e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 25, 2010.
or
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
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Commission File Number
000-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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94-1672743
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State or other jurisdiction of
incorporation or organization
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(I.R.S. Employer
Identification No.)
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2200 Mission College Boulevard, Santa Clara, California
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95054-1549
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code (408)
765-8080
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common stock, $0.001 par value
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The NASDAQ Global Select Market*
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities
Act. Yes x No o
Indicate by check mark if the
registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the
Act. Yes o No x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes x No o
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was
required to submit and post such
files). Yes x No o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation
S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form
10-K or any
amendment to this Form
10-K. o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in Rule
12b-2 of the
Exchange Act.
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Large accelerated
filer x
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule
12b-2 of the
Act). Yes o No x
Aggregate market value of voting
and non-voting common equity held by non-affiliates of the
registrant as of June 25, 2010, based upon the closing price of
the common stock as reported by The NASDAQ Global Select Market*
on such date, was
$111.5 billion
5,488 million shares of common stock outstanding as of February
4, 2011
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants
Proxy Statement related to its 2011 Annual Stockholders
Meeting to be filed subsequentlyPart III of this Form
10-K.
INTEL
CORPORATION
FORM
10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 25, 2010
INDEX
PART
I
Company
Overview
We are the worlds largest semiconductor chip maker, based
on revenue. We develop advanced integrated digital technology,
primarily integrated circuits, for industries such as computing
and communications. Integrated circuits are semiconductor chips
etched with interconnected electronic switches. We also develop
computing platforms, which we define as integrated hardware and
software computing technologies that are designed to provide an
optimized solution. Our goal is to be the preeminent computing
solutions company that powers the worldwide digital economy. We
are transforming from a company with a primary focus on the
design and manufacture of semiconductor chips for PCs and
servers to a computing company that delivers complete solutions
in the form of hardware and software platforms and supporting
services.
We were incorporated in California in 1968 and reincorporated in
Delaware in 1989.
In the first quarter of 2011, we completed the acquisition of
the Wireless Solutions (WLS) business of Infineon Technologies
AG. See Acquisitions and Strategic Investments later
in this section for a description of that business.
Distribution
of Company Information
Our Internet address is www.intel.com. We publish
voluntary reports on our web site that outline our performance
with respect to corporate responsibility, including
environmental, health, and safety (EHS) compliance.
We use our Investor Relations web site, www.intc.com, as
a routine channel for distribution of important information,
including news releases, analyst presentations, and financial
information. We post filings as soon as reasonably practicable
after they are electronically filed with, or furnished to, the
U.S. Securities and Exchange Commission (SEC), including our
annual and quarterly reports on Forms
10-K and
10-Q
(including related filings in XBRL format) and current reports
on Form 8-K;
our proxy statements; and any amendments to those reports or
statements. All such postings and filings are available on our
Investor Relations web site free of charge. In addition, our web
site allows interested persons to sign up to automatically
receive
e-mail
alerts when we post news releases and financial information. The
SECs web site, www.sec.gov, contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC. The content on
any web site referred to in this Form
10-K is not
incorporated by reference in this Form
10-K unless
expressly noted.
Products
We design and manufacture computing and communications
components, such as microprocessors, chipsets, motherboards, and
wireless and wired connectivity products. Our platforms
incorporate software to enable and advance these components. We
strive to optimize the overall performance of our products by
improving energy efficiency, seamless connectivity to the
Internet, and security features. Improved energy efficiency is
achieved by lowering power consumption in relation to
performance capabilities, and may result in longer battery life,
reduced system heat output, power savings, and lower total cost
of ownership. Increased performance can include faster
processing performance and other improved capabilities, such as
multithreading, multitasking, and processor graphics.
Performance can also be improved by enhancing interoperability
among devices, storage, manageability, utilization, reliability,
and ease of use.
Our vision is to create a continuum of personal computing
experiences based on
Intel®
architecture. This continuum would give consumers a set of
secure, consistent, and personalized computing experiences with
a variety of devices that connect to the Internet and each
other. Our goal is to provide consistency and interoperability
between devices that are connected seamlessly and require
computing capability both locally and in cloud computing. Cloud
computing is a group of linked servers that provides a variety
of applications and data to users over the Internet.
Components
Microprocessors
A microprocessorthe central processing unit (CPU) of a
computer systemprocesses system data and controls other
devices in the system. We offer microprocessors with one or
multiple processor cores designed for notebooks, netbooks,
desktops, servers, workstations, storage products, embedded
applications, communications products, consumer electronics
devices, and handheld devices. Multi-core microprocessors can
enable improved multitasking and energy-efficient performance by
distributing computing tasks across two or more cores.
1
The majority of our microprocessors are manufactured using our
32-nanometer (nm) second-generation Hi-k metal gate silicon
process technology (32nm process technology). The use of Hi-k
metal gate transistors increases performance while
simultaneously reducing the leakage of electrical current. In
December 2010, we introduced the 2nd generation
Intel®
Coretm
processor family (formerly code-named Sandy Bridge), a new
microarchitecture based on our 32nm process technology.
Microarchitecture refers to the layout, density, and logical
design of a microprocessor. Our 2nd generation Intel Core
processor family incorporates features designed to increase
performance and energy efficiency, such as:
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Integrated processor graphics, which allow for shared
resources across processing cores and graphics architectures to
enable optimal performance while saving power;
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Intel®
Advanced Vector Extensions, which allow for faster and
simpler performance of computationally intensive tasks, such as
digital photo editing, creation of music, and other content
creation;
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Intel®
Turbo Boost Technology 2.0, which automatically
increases processor frequency when applications demand higher
performance; and
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Intel®
Quick Sync Video, which accelerates encoding,
decoding, and transcoding features, such as conversion of media
for portable players and online video-sharing services.
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Our 2nd generation Intel Core processor family integrates
graphics functionality onto the processor die. In contrast, some
of our previous-generation 32nm processors have incorporated a
separate 45nm graphics chip inside the processor package. We
also offer graphics functionality as part of a separate chipset
outside the processor package. Processor packages may also
integrate the memory controller.
In addition, we offer and are continuing to develop System on
Chip (SoC) products that integrate our core processing
functionalities with other system components, such as graphics,
audio, and video, onto a single chip to form a purpose-built
solution. SoC products are designed to reduce total cost of
ownership, and provide improved performance due to higher
integration, lower power consumption, and smaller form factors.
Chipsets
A chipset sends data between the microprocessor and input,
display, and storage devices, such as the keyboard, mouse,
monitor, hard drive or solid-state drive, and CD, DVD, or
Blu-ray* drive. We offer chipsets designed for notebooks,
netbooks, desktops, servers, workstations, storage products,
embedded applications, communications products, consumer
electronics devices, and handheld devices. Chipsets extend the
audio, video, and other capabilities of many systems and perform
essential logic functions, such as balancing the performance of
the system and removing bottlenecks. Some chipsets may also
include graphics functionality or both graphics functionality
and a memory controller, for use with our microprocessors that
do not integrate those system components.
Motherboards
We offer motherboard products designed for our desktop, server,
and workstation platforms. A motherboard is the principal board
within a system, and typically contains the microprocessor,
chipset, memory, and other components. The motherboard also has
connectors for attaching devices to the bus, which is the
subsystem that transfers data among various components of a
computer.
Wireless
and Wired Connectivity
We offer wireless and wired connectivity products, including
network adapters and embedded wireless cards, based on
industry-standard protocols used to translate and transmit data
across networks. Wireless connectivity products based on WiFi
technology allow users to wirelessly connect to high-speed local
area networks, typically within a close range. We have also
developed wireless connectivity products for both mobile and
fixed networks based on WiMAX, a standards-based wireless
technology providing high-speed broadband connectivity that can
link users and networks up to several miles apart.
Microprocessor
and Platform Technologies
We offer features to improve microprocessor and platform
capabilities that can enhance system performance and the user
experience. For example, we offer technologies that can help
information technology managers maintain, manage, and protect
enabled systems that are plugged into a power source and
connected to a network, even if a computer is turned off or has
a failed hard drive or operating system. We also offer
technologies that can enable virtualization, in which a single
computer system can function as multiple virtual systems by
running multiple operating systems and applications.
Virtualization can consolidate workloads and provide increased
security and management capabilities. To take advantage of these
and other features that we offer, a computer system must have a
microprocessor that supports a chipset, BIOS (basic input/output
system) that uses the technology, and software that is optimized
for the technology. Performance will vary depending on the
system hardware and software used. We also offer technology that
enables each processor core to process two software tasks or
threads simultaneously.
2
Additional
Product Offerings
We offer NAND flash memory, which is a specialized type
of memory component primarily used in portable memory storage
devices, digital camera memory cards, solid-state drives, and
other devices. NAND flash memory retains information even when
the power is off, and provides faster access to data than
traditional hard drives. Because flash memory does not have any
moving parts, it tolerates bumps and shocks better than devices
such as rapidly spinning disk drives.
We offer certain software products, including operating
systems, middleware, and tools used to develop, run, and manage
a wide variety of enterprise, consumer, embedded, and handheld
devices. In addition, we offer software development tools,
designed to complement our latest hardware technologies, that
help enable the creation of applications.
Revenue
by Major Operating Segment
Net revenue for the PC Client Group (PCCG) operating segment,
the Data Center Group (DCG) operating segment, and the other
Intel architecture (Other IA) operating segments is presented as
a percentage of our consolidated net revenue. Other IA includes
the Embedded and Communications Group, the Digital Home Group,
and the Ultra-Mobility Group operating segments. All other
includes the NAND Solutions Group, the Wind River Software
Group, the Software and Services Group, and the Digital Health
Group.
Percentage
of Revenue by Major Operating Segment
(Dollars
in Millions)
Revenue from sales of microprocessors and revenue from sales of
chipsets, motherboards, and other, presented as a percentage of
our consolidated net revenue, were as follows:
Percentage
of Revenue from Microprocessor Sales
(Dollars
in Millions)
For the PCCG and the DCG operating segments, the majority of
revenue from sales of chipsets, motherboards, and other was from
the sale of chipsets in all periods presented above.
3
For a description of all of our operating segments, see
Note 30: Operating Segment and Geographic
Information in Part II, Item 8 of this Form
10-K. Below,
we discuss the key products and processor technologies,
including some key introductions, of our operating segments. For
a discussion of our strategy, see Strategy in Part
II, Item 7 of this Form
10-K.
PC
Client Group
The PC Client Group (PCCG) offers microprocessors and related
chipsets designed for the notebook, netbook, and desktop market
segments. In addition, PCCG offers motherboards designed for the
desktop market segment and wireless connectivity products based
on WiFi and WiMAX technologies.
We currently offer a range of microprocessors designed for the
notebook, netbook, and desktop market segments that includes the:
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Intel®
Coretm
i3 processor, designed to deliver the performance needed for
multitasking;
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Intel®
Coretm
i5 processor, designed to deliver performance for everyday
applications, with the ability to boost the speed of PCs as
needed for demanding tasks, such as playing games and photo
editing;
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Intel®
Coretm
i7 processor, designed to deliver performance for demanding
tasks such as multimedia creation and editing, and intense
gaming;
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Intel®
Coretm
i7 processor Extreme Edition, designed to deliver performance
for the most demanding applications such as high-performance
gaming, high-definition content creation, and video encoding and
editing;
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Intel®
Atomtm
processor, designed for low-power, affordable Internet-focused
devices; and
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Previous-generation
Intel®
processors that are designed to deliver performance,
reliability, and energy efficiency.
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The various microprocessor packaging options and processor
technologies that we offer provide our customers with the
flexibility to develop a wide range of system designs and form
factors. In the notebook market segment, we offer
ultra-low-voltage processors designed for ultra-thin laptop
computers. For the notebook and netbook market segments, we
offer processor technologies designed to provide high
performance with improved multitasking, offer power-saving
features to improve battery life, enable smaller form factors,
allow for wireless network connectivity, and improve boot times.
For the notebook and desktop market segments, we offer
Intel®
vProtm
technology, which is designed to provide businesses with
increased manageability, upgradeability, energy-efficient
performance, and security while lowering the total cost of
ownership.
With our microprocessors, we also offer related chipsets
designed for the:
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Notebook and netbook market segments, including Mobile
Intel®
6 Series Express Chipsets, Mobile
Intel®
5 Series Express Chipsets, Mobile
Intel®
4 Series Express Chipsets, Mobile
Intel®
900 Series Express Chipsets, and the
Intel®
NM10 Express Chipset; and
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Desktop market segment, including
Intel®
6 Series Express Chipsets,
Intel®
5 Series Express Chipsets,
Intel®
4 Series Express Chipsets,
Intel®
3 Series Express Chipsets, and the
Intel®
NM10 Express Chipset.
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Our new product offerings in 2010 and early 2011 include:
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2nd generation
Intel®
Coretm
processor family, including Intel Core i7 processors, Intel Core
i5 processors, and Intel Core i3 processors, which incorporate
features designed to increase performance and energy efficiency.
These processors are supported by the new Intel 6 Series Express
Chipset family.
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Intel Core i7 processors, Intel Core i5 processors, and Intel
Core i3 processors, manufactured using our 32nm process
technology and including integrated high-definition graphics
functionality. These processors are supported by the Intel 5
Series Express Chipset family.
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Six-core Intel Core i7 processor Extreme Edition featuring 12
computing threads, designed for digital content creation,
3-D
rendering, and high-performance gaming.
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Intel Atom processors with integrated graphics functionality,
designed to enable improved performance and smaller, more
energy-efficient form factors.
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Ultra-low-voltage processors manufactured using our 32nm process
technology, and chipsets designed for ultra-thin laptop
computers.
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Intel®
Centrino®
wireless adapters, designed to offer high-speed and reliable
connectivity, and consistent coverage, while consuming minimal
power.
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4
Data
Center Group
The Data Center Group (DCG) offers products that are
incorporated into servers, storage, workstations, and other
products that help make up the infrastructure for data center
and cloud computing environments. DCGs products include
microprocessors and related chipsets, and motherboards and wired
connectivity devices.
Our current server, workstation, and storage microprocessor
offerings include the
Intel®
Xeon®
processor and the
Intel®
Itanium®
processor. Our Intel Xeon processor family of products supports
a range of entry-level to high-end technical and commercial
computing applications such as Internet Protocol data centers.
Our Intel Itanium processor family generally supports an even
higher level of reliability and computing performance for data
processing, and handling high transaction volumes and other
compute-intensive applications for enterprise-class servers, as
well as supercomputing solutions. Servers usually have multiple
microprocessors or cores working together, manage large amounts
of data, direct data traffic, perform complex transactions, and
control central functions in local and wide area networks and on
the Internet. Workstations typically offer higher performance
than standard desktop PCs and are used for applications such as
engineering design, digital content creation, and
high-performance computing. Storage processors range from SoCs
for low-cost storage systems to high-performance multi-core
processors in mid- to high-end storage systems such as storage
area networks.
Our new product offerings in 2010 and early 2011 include:
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Quad-core Intel Itanium processors with enhanced scalability and
reliability features, designed for mission-critical computing.
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Dual-core and quad-core Intel Xeon processors designed for
entry-level servers for small businesses and educational
settings; six-core Intel Xeon processors designed for
high-performing computing applications in science and financial
services; and eight-core Intel Xeon processors designed for
highly parallel, data-demanding, and mission-critical workloads.
Many of these processors integrate security capabilities
designed to enhance data integrity and server virtualization.
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Other
Intel Architecture Operating Segments
Embedded
and Communications Group
The Embedded and Communications Group (ECG) offers highly
scalable microprocessors, including Intel Atom processors, and
chipsets for a growing number of embedded applications across
numerous market segments, such as industrial, medical, and
in-vehicle infotainment.
Our new product offerings in 2010 and early 2011 include:
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Embedded Intel Core i7 processors, Intel Core i5 processors, and
Intel Core i3 processors, all using our 32nm process technology
and with integrated high-definition graphics functionality.
These processors are supported by the Mobile Intel 5 Series
Express Chipset family.
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The first six-core Intel Xeon processor for the embedded
computing segment, as well as quad-core processors that are
built for thermally constrained environments.
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Intel Atom processors designed for print imaging, digital
security surveillance, in-vehicle infotainment systems, and
other industrial applications.
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Configurable Intel Atom processors that incorporate
field-programmable gate arrays, designed to enable original
equipment manufacturers (OEMs) to customize and differentiate
their products.
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Digital
Home Group
The Digital Home Group offers products for use in consumer
electronics devices designed to access and share Internet,
broadcast, optical media (CD, DVD, or Blu-ray), and personal
content through a variety of linked digital devices within the
home. We offer components for consumer electronics devices such
as digital TVs, high-definition media players, cable modems, and
set-top boxes, which receive, decode, and convert incoming data
signals. In 2010, we introduced Intel Atom processors designed
to enable seamless integration of Internet, television, and
personal content with search capability.
Ultra-Mobility
Group
The Ultra-Mobility Group offers energy-efficient Intel Atom
processors and related chipsets designed for the handheld market
segment. In 2010, we introduced an Intel Atom processor-based
platform that provides significantly lower power consumption
compared to previous-generation Intel Atom processor-based
platforms. The new platform is designed for a range of computing
devices, including high-end smartphones and other mobile
handheld products.
5
Other
Operating Segments
NAND
Solutions Group
The NAND Solutions Group offers NAND flash memory products
primarily used in portable memory storage devices, digital
camera memory cards, solid-state drives (SSDs), and other
devices. Our SSDs, available in densities ranging from 32
gigabytes (GB) to 250 GB, weigh less than traditional hard
drives and are designed to enable faster boot times, lower power
consumption, increased reliability, and improved performance.
Our NAND flash memory products are manufactured by IM Flash
Technologies, LLC (IMFT). See Note 11: Equity Method and
Cost Method Investments in Part II, Item 8 of this Form
10-K.
In 2010 and early 2011, we introduced 40-GB, 120-GB, and 250-GB
SSDs based on 34nm NAND flash technology, designed for laptop
and desktop computers. In addition, we introduced 40-GB and
80-GB small-form-factor SSDs based on 34nm NAND flash
technology, designed for dual-drive notebooks and
all-in-one
desktops and tablet computers.
Wind
River Software Group
The Wind River Software Group develops and licenses device
software optimization products, including operating systems, for
the needs of customers in the embedded and handheld market
segments.
Manufacturing
and Assembly and Test
As of December 25, 2010, 61% of our wafer fabrication, including
microprocessors and chipsets, was conducted within the U.S. at
our facilities in Arizona, New Mexico, Oregon, and
Massachusetts. The remaining 39% of our wafer fabrication was
conducted outside the U.S. at our facilities in Israel, Ireland,
and China. Our China facility began wafer manufacturing in the
fourth quarter of 2010.
As of December 25, 2010, we primarily manufactured our products
in wafer fabrication facilities at the following locations:
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Products
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Wafer Size
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Process Technology
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Locations
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Microprocessors
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300mm
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32nm
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Oregon, Arizona, New Mexico
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Microprocessors
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300mm
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45nm
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Israel, New Mexico
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Chipsets and microprocessors
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300mm
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65nm
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Ireland, Arizona, China
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Chipsets and other products
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300mm
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90nm
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Ireland
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Chipsets and other products
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200mm
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130nm and above
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Massachusetts, Ireland
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As of December 25, 2010, the majority of our microprocessors
were manufactured on 300mm wafers using our 32nm process
technology. In the second half of 2011, we expect to begin
manufacturing microprocessors using our 22nm process technology.
As we move to each succeeding generation of manufacturing
process technology, we incur significant
start-up
costs to prepare each factory for manufacturing. However,
continuing to advance our process technology provides benefits
that we believe justify these costs. The benefits of moving to
each succeeding generation of manufacturing process technology
can include using less space per transistor, reducing heat
output from each transistor,
and/or
increasing the number of integrated features on each chip. These
advancements can result in microprocessors that are higher
performing, consume less power,
and/or cost
less to manufacture.
We use third-party manufacturing companies (foundries) to
manufacture wafers for certain components, including networking
and communications products. In addition, we primarily use
subcontractors to manufacture board-level products and systems,
and purchase certain communications networking products from
external vendors in the Asia-Pacific region.
Following the manufacturing process, the majority of our
components are subject to assembly and test. We perform our
components assembly and test at facilities in Malaysia, China,
Costa Rica, and Vietnam. Our Vietnam facility began production
in the first half of 2010. To augment capacity, we use
subcontractors to perform assembly of certain products,
primarily chipsets and networking and communications products.
Our NAND flash memory products are manufactured by IMFT, a NAND
flash memory manufacturing company that we formed with Micron
Technology, Inc. Our NAND flash memory products are manufactured
by IMFT using 25nm, 34nm, or 50nm process technology. As of
December 25, 2010, we were committed to purchase 49% of the
manufactured output of IMFT. Assembly and test of NAND flash
memory products is performed by Micron and other external
subcontractors. See Note 11: Equity Method and Cost Method
Investments in Part II, Item 8 of this Form
10-K.
Our employment practices are consistent with, and we expect our
suppliers and subcontractors to abide by, local country law. In
addition, we impose a minimum employee age requirement as well
as progressive EHS requirements, regardless of local law.
6
We have thousands of suppliers, including subcontractors,
providing our various materials and service needs. We set
expectations for supplier performance and reinforce those
expectations with periodic assessments. We communicate those
expectations to our suppliers regularly and work with them to
implement improvements when necessary. We seek, where possible,
to have several sources of supply for all of these materials and
resources, but we may rely on a single or limited number of
suppliers, or upon suppliers in a single country. In those
cases, we develop and implement plans and actions to reduce the
exposure that would result from a disruption in supply. We have
entered into long-term contracts with certain suppliers to
ensure a portion of our silicon supply.
Our products are typically produced at multiple Intel facilities
at various sites around the world, or by subcontractors who have
multiple facilities. However, some products are produced in only
one Intel or subcontractor facility, and we seek to implement
action plans to reduce the exposure that would result from a
disruption at any such facility. See Risk Factors in
Part I, Item 1A of this Form
10-K.
Research
and Development
We are committed to investing in world-class technology
development, particularly in the design and manufacture of
integrated circuits. Research and development (R&D)
expenditures in 2010 were $6.6 billion ($5.7 billion in 2009 and
2008).
Our R&D activities are directed toward developing the
technology innovations that we believe will deliver our next
generation of products and platforms, which will in turn enable
new form factors and usage models for businesses and consumers.
Our R&D activities range from designing and developing new
products and manufacturing processes to researching future
technologies and products.
We are focusing our R&D efforts on advanced computing
technologies, developing new microarchitectures, advancing our
silicon manufacturing process technology, delivering the next
generation of microprocessors and chipsets, improving our
platform initiatives, and developing software solutions and
tools to support our technologies. Our R&D efforts enable
new levels of performance and address areas such as energy
efficiency, security, scalability for multi-core architectures,
system manageability, and ease of use. We continue to make
significant R&D investments in the development of SoCs to
enable growth in areas such as handheld devices, embedded
applications, and consumer electronics. In addition, we continue
to make significant investments in wireless technologies,
graphics, and high-performance computing.
As part of our R&D efforts, we plan to introduce a new
microarchitecture for our notebook, desktop, and Intel Xeon
processors approximately every two years and ramp the next
generation of silicon process technology in the intervening
years. We refer to this as our tick-tock technology
development cadence. In 2010, we introduced our 2nd generation
Intel Core microarchitecture, a new microarchitecture using our
existing 32nm process technology. We are currently developing
22nm process technology, our next-generation process technology,
and expect to begin manufacturing products using that technology
in the second half of 2011. Our leadership in silicon technology
has enabled us to make Moores Law a reality.
Moores Law predicted that transistor density on integrated
circuits would double about every two years. Our leadership in
silicon technology has also helped expand on the advances
anticipated by Moores Law by bringing new capabilities
into silicon and producing new products and platforms optimized
for a wider variety of applications.
Our R&D model is based on a global organization that
emphasizes a collaborative approach to identifying and
developing new technologies, leading standards initiatives, and
influencing regulatory policies to accelerate the adoption of
new technologies. Our R&D initiatives are performed by
various internal business groups, and we centrally manage key
cross-business group product initiatives to align and prioritize
our R&D activities across these groups. In addition, we may
augment our R&D initiatives by investing in companies or
entering into agreements with companies that have similar
R&D focus areas. For example, we have an agreement with
Micron for joint development of NAND flash memory technologies.
Employees
As of December 25, 2010, we had 82,500 employees worldwide, with
approximately 55% of those employees located in the U.S.
Sales and
Marketing
Customers
We sell our products primarily to original equipment
manufacturers (OEMs) and original design manufacturers (ODMs).
ODMs provide design
and/or
manufacturing services to branded and unbranded private-label
resellers. In addition, we sell our products to other
manufacturers, including makers of a wide range of industrial
and communications equipment. Our customers also include those
who buy PC components and our other products through
distributor, reseller, retail, and OEM channels throughout the
world.
7
Our worldwide reseller sales channel consists of thousands of
indirect customerssystems builders that purchase Intel
microprocessors and other products from our distributors. We
have a boxed processor program that allows distributors to sell
Intel microprocessors in small quantities to these
systems-builder customers; boxed processors are also available
in direct retail outlets.
In 2010, Hewlett-Packard Company accounted for 21% of our net
revenue (21% in 2009 and 20% in 2008) and Dell Inc. accounted
for 17% of our net revenue (17% in 2009 and 18% in 2008). No
other customer accounted for more than 10% of our net revenue.
For information about revenue and operating income by operating
segment, and revenue from unaffiliated customers by geographic
region/country, see Results of Operations in Part
II, Item 7 and Note 30: Operating Segment and Geographic
Information in Part II, Item 8 of this Form
10-K.
Sales
Arrangements
Our products are sold through sales offices throughout the
world. Sales of our products are typically made via purchase
order acknowledgments that contain standard terms and conditions
covering matters such as pricing, payment terms, and warranties,
as well as indemnities for issues specific to our products, such
as patent and copyright indemnities. From time to time, we may
enter into additional agreements with customers covering, for
example, changes from our standard terms and conditions, new
product development and marketing, private-label branding, and
other matters. Most of our sales are made using electronic and
web-based processes that allow the customer to review inventory
availability and track the progress of specific goods ordered.
Pricing on particular products may vary based on volumes ordered
and other factors. We also offer discounts, rebates, and other
incentives to customers to increase acceptance of our products
and technology.
Our products are typically shipped under terms that transfer
title to the customer, even in arrangements for which the
recognition of revenue and related costs of sales is deferred.
Our standard terms and conditions of sale typically provide that
payment is due at a later date, generally 30 days after shipment
or delivery. Our credit department sets accounts receivable and
shipping limits for individual customers to control credit risk
to Intel arising from outstanding account balances. We assess
credit risk through quantitative and qualitative analysis, and
from this analysis, we establish credit limits and determine
whether we will seek to use one or more credit support devices,
such as obtaining some form of third-party guarantee or standby
letter of credit, or obtaining credit insurance for all or a
portion of the account balance if necessary. Credit losses may
still be incurred due to bankruptcy, fraud, or other failure of
the customer to pay. For information about our allowance for
doubtful receivables, see Schedule IIValuation and
Qualifying Accounts in Part IV of this Form
10-K.
