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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 25, 1999,
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to _______________.
Commission File Number 0-6217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1672743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Mission College Boulevard, Santa Clara, California, 95052-8119
(Address of Principal Executive Offices, Zip Code)
Registrant's telephone number, including area code (408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's 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. [_]
Aggregate market value of voting stock held
by non-affiliates of the registrant as of February 25, 2000
$355.2 billion
3,342 million shares of Common Stock outstanding as of February 25, 2000
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Stockholders for fiscal year ended December
25, 1999 - Parts I, II and IV.
(2) Portions of the Registrant's Proxy Statement related to the 2000 Annual
Meeting of Stockholders, to be filed subsequent to the date hereof - Part
III
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PART I **
ITEM 1. BUSINESS
INDUSTRY
Intel Corporation, the world's largest semiconductor chip maker, supplies the
computing and communications industries with chips, boards, systems and software
that are integral in computers, servers, and networking and communications
products. These products are used by industry members to create advanced
computing and communications systems and are offered at various levels of
integration. The company was incorporated in California in 1968 and
reincorporated in Delaware in 1989.
PRODUCTS
The company's major products include microprocessors, chipsets, flash memory
products, networking and communications products, embedded processors and
microcontrollers, and digital imaging and other PC-peripheral products. Intel's
component-level products consist of integrated circuits used to process
information. Integrated circuits are silicon chips, known as semiconductors,
etched with interconnected electronic switches. Intel sells to:
. original equipment manufacturers (OEMs) of computer systems,
telecommunications and data communications equipment, and peripherals;
. PC and computing appliance users (including individuals, large and small
businesses, and Internet service providers) who buy Intel's PC
enhancement products, business communications products and networking
products through retail and industrial distributors, and resellers
throughout the world;
. other manufacturers, including makers of a wide range of industrial and
communications equipment;
. businesses, schools, and state and local governments that are building or
enhancing Internet data centers.
Intel also provides data center services to businesses needing e-Commerce
services.
The company is organized into five operating segments according to Intel's
various product lines: the Intel Architecture Business Group, the Wireless
Communications and Computing Group (formed out of the former Computing
Enhancement Group), the Network Communications Group, the Communications
Products Group (formed during 1999) and the New Business Group. Each group has
a vice president who reports directly to the Chief Executive Officer of Intel.
The Intel Architecture Business Group is the only reportable operating segment
for financial statement purposes. No other operating segment represents 10% or
more of revenues or operating profit of the company. Reference is made to the
information regarding revenues and operating profit by reportable segments,
and revenues from unaffiliated customers by geographic region, under the
headings "Operating segment and geographic information" on pages 27 and 28 of
Intel's 1999 Annual Report to Stockholders and "Management's discussion and
analysis of financial condition and results of operations" on pages 30 to 36
of the 1999 Annual Report, which information is hereby incorporated by
reference. Operating results of segments that are not individually reportable
are included in the "all other" category for financial statement segment
reporting purposes.
__________
** Page references to the 1999 Annual Report to Stockholders or to the company's
2000 Proxy Statement for its 2000 Annual Meeting of Stockholders under Item 1 in
Part I and Items 5, 6, 7, 7A and 8 in Part II; Items 10, 11, 12 and 13 in Part
III; and Item 14 in Part IV relate to the bound, printed versions of such annual
report and proxy statement, not to the electronic versions appearing at the
Intel(R) Internet site (www.intel.com and www.intc.com). However, all data
referred to also appears in the electronic versions.
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Intel Architecture Business Group
The Intel Architecture Business Group (IABG) tailors platform solutions around
Intel's microprocessors and chipsets for all major computing segments worldwide,
using a tiered branding approach. Intel's strategy is to provide both the
highest performance and the best value through a broad range of microprocessor
and chipset solutions that power the client and server market segments. Client
platforms incorporate IABG products in desktop computers, notebooks, entry-
level servers and workstations, and Internet appliances. Server platform
products are targeted for mid-range to high-end servers and workstations.
Servers are powerful systems, often with multiple microprocessors working
together, housing large amounts of data, directing traffic, and controlling
central functions in local and wide area networks and on the Internet.
Workstations offer higher performance than standard desktop PCs, especially
with respect to graphics, processing power and the ability to carry out
several tasks at the same time.
The IABG products include processors based on the P6 microarchitecture
(including the Intel(R) Celeron(TM), Pentium(R) III and Pentium(R) III Xeon(TM)
processors) and related board- and system-level products. In addition, the
core-logic chipset products within IABG provide features improving ease of use,
providing new capabilities and enabling system performance to scale as the
processor performance increases.
MICROPROCESSORS. A microprocessor is the central processing unit of a
computer system. It processes system data and controls other devices in the
system, acting as the brains of the computer. The rate at which a
microprocessor's internal logic operates, called its clock speed, is measured
in units of hertz or cycles processed per second. One megahertz (MHz) equals
one million cycles processed per second, and one gigahertz (GHz) equals one
billion cycles processed per second. The memory stored on a chip is measured
in bytes, with 1,024 bytes equaling a kilobyte (KB), 1.049 million bytes
equaling a megabyte (MB) and 1.074 billion bytes equaling a gigabyte (GB).
Cache is a memory subsystem in which frequently used data is duplicated for
quick access. A second level of cache (L2), located directly on the
microprocessor, can also be used to further increase system performance.
Intel's developments in the area of semiconductor design and manufacturing have
made it possible to decrease the size of circuits etched into silicon,
permitting a greater number of transistors to be used on each microprocessor
die, and a greater number of microprocessors to be placed on each silicon wafer.
The result is smaller, faster microprocessors that consume less power and cost
less to manufacture. The length of the individual transistors on a chip is
measured in microns; one micron equals one millionth of a meter. In 1999, Intel
began converting its microprocessor manufacturing to the 0.18-micron process
technology.
In 1999, Intel announced several new microprocessor products aimed at the
various computing market segments ranging from value PCs (systems costing less
than $1,000) to high-performance workstations and servers.
Value PCs. Tailored for the value PC market segment, the Intel Celeron
processor meets the core computing needs and affordability requirements common
to many new PC users. From January 1999 to August 1999, Intel introduced
several new higher speed versions of the Intel Celeron processor running at
speeds ranging from 366 MHz to 500 MHz. In January 2000, Intel introduced a
533-MHz version of the Intel Celeron processor. All of these Celeron processors
have 128 KB of integrated L2 cache on the processor core.
Performance desktop PCs. In February 1999, Intel introduced the Pentium III
processor. Targeted for the performance desktop personal computer and low-end
server and workstation market segments, the Pentium III processor is designed
specifically to enhance the Internet experience and offers high performance and
enhanced multimedia realism for Internet applications. The Pentium III
processor includes Internet Streaming SIMD Extensions, 70 new instructions that
enhance the performance of advanced imaging, 3D graphics, streaming audio, video
and speech recognition applications. The 450- and 500-MHz versions, with 512 KB
L2 cache, began shipping in March 1999; the 550-MHz version was introduced in
May 1999; and the 600-MHz version was introduced in August 1999.
In October 1999, the company introduced new versions of the Pentium III
processor built on the 0.18-micron process technology, all integrating 256 KB of
L2 Advanced Transfer Cache; these processors run at speeds of up to 733 MHz.
