Operating income increased 18% to $17.5 billion, and lagged revenue growth due to a 190 basis point decline in gross margin on a non-GAAP basis (non-GAAP because it excludes $480 million in amortization of acquisition-related intangibles. Net income jumped 19% to $12.9 billion, and non-GAAP EPS increased 25% to $2.39, marking the company’s most profitable year in its history.
For the year, the PC Client Group had revenue of $35.4 billion, up 17% from the $30.3 billion generated in 2010. The increase was driven by strong demand in emerging markets (at 2 out of every 3 incremental of PC demand) and continued unit growth from the enterprise market segment. As a result, operating income for the segment increased 14%, to $14.8 billion for the full year.
Expounding on the potential for continued growth in emerging market PC demand, here is what CEO Paul Otellini had to say:
“Looking back at the last 12 months of reported data, emerging markets like India and Indonesia grew 22% and 37%, respectively. China, now the largest PC market in the world, represents 20% of all PC demand and grew a remarkable 15% [in 2011]. Even with that, China has a household penetration rate of just 35%, versus almost 90% in the U.S.”
The Other Intel architecture group, which is focused on mobile, tablets, netbooks, and embedded applications, had revenue of $5 billion in 2011, up 64% from the $3 billion generated in 2010; after adjusting for the $2.1 billion contributed by Intel Mobile Communications (IMC), revenue for the group was down 2% in 2011.
For those who watched CES, you might remember that Lenovo showed off the K800 Smartphone, which is based on Intel’s Medfield SoC (system on a chip). Mr. Otellini noted on the call that “The K800 will be available on the China Unicom network in Q2, and will showcase Intel architecture in a phone with very competitive battery life and outstanding performance.”
For the year, the Data Center Group, which is focused on the server, workstation, and storage computing market segments, had revenue of $10.1 billion, up 17% from the $8.7 billion generated in 2010 and ahead of the company’s forecast from the investor meeting of 15%. Storage revenue for the year was up 42%, marking a new record high for the business. Operating income in the segment increased 16.2% from 2010, and eclipsed $5 billion for the first time
In the first quarter of 2012, Intel expects revenue to be in the range of $12.3 billion to $13.3 billion, with the midpoint being dead in-line with Q1 2011 revenue of $12.8 billion but down 8% sequentially with Q4 2011. For the full year, revenue is expected to grow in the high single digits and come up just shy of $60 billion.
In an effort to continue their dominance technologically, the company spent $8.3 billion in R&D, up 27% from 2010; this compares to 2011 research & development of roughly $1.5 billion and $3 billion for AMD (AMD) and Qualcomm (QCOM), respectively. In their forecast for 2012, Intel estimates that they will spend $10.1 billion in the coming year on R&D, an increase of 21% from the 2011 figure.
The company paid $4.1 billion in dividends (increased the annualized yield by 33% YOY) and used $14.1 billion to repurchase 642 million shares of stock, equal to more than 10% of the current market capitalization; on Friday, INTC shares were up nearly 3%.
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I hope to own a collection of great businesses; to ever sell one, I demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over many years.