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Article by DailyStocks_admin    (11-03-08 06:39 AM)

The Daily Magic Formula Stock for 11/01/2008 is Intel Corp. According to the Magic Formula Investing Web Site, the ebit yield is 15% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Industry

We are the world’s largest semiconductor chip maker, based on revenue. We develop advanced integrated digital technology products, primarily integrated circuits, for industries such as computing and communications. Integrated circuits are semiconductor chips etched with interconnected electronic switches. We also develop platforms, which we define as integrated suites of digital computing technologies that are designed and configured to work together to provide an optimized user computing solution compared to ingredients that are used separately. Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy. We offer products at various levels of integration, allowing our customers flexibility to create advanced computing and communications systems and products.

We were incorporated in California in 1968 and reincorporated in Delaware in 1989. Our Internet address is www.intel.com . On this web site, we publish voluntary reports, which we update annually, outlining our performance with respect to corporate responsibility, including environmental, health, and safety compliance. On our Investor Relations web site, located at www.intc.com , we post the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC): our annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; our proxy statements; and any amendments to those reports or statements. All such filings are available on our Investor Relations web site free of charge. The SEC also maintains a web site ( www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The content on any web site referred to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.

Products

We currently offer products in a broad range of categories. These products include:

• microprocessors with one, two, or four processor cores, designed for desktops, workstations, servers, notebooks, embedded products, communications products, and consumer electronics;
• chipsets designed for desktops, workstations, servers, notebooks, embedded products, communications products, and consumer electronics;
• motherboard products designed for our desktop, workstation, and server platforms;
• NAND flash memory products primarily used in digital audio players, memory cards, and system-level applications, such as solid-state drives;
• NOR flash memory products (during the first quarter of 2008, we expect to complete the divestiture of our NOR flash memory assets to Numonyx; see “Note 13: Divestitures” in Part II, Item 8 of this Form 10-K);
• wired and wireless Internet connectivity products, including network adapters and embedded wireless cards, based on industry-standard technologies used to translate and transmit data in packets across networks;
• other communications infrastructure products—including network processors, communications boards, and optical transponders—that are basic building blocks for modular communications platforms;
• networked storage products that allow storage resources to be added to either of the two most prevalent types of networking technology: Ethernet or Fibre Channel; and
• software products and services that help enable and advance the computing ecosystem.

We offer features to improve microprocessor capabilities that can enhance system performance and user experience. For example, we offer Intel ® Active Management Technology (Intel ® AMT), which helps information technology managers diagnose, fix, and protect enabled systems that are plugged into a power source and connected to a network, even if a computer is turned off or has a failed hard drive or operating system. We also offer Intel ® Virtualization Technology (Intel ® VT), which can enable a single computer system to function as multiple virtual systems by running multiple operating systems and applications, thereby consolidating workloads and providing increased security and management capabilities. In addition, our Intel ® Core tm microarchitecture includes other features that can increase performance and energy efficiency. To take advantage of these features, a computer system must have a microprocessor that supports a chipset and BIOS (basic input/output system) that use, and software that is optimized for, the technology. Performance will vary depending on the system hardware and software used.

We offer platforms that incorporate various components and technologies. A platform typically includes a microprocessor, chipset, and enabling software and may include additional hardware, services, and support. In developing our platforms, we may include components made by other companies. A component is one of any number of software or hardware features that may be incorporated into a computer, handheld device, or other computing system, including a microprocessor, chipset, motherboard, memory, wired or wireless connectivity device, or software. We refer to the platform brands within our product offerings as processor technologies.

We strive to design computing and communications systems and devices with improved overall performance and/or improved energy-efficient performance. Improved overall performance can include faster processing performance and other improved capabilities such as multithreading and multitasking. Performance can also be improved through enhanced connectivity, security, manageability, utilization, reliability, ease of use, and interoperability among devices. Improved energy-efficient performance involves balancing the addition of improved performance factors with lower power consumption. Lower power consumption may reduce system heat output, thereby providing power savings and reducing the total cost of ownership for the user.

Following is detailed information on our major product categories:

A microprocessor is the central processing unit (CPU) of a computer system. It processes system data and controls other devices in the system, acting as the “brains” of the computer. The following characteristics of a microprocessor may affect overall performance:

• Multi-core processors. Multi-core processors contain two or more processor cores, which enable improved multitasking and energy-efficient performance because computing tasks can be distributed across multiple cores.
• CPU design. Microprocessor design can refer to the microarchitecture and/or the architecture. We use the term “microarchitecture” when referring to the layout, density, and logical design of each product generation. The term “architecture” generally refers to the largest size of numerical data that a microprocessor can handle, measured in bits (the smallest unit of information). Intel ® Itanium ® branded products are based on our 64-bit architecture (IA-64); our other microprocessor products are based on our 32-bit architecture (IA-32). Microprocessors with 64-bit processing capability can address significantly more memory than 32-bit microprocessors. One way to provide 64-bit processing capability is for processors based on 32-bit architecture to have 64-bit address extensions. The majority of our microprocessors are equipped with Intel ® 64 architecture, which provides 64-bit address extensions, supporting both 32-bit and 64-bit software applications.
• Clock speed. Clock speed is the rate at which a microprocessor’s internal logic operates and is one measure of a microprocessor’s performance.
• Memory size and access speed. Cache is a memory that can be located directly on the microprocessor, permitting quicker access to frequently used data and instructions. Some of our microprocessors have additional levels of cache to enable higher levels of performance. Memory storage is measured in bytes (8 bits per byte), with 1,024 bytes equaling a kilobyte (KB), 1.049 million bytes equaling a megabyte (MB), and 1.074 billion bytes equaling a gigabyte (GB).
• Speed of communication between the CPU and the chipset. A bus carries data between parts of the system. A faster bus allows for faster data transfer into and out of the processor, enabling increased performance.

The chipset operates as the PC’s “nervous system,” sending data between the microprocessor and input, display, and storage devices, such as the keyboard, mouse, monitor, hard drive, and CD or DVD drive. Chipsets perform essential logic functions, such as balancing the performance of the system and removing bottlenecks. Chipsets also extend the graphics, audio, video, and other capabilities of many systems based on our microprocessors. Finally, chipsets control the access between the CPU and main memory.

A motherboard is the principal board within a system. A motherboard has connectors for attaching devices to the bus, and typically contains the CPU, memory, and the chipset.

Flash memory is a specialized type of memory component used to store user data and program code; it retains this information even when the power is off, and provides faster access to data than traditional hard drives. Flash memory has no moving parts, unlike devices such as rapidly spinning disk drives, allowing flash memory to be more tolerant of bumps and shocks. Flash memory is based on either NOR or NAND architecture. NOR flash memory, with its fast access or “read” capabilities, has traditionally been used to store executable code. NAND flash memory, which is slower in reading data but faster in writing data, has become the preferred flash memory for storing large quantities of data.

Wired and wireless Internet connectivity products, such as network adapters and embedded wireless cards, are based on industry-standard technologies used to translate and transmit data in packets across networks. Our wireless connectivity products are based on either the 802.11 or 802.16 industry standard. The 802.11 communication standard refers to a family of specifications commonly known as WiFi technology. We also have developed and are developing wireless connectivity products for both mobile and fixed networks based on the 802.16 industry standard, commonly known as WiMAX, which is short for Worldwide Interoperability for Microwave Access. WiMAX is a standards-based wireless technology providing high-speed broadband connectivity that makes it possible to connect users to networks wirelessly, as well as networks to other networks, up to several miles apart.

Communications infrastructure products include advanced, programmable processors used in networking equipment that rapidly manage and direct data moving across the Internet and networks. Our modular communications platforms are based on telecommunications industry standards, such as carrier grade, allowing communications and media services to be managed independently from the network itself. Unlike proprietary systems platforms, carrier-grade, rack-mount servers based on our modular communications platforms are standards-based solutions that offer network infrastructure builders flexible, low-cost, low-power-consumption options for designing their networks.

Below, we discuss our key products and processor technologies, including some key introductions, for our major operating segments. For a discussion of our strategy, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Part II, Item 7 of this Form 10-K.

Digital Enterprise Group

The Digital Enterprise Group (DEG)’s products are incorporated into desktop computers, enterprise computing servers, workstations, a broad range of embedded applications, and other products that help make up the infrastructure for the Internet. DEG’s products include microprocessors and related chipsets and motherboards designed for the desktop and enterprise computing market segments; microprocessors, chipsets, and other components for communications infrastructure equipment, such as network processors, communications boards, and embedded processors; wired connectivity devices; and products for network and server storage.

Net revenue for the DEG operating segment constituted 53% of our consolidated net revenue in 2007 (56% in 2006 and 65% in 2005). Revenue from sales of microprocessors within the DEG operating segment represented 40% of consolidated net revenue in 2007 (41% in 2006 and 50% in 2005).