Most of our sales to distributors are made under agreements
allowing for price protection on unsold merchandise and a right
of return on stipulated quantities of unsold merchandise. Under
the price protection program, we give distributors credits for
the difference between the original price paid and the current
price that we offer. On most products, there is no contractual
limit on the amount of price protection, nor is there a limit on
the time horizon under which price protection is granted. The
right of return granted generally consists of a stock rotation
program in which distributors are able to exchange certain
products based on the number of qualified purchases made by the
distributor. We have the option to grant credit for, repair, or
replace defective products, and there is no contractual limit on
the amount of credit that may be granted to a distributor for
defective products.
Distribution
Distributors typically handle a wide variety of products,
including those that compete with our products, and fill orders
for many customers. We also utilize third-party sales
representatives who generally do not offer directly competitive
products but may carry complementary items manufactured by
others. Sales representatives do not maintain a product
inventory; instead, their customers place orders directly with
us or through distributors. We have several distribution
warehouses that are located in close proximity to key customers.
Backlog
We do not believe that backlog as of any particular date is
meaningful, as our sales are made primarily pursuant to standard
purchase orders for delivery of products. Only a small portion
of our orders is non-cancelable, and the dollar amount
associated with the non-cancelable portion is not significant.
Seasonal
Trends
Our microprocessor sales generally have followed a seasonal
trend. Historically, our sales have been higher in the second
half of the year than in the first half of the year,
accelerating in the third quarter and peaking in the fourth
quarter. Consumer purchases of PCs have historically been higher
in the second half of the year, primarily due to
back-to-school
and holiday demand. In addition, purchases from businesses have
also historically tended to be higher in the second half of the
year.
8
Marketing
Our corporate marketing objectives are to build a strong,
well-known Intel corporate brand that connects with businesses
and consumers, and to offer a limited number of meaningful and
valuable brands in our portfolio to aid businesses and consumers
in making informed choices about technology purchases. The Intel
Core processor family and the Intel Atom,
Intel®
Pentium®,
Intel®
Celeron®,
Intel Xeon, and Intel Itanium trademarks make up our processor
brands.
We promote brand awareness and generate demand through our own
direct marketing as well as co-marketing programs. Our direct
marketing activities include television, print, and Internet
advertising, as well as press relations, consumer and trade
events, and industry and consumer communications. We market to
consumer and business audiences, and focus on building awareness
and generating demand for increased performance, improved energy
efficiency, and other capabilities such as Internet connectivity
and security.
Purchases by customers often allow them to participate in
cooperative advertising and marketing programs such as the Intel
Inside®
Program. This program broadens the reach of our brands beyond
the scope of our own direct marketing. Through the Intel Inside
Program, certain customers are licensed to place Intel logos on
computers containing our microprocessors and processor
technologies, and to use our brands in their marketing
activities. The program includes a market development component
that accrues funds based on purchases and partially reimburses
the OEMs for marketing activities for products featuring Intel
brands, subject to the OEMs meeting defined criteria. These
marketing activities primarily include television, print, and
Internet marketing. We have also entered into joint marketing
arrangements with certain customers.
Competition
The semiconductor industry is dynamic, characterized by rapid
advances in technology and frequent product introductions. As
unit volumes of a product grow, production experience is
accumulated and costs typically decrease, further competition
develops, and prices decline. The life cycle of our products is
very short, sometimes less than a year. These short product life
cycles and other factors lead to frequent negotiations with our
OEM customers, which typically are large, sophisticated buyers
who are also operating in very competitive environments. Our
ability to compete depends on our ability to navigate this
environment, by improving our products and processes faster than
our competitors, anticipating changing customer requirements,
developing and launching new products and platforms, pricing our
products competitively, and reducing average unit cost. See
Risk Factors in Part I, Item 1A of this Form
10-K.
Our products compete primarily based on performance, energy
efficiency, features, price, quality, reliability, brand
recognition, and availability. We are focused on offering
innovative products and worldwide support for our customers at
competitive prices, including providing improved
energy-efficient performance, enhanced security, and Internet
connectivity. We believe that our computing platforms, which we
define as integrated hardware and software computing
technologies that are designed to provide an optimized solution,
provide us with a competitive advantage compared to components
that are used separately.
We believe that our network of manufacturing facilities and
assembly and test facilities gives us a competitive advantage.
This network enables us to have more direct control over our
processes, quality control, product cost, volume, timing of
production, and other factors. These facilities require
significant up-front capital spending and therefore make it
difficult for us to reduce our costs in the short term. Many of
our competitors do not own such facilities because they may not
be able to afford to do so or because their business models
involve the use of third-party foundries and assembly and test
subcontractors for manufacturing and assembly and test. The
third-party foundries and subcontractors may also offer
intellectual property, design services, and other goods and
services to our competitors. These fabless
semiconductor companies include Broadcom Corporation, NVIDIA
Corporation, QUALCOMM Incorporated, and VIA Technologies, Inc.
Some of our competitors, such as Advanced Micro Devices, Inc.
(AMD), own portions of such facilities through investment or
joint-venture arrangements with other companies.
We plan to continue to cultivate new businesses and work with
the computing and communications industries through standards
bodies, trade associations, OEMs, ODMs, and independent software
and operating system vendors to help align the industry to offer
products that take advantage of the latest market trends and
usage models. We frequently participate in industry initiatives
designed to discuss and agree upon technical specifications and
other aspects of technologies that could be adopted as standards
by standards-setting organizations. Our competitors may also
participate in the same initiatives and specification
development. Our participation does not ensure that any
standards or specifications adopted by these organizations will
be consistent with our product planning.
9
Microprocessors
We continue to be largely dependent on the success of our
microprocessor business. Our ability to compete depends on our
ability to deliver new microprocessor products with increased
performance capabilities and improved energy-efficient
performance at competitive prices. Some of our microprocessor
competitors, such as AMD, market software-compatible products
that compete with our processors. We also face competition from
companies offering rival architecture designs, such as Cell
Broadband Engine Architecture developed jointly by International
Business Machines Corporation (IBM), Sony Corporation, and
Toshiba Corporation; Power Architecture* offered by IBM; ARM*
architecture developed by ARM Limited; and Sun Scalable
Processor Architecture (SPARC*) offered by Oracle Corporation.
In addition, NVIDIA has begun developing CPUs based on the ARM
architecture to combine with its graphics processors and has
shifted some of the workload traditionally performed by the
microprocessor to its graphics processor.
AMD has been our primary competitor in the market segments for
microprocessors used in notebooks, desktops, and servers, while
companies using ARM-based designs are our primary competitors in
the growing market segments for microprocessors used in handheld
devices and tablets. Companies using ARM-based designs are also
targeting the notebook, netbook, and server market segments. ARM
does not manufacture microprocessors; they design and license
semiconductor intellectual property and offer supporting
software and services. Our ability to compete with ARM-based
competitors depends on our ability to design and produce
high-performance, energy-efficient microprocessors at
competitive prices. It also requires us to develop a software
ecosystem that appeals to end users and software developers. We
have taken a number of steps to build this software ecosystem,
including the development of MeeGo*, a Linux-based software
platform that will run on multiple hardware platforms; acquiring
McAfee, Inc., which we expect to complete in the first quarter
of 2011, and Wind River Systems, Inc.; and creating the
Intel®
Atomtm
Developer Program.
The following is a list of our main microprocessor competitors
by market segment:
|
|
|
|
|
PC Client: AMD, QUALCOMM, and VIA
|
|
|
Server: AMD, IBM, and Oracle
|
|
|
Application
Processors1:
AMD, Broadcom, Freescale Semiconductor, Inc., MediaTek Inc.,
NVIDIA, QUALCOMM, Samsung Electronics Co., Ltd.,
STMicroelectronics N.V., and Texas Instruments Incorporated (TI)
|
|
|
Mobile Communications
Processors2:
MediaTek, QUALCOMM, ST-Ericsson N.V., and TI
|
|
|
|
1 |
|
The application processors market segment includes
microprocessors designed for embedded applications, consumer
electronics devices, and tablets. |
2 |
|
The mobile communications processors market segment includes
microprocessors designed for handheld devices. |
Chipsets
Our chipsets compete with chipsets produced by companies such as
AMD (including chipsets marketed under the ATI Technologies,
Inc. brand), Broadcom, NVIDIA, Silicon Integrated Systems
Corporation, and VIA. We also compete with companies offering
graphics components and other special-purpose products used in
the notebook, netbook, desktop, and workstation market segments.
One aspect of our business model is to incorporate improved
performance and advanced properties into our microprocessors and
chipsets, for which demand may increasingly be affected by
competition from companies whose business models are based on
dedicated chipsets and other components, such as graphics
controllers.
Flash
Memory
Our NAND flash memory products currently compete with NAND
products primarily manufactured by Hynix Semiconductor Inc.,
Micron, Samsung, SanDisk Corporation, and Toshiba.
Connectivity
We offer products designed for wireless and wired connectivity,
and network processors. Our WiFi and WiMAX products currently
compete with products manufactured by Atheros Communications,
Inc., Broadcom, QUALCOMM, and other smaller companies.
Competition
Lawsuits and Government Matters
We are currently a party to lawsuits and government matters
involving our competitive practices. See Note 29:
Contingencies in Part II, Item 8 of this Form
10-K.
10
Acquisitions
and Strategic Investments
We expect to complete the acquisition of McAfee in the first
quarter of 2011. McAfee is a provider of security products and
services that help secure systems and networks. As a result of
the acquisition, we expect to hire approximately 6,400 McAfee
employees. McAfees offerings will include endpoint
security products, system security products, consumer security
products, network security products, and risk and compliance
products. Many of McAfees products are offered under a
software-as-a-service delivery model, an online console used to
manage and update hardware and software, which reduces
on-premise capital expenses. The anticipated acquisition of
McAfee reflects our belief that security is a fundamental
component of online computing. As we develop future products and
services, security considerations will be as important as our
continued focus on energy-efficient performance and Internet
connectivity.
In the first quarter of 2011, we completed the acquisition of
the WLS business of Infineon. As a result of the acquisition, we
expect to hire approximately 3,700 employees from Infineon. The
WLS business will operate as Intel Mobile Communications and
offer mobile phone components such as baseband processors, radio
frequency transceivers, and power management chips. In addition
to managing the existing WLS business, the objective of the
acquisition is to contribute to our strategy to provide
solutions with Internet connectivity to a broad range of
computing devices.
During 2009, we completed the acquisition of Wind River Systems,
a vendor of software for embedded devices. The objective of the
acquisition of Wind River Systems was to enable the introduction
of products for the embedded and handheld market segments,
resulting in benefits for our existing operations.
For further information, see Note 15: Acquisitions
in Part II, Item 8 of this Form
10-K.
Intellectual
Property and Licensing
Intellectual property rights that apply to our products and
services include patents, copyrights, trade secrets, trademarks,
and maskwork rights. We maintain a program to protect our
investment in technology by attempting to ensure respect for our
intellectual property rights. The extent of the legal protection
given to different types of intellectual property rights varies
under different countries legal systems. We intend to
license our intellectual property rights where we can obtain
adequate consideration. See Competition earlier in
this section, Risk Factors in Part I, Item 1A, and
Note 29: Contingencies in Part II, Item 8 of this
Form 10-K.
We have filed and obtained a number of patents in the U.S. and
other countries. While our patents are an important element of
our success, our business as a whole is not significantly
dependent on any one patent. Because of the fast pace of
innovation and product development, our products are often
obsolete before the patents related to them expire, and
sometimes are obsolete before the patents related to them are
even granted. As we expand our product offerings into new
industries, we also seek to extend our patent development
efforts to patent such product offerings. Established
competitors in existing and new industries, as well as companies
that purchase and enforce patents and other intellectual
property, may already have patents covering similar products.
There is no assurance that we will be able to obtain patents
covering our own products, or that we will be able to obtain
licenses from such companies on favorable terms or at all.
The majority of the software that we distribute, including
software embedded in our component-level and system-level
products, is entitled to copyright protection. To distinguish
Intel products from our competitors products, we have
obtained certain trademarks and trade names for our products,
and we maintain cooperative advertising programs with certain
customers to promote our brands and to identify products
containing genuine Intel components. We also protect certain
details about our processes, products, and strategies as trade
secrets, keeping confidential the information that we believe
provides us with a competitive advantage.
Compliance
with Environmental, Health, and Safety Regulations
Our compliance efforts focus on monitoring regulatory and
resource trends and setting company-wide performance targets for
key resources and emissions. These targets address several
parameters, including product design; chemical, energy, and
water use; climate change; waste recycling; and emissions.
Intel focuses on reducing natural resource use, the solid and
chemical waste by-products of our manufacturing processes, and
the environmental impact of our products. We currently use a
variety of materials in our manufacturing process that have the
potential to adversely impact the environment and are subject to
a variety of EHS laws and regulations. Over the past several
years, we have significantly reduced the use of lead and
halogenated flame retardants in our products and manufacturing
processes.
11
We work with the U.S. Environmental Protection Agency (EPA),
non-governmental organizations, OEMs, and retailers to help
manage
e-waste
(which includes electronic products nearing the end of their
useful lives) and promote recycling. The European Union requires
producers of certain electrical and electronic equipment to
develop programs that allow consumers to return products for
recycling. Many states in the U.S. have similar
e-waste
take-back laws. Although these laws are typically targeted at
the end electronic product and not the component products that
Intel manufactures, the inconsistency of many
e-waste
take-back laws and the lack of local
e-waste
management options in many areas pose a challenge for our
compliance efforts.
Intel seeks to reduce our global greenhouse gas emissions by
investing in energy conservation projects in our factories and
working with suppliers to improve energy efficiency. We take a
holistic approach to power management, addressing the challenge
at the silicon, package, circuit, micro/macro architecture,
platform, and software levels. We recognize that climate change
may cause general economic risk. For further information on the
risks of climate change, see Risk Factors in Part I,
Item 1A of this Form
10-K. We see
the potential for higher energy costs driven by climate change
regulations. This could include items applied to utilities that
are passed along to customers, such as carbon taxes or costs
associated with obtaining permits for our U.S. manufacturing
operations, emission cap and trade programs, or renewable
portfolio standards.
We are committed to sustainability and take a leadership
position in promoting voluntary environmental initiatives and
working proactively with governments, environmental groups, and
industry to promote global environmental sustainability. We
believe that technology will be fundamental to finding solutions
to the worlds environmental challenges, and we are joining
forces with industry, business, and governments to find and
promote ways that technology can be used as a tool to combat
climate change.
We have been purchasing wind power and other forms of renewable
energy at some of our major sites for several years. At the
beginning of 2008, we announced plans to purchase renewable
energy certificates under a multi-year contract. The purchase
has placed Intel at the top of the EPAs Green Power
Partnership for the past three years and was intended to help
stimulate the market for green power, leading to additional
generating capacity and, ultimately, lower costs.
12
Executive
Officers of the Registrant
The following sets forth certain information with regard to our
executive officers as of February 18, 2011 (ages are as of
December 25, 2010):
|
|
|
Andy D. Bryant, age 60
|
2009 present,
|
|
Executive VP, Technology, Manufacturing, and Enterprise
Services, Chief Administrative Officer
|
2007 2009,
|
|
Executive VP, Finance and Enterprise Services, Chief
Administrative Officer
|
2001 2007,
|
|
Executive VP, Chief Financial and Enterprise Services Officer
|
Member of Columbia Sportswear Company
Board of Directors
|
Member of McKesson Corporation Board of
Directors
|
Joined Intel 1981
|
|
William M. Holt, age 58
|
2006 present,
|
|
Senior VP, GM, Technology and Manufacturing Group
|
2005 2006,
|
|
VP, Co-GM, Technology and Manufacturing Group
|
Joined Intel 1974
|
|
Thomas M. Kilroy, age 53
|
2010 present,
|
|
Senior VP, GM, Sales and Marketing Group
|
2009 2010,
|
|
VP, GM, Sales and Marketing Group
|
2005 2009,
|
|
VP, GM, Digital Enterprise Group
|
Joined Intel 1990
|
|
A. Douglas Melamed, age 65
|
2009 present,
|
|
Senior VP, General Counsel
|
2001 2009,
|
|
Partner, Wilmer Cutler Pickering Hale and Dorr LLP
|
Joined Intel 2009
|
|
|
|
Paul S. Otellini, age 60
|
2005 present,
|
|
President, Chief Executive Officer
|
Member of Intel Corporation Board of
Directors
|
Member of Google, Inc. Board of Directors
|
Joined Intel 1974
|
|
David Perlmutter, age 57
|
2009 present,
|
|
Executive VP, GM, Intel Architecture Group
|
2007 2009,
|
|
Executive VP, GM, Mobility Group
|
2005 2007,
|
|
Senior VP, GM, Mobility Group
|
Joined Intel 1980
|
|
Stacy J. Smith, age 48
|
2010 present,
|
|
Senior VP, Chief Financial Officer
|
2007 2010,
|
|
VP, Chief Financial Officer
|
2006 2007,
|
|
VP, Assistant Chief Financial Officer
|
2004 2006,
|
|
VP, Finance and Enterprise Services, Chief Information Officer
|
Member of Gevo, Inc. Board of Directors
|
Joined Intel 1988
|
|
Arvind Sodhani, age 56
|
2007 present,
|
|
Executive VP of Intel, President of Intel Capital
|
2005 2007,
|
|
Senior VP of Intel, President of Intel Capital
|
Member of Clearwire Corporation Board of
Directors
|
Member of SMART Technologies, Inc. Board
of Directors
|
Joined Intel 1981
|
13
Fluctuations
in demand for our products may harm our financial results and
are difficult to forecast.
If demand for our products fluctuates, our revenue and
profitability could be harmed. Important factors that could
cause demand for our products to fluctuate include:
|
|
|
|
|
changes in business and economic conditions, including downturns
in the semiconductor industry
and/or the
overall economy;
|
|
|
changes in consumer confidence caused by changes in market
conditions, including changes in the credit market, expectations
for inflation, unemployment levels, and energy or other
commodity prices;
|
|
|
changes in the level of customers components inventories;
|
|
|
competitive pressures, including pricing pressures, from
companies that have competing products, chip architectures,
manufacturing technologies, and marketing programs;
|
|
|
changes in customer product needs;
|
|
|
strategic actions taken by our competitors; and
|
|
|
market acceptance of our products.
|
If product demand decreases, our manufacturing or assembly and
test capacity could be underutilized, and we may be required to
record an impairment on our long-lived assets, including
facilities and equipment as well as intangible assets, which
would increase our expenses. In addition, if product demand
decreases or we fail to forecast demand accurately, we could be
required to write off inventory or record excess capacity
charges, which would have a negative impact on our gross margin.
Factory-planning decisions may shorten the useful lives of
long-lived assets, including facilities and equipment, and cause
us to accelerate depreciation. In the long term, if product
demand increases, we may not be able to add manufacturing or
assembly and test capacity fast enough to meet market demand.
These changes in demand for our products, and changes in our
customers product needs, could have a variety of negative
effects on our competitive position and our financial results,
and, in certain cases, may reduce our revenue, increase our
costs, lower our gross margin percentage, or require us to
recognize impairments of our assets.
The
semiconductor industry and our operations are characterized by a
high percentage of costs that are fixed or difficult to reduce
in the short term, and by product demand that is highly variable
and subject to significant downturns that may harm our business,
results of operations, and financial condition.
The semiconductor industry and our operations are characterized
by high costs, such as those related to facility construction
and equipment, R&D, and employment and training of a highly
skilled workforce, that are either fixed or difficult to reduce
in the short term. At the same time, demand for our products is
highly variable and there have been downturns, often in
connection with maturing product cycles and general economic
market conditions. These downturns have been characterized by
reduced product demand, manufacturing overcapacity and resulting
excess capacity charges, high inventory levels, and lower
average selling prices. The combination of these factors may
cause our revenue, gross margin, cash flow, and profitability to
vary significantly in both the short and long term.
We
operate in intensely competitive industries, and our failure to
respond quickly to technological developments and incorporate
new features into our products could harm our ability to
compete.
We operate in intensely competitive industries that experience
rapid technological developments, changes in industry standards,
changes in customer requirements, and frequent new product
introductions and improvements. If we are unable to respond
quickly and successfully to these developments, we may lose our
competitive position, and our products or technologies may
become uncompetitive or obsolete. As new computing market
segments emerge, such as netbooks, handhelds, tablets, and
consumer electronics devices, we face new sources of
competition, and customers that have different requirements than
customers in our traditional PC business. To be successful, we
need to cultivate new industry relationships in these market
segments. As the number and variety of Internet-connected
devices increase, we need to improve the cost, energy
efficiency, and security functionality of our microprocessors to
succeed in these new market segments. In addition, we need to
focus on the acquisition and development of our software
capabilities in order to provide customers with complete
computing solutions.
To compete successfully, we must maintain a successful R&D
effort, develop new products and production processes, and
improve our existing products and processes at the same pace or
ahead of our competitors. Our R&D efforts are aimed at
solving increasingly complex problems, and we do not expect that
all of our projects will be successful. If our R&D efforts
are unsuccessful, our future results of operations could be
materially harmed. We may not be able to develop and market
these new products successfully, the products we invest in and
develop may not be well received by customers, and products
developed and new technologies offered by others may affect
demand for our products. These types of events could have a
variety of negative effects on our competitive position and our
financial results, such as reducing our revenue, increasing our
costs, lowering our gross margin percentage, and requiring us to
recognize impairments on our assets.
14
Litigation
or regulatory proceedings could harm our business.
We may be subject to legal claims or regulatory matters
involving stockholder, consumer, competition, and other issues
on a global basis. As described in Note 29:
Contingencies in Part II, Item 8 of this Form
10-K, we are
currently engaged in a number of litigation and regulatory
matters. Litigation and regulatory proceedings are subject to
inherent uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include monetary damages or, in cases
for which injunctive relief is sought, an injunction prohibiting
us from manufacturing or selling one or more products,
precluding particular business practices, or requiring other
remedies, such as compulsory licensing of intellectual property.
If we were to receive an unfavorable ruling in a matter, our
business and results of operations could be materially harmed.
Fluctuations
in the mix of products sold may harm our financial
results.
Because of the wide price differences among and within notebook,
netbook, tablet, desktop, and server microprocessors, the mix
and types of performance capabilities of microprocessors sold
affect the average selling price of our products and have a
substantial impact on our revenue and gross margin. Our
financial results also depend in part on the mix of other
products that we sell, such as chipsets, flash memory, and other
semiconductor products. In addition, more recently introduced
products tend to have higher associated costs because of initial
overall development and production ramp. Fluctuations in the mix
and types of our products may also affect the extent to which we
are able to recover the fixed costs and investments associated
with a particular product, and as a result can harm our
financial results.
Our
global operations subject us to risks that may harm our results
of operations and financial condition.
We have sales offices, R&D, manufacturing, and assembly and
test facilities in many countries, and some business activities
may be concentrated in one or more geographic areas. As a
result, we are subject to risks that may limit our ability to
manufacture, assemble and test, design, develop, or sell
products in particular countries or on a geographic basis, which
could harm our results of operations and financial condition,
including:
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|
|
security concerns, such as armed conflict and civil or military
unrest, crime, political instability, and terrorist activity;
|
|
|
health concerns;
|
|
|
natural disasters;
|
|
|
inefficient and limited infrastructure and disruptions, such as
large-scale outages or interruptions of service from utilities,
transportation, or telecommunications providers and supply chain
interruptions;
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|
|
restrictions on our operations by governments seeking to support
local industries, nationalization of our operations, and
restrictions on our ability to repatriate earnings;
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|
|
differing employment practices and labor issues;
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|
|
local business and cultural factors that differ from our normal
standards and practices, including business practices that we
are prohibited from engaging in by the Foreign Corrupt Practices
Act and other anti-corruption laws and regulations; and
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|
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regulatory requirements and prohibitions that differ among
jurisdictions.
|
Violations of these laws and regulations could result in fines;
criminal sanctions against us, our officers, or our employees;
prohibitions on the conduct of our business; and damage to our
reputation. Although we have implemented policies, controls, and
procedures designed to ensure compliance with these laws, our
employees, contractors, or agents may violate our policies.
In addition, although substantially all of our products are sold
in U.S. dollars, we incur a significant amount of certain types
of expenses, such as payroll, utilities, tax, and marketing
expenses, as well as conduct certain investing and financing
activities, in local currencies. Our hedging programs reduce,
but do not entirely eliminate, the impact of currency exchange
rate movements; therefore, fluctuations in exchange rates could
harm our results and financial condition. In addition, changes
in tariff and import regulations and in U.S. and
non-U.S.
monetary policies may harm our results and financial condition
by increasing our expenses and reducing our revenue. Varying tax
rates in different jurisdictions could harm our results of
operations and financial condition by increasing our overall tax
rate.
We maintain a program of insurance coverage for various types of
property, casualty, and other risks. We place our insurance
coverage with various carriers in numerous jurisdictions.
However, there is a risk that one or more of our insurance
providers may be unable to pay a claim. The types and amounts of
insurance that we obtain vary from time to time and from
location to location, depending on availability, cost, and our
decisions with respect to risk retention. The policies are
subject to deductibles and exclusions that result in our
retention of a level of risk on a self-insurance basis. Losses
not covered by insurance may be substantial, which could harm
our results of operations and financial condition.
15
Failure
to meet our production targets, resulting in undersupply or
oversupply of products, may harm our business and results of
operations.
Production of integrated circuits is a complex process.
Disruptions in this process can result from interruptions in our
processes, errors, and difficulties in our development and
implementation of new processes; defects in materials;
disruptions in our supply of materials or resources; and
disruptions at our fabrication and assembly and test facilities
due to, for example, accidents, maintenance issues, or unsafe
working conditionsall of which could affect the timing of
production ramps and yields. We may not be successful or
efficient in developing or implementing new production
processes. The occurrence of any of the foregoing may result in
our failure to meet or increase production as desired, resulting
in higher costs or substantial decreases in yields, which could
affect our ability to produce sufficient volume to meet specific
product demand. The unavailability or reduced availability of
certain products could make it more difficult to deliver
computing platforms. The occurrence of any of these events could
harm our business and results of operations.
We may
have difficulties obtaining the resources or products we need
for manufacturing, assembling and testing our products, or
operating other aspects of our business, which could harm our
ability to meet demand for our products and may increase our
costs.
We have thousands of suppliers providing various materials that
we use in the production of our products and other aspects of
our business, and we seek, where possible, to have several
sources of supply for all of those materials. However, we may
rely on a single or a limited number of suppliers, or upon
suppliers in a single country, for these materials. The
inability of such suppliers to deliver adequate supplies of
production materials or other supplies could disrupt our
production processes or could make it more difficult for us to
implement our business strategy. In addition, production could
be disrupted by the unavailability of the resources used in
production, such as water, silicon, electricity, gases, and
other materials. Future environmental regulations could restrict
the supply or increase the cost of certain of the materials that
we currently use in our business. Environmental regulations also
may make it more difficult to obtain permits to build or modify
additional manufacturing capacity to meet demand. The
unavailability or reduced availability of the materials or
resources that we use in our business may require us to reduce
production of products or may require us to incur additional
costs in order to obtain an adequate supply of those materials
or resources. The occurrence of any of these events could harm
our business and results of operations.