With Advanced Transfer Cache, the path between the processor and L2 cache memory
is wider, creating better performance than previous Pentium III processors
running at the same clock speed. The Advanced Transfer Cache enables
application performance to scale with increasing clock frequencies. In December
1999, Intel
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introduced Pentium III processors running at 750 and 800 MHz. As of October
1999, new desktop microprocessors introduced include versions available in the
flip-chip pin grid array (FC-PGA) package. The flip-chip package uses fewer
purchased components and is an improved microprocessor package that is smaller
than the previously available Single Edge Contact (SEC) cartridge.
In March 2000, Intel introduced the Pentium III processor running at 1 GHz with
integrated L2 Advanced Transfer Cache. This microprocessor has improved
performance over previous versions of the Pentium III processor, particularly in
running certain applications such as loading complex Web pages.
Mobile PCs. In January 1999, Intel introduced the first mobile Intel Celeron
processors, running at 266 and 300 MHz, providing a performance boost for low-
cost mobile PCs. From April 1999 to September 1999, the company introduced
several new higher speed versions of the mobile Intel Celeron processor running
at speeds ranging from 333 to 466 MHz. In February 2000, a 500-MHz version was
introduced. All of these processors integrate 128 KB of L2 cache on the
processor core.
The Pentium(R) II and Pentium III processors for mobile PCs have been designed
to provide mobile users with advanced performance while meeting the power
consumption and size constraints of mobile PCs. In January 1999, the company
introduced mobile Pentium II processors running at 333 and 366 MHz. These were
the first Pentium II processors built on a single processor silicon die with 256
KB of on-die L2 cache. In June 1999, the company introduced the mobile Pentium
II processor running at 400 MHz with 256 KB of on-die L2 cache. This was the
first processor built on Intel's 0.18-micron process technology. The first
mobile Pentium III processors were introduced in October 1999, also built on the
company's 0.18-micron process technology and running at 400, 450 and 500 MHz.
The mobile Pentium III processor at 400 MHz operates at a low 1.35 volts and is
targeted specifically for mini notebook designs, for which power consumption is
a significant design concern.
In January 2000, the company introduced the mobile Pentium III processor
featuring Intel(R) SpeedStep(TM) technology running at 650 and 600 MHz. These
processors have the capability of operating in two different modes, a Maximum
Performance Mode and a Battery Optimized Mode. The system by default
automatically chooses which mode to run in, depending on whether the computer is
running on batteries or is plugged into AC power. This dual-mode capability
allows the notebook to run at desktop-class speeds when plugged in, optimizing
performance, and optimizing battery life when AC power is not available.
Servers and workstations. In March 1999, Intel announced the Pentium III Xeon
processor, targeted to enhance Internet software and application performance for
the mid-range to high-end server and workstation market segments. At
introduction, the Pentium III Xeon processor was available at speeds of 500 and
550 MHz, available in 512 KB, 1 MB and 2 MB L2 cache versions for 2-, 4- and 8-
way servers and workstations. In October, the company introduced three new
versions running at 600, 667 and 733 MHz, with 256 KB L2 Advanced Transfer Cache
on-die, manufactured using the 0.18-micron process technology and aimed at 2-way
servers and workstations. In January 2000, the company introduced an 800-MHz
version with the same on-die 256 KB L2 Advanced Transfer Cache.
The company has under development a family of 64-bit microprocessors expected to
expand the capabilities of the Intel architecture to address the high-
performance server and workstation market segments while still running the
software that currently operates on 32-bit Intel processor-based machines. A
64-bit microprocessor is more complex than a 32-bit microprocessor and requires
a more complex system architecture, but it can handle twice as much data in each
clock cycle. Thus, a 64-bit microprocessor enables most data-intensive
applications, such as database and graphics applications, to run faster than
they would on a 32-bit microprocessor. In December 1999, Intel began delivering
prototype systems based on sample Itanium(TM) processors to system
manufacturers, operating system vendors and application providers to help them
complete the development and testing of products targeted for the Itanium
processor, the first processor based on the IA-64 architecture. The first
production Itanium processor-based systems are expected to be available from
OEMs in the second half of 2000.
Board-level products. While many of Intel's OEM customers use the company's
microprocessors as components in designing their own computer products, some
OEMs use Intel-designed board-level products as basic building blocks in their
computer products. OEM customers may buy at this level of integration to
accelerate their time-to-market and to direct their investments to other areas
of their product lines. The company provides board-level
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products to give OEM customers flexibility by enabling them to choose whether to
buy at the component or board level. Board-level products based on Intel's new
microprocessors are available for most computing market segments.
Sales and gross margin. During 1999, sales of microprocessors and related
board-level products based on the P6 microarchitecture, which are included in
the Intel Architecture Business Group's operations, comprised a substantial
majority of Intel's consolidated net revenues and gross margin. For 1998, these
represented a majority of Intel's consolidated net revenues and a substantial
majority of gross margin. Sales of products based on the P6 microarchitecture
first became a significant portion of the company's revenues and gross margin in
1997. Sales of Pentium processor family products, including Pentium processors
with MMX(TM) technology, were not significant for 1999, but were a rapidly
declining but still significant portion of the company's revenues and gross
margin for 1998. During 1997, sales of Pentium processor family products were a
majority of the company's revenues and gross margin. For the past several
years, the company's sales of microprocessors have generally shown a seasonal
trend, with higher sales in the second half of the year, primarily due to back-
to-school and holiday demand.
CHIPSETS. Chipsets perform essential logic functions surrounding the central
processing unit, and support and extend the graphics, audio, video and other
capabilities of many Intel processor-based systems. The company's chipsets are
compatible with one or more of a variety of industry-accepted buses, such as the
Peripheral Components Interconnect (PCI) Local Bus specification and the
Accelerated Graphics Port (AGP) specification. A bus is a circuit that carries
data between parts of the system, for example, between the processor and main
memory. The company offers the 440BX AGPset family of chipsets for the Pentium
III processor to be used in desktop and mobile products.
To help enable computer makers to speed their products to market, Intel designs,
manufactures and sells chipsets for each computing market segment. Intel makes
chipsets with and without integrated graphics capability. Previously, the
company offered stand-alone graphics accelerator chips. However, during 1999
the company shifted its focus to integrating graphics capabilities into certain
of its chipset products. In April 1999, Intel launched the Intel(R) 810 Chipset
with a 66- or 100-MHz system bus, the company's first chipset integrating
multimedia capabilities for value PCs based on the Intel Celeron processor. In
September 1999, the Intel(R) 810E Chipset with a 133-MHz system bus was
introduced which extended the capabilities of the Intel 810 Chipset as well as
adding support for Pentium III processors. In addition to the integrated
graphics capability, these new 800 series chipsets double the size of the
communications channel within the chipset for a significantly enhanced
multimedia experience.
In August 1999, Intel began shipping board-level products with Profusion(R)
Chipsets attached, aimed at the mid-range to high-end server market segment,
allowing OEMs to more easily build 8-way servers based on the Pentium III Xeon
processor.
In October 1999, Intel launched the Intel(R) 840 Chipset with a 133-MHz bus,
targeted for entry-level 2- and 4-way servers and workstations utilizing
Pentium III and Pentium III Xeon processors. This is the first chipset to
enable high-performance Direct Rambus Dynamic Random Access Memory (RDRAM)
technology. Direct RDRAM delivers a maximum theoretical memory bandwidth of up
to 1.6 GB per second. In November 1999, Intel introduced the Intel(R) 820
Chipset with a 100- or 133-MHz bus, for Pentium III processors. This was the
first desktop chipset to enable high-performance Direct RDRAM memory
technology and enhance graphics performance through AGP 4x graphics support.