Desktop Market Segment

Our current desktop microprocessor offerings include the:

• Intel ® Core tm 2 Quad processor
• Intel ® Celeron ® Dual-Core processor
• Intel ® Core tm 2 Duo processor
• Intel ® Celeron ® processor
• Intel ® Pentium ® Dual-Core processor


Most of these microprocessors are based on the Intel Core microarchitecture. Intel Core microarchitecture-based processors are designed for energy-efficient performance and are manufactured using either 65- or 45-nanometer (nm) process technology. We offer microprocessors at a variety of price/performance points: from the high-end Intel Core 2 Quad processor with four processor cores, designed for processor-intensive tasks in demanding multitasking environments, to the Intel Celeron processor designed to provide value, quality, and reliability for basic computing needs. The related chipsets for our desktop microprocessor offerings primarily include the Intel ® 945G Chipset, the Intel ® Q965 Chipset, and Intel ® 3 Series Chipsets.

We also offer processor technologies based on our microprocessors, chipsets, and motherboard products that are optimized for the desktop market segment. For business desktop PCs, we offer the Intel ® Core tm 2 processor with vPro tm technology, which is designed to provide increased security and manageability, energy-efficient performance, and lower cost of ownership.

Our new product offerings in 2007 and early 2008 include:

• Intel Core 2 Quad processors designed for processor-intensive tasks in demanding multitasking environments.
• Intel 3 Series Chipsets designed to be used with Intel Core microarchitecture-based processors, including 45nm products. These chipsets help improve system performance, energy efficiency, and video and sound quality.
• A new generation of Intel Core 2 processors with vPro technology, which includes Intel ® Trusted Execution Technology (Intel ® TXT), designed to help protect business PCs and data within virtualized computing environments against hacking, viruses, and other threats. Intel Core 2 processors with vPro technology include the Intel ® Q35 Chipset and feature Intel VT and Intel AMT.
• Intel Core 2 Quad processors and Intel Core 2 Duo processors designed for mainstream desktop PCs and manufactured using our new 45nm Hi-k metal gate silicon technology (45nm process technology).

Enterprise Market Segment

Our current server and workstation microprocessor offerings include the:

• Quad-Core Intel ® Xeon ® processor
• Dual-Core Intel ® Xeon ® processor
• Dual-Core Intel ® Itanium ® processor

Our Intel ® Xeon ® processor family of products supports a range of entry-level to high-end technical and commercial computing applications, and is based on the Intel Core microarchitecture. Compared to our Intel Xeon processor family, our Intel Itanium processor family generally supports an even higher level of reliability and computing performance for data processing, the handling of high transaction volumes and other compute-intensive applications for enterprise-class servers, as well as supercomputing solutions.

We also offer platforms that are optimized for use in the enterprise market segment, which includes entry-level to high-end servers and workstations. Servers, which often have multiple microprocessors or cores working together, manage large amounts of data, direct data traffic, perform complex transactions, and control central functions in local and wide area networks and on the Internet. Workstations typically offer higher performance than standard desktop PCs, and are used for applications such as engineering design, digital content creation, and high-performance computing.

Our new product offerings in 2007 and early 2008 include:

• Quad-Core Intel Xeon processors designed for single-socket servers, dual-processor (DP) servers, and multi-processor (MP) servers. We also introduced low-voltage versions of the Quad-Core Intel Xeon processor designed for DP and MP servers.
• An industry-standard, four-processor server platform based on our processors for MP servers. The platform includes a new chipset designed to enhance data traffic between the processors, memory, and I/O connections.
• A new generation of Intel Itanium processors, including both dual- and single-core versions, designed for high-end applications. The new series includes extensive virtualization and other advanced features designed to improve reliability and reduce power consumption.
• Quad-core and dual-core Intel Xeon processors manufactured using our new 45nm process technology. The new processors are designed to increase computer performance while lowering power consumption. We also introduced three platforms to support the new 45nm processors, including a platform designed for high-bandwidth, high-performance computing; a cost-optimized platform designed to support either one or two processors and reduce power consumption by using DDR2 memory; and a platform designed for single-processor, entry-level servers.
• Modular server building blocks based on Intel ® Multi-Flex Technology, designed to enable system builders to easily integrate computing, networking, and storage capabilities into one system to meet the needs of a small- or mid-size business. The building blocks support up to six server compute nodes and 14 serial attached hard disk drives.

Communications Infrastructure Products

In 2007, we introduced the Quad-Core Intel Xeon processor 5300 series for the embedded computing segment. In addition, we announced the Intel ® IP Network Server NSC2U, powered by two 5300 series processors. The server includes the Intel ® 5000P chipset and features a rugged chassis and compact form factor.

Networked Storage Products

In 2007, we introduced the Intel ® Storage Server SSR212MC2. Designed for small- and mid-size businesses, this storage server is powered by either the Quad-Core Intel Xeon processor 5300 series or the Dual-Core Intel Xeon processor 5100 series.

Mobility Group

The Mobility Group’s products include microprocessors and related chipsets designed for the notebook market segment, wireless connectivity products, and energy-efficient products designed for the ultra-mobile market segment. We also offer Intel ® Centrino ® processor technologies based on our microprocessors, chipsets, and wireless network connections.

Net revenue for the Mobility Group operating segment constituted 38% of our consolidated net revenue in 2007 (35% in 2006 and 29% in 2005). Revenue from sales of microprocessors within the Mobility Group operating segment represented 28% of consolidated net revenue in 2007 (26% in 2006 and 22% in 2005).

Our current mobile microprocessor offerings include the:

• Intel ® Core tm 2 Extreme mobile processor
• Intel ® Core tm 2 Solo mobile processor
• Intel ® Core tm 2 Duo mobile processor
• Intel ® Celeron ® M processor
• Intel ® Pentium ® Dual-Core mobile processor
• Intel ® Celeron ® processor

We offer mobile microprocessors at a variety of price/performance points: from the Intel Core 2 Extreme mobile processor designed for gaming to the Intel Celeron processor designed to provide value, quality, and reliability for basic computing needs. The related chipsets for our mobile microprocessor offerings primarily include the Mobile Intel ® 965 Express Chipset and the Mobile Intel ® 945 Express Chipset.

We offer our processors in various packaging options, giving our customers flexibility for a wide range of system designs for notebook PCs, tablet PCs, and other mobile computing devices. We also offer low-power microprocessors and chipsets designed for ultra-mobile devices, including products for ultra-mobile PCs and mobile Internet devices (MIDs).

In 2007, the majority of the revenue in the Mobility Group operating segment was from sales of our Intel Centrino processor technology and Intel ® Centrino ® with vPro tm technology products. Intel Centrino processor technologies are designed to provide high performance with improved multitasking, power-saving features to improve battery life, small form factor, wireless network connectivity, and improved boot times. Intel Centrino with vPro technology includes the features of Intel Centrino processor technology and is designed to provide mobile business PCs with increased security, manageability, and energy-efficient performance. These processor technologies enable users to take advantage of wireless capabilities at work, at home, and at thousands of wireless “hotspots” installed around the world.

Our new product offerings in 2007 and early 2008 include:

• A new generation of Intel Centrino processor technology and Intel Centrino with vPro technology, based on the Intel Core 2 Duo processor. Intel Centrino with vPro technology is designed specifically for business users and includes Intel AMT. Both of these processor technologies include the Mobile Intel 965 Express Chipset and the option of Intel ® Turbo Memory, a technology that can reduce the amount of time required for a system to turn on, boot up, or access software applications. Also included in these processor technologies is the Intel ® Next-Gen Wireless-N Network Connection, which is based on the draft 802.11n WiFi specification. This network connection is designed to provide faster data transmission over a longer range than previous Intel WiFi products.
• Intel Core 2 Extreme dual-core mobile processors, including a version manufactured using our new 45nm process technology. These processors are designed to bring advanced video, gaming, and computing performance to laptop systems.
• The Intel ® Ultra Mobile Platform 2007, which includes a low-power processor, a chipset, and a controller hub. This platform is designed for MIDs and ultra-mobile PCs.
• Intel Core 2 Duo mobile processors manufactured using our new 45nm process technology. These processors include new video and graphics capabilities, as well as a battery-saving Deep Power Down Technology, which reduces the power of the processor when it is not running data or instructions.

NAND Products Group

We offer NAND flash memory products primarily used in digital audio players, memory cards, and system-level applications, such as solid-state drives. These products are currently available in densities of up to 16 gigabits (Gb), and in stacked packaging in densities of up to 64 Gb. Additionally, we offer multi-level cell NAND flash memory products, which enable storage of multiple bits of data within a single cell. Our NAND flash memory products are manufactured by IM Flash Technologies, LLC (IMFT) using 50nm or 72nm process technology. See “Note 19: Ventures” in Part II, Item 8 of this Form 10-K.

Our new product offerings in 2007 and early 2008 include:

• The Intel ® Z-U130 Value Solid-State Drive, designed as an alternative to rotating magnetic disk drive technology for storage in computing systems and embedded applications. The product is based on NAND flash memory, has industry-standard USB interfaces, and is available in densities ranging from 1 GB to 8 GB.
• The Intel ® Z-P140 Solid-State Drive, designed for storage in MIDs and digital entertainment and embedded products. This ultra-small, low-power storage product is based on NAND flash memory, has an industry-standard parallel-ATA interface, and is available in densities of 2 GB and 4 GB (extendable up to 16 GB).

Flash Memory Group

Currently, we offer NOR flash memory products. During the first quarter of 2008, we expect to complete the divestiture of our NOR flash memory assets to Numonyx. We expect to enter into supply and transition service agreements to provide products, services, and support to Numonyx following the close of the transaction.