Costs
related to product defects and errata may harm our results of
operations and business.
Costs associated with unexpected product defects and errata
(deviations from published specifications) due to, for example,
unanticipated problems in our design and manufacturing
processes, could include:
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writing off the value of inventory of such products;
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disposing of products that cannot be fixed;
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|
recalling such products that have been shipped to customers;
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|
providing product replacements for, or modifications to, such
products; and
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defending against litigation related to such products.
|
These costs could be substantial and may therefore increase our
expenses and lower our gross margin. In addition, our reputation
with our customers or users of our products could be damaged as
a result of such product defects and errata, and the demand for
our products could be reduced. The announcement of product
defects
and/or
errata could cause customers to purchase products from our
competitors as a result of anticipated shortages of Intel
components or for other reasons. These factors could harm our
financial results and the prospects for our business.
We may
be subject to claims of infringement of third-party intellectual
property rights, which could harm our business.
Third parties may assert against us or our customers alleged
patent, copyright, trademark, or other intellectual property
rights to technologies that are important to our business. We
are currently engaged in a number of litigation matters
involving intellectual property rights. We may be subject to
intellectual property infringement claims from certain
individuals and companies, including those who have acquired
patent portfolios for the sole purpose of asserting such claims
against other companies. Any claims that our products or
processes infringe the intellectual property rights of others,
regardless of the merit or resolution of such claims, could
cause us to incur significant costs in responding to, defending,
and resolving such claims, and may divert the efforts and
attention of our management and technical personnel from our
business. As a result of such intellectual property infringement
claims, we could be required or otherwise decide that it is
appropriate to:
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pay third-party infringement claims;
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|
discontinue manufacturing, using, or selling particular products
subject to infringement claims;
|
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|
discontinue using the technology or processes subject to
infringement claims;
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|
|
develop other technology not subject to infringement claims,
which could be time-consuming and costly or may not be possible;
or
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license technology from the third party claiming infringement,
which license may not be available on commercially reasonable
terms.
|
The occurrence of any of the foregoing could result in
unexpected expenses or require us to recognize an impairment of
our assets, which would reduce the value of our assets and
increase expenses. In addition, if we alter or discontinue our
production of affected items, our revenue could be harmed.
16
We may not be able to enforce or protect our intellectual
property rights, which may harm our ability to compete and harm
our business.
Our ability to enforce our patents, copyrights, software
licenses, and other intellectual property rights is subject to
general litigation risks, as well as uncertainty as to the
enforceability of our intellectual property rights in various
countries. When we seek to enforce our rights, we are often
subject to claims that the intellectual property right is
invalid, is otherwise not enforceable, or is licensed to the
party against whom we are asserting a claim. In addition, our
assertion of intellectual property rights often results in the
other party seeking to assert alleged intellectual property
rights of its own or assert other claims against us, which could
harm our business. If we are not ultimately successful in
defending ourselves against these claims in litigation, we may
not be able to sell a particular product or family of products
due to an injunction, or we may have to license the technology
or pay damages that could, in turn, harm our results of
operations. In addition, governments may adopt regulations, and
governments or courts may render decisions, requiring compulsory
licensing of intellectual property to others, or governments may
require that products meet specified standards that serve to
favor local companies. Our inability to enforce our intellectual
property rights under these circumstances may harm our
competitive position and our business.
We may
be subject to intellectual property theft or misuse, which could
result in third-party claims and harm our business and results
of operations.
We regularly face attempts by others to gain unauthorized access
through the Internet to our information technology systems, such
as when they masquerade as authorized users or surreptitiously
introduce software. These attempts, which might be the result of
industrial or other espionage, or actions by hackers seeking to
harm the company, its products, or end users, are sometimes
successful. We seek to detect and investigate these security
incidents and to prevent their recurrence, but in some cases we
might be unaware of an incident or its magnitude and effects.
The theft or unauthorized use or publication of our trade
secrets and other confidential business information as a result
of such an incident could adversely affect our competitive
position and reduce marketplace acceptance of our products; the
value of our investment in R&D, product development, and
marketing could be reduced; and third parties might assert
against us or our customers claims related to resulting losses
of confidential or proprietary information or end-user data, or
system reliability. Our business could be subject to significant
disruption, and we could suffer monetary and other losses,
including the cost of product recalls and returns and
reputational harm, in the event of such incidents and claims.
Our
licenses with other companies and our participation in industry
initiatives may allow other companies, including our
competitors, to use our patent rights.
Companies in the semiconductor industry often rely on the
ability to license patents from each other in order to compete.
Many of our competitors have broad licenses or cross-licenses
with us, and under current case law, some of the licenses may
permit these competitors to pass our patent rights on to others.
If one of these licensees becomes a foundry, our competitors
might be able to avoid our patent rights in manufacturing
competing products. In addition, our participation in industry
initiatives may require us to license our patents to other
companies that adopt certain industry standards or
specifications, even when such organizations do not adopt
standards or specifications proposed by us. As a result, our
patents implicated by our participation in industry initiatives
might not be available for us to enforce against others who
might otherwise be deemed to be infringing those patents, our
costs of enforcing our licenses or protecting our patents may
increase, and the value of our intellectual property may be
impaired.
We
invest in companies for strategic reasons and may not realize a
return on our investments.
We make investments in companies around the world to further our
strategic objectives and support our key business initiatives.
Such investments include equity or debt instruments of public or
private companies, and many of these instruments are
non-marketable at the time of our initial investment. These
companies range from early-stage companies that are often still
defining their strategic direction to more mature companies with
established revenue streams and business models. The success of
these companies is dependent on product development, market
acceptance, operational efficiency, and other key business
factors. The companies in which we invest may fail because they
may not be able to secure additional funding, obtain favorable
investment terms for future financings, or participate in
liquidity events such as public offerings, mergers, and private
sales. If any of these private companies fail, we could lose all
or part of our investment in that company. If we determine that
an
other-than-temporary
decline in the fair value exists for an equity or debt
investment in a public or private company in which we have
invested, we write down the investment to its fair value and
recognize the related write-down as an investment loss. We also
have significant investments in companies in the flash memory
market segment, and declines in this market segment or changes
in managements plans with respect to our investments in
this market segment could result in significant impairment
charges, impacting gains (losses) on equity method investments,
net and gains (losses) on other equity investments, net.
When the strategic objectives of an investment have been
achieved, or if the investment or business diverges from our
strategic objectives, we may decide to dispose of the
investment. We may incur losses on the disposal of our
non-marketable investments. Additionally, for cases in which we
are required under equity method accounting to recognize a
proportionate share of another companys income or loss,
such income or loss may impact our earnings. Gains or losses
from equity securities could vary from expectations depending on
gains or losses realized on the sale or exchange of securities,
gains or losses from equity method investments, and impairment
charges for equity and other investments.
17
Our
results of operations could vary as a result of the methods,
estimates, and judgments that we use in applying our accounting
policies.
The methods, estimates, and judgments that we use in applying
our accounting policies have a significant impact on our results
of operations (see Critical Accounting Estimates in
Part II, Item 7 of this Form
10-K). Such
methods, estimates, and judgments are, by their nature, subject
to substantial risks, uncertainties, and assumptions, and
factors may arise over time that lead us to change our methods,
estimates, and judgments. Changes in those methods, estimates,
and judgments could significantly affect our results of
operations.
Decisions
about the scope of operations of our business could affect our
results of operations and financial condition.
Changes in the business environment could lead to changes in our
decisions about the scope of operations of our business, and
these changes could result in restructuring and asset impairment
charges. Factors that could affect our results of operations and
financial condition with regard to changing the scope of our
operations include:
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timing and execution of plans and programs that may be subject
to local labor law requirements, including consultation with
appropriate work councils;
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|
changes in assumptions related to severance and postretirement
costs;
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|
future divestitures;
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|
new business initiatives and changes in product roadmap,
development, and manufacturing;
|
|
|
changes in employment levels and turnover rates;
|
|
|
changes in product demand and the business environment; and
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|
changes in the fair value of certain long-lived assets.
|
Our
acquisitions, divestitures, and other transactions could disrupt
our ongoing business and harm our results of
operations.
In pursuing our business strategy, we routinely conduct
discussions, evaluate opportunities, and enter into agreements
regarding possible investments, acquisitions, divestitures, and
other transactions, such as joint ventures. Acquisitions and
other transactions involve significant challenges and risks,
including risks that:
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we may not be able to identify suitable opportunities at terms
acceptable to us;
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the transaction may not advance our business strategy;
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we may not realize a satisfactory return on the investment we
make;
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we may not be able to retain key personnel of the acquired
business;
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we may experience difficulty in integrating new employees,
business systems, and technology;
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acquired businesses may not have adequate controls, processes,
and procedures to ensure compliance with laws and regulations
globally, and our due diligence process may not identify
compliance issues or other liabilities that are in existence at
the time of our acquisition;
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|
we may have difficulty entering into new market segments in
which we are not experienced; or
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we may be unable to retain the customers and partners of
acquired businesses following the acquisition.
|
When we decide to sell assets or a business, we may encounter
difficulty in finding or completing divestiture opportunities or
alternative exit strategies on acceptable terms in a timely
manner, and the agreed terms and financing arrangements could be
renegotiated due to changes in business or market conditions.
These circumstances could delay the accomplishment of our
strategic objectives or cause us to incur additional expenses
with respect to businesses that we want to dispose of, or we may
dispose of a business at a price or on terms that are less
favorable than we had anticipated, resulting in a loss on the
transaction.
If we do enter into agreements with respect to acquisitions,
divestitures, or other transactions, we may fail to complete
them due to factors such as:
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failure to obtain required regulatory or other approvals;
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intellectual property or other litigation; or
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|
difficulties that we or other parties may encounter in obtaining
financing for the transaction.
|
In
order to compete, we must attract, retain, and motivate key
employees, and our failure to do so could harm our results of
operations.
In order to compete, we must attract, retain, and motivate
executives and other key employees. Hiring and retaining
qualified executives, scientists, engineers, technical staff,
and sales representatives are critical to our business, and
competition for experienced employees in the semiconductor
industry can be intense. To help attract, retain, and motivate
qualified employees, we use share-based incentive awards such as
non-vested share units (restricted stock units) and employee
stock options. If the value of such stock awards does not
appreciate as measured by the performance of the price of our
common stock, or if our share-based compensation otherwise
ceases to be viewed as a valuable benefit, our ability to
attract, retain, and motivate employees could be weakened, which
could harm our results of operations.
18
Our
failure to comply with applicable environmental laws and
regulations worldwide could harm our business and results of
operations.
The manufacturing and assembling and testing of our products
require the use of hazardous materials that are subject to a
broad array of EHS laws and regulations. Our failure to comply
with any of those applicable laws or regulations could result in:
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regulatory penalties, fines, and legal liabilities;
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suspension of production;
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alteration of our fabrication and assembly and test processes;
and
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curtailment of our operations or sales.
|
In addition, our failure to manage the use, transportation,
emissions, discharge, storage, recycling, or disposal of
hazardous materials could subject us to increased costs or
future liabilities. Existing and future environmental laws and
regulations could also require us to acquire pollution abatement
or remediation equipment, modify our product designs, or incur
other expenses associated with such laws and regulations. Many
new materials that we are evaluating for use in our operations
may be subject to regulation under existing or future
environmental laws and regulations that may restrict our use of
one or more of such materials in our manufacturing, assembly and
test processes, or products. Any of these restrictions could
harm our business and results of operations by increasing our
expenses or requiring us to alter our manufacturing and assembly
and test processes.
Climate
change poses both regulatory and physical risks that could harm
our results of operations or affect the way we conduct our
business.
In addition to the possible direct economic impact that climate
change could have on us, climate change mitigation programs and
regulations can increase our costs. For example, the cost of
perfluorocompounds (PFCs), a gas that we use in manufacturing,
could increase over time under some climate-change-focused
emissions trading programs that may be imposed by government
regulation. If the use of PFCs is prohibited, we would need to
obtain substitute materials that may cost more or be less
available for our manufacturing operations. In addition, air
quality permit requirements for our manufacturing operations
could become more burdensome and cause delays in our ability to
modify or build additional manufacturing capacity. Under the
recently adopted greenhouse gas regulations in the U.S., many of
our manufacturing facilities will become major
sources under the Clean Air Act in 2011. At a minimum, this
change in status will result in some uncertainty as the EPA
adopts guidance on implementation of its greenhouse gas
regulations. Due to the dynamic nature of our semiconductor
manufacturing operations, it is likely these new regulations
will result in increased costs for our U.S. operations. These
cost increases could be associated with new air pollution
control requirements, and increased or new monitoring,
recordkeeping, and reporting of greenhouse gas emissions. We
also see the potential for higher energy costs driven by climate
change regulations. Our costs could increase if utility
companies pass on their costs, such as those associated with
carbon taxes, emission cap and trade programs, or renewable
portfolio standards. While we maintain business recovery plans
that are intended to allow us to recover from natural disasters
or other events that can be disruptive to our business, we
cannot be sure that our plans will fully protect us from all
such disasters or events. Many of our operations are located in
semi-arid regions, such as Israel and the southwestern U.S. Some
scenarios predict that these regions may become even more
vulnerable to prolonged droughts due to climate change.
Changes
in our effective tax rate may harm our results of
operations.
A number of factors may increase our future effective tax rates,
including:
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the jurisdictions in which profits are determined to be earned
and taxed;
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the resolution of issues arising from tax audits with various
tax authorities;
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changes in the valuation of our deferred tax assets and
liabilities, and changes in deferred tax valuation allowances;
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adjustments to income taxes upon finalization of various tax
returns;
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increases in expenses not deductible for tax purposes, including
write-offs of acquired in-process research and development and
impairments of goodwill in connection with acquisitions;
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changes in available tax credits;
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changes in tax laws or the interpretation of such tax laws,
including changes in the U.S. to the taxation of foreign income
and expenses;
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changes in U.S. generally accepted accounting principles; and
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our decision to repatriate
non-U.S.
earnings for which we have not previously provided for U.S.
taxes.
|
Any significant increase in our future effective tax rates could
reduce net income for future periods.
Interest
and other, net could be impacted by macroeconomic and other
factors, harming our results of operations.
Factors that could cause interest and other, net in our
consolidated statements of income to fluctuate include:
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fixed-income, equity, and credit market volatility;
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fluctuations in foreign currency exchange rates;
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fluctuations in interest rates;
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changes in the credit standing of financial instrument
counterparties; and
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changes in our cash and investment balances.
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19
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ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable.
As of December 25, 2010, our major facilities consisted of:
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(Square Feet in Millions)
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United States
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Other Countries
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Total
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Owned
facilities1
|
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25.8
|
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18.7
|
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44.5
|
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Leased
facilities2
|
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1.8
|
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2.8
|
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4.6
|
|
|
|
|
|
|
|
|
|
|
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Total facilities
|
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|
27.6
|
|
|
|
21.5
|
|
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|
49.1
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1 |
|
Leases on portions of the land used for these facilities
expire on varying dates through 2062. |
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2 |
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Leases expire on varying dates through 2028 and generally
include renewals at our option. |
Our principal executive offices are located in the U.S. The
majority of our wafer fabrication activities are also located in
the U.S. In addition to our current facilities, we plan to build
a fabrication facility in Oregon that is scheduled for R&D
start-up in
2013, as well as a
leading-edge
technology fabrication facility in Arizona. Outside the U.S., we
have wafer fabrication at our facilities in Israel, Ireland, and
China. Our assembly and test facilities are located in Malaysia,
China, Costa Rica, and Vietnam. In addition, we have sales and
marketing offices worldwide that are generally located near
major concentrations of customers.
With the exception of certain facilities placed for sale
and/or
facilities included in our restructuring actions, we believe
that our facilities detailed above are suitable and adequate for
our present purposes (see Note 19: Restructuring and Asset
Impairment Charges in Part II, Item 8 of this Form
10-K).
Additionally, the productive capacity in our facilities is
substantially being utilized or we have plans to utilize it.
We do not identify or allocate assets by operating segment. For
information on net property, plant and equipment by country, see
Note 30: Operating Segment and Geographic
Information in Part II, Item 8 of this Form
10-K.
|
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
For a discussion of legal proceedings, see Note
29: Contingencies in Part II, Item 8 of this Form
10-K.
20
PART
II
|
|
ITEM
5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Information regarding the market price range of Intel common
stock and dividend information may be found in Financial
Information by Quarter (Unaudited) in Part II, Item 8 of
this Form
10-K.
As of February 4, 2011, there were approximately 165,000
registered holders of record of Intels common stock. A
substantially greater number of holders of Intel common stock
are street name or beneficial holders, whose shares
are held of record by banks, brokers, and other financial
institutions.
Issuer
Purchases of Equity Securities
As of December 25, 2010, we had an ongoing authorization,
amended in November 2005, from our Board of Directors to
repurchase up to $25 billion in shares of our common stock in
open market or negotiated transactions, and $4.2 billion
remained available for repurchase under the existing repurchase
authorization limit. In January 2011, our Board of Directors
increased the repurchase authorization limit by $10 billion.
Common stock repurchases under our authorized plan in each
quarter of 2010 were as follows (in millions, except per share
amounts):
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Total Number
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|
of Shares
|
|
|
|
|
|
|
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Purchased as
|
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|
Total Number of
|
|
|
Average Price
|
|
|
Part of Publicly
|
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Period
|
|
Shares Purchased
|
|
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Paid Per Share
|
|
|
Announced Plans
|
|
December 27, 2009 March 27, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
March 28, 2010 June 26, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
June 27, 2010 September 25, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
September 26, 2010 December 25, 2010
|
|
|
70.3
|
|
|
$
|
21.35
|
|
|
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
70.3
|
|
|
$
|
21.35
|
|
|
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our purchases in 2010 were executed in privately negotiated
transactions.
For the majority of restricted stock units granted, the number
of shares issued on the date the restricted stock units vest is
net of the minimum statutory withholding requirements that we
pay in cash to the appropriate taxing authorities on behalf of
our employees. These withheld shares are not considered common
stock repurchases under our authorized plan and are not included
in the common stock repurchase totals in the preceding table.
For further discussion, see Note 25: Common Stock
Repurchases in Part II, Item 8 of this Form
10-K.
21
Stock
Performance Graph
The line graph below compares the cumulative total stockholder
return on our common stock with the cumulative total return of
the Dow Jones U.S. Technology Index* and the Standard &
Poors S&P 500* Index for the five years ended
December 25, 2010. The graph and table assume that $100 was
invested on December 30, 2005 (the last day of trading for the
year ended December 31, 2005) in each of our common stock, the
Dow Jones U.S. Technology Index, and the S&P 500 Index, and
that all dividends were reinvested. Cumulative total stockholder
returns for our common stock, the Dow Jones U.S. Technology
Index, and the S&P 500 Index are based on our fiscal year.
Comparison
of Five-Year Cumulative Return for Intel,
the Dow Jones U.S. Technology Index*, and the S&P 500*
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Intel Corporation
|
|
$
|
100
|
|
|
$
|
83
|
|
|
$
|
112
|
|
|
$
|
61
|
|
|
$
|
90
|
|
|
$
|
92
|
|
Dow Jones U.S. Technology Index
|
|
$
|
100
|
|
|
$
|
110
|
|
|
$
|
129
|
|
|
$
|
71
|
|
|
$
|
120
|
|
|
$
|
135
|
|
S&P 500 Index
|
|
$
|
100
|
|
|
$
|
116
|
|
|
$
|
123
|
|
|
$
|
74
|
|
|
$
|
98
|
|
|
$
|
112
|
|
22
|
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net revenue
|
|
$
|
43,623
|
|
|
$
|
35,127
|
|
|
$
|
37,586
|
|
|
$
|
38,334
|
|
|
$
|
35,382
|
|
Gross margin
|
|
$
|
28,491
|
|
|
$
|
19,561
|
|
|
$
|
20,844
|
|
|
$
|
19,904
|
|
|
$
|
18,218
|
|
Research and development
|
|
$
|
6,576
|
|
|
$
|
5,653
|
|
|
$
|
5,722
|
|
|
$
|
5,755
|
|
|
$
|
5,873
|
|
Operating income
|
|
$
|
15,588
|
|
|
$
|
5,711
|
|
|
$
|
8,954
|
|
|
$
|
8,216
|
|
|
$
|
5,652
|
|
Net income
|
|
$
|
11,464
|
|
|
$
|
4,369
|
|
|
$
|
5,292
|
|
|
$
|
6,976
|
|
|
$
|
5,044
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.06
|
|
|
$
|
0.79
|
|
|
$
|
0.93
|
|
|
$
|
1.20
|
|
|
$
|
0.87
|
|
Diluted
|
|
$
|
2.01
|
|
|
$
|
0.77
|
|
|
$
|
0.92
|
|
|
$
|
1.18
|
|
|
$
|
0.86
|
|
Weighted average diluted common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
5,696
|
|
|
|
5,645
|
|
|
|
5,748
|
|
|
|
5,936
|
|
|
|
5,880
|
|
Dividends per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared
|
|
$
|
0.63
|
|
|
$
|
0.56
|
|
|
$
|
0.5475
|
|
|
$
|
0.45
|
|
|
$
|
0.40
|
|
Paid
|
|
$
|
0.63
|
|
|
$
|
0.56
|
|
|
$
|
0.5475
|
|
|
$
|
0.45
|
|
|
$
|
0.40
|
|
Net cash provided by operating activities
|
|
$
|
16,692
|
|
|
$
|
11,170
|
|
|
$
|
10,926
|
|
|
$
|
12,625
|
|
|
$
|
10,632
|
|
Additions to property, plant and equipment
|
|
$
|
5,207
|
|
|
$
|
4,515
|
|
|
$
|
5,197
|
|
|
$
|
5,000
|
|
|
$
|
5,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Dec. 25, 2010
|
|
|
Dec. 26, 2009
|
|
|
Dec. 27, 2008
|
|
|
Dec. 29, 2007
|
|
|
Dec. 30, 2006
|
|
Property, plant and equipment, net
|
|
$
|
17,899
|
|
|
$
|
17,225
|
|
|
$
|
17,574
|
|
|
$
|
16,938
|
|
|
$
|
17,614
|
|
Total assets
|
|
$
|
63,186
|
|
|
$
|
53,095
|
|
|
$
|
50,472
|
|
|
$
|
55,664
|
|
|
$
|
48,372
|
|
Long-term debt
|
|
$
|
2,077
|
|
|
$
|
2,049
|
|
|
$
|
1,185
|
|
|
$
|
1,269
|
|
|
$
|
1,128
|
|
Stockholders equity
|
|
$
|
49,430
|
|
|
$
|
41,704
|
|
|
$
|
39,546
|
|
|
$
|
43,220
|
|
|
$
|
37,210
|
|
Employees (in thousands)
|
|
|
82.5
|
|
|
|
79.8
|
|
|
|
83.9
|
|
|
|
86.3
|
|
|
|
94.1
|
|
23
|
|
ITEM
7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Our Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is provided in
addition to the accompanying consolidated financial statements
and notes to assist readers in understanding our results of
operations, financial condition, and cash flows. MD&A is
organized as follows:
|
|
|
|
|
Overview. Discussion of our business and overall
analysis of financial and other highlights affecting the company
in order to provide context for the remainder of MD&A.
|
|
|
Strategy. Our overall strategy and the strategy for
our major market segments.
|
|
|
Critical Accounting Estimates. Accounting estimates
that we believe are most important to understanding the
assumptions and judgments incorporated in our reported financial
results and forecasts.
|
|
|
Results of Operations. An analysis of our financial
results comparing 2010 to 2009 and comparing 2009 to 2008.
|
|
|
Business Outlook. Our expectations for selected
financial items for 2011.
|
|
|
Liquidity and Capital Resources. An analysis of
changes in our balance sheets and cash flows, and discussion of
our financial condition and potential sources of liquidity.
|
|
|
Fair Value of Financial Instruments. Discussion of
the methodologies used in the valuation of our financial
instruments.
|
|
|
Contractual Obligations and Off-Balance-Sheet
Arrangements. Overview of contractual obligations,
contingent liabilities, commitments, and off-balance-sheet
arrangements outstanding as of December 25, 2010, including
expected payment schedule.
|
The various sections of this MD&A contain a number of
forward-looking statements. Words such as expects,
goals, plans, believes,
continues, may, will, and
variations of such words and similar expressions are intended to
identify such forward-looking statements. In addition, any
statements that refer to projections of our future financial
performance, our anticipated growth and trends in our
businesses, and other characterizations of future events or
circumstances are forward-looking statements. Such statements
are based on our current expectations and could be affected by
the uncertainties and risk factors described throughout this
filing and particularly in the Business Outlook
section and in Risk Factors in Part I, Item 1A of
this Form
10-K. Our
actual results may differ materially, and other than our
expected completion of the McAfee acquisition in the first
quarter of 2011 (see Note 15: Acquisitions in Part
II, Item 8 of this Form
10-K), these
forward-looking statements do not reflect the potential impact
of any divestitures, mergers, acquisitions, or other business
combinations that had not been completed as of February 18, 2011.
Overview
Our results of operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
Dec. 25,
|
|
|
Sept. 25,
|
|
|
Dec. 25,
|
|
|
Dec. 26,
|
|
(Dollars in Millions)
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
Net revenue
|
|
$
|
11,457
|
|
|
$
|
11,102
|
|
|
$
|
43,623
|
|
|
$
|
35,127
|
|
Gross margin
|
|
$
|
7,406
|
|
|
$
|
7,321
|
|
|
$
|
28,491
|
|
|
$
|
19,561
|
|
Gross margin percentage
|
|
|
64.6
|
%
|
|
|
65.9
|
%
|
|
|
65.3
|
%
|
|
|
55.7
|
%
|
Operating income
|
|
$
|
4,023
|
|
|
$
|
4,136
|
|
|
$
|
15,588
|
|
|
$
|
5,711
|
|
Net income
|
|
$
|
3,180
|
|
|
$
|
2,955
|
|
|
$
|
11,464
|
|
|
$
|
4,369
|
|
2010 was a record year for us. Strong market growth in the
business and consumer PC market segments as well as the
continued build-out of the data center, the leadership of our
product portfolio, and improvements to our cost structure all
contributed to the most profitable year in our history. Revenue
increased 24% in 2010 compared to 2009. Our 2010 gross margin
percentage of 65.3% increased by 9.6 percentage points from
2009, primarily driven by lower factory underutilization
charges, higher microprocessor average selling prices, lower
platform (microprocessor and chipset) unit cost, and higher
platform unit sales. We expect continued strength in emerging
markets coupled with the build-out of the cloud computing
infrastructure to contribute toward a 2011 revenue growth
percentage in the mid- to high-teens. This expectation is also
inclusive of the recently completed acquisition of the WLS
business of Infineon and the expected acquisition of McAfee in
the first quarter of 2011.
