Intel Corp INTC
Q1 2010 Earnings Call Transcript

Operator: John Pitzer, Credit Suisse.

John Pitzer - Credit Suisse: I guess, Stacy, my first question. Q2 gross margins and full-year gross margins both being guided to about the same level at 64%, help me understand the puts and takes into the back half of the year that prevents you from getting sort of better margin leverage?

Stacy J. Smith - CFO and SVP: Sure. Let me start, John, by giving you, as you say, kind of a better detail about the puts and takes. So first off, first half gross margin a little bit below 64% for the year, so the math gets you to some modest increase in gross margins in the second half over and above the kind of record gross margin levels that we’re achieving in the first half. As I think about the second half, let's first focus on the core business. I expect that to be slightly positive to gross margin. I think that we’ll see increase in volume; that helps a bit. We’re going to see a decrease in cost; that helps a bit; offset a little bit by a decrease in average selling prices less than what you normally see decrease in selling prices. Combination of that makes that slightly positive. I also expect in the second half of this year to have a little bit lower startup cost environment. So, those two things are positive. And then offsetting some of that is an increase in writeoffs. We’ll be building, as Paul said, the Sandy Bridge product; that's the new microarchitecture that lands on 32 nanometer. So in the context of tick-tock, that would be the tock. And as you saw with Westmere, the product that we built prior to qualification for sale will be written off, and so we'll see a little bit of an increase in writeoffs in the second half of the year and that offsets some of the positives that I mentioned.

John Pitzer - Credit Suisse: And then, I guess Paul it’s my follow-up question, you talked about signs of corporate coming back. Is that just in the server business where you guys have had some strength for couple quarters now, or are you starting to see it on the client side? If you can you give us a little bit more detail there, that'll be helpful?

Paul S. Otellini - President and CEO: Yes. We saw it on – this is the first quarter where we've seen some real signs of PC purchases, corporate SKUs picking back up again. Some of that was wrapped around our new products, the Arrandale notebook products, but some of that was also just even some of our older SKUs that are kind of classic running corporate SKUs also picked up. And to me that suggests that the average fleet of notebooks is four years old out there. The average fleet of desktops is five years old. They're getting to the point where, as CIOs are feeling a bit better about their business, it makes economic sense to swap these out just from an ongoing cost of ownership standpoint.

Operator: Glen Yeung, Citi.

Glen Yeung - Citi: Could you address a little bit the supply condition that you face, both frontend and backend, particularly as we move into the back half of the year and demand normally picks up?

Paul S. Otellini - President and CEO: The Intel supply?

Glen Yeung - Citi: Yes.

Paul S. Otellini - President and CEO: We’re ramping the 32-nanometer factories as fast as we can and faster than we first expected. In fact, in the first quarter we ended up shipping more 32-nanometer microprocessors than we had first planned, principally driven by demand for those products and I guess the overall health of the business environment in general, which was not planned a quarter ago. Looking forward, we’ll use a combination of the four 32-nanometer factories and our existing 45-nanometer factories to be able to satisfy, I think, almost any demand scenario you could imagine out there. In terms of other people’s supply, which is what I thought you were hinting at first, I really don’t see any fundamental constraints. If I look at all the pieces, the components that go together in terms of memory and screens and batteries and so forth, that would retard the industry’s ability to meet almost any demand scenario.

Glen Yeung - Citi: Okay. And as my follow-up question, Stacy, may be for you. I think cash levels that you’re at now, you’re not that far off of your record, which I think was set back in 2004, particularly with no change in CapEx. Any thoughts about – and I assume cash is going to keep on growing – any thoughts about uses of cash?

Stacy J. Smith - CFO and SVP: Yeah. You’re absolutely right. The strength of our business, as Paul said, surprised us. The strength of cash generation was also surprising. What you should take from the fact that we’ve been doing minimal buybacks over the last year is that we’re growing our cash balance. Frankly, we’re looking at some strategic investments in evaluating those and in that context we’re growing the cash balances and we’re comfortable with the levels of cash we have. The priority in terms of capital structure, in terms of returning cash to the shareholders, is the dividend. You saw us increase that in Q4. We’ve had multiple years where we’ve increased the dividend without fail. And just putting that in context, from 2006, I think, our dividend per share was about $0.40 per share. Based on the increase we just did, we’re at $0.63 per share, so a nice increase in the dividend over time and that continues to be the priority.

