2003 Annual Report

intel.com intc.com

GROWTH THROUGH TECHNOLOGY LEADERSHIP

33.7 29.4 25.1 20.8 16.2 26.3 26.5 26.8 30.1

36

1.51

1.6

Americas

50%

45%

28%

100

27 1.05 0.97 0.86 18 0.73 0.85

1.2 40%

75

0.8 20%

20% AsiaPacific Europe 14%

50

11.5 9 0.33

0.50

0.46 0.4 0.19

28%

28%

23%

25

Japan 94 95 96 97 98 99 00 01 02 03 0 94 95 96 97 98 99 00 01 02 03 0

8% 93

7% 98

9% 03 0

NET REVENUE
Dollars in billions

DILUTED EARNINGS PER SHARE†
Dollars, adjusted for stock splits
†

GEOGRAPHIC BREAKDOWN OF REVENUE
Percent

Amortization of goodwill reduced earnings per share in 2001 by $0.22 ($0.18 in 2000 and $0.05 in 1999). Goodwill is no longer amortized, beginning in 2002.

“Our continuing commitment to investments in leading-edge technology and our dedication to product innovation have set the stage for the positive results we began to see by year’s end.”
Craig R. Barrett Chief Executive Officer

38.4 35.6 33.3 30.2 27.3 28.4 26.2

40

Machinery and equipment Land, buildings and improvements 6.7

8.0 7.3 4.0 4.4 3.9 3.8

5.0

4.0

30

6.0 3.1

4.5 20 15.4 2.4 8.7 10 4.0 3.6 3.0 3.4

4.7 3.7 4.0 1.8 1.3 2.3 2.5

3.0

2.0

2.0

1.1

1.0

3.5 0 0 0

94

95

96

97

98

99

00

01

02

03

94

95

96

97

98

99

00

01

02

03

94

95

96

97

98

99

00

01

02

03

RETURN ON AVERAGE STOCKHOLDERS’ EQUITY
Percent

CAPITAL ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Dollars in billions
†

RESEARCH AND DEVELOPMENT†
Dollars in billions
Excluding purchased in-process research and development

Past performance does not guarantee future results.
Cover: Innovations for a connected life. Our silicon products are the building blocks for innovative technology and products that help improve the way people live, work and play. Powering products from wireless mobile PCs to cell phones that surf the web to servers that provide the backbone of millions of networks, we are proud that Intel® technology is helping to build an increasingly digital world.

LETTER FROM YOUR MANAGEMENT
In 2003, we turned a key corner in our pursuit of growth. Over the last few years, we have worked to lay the groundwork for the future: investing in leading-edge technology and developing innovative products that make us more competitive, while controlling non-essential spending. This year’s results show that our efforts are beginning to pay off. architectural innovation that can increase system-level performance by allowing a single processor to handle two streams of data instructions simultaneously (in systems designed to take advantage of the technology). Our server business continues to grow, with record revenue from sales of Intel® Xeon™ processors, and shipments of more than 100,000 units of Intel® Itanium® processors, in 2003. In high-performance computing, the number of Intel processor–based systems in the TOP500* list of the world’s fastest supercomputers grew by nearly 50% over a six-month period, with supercomputers based on Intel processors outnumbering those based on any single RISC architecture for the first time.

Craig R. Barrett

Paul S. Otellini

We ended 2003 with substantial improvements in revenue and profit over 2002. Revenue of $30.1 billion was up 13% over 2002, with net income of $5.6 billion, up 81% over 2002. We spent $3.7 billion on capital assets, mostly factories and equipment, and had $4.4 billion in research and development expenses. Despite challenges in our Wireless Communications and Computing Group resulting in a $611 million goodwill write-off, 2003 operating income of $7.5 billion was up 72% from 2002. As the worldwide economy begins to show signs of recovery, many companies and consumers are increasing their investments in innovative

GROWTH THROUGH TECHNOLOG
We are proud of our strengths in four key areas:
PRODUCT INNOVATION
Our products advance the convergence of computing and communications functions, and are helping to spread wireless networking capabilities.

ADVANCED MANUFACTURING
As we move to our next generation of advanced manufacturing process technology, we reap significant competitive advantages.

WORLDWIDE O PP

Emerging markets ar infrastructures, and many es showing signs of upgr ad

technologies that improve how people live, work and play. These technologies frequently combine computing and communications functions in an integrated product solution, often including wireless communications capability. This convergence of computing and communications presents significant opportunities for Intel. Research firm IDC projects double-digit shipment growth in PCs, servers and cell phones in 2004 compared with 2003. If this forecast proves accurate, this level of growth offers substantial opportunities for our business, given our position as a leading silicon supplier for these technologies. We are proud of our accomplishments in a variety of key areas: Product innovation. In 2003, we focused significant effort on helping to advance the wireless mobile computing environment with the introduction of Intel® Centrino™ mobile technology, designed specifically to optimize the wireless computing experience for mobile PC users. The technology includes the Intel® Pentium® M microprocessor, its supporting chipset, and wireless network capabilities, which together combine computing and communications functions, enabling extended battery life and improving the performance of wireless mobile PCs. In 2003, we shipped more than 5 million units of Intel Centrino mobile technology. We are pleased to have such a successful solution for the fast-growing mobile PC market segment. In 2003, the Intel® Pentium® 4 processor was our highest sales-volume desktop processor. During the year, we introduced several new desktop Pentium 4 processors incorporating our Hyper-Threading Technology, an

We continued extending our product offerings into growth areas related to the computing platform: wireless networking products, wireless handheld devices and communications infrastructure products. We entered the wireless networking silicon arena in 2003 with a product for 802.11b wireless networking, and by year’s end had also introduced an 802.11a/b product and had begun shipping an 802.11b/g product (802.11a, 802.11b and 802.11g are industry-standard specifications for wireless data transmission). We expect to introduce a tri-mode 802.11a/b/g product in 2004, and are focusing on developing products for future wireless networking specifications. In products for handheld communications devices, Intel XScale® processors are delivering the low-power, high-performance processing capability for today’s data enabled mobile phones and PDAs. We are also one of the leading suppliers of network processors. Advanced manufacturing. Our investments in advanced man ufacturing are paying off. We believe we were the first to begin ramping microprocessors in high volume on a new 90-nanometer technology process using 300mm silicon wafers (300mm wafers can yield more than twice as many chips per wafer as 200mm wafers). We introduced these microprocessors, formerly code-named “Prescott, in 2004. ” Our goal is to be one generation ahead of the rest of the industry in process technology. As we move to each succeeding generation of manufacturing process technology, we use less space per transistor, which lets us put more transistors on an equivalent size chip, decrease

LETTER FROM YOUR CHAIRMAN the size of the chip or offer an increased number of integrated features, which can result in faster microprocessors, products that consume less power and/or products that cost less to manufacture. We believe that our advanced manufacturing capabilities represent a significant competitive advantage in the marketplace. Worldwide opportunities. In 2003, we sold to an increasingly worldwide market: 72% of our sales came from geographies outside the Americas. Sales were particularly strong in geographies such as China, Russia and eastern Europe, as these areas continued to build their IT infrastructure. In many cases, emerging markets are leapfrog ging older technology to take advantage of the competitive benefits of leading-edge technology, particularly wireless capabilities, creating opportunities for our products. Our expanding local presence in emerging markets gives us a solid foundation in these geographies, the fastest growing regions for our technology. We also saw a rally in IT investing in more mature markets. In Japan and western Europe in particular, we saw increased investment to upgrade aging technology and remain competitive for growth. We are poised to take advantage of appropriate growth opportunities worldwide.

Andrew S. Grove

In last year’s Annual Report, I discussed our Board’s organization and operations. This year, I want to comment on our independent directors

.

,

OGY LEADERSHIP
O PPORTUNITIES THE INTEL BRANDS
Our branding programs educate consumers about the benefits of Intel® technology, with a focus in 2003 on the Intel® Centrino mobile technology brand.
TM

ets are building their IT ny established economies are pgr ading their technology.

-

-

The Intel brands. In 2003, we continued to invest heavily in programs to educate consumers and IT purchasers about the advanced technology and innovation associated with Intel products. Our Intel Centrino mobile technology brand program comprises advertising, comarketing programs and point-of-access displays identifying products optimized with Intel Centrino mobile technology as well as highlighting the locations of thousands of wireless networking hotspots worldwide. We also focused our branding efforts in emerging markets, with pro grams to establish Intel Inside® brand preference around the world. Poised for growth. In 2003, we redeployed resources to areas of higher productivity and strategic importance. We have substantial cash reserves and the ability to invest heavily to support our major technologies. And we have a highly skilled workforce dedicated to our goals of providing better products for our customers, delivering growth and creating value for our stockholders. We are in a strong position for the future. We are optimistic about the outlook for new technologies and our potential for continued leadership and growth in an increasingly digital world.

and how we expect them to both oversee our business and operations and use their collective skills and experience to assist management. Directors are most valuable when they exercise informed, independent judgment. We try hard to support this by providing access to information as well as the time and the environment for that information to be analyzed, discussed and acted upon. Our Board receives information before, during and after Board meetings. We are always asking the Board if we are providing them with the most useful information, and our meeting agendas and materials evolve over time in response to the feedback we receive. Sometimes, the most valuable information the Board receives comes to them outside the Board meeting context. Board members attend Intel events and visit Intel sites on a worldwide basis, speak at employee forums, and use direct access to all of our employees to maintain their understanding of our operations at several levels. In 2003, independent directors visited and were briefed at 14 separate Intel sites, including sites in China, Russia and Ireland. The entire Board attended our annual Sales and Marketing Conference, where they spoke at major sessions and at employee Open Forums. Of course, our Board also attends our Annual Stockholders’ Meeting and is prepared to answer questions from the audience. At the May 2003 meeting, the independent directors who chair our Audit and Compensation Committees delivered reports on the work of those committees. To aid in providing quality time at Board meetings, and maintain the balance between strategic discussions and other agenda items, more of the Board’s workload is moving to the committees. 2003 was a particularly busy year for the Board’s Nominating Committee, for example. Two of our directors will retire in May, and we have added two new independent directors to take their seats. The Board must represent a portfolio of skills and experience, and each time we have a vacancy the Committee needs to consider then-prevailing environmental factors in looking for candidates. The recent additions of Charlene Barshefsky and John Thornton to our Board reflect our focus on international trade and the emerging markets. Informed, independent judgment is the key attribute that makes a Board successful in its work and most valuable to stockholders and management. The Board and the employees of Intel work hard to nurture and support this attribute, to the benefit of all of us who are the stockholders of Intel.