In the fourth quarter, we achieved record quarterly revenue for
the third quarter in a row despite continuation of the softness
we saw in the consumer segments of mature markets starting in
the middle of the year. The sequential decrease in our fourth
quarter gross margin percentage was primarily driven by charges
to repair and replace materials and systems impacted by a design
issue related to our
Intel®
6 Series Express Chipset family (see Note 20: Chipset
Design Issue in Part II, Item 8 of this Form
10-K),
increased costs associated with taking older technology offline,
and higher
start-up
costs. These impacts were partially offset by the qualification
for sale of our 2nd generation
Intel®
Coretm
processor products (formerly code-named Sandy Bridge), resulting
in lower microprocessor inventory write-offs and sales of
previously written-off products, and higher platform average
selling prices.
24
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
As we enter 2011, the strength of our product portfolio is
highlighted with the launch of 32nm process technology products
based on our 2nd generation Intel Core processor
microarchitecture. We continue to deliver improvements in our
product offerings through our tick-tock technology
development cadence. We plan to invest $9.0 billion in capital
assets in 2011 as we build and equip our 22nm process technology
manufacturing capacity, which will increase our leading-edge
facilities to four. This increase in capital spending will
enable us to take advantage of the significant market growth
opportunities that we believe exist for our products across the
computing spectrum, as well as move more transistors to our
leading-edge process technologies.
The cash-generating power of our business was evident in 2010
with $16.7 billion of cash from operations. From a financial
condition perspective, we ended 2010 with an investment
portfolio of $21.5 billion, consisting of cash and cash
equivalents, short-term investments, and marketable debt
instruments included in trading assets. During 2010, we
purchased $5.2 billion in capital assets, returned $3.5 billion
to stockholders through dividends, and repurchased $1.5 billion
of common stock through our common stock repurchase program. In
January 2011, our Board of Directors declared a dividend of
$0.1812 per common share for the first quarter of 2011, an
increase of approximately 15% compared to our fourth quarter
dividend, and increased the repurchase authorization limit of
our common stock repurchase program by $10 billion.
During 2010, we announced a definitive agreement to acquire
McAfee for approximately $7.68 billion, and we expect to
complete the acquisition in the first quarter of 2011. For
further information, see Note 15: Acquisitions in
Part II, Item 8 of this Form
10-K. The
transaction is subject to customary closing conditions.
In the first quarter of 2011, we completed the acquisition of
the WLS business of Infineon. Total net cash consideration for
the acquisition is estimated at $1.4 billion. For further
information, see Note 15: Acquisitions in Part II,
Item 8 of this Form
10-K.
In January 2011, we entered into a long-term patent
cross-license agreement with NVIDIA. Under the agreement, we
receive a license to all of NVIDIAs patents, while NVIDIA
products are licensed to our patents subject to exclusions for
x86 products, certain chipsets, and certain flash memory
technology products. The agreement also includes settlement of
the existing litigation between the companies as well as broad
mutual general releases. We agreed to make payments to NVIDIA
totaling $1.5 billion over six years. For further information,
see Note 29: Contingencies in Part II, Item 8 of
this Form
10-K.
Strategy
Our goal is to be the preeminent computing solutions company
that powers the worldwide digital economy. We believe that the
proliferation of the Internet and cloud computing have driven
fundamental changes in the computing industry. We are
transforming from a company with a primary focus on the design
and manufacture of semiconductor chips for PCs and servers to a
computing company that delivers complete solutions in the form
of hardware and software platforms and supporting services. The
number and variety of devices connected to the Internet is
growing, and computing is becoming an increasingly personal
experience. End users value consistency across devices that
connect seamlessly and effortlessly to the Internet and to each
other. We will help to enable this experience by innovating
around three pillars of computing: energy-efficient performance,
connectivity, and security.
|
|
|
|
|
Energy-Efficient Performance. We are focusing on
improved energy-efficient performance for computing and
communications systems and devices. Improved energy-efficient
performance involves balancing higher performance with lower
power consumption.
|
|
|
Connectivity. We are positioning our business to
take advantage of the growth in devices that compute and connect
to the Internet. In the first quarter of 2011, we acquired the
WLS business of Infineon. This acquisition enables us to offer a
portfolio of products that covers a broad range of wireless
connectivity options by combining the
Intel®
WiFi and
Intel®
WiMAX technologies with WLS 2G and 3G technologies, and
creates a combined path to accelerate industry adoption of 4G
LTE.
|
|
|
Security. Our goal is to enhance security features
through a combination of hardware and software solutions. This
may include identity protection and fraud deterrence; detection
and prevention of malware; securing data and assets; as well as
system recovery and enhanced security patching. We expect to
complete the acquisition of McAfee in the first quarter of 2011.
We believe that this acquisition will accelerate and enhance our
hardware and software security solutions, improving the overall
security of our platforms.
|
25
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
To succeed in the changing computing environment, we have the
following key objectives:
|
|
|
|
|
Strive to ensure that Intel technology remains the best choice
for the PC as well as cloud computing and the data center.
|
|
|
Expand platforms into adjacent market segments to bring
compelling new solutions to the smartphone, the tablet, the TV,
the car, and the rest of the embedded world.
|
|
|
Enable devices that connect to the Internet and to each other to
create a continuum of personal computing. This continuum would
give consumers a set of secure, consistent, and personalized
computing experiences.
|
|
|
Positively impact the world through our actions and the
application of our energy-efficient technology.
|
We will use our core assets to meet these objectives. Our core
assets include our silicon and process technology, our
architecture and platforms, our global presence, our strong
relationships across the industry, and our brand recognition. We
believe that applying these core assets to our key focus areas
provides us with the scale, capacity, and global reach to
establish new technologies and respond to customers needs
quickly. Some of our core assets and key focus areas are:
|
|
|
|
|
Silicon and Manufacturing Technology Leadership. We
have long been a leader in silicon process technology and
manufacturing, and we aim to continue our lead through
investment and innovation in this critical area. We drive a
regular two-year upgrade cycleintroducing a new
microarchitecture approximately every two years and ramping the
next generation of silicon process technology in the intervening
years. We refer to this as our tick-tock technology
development cadence. As we continue to drive Moores Law
over the next several years, we believe that the value of this
advantage will increase. We aim to have the best process
technology, and unlike most semiconductor companies, we
primarily manufacture our products in our own facilities. This
allows us to optimize performance, reduce our time to market,
and scale new products more rapidly.
|
|
|
Architecture and Platforms. We are now developing a
wide range of solutions for devices that span the computing
continuum, from PCs and smartphones to smart TVs and in-vehicle
infotainment systems and beyond. Users want computing
experiences that are consistent and devices that are
interoperable. Users and developers value consistency of
architecture, which provides a common framework that allows for
reduced time to market, with the ability to leverage
technologies across multiple form factors. We believe that we
can meet the needs of both users and developers by offering
Intel®
architecture-based computing solutions across the computing
continuum. We continue to invest in improving Intel architecture
so that we can deliver increased value to our customers in
existing market segments and also expand the capabilities of the
architecture to meet end-user and customer needs in adjacent
market segments. Increasingly, we are delivering our
architecture in the form of platforms. Platforms include not
only the microprocessor, but other critical hardware and
software ingredients that are necessary to create computing
solutions. We are expanding our platform capabilities with
connectivity solutions, new types of user interfaces, new
features and capabilities, and complementary software.
|
|
|
Software. We enable and advance the computing
ecosystem by providing development tools and support to help
software developers create software applications and operating
systems that take advantage of our platforms. We seek to
expedite growth in various market segments, such as the embedded
and handheld market segments, through our software offerings.
Additionally, we have collaborated with other companies to
develop software platforms optimized for our
Intel®
Atomtm
processors and that support multiple hardware architectures as
well as multiple operating systems.
|
|
|
Customer Orientation. Our strategy focuses on
developing our next generation of products based on the needs
and expectations of our customers. In turn, our products help
enable the design and development of new form factors and usage
models for businesses and consumers. We offer platforms that
incorporate various components designed and configured to work
together to provide an optimized solution compared to components
that are used separately. Additionally, we promote industry
standards that we believe will yield innovation and improved
technologies for users.
|
|
|
Strategic Investments. We make investments in
companies around the world that we believe will generate
financial returns, further our strategic objectives, and support
our key business initiatives. Our investments, including those
made through our Intel Capital program, generally focus on
investing in companies and initiatives to stimulate growth in
the digital economy, create new business opportunities for
Intel, and expand global markets for our products.
|
|
|
Stewardship. We are committed to developing
energy-efficient technology solutions that can be used to
address major global problems while reducing our environmental
impact. We are also committed to helping transform education
globally through our technology, program, and policy leadership,
as well as funding through the Intel Foundation. In addition, we
strive to cultivate a work environment where engaged, energized
employees can thrive in their jobs and in their communities.
|
Our continued investment in developing our assets and execution
on key focus areas will strengthen our competitive position as
we enter and expand into new market segments. We believe that
these new market segments will result in demand that is
incremental to that of microprocessors designed for notebook and
desktop computers. We also believe that increased Internet
traffic and use of cloud computing create a need for greater
server infrastructure, including server products optimized for
energy-efficient performance and virtualization.
26
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Strategy
by Major Market Segment
The strategy for our PC Client Group operating
segment is to offer products that are incorporated into
notebook, netbook, tablet, and desktop computers for consumers
and businesses.
|
|
|
|
|
Our strategy for the notebook computing market segment is to
offer notebook PC products designed to improve performance,
battery life, and wireless connectivity, as well as to allow for
the design of smaller, lighter, and thinner form factors. We are
also increasing our focus on notebook products designed to offer
technologies that provide increased manageability and security.
In addition, we are focusing on providing seamless connectivity
within our platforms through the use and development of
multi-communication technologies such as WiMAX, WiFi, and 4G LTE.
|
|
|
Our strategy for the netbook computing market segment is to
offer products that enable customization and affordable
Internet-focused devices with small form factors. We also are
focusing on offering performance capabilities and features that
allow for enhanced end-user experiences such as seamless
connectivity, improved synchronization of content between
devices, and enhanced media usage.
|
|
|
Our strategy for the tablet computing market segment is to offer
Intel Atom processor-based solutions for multiple operating
systems that are designed to provide enhanced performance and
seamless connectivity to the Internet and other devices. Tablets
provide a unique form factor for multiple operating systems and
a unique user interface, including multi-touch features.
|
|
|
Our strategy for the desktop computing market segment is to
offer products that provide increased manageability, security,
and energy-efficient performance while lowering total cost of
ownership for businesses. For consumers in the desktop computing
market segment, we also focus on the design of components for
high-end enthusiast PCs and mainstream PCs with rich audio and
video capabilities.
|
The strategy for our Data Center Group operating
segment is to offer products that provide leading performance,
energy efficiency, and virtualization technology for server,
workstation, and storage platforms. We are also increasing our
focus on products designed for high-performance and
mission-critical computing, cloud computing services, and
emerging markets. In addition, we offer wired connectivity
devices that are incorporated into products that make up the
infrastructure for the Internet.
The strategies for our other Intel architecture operating
segments include:
|
|
|
|
|
driving Intel architecture as a solution for embedded
applications by delivering long life-cycle support, software and
architectural scalability, and platform integration;
|
|
|
continuing to develop and offer products that enable handheld
devices to deliver digital content and the Internet to users in
new ways; and
|
|
|
offering products and solutions for use in consumer electronics
devices designed to access and share Internet, broadcast,
optical media, and personal content through a variety of linked
digital devices within the home, including the TV.
|
Critical
Accounting Estimates
The methods, estimates, and judgments that we use in applying
our accounting policies have a significant impact on the results
that we report in our consolidated financial statements. Some of
our accounting policies require us to make difficult and
subjective judgments, often as a result of the need to make
estimates regarding matters that are inherently uncertain. Our
most critical accounting estimates include:
|
|
|
|
|
the valuation of non-marketable equity investments and the
determination of
other-than-temporary
impairments, which impact gains (losses) on equity method
investments, net, or gains (losses) on other equity investments,
net when we record impairments;
|
|
|
the assessment of recoverability of long-lived assets, which
impacts gross margin or operating expenses when we record asset
impairments or accelerate their depreciation;
|
|
|
the recognition and measurement of current and deferred income
taxes (including the measurement of uncertain tax positions),
which impact our provision for taxes;
|
|
|
the valuation of inventory, which impacts gross margin; and
|
|
|
the recognition and measurement of loss contingencies, which
impact gross margin or operating expenses when we recognize a
loss contingency, revise the estimate for a loss contingency, or
record an asset impairment.
|
Below, we discuss these policies further, as well as the
estimates and judgments involved.
27
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Non-Marketable
Equity Investments
We regularly invest in non-marketable equity instruments of
private companies, which range from early-stage companies that
are often still defining their strategic direction to more
mature companies with established revenue streams and business
models. The carrying value of our non-marketable equity
investment portfolio, excluding equity derivatives, totaled $2.6
billion as of December 25, 2010 ($3.4 billion as of December 26,
2009). The majority of this balance as of December 25, 2010 was
concentrated in companies in the flash memory market segment.
Our flash memory market segment investments include our
investment in IM Flash Technologies, LLC (IMFT) and IM Flash
Singapore, LLP (IMFS) of $1.5 billion ($1.6 billion as of
December 26, 2009). For additional information, see Note
11: Equity Method and Cost Method Investments in Part II,
Item 8 of this Form
10-K.
Our non-marketable equity investments are recorded using the
cost method or the equity method of accounting, depending on the
facts and circumstances of each investment. Our non-marketable
equity investments are classified within other long-term assets
on the consolidated balance sheets.
Non-marketable equity investments are inherently risky, and
their success is dependent on product development, market
acceptance, operational efficiency, other key business factors,
and the ability of the investee companies to raise additional
funds in financial markets that can be volatile. The companies
could fail or not be able to raise additional funds when needed,
or they may receive lower valuations with less favorable
investment terms than previous financings. These events could
cause our investments to become impaired. In addition, financial
market volatility could negatively affect our ability to realize
value in our investments through liquidity events such as
initial public offerings, mergers, and private sales. For
further information about our investment portfolio risks, see
Risk Factors in Part I, Item 1A of this Form
10-K.
We determine the fair value of our non-marketable equity
investments quarterly for disclosure purposes; however, the
investments are recorded at fair value only if an impairment
charge is recognized. We determine the fair value of our
non-marketable equity investments using the market and income
approaches. The market approach includes the use of financial
metrics and ratios of comparable public companies, such as
projected revenues, earnings, and comparable performance
multiples. The selection of comparable companies requires
management judgment and is based on a number of factors,
including comparable companies sizes, growth rates,
industries, development stages, and other relevant factors. The
income approach includes the use of a discounted cash flow
model, which may include one or multiple discounted cash flow
scenarios and requires the following significant estimates for
the investee: revenue, based on assumed market segment size and
assumed market segment share; expenses, capital spending, and
other costs; and discount rates based on the risk profile of
comparable companies. Estimates of market segment size, market
segment share, expenses, capital spending, and other costs are
developed by the investee
and/or Intel
using historical data and available market data. The valuation
of our non-marketable equity investments also takes into account
variables such as conditions reflected in the capital markets,
recent financing activities by the investees, the
investees capital structure, and the terms of the
investees issued interests.
For non-marketable equity investments, the measurement of fair
value requires significant judgment and includes quantitative
and qualitative analysis of identified events or circumstances
that impact the fair value of the investment, such as:
|
|
|
|
|
the investees revenue and earnings trends relative to
pre-defined milestones and overall business prospects;
|
|
|
the technological feasibility of the investees products
and technologies;
|
|
|
the general market conditions in the investees industry or
geographic area, including adverse regulatory or economic
changes;
|
|
|
factors related to the investees ability to remain in
business, such as the investees liquidity, debt ratios,
and the rate at which the investee is using its cash; and
|
|
|
the investees receipt of additional funding at a lower
valuation.
|
If the fair value of an investment is below our carrying value,
we determine if the investment is other than temporarily
impaired based on our quantitative and qualitative analysis,
which includes assessing the severity and duration of the
impairment and the likelihood of recovery before disposal. If
the investment is considered to be other than temporarily
impaired, we write down the investment to its fair value.
Impairments of non-marketable equity investments were $125
million in 2010. Over the past 12 quarters, including the fourth
quarter of 2010, impairments of non-marketable equity
investments ranged from $11 million to $896 million per quarter.
This range included impairments of $896 million during the
fourth quarter of 2008, primarily related to a $762 million
impairment charge on our investment in Clearwire Communications,
LLC (Clearwire LLC).
28
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
IMFT/IMFS
IMFT and IMFS are variable interest entities that are designed
to manufacture and sell NAND products to Intel and Micron at
manufacturing cost. We determine the fair value of our
investment in IMFT/IMFS using the income approach based on a
weighted average of multiple discounted cash flow scenarios of
our NAND Solutions Group business, which requires the use of
unobservable inputs. Unobservable inputs that require us to make
our most difficult and subjective judgments are the estimates
for projected revenue and discount rate. Changes in management
estimates for these unobservable inputs have the most
significant effect on the fair value determination. We have not
had an
other-than-temporary
impairment of our investment in IMFT/IMFS.
Long-Lived
Assets
We assess the impairment of long-lived assets when events or
changes in circumstances indicate that the carrying value of the
assets or the asset grouping may not be recoverable. Factors
that we consider in deciding when to perform an impairment
review include significant under-performance of a business or
product line in relation to expectations, significant negative
industry or economic trends, and significant changes or planned
changes in our use of the assets. We measure the recoverability
of assets that will continue to be used in our operations by
comparing the carrying value of the asset grouping to our
estimate of the related total future undiscounted net cash
flows. If an asset groupings carrying value is not
recoverable through the related undiscounted cash flows, the
asset grouping is considered to be impaired. The impairment is
measured by comparing the difference between the asset
groupings carrying value and its fair value. Long-lived
assets such as goodwill; intangible assets; and property, plant
and equipment are considered non-financial assets, and are
recorded at fair value only if an impairment charge is
recognized.
Impairments of long-lived assets are determined for groups of
assets related to the lowest level of identifiable independent
cash flows. Due to our asset usage model and the interchangeable
nature of our semiconductor manufacturing capacity, we must make
subjective judgments in determining the independent cash flows
that can be related to specific asset groupings. In addition, as
we make manufacturing process conversions and other factory
planning decisions, we must make subjective judgments regarding
the remaining useful lives of assets, primarily process-specific
semiconductor manufacturing tools and building improvements.
When we determine that the useful lives of assets are shorter
than we had originally estimated, we accelerate the rate of
depreciation over the assets new, shorter useful lives.
Over the past 12 quarters, including the fourth quarter of 2010,
impairments and accelerated depreciation of long-lived assets
ranged from $10 million to $300 million per quarter.
Income
Taxes
We must make estimates and judgments in determining the
provision for taxes for financial statement purposes. These
estimates and judgments occur in the calculation of tax credits,
benefits, and deductions, and in the calculation of certain tax
assets and liabilities that arise from differences in the timing
of recognition of revenue and expense for tax and financial
statement purposes, as well as the interest and penalties
related to uncertain tax positions. Significant changes in these
estimates may result in an increase or decrease to our tax
provision in a subsequent period.
We must assess the likelihood that we will be able to recover
our deferred tax assets. If recovery is not likely, we must
increase our provision for taxes by recording a valuation
allowance against the deferred tax assets that we estimate will
not ultimately be recoverable. We believe that we will
ultimately recover the deferred tax assets recorded on our
consolidated balance sheets. However, should there be a change
in our ability to recover our deferred tax assets, our tax
provision would increase in the period in which we determined
that the recovery was not likely. Recovery of a portion of our
deferred tax assets is impacted by managements plans with
respect to holding or disposing of certain investments;
therefore, changes in managements plans with respect to
holding or disposing of investments could affect our future
provision for taxes.
The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We
recognize liabilities for uncertain tax positions based on a
two-step process. The first step is to evaluate the tax position
for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. If we determine
that a tax position will more likely than not be sustained on
audit, the second step requires us to estimate and measure the
tax benefit as the largest amount that is more than 50% likely
to be realized upon ultimate settlement. It is inherently
difficult and subjective to estimate such amounts, as we have to
determine the probability of various possible outcomes. We
re-evaluate these uncertain tax positions on a quarterly basis.
This evaluation is based on factors such as changes in facts or
circumstances, changes in tax law, new audit activity, and
effectively settled issues. Determining whether an uncertain tax
position is effectively settled requires judgment. Such a change
in recognition or measurement would result in the recognition of
a tax benefit or an additional charge to the tax provision.
29
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Inventory
The valuation of inventory requires us to estimate obsolete or
excess inventory as well as inventory that is not of saleable
quality. The determination of obsolete or excess inventory
requires us to estimate the future demand for our products. The
estimate of future demand is compared to
work-in-process
and finished goods inventory levels to determine the amount, if
any, of obsolete or excess inventory. As of December 25, 2010,
we had total
work-in-process
inventory of $1.9 billion and total finished goods inventory of
$1.4 billion. The demand forecast is included in the development
of our short-term manufacturing plans to enable consistency
between inventory valuation and build decisions.
Product-specific facts and circumstances reviewed in the
inventory valuation process include a review of the customer
base, the stage of the product life cycle of our products,
consumer confidence, and customer acceptance of our products, as
well as an assessment of the selling price in relation to the
product cost. If our demand forecast for specific products is
greater than actual demand and we fail to reduce manufacturing
output accordingly, we could be required to write off inventory,
which would negatively impact our gross margin.
In order to determine what costs can be included in the
valuation of inventory, we must determine normal capacity at our
manufacturing and assembly and test facilities, based on
historical loadings compared to total available capacity. If the
factory loadings are below the established normal capacity
level, a portion of our manufacturing overhead costs would not
be included in the cost of inventory, and therefore would be
recognized as cost of sales in that period, which would
negatively impact our gross margin. We refer to these costs as
excess capacity charges. Over the past 12 quarters, excess
capacity charges ranged from zero to $680 million per quarter.
Loss
Contingencies
We are subject to various legal and administrative proceedings
and asserted and potential claims, accruals related to repair or
replacement of parts in connection with product errata, as well
as product warranties and potential asset impairments (loss
contingencies) that arise in the ordinary course of business. An
estimated loss from such contingencies is recognized as a charge
to income if it is probable that a liability has been incurred
and the amount of the loss can be reasonably estimated.
Disclosure of a loss contingency is required if there is at
least a reasonable possibility that a loss has been incurred.
The outcomes of legal and administrative proceedings and claims,
and the estimation of product warranties and asset impairments,
are subject to significant uncertainty. Significant judgment is
required in both the determination of probability and the
determination as to whether a loss is reasonably estimable. With
respect to estimating the losses associated with repairing and
replacing parts in connection with product errata, we make
judgments with respect to customer return rates, costs to repair
or replace parts, and where the product is in our
customers manufacturing process. At least quarterly, we
review the status of each significant matter, and we may revise
our estimates. These revisions could have a material impact on
our results of operations and financial position.
Accounting
Changes and Recent Accounting Standards
For a description of accounting changes and recent accounting
standards, including the expected dates of adoption and
estimated effects, if any, on our consolidated financial
statements, see Note 3: Accounting Changes and
Note 4: Recent Accounting Standards in Part II, Item
8 of this Form
10-K.
30
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations
The following table sets forth certain consolidated statements
of income data as a percentage of net revenue for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
(Dollars in Millions, Except Per Share Amounts)
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
Net revenue
|
|
$
|
43,623
|
|
|
|
100.0
|
%
|
|
$
|
35,127
|
|
|
|
100.0
|
%
|
|
$
|
37,586
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
15,132
|
|
|
|
34.7
|
%
|
|
|
15,566
|
|
|
|
44.3
|
%
|
|
|
16,742
|
|
|
|
44.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
28,491
|
|
|
|
65.3
|
%
|
|
|
19,561
|
|
|
|
55.7
|
%
|
|
|
20,844
|
|
|
|
55.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,576
|
|
|
|
15.1
|
%
|
|
|
5,653
|
|
|
|
16.1
|
%
|
|
|
5,722
|
|
|
|
15.2
|
%
|
Marketing, general and administrative
|
|
|
6,309
|
|
|
|
14.5
|
%
|
|
|
7,931
|
|
|
|
22.6
|
%
|
|
|
5,452
|
|
|
|
14.6
|
%
|
Restructuring and asset impairment charges
|
|
|
|
|
|
|
|
%
|
|
|
231
|
|
|
|
0.6
|
%
|
|
|
710
|
|
|
|
1.9
|
%
|
Amortization of acquisition-related intangibles
|
|
|
18
|
|
|
|
|
%
|
|
|
35
|
|
|
|
0.1
|
%
|
|
|
6
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
15,588
|
|
|
|
35.7
|
%
|
|
|
5,711
|
|
|
|
16.3
|
%
|
|
|
8,954
|
|
|
|
23.8
|
%
|
Gains (losses) on equity method investments, net
|
|
|
117
|
|
|
|
0.3
|
%
|
|
|
(147
|
)
|
|
|
(0.4
|
)%
|
|
|
(1,380
|
)
|
|
|
(3.7
|
)%
|
Gains (losses) on other equity investments, net
|
|
|
231
|
|
|
|
0.5
|
%
|
|
|
(23
|
)
|
|
|
(0.1
|
)%
|
|
|
(376
|
)
|
|
|
(1.0
|
)%
|
Interest and other, net
|
|
|
109
|
|
|
|
0.3
|
%
|
|
|
163
|
|
|
|
0.4
|
%
|
|
|
488
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
16,045
|
|
|
|
36.8
|
%
|
|
|
5,704
|
|
|
|
16.2
|
%
|
|
|
7,686
|
|
|
|
20.4
|
%
|
Provision for taxes
|
|
|
4,581
|
|
|
|
10.5
|
%
|
|
|
1,335
|
|
|
|
3.8
|
%
|
|
|
2,394
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,464
|
|
|
|
26.3
|
%
|
|
$
|
4,369
|
|
|
|
12.4
|
%
|
|
$
|
5,292
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
2.01
|
|
|
|
|
|
|
$
|
0.77
|
|
|
|
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Breakdown of Revenue
Our net revenue for 2010 increased $8.5 billion, or 24%,
compared to 2009. The increase was due to higher microprocessor
and chipset unit sales, as well as higher microprocessor average
selling prices. Revenue in the Japan, Asia-Pacific, Americas,
and Europe regions increased by 31%, 29%, 21%, and 6%,
respectively, compared to 2009.
31
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our overall gross margin dollars for 2010 increased $8.9
billion, or 46%, compared to 2009. The increase was primarily
due to significantly higher revenue. To a lesser extent, excess
capacity charges recorded in 2009 of $1.1 billion and lower
platform (microprocessor and chipset) unit cost contributed to
the increase in gross margin dollars for 2010 compared to 2009.