The Intel 840 and 820 Chipsets do not have integrated graphics.
Wireless Communications and Computing Group
In December 1999, Intel announced the creation of the Wireless Communications
and Computing Group (WCCG), focusing on opportunities in the growing digital
cellular and wireless communications areas. WCCG's products consist of
component-level hardware and software used in digital cellular communications
products and other applications using both low-power processing and flash
memory. Within the client platform initiatives, WCCG products support handheld
devices such as mobile phones, two-way pagers and personal digital assistants.
FLASH MEMORY. Flash memory components are used to store user data and computer
program code and retain information when the power is off. Intel(R)
StrataFlash(R) memory, the first flash memory product to store multiple bits of
data in one memory cell, expands memory capacity for a variety of consumer and
networking applications. In August 1999, Intel introduced the 3 Volt Intel(R)
StrataFlash memory with triple the read performance compared
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to the previous version. Using 0.25-micron lithography, the new StrataFlash
product enables both code execution and data storage on a single 128-MB chip.
In September 1999, the company announced the Intel(R) 1.8 Volt Dual-Plane Flash
Memory, a 32-MB capacity chip for code execution and data storage in cellular
phones and other handheld wireless devices requiring low-power, 1.8-volt
operation. In 1999, the company also introduced an updated version of the
Intel(R) Advanced+ Boot Block Flash product using low-power, 1.8-volt operation
and having fraud protection capability that protects code and data from
corruption.
EMBEDDED PROCESSORS FOR HANDHELD DEVICES. Battery-powered handheld devices
have embedded processors that use low power yet provide high performance.
Intel's StrongARM(R) processors provide such performance at a low cost. During
1999, Intel and Advanced RISK Machines, Ltd. announced a licensing agreement
enabling Intel to develop solutions based on current and future versions of
the ARM(R) architecture. Intel's StrongARM product portfolio implementation of
the ARM architecture utilizes Intel's microarchitecture and low-power
technologies, while remaining compatible with software available for ARM
cores, to service the portable, handheld and applied computing market
segments. In March 1999, Intel announced the addition of the Intel(R)
StrongARM SA-1110 processor and the SA-1111 companion chip to the Intel
StrongARM product portfolio, providing increased memory and input/output
design flexibility.
StrongARM and ARM are trademarks of Advanced RISC Machines, Ltd.
CELLULAR COMMUNICATIONS PRODUCTS. In November 1999, Intel expanded its
wireless communications product offerings with the acquisition of DSP
Communications, Inc., a leading supplier of chipsets, reference designs,
software and other key technologies for the digital cellular communications
market segment. The chipsets developed by DSP Communications support a broad
range of frequency modulation standards, including Time Division Multiple
Access (TDMA), Code Division Multiple Access (CDMA) and Personal Digital
Cellular (PDC), a proprietary cellular system that works only in Japan. Under
development are chipsets for use in Wideband CDMA (WCDMA) and other third-
generation standards. Third-generation standards are expected to deliver high-
speed data transmissions combining voice and Internet capabilities into
wireless handheld devices. Other product offerings include large-scale
reference designs and form-fit reference designs enabling manufacturers of
handheld devices to outsource large portions of the development of their
handsets.
Network Communications Group
The Network Communications Group (NCG) provides component-level networking
silicon products, high-speed adapters for Internet access, and network interface
cards to provide networking and Internet connectivity solutions for enterprises,
small businesses and consumers. NCG also offers embedded microprocessors and
microcontrollers for networking and communications as well as other
applications. These embedded control products were previously offered by
Intel's former Computing Enhancement Group.
In 1999, Intel acquired several companies to help expand the company's product
offerings in networking and communications. In July 1999, the company acquired
Softcom Microsystems, Inc., a maker of semiconductor products for OEMs in the
networking and communications market segments. In September 1999, the company
acquired NetBoost Corporation, a maker of hardware and software solutions for
communications equipment suppliers and independent software vendors in the
networking and communications segments.
In August 1999, Intel completed the acquisition of Level One Communications,
Inc., which provides silicon connectivity solutions for high-speed
telecommunications and networking applications, offering increased bandwidth and
functionality through silicon integration. The products are used to produce
systems for local area networks (LANs), wide area networks (WANs) and public
telephone transmission networks. LANs, WANs and telephone transmission networks
enable the use of intranets and the Internet. An intranet is a privately
maintained network that provides services within an organization similar to the
services provided by the Internet.
In September 1999, the company launched the Intel(R) Internet Exchange(TM)
architecture, a flexible platform for silicon-based products to help enable the
networking and communications industry to build faster, more intelligent
networks. In the second half of 1999, Level One Communications announced a
family of silicon components based on this architecture.
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Intel also continued to introduce new members of a family of networking
interface cards based on the multi-platform, single-chip Fast Ethernet
controller, the Intel(R) 82559. Featuring Intel(R) SingleDriver technology,
these new adapters are designed to lower network support costs and complexity
by providing a common set of software drivers for servers, desktops, network
PCs and mobile clients. Ethernet refers to a local network used to transfer
information at 10 million bits per second, while Fast Ethernet networks
transfer information at 100 million bits per second. In January 2000, Intel
announced its new family of Intel(R) PRO/100 S network security-enabled
adapters, which help enable higher performance and end-to-end security within
the LAN.
In January 2000, the company announced the Intel PRO/DSL 3100 Modem. Its
predecessor, the Intel(R) PRO/DSL 2100 Modem was introduced in the fourth
quarter of 1999. Both modems are based on two new industry standards that
allow access to the Internet at speeds up to 150 times faster than the fastest
analog modems.
In November 1999, the company introduced a higher performance version of its
Intel(R) AnyPoint(TM) Phoneline Home Network product that allows families to
connect multiple PCs within a single home with bandwidth of up to 10 million
bits per second over existing phone lines.
EMBEDDED CONTROL PRODUCTS. Intel's embedded control products include a range of
components used to control functions in networking and communications
applications, such as telecommunications, hubs, routers and wide area
networking. Intel's embedded control chips are also used in laser printers,
imaging, storage media, point-of-sale systems, industrial automation equipment,
automotive systems and other applications. Products include low-power-
consumption versions of the Pentium processor with MMX technology and the 32-bit
i960(R) reduced instruction set computing (RISC) processor with integrated
input/output capabilities. Additional products include microcontrollers of the
Intel(R) MCS(R)-51 and MCS(R)-296 microcontroller families.
In February 1999, Intel introduced Celeron processors running at 300 and 366 MHz
into the embedded product line. In May 1999, Intel announced the addition of
the low-power-consumption Pentium II processors running at 266 and 333 MHz as
well as the Celeron processor running at 433 MHz to its embedded product line.
In February 2000, low-power-consumption Pentium III processors running at 400
and 500 MHz as well as the Pentium III processor running at 600 MHz were made
available for embedded products aimed at new networking and communications,
point-of-sale and industrial automation equipment applications.
Communications Products Group
The Communications Products Group (CPG) provides system-level hardware, software
and support services for e-Business data centers and building blocks for
communications access solutions. These products include hubs, routers and
switches for Ethernet and Fast Ethernet networks, e-Commerce infrastructure
appliances and computer telephony components. Computer telephony is a term used
to encompass a wide variety of technologies and applications that use the
information processing capabilities of a computer, often a server, to add
intelligence to telephone functions and to combine these functions with data
processing.
In February 1999, Intel acquired Shiva Corporation to expand Intel's networking
product line with remote access and virtual private networking (VPN) solutions
for the small to medium enterprise market segment and the remote needs of
campuses and branch offices.