Digital Home Group

The Digital Home Group offers products for use in PCs and in-home consumer electronics devices designed to access and share Internet, broadcast, optical media, and personal content through a variety of linked digital devices within the home. In addition, we offer components for high-end enthusiast PCs, mainstream PCs with rich audio and video capabilities, and consumer electronics devices such as digital TVs, high-definition media players, and set-top boxes.

We offer the Intel ® Core tm 2 processor with Viiv tm technology, which is designed to make it easier for users to download, manage, and share the growing amount of digital programming available worldwide, and view that programming on a choice of TVs, PCs, or handheld products. Intel Core 2 processors with Viiv technology include a microprocessor, a chipset, a network connectivity device, and enabling software—all optimized to work together in the digital home environment. Certain desktop microprocessors offered by DEG may include Intel ® Viiv tm technology.

Our current digital home microprocessor offerings also include the Intel ® Core tm 2 Extreme dual-core processor and the Intel ® Core tm 2 Extreme quad-core processor.

Our new product offerings in 2007 and early 2008 include:

• Intel Core 2 Extreme quad-core processors designed for gamers, digital design professionals, and PC enthusiasts. Included is the first Intel Core 2 Extreme quad-core processor manufactured using our new 45nm process technology. This 45nm processor incorporates a larger cache than previous Intel Core 2 Extreme quad-core processors, and is designed to increase computing performance while using less power.
• The Intel ® CE 2110 Media Processor, which combines an Intel XScale ® processor core, hardware video decoders, DDR memory interface, and 2D/3D graphics accelerators on a single chip. This “system-on-a-chip” architecture is designed for consumer electronics devices such as digital set-top boxes and networked media players.

Manufacturing and Assembly and Test

As of December 29, 2007, 73% of our wafer fabrication, including microprocessor, chipset, NOR flash memory, communications, and other silicon fabrication, was conducted within the U.S. at our facilities in Arizona, New Mexico, Oregon, Massachusetts, and California. The remaining 27% of our wafer fabrication was conducted outside the U.S. at our facilities in Ireland and Israel.


We expect to increase the capacity of certain facilities listed above through additional investments in capital equipment. In addition to our current facilities, we are building a facility in Israel that is expected to begin wafer fabrication for microprocessors on 300mm wafers using 45nm process technology in the second half of 2008. Also, we are building a 300mm wafer fabrication facility in China that is expected to begin production in 2010.

As of December 29, 2007, the majority of our microprocessors were manufactured on 300mm wafers using our 65nm process technology. In 2007, we started manufacturing microprocessors using our new 45nm process technology, which enables higher and more energy-efficient processor performance. The benefits of moving to each succeeding generation of manufacturing process technology can include using less space per transistor, reducing heat output from each transistor, and/or increasing the number of integrated features on each chip. These advancements can result in microprocessors that are higher performing, consume less power, and/or cost less to manufacture.

To augment capacity, we use third-party manufacturing companies (foundries) to manufacture wafers for certain components, including chipset, networking, and communications products. In addition, we primarily use subcontractors to manufacture board-level products and systems, and purchase certain communications networking products from external vendors, principally in the Asia-Pacific region.

Our NAND flash memory products are manufactured by IMFT, a NAND flash memory manufacturing company that we formed with Micron Technology, Inc. in 2006. We currently purchase 49% of the manufactured output of IMFT. See “Note 19: Ventures” in Part II, Item 8 of this Form 10-K.

Following the manufacturing process, the majority of our components are subject to assembly and test. We perform our components assembly and test at facilities in Malaysia, China, the Philippines, and Costa Rica. We plan to continue investing in new assembly and test technologies as well as increasing the capacity of our existing facilities and building new facilities to keep pace with our microprocessor, chipset, and communications technology improvements. In line with these plans, we are building a new assembly and test facility in Vietnam, which is expected to begin production in 2009. This facility will have greater square footage than each of our current facilities, which will enable us to take advantage of greater economies of scale. To augment capacity, we use subcontractors to perform assembly of certain products, primarily flash memory, chipsets, and networking and communications products. Assembly and test of NAND flash memory products, manufactured by IMFT, is performed by Micron and other external subcontractors.

Our employment practices are consistent with, and we expect our suppliers and subcontractors to abide by, local country law. In addition, we impose a minimum employee age requirement as well as progressive environmental, health, and safety requirements regardless of local law.

We have thousands of suppliers, including subcontractors, providing our various materials and service needs. We set expectations for supplier performance and reinforce those expectations with periodic assessments. We communicate those expectations to our suppliers regularly and work with them to implement improvements when necessary. We seek, where possible, to have several sources of supply for all of these materials and resources, but we may rely on a single or limited number of suppliers, or upon suppliers in a single country. In those cases, we develop and implement plans and actions to reduce the exposure that would result from a disruption in supply. We have entered into long-term contracts with certain suppliers to ensure a portion of our silicon supply.

MANAGEMENT DISCUSSION FROM LATEST 10K

Our Management’s Discussion and Analysis of Financial Condition and Results of Operation (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

• Overview. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.
• Strategy. Overall strategy and the strategy for our operating segments.
• Critical Accounting Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
• Results of Operations. An analysis of our financial results comparing 2007 to 2006 and comparing 2006 to 2005.
• Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition.
• Business Outlook. Our forecasts for selected data points for the 2008 fiscal year.

The various sections of this MD&A contain a number of forward-looking statements. Words such as “expects,” “goals,” “plans,” “believes,” “continues,” “may,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the “Business Outlook” section (see also “Risk Factors” in Part I, Item 1A of this Form 10-K). Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of February 15, 2008, with the exception of the Numonyx transaction. Our forward-looking statements for 2008 reflect the expectation that the Numonyx transaction will close during the first quarter.

Overview

We make, market, and sell advanced integrated digital technology products, primarily integrated circuits, for industries such as computing and communications. Integrated circuits are semiconductor chips etched with interconnected electronic switches. Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy. Our products include chips, boards, and other semiconductor products that are the building blocks integral to computers, servers, consumer electronics and handheld devices, and networking and communications products. Our primary component-level products include microprocessors, chipsets, and flash memory. We offer products at various levels of integration, allowing our customers the flexibility to create advanced computing and communications systems and products.

The life cycle of our products is very short, sometimes less than a year. Our ability to compete depends on our ability to improve our products and processes faster than our competitors, anticipate changing customer requirements, and develop and launch new products and platforms. Our failure to respond quickly to technological developments and incorporate new features into our products could harm our ability to compete. Maintaining scale is key to our strategy of ramping new manufacturing technologies and platforms quickly, delivering high-performance products, and lowering unit costs.

As of December 29, 2007, our operating segments included the Digital Enterprise Group, Mobility Group, NAND Products Group, Flash Memory Group, Digital Home Group, Digital Health Group, and Software Solutions Group.

Overall microprocessor revenue continues to grow, and we continue to see a shift in our sales mix from desktop microprocessors to mobile microprocessors. Microprocessor revenue within the Mobility Group operating segment increased by 16% in 2007 compared to 2006. The growth in mobile microprocessors has outpaced the growth in desktop microprocessors, and we believe this trend will continue, with a crossover occurring as early as 2009. As demand for mobile microprocessors continues to grow in the PC market segment, system price points have expanded to include new lower prices. We expect continuing erosion in average selling prices for mobile microprocessors due to this expansion in lower price points and a continued competitive market segment. However, mobile microprocessor average selling prices remain higher than desktop microprocessor average selling prices, and therefore the shift in our mix to mobile microprocessors has a positive effect on our results. Due to the price differences among mobile, desktop, and server microprocessors, the mix and types of performance capabilities of microprocessors sold affect the average selling price of our products and have a substantial impact on our revenue.

The gross margin percentage was relatively flat in 2007 compared to 2006. During 2007, gross margin benefited from lower microprocessor unit costs as well as a mix shift toward higher margin businesses. The decline in unit costs has been possible as we continued to gain production experience on our 65nm process technology. In addition, we are running our factories at high volumes. However, during 2007 our gross margin was negatively impacted by declining average selling prices as well as higher start-up costs related to our 45nm process technology.

Our operating income grew faster than revenue during 2007 as we continued to implement our restructuring program and focused on our commitment to efficiency and on spending controls. As a result, R&D and marketing, general and administrative expenses as a percentage of revenue decreased from 34% in 2006 to 29% in 2007, and the number of employees decreased by 8% compared to the end of 2006. Results for 2007 included restructuring and asset impairment charges of $516 million, and to date we have incurred $1.1 billion in charges related to the program, which began in the third quarter of 2006. We expect to continue the program in 2008, and expect charges to decline in the second half of the year. As part of the restructuring program, we divested some of our lower margin businesses, and we expect to divest our NOR flash memory assets in the first quarter of 2008. As a result of these divestitures, we expect a negative impact on revenue and a benefit to our gross margin percentage in 2008. Our efficiency efforts have also contributed to faster factory throughput, higher yields, and improved equipment utilization. Improvements in our equipment utilization helped enable us to reduce our capital spending from $5.9 billion in 2006 to $5.0 billion in 2007.