,

Craig R. Barrett Chief Executive Officer

Paul S. Otellini President and Chief Operating Officer

Andrew S. Grove Chairman

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
As filed on February 23, 2004 and amended on February 24, 2004 (Mark One)

È ‘

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 27, 2003.

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________________ to ____________________. Commission File Number 0-06217

(Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 2200 Mission College Boulevard, Santa Clara, California (Address of principal executive offices) 94-1672743 (I.R.S. Employer Identification No.) 95052-8119 (Zip Code)

INTEL CORPORATION

Registrant’s telephone number, including area code (408) 765-8080 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $0.001 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes È No ‘ Aggregate market value of voting stock held by non-affiliates of the registrant as of June 27, 2003 $129.2 billion 6,484 million shares of common stock outstanding as of January 30, 2004 DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the registrant’s Proxy Statement relating to its 2004 Annual Stockholders’ Meeting, to be filed subsequently—Part III.

INTEL CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 27, 2003 INDEX
Page

Item 1. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15.

PART I Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Market for Registrant’s Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 23 24 26 26 27 29 49 51 86 86 88 88 88 88 88 89

This Annual Report on Form 10-K reflects an amendment to the original Securities and Exchange Commission (SEC) filing that corrects certain typographical errors as described in Form 10-K/A, Amendment No. 1 filed with the SEC on February 24, 2004.

PART I ITEM 1. Industry We are the world’s largest semiconductor chip maker, supplying advanced technology solutions for the computing and communications industries. Our goal is to be the preeminent building block supplier to the worldwide Internet economy. Our products include chips, boards and other semiconductor components that are the building blocks integral to computers, servers, and networking and communications products. We offer products at various levels of integration, allowing our customers flexibility to create advanced computing and communications systems and products. Intel’s component-level products consist of integrated circuits used to process information. Our integrated circuits are silicon chips, known as semiconductors, etched with interconnected electronic switches. Developments in semiconductor design and manufacturing have made it possible to decrease the size of circuits and transistors etched into silicon, utilizing less space as a result. This decrease in size enables us to put increased numbers of transistors on an equivalent size chip, decrease the size of the chip or offer an increased number of integrated features, which can result in microprocessors that are faster or incorporate additional features, products that consume less power and/or products that cost less to manufacture. 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 are updated annually, outlining our performance with respect to corporate responsibility and environmental, health and safety compliance (these voluntary reports are not incorporated by reference into this filing). 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 Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement on Form 14A related to our annual stockholders’ meeting and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings on our Investor Relations web site are available free of charge. Products Our major products include microprocessors; chipsets; boards; wired Ethernet and wireless connectivity products; communications infrastructure components such as network and embedded processors and optical components; microcontrollers; flash memory; application and cellular processors used in cellular handsets and handheld computing devices; and cellular baseband chipsets. Our major customers are: • • original equipment manufacturers (OEMs) and original design manufacturers (ODMs) who make computer systems, cellular handsets and handheld computing devices, and telecommunications and networking communications equipment; PC and network communications products users (including individuals, large and small businesses, and service providers) who buy PC components and board-level products, as well as Intel’s networking and communications products, through distributor, reseller, retail and OEM channels throughout the world; and other manufacturers, including makers of a wide range of industrial and communications equipment. BUSINESS

•

Our primary focus is on developing advanced integrated silicon technology solutions, which we believe will provide the performance and technology features necessary to help accelerate the convergence of computing and communications capabilities. Convergence refers to having computing and communications capabilities in an integrated product solution. We also provide key components for networking and communications infrastructures used to connect technology users. We believe users of computing and communications devices want not only higher performance but also other capabilities such as multithreaded or multitasking capability, seamless networking connectivity, improved security, reliability, ease of use and interoperability among devices. It is our goal to incorporate features addressing these capabilities in our various products to meet user demands. Each of our operating segments uses its core competencies in the design and manufacture of integrated circuits, as well as key silicon and platform capabilities, to provide building blocks for technology solutions. The Intel Architecture business provides the advanced technologies to support the desktop, mobile and enterprise computing platforms. During 2003, our Intel Communications 1

Group (ICG) focused on wired and wireless network connectivity products, and provided key components for networking and communications infrastructure devices and other industrial and commercial purposes. Finally, during 2003, our Wireless Communications and Computing Group (WCCG) focused on component-level products and platform solutions for the wireless handheld computing and communications market segments. In December 2003, we announced that we would be consolidating our communications-related businesses into a single organization, the Intel Communications Group. We believe that as computing and communications converge, the consolidation of ICG and WCCG will give us the opportunity to better coordinate product planning and customer focus between our communications infrastructure and wireless client efforts going forward. This reorganization was not effective until fiscal 2004. Because the reporting period for this Form 10-K is as of December 27, 2003, the communications related businesses discussed below and the results of operations for our operating segments in this filing are presented under the organizational structure that existed as of December 27, 2003. Intel Architecture Business The Intel Architecture business develops platform solutions based on our microprocessors, chipsets and board-level products, which are optimized for use in the desktop, mobile and server market segments. The end-user products into which our products are ultimately integrated are determined by our customers and how they choose to meet the specific requirements from end users. • Desktop platform products incorporate our microprocessors, chipsets and motherboards primarily in desktop computers and entry-level servers and workstations. Our strategy for the desktop platform is to introduce microprocessors and chipsets with higher performance and/or advanced technology features, tailored to the needs of different market segments using a tiered branding approach. Our desktop processors include products such as the Intel® Pentium® 4 processor and the Intel® Celeron® processor. Mobile platform products incorporate our microprocessors, chipsets and wireless communications components primarily in notebook computers. Our mobile processors include products such as our Intel® Pentium® M processor offered separately and as part of Intel® Centrino™ mobile technology. Our strategy for the mobile platform is to deliver products optimized for some or all of the four mobility vectors: performance, battery life, form factor (the physical size and shape of a device) and wireless connectivity. We also offer the Mobile Intel® Pentium® 4 processor, and for the value notebook market segment we offer the mobile Intel® Celeron® processor. Enterprise platform products are targeted at entry-level to high-end servers and workstations, as well as high-performance enterprise-class servers. Servers are systems, often with multiple microprocessors working together, that house large amounts of data, direct 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, especially in graphics processing and in the ability to perform several tasks at the same time. Our strategy for the enterprise platform is to provide processors and chipsets with high performance and/or advanced technology features, as well as competitive price for performance, across the range of server and workstation market segments. Our products for the enterprise platform include the Intel® Xeon™ processor family, targeted for entry-level to high-end workstations and servers, and our Itanium® processor family, targeted for enterprise-class servers and supercomputing solutions at the higher end of the enterprise market segment.

•

•

Net revenue for the Intel Architecture operating segment made up approximately 87% of our consolidated net revenue in 2003. Revenue from sales of microprocessors within the Intel Architecture operating segment represented approximately 73% of consolidated net revenue in 2003. Our microprocessor business generally has followed a seasonal trend; however, there can be no assurance that this trend will continue. For the past five years, the company’s sales of microprocessors were higher in the second half of the year, primarily due to back-to-school and holiday demand. Microprocessors 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. One indicator of microprocessor performance is its clock speed, the rate at which its internal logic operates, which is measured in units of hertz, or cycles processed per second. One megahertz (MHz) equals one million cycles processed per second, and one gigahertz (GHz) equals one billion cycles processed per second. Other factors affecting computer performance include the amount of memory storage, the speed of memory access, the microarchitecture design of the CPU and the speed of communication between the CPU and the chipset. The memory stored on a chip is measured in bytes, with 1,024 bytes 2

equaling a kilobyte (KB), 1.049 million bytes equaling a megabyte (MB) and 1.074 billion bytes equaling a gigabyte (GB). Cache is a memory 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, second level (L2) cache and third level (L3) cache, to offer higher levels of performance. Other microprocessor features can also enhance system performance or end-user experience by running software more efficiently. For example, we currently offer microprocessors with Hyper-Threading Technology (HT Technology), which allows a single processor to handle two sets of instructions simultaneously. This capability provides benefits in two ways: it helps to run “multithreaded” software, which is designed to execute different parts of a program simultaneously, or helps to use multiple software programs simultaneously in a multitasking environment. To take advantage of the HT Technology capability, a computer system must have a microprocessor that supports the technology, a chipset and BIOS (basic input/output system) that use the technology and an operating system that includes optimizations for the technology. Performance will vary depending on the system hardware and software used. In 2003, we manufactured a majority of our microprocessors and chipsets using our 130-nanometer (0.13-micron) process technology. In December 2003, we began selling processors manufactured using our 90-nanometer process technology on 300mm wafers, and we introduced these Intel Pentium 4 processors (formerly code-named “Prescott”) in February 2004. One micron equals one millionth of a meter, and one nanometer is one thousandth of a micron, or one billionth of a meter. As we move to each succeeding generation of manufacturing process technology, we utilize less space per transistor, which enables us to fit more transistors on an equivalent size chip, decrease the size of the chip, or offer an increased number of integrated features. This decrease in size can also result in faster microprocessors and semiconductor products that consume less power and/or products that cost less to manufacture. The conversion to using 300mm wafers from 200mm wafers, which began in 2002 and continued in 2003, allows for more efficient use of our capital investment in equipment by providing more than twice as many equivalent chips per wafer. See the discussion of manufacturing process technologies under the heading “Manufacturing, Assembly and Test” in Part I, Item 1 of this Form 10-K. In 2003, we announced a number of new microprocessor products tailored to meet performance, feature, price and form-factor needs for computing market segments ranging from consumer desktops to high-performance servers. Our products, including some key product introductions, are discussed below. Desktop Platform. In 2003, the Intel Pentium 4 processor was our highest sales-volume desktop processor. The Pentium 4 processor is optimized to deliver high performance across a broad range of business and consumer applications. In 2003, we introduced several desktop Intel Pentium 4 processors with HT Technology, running at speeds ranging from 2.4 GHz to 3.2 GHz. These processors are used in conjunction with chipsets that we introduced in April 2003, supporting the 800-MHz system bus. A bus carries data between parts of the system, for example, between the processor and main memory. This new bus can transmit information within the PC up to 50% faster than our previous 533-MHz version. In February 2004, we introduced a version of this processor running at 3.4 GHz. All of these processors come with 512 KB of L2 cache and were built using our 130-nanometer process technology. In addition, in November 2003, we launched the Intel® Pentium® 4 processor Extreme Edition with HT Technology at 3.2 GHz, targeted at high-end PC game enthusiasts and power users. This processor comes with an additional 2 MB of L3 cache. In February 2004, we introduced a version of this processor running at 3.4 GHz. The Intel Celeron processor is designed to meet the core computing needs and affordability requirements of value-conscious PC users. During 2003, we introduced several new versions of the desktop Celeron processor running at speeds ranging from 2.3 GHz to 2.8 GHz. These processors have 128 KB of cache and are used in conjunction with chipsets that support the 400-MHz system bus. Mobile Platform. We design our mobile platform products with high performance and/or features that enable wireless connectivity, low power consumption and a variety of form factors, including thin, lightweight systems. We offer mobile processors at a variety of price/performance points, allowing our OEM customers to meet the demands of a wide range of notebook PC designs. These notebook designs include transportable notebooks, which provide desktop-like features such as high performance, full-size keyboards, larger screens and multiple drives; thin-and-light models, including those optimized for wireless networking; and ultraportable designs. Within the ultra-portable design category, we provide specialized low-voltage processors, which consume as little as one watt of power on average, and Ultra Low Voltage processors, which consume as little as half a watt of power on average. Lowvoltage processors are targeted for the mini-notebook market segment, while Ultra Low Voltage processors are targeted for the subnotebook and tablet market segments of mobile PCs weighing less than three pounds and measuring one inch or less in height. In 2003, we introduced more than 30 new mobile processors, providing solutions across a wide range of market segments. We introduced several Intel Pentium M processors at speeds ranging from 1.3 GHz to 1.7 GHz, as well as low-voltage Pentium M processors at 1.1 GHz and 1.2 GHz, and Ultra Low Voltage versions at 900 MHz and 1.0 GHz. The Intel Pentium M processor is 3