Operator: Chris Danely, JPMorgan

Chris Danely - JPMorgan: Paul, just a question I guess on the end markets and demand trends. It sounds like consumer was very strong in Q4 and then corporate kind of kicked in Q1. When you talk to your customers, what do you expect, what do they expect in terms of demand trends between corporate versus consumer for the rest of the year and what will be the implications for your business?

Paul S. Otellini - President and CEO: Well, you're right, consumer has been the driver I think throughout this cycle, not just in the fourth quarter of last year, but I think I talked last year about China, in particular, in the early part of last year and then the United States and Europe in the second half of last year. I think the overall shift to mobility is one of the megatrends that's out there, both from a consumer standpoint and the corporate standpoint. The first quarter and even our first half numbers I think are buoyed by a combination of things; a very healthy China and Chinese New Year scenario. I think the new products we’ve launched have pretty compelling pull at the end market level, simplified branding, lots of really good features, etcetera. And lastly, now you’re starting to see some corporate PC purchases reemerge. I’m still not going to go out on a limb and our customers certainly aren’t going to go out on a limb and say there’s a corporate refresh snapback coming. I think we see this cycle is much more – people are buying things to replace older machines, because it's just cheaper, and they’re doing that on their budgets as they free up a bit more money here and there. I think they’ll also make the tradeoffs between PCs and servers and software as they go forward and right now hardware seems to be doing pretty well in that tradeoff.

Chris Danely - JPMorgan: And then for my follow up for Stacy, so Stacy if we plug in the gross margin guidance, it sounds like your gross margin in the second half of this year is going to get back to the peak of last year in Q4. Should we consider that 65% a peak number? And if you guys have some more higher writeoffs at the end of this year, is that a good thing for next year? Could the writeoffs be lower next year in the tick-tock model?

Stacy J. Smith - CFO and SVP: Two very different questions. So in terms of the gross margin forecast for this year at 64%, that’s an annual record, you’re right. We’ll likely have some quarters above that. I think you’re really asking does it change my long-term view of the gross margin profile of the Company. If you hark just back to a year ago, (as Paul said), the depth of the recession when we were down in the mid-40s, I articulated this normal range of being between 50% and 60%. I think we spent one quarter in that normal range and then we’ve been above it every quarter since, and this year looks like we’ll be above it every quarter. On that question, I think I’ll defer answering it until we get to the investor meeting. I think that’s a much better platform for talking about how we’re looking at longer-term gross margin trends. To the more tactical part of that, there will be lots of puts and takes to the H1 ’11 gross margin, but yes, you would expect to see that the inventory that we write off prior to qualification for sale, assuming that that ends up being sellable inventory, will be a benefit to gross margin when we get into the subsequent quarters. Now, that’s one of many elements, but that element would likely be positive assuming that that qualification goes as we expected to and as prior qualifications have gone.

Operator: Tim Luke, Barclays Capital.

Tim Luke - Barclays Capital: Paul, in sort of (indiscernible) environment obviously you had several strong quarters, very strong fourth quarter, strong first quarter. You are now guiding for a slightly firmer-than-seasonal second calendar quarter off a pretty high base. Could you just give us your sense of your visibility on that sort of slightly better than seasonal guide for the second calendar quarter and what elements are likely to contribute to that? Is it the PC still the leading, is it the servers, is it all of the above?

Paul S. Otellini - President and CEO: I think, it's certainly PC-driven, Tim, but I think there's other things that are woven into it. We're still in the very steep part of the ramp on 32 nanometers, bringing that into the product line. There is still, as I said earlier, a lot of pull for that product. We were slightly behind, quite frankly, satisfying all the demand that our customers wanted on 32 in the first quarter, even though we were producing much more than we first thought. We expect to catch up to that demand in the second quarter on 32 nanometers over the course of the quarter. So I think part of that is just the excitement around the new products on the PC side, number one. Number two, the Nehalem-EX product, which is our new multiprocessor product, began shipping in the last two weeks of the quarter. I think that will have a full-quarter effect. So far there's something like 30 systems that have been announced, and the receptivity and the pent-up demand for that I think is very good. So you get a combination of those things, all driven by new products that I think will give us that better than seasonality picture that we’re painting.