The combination of our technological innovation and our renewed commitment to customer orientation has differentiated our products and technology from our competition and has contributed to our revenue growth, which occurred in nearly all product lines and across all geographies. We are setting the pace for innovation within the industry by executing on our plan to introduce a new microarchitecture approximately every two years and to ramp the next generation of silicon process technology in the intervening years. In 2007, we completed our transition to the Intel Core microarchitecture, initially launched in 2006, in all market segments. We also started manufacturing microprocessors using our industry-leading 45nm Hi-k metal gate silicon technology, which enables higher and more energy-efficient processor performance. Our next-generation microarchitecture is scheduled for production in the second half of 2008; and we are also developing our next-generation 32nm process technology and expect to begin manufacturing products using that technology in 2009.

From a financial condition perspective, we ended 2007 with an investment portfolio valued at $19.3 billion, consisting of cash and cash equivalents, fixed-income debt instruments included in trading assets, and short- and long-term investments. During 2007, we repurchased $2.75 billion of stock through our stock repurchase program and paid $2.6 billion to stockholders as dividends.

We exited 2007 with what we believe is the strongest combination of products, manufacturing, and silicon technology leadership in our history as we continue to ramp our 45nm process technology and plan to introduce our next-generation microarchitecture in 2008. Also in 2008, we plan to introduce products geared to future growth markets. Specifically, we plan to introduce new microprocessors, code-named “Silverthorne,” that are designed for notebooks, low-power and low-cost products, MIDs, and consumer electronics devices. In addition to our microprocessor and chipset development, we expect to make significant investments in R&D in 2008 in growth areas such as system-on-a-chip, MIDs, embedded applications, consumer electronics, and graphics. Although there is uncertainty in the global economy, we are planning for another year of growth in which profits grow faster than revenue and our investments in products, manufacturing, and silicon technology continue to generate competitive advantages.

Strategy

Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy. As part of our overall strategy to compete in each relevant market segment, we use our core competencies in the design and manufacture of integrated circuits, as well as our financial resources, global presence, and brand recognition. We believe that we have the scale, capacity, and global reach to establish new technologies and respond to customers’ needs quickly.

Some of our key focus areas are listed below:

• Customer Orientation. Our strategy focuses on developing our next generation of products based on the needs and expectations of our customers. In turn, our products help enable the design and development of new form factors and usage models for businesses and consumers. We offer platforms with ingredients designed and configured to work together to provide an optimized user computing solution compared to ingredients that are used separately.
• Energy-Efficient Performance. We believe that users of computing and communications systems and devices want improved overall and energy-efficient performance. Improved overall performance can include faster processing performance and other capabilities such as multithreading and multitasking. Performance can also be improved through enhanced connectivity, security, manageability, reliability, ease of use, and interoperability among devices. Improved energy-efficient performance involves balancing the addition of these and other types of improved performance factors with lower power consumption. Our microprocessors have one, two, or four processor cores, and we continue to develop processors with an increasing number of cores, which enable improved multitasking and energy efficiency.
• Design and Manufacturing Technology Leadership. Our strategy for developing microprocessors with improved performance is to synchronize the introduction of a new microarchitecture with improvements in silicon process technology. We plan to introduce a new microarchitecture approximately every two years and ramp the next generation of silicon process technology in the intervening years. This coordinated schedule allows us to develop and introduce new products based on a common microarchitecture quickly, without waiting for the next generation of silicon process technology. We refer to this as our “tick-tock” technology development cadence. For more information, see “Research and Development” in Part I, Item 1 of this Form 10-K.
• Strategic Investments. We make equity investments in companies around the world to further our strategic objectives and to support our key business initiatives, including investments through our Intel Capital program. We generally focus on investing in companies and initiatives to stimulate growth in the digital economy, create new business opportunities for Intel, and expand global markets for our products. Our current investment focus areas include those that we believe help to enable mobile wireless devices, advance the digital home, enhance the digital enterprise, advance high-performance communications infrastructures, and develop the next generation of silicon process technologies. Our focus areas tend to develop and change over time due to rapid advancements in technology.
• Business Environment and Software. We plan to continue to cultivate new businesses and work to encourage the industry to offer products that take advantage of the latest market trends and usage models. We also provide development tools and support to help software developers create software applications and operating systems that take advantage of our platforms. We frequently participate in industry initiatives designed to discuss and agree upon technical specifications and other aspects of technologies that could be adopted as standards by standards-setting organizations. In addition, we work collaboratively with other companies to protect digital content and the consumer. Lastly, through our Software and Solutions Group, we help enable and advance the computing ecosystem by developing value-added software products and services.

We believe that the proliferation of the Internet, including user demand for premium content and rich media, is the primary driver of the need for greater performance in PCs and servers. A growing number of older PCs are increasingly incapable of handling the tasks that users are demanding, such as streaming video, uploading photos, and online gaming. As these tasks become even more demanding and require more computing power, we believe that users will need and want to buy new PCs to perform everyday tasks on the Internet. We also believe that increased Internet traffic is creating a need for greater server infrastructure, including server products optimized for energy-efficient performance.

We have experienced an overall shift in sales mix from desktop microprocessors to mobile microprocessors. We believe that, based on customer demand and market trends, mobile microprocessor shipments will exceed desktop microprocessor shipments as early as 2009. Mobile microprocessors generally have higher average selling prices compared to desktop microprocessors, so the continued shift in sales mix to mobile microprocessors is expected to positively impact our revenue. Therefore, our strategy focuses on advancing mobile microprocessors to accelerate this shift in sales mix.

We are investing in areas in which we believe the application of highly integrated Intel ® architecture provides growth opportunities, such as scalable, high-performance visual computing solutions that integrate vivid graphics and supercomputing performance for scientific, financial services, and other compute-intensive applications. In addition, our design and manufacturing technology leadership, including the recent introduction of our new 45nm process technology, allows us to develop low-cost, low-power microprocessors for new uses and form factors. We believe that these new microprocessors will give us the ability to extend Intel architecture and drive growth in new market segments, including MIDs, a new category of small, mobile consumer devices enabling a PC-like Internet experience; consumer electronics devices, which will deliver media and services to set-top boxes and TVs over broadband Internet connections; and ultra-low-cost PCs designed for emerging markets. We believe that the common elements for products in these new market segments are low power, low cost, and the ability to access the Internet.

Strategy by Operating Segment

Our Digital Enterprise Group (DEG) offers computing and communications products for businesses, service providers, and consumers. DEG products are incorporated into desktop computers, enterprise computer servers, workstations, and products that make up the infrastructure for the Internet. We also offer products for embedded designs, such as industrial equipment, point-of-sale systems, panel PCs, automotive information/entertainment systems, and medical equipment. Within DEG, our largest market segments are in desktop and enterprise computing. Our strategy for the desktop computing market segment is to offer products that provide increased manageability, security, and energy-efficient performance while at the same time lowering total cost of ownership for businesses. Our strategy for the enterprise computing market segment is to offer products that provide energy-efficient performance, ease of use, manageability, reliability, and security for entry-level to high-end servers and workstations.

The strategy for our Mobility Group is to offer notebook PC products designed to improve performance, battery life, and wireless connectivity, as well as to allow for the design of smaller, lighter, and thinner form factors. We are also increasing our focus on notebooks designed for the business environment by offering products that provide increased manageability and security, and we continue to invest in the build-out of WiMAX. For the ultra-mobile market segment, we offer energy-efficient products that are designed primarily for mobile processing of digital content and Internet access, and we are developing new products to support this evolving market segment, including products for MIDs and ultra-mobile PCs.

The strategy for our NAND Products Group is to offer advanced NAND flash memory products, primarily used in digital audio players, memory cards, and system-level applications, such as solid-state drives. In support of our strategy to provide advanced flash memory products, we continue to focus on the development of innovative products designed to address the needs of customers for reliable, non-volatile, low-cost, high-density memory.

For the Flash Memory Group , we expect to complete the divestiture of our NOR flash memory assets to Numonyx during the first quarter of 2008. We expect to enter into supply and transition service agreements to provide products, services, and support to Numonyx following the close of the transaction. See “Note 13: Divestitures” in Part II, Item 8 of this Form 10-K.

The strategy for our Digital Home Group is to offer products for use in PCs and in-home consumer electronics devices designed to access and share Internet, broadcast, optical media, and personal content through a variety of linked digital devices within the home. We are focusing on the design of components for high-end enthusiast PCs, mainstream PCs with rich audio and video capabilities, and consumer electronic devices such as digital TVs, high-definition media players, and set-top boxes.

The strategy for our Digital Health Group is to design and deliver technology-enabled products and explore global business opportunities in healthcare information technology, healthcare research, and productivity, as well as personal healthcare. In support of this strategy, we are focusing on the design of technology solutions and platforms for the digital hospital and consumer/home health products.

The strategy for our Software and Solutions Group (SSG) is to promote Intel architecture as the platform of choice for software and services. SSG works with the worldwide software and services ecosystem by providing software products, engaging with developers, and driving strategic software investments.

Results of Operations

Our net revenue was $38.3 billion in 2007, an increase of 8% compared to 2006. Higher microprocessor unit sales were partially offset by lower microprocessor average selling prices. Higher mobile chipset unit sales also contributed to the increase in net revenue.

Lower NOR flash memory revenue was mostly offset by the ramp of our NAND flash memory business. The decrease in NOR flash memory revenue was due to a significant decline in average selling prices. Lower royalty revenue was offset by higher unit sales.

