keep those things pretty close to our vest.

So it's not one I'm prepared to talk about.

Fair enough, thank you.

Thanks Mark.

Thank you, sir.

Our next question comes from Romit Shah with Nomura.

Please go ahead.

Your line is open.

Yes.

Thanks a lot.

Stacy, take the 10-year median for revenue growth starting in Q2.

I only get the flat revenue growth for 2013.

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?

Yes.

I don't think you mean better than seasonal quarter for Q1.

I think you mean a back half that's stronger than normal seasonality.

Is that what you mean?

Right.

Yes.

Yes, and that's consistent with our view, and first 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, 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 gaining 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 we become more and more represented across both the Windows tablet section of the market and Android over the course of 2013, and 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 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, Q2 has been actually up anywhere from 1% to 5%, and how do you guys look at it?

Well, we'll talk about Q2 in 90 days.

Thanks, Romit.

Thank you, sir.

(Multiple speakers) Excuse me.

We're going to go ahead and take two 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.

Yes.

Good afternoon guys.

Thanks for letting me ask a question.

Paul, in 2011 the emerging market was perhaps a better cushion than investors thought for the core PC business.

In '12 it was kind of maybe a bigger headwind than people thought coming into the year.

Kind of curious, when you look at the '13 guide, how are you are 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 to cannibalize within that region as well?

Well, I think that in particular in China, the market dynamics are not much different, at least in the Tier 1, 2, 3 cities, different than the US.

So yes, there's clearly some tablet sales that impacted low end or first time buyer PCs in China.

But I think the bigger issue was, in China and in Brazil last year, which are the two largest emerging market countries, was their overall economic health.

Remember Brazil started seeing inflation, that slowed down PC sales.

China, 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 fourth.

And now as we look into '13, as Stacy said, China is still outgrowing any other large economy in the world, and I think will be a driver for PC sales.

We've been pleasantly surprised by the data center growth in China.

They're deploying fairly large amounts of servers for infrastructure buildout, and that's helped our overall revenue picture in that country.

Thanks, Paul, that's helpful.

And as a follow-up Stacy.

On the OpEx side, other IA in the quarter is now annualizing at almost a $2 billion operating loss.

As you think about kind of the OpEx, is this now the right run rate for all of the new initiatives, and 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?

Yes.

We're not increasing, we're not making incremental investments in 2013, and so if you look at '13, 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.

We do have an increase in OpEx as we go from '12 to '13, and it's just the full year impact of the R&D investments that we talked about in '12, and that's investments that are really being driven by ultrabooks and tablets and phones, and our SOC capability as well as process technology leadership.

And it's interesting.

I think that when you look at our performance in the business, 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.

I think you'll see many of those designs coming to the market in the tablet space, as we've talked about, and the phone space.

The volume will grow over time, and we expect that the business grows into this investment level over time.

Great.

Thanks guys.

Sure.

Thank you.

And our final question will come from the line of Shawn Webster 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, looks like they were a little bit better.

I was wondering if could you share with us, you said your utilization rates would be below, I think, 50% in Q4.

I was wondering if you could share with us where they landed and what you expect the trajectory to be in Q1, and maybe even beyond, if you can?

Sure.

We came in at a gross margin level a little bit better than expected in the fourth quarter, and it played out from a utilization standpoint pretty much as we expected.

We brought the loadings down in the factories significantly.

It was below 50%.

We redirected equipment, intercept some of the leading edge process technology, and we managed to bring inventory levels down on the order of $600 million, which was all consistent with what we've said.

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 of those two things offset, and then there's a couple 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, when I get to Q2, I think what happens is we see the further reduction in the excess capacity charges.

In fact they will 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, 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 back into the low 60%s, 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.

It's increases in volume, which would be consistent with the seasonal second half, and then our cost come down over the course of the back half of this year, and those are the three 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 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 '13, and some of these segments like the other IA group include some of your growth areas, like you've been talking about in tablets and smartphones.

Can you share with us your build plan, or not your build plan, but your plan for the year, or how you're thinking about some of these other groups over the course of the year?

Yes, and first 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 as being back in the low double digits.

When we kind of run through the rest of the businesses, we would expect to start to see some progress in tablets over the course of the year.

I think phones, we'll be winning designs but it's not going to move the needle from a revenue standpoint.

We talked about IMC in terms of I think that growth returns to that business as LTE ramps, which is really kind of out in time where the end of this year and into next year.

We expect embedded we'll see some growth.

It's been a nice growth engine for us, and we think NAND growth.

Thank you very much.

I think I hit them all there.

I don't think I missed anything.

That's great.

Thanks, Shawn.

All right.

Thank you Hughie, and thank you all for all joining us today.

Hughie, please go ahead and wrap up our call.

Yes, sir.

Ladies and gentlemen, this does conclude today's conference.

Thank you for your participation, and have a wonderful day.

Attendees, you may disconnect at this time.