In July 1999, Intel acquired Dialogic Corporation, a maker of computer telephony
hardware and software. The acquisition is aimed at expanding Intel's standard-
high-volume (SHV) server business in the networking and telecommunications
market segment by providing standards-based hardware and software building
blocks for integrated voice and data networks. Dialogic's hardware products
receive and process signals from telecommunications networks and perform
computing functions to convert the signals to data (and vice versa) appropriate
for computer systems. These computing functions are based upon algorithms for a
variety of features, including voice compression and decompression, voice
storage, speech recognition, tone recognition and signaling, and facsimile
compression and generation. Dialogic hardware products are provided bundled
with software elements, such as drivers, which enable the hardware products to
work in the host environment and to be compatible with other elements within the
system in which they are installed.
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In October 1999, Intel acquired IPivot, Inc., a designer and manufacturer of
Internet commerce equipment. Internet commerce equipment is a new product
category comprising special-function devices that manage information crossing
the Internet to help ensure more reliable, faster, more efficient and secure
transactions. In February 2000, the company introduced the family of Intel(R)
NetStructure(TM) products, combining these Internet commerce products with other
Intel networking systems.
In September 1999, Intel introduced the Intel(R) 6000 Switch, now incorporated
in the family of NetStructure products as the Intel NetStructure 6000 Switch,
and the Intel(R) Express 9500 and 8200 routers. With the addition of these
products, Intel has broadened its networking systems offering to provide
medium-size enterprise customers with more flexible and manageable end-to-end
networking solutions.
New Business Group
The New Business Group (NBG) focuses on nurturing and growing opportunities in
new market segments, and it positions the company to serve these emerging market
segments. The group provides e-Commerce data center services as well as
products such as connected peripherals and security access software. In 1999,
the New Business Group launched Intel(R) Online Services, Inc., providing
second-generation Web hosting and e-Commerce services to companies worldwide.
The company opened two Internet service centers--an 85,000-square-foot, major
production facility in Santa Clara, California, hosting more than 10,000
servers, and a development facility in Folsom, California--and has plans to open
centers in Virginia, Japan and England. Second-generation Web hosting includes
not only offering customers facilities and servers but also additional services
to help them successfully maintain and grow their e-Business activities.
Other new products in 1999 include the family of Intel(R) Play(TM) toys, and the
Intel(R) PC Camera Pro Pack, an affordable and easy-to-use camera package that
includes video phone and video e-mail as well as the capability, through a
built-in video capture plug, to bring live or recorded video into PCs.
MANUFACTURING
A majority of the company's wafer production, including microprocessor
fabrication, is conducted at domestic Intel facilities in New Mexico, Oregon,
Arizona, California and Massachusetts. Intel also produces microprocessor-
related board-level products and systems at facilities in Puerto Rico, Oregon
and Washington.
A significant and growing portion of Intel's wafer production, primarily wafer
production based on the P6 microarchitecture, is conducted outside the United
States at facilities in Ireland and Israel. For the fourth quarter of 1999,
wafer production in Ireland was just under 15% of the company's total wafer
production. In June 1999, a new fabrication facility was opened in Israel to
manufacture wafers using the 0.18-micron process technology, primarily for the
production of P6 microarchitecture products. Production began at that facility
in the second half of 1999 and will continue to ramp toward full production in
2000. Wafer production in Israel is expected to be more than 10% of total
wafer production by the end of 2000. A substantial majority of the company's
components assembly and testing, including assembly and testing for processors
based on the P6 microarchitecture, is performed at facilities in the
Philippines, Malaysia, Ireland and Costa Rica. The company also performs
components assembly and testing at a facility in the People's Republic of
China.
To augment both domestic and foreign capacity, Intel uses subcontractors to
perform assembly of certain products and wafer fabrication for certain
components, primarily flash memory, chipsets and networking and communications
component products. The company also uses subcontractors for production
capacity of board-level products and systems.
In June 1999, Intel introduced its first microprocessor built using the 0.18-
micron process technology: the mobile Pentium II processor running at 400 MHz.
Intel was the first company in the industry to begin high-volume manufacturing
utilizing 0.18-micron process technology. The 0.18-micron process technology
features structures that are smaller than 1/500th the thickness of a human hair
and smaller than the visible wavelength of light (for the human eye). Intel's
new 0.18-micron process technology can feature voltages as low as 1.1 to 1.65
volts (the lowest voltage of the products introduced by Intel as of the end of
1999 was 1.35 volts). In October 1999, the company introduced Pentium III
processors built using the 0.18-micron process technology. The company is
manufacturing wafers using the 0.18-micron process technology at fabrication
facilities in Arizona, California, Oregon and Israel.
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Also in June 1999, Intel announced plans to start 300mm wafer production in
2002, and in January 2000, the company announced that it intends to build its
first 300mm wafer fabrication facility in Arizona. The largest wafer size
currently used by Intel in wafer fabrication is 200mm.
In February 2000, Intel announced that it had signed a letter of intent to
purchase a wafer fabrication facility in Colorado to add manufacturing capacity.
The company expects to begin manufacturing flash memory at the Colorado facility
by late 2000.
In general, if Intel were unable to fabricate wafers or to assemble or test its
products abroad, or if air transportation between its foreign facilities and the
United States were disrupted, there could be a material adverse effect upon the
company's operations. In addition to normal manufacturing risks, foreign
operations are subject to certain additional exposures, including political
instability, currency controls and fluctuations, and tariff, import and other
restrictions and regulations. To date, Intel has not experienced significant
difficulties related to these foreign business risks.
The manufacture of integrated circuits is a complex process. Normal
manufacturing risks include errors and interruptions in the fabrication process
and defects in raw materials, as well as other risks, all of which can affect
yields. A substantial decrease in yields would result in higher manufacturing
costs and the possibility of not being able to produce a sufficient volume of
good units to meet demand.
EMPLOYEES
At December 25, 1999, the company employed approximately 70,200 people
worldwide.
SALES
Most of Intel's products are sold or licensed through sales offices located near
major concentrations of users throughout the United States, Europe, Asia-
Pacific, Japan and other parts of the world.
The company also uses industrial and retail distributors and representatives to
distribute its products both within and outside the United States. Typically,
distributors handle a wide variety of products, including those competitive with
Intel products, and fill orders for many customers. Most of Intel's sales to
distributors are made under agreements allowing for price protection on unsold
merchandise and right of return on stipulated quantities of unsold merchandise.
Sales representatives generally do not offer directly competitive products but
may carry complementary items manufactured by others. Representatives do not
maintain a product inventory; instead, their customers place orders directly
with Intel or through distributors. Intel sold products to more than 1,000
customers worldwide in 1999. Sales to each of Compaq Computer Corporation and
Dell Computer Corporation in 1999 represented 13% of total revenues. A
substantial majority of the sales to these two customers consisted of Intel
Architecture Business Group products. No other customer accounted for more than
10% of total revenues. Sales to the company's five largest customers accounted
for approximately 44% of total revenues.
Reference is made to the information regarding revenues and operating profit by
reportable segments and revenues from unaffiliated customers by geographic
region under the heading "Operating segment and geographic information" on pages
27 and 28 of the Registrant's 1999 Annual Report to Stockholders, which
information is hereby incorporated by reference.
