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Intel Corporation's R&D Grows as Marketing Expenses Shrink

Microprocessor giant Intel (NASDAQ: INTC) reported solid second-quarter financial results on July 27, topping revenue and earnings per share estimates for the quarter and even raising its full-year revenue and profit outlook for the year.

It was a strong showing from the chip giant, and it looks like it's going to be smooth sailing for the company for the remainder of the year.

Image source: Intel.

In combing the company's earnings report and form 10-Q filing, I noticed that, year over year, Intel's research and development (R&D) spending increased while the company's marketing, general, and administrative (MG&A) expenses declined.

The company provided explanations for those increases in the 10-Q. Let's go over them.

The research and development bump

Intel says its spending on research and development (R&D) hit $3.275 billion in the quarter, representing a $130 million (4%) increase from the same quarter a year ago. For the first six months of this year, Intel says its R&D spending increased by $210 million (3%), hitting $6.6 billion.

Intel attributes this to several factors.

The first was "higher profit-dependent compensation due to an increase in net income."

That one is straightforward.

Next, Intel says that it increased its "investments in growth areas." Intel is likely referring to incremental investments in its non-volatile memory solutions group (NSG), data center group (DCG), and Internet of Things (IoTG) group when it talks about growth areas.

This shouldn't be too surprising; Intel reported that its IoTG revenue was up 26%, its NSG revenue popped 58%, and DCG saw 9% revenue growth in the quarter. Intel is also likely increasing its spending in its Programmable Solutions Group (PSG), formerly known as Altera, but last quarter, this segment wasn't technically a "growth area" as its revenue dropped 5% year over year.

Intel is seemingly trying to strike while the iron is hot, and that's the right thing for it to do.

After that, Intel says that it's seeing "higher process development costs for [its] 7nm process technology."

Intel struggled with its transition to its 14nm technology (which is currently used to build most of the company's product portfolio today), and its transition to 10nm technology is quite late, so it's unsurprising (and I'll even allow myself to be a bit excited) to see the company try to get ahead of things and boost its research and development spending to make 7nm happen when it's supposed to.

The company then said that partially offsetting those spending increases were reductions in spending related to the company's spinoff of its now-divested Intel Security Group as well as "savings from [its] 2016 Restructuring Program."

The MG&A drop

Intel's investments in building new products and technologies is up, but its spending with respect to selling those products in the marketplace appears to be down.

Intel says its MG&A spending declined $153 million year over year in the quarter, and that for the first six months of the year, that spending dropped by $275 million.

"These decreases were driven by the [Intel Security Group] divestiture, savings from [Intel's] 2016 Restructuring Program, and lower acquisition-related charges, partially offset by higher profit-dependent compensation due to an increase in net income," Intel's 10-Q filing read.

It doesn't look like Intel it "gutting" its marketing efforts, here; it still spent $1.854 billion on MG&A in the last quarter. However, with Intel Security gone and with the company seemingly hoping to "trim the fat" with its restructuring efforts, the company certainly appears to be trying to be "leaner and meaner" in this segment.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.