These increases were partially offset by charges recorded in the
fourth quarter of 2010 to repair and replace materials and
systems impacted by a design issue related to our
Intel®
6 Series Express Chipset family. For further information, see
Note 20: Chipset Design Issue in Part II, Item 8 of
this Form
10-K.
Our overall gross margin percentage increased to 65.3% in 2010
from 55.7% in 2009. The increase in gross margin percentage was
primarily attributable to the gross margin percentage increase
in the PC Client Group operating segment and, to a lesser
extent, gross margin percentage increases in the Data Center
Group and NAND Solutions Group operating segments. We derived a
substantial majority of our overall gross margin dollars in 2010
and 2009 from the sale of microprocessors in the PC Client Group
and Data Center Group operating segments. See Business
Outlook for a discussion of gross margin expectations.
Our net revenue for 2009 decreased 7% compared to 2008. Average
selling prices for microprocessors and chipsets decreased and
microprocessor and chipset unit sales increased, compared to
2008, primarily due to the ramp of Intel Atom processors and
chipsets, which generally have lower average selling prices than
our other microprocessor and chipset products. Revenue from the
sale of NOR flash memory products and communications products
declined $740 million, primarily as a result of business
divestitures. Additionally, an increase in revenue from the sale
of NAND flash memory products was mostly offset by a decrease in
revenue from the sale of wireless connectivity products. Revenue
in the Asia-Pacific region increased 2% compared to 2008, while
revenue in the Europe, Japan, and Americas regions decreased by
26%, 15%, and 4%, respectively, compared to 2008.
Our overall gross margin dollars for 2009 decreased $1.3
billion, or 6%, compared to 2008. The decrease was due to lower
revenue, approximately $830 million of higher factory
underutilization charges, and approximately $330 million of
higher
start-up
costs. These decreases were partially offset by lower platform
unit cost and lower NAND flash memory unit cost. Our overall
gross margin percentage increased slightly to 55.7% in 2009 from
55.5% in 2008. The slight increase in gross margin percentage
was primarily attributable to the gross margin percentage
increases in the NAND Solutions Group and Data Center Group
operating segments, offset by the gross margin percentage
decrease in the PC Client Group operating segment. We derived a
substantial majority of our overall gross margin dollars in
2009, and most of our overall gross margin dollars in 2008, from
the sales of microprocessors in the PC Client Group and Data
Center Group operating segments.
PC
Client Group
The revenue and operating income for the PC Client Group (PCCG)
for the three years ended December 25, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Microprocessor revenue
|
|
$
|
24,721
|
|
|
$
|
19,914
|
|
|
$
|
21,516
|
|
Chipset, motherboard, and other revenue
|
|
|
6,877
|
|
|
|
6,261
|
|
|
|
6,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
31,598
|
|
|
$
|
26,175
|
|
|
$
|
27,966
|
|
Operating income
|
|
$
|
13,304
|
|
|
$
|
7,585
|
|
|
$
|
9,419
|
|
Net revenue for the PCCG operating segment increased by $5.4
billion, or 21%, in 2010 compared to 2009. Microprocessors and
chipsets within PCCG include those designed for the notebook,
netbook, and desktop computing market segments. Significantly
higher notebook unit sales were the primary driver for the
increase in microprocessor revenue. To a lesser extent, higher
notebook average selling prices and higher desktop unit sales
also contributed to the increase. The increase in chipset,
motherboard, and other revenue was due to significantly higher
chipset unit sales, partially offset by significantly lower
revenue from the sale of wireless connectivity products.
Operating income increased by $5.7 billion in 2010 compared to
2009. The increase in operating income was primarily due to
significantly higher revenue. During 2009, PCCG recognized
approximately $1.0 billion of excess capacity charges, primarily
related to microprocessors and chipsets. Additionally, lower
platform unit cost in 2010 contributed to the increase in
operating income. These impacts were partially offset by charges
recorded in the fourth quarter of 2010 to repair and replace
materials and systems impacted by a design issue related to our
Intel®
6 Series Express Chipset family. Additionally, operating
expenses in 2010 were higher compared to 2009.
32
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
For 2009, net revenue for the PCCG operating segment decreased
by $1.8 billion, or 6%, compared to 2008. The decrease in
microprocessor revenue was primarily due to lower notebook
microprocessor average selling prices, and lower desktop
microprocessor unit sales and average selling prices. These
decreases were partially offset by a significant increase in
netbook microprocessor unit sales due to the ramp of Intel Atom
processors. The decrease in chipset, motherboard, and other
revenue was primarily due to lower chipset average selling
prices and lower unit sales of wireless connectivity products,
partially offset by higher chipset unit sales.
Operating income decreased by $1.8 billion, or 19%, in 2009
compared to 2008. The decrease was primarily due to lower
revenue and approximately $810 million of higher factory
underutilization charges, partially offset by lower platform
unit cost.
Data
Center Group
The revenue and operating income for the Data Center Group (DCG)
for the three years ended December 25, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Microprocessor revenue
|
|
$
|
7,361
|
|
|
$
|
5,301
|
|
|
$
|
5,126
|
|
Chipset, motherboard, and other revenue
|
|
|
1,332
|
|
|
|
1,149
|
|
|
|
1,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
8,693
|
|
|
$
|
6,450
|
|
|
$
|
6,590
|
|
Operating income
|
|
$
|
4,395
|
|
|
$
|
2,299
|
|
|
$
|
2,135
|
|
Net revenue for the DCG operating segment increased by $2.2
billion, or 35%, in 2010 compared to 2009. The increase in
microprocessor revenue was primarily due to significantly higher
microprocessor unit sales and, to a lesser extent, higher
microprocessor average selling prices. The increase in chipset,
motherboard, and other revenue was due to significantly higher
chipset unit sales and significantly higher revenue from the
sale of wired connectivity products.
Operating income increased by $2.1 billion in 2010 compared to
2009. The increase in operating income was due to significantly
higher revenue and, to a lesser extent, lower chipset unit cost.
For 2009, net revenue for the DCG operating segment decreased
slightly by $140 million, or 2%, compared to 2008. The increase
in microprocessor revenue was due to higher microprocessor
average selling prices, partially offset by lower microprocessor
unit sales. The decrease in chipset, motherboard, and other
revenue was primarily due to lower chipset average selling
prices.
Operating income increased by $164 million, or 8%, compared to
2008. The increase in operating income was primarily due to
higher microprocessor revenue and lower operating expenses,
partially offset by approximately $150 million of higher
start-up
costs as well as lower chipset revenue.
Other
Intel Architecture Operating Segments
The revenue and operating income for the other Intel
architecture (Other IA) operating segments, including the
Embedded and Communications Group (ECG), the Digital Home Group,
and the Ultra-Mobility Group, for the three years ended December
25, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net revenue
|
|
$
|
1,784
|
|
|
$
|
1,402
|
|
|
$
|
1,763
|
|
Operating income (loss)
|
|
$
|
(60
|
)
|
|
$
|
(179
|
)
|
|
$
|
(63
|
)
|
Net revenue for the Other IA operating segments increased by
$382 million, or 27%, in 2010 compared to 2009. The increase was
primarily due to significantly higher revenue within ECG from
significantly higher microprocessor and chipset unit sales.
Operating loss decreased by $119 million in 2010 compared to
2009. The operating loss decrease was primarily due to
significantly higher ECG revenue and lower ECG unit cost,
partially offset by higher operating expenses in ECG and the
Ultra-Mobility Group.
For 2009, net revenue for the Other IA operating segments
decreased by $361 million, or 20%, compared to 2008, and
operating loss for the Other IA operating segments increased by
$116 million in 2009 compared to 2008. The changes were
primarily due to lower revenue from the sale of communications
products within ECG, primarily as a result of business
divestitures.
33
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating
Expenses
Operating expenses for the three years ended December 25, 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Research and development
|
|
$
|
6,576
|
|
|
$
|
5,653
|
|
|
$
|
5,722
|
|
Marketing, general and administrative
|
|
$
|
6,309
|
|
|
$
|
7,931
|
|
|
$
|
5,452
|
|
Restructuring and asset impairment charges
|
|
$
|
|
|
|
$
|
231
|
|
|
$
|
710
|
|
Amortization of acquisition-related intangibles
|
|
$
|
18
|
|
|
$
|
35
|
|
|
$
|
6
|
|
Research and Development. R&D spending
increased by $923 million, or 16%, in 2010 compared to 2009, and
was flat in 2009 compared to 2008. The increase in 2010 compared
to 2009 was primarily due to higher profit-dependent
compensation, an increase in employees, and higher process
development costs as we transitioned from manufacturing
start-up
costs related to our 32nm process technology to R&D of our
next-generation 22nm process technology. In 2009 compared to
2008, we had lower process development costs as we transitioned
from R&D to manufacturing using our 32nm process
technology. This decrease was offset by higher profit-dependent
compensation.
Marketing, General and Administrative. Marketing,
general and administrative expenses decreased $1.6 billion, or
20%, in 2010 compared to 2009, and increased $2.5 billion, or
45%, in 2009 compared to 2008. The decrease in 2010 was due to
the 2009 charge of $1.447 billion incurred as a result of the
fine imposed by the European Commission (EC) and the $1.25
billion payment to AMD in 2009 as part of a settlement
agreement. These decreases were partially offset by higher
advertising expenses (including cooperative advertising
expenses), higher profit-dependent compensation, and, to a
lesser extent, expenses related to our Wind River Software Group
operating segment and an expense of $100 million recognized
during the fourth quarter of 2010 due to a patent cross-license
agreement that we entered into with NVIDIA in January 2011 (see
Note 29: Contingencies in Part II, Item 8 of this
Form 10-K).
The increase in 2009 compared to 2008 was due to the 2009 charge
incurred as a result of the fine imposed by the EC and the
payment to AMD in 2009 as part of a settlement agreement. To a
lesser extent, we had higher profit-dependent compensation
expenses that were partially offset by lower advertising
expenses (including cooperative advertising expenses).
R&D, combined with marketing, general and administrative
expenses, were 30% of net revenue in 2010, 39% of net revenue in
2009, and 30% of net revenue in 2008.
Restructuring and Asset Impairment Charges. The
following table summarizes restructuring and asset impairment
charges by plan for the three years ended December 25, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
2009 restructuring program
|
|
$
|
|
|
|
$
|
215
|
|
|
$
|
|
|
2008 NAND plan
|
|
|
|
|
|
|
|
|
|
|
215
|
|
2006 efficiency program
|
|
|
|
|
|
|
16
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and asset impairment charges
|
|
$
|
|
|
|
$
|
231
|
|
|
$
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
Restructuring Program
In the first quarter of 2009, management approved plans to
restructure some of our manufacturing and assembly and test
operations. These plans included closing two assembly and test
facilities in Malaysia, one facility in the Philippines, and one
facility in China; stopping production at a 200mm wafer
fabrication facility in Oregon; and ending production at our
200mm wafer fabrication facility in California. The 2009
restructuring program is complete. The following table
summarizes charges for the 2009 restructuring program for the
two years ended December 25, 2010:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
Employee severance and benefit arrangements
|
|
$
|
|
|
|
$
|
208
|
|
Asset impairments
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and asset impairment charges
|
|
$
|
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
|
34
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The following table summarizes the restructuring and asset
impairment activity for the 2009 restructuring program during
2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Severance and
|
|
|
Asset
|
|
|
|
|
(In Millions)
|
|
Benefits
|
|
|
Impairments
|
|
|
Total
|
|
Accrued restructuring balance as of December 27, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Additional accruals
|
|
|
223
|
|
|
|
7
|
|
|
|
230
|
|
Adjustments
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
Cash payments
|
|
|
(182
|
)
|
|
|
|
|
|
|
(182
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as of December 26, 2009
|
|
$
|
26
|
|
|
$
|
|
|
|
$
|
26
|
|
Additional accruals
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(26
|
)
|
|
|
|
|
|
|
(26
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as of December 25, 2010
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the 2009 restructuring program, we incurred $208 million
of charges related to employee severance and benefit
arrangements for approximately 6,500 employees. Most of these
employee actions occurred within manufacturing.
We estimate that these employee severance and benefit charges
result in gross annual savings of approximately $290 million. We
are realizing a substantial majority of these savings within
cost of sales.
2008 NAND
Plan
In the fourth quarter of 2008, management approved a plan with
Micron to discontinue the supply of NAND flash memory from the
200mm facility within the IMFT manufacturing network. The
agreement resulted in a $215 million restructuring charge,
primarily related to the IMFT 200mm supply agreement. The
restructuring charge resulted in a reduction of our investment
in IMFT/IMFS of $184 million, a cash payment to Micron of $24
million, and other cash payments of $7 million. The 2008 NAND
plan was completed at the end of 2008.
2006
Efficiency Program
In the third quarter of 2006, management approved several
actions as part of a restructuring plan designed to improve
operational efficiency and financial results. The following
table summarizes charges for the 2006 efficiency program for the
three years ended December 25, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Employee severance and benefit arrangements
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
151
|
|
Asset impairments
|
|
|
|
|
|
|
8
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and asset impairment charges
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, as part of our assessment of our worldwide
manufacturing capacity operations, we placed for sale our
fabrication facility in Colorado Springs, Colorado. As a result
of placing the facility for sale, in 2006 we recorded a $214
million impairment charge to write down to fair value the land,
building, and equipment. We incurred $54 million in additional
asset impairment charges as a result of market conditions
related to the Colorado Springs facility during 2007 and
additional charges in 2008. We sold the Colorado Springs
facility in 2009.
We incurred $85 million in asset impairment charges related to
assets that we sold in conjunction with the divestiture of our
NOR flash memory business in 2007 and an additional $275 million
in 2008. We determined the impairment charges based on the fair
value, less selling costs, that we expected to receive upon
completion of the divestiture in 2007, and determined the
impairment charges based on the revised fair value of the equity
and note receivable that we received upon completion of the
divestiture, less selling costs, in 2008. For further
information on this divestiture, see Note 16:
Divestitures in Part II, Item 8 of this Form
10-K.
35
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The following table summarizes the restructuring and asset
impairment activity for the 2006 efficiency program during 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Severance and
|
|
|
Asset
|
|
|
|
|
(In Millions)
|
|
Benefits
|
|
|
Impairments
|
|
|
Total
|
|
Accrued restructuring balance as of December 27, 2008
|
|
$
|
57
|
|
|
$
|
|
|
|
$
|
57
|
|
Additional accruals
|
|
|
18
|
|
|
|
8
|
|
|
|
26
|
|
Adjustments
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Cash payments
|
|
|
(65
|
)
|
|
|
|
|
|
|
(65
|
)
|
Non-cash settlements
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring balance as of December 26, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2006 efficiency program is complete. From the third quarter
of 2006 through 2009, we incurred a total of $1.6 billion in
restructuring and asset impairment charges related to this
program. These charges included a total of $686 million related
to employee severance and benefit arrangements for 11,300
employees. A substantial majority of these employee actions
affected employees within manufacturing, information technology,
and marketing. The restructuring and asset impairment charges
also included $896 million in asset impairment charges.
Share-Based
Compensation
Share-based compensation totaled $917 million in 2010 ($889
million in 2009 and $851 million in 2008). Share-based
compensation was included in cost of sales and operating
expenses.
As of December 25, 2010, unrecognized share-based compensation
costs and the weighted average periods over which the costs are
expected to be recognized were as follows:
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
|
|
|
|
Share-Based
|
|
|
Weighted
|
|
|
|
Compensation
|
|
|
Average
|
|
(Dollars in Millions)
|
|
Costs
|
|
|
Period
|
|
Stock options
|
|
$
|
220
|
|
|
|
1.2 years
|
|
Restricted stock units
|
|
$
|
1,210
|
|
|
|
1.3 years
|
|
Stock purchase plan
|
|
$
|
13
|
|
|
|
1 month
|
|
Gains
(Losses) on Equity Method Investments, Net
Gains (losses) on equity method investments, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Equity method losses, net
|
|
$
|
(113
|
)
|
|
$
|
(131
|
)
|
|
$
|
(316
|
)
|
Impairment charges
|
|
|
(16
|
)
|
|
|
(42
|
)
|
|
|
(1,077
|
)
|
Other, net
|
|
|
246
|
|
|
|
26
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) on equity method investments, net
|
|
$
|
117
|
|
|
$
|
(147
|
)
|
|
$
|
(1,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized higher gains on sales, lower impairment charges,
and lower equity method losses in 2010 compared to 2009. During
2010, we recognized a gain of $33 million on the initial public
offering of SMART Technologies, Inc., included within
Equity method losses, net, and a gain of $148
million on the subsequent sale of our shares in the secondary
offering, included in Other, net, resulting in a
total gain of $181 million. We also recognized a gain of $91
million on the sale of our ownership interest in Numonyx B.V.,
included in Other, net. Equity method losses, net
also includes Clearwire LLC ($116 million loss in 2010 and $27
million loss in 2009), Numonyx ($42 million gain in 2010, $31
million loss in 2009, and $87 million loss in 2008), and
Clearwire Corporation ($184 million loss in 2008). For further
information, see Note 11: Equity Method and Cost Method
Investments in Part II, Item 8 of this Form
10-K.
36
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Impairment charges in 2008 included a $762 million impairment
charge recognized on our investment in Clearwire LLC and a $250
million impairment charge recognized on our investment in
Numonyx. We recognized the impairment charge on our investment
in Clearwire LLC to write down our investment to its fair value,
primarily due to the fair value being significantly lower than
the cost basis of our investment in the fourth quarter of 2008.
The impairment charge on our investment in Numonyx was due to a
general decline in 2008 in the NOR flash memory market segment.
See Note 11: Equity Method and Cost Method
Investments in Part II, Item 8 of this Form
10-K.
Gains
(Losses) on Other Equity Investments, Net
Gains (losses) on other equity investments, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Impairment charges
|
|
$
|
(109
|
)
|
|
$
|
(179
|
)
|
|
$
|
(455
|
)
|
Gains on sales, net
|
|
|
185
|
|
|
|
55
|
|
|
|
60
|
|
Other, net
|
|
|
155
|
|
|
|
101
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) on other equity investments, net
|
|
$
|
231
|
|
|
$
|
(23
|
)
|
|
$
|
(376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized higher gains on third-party merger transactions,
primarily related to our cost method investments; higher gains
on sales; and lower impairment charges in 2010 compared to 2009.
Gains on other equity investments in 2010 included a gain of $67
million on the sale of shares in Micron, which occurred in the
first quarter of 2010.
Impairment charges in 2008 included a $176 million impairment
charge recognized on our investment in Clearwire Corporation and
$97 million of impairment charges on our investment in Micron.
The impairment charge on our investment in Clearwire Corporation
was due to the fair value being significantly lower than the
cost basis of our investment at the end of the fourth quarter of
2008. The impairment charges on our investment in Micron
reflected the difference between our cost basis and the fair
value of our investment in Micron at the end of the second and
third quarters of 2008. In addition, we recognized higher gains
on equity derivatives in 2009 compared to 2008.
Interest
and Other, Net
The components of interest and other, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Interest income
|
|
$
|
119
|
|
|
$
|
168
|
|
|
$
|
592
|
|
Interest expense
|
|
|
|
|
|
|
(1
|
)
|
|
|
(8
|
)
|
Other, net
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other, net
|
|
$
|
109
|
|
|
$
|
163
|
|
|
$
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income was lower in 2010 compared to 2009 as a result
of lower average interest rates, partially offset by higher
average investment balances. The average interest rate earned
during 2010 decreased by approximately 0.5 percentage points
compared to 2009. In addition, lower fair value gains on our
trading assets (zero in 2010 and $70 million in 2009) were
partially offset by lower exchange rate losses (zero in 2010 and
$40 million in 2009). Exchange rate losses in 2009 were due to
euro exposure related to our euro-denominated liability for the
EC fine.
We recognized lower interest income in 2009 compared to 2008 as
a result of lower interest rates. The average interest rate
earned during 2009 decreased by 2.4 percentage points compared
to 2008. In addition, lower gains on divestitures (zero in 2009
and $59 million in 2008) were more than offset by $70 million of
fair value gains in 2009 on our trading assets, compared to $130
million of fair value losses in 2008.
37
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Provision
for Taxes
Our provision for taxes and effective tax rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Income before taxes
|
|
$
|
16,045
|
|
|
$
|
5,704
|
|
|
$
|
7,686
|
|
Provision for taxes
|
|
$
|
4,581
|
|
|
$
|
1,335
|
|
|
$
|
2,394
|
|
Effective tax rate
|
|
|
28.6
|
%
|
|
|
23.4
|
%
|
|
|
31.1
|
%
|
We generated a higher percentage of our profits from higher tax
jurisdictions in 2010 compared to 2009, negatively impacting our
effective tax rate for 2010. The effective tax rate for 2009 was
positively impacted by the reversal of previously accrued taxes
of $366 million on settlements, effective settlements, and
related remeasurements of various uncertain tax positions. These
impacts were partially offset by the recognition of the EC fine
of $1.447 billion in 2009, which was not tax deductible and
therefore significantly increased our effective tax rate for
2009. For further information on the EC fine, see Note 29:
Contingencies in Part II, Item 8 of this Form
10-K.
We generated a higher percentage of our profits from lower tax
jurisdictions in 2009 compared to 2008, positively impacting our
effective tax rate for 2009. In addition, the 2009 tax rate was
positively impacted by the reversal of previously accrued taxes
of $366 million on settlements, effective settlements, and
related remeasurements of various uncertain tax positions
compared to a reversal of $103 million for such matters in 2008.
These impacts were partially offset by the recognition of the EC
fine. In addition, our 2008 effective tax rate was negatively
impacted by the recognition of a valuation allowance on our
deferred tax assets due to the uncertainty of realizing tax
benefits related to impairments of our equity investments.
Business
Outlook
Our future results of operations and the topics of other
forward-looking statements contained in this Form
10-K,
including this MD&A, involve a number of risks and
uncertaintiesin particular:
|
|
|
|
|
changes in business and economic conditions;
|
|
|
revenue and pricing;
|
|
|
gross margin and costs;
|
|
|
pending legal proceedings;
|
|
|
our effective tax rate;
|
|
|
marketing, general and administrative expenses;
|
|
|
our goals and strategies;
|
|
|
new product introductions, and product defects and errata;
|
|
|
|
|
|
plans to cultivate new businesses;
|
|
|
R&D expenses;
|
|
|
divestitures, acquisitions, or similar transactions;
|
|
|
net gains (losses) from equity investments;
|
|
|
interest and other, net;
|
|
|
capital spending;
|
|
|
depreciation; and
|
|
|
impairment of investments.
|
Our business outlook incorporates financial projections and
assumptions concerning the performance of McAfee, which we
expect to acquire in the first quarter of 2011, and the recently
acquired WLS business of Infineon (see Note 15:
Acquisitions in Part II, Item 8 of this Form
10-K).
Because we are required to make a number of assumptions about
the future performance of these businesses, it may be more
difficult to accurately project our financial results. Some of
these assumptions include the prospects for the acquired
businesses products and markets, the ability to retain
customer relationships and key employees, successful integration
of key technologies or operations, and the potential for
unexpected liabilities. In addition, as we integrate these
businesses into our operations, our understanding of the
financial and operational performance of the acquired businesses
may change, which could require an update to our business
outlook.
Our business outlook contains forward-looking statements and
projections based upon estimates of the impact of the chipset
design issue related to our Intel 6 Series Express Chipset
family (see Note 20: Chipset Design Issue in Part
II, Item 8 of this Form
10-K) on our
future financial and operating results, including on revenue,
gross margin, and inventory valuation, based on our preliminary
analysis. Among the factors related to the chipset design issue
that could cause actual results to differ are the number of
units that may be affected, the impact on systems in the market,
the costs that we may incur in repairing or replacing impacted
components, the extent to which customers purchase parts from
our competitors as a result of our parts shortages or otherwise,
the extent of shipments of impacted chipsets for use in PC
system configurations that would not be impacted by the design
issue, and the extent to which we are able to increase
production of substitute or redesigned parts for customers.
In addition to the various important factors discussed above, a
number of other important factors could cause actual results to
differ materially from our expectations. See Risk
Factors in Part I, Item 1A of this
Form 10-K.
38
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our expectations for 2011 are as follows:
|
|
|
|
|
Revenue. We expect a 2011 revenue growth percentage
in the mid- to high-teens.
|
|
|
Gross Margin Percentage. 63%, plus or minus a few
percentage points. The 63% midpoint is lower compared to our
2010 gross margin of 65.3%, primarily due to higher
manufacturing period costs, mostly
start-up
costs, as well as the impacts of the recently completed
acquisition of the WLS business of Infineon and the expected
acquisition of McAfee in the first quarter of 2011. We expect
these decreases to be partially offset by lower platform unit
cost and higher platform revenue.
|
|
|
Total Spending. We expect spending on R&D, plus
marketing, general and administrative expenses, in 2011 to be
approximately $15.7 billion, plus or minus $200 million,
compared to $12.9 billion in 2010.
|
|
|
Research and Development Spending. Approximately
$8.2 billion compared to $6.6 billion in 2010 as we continue to
ramp our new 22nm process technology.
|
|
|
Capital Spending. $9.0 billion, plus or minus $300
million, compared to $5.2 billion in 2010. We expect capital
spending for 2011 to primarily consist of investments in 22nm
process technology.
|
|
|
Depreciation. Approximately $5.0 billion, plus or
minus $100 million, compared to $4.4 billion in 2010.
|
|
|
Tax Rate. Approximately 29%, flat compared to 29% in
2010. The estimated effective tax rate is based on tax law in
effect as of December 25, 2010 and expected income.
|
Status of
Business Outlook
We expect that our corporate representatives will, from time to
time, meet privately with investors, investment analysts, the
media, and others, and may reiterate the forward-looking
statements contained in the Business Outlook section
and elsewhere in this Form
10-K,
including any such statements that are incorporated by reference
in this Form
10-K. At the
same time, we will keep this Form
10-K and our
most current business outlook publicly available on our Investor
Relations web site at www.intc.com. The public can
continue to rely on the business outlook published on our web
site as representing our current expectations on matters
covered, unless we publish a notice stating otherwise. The
statements in the Business Outlook section and other
forward-looking statements in this Form
10-K are
subject to revision during the course of the year in our
quarterly earnings releases and SEC filings and at other times.
From the close of business on March 4, 2011 until our quarterly
earnings release is published, presently scheduled for April 19,
2011, we will observe a quiet period. During the
quiet period, the Business Outlook section and other
forward-looking statements first published in our Form
8-K filed on
January 13, 2011, as updated in our Form
8-K filed on
January 31, 2011, and as reiterated or updated as applicable in
this Form
10-K, should
be considered historical, speaking as of prior to the quiet
period only and not subject to update. During the quiet period,
our representatives will not comment on our business outlook or
our financial results or expectations. The exact timing and
duration of the routine quiet period, and any others that we
utilize from time to time, may vary at our discretion.