BACKLOG
Intel's sales are primarily made pursuant to standard purchase orders for
delivery of standard products. Intel has some agreements that give a customer
the right to purchase a specific number of products during a specified time
period. Although not generally obligating the customer to purchase any
particular number of such products, some of these agreements do contain billback
clauses. Under these clauses, customers who do not purchase the full volume
agreed to are liable for billback on previous shipments up to the price
appropriate for the quantity actually purchased. As a matter of industry
practice, billback clauses are difficult to enforce. The quantity actually
purchased by the customer, as well as the shipment schedules, are frequently
revised during the agreement term to reflect changes in the customer's needs.
In light of industry practice and experience, Intel does not believe that such
agreements are meaningful for determining backlog amounts. Intel believes that
only a small portion of its order
8
backlog is noncancellable and that the dollar amount associated with the
noncancellable portion is not material. Therefore, Intel does not believe that
backlog as of any particular date is indicative of future results.
COMPETITION
The company competes in different market segments to various degrees on the
basis of functionality, performance, quality, price and availability. Intel is
engaged in a rapidly advancing field of technology in which its ability to
compete depends upon its ability to improve its products and processes, to
develop new products to meet changing customer requirements and to reduce costs.
Prices decline rapidly in the semiconductor industry as unit volumes grow, as
further competition develops and as production experience is accumulated. Many
companies compete with Intel in the various computing market segments and are
engaged in the same basic fields of activity, including research and
development. Both foreign and domestic, these competitors range in size from
large multinational companies to smaller companies competing in specialized
market segments.
The company's financial results are substantially dependent on sales of
microprocessors by the Intel Architecture Business Group. A number of
competitors are marketing software-compatible products that are intended to
compete with Intel's processors based on the P6 microarchitecture. The Celeron
processor competes with existing and future products in the highly competitive
value PC market segment. The Pentium II processor, and the Pentium III
processor introduced in February 1999, compete with existing and future products
in the performance desktop and entry-level workstation market segment.
Many of Intel's competitors are licensed to use Intel patents. Furthermore,
based on current case law, Intel's competitors can design microprocessors that
are compatible with Intel microprocessors and avoid Intel patent rights through
the use of foundry services that have licenses with Intel. Competitors'
products may add features, increase performance or sell at lower prices. The
company also faces significant competition from companies that offer rival
microprocessor architectures. The Pentium II Xeon processor, and the Pentium
III Xeon processor introduced in March 1999, compete in the mid-range and high-
end server and workstation market segments with established products based on
rival architectures. The company cannot predict whether its products will
continue to compete successfully with such existing rival architectures or
whether new architectures will establish or increase market acceptance or
provide increased competition to the company's products. Future distortion of
price maturity curves could occur as software-compatible products enter the
market segment in significant volume or alternative architectures gain market
acceptance.
Intel's goal is to be the preeminent building block supplier to the worldwide
Internet economy. The company's primary focus areas are client platform, server
platform, networking and communications, and solutions and services. Intel's
strategy for client and server platforms is to introduce ever higher performance
microprocessors and chipsets, tailored for the different market segments of the
worldwide computing market, using a tiered branding approach. In line with this
strategy, the company is seeking to develop higher performance microprocessors
based on the P6 microarchitecture specifically for each computing segment. The
company plans to continue to work with the computing industry to expand Internet
capabilities and product offerings, and develop compelling software applications
that can take advantage of higher performance microprocessors and chipsets, thus
driving demand toward Intel's newer products in each computing market segment.
The company may continue to take various steps, including reducing
microprocessor prices at such times as it deems appropriate, in order to
increase acceptance of its latest technology and to remain competitive within
each relevant market segment.
In the network and communications infrastructure area, Intel's strategy is to
deliver both system-level communications products and component-level silicon
building blocks for networking and communications systems for the home and
small- and medium-sized businesses. Intel has made acquisitions and expects to
make additional acquisitions to grow new networking and communications areas.
The network systems and Internet servers and appliances from the Communications
Products Group compete in the small and medium enterprise market segments with
established and new, leading-edge, internetworking and server products. The
network communications silicon, network interface and network processor products
from the Network Communications Group face competition from both established and
emerging companies. The competitors in these areas use aggressive product and
acquisition plans in efforts to achieve leading-edge market positions. The
company cannot predict whether its products will continue to compete
successfully with products from existing competitors, or products from new
entrants to these market segments.
9
RESEARCH AND DEVELOPMENT
The company's competitive position has developed to a large extent because of
its emphasis on research and development. This emphasis has enabled Intel to
deliver many products before they have become available from competitors and has
permitted Intel's customers to commit to the use of these new products in the
development of their own products. Intel's research and development activities
are directed toward developing new products, hardware technologies and
processes, as well as improving existing products and lowering costs. During
1999, approximately half of the company's microprocessor research and
development budget was spent on initiatives related to the server and
workstation market segment. In December 1999, Intel began delivering prototype
systems based on the Itanium processor, targeted for mid-range to high-end
servers and workstations. The Itanium processor, the first product based on
Intel's IA-64 architecture, is expected to go into production on the 0.18-micron
process technology in mid-2000, with systems solutions expected from OEMs in the
second half of 2000. In addition to microprocessor and chipset research and
development, Intel has research and development initiatives in wireless devices,
networking and communications products and e-Business services as well as
"enabling" software to enhance the functionality and acceptance of products and
services. The company has also acquired ongoing research and development
activities in these areas with businesses acquired in 1999.
In the United States, design and development of components and other products
are performed at Intel's facilities in Arizona, California, Massachusetts, New
Jersey, Oregon, Texas, Utah and Washington. Outside the United States, Intel
has product development facilities in Denmark, Israel, Malaysia and Poland.
Intel also maintains research and development facilities dedicated to improving
manufacturing processes in Arizona, California and Oregon. Intel's expenditures
for research and development were $3,111 million, $2,509 million and $2,347
million in fiscal years 1999, 1998 and 1997, respectively. These amounts
exclude charges for purchased in-process research and development related to
acquisitions of $392 million and $165 million for 1999 and 1998, respectively.
At December 25, 1999, Intel had approximately 16,800 employees engaged in
research and development. The success of Intel's research and development
activities is dependent upon competitive circumstances as well as the company's
ability to bring new products to market in each computing market segment and in
Intel's other businesses in a timely and cost-effective manner.
ACQUISITION AND STRATEGIC INVESTMENTS
During 1999, the company purchased 12 businesses for approximately $6 billion,
augmenting its capabilities in a number of strategic areas. The companies
acquired included Shiva, Softcom, Dialogic, Level One Communications, NetBoost,
IPivot and DSP Communications. These acquisitions are discussed under the
"Products" heading in this document in connection with each related business
group.
Under its Intel Capital program, the company also makes equity investments to
further its strategic objectives and to support its key business initiatives in
the areas of client and server platforms, networking and communications, and
Internet services. The company wants to stimulate growth in computing,
communications and the Internet, and to grow the total information
infrastructure, in order to create and expand markets for Intel's products.
This strategic investment program helps advance Intel's overall mission of being
a leading provider of key building blocks to the Internet economy. While
financial returns are not the company's primary goal, Intel's strategic
investment program seeks to invest in companies that can succeed and have an
impact on their market segment. At the end of 1999, the company's strategic
equity portfolio was valued at approximately $8 billion, including marketable
investments at their market value and non-marketable investments at cost.
INTELLECTUAL PROPERTY AND LICENSING
Intellectual property rights that apply to various Intel products include
patents, copyrights, trade secrets, trademarks and maskwork rights. Intel has
established an active program to protect its investment in technology by
enforcing its intellectual property rights. Intel does not intend to broadly
license its intellectual property rights unless it can obtain adequate
consideration. Reference is made to the heading "Competition" of this Form 10-
K.
