Washington, D.C. 20549
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Consolidated Condensed Results of Operations | 30 | Liquidity and Capital Resources | | | | | | | | | PageNon-GAAP Financial Measures | | | Item 1. | | | | Item 2.Other Key Information | | | Item 3. | | | Item 4. | Risk Factors | | | Controls and Procedures | | | | | | Issuer Purchases of Equity Securities | | Item 1. | Rule 10b5-1 Trading Arrangements | | | Item 1A. | Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | | | Item 2. | Exhibits | | | Item 6. | Form 10-Q Cross-Reference Index | | |
Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates,"accelerate," "expects,"achieve," "intends,"aim," "ambitions," "anticipate," "believe," "committed," "continue," "could," "designed," "estimate," "expect," "forecast," "future," "goals," "plans,"grow," "believes,"guidance," "intend," "likely," "may," "might," "milestones," "next generation," "objective," "on track," "opportunity," "outlook," "pending," "plan," "position," "potential," "possible," "predict," "progress," "ramp," "roadmap," "seeks," "estimates,"should," "continues,"strive," "may,"targets," "to be," "upcoming," "will," “would,” "should,"would," “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements, that referwhich may include statements regarding: •our business plans and strategy and anticipated benefits therefrom, including with respect to our IDM 2.0 strategy, our partnership with Brookfield, the transition to an internal foundry model, updates to our reporting structure and our AI strategy; •projections of our future financial performance, including future revenue, gross margins, capital expenditures, and cash flows; •projected costs and yield trends; •future cash requirements and the availability, uses, sufficiency, and cost of capital resources, and sources of funding, including future capital and R&D investments, credit rating expectations, and expected returns to stockholders, such as stock repurchases and dividends; •future products, services and technologies, and the expected goals, timeline, ramps, progress, availability, production, regulation and benefits of such products, services and technologies, including future process nodes and packaging technology, product roadmaps, schedules, future product architectures, expectations regarding process performance, per-watt parity, and metrics and expectations regarding product and process leadership; •investment plans, and impacts of investment plans, including in the US and abroad; •internal and external manufacturing plans, including future internal manufacturing volumes, manufacturing expansion plans and the financing therefor, and external foundry usage; •future production capacity and product supply; •supply expectations, including regarding constraints, limitations, pricing, and industry shortages; •plans and goals related to Intel’s foundry business, including with respect to future manufacturing capacity and foundry service offerings, including technology and IP offerings; •expected timing and impact of acquisitions, divestitures, and other significant transactions, including our proposed acquisition of Tower Semiconductor Ltd. and the sale of our NAND memory business; •expected completion and impacts of restructuring activities and cost-saving or efficiency initiatives, including those related to the 2022 Restructuring Program; •future social and environmental performance goals, measures, strategies and results; •our anticipated growth, future market share, and trends in our businesses uncertain eventsand operations; •projected growth and trends in markets relevant to our businesses; •anticipated trends and impacts related to industry component, substrate, and foundry capacity utilization, shortages and constraints; •expectations regarding government incentives; •future technology trends and developments, such as AI; •future macro environmental and economic conditions, including regional or assumptions,global downturns or recessions; •future responses to and effects of COVID-19, including as to manufacturing, transportation and operational restrictions and disruptions and broader economic conditions; •geopolitical conditions, including the impacts of Russia's war on Ukraine and rising tensions between the U.S. and China; •tax- and accounting-related expectations; •expectations regarding our relationships with certain sanctioned parties; and •other characterizations of future events or circumstances are forward-looking statements. circumstances.
Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied, including: •changes in demand for our products; •changes in product mix; •the complexity and fixed cost nature of our manufacturing operations; •the high level of competition and rapid technological change in our forward-looking statements. Suchindustry; •the significant upfront investments in R&D and our business, products, technologies, and manufacturing capabilities; •vulnerability to new product development and manufacturing-related risks, including product defects or errata, particularly as we develop next generation products and implement next generation process technologies; •risks associated with a highly complex global supply chain, including from disruptions, delays, trade tensions, or shortages; •sales-related risks, including customer concentrationand the use of distributors and other third parties;
•potential security vulnerabilities in our products; •cybersecurity and privacy risks; •investment and transaction risk; •IP risks and risks associated with litigation and regulatory proceedings; •evolving regulatory and legal requirements across many jurisdictions; •geopolitical and international trade conditions; •our debt obligations; •risks of large scale global operations; •macroeconomic conditions; •impacts of the COVID-19 or similar such pandemic; •other risks and uncertainties include those described throughoutin this report, our 2022 Form 10-K and our Annual Report on Form 10-K forother filings with the year ended December 31, 2016, particularly the "Risk Factors" sections of such reports. SEC.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange CommissionSEC that disclose risks and uncertainties that may affect our business. The Unless specifically indicated otherwise, the forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that hadhave not been completed as of October 26, 2017.the date of this filing. In addition, the forward-looking statements in this Form 10-Q are madebased on management's expectations as of the date of this filing, unless an earlier date is specified, including expectations based on third-party information and Intel doesprojections that management believes to be reputable. We do not undertake, and expressly disclaimsdisclaim any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law. Availability of Company Information
We use our Investor Relations website, www.intc.com, as a routine channel for distribution of important, and often material, information about us, including our quarterly and annual earnings results and presentations, press releases, announcements, information about upcoming webcasts, analyst presentations, and investor days, archives of these events, financial information, corporate governance practices, and corporate responsibility information. We do not distribute our financial results via a news wire service. All such information is available on our Investor Relations website free of charge. Our Investor Relations website allows interested persons to sign up to automatically receive e-mail alerts when we post financial information and issue press releases, and to receive information about upcoming events. We encourage interested persons to follow our Investor Relations website in addition to our filings with the SEC to timely receive information about the company.
PART I – FINANCIAL INFORMATIONIntel, the Intel logo, Intel Core, Intel Optane, and Xeon are trademarks of Intel Corporation or its subsidiaries in the US and/or other countries.
* Other names and brands may be claimed as the property of others. | | | | | | | | | ITEM 1. | FINANCIAL STATEMENTS | 2 |
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Total revenue of $12.9 billion was down $2.4 billion or 15% from Q2 2022, as CCG revenue decreased 12%, DCAI revenue decreased 15%, and NEX revenue decreased 38%. CCG revenue decreased due to lower notebook and desktop volumes on lower demand. Notebook ASPs decreased due to a higher mix of small core products combined with a higher mix of older generation products, while desktop ASPs increased due to an increased mix of product sales to the commercial and gaming market segments. DCAI revenue decreased due to lower server volume resulting from a softening CPU data center market, partially offset by higher ASPs from an increased mix of high core count products. NEX revenue decreased due to lower demand across product lines. | | | | | | | | | | | | | | | | | | | | | Revenue | | Gross Margin | | Diluted EPS attributable to Intel | | Cash Flows | ■GAAP $B | | ■GAAP ■Non-GAAP | | ■GAAP■ Non-GAAP | | ■Operating Cash Flow $B ■AdjustedFree Cash Flow $B |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $12.9B | | 35.8% | | 39.8% | | $0.35 | | $0.13 | | $1.0B | | $(11.5)B | GAAP | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | Revenue down $2.4B or 15% from Q2 2022 | | Gross margin down 0.7 ppt from Q2 2022 | | Gross margin down 5 ppts from Q2 2022 | | Diluted EPS attributable to Intel up $0.46 from Q2 2022 | | Diluted EPS attributable to Intel down $0.15 or 54% from Q2 2022 | | Operating cash flow down $5.7B or 85% from Q2 2022 | | Adjusted free cash flow down $10.7B from Q2 2022 | | | | | | | | | | | | | | Lower revenue in CCG, DCAI, and NEX. | | Lower GAAP gross margin from lower revenue, higher unit cost, and higher excess capacity charges, partially offset by a decrease in period charges and the absence of one-time charges recognized in Q2 2022 (Optane inventory impairment and a patent settlement - both excluded from non-GAAP results). | | Higher GAAP EPS attributable to Intel primarily from a tax benefit and reduced operating expenses from various cost-cutting measures. | | Lower operating cash flow driven primarily by a net operating loss. |
Key Developments ▪An important part of our AI strategy is to democratize AI – scaling it and making it ubiquitous across the full continuum of workloads and usage models. We are championing an open ecosystem with a full suite of silicon and software IP to drive AI in both discrete and integrated solutions. Our 4th Gen Intel® Xeon® Scalable processor and Habana Gaudi2* deep learning accelerator were recognized in MLCommons' AI performance benchmark data as two compelling, open alternatives in the AI market that compete on both performance and price. ▪We announced plans to expand our manufacturing capacity, which include an agreement in principle to build a $25.0 billion chip manufacturing plant in Kiryat Gat, Israel, signing a revised letter of intent to increase our planned investment to be more than $33.0 billion in the Magdeburg, Germany wafer fabrication site, and plans to invest up to $4.6 billion in an assembly and test facility in Poland. These investments further our IDM 2.0 strategy and are expected to support a resilient semiconductor supply chain and to create the foundation for a next-generation chip ecosystem.
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions, Except Per Share Amounts) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Net revenue | | $ | 16,149 |
| | $ | 15,778 |
| | $ | 45,708 |
| | $ | 43,013 |
| Cost of sales | | 6,092 |
| | 5,795 |
| | 17,406 |
| | 16,927 |
| Gross margin | | 10,057 |
| | 9,983 |
| | 28,302 |
| | 26,086 |
| Research and development | | 3,223 |
| | 3,069 |
| | 9,824 |
| | 9,460 |
| Marketing, general and administrative | | 1,666 |
| | 2,006 |
| | 5,624 |
| | 6,239 |
| Restructuring and other charges | | 4 |
| | 372 |
| | 189 |
| | 1,786 |
| Amortization of acquisition-related intangibles | | 49 |
| | 74 |
| | 124 |
| | 253 |
| Operating expenses | | 4,942 |
| | 5,521 |
| | 15,761 |
| | 17,738 |
| Operating income | | 5,115 |
| | 4,462 |
| | 12,541 |
| | 8,348 |
| Gains (losses) on equity investments, net | | 846 |
| | (12 | ) | | 1,440 |
| | 488 |
| Interest and other, net | | (31 | ) | | (132 | ) | | 336 |
| | (340 | ) | Income before taxes | | 5,930 |
| | 4,318 |
| | 14,317 |
| | 8,496 |
| Provision for taxes | | 1,414 |
| | 940 |
| | 4,029 |
| | 1,742 |
| Net income | | $ | 4,516 |
| | $ | 3,378 |
| | $ | 10,288 |
| | $ | 6,754 |
| Basic earnings per share of common stock | | $ | 0.96 |
| | $ | 0.71 |
| | $ | 2.19 |
| | $ | 1.43 |
| Diluted earnings per share of common stock | | $ | 0.94 |
| | $ | 0.69 |
| | $ | 2.12 |
| | $ | 1.39 |
| Cash dividends declared per share of common stock | | $ | 0.5450 |
| | $ | 0.5200 |
| | $ | 1.0775 |
| | $ | 1.0400 |
| Weighted average shares of common stock outstanding: | | | | | | | | | Basic | | 4,688 |
| | 4,734 |
| | 4,707 |
| | 4,728 |
| Diluted | | 4,821 |
| | 4,877 |
| | 4,849 |
| | 4,872 |
|
1 See "Non-GAAP Financial Measures" within MD&A.
| | | | | | Consolidated Condensed Statements of Income | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions, Except Per Share Amounts; Unaudited) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Net revenue | | $ | 12,949 | | | $ | 15,321 | | | $ | 24,664 | | | $ | 33,674 | | Cost of sales | | 8,311 | | | 9,734 | | | 16,018 | | | 18,843 | | Gross margin | | 4,638 | | | 5,587 | | | 8,646 | | | 14,831 | | Research and development | | 4,080 | | | 4,400 | | | 8,189 | | | 8,762 | | Marketing, general, and administrative | | 1,374 | | | 1,800 | | | 2,677 | | | 3,552 | | Restructuring and other charges | | 200 | | | 87 | | | 264 | | | (1,124) | | Operating expenses | | 5,654 | | | 6,287 | | | 11,130 | | | 11,190 | | Operating income (loss) | | (1,016) | | | (700) | | | (2,484) | | | 3,641 | | Gains (losses) on equity investments, net | | (24) | | | (90) | | | 145 | | | 4,233 | | Interest and other, net | | 224 | | | (119) | | | 365 | | | 878 | | Income (loss) before taxes | | (816) | | | (909) | | | (1,974) | | | 8,752 | | Provision for (benefit from) taxes | | (2,289) | | | (455) | | | (679) | | | 1,093 | | Net income (loss) | | $ | 1,473 | | | $ | (454) | | | $ | (1,295) | | | $ | 7,659 | | Less: Net income (loss) attributable to non-controlling interests | | (8) | | | — | | | (18) | | | — | | Net income (loss) attributable to Intel | | $ | 1,481 | | | $ | (454) | | | $ | (1,277) | | | $ | 7,659 | | Earnings (loss) per share attributable to Intel—basic | | $ | 0.35 | | | $ | (0.11) | | | $ | (0.31) | | | $ | 1.87 | | Earnings (loss) per share attributable to Intel—diluted | | $ | 0.35 | | | $ | (0.11) | | | $ | (0.31) | | | $ | 1.86 | | | | | | | | | | | Weighted average shares of common stock outstanding: | | | | | | | | | Basic | | 4,182 | | | 4,100 | | | 4,168 | | | 4,095 | | Diluted | | 4,196 | | | 4,100 | | | 4,168 | | | 4,120 | |
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Net income | | $ | 4,516 |
| | $ | 3,378 |
| | $ | 10,288 |
| | $ | 6,754 |
| Changes in other comprehensive income, net of tax: | | | | | | | | | Net unrealized holding gains (losses) on available-for-sale investments | | 399 |
| | 412 |
| | 408 |
| | 357 |
| Deferred tax asset valuation allowance | | — |
| | (2 | ) | | — |
| | (5 | ) | Net unrealized holding gains (losses) on derivatives | | 19 |
| | 61 |
| | 350 |
| | 274 |
| Net prior service (costs) credits | | 2 |
| | 1 |
| | (8 | ) | | 4 |
| Actuarial valuation | | 11 |
| | 10 |
| | 241 |
| | (289 | ) | Net foreign currency translation adjustment | | 5 |
| | (2 | ) | | 513 |
| | (1 | ) | Other comprehensive income (loss) | | 436 |
| | 480 |
| | 1,504 |
| | 340 |
| Total comprehensive income | | $ | 4,952 |
| | $ | 3,858 |
| | $ | 11,792 |
| | $ | 7,094 |
|
| | | | | | Consolidated Condensed Statements of Comprehensive Income | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions; Unaudited) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Net income (loss) | | $ | 1,473 | | | $ | (454) | | | $ | (1,295) | | | $ | 7,659 | | Changes in other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | | | Net unrealized holding gains (losses) on derivatives | | (131) | | | (627) | | | 11 | | | (742) | | Actuarial valuation and other pension benefits (expenses), net | | 2 | | | 9 | | | 3 | | | 27 | | Translation adjustments and other | | 4 | | | (5) | | | 4 | | | (30) | | Other comprehensive income (loss) | | (125) | | | (623) | | | 18 | | | (745) | | Total comprehensive income (loss) | | 1,348 | | | (1,077) | | | (1,277) | | | 6,914 | | Less: comprehensive income (loss) attributable to non-controlling interests | | (8) | | | — | | | (18) | | | — | | Total comprehensive income (loss) attributable to Intel | | $ | 1,356 | | | $ | (1,077) | | | $ | (1,259) | | | $ | 6,914 | |
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
| | | | | | | | | | (In Millions) | | Sep 30, 2017 | | Dec 31, 2016 | Assets | | | | | Current assets: | | | | | Cash and cash equivalents | | $ | 9,075 |
| | $ | 5,560 |
| Short-term investments | | 1,446 |
| | 3,225 |
| Trading assets | | 6,983 |
| | 8,314 |
| Accounts receivable, net | | 5,954 |
| | 4,690 |
| Inventories | | 6,929 |
| | 5,553 |
| Assets held for sale | | — |
| | 5,210 |
| Other current assets | | 2,767 |
| | 2,956 |
| Total current assets | | 33,154 |
| | 35,508 |
| Property, plant and equipment, net of accumulated depreciation of $58,048 ($53,934 as of December 31, 2016) | | 39,472 |
| | 36,171 |
| Marketable equity securities | | 6,059 |
| | 6,180 |
| Other long-term investments | | 3,844 |
| | 4,716 |
| Goodwill | | 24,389 |
| | 14,099 |
| Identified intangible assets, net | | 13,058 |
| | 9,494 |
| Other long-term assets | | 7,112 |
| | 7,159 |
| Total assets | | $ | 127,088 |
| | $ | 113,327 |
| Liabilities, temporary equity, and stockholders’ equity | | | | | Current liabilities: | | | | | Short-term debt | | $ | 4,142 |
| | $ | 4,634 |
| Accounts payable | | 3,554 |
| | 2,475 |
| Accrued compensation and benefits | | 2,805 |
| | 3,465 |
| Accrued advertising | | 892 |
| | 810 |
| Deferred income | | 1,706 |
| | 1,718 |
| Liabilities held for sale | | — |
| | 1,920 |
| Other accrued liabilities | | 7,590 |
| | 5,280 |
| Total current liabilities |
| 20,689 |
| | 20,302 |
| Long-term debt | | 27,498 |
| | 20,649 |
| Long-term deferred tax liabilities | | 2,943 |
| | 1,730 |
| Other long-term liabilities | | 4,152 |
| | 3,538 |
| Contingencies (Note 18) | |
| |
| Temporary equity | | 870 |
| | 882 |
| Stockholders’ equity: | | | | | Preferred stock | | — |
| | — |
| Common stock and capital in excess of par value, 4,680 issued and outstanding (4,730 issued and outstanding as of December 31, 2016) | | 26,547 |
| | 25,373 |
| Accumulated other comprehensive income (loss) | | 1,610 |
| | 106 |
| Retained earnings | | 42,779 |
| | 40,747 |
| Total stockholders’ equity | | 70,936 |
| | 66,226 |
| Total liabilities, temporary equity, and stockholders’ equity | | $ | 127,088 |
| | $ | 113,327 |
|
| | | | | | | | | | | | | Financial Statements | Consolidated Condensed Statements of Comprehensive Income | 5 |
| | | | | | Consolidated Condensed Balance Sheets | | | |
| | | | | | | | | | | | | | | (In Millions; Unaudited) | | Jul 1, 2023 | | Dec 31, 2022 | | | | | | Assets | | | | | Current assets: | | | | | Cash and cash equivalents | | $ | 8,349 | | | $ | 11,144 | | Short-term investments | | 15,908 | | | 17,194 | | | | | | | Accounts receivable, net | | 2,996 | | | 4,133 | | Inventories | | 11,984 | | | 13,224 | | | | | | | Other current assets | | 4,119 | | | 4,712 | | Total current assets | | 43,356 | | | 50,407 | | | | | | | Property, plant, and equipment, net of accumulated depreciation of $95,781 ($93,386 as of December 31, 2022) | | 90,945 | | | 80,860 | | Equity investments | | 5,893 | | | 5,912 | | | | | | | Goodwill | | 27,591 | | | 27,591 | | Identified intangible assets, net | | 5,173 | | | 6,018 | | Other long-term assets | | 12,671 | | | 11,315 | | Total assets | | $ | 185,629 | | | $ | 182,103 | | | | | | | Liabilities and stockholders’ equity | | | | | Current liabilities: | | | | | Short-term debt | | $ | 2,711 | | | $ | 4,367 | | Accounts payable | | 8,757 | | | 9,595 | | Accrued compensation and benefits | | 2,887 | | | 4,084 | | | | | | | | | | | | Income taxes payable | | 2,169 | | | 2,251 | | Other accrued liabilities | | 10,656 | | | 11,858 | | Total current liabilities | | 27,180 | | | 32,155 | | | | | | | Debt | | 46,335 | | | 37,684 | | | | | | | | | | | | | | | | | Other long-term liabilities | | 7,643 | | | 8,978 | | Contingencies (Note 13) | | | | | | | | | | Stockholders’ equity: | | | | | | | | | | Common stock and capital in excess of par value, 4,188 issued and outstanding (4,137 issued and outstanding as of December 31, 2022) | | 34,330 | | | 31,580 | | Accumulated other comprehensive income (loss) | | (544) | | | (562) | | Retained earnings | | 67,231 | | | 70,405 | | Total Intel stockholders' equity | | 101,017 | | | 101,423 | | Non-controlling interests | | 3,454 | | | 1,863 | | Total stockholders' equity | | 104,471 | | | 103,286 | | Total liabilities and stockholders’ equity | | $ | 185,629 | | | $ | 182,103 | |
See accompanying notes.
INTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
| | | | | | | | | | | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | Cash and cash equivalents, beginning of period | | $ | 5,560 |
| | $ | 15,308 |
| Cash flows provided by (used for) operating activities: | | | | | Net income | | 10,288 |
| | 6,754 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Depreciation | | 4,990 |
| | 4,684 |
| Share-based compensation | | 1,051 |
| | 1,136 |
| Restructuring and other charges | | 189 |
| | 1,786 |
| Amortization of intangibles | | 999 |
| | 1,176 |
| (Gains) losses on equity investments, net | | (1,372 | ) | | (414 | ) | (Gains) losses on divestitures | | (387 | ) | | — |
| Deferred taxes | | 570 |
| | (188 | ) | Changes in assets and liabilities:1 | | | | | Accounts receivable | | (1,128 | ) | | (100 | ) | Inventories | | (1,245 | ) | | (118 | ) | Accounts payable | | 171 |
| | 188 |
| Accrued compensation and benefits | | (551 | ) | | (1,874 | ) | Income taxes payable and receivable | | 979 |
| | 961 |
| Other assets and liabilities | | 315 |
| | (333 | ) | Total adjustments | | 4,581 |
| | 6,904 |
| Net cash provided by operating activities | | 14,869 |
| | 13,658 |
| Cash flows provided by (used for) investing activities: | | | | | Additions to property, plant and equipment | | (7,709 | ) | | (6,095 | ) | Acquisitions, net of cash acquired | | (14,499 | ) | | (15,151 | ) | Purchases of available-for-sale investments | | (1,977 | ) | | (7,962 | ) | Sales of available-for-sale investments | | 4,610 |
| | 3,793 |
| Maturities of available-for-sale investments | | 3,488 |
| | 4,928 |
| Purchases of trading assets | | (9,792 | ) | | (9,953 | ) | Maturities and sales of trading assets | | 11,806 |
| | 7,867 |
| Investments in loans receivable and reverse repurchase agreements | | — |
| | (223 | ) | Collection of loans receivable and reverse repurchase agreements | | 250 |
| | 911 |
| Investments in non-marketable equity investments | | (726 | ) | | (893 | ) | Proceeds from divestitures | | 3,124 |
| | — |
| Other investing | | 893 |
| | 405 |
| Net cash used for investing activities | | (10,532 | ) | | (22,373 | ) | Cash flows provided by (used for) financing activities: | | | | | Increase (decrease) in short-term debt, net | | (5 | ) | | 426 |
| Issuance of long-term debt, net of issuance costs | | 7,716 |
| | 2,734 |
| Repayment of debt | | (1,502 | ) | | — |
| Proceeds from sales of common stock through employee equity incentive plans | | 637 |
| | 1,024 |
| Repurchase of common stock | | (3,611 | ) | | (2,054 | ) | Restricted stock unit withholdings | | (424 | ) | | (434 | ) | Payment of dividends to stockholders | | (3,794 | ) | | (3,692 | ) | Other financing | | 161 |
| | 155 |
| Net cash provided by (used for) financing activities | | (822 | ) | | (1,841 | ) | Net increase (decrease) in cash and cash equivalents | | 3,515 |
| | (10,556 | ) | Cash and cash equivalents, end of period | | $ | 9,075 |
| | $ | 4,752 |
| | | | | | Supplemental disclosures of noncash investing activities and cash flow information: | | | | | Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 1,736 |
| | $ | 1,505 |
| Non-marketable equity investment in McAfee from divestiture | | $ | 1,078 |
| | $ | — |
| Cash paid during the period for: | | | | | Interest, net of capitalized interest and interest rate swap payments/receipts | | $ | 386 |
| | $ | 472 |
| Income taxes, net of refunds | | $ | 2,328 |
| | $ | 843 |
|
| | | | | | | | | | | | 1 | The impactFinancial Statements | Consolidated Condensed Balance Sheets | 6 |
| | | | | | Consolidated Condensed Statements of assets and liabilities reclassified as held for sale was not considered in the changes in assets and liabilities within cash flows from operating activities. See "Note 10: Acquisitions and Divestitures" for additional information.Cash Flows | | | |
| | | | | | | | | | | | | | | | | Six Months Ended | (In Millions; Unaudited) | | Jul 1, 2023 | | Jul 2, 2022 | | | | | | Cash and cash equivalents, beginning of period | | $ | 11,144 | | | $ | 4,827 | | Cash flows provided by (used for) operating activities: | | | | | Net income (loss) | | (1,295) | | | 7,659 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Depreciation | | 3,733 | | | 5,528 | | Share-based compensation | | 1,661 | | | 1,599 | | | | | | | Restructuring and other charges | | 255 | | | 73 | | Amortization of intangibles | | 909 | | | 968 | | (Gains) losses on equity investments, net | | (146) | | | (4,230) | | (Gains) losses on divestitures | | — | | | (1,072) | | | | | | | | | | | | Changes in assets and liabilities: | | | | | Accounts receivable | | 1,137 | | | 3,397 | | Inventories | | 1,240 | | | (1,386) | | Accounts payable | | (1,102) | | | 117 | | Accrued compensation and benefits | | (1,340) | | | (1,985) | | | | | | | Income taxes | | (2,186) | | | (2,232) | | Other assets and liabilities | | (1,843) | | | (1,736) | | Total adjustments | | 2,318 | | | (959) | | Net cash provided by (used for) operating activities | | 1,023 | | | 6,700 | | Cash flows provided by (used for) investing activities: | | | | | Additions to property, plant, and equipment | | (13,301) | | | (11,846) | | | | | | | | | | | | | | | | | Purchases of short-term investments | | (25,696) | | | (25,514) | | Maturities and sales of short-term investments | | 26,957 | | | 25,407 | | | | | | | | | | | | | | | | | Sales of equity investments | | 253 | | | 4,775 | | | | | | | | | | | | | | | | | Proceeds from divestitures | | — | | | 6,579 | | Other investing | | 458 | | | (1,820) | | Net cash used for investing activities | | (11,329) | | | (2,419) | | Cash flows provided by (used for) financing activities: | | | | | Repayment of commercial paper | | (3,944) | | | — | | | | | | | | | | | | Payments on finance leases | | (96) | | | (299) | | Partner contributions | | 834 | | | — | | Proceeds from sales of subsidiary shares | | 1,573 | | | — | | Issuance of long-term debt, net of issuance costs | | 10,968 | | | — | | Repayment of debt | | — | | | (1,688) | | | | | | | | | | | | | | | | | | | | | | Payment of dividends to stockholders | | (2,036) | | | (2,986) | | | | | | | | | | | | | | | | | Other financing | | 212 | | | 255 | | Net cash provided by (used for) financing activities | | 7,511 | | | (4,718) | | | | | | | Net increase (decrease) in cash and cash equivalents | | (2,795) | | | (437) | | Cash and cash equivalents, end of period | | $ | 8,349 | | | $ | 4,390 | | | | | | | Supplemental disclosures: | | | | | Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 5,113 | | | $ | 3,286 | | | | | | | | | | | | Cash paid during the period for: | | | | | Interest, net of capitalized interest | | $ | 393 | | | $ | 214 | | Income taxes, net of refunds | | $ | 1,520 | | | $ | 3,326 | | | | | | | | | | | | | | | | |
See accompanying notes. | | | | | | | | | | | | | Financial Statements | Consolidated Condensed Statements of Cash Flows | 7 |
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited
| | | | | | Consolidated Condensed Statements of Stockholders' Equity | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (In Millions, Except Per Share Amounts; Unaudited) | | Common Stock and Capital in Excess of Par Value | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Non-Controlling Interests | | Total | | Shares | | Amount | | | | | Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of April 1, 2023 | | 4,171 | | | $ | 32,829 | | | $ | (419) | | | $ | 65,649 | | | $ | 2,344 | | | $ | 100,403 | | | | | | | | | | | | | | | Net income (loss) | | — | | | — | | | — | | | 1,481 | | | (8) | | | 1,473 | | Other comprehensive income (loss) | | — | | | — | | | (125) | | | — | | | — | | | (125) | | Net proceeds from sales of subsidiary shares and partner contributions | | — | | | 866 | | | — | | | — | | | 1,092 | | | 1,958 | | Employee equity incentive plans and other | | 22 | | | 6 | | | — | | | — | | | — | | | 6 | | Share-based compensation | | — | | | 896 | | | — | | | — | | | 26 | | | 922 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restricted stock unit withholdings | | (5) | | | (267) | | | — | | | 101 | | | — | | | (166) | | | | | | | | | | | | | | | Balance as of July 1, 2023 | | 4,188 | | | $ | 34,330 | | | $ | (544) | | | $ | 67,231 | | | $ | 3,454 | | | $ | 104,471 | | | | | | | | | | | | | | | Balance as of April 2, 2022 | | 4,089 | | | $ | 29,244 | | | $ | (1,002) | | | $ | 74,894 | | | $ | — | | | $ | 103,136 | | | | | | | | | | | | | | | Net income (loss) | | — | | | — | | | — | | | (454) | | | — | | | (454) | | Other comprehensive income (loss) | | — | | | — | | | (623) | | | — | | | — | | | (623) | | | | | | | | | | | | | | | Employee equity incentive plans and other | | 22 | | | 12 | | | — | | | — | | | — | | | 12 | | Share-based compensation | | — | | | 892 | | | — | | | — | | | — | | | 892 | | Restricted stock unit withholdings | | (5) | | | (290) | | | — | | | 44 | | | — | | | (246) | | Cash dividends declared ($0.37 per share) | | — | | | — | | | — | | | (1,499) | | | — | | | (1,499) | | Balance as of July 2, 2022 | | 4,106 | | | $ | 29,858 | | | $ | (1,625) | | | $ | 72,985 | | | $ | — | | | $ | 101,218 | | | | | | | | | | | | | | | Six Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2022 | | 4,137 | | | $ | 31,580 | | | $ | (562) | | | $ | 70,405 | | | $ | 1,863 | | | $ | 103,286 | | | | | | | | | | | | | | | Net income (loss) | | — | | | — | | | — | | | (1,277) | | | (18) | | | (1,295) | | Other comprehensive income (loss) | | — | | | — | | | 18 | | | — | | | — | | | 18 | | Net proceeds from sales of subsidiary shares and partner contributions | | — | | | 866 | | | — | | | — | | | 1,541 | | | 2,407 | | Employee equity incentive plans and other | | 58 | | | 665 | | | — | | | — | | | — | | | 665 | | Share-based compensation | | — | | | 1,593 | | | — | | | — | | | 68 | | | 1,661 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restricted stock unit withholdings | | (7) | | | (374) | | | — | | | 139 | | | — | | | (235) | | Cash dividends declared ($0.49 per share) | | — | | | — | | | — | | | (2,036) | | | — | | | (2,036) | | Balance as of July 1, 2023 | | 4,188 | | | $ | 34,330 | | | $ | (544) | | | $ | 67,231 | | | $ | 3,454 | | | $ | 104,471 | | | | | | | | | | | | | | | Balance as of December 25, 2021 | | 4,070 | | | $ | 28,006 | | | $ | (880) | | | $ | 68,265 | | | $ | — | | | $ | 95,391 | | | | | | | | | | | | | | | Net income (loss) | | — | | | — | | | — | | | 7,659 | | | — | | | 7,659 | | Other comprehensive income (loss) | | — | | | — | | | (745) | | | — | | | — | | | (745) | | Employee equity incentive plans and other | | 42 | | | 601 | | | — | | | — | | | — | | | 601 | | Share-based compensation | | — | | | 1,599 | | | — | | | — | | | — | | | 1,599 | | Restricted stock unit withholdings | | (6) | | | (348) | | | — | | | 47 | | | — | | | (301) | | Cash dividends declared ($0.73 per share) | | — | | | — | | | — | | | (2,986) | | | — | | | (2,986) | | Balance as of July 2, 2022 | | 4,106 | | | $ | 29,858 | | | $ | (1,625) | | | $ | 72,985 | | | $ | — | | | $ | 101,218 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes.
| | | | | | | | | | | | | Financial Statements | Consolidated Condensed Statements of Stockholders' Equity | 8 |
| | | | | | Notes to Consolidated Condensed Financial Statements | | | |
Note 1: Basis of Presentation | | | | | | Note 1 : | Basis of Presentation |
We prepared our interim consolidated condensed financial statementsConsolidated Condensed Financial Statements that accompany these notes in conformity with U.S. generally accepted accounting principles,US GAAP, consistent in all material respects with those applied in our Annual Report on2022 Form 10-K for the fiscal year ended December 31, 2016 (2016 Form 10-K).10-K. We have a 52- or 53-week fiscal year that ends on the last Saturday in December. Our fiscalFiscal year 20172023 is a 52-week year ending on December 30, 2017, while our fiscal year 2016year; fiscal 2022 was a 53-week fiscal year, that ended on December 31, 2016. Thewith the extra week included in the first quarter of fiscal year 2016 was a 14-week quarter compared to the standard 13-week quarters.2022. We have made estimates and judgments affecting the amounts reported in our consolidated condensed financial statementsConsolidated Condensed Financial Statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, butand reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements in our 20162022 Form 10-K. Note 2: Accounting Policies
Advertising
Through cooperative advertising programs, such as10-K where we include additional information on our Intel Inside® program, we reimburse customers for marketing activities for certain of our products. 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 (MG&A) expenses to the extent that an advertising benefit separate from the revenue transaction can be identifiedcritical accounting estimates, policies, and the fair value of that advertising benefit received is determinable. We record any excessmethods and assumptions used in cash paid to customers over the fair value of the advertising benefit we receive as a reduction in revenue.our estimates.
We are transitioning customers from the current offerings under the Intel Inside® program to cooperative advertising offerings more tailored to customers and their marketing audiences. In the second half of 2017, we are recording cooperative advertising costs as a reduction of revenue as we no longer meet the criteria for recording these expenses within MG&A.
Note 3: Recent Accounting Standards
We assess the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on our financial statements. The tables below describe impacts from newly issued standards as well as material updates to our previous assessments, if any, from our 2016 Form 10-K.
Accounting Standards Adopted
| | | | | | Standard/DescriptionNote 2 : | Effective Date and Adoption Considerations | Effect on Financial Statements or Other Significant Matters | Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment. This accounting standard update eliminates Step 2 from the existing guidance to simplify how goodwill impairment tests are performed.
With the elimination of this step, a goodwill impairment test is performed by comparing the fair value of a reporting unit to its carrying value. An impairment charge is recognized for the amount by which the reporting unit's carrying value exceeds its fair value.
| We elected to early adopt this accounting standard update in the second quarter of 2017 on a prospective basis.
| We expect the adoption of this update to simplify our annual goodwill impairment testing process, by eliminating the need to estimate the implied fair value of a reporting unit’s goodwill, if its respective carrying value exceeds fair value.
Operating Segments |
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Accounting Standards Not Yet Adopted | | | | Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements or Other Significant Matters | Financial Instruments - Recognition and Measurement. Requires changes to the accounting for financial instruments that primarily affect equity securities, financial liabilities measured using the fair value option, and the presentation and disclosure requirements for such instruments.
| Effective in the first quarter of 2018.
Changes to our marketable equity securities are required to be adopted using a modified-retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. A cumulative-effect adjustment equal to the balance of unrealized gains or losses in accumulated other comprehensive income (loss) for these securities as of December 31, 2017 will be recorded to retained earnings in the period of adoption. Due to fluctuations in our portfolio, the precise impact from adopting the standard will not be known until December 31, 2017.
Since management has elected to apply the measurement alternative to non-marketable equity securities, changes to these securities are adopted prospectively.
| Marketable equity securities previously classified as available-for-sale equity investments will be measured and recorded at fair value with changes in fair value recorded through the income statement.
All non-marketable equity securities formerly classified as cost method investments will be measured and recorded using the measurement alternative upon adoption. Equity securities measured and recorded using the measurement alternative are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes. Adjustments resulting from impairments and observable price changes will be recorded in the income statement.
Beginning in the first quarter of 2018, in accordance with the standard, fair value measurement and hierarchy disclosures will no longer be provided for equity securities measured using the measurement alternative. In addition, the existing impairment model will be replaced with a new one-step qualitative impairment model. No initial adoption adjustment will be recorded for these instruments since the standard is required to be applied prospectively for securities measured using the measurement alternative.
We are finalizing our impact assessment and changes to our accounting policies and financial statement disclosures.
| Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This amended standard was issued to provide additional guidance on the presentation of net benefit cost in the income statement and on the components eligible for capitalization in assets. The service cost component of the net periodic benefit cost will continue to be reported within operating income on the consolidated income statement. All other non-service components are required to be presented separately outside operating income and only service costs will be eligible for inventory capitalization.
| Effective in the first quarter of 2018.
Changes to the presentation of benefit costs are required to be adopted retrospectively while changes to the capitalization of service costs into inventories are required to be adopted prospectively. The standard permits, as a practical expedient, to use the amounts disclosed in the Retirement Benefit Plans footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirement.
| We expect the adoption of the amended standard to result in the reclassification of approximately $260 million from non-service components above the subtotal of operating income to interest and other, net, for the year ended December 31, 2016. We are continuing to assess the impacts of adoption to our 2017 financial statements.
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 4: Operating Segments InformationWe previously announced the organizational change to integrate AXG into CCG and DCAI. This change is intended to drive a more effective go-to-market capability and to accelerate the scale of these businesses, while also reducing costs. As a result, we modified our segment reporting in the first quarter of 2023 to align to this and certain other business reorganizations. All prior-period segment data has been retrospectively adjusted to reflect the way our CODM internally receives information and manages and monitors our operating segment performance starting in fiscal year 2023.
We manage our business through the following operating segments: | | Client Computing Group (CCG) | | Includes platforms designed for notebooks, 2 in 1 systems, desktops (including all-in-ones and high-end enthusiast PCs), tablets, phones, wireless and wired connectivity▪Data Center and AI (DCAI)▪Network and Edge (NEX) ▪Mobileye ▪Intel Foundry Services (IFS) We derive a substantial majority of our revenue from our principal products and mobile communication components. | | Data Center Group (DCG) | | Includes workload-optimized platforms for compute, storage, and network functions and related products designed for enterprise, cloud, and communication infrastructure market segments. | | Internet of Things Group (IOTG) | | Includes platforms designed for Internet of Things market segments, including retail, transportation, industrial, video, buildings and smart cities, along with a broad range of other market segments. | | Non-Volatile Memory Solutions Group (NSG) | | Includes Intel® Optane™ SSD products and NAND flash memory products primarily used in solid-state drives.
| | Programmable Solutions Group (PSG) | | Includes programmable semiconductors primarily field-programmable gate array (FPGAs) and related products for a broad range of market segments, including communications, data center, industrial, military, and automotive. | | All other | | Includes results from our other non-reportable segments and corporate-related charges. |
We offer platforms that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone System-on-Chip,SoC, or a multichip package. A platform may be enhanced by additional hardware, software,package, which is based on Intel® architecture.
CCG, DCAI and services offered by Intel. PlatformsNEX are used in various form factors across our CCG, DCG, and IOTGreportable operating segments. Mobileye and IFS do not qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. When we enter into federal contracts, they are aligned to the sponsoring operating segment. We derive a substantial majority of our revenue from platforms, which is our principal product.have sales and marketing, manufacturing, engineering, finance, and administration groups. Expenses for these groups are generally allocated to the operating segments. In the third quarter of 2017, we completed our tender offer for the outstanding ordinary shares of Mobileye B.V. (Mobileye), formerly known as Mobileye N.V. In the second quarter of 2017, we completed the planned divestiture of Intel Security Group (ISecG). The results are reported within theWe have an "all other" category. See "Note 10: Acquisitions and Divestitures" for additional information.
The “all other” category that includes revenue, expenses, and charges such as:
▪results of operations from non-reportable segments;segments not otherwise presented, and from start-up businesses that support our initiatives; ▪historical results of operations from divested businesses; ▪amounts included within restructuring and other charges; charges;a portion of profit-dependent▪employee benefits, compensation, impairment charges, and other expenses not allocated to the operating segments; andhistorical results of operations of divested businesses;
results of operations of start-up businesses that support our initiatives, including our foundry business; and
▪acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill. The Chief Operating Decision Maker (CODM), whichCODM, who is our Chief Executive Officer (CEO),CEO, allocates resources to and assesses the performance of each operating segment using information about the operating segment's revenue and operating income (loss). The CODM does not evaluate operating segments using discrete asset information. Operating segmentsinformation, and we do not record inter-segment revenue.identify or allocate assets by operating segments. Based on the interchangeable nature of our manufacturing and assembly and test assets, most of the related depreciation expense is not directly identifiable within our operating segments, as it is included in overhead cost pools and subsequently absorbed into inventory as each product passes through our manufacturing process. Because our products are then sold across multiple operating segments, it is impracticable to determine the total depreciation expense included as a component of each operating segment's operating income (loss) results. We do not allocate gains and losses from equity investments, interest and other income, share-based compensation, or taxes to our operating segments. Although the CODM uses operating income (loss) to evaluate the segments, operating costs included in one segment may benefit other segments. Except for these differences, theThe accounting policies for segment reporting are the same as for Intel as a whole. There have been no changes to our segment accounting policies disclosed in our 2022 Form 10-K except for the organizational change described above. INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 9 |
Net revenue and operating income (loss) for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Net revenue: | | | | | | | | | Client Computing | | | | | | | | | Desktop | | $ | 2,370 | | | $ | 2,289 | | | $ | 4,249 | | | $ | 4,930 | | Notebook | | 3,896 | | | 4,751 | | | 7,303 | | | 10,710 | | Other | | 514 | | | 638 | | | 995 | | | 1,360 | | | | 6,780 | | | 7,678 | | | 12,547 | | | 17,000 | | | | | | | | | | | Data Center and AI | | 4,004 | | | 4,695 | | | 7,722 | | | 10,769 | | Network and Edge | | 1,364 | | | 2,211 | | | 2,853 | | | 4,350 | | Mobileye | | 454 | | | 460 | | | 912 | | | 854 | | Intel Foundry Services | | 232 | | | 57 | | | 350 | | | 213 | | All other | | 115 | | | 220 | | | 280 | | | 488 | | Total net revenue | | $ | 12,949 | | | $ | 15,321 | | | $ | 24,664 | | | $ | 33,674 | | | | | | | | | | | Operating income (loss): | | | | | | | | | Client Computing | | $ | 1,039 | | | $ | 876 | | | $ | 1,559 | | | $ | 3,598 | | Data Center and AI | | (161) | | | (80) | | | (679) | | | 1,313 | | Network and Edge | | (187) | | | 294 | | | (487) | | | 710 | | Mobileye | | 129 | | | 190 | | | 252 | | | 338 | | Intel Foundry Services | | (143) | | | (134) | | | (283) | | | (157) | | All other | | (1,693) | | | (1,846) | | | (2,846) | | | (2,161) | | Total operating income (loss) | | $ | (1,016) | | | $ | (700) | | | $ | (2,484) | | | $ | 3,641 | |
In the second quarter of 2022, we initiated the wind-down of our Intel® Optane™ memory business, which is part of our DCAI operating segment, resulting in an inventory impairment of $559 million in Cost of sales on the Consolidated Condensed Statements of Income in the second quarter of 2022. The impairment charge was recognized as a Corporate charge in the "all other" category presented above. | | | | | | Note 3 : | Non-Controlling Interests |
Semiconductor Co-Investment Program In 2022, we closed a transaction with Brookfield Asset Management (Brookfield) resulting in the formation of Arizona Fab LLC (Arizona Fab), a VIE for which we and Brookfield own 51% and 49%, respectively. Because we are the primary beneficiary of the VIE, we fully consolidate the results of Arizona Fab into our consolidated financial statements. Generally, contributions will be made to, and distributions will be received from, Arizona Fab based on both parties' proportional ownership. We will be sole operator and majority owner of two new chip factories that will be constructed by Arizona Fab, and we will have the right to purchase 100% of the related factory output. Once production commences, we will be required to operate Arizona Fab at minimum production levels measured in wafer starts per week and will be required to limit excess inventory held on site or we will be subject to certain penalties. We have an unrecognized commitment to fund our respective share of the total construction costs of Arizona Fab of $29.0 billion. As of July 1, 2023, a substantial majority of the assets of Arizona Fab consisted of property, plant, and equipment. The assets held by Arizona Fab, which can be used only to settle obligations of the VIE and are not available to us, were $3.5 billion as of July 1, 2023 ($1.8 billion as of December 31, 2022). Non-controlling interest in Arizona Fab was $1.7 billion as of July 1, 2023 ($874 million as of December 31, 2022). Net loss attributable to non-controlling interest in Arizona Fab was $3 million in the second quarter of 2023 and $8 million in the first six months of 2023; there was no net income (loss) attributable to non-controlling interest in the first six months of 2022. Mobileye In October 2022, Mobileye completed its IPO and certain other equity financing transactions that resulted in net proceeds of $1.0 billion. During the second quarter of 2023, we converted $38.5 million of class B shares into class A shares, representing 5% of Mobileye’s outstanding capital stock, and subsequently sold the class A shares for $42 per share as part of a secondary offering. We received net proceeds of $1.6 billion and increased our capital in excess of par value by $866 million as a result of the secondary offering.
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 10 |
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Net revenue: | | | | | | | | | Client Computing Group | | | | | | | | | Platform | | $ | 8,132 |
| | $ | 8,258 |
| | $ | 23,163 |
| | $ | 22,395 |
| Other | | 728 |
| | 634 |
| | 1,886 |
| | 1,384 |
| | | 8,860 |
| | 8,892 |
| | 25,049 |
| | 23,779 |
| Data Center Group | | | | | | | | | Platform | | 4,439 |
| | 4,164 |
| | 12,344 |
| | 11,589 |
| Other | | 439 |
| | 378 |
| | 1,138 |
| | 979 |
| | | 4,878 |
| | 4,542 |
| | 13,482 |
| | 12,568 |
| Internet of Things Group | | | | | | | | | Platform | | 680 |
| | 605 |
| | 1,926 |
| | 1,673 |
| Other | | 169 |
| | 84 |
| | 364 |
| | 239 |
| | | 849 |
| | 689 |
| | 2,290 |
| | 1,912 |
| Non-Volatile Memory Solutions Group | | 891 |
| | 649 |
| | 2,631 |
| | 1,760 |
| Programmable Solutions Group | | 469 |
| | 425 |
| | 1,334 |
| | 1,249 |
| All other | | 202 |
| | 581 |
| | 922 |
| | 1,745 |
| Total net revenue | | $ | 16,149 |
| | $ | 15,778 |
| | $ | 45,708 |
| | $ | 43,013 |
| Operating income (loss): | | | | | | | | | Client Computing Group | | $ | 3,600 |
| | $ | 3,327 |
| | $ | 9,656 |
| | $ | 7,123 |
| Data Center Group | | 2,255 |
| | 2,110 |
| | 5,403 |
| | 5,639 |
| Internet of Things Group | | 146 |
| | 191 |
| | 390 |
| | 403 |
| Non-Volatile Memory Solutions Group | | (52 | ) | | (134 | ) | | (291 | ) | | (453 | ) | Programmable Solutions Group | | 113 |
| | 78 |
| | 302 |
| | (184 | ) | All other | | (947 | ) | | (1,110 | ) | | (2,919 | ) | | (4,180 | ) | Total operating income | | $ | 5,115 |
| | $ | 4,462 |
| | $ | 12,541 |
| | $ | 8,348 |
|
INTEL CORPORATIONAs of July 1, 2023, Intel held approximately 88% (94% as of December 31, 2022) of the outstanding equity interest in Mobileye. Non-controlling interest in Mobileye was $1.8 billion as of July 1, 2023 ($1.0 billion as of December 31, 2022). Net loss attributable to non-controlling interest in Mobileye was $5 million in the second quarter of 2023 and $10 million in the first six months of 2023; there was no net income (loss) attributable to non-controlling interest in the first six months of 2022.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
IMS Nanofabrication In June 2023, we signed an agreement with Bain Capital Special Situations to sell an approximately 20% minority stake in our IMS Nanofabrication GmbH (IMS) business, a business within our IFS operating segment. Following the closure of the transaction, which is expected to occur in the third quarter of 2023, we will continue to consolidate the results of IMS into our consolidated financial statements. The transaction is expected to accelerate the innovation of critical technologies and foster deeper cross-industry collaboration.
Note 5: Earnings Per Share
| | | | | | Note 4 : | Earnings (Loss) Per Share |
We computed basic earnings (loss) per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings (loss) per share of common stock based on the weighted average number of shares of common stock outstanding plus potentially dilutive shares of common stock outstanding during the period. | | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended | (In Millions, Except Per Share Amounts) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | (In Millions, Except Per Share Amounts) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Net income available to common stockholders | | $ | 4,516 |
| | $ | 3,378 |
| | $ | 10,288 |
| | $ | 6,754 |
| | Net income (loss) | | Net income (loss) | | $ | 1,473 | | | $ | (454) | | | $ | (1,295) | | | $ | 7,659 | | Less: Net income (loss) attributable to non-controlling interests | | Less: Net income (loss) attributable to non-controlling interests | | (8) | | | — | | | (18) | | | — | | Net income (loss) attributable to Intel | | Net income (loss) attributable to Intel | | 1,481 | | | (454) | | | (1,277) | | | 7,659 | | Weighted average shares of common stock outstanding—basic | | 4,688 |
| | 4,734 |
| | 4,707 |
| | 4,728 |
| Weighted average shares of common stock outstanding—basic | | 4,182 | | | 4,100 | | | 4,168 | | | 4,095 | | Dilutive effect of employee equity incentive plans | | 34 |
| | 47 |
| | 43 |
| | 54 |
| Dilutive effect of employee equity incentive plans | | 14 | | | — | | | — | | | 25 | | Dilutive effect of convertible debt | | 99 |
| | 96 |
| | 99 |
| | 90 |
| | | Weighted average shares of common stock outstanding—diluted | | 4,821 |
| | 4,877 |
| | 4,849 |
| | 4,872 |
| Weighted average shares of common stock outstanding—diluted | | 4,196 | | | 4,100 | | | 4,168 | | | 4,120 | | Basic earnings per share of common stock | | $ | 0.96 |
| | $ | 0.71 |
| | $ | 2.19 |
| | $ | 1.43 |
| | Diluted earnings per share of common stock | | $ | 0.94 |
| | $ | 0.69 |
| | $ | 2.12 |
| | $ | 1.39 |
| | Earnings (loss) per share attributable to Intel—basic
| | Earnings (loss) per share attributable to Intel—basic
| | $ | 0.35 | | | $ | (0.11) | | | $ | (0.31) | | | $ | 1.87 | | Earnings (loss) per share attributable to Intel—diluted
| | Earnings (loss) per share attributable to Intel—diluted
| | $ | 0.35 | | | $ | (0.11) | | | $ | (0.31) | | | $ | 1.86 | |
Potentially dilutive shares of common stock from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units (RSUs),RSUs, and the assumed issuance of common stock under the stock purchase plan. Potentially dilutive sharesDue to our net losses for the six months ended July 1, 2023 and for the three months ended July 2, 2022, the assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, and the assumed issuance of common stock under the stock purchase plan had an anti-dilutive effect on diluted loss per share for our 2005 debentures are determined by applying the if-converted method. However, as our 2009 debentures require settlement of the principal amount of the debt in cash upon conversion, with the conversion premium paid in cash or stock at our option, potentially dilutive shares of common stock are determined by applying the treasury stock method.those periods and were excluded. In all periods presented, potentially dilutive securities which would have been antidilutive areSecurities that were anti-dilutive were insignificant and arewere excluded from the computation of diluted earnings per share.
Inshare in all periods presented, we included our 2009 debentures in the calculation of diluted earnings per share of common stock because the average market price was above the conversion price. We could potentially exclude the 2009 debentures in the future if the average market price is below the conversion price.presented.