optimized for power management and improved performance, with advanced design features to enable extended battery life and to effectively manage the thermal requirements necessary for smaller form factors. In 2003, there were more than 145 mobile computer system designs based on the Intel Pentium M processor. In addition, in the first half of 2003, we introduced several versions of the Mobile Intel Pentium 4 Processor-M running at speeds ranging from 2.4 GHz to 2.6 GHz. We also introduced several Mobile Intel Pentium 4 processors running at speeds ranging from 2.4 GHz to 3.2 GHz; some of these versions also included HT Technology. Also in 2003, we introduced two new Ultra Low Voltage versions of our Mobile Intel® Pentium® III Processor-M, running at 900 MHz and 933 MHz, for use in mini-notebooks and sub-notebooks. For the value mobile PC market segment, we introduced mobile Celeron processors at speeds ranging from 1.26 GHz to 2.5 GHz, as well as a low-voltage version at 866 MHz, and an Ultra Low Voltage mobile Celeron processor at 800 MHz. In January 2004, we introduced two standard-voltage versions of the Intel® Celeron® M processor for mobile PCs at speeds of 1.3 GHz and 1.2 GHz as well as an ultra-low voltage version at 800 MHz. These three versions feature a 400-MHz processor system bus and 512 KB of L2 cache, and support advanced mobile power management. In 2003, we focused significant effort on helping to advance the wireless mobile computing environment. In March 2003, we introduced Intel Centrino mobile technology, our first computing technology designed and optimized specifically for performance mobility. Intel Centrino mobile technology consists of an Intel® Pentium® M processor and the Intel® 855 chipset family, both offered by the Mobile Platforms Group within the Intel Architecture business, as well as a wireless network connection, which is based on the 802.11 industry standard, from ICG. The 802.11 communication standard refers to a family of specifications developed for wireless LAN (WLAN, or “WiFi”) technology. These specifications describe the speed and frequency of the over-the-air interface between a wireless client and a base station or between two wireless clients. By supporting the 802.11 WLAN industry standard, Intel Centrino mobile technology enables users to take advantage of wireless capabilities at work and at home, as well as at thousands of wireless “hotspots” already installed around the world. Hotspots provide paid or free WLAN service in cafes, hotels, restaurants, retail shops, airports, trains and other public meeting areas. We have also created a Wireless Verification Program to test Intel Centrino mobile technology with leading hotspot vendor solutions to increase the probability of a consistent wireless connectivity experience worldwide. At year-end, in conjunction with wireless network providers, we had verified more than 25,000 hotspots. Enterprise Platform. The Intel Architecture business also supports the enterprise platform by offering products that address various levels of data processing and compute-intensive applications. Our Intel Xeon processor family of products supports a range of entry-level to high-end technical and commercial computing applications for the workstation and server market segments. Our Intel Itanium processor family of products provides an even higher level of computing performance to support data processing, handling high transaction volumes and other compute-intensive applications for enterprise-class servers, as well as supercomputing solutions. The Intel Xeon processor for dual-processing (DP) servers with HT Technology is designed for two-way servers. For servers based on four or more processors, we offer the Intel Xeon processor for multiprocessing (MP) servers with HT Technology. For the enterpriseclass market segment, we offer the Intel® Itanium® 2 processor. In March 2003, we introduced the Intel Xeon processor DP at speeds of up to 3 GHz, with a 512 KB L2 cache and system buses running at up to 533 MHz. Servers based on Intel Xeon processors are typically used as general-purpose servers for web hosting, data caching, search engines, security and streaming media, and as workstations for digital content creation, mechanical and electrical design, financial analysis and 3D modeling. In July 2003, we introduced versions of our Intel Xeon processor DP with 1 MB of L3 cache running at 3 GHz, and in October 2003, we introduced a version running at 3.2 GHz. In June 2003, we introduced the Intel Xeon processor MP with up to 2 MB of integrated L3 cache, running at speeds of up to 2.8 GHz, designed for mid-tier and back-end servers based on four or more processors. In June 2003, we also introduced the new Itanium 2 processor, an enterprise-class processor designed for the most data-intensive, business-critical and technical computing applications. This processor runs at speeds of up to 1.5 GHz with up to 6 MB of integrated L3 cache. The new Itanium 2 processor delivers 30% to 50% greater performance than the previous Itanium 2 processor, while maintaining system and software compatibility with other Itanium processors. In September 2003, we introduced an Itanium 2 processor for DP systems running at 1.4 GHz with 1.5 MB of L3 cache. This processor broadens our Itanium processor family line of products by providing new levels of price/performance to manage data processing and technical computing needs for lower end dual processing enterprise and high-performance computing systems. In addition, in the third quarter of 2003, we introduced the Low Voltage Intel Itanium 2 processor running at 1.0 GHz with 1.5 MB of L3 cache. This processor consumes approximately half the power of high-end Itanium 2 processors and provides a lower power platform for the entry-level market segment. 4

Chipsets If the microprocessor is considered the “brains” of the PC, the chipset operates as the PC’s “nervous system”—sending data from the processor to 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 processors. Finally, chipsets control the access between the CPU and main memory. Our chipsets are compatible with a variety of industry-accepted bus specifications, such as the Peripheral Components Interconnect (PCI) local bus specification and the Accelerated Graphics Port (AGP) specification. Our customers want memory architecture alternatives, and as a result, we currently offer chipsets supporting Double Data Rate (DDR) Dynamic Random Access Memory (DRAM), Synchronous DRAM (SDRAM) and Rambus* DRAM (RDRAM). To help computer makers reduce the time-to-market for their products, provide new capabilities and enable overall system performance to scale as processor performance increases, we design, manufacture and sell chipsets for various computing market segments. With our chipset products, we also offer motherboards that use those chipsets, thereby offering a more complete solution stack for customers looking for Intel-based solutions. In April 2003, along with the introduction of the Intel Pentium 4 processor with HT Technology, we introduced a supporting chipset, the Intel® 875P chipset. This chipset offers two significant platform innovations: Intel® Performance Acceleration Technology (PAT) and Communications Streaming Architecture (CSA). PAT increases the speed of data transmission between the processor and system memory in order to increase performance, while CSA, in conjunction with the Intel® PRO/1000 CT desktop connection Gigabit Ethernet controller, doubles the networking bandwidth of the system. In May 2003, we introduced the Intel® 865G and 865PE chipsets. Supporting HT Technology and our 800-MHz system bus, as well as dual-channel DDR memory and enhanced graphics, these chipsets are designed to deliver improved performance for corporate and mainstream desktop computer users. We also introduced the Intel® 865P and 865GV chipsets to support processors with our 400MHz and 533-MHz system buses. In March 2003, we introduced the Intel® 855 family of chipsets with two new chipsets developed specifically for the mobile market segment. The Intel® 855PM chipset supports discrete graphics (a non-integrated graphics solution within a chipset) and a lowpower graphics power management mode; the Intel® 855GM chipset provides integrated Intel® Extreme Graphics 2 technology for improved 3D graphics. In June 2003, we introduced the Intel® 852PM and Intel® 852GME chipsets, which, when combined with the Mobile Intel Pentium 4 Processor-M, deliver the advantages of being able to accommodate DDR memory running at 333/266 MHz at up to 2 GB capacity as well as providing support for 533-MHz system buses. The 852GME chipset adds Intel Extreme Graphics 2 technology. In September 2003, we added the Intel® 855GME chipset, which offers new power-saving features and, when used in combination with DDR running at 333 MHz, delivers enhanced graphics and memory performance for notebook PCs based on Intel Centrino mobile technology. Board-Level Products We offer board-level products designed for our microprocessors and chipsets to give our OEM customers flexibility by enabling them to choose whether to buy at the component or board level. OEMs purchase products from us at the board level to help reduce their time-to-market. Intel Communications Group ICG provides silicon and integrated networking and communications building blocks for OEMs and other systems builders. Our products include wired Ethernet products; wireless connectivity products; and communication infrastructure components, such as programmable network and embedded processors and optical components. Embedded processing components from ICG are also used in products such as industrial automation equipment, point-of-sale systems and other applications. Finally, ICG also provides microcontrollers primarily used in automotive systems. Net revenue for ICG made up approximately 7% of our consolidated net revenue for 2003. Wired Ethernet Products Ethernet is an industry-standard technology used to translate and transmit data in packets across networks. As Ethernet expands from the traditional local area network (LAN) environment into the WLAN, metropolitan area network (MAN) and networked storage market segments, we are expanding our Ethernet product portfolio to address these other market segments. For the MAN market 5