Tim Luke - Barclays Capital: And if I may, it's my follow up, Paul, as you go into the second half of the year, do you think that you'll be able, given the stronger first half, to sustain what you might frame as normal seasonality broadly for the second half of the year? Or do you think, look, (indiscernible) strong at the beginning of the year we should be modeling a slightly lower than seasonal uptick or not given that it sounds like you think corporate is going to come back?

Paul S. Otellini - President and CEO: I kind of thought you'd go there on your third round. And as you can imagine, I’m going to duck it. I think we won’t talk about the second half at this point in time, except to say that we’re putting in place sufficient capacity to handle, as I said earlier, virtually any demand scenario you could imagine. We’re assuming continued growth and units over the course of the year. We’re going to be ramping 32-nanometers as fast as possible. So, the only question that we have from the supply standpoint is how much 45 we keep on and what’s our assembly test loading capabilities, and we’ll put some buffer in those to make sure that we’ve got sufficient capacity.

Tim Luke - Barclays Capital: So better than seasonal possibly, just given your focus on capacity rather than…?

Paul S. Otellini - President and CEO: I didn’t go there, Tim.

Operator: Kevin Cassidy, Thomas Weisel.

Kevin Cassidy - Thomas Weisel: Can you describe the mix in the servers? Was that a richer mix and just lower units?

Paul S. Otellini - President and CEO: In Q1?

Kevin Cassidy - Thomas Weisel: Yes.

Paul S. Otellini - President and CEO: Yes. The mix was a little less rich than Q4, and I think there’s a couple of things that are going on there. First is that we saw a pickup in what we call the transactional business. This tends to be uni-processor servers based upon the Nehalem parts that are sold by both the channel and our OEM customers, typically into small and medium business environment. So I think that’s a good sign, and we haven’t seen that kind of demand profile before in the transactional volume, at least not in the last half of 2009. The fact that that came back was one of the positive signs and is leading us to the guidance we gave for Q2. Also I think there was some – as people move towards the transition of the older multiprocessing line to the newer multiprocessing line, they basically thinned down their inventories in anticipation of the launch of the EX. And now, we will have a full quarter to ship in Q2 with that product line.

Kevin Cassidy - Thomas Weisel: And as a follow-up, you had mentioned the corporate demand coming back on the client side. Do you see that as a lagging from the server strength you saw in fourth quarter or are they not related?

Paul S. Otellini - President and CEO: Well, I’d like to think that people are looking at these things with a clear economic eye. And if you look at it with a clear economic eye, you'd refresh the servers first. That builds your infrastructure up. It gives you the fastest return on investment. You probably can squeak out another quarter or so with your PC fleet, and I also think that the corporations are likely to deploy Win 7. So the people have to qualify that and get the SKUs ready, and I think that’s what happening now. So I don’t think it was really a lag effect. I tend to think it was much more of a clear view of what the return on investment was versus the cost savings of replacing the PCs that you’re now seeing a bit more latitude on.

Operator: Hans Mosesmann, Raymond James.

Hans Mosesmann - Raymond James: A question on notebook mix, has the netbook dynamic kind of slowed down or saturated as a percentage of total mobile?

Paul S. Otellini - President and CEO: Well, it depends on the granularity of the question. If you look in terms of the total year last year and our view for the total year this year, we really don’t see a change. I think we suggested that netbook seemed to be settling out at about 20% of the mobile form factors and on an annual basis that looks to be about right, and I would expect pretty significant year-on-year growth in the netbook business. I think that netbooks, in general, have become, though they are by definition a consumer purchase, there is no corporate netbook market that we found. And it was pretty robust in the fourth quarter. You had a lot of new entrants come into the marketplace, large companies really coming in for the first time. And I think that seasonality plus maybe a bit of the overhang from a number of players coming in the fourth quarter is what we saw in Q1 where Atom was down a bit more than what we would normally see it seasonal.

