UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| | ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended | September 25, 2021April 2, 2022 |
Or
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| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
Commission File Number 000-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
| Delaware | | | 94-1672743 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 2200 Mission College Boulevard, | Santa Clara, | California | | 95054-1549 |
| (Address of principal executive offices) | | (Zip Code) |
(408) 765-8080
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock, $0.001 par value | INTC | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ¨
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.
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| Large Accelerated Filer | | Accelerated filer | | Non-accelerated filer | | Smaller reporting company | Emerging growth company |
☑
| | ¨ | | ¨ | | ☐ | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of September 25, 2021,April 2, 2022, the registrant had outstanding 4,0674,089 million shares of common stock.
Table of Contents
The Organization of Our Quarterly Report on Form 10-Q
The order and presentation of content in our Form 10-Q differs from the traditional SEC Form 10-Q format. Our format is designed to improve readability and better present how we organize and manage our business. See "Form 10-Q Cross-Reference Index" within Other Key Information for a cross-reference index to the traditional SEC Form 10-Q format.
We have defined certain terms and abbreviations used throughout our Form 10-Q in "Key Terms" within Consolidated Condensed Financial Statements and Supplemental Details.
The preparation of our Consolidated Condensed Financial Statements is in conformity with U.S. GAAP. Our Form 10-Q includes key metrics that we use to measure our business, some of which are non-GAAP measures. See "Non-GAAP Financial Measures" within MD&A for an explanation of these measures and why management uses them and believes they provide investors with useful supplemental information.
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| Forward-Looking Statements | |
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| A Quarter in Review | |
| Consolidated Condensed Financial Statements and Supplemental Details | |
| Consolidated Condensed Statements of Income | |
| Consolidated Condensed Statements of Comprehensive Income | |
| Consolidated Condensed Balance Sheets | |
| Consolidated Condensed Statements of Cash Flows | |
| Consolidated Condensed Statements of Stockholders' Equity | |
| Notes to Consolidated Condensed Financial Statements | |
| Key Terms | |
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| Management's Discussion and Analysis | |
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| Segment Trends and Results | |
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| Consolidated Results of Operations | |
| Liquidity and Capital Resources | |
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| Non-GAAP Financial Measures | |
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| Other Key Information | |
| Quantitative and Qualitative Disclosures about Market Risk | |
| Risk Factors | |
| Controls and Procedures | |
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| Issuer Purchases of Equity Securities | |
| Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | |
| Exhibits | |
| Form 10-Q Cross-Reference Index | |
Forward-Looking Statements
This Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipate," "expect," "intend," "plan,"aim," "goal,"strive," "forecast,"objective," "goals," "plans," "ambitions," "opportunity," "future,"outlook," "scheduled,"predict," "pending,"future," "to be," "roadmap," "achieve," "grow," "committed," "believes," "seeks," "targets," "milestones," "estimated," "continue,"continues," "likely," "possible," "may," "might," "potentially," "will," "would," "should," "could," “accelerate,” "upcoming,"on track," "next-generation," "roadmap," "position,"positioned," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to Intel’s strategy;strategy and its anticipated benefits, including updates to our reporting structure; Intel's process and packaging technology, roadmap, and schedules, including future node performance and other metrics; manufacturing expansion and financing plans; investment plans, and impacts of investment plans;plans, including in the U.S. and abroad; future responses to and effects of COVID-19;COVID-19, including manufacturing, transportation, and operational restrictions or disruptions, such as the recent Shanghai port shutdown; future economic conditions; projections of our future financial performance; future business, social, and environmental performance, including future gross margins, capital expenditures,goals, measures and cash flows; projections of future demand, including the impact of regulatory changes and conditions;strategies; our anticipated growth and trends in our businesses orand operations; projected growth and trends in markets relevant to our businesses; business plans; future products, services and technology, and the expected regulation, availability, production and benefits of such products, services and technology, including future process nodestechnology; projected costs and technologies,yield trends; product and manufacturing plans, goals, timelines, ramps, progress and future product architectures, our announcements at our Intel Accelerated and Architecture Day events, and process technologyleadership and product leadership goals;performance; geopolitical conditions, including the impacts of Russia's war on Ukraine and the suspension of our operations; expected timing and impact of acquisitions, divestitures, and other significant transactions, including statements relating to the pending divestitureacquisitions of Tower Semiconductor Ltd. and Granulate Cloud Solutions Ltd, the sale of our NAND memory business, to SK hynix Inc. (SK hynix), NAND manufacturing and supply arrangements between Intel and SK hynix, and the proposed initial public offering of Mobileye; expected additions to held for sale NAND property, plant and equipment;completion of restructuring activities; availability, uses, sufficiency, and cost of capital and of capital resources, and funding sources, including expected returns to stockholders such as dividends; accounting estimatesdividends and judgments regarding reported matters, events, and contingencies and our intentions with respect to such matters, events, and contingencies,share repurchases, and the actual results thereof;expected timing of future repurchases; our valuation; future production capacity and product supply; anticipated trendssupply expectations, including regarding constraints, limitations, pricing and impacts related to industry component and substrate shortages; the future purchase, use, and availability of and payment for, products, components and services supplied by third parties; tax-relatedparties, including third-party IP and manufacturing services; tax- and accounting-related expectations; LIBOR-related expectations; our role in the Rapid Assured Microelectronics Prototypes - Commercial program; expectations regarding our relationships with certain sanctioned parties; uncertain events or assumptions;assumptions, including statements relating to TAM, product or customer demand or market opportunity; and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing, unless an earlier date is specified, and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our 20202021 Form 10-K, and subsequent Form 10-Qs, particularly thein "Risk Factors" sections of such reports, and our other SEC filings.within Other Key Information. 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 SEC that disclose risks and uncertainties that may affect our business. 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 have not been completed as of the date of this filing. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, unless an earlier date is specified, including expectations based on third-party information and projections that management believes to be reputable, and Intel does not undertake, and expressly disclaims 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.
Intel, the Intel logo, and Intel Core Intel Evo, Intel Optane, and Xeon are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.
* Other names and brands may be claimed as the property of others.
Total revenue of $19.2$18.4 billion was up $859 milliondown $1.3 billion year over year as DCG grew 10% and CCG decreased 2%13% and DCAI increased 22%. DCG revenue increasedCCG was down on higher platformlower notebook and desktop volume, and higher platform ASPs due to strong recovery in enterprise and government, and stronger core mix, partially offset by higher notebook and desktop ASPs, and lower revenue in the cloud service providers market segment compared to a strong, COVID-driven Q3 2020. CCG revenue was down due to lower notebook volume in consumer and education due to industry-wide component shortages, and down on adjacent revenue primarily driven bythe continued ramp down from the exit of our 5G smartphone modem business,business. DCAI revenue increased on higher server volume due to strength in hyperscale products and continued recovery from COVID-driven lows in Q1 2021, partially offset by higher platform ASPslower server ASPs. NEX revenue increased on strong demand for cloud networking and by increased desktop volume. IOTG and Mobileye were both up primarily on higher demand amid recovery fromedge products. Refer to Note 2: Operating Segments within Notes to Consolidated Condensed Financial Statements for further information about the economic impacts of COVID-19.recent changes to our operating segments.
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| Revenue | | Operating IncomeGross Margin | | Diluted EPS | | Cash Flows |
■ GAAP $B ■ Non-GAAP $B | | ■ GAAP $B■ Non-GAAP $B | | ■ GAAP ■ Non-GAAP | | ■ Operating Cash Flow $B ■ AdjustedFree Cash Flow $B |
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| $19.2B | | $18.1B | | $5.2B | | $5.2B | | $1.67 | | $1.71 | | $24.2B | | $12.6B |
| GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 |
| Revenue up $859M or 4.7% from Q3 2020 | | Revenue up $821M or 4.8% from Q3 2020 | | Operating income up $168M or 3% from Q3 2020; Q3 2021 operating margin at 27% | | Operating income down $49M or 1% from Q3 2020; Q3 2021 operating margin at 29% | | Diluted EPS up $0.65 or 64% from Q3 2020 | | Diluted EPS up $0.63 or 59% from Q3 2020 | | Operating cash flow down $1.3B or 5% from YTD Q3 2020 | | Free cash flow down $2.5B or 16% from YTD Q3 2020 |
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| Higher revenue in DCG, IOTG, Mobileye and PSG, partially offset by declines in CCG and NSG. Non-GAAP revenue excludes NSG. | | Higher gross margin from higher platform2 revenue partially offset by higher operating expenses from additional investment, higher period charges from ramp of process technology, and absence of sell-through on reserved non-qualified platform products compared to Q3 2020. Non-GAAP operating income excludes NSG, amortization of acquisition-related intangibles, and restructuring. | | Higher EPS driven by McAfee special dividend, lower effective tax rate, and lower shares. Non-GAAP results incrementally exclude ongoing mark-to-market adjustments, and tax impacts of non-GAAP adjustments. | | Lower operating cash flow driven by a decrease in net working capital contributions and cash paid to settle a prepaid supply agreement in Q1 2021, partially offset by a McAfee special dividend received in Q3 2021. Free cash flow decreased due to lower operating cash flow and higher capital expenditures. |
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| $18.4B | | 50.4% | | 53.1% | | $1.98 | | $0.87 | | $5.9B | | $5.5B |
| GAAP | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 |
| Revenue down $1.3B or 7% from Q1 2021 | | Gross margin down 4.8 ppts from Q1 2021 | | Gross margin down 5.7 ppt from Q1 2021 | | Diluted EPS up $1.15 or 141% from Q1 2021 | | Diluted EPS down $0.47 or 35% from Q1 2021 | | Operating cash flow up $543M or 10% from Q1 2021 | | Adjusted free cash flow up $4.2B or 303% from Q1 2021 |
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| Lower revenue in CCG and lack of Corporate revenue from a prepaid customer supply agreement in Q1 2021; higher revenue in DCAI and NEX. Non-GAAP Q1 2021 revenue excludes historical results of the divested NAND business. | | Lower gross margin from higher unit cost and higher period charges from ramp of Intel 4, partially offset by changes in revenue. Non-GAAP gross margin excludes amortization of acquisition-related intangibles, share-based compensation, and historical results of the divested NAND business. | | Higher EPS from gains on the sale of McAfee and on the NAND divestiture, and the benefit from the EC fine reversal, partially offset by higher operating expenses from additional investment and a higher effective tax rate. Non-GAAP results incrementally exclude Restructuring and other charges, (Gains) losses from divestiture, (Gains) losses on equity investments, net, the tax reform adjustment, and the tax effects of non-GAAP adjustments. | | Higher operating cash flow driven by decrease in cash used in net working capital and benefit from the EC fine reversal, offset by lower income after adjusting for non-cash items, including the gain on the sale of McAfee and pre-tax gain from the divestiture of our NAND business. Adjusted free cash flow increased due to the proceeds on the sale of McAfee. |
Key Developments
▪In July 2021, we providedWe announced our plans to invest up to €80 billion in the European Union over the next decade across the semiconductor value chain – from R&D to manufacturing to state-of-the art packaging technologies. We plan to invest up to an update on our manufacturing process and packaging technology roadmaps at our Intel Accelerated event. As part of the update, we also introducedinitial €17 billion into a leading-edge semiconductor fab mega-site in Germany, to create a new naming structure for ourR&D and design hub in France, and to invest in R&D, manufacturing process nodes, which includes the name changes summarizedand foundry services in Key Terms2. We introduced additional future nodes, including Intel 3Ireland, Italy, Poland and Intel 20A, and discussed future process and packaging technologies, such as our PowerVia, RibbonFET, Foveros Omni, and Foveros Direct technologies.Spain.
▪At Intel Architecture Day 2021, we detailedWe entered into a definitive agreement to acquire Tower Semiconductor Ltd., a leading foundry for analog semiconductor solutions. The acquisition is expected to advance our architectural innovations to meet increasing demand for computing performance and set the stage for new generations of leadership products. We provided details on two new x86 CPU architectures,IDM 2.0 strategy by accelerating our first performance hybrid architecture and our Intel® Thread Director intelligent workload scheduler; our next-generation data center processor Sapphire Rapids; infrastructure processing unit architecture; and upcoming graphics architectures, which will power our upcoming Alchemist SoC for client discrete graphics and Ponte Vecchio SoC for high-performance computing applications.global end-to-end foundry business.
▪In August 2021 it wasWe announced that Intel Foundry Services will leadan agreement to acquire Granulate Cloud Solutions Ltd, an Israel-based developer of real-time continuous optimization software. The acquisition of Granulate should help cloud and data center customers maximize compute workload performance and reduce infrastructure and cloud costs.
▪We continue to progress on our previously announced intention to take Mobileye public in the first phase of the U.S. Department of Defense's multi-phase Rapid Assured Microelectronics Prototypes - Commercial program to facilitate the use of a domestic commercial foundry infrastructure.US via an IPO.
1 See "Non-GAAP Financial Measures" within MD&A.
2 See "Key Terms" within Consolidated Condensed Financial Statements and Supplemental Details.
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| Consolidated Condensed Statements of Income | |
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| | | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | |
| (In Millions, Except Per Share Amounts; Unaudited) | (In Millions, Except Per Share Amounts; Unaudited) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions, Except Per Share Amounts; Unaudited) | | Apr 2, 2022 | | Mar 27, 2021 | |
| Net revenue | Net revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | | Net revenue | | $ | 18,353 | | | $ | 19,673 | | |
| Cost of sales | Cost of sales | | 8,446 | | | 8,592 | | | 25,690 | | | 25,625 | | Cost of sales | | 9,109 | | | 8,819 | | |
| Gross margin | Gross margin | | 10,746 | | | 9,741 | | | 32,806 | | | 32,264 | | Gross margin | | 9,244 | | | 10,854 | | |
| Research and development | Research and development | | 3,803 | | | 3,272 | | | 11,141 | | | 9,901 | | Research and development | | 4,362 | | | 3,623 | | |
| Marketing, general and administrative | Marketing, general and administrative | | 1,674 | | | 1,435 | | | 4,601 | | | 4,423 | | Marketing, general and administrative | | 1,752 | | | 1,328 | | |
| Restructuring and other charges | Restructuring and other charges | | 42 | | | (25) | | | 2,597 | | | 146 | | Restructuring and other charges | | (1,211) | | | 2,209 | | |
| Operating expenses | Operating expenses | | 5,519 | | | 4,682 | | | 18,339 | | | 14,470 | | Operating expenses | | 4,903 | | | 7,160 | | |
| Operating income | Operating income | | 5,227 | | | 5,059 | | | 14,467 | | | 17,794 | | Operating income | | 4,341 | | | 3,694 | | |
| Gains (losses) on equity investments, net | Gains (losses) on equity investments, net | | 1,707 | | | 56 | | | 2,370 | | | 212 | | Gains (losses) on equity investments, net | | 4,323 | | | 368 | | |
| Interest and other, net | Interest and other, net | | (76) | | | (74) | | | (328) | | | (416) | | Interest and other, net | | 997 | | | (156) | | |
| Income before taxes | Income before taxes | | 6,858 | | | 5,041 | | | 16,509 | | | 17,590 | | Income before taxes | | 9,661 | | | 3,906 | | |
| Provision for taxes | Provision for taxes | | 35 | | | 765 | | | 1,264 | | | 2,548 | | Provision for taxes | | 1,548 | | | 545 | | |
| Net income | Net income | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | | Net income | | $ | 8,113 | | | $ | 3,361 | | |
| Earnings per share—basic | Earnings per share—basic | | $ | 1.68 | | | $ | 1.02 | | | $ | 3.76 | | | $ | 3.55 | | Earnings per share—basic | | $ | 1.99 | | | $ | 0.83 | | |
| Earnings per share—diluted | Earnings per share—diluted | | $ | 1.67 | | | $ | 1.02 | | | $ | 3.73 | | | $ | 3.52 | | Earnings per share—diluted | | $ | 1.98 | | | $ | 0.82 | | |
| | Weighted average shares of common stock outstanding: | Weighted average shares of common stock outstanding: | | | | | | | | | Weighted average shares of common stock outstanding: | | | | | |
| Basic | Basic | | 4,061 | | | 4,188 | | | 4,055 | | | 4,233 | | Basic | | 4,079 | | | 4,056 | | |
| Diluted | Diluted | | 4,086 | | | 4,211 | | | 4,089 | | | 4,269 | | Diluted | | 4,107 | | | 4,096 | | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Income | 3 |
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| Consolidated Condensed Statements of Comprehensive Income | |
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| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| (In Millions; Unaudited) | (In Millions; Unaudited) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions; Unaudited) | | Apr 2, 2022 | | Mar 27, 2021 | |
| Net income | Net income | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | | Net income | | $ | 8,113 | | | $ | 3,361 | | |
| Changes in other comprehensive income, net of tax: | Changes in other comprehensive income, net of tax: | | | | | | | | | Changes in other comprehensive income, net of tax: | | | | | |
| | Net unrealized holding gains (losses) on derivatives | Net unrealized holding gains (losses) on derivatives | | (46) | | | 206 | | | (390) | | | 257 | | Net unrealized holding gains (losses) on derivatives | | (115) | | | (350) | | |
| Actuarial valuation and other pension benefits (expenses), net | Actuarial valuation and other pension benefits (expenses), net | | 13 | | | 11 | | | 38 | | | 34 | | Actuarial valuation and other pension benefits (expenses), net | | 18 | | | 13 | | |
| Translation adjustments and other | Translation adjustments and other | | (19) | | | (5) | | | (44) | | | 49 | | Translation adjustments and other | | (25) | | | (15) | | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | (52) | | | 212 | | | (396) | | | 340 | | Other comprehensive income (loss) | | (122) | | | (352) | | |
| Total comprehensive income | Total comprehensive income | | $ | 6,771 | | | $ | 4,488 | | | $ | 14,849 | | | $ | 15,382 | | Total comprehensive income | | $ | 7,991 | | | $ | 3,009 | | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Comprehensive Income | 4 |
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| Consolidated Condensed Balance Sheets | |
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| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | (In Millions) | | Apr 2, 2022 | | Dec 25, 2021 |
| | | (unaudited) | | | | | (unaudited) | | |
| Assets | Assets | | Assets | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 7,870 | | | $ | 5,865 | | Cash and cash equivalents | | $ | 6,215 | | | $ | 4,827 | |
| Short-term investments | Short-term investments | | 4,004 | | | 2,292 | | Short-term investments | | 32,481 | | | 24,426 | |
| Trading assets | | 22,761 | | | 15,738 | | |
| | Accounts receivable | Accounts receivable | | 8,400 | | | 6,782 | | Accounts receivable | | 7,074 | | | 9,457 | |
| Inventories | Inventories | | 9,798 | | | 8,427 | | Inventories | | 11,935 | | | 10,776 | |
| Assets held for sale | Assets held for sale | | 6,398 | | | 5,400 | | Assets held for sale | | 236 | | | 6,942 | |
| Other current assets | Other current assets | | 2,073 | | | 2,745 | | Other current assets | | 4,627 | | | 2,130 | |
| Total current assets | Total current assets | | 61,304 | | | 47,249 | | Total current assets | | 62,568 | | | 58,558 | |
| | Property, plant and equipment, net of accumulated depreciation of $83,424 ($77,645 as of December 26, 2020) | | 59,733 | | | 56,584 | | |
| Property, plant and equipment, net of accumulated depreciation of $87,096 ($85,294 as of December 25, 2021) | | Property, plant and equipment, net of accumulated depreciation of $87,096 ($85,294 as of December 25, 2021) | | 66,718 | | | 63,245 | |
| Equity investments | Equity investments | | 6,050 | | | 5,152 | | Equity investments | | 6,036 | | | 6,298 | |
| Other long-term investments | | 953 | | | 2,192 | | |
| | Goodwill | Goodwill | | 26,786 | | | 26,971 | | Goodwill | | 27,011 | | | 26,963 | |
| Identified intangible assets, net | Identified intangible assets, net | | 7,684 | | | 9,026 | | Identified intangible assets, net | | 6,813 | | | 7,270 | |
| Other long-term assets | Other long-term assets | | 5,452 | | | 5,917 | | Other long-term assets | | 7,210 | | | 6,072 | |
| Total assets | Total assets | | $ | 167,962 | | | $ | 153,091 | | Total assets | | $ | 176,356 | | | $ | 168,406 | |
| | Liabilities and stockholders’ equity | Liabilities and stockholders’ equity | | Liabilities and stockholders’ equity | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Short-term debt | Short-term debt | | $ | 4,694 | | | $ | 2,504 | | Short-term debt | | $ | 4,459 | | | $ | 4,591 | |
| Accounts payable | Accounts payable | | 6,792 | | | 5,581 | | Accounts payable | | 7,210 | | | 5,747 | |
| Accrued compensation and benefits | Accrued compensation and benefits | | 4,026 | | | 3,999 | | Accrued compensation and benefits | | 2,731 | | | 4,535 | |
| | Other accrued liabilities | Other accrued liabilities | | 14,060 | | | 12,670 | | Other accrued liabilities | | 14,922 | | | 12,589 | |
| Total current liabilities | Total current liabilities | | 29,572 | | | 24,754 | | Total current liabilities | | 29,322 | | | 27,462 | |
| | Debt | Debt | | 35,610 | | | 33,897 | | Debt | | 32,788 | | | 33,510 | |
| Contract liabilities | | 62 | | | 1,367 | | |
| | Income taxes payable | Income taxes payable | | 4,223 | | | 4,578 | | Income taxes payable | | 4,372 | | | 4,305 | |
| Deferred income taxes | Deferred income taxes | | 3,019 | | | 3,843 | | Deferred income taxes | | 1,547 | | | 2,667 | |
| Other long-term liabilities | Other long-term liabilities | | 5,389 | | | 3,614 | | Other long-term liabilities | | 5,191 | | | 5,071 | |
| Contingencies (Note 13) | | 0 | | 0 | |
| Contingencies (Note 12) | | Contingencies (Note 12) | | 0 | | 0 |
| | Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
| | Common stock and capital in excess of par value, 4,067 issued and outstanding (4,062 issued and outstanding as of December 26, 2020) | | 27,592 | | | 25,556 | | |
| Common stock and capital in excess of par value, 4,089 issued and outstanding (4,070 issued and outstanding as of December 25, 2021) | | Common stock and capital in excess of par value, 4,089 issued and outstanding (4,070 issued and outstanding as of December 25, 2021) | | 29,244 | | | 28,006 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | (1,147) | | | (751) | | Accumulated other comprehensive income (loss) | | (1,002) | | | (880) | |
| Retained earnings | Retained earnings | | 63,642 | | | 56,233 | | Retained earnings | | 74,894 | | | 68,265 | |
| Total stockholders’ equity | Total stockholders’ equity | | 90,087 | | | 81,038 | | Total stockholders’ equity | | 103,136 | | | 95,391 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | | $ | 167,962 | | | $ | 153,091 | | Total liabilities and stockholders’ equity | | $ | 176,356 | | | $ | 168,406 | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Balance Sheets | 5 |
| | | | | |
| Consolidated Condensed Statements of Cash Flows | |
| |
| | | | | Nine Months Ended | | | Three Months Ended |
| (In Millions; Unaudited) | (In Millions; Unaudited) | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions; Unaudited) | | Apr 2, 2022 | | Mar 27, 2021 |
| | Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | | $ | 5,865 | | | $ | 4,194 | | Cash and cash equivalents, beginning of period | | $ | 4,827 | | | $ | 5,865 | |
| Cash flows provided by (used for) operating activities: | Cash flows provided by (used for) operating activities: | | | | | Cash flows provided by (used for) operating activities: | | | | |
| Net income | Net income | | 15,245 | | | 15,042 | | Net income | | 8,113 | | | 3,361 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation | Depreciation | | 7,357 | | | 7,925 | | Depreciation | | 2,847 | | | 2,454 | |
| Share-based compensation | Share-based compensation | | 1,587 | | | 1,393 | | Share-based compensation | | 707 | | | 425 | |
| | Restructuring and other charges | Restructuring and other charges | | 2,597 | | | 146 | | Restructuring and other charges | | 17 | | | 2,209 | |
| Amortization of intangibles | Amortization of intangibles | | 1,361 | | | 1,311 | | Amortization of intangibles | | 501 | | | 448 | |
| (Gains) losses on equity investments, net | (Gains) losses on equity investments, net | | (1,113) | | | (105) | | (Gains) losses on equity investments, net | | (4,325) | | | (299) | |
| | (Gains) losses on divestitures | | (Gains) losses on divestitures | | (1,121) | | | — | |
| | Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
| Accounts receivable | Accounts receivable | | (1,618) | | | 525 | | Accounts receivable | | 2,384 | | | (426) | |
| Inventories | Inventories | | (1,212) | | | (570) | | Inventories | | (1,147) | | | 180 | |
| Accounts payable | Accounts payable | | 1,095 | | | 355 | | Accounts payable | | (128) | | | 303 | |
| Accrued compensation and benefits | Accrued compensation and benefits | | (16) | | | (569) | | Accrued compensation and benefits | | (1,884) | | | (1,283) | |
| Prepaid supply agreements | | (1,577) | | | (91) | | |
| Prepaid customer supply agreements | | Prepaid customer supply agreements | | (6) | | | (1,566) | |
| Income taxes | Income taxes | | (570) | | | 493 | | Income taxes | | 1,219 | | | 383 | |
| Other assets and liabilities | Other assets and liabilities | | 1,058 | | | (361) | | Other assets and liabilities | | (1,286) | | | (841) | |
| Total adjustments | Total adjustments | | 8,949 | | | 10,452 | | Total adjustments | | (2,222) | | | 1,987 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 24,194 | | | 25,494 | | Net cash provided by operating activities | | 5,891 | | | 5,348 | |
| Cash flows provided by (used for) investing activities: | Cash flows provided by (used for) investing activities: | | | | | Cash flows provided by (used for) investing activities: | | | | |
| Additions to property, plant and equipment | Additions to property, plant and equipment | | (11,579) | | | (10,392) | | Additions to property, plant and equipment | | (4,604) | | | (3,972) | |
| Additions to held for sale NAND property, plant and equipment | Additions to held for sale NAND property, plant and equipment | | (1,118) | | | — | | Additions to held for sale NAND property, plant and equipment | | (193) | | | (416) | |
| | Purchases of available-for-sale debt investments | | (3,983) | | | (6,323) | | |
| | Maturities and sales of available-for-sale debt investments | | 3,457 | | | 5,037 | | |
| Purchases of trading assets | | (26,343) | | | (14,744) | | |
| Maturities and sales of trading assets | | 18,813 | | | 11,227 | | |
| Purchases of short-term investments | | Purchases of short-term investments | | (19,091) | | | (6,574) | |
| Maturities and sales of short-term investments | | Maturities and sales of short-term investments | | 10,490 | | | 8,009 | |
| | Sales of equity investments | | Sales of equity investments | | 4,682 | | | 86 | |
| | Proceeds from divestitures | | Proceeds from divestitures | | 6,544 | | | — | |
| Other investing | Other investing | | 620 | | | 83 | | Other investing | | (468) | | | 866 | |
| Net cash used for investing activities | Net cash used for investing activities | | (20,133) | | | (15,112) | | Net cash used for investing activities | | (2,640) | | | (2,001) | |
| Cash flows provided by (used for) financing activities: | Cash flows provided by (used for) financing activities: | | | | | Cash flows provided by (used for) financing activities: | | | | |
| | Issuance of long-term debt, net of issuance costs | | 4,974 | | | 10,247 | | |
| Repayment of debt and debt conversion | | (500) | | | (4,525) | | |
| Payments on finance leases | | Payments on finance leases | | (299) | | | — | |
| | Proceeds from sales of common stock through employee equity incentive plans | Proceeds from sales of common stock through employee equity incentive plans | | 1,016 | | | 897 | | Proceeds from sales of common stock through employee equity incentive plans | | 589 | | | 565 | |
| Repurchase of common stock | Repurchase of common stock | | (2,415) | | | (12,229) | | Repurchase of common stock | | — | | | (2,301) | |
| Accelerated share repurchase forward agreements | | — | | | (2,000) | | |
| | | Payment of dividends to stockholders | Payment of dividends to stockholders | | (4,231) | | | (4,215) | | Payment of dividends to stockholders | | (1,487) | | | (1,411) | |
| | Other financing | Other financing | | (900) | | | 605 | | Other financing | | (666) | | | (873) | |
| Net cash provided by (used for) financing activities | Net cash provided by (used for) financing activities | | (2,056) | | | (11,220) | | Net cash provided by (used for) financing activities | | (1,863) | | | (4,020) | |
| | Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | 2,005 | | | (838) | | Net increase (decrease) in cash and cash equivalents | | 1,388 | | | (673) | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | | $ | 7,870 | | | $ | 3,356 | | Cash and cash equivalents, end of period | | $ | 6,215 | | | $ | 5,192 | |
| | Supplemental disclosures of noncash investing activities and cash flow information: | | |
| Supplemental disclosures: | | Supplemental disclosures: | |
| Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 2,693 | | | $ | 2,752 | | Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 2,949 | | | $ | 2,472 | |
| | Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
| Interest, net of capitalized interest | Interest, net of capitalized interest | | $ | 271 | | | $ | 459 | | Interest, net of capitalized interest | | $ | 177 | | | $ | 161 | |
| Income taxes, net of refunds | Income taxes, net of refunds | | $ | 1,831 | | | $ | 1,986 | | Income taxes, net of refunds | | $ | 335 | | | $ | 172 | |
| |
See accompanying notes.