segment, we offer Ethernet products at multiple levels of integration to provide a low-cost solution with increased speed and signal transmission distance (commonly referred to as “reach”). In networked storage, we are developing products that are intended to enable storage resources to be added at any location on an Ethernet network. Our LAN strategy is to maintain leadership in client Ethernet connections as the market segment continues to transition from Fast Ethernet to Gigabit Ethernet in desktop computing and to 10-Gigabit Ethernet in enterprise data servers. Gigabit Ethernet networks allow the transmission of 1 billion individual bits of information per second; 10-Gigabit Ethernet networks transmit 10 billion bits of information per second. By contrast, Fast Ethernet networks transmit 100 million bits of information per second (Mbps, or megabits per second). In March 2003, we introduced the first 10-Gigabit Ethernet network interface card for servers, the Intel® PRO/10GbE LR server adapter, as well as a new Gigabit Ethernet controller, the Intel® PRO/1000 CT desktop connection. The Intel PRO/1000 works in tandem with the Intel 875P chipset and Intel’s Communications Streaming Architecture (CSA) to increase the available networking bandwidth (compared to PCI bus-based solutions). In October 2003, we introduced a new series of products designed to help eliminate server input/output (I/O) bottlenecks and meet the high-bandwidth needs of emerging storage, networking and telecommunications applications. The new products include the Intel® IOP331 I/O processor, based on Intel XScale® technology; the Intel® IOP315 I/O processor chipset, with support for storagearea network and network-attached storage applications; and the Intel® 41210 serial-to-parallel PCI bridge, which is designed to simplify the transition from PCI to the new PCI Express interconnect technology. Wireless Connectivity Products Our strategy in wireless connectivity is to significantly accelerate deployment of WLAN capability by developing WLAN products and fostering the adoption of integrated WLAN into the mobile and notebook computer segments. In 2003, we introduced the Intel® PRO/Wireless 2100 and Intel® PRO/Wireless 2100A network connections for notebook computers based on Intel Centrino mobile technology. The Intel PRO/Wireless 2100 network connection features 802.11b wireless functionality, and the Intel PRO/ Wireless 2100A features both 801.11a and 802.11b capability. Compared to products based on 802.11b, products based on the 802.11a specification can provide a faster exchange of data between computing devices and networks. In January 2004, we introduced the Intel® PRO/Wireless 2200BG network connection, featuring both 802.11b and 802.11g wireless functionality for notebook PCs based on Intel Centrino mobile technology. The 802.11b and 802.11g specifications use the same 2.4-GHz band, but the 802.11g specification has a faster transmission speed. The Intel PRO/Wireless 2200BG solution allows a data transfer rate of 54 Mbps and is designed to maintain a high throughput at longer ranges in office or home environments, along with efficient use of power to enable longer system battery life. We plan to have an 802.11a/b/g wireless networking component in production in 2004. Communications Infrastructure Products Our communications infrastructure components include products such as network and embedded processors, which provide programmable building blocks for modular communications platforms, and optical components. Unlike proprietary system platforms, modular communication platforms are standards-based solutions that offer network infrastructure builders flexible, low-cost, faster time-to-market options for designing their networks. Our strategy in network processing is to develop an industry-leading product roadmap, support efforts to develop modular communications standards and enable activities to accelerate silicon deployment. Our network processor products are based on the Intel® Internet Exchange Architecture (Intel® IXA) and include a range of advanced, programmable devices that are used in networking equipment to rapidly manage and direct data moving across the Internet and corporate networks. At the core of Intel IXA is the Intel XScale microarchitecture, which offers low power consumption and highperformance processing for a wide range of Internet devices. In February 2003, we introduced three network processors for home and small-business networking equipment: the Intel® IXP420, IXP421 and IXP422 network processors. These processors are designed to provide equipment makers with a wide range of WAN and LAN interfaces for a variety of applications. The Linksys Group, Inc., a division of Cisco Systems, Inc. and a developer of wireless devices for business and hotspot environments, announced that it is using one of these processors in a new generation of 802.11 wireless access points for small to mid-size businesses. Our embedded processing components are used for high-performance applications and control processing for modular communications and networked storage equipment. These processing components are also used in industrial automation equipment, 6

point-of-sale systems and monitoring equipment, as well as other applications. Our product families include the Celeron and Intel® Pentium® III processors, as well as the Mobile Intel Pentium 4 Processor-M and the Intel Pentium 4 processor. We also offer Intel Xeon processors with HT Technology, providing increased performance for wireless infrastructure equipment. In April 2003, we added the Intel Pentium M processor for embedded communications applications, which brings higher performance and better power management to ultra-dense modular communications equipment. It is used to manage network processors, line cards and other components in equipment such as radio network controllers and media gateway controllers. In June 2003, we announced that we will support Advanced Switching, a standards-based extension of the PCI Express technology designed for the computing industry. Advanced Switching builds on the PCI Express technology to provide advanced communications features for interconnecting components and system boards in communications, storage and embedded applications. Having a widely accepted modular specification for interconnect technology is expected to lower development costs, increase reusability of technology and reduce time-to-market of new products. In September 2003, we demonstrated our first chips based on PCI Express technology and detailed our plans for integrating the next-generation interconnect of this technology into forthcoming computing and communications products in 2004. In October 2003, we announced a new suite of Intel® NetStructure™ communications building blocks based on the Advanced Telecom Computing Architecture (an architecture for building standards-based wireless base station equipment) and featuring Intel microprocessors and network processors. The new products are designed to deliver high performance and high availability in carriergrade wireless and wired telecommunications infrastructure applications. In March 2003, we introduced the Intel® TXN18107 10-Gpbs XFP Transceiver, an optical transceiver that operates at multiple data rates, enabling equipment manufacturers to qualify a single part for multiple applications. Microcontrollers Intel® Our microcontrollers are primarily used in automotive systems. Product families include the Intel® 186, Intel386™, Intel486™ and i960® processors; and 8-bit and 16-bit microcontrollers.

Wireless Communications and Computing Group WCCG provides component-level building blocks for digital cellular communications and other applications requiring both lowpower processing and high performance. For the handheld platform, including cellular phones and personal digital assistants (PDAs), our current products include flash memory, application and cellular processors based on the Intel XScale microarchitecture, and cellular baseband chipsets. In addition, our Intel® Personal Internet Client Architecture (Intel® PCA) outlines an architecture for communications, application and memory subsystems for data-enabled mobile phones, and portable handheld devices. Growth in the market segment for handheld computing and communications devices is dependent upon the increased use of devices with more dataintensive applications and additional capabilities. Net revenue for WCCG made up approximately 6% of our consolidated net revenue for 2003. Flash Memory 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. Flash memory is based on either NOR or NAND architectures. Our flash memory is based on the NOR architecture. NOR flash memory, with its fast “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 traditionally been used in products that either required large storage capacity or fast write applications, such as MP3 music players, memory cards and digital cameras. Although our NOR flash memory is currently used predominantly in mobile phones and PDAs, it is also found in other consumer products, including set-top boxes and MP3 players. In April 2003, we introduced the Intel® Ultra-Thin Stacked Chip-Scale Packaging, featuring 1.8-volt Intel StrataFlash® wireless memory. This product allows up to five ultra-thin memory chips to be stacked in one package, delivering greater memory capacity and lower power consumption in a smaller package. With heights as low as 1.0mm, this new package allows manufacturers to increase memory density and provide features such as camera capabilities, games and e-mail in relatively thin cell phones. Intel StrataFlash wireless memory technology allows 2 bits of data to be stored in each memory cell, for higher storage capacity and lower cost. 7

In October 2003, we introduced the Intel StrataFlash® Wireless Memory System, a memory system designed for next-generation handsets that require memory storage for large embedded data applications such as camera images and audio and video files. The system contains code execution, data storage and RAM working space memory in one small package and operates at 1.8 volts to support longer battery life. Application Processors for Handheld Computing Devices We are working toward the convergence of computing and communications in the mobile handheld computing market segment by developing technology that combines baseband communications features with memory and applications processing functionality. In March 2003, we introduced “system-in-a-package” technology in the form of three new processors: the Intel® PXA263, Intel® PXA260 and Intel® PXA255 microprocessors. These processors, which are designed for PDAs and are based on Intel PCA, stack an Intel XScale technology-based processor directly on top of Intel StrataFlash memory chips in a single package. With stack packaging, manufacturers of these handheld devices can decrease the size of the form factor, as well as help reduce their time-to-market. In September 2003, we announced key details about our next-generation of Intel XScale technology-based processors to be used in cell phones, PDAs and other wireless devices. We plan to incorporate additional features in these processors that are intended to help wireless devices capture higher quality pictures, extend battery life and deliver fast multimedia performance. These features will include Intel® Quick Capture technology, an interface that allows a digital camera to connect to a cell phone or PDA; Intel® Wireless MMX™ technology, which is designed to speed multimedia performance; and Wireless Intel SpeedStep® technology, which dynamically adjusts the power and performance of the processor based on CPU demand, often resulting in lower power consumption for wireless handheld devices. Cellular Processors Addressing the trend toward the convergence of computing and communications, in February 2003 we introduced the first cellular processor using advanced “wireless-Internet-on-a-chip” technology: the Intel® PXA800F cellular processor. It is the industry’s first product that integrates computing, communications and memory functions on one chip. Built on our 130-nanometer silicon manufacturing technology, the chip combines a high-performance, low-power processor running at 312 MHz based on the Intel XScale technology with 4 MB of integrated on-chip flash memory and 512 KB of SRAM. It also includes a 104-MHz digital signal processor with additional memory, resulting in a complete system on a single chip for GSM (Global System for Mobile Communications)/GPRS (General Packet Radio Service) cellular networked devices. Although the timing of availability for this cellular processor was later than we had initially planned, we continue to work with our customers to help them launch products incorporating this processor. Cellular Baseband Chipsets We offer baseband chipsets for multi-mode, multi-band wireless handsets. Our chipsets support multiple wireless standards and deliver enhanced voice quality and high integration capability, with reduced power consumption and costs. We offer the Intel® D5205 TDMA (Time Division Multiple Access) Baseband Chipset, a compact two-chip solution, and the Intel® 5206 TDMA Baseband Chip, a compact single-chip solution, both for dual-mode cellular and Personal Communication Services (PCS) band applications. We also offer the Intel® D5314 PDCharm2 Single-Chip Baseband, a compact single-chip solution for dual-rate (full- and half-rate) baseband processing for personal digital cellular handheld phones. Manufacturing, Assembly and Test As of year-end 2003, more than 75% of our wafer manufacturing, including microprocessor, chipset, flash memory and networking silicon fabrication, was conducted within the U.S. at our facilities in Oregon, Arizona, New Mexico, Massachusetts, California and Colorado. Outside the U.S., almost 25% of our wafer manufacturing, also including wafer fabrication for microprocessors, chipsets, flash memory and networking silicon, was conducted at our facilities in Israel and Ireland. Currently, our facilities in Israel manufacture primarily chipsets. In 2003, we continued to transition our manufacturing facilities from 200mm (8-inch) wafers to 300mm (12-inch) wafers. The conversion to 300mm wafers allows for more efficient use of our capital investment in equipment by providing more than twice as many equivalent chips per wafer as 200mm wafers. Two of our facilities, in Oregon and New Mexico, currently manufacture products using 300mm wafers. We expect to have three 300mm wafer fabrication facilities by the end of 2004, with the third facility under construction in Ireland. We also announced plans for two additional facilities, in Oregon and Arizona, to start production using 300mm wafers after 2004. However, as of year-end 2003, a substantial majority of our microprocessors and chipsets were manufactured on 200mm wafers in Arizona, Oregon, Israel, Massachusetts, Ireland, New Mexico and California. 8