Note 6: Other Financial Statement Details | | | | | | Note 5 : | Other Financial Statement Details |
Accounts Receivable We sell certain of our accounts receivable on a non-recourse basis to third-party financial institutions. We record these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Condensed Statements of Cash Flows. Accounts receivable sold under non-recourse factoring arrangements were $1.0 billion during the first six months of 2023, and we did not factor accounts receivable during the first six months of 2022. After the sale of our accounts receivable, we expect to collect payment from the customers and remit it to the third-party financial institution. Inventories | | | | | | | | | | | | | | | (In Millions) | | Jul 1, 2023 | | Dec 31, 2022 | Raw materials | | $ | 1,284 | | | $ | 1,517 | | Work in process | | 6,638 | | | 7,565 | | Finished goods | | 4,062 | | | 4,142 | | Total inventories | | $ | 11,984 | | | $ | 13,224 | |
Other Accrued Liabilities Other accrued liabilities include deferred compensation of $2.7 billion as of July 1, 2023 ($2.4 billion as of December 31, 2022).
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 11 |
| | | | | | | | | | (In Millions) | | Sep 30, 2017 | | Dec 31, 2016 | Raw materials | | $ | 1,115 |
| | $ | 695 |
| Work in process | | 3,965 |
| | 3,190 |
| Finished goods | | 1,849 |
| | 1,668 |
| Total inventories | | $ | 6,929 |
| | $ | 5,553 |
|
Deferred Income
| | | | | | | | | | (In Millions) | | Sep 30, 2017 | | Dec 31, 2016 | Deferred income on shipments of components to distributors | | $ | 1,530 |
| | $ | 1,475 |
| Deferred income from software, services and other | | 176 |
| | 243 |
| Current deferred income | | $ | 1,706 |
|
| $ | 1,718 |
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Gains (Losses) on Equity Investments, Net
The components of gains (losses) on equity investments, net for each period were as follows: | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Share of equity method investee losses, net | | $ | (110 | ) | | $ | (10 | ) | | $ | (129 | ) | | $ | (30 | ) | Impairments | | (10 | ) | | (48 | ) | | (613 | ) | | (137 | ) | Gains on sales, net | | 944 |
| | 38 |
| | 2,020 |
| | 553 |
| Dividends | | — |
| | — |
| | 68 |
| | 74 |
| Other, net | | 22 |
| | 8 |
| | 94 |
| | 28 |
| Total gains (losses) on equity investments, net | | $ | 846 |
| | $ | (12 | ) | | $ | 1,440 |
| | $ | 488 |
|
Interest and Other, Net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Interest income | | $ | 313 | | | $ | 98 | | | $ | 647 | | | $ | 145 | | Interest expense | | (214) | | | (109) | | | (407) | | | (233) | | Other, net | | 125 | | | (108) | | | 125 | | | 966 | | Total interest and other, net | | $ | 224 | | | $ | (119) | | | $ | 365 | | | $ | 878 | |
The components of interest and other, net for each period were as follows: | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Interest income | | $ | 137 |
| | $ | 56 |
| | $ | 349 |
| | $ | 159 |
| Interest expense | | (191 | ) | | (180 | ) | | (493 | ) | | (575 | ) | Other, net | | 23 |
| | (8 | ) | | 480 |
| | 76 |
| Total interest and other, net | | $ | (31 | ) | | $ | (132 | ) | | $ | 336 |
| | $ | (340 | ) |
Interest expense in the preceding table is net of $77$381 million of interest capitalized in the thirdsecond quarter of 20172023 and $212$744 million in the first ninesix months of 20172023 ($36154 million in the thirdsecond quarter of 20162022 and $82$296 million in the first ninesix months of 2016)2022).Other, net includes a gain in 2022 of $1.0 billion resulting from the first closing of the divestiture of our NAND memory business. Property, Plant, and Equipment Effective January 2023, we increased the estimated useful life of certain production machinery and equipment from 5 years to 8 years. We estimate this change resulted in an approximate $570 million increase to gross margin and an approximate $110 million decrease in R&D expense in the second quarter of 2023 when compared to what the impact would have been using the estimated useful life in place prior to this change. We estimate this change resulted in an approximate $930 million increase to gross margin and an approximate $210 million decrease in R&D expenses in the first six months of 2023. As of July 1, 2023, we estimate this change resulted in an approximate $910 million decrease in ending inventory values. This estimate is based on the assets in use and under construction as of the beginning of 2023. | | | | | | Note 6 : | Restructuring and Other Charges |
Note 7: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Employee severance and benefit arrangements | | $ | 171 | | | $ | 38 | | | $ | 132 | | | $ | 43 | | | | | | | | | | | Litigation charges and other | | 20 | | | 13 | | | 97 | | | (1,203) | | Asset impairment charges | | 9 | | | 36 | | | 35 | | | 36 | | Total restructuring and other charges | | $ | 200 | | | $ | 87 | | | $ | 264 | | | $ | (1,124) | |
The 2022 Restructuring Program was approved in the third quarter of 2022 to rebalance our workforce and Other Chargesoperations to create efficiencies and improve our product execution in alignment with our strategy. We expect these actions to be substantially completed by the end of 2023, but this is subject to change. Any changes to the estimates or timing of executing the 2022 Restructuring Program will be reflected in our results of operations. | | | | | | | | | | | | | Restructuring activity for the 2022 Restructuring Program during the first six months of 2023 was as follows: | | | | | | | | (In Millions) | | | | | | | Accrued restructuring balance as of December 31, 2022 | | $ | 873 | | | | | | Additional accruals | | 101 | | | | | | Adjustments | | 26 | | | | | | Cash payments | | (742) | | | | | | | | | | | | | Accrued restructuring balance as of July 1, 2023 | | $ | 258 | | | | | |
The accrued restructuring balances as of July 1, 2023 and December 31, 2022 were recorded as current liabilities within accrued compensation and benefits on theConsolidated Condensed Balance Sheets. The cumulative cost of the 2022 Restructuring Program as of July 1, 2023 was $1.2 billion. Litigation charges and other includes a $1.2 billion benefit in the first six months of 2022 from the annulled penalty related to an EC fine that was recorded and paid in 2009. Refer to "Note 13: Contingencies" within the Notes to Consolidated Condensed Financial Statements for further information on legal proceedings related to the EC fine.
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 12 |
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | 2016 Restructuring Program | | $ | 2 |
| | $ | 349 |
| | $ | (51 | ) | | $ | 1,763 |
| Other charges | | 2 |
| | 23 |
| | 240 |
| | 23 |
| Total restructuring and other charges | | $ | 4 |
| | $ | 372 |
| | $ | 189 |
| | $ | 1,786 |
|
2016 Restructuring Program
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Income (loss) before taxes | | $ | (816) | | | $ | (909) | | | $ | (1,974) | | | $ | 8,752 | | Provision for (benefit from) taxes | | $ | (2,289) | | | $ | (455) | | | $ | (679) | | | $ | 1,093 | | Effective tax rate | | 280.5 | % | | 50.1 | % | | 34.4 | % | | 12.5 | % |
Our provision for, or benefit from, income taxes for an interim period has historically been determined using an estimated annual effective tax rate, adjusted for discrete items, if any. Under certain circumstances where we are unable to make a reliable estimate of the annual effective tax rate, we use the actual effective tax rate for the year-to-date period. In the second quarter of 2017,2023, we substantially completedused this approach due to the 2016 Restructuring Program. For further information, see "Note 7: Restructuring and Other Charges" in Part II, Item 8 of our 2016 Form 10-K. Restructuring and other charges by type for the 2016 Restructuring Program for the period were as follows:
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Employee severance and benefit arrangements | | $ | (2 | ) | | $ | 338 |
| | $ | (72 | ) | | $ | 1,752 |
| Pension settlement charges | | — |
| | 10 |
| | — |
| | 10 |
| Asset impairment and other charges | | 4 |
| | 1 |
| | 21 |
| | 1 |
| Total restructuring and other charges | | $ | 2 |
| | $ | 349 |
| | $ | (51 | ) | | $ | 1,763 |
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Restructuring and other activity for the 2016 Restructuring Program for the first nine months of 2017 was as follows:
| | | | | | | | | | | | | | (In Millions) | | Employee Severance and Benefits | | Asset Impairments and Other | | Total | Accrued restructuring balance as of December 31, 2016 | | $ | 585 |
| | $ | 10 |
| | $ | 595 |
| Additional accruals | | — |
| | 21 |
| | 21 |
| Adjustments | | (72 | ) | | — |
| | (72 | ) | Cash payments | | (282 | ) | | (25 | ) | | (307 | ) | Non-cash settlements | | — |
| | (2 | ) | | (2 | ) | Accrued restructuring balance as of September 30, 2017 | | $ | 231 |
| | $ | 4 |
| | $ | 235 |
|
A substantial majorityvariability of the accrued restructuring balancerate as a result of September 30, 2017 is expected to be paid withinfluctuations in forecasted income and the next 12 months and was recorded within accrued compensation and benefits. Restructuring actions related to this program that were approvedeffects of being taxed in 2016 impacted approximately 15,000 employees.multiple tax jurisdictions.
Other charges
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | ISecG separation costs | | $ | 1 |
| | $ | 23 |
| | $ | 144 |
| | $ | 23 |
| Other | | 1 |
| | — |
| | 96 |
| | — |
| Total other charges | | $ | 2 |
| | $ | 23 |
| | $ | 240 |
| | $ | 23 |
|
Note 8: Income Taxes
Our effective income tax rate was 28.1% in the first nine months of 2017 compared to 20.5% in the first nine months of 2016. A majority of the increase in the effective rate was attributable to the $822 million tax expense due to our divestiture of ISecG.
Note 9: Investments
Available-for-SaleShort-term Investments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2017 | | December 31, 2016 | (In Millions) | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | Corporate debt | | $ | 2,603 |
| | $ | 12 |
| | $ | (7 | ) | | $ | 2,608 |
| | $ | 3,847 |
| | $ | 4 |
| | $ | (14 | ) | | $ | 3,837 |
| Financial institution instruments | | 7,709 |
| | 6 |
| | (4 | ) | | 7,711 |
| | 6,098 |
| | 5 |
| | (11 | ) | | 6,092 |
| Government debt | | 986 |
| | 3 |
| | (3 | ) | | 986 |
| | 1,581 |
| | — |
| | (8 | ) | | 1,573 |
| Marketable equity securities | | 2,101 |
| | 3,958 |
| | — |
| | 6,059 |
| | 2,818 |
| | 3,363 |
| | (1 | ) | | 6,180 |
| Total available-for-sale investments | | $ | 13,399 |
| | $ | 3,979 |
| | $ | (14 | ) | | $ | 17,364 |
| | $ | 14,344 |
| | $ | 3,372 |
| | $ | (34 | ) | | $ | 17,682 |
|
Short-term investments include marketable debt investments in corporate debt, government debt, and financial institution instruments. Government debt includes instruments such as non-U.S.non-US government bonds and U.S.US agency securities. Financial institution instruments include instruments issued or managed by financial institutions in various forms, such as commercial paper, fixedfixed- and floating ratefloating-rate bonds, money market fund deposits, and time deposits. SubstantiallyAs of July 1, 2023, and December 31, 2022, substantially all time deposits were issued by institutions outside the U.S.US. For certain of our marketable debt investments, we economically hedge market risks at inception with a related derivative instrument or the marketable debt investment itself is used to economically hedge currency exchange rate risk from remeasurement. These hedged investments are reported at fair value with gains or losses from the investments and the related derivative instruments recorded in interest and other, net. The fair value of our hedged investments was $14.7 billion as of September 30, 2017 (most time deposits were issued by institutions outside the U.S.July 1, 2023 ($16.2 billion as of December 31, 2016)2022). INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
During For hedged investments still held at the third quarterreporting date, we recorded net losses of 2017, we sold available-for sale investments for proceeds of $2.9 billion ($195$183 million in the third quarter of 2016). During the first nine months of 2017, we sold available-for-sale investments for proceeds of $4.7 billion ($4.0 billion in the first nine months of 2016). The gross realized gains on sales of available-for-sale investments were $927 million in the third quarter of 2017 and $2.0 billion in the first nine months of 2017 ($41 million in the third quarter of 2016 and $538 million in the first nine months of 2016).
On April 28, 2017, Cloudera, Inc. (Cloudera) completed its initial public offering and we have designated our previous equity and cost method investments in Cloudera as available-for-sale. During the second quarter of 2017, we determined we had an other-than-temporary decline2023 and net losses of $91 million in the fair valuefirst six months of our investment and recognized an impairment charge2023 ($1.0 billion of $278 million. We recognized the impairmentnet losses in the second quarter due to the durationof 2022 and severity$1.3 billion of the declinenet losses in the investment'sfirst six months of 2022). We recorded net gains on the related derivatives of $237 million in the second quarter of 2023 and net gains of $124 million in the first six months of 2023 ($868 million of net gains in the second quarter of 2022 and net gains of $1.2 billion in the first six months of 2022).
Our remaining unhedged marketable debt investments are reported at fair value, with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss). The adjusted cost of our unhedged investments was $6.9 billion as of July 1, 2023 ($10.2 billion as of December 31, 2022), which we determined was below cost based upon observable market prices afterapproximated the initial public offering.fair value for these periods. The fair value of available-for-salemarketable debt investments, by contractual maturity, as of September 30, 2017,July 1, 2023, was as follows: | | | | | | | | | (In Millions) | | Fair Value | Due in 1 year or less | | $ | 10,441 | | Due in 1–2 years | | 1,958 | | Due in 2–5 years | | 5,352 | | Due after 5 years | | 725 | | Instruments not due at a single maturity date1 | | 3,142 | | Total | | $ | 21,618 | |
1 Instruments not due at a single maturity date is comprised of money market fund deposits, which are classified as either short-term investments or cash and cash equivalents.
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 13 |
Equity Investments | | | | | | | | | | | | | | | (In Millions) | | Jul 1, 2023 | | Dec 31, 2022 | Marketable equity securities1 | | $ | 1,295 | | | $ | 1,341 | | Non-marketable equity securities | | 4,589 | | | 4,561 | | Equity method investments | | 9 | | | 10 | | Total | | $ | 5,893 | | | $ | 5,912 | |
1 Over 90% of our marketable equity securities are subject to trading-volume or market-based restrictions, which limit the number of shares we may sell in a specified period of time, impacting our ability to liquidate these investments. The trading volume restrictions generally apply for as long as we own more than 1% of the outstanding shares. Market-based restrictions result from the rules of the respective exchange. The components of gains (losses) on equity investments, net for each period were as follows: | | | | | | (In Millions) | | Fair Value | Due in 1 year or less | | $ | 3,314 |
| Due in 1–2 years | | 1,573 |
| Due in 2–5 years | | 2,200 |
| Due after 5 years | | 71 |
| Instruments not due at a single maturity date | | 4,147 |
| Total | | $ | 11,305 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (85) | | | $ | (209) | | | $ | 103 | | | $ | (639) | | Observable price adjustments on non-marketable equity securities | | — | | | 135 | | | 10 | | | 206 | | Impairment charges | | (38) | | | (44) | | | (74) | | | (67) | | Sale of equity investments and other1 | | 99 | | | 28 | | | 106 | | | 4,733 | | Total gains (losses) on equity investments, net | | $ | (24) | | | $ | (90) | | | $ | 145 | | | $ | 4,233 | |
Equity Method Investments
McAfee
In the second quarter1 Sale of 2017, we closed our divestitureequity investments and other includes initial fair value adjustments recorded upon a security becoming marketable, realized gains (losses) on sales of the ISecG businessnon-marketable equity investments and retained a 49% interest in McAfee as partial consideration. Our investment is accounted for under the equity method of accountinginvestments, and is classified within other long-term assets. In the third quarter of 2017, we received a $735 million dividend from McAfee and recorded our share of equity method investee losses. The carrying valuegains (losses) and distributions.
Net unrealized gains and losses for our marketable and non-marketable equity securities for each period were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | | | | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | | | | | | | Net unrealized gains (losses) recognized during the period on equity securities | | $ | (26) | | | $ | (93) | | | $ | 141 | | | $ | (337) | | | | | | | | Less: Net (gains) losses recognized during the period on equity securities sold during the period | | 28 | | | (19) | | | (7) | | | (11) | | | | | | | | Net unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | 2 | | | $ | (112) | | | $ | 134 | | | $ | (348) | | | | | | | |
McAfee Corp. During the first quarter of 2022, the sale of the McAfee consumer business was completed and we received $4.6 billion in cash for the sale of our investment was $257 million asremaining share of September 30, 2017. For further information related to the divestiture of the ISecG business, see "Note 10: Acquisitions and Divestitures". IM Flash Technologies, LLC
Since the inception of IM Flash Technologies, LLC (IMFT)McAfee, recognizing a $4.6 billion gain in 2006, Micron Technology, Inc. (Micron) and Intel have jointly developed NAND flash memory and, most recently, 3D XPoint™ technology products. Intel also purchases jointly developed products directly from Micron under certain supply agreements.
As of September 30, 2017, we own a 49% interest in IMFT. The carrying value of our investment was $855 million as of September 30, 2017 ($849 million as of December 31, 2016) and is classified within other long-term assets.
IMFT is a variable interest entity and all costs of IMFT are passed on to Micron and Intel through sale of products or services in proportional share of ownership. Our portion of IMFT costs, primarily related to product purchasesequity investments and production-related services, was approximately $115 million in the third quarter of 2017and approximately $350 million in the first nine months of 2017 (approximately $115 million in the third quarter of 2016 and approximately $315 million in the first nine months of 2016). The amount due to IMFT for product purchases and services provided was approximately $73 million as of September 30, 2017 (approximately $95 million as of December 31, 2016).other.
IMFT depends on Micron and Intel for any additional cash needs. Our known maximum exposure to loss approximated the carrying value of our investment balance in IMFT. Except for the amount due to IMFT for product purchases and production-related services, we did not have any additional liabilities recognized on our consolidated condensed balance sheets in connection with our interests in this joint venture as of September 30, 2017. Our potential future losses could be higher than the carrying amount of our investment, as Intel and Micron are liable for other future operating costs or obligations of IMFT. Future cash calls could also increase our investment balance and the related exposure to loss. In addition, because we are currently committed to purchasing 49%of IMFT’s production output and production-related services, we may be required to purchase products at a cost in excess of realizable value.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Non-marketable Cost Method Investments
Beijing UniSpreadtrum Technology Ltd.
During 2014, we entered into a series of agreements with Tsinghua Unigroup Ltd. (Tsinghua Unigroup), an operating subsidiary of Tsinghua Holdings Co. Ltd., to, among other things, jointly develop Intel® architecture- and communications-based solutions for phones. We agreed to invest up to 9.0 billion Chinese yuan (approximately $1.5 billion as of the date of the agreement) for a minority stake of approximately 20% of Beijing UniSpreadtrum Technology Ltd., a holding company under Tsinghua Unigroup. During 2015, we invested$966 million to complete the first phase of the equity investment and accounted for our interest using the cost method of accounting. During the second quarter of 2017, we reduced our expectation of the company's future operating performance due to competitive pressures, which resulted in an other-than-temporary impairment charge of $147 million.
Trading Assets
Net gains related to trading assets still held at the reporting date were $81 million in the third quarter of 2017 and $433 million in the first nine months of 2017 (there were $72 million net gains related to trading assets still held at the reporting date in the third quarter of 2016 and $245 million of net gains in the first nine months of 2016). Net losses on the related derivatives were $75 millionin the third quarter of 2017 and $402 millionin the first nine months of 2017 (net losses of $54 million in the third quarter of 2016 and $224 million in the first nine months of 2016).
| | | | | | Note 9 : | Acquisitions and Divestitures |
Note 10: Acquisitions and Divestitures
Acquisition of MobileyeTower Semiconductor On August 21, 2017,During the first quarter of 2022, we completedentered into a definitive agreement to acquire Tower Semiconductor Ltd. (Tower) in a cash-for-stock transaction. Tower is a leading foundry for analog semiconductor solutions. The acquisition is intended to advance our tender offer for allIDM 2.0 strategy by accelerating our global end-to-end foundry business. Under the agreement, each issued and outstanding ordinary share of Tower would be converted at closing into the right to receive $53 per share in cash, representing a total enterprise value of approximately $5.4 billion as of the outstanding ordinary shares of Mobileye, a global leader inagreement date. We continue to work to close the development of computer vision and machine learning, data analysis, localization and mapping for advanced driver assistance systems and autonomous driving. This acquisition combines Mobileye's leading computer vision expertise with Intel’s high-performance computing and connectivity expertise to create automated driving solutions from car to cloud. The combination is expected to accelerate innovation for the automotive industry and position Intel as a leading technology provider in the fast-growing market for highly and fully autonomous vehicles. The transaction, also extends Intel’s strategy to invest in data-intensive market opportunities that build on our strengths in computing and connectivity from the cloud, through the network, to the device.
As of the completion of the tender offer, we acquired substantially all of the outstanding ordinary shares of Mobileye. We acquired 84.4% of the outstanding shares on August 8, 2017 and 97.3% as of August 21, 2017, and we intend to acquire all remaining outstanding shares. We have reflected the acquisition of the additional outstanding shares and reduction to the noncontrolling interest by $1.8 billion in the tables below.
Total consideration to acquire Mobileye was $14.5 billion (net of $366 million of cash and cash equivalents acquired).
The preliminary fair values of the assets acquired and liabilities assumed by major class in the acquisition of Mobileye were recognized as follows:
| | | | | | (In Millions) | | | Short-term investments and marketable securities | | $ | 370 |
| Tangible assets | | 227 |
| Goodwill | | 10,278 |
| Identified intangible assets | | 4,482 |
| Current liabilities | | (69 | ) | Deferred tax liabilities and other | | (418 | ) | Noncontrolling interest | | (375 | ) | Total | | $ | 14,495 |
|
We assumed outstanding unvested Mobileye stock options and RSUs granted under two Mobileye equity plans. We will not grant additional equity awards under these two Mobileye equity plans. In connection with the acquisition, we recognized share-based compensation expense of $71 million for cash-settled awards.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
The preliminary allocation of the purchase price was based upon estimates and assumptions that arewhich remains subject to change within the one year measurement period. The primary areas of the purchase price allocation thatcertain regulatory approvals and customary closing conditions. If regulatory approvals are not yet finalized are certain tax matters, identification of contingencies, and goodwill.
The fair value of the noncontrolling interest was determined based on the quoted share price of Mobileye as ofreceived prior to August 8, 2017,15, 2023, and the remaining outstanding shares that constitute the noncontrolling interest. We recorded the noncontrolling interest asagreement is terminated by either party, we may be obligated to pay Tower a componenttermination fee of equity.
Goodwill of $10.3 billion arising from$353 million. If the acquisition is attributed to the expected synergies and other benefits thatcompleted, Tower will be generated from the combinationincluded in our IFS operating segment.
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 14 |
The identified intangible assets assumed in the acquisition of Mobileye were recognized as follows:
| | | | | | | | | | Fair Value (In Millions) | | Weighted Average Estimated Useful Life (In Years) | Developed technology | | $ | 2,346 |
| | 9 | Customer relationships | | 713 |
| | 12 | Brands | | 64 |
| | 10 | Identified intangible assets subject to amortization | | 3,123 |
| | | In-process research and development | | 1,359 |
| | | Identified intangible assets not subject to amortization | | 1,359 |
| | | Total identified intangible assets | | $ | 4,482 |
| | |
DivestituresAcquired developed technology represents the fair value of Mobileye products that have reached technological feasibility and are a part of Mobileye’s product offerings, as opposed to in-process research and development which represents the fair value of products that have not reached technological feasibility. Customer relationships represent the fair values of the underlying relationships and agreements with Mobileye’s customers.NAND Memory Business
Divestiture of Intel Security Group
On April 3, 2017, December 29, 2021, we closed the transactionfirst phase of our agreement with TPG VII Manta Holdings, L.P., now known as Manta Holdings, L.P. (TPG), transferring certain assets and liabilities relatingSK hynix Inc. (SK hynix) to ISecG to a newly formed, jointly-owned, separate cybersecurity company called McAfee. Total consideration received was $4.2 billion, consisting of $924 million in cash proceeds, $1.1divest our NAND memory business for $9.0 billion in cash. Our NAND memory business includes our NAND memory technology and manufacturing business (the NAND OpCo Business), of which we deconsolidated our ongoing interests in as part of the form of equity representing a 49% ownership interestsale. The transaction will be completed in McAfee,two closings and $2.2 billionupon the first closing in the form of promissory notes issued by McAfee and TPG. During the thirdfirst quarter of 2017, McAfee and TPG repaid the $2.22022, SK hynix paid $7.0 billion of promissory notes, which are included within proceeds from divestiture.
The carrying amounts of the major classes of ISecG assetsconsideration and liabilities as of the transaction close date included the following:
| | | | | | (In Millions) | | Apr 3, 2017 | Accounts receivable | | $ | 317 |
| Goodwill | | 3,601 |
| Identified intangible assets | | 965 |
| Other assets | | 276 |
| Total assets | | $ | 5,159 |
| | | | Deferred income | | $ | 1,553 |
| Other liabilities | | 276 |
| Total liabilities | | $ | 1,829 |
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
As of the transaction close date, we recognized a pre-tax gain of $387 million$1.0 billion within "Interestinterest and other, net" which is net of $507 million of currency translation adjustment losses reclassified from accumulated other comprehensive income (loss) associated with currency charges on the carrying values of ISecG goodwill, and identified intangible assets. In addition, we recognized a tax expense of $822$495 million. We recorded a receivable in other long-term assets for the remaining proceeds of $1.9 billion which remains outstanding as of July 1, 2023, and will be received upon the second closing of the transaction, expected to be no earlier than March 2025.
The wafer manufacturing and sale agreement includes incentives and penalties that are contingent on the cost of operation and output of the NAND OpCo Business. These incentives and penalties present a maximum exposure of up to $500 million annually, and $1.5 billion in the aggregate. We are currently in negotiations with SK hynix to update the operating plan of the NAND OpCo Business in light of the current business environment and projections, which may impact the metrics associated with the incentives and penalties and our expectations of the performance of the NAND OpCo Business against those metrics. Note 11: Identified Intangible AssetsAs of July 1, 2023, we also have a receivable due from the NAND OpCo Business, a deconsolidated entity, of $201 million recorded within other current assets on the Consolidated Condensed Balance Sheets. We will be reimbursed for costs of $32 million per quarter in 2023 for corporate function services, which include human resources, information technology, finance, supply chain, and other compliance requirements associated with being wholly owned subsidiaries.