Revenue in the Asia-Pacific region increased 11% and revenue in the Europe region increased 10% in 2007 compared to 2006, and revenue in both the Americas region and Japan increased 3% in 2007 compared to 2006. Revenue from both mature and emerging markets increased in 2007 compared to 2006. While the revenue in mature markets increased in all four geographic regions, the majority of the growth in revenue occurred in the Asia-Pacific region. A substantial majority of the increase in emerging markets also occurred in the Asia-Pacific region.



Our overall gross margin dollars for 2007 were $19.9 billion, an increase of $1.7 billion, or 9%, compared to 2006. Our overall gross margin percentage was relatively flat at 51.9% in 2007 compared to 51.5% in 2006. The gross margin percentage increase in the Digital Enterprise Group operating segment was mostly offset by a decrease in the gross margin percentage in the Mobility Group operating segment and costs associated with the ramp of our NAND flash memory business. We derived most of our overall gross margin dollars and operating profit in 2007 and 2006 from the sale of microprocessors in the Digital Enterprise Group and Mobility Group operating segments. See “Business Outlook” for a discussion of gross margin expectations.

Our net revenue was $35.4 billion in 2006, a decrease of 9% compared to 2005. Substantially all of the decrease was due to significantly lower average selling prices of microprocessors. Fiscal year 2006 was a 52-week fiscal year in contrast to fiscal year 2005, which was a 53-week fiscal year.

Revenue from sales of NOR flash memory products decreased in 2006 compared to 2005, primarily due to lower average selling prices, partially offset by higher royalty revenue. In 2006, we began shipping NAND flash memory products manufactured by IMFT.

Revenue in the Asia-Pacific region decreased 10% and revenue in the Europe region decreased 20% in 2006 compared to 2005. These decreases were slightly offset by revenue in Japan, which increased slightly in 2006 compared to 2005. Revenue in the Americas region was approximately flat in 2006 compared to 2005. Mature and emerging markets both declined in 2006 compared to 2005. The decrease within mature markets occurred in the Europe and Asia-Pacific regions, and a substantial majority of the decrease within the emerging markets occurred in the Europe and Asia-Pacific regions.

Our overall gross margin dollars for 2006 were $18.2 billion, a decrease of $4.8 billion, or 21%, compared to 2005. Our overall gross margin percentage decreased to 51.5% in 2006 from 59.4% in 2005. The gross margin percentage for the Digital Enterprise Group and the Mobility Group were both lower in 2006 compared to 2005. A mix shift of our total revenue to the Mobility Group, which has a higher gross margin percentage, slightly offset these decreases to the overall gross margin. We derived most of our overall gross margin dollars in 2006 and 2005 from the sale of microprocessors in the Digital Enterprise Group and Mobility Group operating segments. The 2006 gross margin included the impact of share-based compensation, which we began recognizing in 2006. The 2005 gross margin was affected by a litigation settlement agreement with MicroUnity, Inc. in which we recorded a $140 million charge to cost of sales, of which $110 million was allocated to the Digital Enterprise Group and $30 million was allocated to the Mobility Group.

Digital Enterprise Group

Net revenue for the DEG operating segment increased by $464 million, or 2%, in 2007 compared to 2006. Microprocessors within DEG include microprocessors designed for the desktop and enterprise computing market segments as well as embedded microprocessors. The increase in microprocessor revenue was due to higher microprocessor unit sales and higher enterprise average selling prices. These increases were partially offset by lower desktop average selling prices in a competitive pricing environment. The decrease in chipset, motherboard, and other revenue was due to lower motherboard unit sales as well as a decrease in communications infrastructure revenue, which is primarily due to divestitures of certain communications infrastructure businesses that were completed in 2006 and 2007. Partially offsetting these decreases was higher chipset revenue.

Operating income increased by $1.7 billion, or 47%, in 2007 compared to 2006. The increase in operating income was primarily due to lower desktop microprocessor unit costs and lower operating expenses, and to a lesser extent, sales of desktop microprocessor inventory that had been previously written off. Partially offsetting these increases were higher chipset unit costs and approximately $425 million of higher start-up costs, primarily related to our 45nm process technology. In 2007, we began including shared-based compensation in the computation of operating income (loss) for each operating segment and adjusted the 2006 operating segment results to reflect this change.

For 2006, net revenue for the DEG operating segment decreased by $5.3 billion, or 21%, compared to 2005. The decline in net revenue was mostly due to a significant decline in microprocessor revenue, and to a lesser extent, a decline in chipset, motherboard, and other revenue. The decline in microprocessor revenue was due to lower average selling prices and unit sales of desktop microprocessors. Enterprise microprocessor revenue increased in 2006. The decline in chipset, motherboard, and other revenue was due equally to lower chipset revenue and motherboard revenue.

Operating income decreased by $5.5 billion, or 61%, in 2006 compared to 2005. Substantially all of the decrease was due to the revenue decline. Higher microprocessor unit costs, along with $210 million of higher factory under-utilization charges, were offset by approximately $540 million of lower start-up costs. Unit costs were higher in 2006 compared to 2005 due primarily to a mix shift to dual-core microprocessors. Results for 2006 included the recognition of share-based compensation. Results for 2005 did not include share-based compensation. Results for 2005 included a charge related to a settlement agreement with MicroUnity.

Mobility Group

Net revenue for the MG operating segment increased by $2.4 billion, or 19%, in 2007 compared to 2006. Microprocessor revenue increased by $1.4 billion, or 16%, in 2007 compared to 2006, while chipsets and other revenue increased by $924 million, or 30%, in 2007 compared to 2006. The increase in microprocessor revenue was due to a significant increase in unit sales, partially offset by significantly lower average selling prices. The increase in chipset and other revenue was due to higher unit sales of chipsets, and to a lesser extent, higher revenue from sales of cellular baseband products. In the fourth quarter of 2006, we sold certain assets of the business line that included application and cellular baseband processors used in handheld devices; however, in 2007 we continued to manufacture and sell these products as part of a manufacturing and transition services agreement.

Operating income increased by $1.0 billion, or 22%, in 2007 compared to 2006. The increase in operating income was primarily due to higher revenue. Lower microprocessor unit costs were more than offset by approximately $330 million of higher start-up costs, primarily related to our 45nm process technology. Lower unit costs on wireless connectivity and cellular baseband products were offset by higher chipset unit costs. Operating expenses were higher in 2007 compared to 2006; however, operating expenses as a percentage of revenue decreased in 2007 compared to 2006.

For 2006, net revenue for the MG operating segment increased by $1.2 billion, or 11%, compared to 2005. Microprocessor revenue increased by $508 million, or 6%, in 2006 compared to 2005, while chipsets and other revenue increased by $670 million, or 28%, in 2006 compared to 2005. The increase in microprocessor revenue was due to higher unit sales, largely offset by lower average selling prices. The majority of the increase in chipset and other revenue was due to higher revenue from sales of chipsets, and to a lesser extent, higher revenue from sales of wireless connectivity products. Sales of these products increased primarily due to increased sales of our Intel Centrino processor technologies.

Operating income decreased by $740 million, or 14%, in 2006 compared to 2005. The decline was primarily caused by higher operating expenses, due in part to the recognition of share-based compensation. Results for 2005 did not include share-based compensation. The effects of higher revenue were offset by higher unit costs for microprocessors. Start-up costs were approximately $170 million lower in 2006 compared to 2005.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview
Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy. Our primary component-level products include microprocessors, chipsets, and flash memory.

The third quarter of 2008 showed strong financial results. While the economic outlook is uncertain, our competitive position, manufacturing process technologies, cash flow from operations, and balance sheet remain strong. Additionally, over the last two years we have focused on improving efficiency and reducing spending as a percentage of revenue.
Revenue for the third quarter of 2008 was up 8% from the second quarter as we saw continued growth in our microprocessor and chipset unit sales, particularly in the mobile market segment. Compared to the third quarter of 2007, revenue was approximately flat, as higher revenue from microprocessors and chipsets was mostly offset by the impacts of divestitures.
Our overall gross margin dollars for the third quarter of 2008 increased 15% compared to the second quarter of 2008, and increased 16% compared to the third quarter of 2007. Our overall gross margin percentage for the third quarter of 2008 was 58.9%, compared to 55.4% in the second quarter of 2008 and 51.2% in the third quarter of 2007. Lower microprocessor unit costs and increases in microprocessor revenue contributed to the gross margin percentage increase compared to the second quarter of 2008. Compared to the third quarter of 2007, our gross margin percentage increased due to lower microprocessor and chipset unit costs, higher microprocessor unit sales, and the impact of the divestitures of lower gross margin products lines. These increases were partially offset by lower microprocessor average selling prices. Operating income for the third quarter of 2008 increased 37% compared to the second quarter of 2008 and 44% compared to the third quarter of 2007.
We continue to strengthen our competitive position by entering new market segments. Our Intel ® Atom TM processors are designed to enable new mobile internet form factors at attractive system price points with healthy product margins. Additionally, our product offerings continue to strengthen, and we expect to formally launch our new microarchitecture, code-named “Nehalem,” in the fourth quarter of 2008.