We also began manufacturing microprocessors on our most advanced 90-nanometer (a nanometer is one billionth of a meter) process technology, the next generation beyond our 130-nanometer (0.13-micron) process technology. The 90-nanometer process technology is our most advanced high-volume production process featuring structures smaller than the size of a virus, the smallest microorganism. As we move to each succeeding generation of manufacturing process technology, we utilize less space per transistor, which enables us to put more transistors on an equivalent size chip, decrease the size of the chip or offer an increased number of integrated features, which can result in faster microprocessors, products that consume less power and/or products that cost less to manufacture. As of year-end 2003, the majority of our microprocessors and chipsets were manufactured using our 130-nanometer process technology. We manufacture flash memory using our 130-nanometer process technology primarily in New Mexico, and also in Ireland and California. We also manufacture flash memory in Colorado using our 180-nanometer (0.18-micron) technology. We manufacture microprocessor- and networking-related board-level products, primarily in Malaysia and California. We also use subcontractors to manufacture some board-level products and systems, and purchase certain communications networking products from external vendors, primarily in the Asia-Pacific region. We perform a substantial majority of our components assembly and test at facilities in Malaysia, the Philippines, Costa Rica and China. In the third quarter of 2003, we announced plans to begin construction on an additional assembly and test facility in Chengdu, China. We plan to continue to invest in new assembly and test technologies and facilities to keep pace with our microprocessor, chipset and flash technology improvements. To augment capacity in the U.S. as well as internationally, we use subcontractors to perform assembly of certain products, primarily flash memory, chipsets, and networking and communications products, as well as third-party manufacturing services (foundries) to manufacture wafers for certain components, including networking and communications products. Our performance expectations for business integrity; ethics; environmental, health and safety compliance; and employment practices are the same regardless of whether our supplier and subcontractor operations are based in the U.S. or elsewhere. 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 also typically have multiple factories at various sites around the world producing our products. However, some products are produced in only one factory, and again we seek, through other actions and plans, to reduce the exposure that would result from a disruption at that factory. Manufacturing of integrated circuits is a complex process. Normal manufacturing risks include errors and interruptions in the production process, defects in raw materials and disruptions at suppliers, as well as other risks, all of which can affect the timing of the manufacturing ramp and yields. A substantial decrease in yields would result in higher manufacturing costs and the possibility of not being able to produce sufficient volume to meet specific product demand. We operate globally, with sales offices and research and development activities, as well as manufacturing and assembly and test facilities, in many countries, so we are subject to risks and factors associated with doing business outside the U.S. Global operations involve inherent risks that include currency controls and fluctuations, tariff and import regulations, and regulatory requirements that may limit our or our customers’ ability to manufacture, assemble and test, design, develop or sell products in particular countries. As part of our site-selection due diligence processes, we employ assessments of several criteria, which include the property’s physical characteristics or constructability, local utility infrastructure, transportation capability, availability of technical workforce, construction and supplier capabilities, permitting requirements and investment conditions. Employment practices and labor rights issues are incorporated in the diligence. Evaluations also include ratings for security concerns, which include corruption, terrorism, crime and political instability. Security concerns alone are sufficient to remove projects from consideration. Regardless of these efforts, if terrorist activity, armed conflict, civil or military unrest, or political instability occurs in the U.S., Israel or other locations, such events may disrupt production, logistics, security and communications, and could also result in reduced demand for Intel’s products. The impact of major health concerns, or of large-scale outages or interruptions of service from utility or other infrastructure providers, on Intel, its suppliers, customers or other third parties could also adversely affect our business and impact customer order patterns. We could also be affected if labor issues disrupt our transportation arrangements or those of our customers or suppliers. On a worldwide basis, we regularly review our key infrastructure, systems, services and suppliers both internally and externally, to seek to identify significant vulnerabilities as well as areas of potential business impact if a disruptive event were to occur. Once they are identified, we assess the risks, and as we consider them to be appropriate, we initiate actions intended to reduce the risks and their potential impact. However, there can be no assurance that we have identified all significant risks or that we can mitigate all identified risks with reasonable effort. 9

We maintain a program of insurance coverage for various types of property, casualty and other risks. We place our insurance coverage with various carriers in numerous jurisdictions. The policies are subject to deductibles and exclusions that result in our retention of a level of risk on a self-insurance basis. The types and amounts of insurance obtained vary from time to time and from location to location depending on availability, cost and our decisions with respect to risk retention. Our worldwide risk and insurance programs are continually evaluated to seek to obtain the most favorable terms and conditions. For information regarding environmental matters and proceedings related to certain facilities, refer to the headings “Compliance with Environmental, Health and Safety Regulations” below in this Item and “Legal Proceedings” in Part I, Item 3 of this Form 10-K. Employees As of December 27, 2003, we employed approximately 79,700 people worldwide, with approximately 60% of these employees located in the U.S. Sales and Marketing In 2003, we conducted business with more than 2,000 direct customers worldwide. Most of our products are sold or licensed through sales offices located near major concentrations of users, primarily throughout the Americas, Europe, Asia-Pacific and Japan. Sales agreements typically contain standard terms and conditions covering matters such as pricing, payment terms and warranties, as well as indemnities for issues specific to our products, such as patent and copyright indemnities. From time to time we may enter into additional agreements with customers covering, for example, changes from our standard terms and conditions, new product development and marketing, private-label branding and other matters. Sales of particular products are generally conducted with purchase orders issued under the sales agreements. Most of Intel’s sales are made using electronic and web-based processes that allow the customer to review inventory availability and to track the progress of specific goods under order. Pricing on particular products may vary based on volumes ordered and other factors. We sell our products worldwide directly to original equipment manufacturers (OEMs) and original design manufacturers (ODMs). ODMs provide design and/or manufacturing services to branded and unbranded private-label resellers. We also sell our products to industrial and retail distributors. Dell Inc. contributed approximately 19% to our total sales, and Hewlett-Packard Company contributed approximately 15% to our total sales, in 2003. A substantial majority of the sales to these customers consisted of Intel Architecture business products. No other customer accounted for more than 10% of our total revenue. For the information regarding revenue and operating profit by reportable segments and revenue from unaffiliated customers by geographic region/country, see “Note 22: Operating Segment and Geographic Information” in Part II, Item 8 of this Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10-K. Typically, distributors handle a wide variety of products, including those that compete with our products, and fill orders for many customers. Most of our sales to distributors are made under agreements allowing for price protection on unsold merchandise and a right of return on stipulated quantities of unsold merchandise. We also utilize third-party sales representatives who generally do not offer directly competitive products but may carry complementary items manufactured by others. Sales representatives do not maintain a product inventory; instead, their customers place orders directly with us or through distributors. Our worldwide reseller sales channel consists of thousands of indirect customers that are systems builders who purchase Intel microprocessors and other products from our distributors. These systems builders receive various levels of technical and marketing services and support directly from Intel. We have a “boxed processor program” that allows distributors to sell Intel microprocessors in small quantities to these systems-builder customers; boxed processors are also made available in direct retail outlets. Since 1994, our worldwide reseller sales channel has grown substantially and has become increasingly important to our business. Our global marketing strategy is designed to associate our brands with advanced technology and innovation. Under the Intel® brand umbrella, the Intel Inside® brand is intended to represent technology leadership, quality and reliability. At the product level, the Itanium, Intel Xeon, Pentium, Celeron and Intel Centrino brands are part of the Intel Inside brand family. We promote brand awareness and generate demand through our direct marketing and co-marketing programs. Our direct marketing activities include television, print and web-based advertising as well as press relations, consumer and trade events, and industry and consumer communications. In 2003, the primary focus of our direct marketing activities was the Intel Centrino mobile technology launch, with the Intel Pentium 4 processor with HT Technology and other product-level brands receiving targeted support. 10