Intel has filed and obtained a number of patents in the United States and
abroad. Intel has entered into patent cross-license agreements with many of its
major competitors and other parties. While Intel's various intellectual
property rights are important to its success, its business as a whole is not
materially dependent upon any particular patent or license. Intel and other
companies in the computer, telecommunications and related high-technology fields
typically
10
in the aggregate apply for and receive thousands of patents in the United States
and other countries on an annual basis. In addition, because of the fast pace
of innovation and product development for Intel's products, the products are
often obsolete before the expiration of patents related to them. For this
reason, Intel believes that the duration of the applicable patents is adequate
in relation to the expected lives of its products.
Intel protects many of its computer programs by copyrighting them. Intel has
registered numerous copyrights with the United States Copyright Office. The
ability to protect or to copyright software in some foreign jurisdictions is not
clear. However, Intel has a policy of requiring customers to obtain a software
license contract before providing a customer with certain computer programs.
Certain components have computer programs embedded in them, and Intel has
obtained copyright protection for some of these programs as well. Intel has
obtained protection for the maskworks for a number of its components under the
Chip Protection Act of 1984.
Intel has obtained certain trademarks and trade names for its products to
distinguish genuine Intel products from those of its competitors and is
currently engaged in a cooperative program with OEMs to identify certain
personal computers that incorporate genuine Intel microprocessors with the Intel
Inside logo. Intel maintains certain details about its processes, products and
strategies as trade secrets.
As is the case with many companies in the semiconductor and other high-
technology industries, Intel has, from time to time, been notified of claims
that it may be infringing certain intellectual property rights of others. These
claims have been referred to counsel, and they are in various stages of
evaluation and negotiation. If it appears necessary or desirable, Intel may
seek licenses for these intellectual property rights. Intel can give no
assurance that licenses will be offered by all claimants, that the terms of any
offered licenses will be acceptable to Intel or that in all cases the dispute
will be resolved without litigation, which may be time consuming and expensive,
and may result in injunctive relief or the payment of damages by Intel.
Reference is made to the information appearing under the heading "Legal
Proceedings" in Part I, Item 3 of this Form 10-K.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
To Intel's present knowledge, compliance with federal, state and local
provisions enacted or adopted for protection of the environment has had no
material effect upon its operations. Reference is made to the information
appearing under the heading "Legal Proceedings" in Part I, Item 3 of this Form
10-K.
11
EXECUTIVE OFFICERS
The following sets forth certain information with regard to executive officers
of Intel (ages are as of December 25, 1999):
Craig R. Barrett (age 60) has been a director of Intel since 1992, Chief
Executive Officer since 1998 and President since 1997. Prior to that, Dr.
Barrett was Chief Operating Officer from 1993 to 1998 and Executive Vice
President from 1990 to 1997.
Andrew S. Grove (age 63) has been a director of Intel since 1974 and Chairman of
the Board since 1997. Dr. Grove was Chief Executive Officer from 1987 to 1998
and President from 1979 to 1997.
Gordon E. Moore (age 70) has been a director of Intel since 1968 and Chairman
Emeritus of the Board since 1997. Prior to that, Dr. Moore was Chairman of the
Board from 1979 to 1997.
Leslie L. Vadasz (age 63) has been a director of Intel since 1988 and Executive
Vice President and President, Intel Capital, since January 2000. Prior to that,
Mr. Vadasz was Senior Vice President and Director of Corporate Business
Development from 1991 to January 2000.
Paul S. Otellini (age 49) has been Executive Vice President and General Manager,
Intel Architecture Business Group, since 1998. Prior to that, Mr. Otellini was
Executive Vice President and Director, Sales and Marketing Group, from 1996 to
1998; and Senior Vice President and Director, Sales and Marketing Group, from
1994 to 1996.
Gerhard H. Parker (age 56) has been Executive Vice President and General
Manager, New Business Group, since 1998. Prior to that, Dr. Parker was
Executive Vice President and General Manager, Technology and Manufacturing
Group, from 1996 to 1998 and Senior Vice President and General Manager,
Technology and Manufacturing Group, from 1992 to 1996.
Andy D. Bryant (age 49) has been Senior Vice President and Chief Financial and
Enterprise Services Officer since December 1999. Prior to that, Mr. Bryant was
Senior Vice President and Chief Financial Officer from January 1999 to December
1999 and Vice President and Chief Financial Officer from 1994 to January 1999.
Sean M. Maloney (age 43) has been Senior Vice President and Director, Sales and
Marketing Group, since January 1999 and Vice President and Director, Sales and
Marketing Group, from 1998 to January 1999. Prior to that, Mr. Maloney was Vice
President, Sales, and General Manager, Asia-Pacific Operations, from 1995 to
1998 and Technical Assistant to the Chairman and Chief Executive Officer from
1992 to 1995.
Michael J. Splinter (age 49) has been Senior Vice President and General Manager,
Technology and Manufacturing Group, since January 1999 and Vice President and
General Manager, Technology and Manufacturing Group, from 1998 to January 1999.
Prior to that, Mr. Splinter was Vice President and Assistant General Manager,
Technology and Manufacturing Group, from 1996 to 1998; and General Manager,
Components Manufacturing, from 1992 to 1996.
Albert Y. C. Yu (age 58) has been Senior Vice President and General Manager,
Microprocessor Products Group, since 1993.
F. Thomas Dunlap, Jr. (age 48) has been Vice President, General Counsel and
Secretary since 1987.
Arvind Sodhani (age 45) has been Vice President and Treasurer since 1990.
12
ITEM 2. PROPERTIES
At December 25, 1999, Intel owned the major facilities described below:
No. of
- ------
Bldgs. Location Total Sq. Ft. Use
- ------ -------- ------------- ---
83 United States 17,935,000 Executive and administrative offices, wafer fabrication,
research and development, sales and marketing, computer and
service functions, e-Commerce data center services, board and
system assembly, and warehousing.
8 Ireland 1,795,000 Wafer fabrication, components assembly and testing,
warehousing and administrative offices.
11 Malaysia (A) 1,721,000 Components assembly and testing, research and development,
warehousing and administrative offices.
11 Israel (B) 1,709,000 Wafer fabrication, research and development, warehousing and
administrative offices.
6 Philippines (C) 1,364,000 Components assembly and testing, warehousing and
administrative offices.
3 Costa Rica 735,000 Components assembly and testing, warehousing and
administrative offices.
5 Puerto Rico 426,000 Board and system assembly, warehousing and administrative
offices.
1 People's Republic 187,000 Components assembly and testing and administrative offices.
of China (D)
1 United Kingdom 184,000 Sales and marketing and administrative offices.
3 Japan 167,000 Sales and marketing and administrative offices.
1 Germany 86,000 Sales and marketing and administrative offices.
At December 25, 1999, Intel also leased 51 major facilities in the United States
totaling approximately 2,317,000 square feet, and 30 facilities in other
countries totaling approximately 823,000 square feet. Leased facilities
increased during 1999, primarily due to the addition of properties leased by
companies acquired by Intel. These leases expire at varying dates through 2013
and include renewals at the option of Intel. Intel believes that its existing
facilities are suitable and adequate for its present purposes, and that the
productive capacity in such facilities is substantially being utilized. Intel
also has 1.7 million square feet of building space under various stages of
construction in the United States to be used for manufacturing and
administrative purposes.