As a result of our acquisition of Mobileye during
In the thirdfirst quarter of 2017,2023, we recorded $4.5issued a total of $11.0 billion aggregate principal amount of identified intangible assets. For further information about these acquired identified intangible assets, see "Note 10: Acquisitionssenior notes. We also amended both our 5-year $5.0 billion revolving credit facility agreement, extending the maturity date by one year to March 2028, and Divestitures."our 364-day $5.0 billion credit facility agreement, extending the maturity date to March 2024. The revolving credit facilities had no borrowings outstanding as of July 1, 2023. | | | | | | | | | | | | | | | | September 30, 2017 | (In Millions) | | Gross Assets | | Accumulated Amortization | | Net | Acquisition-related developed technology | | $ | 8,937 |
| | $ | (1,686 | ) | | $ | 7,251 |
| Acquisition-related customer relationships | | 2,052 |
| | (265 | ) | | 1,787 |
| Acquisition-related brands | | 143 |
| | (24 | ) | | 119 |
| Licensed technology and patents | | 3,237 |
| | (1,504 | ) | | 1,733 |
| Identified intangible assets subject to amortization | | 14,369 |
| | (3,479 | ) | | 10,890 |
| In-process research and development | | 2,168 |
| | — |
| | 2,168 |
| Identified intangible assets not subject to amortization | | 2,168 |
| | — |
| | 2,168 |
| Total identified intangible assets | | $ | 16,537 |
| | $ | (3,479 | ) | | $ | 13,058 |
|
| | | | | | | | | | | | | | | | December 31, 2016 | (In Millions) | | Gross Assets | | Accumulated Amortization | | Net | Acquisition-related developed technology | | $ | 7,405 |
| | $ | (1,836 | ) | | $ | 5,569 |
| Acquisition-related customer relationships | | 1,449 |
| | (260 | ) | | 1,189 |
| Acquisition-related brands | | 87 |
| | (21 | ) | | 66 |
| Licensed technology and patents | | 3,285 |
| | (1,423 | ) | | 1,862 |
| Identified intangible assets subject to amortization | | 12,226 |
| | (3,540 | ) | | 8,686 |
| In-process research and development | | 808 |
| | — |
| | 808 |
| Identified intangible assets not subject to amortization | | 808 |
| | — |
| | 808 |
| Total identified intangible assets | | $ | 13,034 |
| | $ | (3,540 | ) | | $ | 9,494 |
|
Amortization expenses recorded in the consolidated condensed statements of income for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Location | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Acquisition-related developed technology | | Cost of sales | | $ | 243 |
| | $ | 235 |
| | $ | 650 |
| | $ | 705 |
| Acquisition-related customer relationships | | Amortization of acquisition-related intangibles | | 45 |
| | 69 |
| | 113 |
| | 234 |
| Acquisition-related brands | | Amortization of acquisition-related intangibles | | 4 |
| | 5 |
| | 11 |
| | 19 |
| Licensed technology and patents | | Cost of sales | | 73 |
| | 76 |
| | 225 |
| | 218 |
| Total amortization expense | | | | $ | 365 |
| | $ | 385 |
| | $ | 999 |
| | $ | 1,176 |
|
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
We expect future amortization expense for the next five years to be as follows:
| | | | | | | | | | | | | | | | | | | | | | (In Millions) | | Remainder of 2017 | | 2018 | | 2019 | | 2020 | | 2021 | Acquisition-related developed technology | | $ | 262 |
| | $ | 1,045 |
| | $ | 1,043 |
| | $ | 1,011 |
| | $ | 976 |
| Acquisition-related customer relationships | | 48 |
| | 181 |
| | 180 |
| | 179 |
| | 179 |
| Acquisition-related brands | | 5 |
| | 20 |
| | 20 |
| | 20 |
| | 20 |
| Licensed technology and patents | | 61 |
| | 239 |
| | 227 |
| | 202 |
| | 187 |
| Total future amortization expenses | | $ | 376 |
| | $ | 1,485 |
| | $ | 1,470 |
| | $ | 1,412 |
| | $ | 1,362 |
|
Note 12: Other Long-Term Assets | | | | | | | | | | (In Millions) | | Sep 30, 2017 | | Dec 31, 2016 | Equity method investments | | $ | 1,406 |
| | $ | 1,328 |
| Non-marketable cost method investments | | 2,719 |
| | 3,098 |
| Non-current deferred tax assets | | 789 |
| | 907 |
| Pre-payments for property, plant and equipment | | 468 |
| | 347 |
| Loans receivable | | 543 |
| | 236 |
| Reverse repurchase agreements | | — |
| | 250 |
| Other | | 1,187 |
| | 993 |
| Total other long-term assets | | $ | 7,112 |
| | $ | 7,159 |
|
Note 13: Borrowings
| | | | | | | | | | (In Millions) | | Sep 30, 2017 | | Dec 31, 2016 | Drafts payable | | $ | 21 |
| | $ | 25 |
| Current portion of long-term debt | | 4,129 |
| | 4,618 |
| Less: debt issuance costs associated with the current portion of long-term debt | | (8 | ) | | (9 | ) | Total short-term debt | | $ | 4,142 |
| | $ | 4,634 |
|
Our current portion of long-term debt includes our 2009 junior subordinated convertible debentures due 2039.
We have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion under our commercial paper program. This amount includes an increaseIn the first six months of $5.02023, we settled in cash $3.9 billion in the authorization limit approved by our Board of Directors in April 2017. During the second quarter of 2017, we repaid $500 million of our 1.75% senior notes that matured in May 2017.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Long-Term Debt
Our indebtedness is carried at amortized cost netcommercial paper. We had no outstanding commercial paper as of applicable hedge adjustments. | | | | | | | | | | (In Millions) | | Sep 30, 2017 | | Dec 31, 2016 | Floating-rate senior notes: | | | | | $700, three-month LIBOR plus 0.08%, due May 2020 | | $ | 700 |
| | $ | — |
| $800, three-month LIBOR plus 0.35%, due May 2022 | | 800 |
| | — |
| Fixed-rate senior notes: | | | | | $500, 1.75%, due May 2017 | | — |
| | 501 |
| $3,000, 1.35%, due December 2017 | | 3,000 |
| | 2,999 |
| $600, 2.50%, due November 2018 | | 602 |
| | 604 |
| A$250, 3.25%, due December 20191 | | 196 |
| | 180 |
| $1,000, 1.85%, due May 2020 | | 1,000 |
| | — |
| $1,750, 2.45%, due July 2020 | | 1,749 |
| | 1,749 |
| $500, 1.70%, due May 2021 | | 499 |
| | 499 |
| $2,000, 3.30%, due October 2021 | | 1,995 |
| | 1,988 |
| $750, 2.35%, due May 2022 | | 747 |
| | — |
| $1,000, 3.10%, due July 2022 | | 994 |
| | 987 |
| A$550, 4.00%, due December 20221 | | 431 |
| | 394 |
| $1,500, 2.70%, due December 2022 | | 1,491 |
| | 1,480 |
| $400, 4.10%, due November 2023 | | 421 |
| | 424 |
| $1,250, 2.88%, due May 2024 | | 1,242 |
| | — |
| $600, 2.70%, due June 2024 | | 596 |
| | — |
| $2,250, 3.70%, due July 2025 | | 2,177 |
| | 2,148 |
| $1,000, 2.60%, due May 2026 | | 993 |
| | 983 |
| $1,000, 3.15%, due May 2027 | | 991 |
| | — |
| $750, 4.00%, due December 2032 | | 745 |
| | 745 |
| $1,500, 4.80%, due October 2041 | | 1,491 |
| | 1,491 |
| $925, 4.25%, due December 2042 | | 924 |
| | 924 |
| $2,000, 4.90%, due July 2045 | | 1,999 |
| | 1,999 |
| $1,007, 4.90%, due August 2045 | | — |
| | 995 |
| $915, 4.70%, due December 2045 | | 910 |
| | 894 |
| $1,250, 4.10%, due May 2046 | | 1,243 |
| | 1,243 |
| $1,000, 4.10%, due May 2047 | | 994 |
| | — |
| $640, 4.10%, due August 2047 | | 638 |
| | — |
| Junior subordinated convertible debentures: | | | | | $1,600, 2.95%, due December 2035 | | 1,004 |
| | 992 |
| $2,000, 3.25%, due August 2039 | | 1,130 |
| | 1,118 |
| Long-term debt | | 31,702 |
| | 25,337 |
| Less: current portion of long-term debt | | (4,129 | ) | | (4,618 | ) | Less: debt issuance costs | | (75 | ) | | (70 | ) | Total long-term debt | | $ | 27,498 |
| | $ | 20,649 |
|
| | 1
| To manage foreign currency risk associated with the Australian-dollar-denominated notes issued in 2015, we entered into currency interest rate swaps with an aggregate notional amount of $577 million, which effectively converted these notes to U.S.-dollar-denominated notes. For further discussion on our currency interest rate swaps, see "Note 16: Derivative Financial Instruments." |
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
During the second quarterJuly 1, 2023 ($3.9 billion as of 2017, we issued a total of $7.1 billion aggregate principal amount of senior notes. We intend to use the net proceeds from the offering of the notes for general corporate purposes, which may include refinancing of outstanding debt or repurchases of shares of our common stock.
During the third quarter of 2017, we redeemed the $1.0 billion 4.90% senior notes due August 2045. Additionally, we issued a total of $640 million aggregate principal amount of senior notes. We used the net proceeds from the offering of the notes to finance a portion of the redemption price of our 4.90% senior notes due August 2045.December 31, 2022).
Our senior floating rate notes pay interest quarterly and our senior fixed rate notes pay interest semiannually. We may redeem the fixed rate notes prior to their maturity at our option at specified redemption prices and subject to certain restrictions. The obligations under theour senior fixed rate notes rank equally in the right of payment with all of our other existing and future senior unsecured indebtedness and effectively rank junior to all liabilities of our subsidiaries. For further information on our debt instruments, see "Note 14: Borrowings" in Part II, Item 8
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 15 |
ContentsINTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 14: Fair Value
For information about our fair value policies, and methods and assumptions used in estimating the fair value of our financial assets and liabilities, see “Note 2: Accounting Policies" and "Note 15: Fair Value" in Part II, Item 8 of our 2016 Form 10-K.Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Jul 1, 2023 | | Dec 31, 2022 | | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | | (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | | Assets | | | | | | | | | | | | | | | | | | | Cash equivalents: | | | | | | | | | | | | | | | | | | | Corporate debt | | $ | — | | | $ | 1,077 | | | $ | — | | | $ | 1,077 | | | $ | — | | | $ | 856 | | | $ | — | | | $ | 856 | | | | Financial institution instruments¹ | | 3,046 | | | 1,587 | | | — | | | 4,633 | | | 6,899 | | | 1,474 | | | — | | | 8,373 | | | | | | | | | | | | | | | | | | | | | | | Reverse repurchase agreements | | — | | | 1,700 | | | — | | | 1,700 | | | — | | | 1,301 | | | — | | | 1,301 | | | | Short-term investments: | | | | | | | | | | | | | | | | | | | Corporate debt | | — | | | 6,158 | | | — | | | 6,158 | | | — | | | 5,381 | | | — | | | 5,381 | | | | Financial institution instruments¹ | | 96 | | | 3,731 | | | — | | | 3,827 | | | 196 | | | 4,729 | | | — | | | 4,925 | | | | Government debt² | | 49 | | | 5,874 | | | — | | | 5,923 | | | 48 | | | 6,840 | | | — | | | 6,888 | | | | Other current assets: | | | | | | | | | | | | | | | | | | | Derivative assets | | 197 | | | 963 | | | — | | | 1,160 | | | — | | | 1,264 | | | — | | | 1,264 | | | | Loans receivable | | — | | | 55 | | | — | | | 55 | | | — | | | 53 | | | — | | | 53 | | | | Marketable equity securities | | 1,295 | | | — | | | — | | | 1,295 | | | 1,341 | | | — | | | — | | | 1,341 | | | | Other long-term assets: | | | | | | | | | | | | | | | | | | | Derivative assets | | — | | | 5 | | | — | | | 5 | | | — | | | 10 | | | — | | | 10 | | | | | | | | | | | | | | | | | | | | | | | Total assets measured and recorded at fair value | | $ | 4,683 | | | $ | 21,150 | | | $ | — | | | $ | 25,833 | | | $ | 8,484 | | | $ | 21,908 | | | $ | — | | | $ | 30,392 | | | | Liabilities | | | | | | | | | | | | | | | | | | | Other accrued liabilities: | | | | | | | | | | | | | | | | | | | Derivative liabilities | | $ | — | | | $ | 446 | | | $ | 101 | | | $ | 547 | | | $ | 111 | | | $ | 485 | | | $ | 89 | | | $ | 685 | | | | | | | | | | | | | | | | | | | | | | | Other long-term liabilities: | | | | | | | | | | | | | | | | | | | Derivative liabilities | | — | | | 722 | | | — | | | 722 | | | — | | | 699 | | | — | | | 699 | | | | Total liabilities measured and recorded at fair value | | $ | — | | | $ | 1,168 | | | $ | 101 | | | $ | 1,269 | | | $ | 111 | | | $ | 1,184 | | | $ | 89 | | | $ | 1,384 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2017 | | December 31, 2016 | | | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | | (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | Assets | | | | | | | | | | | | | | | | | Cash equivalents: | | | | | | | | | | | | | | | | | Corporate debt | | $ | — |
| | $ | 150 |
| | $ | — |
| | $ | 150 |
| | $ | — |
| | $ | 498 |
| | $ | — |
| | $ | 498 |
| Financial institution instruments 1 | | 4,146 |
| | 1,619 |
| | — |
| | 5,765 |
| | 1,920 |
| | 811 |
| | — |
| | 2,731 |
| Government debt 2 | | — |
| | 100 |
| | — |
| | 100 |
| | — |
| | 332 |
| | — |
| | 332 |
| Reverse repurchase agreements | | — |
| | 1,599 |
| | — |
| | 1,599 |
| | — |
| | 768 |
| | — |
| | 768 |
| Short-term investments: | | | | | | | | | | | | | | | | | Corporate debt | | — |
| | 750 |
| | 6 |
| | 756 |
| | — |
| | 1,332 |
| | 6 |
| | 1,338 |
| Financial institution instruments 1 | | — |
| | 557 |
| | — |
| | 557 |
| | — |
| | 1,603 |
| | — |
| | 1,603 |
| Government debt 2 | | — |
| | 133 |
| | — |
| | 133 |
| | — |
| | 284 |
| | — |
| | 284 |
| Trading assets: | | | | | | | | | | | | | | | | | Asset-backed securities | | — |
| | 12 |
| | — |
| | 12 |
| | — |
| | 87 |
| | — |
| | 87 |
| Corporate debt | | — |
| | 2,269 |
| | — |
| | 2,269 |
| | — |
| | 2,847 |
| | — |
| | 2,847 |
| Financial institution instruments 1 | | 57 |
| | 990 |
| | — |
| | 1,047 |
| | 36 |
| | 1,608 |
| | — |
| | 1,644 |
| Government debt 2 | | 31 |
| | 3,624 |
| | — |
| | 3,655 |
| | 32 |
| | 3,704 |
| | — |
| | 3,736 |
| Other current assets: | | | | | | | | | | | | | | | | | Derivative assets | | 2 |
| | 289 |
| | — |
| | 291 |
| | — |
| | 382 |
| | — |
| | 382 |
| Loans receivable | | — |
| | 88 |
| | — |
| | 88 |
| | — |
| | 326 |
| | — |
| | 326 |
| Marketable equity securities | | 5,584 |
| | 475 |
| | — |
| | 6,059 |
| | 6,180 |
| | — |
| | — |
| | 6,180 |
| Other long-term investments: | | | | | | | | | | | | | | | | | Corporate debt | | — |
| | 1,697 |
| | 5 |
| | 1,702 |
| | — |
| | 1,995 |
| | 6 |
| | 2,001 |
| Financial institution instruments 1 | | — |
| | 1,389 |
| | — |
| | 1,389 |
| | — |
| | 1,758 |
| | — |
| | 1,758 |
| Government debt 2 | | — |
| | 753 |
| | — |
| | 753 |
| | — |
| | 957 |
| | — |
| | 957 |
| Other long-term assets: | | | | | | | | | | | | | | | | | Derivative assets | | — |
| | 74 |
| | 9 |
| | 83 |
| | — |
| | 31 |
| | 9 |
| | 40 |
| Loans receivable | | — |
| | 543 |
| | — |
| | 543 |
| | — |
| | 236 |
| | — |
| | 236 |
| Total assets measured and recorded at fair value | | 9,820 |
| | 17,111 |
| | 20 |
| | 26,951 |
| | 8,168 |
| | 19,559 |
| | 21 |
| | 27,748 |
| Liabilities | | | | | | | | | | | | | | | | | Other accrued liabilities: | | | | | | | | | | | | | | | | | Derivative liabilities | | — |
| | 449 |
| | — |
| | 449 |
| | — |
| | 371 |
| | — |
| | 371 |
| Other long-term liabilities: | | | | | | | | | | | | | | | | | Derivative liabilities | | — |
| | 166 |
| | 7 |
| | 173 |
| | — |
| | 179 |
| | 33 |
| | 212 |
| Total liabilities measured and recorded at fair value | | $ | — |
| | $ | 615 |
| | $ | 7 |
| | $ | 622 |
| | $ | — |
| | $ | 550 |
| | $ | 33 |
| | $ | 583 |
|
| | 1
| Level 1 investments consist of money market funds. Level 2 investments consist primarily of commercial paper, certificates of deposit, time deposits, and notes and bonds issued by financial institutions. |
| | 2
| Level 1 investments consist primarily of US Treasury securities. Level 2 investments consist primarily of US Agency notes and non-U.S. government debt. |
INTEL CORPORATION1Level 1 investments consist of money market funds. Level 2 investments consist primarily of certificates of deposit, time deposits, and notes and bonds issued by financial institutions.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)2Level 1 investments consist primarily of US Treasury securities. Level 2 investments consist primarily of non-US government debt.
In the second quarter of 2017, we began assigning fair value hierarchy levels based on the underlying instrument type for our fixed income portfolio. We have reclassified prior period amounts to conform to the current period presentation.
Fair Value Option for Loans Receivable
As of September 30, 2017 and December 31, 2016, 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.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis Our non-marketable equity investments, marketablesecurities, equity method investments, and certain non-financial assets, such as intangible assets and property, plant, and equipment, are recorded at fair value only if an impairment or observable price adjustment is recognized. We classifiedrecognized in the current period. If an observable price adjustment or impairment is recognized on our non-marketable equity investmentssecurities during the period, we classify these assets as Level 3. Impairments recognized on non-marketable equity investments held as of September 30, 2017 were insignificant during the third quarter of 2017 and $335 million during the first nine months of 2017 ($48 million during the third quarter of 2016 and $132 million during the first nine months of 2016 on non-marketable equity investments held as of October 1, 2016).
Financial Instruments Not Recorded at Fair Value on a Recurring Basis The carrying amounts and fair values of financialFinancial instruments not recorded at fair value on a recurring basis atinclude non-marketable equity securities and equity method investments that have not been remeasured or impaired in the end of eachcurrent period, were as follows:grants receivable, reverse repurchase agreements with original maturities greater than three months, and issued debt. | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2017 | (In Millions) | | Carrying Amount | | Fair Value Measured Using | | Fair Value | Level 1 | | Level 2 | | Level 3 | | Grants receivable | | $ | 646 |
| | $ | — |
| | $ | 646 |
| | $ | — |
| | $ | 646 |
| Loans receivable | | $ | 15 |
| | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | 15 |
| Non-marketable cost method investments | | $ | 2,719 |
| | $ | — |
| | $ | — |
| | $ | 3,336 |
| | $ | 3,336 |
| Reverse repurchase agreements | | $ | 250 |
| | $ | — |
| | $ | 250 |
| | $ | — |
| | $ | 250 |
| Short-term debt | | $ | 4,121 |
| | $ | — |
| | $ | 4,703 |
| | $ | — |
| | $ | 4,703 |
| Long-term debt | | $ | 27,498 |
| | $ | — |
| | $ | 29,485 |
| | $ | — |
| | $ | 29,485 |
|
| | | | | | | | | | | | | | | | | | | | | | | | December 31, 2016 | (In Millions) | | Carrying Amount | | Fair Value Measured Using | | Fair Value | Level 1 | | Level 2 | | Level 3 | | Grants receivable | | $ | 361 |
| | $ | — |
| | $ | 362 |
| | $ | — |
| | $ | 362 |
| Loans receivable | | $ | 265 |
| | $ | — |
| | $ | 265 |
| | $ | — |
| | $ | 265 |
| Non-marketable cost method investments | | $ | 3,098 |
| | $ | — |
| | $ | — |
| | $ | 3,890 |
| | $ | 3,890 |
| Reverse repurchase agreements | | $ | 250 |
| | $ | — |
| | $ | 250 |
| | $ | — |
| | $ | 250 |
| Short-term debt | | $ | 4,609 |
| | $ | — |
| | $ | 5,120 |
| | $ | — |
| | $ | 5,120 |
| Long-term debt | | $ | 20,649 |
| | $ | — |
| | $ | 21,957 |
| | $ | — |
| | $ | 21,957 |
|
The carrying amount andWe classify the fair value of short-term debt exclude drafts payable.
In the third quarter of 2017, we began assigninggrants receivable and reverse repurchase agreements with original maturities greater than three months as Level 2. The estimated fair value hierarchy levels for our short-term and long-term debt based on the underlying instrument type.of these financial instruments approximates their carrying value. The aggregate carrying value of grants receivable as of July 1, 2023 was $512 million (the aggregate carrying value as of December 31, 2022 was $437 million). We have reclassified prior period amounts to conform tono reverse repurchase agreements as of July 1, 2023 (the aggregate carrying value as of December 31, 2022 was $400 million).
We classify the current period presentation. INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 15: Other Comprehensive Income (Loss)
fair value of issued debt (excluding any commercial paper) as Level 2. The changes in accumulated other comprehensive income (loss) by component and related tax effects in the first nine monthsfair value of 2017 wereour issued debt was $45.4 billion as follows:of July 1, 2023 ($34.3 billion as of December 31, 2022).
| | | | | | | | | | | | | | | | | | | | | | | | | | (In Millions) | | Unrealized Holding Gains (Losses) on Available-for-Sale Investments | | Unrealized Holding Gains (Losses) on Derivatives | | Prior Service Credits (Costs) | | Actuarial Gains (Losses) | | Foreign Currency Translation Adjustment | | Total | December 31, 2016 | | $ | 2,164 |
| | $ | (259 | ) | | $ | (40 | ) | | $ | (1,240 | ) | | $ | (519 | ) | | $ | 106 |
| Other comprehensive income (loss) before reclassifications1 | | 2,589 |
| | 528 |
| | — |
| | 213 |
| | 6 |
| | 3,336 |
| Amounts reclassified out of accumulated other comprehensive income | | (1,962 | ) | | (28 | ) | | (9 | ) | | 55 |
| | 507 |
| | (1,437 | ) | Tax effects | | (219 | ) | | (150 | ) | | 1 |
| | (27 | ) | | — |
| | (395 | ) | Other comprehensive income (loss) | | 408 |
| | 350 |
| | (8 | ) | | 241 |
| | 513 |
| | 1,504 |
| September 30, 2017 | | $ | 2,572 |
| | $ | 91 |
| | $ | (48 | ) | | $ | (999 | ) | | $ | (6 | ) | | $ | 1,610 |
|
| | | | | | | | | | | | 1 | In the second quarter of 2017, we froze future benefit accruals for our Ireland pension plan.Financial Statements | Notes to Financial Statements | 16 |
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
The amounts reclassified out of accumulated other comprehensive income (loss) into the consolidated condensed statements of income for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | Income Before Taxes Impact (In Millions) | | | | | Three Months Ended | | Nine Months Ended | | | Comprehensive Income Components | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | | Location | Unrealized holding gains (losses)1 on available-for-sale investments: | | | | | | | | | | | | | $ | 916 |
| | $ | 42 |
| | $ | 1,962 |
| | $ | 530 |
| | Gains (losses) on equity investments, net | | | 916 |
| | 42 |
| | 1,962 |
| | 530 |
| | | Unrealized holding gains (losses) on derivatives: | | | | | | | | | | | Foreign currency contracts | | (13 | ) | | (11 | ) | | (60 | ) | | (70 | ) | | Cost of sales | | | 24 |
| | (2 | ) | | 10 |
| | (5 | ) | | Research and development | | | 4 |
| | 1 |
| | (2 | ) | | — |
| | Marketing, general and administrative | | | 12 |
| | — |
| | 28 |
| | 11 |
| | Gains (losses) on equity investments, net | | | 17 |
| | 19 |
| | 52 |
| | 36 |
| | Interest and other, net | | | 44 |
| | 7 |
| | 28 |
| | (28 | ) | | | Amortization of pension and postretirement benefit components: | | | | | | | | | | | Prior service credits (costs) | | (3 | ) | | (2 | ) | | 9 |
| | (6 | ) | | | Actuarial gains (losses) | | (15 | ) | | (20 | ) | | (55 | ) | | (46 | ) | | | | | (18 | ) | | (22 | ) | | (46 | ) | | (52 | ) | | | Currency translation adjustment | | — |
| | — |
| | (507 | ) | | — |
| | Interest and other, net | Total amounts reclassified out of accumulated other comprehensive income (loss) | | $ | 942 |
| | $ | 27 |
| | $ | 1,437 |
| | $ | 450 |
| | |
| | 1
| We determine the cost of the investment sold based on an average cost basis at the individual security level. |
The amortization of pension and postretirement benefit components are included in the computation of net periodic benefit cost. For further information, see "Note 18: Retirement Benefit Plans" in Part II, Item 8 of our 2016 Form 10-K.
We estimate that we will reclassify approximately $94 million (before taxes) of net derivative gains included in accumulated other comprehensive income (loss) into earnings within the next 12 months.
During the second quarter of 2017, we reclassified approximately $507 million (before taxes) of currency translation adjustment losses included in accumulated other comprehensive income (loss) into earnings as a result of our divestiture of ISecG. For more information see "Note 10: Acquisitions and Divestitures."