Purchases by customers often allow them to participate in cooperative advertising and marketing programs such as the Intel Inside Program. Through the Intel Inside Program, OEMs are licensed to place the Intel Inside logos on computers with our microprocessors and our other technology and use the brands in advertisements. The program includes a market development component that accrues funds based on purchases and partially reimburses the OEMs for advertisements for products featuring the Intel Inside brand. This program broadens brand reach beyond the scope of our direct advertising. Additionally, our reseller sales channel marketing programs are intended to extend the Intel Inside brand reach to channel customers and the businesses and individuals that purchase computer systems from them. In 2003, we initiated a program to extend the awareness of our brand outside of the OEM and system integrator community. As part of the Intel Centrino mobile technology launch, new co-marketing programs were initiated with wireless service providers and at public wireless access point locations. New comarketing activities with independent system vendors are also under way. Our products are typically shipped under terms that transfer title to the customer, even in arrangements for which the customer may have a right to return or to exchange the products and the recognition of revenue on the sale is deferred. The sales agreements typically provide that payment is due at a later date, such as 30 days after shipment, delivery or the customer’s use of the product. Our credit department sets accounts receivable and shipping limits for individual customers, for the purpose of controlling credit risk to Intel arising from outstanding account balances. We assess credit risk through quantitative and qualitative analysis, and from this analysis, we establish credit limits and determine whether we will seek to use one or more credit support devices, such as obtaining some form of third-party guaranty or standby letter of credit, or obtaining credit insurance for all or a portion of the account balance. Credit losses may still be incurred due to bankruptcy, fraud or other failure of the customer to pay. See “Schedule II—Valuation and Qualifying Accounts” on page 90 of this Form 10-K for information about our allowance for doubtful receivables. Backlog We do not believe that a backlog as of any particular date is indicative of future results. Our sales are made primarily pursuant to standard purchase orders for delivery of standard products. We have some agreements that give a customer the right to purchase a specific number of products during a specified time period. Although these agreements do not generally obligate the customer to purchase any particular number of such products, some of these agreements do contain billback clauses. Under these clauses, customers who do not purchase the full volume agreed upon are liable for billback on previous shipments up to the price appropriate for the quantity actually purchased. As a matter of industry practice, billback clauses are difficult to enforce. The quantity actually purchased by the customer, as well as the shipment schedules, are frequently revised during the agreement term to reflect changes in the customer’s needs. In light of industry practice and our experience, we do not believe that such agreements are meaningful for determining backlog amounts. We believe that only a small portion of our order backlog is non-cancelable and that the dollar amount associated with the non-cancelable portion is not significant. Competition 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 and financial resources, as well as our global presence and brand recognition. Also, under our Intel Capital program we make equity investments in companies around the world to further our strategic objectives and support our key business initiatives. Our products compete, to various degrees, on the basis of performance, quality, features that enhance user experience, brand recognition, price and availability. Our ability to compete also depends upon our ability to provide worldwide support for our customers. Rapid technological advances characterize the computing and communications industries, and 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 to meet changing requirements, while reducing our costs at the same time. Our products compete with products developed for similar or rival architectures and with products based on the same or rival technology standards. Our competitors also routinely add features to their products, seek to increase the performance of their products and/or sell their products at lower prices over time. We cannot predict whether our products will continue to compete successfully with existing rival architectures and/or whether new architectures will establish or gain broad acceptance or increase competition with our products. We also cannot predict which competing technology standards will become the prevailing standards in the market segments in which we compete. In the semiconductor industry, as unit volumes grow, production experience is accumulated and costs decrease, further competition develops, and as a result, prices decline rapidly. The life cycle of our products is very short, sometimes less than a year. Many companies compete with us in the various computing, networking and communications market segments, and are engaged in the same basic fields of activity, including research and development. Worldwide, these competitors range in size from large established 11

multinational companies with multiple product lines to smaller companies and new entrants to the marketplace that compete in specialized market segments. In some cases, our competitors are also our customers and/or suppliers. Some competitors have integrated operations, including their own manufacturing facilities, while other competitors perform certain functions themselves and outsource design, manufacturing and/or other functions. Competitors who outsource their manufacturing can significantly reduce their capital expenditures. With the trend toward convergence in computing and communications products, product offerings will likely cross over into multiple categories, offering us new opportunities, but also resulting in more businesses that compete with us. Competition tends to increase pricing pressure on our products, which may mean that we must offer our products at lower prices than we had anticipated, resulting in lower profits. In markets where our competitors have established products and brand recognition, it may be inherently difficult for us to compete against them. When we believe it is appropriate, we will take various steps, including introducing new products, discontinuing older products, reducing prices, and offering rebates and other incentives in order to increase acceptance of our latest products and to be competitive within each relevant market segment. Most of our products, including all of our Intel architecture microprocessors and chipsets, are built in our own manufacturing facilities, although a substantial portion of ICG’s manufacturing is performed by third-party manufacturers. We believe that our network of manufacturing facilities and assembly/test facilities gives us a competitive advantage. This network enables us to have more direct control over our processes, quality control, product cost, volume and timing of production and other factors. These types of facilities are very expensive, and many of our competitors do not own such facilities because they cannot afford to do so or because their business models involve the use of third-party facilities for manufacturing and assembly/test. These “fabless semiconductor companies” include Broadcom Corporation, NVIDIA Corporation, QUALCOMM Incorporated, and VIA Technologies, Inc. Some of our competitors own portions of such facilities through investment or joint-venture arrangements with other companies. There is a group of third-party manufacturing and assembly/test companies (foundries) that offer their services to companies without owned facilities or companies needing additional capacity. These foundries may also offer intellectual property, design services, and other goods and services to our competitors. Many of our competitors are licensed to use our patents, and we are licensed to use their patents, through various cross-licensing agreements. Some competitors have broad licenses with us, and under current case law, such licenses permit these competitors to pass our patent rights on to others. If one of these licensees becomes a foundry, our competitors might be able to avoid our patent rights in manufacturing competing products. We plan to continue to cultivate new businesses and work with the computing, communications and consumer electronics industries through standards bodies, trade associations, OEMs, ODMs, and independent software and operating system vendors, to align the industry to offer products that take advantage of the latest market trends and usage models. These efforts include helping to create the infrastructure for wireless network connectivity. We are also working with the industry to develop software applications and operating systems that take advantage of our microprocessors, chipsets and other next-generation semiconductor devices with higher performance or advanced features, including advanced technology capabilities integrated at the silicon level. We frequently participate in industry initiatives designed to discuss and agree upon technical specifications and other aspects of technologies that could be adopted as standards by standards-setting organizations. Our competitors may also participate in the same initiatives, and our participation does not ensure that any standards or specifications adopted by these organizations will be consistent with our product planning. Participation in such initiatives may require us to license our patents to other companies that adopt the standards or specifications, even when such organizations do not adopt standards or specifications proposed by Intel. Any Intel patents implicated by our participation in such initiatives might not be available for us to enforce against others who might be infringing those patents. We compete globally in all of the market segments in which we offer products. We cannot be assured that the patents and licenses on our products will be honored in all regions. As various geographies become more significant to our business, we cannot be sure of the scope of intellectual property rights that will be granted to us or to third parties with whom we do not have licenses. Thus, we have no assurance about the scope of rights that we can enforce against others in various geographies where our business is growing or the rights that they can assert against us. In addition, in certain regions, governments may adopt regulations or courts may render decisions requiring compulsory licensing of intellectual property to others, or requiring that products meet specified standards that serve to favor local companies, negatively impacting Intel’s ability to achieve an economic return for its innovation and investment.

12

Intel Architecture Business For the desktop platform, our strategy is to introduce microprocessors and chipsets with higher performance and/or advanced technology features, tailored to the needs of different market segments using a tiered branding approach. For the mobile platform, our strategy is to deliver products optimized for some or all of the four mobility vectors: performance, battery life, form factor and wireless connectivity. For the enterprise platform, our strategy is to provide processors and chipsets with high performance and/or advanced technology features, as well as competitive price for performance for entry-level to high-end servers and workstations. Our financial results are substantially dependent on microprocessor sales by the Intel Architecture operating segment. Many of our competitors (including Advanced Micro Devices, Inc. (AMD), our primary microprocessor competitor) market softwarecompatible products that are intended to compete with Intel architecture-based processors. We also face competition from companies offering rival microprocessor designs, such as International Business Machines Corporation (IBM), which supplies microprocessors to Apple Computer, Inc. AMD has introduced microprocessor product offerings for the desktop and server market segments that are based on 32-bit architecture with 64-bit memory address extensions. Microprocessors with 64-bit addressing capability can address significantly more memory than 32-bit microprocessors. We currently have desktop and server microprocessor product offerings based on our IA-32 architecture, and we offer the Intel Itanium processor family, based on 64-bit architecture, for enterprise-class servers and supercomputing solutions. We believe that the features of the Itanium architecture, including high-end performance, scalability, 64-bit addressing and reliability, provide capabilities that users in this market segment require. We plan to introduce Intel Xeon processors based on the IA-32 architecture with 64-bit extension technology for workstations and servers in mid-2004. We continuously evaluate all of our product offerings and the timing of their introduction, taking into account factors such as customer requirements, availability of infrastructure to take advantage of product features and maturity of applications software for each type of processor in the relevant market segments. Any decision to make microprocessors with 64-bit extension technology available in the desktop or other market segments will be based on both timing of availability of the infrastructure (including an operating system geared toward consumers) required to support them and demand for these processors from our OEM customers. Competitive product offerings continue to increase in the market segments where we have product offerings. Our desktop processors compete with products offered by AMD, IBM and VIA, among others. Our mobile microprocessor products compete with products offered by AMD, IBM, Transmeta Corporation and VIA, among others. Our server processors compete with softwarecompatible products offered by AMD and with established products based on rival architectures, including those offered by HewlettPackard Company, IBM and Sun Microsystems, Inc. Our chipsets compete in the various market segments against different types of chipsets that support either our microprocessor products or rival microprocessor products. Competing chipsets are produced by companies such as ATI Technologies, Inc., Broadcom, NVIDIA, Silicon Integrated Systems Corporation (SIS) and VIA. We also compete with companies offering graphics components and other special-purpose products used in the desktop, mobile and server market segments. One aspect of our business model is to incorporate higher performance and advanced features into the microprocessor and chipset, the demand for which may increasingly be affected by competition from companies (such as NVIDIA and ATI) whose business models are based on incorporating performance and advanced features into chipsets and other components (such as graphics controllers). Intel Communications Group Within ICG, our strategy is to be the leading supplier of silicon and integrated networking and communications building blocks for OEMs and other systems builders. We are developing products that we believe will help to build out the Internet: products designed for wired and wireless connectivity, communications infrastructure and networked storage. In these areas, we face competition from both established and emerging companies. Our products currently compete against offerings from companies such as Applied Micro Circuits Corporation, Broadcom, Globespan Virata, Inc., IBM, Marvell Technology Co. Ltd. and Texas Instruments Incorporated. Intel and many of our competitors acquire alternative technologies and products from other companies in an effort to achieve leading-edge market segment positions. Certain market segments in which ICG may compete, such as networking and telecommunications products, have experienced an overall economic decline. These market conditions have resulted in increased competition for the remaining available business opportunities. We cannot predict whether our networking and communications products will continue to compete successfully with those of our existing competitors or new market entrants.