| | | | | | | | | | | |
| Financial Statements | Consolidated Condensed Statements of Cash Flows | 6 |
| | | | | |
| Consolidated Condensed Statements of Stockholders' Equity | |
| |
| | | Common Stock and Capital in Excess of Par Value | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings1 | | Total | | Common Stock and Capital in Excess of Par Value | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings1 | | Total |
| (In Millions, Except Per Share Amounts; Unaudited) | (In Millions, Except Per Share Amounts; Unaudited) | | Shares | | Amount | | (In Millions, Except Per Share Amounts; Unaudited) | | Shares | | Amount | |
| Three Months Ended | Three Months Ended | | Three Months Ended | |
| | Balance as of June 26, 2021 | | 4,057 | | | $ | 26,655 | | | $ | (1,095) | | | $ | 59,647 | | | $ | 85,207 | | |
| Balance as of December 25, 2021 | | Balance as of December 25, 2021 | | 4,070 | | | $ | 28,006 | | | $ | (880) | | | $ | 68,265 | | | $ | 95,391 | |
| Net income | Net income | | — | | | — | | | — | | | 6,823 | | | 6,823 | | Net income | | — | | | — | | | — | | | 8,113 | | | 8,113 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | (52) | | | — | | | (52) | | Other comprehensive income (loss) | | — | | | — | | | (122) | | | — | | | (122) | |
| Employee equity incentive plans and other | Employee equity incentive plans and other | | 11 | | | 427 | | | — | | | — | | | 427 | | Employee equity incentive plans and other | | 20 | | | 589 | | | — | | | — | | | 589 | |
| Share-based compensation | Share-based compensation | | — | | | 543 | | | — | | | — | | | 543 | | Share-based compensation | | — | | | 707 | | | — | | | — | | | 707 | |
| | Repurchase of common stock | Repurchase of common stock | | — | | | — | | | — | | | — | | | — | | Repurchase of common stock | | — | | | — | | | — | | | — | | | — | |
| Accelerated share repurchase forward agreements | | — | | | — | | | — | | | — | | | — | | |
| | Restricted stock unit withholdings | Restricted stock unit withholdings | | (1) | | | (33) | | | — | | | (4) | | | (37) | | Restricted stock unit withholdings | | (1) | | | (58) | | | — | | | 3 | | | (55) | |
| Cash dividends declared ($0.70 per share) | | — | | | — | | | — | | | (2,824) | | | (2,824) | | |
| Balance as of September 25, 2021 | | 4,067 | | | $ | 27,592 | | | $ | (1,147) | | | $ | 63,642 | | | $ | 90,087 | | |
| Cash dividends declared ($0.37 per share) | | Cash dividends declared ($0.37 per share) | | — | | | — | | | — | | | (1,487) | | | (1,487) | |
| Balance as of April 2, 2022 | | Balance as of April 2, 2022 | | 4,089 | | | $ | 29,244 | | | $ | (1,002) | | | $ | 74,894 | | | $ | 103,136 | |
| | Balance as of June 27, 2020 | | 4,253 | | | $ | 25,516 | | | $ | (1,152) | | | $ | 57,646 | | | $ | 82,010 | | |
| Balance as of December 26, 2020 | | Balance as of December 26, 2020 | | 4,062 | | | $ | 25,556 | | | $ | (751) | | | $ | 56,268 | | | $ | 81,073 | |
| | Net income | Net income | | — | | | — | | | — | | | 4,276 | | | 4,276 | | Net income | | — | | | — | | | — | | | 3,361 | | | 3,361 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | 212 | | | — | | | 212 | | Other comprehensive income (loss) | | — | | | — | | | (352) | | | — | | | (352) | |
| Employee equity incentive plans and other | Employee equity incentive plans and other | | 12 | | | 385 | | | — | | | — | | | 385 | | Employee equity incentive plans and other | | 17 | | | 565 | | | — | | | — | | | 565 | |
| Share-based compensation | Share-based compensation | | — | | | 452 | | | — | | | — | | | 452 | | Share-based compensation | | — | | | 425 | | | — | | | — | | | 425 | |
| Temporary equity reduction | | Temporary equity reduction | | — | | | — | | | — | | | — | | | — | |
| | Repurchase of common stock | | Repurchase of common stock | | (40) | | | (249) | | | — | | | (2,166) | | | (2,415) | |
| | Restricted stock unit withholdings | | Restricted stock unit withholdings | | (1) | | | (25) | | | — | | | (4) | | | (29) | |
| Cash dividends declared ($0.70 per share) | | Cash dividends declared ($0.70 per share) | | — | | | — | | | — | | | (2,821) | | | (2,821) | |
| | Balance as of March 27, 2021 | | Balance as of March 27, 2021 | | 4,038 | | | $ | 26,272 | | | $ | (1,103) | | | $ | 54,638 | | | $ | 79,807 | |
| | Repurchase of common stock | | (166) | | | (993) | | | — | | | (7,007) | | | (8,000) | | |
| Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | | |
| Restricted stock unit withholdings | | (1) | | | (25) | | | — | | | — | | | (25) | | |
| Cash dividends declared ($0.66 per share) | | — | | | — | | | — | | | (2,756) | | | (2,756) | | |
| | Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | | |
| | Nine Months Ended | | |
| | Balance as of December 26, 2020 | | 4,062 | | | $ | 25,556 | | | $ | (751) | | | $ | 56,268 | | | $ | 81,073 | | |
| Net income | | — | | | — | | | — | | | 15,245 | | | 15,245 | | |
| Other comprehensive income (loss) | | — | | | — | | | (396) | | | ��� | | | (396) | | |
| Employee equity incentive plans and other | | 52 | | | 1,015 | | | — | | | — | | | 1,015 | | |
| Share-based compensation | | — | | | 1,587 | | | — | | | — | | | 1,587 | | |
| Temporary equity reduction | | — | | | — | | | — | | | — | | | — | | |
| Convertible debt | | — | | | — | | | — | | | — | | | — | | |
| | Repurchase of common stock | | (40) | | | (249) | | | — | | | (2,166) | | | (2,415) | | |
| Accelerated share repurchase forward agreements | | — | | | — | | | — | | | — | | | — | | |
| Restricted stock unit withholdings | | (7) | | | (317) | | | — | | | (60) | | | (377) | | |
| Cash dividends declared ($1.39 per share) | | — | | | — | | | — | | | (5,645) | | | (5,645) | | |
| Balance as of September 25, 2021 | | 4,067 | | | $ | 27,592 | | | $ | (1,147) | | | $ | 63,642 | | | $ | 90,087 | | |
| | Balance as of December 28, 2019 | | 4,290 | | | $ | 25,261 | | | $ | (1,280) | | | $ | 53,523 | | | $ | 77,504 | | |
| Net income | | — | | | — | | | — | | | 15,042 | | | 15,042 | | |
| Other comprehensive income (loss) | | — | | | — | | | 340 | | | — | | | 340 | | |
| Employee equity incentive plans and other | | 54 | | | 1,014 | | | — | | | — | | | 1,014 | | |
| Share-based compensation | | — | | | 1,393 | | | — | | | — | | | 1,393 | | |
| Temporary equity reduction | | — | | | 155 | | | — | | | — | | | 155 | | |
| Convertible debt | | — | | | (750) | | | — | | | — | | | (750) | | |
| Repurchase of common stock | | (237) | | | (1,413) | | | — | | | (10,696) | | | (12,109) | | |
| Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | | |
| Restricted stock unit withholdings | | (9) | | | (325) | | | — | | | (135) | | | (460) | | |
| Cash dividends declared ($1.32 per share) | | — | | | — | | | — | | | (5,575) | | | (5,575) | | |
| Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | | |
|
1The retained earnings balance as of December 26, 2020 includes an opening balance adjustment made as a result of the adoption of a new accounting standard in 2021.
See accompanying notes.
| | | | | | | | | | | |
| Financial Statements | Consolidated Condensed Statements of Stockholders' Equity | 7 |
| | | | | |
| Notes to Consolidated Condensed Financial Statements | |
| |
| | | | | |
| Note 1 : | Basis of Presentation |
We prepared our interim Consolidated Condensed Financial Statements that accompany these notes in conformity with U.S. GAAP, consistent in all material respects with those applied in our 20202021 Form 10-K.
We have made estimates and judgments affecting the amounts reported in our Consolidated 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, and 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 Statements in our 20202021 Form 10-K where we include additional information about our policies and the methods and assumptions used in our estimates.
In the first quarter of 2022, we reclassified the presentation of cash paid and received under our credit support annex agreements with derivative counterparties within our Consolidated Condensed Statement of Cash Flows. These reclassifications better reflect the economic intent of the credit support annex agreements, and result in changes to amounts previously reported for net cash provided by (used for) operating, investing, and financing activities.
In the first quarter of 2022, we reclassified the presentation of certain marketable debt investments within our Consolidated Condensed Balance Sheets, combining all marketable debt investments with original contractual maturities of three months or more into Short-term investments as they represent the investment of cash available for current operations. These reclassifications simplify our Consolidated Condensed Balance Sheets and result in changes to amounts previously reported as Short-term investments, Trading assets and Other long-term investments.
| | | | | |
| Note 2 : | Operating Segments |
We previously announced several organizational changes that would accelerate the execution and innovation of our Company by allowing us to capture growth in both large traditional markets and high-growth emerging markets. This includes reorganization of our business units to capture this growth and to provide increased transparency, focus and accountability. As a result, we modified our segment reporting in Q1 2021 to align to the previously announced business reorganization. All prior-period segment data has been retrospectively adjusted to reflect the way we internally manage and monitor operating segment performance starting in fiscal year 2022.
We now manage our business through the following operating segments:
▪CCGClient Computing (CCG)
▪DCGDatacenter and AI (DCAI)
▪IOTGNetwork and Edge (NEX)
▪Accelerated Computing Systems and Graphics (AXG)
▪Mobileye
▪NSGIntel Foundry Services (IFS)
▪PSG
We derive a substantial majority of our revenue from platform products, which are our principal products and considered as one product class. We offer platform products that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multichip package, which is based on Intel® architecture. Platform products are used in various form factors across our
CCG, DCG,DCAI and IOTG operating segments. Our non-platform, or adjacent products, can be combined with platform products to form comprehensive platform solutions to meet customer needs.
CCG and DCGNEX are our reportable operating segments. IOTG,AXG, Mobileye, NSG, and PSGIFS do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. Our Internet of Things portfolio, presentedAXG revenue includes integrated graphics royalties from our CCG and NEX operating segments and are recorded as Internet of Things, is comprised of IOTGif the sales or transfers were to third parties at prices that approximate market-based selling prices. When we enter into federal contracts, they are aligned to the sponsoring operating segment.
We have sales and Mobileyemarketing, manufacturing, engineering, finance, and administration groups. Expenses for these groups are generally allocated to the operating segments. In 2021, our DCG operating segment includes the results of our Intel® OptaneTM memory business, and our NSG operating segment is composed of our NAND memory business. Refer to "Note 8: Acquisitions and Divestitures" within Notes to Consolidated Condensed Financial Statements for further information on the pending divestiture of our NAND memory business.
We have an “all other”"all other" category that includes revenue, expenses, and charges such as:
▪results of operations from non-reportable segments not otherwise presented;
▪historical results of operations from divested businesses;
▪results of operations of start-up businesses that support our initiatives, including our foundry business;initiatives;
▪amounts included within restructuring and other charges;
▪a portion of employee benefits, compensation, and other expenses not allocated to the operating segments;segments (beginning the first quarter of 2022, this includes all of our stock-based compensation); and
▪acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.
The CODM, who is our CEO, does not evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. The accounting policies for segment reporting are the same as for Intel as a whole.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 8 |
The CODM, who is our 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 and we do not 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 operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. The 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 2021 Form 10-K except for the organizational changes and the change in allocation of stock-based compensation expense described above.
Net revenue and operating income (loss) for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Net revenue: | | | | | | | | |
| Client Computing Group | | | | | | | | |
| Platform | | $ | 8,954 | | | $ | 8,762 | | | $ | 27,968 | | | $ | 25,703 | |
| Adjacent | | 710 | | | 1,085 | | | 2,410 | | | 3,415 | |
| | 9,664 | | | 9,847 | | | 30,378 | | | 29,118 | |
| Data Center Group | | | | | | | | |
| Platform | | 5,747 | | | 5,151 | | | 16,261 | | | 17,759 | |
| Adjacent | | 749 | | | 754 | | | 2,254 | | | 2,256 | |
| | 6,496 | | | 5,905 | | | 18,515 | | | 20,015 | |
| Internet of Things | | | | | | | | |
| IOTG | | 1,042 | | | 677 | | | 2,940 | | | 2,230 | |
| Mobileye | | 326 | | | 234 | | | 1,030 | | | 634 | |
| | 1,368 | | | 911 | | | 3,970 | | | 2,864 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Non-Volatile Memory Solutions Group | | 1,105 | | | 1,153 | | | 3,310 | | | 4,150 | |
| Programmable Solutions Group | | 478 | | | 411 | | | 1,450 | | | 1,431 | |
| | | | | | | | |
| All other | | 81 | | | 106 | | | 873 | | | 311 | |
| Total net revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | |
| | | | | | | | |
| Operating income (loss): | | | | | | | | |
| Client Computing Group | | $ | 3,317 | | | $ | 3,554 | | | $ | 11,197 | | | $ | 10,621 | |
| Data Center Group | | 2,057 | | | 1,903 | | | 5,271 | | | 8,494 | |
| | | | | | | | |
| Internet of Things | | | | | | | | |
| IOTG | | 276 | | | 61 | | | 775 | | | 374 | |
| Mobileye | | 105 | | | 47 | | | 361 | | | 131 | |
| | 381 | | | 108 | | | 1,136 | | | 505 | |
| | | | | | | | |
| | | | | | | | |
| Non-Volatile Memory Solutions Group | | 442 | | | 29 | | | 1,015 | | | 285 | |
| Programmable Solutions Group | | 76 | | | 40 | | | 246 | | | 217 | |
| All other | | (1,046) | | | (575) | | | (4,398) | | | (2,328) | |
| Total operating income | | $ | 5,227 | | | $ | 5,059 | | | $ | 14,467 | | | $ | 17,794 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 | | | | |
| Operating segment revenue: | | | | | | | | |
| Client Computing | | | | | | | | |
| Desktop | | $ | 2,641 | | | $ | 2,770 | | | | | |
| Notebook | | 5,959 | | | 6,956 | | | | | |
| Other | | 694 | | | 997 | | | | | |
| | 9,294 | | | 10,723 | | | | | |
| | | | | | | | |
| Datacenter and AI | | 6,034 | | | 4,940 | | | | | |
| Network and Edge | | 2,213 | | | 1,799 | | | | | |
| Accelerated Computing Systems and Graphics | | 219 | | 181 | | | | | |
| Mobileye | | 394 | | | 377 | | | | | |
| Intel Foundry Services | | 283 | | | 103 | | | | | |
| All other | | 67 | | | 1,724 | | | | | |
| Total operating segment revenue | | $ | 18,504 | | | $ | 19,847 | | | | | |
| | | | | | | | |
| Operating income (loss): | | | | | | | | |
| Client Computing | | $ | 2,827 | | | $ | 4,288 | | | | | |
| Datacenter and AI | | 1,686 | | | 1,706 | | | | | |
| Network and Edge | | 366 | | | 243 | | | | | |
| Accelerated Computing Systems and Graphics | | (390) | | | (176) | | | | | |
| Mobileye | | 148 | | | 171 | | | | | |
| Intel Foundry Services | | (31) | | | (34) | | | | | |
| All other | | (265) | | | (2,504) | | | | | |
| Total operating income | | $ | 4,341 | | | $ | 3,694 | | | | | |
Disaggregated netThe following table presents intersegment revenue for each period was as follows:before eliminations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Platform revenue | | | | | | | | |
| CCG desktop platform | | $ | 2,983 | | | $ | 2,483 | | | $ | 8,262 | | | $ | 7,691 | |
| CCG notebook platform | | 5,953 | | | 6,275 | | | 19,655 | | | 17,976 | |
CCG other platform1 | | 18 | | | 4 | | | 51 | | | 36 | |
| DCG platform | | 5,747 | | | 5,151 | | | 16,261 | | | 17,759 | |
| IOTG platform | | 948 | | | 595 | | | 2,679 | | | 2,008 | |
| | 15,649 | | | 14,508 | | | 46,908 | | | 45,470 | |
| | | | | | | | |
Adjacent revenue2 | | 3,543 | | | 3,825 | | | 11,588 | | | 12,419 | |
| Total revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | |
1 Includes our tablet and service provider revenue.
2 Includes all of our non-platform products for CCG, DCG, and IOTG such as modem, Ethernet, and silicon photonics, as well as Mobileye, NSG, and PSG products, as well as revenue included in our "all other" category. | | | | | | | | | | | | | | |
| Total operating segment revenue | | $ | 18,504 | | | $ | 19,847 | |
| | | | |
| Less: Accelerated Computing Systems and Graphics intersegment revenue | | (151) | | | (174) | |
| Total net revenue | | $ | 18,353 | | | $ | 19,673 | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 9 |
| | | | | |
| Note 3 : | Earnings Per Share |
We computed basic earnings per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings 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 | |
| (In Millions, Except Per Share Amounts) | (In Millions, Except Per Share Amounts) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions, Except Per Share Amounts) | | Apr 2, 2022 | | Mar 27, 2021 | |
| Net income available to common stockholders | Net income available to common stockholders | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | | Net income available to common stockholders | | $ | 8,113 | | | $ | 3,361 | | |
| Weighted average shares of common stock outstanding—basic | Weighted average shares of common stock outstanding—basic | | 4,061 | | | 4,188 | | | 4,055 | | | 4,233 | | Weighted average shares of common stock outstanding—basic | | 4,079 | | | 4,056 | | |
| Dilutive effect of employee equity incentive plans | Dilutive effect of employee equity incentive plans | | 25 | | | 23 | | | 34 | | | 36 | | Dilutive effect of employee equity incentive plans | | 28 | | | 40 | | |
| | Weighted average shares of common stock outstanding—diluted | Weighted average shares of common stock outstanding—diluted | | 4,086 | | | 4,211 | | | 4,089 | | | 4,269 | | Weighted average shares of common stock outstanding—diluted | | 4,107 | | | 4,096 | | |
Earnings per share—basic
| Earnings per share—basic
| | $ | 1.68 | | | $ | 1.02 | | | $ | 3.76 | | | $ | 3.55 | | Earnings per share—basic
| | $ | 1.99 | | | $ | 0.83 | | |
Earnings per share—diluted
| Earnings per share—diluted
| | $ | 1.67 | | | $ | 1.02 | | | $ | 3.73 | | | $ | 3.52 | | Earnings per share—diluted
| | $ | 1.98 | | | $ | 0.82 | | |
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 RSUs, and the assumed issuance of common stock under the stock purchase plan.
Securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share in all periods presented.
| | | | | |
Note 4 : | Contract Liabilities |
Contract liabilities consist of prepayments received from customers on long-term prepaid supply agreements toward future product delivery and other revenue deferrals from regular ongoing business activity. Contract liabilities were $351 million as of September 25, 2021 ($1.9 billion as of December 26, 2020).
The following table shows the changes in contract liability balances relating to long-term prepaid supply agreements during the first nine months of 2021:
| | | | | | | | |
(In Millions) | | |
Prepaid supply agreements balance as of December 26, 2020 | | $ | 1,625 | |
| | |
Concession payment | | (950) | |
Prepaids utilized | | (627) | |
Prepaid supply agreements balance as of September 25, 2021 | | $ | 48 | |
During the first quarter of 2021, we settled an agreement with our largest prepaid customer whose prepayment balance made up $1.6 billion of our contract liability balance as of December 26, 2020. We returned $950 million to the customer and recognized $584 million in revenue for having completed performance of the prepaid supply agreement. The prepaid supply agreement is excluded from the NAND memory business and is recorded as Corporate revenue in the first nine months of 2021 in the "all other" category presented in "Note 2: Operating Segments" within Notes to Consolidated Condensed Financial Statements.
| | | | | |
Note 54 : | Other Financial Statement Details |
Inventories
| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | (In Millions) | | Apr 2, 2022 | | Dec 25, 2021 |
| Raw materials | Raw materials | | $ | 1,274 | | | $ | 908 | | Raw materials | | $ | 1,596 | | | $ | 1,441 | |
| Work in process | Work in process | | 6,304 | | | 5,693 | | Work in process | | 6,928 | | | 6,656 | |
| Finished goods | Finished goods | | 2,220 | | | 1,826 | | Finished goods | | 3,411 | | | 2,679 | |
| Total inventories | Total inventories | | $ | 9,798 | | | $ | 8,427 | | Total inventories | | $ | 11,935 | | | $ | 10,776 | |
Interest and Other, Net
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | |
| (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 | | | | |
| Interest income | | $ | 47 | | | $ | 37 | | | | | |
| Interest expense | | (124) | | | (190) | | | | | |
| Other, net | | 1,074 | | | (3) | | | | | |
| Total interest and other, net | | $ | 997 | | | $ | (156) | | | | | |
Interest expense in the preceding table is net of $142 million of interest capitalized in the first three months of 2022 ($97 million in the first three months of 2021). Other, net in the first three months of 2022, includes a gain of $1.1 billion resulting from the first closing of the divestiture of our NAND memory business.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 10 |
Interest and Other, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Interest income | | $ | 37 | | | $ | 53 | | | $ | 111 | | | $ | 229 | |
| Interest expense | | (144) | | | (160) | | | (463) | | | (481) | |
| Other, net | | 31 | | | 33 | | | 24 | | | (164) | |
| Total interest and other, net | | $ | (76) | | | $ | (74) | | | $ | (328) | | | $ | (416) | |
Interest expense in the preceding table is net of $95 million of interest capitalized in the third quarter of 2021 and $288 million in the first nine months of 2021 ($81 million in the third quarter of 2020 and $251 million in the first nine months of 2020).
| | | | | |
Note 65 : | Restructuring and Other Charges |
A restructuring program was approved | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | |
| (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 | | | | | |
| Employee severance and benefit arrangements | | $ | 5 | | | $ | 6 | | | | | | |
| | | | | | | | | |
| Litigation charges and other | | (1,216) | | | 2,203 | | | | | | |
| | | | | | | | | |
| Total restructuring and other charges | | $ | (1,211) | | | $ | 2,209 | | | | | | |
Litigation charges and other includes $1.2 billion in the first quarter of 20202022 from the annulled penalty related to further align our workforce with our continuing investmentsan EC fine that was recorded and paid in the business2009, and to execute the planned divestiture of Home Gateway Platform, a division of CCG. These actions are substantially complete as of September 25, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | |
| Employee severance and benefit arrangements | | $ | 21 | | | $ | (17) | | | $ | 43 | | | $ | 90 | | |
| | | | | | | | | |
| Litigation charges and other | | 16 | | | (2) | | | 2,267 | | | 54 | | |
| Asset impairment charges | | 5 | | | (6) | | | 287 | | | 2 | | |
| Total restructuring and other charges | | $ | 42 | | | $ | (25) | | | $ | 2,597 | | | $ | 146 | | |
Litigation charges and other includes a charge of $2.2 billion in the first quarter of 2021 related to the VLSI litigation, which islitigation. These are recorded as a Corporate benefit and charge, respectively, in the "all other" category presented in "Note 2: Operating Segments" within Notes to Consolidated Condensed Financial Statements. Refer to "Note 13:12: Contingencies" within Notes to Consolidated Condensed Financial Statements for further information on legal proceedings related to the EC fine and the VLSI litigation.
Asset impairment charges includes impairments related to the shutdown in the second quarter of 2021 of two of our non-strategic businesses, the results of which are included in the “all other” category presented in “Note 2: Operating Segments” within Notes to Consolidated Condensed Financial Statements. The goodwill related to these businesses was impaired, resulting in a charge of $237 million recognized in the second quarter of 2021 in the “all other” category along with other impairment charges related to these businesses.
DebtShort-term Investments
Trading Assets
For trading assets still held at the reporting date we recorded net losses of $144 million in the third quarter of 2021 and $329 million in the first nine months of 2021 ($205 million of net gains in the third quarter of 2020 and $347 million of net gains in the first nine months of 2020). Net gains on the related derivatives were $156 million in the third quarter of 2021 and $346 million in the first nine months of 2021 ($163 million of net losses in the third quarter of 2020 and $334 million of net losses in the first nine months of 2020).
Available-for-Sale Debt Investments
Available-for-saleShort-term investments include marketable debt investments in corporate debt, government debt, and financial institution instruments. Government debt includes instruments such as non-U.S. government bonds and U.S. agency securities. Financial institution instruments include instruments issued or managed by financial institutions in various forms, such as commercial paper, fixed- and floating-rate bonds, money market fund deposits, and time deposits. As of SeptemberApril 2, 2022 and December 25, 2021, and December 26, 2020, substantially all time deposits were issued by institutions outside the U.S.
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 $26.8 billion as of April 2, 2022 and $21.5 billion as of December 25, 2021. For hedged investments still held at the reporting date, we recorded net losses of $411 million in the first three months of 2022 ($372 million of net losses in the first three months of 2021). Net gains on the related derivatives were $377 million in the first three months of 2022 ($366 million of net gains in the first three months of 2021).
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 available-for-salethese investments was $10.8$9.8 billion as of September 25, 2021April 2, 2022 and $7.8$5.0 billion as of December 26, 2020. The adjusted cost of our available-for-sale investments25, 2021, which approximated the fair value for these periods.
The fair value of marketable debt investments, by contractual maturity, as of April 2, 2022, was as follows:
| | | | | | | | |
| (In Millions) | | Fair Value |
| Due in 1 year or less | | $ | 26,683 | |
| Due in 1–2 years | | 4,103 | |
| Due in 2–5 years | | 4,275 | |
| Due after 5 years | | 613 | |
| Instruments not due at a single maturity date | | 859 | |
| Total | | $ | 36,533 | |
Equity Investments
| | | | | | | | | | | | | | |
| (In Millions) | | Apr 2, 2022 | | Dec 25, 2021 |
| Marketable equity securities | | $ | 1,764 | | | $ | 2,171 | |
| Non-marketable equity securities | | 4,258 | | | 4,111 | |
| Equity method investments | | 14 | | | 16 | |
| Total | | $ | 6,036 | | | $ | 6,298 | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 11 |
The fair value of available-for-sale debt investments, by contractual maturity, as of September 25, 2021, was as follows:
| | | | | | | | |
(In Millions) | | Fair Value |
Due in 1 year or less | | $ | 7,823 | |
Due in 1–2 years | | 631 | |
Due in 2–5 years | | 322 | |
Due after 5 years | | — | |
Instruments not due at a single maturity date | | 2,035 | |
Total | | $ | 10,811 | |
Equity Investments
| | | | | | | | | | | | | | |
| (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 |
| Marketable equity securities | | $ | 2,064 | | | $ | 1,830 | |
| Non-marketable equity securities | | 3,970 | | | 3,304 | |
| Equity method investments | | 16 | | | 18 | |
| Total | | $ | 6,050 | | | $ | 5,152 | |
The components of gains (losses) on equity investments, net for each period were as follows:
| | | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | |
| (In Millions) | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 | |
| Ongoing mark-to-market adjustments on marketable equity securities | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (192) | | | $ | (146) | | | $ | (345) | | | $ | (84) | | | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (430) | | | $ | (291) | | |
| Observable price adjustments on non-marketable equity securities | Observable price adjustments on non-marketable equity securities | | 79 | | | 5 | | | 702 | | | 142 | | | Observable price adjustments on non-marketable equity securities | | 71 | | | 551 | | |
| Impairment charges | Impairment charges | | (38) | | | (40) | | | (111) | | | (233) | | | Impairment charges | | (23) | | | (38) | | |
| Sale of equity investments and other¹ | Sale of equity investments and other¹ | | 1,858 | | | 237 | | | 2,124 | | | 387 | | | Sale of equity investments and other¹ | | 4,705 | | | 146 | | |
| Total gains (losses) on equity investments, net | Total gains (losses) on equity investments, net | | $ | 1,707 | | | $ | 56 | | | $ | 2,370 | | | $ | 212 | | | Total gains (losses) on equity investments, net | | $ | 4,323 | | | $ | 368 | | |
1 Sale of equity investments and other includes realized gains (losses) on sales of non-marketable equity investments, our share of equity method investees' gains (losses) and distributions, and initial fair value adjustments recorded upon a security becoming marketable.
Gains and losses for our marketable and non-marketable equity securities for each period were as follows:
| | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | |
| (In Millions) | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 | |
| Net gains (losses) recognized during the period on equity securities | Net gains (losses) recognized during the period on equity securities | | $ | 346 | | | $ | 19 | | | $ | 883 | | | $ | 102 | | | Net gains (losses) recognized during the period on equity securities | | $ | (244) | | | $ | 311 | | |
| Less: Net (gains) losses recognized during the period on equity securities sold during the period | Less: Net (gains) losses recognized during the period on equity securities sold during the period | | (46) | | | (12) | | | (189) | | | (87) | | | Less: Net (gains) losses recognized during the period on equity securities sold during the period | | (17) | | | (85) | | |
| Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | 300 | | | $ | 7 | | | $ | 694 | | | $ | 15 | | | Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | (261) | | | $ | 226 | | |
McAfee Corp.
McAfee Corp. (McAfee) completed its initial public offering in October 2020. Due to our 41% ownership and significant influence as of December 25, 2021, we accounted for it as an equity method investment. We had no accounting carrying value as of December 25, 2021.
In Q1 2022, the sale of McAfee to an investor group was completed. We received $4.6 billion in cash for the sale of our remaining share of McAfee and recognized $4.6 billion of gains in Sale of equity investments and other during the third quarter of 2021 includes $447 million of initial fair value adjustments related to four companies that went public, and a McAfee special dividend of $1.1 billion paid in connection with the sale of McAfee's Enterprise Business to Symphony Technology Group..
Beijing Unisoc Technology Ltd.
We account for our interest in Beijing Unisoc Technology Ltd. (Unisoc) as a non-marketable equity security. In the first quarter of 2021, we recognized $471 million in observable price adjustments in our investment in Unisoc and asUnisoc. As of September 25, 2021,April 2, 2022 the net book value of the investment wasis $1.1 billion ($658 million1.1 billion as of December 26, 2020)25, 2021).
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 12 |
| | | | | |
Note 87 : | Acquisitions and Divestitures |
Acquisitions
On May 4, 2020,Pending acquisition of Tower Semiconductor
During the first quarter of 2022, we acquired Moovit, entered into aMaaS solutions company, definitive agreement to acquire Tower Semiconductor Ltd. (Tower) in a cash for total consideration of $915 million. The fair valuesstock transaction expected to close in twelve months from the date of the assets acquired relate to goodwill of $638 millionand intangible assets of $331 million.agreement. Tower is a leading foundry for analog semiconductor solutions. The goodwill arising from the acquisition is attributedexpected to the expected synergies and other benefits thatadvance Intel's IDM 2.0 strategy by accelerating our global end-to-end foundry business. Tower will be generated from the combination of Intel and Moovit. Substantially all of the goodwill will not be deductible for local tax purposes. The acquisition-related intangible assets are primarily related to Moovit's monthly active user base and application platform. The goodwill and operating results of Moovit are included in our MobileyeIFS operating segment. Upon completion of the acquisition, each issued and outstanding ordinary share of Tower will be converted into the right to receive $53.00 per share in cash, representing a total enterprise value of approximately $5.4 billion as of the agreement date. This transaction is subject to certain regulatory approvals and customary closing conditions. If the agreement is terminated under certain circumstances involving the failure to obtain required regulatory approvals, we will be obligated to pay Tower a termination fee of $353 million.
Divestitures
NAND Memory Business
OnIn October 19, 2020, we signed an agreement with SK hynix Inc. (SK hynix) to divest our NAND memory business includingfor $9.0 billion in cash. The NAND memory business includes our NAND memory fabrication facility in Dalian, China and certain related equipment and tangible assets (the Fab Assets), our NAND SSD business (the NAND SSD Business), and our NAND memory technology and manufacturing business (the NAND OpCo Business). Our Intel Optane memory business is expressly excluded from the transaction. The transaction will occur overbe completed in two closings for total considerationclosings.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 12 |
The first closing was completed on December 29, 2021. At first closing, SK hynix paid $7.0 billion will be received upon initial closing, not to occur prior to November 1, 2021, andof consideration, with the remaining $2.0 billion willto be received by the second closing of the transaction, expected to be no earlier than March 2025. The consummationsIn connection with the first closing, we recognized a pre-tax gain of $1.1 billion within interest and other, net, and tax expense of $545 million. Based on our ongoing obligation under the NAND wafer manufacturing and sale agreement, $583 million of the first closing consideration was deferred and will be recognized between the first and second closing are subject to customary conditions, including the receipt of certain governmental approvals.within interest and other, net.
At the first closing, Intel will sellwe sold to SK hynix the Fab Assets and the NAND SSD Business and SK hynix will assume from Inteltransferred certain liabilitiesemployees, IP, and other assets related to the Fab Assets andNAND OpCo Business to separately created wholly owned subsidiaries of Intel. The equity interest of the NAND SSD Business.OpCo Business will transfer to SK hynix at the second closing. In connection with the first closing, we and certain affiliates of SK hynix will also enterentered into a NAND wafer manufacturing and sale agreement, pursuant to which we will manufacture and sell to SK hynix NAND memory wafers to be manufactured using the Fab Assets in Dalian, China until the second closing.
We will transfer certain employees, IP, and other assets related to the NAND OpCo Business to separately created, wholly owned subsidiaries of Intel at the first closing. The equity interest of these wholly owned subsidiaries will transfer to SK hynix at the second closing. We have concluded based on the terms of the transaction agreements that the subsidiaries will beare variable interest entities for which we are not the primary beneficiary, because the governance structure of these entities does not allow us to direct the activities that would most significantly impact their economic performance. In line with this conclusion, we fully deconsolidated our ongoing interests in the NAND OpCo Business, and accordinglyrecorded receivables for the remaining proceeds of $1.9 billion, a portion of which is short-term and will deconsolidate atbe paid related to the first closing.transfer of inventory for processing under the NAND wafer manufacturing and sale agreement.
The carrying amounts of the major classes of NAND assets held for saleas of the first closing date included the following:
| | | | | | | | | | | | | | |
| (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 |
| Inventories | | $ | 804 | | | $ | 962 | |
| Property, plant and equipment, net | | 5,594 | | | 4,363 | |
| Total assets held for sale | | $ | 6,398 | | | $ | 5,325 | |
| | | | | | | | | | | | | | |
| (In Millions) | | | | Dec 29, 2021 |
| Inventories | | | | $ | 941 | |
| Property, plant and equipment, net | | | | 6,018 | |
| Total sold | | | | $ | 6,959 | |
We ceased recording depreciationThe wafer manufacturing and sale agreement includes incentives and penalties that are contingent on property, plantthe cost of operation and equipment asoutput of the date the assets triggered held for sale accounting. The agreement provides for total capital purchasesNAND OpCo Business. These incentives and penalties present a maximum exposure of approximately $1.8up to $500 million annually, and $1.5 billion in 2021the 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 amounts prior toprojections, 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.
Our transactions with the NAND OpCo Business between the first and second closings are considered related party transactions due to our equity interests and the wafer manufacturing and sales agreement. Related party transactions include certain assets that transferred at first closing willbetween Intel and the NAND OpCo Business, or costs that we incurred on behalf of the NAND OpCo Business, for which we are entitled to be classified asreimbursed. As of April 2, 2022, we have a receivable due to Intel of $787 million recorded within Other current assets held for sale in theon our Consolidated Condensed Balance SheetsSheets. We will be reimbursed for costs of approximately $35 million per quarter for 2022 for corporate function services, which include human resources, information technology, finance, supply chain, and within additions to held for sale NAND property, plant and equipment on the Consolidated Condensed Statements of Cash Flows.other compliance requirements associated with being wholly owned subsidiaries.
As of September 25, 2021,In March 2022, we amended our short-term debt was $4.7 billion, primarily comprised of the current portion of our long-term debt ($2.5 billion as of December 26, 2020).
In the second quarter of 2021, we settled $500 million of our senior notes due May 2021.
In the third quarter of 2021, we issued a total of $5.0 billion aggregate principal senior notes. We intend to use the proceeds from the offering of the notes for general corporate purposes, including, but not limited to, refinancing of outstanding debt, funding for working capital, and capital expenditures. In the first quarter of 2021, we entered into a $5.0 billion variable-rate revolving credit facility which, if drawn, is expectedagreement, extending the maturity date by one year to be used for general corporate purposes.March 2027 and transitioning the interest terms from LIBOR to term SOFR. The revolving credit facility matures in March 2026 and had no borrowings outstanding as of September 25, 2021.April 2, 2022.
We have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion under our commercial paper program.