Historically, our sales of microprocessors have been higher in the second half of the year than in the first half of the year. Consumer purchases of PCs have been higher in the second half of the year, primarily due to back-to-school and holiday demand. In addition, purchases from businesses have also tended to be higher in the second half of the year. While our microprocessor sales generally have followed this seasonal trend, there can be no assurance that this trend will continue. Our revenue outlook for the fourth quarter of 2008 includes a wider than typical range due to the uncertainty of how the current economic environment will impact our business. The low end of the range would result in revenue being slightly lower than the third quarter of 2008 and the high end of the range would result in an increase that is at the lower end of our seasonal trends.
While we currently believe our inventory levels are appropriate, the economic uncertainty may result in lower than expected demand. This in turn may require us to write off excess inventory and would negatively impact our gross margin if we fail to reduce manufacturing output accordingly. Additionally, demand is impacted by possible changes in our customers’ desired inventory levels as they manage their business through the current economic uncertainty. We continue to monitor the inventory levels of our customers and are seeing some customers build microprocessor and chipset inventory. The higher chipset revenue we experienced in the third quarter would normally be a sign that customers are building ahead of a strong fourth quarter. However, with the current macroeconomic environment, it is hard to discern what demand will be for the fourth quarter of 2008.
In the third quarter of 2008 we recorded a $250 million impairment on our investment in Numonyx due to a decline in the NOR flash memory market segment. In the NAND flash memory market segment, we are expecting to record restructuring charges in the fourth quarter of 2008 of approximately $200 million relating to our joint decision with Micron to discontinue the supply of NAND flash memory from a facility within the IMFT manufacturing network. Additionally, the IMFS planned fabrication facility in Singapore has been placed on hold as we continue to take actions to reduce supply in light of current market conditions. The majority of our non-marketable equity investment portfolio balance is concentrated in companies in the flash memory market segment. Therefore, continued declines in this market segment or changes in management’s plans with respect to our investments in this market segment could result in charges.
From a financial condition perspective, we ended the third quarter of 2008 with an investment portfolio valued at $15.6 billion, consisting of cash and cash equivalents, fixed-income trading assets, and short- and long-term investments. In addition, we generated $8.3 billion from cash from operations in the first nine months of the year. The credit quality of our investment portfolio remains high during this difficult credit environment, with other-than-temporary impairments on our available-for-sale investments in debt instruments limited to $32 million during the first nine months of 2008. Our ability to access funds through the credit markets, including through the issuance of commercial paper, remains unchanged. In addition, we have not seen any change in our ability to invest in high quality debt instruments, and earn a return on those investments. With the exception of a limited amount of investments for which we have recognized other-than-temporary impairments, as well as our investment in the Reserve Primary Fund of $250 million, we have not seen liquidation delays and we have received the full par value of our original debt investments when they matured. See “Liquidity and Capital Resources” for additional details on our investment portfolio.
During the first nine months of 2008, we repurchased $7.1 billion of stock through our stock repurchase program and paid $2.3 billion to stockholders as dividends.
Strategy
Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy. As part of our overall strategy to compete in each relevant market segment, we use our core competencies in the design and manufacture of integrated circuits, as well as our financial resources, global presence, and brand recognition. We believe that we have the scale, capacity, and global reach to establish new technologies and respond to customers’ needs quickly.
Some of our key focus areas are listed below:
• Customer Orientation. Our strategy focuses on developing our next generation of products based on the needs and expectations of our customers. In turn, our products help enable the design and development of new form factors and usage models for businesses and consumers. We offer platforms with ingredients designed and configured to work together to provide an optimized user computing solution compared to ingredients that are used separately.

• Energy-Efficient Performance. We believe that users of computing and communications systems and devices want improved overall and energy-efficient performance. Improved overall performance can include faster processing performance and other capabilities such as multithreading and multitasking. Performance can also be improved through enhanced connectivity, security, manageability, reliability, ease of use, and interoperability among devices. Improved energy-efficient performance involves balancing the addition of these and other types of improved performance factors with lower power consumption. We continue to develop multi-core microprocessors with an increasing number of cores, which enable improved multitasking and energy efficiency.

• Design and Manufacturing Technology Leadership. Our strategy for developing microprocessors with improved performance is to synchronize the introduction of a new microarchitecture with improvements in silicon process technology. We plan to introduce a new microarchitecture approximately every two years and ramp the next generation of silicon process technology in the intervening years. This coordinated schedule allows us to develop and introduce new products based on a common microarchitecture quickly, without waiting for the next generation of silicon process technology. We refer to this as our “tick-tock” technology development cadence.

• Strategic Investments. We make equity investments in companies around the world that we believe will generate returns, further our strategic objectives, and support our key business initiatives. Our investments, including investments through our Intel Capital program, generally focus on investing in companies and initiatives to stimulate growth in the digital economy, create new business opportunities for Intel, and expand global markets for our products. Our current investments are focused in the following areas: those that we believe will advance flash memory products, help to enable mobile wireless devices, advance the digital home, enhance the digital enterprise, advance high-performance communications infrastructures, and develop the next generation of silicon process technologies. Our focus areas tend to develop and change over time due to rapid advancements in technology.

• Business Environment and Software . We plan to continue to cultivate new businesses and work to encourage the industry to offer products that take advantage of the latest market trends and usage models. We also provide development tools and support to help software developers create software applications and operating systems that take advantage of our platforms. We frequently participate in industry initiatives designed to discuss and agree upon technical specifications and other aspects of technologies that could be adopted as standards by standards-setting organizations. In addition, we work collaboratively with other companies to protect digital content and the consumer. Lastly, through our Software and Services Group (SSG), we help enable and advance the computing ecosystem by developing value-added software products and services.
We believe that the proliferation of the Internet, including user demand for premium content and rich media, is the primary driver of the need for greater performance in PCs and servers. A growing number of older PCs are increasingly incapable of handling the tasks that users are demanding, such as streaming video, uploading photos, and online gaming. As these tasks become even more demanding and require more computing power, we believe that users will need and want to buy new PCs to perform everyday tasks on the Internet. We also believe that increased Internet traffic is creating a need for greater server infrastructure, including server products optimized for energy-efficient performance.
The trend of mobile microprocessor unit growth outpacing the growth in desktop microprocessor units has continued, and shipments of our mobile microprocessors exceeded our desktop microprocessors for the first time in the second quarter of 2008. We believe that the demand for mobile microprocessors will result in the increased development of products with form factors and uses that require low-power microprocessors.
With our research and development (R&D) expenditures, we are investing in areas in which we believe the application of highly integrated Intel ® architecture provides growth opportunities, such as scalable, high-performance visual computing solutions that integrate vivid graphics and supercomputing performance for scientific, financial services, and other compute-intensive applications. In addition, our design and manufacturing technology leadership, including the introduction of our 45nm process technology, allows us to develop low-power microprocessors for new uses and form factors. In the first quarter of 2008, we introduced the Intel Atom brand as a new family of low-power 45nm based microprocessors. We believe that these new microprocessors will give us the ability to extend Intel architecture and drive growth in new market segments, including a growing number of products that require processors specifically designed for embedded solutions; MIDs, a new category of small, mobile consumer devices enabling a PC-like Internet experience; consumer electronics devices, which will deliver media and services to set-top boxes and TVs over broadband Internet connections; and a new category of affordable Internet-focused notebooks (netbooks) and desktops (nettops). We believe that the common elements for products in these new market segments are low power and the ability to access the Internet. These new microprocessors will generally be offered at lower price points than our other microprocessors. In addition, we are developing system-on-a-chip products that integrate core processing functionality with specific components, such as graphics, audio, and video, onto a single chip to form a purpose-built solution. This integration reduces cost, power consumption, and size.

Strategy by Operating Segment
We completed a reorganization in the second quarter of 2008 that transferred the revenue and costs associated with a portion of the Digital Home Group’s consumer PC components business to the Digital Enterprise Group. The Digital Home Group now focuses on the consumer electronics components business. The strategy by operating segment presented below is based on the new organizational structure.
Our Digital Enterprise Group (DEG) offers computing and communications products for businesses, service providers, and consumers. DEG products are incorporated into desktop and nettop computers, enterprise computer servers and workstations, and products that make up the infrastructure for the Internet. We also offer products for embedded designs, such as industrial equipment, point-of-sale systems, telecommunications, panel PCs, in-vehicle information/entertainment systems, and medical equipment. Our strategy for the desktop computing market segment is to offer products that provide increased manageability, security, and energy-efficient performance while at the same time lowering total cost of ownership for businesses. For consumers in the desktop computing market segment, we also focus on the design of components for high-end enthusiast PC’s and mainstream PC’s with rich audio and video capabilities. Our strategy for the enterprise computing market segment is to offer products that provide energy-efficient performance and virtualization technology for server, workstation, and storage platforms. We are also increasing our focus on products designed for high performance computing, data centers, and blade server systems. Our strategy for the embedded computing market segment is to drive Intel architecture as an embedded solution by delivering long life cycle support, architectural scalability, and platform integration.
The strategy for our Mobility Group is to offer notebook PC products designed to improve performance, battery life, and wireless connectivity, as well as to allow for the design of smaller, lighter, and thinner form factors. We are also increasing our focus on products designed for the business and consumer environments by offering technologies that provide increased manageability and security, and we continue to invest in the build-out of WiMAX. We also offer and are continuing to develop products that enable mobile devices to deliver digital content and the Internet to users in new ways, including products for MIDs and netbooks.
The strategy for our NAND Products Group is to offer advanced NAND flash memory products, focusing on system-level solutions for Intel architecture platforms such as solid-state drives. Additionally, we offer NAND products used in digital audio players and memory cards. In support of our strategy to provide advanced flash memory products, we continue to focus on the development of innovative products designed to address the needs of customers for reliable, non-volatile, low-cost, high-density memory.
The Flash Memory Group provides products, services and support to Numonyx B.V. as part of the supply and transition service agreements. See “Note 16: Equity Investments” in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.
The strategy for our Digital Home Group is to offer products and solutions, including system-on-a-chip designs, for use in consumer electronics devices designed to access and share Internet, broadcast, optical media, and personal content through a variety of linked digital devices within the home. We are focusing on the design of components for consumer electronic devices such as digital TVs, high-definition media players, and set-top boxes, which receive, decode, and convert incoming data signals.
The strategy for our Digital Health Group is to design and deliver technology-enabled products and explore global business opportunities in healthcare information technology and healthcare research, as well as personal healthcare. In support of this strategy, we are focusing on the design of technology solutions and platforms for the digital hospital and consumer/home health products.
The strategy for our Software and Services Group is to promote Intel architecture as the platform of choice for software and services. SSG works with the worldwide software and services ecosystem by providing software products, engaging with developers, and driving strategic software investments.
Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include:
• the valuation and recognition of non-marketable equity investments, which impacts net gains (losses) on equity investments when we record impairments;