39
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Dec. 25,
|
|
|
Dec. 26,
|
|
(Dollars in Millions)
|
|
2010
|
|
|
2009
|
|
Cash and cash equivalents, marketable debt instruments included
in trading assets, and short-term investments
|
|
$
|
21,497
|
|
|
$
|
13,920
|
|
Loans receivable and other long-term investments
|
|
$
|
3,876
|
|
|
$
|
4,528
|
|
Short-term and long-term debt
|
|
$
|
2,115
|
|
|
$
|
2,221
|
|
Debt as % of stockholders equity
|
|
|
4.3
|
%
|
|
|
5.3
|
%
|
Sources
and Uses of Cash
(In
Millions)
In summary, our cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net cash provided by operating activities
|
|
$
|
16,692
|
|
|
$
|
11,170
|
|
|
$
|
10,926
|
|
Net cash used for investing activities
|
|
|
(10,539
|
)
|
|
|
(7,965
|
)
|
|
|
(5,865
|
)
|
Net cash used for financing activities
|
|
|
(4,642
|
)
|
|
|
(2,568
|
)
|
|
|
(9,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
1,511
|
|
|
$
|
637
|
|
|
$
|
(3,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating
Activities
Cash provided by operating activities is net income adjusted for
certain non-cash items and changes in certain assets and
liabilities.
For 2010 compared to 2009, the $5.5 billion increase in cash
provided by operating activities was due to higher net income,
partially offset by adjustments for non-cash items. Income taxes
paid, net of refunds, in 2010 compared to 2009 were $3.7 billion
higher, primarily due to higher income before taxes in 2010.
Changes in assets and liabilities as of December 25, 2010
compared to December 26, 2009 included the following:
|
|
|
|
|
Inventories increased due to higher microprocessor
inventory, primarily due to ramping new products.
|
|
|
Accounts receivable increased due to a higher proportion
of sales at the end of the fourth quarter of 2010.
|
|
|
Accounts payable increased due to timing of payments.
|
For 2010 and 2009, our two largest customers accounted for 38%
of our net revenue, with one of these customers accounting for
21% of our net revenue in 2010 and 2009, and another customer
accounting for 17% of our net revenue in 2010 and 2009. These
two largest customers accounted for 44% of our accounts
receivable as of December 25, 2010 (41% as of December 26, 2009).
For 2009 compared to 2008, the $244 million increase in cash
provided by operating activities was primarily due to changes in
assets and liabilities, partially offset by lower net income.
Income taxes paid, net of refunds, in 2009 compared to 2008 were
$3.1 billion lower, primarily due to lower income before taxes
and timing of payments.
Investing
Activities
Investing cash flows consist primarily of capital expenditures,
net investment purchases, maturities, disposals, and cash used
for acquisitions.
The increase in cash used for investing activities in 2010
compared to 2009 was primarily due to an increase in net
purchases of
available-for-sale
investments and, to a lesser extent, higher capital expenditures
($5.2 billion in 2010 and $4.5 billion in 2009). These increases
were partially offset by a decrease in net purchases of trading
assets and lower cash paid for acquisitions.
The increase in cash used for investing activities in 2009
compared to 2008 was primarily due to an increase in net
purchases of
available-for-sale
investments and trading assets, and higher cash paid for
acquisitions. These increases were partially offset by a
decrease in investments in non-marketable equity investments.
Our investments in non-marketable equity investments in 2008
included $1.0 billion for an ownership interest in Clearwire LLC.
Financing
Activities
Financing cash flows consist primarily of repurchases of common
stock, payment of dividends to stockholders, issuance and
repayment of long-term debt, and proceeds from the sale of
shares through employee equity incentive plans.
The increase in cash used in financing activities in 2010
compared to 2009 was due to the issuance of long-term debt in
2009. During 2010, we repurchased $1.7 billion of common stock
compared to $1.8 billion in 2009. As of December 25, 2010, $4.2
billion remained available for repurchase under the existing
repurchase authorization of $25 billion. In January 2011, our
Board of Directors increased the repurchase authorization limit
by $10 billion. We base our level of common stock repurchases on
internal cash management decisions, and this level may
fluctuate. Proceeds from the sale of shares through employee
equity incentive plans totaled $587 million in 2010 compared to
$400 million in 2009. Our total dividend payments were $3.5
billion in 2010 compared to $3.1 billion in 2009 as a result of
an increase in quarterly cash dividends per common share. We
have paid a cash dividend in each of the past 73 quarters. In
January 2011, our Board of Directors declared a cash dividend of
$0.1812 per common share for the first quarter of 2011. The
dividend is payable on March 1, 2011 to stockholders of record
on February 7, 2011.
The decrease in cash used in financing activities in 2009
compared to 2008 was primarily due to a decrease in repurchases
of common stock and the issuance of long-term debt, partially
offset by lower proceeds from sales of shares through employee
equity incentive plans. We used the majority of the proceeds
from the 2009 issuance of long-term debt to repurchase common
stock.
41
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity
Cash generated by operations is our primary source of liquidity.
As of December 25, 2010, cash and cash equivalents, marketable
debt instruments included in trading assets, and short-term
investments totaled $21.5 billion. In addition to the $21.5
billion, we have $3.9 billion in loans receivable and other
long-term investments that we include when assessing our
investment portfolio. In the first quarter of 2011, we completed
the acquisition of the WLS business of Infineon. Total net cash
consideration for the acquisition is estimated at $1.4 billion.
For further information, see Note 15: Acquisitions
in Part II, Item 8 of this Form
10-K.
Substantially all of our investments in debt instruments are
with A/A2 or better rated issuers, and a substantial majority of
the issuers are rated AA-/Aa3 or better.
Our commercial paper program provides another potential source
of liquidity. We have an ongoing authorization from our Board of
Directors to borrow up to $3.0 billion, including through the
issuance of commercial paper. Maximum borrowings under our
commercial paper program during 2010 were $150 million, although
no commercial paper remained outstanding as of December 25,
2010. Our commercial paper was rated
A-1+ by
Standard & Poors and
P-1 by
Moodys as of December 25, 2010. We also have an automatic
shelf registration statement on file with the SEC, pursuant to
which we may offer an unspecified amount of debt, equity, and
other securities.
We believe that we have the financial resources needed to meet
our business requirements for the next 12 months, including
capital expenditures for worldwide manufacturing and assembly
and test; working capital requirements; and potential dividends,
common stock repurchases, and acquisitions or strategic
investments.
Fair
Value of Financial Instruments
When determining fair value, we consider the principal or most
advantageous market in which we would transact, and we consider
assumptions that market participants would use when pricing the
asset or liability. For further information, see Fair
Value in Note 2: Accounting Policies in Part
II, Item 8 of this Form
10-K.
Credit risk is factored into the valuation of financial
instruments that we measure and record at fair value on a
recurring basis. When fair value is determined using pricing
models, such as a discounted cash flow model, the issuers
credit risk
and/or
Intels credit risk is factored into the calculation of the
fair value, as appropriate.
Marketable
Debt Instruments
As of December 25, 2010, our assets measured and recorded at
fair value on a recurring basis included $24 billion of
marketable debt instruments. Of these instruments, $7 billion
was classified as Level 1, $16.7 billion as Level 2, and $308
million as Level 3.
Our balance of marketable debt instruments that are measured and
recorded at fair value on a recurring basis and classified as
Level 1 was classified as such due to the use of observable
market prices for identical securities that are traded in active
markets. Management judgment was required to determine the
levels for the frequency of transactions that should be met for
a market to be considered active. Our assessment of an active
market for our marketable debt instruments generally takes into
consideration the number of days each individual instrument
trades over a specified period.
Of the $16.7 billion balance of marketable debt instruments
measured and recorded at fair value on a recurring basis and
classified as Level 2, approximately 45% of the balance was
classified as Level 2 due to the use of a discounted cash flow
model and approximately 55% due to the use of non-binding market
consensus prices that are corroborated with observable market
data.
Our marketable debt instruments that are measured and recorded
at fair value on a recurring basis and classified as Level 3
were classified as such due to the lack of observable market
data to corroborate either the non-binding market consensus
prices or the non-binding broker quotes. When observable market
data is not available, we corroborate the non-binding market
consensus prices and non-binding broker quotes using
unobservable data, if available.
42
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Equity
Securities
As of December 25, 2010, our portfolio of assets measured and
recorded at fair value on a recurring basis included $1.4
billion of marketable equity securities. Of these securities,
$1.2 billion was classified as Level 1 because the valuations
were based on quoted prices for identical securities in active
markets. Our assessment of an active market for our marketable
equity securities generally takes into consideration the number
of days that each individual equity security trades over a
specified period. The remaining marketable equity securities of
$223 million were classified as Level 2 because their valuations
were either adjusted for security-specific restrictions or based
on quoted prices for identical securities in less active markets.
Contractual
Obligations
The following table summarizes our significant contractual
obligations as of December 25, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
(In Millions)
|
|
Total
|
|
|
1 Year
|
|
|
13 Years
|
|
|
35 Years
|
|
|
5 Years
|
|
Operating lease obligations
|
|
$
|
327
|
|
|
$
|
102
|
|
|
$
|
142
|
|
|
$
|
52
|
|
|
$
|
31
|
|
Capital purchase
obligations1
|
|
|
4,576
|
|
|
|
4,260
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
Other purchase obligations and
commitments2
|
|
|
567
|
|
|
|
393
|
|
|
|
106
|
|
|
|
65
|
|
|
|
3
|
|
Long-term debt
obligations3
|
|
|
6,969
|
|
|
|
119
|
|
|
|
238
|
|
|
|
238
|
|
|
|
6,374
|
|
Other long-term
liabilities4,
5
|
|
|
701
|
|
|
|
252
|
|
|
|
184
|
|
|
|
133
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total6
|
|
$
|
13,140
|
|
|
$
|
5,126
|
|
|
$
|
986
|
|
|
$
|
488
|
|
|
$
|
6,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Capital purchase obligations represent commitments for the
construction or purchase of property, plant and equipment. They
were not recorded as liabilities on our consolidated balance
sheet as of December 25, 2010, as we had not yet received the
related goods or taken title to the property. |
|
2 |
|
Other purchase obligations and commitments include payments
due under various types of licenses and agreements to purchase
raw materials or other goods, as well as payments due under
non-contingent funding obligations. Funding obligations include,
for example, agreements to fund various projects with other
companies. |
|
3 |
|
Amounts represent principal and interest cash payments over
the life of the debt obligations, including anticipated interest
payments that are not recorded on our consolidated balance
sheet. Any future settlement of convertible debt would impact
our cash payments. |
|
4 |
|
We are unable to reliably estimate the timing of future
payments related to uncertain tax positions; therefore, $190
million of long-term income taxes payable has been excluded from
the preceding table. However, long-term income taxes payable,
included on our consolidated balance sheet, included these
uncertain tax positions, reduced by the associated federal
deduction for state taxes and U.S. tax credits arising from
non-U.S.
income. |
|
5 |
|
Amounts represent future cash payments to satisfy other
long-term liabilities recorded on our consolidated balance
sheet, including the short-term portion of these long-term
liabilities. Expected contributions to our U.S. and
non-U.S.
pension plans and other postretirement benefit plans of $56
million to be made during 2011 are also included; however,
funding projections beyond 2011 are not practical to
estimate. |
|
6 |
|
Total generally excludes contractual obligations already
recorded on our consolidated balance sheet as current
liabilities. |
Contractual obligations for purchases of goods or services
include agreements that are enforceable and legally binding on
Intel and that specify all significant terms, including fixed or
minimum quantities to be purchased; fixed, minimum, or variable
price provisions; and the approximate timing of the transaction.
For obligations with cancellation provisions, the amounts
included in the preceding table were limited to the
non-cancelable portion of the agreement terms
and/or the
minimum cancellation fee.
We have entered into certain agreements for the purchase of raw
materials that specify minimum prices and quantities based on a
percentage of the total available market or based on a
percentage of our future purchasing requirements. Due to the
uncertainty of the future market and our future purchasing
requirements, as well as the non-binding nature of these
agreements, obligations under these agreements are not included
in the preceding table. Our purchase orders for other products
are based on our current manufacturing needs and are fulfilled
by our vendors within short time horizons. In addition, some of
our purchase orders represent authorizations to purchase rather
than binding agreements.
43
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual obligations that are contingent upon the achievement
of certain milestones are not included in the preceding table.
These obligations include contingent funding/payment obligations
and milestone-based equity investment funding. These
arrangements are not considered contractual obligations until
the milestone is met by the third party. Assuming that all
future milestones are met, additional required payments related
to these obligations were not significant as of December 25,
2010.
For the majority of restricted stock units granted, the number
of shares issued on the date the restricted stock units vest is
net of the minimum statutory withholding requirements that we
pay in cash to the appropriate taxing authorities on behalf of
our employees. The obligation to pay the relative taxing
authority is not included in the preceding table, as the amount
is contingent upon continued employment. In addition, the amount
of the obligation is unknown, as it is based in part on the
market price of our common stock when the awards vest.
We have a contractual obligation to purchase the output of IMFT
in proportion to our investment, which was 49% as of December
25, 2010. We also have several agreements with Micron related to
intellectual property rights, and R&D funding related to
NAND flash manufacturing. The obligation to purchase our
proportion of IMFTs inventory was approximately $100
million as of December 25, 2010. See Note 11: Equity
Method and Cost Method Investments in Part II, Item 8 of
this Form
10-K.
In January 2011, we entered into a patent cross-license
agreement with NVIDIA. We agreed to make payments totaling $1.5
billion to NVIDIA over six years ($300 million in each of
January 2011, 2012, and 2013; and $200 million in each of
January 2014, 2015, and 2016). For further information, see
Note 29: Contingencies in Part II, Item 8 of this
Form 10-K.
During 2010, we entered into a definitive agreement to acquire
all outstanding common shares of McAfee for $48.00 per share in
cash to be paid to the stockholders of McAfee. As of the date
that we entered into the agreement, the transaction had an
approximate value of $7.68 billion. We expect to complete the
acquisition in the first quarter of 2011. The transaction is
subject to customary closing conditions. For further
information, see Note 15: Acquisitions in Part II,
Item 8 of this Form
10-K.
During 2010, we entered into a definitive agreement to acquire
the WLS business of Infineon. In the first quarter of 2011, we
completed the acquisition. Total net cash consideration for the
acquisition is estimated at $1.4 billion. For further
information, see Note 15: Acquisitions in Part II,
Item 8 of this Form
10-K.
The expected timing of payments of the obligations above is
estimated based on current information. Timing of payments and
actual amounts paid may be different, depending on the time of
receipt of goods or services, or changes to
agreed-upon
amounts for some obligations.
Off-Balance-Sheet
Arrangements
As of December 25, 2010, we did not have any significant
off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii)
of SEC Regulation
S-K.
44
|
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We use derivative financial instruments primarily to manage
currency exchange rate and interest rate risk, and, to a lesser
extent, equity market and commodity price risk. All of the
potential changes noted below are based on sensitivity analyses
performed on our financial positions as of December 25, 2010 and
December 26, 2009. Actual results may differ materially.
Currency
Exchange Rates
In general, we economically hedge currency risks of
non-U.S.-dollar-denominated
investments in debt instruments and loans receivable with
offsetting currency forward contracts or currency interest rate
swaps. Gains and losses on these
non-U.S.-currency
investments would generally be offset by corresponding losses
and gains on the related hedging instruments, resulting in a
negligible net exposure to loss.
Substantially all of our revenue is transacted in U.S. dollars.
However, a significant amount of our operating expenditures and
capital purchases are incurred in or exposed to other
currencies, primarily the Japanese yen, the euro, and the
Israeli shekel. We have established balance sheet and forecasted
transaction currency risk management programs to protect against
fluctuations in fair value and the volatility of future cash
flows caused by changes in exchange rates. We generally utilize
currency forward contracts and, to a lesser extent, currency
options in these hedging programs. Our hedging programs reduce,
but do not always entirely eliminate, the impact of currency
exchange rate movements (see Risk Factors in Part I,
Item 1A of this Form
10-K). We
considered the historical trends in currency exchange rates and
determined that it was reasonably possible that a weighted
average adverse change of 20% in currency exchange rates could
be experienced in the near term. Such an adverse change, after
taking into account hedges and offsetting positions, would have
resulted in an adverse impact on income before taxes of less
than $35 million as of December 25, 2010 (less than $40 million
as of December 26, 2009).
Interest
Rates
We generally hedge interest rate risks of fixed-rate debt
instruments with offsetting interest rate swaps. Gains and
losses on these investments would generally be offset by
corresponding losses and gains on the related hedging
instruments, resulting in a negligible net exposure to interest
rate loss.
We are exposed to interest rate risk related to our investment
portfolio and debt issuances. We refer to our combined
investment portfolio, investment hedges, and debt issuances as
our net investment position. The primary objective of our
investments in debt instruments is to preserve principal while
maximizing yields. To achieve this objective, the returns on our
investments in debt instruments are generally based on the
U.S.-dollar
three-month LIBOR. A hypothetical decrease in interest rates of
1.0% would have resulted in an increase in the fair value of our
debt issuances of approximately $235 million as of December 25,
2010 (an increase of approximately $205 million as of December
26, 2009). A hypothetical decrease in interest rates of up to
1.0%, after taking into account investment hedges, would have
resulted in an increase in the fair value of our investment
portfolio of up to approximately $15 million as of December 25,
2010 (an increase of approximately $10 million as of December
26, 2009). These hypothetical decreases in interest rates would
have resulted in a decrease in the fair value of our net
investment position of approximately $220 million as of December
25, 2010 (a decrease of $195 million as of December 26, 2009).
The fluctuations in fair value of our net investment position
reflect only the direct impact of the change in interest rates.
Other economic variables, such as equity market fluctuations and
changes in relative credit risk, could result in a significantly
higher decline in our net investment position. For further
information on how credit risk is factored into the valuation of
our investment portfolio and debt issuances, see Fair
Value of Financial Instruments in Part II, Item 7 of this
Form 10-K.
Equity
Prices
Our marketable equity investments include marketable equity
securities and equity derivative instruments such as warrants
and options. To the extent that our marketable equity securities
have strategic value, we typically do not attempt to reduce or
eliminate our equity market exposure through hedging activities;
however, for our investments in strategic equity derivative
instruments, we may enter into transactions to reduce or
eliminate the equity market risks. For securities that we no
longer consider strategic, we evaluate legal, market, and
economic factors in our decision on the timing of disposal, and
whether it is possible and appropriate to hedge the equity
market risk.
We hold derivative instruments that seek to offset changes in
liabilities related to the equity market risks of certain
deferred compensation arrangements. The gains and losses from
changes in fair value of these derivatives are designed to
offset the gains and losses on the related liabilities,
resulting in an insignificant net exposure to loss.
45
As of December 25, 2010, the fair value of our marketable equity
investments and our equity derivative instruments, including
hedging positions, was $1.5 billion ($805 million as of December
26, 2009). Our marketable equity investments include our
investments in Micron, Imagination Technologies Group PLC,
VMware, Inc., and Clearwire Corporation, and were carried at a
total fair market value of $968 million, or 65% of our
marketable equity portfolio, as of December 25, 2010. Our
marketable equity method investment in SMART is excluded from
our analysis, as the carrying value does not fluctuate based on
market price changes unless an
other-than-temporary
impairment is deemed necessary. To determine reasonably possible
decreases in the market value of our marketable equity
investments, we analyzed the expected market price sensitivity
of our marketable equity investment portfolio. Assuming a loss
of 40% in market prices, and after reflecting the impact of
hedges and offsetting positions, the aggregate value of our
marketable equity investments could decrease by approximately
$365 million, based on the value as of December 25, 2010 (a
decrease in value of approximately $405 million, based on the
value as of December 26, 2009 using an assumed loss of 50%).
Many of the same factors that could result in an adverse
movement of equity market prices affect our non-marketable
equity investments, although we cannot always quantify the
impact directly. Financial markets are volatile, which could
negatively affect the prospects of the companies we invest in,
their ability to raise additional capital, and the likelihood of
our being able to realize value in our investments through
liquidity events such as initial public offerings, mergers, and
private sales. These types of investments involve a great deal
of risk, and there can be no assurance that any specific company
will grow or become successful; consequently, we could lose all
or part of our investment. Our non-marketable equity
investments, excluding investments accounted for under the
equity method, had a carrying amount of $872 million as of
December 25, 2010 ($939 million as of December 26, 2009). As of
December 25, 2010, the carrying amount of our non-marketable
equity method investments was $1.8 billion ($2.5 billion as of
December 26, 2009). A substantial majority of this balance as of
December 25, 2010 was concentrated in our IMFT/IMFS investment
of $1.5 billion ($1.6 billion as of December 26, 2009). Our
investments as of December 26, 2009 also included an investment
of $453 million in Numonyx, which was sold in 2010. For further
information, see Note 11: Equity Method and Cost Method
Investments in Part II, Item 8 of this Form
10-K.
46
|
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
|
|
|
|
|
|
48
|
|
|
|
|
|
49
|
|
|
|
|
|
50
|
|
|
|
|
|
51
|
|
|
|
|
|
52
|
|
|
|
|
|
105
|
|
|
|
|
|
107
|
47
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 25, 2010
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net revenue
|
|
$
|
43,623
|
|
|
$
|
35,127
|
|
|
$
|
37,586
|
|
Cost of sales
|
|
|
15,132
|
|
|
|
15,566
|
|
|
|
16,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
28,491
|
|
|
|
19,561
|
|
|
|
20,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,576
|
|
|
|
5,653
|
|
|
|
5,722
|
|
Marketing, general and administrative
|
|
|
6,309
|
|
|
|
7,931
|
|
|
|
5,452
|
|
Restructuring and asset impairment charges
|
|
|
|
|
|
|
231
|
|
|
|
710
|
|
Amortization of acquisition-related intangibles
|
|
|
18
|
|
|
|
35
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
12,903
|
|
|
|
13,850
|
|
|
|
11,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
15,588
|
|
|
|
5,711
|
|
|
|
8,954
|
|
Gains (losses) on equity method investments, net
|
|
|
117
|
|
|
|
(147
|
)
|
|
|
(1,380
|
)
|
Gains (losses) on other equity investments, net
|
|
|
231
|
|
|
|
(23
|
)
|
|
|
(376
|
)
|
Interest and other, net
|
|
|
109
|
|
|
|
163
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
16,045
|
|
|
|
5,704
|
|
|
|
7,686
|
|
Provision for taxes
|
|
|
4,581
|
|
|
|
1,335
|
|
|
|
2,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,464
|
|
|
$
|
4,369
|
|
|
$
|
5,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
2.06
|
|
|
$
|
0.79
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
2.01
|
|
|
$
|
0.77
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,555
|
|
|
|
5,557
|
|
|
|
5,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,696
|
|
|
|
5,645
|
|
|
|
5,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
INTEL
CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 25, 2010 and December 26, 2009
|
|
|
|
|
|
|
(In Millions, Except Par Value)
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,498
|
|
|
$
|
3,987
|
|
Short-term investments
|
|
|
11,294
|
|
|
|
5,285
|
|
Trading assets
|
|
|
5,093
|
|
|
|
4,648
|
|
Accounts receivable, net of allowance for doubtful accounts of
$28 ($19 in 2009)
|
|
|
2,867
|
|
|
|
2,273
|
|
Inventories
|
|
|
3,757
|
|
|
|
2,935
|
|
Deferred tax assets
|
|
|
1,488
|
|
|
|
1,216
|
|
Other current assets
|
|
|
1,614
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
31,611
|
|
|
|
21,157
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
17,899
|
|
|
|
17,225
|
|
Marketable equity securities
|
|
|
1,008
|
|
|
|
773
|
|
Other long-term investments
|
|
|
3,026
|
|
|
|
4,179
|
|
Goodwill
|
|
|
4,531
|
|
|
|
4,421
|
|
Other long-term assets
|
|
|
5,111
|
|
|
|
5,340
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
63,186
|
|
|
$
|
53,095
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
38
|
|
|
$
|
172
|
|
Accounts payable
|
|
|
2,290
|
|
|
|
1,883
|
|
Accrued compensation and benefits
|
|
|
2,888
|
|
|
|
2,448
|
|
Accrued advertising
|
|
|
1,007
|
|
|
|
773
|
|
Deferred income on shipments to distributors
|
|
|
622
|
|
|
|
593
|
|
Other accrued liabilities
|
|
|
2,482
|
|
|
|
1,722
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,327
|
|
|
|
7,591
|
|
|
|
|
|
|
|
|
|
|
Long-term income taxes payable
|
|
|
190
|
|
|
|
193
|
|
Long-term debt
|
|
|
2,077
|
|
|
|
2,049
|
|
Long-term deferred tax liabilities
|
|
|
926
|
|
|
|
555
|
|
Other long-term liabilities
|
|
|
1,236
|
|
|
|
1,003
|
|
Commitments and contingencies (Notes 23 and 29)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 50 shares authorized; none
issued
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 10,000 shares authorized; 5,581
issued and 5,511
outstanding (5,523 issued and outstanding in 2009) and capital
in excess of par value
|
|
|
16,178
|
|
|
|
14,993
|
|
Accumulated other comprehensive income (loss)
|
|
|
333
|
|
|
|
393
|
|
Retained earnings
|
|
|
32,919
|
|
|
|
26,318
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
49,430
|
|
|
|
41,704
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
63,186
|
|
|
$
|
53,095
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
49
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Years Ended December 25, 2010
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
3,987
|
|
|
$
|
3,350
|
|
|
$
|
7,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
11,464
|
|
|
|
4,369
|
|
|
|
5,292
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,398
|
|
|
|
4,744
|
|
|
|
4,360
|
|
Share-based compensation
|
|
|
917
|
|
|
|
889
|
|
|
|
851
|
|
Restructuring, asset impairment, and net loss on retirement of
assets
|
|
|
67
|
|
|
|
368
|
|
|
|
795
|
|
Excess tax benefit from share-based payment arrangements
|
|
|
(65
|
)
|
|
|
(9
|
)
|
|
|
(30
|
)
|
Amortization of intangibles
|
|
|
240
|
|
|
|
308
|
|
|
|
256
|
|
(Gains) losses on equity method investments, net
|
|
|
(117
|
)
|
|
|
147
|
|
|
|
1,380
|
|
(Gains) losses on other equity investments, net
|
|
|
(231
|
)
|
|
|
23
|
|
|
|
376
|
|
(Gains) losses on divestitures
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
Deferred taxes
|
|
|
(46
|
)
|
|
|
271
|
|
|
|
(790
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets
|
|
|
|
|
|
|
299
|
|
|
|
193
|
|
Accounts receivable
|
|
|
(584
|
)
|
|
|
(535
|
)
|
|
|
260
|
|
Inventories
|
|
|
(806
|
)
|
|
|
796
|
|
|
|
(395
|
)
|
Accounts payable
|
|
|
407
|
|
|
|
(506
|
)
|
|
|
29
|
|
Accrued compensation and benefits
|
|
|
161
|
|
|
|
247
|
|
|
|
(569
|
)
|
Income taxes payable and receivable
|
|
|
53
|
|
|
|
110
|
|
|
|
(834
|
)
|
Other assets and liabilities
|
|
|
834
|
|
|
|
(351
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
5,228
|
|
|
|
6,801
|
|
|
|
5,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,692
|
|
|
|
11,170
|
|
|
|
10,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(5,207
|
)
|
|
|
(4,515
|
)
|
|
|
(5,197
|
)
|
Acquisitions, net of cash acquired
|
|
|
(218
|
)
|
|
|
(853
|
)
|
|
|
(16
|
)
|
Purchases of
available-for-sale
investments
|
|
|
(17,675
|
)
|
|
|
(8,655
|
)
|
|
|
(6,479
|
)
|
Maturities and sales of
available-for-sale
investments
|
|
|
13,133
|
|
|
|
7,756
|
|
|
|
7,993
|
|
Purchases of trading assets
|
|
|
(8,944
|
)
|
|
|
(4,186
|
)
|
|
|
(2,676
|
)
|
Maturities and sales of trading assets
|
|
|
8,846
|
|
|
|
2,543
|
|
|
|
1,766
|
|
Origination of loans receivable
|
|
|
(498
|
)
|
|
|
(343
|
)
|
|
|
|
|
Investments in non-marketable equity investments
|
|
|
(393
|
)
|
|
|
(250
|
)
|
|
|
(1,691
|
)
|
Return of equity method investments
|
|
|
199
|
|
|
|
449
|
|
|
|
316
|
|
Proceeds from divestitures
|
|
|
|
|
|
|
|
|
|
|
85
|
|
Other investing
|
|
|
218
|
|
|
|
89
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(10,539
|
)
|
|
|
(7,965
|
)
|
|
|
(5,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term debt, net
|
|
|
23
|
|
|
|
(87
|
)
|
|
|
(40
|
)
|
Proceeds from government grants
|
|
|
79
|
|
|
|
|
|
|
|
182
|
|
Excess tax benefit from share-based payment arrangements
|
|
|
65
|
|
|
|
9
|
|
|
|
30
|
|
Issuance of long-term debt
|
|
|
|
|
|
|
1,980
|
|
|
|
|
|
Repayment of debt
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through employee equity incentive
plans
|
|
|
587
|
|
|
|
400
|
|
|
|
1,105
|
|
Repurchase of common stock
|
|
|
(1,736
|
)
|
|
|
(1,762
|
)
|
|
|
(7,195
|
)
|
Payment of dividends to stockholders
|
|
|
(3,503
|
)
|
|
|
(3,108
|
)
|
|
|
(3,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(4,642
|
)
|
|
|
(2,568
|
)
|
|
|
(9,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,511
|
|
|
|
637
|
|
|
|
(3,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
5,498
|
|
|
$
|
3,987
|
|
|
$
|
3,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized of $134 in 2010 ($86 in
2009 and 2008)
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
6
|
|
Income taxes, net of refunds
|
|
$
|
4,627
|
|
|
$
|
943
|
|
|
$
|
4,007
|
|
See accompanying notes.