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Note 16: Derivative Financial Instruments
For further information on our derivative policies, see “Note 2: Accounting Policies" in Part II, Item 8 of our 2016 Form 10-K. | | | | | | Note 12 : | Derivative Financial Instruments |
Volume of Derivative Activity Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows: | | (In Millions) | | Sep 30, 2017 | | Dec 31, 2016 | | Oct 1, 2016 | (In Millions) | | Jul 1, 2023 | | Dec 31, 2022 | | Foreign currency contracts | | $ | 18,573 |
| | $ | 17,960 |
| | $ | 17,833 |
| Foreign currency contracts | | $ | 27,267 | | | $ | 31,603 | | | Interest rate contracts | | 18,171 |
| | 14,228 |
| | 10,046 |
| Interest rate contracts | | 17,356 | | | 16,011 | | | Other | | 1,461 |
| | 1,340 |
| | 1,355 |
| Other | | 2,058 | | | 2,094 | | | Total | | $ | 38,205 |
| | $ | 33,528 |
| | $ | 29,234 |
| Total | | $ | 46,681 | | | $ | 49,708 | | |
Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Jul 1, 2023 | | Dec 31, 2022 | (In Millions) | | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 | Derivatives designated as hedging instruments: | | | | | | | | | Foreign currency contracts3 | | $ | 144 | | | $ | 347 | | | $ | 142 | | | $ | 290 | | Interest rate contracts | | — | | | 798 | | | — | | | 777 | | Total derivatives designated as hedging instruments | | $ | 144 | | | $ | 1,145 | | | $ | 142 | | | $ | 1,067 | | Derivatives not designated as hedging instruments: | | | | | | | | | Foreign currency contracts3 | | $ | 497 | | | $ | 118 | | | $ | 866 | | | $ | 194 | | Interest rate contracts | | 327 | | | 6 | | | 266 | | | 12 | | Equity contracts | | 197 | | | — | | | — | | | 111 | | Total derivatives not designated as hedging instruments | | $ | 1,021 | | | $ | 124 | | | $ | 1,132 | | | $ | 317 | | Total derivatives | | $ | 1,165 | | | $ | 1,269 | | | $ | 1,274 | | | $ | 1,384 | |
| | | | | | | | | | | | | | | | | | | | September 30, 2017 | | December 31, 2016 | (In Millions) | | Assets 1 | | Liabilities 2 | | Assets 1 | | Liabilities 2 | Derivatives designated as hedging instruments: | | | | | | | | | Foreign currency contracts 3 | | $ | 296 |
| | $ | 33 |
| | $ | 21 |
| | $ | 252 |
| Interest rate contracts | | 8 |
| | 125 |
| | 3 |
| | 187 |
| Total derivatives designated as hedging instruments | | 304 |
| | 158 |
| | 24 |
| | 439 |
| Derivatives not designated as hedging instruments: | | | | | | | | | Foreign currency contracts 3 | | 48 |
| | 437 |
| | 374 |
| | 114 |
| Interest rate contracts | | 11 |
| | 27 |
| | 15 |
| | 30 |
| Other | | 11 |
| | — |
| | 9 |
| | — |
| Total derivatives not designated as hedging instruments | | 70 |
| | 464 |
| | 398 |
| | 144 |
| Total derivatives | | $ | 374 |
| | $ | 622 |
| | $ | 422 |
| | $ | 583 |
|
1Derivative assets are recorded as other assets, current and long-term.2Derivative liabilities are recorded as other liabilities, current and long-term. 3A substantial majority of these instruments mature within 12 months.
| | | | | | | | | | | | 1 | Derivative assets are recorded as other assets, current and non-current.Financial Statements | Notes to Financial Statements | 17 |
| | 2
| Derivative liabilities are recorded as other liabilities, current and non-current. |
| | 3
| The majority of these instruments mature within 12 months. |
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Amounts Offset in the Consolidated Condensed Balance Sheets The gross amounts of our derivative instruments and reverse repurchase agreementsAgreements subject to master netting arrangements with various counterparties, and cash and non-cash collateral posted under such agreements at the end of each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Jul 1, 2023 | | | | | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | | | | | | (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount | | | | | Assets: | | | | | | | | | | | | | | | | | Derivative assets subject to master netting arrangements | | $ | 1,070 | | | $ | — | | | $ | 1,070 | | | $ | (548) | | | $ | (522) | | | $ | — | | | | | | Reverse repurchase agreements | | 1,700 | | | — | | | 1,700 | | | — | | | (1,700) | | | — | | | | | | Total assets | | $ | 2,770 | | | $ | — | | | $ | 2,770 | | | $ | (548) | | | $ | (2,222) | | | $ | — | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative liabilities subject to master netting arrangements | | $ | 1,260 | | | $ | — | | | $ | 1,260 | | | $ | (548) | | | $ | (692) | | | $ | 20 | | | | | | Total liabilities | | $ | 1,260 | | | $ | — | | | $ | 1,260 | | | $ | (548) | | | $ | (692) | | | $ | 20 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2017 | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | | (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount | Assets: | | | | | | | | | | | | | Derivative assets subject to master netting arrangements | | $ | 360 |
| | $ | — |
| | $ | 360 |
| | $ | (201 | ) | | $ | (159 | ) | | $ | — |
| Reverse repurchase agreements | | 1,849 |
| | — |
| | 1,849 |
| | — |
| | (1,849 | ) | | — |
| Total assets | | 2,209 |
| | — |
| | 2,209 |
| | (201 | ) | | (2,008 | ) | | — |
| Liabilities: | | | | | | | | | | | | | Derivative liabilities subject to master netting arrangements | | 603 |
| | — |
| | 603 |
| | (201 | ) | | (377 | ) | | 25 |
| Total liabilities | | $ | 603 |
| | $ | — |
| | $ | 603 |
| | $ | (201 | ) | | $ | (377 | ) | | $ | 25 |
|
| | | | December 31, 2016 | | Dec 31, 2022 | | | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | | | | Gross Amounts Not Offset in the Balance Sheet | | (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount | (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | Derivative assets subject to master netting arrangements | | $ | 433 |
| | $ | — |
| | $ | 433 |
| | $ | (368 | ) | | $ | (42 | ) | | $ | 23 |
| Derivative assets subject to master netting arrangements | | $ | 1,231 | | | $ | — | | | $ | 1,231 | | | $ | (546) | | | $ | (682) | | | $ | 3 | | Reverse repurchase agreements | | 1,018 |
| | — |
| | 1,018 |
| | — |
| | (1,018 | ) | | — |
| Reverse repurchase agreements | | 1,701 | | | — | | | 1,701 | | | — | | | (1,701) | | | — | | Total assets | | 1,451 |
| | — |
| | 1,451 |
| | (368 | ) | | (1,060 | ) | | 23 |
| Total assets | | $ | 2,932 | | | $ | — | | | $ | 2,932 | | | $ | (546) | | | $ | (2,383) | | | $ | 3 | | Liabilities: | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Derivative liabilities subject to master netting arrangements | | 588 |
| | — |
| | 588 |
| | (368 | ) | | (201 | ) | | 19 |
| Derivative liabilities subject to master netting arrangements | | $ | 1,337 | | | $ | — | | | $ | 1,337 | | | $ | (546) | | | $ | (712) | | | $ | 79 | | Total liabilities | | $ | 588 |
| | $ | — |
| | $ | 588 |
| | $ | (368 | ) | | $ | (201 | ) | | $ | 19 |
| Total liabilities | | $ | 1,337 | | | $ | — | | | $ | 1,337 | | | $ | (546) | | | $ | (712) | | | $ | 79 | |
We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Derivatives in Cash Flow Hedging Relationships The before-tax net gains or losses attributed to the effective portion of cash flow hedges recognized in other comprehensive income (loss), were $83$245 million net gainslosses in the thirdsecond quarter of 20172023 and $528$191 million net gainslosses in the first ninesix months of 20172023 ($92782 million net gainslosses in the thirdsecond quarter of 20162022 and $374$897 million net gainslosses in the first ninesix months of 2016)2022). Substantially all of our cash flow hedges arewere foreign currency contracts for the first nine months of 2017 and 2016.all periods presented. During the first ninesix months of 20172023 and 2016, hedge ineffectiveness and2022, the amounts excluded from effectiveness testing were insignificant. For information on the unrealized holding gains (losses) on derivatives reclassified out
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 18 |
Derivatives in Fair Value Hedging Relationships The effects of derivative instruments designated as fair value hedges, recognized in interest and other, net for each period were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains (Losses) on Derivatives Recognized in Consolidated Condensed Statements of Income | | | Three Months Ended | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Interest rate contracts | | $ | (213) | | | $ | (236) | | | $ | (21) | | | $ | (947) | | Hedged items | | 213 | | | 236 | | | 21 | | | 947 | | Total | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Interest rate contracts | | $ | (15 | ) | | $ | (34 | ) | | $ | 67 |
| | $ | 188 |
| Hedged items | | 15 |
| | 34 |
| | (67 | ) | | (188 | ) | Total | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
The amounts recorded on the Consolidated Condensed Balance Sheets related to cumulative basis adjustments for fair value hedges for each period were as follows:There | | | | | | | | | | | | | | | | | | | | | | | | | | | | Line Item in the Consolidated Condensed Balance Sheets in Which the Hedged Item is Included | | Carrying Amount of the Hedged Item Assets/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount Assets/(Liabilities) | | (In Millions) | | Jul 1, 2023 | | Dec 31, 2022 | | Jul 1, 2023 | | Dec 31, 2022 | | Long-term debt | | $ | (11,200) | | | $ | (11,221) | | | $ | 797 | | | $ | 776 | | |
The total notional amount of outstanding pay-variable, receive-fixed interest rate swaps wasno ineffectiveness during all periods presented in the preceding table. $12.0 billion as of July 1, 2023 and December 31, 2022. Derivatives Not Designated as Hedging Instruments The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statementsConsolidated Condensed Statements of incomeIncome for each period were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | (In Millions) | | Location of Gains (Losses) Recognized in Income on Derivatives | | Jul 1, 2023 | | Jul 2, 2022 | | Jul 1, 2023 | | Jul 2, 2022 | Foreign currency contracts | | Interest and other, net | | $ | 211 | | | $ | 1,023 | | | $ | 212 | | | $ | 1,181 | | Interest rate contracts | | Interest and other, net | | 124 | | | 31 | | | 90 | | | 125 | | Other | | Various | | 100 | | | (331) | | | 215 | | | (465) | | Total | | | | $ | 435 | | | $ | 723 | | | $ | 517 | | | $ | 841 | |
| | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | (In Millions) | | Location of Gains (Losses) Recognized in Income on Derivatives | | Sep 30, 2017 | | Oct 1, 2016 | | Sep 30, 2017 | | Oct 1, 2016 | Foreign currency contracts | | Interest and other, net | | $ | (91 | ) | | $ | (35 | ) | | $ | (521 | ) | | $ | (209 | ) | Interest rate contracts | | Interest and other, net | | (3 | ) | | 7 |
| | (4 | ) | | (8 | ) | Other | | Various | | 40 |
| | 72 |
| | 135 |
| | 90 |
| Total | | | | $ | (54 | ) | | $ | 44 |
| | $ | (390 | ) | | $ | (127 | ) |
Note 17: Employee Equity Incentive Plans
Our equity incentive plans are broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests.
In May 2017, stockholders approved an extension of the expiration date of the 2006 Equity Incentive Plan to June 2020 and approved an additional 33 million shares reserved for issuance under the plan. As of September 30, 2017, 218 million shares of common stock remained available for future grants.
Share-Based Compensation
Share-based compensation expense recognized was $397 million, which includes $71 million of cash-settled awards in connection with the Mobileye acquisition, in the third quarter of 2017 and $1.1 billion in the first nine months of 2017 ($324 million in the third quarter of 2016 and $1.1 billion in the first nine months of 2016).
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
Restricted Stock Unit Awards
Restricted stock unit activity in the first nine months of 2017 was as follows:
| | | | | | | | | | | Number of RSUs (In Millions) | | Weighted Average Grant-Date Fair Value | December 31, 2016 | | 106.8 |
| | $ | 28.99 |
| Granted | | 41.1 |
| | $ | 34.46 |
| Assumed in acquisition | | 1.1 |
| | $ | 34.90 |
| Vested | | (38.3 | ) | | $ | 27.33 |
| Forfeited | | (11.1 | ) | | $ | 29.97 |
| September 30, 2017 | | 99.6 |
| | $ | 31.84 |
|
The aggregate fair value of awards that vested in the first nine months of 2017 was $1.5 billion, which represents the market value of our common stock on the date that the RSUs vested. The grant-date fair value of awards that vested in first nine months of 2017 was $1.0 billion. The number of RSUs vested includes shares of common stock that we withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. RSUs that are expected to vest are net of estimated future forfeitures.
Stock Purchase Plan
The 2006 Stock Purchase Plan allows eligible employees to purchase shares of our common stock at 85% of the value of our common stock on specific dates. Rights to purchase shares of common stock are granted during the first and third quarters of each year. The 2006 Stock Purchase Plan has 150 million shares of common stock remaining through August 2021 for issuance.
Employees purchased 15 million shares of common stock in the first nine months of 2017 for $432 million (16.5 million shares of common stock in the first nine months of 2016 for $415 million) under the 2006 Stock Purchase Plan.
Legal Proceedings We are aregularly party to various legalongoing claims, litigation, and other proceedings, including those noted in this section. AlthoughWe have accrued a charge of $2.2 billion related to litigation involving VLSI, described below. Excluding the VLSI claims, management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends,trends; however, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings, excessive verdicts, or other events could occur. Unfavorable resolutions could include substantial monetary damages.damages, fines, or penalties. Certain of these outstanding matters include speculative, substantial, or indeterminate monetary awards. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices, or requiring other remedies. An unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, and overall trends. We might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. Except asUnless specifically described below, we have not concluded that settlement of any of the legal proceedings noted in this section is appropriate at this time. INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 19 |
European Commission Competition Matter In 2001,2009, the European Commission (EC) commenced an investigation regarding claims by Advanced Micro Devices, Inc. (AMD)EC found that we had used unfair business practices to persuade customers to buy our microprocessors. We received numerous requests for information and documents from the EC and we responded to eachmicroprocessors in violation of those requests. The EC issued a Statement of Objections in July 2007 and held a hearing on that Statement in March 2008. The EC issued a Supplemental Statement of Objections in July 2008. In May 2009, the EC issued a decision finding that we had violated Article 82 of the EC Treaty (later renumbered Article 102) and Article 54 of the European Economic Area Agreement. In general, the EC found that we violated Article 82 (later renumbered as Article 102 by a new treaty) by offering alleged "conditional“conditional rebates and payments"payments” that required our customers to purchase all or most of their x86 microprocessors from us. The EC also found that we violated Article 82us and by making alleged "payments“payments to prevent sales of specific rival products."” The EC ordered us to end the alleged infringement referred to in its decision and imposed a fine in the amount of €1.1 billion ($1.4 billion as of May 2009),fine, which we subsequently paid duringin the third quarter of 2009, and ordered us to "immediately bring to an end the infringement referred to in" the EC decision.2009. The EC decision contained no specific direction on whether or how we should modify our business practices. Instead, the decision stated that we should "cease and desist" from further conduct that, in the EC's opinion, would violate applicable law. We took steps, which are subject to the EC's ongoing review, to comply with that decision pending appeal. We had discussions with the EC to better understand the decision and to explain changes to our business practices.
We appealed the EC decision to the European Court of Justice in 2014, after the General Court (then called the Court of First Instance (which has been renamed the General Court) in July 2009. The hearing ofInstance) rejected our appeal took place in July 2012. In June 2014,of the General Court rejected our appealEC decision in its entirety. In August 2014, we filed an appeal with the European Court of Justice. In November 2014, Intervener Association for Competitive Technologies filed comments in support of Intel’s grounds of appeal. The EC and interveners filed briefs in November 2014, we filed a reply in February 2015, and the EC filed a rejoinder in April 2015. The Court of Justice held oral argument in June 2016. In October 2016, Advocate General Wahl, an advisor toSeptember 2017, the Court of Justice issued a non-binding advisory opinion which favored Intel on a number of grounds.The Court of Justice issued its decision in September 2017, setting aside the judgment of the General Court and sendingsent the case back to the General Court to examine whether the rebates at issue arewere capable of restricting competition. The In January 2022, the General Court has appointed a panel of five judges to consider our appeal ofannulled the EC’s 2009 findings against us regarding rebates, as well as the fine imposed on Intel, which was returned to us in February 2022. In April 2022, the EC appealed the General Court’s decision in light ofto the Court of Justice’s clarificationsJustice. A hearing date on the appeal has not been scheduled. The General Court’s January 2022 decision did not annul the EC’s 2009 finding that we made payments to prevent sales of specific rival products, and in January 2023 the law. The parties are expectedEC reopened its administrative procedure to file initial “Observations” aboutdetermine a fine against us based on that alleged conduct. Given the Court of Justice’s decisionprocedural posture and the appeal in November 2017. Pending the final decision in this matter, the fine paid by Intel has been placed by the EC in commercial bank accounts where it accrues interest. Shareholder Derivative Litigation regarding In re High Tech Employee Antitrust Litigation
In March 2014, the Police Retirement System of St. Louis (PRSSL) filed a shareholder derivative action in the Superior Court of California in Santa Clara County against Intel, certain current and former members of our Board of Directors, and former officers. The complaint alleges that the defendants breached their duties to the company by participating in, or allowing, purported antitrust violations, which were alleged in a now-settled antitrust class action lawsuit captioned In re High Tech Employee Antitrust Litigation claiming thatIntel, Adobe Systems Incorporated, Apple Inc., Google Inc., Intuit Inc., Lucasfilm Ltd., and Pixar conspired to suppress their employees’ compensation. In March 2014, a second plaintiff, Barbara Templeton, filed a substantially similar derivative suit in the same court. In May 2014, a third shareholder, Robert Achermann, filed a substantially similar derivative action in the same court. The court consolidated the three actions into one, which is captioned In re Intel Corporation Shareholder Derivative Litigation. Plaintiffs filed a consolidated complaint in July 2014. In August 2015, the court granted our motion to dismiss the consolidated complaint. The plaintiffs thereafter filed a motion for reconsideration and a motion for new trial, both of which the court denied in October 2015. In November 2015, plaintiffs PRSSL and Templeton appealed the court's decision. The appeal is fully briefed, and we are waiting on a hearing date from the appellate court.
In June 2015, the International Brotherhood of Electrical Workers (IBEW) filed a shareholder derivative action in the Chancery Court in Delaware against Intel, certain current and former members of our Board of Directors, and former officers. The lawsuit makes allegations substantially similar to those in the California shareholder derivative litigation described above, but additionally alleges breach of the duty of disclosure with respect to In re High Tech Employee Antitrust Litigation and that Intel's 2013 and 2014 proxy statements misrepresented the effectiveness of the Board’s oversight of compliance issues at Intel and the Board’s compliance with Intel’s Code of Conduct and Board of Director Guidelines on Significant Corporate Governance Issues. In October 2015, the court stayed the IBEW lawsuit for six months pending further developments in the California case. In March 2016, Intel and IBEW entered into a stipulated dismissal pursuant to which IBEW dismissed its complaint but may re-file upon the withdrawal or final resolution of the appeal in the PRSSL California shareholder derivative litigation.
INTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — Unaudited (Continued)
In April 2016, John Esposito filed a shareholder derivative action in the Superior Court of California in Santa Clara County against Intel, current members of our Board of Directors, and certain former officers and employees. Esposito made a demand on our Board in 2013 to investigate whether our officers or directors should be sued for their participation in the events described in In re High Tech Employee Antitrust Litigation. In November 2015, our Board decided not to take further action on Esposito’s demand based on the recommendation of the Audit Committee of the Board after its investigation of relevant facts and circumstances. Esposito seeks to set aside such decision, and alleges that the Board was not disinterested in making that decision and that the investigation was inadequate. In November 2016, the court granted Intel’s motion to dismiss the case, without leave to amend. In March 2017, plaintiff filed a motion for fees. The court denied plaintiff’s fee motion in May 2017, and entered final judgment in this matter in June 2017. In August 2017, Esposito appealed the final judgment.
McAfee, Inc. Shareholder Litigation
On August 19, 2010, we announced that we had agreed to acquire all of the common stock of McAfee, Inc. (McAfee) for $48.00 per share. Four McAfee shareholders filed putative class-action lawsuits in Santa Clara County, California Superior Court challenging the proposed transaction. The cases were ordered consolidated in September 2010. Plaintiffs filed an amended complaint that named former McAfee board members, McAfee, and Intel as defendants, and alleged that the McAfee board members breached their fiduciary duties and that McAfee and Intel aided and abetted those breaches of duty. The complaint requested rescission of the merger agreement, such other equitable relief as the court may deem proper, and an award of damages in an unspecified amount. In June 2012, the plaintiffs’ damages expert asserted that the value of a McAfee share for the purposes of assessing damages should be $62.08.
In January 2012, the court certified the action as a class action, appointed the Central Pension Laborers’ Fund to act as the class representative and scheduled trial to begin in January 2013. In March 2012, defendants filed a petition with the California Court of Appeal for a writ of mandate to reverse the class certification order; the petition was denied in June 2012. In March 2012, at defendants’ request, the court held that plaintiffs were not entitled to a jury trial and ordered a bench trial. In April 2012, plaintiffs filed a petition with the California Court of Appeal for a writ of mandate to reverse that order, which the court of appeal denied in July 2012. In August 2012, defendants filed a motion for summary judgment. The trial court granted that motion in November 2012, and entered final judgment in the case in February 2013. In April 2013, plaintiffs appealed the final judgment. The California Court of Appeal heard oral argument in October 2017, and the parties await the court’s decision. Because the resolution of the appeal may materially impact the scope and nature of thethis proceeding we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arisingthat might arise from this matter. We dispute the class-action claims and intend to continue to defend the lawsuit vigorously.
Intel Corporation v. Future Link Systems, LLC
In March 2014,a related matter, in April 2022 we filed applications with the General Court seeking an order requiring the EC to pay us approximately €593 million in default interest, which applications have been stayed pending the EC’s appeal of the General Court’s January 2022 decision. Litigation Related to Security Vulnerabilities In June 2017, a complaint against Future Link Systems, LLC (Future Link)Google research team notified Intel and other companies that it had identified security vulnerabilities, now commonly referred to as “Spectre” and “Meltdown,” that affect many types of microprocessors, including our products. As is standard when findings like these are presented, we worked together with other companies in the United Statesindustry to verify the research and develop and validate software and firmware updates for impacted technologies. In January 2018, information on the security vulnerabilities was publicly reported, before software and firmware updates to address the vulnerabilities were made widely available. Numerous lawsuits have been filed against us relating to Spectre, Meltdown, and other variants of the security vulnerabilities that have been identified since 2018. As of July 26, 2023, consumer class action lawsuits against us were pending in the US, Canada, and Argentina. The plaintiffs, who purport to represent various classes of purchasers of our products, generally claim to have been harmed by our actions and/or omissions in connection with the security vulnerabilities and assert a variety of common law and statutory claims seeking monetary damages and equitable relief. In the US, class action suits filed in various jurisdictions were consolidated for all pretrial proceedings in the US District Court for the District of Delaware, requestingOregon, which entered final judgment in favor of Intel in July 2022 based on plaintiffs’ failure to plead a declaratoryviable claim. Plaintiffs have appealed that decision to the Ninth Circuit Court of Appeals. In Canada, an initial status conference has not yet been scheduled in one case pending in the Superior Court of Justice of Ontario, and a stay of a second case pending in the Superior Court of Justice of Quebec is in effect.In Argentina, Intel Argentina was served with, and responded to, a class action complaint in June 2022. The Argentinian court dismissed plaintiffs’ claims for lack of standing in May 2023, and plaintiffs have appealed. Additional lawsuits and claims may be asserted seeking monetary damages or other related relief. We dispute the pending claims described above and intend to defend those lawsuits vigorously. Given the procedural posture and the nature of those cases, including that the pending proceedings are in the early stages, that alleged damages have not been specified, that uncertainty exists as to the likelihood of a class or classes being certified or the ultimate size of any class or classes if certified, and that there are significant factual and legal issues to be resolved, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from those matters. Litigation Related to 7nm Product Delay Announcement Multiple securities class action lawsuits were filed in the US District Court for the Northern District of California against us and certain officers following our July 2020 announcement of 7nm product delays. The court consolidated the lawsuits and appointed lead plaintiffs in October 2020, and in January 2021 plaintiffs filed a consolidated complaint. Plaintiffs purport to represent all persons who purchased or otherwise acquired our common stock from October 25, 2019 through October 23, 2020, and they generally allege that defendants violated the federal securities laws by making false or misleading statements about the timeline for 7nm products. In March 2023, the court granted the defendants’ motion to dismiss the consolidated complaint, and in April 2023 entered judgment. Plaintiffs have appealed. Given the procedural posture and the nature of the case, including that it is in the early stages, that alleged damages have not been specified, that uncertainty exists as to the likelihood of a class being certified or the ultimate size of any class if certified, and that there are significant factual and legal issues to be resolved, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from the matter. In July 2021, we introduced a new process node naming structure, and the 7nm process is now called Intel 4.