Our senior floating rate notes paynote pays 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 our 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.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 13 |
Long-term Debt
| | | | | | | | | | | | | | | | | | | | | | |
| | Sep 25, 2021 | | Dec 26, 2020 | | |
| (In Millions) | | Effective Interest Rate | | Amount | | Amount | | |
| Floating-rate senior notes: | | | | | | | | |
| Three-month LIBOR plus 0.35%, due May 2022 | | 0.56 | % | | $ | 800 | | | $ | 800 | | | |
| Fixed-rate senior notes: | | | | | | | | |
| 1.70%, due May 2021 | | — | % | | — | | | 500 | | | |
| 3.30%, due October 2021 | | 2.98 | % | | 2,000 | | | 2,000 | | | |
| 2.35%, due May 2022 | | 1.96 | % | | 750 | | | 750 | | |
| 3.10%, due July 2022 | | 2.70 | % | | 1,000 | | | 1,000 | | | |
| 4.00%, due December 2022¹ | | 2.95 | % | | 400 | | | 417 | | | |
| 2.70%, due December 2022 | | 2.28 | % | | 1,500 | | | 1,500 | | | |
| 4.10%, due November 2023 | | 3.22 | % | | 400 | | | 400 | | | |
| 2.88%, due May 2024 | | 2.31 | % | | 1,250 | | | 1,250 | | | |
| 2.70%, due June 2024 | | 2.14 | % | | 600 | | | 600 | | | |
| 3.40%, due March 2025 | | 3.45 | % | | 1,500 | | | 1,500 | | | |
| 3.70%, due July 2025 | | 2.16 | % | | 2,250 | | | 2,250 | | | |
| 2.60%, due May 2026 | | 0.64 | % | | 1,000 | | | 1,000 | | | |
| 3.75%, due March 2027 | | 3.79 | % | | 1,000 | | | 1,000 | | | |
| 3.15%, due May 2027 | | 1.22 | % | | 1,000 | | | 1,000 | | | |
| 1.60%, due August 2028 | | 1.68 | % | | 1,000 | | | — | | | |
| 2.45%, due November 2029 | | 2.39 | % | | 2,000 | | | 2,000 | | | |
| 3.90%, due March 2030 | | 3.92 | % | | 1,500 | | | 1,500 | | | |
| 2.00%, due August 2031 | | 2.04 | % | | 1,250 | | | — | | | |
| 4.00%, due December 2032 | | 1.25 | % | | 750 | | | 750 | | | |
| 4.60%, due March 2040 | | 4.60 | % | | 750 | | | 750 | | | |
| 2.80%, due August 2041 | | 2.82 | % | | 750 | | | — | | | |
| 4.80%, due October 2041 | | 2.02 | % | | 802 | | | 802 | | | |
| 4.25%, due December 2042 | | 1.42 | % | | 567 | | | 567 | | | |
| 4.90%, due July 2045 | | 2.12 | % | | 772 | | | 772 | | | |
| 4.10%, due May 2046 | | 1.41 | % | | 1,250 | | | 1,250 | | | |
| 4.10%, due May 2047 | | 1.37 | % | | 1,000 | | | 1,000 | | | |
| 4.10%, due August 2047 | | 0.92 | % | | 640 | | | 640 | | | |
| 3.73%, due December 2047 | | 1.77 | % | | 1,967 | | | 1,967 | | | |
| 3.25%, due November 2049 | | 3.19 | % | | 2,000 | | | 2,000 | | | |
| 4.75%, due March 2050 | | 4.74 | % | | 2,250 | | | 2,250 | | | |
| 3.05%, due August 2051 | | 3.07 | % | | 1,250 | | | — | | | |
| 3.10%, due February 2060 | | 3.11 | % | | 1,000 | | | 1,000 | | | |
| 4.95%, due March 2060 | | 4.99 | % | | 1,000 | | | 1,000 | | | |
| 3.20%, due August 2061 | | 3.22 | % | | 750 | | | — | | | |
| Oregon and Arizona bonds: | | | | | | | | |
| 2.40%-2.70%, due December 2035 - 2040 | | 2.49 | % | | 423 | | | 423 | | | |
| 5.00%, due March 2049 | | 2.12 | % | | 138 | | | 138 | | | |
| 5.00%, due June 2049 | | 2.15 | % | | 438 | | | 438 | | | |
| Total Senior Notes and Other Borrowings | | | | 39,697 | | | 35,214 | | | |
| Unamortized premium/discount and issuance costs | | | | (402) | | | (378) | | | |
| Hedge accounting fair value adjustments | | | | 1,009 | | | 1,565 | | | |
| Long-term debt | | | | 40,304 | | | 36,401 | | | |
| Current portion of long-term debt | | | | (4,694) | | | (2,504) | | | |
| | | | | | | | |
| Total long-term debt | | | | $ | 35,610 | | | $ | 33,897 | | | |
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 $396 million, which effectively converted these notes to U.S.-dollar-denominated notes. For further discussion on derivatives in cash flow hedging relationships, see "Note 12: Derivative Financial Instruments."
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 14 |
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
| | | Sep 25, 2021 | | Dec 26, 2020 | | | Apr 2, 2022 | | Dec 25, 2021 | |
| | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | | |
| (In Millions) | (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | |
| Assets | Assets | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | |
| Cash equivalents: | Cash equivalents: | | | Cash equivalents: | | |
| Corporate debt | Corporate debt | | $ | — | | | $ | 736 | | | $ | — | | | $ | 736 | | | $ | — | | | $ | 50 | | | $ | — | | | $ | 50 | | | Corporate debt | | $ | — | | | $ | 1,671 | | | $ | — | | | $ | 1,671 | | | $ | — | | | $ | 65 | | | $ | — | | | $ | 65 | | |
| Financial institution instruments¹ | Financial institution instruments¹ | | 2,035 | | | 718 | | | — | | | 2,753 | | | 2,781 | | | 636 | | | — | | | 3,417 | | | Financial institution instruments¹ | | 745 | | | 1,436 | | | — | | | 2,181 | | | 1,216 | | | 763 | | | — | | | 1,979 | | |
| Government debt² | Government debt² | | 2,200 | | | 164 | | | — | | | 2,364 | | | — | | | — | | | — | | | — | | | Government debt² | | 200 | | | — | | | — | | | 200 | | | — | | | — | | | — | | | — | | |
| Reverse repurchase agreements | Reverse repurchase agreements | | — | | | 1,350 | | | — | | | 1,350 | | | — | | | 1,900 | | | — | | | 1,900 | | | Reverse repurchase agreements | | — | | | 1,695 | | | — | | | 1,695 | | | — | | | 1,595 | | | — | | | 1,595 | | |
| Short-term investments: | Short-term investments: | | | Short-term investments: | | |
| Corporate debt | Corporate debt | | — | | | 870 | | | — | | | 870 | | | — | | | 428 | | | — | | | 428 | | | Corporate debt | | — | | | 7,878 | | | — | | | 7,878 | | | — | | | 6,367 | | | — | | | 6,367 | | |
| Financial institution instruments¹ | Financial institution instruments¹ | | — | | | 2,066 | | | — | | | 2,066 | | | — | | | 1,179 | | | — | | | 1,179 | | | Financial institution instruments¹ | | 114 | | | 7,003 | | | — | | | 7,117 | | | 154 | | | 5,162 | | | — | | | 5,316 | | |
| Government debt² | Government debt² | | — | | | 1,068 | | | — | | | 1,068 | | | — | | | 685 | | | — | | | 685 | | | Government debt² | | 648 | | | 16,838 | | | — | | | 17,486 | | | 50 | | | 12,693 | | | — | | | 12,743 | | |
| Trading assets: | | | |
| | Corporate debt | | — | | | 5,121 | | | — | | | 5,121 | | | — | | | 3,815 | | | — | | | 3,815 | | | |
| Financial institution instruments¹ | | 67 | | | 4,014 | | | — | | | 4,081 | | | 131 | | | 2,847 | | | — | | | 2,978 | | | |
| Government debt² | | — | | | 13,559 | | | — | | | 13,559 | | | — | | | 8,945 | | | — | | | 8,945 | | | |
| Other current assets: | Other current assets: | | | Other current assets: | | |
| Derivative assets | Derivative assets | | 4 | | | 323 | | | — | | | 327 | | | 48 | | | 644 | | | — | | | 692 | | | Derivative assets | | 88 | | | 892 | | | — | | | 980 | | | 80 | | | 576 | | | — | | | 656 | | |
| Loans receivable³ | Loans receivable³ | | — | | | 211 | | | — | | | 211 | | | — | | | 439 | | | — | | | 439 | | | Loans receivable³ | | — | | | — | | | — | | | — | | | — | | | 152 | | | — | | | 152 | | |
| Marketable equity securities | | 272 | | | 1,792 | | | — | | | 2,064 | | | 136 | | | 1,694 | | | — | | | 1,830 | | | |
| Other long-term investments: | | | |
| | Corporate debt | | — | | | 684 | | | — | | | 684 | | | — | | 1,520 | | | — | | 1,520 | | | |
| Financial institution instruments¹ | | — | | | 203 | | | — | | | 203 | | | — | | 257 | | | — | | 257 | | | |
| Government debt² | | — | | | 66 | | | — | | | 66 | | | — | | 415 | | | — | | 415 | | | |
Marketable equity securities4 | | Marketable equity securities4 | | 1,694 | | | 70 | | | — | | | 1,764 | | | 1,854 | | | 317 | | | — | | | 2,171 | | |
| Other long-term assets: | Other long-term assets: | | | Other long-term assets: | | |
| Derivative assets | Derivative assets | | — | | | 961 | | | 13 | | | 974 | | | — | | 1,520 | | | 30 | | | 1,550 | | | Derivative assets | | — | | | 194 | | | — | | | 194 | | | — | | 772 | | | 7 | | | 779 | | |
| Loans receivable³ | Loans receivable³ | | — | | | — | | | — | | | — | | | — | | 157 | | | — | | 157 | | | Loans receivable³ | | — | | | 73 | | | — | | | 73 | | | — | | 57 | | | — | | 57 | | |
| Total assets measured and recorded at fair value | Total assets measured and recorded at fair value | | $ | 4,578 | | | $ | 33,906 | | | $ | 13 | | | $ | 38,497 | | | $ | 3,096 | | | $ | 27,131 | | | $ | 30 | | | $ | 30,257 | | | Total assets measured and recorded at fair value | | $ | 3,489 | | | $ | 37,750 | | | $ | — | | | $ | 41,239 | | | $ | 3,354 | | | $ | 28,519 | | | $ | 7 | | | $ | 31,880 | | |
| Liabilities | Liabilities | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | |
| Other accrued liabilities: | Other accrued liabilities: | | | Other accrued liabilities: | | |
| Derivative liabilities | Derivative liabilities | | $ | 29 | | | $ | 527 | | | $ | — | | | $ | 556 | | | $ | — | | | $ | 810 | | | $ | — | | | $ | 810 | | | Derivative liabilities | | $ | 17 | | | $ | 608 | | | $ | — | | | $ | 625 | | | $ | 4 | | | $ | 516 | | | $ | — | | | $ | 520 | | |
| | Other long-term liabilities: | Other long-term liabilities: | | | Other long-term liabilities: | | |
| Derivative liabilities | Derivative liabilities | | — | | | 9 | | | — | | | 9 | | | — | | | 5 | | | — | | | 5 | | | Derivative liabilities | | — | | | 104 | | | 22 | | | 126 | | | — | | | 9 | | | — | | | 9 | | |
| Total liabilities measured and recorded at fair value | Total liabilities measured and recorded at fair value | | $ | 29 | | | $ | 536 | | | $ | — | | | $ | 565 | | | $ | — | | | $ | 815 | | | $ | — | | | $ | 815 | | | Total liabilities measured and recorded at fair value | | $ | 17 | | | $ | 712 | | | $ | 22 | | | $ | 751 | | | $ | 4 | | | $ | 525 | | | $ | — | | | $ | 529 | | |
1Level 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.
2Level 1 investments consist primarily of U.S. Treasury securities. Level 2 investments consist primarily of U.S. agency notes and non-U.S. government debt.
3The fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance.
4 Level 2 investments consist of marketable equity securities subject to security-specific restrictions.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity securities, 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 in the current period. If an observable price adjustment or impairment is recognized on our non-marketable equity securities during the period, we classify these assets as Level 3.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities and equity method investments that have not been remeasured or impaired in the current period, grants receivable, reverse repurchase agreements with original maturities greater than three months, and issued debt.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 1514 |
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities and equity method investments that have not been remeasured or impaired in the current period, grants receivable, and issued debt.
We classify the fair value of grants receivable and reverse repurchase agreements with original maturities greater than three months as Level 2. The estimated fair value of these financial instruments approximates their carrying value. The aggregate carrying value of grants receivable as of September 25, 2021April 2, 2022 was $399$335 million (the aggregate carrying value of grants receivable as of December 26, 202025, 2021 was $139$317 million). The aggregate carrying value of reverse repurchase agreements with original maturities greater than three months as of April 2, 2022 was $400 million (the aggregate carrying value as of December 25, 2021 was $0).
We classify the fair value of issued debt (excluding commercial paper, drafts payable, and drafts payable)finance leases) as Level 2. The fair value of these instrumentsour issued debt was $44.6$38.1 billion as of September 25, 2021April 2, 2022 ($40.941.5 billion as of December 26, 2020)25, 2021).
| | | | | |
Note 1110 : | Other Comprehensive Income (Loss) |
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the first ninethree months of 20212022 were as follows:
| | (In Millions) | (In Millions) | | | Unrealized Holding Gains (Losses) on Derivatives | | Actuarial Valuation and Other Pension Expenses | | Translation Adjustments and Other | | Total | (In Millions) | | | Unrealized Holding Gains (Losses) on Derivatives | | Actuarial Valuation and Other Pension Expenses | | Translation Adjustments and Other | | Total |
| Balance as of December 26, 2020 | | | $ | 731 | | | $ | (1,565) | | | $ | 83 | | | $ | (751) | | |
| Balance as of December 25, 2021 | | Balance as of December 25, 2021 | | | $ | 211 | | | $ | (1,114) | | | $ | 23 | | | $ | (880) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | | (313) | | | 5 | | | (41) | | | (349) | | Other comprehensive income (loss) before reclassifications | | | (115) | | | 3 | | | (32) | | | (144) | |
| Amounts reclassified out of accumulated other comprehensive income (loss) | Amounts reclassified out of accumulated other comprehensive income (loss) | | | (196) | | | 47 | | | (14) | | | (163) | | Amounts reclassified out of accumulated other comprehensive income (loss) | | | (15) | | | 11 | | | — | | | (4) | |
| Tax effects | Tax effects | | | 119 | | | (14) | | | 11 | | | 116 | | Tax effects | | | 15 | | | 4 | | | 7 | | | 26 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | | (390) | | | 38 | | | (44) | | | (396) | | Other comprehensive income (loss) | | | (115) | | | 18 | | | (25) | | | (122) | |
| Balance as of September 25, 2021 | | | $ | 341 | | | $ | (1,527) | | | $ | 39 | | | $ | (1,147) | | |
| Balance as of April 2, 2022 | | Balance as of April 2, 2022 | | | $ | 96 | | | $ | (1,096) | | | $ | (2) | | | $ | (1,002) | |
We estimate that we will reclassify approximately $90$73 million (before taxes) of net derivative gainslosses included in accumulated other comprehensive income (loss) into earnings within the next 12 months.
| | | | | |
Note 1211 : | Derivative Financial Instruments |
Volume of Derivative Activity
Total gross notional amounts for outstanding derivatives at the end of each period were as follows:
| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | | (In Millions) | | Apr 2, 2022 | | Dec 25, 2021 | |
| Foreign currency contracts | Foreign currency contracts | | $ | 35,012 | | | $ | 31,209 | | | Foreign currency contracts | | $ | 43,494 | | | $ | 38,024 | | |
| Interest rate contracts | Interest rate contracts | | 14,960 | | | 14,461 | | | Interest rate contracts | | 15,785 | | | 15,209 | | |
| Other | Other | | 2,419 | | | 2,026 | | | Other | | 2,317 | | | 2,517 | | |
| Total | Total | | $ | 52,391 | | | $ | 47,696 | | | Total | | $ | 61,596 | | | $ | 55,750 | | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 1615 |
Fair Value of Derivative Instruments
| | | | | Sep 25, 2021 | | Dec 26, 2020 | | | Apr 2, 2022 | | Dec 25, 2021 |
| (In Millions) | (In Millions) | | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 | (In Millions) | | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | Foreign currency contracts3 | | $ | 99 | | | $ | 74 | | | $ | 551 | | | $ | 2 | | Foreign currency contracts3 | | $ | 87 | | | $ | 218 | | | $ | 80 | | | $ | 163 | |
| Interest rate contracts | Interest rate contracts | | 966 | | | — | | | 1,498 | | | — | | Interest rate contracts | | 185 | | | 121 | | | 774 | | | — | |
| Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | | 1,065 | | | 74 | | | 2,049 | | | 2 | | Total derivatives designated as hedging instruments | | 272 | | | 339 | | | 854 | | | 163 | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | Foreign currency contracts3 | | 221 | | | 378 | | | 142 | | | 685 | | Foreign currency contracts3 | | 701 | | | 355 | | | 475 | | | 297 | |
| Interest rate contracts | Interest rate contracts | | 11 | | | 84 | | | 3 | | | 128 | | Interest rate contracts | | 113 | | | 39 | | | 26 | | | 65 | |
| Equity contracts | Equity contracts | | 4 | | | 29 | | | 48 | | | — | | Equity contracts | | 88 | | | 18 | | | 80 | | | 4 | |
| Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | | 236 | | | 491 | | | 193 | | | 813 | | Total derivatives not designated as hedging instruments | | 902 | | | 412 | | | 581 | | | 366 | |
| Total derivatives | Total derivatives | | $ | 1,301 | | | $ | 565 | | | $ | 2,242 | | | $ | 815 | | Total derivatives | | $ | 1,174 | | | $ | 751 | | | $ | 1,435 | | | $ | 529 | |
1Derivative assets are recorded as other assets, current and non-current.
2Derivative liabilities are recorded as other liabilities, current and non-current.
3The majority of these instruments mature within 12 months.
Amounts Offset in the Consolidated Condensed Balance Sheets
The gross amounts of our derivative instruments and reverse repurchase agreements 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:
| | | Sep 25, 2021 | | Apr 2, 2022 |
| | | Gross Amounts Not Offset in the Balance Sheet | | | | Gross Amounts Not Offset in the Balance Sheet | |
| (In Millions) | (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: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
| Derivative assets subject to master netting arrangements | Derivative assets subject to master netting arrangements | | $ | 1,295 | | | $ | — | | | $ | 1,295 | | | $ | (329) | | | $ | (913) | | | $ | 53 | | Derivative assets subject to master netting arrangements | | $ | 1,153 | | | $ | — | | | $ | 1,153 | | | $ | (472) | | | $ | (519) | | | $ | 162 | |
| Reverse repurchase agreements | Reverse repurchase agreements | | 1,350 | | | — | | | 1,350 | | | — | | | (1,350) | | | — | | Reverse repurchase agreements | | 2,095 | | | — | | | 2,095 | | | — | | | (2,095) | | | — | |
| Total assets | Total assets | | 2,645 | | | — | | | 2,645 | | | (329) | | | (2,263) | | | 53 | | Total assets | | 3,248 | | | — | | | 3,248 | | | (472) | | | (2,614) | | | 162 | |
| Liabilities: | Liabilities: | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | Derivative liabilities subject to master netting arrangements | | 408 | | | — | | | 408 | | | (329) | | | (79) | | | — | | Derivative liabilities subject to master netting arrangements | | 618 | | | — | | | 618 | | | (472) | | | (122) | | | 24 | |
| Total liabilities | Total liabilities | | $ | 408 | | | $ | — | | | $ | 408 | | | $ | (329) | | | $ | (79) | | | $ | — | | Total liabilities | | $ | 618 | | | $ | — | | | $ | 618 | | | $ | (472) | | | $ | (122) | | | $ | 24 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dec 25, 2021 |
| | | | | | | | 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 | | $ | 1,427 | | | $ | — | | | $ | 1,427 | | | $ | (332) | | | $ | (986) | | | $ | 109 | |
| Reverse repurchase agreements | | 1,595 | | | — | | | 1,595 | | | — | | | (1,595) | | | — | |
| Total assets | | 3,022 | | | — | | | 3,022 | | | (332) | | | (2,581) | | | 109 | |
| Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | | 392 | | | — | | | 392 | | | (332) | | | (60) | | | — | |
| Total liabilities | | $ | 392 | | | $ | — | | | $ | 392 | | | $ | (332) | | | $ | (60) | | | $ | — | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 16 |
We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.
Derivatives in Cash Flow Hedging Relationships
The before-tax net gains or losses attributed to cash flow hedges recognized in other comprehensive income (loss) were $115 million net losses in the first three months of 2022 ($334 million net losses in the first three months of 2021). Substantially all of our cash flow hedges were foreign currency contracts for all periods presented.
During the first three months of 2022 and 2021, the amounts excluded from effectiveness testing were insignificant.
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) Recognized in Consolidated Condensed Statements of Income on Derivatives |
| | Three Months Ended | | | | |
| (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 | | | | | | | | |
| Interest rate contracts | | $ | (711) | | | $ | (512) | | | | | | | | | |
| Hedged items | | 711 | | | 512 | | | | | | | | | |
| 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Line Item in the Consolidated Condensed Balance Sheet in Which the Hedged Item is Included | | Carrying Amount of the Hedged Item Asset/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount Assets/(Liabilities) | |
| (In Millions) | | Apr 2, 2022 | | Dec 25, 2021 | | Apr 2, 2022 | | Dec 25, 2021 | |
| Long-term debt | | $ | (12,061) | | | $ | (12,772) | | | $ | (64) | | | $ | (775) | | |
The total notional amount of pay-variable and receive-fixed interest rate swaps was $12.0 billion as of April 2, 2022 and as of December 25, 2021.
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the Consolidated Condensed Statements of Income for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | | | |
| (In Millions) | | Location of Gains (Losses)
Recognized in Income on Derivatives | | Apr 2, 2022 | | Mar 27, 2021 | | | | | | | | |
| Foreign currency contracts | | Interest and other, net | | $ | 158 | | | $ | 234 | | | | | | | | | |
| Interest rate contracts | | Interest and other, net | | 94 | | | 23 | | | | | | | | | |
| Other | | Various | | (134) | | | 55 | | | | | | | | | |
| Total | | | | $ | 118 | | | $ | 312 | | | | | | | | | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 17 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dec 26, 2020 |
| | | | | | | | 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 | | $ | 2,235 | | | $ | — | | | $ | 2,235 | | | $ | (264) | | | $ | (1,904) | | | $ | 67 | |
| Reverse repurchase agreements | | 1,900 | | | — | | | 1,900 | | | — | | | (1,900) | | | — | |
| Total assets | | 4,135 | | | — | | | 4,135 | | | (264) | | | (3,804) | | | 67 | |
| Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | | 711 | | | — | | | 711 | | | (264) | | | (447) | | | — | |
| Total liabilities | | $ | 711 | | | $ | — | | | $ | 711 | | | $ | (264) | | | $ | (447) | | | $ | — | |
We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.
Derivatives in Cash Flow Hedging Relationships
The before-tax net gains or losses attributed to cash flow hedges, recognized in other comprehensive income (loss), were $28 million net losses in the third quarter of 2021 and $313 million net losses in the first nine months of 2021 ($267 million net gains in the third quarter of 2020 and $286 million net gains in the first nine months of 2020). Substantially all of our cash flow hedges were foreign currency contracts for all periods presented.
During the first nine months of 2021 and 2020, the amounts excluded from effectiveness testing were insignificant.
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) Recognized in Consolidated Condensed Statements of Income on Derivatives |
| | Three Months Ended | | Nine Months Ended | | |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | | | |
| Interest rate contracts | | $ | (55) | | | $ | (36) | | | $ | (532) | | | $ | 996 | | | | | |
| Hedged items | | 55 | | | 36 | | | 532 | | | (996) | | | | | |
| 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Line Item in the Consolidated Condensed Balance Sheet in Which the Hedged Item is Included | | Carrying Amount of the Hedged Item Asset/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount Assets/(Liabilities) | |
| (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | | Sep 25, 2021 | | Dec 26, 2020 | |
| Long-term debt | | $ | (12,963) | | | $ | (13,495) | | | $ | (966) | | | $ | (1,498) | | |
The total notional amount of pay-variable and receive-fixed interest rate swaps was $12.0 billion as of September 25, 2021 and $12.0 billion as of December 26, 2020.