Intel does not identify or allocate assets or depreciation by operating segment.
Reference is made to information on net property, plant and equipment by country
under the heading "Operating segment and geographic information" on pages 27 and
28 of the Registrant's 1999 Annual Report to Stockholders, which information is
hereby incorporated by reference.
- --------------
(A) Leases on portions of the land used for these facilities expire in 2003
through 2057.
(B) Lease on a portion of the land used for these facilities expires in 2039.
(C) Leases on portions of the land used for these facilities expire in 2008
through 2046.
(D) Lease on a portion of the land used for these facilities expires in 2046.
13
ITEM 3. LEGAL PROCEEDINGS
A. Litigation
Intergraph Corporation v. Intel
U.S. District Court, Northern District of Alabama,
--------------------------------------------------
Northeastern Division (CV-97-N-3023-NE)
---------------------------------------
In November 1997, Intergraph Corporation filed suit in Federal District
Court in Alabama for patent infringement and generally alleging that Intel
attempted to coerce Intergraph into relinquishing certain patent rights.
The suit alleges that Intel infringes five Intergraph microprocessor-
related patents, and includes alleged violations of antitrust laws and
various state law claims. The suit seeks injunctive relief, damages and
prejudgment interest, and further alleges that Intel's infringement is
willful and that any damages awarded should be trebled. Intergraph's
expert witness has claimed that Intergraph is entitled to damages of
approximately $2.2 billion for Intel's alleged patent infringement, $500
million for the alleged antitrust violations and an undetermined amount for
alleged state law violations. Intel has counterclaimed that the Intergraph
patents are invalid and further alleges infringement of seven Intel
patents, breach of contract and misappropriation of trade secrets. In
October 1999, the court reconsidered an earlier adverse ruling and granted
Intel's motion for summary judgment that the Intergraph patents are
licensed to Intel, and dismissed all of Intergraph's patent infringement
claims with prejudice. Intergraph has appealed this ruling. In November
1999, the Court of Appeals for the Federal Circuit reversed the District
Court's April 1998 order requiring Intel to continue to deal with
Intergraph on the same terms as it treats allegedly similarly situated
customers with respect to confidential information and products supply. In
March 2000, the District Court issued an order granting Intel summary
judgment on Intergraph's antitrust claims. The company disputes
Intergraph's remaining state law claims, and intends to defend the lawsuit
vigorously.
TechSearch L.L.P. v. Intel Corporation
U.S. District Court for the Northern District
---------------------------------------------
of California (C98-0348WHO)
---------------------------
In June 1998, TechSearch L.L.P. filed suit against Intel Corporation in the
United States District Court for the Northern District of Illinois alleging
that Intel's microprocessors based on the P6 microarchitecture infringe a
patent related to emulation technology and that TechSearch is entitled to
unspecified damages and an injunction. The case was transferred to the
United States District Court for the Northern District of California. In
October 1999, TechSearch's expert witness claimed that TechSearch is
entitled to damages ranging from $2 billion to $8 billion. Intel raised
several defenses to the patent claim and disputes this damage estimate. In
November 1999, the Court issued its order construing the asserted claims of
the patent, and in December 1999 the Court granted Intel's motion for
summary judgment of non-infringement. Judgment was entered for Intel in
January 2000. TechSearch has filed a notice of appeal.
B. Environmental Proceedings
Intel has been named to the California and U.S. Superfund lists for three
of its sites and has completed, along with two other companies, a Remedial
Investigation/Feasibility study with the U.S. Environmental Protection
Agency (EPA) to evaluate the groundwater in areas adjacent to one of its
former sites. The EPA has issued a Record of Decision with respect to a
groundwater cleanup plan at that site, including expected costs to
complete. Under the California and U.S. Superfund statutes, liability for
cleanup of this site and the adjacent area is joint and several. The
company, however, has reached agreement with those same two companies which
significantly limits the company's liabilities under the proposed cleanup
plan. Also, the company has completed extensive studies at its other sites
and is engaged in cleanup at several of these sites. In the opinion of
management, including internal counsel, the potential losses to the company
in excess of amounts already accrued arising out of these matters would not
have a material adverse effect on the company's financial position or
overall trends in results of operations, even if joint and several
liability were to be assessed.
The company is currently party to various legal proceedings, including those
noted above. While management, including internal counsel, currently believes
that the ultimate outcome of these proceedings, individually and in the
aggregate, will not have a material adverse effect on the company's financial
position or overall trends in results of
14
operations, litigation is subject to inherent uncertainties. Were an
unfavorable ruling to occur, there exists the possibility of a material adverse
impact on the net income of the period in which the ruling occurs. The estimate
of the potential impact on the company's financial position or overall results
of operations for the above legal proceedings could change in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
PART II **
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Reference is made to the information regarding market, market
price range and dividend information appearing under "Financial
information by quarter (unaudited)" on page 37 of the company's
1999 Annual Report to Stockholders, which information is hereby
incorporated by reference.
(b) As of February 25, 2000, there were approximately 254,000 registered
holders of record of Intel's common stock.
(c) Unregistered sales of equity securities.
None in the quarter ended December 25, 1999.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information regarding selected financial data for the
fiscal years 1995 through 1999, under the heading "Financial summary" on page 13
of the company's 1999 Annual Report to Stockholders, which information is hereby
incorporated by reference.
In addition, the ratios of earnings to fixed charges for each of the five years
in the period ended December 25, 1999 are as follows:
Fiscal year
__________________________________________________________
1995 1996 1997 1998 1999
68x 108x 206x 167x 166x
Fixed charges consist of interest expense and the estimated interest component
of rent expense.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to the information appearing under the heading "Management's
discussion and analysis of financial condition and results of operations" on
pages 30 through 36 of the company's 1999 Annual Report to Stockholders, which
information is hereby incorporated by reference.
In March 2000, the company completed the acquisition of GIGA A/S in a cash
transaction valued at approximately $1.25 billion. GIGA specializes in the
design of high-speed communications chips used in optical networking and
communications products that direct traffic across the Internet and corporate
networks. This acquisition targets the market segment for networking chips
enabling the build-out of the fiber-optic infrastructure necessary to support
the growth of the Internet.
Also in March 2000, Intel entered into a definitive agreement to acquire
privately held Basis Communications Corporation in a transaction valued at
approximately $450 million in cash and assumed options. Basis designs and
markets semiconductors and other products used in equipment that directs traffic
across the Internet and corporate networks. Its products include network
processors and related software targeted for a range of "network access" systems
and customer premise equipment used in homes and small to medium-size offices.
This transaction is subject to regulatory review and customary closing
conditions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information appearing under the subheading "Financial
market risks" under the heading "Management's discussion and analysis of
financial condition and results of operations" on page 33 of the company's 1999
Annual Report to Stockholders, which information is hereby incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Intel at December 25, 1999 and December 26,
1998, and for each of the three years in the period ended December 25, 1999 and
the Report of Independent Auditors thereon, and the company's unaudited
quarterly financial data for the two-year period ended December 25, 1999 are
incorporated by reference from the company's 1999 Annual Report to Stockholders,
on pages 13 through 29 and page 37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
17
PART III **
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information regarding Directors and Executive Officers
appearing under the heading "Election of Directors" on pages 2 through 5 and
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 24 of the
company's Proxy Statement related to the 2000 Annual Meeting of Stockholders
(the "2000 Proxy Statement"), which information is hereby incorporated by
reference, and to the information under the heading "Executive Officers" in Part
I, Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the headings "Directors'
Compensation" on page 8, "Certain Relationships and Related Transactions" on
page 16, "Compensation Committee Interlocks and Insider Participation" on page
16, "Employment Contracts and Change of Control Arrangements" on page 16,
"Report of the Compensation Committee on Executive Compensation" on page 12,
"Stock Price Performance Graph" on page 11, and "Executive Compensation," on
pages 17 through 19 of the 2000 Proxy Statement, which information is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to information appearing in the 2000 Proxy Statement under the
heading "Security Ownership of Certain Beneficial Owners and Management," on
pages 9 and 10, which information is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to information appearing in the 2000 Proxy Statement under the
heading "Certain Relationships and Related Transactions," on page 16, which
information is hereby incorporated by reference.