Hans Mosesmann - Raymond James: And as a follow up, what’s the Company position with tablets. It seems to be a big category, emerging category? What’s your strategy there?

Paul S. Otellini - President and CEO: Well, I think that’s a great question, Hans, and I think that at this point I view tablets much like I viewed netbooks two years ago, which is that was a new category then that was market expansive. I think tablets will also be a new category that will likely be market expansive. If I look forward over the course of the year, particularly at Computex coming up in the first week of June, we have a lot of our customers announcing new tablet form factors around Atom, around Moorestown versions of Atom. And there is support for a multitude of operating environment. So you’ll see products on Android, on Windows 7, and on MeeGo.

Operator: Mark Lipacis, Morgan Stanley.

Mark Lipacis - Morgan Stanley: The client business was flat, and I think if you look at least the couple of the larger northern PC OEMs, it seems like the forecast for their client business is to decline a bit in the first calendar quarter. So I guess there’s different ways to potentially explain that. Maybe they see upside like you guys did, maybe they’re building or replenishing inventories, or there’s another set of OEMs that are perhaps benefiting from the growth dynamics. Can you share with us your thoughts about how we might think about that difference in expectations?

Paul S. Otellini - President and CEO: Well, I don’t know that I can help you a lot there, except to say that we were down. So I'm not sure that I’ve followed how much their client business is forecasted to be down versus what you guys are doing, but our business was down. It was better than seasonal but down, right.

Stacy J. Smith - CFO and SVP: But on a unit – if I can just interject, on a unit basis, Mark, it was probably closer to – it was slightly better than seasonal, but not dramatically better. The benefit we really saw in the first quarter was in the mix and the pricing.

Mark Lipacis - Morgan Stanley: And then on the data center business, you gave some answers to that, but what would be a normal 1Q for that business?

Stacy J. Smith - CFO and SVP: What you saw was pretty in line with what we would normally expect in terms of data center group normal seasonality.

Paul S. Otellini - President and CEO: It's typically down about 8%.

Stacy J. Smith - CFO and SVP: Yeah, and that’s 8% to 9%. That's right where we were.

Operator: Jim Covello, Goldman Sachs.

James Covello - Goldman Sachs: I guess first question, last quarter you were good enough to break out for us the change in unit inventory versus the change in dollar inventory. I was wondering if you could do that again for us this quarter. You said you wanted to build some inventory, but you weren't really able to build much?

Stacy J. Smith - CFO and SVP: Yeah. I'll be happy to help there, Jim. And, yes, the way you characterized it is the way I see it. Because of the increases we saw over the course of the quarter in demand on the new mobile platform Arrandale, I wasn’t able to get as much inventory in places I hoped. If you look at it between dollars and units, what you see is, units are up a bit more than dollars, but still not as much as I’d want, as we kind of move into the second quarter based on the strength that we’re seeing and the ramp up of these new products. If you deconstruct the inventory between the processes what we saw is more than 100% of the increase in inventory and more than 100% of the increase in units was on 32 nanometers. So we got a little bit in place there, and everything else was down. And as I think about Q2, my hope is that I can build some inventory into the second quarter in anticipation of a second half that’s higher.

James Covello - Goldman Sachs: And for my follow up, I guess you guys have kind of started off the year believing that we were looking at sort of a mid-teens PC kind of year. If I put any kind of close to normal seasonality in your revenue in the back half of the year, you’d be up well into the 20s. It certainly doesn’t seem like you’re outshipping demand, because there’s no one in the supply chain that’s building any inventory. So is it safe to say that your expectations then for kind of the full-year PC number have just come up a bit?

Paul S. Otellini - President and CEO: I think so. I mean, again, everyone still wonders what the shape of this year looks like and I said earlier when I ducked Tim’s question that I would reserve judgment on that. But I think versus a month ago or quarter ago, how could we not have taken our expectations up a bit for the year.

Operator: Patrick Wang, Wedbush.

Patrick Wang - Wedbush: Just the first question, you talked about accelerating the ramp of the third and fourth 32-nanometer factories. Can you talk a little bit about the impact to your overall capacity there and when we can expect that to be online?