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| Financial Statements | Notes to Financial Statements | 18 |
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the Consolidated Condensed Statements of Income for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | Nine Months Ended | | |
| (In Millions) | | Location of Gains (Losses)
Recognized in Income on Derivatives | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | | | |
| Foreign currency contracts | | Interest and other, net | | $ | 170 | | | $ | (166) | | | $ | 382 | | | $ | (228) | | | | | |
| Interest rate contracts | | Interest and other, net | | (7) | | | (3) | | | 14 | | | (94) | | | | | |
| Other | | Various | | 84 | | | 138 | | | 279 | | | 95 | | | | | |
| Total | | | | $ | 247 | | | $ | (31) | | | $ | 675 | | | $ | (227) | | | | | |
Legal Proceedings
We are a party to various legal proceedings, including those noted in this section. In the first quarter of 2021, we accrued a charge of $2.2 billion related to litigation involving VLSI, described below. Excluding this charge, 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; however, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. 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 as specifically described below, we have not concluded that settlement of any of the legal proceedings noted in this section is appropriate at this time.
European Commission Competition Matter
In 2001, the ECEuropean Commission (EC) commenced an investigation regarding claims by Advanced Micro Devices, Inc. (AMD) that we 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 each 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 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 rebates and payments" that required our customers to purchase all or most of their x86 microprocessors from us. The EC also found that we violated Article 82 by making alleged "payments to prevent sales of specific rival products." The EC imposed a fine in the amount of €1.1 billion ($1.4 billion as of May 2009), which we subsequently paid during the third quarter of 2009, and ordered us to "immediately bring to an end the infringement referred to in" the EC decision.
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 Court of First Instance (which has been renamed the General Court) in July 2009. The hearing of our appeal took place in July 2012. In June 2014, the General Court rejected our appeal 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 to the Court of Justice, issued a non-binding advisory opinion that 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 sending the case back to the General Court to examine whether the rebates at issue were capable of restricting competition. The General Court has appointed a panel of five judges to consider our appeal of the EC’s 2009 decision in light of the Court of Justice’s clarifications of the law. In November 2017, the parties filed initial “Observations” about the Court of Justice’s decision and the appeal and were invited by the General Court to offer supplemental comments to each other’s “Observations,” which the parties submitted in March 2018. Responses to other questions posed by the General Court were filed in May and June 2018. The2018, and the General Court heard oral argument in March 2020. PendingIn January 2022, the finalGeneral Court issued a decision in this matter,annulling the EC's findings against Intel regarding rebates as well as the fine paid byimposed on Intel, has been placedwhich was returned to Intel in February 2022. In April 2022, the EC appealed the General Court's decision to the Court of Justice. Given the procedural posture and the nature of this proceeding, including the need to review and assess the claims and arguments made in the appeal, which seeks an order that would require a further proceeding and decision by the EC in commercial bank accounts where it accrues interest.
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| Financial Statements | Notes to Financial Statements | 19 |
the potential loss or range of losses, if any, that might arise from this matter.Litigation Related to Security Vulnerabilities
In June 2017, a Google research team (GPZ) notified us 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 industry to verify the research and develop and validate software and firmware updates for impacted technologies. On January 3,2, 2018, information on the security vulnerabilities was publicly reported, before software and firmware updates to address the vulnerabilities were made widely available.
Following various lawsuits that allege a variety of common law and statutory claims, including claims sounding in fraud and unfair trade practices, and in anticipation of defending against those claims, we evaluated the potential impact on our business and operations from the aforesaid litigation and security vulnerabilities. To date, we do not expect a material financial impact on our business or operations.
Numerous lawsuits have been filed against Intel and, in certain cases, our current and former executives and directors, in U.S. federal and state courts and in certain courts in other countries relating to the Spectre and Meltdown security vulnerabilities, as well as other variants of these vulnerabilities that have since been identified.
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| Financial Statements | Notes to Financial Statements | 18 |
As of October 20, 2021,April 27 2022 , consumer class action lawsuits relating to the above class of security vulnerabilities publicly disclosed since 2018 were pending in the United States, Canada, and Israel. The plaintiffs, who purport to represent various classes of purchasers of our products, generally claim to have been harmed by Intel's 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 United States, numerous individual class action suits filed in various jurisdictions were consolidated in April 2018 for all pretrial proceedings in the U.S.United States District Court for the District of Oregon. In March 2020, the court granted Intel's motion to dismiss the complaint in that consolidated action but granted plaintiffs leave to amend. In March 2021, the court granted Intel’s motion to dismiss the amended complaint, but granted plaintiffs leave to further amend in part. Plaintiffs filed a further amended complaint in May 2021 whichIn January 2022, the court dismissed with prejudice all claims relating to Intel's alleged conduct before September 1, 2017, and otherwise denied Intel's motion to dismiss. In February 2022, Intel moved for reconsideration and/or permission to dismiss in July 2021.appeal immediately on the claims that were not dismissed. In Canada, in one case pending in the Superior Court of Justice of Ontario, an initial status conference has not yet been scheduled. In a second case pending in the Superior Court of Justice of Quebec, a stay of the case iswas in effect until December 2021.2021,and the parties' joint request for a further stay to May 2022 is pending with the court. In Israel, two consumer class action lawsuits were filed in the District Court of Haifa. The plaintiff voluntarily dismissed the first lawsuit in July 2021.2021, Intel filed a motion to stay the second case pending resolution of the consolidated proceeding in the United States, and a hearing on that motion has been scheduled for AprilMay 2022. 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.
In addition to these lawsuits, Intel stockholders filed multiple shareholder derivative lawsuits since January 2018 against certain current and former members of our Board of Directors and certain current and former officers, alleging that the defendants breached their duties to Intel in connection with the disclosure of the security vulnerabilities and the failure to take action in relation to alleged insider trading. The complaints sought to recover damages from the defendants on behalf of Intel. Some of the derivative actions were filed in the U.S.United States District Court for the Northern District of California and were consolidated, and the others were filed in the Superior Court of the State of California in San Mateo County and were consolidated. The federal court granted defendants' motion to dismiss in August 2018 on the ground that plaintiffs failed to plead facts sufficient to show they were excused from making a pre-lawsuit demand on the Board. The federal court granted plaintiffs leave to amend their complaint, but subsequently dismissed the cases in January 2019 at plaintiffs' request. The California Superior Court entered judgment in defendants' favor in August 2020 after granting defendants' motions to dismiss plaintiffs' consolidated complaint and three successive amended complaints, all for failure to plead facts sufficient to show plaintiffs were excused from making a pre-lawsuit demand on the Board. Plaintiffs filed a noticeappealed, and in March 2022 the California Court of appealAppeal affirmed the judgment of the California court's judgment in October 2020.Superior Court.
In January 2021, another Intel stockholder filed a derivative lawsuit in the Superior Court in San Mateo County against certain current and former officers and members of our Board of Directors. The lawsuit asserts claims similar to those dismissed in August 2020, except that it alleges that the stockholder made a pre-lawsuit demand on our Board of Directors and that the demand was wrongfully refused. In May 2021, the court granted defendants' motion to stay the action pending the outcome of any litigation plaintiff may choose to file in Delaware where Intel’s bylaws require such claims be filed.
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Institute of Microelectronics, Chinese Academy of Sciences v. Intel China, Ltd., et al.
In February 2018, the Institute of Microelectronics of the Chinese Academy of Sciences (IMECAS) sued Intel China, Ltd., Dell China, Ltd. (Dell), and Beijing JingDongJingdong Century Information Technology, Ltd. (JD) for patent infringement in the Beijing Higher People's Court. IMECAS alleges that Intel’s Core seriesIntel®'s Core™ processors infringe Chinese patent CN 102956457 (’457 Patent). The complaint demands an injunction and damages of at least RMB 200 million200,000,000 plus the cost of litigation. In March 2018,Intel is indemnifying Dell tendered indemnity to Intel, which Intel granted in April 2018. JD also tendered indemnity to Intel, which Intel granted in October 2018.and JD. The Beijing Higher People’s Court held a final trial hearing in September 2021. No ruling has been issued. In March 2018, Intel filed an invalidation request on the ‘457 patent with the China National Intellectual Property Administration (CNIPA). The CNIPA held an oral hearing in September 2018 and in February 2019 upheld the validity of the challenged claims. Intel filed a complaint in April 2019 with the Beijing Intellectual Property (IP) Court challenging the February 2019 CNIPA ruling, and theruling. The Beijing IP Court held oral arguments in July 2021.and October 2021 and in November 2021 affirmed the CNIPA ruling. In December 2021, Intel filed an appeal with the Supreme People's Court (SPC) challenging the Beijing IP Court's affirmance of the CNIPA ruling. The SPC has set a hearing on this appeal in April 2022.In January 2020, Intel filed a second invalidation request on the ‘457 patent with the CNIPA, for which the CNIPA heard oral argument in July 2020 and in November 2020 held the challenged apparatus claims invalid. IMECAS filed a complaint in February 2021 with the Beijing IP Court challenging the November 2020 CNIPA ruling. In December 2020, Intel filed a third invalidation request on the ’457 patent with the CNIPA. The CNIPA which heardheld an oral argumenthearing in June 2021 and issued a ruling in September 2021 holdingupheld the validity of the challenged claims not invalid.claims. Intel filed a complaint in December 2021 with the Beijing IP Court challenging the September 2021 CNIPA ruling. In September 2018 and March 2019, Intel filed petitions with the U.S.United States Patent & Trademark Office (USPTO) requesting institution of inter partes reviewInter Partes Review (IPR) of U.S. Patent No. 9,070,719, the U.S. counterpart to the ‘457 patent. The USPTO denied institution of Intel’s petitions in March and October 2019, respectively. In April 2019, Intel filed a request for rehearing and a petition for a Precedential Opinion Panel (POP) in the USPTO to challenge the denial of its first IPR petition, and in November 2019 Intel filed a request for rehearing on the second IPR petition. In January 2020, the USPTO denied the POP petition on the first IPR petition. In June 2020, the Patent Trial and Appeal Board (PTAB) denied Intel's rehearing requests on both petitions.
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| Financial Statements | Notes to Financial Statements | 19 |
In October 2019, IMECAS filed second and third lawsuits, in the Beijing IP Court, alleging infringement of Chinese Patent No. CN 102386226 (‘226 Patent) based on the manufacturing and sale of Intel’s CoreIntel®'s Core™ i3 microprocessors. Defendants in the second case are Lenovo (Beijing) Co., Ltd. (Lenovo) and Beijing Jiayun Huitong Technology Development Co. Ltd. (BJHT). Defendants in the third case are Intel Corp., Intel China Co., Ltd., the Intel China Beijing Branch, Beijing Digital China Co., Ltd. (Digital China), and JD. Both complaints demand injunctions plus litigation costs.Beijing Jingdong Century Information Technology Col., Ltd. (JD). The complaint in the second lawsuit demands an injunction plus litigation costs and reserves the right to claim damages in unspecified amounts. Intel is indemnifying Lenovo in the second lawsuit. The Beijing IP Court held a trial hearing in the second lawsuit in November 2021, but no ruling has been issued. The complaint in the third lawsuit demands an injunction plus litigation costs and claims damages of RMB 10 million. Intel China's jurisdictional challenge in the third lawsuit was denied in June 2021. No2021 by the Beijing IP Court and in November 2021 by the Supreme People's Court (SPC). A trial proceedings have occurred or are yet scheduledhearing in these lawsuits. In December 2019, Lenovo tendered indemnity to Intel, which Intel grantedthe third lawsuit was held in March 2020.January 2022, but no ruling has been issued. In July 2020, Intel and Lenovo filed invalidation requests on the '226 patent with the CNIPA. The CNIPA heard oral argumentarguments in December 2020, during which IMECAS proposed amendments to two claims. TheIn April 2021, the CNIPA ruled in April 2021upheld the validity of the challenged and amended claims on both invalidation requests, finding the two amended claims as well as the unamended claims not invalid.requests. Intel and Lenovo filed complaints in July 2021 with the Beijing IP Court challenging the April 2021 CNIPA rulings.rulings; the Beijing IP Court held oral arguments in October 2021.
Given the procedural posture and the nature of these cases, the unspecified nature and extent of damages claimed by IMECAS, and uncertainty regarding the availability of injunctive relief under applicable law, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from these matters. We dispute IMECAS’s claims and intend to vigorously defend against them.
VLSI Technology LLC v. Intel
In October 2017, VLSI Technology LLC (VLSI) filed a complaint against Intel in the U.S. District Court for the Northern District of California alleging infringement of eight patents acquired from NXP Semiconductors, N.V. (NXP). The patents, which originated at Freescale Semiconductor, Inc. and NXP B.V., are U.S. Patent Nos. 7,268,588; 7,675,806; 7,706,207; 7,709,303; 8,004,922; 8,020,014; 8,268,672; and 8,566,836. VLSI accuses various FPGA and processor products of infringement. VLSI estimated its damages to be as high as $7.1at least $5.5 billion, and its complaint further sought enhanced damages, future royalties, attorneys’ fees, and costs and interest. In May, June, September, and October 2018, Intel filed IPR petitions challenging the patentability of certain claims in all eight of the patents in-suit. The PTAB instituted review of six patents and denied institution on two patents. As a result of the institution decisions, the parties stipulated to stay the District Court action in March 2019. In December 2019 and February 2020, the PTAB found all claims of the '588 and '303 patents, and some claims of the '922 patent, to be unpatentable. The PTAB found the challenged claims of the '014, '672, and '207 patents to be patentable. Intel appealed the PTAB's decision as to '014, '672 and '207 patents. The Federal Circuit affirmed the PTAB's decision as to the '672 and '207 patents, but reversed and remanded as to the '014 patent. Intel moved for a continuation of the stay in March 2020 as it appealed certain rulings bypending the PTAB.appeal. In June 2020, the District Court issued an order continuing the stay through August 2021 and setting trial for December 2022. The Federal Circuit has thus far affirmed the PTAB’s decisions as to the ‘207 and ‘672 patents, and reversed the PTAB’s decision as to the ‘014 patent.2021. The court lifted the stay in September 2021.
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| Financial Statements | Notes to Financial Statements | 21 |
2021, and scheduled a trial for March 2024.In June 2018, VLSI filed a second suit against Intel, in U.S. District Court for the District of Delaware, alleging infringement by various Intel processors of five additional patents acquired from NXP: U.S. Patent Nos. 6,212,663; 7,246,027; 7,247,552; 7,523,331; and 8,081,026. VLSI accused Intel of willful infringement and seeks an injunction or, in the alternative, ongoing royalties, enhanced damages, attorneys’ fees and costs, and interest. In March 2019, the District Court dismissed VLSI’s claims for willful infringement as to all the patents-in-suit except the ‘027 patent, and also dismissed VLSI’s allegations of indirect infringement as to the ‘633, ‘331, and ‘026 patents. In June 2019, Intel filed requests for inter partes review ofIPR petitions challenging the patentability of certain claims in all five patents-in-suit. In January 2020, the District Court vacated an earlier November 2020 trial date based on agreement of the parties; no trial date is currently set. In January 2020, VLSI said that it was no longer asserting any claims of the ‘633 patent. In January and February 2020, the PTAB instituted review of the '552, '633, '331 and '026 patents, but declined to institute review on the '027 patent. As a result, Intel moved for stay of the District Court proceedings. In May 2020, the District Court stayed the case as to the '026 and '552 patents but allowed the case to proceed on the '027 and '331 patents. In January 2021, the PTAB invalidated certain asserted claims of the ‘026 patent, and in February the PTAB invalidated all asserted claims of the ‘552 patent. IntelBoth parties filed a noticenotices of appeal regarding the PTAB’s decision as to the ‘026 patent in March 2021, and in April 2021, VLSI filed a notice of appeal of the PTAB's decision as to the '552 patent. The case remains stayed as to that patent and the '552 patent.both of those patents. For the '027 and '331 patents, VLSI is seeking damages of approximately $4.13 billion plus enhanced damages for the '027 patent. The deadline to fileIntel filed motions for summary judgment motions and challenges to exclude testimony from VLSI's expert witnesses, is in January 2022.but the court has not yet ruled on these motions or set a trial date.
In March 2019, VLSI filed a third suit against Intel, also in U.S. District Court for the District of Delaware, alleging infringement of six more patents acquired from NXP: U.S. Patent Nos. 6,366,522; 6,663,187; 7,292,485; 7,606,983; 7,725,759; and 7,793,025. In April 2019, VLSI voluntarily dismissed this Delaware case without prejudice. In April 2019, VLSI filed three new infringement suits against Intel in the U.S. District Court for the Western District of Texas (WDTX) accusing various Intel processors of infringement. The three suits collectively assert the same six patents from the voluntarily dismissed Delaware case plus two additional patents acquired from NXP, U.S. Patent Nos. 7,523,373 and 8,156,357. VLSI accuses Intel of willful infringement and seeks an injunction or, in the alternative, ongoing royalties, enhanced damages, attorneys’ fees and costs, and interest. In the first Texas case, VLSI asserted the ‘373 and ‘759 patents (in December 2020 the court granted Intel summary judgment of non-infringement on the ‘357 patent, which had also been asserted in the first Texas case). That case went to trial in February 2021, and the jury awarded a “lump sum” to VLSI of $1.5 billion for literal infringement of the ‘373 patent and $675 million for infringement under the doctrine of equivalents of the ‘759 patent. The jury found that Intel had not willfully infringed either patent. Intel plans to challenge the verdict in post-trial motions and on appeal. Intel has challenged the verdict with post-trial motions, including filing in May 2021 a motion for a new trial, andwhich the court denied in August, a motion for judgment as a matter of law that the ‘373 and ‘759 patents are not infringed and the ‘759 patent is invalid.invalid, and a motion that VLSI is entitled to no damages, both of which the court denied in March 2022. The court deniedentered final judgment following the motion for newfirst trial in August 2021,Texas on April 21, 2022, but other post-trial motions, including the motion for judgment as a matter of law, remain pending. If the court does not vacate the verdict Intel will challenge it on appeal.judgement remains under seal.
The second Texas case went to trial in April 2021, and the jury found that Intel does not infringe the ‘522 and ‘187 patents. VLSI had sought approximately $3 billion for alleged infringement of those patents, plus enhanced damages for willful infringement. The court has not yet entered final judgment following second trial in Texas.
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| Financial Statements | Notes to Financial Statements | 20 |
The third Texas case is scheduledhad been set for trial in December 2021, andApril 2022 but was cancelled after the first day due to a Covid-19 outbreak. A new trial date has not been set. In that case, VLSI seeksinitially sought approximately $2.2 billion to- $2.4 billion for alleged infringement of the ‘983, ‘025 and ‘485 patents, plus enhanced damages for willful infringement. In April 2022, VLSI informed the Court that it would not present an infringement case at trial for the '025 patent. Later in April 2022, VLSI informed the Court that it would not present willful infringement or an infringement case for the '485 patent at trial. This limits VLSI's damages demand to approximately $1 billion for the alleged infringement of the '983 patent. In October and November 2019, and in February 2020, Intel filed IPR petitions on certain asserted claims across six of the patents-in-suit in WDTX. Between May and October 2020, the PTAB denied all of these requestspetitions on a discretionary basis and without reviewing the merits. Intel requested a rehearing, as well as review from the POPPrecedential Opinion Panel (POP) as to all petitions. All requests for POP review were denied in October and December 2020, and all requests for rehearing were denied as to all petitions between December 2020 and February 2021.denied. Intel filed notices of appeal regarding the discretionary denials for all petitions in February and March of 2021, and VLSI moved to dismiss those appeals in March 2021. The CourtFederal Circuit dismissed the appeals in May 2021 and Intel petitionedfor lack of jurisdiction. The Federal Court denied Intel's petition for hearing en banc in JuneAugust 2021. The Federal CircuitIn March 2022, the Supreme Court denied theIntel's petition in August 2021.for writ of certiorari.
In May 2019, VLSI filed a case in Shenzhen Intermediate People’s Court against Intel, Intel (China) Co., Ltd., Intel Trading (Shanghai) Co., Ltd., and Intel Products (Chengdu) Co., Ltd. VLSI asserts Chinese Patent 201410094015.9 accusing certain Intel Core processors of infringement. VLSI requests an injunction as well as RMB 1 million in damages and RMB 300 thousand in expenses. Defendants filed an invalidation petition in October 2019 with the CNIPA, which held a hearing in September 2021. The CNIPA has not yet issued a decision. In May 2020, defendants filed a motion to stay the trial court proceedings pending a determination on invalidity. The court held the first evidentiary hearing in November 2020 and the second in July 2021. The court also held trial proceedings in the hearing in July 2021 and concluded that further trial proceedings were needed but indicated those would be stayed pending the outcome of defendants’ invalidity challenge at the CNIPA. In July 2021, VLSI dismissed its case, but refiled it in August 2021. VLSI seeks an injunction in its newly filed case, as well as RMB 1.3 million in costs and expenses, but no damages. In November 2021, Intel moved for a stay of the August 2021 action pending a ruling on invalidity. The court has not yet ruled on that motion.
In May 2019, VLSI filed a second case in Shanghai Intellectual Property Court against Intel (China) Co., Ltd., Intel Trading (Shanghai) Co., Ltd., and Intel Products (Chengdu) Co., Ltd. VLSI asserts Chinese Patent 201080024173.7. VLSI accuses certain Intel Core processors and seeks an injunction, as well as RMB 1 million in damages and RMB 300 thousand in expenses. Defendants filed with the CNIPA an invalidation petition in October 2019, and the CNIPA held a hearing in September 2021, but has not yet issued a decision. In June 2020, defendants filed a motion to stay the trial court proceedings pending a determination on invalidity. The court held its first evidentiary hearing in September 2020. The court held a second evidentiary hearing in December 2020, and a trial the same month. At trial, VLSI dropped its monetary damages claim, but still requested expenses (RMB 300 thousand) and an injunction. The court held a second evidentiary hearing in December 2020. The court has not yet issued a decision following the trial. Rather, the court stayed the case in December 2020 pending a determination on invalidity by the CNIPA.
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| Financial Statements | Notes to Financial Statements | 22 |
In November 2019, Intel, along with Apple Inc., filed a complaint against Fortress Investment Group LLC, Fortress Credit Co. LLC, Uniloc 2017 LLC, Uniloc USA, Inc., Uniloc Luxembourg S.A.R.L., VLSI, INVT SPE LLC, Inventergy Global, Inc., DSS Technology Management, Inc., IXI IP, LLC, and Seven Networks, LLC. Plaintiffs allege violations of Section 1 of the Sherman Act by certain defendants, Section 7 of the Clayton Act by certain defendants, and California Business and Professions Code section 17200 by all defendants based on defendants' unlawful aggregation of patents. In February 2020 defendants moved to dismiss plaintiffs' complaint. In July 2020,and 2021, the court granted defendants’ motion to dismisstwice dismissed plaintiffs' complaint with leave to amend. The court dismissed antitrust claims related to two DSS patents with prejudice. The plaintiffs filed an amended complaint in August 2020, and defendants moved to dismiss in September 2020. The court heard defendants' motion to dismiss the amended complaint in December 2020 and dismissed plaintiffs’ amended complaint in January 2021, with leave to further amend. In December 2020, the court granted a joint motion by Apple and Seven Networks to dismiss with prejudice Apple’s claims against Seven Networks. Plaintiffs filed a second amended complaint in March 2021. Defendants moved to dismiss the Second Amended Complaint in May 2021. Apple withdrew from the case and dismissed its claims in June 2021. The court heard defendants’ motion to dismiss the Second Amended Complaint in September 2021, and dismissed Intel’s claims with prejudice that same month, entering judgment in favor of defendants. Intel filed a notice of appeal in December 2021 and filed its opening brief in February 2022.