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 20 |
Litigation Related to Patent and IP Claims We have had IP infringement lawsuits filed against us, including but not limited to those discussed below. Most involve claims that certain of our products, services, and technologies infringe others' IP rights. Adverse results in these lawsuits may include awards of substantial fines and penalties, costly royalty or licensing agreements, or orders preventing us from offering certain features, functionalities, products, or services. As a result, we may have to change our business practices, and develop non-infringing products or technologies, which could result in a loss of revenue for us and otherwise harm our business. In addition, certain agreements with our customers require us to indemnify them against certain IP infringement claims, which can increase our costs as a result of defending such claims, and may require that we pay significant damages, accept product returns, or supply our customers with non-infringing products if there were an adverse ruling in any such claims. In addition, our customers and partners may discontinue the use of our products, services, and technologies, as a result of injunctions or otherwise, which could result in loss of revenue and adversely affect our business. VLSI Technology LLC v. Intel In October 2017, VLSI Technology LLC (VLSI) filed a complaint against us in the US District Court for the Northern District of California alleging that various Intel FPGA and processor products infringe eight patents that VLSI acquired from NXP Semiconductors, N.V. (NXP). Four patents remain at issue in the case, and VLSI estimates its damages to be approximately $860 million, and seeks enhanced damages, future royalties, attorneys’ fees, costs, and interest. We filed Inter Partes Review (IPR) petitions with the Patent Trial and Appeal Board (PTAB) in 2018 challenging patentability, and the parties stipulated to stay the district court action pending the PTAB’s review. The PTAB subsequently found all claims of two patents, and some claims of two other patents, to be unpatentable. The district court lifted the stay in September 2021, and scheduled trial for March 2024 on the claims that were found patentable by the PTAB. In April 2019, VLSI filed three infringement suits against us in the US District Court for the Western District of Texas accusing various of our processors of infringement of eight additional patents it had acquired from NXP: ▪The first Texas case went to trial in February 2021, and the jury awarded VLSI $1.5 billion for literal infringement of one patent and $675 million for infringement of another patent under the doctrine of equivalents. In April 2022, the court entered final judgment, awarding VLSI $2.2 billion in damages and approximately $162.3 million in pre-judgment and post-judgment interest. We have appealed the judgment to the Federal Circuit Court of Appeals, including its claim to have a license from Fortress Investment Group’s acquisition of Finjan. In December 2021 and January 2022 the PTAB instituted IPRs on the claims found to have been infringed in the first Texas case, and in May and June 2023 found all of those claims unpatentable; VLSI may appeal the PTAB’s decisions. ▪The second Texas case went to trial in April 2021, and the jury found that Intel and our customerswe do not infringe anythe asserted patents. VLSI had sought approximately $3.0 billion for alleged infringement, plus enhanced damages for willful infringement. The court has not yet entered final judgment. ▪The third Texas case went to trial in November 2022, with VLSI asserting one remaining patent. The jury found the patent valid enforceable claimand infringed, and awarded VLSI approximately $949 million in damages, plus a running royalty. The court has not yet entered final judgment. In February 2023, we filed motions for a new trial and for judgment as a matter of nine patents owned by Future Link. law notwithstanding the verdict on various grounds. Further appeals are possible. In July 2015, Future LinkMay 2019, VLSI filed counterclaimsa case in Shenzhen Intermediate People’s Court against Intel, alleging infringementIntel (China) Co., Ltd., Intel Trading (Shanghai) Co., Ltd., and Intel Products (Chengdu) Co., Ltd. VLSI asserts one patent against certain Intel Core processors. Defendants filed an invalidation petition in October 2019 with the China National Intellectual Property Administration (CNIPA) which held a hearing in September 2021. CNIPA has not yet issued a decision. The Shenzhen court held trial proceedings in July 2021 and stated that further trial proceedings were needed but would be stayed pending the outcome of fifteen patents. defendants’ invalidity challenge at the CNIPA. VLSI seeks an injunction as well as RMB 1.3 million in costs and expenses, but no damages. In June 2017,May 2019, VLSI filed a case in Shanghai Intellectual Property Court against Intel (China) Co., Ltd., Intel Trading (Shanghai) Co., Ltd., and Intel Products (Chengdu) Co., Ltd. asserting one patent against certain Intel core processors. The court held a trial hearing in December 2020, where VLSI requested expenses (RMB 300 thousand) and an injunction. The court held a second trial hearing in May 2022, but has yet to issue its final decision. In December 2022, we filed a petition to invalidate the court denied both parties’ Daubert motions to exclude opinions of the other parties’ damages experts. In July 2017, the court ruled on numerous motions for summary judgment of certain claims filed by both Intel and Future Link. As of July 2017, Future Link alleged infringement of fourteen patents, claimed past damages in the amountpatent at issue. We have accrued a charge of approximately $9.9$2.2 billion related to the VLSI litigation. While we dispute VLSI’s claims and intend to vigorously defend against them, we are unable to make a reasonable estimate of losses in its experts’ reports,excess of recorded amounts given recent developments and sought additional damages accrued through trial and ongoing royalties after trialfuture proceedings.
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 21 |
We use terms throughout our document that are specific to Intel or that are abbreviations that may not be commonly known or used. Below is a list of these terms used in an unspecified amount. The court scheduled a jury trial for September 2017 on Future Link’s infringement claims regarding three patents with a past damages claim of approximately $2.9 billion and ordered that other proceedings be stayed. In August 2017, the parties reached a confidential settlement agreement resolving all claims. The settlement did not have a material financial impact to Intel.our document.
| | | | | | | | | | | | | | | Term | | Definition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5G | | The fifth-generation mobile network, which brings dramatic improvements in network speeds and latency, and which we view as a transformative technology and opportunity for many industries | | | | | | ADAS | | Advanced driver-assistance systems | | | | AI | | Artificial intelligence | | | | | | | | | ASP | | Average selling price | | | | | | | | | | | | | | | | | | | AXG | | Advanced Computing and Graphics operating segment | CCG | | Client Computing Group operating segment | | | | | | | | | | | | | | | | CODM | | Chief operating decision maker | | | | | | | | | | | | | | | | | | | | | | | | | | | DCAI | | Data Center and Artificial Intelligence operating segment | EC | | European Commission | | | | | | | | | | | | | | | | | | | | | EPS | | Earnings per share | | | | | | | | | | | | | Form 10-K | | Annual Report on Form 10-K for the year ended December 31, 2022 | Form 10-Q | | Quarterly Report on Form 10-Q for the quarter ended July 1, 2023 | FPGA | | Field-programmable gate array | | | | | | | | | IDM | | Integrated device manufacturer, a semiconductor company that both designs and builds chips | | | ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | IDM 2.0 | | Evolution of our IDM model that combines our internal factory network, strategic use of foundry capacity and our IFS business to position us to drive technology and product leadership | IFS | | Intel Foundry Services operating segment | | | | IP | | Intellectual property | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | IPO | | Initial public offering | | | MD&A | | Management's Discussion and Analysis | | | | | | MG&A | | Marketing, general, and administrative | | | | | | | | | | | MNC | | Multinational corporation | | | NAND | | NAND flash memory | | | | NEX | | Networking and Edge operating segment | | | | nm | | Nanometer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | R&D | | Research and development | | | | | | | | | | | | | | | | RSU | | Restricted stock unit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SEC | | US Securities and Exchange Commission | | | | | | SoC | | A system on a chip, which integrates most of the components of a computer or other electronic system into a single silicon chip. We offer a range of SoC products in CCG, DCAI, and NEX. In our DCAI and NEX businesses, we offer SoCs across many market segments for a variety of applications, including products targeted for 5G base stations and network infrastructure | | | | | | | | | | | | | | SSD | | Solid-state drive | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | US | | United States | | | US GAAP | | US Generally Accepted Accounting Principles | VIE | | Variable interest entity | VLSI | | VLSI Technology LLC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Our Management’s Discussion and Analysis
| | | | | | | | | | | | | Financial Statements | Notes to Financial Statements | 22 |
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.
Results of Operations. Analysis of our financial results comparing the three and nine months ended September 30, 2017 to the three and nine months ended October 1, 2016.
Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
Contractual Obligations. Material changes, outside our ordinary course of business, to our significant contractual obligations as of December 31, 2016.
| | | | | | Management's Discussion and Analysis | | | | This interim MD&Areport should be read in conjunction with the MD&AConsolidated Financial Statements in our Annual Report on Form 10-K forwhere we include additional information on our business, operating segments, risk factors, critical accounting estimates, policies, and the methods and assumptions used in our estimates, among other important information.We previously announced the organizational change to integrate AXG into CCG and DCAI to drive a more effective go-to-market capability, accelerating the scale of these businesses while further reducing costs. As a result, we modified our segment reporting in the first quarter of 2023 to align to this and certain other business reorganizations. All prior-period segment data has been retrospectively adjusted to reflect the way we internally manage and monitor segment performance starting in fiscal year ended December 31, 2016 (20162023. "Note 2: Operating Segments” within Notes to Consolidated Condensed Financial Statements of this Form 10-K).10-Q reconciles our segment revenues presented below to our total revenues, and our segment operating margin (loss) presented below to our total operating margin (loss), for each of the periods presented. For additional key highlights of our results of operations, see "A Quarter in Review."
INTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Client Computing We are committed to advancing PC experiences by delivering an annual cadence of leadership products and deepening our relationships with industry partners to co-engineer and deliver leading platform innovation. We engage in an intentional effort focused on a long-term operating system, system architecture, hardware, and application integration that enables industry-leading PC experiences. We are embracing these opportunities by simplifying and focusing our roadmap, ramping PC capabilities even more aggressively, and designing PC experiences even more deliberately. By doing this, we believe we will continue to fuel innovation across Intel, providing a growing source of IP, scale, and cash flow.
Overview | | | | | | | | | | | | | CCG Revenue $B | | CCG Operating Income $B |
(Dollars | | | | | | | | | | | | | | ■ |■Notebook | ■ |■Desktop | ■ |■Other | |
▪Notebook revenue was $3.9 billion, down $855 million from Q2 2022. Notebook volume decreased 13% in Billions, Except Per Share Amounts)Q2 2023 due to lower demand and customers tempering purchases to reduce existing inventories. Notebook ASPs decreased 5% in Q2 2023 due to a higher mix of small core products attributable to relative strength in the education market combined with a higher mix of older generation products. INTEL CORPORATION▪Desktop revenue was $2.4 billion, up $81 million from Q2 2022. Desktop volume decreased 11% in Q2 2023 due to lower demand and customers tempering purchases to reduce existing inventories. Desktop ASPs increased 16% in Q2 2023 due to an increased mix of product sales to the commercial and gaming market segments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
In Q3 2017 we achieved▪Other revenue of $16.1 billion, an increase of $371was $514 million,or 2% down $124 million from Q3 2016. Excluding the divested Intel Security Group (ISecG), revenue grew 6% from a year ago. Compared to Q3 2016, our topline growth wasQ2 2022, primarily driven by strong performance across our data-centric businesses*, which collectively grew 15% year-on-year after adjusting for ISecG. Data Center Group (DCG), Internetlower wireless and connectivity product sales as a result of Things Group (IOTG), and Non-Volatile Memory Solutions Group (NSG) all achieved record quarterly revenue. Earnings per share were $0.94, up 25 cents on a year-on-year basis.lower notebook volume.
CCG, our PC-centric business, had▪Notebook revenue of $8.9 billion with platform volumes down 7% and platform average selling prices up 7% compared to Q3 2016. We saw a typical inventory build ahead of the holiday season and we believe the worldwide PC supply chain is operating at healthy levels. The PC-centric business continued to improve profitability as operating income grew 8% from a year ago. The data-centric businesses represent approximately 45% of our total revenue. DCG had revenue of $4.9 billion, up 7% with platform volumes up 4% and platform average selling prices up 2% compared to Q3 2016. IOTG, NSG, and Programmable Solutions Group (PSG) are collectively becoming a larger component of our overall business, growing 25% in aggregate in Q3 2017 from a year ago.
Gross margin of 62.3% was down 1 point compared to Q3 2016.
Research and development (R&D) plus marketing, general, and administrative (MG&A) spending for the quarter was $4.9$7.3 billion, down 4%$3.4 billion from a year ago. R&DYTD 2022. Notebook volume decreased 26% in YTD 2023 due to lower demand and MG&A were 30% of revenuedue to customers tempering purchases to reduce existing inventories. Notebook ASPs decreased 8% in Q3 2017, down approximately 2 points from Q3 2016, and 34% of revenueYTD 2023 due to relative strength in the first nine monthseducation market segment resulting in a higher mix of 2017,small core products combined with a higher mix of older generation products.
▪Desktop revenue was $4.2 billion, down approximately 3 points$681 million from YTD 2022. Desktop volume decreased 22% in YTD 2023, driven by lower demand and due to customers tempering purchases to reduce existing inventories. Desktop ASPs increased 10% in YTD 2023 due to an increased mix of product sales to the first nine monthscommercial and gaming market segments.
▪Other revenue was $995 million, down $365 million from YTD 2022, primarily driven by lower wireless and connectivity product sales as a result of lower notebook volumes. Operating income increased 19% from Q2 2022, with an operating margin of 15%. Operating income decreased 57% from YTD 2022, with an operating margin of 12%. | | | | | | | | | | | | | | | (In Millions) | | | | | $ | 1,039 | | | Q2 2023 CCG Operating Income | | | 428 | | | Lower operating expenses driven by various cost-cutting measures | | | 402 | | | Lower period charges driven by the sell-through of previously reserved inventory and lower reserves taken in Q2 2023 | | | 148 | | | Higher product margin from desktop revenue | | | 93 | | | Lower period charges primarily driven by a decrease in product ramp costs | | | (585) | | | Lower product margin from notebook revenue | | | (186) | | | Higher unit costs primarily from increased mix of Intel 7 products | | | (77) | | | Higher period charges related to excess capacity charges | | | (60) | | | Other | | | $ | 876 | | | Q2 2022 CCG Operating Income | | | | | | | | $ | 1,559 | | | YTD 2023 CCG Operating Income | | | (2,861) | | | Lower product margin primarily from notebook and desktop revenue | | | (344) | | | Higher unit cost primarily from increased mix of Intel 7 products | | | (197) | | | Higher period charges related to excess capacity charges | | | 628 | | | Lower operating expenses driven by various cost-cutting measures | | | 412 | | | Lower period charges driven by the sell-through of previously reserved inventory and lower reserves taken in 2023 | | | 323 | | | Lower period charges primarily driven by a decrease in product ramp costs | | | | | | | | | | | | | $ | 3,598 | | | YTD 2022 CCG Operating Income | | |
Data Center and AI DCAI delivers industry-leading workload-optimized solutions to cloud service providers and enterprise customers, along with silicon devices for Q3 2017communications service providers and high-performance computing customers. We are uniquely positioned to deliver solutions to help solve our customers’ most complex challenges with the depth and breadth of our hardware and software portfolio combined with silicon and platforms, advanced packaging, and at-scale manufacturing made possible by being the world’s only IDM at scale. Our customers and partners include cloud hyperscalers, MNCs, small and medium-sized businesses, independent software vendors, systems integrators, communications service providers, and governments around the world. | | | | | | | | | | | | | DCAI Revenue $B | | DCAI Operating Income (Loss) $B |
Revenue was $5.1$4.0 billion, up 15% ondown $691 million from Q2 2022, driven by a year-on-year basis.decrease in server revenue. Server volume decreased 34% in Q2 2023, due to lower demand in a softening CPU data center market. Server ASPs increased 17% primarily due to a higher mix of high core count products. The tax rate fordecrease in server revenue was partially offset by an increase in revenue from the quarterFPGA product line. Revenue was 23.8%, up 2 points$7.7 billion, down $3.0 billion from YTD 2022, driven by a decrease in server revenue. Server volume decreased 43% in YTD 2023, due to lower demand and from customers tempering purchases to reduce existing inventories in a softening CPU data center market. Server ASPs increased 8% primarily due to a higher mix of high core count products. The decrease in server revenue was partially offset by an increase in revenue from the FPGA product line.
| | | Operating Income (Loss) Summary |
Operating loss increased 101% from Q2 2022, with an operating margin of (4)%. We had an operating loss of $679 million in YTD 2023, compared to Q3 2016. Net income for Q3 2017 was $4.5 billion, up 34% from Q3 2016. Q3 2017 operating income and EPS are all-time records. The EPS increase of 25 cents was driven by higher platform revenue, growth in adjacent businesses**, lower restructuring and other charges, and higher gains on sales of a portion of our interest in ASML Holding N.V. (ASML).
Our business continues to generate healthy cash flow with $6.3 billion of cash from operations in Q3 2017. During Q3 2017, we purchased $3.0 billion in capital assets, paid $1.3 billion in dividends,YTD 2022.
| | | | | | | | | (In Millions) | | | $ | (161) | | | Q2 2023 DCAI Operating Income (Loss) | (394) | | | Lower product margin due to lower server revenue, partially offset by an increase in product margin from higher DCAI other product revenue | (270) | | | Higher server unit cost primarily from increased mix of Intel 7 products | (100) | | | Higher period charges related to excess capacity charges | 386 | | | Lower operating expenses driven by various cost-cutting measures | 186 | | | Lower period charges primarily driven by a decrease in product ramp costs | 111 | | | Lower period charges driven by the sell-through of previously reserved inventory | | | | | | | | | | $ | (80) | | | Q2 2022 DCAI Operating Income (Loss) | | | | $ | (679) | | | YTD 2023 DCAI Operating Income (Loss) | (2,314) | | | Lower product margin due to lower server revenue, partially offset by an increase in product margin from higher DCAI other product revenue | (542) | | | Higher server unit cost primarily from increased mix of Intel 7 products | (254) | | | Higher period charges related to excess capacity charges | 584 | | | Lower operating expenses driven by various cost-cutting measures | 288 | | | Lower period charges primarily driven by a decrease in product ramp costs | 246 | | | Lower period charges driven by the sell-through of previously reserved inventory | | | | | | | $ | 1,313 | | | YTD 2022 DCAI Operating Income (Loss) |
Network & Edge NEX lifts the world's networks and used $1.1 billionedge compute systems from inflexible fixed-function hardware to repurchase 31 million sharesgeneral-purpose compute, acceleration, and networking devices running cloud native software on programmable hardware. We work with partners and customers to deliver and deploy intelligent edge platforms that allow software developers to achieve agility and to drive automation using AI for efficient operations while securing the integrity of stock. Four months aheadtheir data at the edge. We have a broad portfolio of our expectations, we completed our tender offerhardware and software platforms, tools, and ecosystem partnerships for the outstanding ordinary sharesrapid digital transformation happening from the cloud to the edge. We are leveraging our core strengths in process, software, and manufacturing at scale to grow traditional markets and to accelerate entry into emerging ones.
| | | | | | | | | | | | | NEX Revenue $B | | NEX Operating Income (Loss) $B |
Revenue was $1.4 billion, down $847 million from Q2 2022, as customers tempered purchases to reduce existing inventories and adjust to a lower demand environment across product lines. Revenue was $2.9 billion, down $1.5 billion from YTD 2022, as customers tempered purchases to reduce existing inventories and adjust to a lower demand environment across product lines.
| | | Operating Income (Loss) Summary | We had an operating loss of $187 million in Q2 2023, compared to operating income of $294 million in Q2 2022. We had an operating loss of $487 million in YTD 2023, compared to operating income of $710 million in YTD 2022. | | | | | | | | | | | (In Millions) | | | | | $ | (187) | | | Q2 2023 NEX Operating Income (Loss) | | | (569) | | | Lower product margin driven by lower revenue across NEX product lines | | | | | | | | 88 | | | Other, including lower operating expenses driven by various cost-cutting measures | | | $ | 294 | | | Q2 2022 NEX Operating Income (Loss) | | | | | | | | $ | (487) | | | YTD 2023 NEX Operating Income (Loss) | | | (1,074) | | | Lower product margin driven by lower revenue across NEX product lines | | | (143) | | | Higher period charges driven by inventory reserves taken in 2023 | | | | | | | | | | | | | | | | | | 20 | | | Other, including lower operating expenses driven by various cost-cutting measures | | | $ | 710 | | | YTD 2022 NEX Operating Income (Loss) | | |
Mobileye Mobileye B.V. (Mobileye),is a global leader in driving assistance and self-driving solutions. Our product portfolio is designed to encompass the development ofentire stack required for assisted and autonomous driving, including compute platforms, computer vision, and machine learning, data analysis,learning-based perception, mapping and localization, driving policy, and mappingactive sensors in development. We pioneered ADAS technology more than 20 years ago, and have continuously expanded the scope of our ADAS offerings while leading the evolution to autonomous driving solutions. Our unique assets in ADAS allow for building a scalable self-driving stack that meets the requirements for both robotaxi and consumer-owned autonomous vehicles. Our customers and strategic partners include major global original equipment manufacturers, Tier 1 automotive system integrators, and public transportation operators. | | | | | | | | | | | | | Mobileye Revenue $B | | Mobileye Operating Income $B |
| | | Revenue and Operating Income Summary |
Revenue was $454 million, down $6 million from Q2 2022. Operating income was $129 million, down $61 million from Q2 2022, primarily due to increased investments in leadership products. Revenue was $912 million, up $58 million from YTD 2022 primarily driven by higher demand for EyeQ® products and Mobileye SuperVisionTM systems. Operating income was $252 million, down $86 million from YTD 2022, primarily due to increased investments in leadership products.
Intel Foundry Services As the first Open System Foundry, we offer customers differentiated full stack solutions created from the best of Intel and the foundry industry ecosystem, delivered from a secure and sustainable source of supply with an array of flexible business models to enable customers to lead in their industry. In addition to a world-class foundry offering enabled by a rich ecosystem, customers have access to our expertise and technologies, including cores, accelerators, and advanced packaging such as Embedded Multi-die Interconnect Bridge. Our early customers and strategic partners include traditional fabless customers, cloud service providers, automotive customers, and military, aerospace, and defense firms. We also offer mask-making equipment for advanced driver assistance systems and autonomous driving. As a resultlithography used by many of the completion,world’s leading-edge foundries. | | | | | | | | | | | | | IFS Revenue $B | | IFS Operating (Loss) $B |
| | | Revenue and Operating (Loss) Summary |
Revenue was $232 million, up $175 million from Q2 2022 driven by higher packaging revenue and multi-beam mask writer tool sales. We had an operating loss of $143 million, compared to an operating loss of $134 million in Q3 2017 weQ2 2022. Revenue was $350 million, up $137 million from YTD 2022 driven by higher packaging revenue. We had acquisition-related impacts associated with this transaction, including inventory valuation adjustmentan operating loss of $27$283 million, compared to an operating loss of $157 million in YTD 2022, primarily due to increased spending to drive strategic growth.
| | | | | | Consolidated Condensed Results of Operations | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | | Q2 2023 | | Q2 2022 | | YTD 2023 | | YTD 2022 | (In Millions, Except Per Share Amounts) | | Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | Amount | | % of Net Revenue | | Amount | | % of Net Revenue | Net revenue | | $ | 12,949 | | | 100.0 | % | | $ | 15,321 | | | 100.0 | % | | $ | 24,664 | | | 100.0 | % | | $ | 33,674 | | | 100.0 | % | Cost of sales | | 8,311 | | | 64.2 | % | | 9,734 | | | 63.5 | % | | 16,018 | | | 64.9 | % | | 18,843 | | | 56.0 | % | Gross margin | | 4,638 | | | 35.8 | % | | 5,587 | | | 36.5 | % | | 8,646 | | | 35.1 | % | | 14,831 | | | 44.0 | % | Research and development | | 4,080 | | | 31.5 | % | | 4,400 | | | 28.7 | % | | 8,189 | | | 33.2 | % | | 8,762 | | | 26.0 | % | Marketing, general, and administrative | | 1,374 | | | 10.6 | % | | 1,800 | | | 11.7 | % | | 2,677 | | | 10.9 | % | | 3,552 | | | 10.5 | % | Restructuring and other charges | | 200 | | | 1.5 | % | | 87 | | | 0.6 | % | | 264 | | | 1.1 | % | | (1,124) | | | (3.3) | % | Operating income (loss) | | (1,016) | | | (7.8) | % | | (700) | | | (4.6) | % | | (2,484) | | | (10.1) | % | | 3,641 | | | 10.8 | % | Gains (losses) on equity investments, net | | (24) | | | (0.2) | % | | (90) | | | (0.6) | % | | 145 | | | 0.6 | % | | 4,233 | | | 12.6 | % | Interest and other, net | | 224 | | | 1.7 | % | | (119) | | | (0.8) | % | | 365 | | | 1.5 | % | | 878 | | | 2.6 | % | Income (loss) before taxes | | (816) | | | (6.3) | % | | (909) | | | (5.9) | % | | (1,974) | | | (8.0) | % | | 8,752 | | | 26.0 | % | Provision for (benefit from) taxes | | (2,289) | | | (17.7) | % | | (455) | | | (3.0) | % | | (679) | | | (2.8) | % | | 1,093 | | | 3.2 | % | Net income (loss) | | 1,473 | | | 11.4 | % | | (454) | | | (3.0) | % | | $ | (1,295) | | | (5.3) | % | | $ | 7,659 | | | 22.7 | % | Less: Net income (loss) attributable to non-controlling interests | | (8) | | | (0.1) | % | | — | | | — | % | | (18) | | | (0.1) | % | | — | | | — | % | Net income (loss) attributable to Intel | | $ | 1,481 | | | 11.4 | % | | $ | (454) | | | (3.0) | % | | $ | (1,277) | | | (5.2) | % | | $ | 7,659 | | | 22.7 | % | | | | | | | | | | | | | | | | | | Earnings (loss) per share attributable to Intel—diluted | | $ | 0.35 | | | | | $ | (0.11) | | | | | $ | (0.31) | | | | | $ | 1.86 | | | | | | | | | | | | | | | | | | | | |
Revenue Q2 2023 vs. Q2 2022 and other acquisition-related chargesYTD 2023 vs. YTD 2022 Our Q2 2023 revenue was $12.9 billion, down $2.4 billion or 15% from Q2 2022. Our YTD 2023 revenue was $24.7 billion, down $9.0 billion or 27% from YTD 2022. CCG revenue decreased 12% from Q2 2022 and 26% from YTD 2022 due primarily to lower notebook and desktop volumes on lower demand and from customers tempering purchases to reduce existing inventories. Notebook ASPs decreased due to the relative strength in the education market segment resulting in a higher mix of $113 million. During the quarter, we launched our 8th Generation Intel® Core™ Processors, code named Coffee Lake, which delivered significant performance improvement to our client platforms. In addition, we are making great progress in artificial intelligence. For example, we launched the Intel® Movidius™ Myriad™ X vision processing unit (VPU), the world's first VPUsmall core products combined with a dedicated Neural Compute Enginehigher mix of older generation products, while desktop ASPs increased due to deliver artificial intelligence capabilitiesan increased mix of product sales to the edgecommercial and gaming market segments. DCAI revenue decreased 15% from Q2 2022 and decreased 28% from YTD 2022 due to lower server volume resulting from a softening CPU data center market, partially offset by higher server ASPs from an increased mix of high core count products and an increase in revenue from the FPGA product line. NEX revenue decreased 38% from Q2 2022 and decreased 34% from YTD 2022 as customers tempered purchases to reduce existing inventories and adjust to a low-power and high-performance package.lower demand environment across product lines.
* Data-centric businesses consist of DCG, IOTG, NSG, PSG, and all other.