Paul S. Otellini - President and CEO: Well, all four factories will be online by early Q4. There’s a ramp schedule that we’re not making public on any specific factory and we pulled up the schedule a bit on the last two of the network. There is really no change in our CapEx spending as a result of that, and these things are all being planned to be equipped and so forth. What we've done here is based upon the learnings and the yields we’re seeing in the first two factories have had higher confidence to be able to ramp to high volume faster on the next two.

Patrick Wang - Wedbush: And then for my follow-up, I just want to talk real quick about mix and ASPs here. In the first quarter, it looks like that we saw some good news. I was surprised just on higher ASPs. In the second quarter you're guiding a little bit of a negative impact on lower platform ASPs. Can you talk about what's going on there and perhaps maybe factor in the mix of the Core i3, i5 and i7 that we see today?

Stacy J. Smith - CFO and SVP: Sure. I’ll take a shot at it. The surprise for us in Q1 was the strength of the new products as we had articulated a quarter ago. The way that we are loading the factories is we’re bringing out the high end of the product line first, and so I think what we saw in Q1 was a pretty rich mix, and I expect, as we go through the year, it will be a more normal mix. But I also think you have to keep I guess the contextual background of, I am now expecting 2010 to be a year where ASPs come down some, but less than what long-term model would suggest. So a fairly benign pricing environment overall, but they’ll come down some from where we were in the first quarter is my prediction.

Patrick Wang - Wedbush: Just care to offer any comments just in terms of maybe of a mix up in terms of Core i3 and i5 and i7?

Paul S. Otellini - President and CEO: Well, in general, as I said earlier, we’re seeing great reception to the new Core products. And even within them, certainly the first quarter the mix-up to Core i5 versus i3 was very solid. Now as we bring on more capacity, you get a more natural mix. And I think also that you’ll see our customers move towards taking those processors into lower price points. Price points where you’d see Pentium notebooks today over the course of the year by tweaking the configurations a bit, maybe not using discrete graphics as much because the graphics on the Arrandale platform are so good, maybe I think less memory as Win 7 runs pretty well on 2-Gig, etcetera. And that will allow them to mix the SKUs, keep the processor mix pretty good, and get a higher volume sort of price points.

Operator: Uche Orji, UBS.

Uche Orji - UBS: Stacy, can I just go back to the issue of inventory? I know you say you want to build inventory again in Q2, but earlier in your remarks you described channel inventory as healthy. Is it possible for you to quantify what that means, and also put it in a bit of context, so that we can get a handle of what you mean as a healthy channel inventory?

Stacy J. Smith - CFO and SVP: I want to be careful we don’t mix the two things. My answer to, I think, it was Jim’s question was, in regards to our inventory, our component inventory, the channel inventory comments that Paul and I both made were in regards to the inventory that we see downstream from us. It’s the inventory held at the multinationals, the retailers, the ODMs, the manufacturers, our own distributors. So that downstream inventory when we look at it, it looks healthy, it looks appropriate to demand levels. Our internal inventories are lower than I’d like, particularly on the new 32-nanometer products. We were tight in Q1. We would normally want to buffer that transition a bit by having some inventory in place. Particularly, if we’re going into a higher selling season in the back half, it's prudent to get some inventory in place.

Uche Orji - UBS: In terms of the channel, I mean what I really wanted to know was, if there was a way you can quantify that in terms of weeks or days, I mean is there any way for us so we can get a proper handle on it, that’s really my question?

Stacy J. Smith - CFO and SVP: We don’t have insight into everything, which is why you see us hesitating here. In terms of the microprocessor inventories that are in our channel and in our OEM customers that we have visibility into, we see nothing out of line and everything is consistent with the kind of build plans and the transition plans over the next couple of quarters. We also monitor the shipping (lines) and those kinds of things, and what comes out of Taiwan on boats versus air. Again, we don’t really see any fundamental shift there, nor do we see anything that’s out of line, on the assumption that that there is growth in units over the course of the year.