13

Wireless Communications and Computing Group Within WCCG, our current products include flash memory, application and cellular processors based on the Intel XScale microarchitecture, and cellular baseband chipsets. In our various market segments, our products currently compete with the products of other companies, such as FASL LLC (a joint venture between Fujitsu Limited and AMD), QUALCOMM, Samsung Semiconductor Inc., ST Microelectronics Group and Texas Instruments. The megabit demand of the products that make use of flash memory is increasing, and our NOR flash memory products may face increased competition from companies that manufacture NAND flash products, as OEMs may look for opportunities to use NAND flash products with additional random access memory or in combination with NOR flash memory for executable-code applications. Various digital cellular technologies are used throughout the cellular communications industry, including but not limited to GSM (Global System for Mobile Communications), GPRS (General Packet Radio Service), CDMA (Code Division Multiple Access) and WCDMA (Wideband CDMA). Our ability to compete successfully with our cellular baseband chipsets is dependent on having products available for the most prevalent or widely adopted digital cellular technology. Our current product offerings are for use in cell phones and PDAs that incorporate the GSM/GPRS cellular technologies. Our products planned for release in 2004 will be targeted for the WCDMA as well as GSM/GPRS cellular technologies. Research and Development Our continued emphasis on research and development (R&D) has enabled us to be a leader in our industry, particularly in the area of the design and manufacture of integrated circuits. Much of our R&D efforts have been centered on accelerating the convergence of computing and communications, primarily through silicon integration as well as through industry collaboration, enabling us to deliver leading-edge technologies and permitting our customers to commit to the use of these new technologies in the development and expansion of their own product offerings. Specifically, our R&D activities are directed toward developing new silicon-level products and architectures; advanced computing, communications and wireless technologies; and new manufacturing, packaging and testing processes; as well as improving existing products and lowering costs. In addition, we believe we are well positioned in the technology industry to help drive innovation, foster collaboration and promote industry standards that will yield innovative and improved technologies for end users. Our R&D model is based on a global, decentralized organization that emphasizes a collaborative approach in identifying and developing new technologies, leading standards initiatives and influencing regulatory policy to accelerate the adoption of new technologies. Our Corporate Technology Group (CTG) strives to align our R&D initiatives across our business groups to meet our long-term goals. In addition, CTG works with a decentralized worldwide network of researchers, scientists and engineers in the computing and communications fields. A decentralized network of technology professionals allows us, as well as others in our industry, to benefit from development initiatives in a variety of areas, eventually leading to innovative technologies for end users. We view technology standards as an important way to advance new technologies and foster industry infrastructures or ecosystems. We therefore work with industry, government and education sectors in various areas to help establish technology standards, ultimately incorporating many of these standards into our own product offerings. We perform a substantial majority of our design and development of semiconductor components and other products in the U.S. Outside the U.S., we have been increasing our product development activities at various locations, including Israel, Malaysia, India, China and Russia. We also maintain R&D facilities in the U.S. that are focused on developing and improving manufacturing processes, as well as facilities in the U.S., Malaysia and the Philippines that are dedicated to improvements in assembly and test processes. As devices take advantage of converged computing and communications capabilities, our goal is to continue to deliver processors with higher performance and/or advanced technology features such as HT Technology and features offered with our Intel Centrino mobile technology. During 2003, we expanded HT Technology from our server product lines to our desktop and mobile transportable product lines. We also continued R&D activities in support of Intel Centrino mobile technology. In September 2003, we announced our intention to introduce a new mobile platform, based on Intel Centrino mobile technology, in the second half of 2004. This new mobile platform is expected to incorporate a future version of the Pentium M processor and a new chipset, as well as integrate 802.11 a/b/g wireless LAN capability, enabling faster wireless communications and support for industry-standard security solutions. In addition to the multithreading or multitasking capability found in HT Technology and the enhanced mobile computing features offered with Intel Centrino mobile technology, we believe that system security, reliability and manageability features at the hardware level will provide an enhanced computing experience for end users, and we are currently working on new technologies to meet these needs. We are designing technology intended to provide future security enhancements for our processors, chipsets and platforms. This technology, when combined with optimized software, will help protect against software-based attacks on computer systems. We are also 14

designing technology intended to enable multiple, independent software environments in a single PC, improving the end-user experience by increasing system reliability, flexibility and responsiveness, as well as speeding the ability to recover from computer crashes. We believe that technology-industry product developments and the convergence of computing and communications should increase demand for our higher performance enterprise platform products. In particular, we anticipate increased demand for our products to support new developments in data traffic management, storage, and wireless computing and communications needs. In line with this belief, we continued our development initiatives around enterprise platform products, and in September 2003, we disclosed details of an upcoming Intel Xeon processor that will contain a dual core on one chip (two microprocessors on the same chip). We also plan to make the Intel Itanium 2 processor available with multiple cores. Our leadership in silicon technology has allowed us to continue to help extend “Moore’s Law” (doubling the number of transistors on a chip every couple of years), increasing performance while reducing manufacturing costs, and also to help expand Moore’s Law, bringing new capabilities into silicon and producing new products optimized for a wider variety of applications. We are currently manufacturing microprocessors using the 90-nanometer process technology. Our 90-nanometer process technology combines the use of strained silicon and copper interconnects that have integrated advanced materials (carbon-doped oxide dielectric material). By using strained silicon, electrical current is able to flow more smoothly, increasing the speed of transistors. The copper interconnects integrated with these advanced materials allow for increased signal speed and reduced power consumption. We also continue to work on incorporating communications capabilities into our 90-nanometer manufacturing process. These capabilities include the use of highspeed transistors and “mixed-signal” circuitry, aimed at producing faster, more integrated and less costly communications chips. In 2003, we announced plans to convert and build manufacturing facilities to begin development of our next-generation 65-nanometer manufacturing process. We expect to begin manufacturing products using 65-nanometer process technology in 2005. We also have R&D initiatives in other wireless, networking and communications product areas. For wireless devices, we have development projects surrounding the Intel PCA architecture. The Intel PCA architecture is our development blueprint for designing wireless handheld communications devices that combine voice communications and Internet access capabilities. Development initiatives around Intel PCA include processor design based on the Intel XScale technology, digital signal processing core development, improved packaging formats and other communications intellectual property. In the longer term, our wireless R&D efforts are anticipated to encompass a wide array of activities ranging from RF (radio frequency) circuit and adaptive radio architecture designs to global communications standards advocacy and regulatory policy reform. These efforts seek to help make wireless connectivity ubiquitous by integrating radio capability into our processors and chipsets. For networking and communications products, we have focused our development efforts on wireless technologies based on new generations of 802.11 industry standards, and these efforts have led to higher performance Ethernet connectivity products. We are working to develop silicon based on the IEEE 802.16d standard (also called WiMAX), which is a wireless broadband access technology that links WLAN/WiFi hotspots, provides broadband wireless connectivity to businesses and homes, and is expected to enable broadband wireless access as an alternative to existing “last mile” methods such as cable and digital subscriber lines (DSL). We also have development initiatives focusing on 802.11n, a next-generation WLAN technology that is expected to enable approximately three times the performance of current 802.11 solutions. Finally, our efforts in network and communications initiatives have led to higher performance network processors based on the Intel XScale technology, modular communications building blocks that reduce development costs and time for network systems developers, and standardized optical components and modules for reduced power consumption and cost. In addition, we are working to bring advanced silicon technologies to consumer electronics. We are currently developing a new technology based on a technique called Liquid Crystal on Silicon (LCOS). LCOS is used to create small chips called micro-displays that produce images that are displayed on large-screen, rear-projection televisions. Our R&D on both processes and products may involve current-generation activities as well as development of process and product roadmaps extending into the future for successive generations. Our manufacturing process work, particularly for future process technology generations, typically involves substantial experimentation, invention and evaluation relating to numerous aspects of manufacturing capability. To varying degrees, these efforts rely on the work of third parties such as university researchers and manufacturers of semiconductor factory equipment. Our process development work may involve alternative and competing technologies, and, for technological or other business reasons, not all of our efforts will result in technology that we deploy in our manufacturing operations. From time to time, we may terminate product development before completion or decide not to manufacture and sell a developed product. We do not expect that all of our product development projects will result in products that are ultimately released for sale. For a 15

