Intel CEO: Bad companies are destroyed by crises … great companies are improved by them

Intel CEO Bob Swan cited a quote from former CEO Andy Grove as particularly apt during the pandemic. In a call with analysts, Swan noted that Grove once said, “Bad companies are destroyed by crises; good companies survive them; great companies are improved by them.”

Swan made the remarks after reporting what he said were “outstanding” results for both earnings and revenues in the “incredibly challenging” first quarter. But investors were spooked and drove the stock down 5% in after-hours trading, in part because Intel decided not to offer full financial guidance for all of 2020, due to uncertainties in the market.

Intel also said its gross profit margins, or the money it makes on the sale of its products, would likely be lower in the second quarter. That is in part because the company is recording higher expenses as it prequalifies the manufacturing of its second generation of 10-nanometer products — which is considered a normal expense in a process technology transition. Intel is accelerating the ramp to its code-named “Tiger Lake” 10-nanometer processors at a faster rate than it previously expected. Again, that may have spooked investors, even though Intel predicted its second-quarter results would be better than anticipated.

Intel grew its datacenter business 34% in Q1, and data-centric revenues are now 51% of total revenues, while PC revenues grew 14%. The company’s factories are operating at more than 90% when it comes to on-time deliveries. Only essential personnel are going into those factories, but Swan said the facilities — because of requirements for purity in manufacturing — are among the cleanest places in the world. Intel saw its supply chain affected in January, but those partners are now back to work and production is increasing every week.

Intel said it has pledged $100 million in funding to support its 110,000 employees. It has also pledged $50 million in resources and cash to fight the coronavirus. The company has paused a few construction projects at smaller sites, but Swan foresees no impact on process technology or product launches.

“I want to thank and commend all the Intel employees and supply chain partners who have helped keep our business operating during this unprecedented challenge,” Swan said. “I want to give special praise to those working in our factories and labs and other on-site personnel who have role-modeled the values of our company every day and every shift — I am so incredibly proud of your effort and commitment.”

He said Intel continues its strategy of widening its market opportunity by making more kinds of chips that go into electronic systems and computing products, such as graphics chips and Optane memory.

Intel repurchased $4.2 billion in Q1 and stopped all share repurchases on March 24. It also raised $10.3 billion in debt to prepare for a rainy day.

When it comes to fighting the current crisis and any future pandemics, “COVID-19 has only reinforced how important it is for Intel and our customers to accelerate the power of data,” Swan said.

He also said that strong demand for laptops in Q1 — for working from home and learning from home — was offset by the pandemic’s impact on global gross domestic product (GDP). Swan added that government and enterprise spending is likely to be weaker in the second half of the year. At some point, Intel expects the pandemic to affect global demand for PCs during the remainder of the year.

“We recognize that our local and global communities need us to continue delivering technology to help overcome this COVID-19 challenge, and we’re fully focused on that task,” Swan said.

He closed by saying, “Our purpose is to create world-changing technology that enriches the lives of every person on Earth. That’s never been more important than now … We will emerge from this global crisis even stronger.”