18
PART IV **
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index to
financial statements and financial statement schedules are
filed or incorporated by reference as part of this annual
report.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying
index to financial statements and financial statement
schedules is filed as part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are
filed or incorporated by reference as part of this annual
report.
(b) Reports on Form 8-K
On October 13, 1999, Intel filed a report on Form 8-K
relating to financial information for Intel Corporation for
the quarter ended September 25, 1999 and forward-looking
statements relating to the fourth quarter of 1999 and the
second half of 1999, as presented in a press release of
October 12, 1999.
19
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Reference Page
--------------
1999
Annual
Form Report to
10-K Stockholders
---- ------------
Consolidated Balance Sheets
December 25, 1999 and December 26, 1998............................... 15
Consolidated Statements of Income for
the years ended December 25, 1999,
December 26, 1998 and December 27, 1997............................... 14
Consolidated Statements of Cash Flows
for the years ended December 25, 1999,
December 26, 1998 and December 27, 1997............................... 16
Consolidated Statements of Stockholders'
Equity for the years ended December 25, 1999,
December 26, 1998 and December 27, 1997............................... 17
Notes to Consolidated Financial Statements
December 25, 1999, December 26, 1998 and
December 27, 1997.................................................. 18-28
Report of Ernst & Young LLP, Independent Auditors...................... 29
Supplemental Information
Financial Information by Quarter (unaudited).......................... 37
Schedule for years ended December 25, 1999,
December 26, 1998 and December 27, 1997:
II- Valuation and Qualifying Accounts............ 21
Schedules other than the one listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
The consolidated financial statements listed in the above index, which are
included in the company's 1999 Annual Report to Stockholders, are hereby
incorporated by reference. With the exception of the pages listed in the above
index and the portions of such report referred to in Items 1, 5, 6, 7, 7A and 8
of this Form 10-K, the 1999 Annual Report to Stockholders is not to be deemed
filed as part of this report.
20
INTEL CORPORATION
-------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
December 27, 1997, December 26, 1998 and December 25, 1999
(In Millions)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses (A) Deductions (B) of Year
---------- ------------ -------------- -------
1997
Allowance for Doubtful Receivables $68 $ 2 $ 5 $65
1998
Allowance for Doubtful Receivables $65 $14 $17 $62
1999
Allowance for Doubtful Receivables $62 $17 $12 $67
(A) For 1999, includes approximately $7 million of valuation account balances of
companies acquired during the year. Remainder represents amounts charged to
costs and expenses.
(B) Uncollectible accounts written off, net of recoveries.
21
INDEX TO EXHIBITS
(Item 14(a))
Description
2.1 Agreement and Plan of Merger Dated as of March 4, 1999 among Intel
Corporation, Level One Communications, Incorporated and Intel RSW
Corporation (incorporated by reference to Appendix A of the Registrant's
Registration Statement on Form S-4 as filed on July 7, 1999).
3.1 Intel Corporation Restated Certificate of Incorporation dated May 11,
1993 and Certificate of Amendment to the Restated Certificate of
Incorporation dated June 2, 1997 (incorporated by reference to Exhibit
3.1 of Registrant's Form 10-K as filed on March 27, 1998).
3.2 Intel Corporation Bylaws as amended (incorporated by reference to
Exhibit 3.1 of Registrant's Form 10-Q for the quarter ended June 26,
1999 as filed on August 2, 1999).
4.1 Agreement to Provide Instruments Defining the Rights of Security Holders
(incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K as
filed on March 28, 1986).
10.1 * Intel Corporation 1984 Stock Option Plan as amended and restated,
effective July 16, 1997 (incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-Q for the quarter ended June 27, 1998 as filed on
August 11, 1998).
10.2 * Intel Corporation 1988 Executive Long Term Stock Option Plan as amended
and restated, effective July 16, 1997 (incorporated by reference to
Exhibit 10.2 of Registrant's Form 10-Q for the quarter ended June 27,
1998 as filed on August 11, 1998).
10.3 * Intel Corporation Executive Officer Bonus Plan as amended and restated
effective January 1, 1995 (incorporated by reference to Exhibit 10.7 of
Registrant's Form 10-Q for the quarter ended April 5, 1995 as filed on
May 16, 1995).
10.4 * Intel Corporation Sheltered Employee Retirement Plan Plus, as amended
and restated effective July 15, 1996 (incorporated by reference to
Exhibit 4.1.1 of Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form S-8 as filed on July 17, 1996).
10.5 * Special Deferred Compensation Plan (incorporated by reference to Exhibit
4.1 of Registrant's Registration Statement on Form S-8 as filed on
February 2, 1998).
10.6 * Intel Corporation Deferral Plan for Outside Directors, effective July 1,
1998 (incorporated by reference to Exhibit 10.6 of the Registrant's Form
10-K as filed on March 26, 1999).
12. Statement Setting Forth the Computation of Ratios of Earnings to Fixed
Charges.
13. Portions of the Annual Report to Stockholders for the fiscal year ended
December 25, 1999, as specified elsewhere in this document, are
expressly incorporated by reference herein.
21. Intel subsidiaries.
23. Consent of Ernst & Young LLP, independent auditors.
27. Financial Data Schedule.
* Compensation plans or arrangements in which directors and executive officers
are eligible to participate.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTEL CORPORATION
- -----------------
Registrant
By /s/ F. Thomas Dunlap, Jr.
--------------------------
F. Thomas Dunlap, Jr.
Vice President, General Counsel and Secretary
March 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Craig R. Barrett /s/ Gordon E. Moore
- -------------------- -------------------
Craig R. Barrett Gordon E. Moore
President, Chief Executive Chairman Emeritus
Officer and Director, of the Board and Director
Principal Executive Officer March 23, 2000
March 23, 2000
/s/ David S. Pottruck
/s/ John P. Browne ---------------------
- ------------------ David S. Pottruck
John P. Browne Director
Director March 23, 2000
March 23, 2000
/s/ Jane E. Shaw
/s/ Andy D. Bryant ----------------
- ------------------ Jane E. Shaw
Andy D. Bryant Director
Senior Vice President, Chief March 23, 2000
Financial Officer and Principal
Accounting Officer
March 23, 2000 /s/ Leslie L. Vadasz
--------------------
Leslie L. Vadasz
/s/ Winston H. Chen Executive Vice President
- ------------------- Director
Winston H. Chen March 23, 2000
Director
March 23, 2000
/s/ David B. Yoffie
-------------------
/s/ Andrew S. Grove David B. Yoffie
- ------------------- Director
Andrew S. Grove March 23, 2000
Chairman of the Board
and Director
March 23, 2000 /s/ Charles E. Young
--------------------
Charles E. Young
/s/ D. James Guzy Director
- ----------------- March 23, 2000
D. James Guzy
Director
March 23, 2000
23