In June 2020, affiliates controlled by Fortress Investment Group, which also controls VLSI, acquired Finjan Holdings, Inc. Intel had signed a “Settlement, Release and Patent License Agreement” with Finjan in 2012, acquiring a license to the patents of Finjan and its affiliates, current or future, through a capture period of November 20, 2022. The agreement also contains covenants wherein Finjan agrees to cause its affiliates to comply with the agreement. As such, Intel maintains that it now has a license to the patents of VLSI, which has become a Finjan affiliate, and that Finjan must cause VLSI to dismiss its suits against Intel. In August 2020, Intel started dispute resolution proceedings under the agreement. As a part of this dispute resolution process, Intel and Finjan held a mediation in December 2020, but failed to resolve their differences. Intel filed suit to enforce its rights under the License Agreement with Finjan in January 2021 in Delaware Chancery Court. In March 2021, defendants filed motions to dismiss the Chancery Court proceedings. The court heard those motions in May 2021, and dismissed all of Intel’s claims—except the breach of contract claim—with prejudice in September 2021 for lack of jurisdiction because, the court reasoned, Intel’s license defense has been raised in the other U.S. suits between Intel and VLSI and could be adjudicated in one of those actions. The court stayed Intel’s breach of contract claim pending a determination on whether Intel is licensed to VLSI’s patents. In September 2020, Intel filed motions to stay the Texas, Delaware, and Shanghai matters pending resolution of its dispute with Finjan. In November 2020, Intel filed a motion to stay the Shenzhen matter pending resolution of its dispute with Finjan. In November 2020, the Delaware courtCourt denied Intel’s motion to stay. The other stay motions remain pending. Finally, Intel filed a motion to amend its answer in the Texas matters to add a license defense in November 2020, and filed a motion to amend its answer in the Delaware matter to add a license defense in February 2021. The Texas court has not yet ruled on Intel’s motion to amend, but the Delaware courtCourt granted Intel’sIntel's motion in July 2021.2021, but in March 2022, the Texas Court denied Intel's motion, holding, among other things, that it would be futile for Intel to add the license defense as it would not be meritorious.
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| Financial Statements | Notes to Financial Statements | 21 |
In June 2021, OpenSky Industries LLC (OpenSky) requested IPR of certain claims of the '373 and '759 patents, including the ones a jury said Intel infringes. Both petitions copied Intel's earlier petitions, and used the expert declarations previously submitted by Intel. Another entity named Patent Quality Assurance LLC (PQA) also petitioned for IPR of certain claims of the '373 patent, including ones a jury said Intel infringes. PQA also largely copied Intel's petition, but (1) added a challenge to an additional claim and (2) included newly signed declarations from Intel's experts. In December 2021, the PTAB instituted OpenSky's petition on the '759 patent, but declined to institute on the '373 patent. In December 2021, Intel filed a motion to join OpenSky's '759 IPR. That motion remains pending. In January 2022, the PTAB instituted PQA's petition on the '373 patent. In February, Intel filed a motion to join PQA's petition. That motion also remains pending.
After consideration of the verdicts in the WDTX cases and the additional pending lawsuits filed by VLSI, Intel accrued a charge of $2.2 billion in the first quarter of 2021. We dispute VLSI’s claims and intend to vigorously defend against them.
Litigation Related to 7nm Product Delay Announcement
Starting in July 2020, five securities class action lawsuits were filed in the U.S.United States District Court for the Northern District of California against Intel and certain current and former officers based on Intel’s July 2020 announcement of 7nm product delays. The plaintiffs, who purport to represent classes of acquirers of Intel stock between October 2019 and July 2020, generally allege that the defendants violated securities laws by making false or misleading statements about the timeline for 7nm products in light of subsequently announced delays. In October 2020, the court consolidated the lawsuits, and appointed lead plaintiffs, and in January 2021 the lead plaintiffs filed a consolidated complaint. Defendants moved to dismiss the consolidated complaint in March 2021. We dispute the claims described above and intend to defend the 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. In July 2021, Intel introduced a new process node naming structure, and the 7nm process is now Intel 4.
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| Financial Statements | Notes to Financial Statements | 2322 |
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 our document.
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| Term | | Definition |
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2009 Debentures | | 3.25% junior subordinated convertible debentures due 2039 |
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| 5G | | The fifth-generation mobile network, which is expected to bring dramatic improvements in network speeds and latency, and which we view as a transformative technology and opportunity for many industries |
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| ADAS | | Advanced driver-assistance systems |
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Adjacent productsAI | | All of our non-platform products for CCG, DCG, and IOTG, such as modem, Ethernet and silicon photonics, as well as Mobileye, NSG, and PSG products. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needsArtificial intelligence |
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ASIC | | Application-specific integrated circuit |
| ASP | | Average selling price |
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AV | | Autonomous vehicle |
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| AXG | | Advanced Computing and Graphics operating segment |
| CCG | | Client Computing Group operating segment |
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| CODM | | Chief operating decision maker |
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| COVID-19 | | The infectious disease caused by the most recently discovered coronavirus (aka SARS-CoV-2), which was declared a global pandemic by the World Health Organization |
| CPU | | Processor or central processing unit |
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DCGDCAI | | Data Center Groupand AI operating segment |
| EC | | European Commission |
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| Form 10-K | | Annual Report on Form 10-K |
| Form 10-Q | | Quarterly Report on Form 10-Q |
| FPGA | | Field-programmable gate array |
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| GPU | | Graphics processing unit |
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Internet of Things | | The Internet of Things market in which we sell our IOTG and Mobileye products | | |
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IOTGHPC-AI | | Internet of Things GroupHigh performance computing for AI |
| IFS | | Intel Foundry Services operating segment |
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| IP | | Intellectual property |
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| LIBOR | | London Inter-Bank Offered Rate, an interest rate average calculated from estimates by the leading banks in London |
| MBMW | | Multi-Beam Mask Writer |
| MD&A | | Management's Discussion & Analysis |
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| MG&A | | Marketing, general and administrative |
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| NAND | | NAND flash memory |
| NEX | | Networking and Edge operating segment |
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| nm | | Nanometer |
NSG | | Non-Volatile Memory Solutions Group operating segment |
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| ODM | | Original design manufacturer |
| OEM | | Original equipment manufacturer |
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Platform products | | A microprocessor (CPU) and chipset, a stand-alone SoC, or a multichip package, based on Intel architecture. Platform products are primarily used in solutions sold through the CCG, DCG, and IOTG segments |
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PSG | | Programmable Solutions Group operating segment |
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| R&D | | Research and development |
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| RSU | | Restricted stock unit |
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| SEC | | U.S. Securities and Exchange Commission |
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| 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 platform products in CCG, DCG,DCAI, and IOTG.NEX. In our DCG business,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 |
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| SOFR | | Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated derivatives and loans, replacing LIBOR |
| SSD | | Solid-state drive |
| TAM | | Total addressable market |
| Tax Reform | | |
| | U.S. Tax Cuts and Jobs Act | | |
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| U.S. GAAP | | U.S. Generally Accepted Accounting Principles |
| VLSI | | VLSI Technology LLC |
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On July 26, 2021, we provided an update on our manufacturing process and packaging technology roadmaps. As part of this update, we also introduced a new naming structure for our manufacturing process nodes, which includes the name changes summarized below:
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| | Previous Process Node Name
| | New Process Node Name |
| 10nm SuperFin | | 10nm SuperFin (unchanged) |
| 10nm Enhanced SuperFin | | Intel 7 |
| Intel 7nm | | Intel 4 |
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| Financial Statements | Notes to Financial Statements | 2423 |
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| Management's Discussion and Analysis | |
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We previously announced several organizational changes that would accelerate the execution and innovation of our Company by allowing us to capture growth in both large traditional markets and high-growth emerging markets. This includes the reorganization of our business units to capture this growth and to provide increased transparency, focus and accountability. As a result, we modified our segment reporting in Q1 2022 to align to the previously announced business reorganization. All prior-period segment data has been retrospectively adjusted to reflect the way we internally manage and monitor segment performance starting in fiscal year 2022.For additional key highlights of our results of operations, see "A Quarter in Review."
Client Computing Group
TheWe are committed to advancing PC is more essential than ever, enriching livesexperiences by helping peopledelivering an annual cadence of leadership products and deepening our relationships with industry partners to co-engineer and deliver leading platform innovation. We focus create,on long-term operating systems, system architecture, hardware, and connect with friends, family, and coworkers around the world. Working with our partners across the industry, weapplication integration that enables industry-leading PC experiences. We intend to continue to advance PC experiences with innovations like our Intel® Evo™ platform which delivers exceptional mobile computing experiences for PC customers. As the largest business unit at Intel, CCG isembrace these opportunities by investing more heavily in the PC, ramping up its capabilities even more aggressively, and designing the PC experience even more deliberately, delivering a predictable cadence of leadership products. As a result,deliberately. By doing this, we are ablebelieve we will continue to fuel innovation across Intel, providing an importanta growing source of IP, scale, and cash flow.
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| CCG Revenue $B | | CCG Operating Income $B |
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| ■ PlatformNotebook | ■ AdjacentDesktop | ■Other | |
Revenue in Q3 2021▪Notebook revenue was $6.0 billion, down 2% due to$997 million from Q1 2021. Notebook unit sales decreased 35% driven by lower notebook volume and adjacent revenue, partially offset by higher platform ASPs and increased desktop volume. Notebook volume declineddemand in the consumer and education market segments following a supply chain inventory digestion cycle compared to COVID-driven highs in Q1 2021, partially offset by an increase in ASPs of 32% due to industry-wide component shortages. Platform ASPs were higher in both notebook and desktop from a higheran increased mix of large core products. commercial and consumer products, and lower mix of education.
▪Desktop revenue was $2.6 billion, down $130 million from Q1 2021. Desktop unit sales decreased 11% driven by lower demand strengthened due toin consumer and education market segments, partially offset by an increase in ASPs of 7%, driven by commercial recovery from COVID-19 lows. AdjacentCOVID-19.
▪Other revenue was $694 million, down compared to Q3 2020 due to$303 million primarily driven by the continued ramp down from the exit of our 5G smartphone modem business.
Operating income in Q1 2022 decreased 34% from Q1 2021, with an operating margin of 30%.
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| (In Millions) | | |
| $ | 2,827 | | | Q1 2022 CCG Operating Income |
| (700) | | | Higher desktop and notebook unit cost primarily from increased mix of 10nm SuperFin products |
| (355) | | | Higher operating expenses driven by increased investments in leadership products |
| (340) | | | Higher period charges primarily associated with ramp up of Intel 4 and increased engineering samples |
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| (150) | | | Lower gross margin from revenue, primarily driven by desktop and notebook |
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| 84 | | | Other |
| $ | 4,288 | | | Q1 2021 CCG Operating Income |
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Datacenter and Home Gateway Platform businesses,AI
DCAI delivers workload-optimized platforms to empower datacenter and hyperscale solutions for diverse computing needs. We are focused on delivering the hardware and software portfolio our customers need to support the increased demand for high performance computing and processing of increasingly complex algorithms. DCAI offers a portfolio of leadership products, including CPUs, FPGAs, and AI accelerators, and Intel® persistent memory together with a broad portfolio of software and solutions that enable our hardware’s differentiated features to deliver performance to customers. Our customers and partners include hyperscale customers, OEM/ODMs, enterprises, independent software vendors, system integrators, communications service providers, and governments.
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| DCAI Revenue $B | | DCAI Operating Income $B |
Revenue was $6.0 billion, up $1.1 billion from Q1 2021, primarily driven by an increase in server revenue. Server volume increased 28% due to demand from our hyperscale customer-related products and continued recovery from COVID-driven lows in Q1 2021. This was partially offset by strengtha 3% decrease in wireless and connectivity.
Revenue YTD 2021 was up 4% compared to YTD 2020 due to continued strong demand in notebook and continued strength in desktop driven by consumer and commercial recovery from COVID-19 lows, partially offset by lower notebook and desktopserver ASPs due to strength in the consumercustomer and education market segments. Adjacentproduct mix. Other DCAI revenue was down compared to YTD 2020increased primarily due to the continued ramp downgrowth in our FPGA business.
Operating income in Q1 2022 decreased 1% from the exitQ1 2021, with an operating margin of our 5G smartphone modem and Home Gateway Platform businesses, partially offset by strength in wireless and connectivity.28%.
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| | Q3 2021 vs. Q3 2020 | | YTD 2021 vs. YTD 2020 |
| (In Millions) | | % | | $ Impact | | % | | $ Impact |
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| Desktop platform volume | | up | 16% | | $ | 394 | | | up | 8% | | $ | 648 | |
| Desktop platform ASP | | up | 4% | | 106 | | | down | (1)% | | (77) | |
| Notebook platform volume | | down | (14)% | | (847) | | | up | 24% | | 4,364 | |
| Notebook platform ASP | | up | 10% | | 525 | | | down | (12)% | | (2,685) | |
| Adjacent products and other | | | | | (361) | | | | | | (990) | |
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| Total change in revenue | | | | | $ | (183) | | | | | | $ | 1,260 | |
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| (In Millions) | | |
| $ | 1,686 | | | Q1 2022 DCAI Operating Income |
| (345) | | | Higher period charges primarily associated with ramp up of Intel 4 |
| (275) | | | Higher operating expenses driven by increased investment in leadership products |
| (155) | | | Higher period charges primarily driven by inventory reserves taken in 2022 |
| (145) | | | Higher server unit cost primarily from increased mix of 10nm SuperFin products |
| 810 | | | Higher gross margin from server revenue |
| 165 | | | Higher gross margin from other DCAI product revenue |
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| (75) | | | Other |
| $ | 1,706 | | | Q1 2021 DCAI Operating Income |
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Network & Edge
NEX lifts the world's networks and edge systems from fixed function hardware into open software running on programmable hardware. We work with partners and customers to deliver and deploy intelligent edge platforms that allow software developers to continuously evolve, improve, and tailor systems to gain more control, security, and flexibility. We have a broad portfolio of hardware and software platforms, tools and ecosystem partnerships for the rapid digital transformation happening from edge to cloud. We are leveraging our core strengths in process, manufacturing at scale, and software, to grow traditional markets and to accelerate entry into emerging ones.
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| NEX Revenue $B | | NEX Operating Income $B |
Revenue was $2.2 billion, up $414 million from Q1 2021, driven by increased demand for cloud networking and post-COVID transformation of the edge.
Operating income in Q3Q1 2022 increased 51% from Q1 2021, decreased 7% from Q3 2020, with an operating margin of 34%. Operating income YTD 2021 increased 5%, with an operating margin of 37%17%.
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| (In Millions) | | | | |
| $ | 3,317366 | | | Q3 2021 CCGQ1 2022 NEX Operating Income | | |
(440)290 | | | Higher gross margin from NEX revenue, primarily driven by demand for cloud networking and the edge | | |
| 55 | | | Lower unit cost primarily from increased mix of 10nm SuperFin products | | |
| (195) | | | Higher period charges driven by sell-throughprimarily associated with ramp of reserved non-qualified platform products net of other reserves in Q3 2020, and reserves taken on non-qualified platform products in Q3 2021Intel 4 | | |
(215)(105) | | | Higher operating expenses driven by increased investment in support of leadership products |
(205) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(105) | | | Lower adjacent product margin primarily driven by the exit of our 5G smartphone modem and Home Gateway Platform businesses | |
(85) | | | Higher period charges primarily associated with the ramp down of 14nm | |
510 | | | Higher gross margin from platform revenue |
185 | | | Lower platform unit cost primarily due to cost improvements in 10nm SuperFin |
125 | | | Lower period charges primarily driven by a decrease in engineering samples |
(7)78 | | | Other |
$ | 3,554 | | | Q3 2020 CCG Operating Income |
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| $ | 11,197243 | | | YTDQ1 2021 CCGNEX Operating Income |
855 | | | Lower platform unit cost primarily due to cost improvements in 10nm SuperFin |
450 | | | Higher gross margin from platform revenue |
255 | | | Lower period charges driven by lower reserves taken on non-qualified platform products |
125 | | | Lower period charges primarily driven by a decrease in engineering samples |
(540) | | | Higher operating expenses driven by increased investment in support of leadership products |
(280) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(250) | | | Higher period charges primarily associated with the ramp down of 14nm |
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(39) | | | Other | |
$ | 10,621 | | | YTD 2020 CCG Operating Income | |
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Data Center GroupAccelerated Computing Systems and Graphics
DCG develops workload-optimized platformsAXG delivers products and technologies designed to help our customers solve the toughest computational problems. Our vision is to enable persistent and immersive computing, at scale, and accessible by billions of people within milliseconds, which drives an incredible demand for compute storage, and network functions. With unmatched scale,- from endpoints to data centers.
Our portfolio breadth, and ecosystem support, we are uniquely positioned to enable the world to unleash the potential of data, unlocking valueincludes CPUs for people, business, and society on a global scale. Market segments include cloud service providers, enterprise and government, and communications service providers. We serve the global appetite for cloudhigh performance computing and enable transformationGPUs targeted for a range of workloads and platforms from gaming and content creation on client devices to delivering media and gaming in the networkcloud, and edge. In 2021, our DCG operating segment includes the results of our Intel Optane memory business.most demanding HPC and AI workload on supercomputers. To address new market opportunities and emerging workloads, we also develop custom accelerators with blockchain acceleration, as an example.
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| DCGAXG Revenue $B | | DCGAXG Operating Income (Loss) $B |
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| ■Platform
| ■Adjacent
Revenue and Operating Income (Loss) Summary |
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Revenue SummaryQ1 2022 vs. Q1 2021 |
Revenue in Q3was $219 million, up $38 million from Q1 2021. We had an operating loss of $390 million, down $214 million from Q1 2021 was up 10% on higher platform volume and higher ASPs, primarily due to recovery in the enterpriseincreased reserves and government market segment, compared to COVID-driven lows, and stronger core mix, partially offset by lower revenue in the cloud service providers market segment compared to a strong, COVID-driven Q3 2020. Adjacent revenue was down, primarily due to accelerated 5G networking related purchases in Q3 2020, partially offset by the inclusion of the Intel Optane memory business, which grew year over year. Year over year, the enterprise and government market segment was up 70%, the communications service providers market segment was up 18% and the cloud service providers market segment was down 20%.
Revenue YTD 2021 was down 7% compared to YTD 2020 on lower ASPs in a competitive environment, product mix, and on lower platform volume compared to a strong, COVID-driven YTD 2020.
During Q3 2021, demand for DCG products was adversely impacted by industry component supply constraints, as well as demand softness in China, including among cloud service provider customers, as customers adapt to regulatory changes. We expect these trends to continue in Q4 2021.roadmap investments.
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| | Q3 2021 vs. Q3 2020 | | YTD 2021 vs. YTD 2020 |
| (In Millions) | | % | | $ Impact | | % | | $ Impact |
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| Platform volume | | up | 8% | | $ | 422 | | | down | (2)% | | $ | (377) | |
| Platform ASP | | up | 3% | | 174 | | | down | (6)% | | (1,121) | |
| Adjacent products | | down | (1)% | | (5) | | | down | —% | | (2) | |
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| Total change in revenue | | | | | $ | 591 | | | | | | $ | (1,500) | |
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Operating incomeMobileye is a global leader in Q3 2021 increased 8% from Q3 2020, with an operating margin of 32%. Operating income YTD 2021 decreased 38%, with an operating margin of 28%.driving assistance and self-driving solutions. Our product portfolio covers the entire stack required for assisted and autonomous driving, including compute platforms, computer vision and machine learning-based sensing, mapping and localization, driving policy, and active sensors in development. Mobileye's unique assets in ADAS allow for building a scalable self-driving stack that meets the requirements for both Robotaxi and consumer-level autonomy. Our customers and strategic partners include major global OEMs, Tier 1 automotive system integrators, and public transportation operators.
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(In Millions) | | |
$ | 2,057Mobileye Revenue $B | | | Q3 2021 DCGMobileye Operating Income $B |
530 | | | Higher gross margin from platform revenue |
285 | | | Higher adjacent gross marginRevenue and Operating Income Summary |
100 | | | Lower period charges driven by absence of reserves, including reserves taken on non-qualified platform products in 2020, and by sell-through of other reserves in 2021 |
(285) | | | Higher operating expenses driven by increased investment in leadership products |
(225) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(170) | | | Higher platform unit cost primarily from increased mix of 10nm SuperFin products |
(75) | | | Higher period charges primarily associated with the ramp down of 14nm |
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(6) | | | Other |
$ | 1,903 | | | Q3 2020 DCG Operating Income |
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$ | 5,271 | | | YTD 2021 DCG Operating Income |
(1,445) | | | Lower gross margin from platform revenue |
(900) | | | Higher operating expenses driven by increased investment in leadership products |
(530) | | | Higher platform unit cost primarily from increased mix of 10nm SuperFin products |
(390) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(260) | | | Higher period charges primarily associated with the ramp down of 14nm |
285 | | | Higher adjacent product margin |
25 | | | Lower period charges driven by an absence of reserves, including reserves taken on non-qualified platform products in 2020, partially offset by other reserves recorded inQ1 2022 vs. Q1 2021 |
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(8) |
Mobileye revenue was $394 million, up $17 million from Q1 2021. Operating income was $148 million, down $23 million from Q1 2021.
| | Other | $ | 8,494 | | | YTD 2020 DCG Operating Income |
InternetIntel Foundry Services
IFS seeks to empower our customers by delivering industry-leading silicon and packaging with a differentiated IP portfolio via a secure and sustainable supply of Things
More industries are harnessing the powersemiconductors. We intend to leverage our decades-long investment in advancing Moore’s Law to spark innovation and customization for our customers on leading edge nodes and mature specialty processes, through support of data to create business value, innovate, and grow. This requires that intelligence move closer to the edge, allowing data to be acted on where it is created. Working with our partners, we are using our architecture, accelerators, and software to develop and scale a growing Internet of Things portfolio andan open multi-Intel System Architecture ecosystem. Our Internet of Things portfolio is comprised of our IOTG and Mobileye businesses.
IOTG develops high-performance compute platforms that solve for technology and business use cases that can scale across vertical industries and embedded markets. Ourearly customers include retailers, manufacturers, healthtraditional fabless customers, cloud service providers, automotive customers and life sciences, governments, and education providers.aerospace firms. We reduce complexity in the ecosystem withoffer a common architecture and software to help enable our customers to createcombination of leading-edge packaging and process data attechnology, world-class differentiated internal IPs (ex. x86, graphics, AI), broad third party ecosystem and silicon design support. Additionally, our offerings include mask-making equipment for advanced lithography used by most of the edge to analyze it faster and to act on it sooner.