** Adjacent businesses consist ofWe expect our non-platform results.
INTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | Q3 2017 | | Q3 2016 | | YTD 2017 | | YTD 2016 | (Dollars in Millions, Except Per Share Amounts) | | Dollars | | % of Net Revenue | | Dollars | | % of Net Revenue | | Dollars | | % of Net Revenue | | Dollars | | % of Net Revenue | Net revenue | | $ | 16,149 |
| | 100.0 | % | | $ | 15,778 |
| | 100.0 | % | | $ | 45,708 |
| | 100.0 | % | | $ | 43,013 |
| | 100.0 | % | Cost of sales | | 6,092 |
| | 37.7 | % | | 5,795 |
| | 36.7 | % | | 17,406 |
| | 38.1 | % | | 16,927 |
| | 39.4 | % | Gross margin | | 10,057 |
| | 62.3 | % | | 9,983 |
| | 63.3 | % | | 28,302 |
| | 61.9 | % | | 26,086 |
| | 60.6 | % | Research and development | | 3,223 |
| | 20.0 | % | | 3,069 |
| | 19.4 | % | | 9,824 |
| | 21.5 | % | | 9,460 |
| | 22.0 | % | Marketing, general and administrative | | 1,666 |
| | 10.3 | % | | 2,006 |
| | 12.7 | % | | 5,624 |
| | 12.3 | % | | 6,239 |
| | 14.5 | % | Restructuring and other charges | | 4 |
| | — | % | | 372 |
| | 2.4 | % | | 189 |
| | 0.4 | % | | 1,786 |
| | 4.1 | % | Amortization of acquisition-related intangibles | | 49 |
| | 0.3 | % | | 74 |
| | 0.5 | % | | 124 |
| | 0.3 | % | | 253 |
| | 0.6 | % | Operating income | | 5,115 |
| | 31.7 | % | | 4,462 |
| | 28.3 | % | | 12,541 |
| | 27.4 | % | | 8,348 |
| | 19.4 | % | Gains (losses) on equity investments, net | | 846 |
| | 5.2 | % | | (12 | ) | | (0.1 | )% | | 1,440 |
| | 3.2 | % | | 488 |
| | 1.1 | % | Interest and other, net | | (31 | ) | | (0.2 | )% | | (132 | ) | | (0.8 | )% | | 336 |
| | 0.7 | % | | (340 | ) | | (0.7 | )% | Income before taxes | | 5,930 |
| | 36.7 | % | | 4,318 |
| | 27.4 | % | | 14,317 |
| | 31.3 | % | | 8,496 |
| | 19.8 | % | Provision for taxes | | 1,414 |
| | 8.7 | % | | 940 |
| | 6.0 | % | | 4,029 |
| | 8.8 | % | | 1,742 |
| | 4.1 | % | Net income | | $ | 4,516 |
| | 28.0 | % | | $ | 3,378 |
| | 21.4 | % | | $ | 10,288 |
| | 22.5 | % | | $ | 6,754 |
| | 15.7 | % | | | | | | | | | | | | | | | | | | Diluted earnings per common share | | $ | 0.94 |
| | | | $ | 0.69 |
| | | | $ | 2.12 |
| | | | $ | 1.39 |
| | |
Net Revenue
Ournet revenue to improve sequentially throughout 2023 with higher net revenue in Q3 2017 increased by $371 million, or 2%, compared to Q3 2016. The increase in revenue was driven by higher NSG revenue as well as DCG and IOTG platform unit sales,the second half of the year, which was partially offset by desktop platform unit sales. Additionally, revenue was positively impacted by desktop and notebook platform average selling price increases due to mix of products which was partially offset by changesgenerally aligns to the Intel Inside® program in Q3 2017. We are implementing this change in an effort to make the program more efficient, effective and to provide more flexibility tohistorical seasonality trends that we typically experience for our customers. This change to the Intel Inside® program impacts the way we classify our cooperative advertising costs and resulted in a reduction in revenuebusiness.
Our net revenue for the first nine months of 2017 increased by $2.7 billion, or 6%, compared to the first nine months of 2016, which reflected an extra workweek. The higher revenue was driven by higher platform average selling prices, up 7%, primarily from notebook and DCG platforms. Additionally, revenue increased due to higher notebook, DCG and IOTG platform unit sales. Revenue also increased from higher NSG and CCG modem revenue. The increase in revenue was offset by the Q2 2017 divestiture of ISecG and lower desktop platform unit sales.
INTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Gross Margin OurWe derived substantially all of our overall gross margin percentage was 62.3% in Q3 2017, downQ2 2023, and most of our gross margin in YTD 2023, from 63.3% in Q3 2016, and was 61.9%the sale of products in the first nine monthsof2017, upfrom60.6% in the first nine months of 2016.CCG and DCAI operating segments. Our overall gross margin dollars in Q3 2017 increasedQ2 2023 decreased by $74$949 million, or 0.7%,17% compared to Q3 2016,Q2 2022, and in the in the first nine months of 2017 increasedYTD 2023 decreased by $2.2$6.2 billion, or 8.5%,42% compared to YTD 2022.
(Percentages in chart indicate gross margin as a percentage of total revenue) | | | | | | | | | (In Millions) | | | $ | 4,638 | | | Q2 2023 Gross Margin | (569) | | | Lower product margin driven by lower revenue across NEX product lines | (456) | | | Higher unit cost primarily from increased mix of Intel 7 products | (437) | | | Lower product margin from notebook revenue, partially offset by higher product margin from desktop revenue | (394) | | | Lower product margin due to lower server revenue, partially offset by an increase in product margin due to higher FPGA product line revenue | (223) | | | Higher period charges related to excess capacity charges | 559 | | | Absence of the Optane inventory impairment charge taken in Q2 2022 related to the wind down of our Intel Optane memory business | 512 | | | Lower period charges driven by the sell-through of previously reserved inventory and lower reserves taken in Q2 2023 | 279 | | | Lower period charges primarily driven by a decrease in product ramp costs | 205 | | | Absence of corporate charges from a patent settlement in Q2 2022 | (425) | | | Other | $ | 5,587 | | | Q2 2022 Gross Margin | | | | $ | 8,646 | | | YTD 2023 Gross Margin | (2,861) | | | Lower product margin primarily from notebook and desktop revenue | (2,314) | | | Lower product margin due to lower server revenue, partially offset by an increase in product margin due to higher FPGA product line revenue | (1,074) | | | Lower product margin driven by lower revenue across NEX product lines | (886) | | | Higher unit cost primarily from increased mix of Intel 7 products | (575) | | | Higher period charges related to excess capacity charges | 611 | | | Lower period charges primarily driven by a decrease in product ramp costs | 559 | | | Absence of the Optane inventory impairment charge taken in Q2 2022 related to the wind down of our Intel Optane memory business | 514 | | | Lower period charges driven by the sell-through of previously reserved inventory and lower reserves taken in 2023 | 205 | | | Absence of corporate charges from a patent settlement in Q2 2022 | (364) | | | Other | $ | 14,831 | | | YTD 2022 Gross Margin |
Effective January 2023, we increased the estimated useful life of certain production machinery and equipment from 5 years to 8 years. When compared to the first nine monthsestimated useful life in place as of 2016. the end of 2022, we expect total depreciation expense in 2023 to be reduced by $4.2 billion. We derivedexpect this change will result in an approximately $2.5 billion increase to gross margin, a $400 million decrease in R&D expenses, and a $1.3 billion decrease in ending inventory values. This estimate is based on the assets in use and under construction as of the beginning of 2023 and is calculated at that point in time. Because most of the depreciation expense associated with this useful life change is included in overhead cost pools and is combined with other costs and other depreciation expense from assets placed into service after this calculation was performed, for which such costs are subsequently absorbed into inventory as each product passes through our overall gross margin dollarsmanufacturing process, the actual amount of impact from the saleuseful life change that is included in our 2023 operating results and financial position is impractical to individually and specifically quantify on a year-over-year basis. Operating Expenses Total R&D and MG&A expenses for Q2 2023 were $5.5 billion, down 12% from Q2 2022, and $10.9 billion for YTD 2023, down 12% from YTD 2022. These expenses represent 42.1% of platforms in the CCG and DCG operating segments. | | | | | | (In Millions) | | Gross Margin Reconciliation | $ | 10,057 |
| | Q3 2017 Gross Margin | 290 |
| | Lower platform unit cost, primarily on 14nm cost improvement | 280 |
| | Higher gross margin from platform revenue | (170 | ) | | Impact of the ISecG divestiture, offset by higher gross margin from adjacent businesses | (260 | ) | | Higher period charges associated with the ramp of our 10nm process technology | (66 | ) | | Other | $ | 9,983 |
| | Q3 2016 Gross Margin |
| | | | | | (In Millions) | | Gross Margin Reconciliation | $ | 28,302 |
| | YTD 2017 Gross Margin | 1,795 |
| | Higher gross margin from platform revenue | 930 |
| | Lower platform unit cost, primarily on 14nm cost improvement | 480 |
| | Lower Altera and other acquisition-related charges | (300 | ) | | Impact of the ISecG divestiture, offset by higher gross margin from adjacent businesses | (580 | ) | | Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology | (109 | ) | | Other | $ | 26,086 |
| | YTD 2016 Gross Margin |
Client Computing Group
| | | | | | | | | | | | | | | | | | | | | | | | (Dollars in Millions) | | Q3 2017 | | Q3 2016 | | % Change | | YTD 2017 | | YTD 2016 | | % Change | Platform revenue | | $ | 8,132 |
| | $ | 8,258 |
| | (2 | )% | | $ | 23,163 |
| | $ | 22,395 |
| | 3 | % | Other revenue | | 728 |
| | 634 |
| | 15 | % | | 1,886 |
| | 1,384 |
| | 36 | % | Net revenue | | $ | 8,860 |
| | $ | 8,892 |
| | — | % | | $ | 25,049 |
| | $ | 23,779 |
| | 5 | % | Operating income | | $ | 3,600 |
| | $ | 3,327 |
| | 8 | % | | $ | 9,656 |
| | $ | 7,123 |
| | 36 | % | CCG platform unit sales | | | | | | (7 | )% | | | | | | (3 | )% | CCG platform average selling prices | | | | | | 7 | % | | | | | | 7 | % |
CCG revenue in Q3 2017 was flat compared to Q3 2016. The following impacted CCG revenue:
| | | | | | (In Millions) | | Revenue Reconciliation | $ | 8,860 |
| | Q3 2017 CCG Revenue | (192 | ) | | Lower desktop platform unit sales, down 6% | 94 |
| | Higher CCG other revenue, including modem products | 66 |
| | Other platform impacts | $ | 8,892 |
| | Q3 2016 CCG Revenue |
INTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
| | | | | | (In Millions) | | Revenue Reconciliation | $ | 25,049 |
| | YTD 2017 CCG Revenue | 657 |
| | Higher notebook platform unit sales, up 5% | 571 |
| | Higher notebook platform average selling prices, up 4%, from mix of processors | 502 |
| | Higher CCG other revenue, including modem products | (482 | ) | | Lower desktop platform unit sales, down 4% | 22 |
| | Other platform impacts | $ | 23,779 |
| | YTD 2016 CCG Revenue |
The following impacted CCG operating income:
| | | | | | (In Millions) | | Operating Income Reconciliation | $ | 3,600 |
| | Q3 2017 CCG Operating Income | 275 |
| | Lower CCG platform unit cost, primarily on 14nm cost improvement | 145 |
| | Lower factory start-up costs, primarily driven by the ramp of our 10nm process technology | (215 | ) | | Higher period charges associated with the ramp of our 10nm process technology | 68 |
| | Other | $ | 3,327 |
| | Q3 2016 CCG Operating Income |
| | | | | | (In Millions) | | Operating Income Reconciliation | $ | 9,656 |
| | YTD 2017 CCG Operating Income | 1,025 |
| | Lower CCG platform unit cost, primarily on 14nm cost improvement | 865 |
| | Higher gross margin from CCG platform revenue | 565 |
| | Lower CCG spending and share of technology development and MG&A costs | 78 |
| | Other | $ | 7,123 |
| | YTD 2016 CCG Operating Income |
Data Center Group
| | | | | | | | | | | | | | | | | | | | | | | | (Dollars in Millions) | | Q3 2017 | | Q3 2016 | | % Change | | YTD 2017 | | YTD 2016 | | % Change | Platform revenue | | $ | 4,439 |
| | $ | 4,164 |
| | 7 | % | | $ | 12,344 |
| | $ | 11,589 |
| | 7 | % | Other revenue | | 439 |
| | 378 |
| | 16 | % | | 1,138 |
| | 979 |
| | 16 | % | Net revenue | | $ | 4,878 |
| | $ | 4,542 |
| | 7 | % | | $ | 13,482 |
| | $ | 12,568 |
| | 7 | % | Operating income | | $ | 2,255 |
| | $ | 2,110 |
| | 7 | % | | $ | 5,403 |
| | $ | 5,639 |
| | (4 | )% | DCG platform unit sales | | | | | | 4 | % | | | | | | 3 | % | DCG platform average selling prices | | | | | | 2 | % | | | | | | 3 | % |
DCG revenue in Q3 2017 was up 7% compared to Q3 2016 based on growth in the cloud market segment, up 24%, and the communication market segment, up 9%, offset by the enterprise market segment, down 6%.The following impacted DCG revenue:
| | | | | | (In Millions) | | Revenue Reconciliation | $ | 4,878 |
| | Q3 2017 DCG Revenue | 173 |
| | Higher DCG platform unit sales, up 4% | 102 |
| | Higher DCG platform average selling prices, up 2%, from mix of processors | 61 |
| | Other | $ | 4,542 |
| | Q3 2016 DCG Revenue |
INTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
| | | | | | (In Millions) | | Revenue Reconciliation | $ | 13,482 |
| | YTD 2017 DCG Revenue | 384 |
| | Higher DCG platform unit sales, up 3% | 371 |
| | Higher DCG platform average selling prices, up 3%, from mix of processors | 159 |
| | Other | $ | 12,568 |
| | YTD 2016 DCG Revenue |
The following impacted DCG operating income:
| | | | | | (In Millions) | | Operating Income Reconciliation | $ | 2,255 |
| | Q3 2017 DCG Operating Income | 255 |
| | Higher gross margin from DCG platform revenue | (145 | ) | | Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology | 35 |
| | Other | $ | 2,110 |
| | Q3 2016 DCG Operating Income |
| | | | | | (In Millions) | | Operating Income Reconciliation | $ | 5,403 |
| | YTD 2017 DCG Operating Income | (555 | ) | | Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology | (365 | ) | | Higher DCG operating expense, primarily on increased share of technology development and MG&A costs | 710 |
| | Higher gross margin from DCG platform revenue | (26 | ) | | Other | $ | 5,639 |
| | YTD 2016 DCG Operating Income |
Internet of Things Group
| | | | | | | | | | | | | | | | | | | | | | | | (Dollars in Millions) | | Q3 2017 | | Q3 2016 | | % Change | | YTD 2017 | | YTD 2016 | | % Change | Platform revenue | | $ | 680 |
| | $ | 605 |
| | 12 | % | | $ | 1,926 |
| | $ | 1,673 |
| | 15 | % | Other revenue | | 169 |
| | 84 |
| | 101 | % | | 364 |
| | 239 |
| | 52 | % | Net revenue | | $ | 849 |
| | $ | 689 |
| | 23 | % | | $ | 2,290 |
| | $ | 1,912 |
| | 20 | % | Operating income | | $ | 146 |
| | $ | 191 |
| | (24 | )% | | $ | 390 |
| | $ | 403 |
| | (3 | )% |
The net revenue for the IOTG operating segment increased by $160 million in Q3 2017 compared to Q3 2016, driven by $152 million from higher IOTG platform unit salesQ2 2023 and $74 million40.5% of milestone-based revenue from adjacent business, offset by $77 million from lower IOTG platform average selling prices. IOTG revenue grew across the retail, industrial, and video market segments.
The net revenue for the IOTG operating segment increased by $378 millionin the first nine monthsQ2 2022, and 44.1% of 2017 compared to the first nine months of 2016, driven by $201 million from higher IOTG platform unit sales, $74 million of milestone-based revenue from adjacent business, and $52 million from higher IOTG platform average selling prices.
The operating income for the IOTG operating segment decreased by $45 million in Q3 2017 compared to Q3 2016, and decreasedby $13 million in the first nine months of 2017 compared to the first nine months of 2016. The operating income decreases were driven by higher spending and increased share of technology development and MG&A costs, partially offset by higher gross margin from IOTG revenue.
INTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Non-Volatile Memory Solutions Group
| | | | | | | | | | | | | | | | | | | | | | | | (Dollars in Millions) | | Q3 2017 | | Q3 2016 | | % Change | | YTD 2017 | | YTD 2016 | | % Change | Net revenue | | $ | 891 |
| | $ | 649 |
| | 37 | % | | $ | 2,631 |
| | $ | 1,760 |
| | 49 | % | Operating income (loss) | | $ | (52 | ) | | $ | (134 | ) | | 61 | % | | $ | (291 | ) | | $ | (453 | ) | | 36 | % |
The net revenue for the NSG operating segment increased by $242 million in Q3 2017 compared to Q3 2016, driven by $347 million higher volume due to strength in data center, offset by $105 million lower average selling prices due to mixYTD 2023 and 36.6% of products sold.
The net revenue for the NSG operating segment increased by $871 millionYTD 2022. In support of our strategy, described in the first nine months of 2017 compared to the first nine months of 2016, driven by $1.3 billion higher SSD volume from market demand and strength in data center, offset by $401 million lower average selling prices due to mix of products sold.
The operating loss for the NSG operating segment decreased by $82 millionin Q3 2017 compared to Q3 2016. Operating loss decrease was primarily driven by $156 million lower unit cost due to mix of products and cost improvements asour 2022 Form 10-K, we continue to rampmake significant investments to accelerate our Dalian, China facility.process technology roadmap. This requires continued investments in R&D and focused efforts to attract and retain talent. We have implemented certain cost-cutting measures while we continue to improve our product execution.
The
| | | | | | | | | | | | | Research and Development $B | | Marketing, General, and Administrative $B | | |
(Percentages in chart indicate operating loss for the NSG operating segment decreased $162 million in the first nine monthsexpenses as a percentage of 2017 compared to the first nine months of 2016, driven by $401 million lower unit cost due to mix of products and cost improvements, and by higher volume, offset by lower average selling prices.total revenue) Programmable Solutions GroupQ2 2023 vs. Q2 2022 | | | | | | R&D decreased by $320 million, or 7%, driven by the following: | | | - | The effects of various cost-cutting measures | + | Higher incentive-based cash compensation | | | | | | |
YTD 2023 vs. YTD 2022 | | | | | | | | R&D decreased by $573 million, or 7%, driven by the following: | | | | | | | - | The effects of various cost-cutting measures, partially offset by increased corporate spending to drive strategic growth | | | - | Lower incentive-based cash compensation | | | | | | | | | | | | | | |
| | | Marketing, General, and Administrative | Q2 2023 vs. Q2 2022 | | | | | | MG&A decreased by $426 million, or 24%, driven by the following: | | | - | Lower corporate spending as a result of various cost-cutting measures | + | Higher incentive-based cash compensation | | | | | | |
YTD 2023 vs. YTD 2022
| | | | | | | | MG&A decreased by $875 million, or 25%, driven by the following: | | | | | | | - | Lower corporate spending as a result of various cost-cutting measures | | | - | Lower incentive-based cash compensation | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | (Dollars in Millions) | | Q3 2017 | | Q3 2016 | | % Change | | YTD 2017 | | YTD 2016 | | % Change | Net revenue | | $ | 469 |
| | $ | 425 |
| | 10 | % | | $ | 1,334 |
| | $ | 1,249 |
| | 7 | % | Operating income (loss) | | $ | 113 |
| | $ | 78 |
| | 45 | % | | $ | 302 |
| | $ | (184 | ) | | n/m |
|
PSG had operating income in the first nine months
ContentsINTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Expenses
| | | | | | | | | | | | | | | | | | (Dollars in Millions) | | Q3 2017 | | Q3 2016 | | YTD 2017 | | YTD 2016 | Research and development (R&D) | | $ | 3,223 |
| | $ | 3,069 |
| | $ | 9,824 |
| | $ | 9,460 |
| Marketing, general and administrative (MG&A) | | $ | 1,666 |
| | $ | 2,006 |
| | $ | 5,624 |
| | $ | 6,239 |
| R&D and MG&A as percentage of net revenue | | 30.3 | % | | 32.2 | % | | 33.8 | % | | 36.5 | % | Restructuring and other charges | | $ | 4 |
| | $ | 372 |
| | $ | 189 |
| | $ | 1,786 |
| Amortization of acquisition-related intangibles | | $ | 49 |
| | $ | 74 |
| | $ | 124 |
| | $ | 253 |
|
Research and Development
R&D increased by $154 million, or 5%, in Q3 2017 compared to Q3 2016 and by $364 million, or 4%, in the first nine months of 2017 compared to the first nine months of 2016. These increases were driven by higher process development costs for our 7nm process technology, higher investments in data-centric businesses, and higher profit-dependent compensation due to an increase in net income. Increases were partially offset by the ISecG divestiture, cost savings from gained efficiencies, and the impact of an extra work week in Q1 2016.
Marketing, General and Administrative
MG&A decreased by $340 million, or 17%, in Q3 2017 compared to Q3 2016. This decrease was driven by the ISecG divestiture and changes to the Intel Inside® program, partially offset by acquisition-related charges associated with Mobileye and higher profit-dependent compensation due to an increase in net income.
MG&A decreased $615 million, or 10%, in the first nine months of 2017 compared to the first nine months of 2016. This decrease was driven by the ISecG divestiture, changes to the Intel Inside® program, and the impact of an extra work week in Q1 2016, partially offset by higher profit-dependent compensation due to an increase in net income.
Restructuring and Other Charges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (In Millions) | | Q2 2023 | | Q2 2022 | | YTD 2023 | | YTD 2022 | | Employee severance and benefit arrangements | | $ | 171 | | | $ | 38 | | | $ | 132 | | | $ | 43 | | | | | | | | | | | | | Litigation charges and other | | 20 | | | 13 | | | 97 | | | (1,203) | | | Asset impairment charges | | 9 | | | 36 | | | 35 | | | 36 | | | Total restructuring and other charges | | $ | 200 | | | $ | 87 | | | $ | 264 | | | $ | (1,124) | | |
| | | | | | | | | | | | | | | | | | (In Millions) | | Q3 2017 | | Q3 2016 | | YTD 2017 | | YTD 2016 | 2016 Restructuring Program | | $ | 2 |
| | $ | 349 |
| | $ | (51 | ) | | $ | 1,763 |
| Other charges | | 2 |
| | 23 |
| | 240 |
| | 23 |
| Total restructuring and other charges | | $ | 4 |
| | $ | 372 |
| | $ | 189 |
| | $ | 1,786 |
|
2016The 2022 Restructuring Program. was approved in Q3 2022 to rebalance our workforce and operations to create efficiencies and improve our product execution in alignment with our strategy. In YTD 2023, activity related to the 2022 Restructuring Program substantially related to cash settlement of previously accrued employee severance and benefit arrangements as well as additional actions in Q2 2016, our management approved and commenced2023. We expect actions pursuant to the 20162022 Restructuring Program. The program wasProgram to be substantially completed during Q2 2017.by the end of 2023, but this is subject to change. We expect that our 2022 Restructuring Plan, in conjunction with other initiatives, will reduce our cost structure and allow us to reinvest certain of these cost savings in resources and capacity to develop, manufacture, market, sell, and deliver our products in furtherance of our strategy. The cumulative cost of the 2022 Restructuring Program as of July 1, 2023 was $1.2 billion.
Other Charges. OtherLitigation charges consist primarily of expenses associated withand other includes a $1.2 billion benefit in YTD 2022 from the divestiture of ISecGannulled penalty related to an EC fine that was completedrecorded and paid in Q2 2017.2009.
For further information, see "Note 7: Restructuring and Other Charges" in Part I, Item 1 of this Form 10-Q.
INTEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Gains (Losses) on Equity Investments and Interest and Other, Net | | (In Millions) | | Q3 2017 | | Q3 2016 | | YTD 2017 | | YTD 2016 | (In Millions) | | Q2 2023 | | Q2 2022 | | YTD 2023 | | YTD 2022 | Gains (losses) on equity investments, net | | $ | 846 |
| | $ | (12 | ) | | $ | 1,440 |
| | $ | 488 |
| | Ongoing mark-to-market adjustments on marketable equity securities | | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (85) | | | $ | (209) | | | $ | 103 | | | $ | (639) | | Observable price adjustments on non-marketable equity securities | | Observable price adjustments on non-marketable equity securities | | — | | | 135 | | | 10 | | | 206 | | Impairment charges | | Impairment charges | | (38) | | | (44) | | | (74) | | | (67) | | Sale of equity investments and other | | Sale of equity investments and other | | 99 | | | 28 | | | 106 | | | 4,733 | | Total gains (losses) on equity investments, net | | Total gains (losses) on equity investments, net | | $ | (24) | | | $ | (90) | | | $ | 145 | | | $ | 4,233 | | | Interest and other, net | | $ | (31 | ) | | $ | (132 | ) | | $ | 336 |
| | $ | (340 | ) | Interest and other, net | | $ | 224 | | | $ | (119) | | | $ | 365 | | | $ | 878 | |
Gains (losses) on equity investments, net We recognized higher net realized gains on sales of a portion ofOngoing mark-to-market adjustments for YTD 2023 and YTD 2022 were primarily related to our interest in ASMLMontage Technology Co., Ltd and others.
In YTD 2022, the sale of $926 million in Q3 2017McAfee to an investor group was completed and $2.0we received $4.6 billion in the first nine months of 2017 compared to $407 millioncash for the first nine monthssale of 2016. The higher net realized gains were partially offset by $613 million of impairment charges and our remaining share of McAfee, recognizing a $4.6 billion gain in sale of equity method investee losses for the first nine months of 2017.investments and other. Interest and other, net WeIn YTD 2022, we recognized a lower interest and other, net loss in Q3 2017 compared to Q3 2016 due primarily to higher interest income Q3 2017. We recognized an interest and other, net gain forof $1.0 billion from the first nine monthsclosing of 2017 compared to a net loss for the first nine months of 2016 due primarily to a $387 million gain on the divestiture of ISecG in Q2 2017 and higher interest income in the first nine months of 2017.our NAND memory business.
Provision for (Benefit from) Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | (In Millions) | | Q2 2023 | | Q2 2022 | | YTD 2023 | | YTD 2022 | Income (loss) before taxes | | $ | (816) | | | $ | (909) | | | $ | (1,974) | | | $ | 8,752 | | Provision for (benefit from) taxes | | $ | (2,289) | | | $ | (455) | | | $ | (679) | | | $ | 1,093 | | Effective tax rate | | 280.5 | % | | 50.1 | % | | 34.4 | % | | 12.5 | % |
| | | | | | | | | | | | | | | | | | (Dollars in Millions) | | Q3 2017 | | Q3 2016 | | YTD 2017 | | YTD 2016 | Income before taxes | | $ | 5,930 |
| | $ | 4,318 |
| | $ | 14,317 |
| | $ | 8,496 |
| Provision for taxes | | $ | 1,414 |
| | $ | 940 |
| | $ | 4,029 |
| | $ | 1,742 |
| Effective tax rate | | 23.8 | % | | 21.8 | % | | 28.1 | % | | 20.5 | % |
A substantial majority of the increase inIn Q2 2023, we recognized a benefit for taxes as we applied our year-to-date actual effective tax rate in Q3 2017 compared to Q3 2016 was driven by a higher proportionour year-to-date measure of ordinary income (loss) before taxes, which reflects our jurisdictional mix of ordinary income in higher tax rate jurisdictions.