• the valuation and recognition of investments in debt instruments, which impacts our investment portfolio balance when we assess fair value, and interest and other, net when we record impairments;

• the assessment of recoverability of long-lived assets, which primarily impacts gross margin or operating expenses when we record asset impairments or accelerate their depreciation;

• the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes;

• the valuation of inventory, which impacts gross margin; and

• the valuation and recognition of share-based compensation, which impact gross margin; R&D expenses; and marketing, general and administrative expenses.
Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other policies that we consider key accounting policies, such as those for revenue recognition, including the deferral of revenue on sales to distributors; however, these policies typically do not require us to make estimates or judgments that are difficult or subjective.
Non-Marketable Equity Investments
We regularly invest in the non-marketable equity instruments of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies with established revenue streams and business models. The carrying value of our non-marketable equity investment portfolio, excluding equity derivatives, totaled $4.2 billion as of September 27, 2008 ($3.4 billion as of December 29, 2007). The majority of the balance as of September 27, 2008 was concentrated in companies in the flash memory market segment, including our investments in IM Flash Technologies, LLC (IMFT) of $2.0 billion ($2.2 billion as of December 29, 2007), our investment in IM Flash Singapore, LLP (IMFS) of $346 million ($146 million as of December 29, 2007), and our investment in Numonyx of $503 million (see “Note 16: Equity Investments” in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q). Our non-marketable equity investments are classified in other long-term assets on the consolidated condensed balance sheets. For further information about investment portfolio risks, including those specific to our investments in the flash memory market segment, see “Risk Factors” in Part II, Item 1A of this Form 10-Q.
Non-marketable equity investments are inherently risky, and a number of these companies are likely to fail. Their success is dependent on product development, market acceptance, operational efficiency, and other factors. In addition, depending on their future prospects and on market conditions, they may not be able to raise additional funds when needed or they may receive lower valuations, with less favorable investment terms than in previous financings, and our investments would likely become impaired.
We review our investments quarterly for indicators of impairment; however, for non-marketable equity investments, the impairment analysis requires significant judgment to identify events or circumstances that would significantly harm the fair value of the investment. The indicators that we use to identify those events or circumstances primarily include:
• the investee’s revenue and earnings trends relative to predefined milestones and overall business prospects;

• the technological feasibility of the investee’s products and technologies;

• the general market conditions in the investee’s industry or geographic area, including adverse regulatory or economic changes;

• factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and the rate at which the investee is using its cash; and

• the investee’s receipt of additional funding at a lower valuation.
Investments that we identify as having an indicator of impairment are subject to further analysis to determine if the investment is other than temporarily impaired, in which case we write down the investment to its estimated fair value. Beginning in the first quarter of 2008, the assessment of fair value for non-marketable investments is based on the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157). Non-marketable investments that are considered impaired are classified as Level 3 instruments (see “Note 3: Fair Value” in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q), as we use unobservable inputs to value these investments that are significant to the fair value measurement and the valuation requires management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such investments. We measure fair value using financial metrics and ratios of comparable public companies and/or a discounted cash flow approach. The selection of comparable companies requires management judgment and is based on a number of factors including comparable companies’ sizes, growth rates, products and service lines, development stage, and other relevant factors. The discounted cash flow approach includes the following significant estimates for the investee: revenue, based on assumed market segment growth rates and assumed market segment share; estimated costs; and appropriate discount rates based on the investee’s weighted average cost of capital, as determined by considering the observable weighted average cost of capital of comparable companies. Estimates of market segment growth, market segment share, and costs are developed by the investee and/or Intel in consideration of historical data and available market data. The valuation of our non-marketable investments also takes into account movements of the equity and venture capital markets, recent financing activities by the investees, changes in the interest rate environment, the investee’s capital structure, liquidation preferences for the investee’s capital, and other economic variables. See “Note 3: Fair Value” in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q for further discussion on the adoption of SFAS No. 157.

Results of Operations - Third Quarter of 2008 Compared to Third Quarter of 2007

Our net revenue for Q3 2008 was $10.2 billion, an increase of 1% compared to Q3 2007. Higher revenue from microprocessors and chipsets was partially offset by the impacts of divestitures. Revenue from sales of NOR flash memory and cellular baseband products declined approximately $540 million, primary as a result of the divestiture of these businesses. Revenue in the Japan, Asia-Pacific, and Europe regions increased by 6%, 4%, and 3% respectively compared to Q3 2007, while revenue in the Americas region declined 9% compared to Q3 2007.
Our overall gross margin dollars for Q3 2008 were $6.0 billion, an increase of $848 million, or 16%, compared to Q3 2007. Our overall gross margin percentage increased to 58.9% in Q3 2008, from 51.2% in Q3 2007. The increase in gross margin percentage was primarily attributable to an increase in the gross margin percentage in the Digital Enterprise Group and Mobility Group operating segments. The positive impact on our gross margin percentage from the divestiture of our NOR flash memory business was partially offset by the gross margin results of our NAND Products Group operating segment. We derived most of our overall gross margin dollars and operating profit in Q3 2008 and Q3 2007 from the sales of microprocessors in the Digital Enterprise Group and Mobility Group operating segments. See “Business Outlook” for a discussion of gross margin expectations.

Net revenue for the DEG operating segment decreased by $194 million, or 4%, in Q3 2008 compared to Q3 2007. Microprocessors within DEG include microprocessors designed for the desktop and enterprise computing market segments as well as embedded microprocessors. Microprocessor revenue was flat, with decreases in desktop average selling prices mostly offset by higher enterprise microprocessor average selling prices. The decrease in chipset, motherboard, and other revenue was primarily due to lower motherboard unit sales.
Operating income increased by $390 million, or 28%, in Q3 2008 compared to Q3 2007. The increase in operating income was due to lower chipset and desktop microprocessor unit costs. In addition, Q3 2007 includes an $84 million charge related to the litigation agreement with Transmeta Corporation.
Mobility Group

Net revenue for the MG operating segment increased by $710 million, or 18%, in Q3 2008 compared to Q3 2007. The increase in microprocessor revenue was due to significantly higher microprocessor unit sales, partially offset by significantly lower microprocessor average selling prices. A portion of the increase in microprocessor unit sales was due to the ramp of Atom microprocessors. The increase in chipset and other revenue was primarily due to higher chipset unit sales, which was partially offset by lower revenue from the sale of cellular baseband products. We are winding down the sales from the manufacturing agreement entered into as part of the divesture of the cellular baseband business.
Operating income increased by $555 million, or 43%, in Q3 2008 compared to Q3 2007. The increase was primarily due to lower microprocessor and chipset unit costs and higher microprocessor revenue. These increases were partially offset by higher operating expenses.
Operating Expenses

Research and Development. R&D spending decreased slightly, $50 million, or 3%, in Q3 2008 compared to Q3 2007. This decrease was primarily due to lower product development costs and the divestiture of the NOR flash memory business partially offset by higher profit-dependent compensation expenses.

Marketing, General and Administrative . Marketing, general and administrative expenses increased slightly, $35 million, or 3%, in Q3 2008 compared to Q3 2007. This increase was primarily due to higher profit-dependent compensation expenses and higher advertising expenses.
R&D, combined with marketing, general and administrative expenses, were 28% of net revenue in Q3 2008 (29% of net revenue in Q3 2007).

CONF CALL

R. Kevin Sellers

Thank you, Amanda and welcome everyone to Intel's third quarter 2008 earnings conference call. Joining me on today’s call are Chief Executive Officer Paul Otellini and Chief Financial Officer Stacy Smith. This call is being webcast live and a replay will be posted to our website at around 5:00 p.m. Pacific Time and will remain there for approximately two months.