Uche Orji - UBS: My follow-up question is on servers. I wanted to ask you, I mean when I look at servers, the one key thing if you look at the value you're delivering with Westmere-EP, Nehalem-EX, and the fact that some CIOs are talking about replacing many of their old servers with one. What is your sense of the size of this market going forward? I mean you're delivering so much ROI to your customers, do we have a situation where the market itself will shrink and Intel doesn’t get enough runway for growth in this business, given the value you're delivering to your customers? So any sense of how we can contextualize?

Stacy J. Smith - CFO and SVP: Yes. No, we haven’t even gotten close to finding a fundamental limiter on that. There is a number of things going on. The move to cloud we think is very good. Not everything will go to cloud, but the shift to cloud-based servers is good for Intel. The shift to virtualization is good to Intel. If you plod out, and we'll do this at the analyst meeting in much more detail, but if you plod out the growth in data traffic, in network traffic, and the kinds of things that modern servers are doing, that growth curve is faster than the refresh rate for old versus new equipment and we see a very robust scenario for servers going forward.

Operator: Stacy Rasgon, Sanford Bernstein.

Stacy Rasgon - Sanford Bernstein: Just one more on ASPs for the full year, so you’ve basically cut the ASP impact on gross margins from your previous guidance by about half. I think before it was about two to three points to the negative. Now it’s about 1.5 points. Can you give just a little more color on what’s driving that differential? Is it just continued uptake of 32 nanometers faster than you thought? Is it more servers, more corporate NAND flash, less Atom?

Stacy J. Smith - CFO and SVP: Yeah. So you got the math exactly right and the margin we kind of give you a quarter ago as I was articulating that I expected two to three points from 2009 to 2010 based on ASPs coming down. Based on the strengths we saw in Q1 and the take up of new products, we’ve cut that impact in half, and it’s really those two things. It’s the strength we saw in Q1 and the take up of the new products has exceeded my expectations and I think some of that strength will continue through the year.

Stacy Rasgon - Sanford Bernstein: And for my follow up just one quick question on OpEx. So I know you took that up a little bit. It looks like you took R&D up about $200 million, SG&A up about $400 million at the midpoint of your guidance. Can you give us a little more color on what’s driving the increases in both of those and in particular the greater increase in SG&A versus R&D?

Stacy J. Smith - CFO and SVP: Yeah. Let me take a different shot at the explanation. I think it gets you there. If you look at it from the prior forecast, we’re up about $600 million cycle on cycle. About half of that is profit and revenue-dependent spending and what you should take from that is that as we've seen in the Q1 results and now have increased our expectations for the year, I'm expecting more revenue, more profits that’s driving those two line items. The revenue-dependent spending is almost all marketing. It's Intel Inside, so it gets categorized as marketing spending and then the profit-dependent spending gets split across the different groups of the Company. Behind that - so that’s about half of the increase. Behind that, we have some incremental investments that we're making. Those are predominantly R&D projects. Again, as our confidence in the year has gone up, there are some projects that we’re launching there. And then the third element behind that is again an increase to marketing, and we’ve gone through and redesigned some of our customer programs and in the process of redesigning those programs, they will be categorized going forward as marketing expense, and so that’s the other element there.

Operator: David Wong, Wells Fargo.

David Wong - Wells Fargo: For the new product launch and you brought up Nehalem-EX, are you seeing signs that MP Server chip volumes are picking up, would you expect these to grow faster than the dual processor does in the next couple of quarters because of Nehalem ramp?

Paul S. Otellini - President and CEO: No. I don’t think so. I think that the value proposition is different in different markets, right. So I would expect that the dual-processor products will continue to be – let me say, the topography of choice for data center build out for the big Internet portal guys, and you can imagine who I'm talking about. The MP Servers’ configurations tend to be much more for – I think you’ll see that much more prevalent in corporate environment and SAP configurations and people that want to run multiple applications in the virtual mode there. So I really think that they’re addressing different market segments as they ramp up, but we love both of our children here and I don’t think I see a difference in the curves between the two of them.

David Wong - Wells Fargo: And my follow-up question, completely different topic, Intel Capital, you’ve got an improving overall environment. Should we start to see gains from equity investments over the next couple of years, and can you give us any idea of the pipeline of private investments that might be getting ready for IPO?