Mobileye is the global leader in driving assistance and self-driving solutions. Our product portfolio employs a broad set of technologies, covering computer vision and machine learning-based sensing, data analysis, localization, mapping, and driving policy technology for ADAS and AVs. Mobileye's ADAS products form the building blocks for higher levels of autonomy. Our customers and strategic partners include major global OEMs, Tier 1 automotive system integrators, fleet managers, and transportation operators.world’s leading-edge foundries.
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| Internet of ThingsIFS Revenue $B | | Internet of ThingsIFS Operating Income (Loss) $B |
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| Revenue and Operating Income (Loss) Summary |
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| ■ IOTG
| ■ Mobileye
| | | ■ IOTG
| ■ Mobileye
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Revenue and Operating Income Summary |
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Q3Q1 2022 vs. Q1 2021 vs. Q3 2020 |
IOTG revenueRevenue was $1.0 billion,$283 million, up $365$180 million from Q1 2021, driven by higher demand for IOTG platform products amid recovery from the economic impactssales of COVID-19. Operating income was $276MBMW tools. We had an operating loss of $31 million, up $215$3 million year over year.from Q1 2021.
Mobileye revenue was $326 million, up $92 million driven by improvement in global vehicle production year over year. Operating income was $105 million, up $58 million year over year.
IOTG revenue was $2.9 billion, up $710 million, driven by higher demand for IOTG platform products amid recovery from the economic impacts of COVID-19, partially offset by lower ASPs. Operating income was $775 million, up $401 million.
Mobileye revenue was $1.0 billion, up $396 million, driven by improvement in global vehicle production compared to the same period in 2020. Operating income was $361 million, up $230 million.
Non-Volatile Memory Solutions Group
On October 19, 2020, we signed an agreement with SK hynix Inc. (SK hynix) to divest our NAND memory business. The transaction will occur over two closings as described in detail in "Note 8: Acquisitions and Divestitures" in Notes to Consolidated Condensed Financial Statements.
Our NAND business continues to develop storage solutions using our innovative Intel® 3D NAND Technology. Our data center products are optimized to deliver world-class performance and drive lower total cost of ownership, and our client SSDs provide a fast and productive computing environment for a variety of segments. Our Intel Optane memory business is expressly excluded from the sale to SK hynix, and beginning in 2021, the results of our Intel Optane memory business are included in our DCG operating segment, and our NSG operating segment is composed entirely of our NAND memory business.
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| NSG Revenue $BConsolidated Results of Operations | | NSG Operating Income $B |
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Revenue and Operating Income Summary | |
Revenue was $1.1 billion, down $48 million from Q3 2020, primarily due to supply chain constraints, $151 million lower ASPs due to mix shift, and the transfer of the Intel Optane memory business to DCG ($86 million in Q3 2020), partially offset by $188 million higher volume. Operating income was $442 million, up $413 million from Q3 2020 due to $411 million improvements in unit cost, primarily driven by the absence of depreciation expense from NAND property, plant and equipment that is held for sale, partially offset by $186 million lower revenue on ASP decline. Operating income also benefited from the transfer of the Intel Optane memory business from Q3 2021 NSG results (a loss of $116 million in Q3 2020).
Revenue was $3.3 billion, down $840 million, driven by $814 million lower ASPs due to market softness and pricing pressure, and due to the transfer of the Intel Optane memory business to DCG ($298 million YTD 2020), partially offset by $271 million higher volume on strong demand. Operating income was $1.0 billion, up $730 million from YTD 2020, due to $1.1 billion of improvements in unit cost, primarily driven by the absence of depreciation expense from NAND property, plant and equipment that is held for sale, $376 million of lower period charges, and $162 million of lower operating expenses partially offset by $940 million of lower revenue on ASP decline. Operating income also benefited from the transfer of the Intel Optane memory business from YTD 2021 NSG results (a loss of $473 million YTD 2020). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | Q1 2022 | | Q1 2021 | | | | |
| (In Millions, Except Per Share Amounts) | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | | | | | | | |
| Net revenue | | $ | 18,353 | | | 100.0 | % | | $ | 19,673 | | | 100.0 | % | | | | | | | | |
| Cost of sales | | 9,109 | | | 49.6 | % | | 8,819 | | | 44.8 | % | | | | | | | | |
| Gross margin | | 9,244 | | | 50.4 | % | | 10,854 | | | 55.2 | % | | | | | | | | |
| Research and development | | 4,362 | | | 23.8 | % | | 3,623 | | | 18.4 | % | | | | | | | | |
| Marketing, general and administrative | | 1,752 | | | 9.5 | % | | 1,328 | | | 6.8 | % | | | | | | | | |
| Restructuring and other charges | | (1,211) | | | (6.6) | % | | 2,209 | | | 11.2 | % | | | | | | | | |
| Operating income | | 4,341 | | | 23.7 | % | | 3,694 | | | 18.8 | % | | | | | | | | |
| Gains (losses) on equity investments, net | | 4,323 | | | 23.6 | % | | 368 | | | 1.9 | % | | | | | | | | |
| Interest and other, net | | 997 | | | 5.4 | % | | (156) | | | (0.8) | % | | | | | | | | |
| Income before taxes | | 9,661 | | | 52.6 | % | | 3,906 | | | 19.9 | % | | | | | | | | |
| Provision for taxes | | 1,548 | | | 8.4 | % | | 545 | | | 2.8 | % | | | | | | | | |
| Net income | | $ | 8,113 | | | 44.2 | % | | $ | 3,361 | | | 17.1 | % | | | | | | | | |
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| Earnings per share—diluted | | $ | 1.98 | | | | | $ | 0.82 | | | | | | | | | | | |
Programmable Solutions Group
PSG offers programmable semiconductors, primarily FPGAs, structured ASICs, and related products, for a broad range of applications across our embedded, communications, and cloud and enterprise market segments. Our product portfolio delivers FPGA acceleration in tandem with Intel microprocessors, which enables us to combine the benefits of our broad portfolio of technologies to allow more flexibility for systems to operate with increased efficiency and higher performance.
Revenue | | | | | | | | | | | |
| PSGSegment Revenue Walk $B | |
| | PSG Operating Income $B | | |
Q1 2022 vs. Q1 2021
Our Q1 2022 revenue was $18.4 billion, down $1.3 billion or 7% from Q1 2021. CCG was down 13% due to lower notebook and desktop volume, partially offset by higher notebook and desktop ASPs, and lower revenue due to the continued ramp down from the exit of our 5G smartphone modem business. Notebook volume declined driven by lower demand in the consumer and education market segments following a supply chain inventory digestion cycle compared to COVID-driven highs in Q1 2021, while desktop demand also declined in consumer and education. DCAI revenue increased 22% on higher server volume due to demand from hyperscale customer-related products and continued recovery from COVID-driven lows in Q1 2021, partially offset by lower server ASPs due to customer and product mix. NEX revenue increased 23% on strong demand for cloud networking and post-COVID transformation of the edge. The decrease in our "all other" revenue reflects revenue of $1.1 billion in Q1 2021 related to the divested NAND memory business for which historical results are recorded in “all other”, and $584 million of revenue recognized in Q1 2021 from a prepaid customer supply customer.
Gross Margin
We derived a substantial majority of our overall gross margin from the sale of products in the CCG and DCAI operating segments. Our overall gross margin dollars in Q1 2022 decreased by $1.6 billion, or 15% compared to Q1 2021.
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Revenue and Operating Income SummaryGross Margin $B |
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(Percentages in chart indicate gross margin as a percentage of total revenue)
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| (In Millions) | | |
| $ | 9,244 | | | Q1 2022 Gross Margin |
| (790) | | | Higher unit cost primarily from increased mix of 10nm SuperFin products |
| (880) | | | Higher period charges primarily associated with ramp of Intel 4 |
| (584) | | | Lack of revenue recognized in Q1 2021 from a prepaid customer supply contract |
| (308) | | | Lower gross margin related to the divested NAND memory business |
| (155) | | | Higher period charges primarily driven by inventory reserves taken in 2022 |
| (150) | | | Lower gross margin from revenue, primarily driven by desktop and notebook |
| 1,100 | | | Higher gross margin from Server, cloud networking and the edge |
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Q3157 | | | Other |
| $ | 10,854 | | | Q1 2021 vs. Q3 2020Gross Margin |
Revenue was $478 million, up $67 million driven by recovery in all market segments from COVID-19 lows, led by embedded. Operating income was $76 million, up $36 million.
Revenue was $1.5 billion, up $19 million driven by strength in embedded, partially offset by customer inventory digestion. Operating income was $246 million, up $29 million.
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Consolidated Results of Operations | |
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| | Three Months Ended | | Nine Months Ended |
| | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 |
| (In Millions, Except Per Share Amounts) | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue |
| Net revenue | | $ | 19,192 | | | 100.0 | % | | $ | 18,333 | | | 100.0 | % | | $ | 58,496 | | | 100.0 | % | | $ | 57,889 | | | 100.0 | % |
| Cost of sales | | 8,446 | | | 44.0 | % | | 8,592 | | | 46.9 | % | | 25,690 | | | 43.9 | % | | 25,625 | | | 44.3 | % |
| Gross margin | | 10,746 | | | 56.0 | % | | 9,741 | | | 53.1 | % | | 32,806 | | | 56.1 | % | | 32,264 | | | 55.7 | % |
| Research and development | | 3,803 | | | 19.8 | % | | 3,272 | | | 17.8 | % | | 11,141 | | | 19.0 | % | | 9,901 | | | 17.1 | % |
| Marketing, general and administrative | | 1,674 | | | 8.7 | % | | 1,435 | | | 7.8 | % | | 4,601 | | | 7.9 | % | | 4,423 | | | 7.6 | % |
| Restructuring and other charges | | 42 | | | 0.2 | % | | (25) | | | (0.1) | % | | 2,597 | | | 4.4 | % | | 146 | | | 0.3 | % |
| Operating income | | 5,227 | | | 27.2 | % | | 5,059 | | | 27.6 | % | | 14,467 | | | 24.7 | % | | 17,794 | | | 30.7 | % |
| Gains (losses) on equity investments, net | | 1,707 | | | 8.9 | % | | 56 | | | 0.3 | % | | 2,370 | | | 4.1 | % | | 212 | | | 0.4 | % |
| Interest and other, net | | (76) | | | (0.4) | % | | (74) | | | (0.4) | % | | (328) | | | (0.6) | % | | (416) | | | (0.7) | % |
| Income before taxes | | 6,858 | | | 35.7 | % | | 5,041 | | | 27.5 | % | | 16,509 | | | 28.2 | % | | 17,590 | | | 30.4 | % |
| Provision for taxes | | 35 | | | 0.2 | % | | 765 | | | 4.2 | % | | 1,264 | | | 2.2 | % | | 2,548 | | | 4.4 | % |
| Net income | | $ | 6,823 | | | 35.6 | % | | $ | 4,276 | | | 23.3 | % | | $ | 15,245 | | | 26.1 | % | | $ | 15,042 | | | 26.0 | % |
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| Earnings per share—diluted | | $ | 1.67 | | | | | $ | 1.02 | | | | | $ | 3.73 | | | | | $ | 3.52 | | | |
Revenue
Q3 2021 vs. Q3 2020
Our Q3 2021 revenue was $19.2 billion, up $859 million from Q3 2020. DCG revenue grew 10% on higher platform volume and higher platform ASPs, primarily due to recovery in the enterprise and government market segment compared to COVID-driven lows, and stronger core mix, partially offset by lower revenue in the cloud service providers market segment compared to a COVID-driven Q3 2020. IOTG and Mobileye were both up primarily on higher demand amid recovery from the economic impacts of COVID-19. CCG was down 2% due to lower notebook volume and adjacent revenue, partially offset by higher platform ASPs and increased desktop volume. Notebook volume declined in the consumer and education market segments due to industry-wide component shortages. Platform ASPs were higher in both notebook and desktop from a higher mix of large core products. Desktop demand strengthened due to consumer and commercial recovery from COVID-19 lows. NSG was down 4% primarily due to supply chain constraints, lower ASPs due to mix shift, and due to the transfer of the Intel Optane memory business to DCG, partially offset by higher volume.
We saw impacts from ongoing industry component and substrate shortages across a majority of our businesses and we expect these constraints to continue.
YTD 2021 vs. YTD 2020
Our YTD 2021 revenue was $58.5 billion, up $607 million or 1% from YTD 2020. CCG was up 4% due to continued strength in notebook demand and continued recovery in desktop demand, partially offset by lower notebook and desktop ASPs due to strength in the consumer and education market segments. IOTG and Mobileye were both up 32% and 62%, respectively, on higher demand amid recovery from the economic impacts of COVID-19. Our "all other" revenue increased primarily due to $584 million from a prepaid supply agreement settled in Q1 2021. DCG decreased 7% on lower ASPs in a competitive environment, product mix, and on lower platform volume compared to a strong, COVID-driven YTD 2020. NSG was down 20% primarily due to lower ASPs, partially offset by higher volume.
Gross Margin
We derived a substantial majority of our overall gross margin from the sale of platform products in the CCG and DCG operating segments. Our overall gross margin dollars in Q3 2021 increased by $1.0 billion, or 10% compared to Q3 2020.
Earlier this year, we announced our IDM 2.0 strategy, in which we announced our plans to continue to build a majority of our products in Intel fabs, to expand our use of third-party foundry capacity, and to build a world-class foundry business. As part of our IDM 2.0 strategy, we also announced plans to significantly expand our manufacturing capacity and goals related to process technology and product leadership. While we are analyzing the investment plans required to achieve our objectives, we anticipate that we will accelerate our investments in manufacturing capacity and R&D, including for our process technology roadmap, to position the company for accelerating revenue growth. With the impact of these investments, we anticipate that our gross margin will be approximately in the 51-53%1 range for the next two or three years before moving upward.
(Percentages in chart indicate gross margin as a percentage of total revenue)
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(In Millions) | | |
$ | 10,746 | | | Q3 2021 Gross Margin |
1,320 | | | Higher gross margin from platform revenue |
545 | | | Higher gross margin from adjacent businesses primarily due to increased volume amidst improvement in global vehicle production |
(455) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(195) | | | Higher period charges driven by sell-through of reserved non-qualified platform products in Q3 2020 and reserves taken on non-qualified platform products in Q3 2021, partially offset by lower reserves compared to Q3 2020 |
(170) | | | Higher period charges primarily associated with the ramp down of 14nm |
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(40) | | | Other |
$ | 9,741 | | | Q3 2020 Gross Margin |
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$ | 32,806 | | | YTD 2021 Gross Margin |
1,010 | | | Higher gross margin from adjacent businesses primarily due to improved NAND unit cost, increased volume amidst improvement in global vehicle production and higher margins on wireless and connectivity |
585 | | | Prepaid supply agreement settled and recognized to revenue in Q1 2021 |
485 | | | Lower period charges driven by lower reserves taken on non-qualified platform products compared to 2020, partially offset by 2020 sell-through of other reserves |
315 | | | Lower platform unit cost primarily from cost improvements in 10nm SuperFin products |
(715) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(535) | | | Higher period charges primarily associated with the ramp down of 14nm |
(535) | | | Lower gross margin from platform revenue |
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(68) | | | Other |
$ | 32,264 | | | YTD 2020 Gross Margin |
1 See "Non-GAAP Financial Measures" within MD&A.
Operating Expenses
Total R&D and MG&A expenses for Q3 2021Q1 2022 were $5.5$6.1 billion, up 16%23% from Q3 2020, and $15.7 billion for YTD 2021, up 10% from YTD 2020.Q1 2021. These expenses represent 28.5%33.3% of revenue for Q3 2021Q1 2022 and 25.7%25.2% of revenue for Q3 2020, and 26.9% of revenue for YTD 2021 and 24.7% of revenue for YTD 2020.Q1 2021.
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| Research and Development $B | | Marketing, General, and Administrative $B |
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(Percentages indicate expenses as a percentage of total revenue)
Q3Q1 2022 vs. Q1 2021 vs. Q3 2020
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R&D increased by $531$739 million, or 16.2%20.4%, driven by the following: |
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| + | Incentive-based cash compensation |
+ | Investments in CCG, DCG, and Mobileyeour process technology |
| + | Investments in our process technologybusinesses to drive strategic growth |
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YTD 2021 vs. YTD 2020
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R&D spending increased by $1.2 billion, or 12.5%, driven by the following: | | |
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| + | InvestmentsIncrease in CCG, DCG, and Mobileyecorporate spending | | |
+ | Investments in our process technology | | |
| + | Incentive-based cash compensation | | |
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| Marketing, General, and Administrative |
Q3Q1 2022 vs. Q1 2021 vs. Q3 2020
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MG&A increased by $239$424 million, or 16.7%31.9%, driven by the following: |
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| + | Increase in corporate spending |
| + | Incentive-based cash compensation |
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YTD
Gains (Losses) on Equity Investments and Interest and Other, Net
| | | | | | | | | | | | | | | | | | | | | | |
| (In Millions) | | Q1 2022 | | Q1 2021 | | | | | | | | |
| Ongoing mark-to-market adjustments on marketable equity securities | | $ | (430) | | | $ | (291) | | | | | | | | | |
| Observable price adjustments on non-marketable equity securities | | 71 | | | 551 | | | | | | | | | |
| Impairment charges | | (23) | | | (38) | | | | | | | | | |
Sale of equity investments and other | | 4,705 | | | 146 | | | | | | | | | |
| Gains (losses) on equity investments, net | | $ | 4,323 | | | $ | 368 | | | | | | | | | |
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| Interest and other, net | | $ | 997 | | | $ | (156) | | | | | | | | | |
Gains (losses) on equity investments, net
Ongoing mark-to-market adjustments during Q1 2022 and Q1 2021 vs. YTD 2020were primarily related to our interest in Montage Technology, Co. Ltd and others.
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MG&A spending increased by $178 million, or 4.0%, driven by the following: | | |
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+ | Increase in corporate spending | | |
+ | Incentive-based cash compensation | | |
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In Q1 2021, we recognized $471 million in observable price adjustments in our investment in Beijing Unisoc Technology Ltd.
Gains (Losses) on Equity InvestmentsIn Q1 2022 the sale of McAfee to an investor group was completed. We received $4.6 billion in cash for the sale of the remaining share of McAfee and Interest and Other, Net
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| (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | | | | |
| Ongoing mark-to-market adjustments on marketable equity securities | | $ | (192) | | | $ | (146) | | | $ | (345) | | | $ | (84) | | | | | |
| Observable price adjustments on non-marketable equity securities | | 79 | | | 5 | | | 702 | | | 142 | | | | | |
| Impairment charges | | (38) | | | (40) | | | (111) | | | (233) | | | | | |
Sale of equity investments and other | | 1,858 | | | 237 | | | 2,124 | | | 387 | | | | | |
| Gains (losses) on equity investments, net | | $ | 1,707 | | | $ | 56 | | | $ | 2,370 | | | $ | 212 | | | | | |
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| Interest and other, net | | $ | (76) | | | $ | (74) | | | $ | (328) | | | $ | (416) | | | | | |
Gains (losses) on equity investments, net
Ongoing mark-to-market adjustments during the first nine monthsrecognized $4.6 billion of 2021 were primarily related to our interestgains in Montage Technology, Co. Ltd. During the first nine months of 2020, ongoing mark-to-market adjustments were primarily driven by our interest in Cloudera, Inc.
In the first quarter of 2021, we recognized $471 million in observable price adjustments in our investment in Beijing Unisoc Technology Ltd.
Sale of equity investments and other during the third quarter of 2021 includes $447 million of initial fair value adjustments related to four companies that went public, and a McAfee special dividend of $1.1 billion paid in connection with the sale of McAfee's Enterprise Business to Symphony Technology Group..
Interest and other, net
DuringIn Q1 2022, we recognized $997 million, primarily due to a gain of $1.1 billion from the first nine monthsclosing of 2020, we paid $1.1 billion to fully satisfy conversion obligations for $372 millionthe divestiture of our $2.0 billion 2009 Debentures and recognized a loss of $109 million in interest and other, net and $750 million as a reduction in stockholders' equity related to the conversion feature.NAND memory business.
Restructuring and Other Charges
| | (In Millions) | (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | | (In Millions) | | Q1 2022 | | Q1 2021 | |
| Employee severance and benefit arrangements | Employee severance and benefit arrangements | | $ | 21 | | | $ | (17) | | | $ | 43 | | | $ | 90 | | | Employee severance and benefit arrangements | | $ | 5 | | | $ | 6 | | |
| | Litigation charges and other | Litigation charges and other | | 16 | | | (2) | | | 2,267 | | | 54 | | | Litigation charges and other | | (1,216) | | | 2,203 | | |
| Asset impairment charges | | 5 | | | (6) | | | 287 | | | 2 | | | |
| | Total restructuring and other charges | Total restructuring and other charges | | $ | 42 | | | $ | (25) | | | $ | 2,597 | | | $ | 146 | | | Total restructuring and other charges | | $ | (1,211) | | | $ | 2,209 | | |
Litigation charges and other includes $1.2 billion in Q1 2022 from the annulled penalty related to an EC fine that was recorded and paid in 2009, and a charge of $2.2 billion in Q1 2021 related to the VLSI litigation, and asset impairment charges includes impairments related to the shutdown of two of our non-strategic businesses in Q2 2021. Refer to "Note 6: Restructuring and Other Charges" and "Note 13: Contingencies" within Notes to Consolidated Condensed Financial Statements for further information.litigation.