Paul will start with a few comments on the quarter, as well as some thoughts about the macro environment, and Stacy will follow with more detail on both our financial performance as well as our fourth quarter outlook.

Two quick items as we begin -- first if during this call we use any non-GAAP financial measures or references, we will post appropriate GAAP financial reconciliations to our investor website, intc.com, after the call. And second, a reminder for everyone that today’s discussion does contain forward-looking statements based on the environment as we currently see it and as such does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

So with that, let me now hand it over to Paul.

Paul S. Otellini

Thanks, Kevin and thank you for joining our call today. Intel again delivered strong financial results, with Q3 marking the fifth consecutive quarter in record --

[Technical Difficulties]

R. Kevin Sellers

Amanda, we’re having feedback problems.

Operator

I heard it.

R. Kevin Sellers

Amanda, can you hear us? Okay, it sounds like we are back online.

Operator

Yes, sir, you sound fine.

R. Kevin Sellers

Thank you. We can continue then? Okay.

Paul S. Otellini

First of all, let me apologize for that glitch. That system clearly doesn’t have Intel products in it. Let me start again. Thank you, Kevin and thank you for joining our call today. Intel again delivered strong financial results, with Q3 marking the fifth consecutive quarter of record quarterly revenue. While revenue grew 8% over the second quarter, operating income grew a healthy 37% to just over $3 billion. In Q3, we shipped an all-time record number of microprocessors, driven by strength in mobile. The Atom family is off to a very good start, with Atom microprocessor and related chipset revenues approximately $200 million this quarter. Total microprocessor ASP was lower than Q2 but was approximately flat without Atom, reflecting strength in the core business.

Our chipset business also had record units and revenues in the quarter. Our disciplined execution is a critical strength to us. Our product lineup is extremely well positioned across the spectrum of computing. In particular, I am pleased to announce that we began shipments of our Nehalem product family during the third quarter and expect to formally launch these products in November. Nehalem brings a new micro architecture and new performance features. This new product family will further extend our performance leadership in microprocessors.

We also continue to see strong acceptance of our Atom microprocessor family, which was designed to enable new mobile Internet form factors at attractive system price points with healthy product margins for Intel.

I want to take a minute and reflect on a number of important actions that the company undertook in 2006 and 2007. These actions put us in an excellent operating position for changing economic conditions.

Our current employee base is approximately 20,000 heads lower than our peak in 2006 and we have removed over $3 billion in spending. We’ve made a large number of changes in our operations that have prepared us well for a variety of economic scenarios. Our business model generates strong cash flows with Q3 operating cash flows of over $3 billion and a current cash position of approximately $12 billion.

With very little debt, our balance sheet is in excellent condition.

Turning to NAND --

[Technical Difficulties]

Paul S. Otellini

I’m assuming that you can hear me. Turning to NAND, last week Micron announced our joint decision to shut down 200-millimeter NAND operations. In addition, the IMFF planned Singapore fab is now on hold as we continue to take actions to reduce supply in light of current market conditions.

On the product side, we launched our solid state drive product family in Q3 to outstanding reviews and are currently ramping those products, giving us a lead in the higher margin segment of the NAND business.

Now let me speak briefly about what we see in the market today and how that has shaped our outlook. Q3 played out mostly as we expected it to when we began the quarter. We saw some softness in September in the corporate segment while consumer was more seasonal. As we head into Q4, we see some mixed signs. We expect the corporate segment to continue to show some softness as IT spending gets rationalized in this macro environment.

Inventories in total seem in reasonable shape, with Taiwan and channel customers cutting back and some OEMs building a bit. In general, consumer traffic overall is light at this point in the quarter but we do see continued healthy interest in notebooks and netbooks. Our channel business began Q4 in good shape in terms of inventories and sales out.

It’s clear that the financial crisis is creating some [inaudible] that may impact our business but the extent of that is difficult to quantify. As a result, we’ve made two changes for this quarter -- one, our outlook has a wider range than normal, reflecting our view of the boundaries of the risks, and two, we’ve decided to provide a formal mid-quarter update scheduled for December 4th to allow us to give you additional information about the state of Q4 business trends as the business and financial conditions unfold.

Let me now turn the call over to Stacy for a more detailed look at our financials.

Stacy J. Smith

Thanks, Paul. Intel had a strong third quarter. We have third quarter record revenue, operating income of over $3 billion, gross margin of 59% and operating margin of 30%, reflecting the strength of our product portfolio, process technology, manufacturing operations, and focus on efficiency.

Revenue of $10.2 billion was up 8% from the second quarter, in line with average seasonal trends. Revenue of microprocessors excluding Atom was in line with seasonal patterns on flat average selling prices. Third quarter revenue for Atom based microprocessors and associated chipsets was approximately $200 million, including Atom microprocessor revenue, overall microprocessor average selling prices declined.

The mobility group accounted for over 45% of total revenue. This revenue of $4.7 billion was up 23% from the second quarter, with microprocessor strength in every notebook segment.

On a geographical basis, Asia-Pacific and Japan experienced better than seasonal revenue growth at approximately 12% each. Relative to seasonal patterns, EMEA was at the low end while the Americas lagged due to weakness in the corporate segment.

Gross margin of 58.9% was up 3.5 points from the second quarter and up over 7.5 points from the third quarter of 2007. Versus the second quarter, a couple of points of the increase came from lower microprocessor unit costs and about a point came from microprocessor volume increases in the third quarter. Versus the midpoint of the outlook range set in July, third quarter gross margin was up nearly a point on lower-than-expected microprocessor unit costs.

Spending on R&D and MG&A was $2.9 billion, flat to our forecasted range and flat to the second quarter. Gains losses on equity investments and interest and other income was a net loss of $265 million, higher than our outlook net loss of $30 million. Volatile conditions in the memory market segment resulted in a $250 million impairment on our investment in Numonyx.

The provision for taxes in the third quarter was at a 29% effective tax rate, lower than the 33% previously forecasted, primarily due to a tax reorganization enabling the recognition of previously unrecognized non-U.S. losses, and a provision to return true-up related to 2007.

Total cash investments comprised of cash, short-term investments, and fixed income trading assets ended the quarter at $11.8 billion, approximately $275 million higher than the second quarter. The credit quality of our fixed income investment portfolio remains high, with other than temporary losses during this tough credit environment minor at under $15 million in the third quarter.

Cash flow from operations was over $3 billion. Capital spending was nearly $1.4 billion, dividend payments were nearly $800 million, and stock repurchases were $2.1 billion. As we turn now to the outlook for the fourth quarter, please keep in mind that unless otherwise specified, the forecasts do not include the effects of any new acquisitions, divestitures, or similar transactions that may be completed after October 13th. I will use the midpoint of the forecast ranges when making comparisons to specific periods.

While our results in the third quarter were strong, and we have high confidence in the fundamentals of our business, the financial crisis is creating a high degree of uncertainty around fourth quarter demand. Therefore we believe there is a broader than normal range of possible outcomes for fourth quarter revenue, ranging from $10.1 billion to $10.9 billion. The low-end of this range is slightly down from the third quarter, while the high-end of this range is at the lower end of seasonal patterns.

Our expectation for gross margin percentage in the fourth quarter is 59%, plus or minus a couple of points, flat to the third quarter. Spending for R&D and MG&A in the fourth quarter should be approximately $2.9 billion, flat to the third quarter. Additionally, in a separate category for restructuring and asset impairment charges, we expect expenses of approximately $250 million. $200 million of this restructuring charge is related to the shut-down of 200-millimeter NAND manufacturing facilities that are part of the Intel Micron joint venture.

Our estimate for gains and losses from equity investments and interest and other income is a net loss of $50 million.

Our forecast for the effective tax rate for the fourth quarter is 29%, reflecting the R&D tax credit that was recently signed into law, restoring the credit to the beginning of 2008.

Spending for R&D and MG&A for the full year is now forecasted to be approximately $11.5 billion, down from our prior forecast of $11.7 billion, primarily due to revenue and profit dependent expenses and foreign exchange rate changes.

Our forecast for capital expenditures has been reduced $200 million to $5 billion, plus or minus $100 million.

Year-to-date, actual gross margin plus the midpoint of the forecast range for the fourth quarter, leads to full-year gross margin of approximately 57%, consistent with our prior forecast for an annual gross margin of 57% plus or minus a couple of points.

While the economic outlook has deteriorated over the past quarter, our competitive position has strengthened. Our strong product portfolio continues to get better. Our manufacturing leadership maintains us at a generation ahead of competition. Our healthy cash flow generation, a strong balance sheet, and the focus we have had on improving efficiency over the past two years has put us in an outstanding position to come out of this economic downturn even stronger.

With that, let me turn it back to Kevin for Q&A.

R. Kevin Sellers

Okay, thanks, Stacy and Paul. Our apologies to those of you on the phone for the technical difficulties there. As we enter the Q&A section, if there is anyone that would like us to restate a portion of any scripts if they didn’t come through well, please do highlight that and we’ll be happy to do that for you.

Amanda, we’re going to now move into questions. What we would like to do is ask each questioner to limit themselves to one question and one follow-up and I will cue Amanda to do that. And again, if you need clarification of something that didn’t come through clearly, please do let us know and we will not hold that against you as a question. We will let you keep asking the questions.

So Amanda, we’ll now turn it over to the first questioner.

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