Stacy J. Smith - CFO and SVP: Well, for obvious reason, I won’t answer the second part of that question. That’s their job to tell you when they’re thinking about an IPO. But, yeah, I’d say, generally the answer to your question is, yes. I think the improvement we’ve seen over the last few quarters has really been a decrease in the rate at which investments are being impaired. As I think forward over the next year, I’d expect to start to see some gains and some exits coming in. Nothing on the radar for Q2, but looking out longer-term, that would be my expectation. We invest in Intel Capital portfolio of companies for two reasons; one is to get strategic benefit to the overall business, the other is to get a return, and the expectation is that we’re doing both of those things.

Operator: Ross Seymore, Deutsche Bank.

Ross Seymore - Deutsche Bank: Earlier you were kind enough to give us what normal seasonality is in the data center business for the first quarter. Can you let us know what it is for the remainder of the year or just kind of on a normal basis and how Nehalem might impact that?

Stacy J. Smith - CFO and SVP: You know, Ross, I don’t have that number at my fingertip, so let’s put this in the category of just taking a wild ass guess. Having run Intel IT, so Paul's cringing, I think that you'll probably see that the way that IT budgets work, you'll likely see spending on server infrastructure that's probably stronger in Q4 than it is in any other quarter. You probably see the kind of reduction we saw this quarter where it's down some. So it's going to be somewhat back-end loaded. To get to the quarter-by-quarter split, I don’t have that number at my finger.

Ross Seymore - Deutsche Bank: And then shifting gears a little bit over to the inventory side, now that your manufacturing cycle times are about half of once what they were and the hubbed amount of your business is larger than it's been. What impact does that have on the amount of inventory you actually need to have to service demand and can you frankly just operate leaner than you've ever done in the past?

Stacy J. Smith - CFO and SVP: Yes. Keep in mind, the two things you mentioned will move in opposite directions, right. So the hub, what it does is you will tend to see less overall inventory through the supply chain, but more of that inventory on my books, because I'm holding that at the customer location. The reduction in cycle times obviously allows us to operate at leaner levels. And so net of those two things I think you're going to continue to see us like we have been over the last four, five quarters operating at pretty efficient inventory levels. I want to caution you though that that won't preclude the need to get inventory in place when we're going through big product transitions or process technology transitions. It's the prudent thing to do to get inventory in place and that’s what we've tried to do in Q1 and what we will try again to do in Q2.

Operator: Sumit Dhanda, Bank of America.

Sumit Dhanda - Bank of America Merrill Lynch: Couple of questions. Stacy or Paul, you've done a great job with the ASPs the last couple of quarters, but at the same time you're expecting some kind of a modest decline into the back of the year. I guess I’m curious as to why you think that will be the case given your comments, Paul, of signs of a corporate recoveries, server should be seasonally strong in the back half of the year. Is it just Core i3 being a bigger part of the mix? Can you help us understand what the thought process there is?

Paul S. Otellini - President and CEO: So it really is the function of, we had a very rich mix in Q4 and Q1 as we were watching the first products on 32 nanometer. I expect that to be a more normal mix as we progress through the year, and again that’s against the backdrop of an ASP that’s down some, but less than it’s normally down. So, it is as simple as that. If you zoom away out on this, what we see over time is that Moore's Law allows us to bring new features, bring our cost down. We also bring prices down over time that drives the elasticity of demand. You see it in the consumer segment of the market. You see it in emerging markets and that ends up being an important growth driver for the business. So against that backdrop, we’re having a pretty benign pricing environment this year based on the strength of our product portfolio is how I’d characterize it.

Sumit Dhanda - Bank of America Merrill Lynch: And then, Stacy, the second follow-up for you. Any chance you could take a shot at quantifying the impact of the inventory writeoff you expect ahead of Sandy Bridge? Is it that same two, three point impact you typically see, for example, when you transitioned to 32-nanometers last year or is it some different amount we should be thinking about?

Stacy J. Smith - CFO and SVP: Yes. I’m not going to get to that level of granularity, because we haven’t given specific quarter-by-quarter forecast. I expect this to be a little bit of a negative impact in the back half of this year, but frankly none of the elements that I was articulating were in the magnitude of three to four points. So, I’m not expecting it to be that big.