Provision for Taxes
| | (In Millions) | (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | (In Millions) | | Q1 2022 | | Q1 2021 | |
| Income before taxes | Income before taxes | | $ | 6,858 | | | $ | 5,041 | | | $ | 16,509 | | | $ | 17,590 | | Income before taxes | | $ | 9,661 | | | $ | 3,906 | | |
| Provision for taxes | Provision for taxes | | $ | 35 | | | $ | 765 | | | $ | 1,264 | | | $ | 2,548 | | Provision for taxes | | $ | 1,548 | | | $ | 545 | | |
| Effective tax rate | Effective tax rate | | 0.5 | % | | 15.2 | % | | 7.7 | % | | 14.5 | % | Effective tax rate | | 16.0 | % | | 14.0 | % | |
In Q3 2021,Q1 2022, our effective tax rate decreasedincreased primarily due to the restructuringequity sale of certainMcAfee and the divestiture of our NAND memory business, partially offset by a change in tax law from 2017 Tax Reform and a higher proportion of our income being taxed in non-U.S. subsidiaries. As a result, we recognized one-time tax benefits from the release of valuation allowances of certain foreign deferred tax assets. In addition, we established deferred tax assetsjurisdictions. Beginning in Q3 2021 to offset the foreign deferred tax liabilities that were originally recognized in 2020January 2022, Tax Reform changes related to the changecapitalization of R&D costs derive much of the fluctuation in our permanent reinvestment assertion with respect to undistributed earnings in China in connection with our planned divestiture of the NAND memory business.results.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | (In Millions) | | Apr 2, 2022 | | Dec 25, 2021 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 7,870 | | | $ | 5,865 | | Cash and cash equivalents | | $ | 6,215 | | | $ | 4,827 | |
| Short-term investments | Short-term investments | | 4,004 | | | 2,292 | | Short-term investments | | 32,481 | | | 24,426 | |
| Trading assets | | 22,761 | | | 15,738 | | |
| Other long-term investments | | 953 | | | 2,192 | | |
| | Loans receivable and other | Loans receivable and other | | 252 | | | 947 | | Loans receivable and other | | 500 | | | 240 | |
Total cash and investments1 | Total cash and investments1 | | $ | 35,840 | | | $ | 27,034 | | Total cash and investments1 | | $ | 39,196 | | | $ | 29,493 | |
| | Total debt | Total debt | | $ | 40,304 | | | $ | 36,401 | | Total debt | | $ | 37,247 | | | $ | 38,101 | |
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, is our primary source of liquidity. When assessing our sources of liquidity, we includesupplemented by our total cash and investments1, as shown in the preceding table. We maintain a diverse investment portfolio thattable, is our primary source of liquidity for funding our strategic business requirements. Our short-term requirements include capital expenditures for worldwide manufacturing and assembly and test, including investments in our process technology roadmap; working capital requirements; and potential acquisitions, strategic investments, and dividends. Our long-term requirements incrementally contemplate additional investments in the significant manufacturing expansion plans we continually analyze based on issuer, industry, and country. Substantially allannounced as part of our IDM 2.0 strategy and additional investments in debt instrumentsto accelerate our process technology.
We expect to benefit from government incentives under pending legislation, and financing receivables are in investment-grade securities.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.
In the third quarter of 2021,March 2022, we issued a total of $5.0 billion aggregate principal senior notes, and in the first quarter of 2021, we entered into aamended our $5.0 billion variable-rate revolving credit facility, which matures inextending the maturity date by one year to March 2026.2027 and transitioning the interest terms from LIBOR to term SOFR. Other potential sources of liquidity include 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. As of September 25, 2021,April 2, 2022, we had no outstanding commercial paper or borrowings on the revolving credit facility.
In the first quarter of 2021, we repurchased the remaining $2.4 billion in shares of our planned $20.0 billion share repurchases announced in October 2019.
As described above in “Gross Margin,” we anticipateWe maintain a diverse investment portfolio that we will acceleratecontinually analyze based on issuer, industry, and country. Substantially all of our investments in manufacturing capacitydebt instruments and R&D, including for our process technology roadmap. While wefinancing receivables are analyzing the investment plans required to achieve our objectives, we forecast that our capital expenditures in 2022 will be approximately in the $25-28 billion range, with potential for further growth in subsequent years. We expect our cash from operations to be strong, but our capital investments to pressure our free cash flow in the short term.
We believe we have sufficient sources of funding to meet our business requirements in the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test; working capital requirements; and acquisitions, strategic investments, and dividends.investment-grade securities.
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| Cash from Operations $B | | Capital Expenditures $B | | Cash to Stockholders $B |
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| | | | ■ Dividends ■ Dividends ■Buybacks |
| | | Nine Months Ended | | Three Months Ended |
| (In Millions) | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 24,194 | | | $ | 25,494 | | Net cash provided by operating activities | | $ | 5,891 | | | $ | 5,348 | |
| Net cash used for investing activities | Net cash used for investing activities | | (20,133) | | | (15,112) | | Net cash used for investing activities | | (2,640) | | | (2,001) | |
| Net cash provided by (used for) financing activities | Net cash provided by (used for) financing activities | | (2,056) | | | (11,220) | | Net cash provided by (used for) financing activities | | (1,863) | | | (4,020) | |
| | Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | $ | 2,005 | | | $ | (838) | | Net increase (decrease) in cash and cash equivalents | | $ | 1,388 | | | $ | (673) | |
1 See "Non-GAAP Financial Measures" within MD&A.
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
For the first ninethree months of 20212022 compared to the first ninethree months of 2020,2021, the decreaseincrease in cash provided by operations was primarily driven by a decrease in cash used in net working capital contributions and cash paid to settlebenefit from the EC fine reversal, offset by lower income after adjusting for non-cash items, including the gain on the sale of McAfee and the pre-tax gain from the divestiture of our NAND business. Net working capital changes were primarily driven by a decrease in accounts receivable and a prepaid customer supply agreement payment in the first quarter ofQ1 2021, partially offset by a McAfee special dividend receivedincreases in the third quarter of 2021.inventory.
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.
Cash used for investing activities was higher in the first ninethree months of 20212022 compared to the first ninethree months of 2020,2021, primarily driven by an increase inincreased purchases of trading assetsshort-term investments and an increase in capital expenditures, partially offset by an increase inproceeds from the divestiture of our NAND business, proceeds for our remaining share of McAfee, and increased maturities and sales of trading assets.short-term investments.
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 from the sale of shares of common stock through employee equity incentive plans.plans, and repurchases of common stock.
Cash used for financing activities was lower in the first ninethree months of 20212022 compared to the first ninethree months of 20202021 due to a decrease inour shift away from repurchases of common stock, and a decrease in repayment of debt and debt conversion, partially offset by a decrease in cash provided by long-term debt issuances.payments on finance leases.
Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with U.S.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. Certain of these non-GAAP financial measures are used in our performance-based RSUs and our annual cash bonus plan.
Long-term gross margin outlook range is provided on a non-GAAP basis and excludes the impact of amortization of acquisition-related intangible assets. It also assumes the completion ofStarting in the first closingquarter of 2022, we incrementally exclude from our non-GAAP results, share-based compensation and all gains and losses on equity investments. The adjustment for all gains and losses on equity investments includes the divestiture ofongoing mark-to-market adjustments previously excluded from our NAND business prior to such periods. We are unable to provide a full reconciliation of this measure to the corresponding GAAP measure without unreasonable efforts, as the amount and timing of such adjustments on a long-term basis are subject to considerable uncertainty. We believe such a reconciliation would also imply a degree of precision that is inappropriate for this forward-looking measure.non-GAAP results.
Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S.US GAAP, and the financial results calculated in accordance with U.S.US GAAP and reconciliations from these results should be carefully evaluated.
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| Non-GAAP adjustment or measure | Definition | Usefulness to management and investors |
| NAND memory business | OurWe completed the first closing of the divestiture of our NAND memory business is subject to a pending sale to SK hynix as announcedon December 29, 2021 and fully deconsolidated our ongoing interests in October 2020.the NAND OpCo Business in the first quarter of 2022. | We exclude the impact of our NAND memory business in certain non-GAAP measures because these adjustments reflect how management currently viewsmeasures. While the core operationssecond closing of the company. While the sale of the NAND memory business is still pending and subject to closing conditions, management does not currently view the historical results of the business as part of the company’s core operations or its long-term strategic direction.operations. We believe these adjustments provide investors with a useful view, through the eyes of management, of the company’s core business model and how management currently evaluates core operational performance. We believe they also provide investors with an additional means to understand the potential impact of the divestiture over time. In making these adjustments, we have not made any changes to our methods for measuring and calculating revenue or other financial statement amounts. |
| 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 U.S.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. |
| 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 include a benefit in Q1 2022 related to the annulled EC fine, a charge in Q1 2021 related to the VLSI litigation, and periodic goodwill and asset impairments, 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. |
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Ongoing mark-to-market on marketable equity securitiesNon-GAAP adjustment or measure | After the initial mark-to-market adjustment is recorded upon a security becoming marketable, gainsDefinition | Usefulness to management and losses are recognized from ongoing mark-to-market adjustmentsinvestors |
| Share-based compensation | Share-based compensation consists of charges related to our marketableemployee equity securities.incentive plans. | We exclude these ongoing gains and lossescharges 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 the company’s core business model, how management currently evaluates core operational performance, and additional means to evaluate expense trends, including in comparison to other peer companies. |
| Gains (losses) from divestiture | Gains or 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 believe this volatility correlates toreflect our core operationalcurrent operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results. |
Free(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, impairment charges, and sale of equity investments and other. | We exclude these non-operating earnings for better comparability between periods. The exclusion reflects how management evaluates the core operations of the business. |
| | |
| Tax Reform | Adjustments for Tax Reform reflect the impact of a change in tax law from 2017 Tax Reform related to the capitalization of R&D costs. | We exclude the impacts of this 2022 change in U.S. tax treatment of R&D costs for purposes of calculating certain non-GAAP measures as we believe these adjustments facilitate a better evaluation of our current operating performance and comparison 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. FreeAdjusted free cash flow is operating cash flow adjusted to exclude 1) additions to property, plant and equipment.equipment, net of proceeds from capital grants received, 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 providessources of liquidity by providing an additional means to evaluate the cash flow trends of our business. In calculatingSince the 2017 divestiture, McAfee equity distributions and sales have contributed to operating and free cash flow, and while the McAfee equity sale in Q1 2022 would typically be excluded from adjusted free cash flow as an equity sale, we do not subtract additionsbelieve including the sale proceeds in adjusted free cash flow facilitate a better, more consistent comparison to held for sale NAND property, plant and equipment because the additions are not representativepast presentations of our long-term capital requirements and we expect these assets to be sold.liquidity. |
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| Total cash and investments | Total cash and investments is used by management when assessing our sources of liquidity, which includes cash and cash equivalents, short-term investments, trading assets, other long-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 U.S. GAAP measures to our non-GAAP measures presented:
| | | Three Months Ended | | | Three Months Ended | |
| (In Millions, Except Per Share Amounts) | (In Millions, Except Per Share Amounts) | | Sep 25, 2021 | | Sep 26, 2020 | | (In Millions, Except Per Share Amounts) | | Apr 2, 2022 | | Mar 27, 2021 | |
| | Net revenue | Net revenue | | $ | 19,192 | | | $ | 18,333 | | | Net revenue | | $ | 18,353 | | | $ | 19,673 | | |
| NAND memory business | NAND memory business | | (1,105) | | | (1,067) | | | NAND memory business | | — | | | (1,107) | | |
| Non-GAAP net revenue | Non-GAAP net revenue | | $ | 18,087 | | | $ | 17,266 | | | Non-GAAP net revenue | | $ | 18,353 | | | $ | 18,566 | | |
| | | Gross margin percentage | | Gross margin percentage | | 50.4 | % | | 55.2 | % | |
| Acquisition-related adjustments | | Acquisition-related adjustments | | 1.9 | % | | 1.6 | % | |
| Share-based compensation | | Share-based compensation | | 0.8 | % | | 0.4 | % | |
| NAND memory business | | NAND memory business | | — | % | | 1.7 | % | |
Non-GAAP gross margin percentage1 | | Non-GAAP gross margin percentage1 | | 53.1 | % | | 58.8 | % | |
| | Operating income | Operating income | | $ | 5,227 | | | $ | 5,059 | | | Operating income | | $ | 4,341 | | | $ | 3,694 | | |
| Acquisition-related adjustments | Acquisition-related adjustments | | 375 | | | 362 | | | Acquisition-related adjustments | | 404 | | | 364 | | |
| | Restructuring and other charges | Restructuring and other charges | | 42 | | | (25) | | | Restructuring and other charges | | (1,211) | | | 2,209 | | |
| Share-based compensation | | Share-based compensation | | 707 | | | 425 | | |
| NAND memory business | NAND memory business | | (442) | | | (145) | | | NAND memory business | | — | | | (171) | | |
| Non-GAAP operating income | Non-GAAP operating income | | $ | 5,202 | | | $ | 5,251 | | | Non-GAAP operating income | | $ | 4,241 | | | $ | 6,521 | | |
| | Operating margin | Operating margin | | 27.2 | % | | 27.6 | % | | Operating margin | | 23.7 | % | | 18.8 | % | |
| Acquisition-related adjustments | Acquisition-related adjustments | | 2.0 | % | | 2.0 | % | | Acquisition-related adjustments | | 2.2 | % | | 1.9 | % | |
| | Restructuring and other charges | Restructuring and other charges | | 0.2 | % | | (0.1) | % | | Restructuring and other charges | | (6.6) | % | | 11.2 | % | |
| Share-based compensation | | Share-based compensation | | 3.9 | % | | 2.2 | % | |
| NAND memory business | NAND memory business | | (0.6) | % | | 0.9 | % | | NAND memory business | | — | % | | 1.0 | % | |
Non-GAAP operating margin1 | Non-GAAP operating margin1 | | 28.8 | % | | 30.4 | % | | Non-GAAP operating margin1 | | 23.1 | % | | 35.1 | % | |
| | | Earnings per share—diluted | Earnings per share—diluted | | $ | 1.67 | | | $ | 1.02 | | | Earnings per share—diluted | | $ | 1.98 | | | $ | 0.82 | | |
| Acquisition-related adjustments | Acquisition-related adjustments | | 0.09 | | | 0.09 | | | Acquisition-related adjustments | | 0.10 | | | 0.09 | | |
| | Restructuring and other charges | Restructuring and other charges | | 0.01 | | | (0.01) | | | Restructuring and other charges | | (0.30) | | | 0.54 | | |
| | Ongoing mark-to-market on marketable equity securities | | 0.04 | | | 0.03 | | | |
| Share-based compensation | | Share-based compensation | | 0.17 | | | 0.10 | | |
| (Gains) losses from divestiture | | (Gains) losses from divestiture | | (0.27) | | | — | | |
| (Gains) losses on equity investments, net | | (Gains) losses on equity investments, net | | (1.05) | | | (0.09) | | |
| | NAND memory business | NAND memory business | | (0.10) | | | (0.04) | | | NAND memory business | | — | | | (0.04) | | |
| Tax Reform | | Tax Reform | | (0.09) | | | — | | |
| Income tax effects | Income tax effects | | — | | | (0.01) | | | Income tax effects | | 0.33 | | | (0.08) | | |
| | Non-GAAP earnings per share—diluted | Non-GAAP earnings per share—diluted | | $ | 1.71 | | | $ | 1.08 | | | Non-GAAP earnings per share—diluted | | $ | 0.87 | | | $ | 1.34 | | |
1 Our reconciliation of GAAP to non-GAAP prior year operating and gross margin percentagepercentages reflects the exclusion of our NAND memory business from net revenue.
| | | Nine Months Ended | | Three Months Ended |
| (In Millions) | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions) | | Apr 2, 2022 | | Mar 27, 2021 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 24,194 | | | $ | 25,494 | | Net cash provided by operating activities | | $ | 5,891 | | | $ | 5,348 | |
| Additions to property, plant and equipment | | (11,579) | | | (10,392) | | |
| Free cash flow | | $ | 12,615 | | | $ | 15,102 | | |
| Net additions to property, plant and equipment | | Net additions to property, plant and equipment | | (4,604) | | | (3,972) | |
| Payments on finance leases | | Payments on finance leases | | (299) | | | — | |
| Sale of equity investment | | Sale of equity investment | | 4,561 | | | — | |
| Adjusted free cash flow | | Adjusted free cash flow | | $ | 5,549 | | | $ | 1,376 | |
| | Net cash used for investing activities | Net cash used for investing activities | | $ | (20,133) | | | $ | (15,112) | | Net cash used for investing activities | | $ | (2,640) | | | $ | (2,001) | |
| Net cash provided by (used for) financing activities | Net cash provided by (used for) financing activities | | $ | (2,056) | | | $ | (11,220) | | Net cash provided by (used for) financing activities | | $ | (1,863) | | | $ | (4,020) | |
|
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 discussion about market risk and sensitivity analysis related to changes in currency exchange rates, interest rates, equity prices, and commodity prices refer to "Quantitative and Qualitative Disclosures About Market Risk" within MD&A in our 20202021 Form 10-K.
Risk Factors
The risks described in "Risk Factors" within Other Key Information in our 20202021 Form 10-K and our subsequent Form 10-Qs could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. We have updated below the risk factor included in our 2021 Form 10-K titled "Global or regional conditions can harm our financial results," which also reflects an update to the allocation of revenues by region. As discussed below, the impact of the war in Ukraine can also exacerbate other risks discussed in the Risk Factors sections of our 2021 Form 10-K and this report, which could in turn have a material adverse effect on us. The Risk Factors section in our 2021 Form 10-K otherwise remains current in all material respects. 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 Consolidated Condensed Financial Statements and Supplemental Details sections.
Global or regional conditions can harm our financial results. We have manufacturing, assembly and test, R&D, sales, and other operations in many countries, and some of our business activities are concentrated in one or more geographic areas. Moreover, sales outside the US accounted for 86% of our revenue for the fiscal year ended December 25, 2021, with revenue from billings to China contributing 29% of our total revenue. As a result, our operations and our financial results, including our ability to execute our business strategy, manufacture, assemble and test, design, develop, or sell products, and the demand for our products, are at times adversely affected by a number of global and regional factors outside of our control.
Adverse changes in global or regional economic conditions periodically occur, including recession or slowing growth, changes or uncertainty in fiscal, monetary, or trade policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses including on IT infrastructure, increases in unemployment, and lower consumer confidence and spending. Adverse changes in economic conditions, including those related to the COVID-19 pandemic, can significantly harm demand for our products and make it more challenging to forecast our operating results and make business decisions, including regarding prioritization of investments in our business. An economic downturn or increased uncertainty may also lead to increased credit and collectability risks, higher borrowing costs or reduced availability of capital and credit markets, reduced liquidity, adverse impacts on our suppliers, failures of counterparties including financial institutions and insurers, asset impairments, and declines in the value of our financial instruments.
We can be adversely affected by other global and regional factors that periodically occur, including:
▪geopolitical and security issues, such as armed conflict and civil or military unrest, political instability, human rights concerns, and terrorist activity, including, for example, geopolitical tensions and conflict affecting Israel, where our Mobileye business headquarters and certain of our fabrication facilities are located;
▪natural disasters, public health issues (including the COVID-19 pandemic), and other catastrophic events;
▪inefficient infrastructure and other disruptions, such as supply chain interruptions, materials shortages or delays, and large-scale outages or unreliable provision of services from utilities, transportation, data hosting, or telecommunications providers;
▪formal or informal imposition of new or revised export, import, or doing-business regulations, including trade sanctions, tariffs, and changes in the ability to obtain export licenses, which could be changed without notice;
▪government restrictions on, or nationalization of, our operations in any country, or restrictions on our ability to repatriate earnings from or distribute compensation or other funds in a particular country;
▪adverse changes relating to government grants, tax credits, or other government incentives, including more favorable incentives provided to competitors;
▪differing employment practices and labor issues, including restricted access to talent;
▪ineffective legal protection of our IP rights in certain countries;
▪local business and cultural factors that differ from our current standards and practices;
▪continuing uncertainty regarding social, political, immigration, and tax and trade policies in the US and abroad; and
▪fluctuations in the market values of our domestic and international investments, and in the capital and credit markets, which can be negatively affected by liquidity, credit deterioration or losses, interest rate changes, financial results, political risk, sovereign risk, or other factors.
For example, Russia and Belarus contributed less than .5% of direct sales to our total revenue for the year ended December 25, 2021. In response to Russia’s war with Ukraine, numerous countries and organizations have imposed financial and other sanctions and export controls against Russia and Belarus, while businesses, including the Company, have limited or suspended Russian operations. Russia has likewise imposed currency restrictions and regulations and may further take retaliatory trade or other actions, including the nationalization of foreign businesses. These and other actions have exposed the Company to the risks described herein; to additional uncertainty and risk regarding increases to supply, commodity, and other costs, damage to our reputation, and cyberattacks; and may increase the likelihood, or amplify the impacts, of other risks, including those highlighted in the Risk Factors section of our 2021 Form 10-K.
We are also subject to risks related to the cessation of US dollar LIBOR. Certain of our derivatives and floating-rate investments reference US dollar LIBOR, and a portion of our indebtedness bears interest at variable interest rates, primarily based on US dollar LIBOR. No new US dollar LIBOR-based activity should be conducted after 2021, and US dollar LIBOR will be unavailable for use in our existing contracts and financial instruments beyond June 30, 2023. While reasonable alternatives to LIBOR have been introduced into markets, our transition from LIBOR to alternative reference rates could result in an increase in our interest expense and/or a reduction in our interest income.
Controls and Procedures
Inherent Limitations on Effectiveness of Controls
Our management, including the principal executive officer and 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.
Evaluation of Disclosure 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 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 25, 2021April 2, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Issuer Purchases of Equity Securities
We have an ongoing authorization, originally approved by our Board of Directors in 2005 and subsequently amended, to repurchase shares of our common stock in open market or negotiated transactions. No shares were repurchased during the quarter ending September 25, 2021.April 2, 2022. As of September 25, 2021,April 2, 2022, we were authorized to repurchase up to $110.0 billion, of which $7.2 billion remained available.
We issue RSUs as part of our equity incentive plans. In our 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 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 program.
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| Other Key Information | 4140 |
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 U.S. 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 U.S. 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 subsidiary is 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 License 1B issued by the U.S. 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. We plan to continue these activities as required to conduct business in the Russian Federation to the extent permitted by applicable law.
On April 15, 2021, the U.S. 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.
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| Other Key Information | 4241 |
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 | | |
| 4.1 | | | | 8-K | | 000-06217 | | 4.1 | | 8/12/2021 | | |
10.1† | | | | 8-K | | 000-06217 | | 10.1 | | 7/13/2021 | | |
| 31.1 | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 32.1 | | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 |
| 104 | | Cover Page Interactive Data File - formatted in Inline XBRL and included as Exhibit 101 | | | | | | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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† | | | | 8-K | | 000-06217 | | 10.1 | | 1/10/2022 | | |
| 10.2 | | | | | | | | | | | | 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 eligible to participate.
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| Other Key Information | 4342 |
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: | |
| Results of operations | |
| Liquidity and capital resources | |
| | |
| Off-balance sheet arrangements | (a) |
| Contractual obligations | |
| 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 | |
| Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | |
| Item 6. | Exhibits | |
| | |
| Signatures | | |
(a) As of September 25, 2021,April 2, 2022, we did not have any significant off-balance sheet arrangements, as previously defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
| | | | | | | | |
| Other Key Information | 4443 |
Signatures
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: | October 21, 2021April 28, 2022 | | By: | | /s/ GEORGE S. DAVISDAVID ZINSNER |
| | | | | George S. DavisDavid Zinsner |
| | | | | Executive Vice President, Chief Financial Officer, Principal Financial Officer, and Principal FinancialAccounting Officer |
| | | | | |
Date: | October 21, 2021 | | By: | | /s/ KEVIN T. MCBRIDE | |
| | | | | Kevin T. McBride |
| | | | | Vice President of Finance, Corporate Controller and Principal Accounting Officer |