A majority of the increase in ourand losses. Our effective tax rate increased in the first nine months of 2017YTD 2023 compared to the first nine months of 2016 was driven by an $822 million tax expenseYTD 2022, due to the ISecG divestiture that occurredapplication of our actual YTD effective tax rate, and our jurisdictional mix of ordinary income and losses.
Our provision for, or benefit from, income taxes for an interim period has historically been determined using an estimated annual effective tax rate, adjusted for discrete items, if any. Under certain circumstances where we are unable to make a reliable estimate of the annual effective tax rate, we use the actual effective tax rate for the year-to-date period. In the second quarter of 2023, we used this approach due to the variability of the rate as a result of fluctuations in Q2 2017.forecasted income and the effects of being taxed in multiple tax jurisdictions. INTEL CORPORATIONMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources We consider the following when assessing our liquidity and capital resources: | | | | | | | | | | | | | | | (In Millions) | | Jul 1, 2023 | | Dec 31, 2022 | Cash and cash equivalents | | $ | 8,349 | | | $ | 11,144 | | Short-term investments | | 15,908 | | | 17,194 | | | | | | | | | | | | Loans receivable and other | | 64 | | | 463 | | Total cash and investments1 | | $ | 24,321 | | | $ | 28,801 | | | | | | | | | | | | Total debt | | $ | 49,046 | | | $ | 42,051 | |
| | | | | | | | | | (Dollars in Millions) | | Sep 30, 2017 | | Dec 31, 2016 | Cash and cash equivalents, short-term investments, and trading assets | | $ | 17,504 |
| | $ | 17,099 |
| Other long-term investments | | $ | 3,844 |
| | $ | 4,716 |
| Loans receivable and other | | $ | 894 |
| | $ | 996 |
| Reverse repurchase agreements with original maturities greater than three months | | $ | 250 |
| | $ | 250 |
| Total debt | | $ | 31,640 |
| | $ | 25,283 |
| Temporary equity | | $ | 870 |
| | $ | 882 |
| Debt as percentage of permanent stockholders’ equity | | 44.6 | % | | 38.2 | % |
We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. Cash generated by operations, and our total cash and investments1 as shown in the preceding table, is our primary source of liquidity. We maintain a diverse investment portfolio thatliquidity for funding our strategic business requirements. These sources are further supplemented by the company's committed credit facilities and other borrowing capacity. Our short-term funding requirements include capital expenditures for worldwide manufacturing and assembly and test, including investments in our process technology roadmap; working capital requirements; and potential and pending acquisitions, strategic investments, and dividends. This includes the commitment associated with our pending acquisition of Tower. Our long-term funding requirements incrementally contemplate investments in significant manufacturing expansion plans and investments to accelerate our process technology. Our total cash and investments1and related cash flows may be affected by certain discretionary actions we continually analyze based on issuer, industry,may take with customers and country. When assessingsuppliers to accelerate or delay certain cash receipts or payments to manage liquidity for our sourcesstrategic business requirements. These actions can include, among others, negotiating with suppliers to optimize our payment terms and conditions, adjusting the timing of liquidity we include investments as shown in the preceding table. Substantially allcash flows associated with customer sales programs and collections, managing inventory levels and purchasing practices, and selling certain of our accounts receivables on a non-recourse basis to third party financial institutions. We expect to benefit from government incentives, and any incentives above our current expectations would enable us to increase the pace and size of our IDM 2.0 investments. Conversely, incentives below our expectations would increase our anticipated cash requirements and/or potentially curtail planned investments. In the first quarter of 2023, we declared a reduced quarterly dividend on our common stock. This dividend reduction reflects our deliberate approach to capital allocation, is expected to support the critical investments inneeded to execute our business strategy, and is designed to position us to create long-term value. In the first quarter of 2023, we issued a total of $11.0 billion aggregate principal amount of senior notes for general corporate purposes, including, but not limited to, refinancing of outstanding debt instruments and financing receivables are in investment-grade securities. Otherfunding for working capital and capital expenditures. We also amended both our 5-year $5.0 billion revolving credit facility agreement, extending the maturity date by one year to March 2028, and our 364-day $5.0 billion credit facility agreement, extending the maturity date to March 2024. We have other potential sources of liquidity includeincluding our commercial paper program and our automatic shelf registration statement on file with the SEC, pursuant to which we may offer an unspecified amount of debt, equity, and other securities. Under our commercial paper program, we have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion. This amount includes an increaseAs of $5.0 billion July 1, 2023, we had no outstanding commercial paper or borrowings on the revolving credit facilities.
We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. Substantially all of our investments in debt instruments and financing receivables were in investment-grade securities. Our sources of liquidityin the authorization limit approved by our Boardsecond quarter of Directors in April 2017. No commercial paper remained outstanding as of September 30, 2017. In Q3 2017, we redeemed our $1.0 billion, 4.90% senior notes due August 2045 as well as issued a total of $640 million aggregate principal amount of senior notes to finance a portion of the senior notes redeemed. As of September 30, 2017, $10.0 billion of our $17.5 billion of cash and cash equivalents, short-term investments, and trading assets was held by our non-U.S. subsidiaries. Of the $10.0 billion held by our non-U.S. subsidiaries, approximately $4.9 billion was available for use in the U.S. without incurring additional U.S. income taxes in excess of the amounts already accrued in our financial statements as of September 30, 2017. The remaining amount of non-U.S. cash and cash equivalents, short-term investments, and trading assets has been indefinitely reinvested and, therefore, no U.S. current or deferred taxes have been accrued. This amount is earmarked for near-term investment in our operations outside the U.S. and future acquisitions of non-U.S. entities. We believe our U.S. sources of cash and liquidity are sufficient to meet our business needs in the U.S., and do not expect that we will need to repatriate the funds we have designated as indefinitely reinvested outside the U.S. Under current tax laws, should our plans change and we were to choose to repatriate some or all of the funds we have designated as indefinitely reinvested outside the U.S., such amounts would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
During Q3 2017, we acquired 97.3% of Mobileye's outstanding ordinary shares for $14.5 billion2023 included net cash. We funded the acquisition, and expect to fund the remaining portion, with cash held by our non-U.S. subsidiaries.
During Q2 2017, we completed the divestiture of our ISecG business for total consideration of $4.2 billion. The consideration included cash proceeds of $924 million and $2.2 $1.6 billion in the formfrom a secondary offering of promissory notes. During Q3 2017, McAfee and TPG repaid the $2.2 billion of promissory notes and McAfee paid us a $735 million dividend.
We believe we have sufficient financial resources to meet our business requirements in the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test; working capital requirements; and potential dividends,Mobileye class A common stock, repurchases, acquisitions, and strategic investments.
INTEL CORPORATIONafter which we retained 88% of Mobileye’s capital stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
| | | | | | | | | | | | | | | | | | | Cash from Operations $B | | Capital Expenditures $B | | Dividends $B |
In summary, our cash flows for each period were as follows:
1 See "Non-GAAP Financial Measures" within MD&A. | | | | | | | | | | | | Nine Months Ended | (In Millions) | | Sep 30, 2017 | | Oct 1, 2016 | Net cash provided by operating activities | | $ | 14,869 |
| | $ | 13,658 |
| Net cash used for investing activities | | (10,532 | ) | | (22,373 | ) | Net cash provided by (used for) financing activities | | (822 | ) | | (1,841 | ) | Net increase (decrease) in cash and cash equivalents | | $ | 3,515 |
| | $ | (10,556 | ) |
| | | | | | | | | | | | | | | | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | Net cash provided by operating activities | | $ | 1,023 | | | $ | 6,700 | | Net cash used for investing activities | | (11,329) | | | (2,419) | | Net cash provided by (used for) financing activities | | 7,511 | | | (4,718) | | | | | | | Net increase (decrease) in cash and cash equivalents | | $ | (2,795) | | | $ | (437) | |
Operating Activities Cash provided by operating activities isOperating cash flows consist of net income adjusted for certain non-cash items and changes in certain assets and liabilities.
For the first nine monthsof 2017compared to the first nine monthsof 2016, the $1.2 billion increaseThe decrease in cash provided by operations in the first six months of 2023 was primarily due to higher net income. This increase was partially offset by adjustments to net income for non-cash items, primarily driven by reduced restructuring charges, as well as changesour net operating loss in working capital, which benefited from $1.0 billion receiptscomparison to our net operating income for the first six months of customer deposits.2022.
Investing Activities Investing cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; and proceeds from divestitures and cash used for acquisitions.divestitures. Cash used for investing activities was lower forhigher in the first ninesix monthsof 20172023 compared to the first ninesix monthsof 20162022, primarily due to net salesthe absence of available-for-sale investmentsproceeds from the divestiture of our NAND business and trading assets,proceeds for our remaining share of McAfee, both of which occurred in the first six months of 2022; as well as proceeds from our divestiturehigher capital expenditures in the first six months of ISecG. This activity was2023. These unfavorable cash impacts during the first six months of 2023 were partially offset by the favorable cash impacts of higher capital expenditures.maturities and sales of short-term investments, net of purchases, and lower investment activity in other investments and acquisitions during the first six months of 2023. Financing Activities Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds frompartner contributions. Cash provided by financing activities in the salefirst six months of shares of common stock through employee equity incentive plans. Cash2023 compared to cash used for financing activities was lower in the first ninesix monthsof 2017 compared to the first nine monthsof 20162022 and was primarily due to higher issuancesnet proceeds from our debt issuance, net of long-term debt. This increase was partially offset by higher repurchasescommercial paper repayments, and proceeds from sales of common stock and repayment of debt.
Contractual Obligations
During Q2 2017, we issued $7.1 billion in aggregate principal amount of senior unsecured notes. Our remaining total cash payments (including anticipated interest payments on fixed rate debt that are not recorded on the consolidated condensed balance sheets, and excluding interest payments relating to our floating rate debt) over the life of these long-term debt obligations are expected to be approximately $9.2 billion. During Q3 2017, we issued a total of $640 million aggregate principal amount of senior notes. For further information, see "Note 13: Borrowings"subsidiary shares in the notes to consolidated condensed financial statements on this Form 10-Q.first six months of 2023.
Acquisition of Mobileye
During Q3 2017, we acquired substantially all of Mobileye's issued and outstanding ordinary shares by means of a tender offer for $63.54 per share in cash. For further information, see "Note 10: Acquisitions and Divestitures" in the notes to consolidated condensed financial statements on this Form 10-Q.
| | | | | | | | | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMD&A | 36 |
Non-GAAP Financial Measures In addition to disclosing financial results in accordance with US GAAP, this document contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about our operating performance, enable comparison of financial trends and results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance. These non-GAAP financial measures are used in our performance-based RSUs and our cash bonus plans. Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects. Beginning in 2023, income tax effects are calculated using a fixed long-term projected tax rate across all adjustments. We project this long-term non-GAAP tax rate on an annual basis using a five-year non-GAAP financial projection that excludes the income tax effects of each adjustment. The projected non-GAAP tax rate also considers factors such as our tax structure, our tax positions in various jurisdictions, and key legislation in significant jurisdictions where we operate. This long-term non-GAAP tax rate may be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or changes to our strategy or business operations. Management uses this non-GAAP tax rate in managing internal short- and long-term operating plans and in evaluating our performance; we believe this approach facilitates comparison of our operating results and provides useful evaluation of our current operating performance. Prior-period non-GAAP results have been retroactively adjusted to reflect this updated approach. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with US GAAP, and the financial results calculated in accordance with US GAAP and reconciliations from these results should be carefully evaluated. | | | | | | | | | Non-GAAP adjustment or measure | Definition | Usefulness to management and investors | | | | Acquisition-related adjustments | Amortization of acquisition-related intangible assets consists of amortization of intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. Charges related to the amortization of these intangibles are recorded within both cost of sales and MG&A in our US GAAP financial statements. Amortization charges are recorded over the estimated useful life of the related acquired intangible asset, and thus are generally recorded over multiple years. | We exclude amortization charges for our acquisition-related intangible assets for purposes of calculating certain non-GAAP measures because these charges are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. These adjustments facilitate a useful evaluation of our current operating performance and comparison to our past operating performance and provide investors with additional means to evaluate cost and expense trends. | Share-based compensation | Share-based compensation consists of charges related to our employee equity incentive plans. | We exclude charges related to share-based compensation for purposes of calculating certain non-GAAP measures because we believe these adjustments provide better comparability to peer company results and because these charges are not viewed by management as part of our core operating performance. We believe these adjustments provide investors with a useful view, through the eyes of management, of our core business model, how management currently evaluates core operational performance, and additional means to evaluate expense trends, including in comparison to other peer companies. | Patent settlement | A portion of the charge from our IP settlements represents a catch-up of cumulative amortization that would have been incurred for the right to use the related patents in prior periods. This charge related to prior periods is excluded from our non-GAAP results; amortization related to the right to use the patents in the current and ongoing periods is included. | We exclude the catch-up charge related to prior periods for purposes of calculating certain non-GAAP measures because this adjustment facilitates comparison to past operating results and provides a useful evaluation of our current operating performance. | Optane inventory impairment | In 2022, we initiated the wind-down of our Intel Optane memory business. | We exclude these impairments for purposes of calculating certain non-GAAP measures because these charges do not reflect our current operating performance. This adjustment facilitates a useful evaluation of our current operating performance and comparisons to past operating results. |
| | | | | | | | | Restructuring and other charges | Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges may include periodic goodwill and asset impairments, certain pension charges, and costs associated with restructuring activity. | We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures because these costs do not reflect our core operating performance. These adjustments facilitate a useful evaluation of our core operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends. | (Gains) losses on equity investments, net | (Gains) losses on equity investments, net consists of ongoing mark-to-market adjustments on marketable equity securities, observable price adjustments on non-marketable equity securities, related impairment charges, and the sale of equity investments and other. | We exclude these non-operating gains and losses for purposes of calculating certain non-GAAP measures because it provides better comparability between periods. The exclusion reflects how management evaluates the core operations of the business. | Gains (losses) from divestiture | Gains (losses) are recognized at the close of a divestiture, or over a specified deferral period when deferred consideration is received at the time of closing. Based on our ongoing obligation under the NAND wafer manufacturing and sale agreement entered into in connection with the first closing of the sale of our NAND memory business on December 29, 2021, a portion of the initial closing consideration was deferred and will be recognized between first and second closing. | We exclude gains or losses resulting from divestitures for purposes of calculating certain non-GAAP measures because they do not reflect our current operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results. | | | | | | | Adjusted free cash flow | We reference a non-GAAP financial measure of adjusted free cash flow, which is used by management when assessing our sources of liquidity, capital resources, and quality of earnings. Adjusted free cash flow is operating cash flow adjusted for (1) additions to property, plant, and equipment, net of proceeds from capital grants and partner contributions, (2) payments on finance leases, and (3) proceeds from the McAfee equity sale. | This non-GAAP financial measure is helpful in understanding our capital requirements and sources of liquidity by providing an additional means to evaluate the cash flow trends of our business. Since the 2017 divestiture, McAfee equity distributions and sales contributed to prior operating and free cash flow, and while the McAfee equity sale in Q1 2022 would have typically been excluded from adjusted free cash flow as an equity sale, we believe including the sale proceeds in adjusted free cash flow facilitate a better, more consistent comparison to past presentations of liquidity. | Total cash and investments | Total cash and investments is used by management when assessing our sources of liquidity, which include cash and cash equivalents, short-term investments, and loans receivable and other. | This non-GAAP measure is helpful in understanding our capital resources and liquidity position. |
Following are the reconciliations of our most comparable US GAAP measures to our non-GAAP measures presented: | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | | Jul 1, 2023 | | Jul 2, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross margin percentage | | 35.8 | % | | 36.5 | % | | | | | Acquisition-related adjustments | | 2.4 | % | | 2.2 | % | | | | | Share-based compensation | | 1.6 | % | | 1.2 | % | | | | | Patent settlement | | — | % | | 1.3 | % | | | | | Optane inventory impairment | | — | % | | 3.6 | % | | | | | | | | | | | | | | Non-GAAP gross margin percentage | | 39.8 | % | | 44.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings (loss) per share attributable to Intel—diluted | | $ | 0.35 | | | $ | (0.11) | | | | | | Acquisition-related adjustments | | 0.08 | | | 0.09 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation | | 0.22 | | | 0.22 | | | | | | | | | | | | | | | Patent settlement | | — | | | 0.05 | | | | | | Optane inventory impairment | | — | | | 0.14 | | | | | | Restructuring and other charges | | 0.05 | | | 0.02 | | | | | | (Gains) losses on equity investments, net | | 0.01 | | | 0.02 | | | | | | (Gains) losses from divestiture | | (0.01) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments attributable to non-controlling interest | | — | | | — | | | | | | Income tax effects | | (0.57) | | | (0.15) | | | | | | | | | | | | | | | Non-GAAP earnings (loss) per share attributable to Intel—diluted | | $ | 0.13 | | | $ | 0.28 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Six Months Ended | (In Millions) | | Jul 1, 2023 | | Jul 2, 2022 | Net cash provided by (used for) operating activities | | $ | 1,023 | | | $ | 6,700 | | Net additions to property, plant, and equipment | | (12,418) | | | (11,793) | | Payments on finance leases | | (96) | | | (299) | | Sale of equity investment | | — | | | 4,561 | | Adjusted free cash flow | | $ | (11,491) | | | $ | (831) | | | | | | | Net cash used for investing activities | | $ | (11,329) | | | $ | (2,419) | | Net cash provided by (used for) financing activities | | $ | 7,511 | | | $ | (4,718) | | | | | | | | | | | |
Quantitative and Qualitative Disclosures About Market Risk We are affected by changes in currency exchange and interest rates, as well as equity and commodity prices. Our risk management programs are designed to reduce, but may not entirely eliminate, the impacts of these risks. For a discussion about market risk and sensitivity analysis related to changes in currency exchange rates, interest rates, equity prices, and commodity prices refer to Part II, Item 7A, Quantitative"Quantitative and Qualitative Disclosures About Market Risk,Risk" within MD&A in our 20162022 Form 10-K. | | ITEM 4. | CONTROLS AND PROCEDURES |
EvaluationRisk Factors
The risks described in "Risk Factors" within Other Key Information in our 2022 Form 10-K could materially and adversely affect our business, financial condition, and results of Disclosure operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face—our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. Refer also to the other information set forth in this Form 10-Q, including in the Forward-Looking Statements, MD&A, and the Consolidated Condensed Financial Statements and Supplemental Details sections. Controls and Procedures Based on management’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls Our management, including the CEOprincipal executive officer and CFO,principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design Evaluation of any systemDisclosure Controls and Procedures Based on management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls is basedand procedures (as defined in part on certain assumptions aboutRules 13a-15(e) and 15d-15(e) under the likelihoodSecurities Exchange Act of future events, and there can be no1934, as amended (the Exchange Act)), were effective to provide reasonable assurance that any design will succeedinformation required to be disclosed by us in achieving its stated goalsreports that we file or submit under all potential future conditions. Projections of any evaluation of the effectiveness of controlsExchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to future periodsmanagement, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended July 1, 2023 that have materially affected, or are subjectreasonably likely to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II – OTHER INFORMATION
For a discussion of legal proceedings, see “Note 18: Contingencies” in the notes to consolidated condensed financial statements in this Form 10-Q.
The risks described in Part I, Item 1A, "Risk Factors," in our 2016 Form 10-K, could materially and adversely affect, our business,internal control over financial condition and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face - our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The Risk Factors section of our 2016 Annual Report on Form 10-K remains current in all material respects.reporting.
| | ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer Purchases of Equity Securities We have an ongoing authorization, (originally adoptedoriginally approved by our Board of Directors in 2005 and subsequently amended)amended, to repurchase shares of our common stock in open market or negotiated transactions. No shares were repurchased during the quarter ending July 1, 2023. As of September 30, 2017,July 1, 2023, we were authorized to repurchase up to $75.0$110.0 billion,, of which $13.2$7.2 billion remained available. This amount includes an increase of $10.0 billion in the authorization limit approved by our Board of Directors in April 2017. Common stock repurchase activity under our repurchase program during the third quarter of 2017 was as follows:
| | | | | | | | | | | | | Period | | Total Number of Shares Purchased (In Millions) | | Average Price Paid Per Share | | Dollar Value of Shares That May Yet Be Purchased (In Millions) | July 2, 2017 - July 29, 2017 | | 11.6 |
| | $ | 34.27 |
| | $ | 13,800 |
| July 30, 2017 - August 26, 2017 | | 8.1 |
| | $ | 35.59 |
| | $ | 13,512 |
| August 27, 2017 - September 30, 2017 | | 8.9 |
| | $ | 36.03 |
| | $ | 13,191 |
| Total | | 28.6 |
| | $ | 35.19 |
| | |
We issue RSUs as part of our equity incentive plans. In our consolidated condensed financial statements,Consolidated Condensed Financial Statements, we treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of RSUs in a similar manner as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase planprogram. Rule 10b5-1 Trading Arrangements Our directors and accordinglyofficers (as defined in Rule 16a-1 under the Exchange Act) may from time to time enter into plans or other arrangements for the purchase or sale of our shares that are not included inintended to satisfy the common stock repurchase totals inaffirmative defense conditions of Rule 10b5–1(c) or may represent a non-Rule 10b5-1 trading arrangement under the preceding table.Exchange Act. During the quarter ended July 1, 2023, no such plans or arrangements were adopted or terminated, including by modification.
| | | | | | | | | ITEM 6. | EXHIBITSOther Key Information | 40 |
Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 Section 13(r) of the Exchange Act requires an issuer to disclose certain information in its periodic reports if it or any of its affiliates knowingly engaged in certain activities, transactions or dealings with individuals or entities subject to specific US economic sanctions during the reporting period, even when the activities, transactions, or dealings are conducted in compliance with applicable law. On March 2, 2021, the US Secretary of State designated the Federal Security Service of the Russian Federation (FSB) as a party subject to one such sanction. From time to time, our local subsidiaries are required to engage with the FSB as a licensing authority and file documents in order to conduct business within the Russian Federation. All such dealings are explicitly authorized by general licenses issued by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), and there are no gross revenues or net profits directly associated with any such dealings by us with the FSB. As announced on April 5, 2022, Intel suspended all business operations in Russia until further notice, and we plan to continue limited activities as required to conduct business in the Russian Federation to the extent permitted by applicable law. On April 15, 2021, the US Department of the Treasury designated Pozitiv Teknolodzhiz, AO (Positive Technologies), a Russian IT security firm, as a party subject to one of the sanctions specified in Section 13(r). Prior to the designation, we communicated with Positive Technologies regarding its IT security research and coordinated disclosure of security vulnerabilities identified by the firm. Based on a license issued by OFAC, we resumed such communications. There are no gross revenues or net profits directly associated with any such activities. We plan to continue these communications in accordance with the terms and conditions of the OFAC license. | | | | | | | | | | | | | | | | | | Incorporated by Reference | | | Exhibit Number | | Exhibit Description | | Form | | File Number | | Exhibit | | Filing Date | | Filed or Furnished Herewith | 3.1 | | | | 8-K | | 000-06217 | | 3.1 | | 5/22/2006 | | | 3.2 | | | | 8-K | | 000-06217 | | 3.2 | | 1/26/2016 | | | 4.1 | | | | 8-K | | 000-06217 | | 4.1 | | 8/14/2017 | | | 12.1 | | | | | | | | | | | | X | 31.1 | | | | | | | | | | | | X | 31.2 | | | | | | | | | | | | X | 32.1 | | | | | | | | | | | | X | 101.INS | | XBRL Instance Document | | | | | | | | | | X | 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
Intel, the Intel logo, Intel Core, Intel Inside, Movidius, Myriad, Intel Optane and 3D XPoint
Exhibits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incorporated by Reference | | | Exhibit Number | | Exhibit Description | | Form | | File Number | | Exhibit | | Filing Date | | Filed or Furnished Herewith | 3.1 | | | | 8-K | | 000-06217 | | 3.1 | | 5/22/2006 | | | 3.2 | | | | 8-K | | 000-06217 | | 3.2 | | 3/16/2021 | | | 10.1† | | | | | | | | | | | | X | 31.1 | | | | | | | | | | | | X | 31.2 | | | | | | | | | | | | X | | | | | | | | | | | | | | 32.1 | | | | | | | | | | | | X | 101 | | Inline XBRL Document Set for the consolidated condensed financial statements and accompanying notes in Consolidated Condensed Financial Statements and Supplemental Details | | | | | | | | | | X | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 104 | | Cover Page Interactive Data File - formatted in Inline XBRL and included as Exhibit 101 | | | | | | | | | | X |
† Management contracts or compensation plans or arrangements in which directors or executive officers are trademarkseligible to participate.
Form 10-Q Cross-Reference Index | | | | | | | | | Item Number | Item | | Part I - Financial Information | | Item 1. | Financial Statements | | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations: | | | Liquidity and capital resources | | | Results of operations | | | | | | | | | Critical accounting estimates | | Item 3. | Quantitative and Qualitative Disclosures About Market Risk | | Item 4. | Controls and Procedures | | | | | Part II - Other Information | | Item 1. | Legal Proceedings | | Item 1A. | Risk Factors | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | Item 3. | Defaults Upon Senior Securities | Not applicable | Item 4. | Mine Safety Disclosures | Not applicable | Item 5. | Other Information | | | Rule 10b5-1 Trading Arrangements | | | Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | | Item 6. | Exhibits | | | | | Signatures | |
SIGNATURESSignatures
Pursuant to the requirements 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) | | | | | | | Date: | July 27, 2023 | | INTEL CORPORATION
(Registrant)By: | | /s/ DAVID ZINSNER | | | | | | David Zinsner | Date: | October 26, 2017 | | By: | | /s/ ROBERT H. SWAN
| | | | | | Robert H. Swan | | | | | | Executive Vice President, Chief Financial Officer, and Principal Financial Officer | | | | | | | Date: | July 27, 2023 | | By: | | /s/ SCOTT GAWEL | | | | | | Scott Gawel | | | | | | Corporate Vice President, Chief Accounting Officer, and Principal Accounting Officer |
|