Sumit Dhanda - Bank of America Merrill Lynch: And you think it’s a Q3 as opposed to Q4 phenomenon or you can’t tell us that yet?

Stacy J. Smith - CFO and SVP: It’s a back half phenomenon. It actually probably will be across both quarters based on where we are in the cycle for that product.

Operator: Doug Freedman, Broadpoint.

Doug Freedman - Broadpoint: Thanks guys for getting me and I’ll see if I can follow instructions here. So Stacy, a year ago you talked about the mix of products really being important to margins. Can you talk about Atom and Atom chipset margins compared with quad-core and if that whole ratio calculation you put up for us, if that’s played out the way you expected or if there has been any derivations from that?

Stacy J. Smith - CFO and SVP: Yes. On that one, I'll show you in much more detail next month when we're together for the investor meeting. But, yes, directionally it's played out exactly as I had anticipated. Cost came down. It’s a very healthy product margin. I showed a comparison of Atom to the existing core business excluding Atom and to the embedded business and showed that it got into a fairly similar range. That’s how it is played out from a product margin percent standpoint, which I think is how you asked the question, right?

Doug Freedman - Broadpoint: Yes. And then sort of as my follow-up, sticking with Atom as the theme, there is some concern in the marketplace and as relevant from your numbers in Q1 that Atom didn’t really sell as well in the quarter. Earlier in the call, you guys mentioned that it was related to just seasonality and the over exuberance in the marketplace, too many new entrants. Is there something you can do with Atom pricing to reinvigorate those sales? Is that something that you would look to do? Or what is your strategy should Atom not sell as well as expected throughout the balance of the year?

Paul S. Otellini - President and CEO: Well, there is Atom in netbooks and there is Atom going into other products and I think you are asking the question – but Atom going into other products is design cycle and you'll see other kinds of products with Atom in it over the course of this year. Someone asked a question earlier about tablets, and there’s rumor out there about certain consumer electronics equipment and phones and things like that. That’s not really the heart of the question. The heart of the question is netbooks, and as I said earlier, I think there will still be significant growth in the netbook business year-over-year. I think that there are – rather than pricing, I think we would look to features and integrations as the technical norms we would twist here. The next innovation coming out on Atom is dual-core, which comes out in the second quarter, until that will ramp for the holiday season this year. I think that will be a very attractive product. And then in early Q1, we have another innovation at much lower power, integration of much lower power product coming out that’s a derivative of it, for fanless netbook business. So you’ll see us use technology to make the platform a bit better each time or to integrate more features and make it cheaper.

Operator: Mahesh Sanganeria, RBC Capital Market.

Mahesh Sanganeria - RBC Capital Market: I’ll just ask one long question instead of two questions. And if you can give us an update on wireless display, how the adoption has been, I think the current price point for the SKUs is 900, do you see that coming to 600 to mid-700 range by the back-to-school? And also what the competitive response has been from AMD and NVIDIA on this product?

Paul S. Otellini - President and CEO: Well, I can't comment on the price points as our customers set those price points. So I can say is that the amount of design activity – first of all, WiDi products has been very well received. It's selling through the channel nicely at the Best Buy, which is where it really is semi-exclusive right now. Over the course of the year, you'll see many more SKUs and many more distributors picking up the product and I think it'll be a must have feature for holiday timeframe. They may come down in price a bit, but generally speaking, I think it's going to get broader before it gets a lot cheaper. In terms of other vendors trying to do similar technology, I'd say, good luck. This took us quite a while to be able to develop, to be able to get this done. We have a roadmap of features that will make – take WiDi better over time that add more content protection, Blu-ray support, et cetera, et cetera. So this is one where being out early, doing a lot of the work at the platform level, the software level, and then having a feature roadmap, I think really is what makes it compelling.

R. Kevin Sellers - VP, Finance, Director, IR: I want to thank everyone for joining our call today. As a reminder, our quiet period for the second quarter will begin at the close of business on Friday, May 28th. Our second quarter earnings conference call is scheduled for July 13th, 2010. Thank you all and good night.

Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.