50
INTEL
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
and Capital
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
in Excess of Par Value
|
|
|
Other
|
|
|
|
|
|
|
|
Three Years Ended December 25, 2010
|
|
Number of
|
|
|
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Total
|
|
Balance as of December 29, 2007
|
|
|
5,818
|
|
|
$
|
12,111
|
|
|
$
|
261
|
|
|
$
|
30,848
|
|
|
$
|
43,220
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,292
|
|
|
|
5,292
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through employee equity incentive
plans, net excess tax benefit, and other
|
|
|
72
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
1,132
|
|
Share-based compensation
|
|
|
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
851
|
|
Repurchase of common stock
|
|
|
(328
|
)
|
|
|
(692
|
)
|
|
|
|
|
|
|
(6,503
|
)
|
|
|
(7,195
|
)
|
Cash dividends declared ($0.5475 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,100
|
)
|
|
|
(3,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 27, 2008
|
|
|
5,562
|
|
|
|
13,402
|
|
|
|
(393
|
)
|
|
|
26,537
|
|
|
|
39,546
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,369
|
|
|
|
4,369
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
786
|
|
|
|
|
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through employee equity incentive
plans, net tax deficiency, and other
|
|
|
55
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
381
|
|
Issuance of convertible debt
|
|
|
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
603
|
|
Share-based compensation
|
|
|
|
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
889
|
|
Repurchase of common stock
|
|
|
(94
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
(1,480
|
)
|
|
|
(1,762
|
)
|
Cash dividends declared ($0.56 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,108
|
)
|
|
|
(3,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 26, 2009
|
|
|
5,523
|
|
|
|
14,993
|
|
|
|
393
|
|
|
|
26,318
|
|
|
|
41,704
|
|
Components of comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,464
|
|
|
|
11,464
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of shares through employee equity incentive
plans, net excess tax benefit, and other
|
|
|
68
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
644
|
|
Share-based compensation
|
|
|
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
917
|
|
Repurchase of common stock
|
|
|
(80
|
)
|
|
|
(376
|
)
|
|
|
|
|
|
|
(1,360
|
)
|
|
|
(1,736
|
)
|
Cash dividends declared ($0.63 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,503
|
)
|
|
|
(3,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 25, 2010
|
|
|
5,511
|
|
|
$
|
16,178
|
|
|
$
|
333
|
|
|
$
|
32,919
|
|
|
$
|
49,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
51
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1:
Basis of Presentation
We have a 52- or 53-week fiscal year that ends on the last
Saturday in December. Fiscal years 2010, 2009, and 2008 were all
52-week years. Fiscal year 2011 is a 53-week year. Our
consolidated financial statements include the accounts of Intel
Corporation and our wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated. We use the
equity method to account for equity investments in instances in
which we own common stock or similar interests and have the
ability to exercise significant influence, but not control, over
the investee. For all fiscal years presented, the U.S. dollar is
the functional currency for Intel and our subsidiaries;
therefore, we do not have a translation adjustment recorded
through accumulated other comprehensive income (loss).
Note 2:
Accounting Policies
Use of
Estimates
The preparation of consolidated financial statements in
conformity with U.S. generally accepted accounting principles
requires us to make estimates and judgments that affect the
amounts reported in our consolidated financial statements and
the accompanying notes. The accounting estimates that require
our most significant, difficult, and subjective judgments
include:
|
|
|
|
|
the valuation of non-marketable equity investments and the
determination of
other-than-temporary
impairments;
|
|
|
the assessment of recoverability of long-lived assets;
|
|
|
the recognition and measurement of current and deferred income
taxes (including the measurement of uncertain tax positions);
|
|
|
the valuation of inventory; and
|
|
|
the recognition and measurement of loss contingencies.
|
The actual results that we experience may differ materially from
our estimates.
Fair
Value
Fair value is the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When
determining fair value, we consider the principal or most
advantageous market in which we would transact, and we consider
assumptions that market participants would use when pricing the
asset or liability. Our financial instruments are measured and
recorded at fair value, except for equity method investments,
cost method investments, cost method loans receivable, and most
of our liabilities.
Fair
Value Hierarchy
The three levels of inputs that may be used to measure fair
value are as follows:
Level 1. Quoted prices in active markets for
identical assets or liabilities.
Level 2. Observable inputs other than Level 1
prices, such as quoted prices for similar assets or liabilities,
quoted prices in markets with insufficient volume or infrequent
transactions (less active markets), or model-derived valuations
in which all significant inputs are observable or can be derived
principally from or corroborated with observable market data for
substantially the full term of the assets or liabilities. Level
2 inputs also include non-binding market consensus prices that
can be corroborated with observable market data, as well as
quoted prices that were adjusted for security-specific
restrictions.
Level 3. Unobservable inputs to the valuation
methodology that are significant to the measurement of the fair
value of assets or liabilities. Level 3 inputs also include
non-binding market consensus prices or non-binding broker quotes
that we were unable to corroborate with observable market data.
For further discussion of fair value, see Note
5: Fair Value and Note 22: Retirement Benefit
Plans.
Trading
Assets
Marketable debt instruments are designated as trading assets
when the interest rate or foreign exchange rate risk is
economically hedged at inception with a related derivative
instrument. Investments designated as trading assets are
reported at fair value. The gains or losses of these investments
arising from changes in fair value due to interest rate and
currency market fluctuations and credit market volatility,
offset by losses or gains on the related derivative instruments,
are recorded in interest and other, net. We also designate
certain floating-rate securitized financial instruments,
primarily asset-backed securities, as trading assets.
52
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the second quarter of 2010, we sold our ownership interest in
Numonyx B.V. to Micron Technology, Inc. for consideration
consisting of shares of Micron. The Micron shares that we
received in the transaction are classified as marketable equity
securities within trading assets. Our interest in Micron makes
up most of the balance of marketable equity securities included
in trading assets. We have entered into equity options that
economically hedge our remaining ownership interest in Micron.
Gains and losses from the changes in the fair value of Micron
shares are mostly offset by changes in the fair value of the
related equity options and are recorded as gains (losses) on
other equity investments, net. For further information, see
Note 11: Equity Method and Cost Method Investments.
Available-for-Sale
Investments
We consider all liquid
available-for-sale
debt instruments with original maturities from the date of
purchase of approximately three months or less to be cash and
cash equivalents.
Available-for-sale
debt instruments with original maturities at the date of
purchase greater than approximately three months and remaining
maturities of less than one year are classified as short-term
investments.
Available-for-sale
debt instruments with remaining maturities beyond one year are
classified as other long-term investments.
Investments that we designate as
available-for-sale
are reported at fair value, with unrealized gains and losses,
net of tax, recorded in accumulated other comprehensive income
(loss), except as noted in the
Other-Than-Temporary
Impairment section below. We determine the cost of the
investment sold based on an average cost basis at the individual
security level. Our
available-for-sale
investments include:
|
|
|
|
|
Marketable debt instruments when the interest rate and
foreign currency risks are not hedged at inception of the
investment or when our designation for trading assets is not
met. We generally hold these debt instruments to generate a
return commensurate with the
U.S.-dollar
three-month LIBOR. We record the interest income and realized
gains and losses on the sale of these instruments in interest
and other, net.
|
|
|
Marketable equity securities when the investments are
considered strategic in nature at the time of original
classification or there are barriers to mitigating equity market
risk through the sale or use of derivative instruments at the
time of original classification. We acquire these equity
investments for the promotion of business and strategic
objectives. To the extent that these investments continue to
have strategic value, we typically do not attempt to reduce or
eliminate the equity market risks through hedging activities. We
record the realized gains or losses on the sale or exchange of
marketable equity securities in gains (losses) on other equity
investments, net.
|
Non-Marketable
and Other Equity Investments
Our non-marketable equity and other equity investments are
included in other long-term assets. We account for
non-marketable equity and other equity investments for which we
do not have control over the investee as:
|
|
|
|
|
Equity method investments when we have the ability to
exercise significant influence, but not control, over the
investee. Gains (losses) on equity method investments, net may
be recorded with up to a one-quarter lag. Equity method
investments include marketable and non-marketable investments.
|
|
|
Non-marketable cost method investments when the equity
method does not apply. We record the realized gains or losses on
the sale of non-marketable cost method investments in gains
(losses) on other equity investments, net.
|
Other-Than-Temporary
Impairment
All of our
available-for-sale
investments and non-marketable and other equity investments are
subject to a periodic impairment review. Investments are
considered impaired when the fair value is below the
investments cost basis/amortized cost. Impairments affect
earnings as follows:
|
|
|
|
|
Marketable debt instruments when the fair value is below
amortized cost and we intend to sell the instrument, it is more
likely than not that we will be required to sell the instrument
before recovery of its amortized cost basis, or we do not expect
to recover the entire amortized cost basis of the instrument
(that is, a credit loss exists).
Other-than-temporary
impairments are separated into amounts representing credit
losses, which are recognized in interest and other, net, and
amounts related to all other factors, which are recognized in
other comprehensive income (loss).
|
|
|
Marketable equity securities based on the specific facts
and circumstances present at the time of assessment, which
include the consideration of general market conditions, the
duration and extent to which the fair value is below cost, and
our intent and ability to hold the investment for a sufficient
period of time to allow for recovery in value in the foreseeable
future. We also consider specific adverse conditions related to
the financial health of, and business outlook for, the investee,
which may include industry and sector performance, changes in
technology, operational and financing cash flow factors, and
changes in the investees credit rating. We record
other-than-temporary
impairment charges on marketable equity securities in gains
(losses) on other equity investments, net and for marketable
equity method investments in gains (losses) on other equity
method investments, net.
|
53
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
Non-marketable equity investments based on our assessment
of the severity and duration of the impairment, and qualitative
and quantitative analysis, including:
|
|
|
|
|
|
the investees revenue and earnings trends relative to
pre-defined milestones and overall business prospects;
|
|
|
the technological feasibility of the investees products
and technologies;
|
|
|
the general market conditions in the investees industry or
geographic area, including adverse regulatory or economic
changes;
|
|
|
factors related to the investees ability to remain in
business, such as the investees liquidity, debt ratios,
and the rate at which the investee is using its cash; and
|
|
|
the investees receipt of additional funding at a lower
valuation.
|
We record
other-than-temporary
impairment charges in gains (losses) on other equity
investments, net for non-marketable cost method investments and
in gains (losses) on equity method investments, net for equity
method investments.
Derivative
Financial Instruments
Our primary objective for holding derivative financial
instruments is to manage currency exchange rate and interest
rate risk, and, to a lesser extent, equity market and commodity
price risk. Our derivative financial instruments are recorded at
fair value and are included in other current assets, other
long-term assets, other accrued liabilities, or other long-term
liabilities.
Our accounting policies for derivative financial instruments are
based on whether they meet the criteria for designation as cash
flow or fair value hedges. A designated hedge of the exposure to
variability in the future cash flows of an asset or a liability,
or of a forecasted transaction, is referred to as a cash flow
hedge. A designated hedge of the exposure to changes in fair
value of an asset or a liability, or of an unrecognized firm
commitment, is referred to as a fair value hedge. The criteria
for designating a derivative as a hedge include the assessment
of the instruments effectiveness in risk reduction,
matching of the derivative instrument to its underlying
transaction, and the assessment of the probability that the
underlying transaction will occur. For derivatives with cash
flow hedge accounting designation, we report the after-tax gain
or loss from the effective portion of the hedge as a component
of accumulated other comprehensive income (loss) and reclassify
it into earnings in the same period or periods in which the
hedged transaction affects earnings, and within the same line
item on the consolidated statements of income as the impact of
the hedged transaction. For derivatives with fair value hedge
accounting designation, we recognize gains or losses from the
change in fair value of these derivatives, as well as the
offsetting change in the fair value of the underlying hedged
item, in earnings. Derivatives that we designate as hedges are
classified in the consolidated statements of cash flows in the
same section as the underlying item, primarily within cash flows
from operating activities.
We recognize gains and losses from changes in fair values of
derivatives that are not designated as hedges for accounting
purposes within the line item on the consolidated statements of
income most closely associated with the economic underlying,
primarily in interest and other, net and gains (losses) on other
equity investments, net. As part of our strategic investment
program, we also acquire equity derivative instruments, such as
equity conversion rights associated with debt instruments, that
we do not designate as hedging instruments. We recognize the
gains or losses from changes in fair values of these equity
derivative instruments in gains (losses) on other equity
investments, net. Gains and losses from derivatives not
designated as hedges are classified in cash flows from operating
activities.
Measurement
of Effectiveness
|
|
|
|
|
Effectiveness for forwards is generally measured by
comparing the cumulative change in the fair value of the hedge
contract with the cumulative change in the present value of the
forecasted cash flows of the hedged item. For currency forward
contracts used in cash flow hedging strategies related to
capital purchases, forward points are excluded, and
effectiveness is measured using spot rates to value both the
hedge contract and the hedged item. For currency forward
contracts used in cash flow hedging strategies related to
operating expenditures, forward points are included and
effectiveness is measured using forward rates to value both the
hedge contract and the hedged item.
|
|
|
Effectiveness for options with hedge accounting designation
is generally measured by comparing the cumulative change in
the intrinsic value of the hedge contract with the cumulative
change in the intrinsic value of an option instrument
representing the hedged risks in the hedged item for cash flow
hedges. For cash flow and fair value hedges, time value is
excluded and effectiveness is measured based on spot rates to
value both the hedge contract and the hedged item.
|
|
|
Effectiveness for interest rate swaps and commodity swaps
is generally measured by comparing the change in fair value
of the hedged item with the change in fair value of the swap.
|
54
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If a cash flow hedge is discontinued because it is no longer
probable that the original hedged transaction will occur as
anticipated, the unrealized gain or loss on the related
derivative is reclassified into earnings. Subsequent gains or
losses on the related derivative instrument are recognized in
interest and other, net in each period until the instrument
matures, is terminated, is re-designated as a qualified hedge,
or is sold. Ineffective portions of cash flow hedges and fair
value hedges, as well as amounts excluded from the assessment of
effectiveness, are recognized in earnings in interest and other,
net. For further discussion of our derivative instruments, see
Note 8: Derivative Financial Instruments.
Securities
Lending
We may enter into securities lending agreements with financial
institutions, generally to facilitate hedging and certain
investment transactions. Selected securities may be loaned,
secured by collateral in the form of cash or securities. The
loaned securities continue to be carried as investment assets on
our consolidated balance sheets. Cash and cash equivalent
collateral is recorded as an asset with a corresponding
liability. For lending agreements collateralized by securities,
we do not record the collateral as an asset or a liability,
unless the collateral is repledged.
Loans
Receivable
We make loans to third parties that are classified within other
current assets or other long-term assets. We may elect the fair
value option for loans when the interest rate or foreign
exchange rate risk is economically hedged at inception with a
related derivative instrument. We record the gains or losses on
these loans arising from changes in fair value due to interest
rate, currency market fluctuations, and credit market
volatility, offset by losses or gains on the related derivative
instruments, in interest and other, net. Loans that are
denominated in U.S. dollars and have a floating-rate coupon are
carried at amortized cost. We measure interest income for all
loans receivable using the interest method, which is based on
the effective yield of the loans rather than the stated coupon
rate.
Inventories
We compute inventory cost on a currently adjusted standard basis
(which approximates actual cost on an average or
first-in,
first-out basis). Inventories at year-ends were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
Raw materials
|
|
$
|
471
|
|
|
$
|
437
|
|
Work in process
|
|
|
1,887
|
|
|
|
1,469
|
|
Finished goods
|
|
|
1,399
|
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
3,757
|
|
|
$
|
2,935
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
Property, plant and equipment, net at year-ends was as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
Land and buildings
|
|
$
|
17,421
|
|
|
$
|
16,687
|
|
Machinery and equipment
|
|
|
30,421
|
|
|
|
28,339
|
|
Construction in progress
|
|
|
2,639
|
|
|
|
2,796
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, gross
|
|
|
50,481
|
|
|
|
47,822
|
|
Less: accumulated depreciation
|
|
|
(32,582
|
)
|
|
|
(30,597
|
)
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
17,899
|
|
|
$
|
17,225
|
|
|
|
|
|
|
|
|
|
|
We compute depreciation for financial reporting purposes using
the straight-line method over the following estimated useful
lives: machinery and equipment, 2 to 4 years; buildings, 4 to 40
years.
We capitalize interest on borrowings related to eligible capital
expenditures. Capitalized interest is added to the cost of
qualified assets and amortized over the estimated useful lives
of the assets. We record capital-related government grants
earned as a reduction to property, plant and equipment.
55
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
We record goodwill when the purchase price of an acquisition
exceeds the fair value of the net tangible and intangible assets
as of the date of acquisition, assigning the goodwill to our
applicable reporting units based on the relative expected fair
value provided by the acquisition. We perform a quarterly review
of goodwill for indicators of impairment. During the fourth
quarter of each year, we perform an impairment review for each
reporting unit using a fair value approach. We do not identify
manufacturing and assembly and test assets with individual
reporting units because of the interchangeable nature of our
manufacturing and assembly and test assets. In determining the
carrying value of the reporting unit, we make an allocation of
our manufacturing and assembly and test assets based on each
reporting units relative percentage utilization of the
manufacturing and assembly and test assets. For further
discussion of goodwill, see Note 17: Goodwill.
Identified
Intangible Assets
Intellectual property assets primarily represent rights acquired
under technology licenses and are generally amortized on a
straight-line basis over the periods of benefit, ranging from 3
to 17 years. We amortize acquisition-related developed
technology based on economic benefit over the estimated useful
life of 4 years. We amortize other intangible assets that are
subject to amortization over periods ranging from 1 to 7 years.
We amortize acquisition-related in-process research and
development over the estimated useful life once the research and
development efforts are completed. In the quarter following the
period in which identified intangible assets become fully
amortized, the fully amortized balances are removed from the
gross asset and accumulated amortization amounts.
We perform a quarterly review of identified intangible assets to
determine if facts and circumstances indicate that the useful
life is shorter than we had originally estimated or that the
carrying amount of assets may not be recoverable. If such facts
and circumstances exist, we assess the recoverability of
identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or
group of assets over their remaining lives against their
respective carrying amounts. Impairments, if any, are based on
the excess of the carrying amount over the fair value of those
assets. If the useful life is shorter than originally estimated,
we accelerate the rate of amortization and amortize the
remaining carrying value over the new shorter useful life.
For further discussion of identified intangible assets, see
Note 18: Identified Intangible Assets.
Product
Warranty
The vast majority of our products are sold with a limited
warranty on product quality and a limited indemnification for
customers against intellectual property infringement claims
related to our products. The accrual and the related expense for
known product warranty issues were not significant during the
periods presented. Due to product testing, the short time
typically between product shipment and the detection and
correction of product failures, and the historical rate of
payments on indemnification claims, the accrual and related
expense for estimated incurred but unidentified issues were not
significant during the periods presented.
Revenue
Recognition
We recognize net product revenue when the earnings process is
complete, as evidenced by an agreement with the customer,
transfer of title, and acceptance, if applicable, as well as
fixed pricing and probable collectability. We record pricing
allowances, including discounts based on contractual
arrangements with customers, when we recognize revenue as a
reduction to both accounts receivable and net revenue. Because
of frequent sales price reductions and rapid technology
obsolescence in the industry, we defer product revenue and
related costs of sales from sales made to distributors under
agreements allowing price protection or right of return until
the distributors sell the merchandise. The right of return
granted generally consists of a stock rotation program in which
distributors are able to exchange certain products based on the
number of qualified purchases made by the distributor. Under the
price protection program, we give distributors credits for the
difference between the original price paid and the current price
that we offer. We record the net deferred income from product
sales to distributors on our balance sheet as deferred income on
shipments to distributors. We include shipping charges billed to
customers in net revenue, and include the related shipping costs
in cost of sales.
Sales of software, primarily through our Wind River Software
Group, are made through term licenses that are generally 12
months in length, or perpetual licenses. Revenue is generally
deferred and recognized ratably over the course of the license.
56
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising
Cooperative advertising programs reimburse customers for
marketing activities for certain of our products, subject to
defined criteria. We accrue cooperative advertising obligations
and record the costs at the same time that the related revenue
is recognized. We record cooperative advertising costs as
marketing, general and administrative expenses to the extent
that an advertising benefit separate from the revenue
transaction can be identified and the fair value of that
advertising benefit received is determinable. We record any
excess in cash paid over the fair value of the advertising
benefit received as a reduction in revenue. Advertising costs,
including direct marketing costs, recorded within marketing,
general and administrative expenses were $1.8 billion in 2010
($1.4 billion in 2009 and $1.9 billion in 2008).
Employee
Equity Incentive Plans
We have employee equity incentive plans, which are described
more fully in Note 24: Employee Equity Incentive
Plans. We use the straight-line attribution method to
recognize share-based compensation over the service period of
the award. Upon exercise, cancellation, forfeiture, or
expiration of stock options, or upon vesting or forfeiture of
restricted stock units, we eliminate deferred tax assets for
options and restricted stock units with multiple vesting dates
for each vesting period on a
first-in,
first-out basis as if each vesting period were a separate award.
Note 3:
Accounting Changes
2010
In the first quarter of 2010, we adopted new standards for
determining whether to consolidate a variable interest entity.
These new standards eliminated a mandatory quantitative approach
in favor of a qualitative analysis, and require an ongoing
reassessment. The adoption of these new standards did not impact
our consolidated statements of income or balance sheets.
2009
In the first quarter of 2009, we adopted new standards that
changed the accounting for convertible debt instruments with
cash settlement features. As of adoption, these new standards
applied to our junior subordinated convertible debentures issued
in 2005 (the 2005 debentures). Under the previous standards, our
2005 debentures were recognized entirely as a liability at
historical value. In accordance with adopting these new
standards, in 2009 we retrospectively recognized both a
liability and an equity component of the 2005 debentures at fair
value. The liability component is recognized as the fair value
of a similar instrument that does not have a conversion feature
at issuance. The equity component, which is the value of the
conversion feature at issuance, is recognized as the difference
between the proceeds from the issuance of the 2005 debentures
and the fair value of the liability component, after adjusting
for the deferred tax impact. The 2005 debentures were issued at
a coupon rate of 2.95%, which was below that of a similar
instrument that did not have a conversion feature (6.45%).
Therefore, the valuation of the debt component, using the income
approach, resulted in a debt discount. The debt discount is
reduced over the expected life of the debt, which is also the
stated life of the debt. These new standards are also applicable
in accounting for our convertible debt issued during 2009. See
Note 21: Borrowings for further discussion.
In the first quarter of 2009, we adopted revised standards for
business combinations. These revised standards generally require
an entity to recognize the assets, liabilities, contingencies,
and contingent consideration at their fair value on the
acquisition date. For circumstances in which the
acquisition-date fair value for a contingency cannot be
determined during the measurement period and it is concluded
that it is probable that an asset or liability exists as of the
acquisition date and the amount can be reasonably estimated, a
contingency is recognized as of the acquisition date based on
the estimated amount. The revised standards further require that
acquisition-related costs be recognized separately from the
acquisition and expensed as incurred, restructuring costs
generally be expensed in periods subsequent to the acquisition
date, and changes in estimates for accounting of deferred tax
asset valuation allowances and acquired income tax uncertainties
that occur subsequent to the measurement period be reflected in
income tax expense (benefit). In addition, acquired in-process
research and development is capitalized as an intangible asset.
These new standards became applicable to business combinations
on a prospective basis beginning in the first quarter of 2009.
Our acquisitions completed during 2010 and 2009 have been
accounted for using these revised standards. See Note 15:
Acquisitions.
57
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the first quarter of 2009, we adopted new standards that
specify the way in which fair value measurements should be made
for non-financial assets and non-financial liabilities that are
not measured and recorded at fair value on a recurring basis,
and specify additional disclosures related to these fair value
measurements. The adoption of these new standards did not have a
significant impact on our consolidated financial statements.
In the second quarter of 2009, we adopted new standards that
provide guidance on how to determine the fair value of assets
and liabilities when the volume and level of activity for the
asset/liability have significantly decreased. These new
standards also provide guidance on identifying circumstances
that indicate a transaction is not orderly. In addition, we are
required to disclose in interim and annual periods the inputs
and valuation techniques used to measure fair value and a
discussion of changes in valuation techniques. The adoption of
these new standards did not have a significant impact on our
consolidated financial statements.
In the second quarter of 2009, we adopted new standards for the
recognition and measurement of
other-than-temporary
impairments for debt securities that replaced the pre-existing
intent and ability indicator. These new standards
specify that if the fair value of a debt security is less than
its amortized cost basis, an
other-than-temporary
impairment is triggered in circumstances in which an entity has
an intent to sell the security, it is more likely than not that
the entity will be required to sell the security before recovery
of its amortized cost basis, or the entity does not expect to
recover the entire amortized cost basis of the security (that
is, a credit loss exists).
Other-than-temporary
impairments are separated into amounts representing credit
losses, which are recognized in earnings, and amounts related to
all other factors, which are recognized in other comprehensive
income (loss). The adoption of these new standards did not have
a significant impact on our consolidated financial statements.
For further discussion, see Note 7:
Available-for-Sale
Investments.
In the third quarter of 2009, we adopted amended standards for
the fair value measurement of liabilities. These amended
standards clarify that in circumstances in which a quoted price
in an active market for the identical liability is not
available, we are required to use the quoted price of the
identical liability when traded as an asset, quoted prices for
similar liabilities, or quoted prices for similar liabilities
when traded as assets. If these quoted prices are not available,
we are required to use another valuation technique, such as an
income approach or a market approach. These amended standards
became effective for us beginning in the fourth quarter of 2009
and did not have a significant impact on our consolidated
financial statements.
2008
In the first quarter of 2008, we adopted new standards for fair
value measurements for all financial assets and liabilities
recognized or disclosed at fair value in the consolidated
financial statements on a recurring basis (at least annually).
The standards defined fair value, established a framework for
measuring fair value, and enhanced fair value measurement
disclosures. The adoption of these new standards did not have a
significant impact on our consolidated financial statements, and
the resulting fair values calculated after adoption were not
significantly different from the fair values that would have
been calculated under previous guidance. As discussed above, we
adopted the fair value measurement standards for our
non-financial assets and liabilities in the first quarter of
2009. For further discussion of our fair value measurements, see
Note 5: Fair Value.
In the first quarter of 2008, we adopted new standards that
permitted companies to choose to measure certain financial
instruments and other items at fair value using an
instrument-by-instrument
election. The new standards required unrealized gains and losses
to be reported in earnings for items measured using the fair
value option. For further discussion, see Note 5: Fair
Value. These new standards also required cash flows from
purchases, sales, and maturities of trading securities to be
classified based on the nature and purpose for which the
securities were acquired. We assessed the nature and purpose of
our trading assets and determined that our marketable debt
instruments will be classified on the statement of cash flows as
investing activities, as they are held with the purpose of
generating returns. Activity related to equity securities
offsetting deferred compensation remained classified as
operating activities, as they were maintained to offset changes
in liabilities related to the equity market risk of certain
deferred compensation arrangements.
58
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the first quarter of 2008, amended views of the U.S.
Securities and Exchange Commission (SEC) on the use of the
simplified method in developing estimates of the expected lives
of share options became effective for us. The amendment, in
part, allowed the continued use, subject to specific criteria,
of the simplified method in estimating the expected lives of
share options granted after December 31, 2007. We will continue
to use the simplified method until we have the historical data
necessary to provide reasonable estimates of expected lives.
In the fourth quarter of 2008, we adopted new standards that
clarified the application of fair value in a market that is not
active, and addressed application issues such as the use of
internal assumptions when relevant observable data does not
exist, the use of observable market information when the market
is not active, and the use of market quotes when assessing the
relevance of observable and unobservable data. The adoption of
these new standards did not have a significant impact on our
consolidated financial statements or the fair values of our
financial assets and liabilities.
Note 4:
Recent Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB)
issued amended standards that require additional fair value
disclosures. These amended standards require disclosures about
inputs and valuation techniques used to measure fair value, as
well as disclosures about significant transfers, beginning in
the first quarter of 2010. Additionally, these amended standards
require presentation of disaggregated activity within the
reconciliation for fair value measurements using significant
unobservable inputs (Level 3), beginning in the first quarter of
2011.
In October 2009, the FASB issued new standards for revenue
recognition with multiple deliverables. These new standards
impact the determination of when the individual deliverables
included in a multiple-element arrangement may be treated as
separate units of accounting. Additionally, these new standards
modify the manner in which the transaction consideration is
allocated across the separately identified deliverables by no
longer permitting the residual method of allocating arrangement
consideration. These new standards are required to be adopted in
the first quarter of 2011. We do not expect these new standards
to significantly impact our consolidated financial statements.
In October 2009, the FASB issued new standards for the
accounting for certain revenue arrangements that include
software elements. These new standards amend the scope of
pre-existing software revenue guidance by removing from the
guidance non-software components of tangible products and
certain software components of tangible products. These new
standards are required to be adopted in the first quarter of
2011. We do not expect these new standards to significantly
impact our consolidated financial statements.
59
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5:
Fair Value
Assets/Liabilities
Measured and Recorded at Fair Value on a Recurring
Basis
Assets and liabilities measured and recorded at fair value on a
recurring basis, excluding accrued interest components,
consisted of the following types of instruments as of December
25, 2010 and December 26, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2010
|
|
|
December 26, 2009
|
|
|
|
Fair Value Measured and
|
|
|
|
|
|
Fair Value Measured and
|
|
|
|
|
|
|
Recorded at Reporting Date Using
|
|
|
|
|
|
Recorded at Reporting Date Using
|
|
|
|
|
(In Millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
|
|
|
$
|
2,600
|
|
|
$
|
|
|
|
$
|
2,600
|
|
|
$
|
|
|
|
$
|
2,919
|
|
|
$
|
|
|
|
$
|
2,919
|
|
Government bonds
|
|
|
1,279
|
|
|
|
505
|
|
|
|
|
|
|
|
1,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank deposits
|
|
|
|
|
|
|
560
|
|
|
|
|
|
|
|
560
|
|
|
|
|
|
|
|
459
|
|
|
|
|
|
|
|
459
|
|
Money market fund deposits
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
4,890
|
|
|
|
1,320
|
|
|
|
|
|
|
|
6,210
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
250
|
|
Commercial paper
|
|
|
|
|
|
|
2,712
|
|
|
|
|
|
|
|
2,712
|
|
|
|
|
|
|
|
2,525
|
|
|
|
|
|
|
|
2,525
|
|
Corporate bonds
|
|
|
121
|
|
|
|
1,378
|
|
|
|
1
|
|
|
|
1,500
|
|
|
|
133
|
|
|
|
1,560
|
|
|
|
76
|
|
|
|
1,769
|
|
Bank deposits
|
|
|
|
|
|
|
858
|
|
|
|
|
|
|
|
858
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
697
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
Money market fund deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
Trading assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
311
|
|
|
|
2,115
|
|
|
|
|
|
|
|
2,426
|
|
|
|
|
|
|
|
1,351
|
|
|
|
|
|
|
|
1,351
|
|
Corporate bonds
|
|
|
199
|
|
|
|
916
|
|
|
|
|
|
|
|
1,115
|
|
|
|
80
|
|
|
|
1,005
|
|
|
|
45
|
|
|
|
1,130
|
|
Commercial paper
|
|
|
|
|
|
|
488
|
|
|
|
|
|
|
|
488
|
|
|
|
|
|
|
|
882
|
|
|
|
|
|
|
|
882
|
|
Marketable equity securities
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
|
|
|
|
375
|
|
|
|
|
|
|
|
375
|
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
390
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
|
|
618
|
|
Bank deposits
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
264
|
|
Money market fund deposits
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
330
|
|
|
|
|
|
|
|
330
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
Marketable equity securities
|
|
|
785
|
|
|
|
223
|
|
|
|
|
|
|
|
1,008
|
|
|
|
676
|
|
|
|
97
|
|
|
|
|
|
|
|
773
|
|
Other long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
83
|
|
|
|
2,002
|
|
|
|
|
|
|
|
2,085
|
|
|
|
17
|
|
|
|
1,948
|
|
|
|
|
|
|
|
1,965
|
|
Corporate bonds
|
|
|
104
|
|
|
|
601
|
|
|
|
50
|
|
|
|
755
|
|
|
|
366
|
|
|
|
1,329
|
|
|
|
248
|
|
|
|
1,943
|
|
Bank deposits
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
162
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
109
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
|
|
|
|
|
642
|
|
|
|
|
|
|
|
642
|
|
|
|
|
|
|
|
249
|
|
|
|
|
|
|
|
249
|
|
Derivative assets
|
|
|
|
|
|
|
19
|
|
|
|
31
|
|
|
|
50
|
|
|
|
|
|
|
|
1
|
|
|
|
31
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured and recorded at fair value
|
|
$
|
8,197
|
|
|
$
|
17,885
|
|
|
$
|
339
|
|
|
$
|
26,421
|
|
|
$
|
1,333
|
|
|
$
|
16,241
|
|
|
$
|
1,154
|
|
|
$
|
18,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
201
|
|
|
$
|
7
|
|
|
$
|
208
|
|
|
$
|
|
|
|
$
|
112
|
|
|
$
|
65
|
|
|
$
|
177
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
123
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured and recorded at fair value
|
|
$
|
|
|
|
$
|
248
|
|
|
$
|
135
|
|
|
$
|
383
|
|
|
$
|
|
|
|
$
|
161
|
|
|
$
|
188
|
|
|
$
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds include bonds issued or deemed to be guaranteed
by U.S. Treasury securities,
non-U.S.
governments, U.S. agency securities, and Federal Deposit
Insurance Corporation (FDIC)-insured corporate bonds.
60
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Marketable
Debt Instruments
Marketable debt instruments include instruments such as
commercial paper, corporate bonds, government bonds, bank
deposits, asset-backed securities, municipal bonds, and money
market fund deposits. When we use observable market prices for
identical securities that are traded in less active markets, we
classify our marketable debt instruments as Level 2. When
observable market prices for identical securities are not
available, we price our marketable debt instruments using
non-binding market consensus prices that are corroborated with
observable market data; quoted market prices for similar
instruments; or pricing models, such as a discounted cash flow
model, with all significant inputs derived from or corroborated
with observable market data. Non-binding market consensus prices
are based on the proprietary valuation models of pricing
providers or brokers. These valuation models incorporate a
number of inputs, including non-binding and binding broker
quotes; observable market prices for identical or similar
securities; and the internal assumptions of pricing providers or
brokers that use observable market inputs and, to a lesser
degree, unobservable market inputs. We corroborate non-binding
market consensus prices with observable market data using
statistical models when observable market data exists. The
discounted cash flow model uses observable market inputs, such
as LIBOR-based yield curves, currency spot and forward rates,
and credit ratings.
Our marketable debt instruments that are classified as Level 3
are classified as such due to the lack of observable market data
to corroborate either the non-binding market consensus prices or
the non-binding broker quotes. When observable market data is
not available, we corroborate non-binding market consensus
prices and non-binding broker quotes using available
unobservable data.
The following tables present reconciliations for all assets and
liabilities measured and recorded at fair value on a recurring
basis, excluding accrued interest components, using significant
unobservable inputs (Level 3) for 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measured and Recorded Using
|
|
|
|
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
Asset-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Backed
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Long-Term
|
|
|
Total Gains
|
|
(In Millions)
|
|
Bonds
|
|
|
Securities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Debt
|
|
|
(Losses)
|
|
Balance as of December 26, 2009
|
|
$
|
369
|
|
|
$
|
754
|
|
|
$
|
31
|
|
|
$
|
(65
|
)
|
|
$
|
(123
|
)
|
|
|
|
|
Total gains or losses (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Included in other comprehensive income (loss)
|
|
|
4
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Purchases, sales, issuances, and settlements, net
|
|
|
(113
|
)
|
|
|
(512
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 25, 2010
|
|
$
|
51
|
|
|
$
|
257
|
|
|
$
|
31
|
|
|
$
|
(7
|
)
|
|
$
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains or losses included in earnings
related to assets and liabilities still held as of December 25,
2010
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measured and Recorded Using
|
|
|
|
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
Corporate
|
|
|
Backed
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Long-Term
|
|
|
Total Gains
|
|
(In Millions)
|
|
Bonds
|
|
|
Bonds
|
|
|
Securities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Debt
|
|
|
(Losses)
|
|
Balance as of December 27, 2008
|
|
$
|
|
|
|
$
|
555
|
|
|
$
|
1,083
|
|
|
$
|
15
|
|
|
$
|
(25
|
)
|
|
$
|
(122
|
)
|
|
|
|
|
Total gains or losses (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
4
|
|
|
|
25
|
|
|
|
(2
|
)
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
44
|
|
Included in other comprehensive income (loss)
|
|
|
1
|
|
|
|
36
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
Purchases, sales, issuances, and settlements, net
|
|
|
300
|
|
|
|
279
|
|
|
|
(374
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into Level 3
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
(301
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 26, 2009
|
|
$
|
|
|
|
$
|
369
|
|
|
$
|
754
|
|
|
$
|
31
|
|
|
$
|
(65
|
)
|
|
$
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains or losses included in earnings
related to assets and liabilities still held as of December 26,
2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
53
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
(1
|
)
|
|
$
|
70
|
|
61
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For all periods presented, gains and losses (realized and
unrealized) included in earnings were primarily reported in
interest and other, net. During 2010 and 2009, we transferred
corporate bonds from Level 3 to Level 2 due to a greater
availability of observable market data
and/or
non-binding market consensus prices to value or corroborate the
value of these instruments. Our policy is to reflect transfers
in and transfers out at the beginning of the quarter in which a
change in circumstances resulted in the transfer.
Fair
Value Option for Financial Assets/Liabilities
We elected the fair value option for loans made to third parties
in 2010 and 2009 when the interest rate or foreign exchange rate
risk was hedged at inception with a related derivative
instrument. As of December 25, 2010, the fair value of our loans
receivable for which we elected the fair value option did not
significantly differ from the contractual principal balance
based on the contractual currency. These loans receivable are
classified within other long-term assets. Fair value is
determined using a discounted cash flow model with all
significant inputs derived from or corroborated with observable
market data. Gains and losses from changes in fair value on the
loans receivable and related derivative instruments, as well as
interest income, are recorded in interest and other, net. During
2010 and 2009, changes in the fair value of our loans receivable
were largely offset by changes in the related derivative
instruments, resulting in an insignificant net impact on our
consolidated statements of income. Gains and losses attributable
to changes in credit risk are determined using observable credit
default spreads for the issuer or comparable companies and were
insignificant during 2010 and 2009. We did not elect the fair
value option for loans when the interest rate or foreign
exchange rate risk was not hedged at inception with a related
derivative instrument.
Under accounting standards effective in 2008, all of our
non-convertible long-term debt was eligible at inception to be
accounted for at fair value. However, we elected this fair value
option only for the bonds issued in 2007 by the Industrial
Development Authority of the City of Chandler, Arizona (2007
Arizona bonds). In connection with the 2007 Arizona bonds, we
entered into a total return swap agreement that effectively
converts the fixed-rate obligation on the bonds to a floating
U.S.-dollar
LIBOR-based rate. As a result, changes in the fair value of this
debt are largely offset by changes in the fair value of the
total return swap agreement, without the need to apply hedge
accounting provisions. The 2007 Arizona bonds are included in
long-term debt. We did not elect this fair value option for our
Arizona bonds issued in 2005 (2005 Arizona bonds). We used
fixed-rate debt securities to offset the risk of changes in fair
value of the 2005 Arizona bonds. Changes in the fair value of
the purchased debt securities were reported in other
comprehensive income. Electing the fair value option for our
2005 Arizona bonds would have resulted in changes in fair value
having been recorded in our results of operations without the
offset from changes in fair value of the debt securities. As of
December 25, 2010 and December 26, 2009, no other instruments
were similar to the 2007 Arizona bonds for which we elected fair
value treatment.
As of December 25, 2010, the fair value of the 2007 Arizona
bonds did not significantly differ from the contractual
principal balance. The fair value of the 2007 Arizona bonds was
determined using inputs that are observable in the market or
that can be derived from or corroborated with observable market
data, as well as unobservable inputs that were significant to
the fair value. Gains and losses on the 2007 Arizona bonds and
the related total return swap are recorded in interest and
other, net. We capitalize interest associated with the 2007
Arizona bonds. We add capitalized interest to the cost of
qualified assets and amortize it over the estimated useful lives
of the assets.
62
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets
Measured and Recorded at Fair Value on a Non-Recurring
Basis
Our non-marketable equity investments and non-financial assets,
such as intangible assets and property, plant and equipment, are
recorded at fair value only if an impairment charge is
recognized. The following table presents the financial
instruments and non-financial assets that were measured and
recorded at fair value on a non-recurring basis during 2010, and
the gains (losses) recorded during 2010 on those assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains
|
|
|
|
Net Carrying
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) for 12
|
|
|
|
Value as of
|
|
|
Fair Value Measured and Recorded Using
|
|
|
Months Ended
|
|
(In Millions)
|
|
Dec. 25, 2010
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Dec. 25, 2010
|
|
Non-marketable equity investments
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
128
|
|
|
$
|
(121
|
)
|
Property, plant and equipment
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) for assets held as of December 25,
2010
|
|
|
|
$
|
(146
|
)
|
|
|
|
|
|
|
|
Gains (losses) for non-marketable equity investments no longer
held
|
|
|
|
$
|
(4
|
)
|
Gains (losses) for property, plant and equipment no longer held
|
|
|
|
$
|
(66
|
)
|
|
|
|
|
|
|
|
Total gains (losses) for recorded
non-recurring
measurement
|
|
|
|
$
|
(216
|
)
|
|
|
|
|
|
|
|
The following table presents the financial instruments and
non-financial assets that were measured and recorded at fair
value on a non-recurring basis during 2009, and the gains
(losses) recorded during 2009 on those assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains
|
|
|
|
Net Carrying
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) for 12
|
|
|
|
Value as of
|
|
|
Fair Value Measured and Recorded Using
|
|
|
Months Ended
|
|
(In Millions)
|
|
Dec. 26, 2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Dec. 26, 2009
|
|
Non-marketable equity investments
|
|
$
|
208
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
211
|
|
|
$
|
(187
|
)
|
Property, plant and equipment
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) for assets held as of December 26,
2009
|
|
|
|
$
|
(203
|
)
|
|
|
|
|
|
|
|
Gains (losses) for non-marketable equity investments no longer
held
|
|
|
|
$
|
(34
|
)
|
Gains (losses) for property, plant and equipment no longer held
|
|
|
|
$
|
(136
|
)
|
|
|
|
|
|
|
|
Total gains (losses) for recorded
non-recurring
measurement
|
|
|
|
$
|
(373
|
)
|
|
|
|
|
|
|
|
The following table presents the financial instruments that were
measured and recorded at fair value on a non-recurring basis
during 2008, and the gains (losses) recorded during 2008 on
those assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains
|
|
|
|
Net Carrying
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) for 12
|
|
|
|
Value as of
|
|
|
Fair Value Measured and Recorded Using
|
|
|
Months Ended
|
|
(In Millions)
|
|
Dec. 27, 2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Dec. 27, 2008
|
|
Clearwire Communications, LLC
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
(762
|
)
|
Numonyx B.V.
|
|
$
|
484
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
503
|
|
|
$
|
(250
|
)
|
Other non-marketable equity investments
|
|
$
|
84
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
84
|
|
|
$
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) for assets held as of December 27,
2008
|
|
|
|
$
|
(1,212
|
)
|
|
|
|
|
|
|
|
63
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the preceding tables, the carrying value of our impaired
non-marketable equity investments may not equal our fair value
measurement at the time of impairment due to the subsequent
recognition of equity method adjustments, and the carrying value
of our impaired property, plant and equipment may not equal our
fair value measurement at the time of impairment due to the
subsequent recognition of depreciation expense.
A portion of our non-marketable equity investments were measured
and recorded at fair value due to events or circumstances that
significantly impacted the fair value of those investments,
resulting in
other-than-temporary
impairment charges. We classified these measurements as Level 3,
as we used unobservable inputs to the valuation methodologies
that were significant to the fair value measurements, and the
valuations required management judgment due to the absence of
quoted market prices. We determine the fair value of our
non-marketable equity investments using the market and income
approaches. The market approach includes the use of financial
metrics and ratios of comparable public companies. The selection
of comparable companies requires management judgment and is
based on a number of factors, including comparable
companies sizes, growth rates, industries, development
stages, and other relevant factors. The income approach includes
the use of a discounted cash flow model, which requires the
following significant estimates for the investee: revenue, based
on assumed market segment size and assumed market segment share;
costs; and discount rates based on the risk profile of
comparable companies. Estimates of market segment size, market
segment share, and costs are developed by the investee
and/or Intel
using historical data and available market data. The valuation
of these non-marketable equity investments also takes into
account variables such as conditions reflected in the capital
markets, recent financing activities by the investees, the
investees capital structure, and the terms of the
investees issued interests.
During 2008, we recorded a $762 million impairment charge on our
investment in Clearwire Communications, LLC (Clearwire LLC) to
write down our investment to its fair value, primarily due to
the fair value being significantly lower than the cost basis of
our investment. The impairment charge was included in gains
(losses) on equity method investments, net. We determine the
fair value of our investment in Clearwire LLC primarily using
the quoted prices for its parent company, Clearwire Corporation.
The effects of adjusting the quoted price for premiums that we
believe market participants would consider for Clearwire LLC,
such as tax benefits and voting rights associated with our
investments, were mostly offset by the effects of discounts to
the fair value, such as those due to transfer restrictions, lack
of liquidity, and differences in dividend rights that are
included in the value of Clearwire Corporation stock. We
classified our investment in Clearwire LLC as Level 2, as the
unobservable inputs to the valuation methodology were not
significant to the measurement of fair value. For further
information about Clearwire LLC and Clearwire Corporation, see
Note 11: Equity Method and Cost Method Investments.
We recorded a $250 million impairment charge on our investment
in Numonyx during 2008 to write down our investment to its fair
value. Estimates for revenue, earnings, and future cash flows
were revised lower due to a general decline in the NOR flash
memory market segment in 2008. We measured the fair value of our
investment in Numonyx using a combination of the income approach
and the market approach. The income approach included the use of
a weighted average of multiple discounted cash flow scenarios of
Numonyx, which required the use of unobservable inputs,
including assumptions of projected revenue, expenses, capital
spending, and other costs, as well as a discount rate calculated
based on the risk profile of the flash memory market segment
comparable to our investment in Numonyx. The market approach
included the use of financial metrics and ratios, such as
multiples of revenue and earnings of comparable public
companies. The impairment charge was included in gains (losses)
on equity method investments, net.
Additionally, certain of our property, plant and equipment was
measured and recorded at fair value during 2010 and 2009 due to
events or circumstances we identified that indicated that the
carrying value of the assets or the asset grouping was not
recoverable, resulting in impairment charges. Most of these
asset impairments related to manufacturing assets.
Financial
Instruments Not Recorded at Fair Value on a Recurring
Basis
We measure the fair value of our non-marketable equity
investments, marketable equity method investment, debt carried
at amortized cost, and cost method loans receivable quarterly
for disclosure purposes; however, they are recorded at fair
value only if an impairment charge is recognized. The carrying
amounts and fair values of financial instruments not recorded at
fair value on a recurring basis as of December 25, 2010 and
December 26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In Millions)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Non-marketable equity investments
|
|
$
|
2,633
|
|
|
$
|
5,144
|
|
|
$
|
3,411
|
|
|
$
|
5,723
|
|
Marketable equity method investments
|
|
$
|
31
|
|
|
$
|
167
|
|
|
$
|
|
|
|
$
|
|
|
Loans receivable
|
|
$
|
208
|
|
|
$
|
208
|
|
|
$
|
100
|
|
|
$
|
100
|
|
Long-term debt
|
|
$
|
1,949
|
|
|
$
|
2,283
|
|
|
$
|
2,083
|
|
|
$
|
2,314
|
|
64
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our non-marketable equity investments as of December 26, 2009
included our investment in Numonyx. We sold our ownership
interest in Numonyx to Micron in the second quarter of 2010. As
of December 26, 2009, the fair value was based on
managements assessment using a combination of the income
approach and the market approach. For further information, see
Note 11: Equity Method and Cost Method Investments.
As of December 25, 2010, we had non-marketable equity
investments in an unrealized loss position of $10 million that
had a fair value of $95 million (unrealized loss position of $30
million on non-marketable equity investments with a fair value
of $205 million as of December 26, 2009).
Our marketable equity method investment is our ownership
interest in SMART Technologies, Inc. The fair value of our
ownership interest in SMART was $167 million based on the quoted
closing stock price as of December 25, 2010. For further
information, see Note 11: Equity Method and Cost Method
Investments.
The carrying amount and fair value of loans receivable exclude
$642 million of loans measured and recorded at fair value as of
December 25, 2010 ($249 million as of December 26, 2009). The
carrying amount and fair value of long-term debt exclude $128
million of long-term debt measured and recorded at fair value as
of December 25, 2010 ($123 million as of December 26, 2009). The
carrying amount and fair value of the current portion of
long-term debt are included in long-term debt in the preceding
table.
The fair value of our loans receivable is determined using a
discounted cash flow model, with all significant inputs derived
from or corroborated with observable market data. The fair value
of our long-term debt takes into consideration variables such as
credit-rating changes and interest rate changes. The credit
quality of our loans receivable remains high, with credit
ratings of A/A2 or better as of December 25, 2010.
Note 6:
Trading Assets
Trading assets outstanding as of December 25, 2010 and December
26, 2009 were as follows:
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
2010
|
|
|
2009
|
|
Marketable debt instruments
|
|
$
|
4,705
|
|
|
$
|
4,648
|
|
Marketable equity securities
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets
|
|
$
|
5,093
|
|
|
$
|
4,648
|
|
|
|
|
|
|
|
|
|
|
Net losses on marketable debt instruments classified as trading
assets still held at the reporting date were $50 million in 2010
(gains of $91 million in 2009 and losses of $132 million in
2008). Net gains on the related derivatives were $43 million in
2010 (gains of $18 million in 2009 and losses of $5 million in
2008).
In 2010, we sold our ownership in Numonyx to Micron. The Micron
shares that we received in the transaction are classified as
marketable equity securities within trading assets. For further
information, see Note 11: Equity Method and Cost Method
Investments. Net losses on marketable equity securities
classified as trading assets still held at the reporting date,
excluding the impacts of the related derivatives, were $14
million in 2010.
During 2009, we sold our equity securities offsetting deferred
compensation, which were classified as trading assets, and
entered into derivative instruments that seek to offset changes
in liabilities related to those deferred compensation
arrangements. The deferred compensation liabilities were $646
million as of December 25, 2010 ($511 million as of December 26,
2009) and are included in other accrued liabilities. See
Note 8: Derivative Financial Instruments for further
information on our equity market risk management programs. Net
losses on equity securities offsetting deferred compensation
arrangements still held at the reporting date were $209 million
in 2008.
65
INTEL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7:
Available-for-Sale
Investments
Available-for-sale
investments as of December 25, 2010 and December 26, 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Adjusted
|
|
|
|