variety of reasons, we may decide not to move forward with a particular product. For example, we may decide that the product might not be sufficiently competitive in the relevant market segment, or for technological or marketing reasons, we may decide to offer a different product instead. Our products often incorporate features that will only increase the product’s performance or be otherwise useful to the end user if other companies have developed operating systems, other software applications or other hardware that take advantage of these features. We continue to work with other hardware and software companies and industry groups to encourage the development of product offerings designed to take advantage of our products’ features. We continue our commitment to invest in leading-edge technology development. Our expenditures for R&D were $4,360 million in fiscal 2003, $4,034 million in fiscal 2002 and $3,796 million in fiscal 2001. Additionally, we incurred charges for purchased inprocess R&D related to acquisitions of $5 million for fiscal 2003, $20 million for fiscal 2002 and $198 million for fiscal 2001. While we held the total number of employees flat, we increased the number of our employees engaged in R&D to approximately 23,000 at December 2003 compared to approximately 21,000 at December 2002. Acquisitions and Strategic Investments The level of new acquisition and strategic investment activity for 2003 and 2002 was substantially lower than in prior years. During 2003, we completed one acquisition for total consideration of $21 million. We also acquired one development-stage operation in exchange for total consideration of approximately $40 million. Under our Intel Capital program, we make equity investments in companies around the world to further our strategic objectives and support our key business initiatives. The Intel Capital program focuses on investing in companies and initiatives to stimulate growth in the Internet economy and its infrastructure, create new business opportunities for Intel, and expand global markets for our products. The investments may support, among other things, Intel product initiatives, emerging trends in the technology industry or worldwide Internet deployment. This strategic investment program helps advance our overall mission to be the preeminent supplier of building blocks to the worldwide Internet economy. Many of our investments are in private companies, including development-stage companies with little or no revenue from current product offerings. We invest in companies that develop software, hardware and other technologies or provide services supporting our technologies. Our current investment focus areas include: enabling mobile and Internet client devices, helping to create the digital home, advancing high-performance communications infrastructures and developing the next generation of silicon production technologies. Our focus areas tend to develop and change over time due to rapid advancements in technology. Intellectual Property and Licensing Intellectual property rights that apply to our various products and services include patents, copyrights, trade secrets, trademarks and maskwork rights. We maintain an active program to protect our investment in technology by enforcing our intellectual property rights. The extent of the legal protection given to different types of intellectual property rights varies under different countries’ legal systems. We intend to license our intellectual property rights broadly where we can obtain adequate consideration. See “Competition” in Part I, Item 1 of this Form 10-K. We have filed and obtained a number of patents in the U.S. and abroad. While our patents are an important element of our success, our business as a whole is not materially dependent on any one patent. We and other companies in the computing, telecommunications and related high-technology fields typically apply for and receive, in the aggregate, thousands of patents annually in the U.S. and other countries. We believe that the duration of the applicable patents we are granted is adequate relative to the expected lives of our products. Because of the fast pace of innovation and product development, our products are often obsolete before the patents related to them expire, and sometimes are obsolete before the patents related to them are even granted. As we expand our product offerings into new industries, such as consumer electronics, we extend our patent development efforts to patent such product offerings. Established competitors in these industries may already have patents covering similar products, and while our patents in adjacent technology areas may serve to deter some claims of infringement, there is no assurance that we will be able to obtain patents covering our own products, or that we will be able to obtain cross licenses from such competitors on favorable terms or at all. The software embedded in our component and system-level products is entitled to copyright protection. Under some circumstances, we may require our customers to obtain a software license before we provide them with that software. To distinguish genuine Intel products from our competitors’ products, we have obtained certain trademarks and trade names for our products, and we maintain cooperative advertising programs with OEMs to promote our brands and identify products containing genuine Intel components. 16

We also protect certain details about our processes, products and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage. We have ongoing programs designed to maintain the confidentiality of such information. Our ability to enforce our patents, copyrights, software licenses and other intellectual property is subject to general litigation risks, as well as uncertainty as to the enforceability of various intellectual property rights in various countries. When we seek to enforce our rights, we are often subject to claims that the intellectual property right is invalid, is otherwise not enforceable or is licensed to the party against whom we are asserting a claim. In addition, our assertion of intellectual property rights often results in the other party seeking to assert alleged intellectual property rights of its own against us. Like many companies in the semiconductor and other hightechnology industries, we receive claims that we may be infringing others’ intellectual property rights. In addition, our sales agreements often contain intellectual property indemnities, such as patent and copyright indemnities, and our customers may assert claims against us for indemnity when they receive claims alleging that our customers’ products infringe others’ intellectual property rights. When we receive such claims, we refer them to our counsel, and current claims are in various stages of evaluation and negotiation. If we determine that it is necessary or desirable, we may seek licenses for certain intellectual property rights. However, we can give no assurance that we will be able to obtain licenses from any claimant, or that we can accept the terms of any offered licenses. Further, we are not able to resolve every dispute without litigation, which is typically time-consuming and expensive. If we are not ultimately successful in defending ourselves against these claims in litigation, we may not be able to sell a particular product or family of products due to an injunction, or we may have to pay material amounts of damages. See also the information under the heading “Legal Proceedings” in Part I, Item 3 of this Form 10-K. Compliance with Environmental, Health and Safety Regulations Intel is committed to achieving high standards of environmental quality and product safety, and strives to provide a safe and healthy workplace for our employees, contractors and the communities in which we do business. We have environmental, health and safety (EHS) policies and expectations that are applied to our global operations. Each of Intel’s worldwide manufacturing and assembly/test sites is certified to the International Organization for Standardization (ISO) 14001 environmental management system standard, which requires that a broad range of environmental processes and policies be in place to minimize environmental impact and maintain compliance with environmental regulations. Intel’s internal environmental auditing program includes not only compliance components, but also modules on business risk, environmental excellence and management systems. We have internal processes that focus on minimizing and properly managing any hazardous materials used in our facilities and products. We monitor regulatory trends and set company-wide short- and long-term performance targets for key resources and emissions. These targets address several parameters, including energy and water use, climate change, waste recycling and emissions. Intel remains on track to achieve our voluntary commitment to, by 2010, reduce emissions of certain global warming gases by 10% from 1995 levels. Due to Intel’s increase in manufacturing since 1995, this equates to an actual reduction in 2004 of more than 90% from what Intel would have emitted without the voluntary reduction. The company also has several key technologies designed to reduce energy use in our products and products using our components and recently added an energy reduction goal to its list of EHS performance indicators. For example, all Intel desktop processors produced in 2003 are capable of taking advantage of the advanced energy savings features of the Instantly Available PC platform, which makes it possible to have a high-performance, feature-rich PC that is power efficient when both active and idle, and remains connected to a network even when powered off. The manufacture, assembly and testing of Intel products requires the use of hazardous materials that are subject to a broad array of EHS laws and regulations. As Intel continues to advance process technology, the materials, technologies and products themselves become increasingly complex. Our evaluations of new materials for use in R&D, manufacturing, and assembly and test take into account EHS considerations and are a component of Intel’s design for EHS processes. Many new materials being evaluated for use may be subject to regulation under existing or future laws and regulations. Failure to comply with any of the applicable laws or regulations could result in fines, suspension of production, alteration of fabrication and assembly processes, curtailment of operations or sales, and legal liability. Intel’s failure to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject the company to future liabilities. Existing or future laws and regulations could require Intel to procure pollution abatement or remediation equipment, modify product designs, or incur other expenses associated with the laws and regulations. In addition, restrictions on the use of certain materials in our facilities or products in the future could have a material adverse effect on our operations. Compliance with these complex laws and regulations, as well as internal voluntary programs, is integrated into our manufacturing and assembly and test processes. To our knowledge, compliance with these laws and regulations has had no material effect upon our operations. We also refer to the information under the heading “Legal Proceedings” in Part I, Item 3 of this Form 10-K.

17

Executive Officers of the Registrant The following sets forth certain information with regard to executive officers of Intel (ages are as of December 27, 2003): Andrew S. Grove (age 67) has been a director of Intel since 1974 and Chairman of the Board since 1997. Dr. Grove was Chief Executive Officer from 1987 to 1998, President from 1979 to 1997 and Chief Operating Officer from 1976 to 1987. Craig R. Barrett (age 64) has been a director of Intel since 1992 and Chief Executive Officer since 1998. Prior to that, Dr. Barrett was President from 1997 to 2002, Chief Operating Officer from 1993 to 1997 and Executive Vice President from 1990 to 1997. Paul S. Otellini (age 53) has been a director of Intel and President and Chief Operating Officer since 2002. Prior to that, Mr. Otellini was Executive Vice President and General Manager, Intel Architecture Group, from 1998 to 2002; Executive Vice President and General Manager, Sales and Marketing Group, from 1996 to 1998; and Senior Vice President and General Manager, Sales and Marketing Group, from 1993 to 1996. Andy D. Bryant (age 53) has been Executive Vice President and Chief Financial and Enterprise Services Officer since 2001, and was Senior Vice President and Chief Financial and Enterprise Services Officer from 1999 to 2001. Prior to that, Mr. Bryant was Senior Vice President and Chief Financial Officer in 1999, and Vice President and Chief Financial Officer from 1994 to 1999. Sean M. Maloney (age 47) has been Executive Vice President and General Manager, Intel Communications Group, since 2001. Prior to that, Mr. Maloney was Executive Vice President and Director, Sales and Marketing Group, in 2001; Senior Vice President and Director, Sales and Marketing Group, from 1999 to 2001; Vice President and Director, Sales and Marketing Group, from 1998 to 1999; and Vice President, Sales, and General Manager, Asia-Pacific Operations, from 1995 to 1998. Robert J. Baker (age 48) has been Senior Vice President and General Manager, Technology and Manufacturing Group, since 2001, and was Vice President and General Manager, Components Manufacturing, from 2000 to 2001. Prior to that, Mr. Baker managed Fab Sort Manufacturing from 1999 to 2000 and Microprocessor Components Manufacturing from 1996 to 1999. Sunlin Chou (age 57) has been Senior Vice President and General Manager, Technology and Manufacturing Group, since 1998. Mr. Chou was Vice President, Technology and Manufacturing Group, from 1988 to 1998. F. Thomas Dunlap, Jr. (age 52) has been Senior Vice President and General Counsel since 2001, and was Vice President and General Counsel from 1987 to 2001. Mr. Dunlap served as Secretary from 1983 to 2002. Jason Chun Shen Chen (age 42) has been Vice President and Director, Sales and Marketing Group, since April 2003, and was Vice President and Co-General Manager of the Asia-Pacific Sales Region from 1999 to April 2003. Prior to that, Mr. Chen was Director of Distribution Sales for all of Asia-Pacific from 1997 to 1999. John H. F. Miner (age 48) has been a Vice President of Intel Corporation and President of Intel Capital since April 2003, and was Vice President and General Manager of Intel Capital from 2002 to April 2003. Prior to that, Mr. Miner was Vice President, New Business Group, from 2001 to April 2003; and Vice President and General Manager, Communications Products Group, from 1999 to 2001. Arvind Sodhani (age 49) has been Vice President and Treasurer since 1990.

18

Corporate Governance Corporate governance is typically defined as the system that allocates duties and authority among a company’s stockholders, board of directors and management. The stockholders elect the board and vote on extraordinary matters; the board is the company’s governing body, responsible for hiring, overseeing and evaluating management, particularly the Chief Executive Officer (CEO); and management runs the company’s day-to-day operations. The Board believes that there should be a substantial majority of independent directors on the Board. The Board also believes that it is useful and appropriate to have members of management, including the Chief Executive Officer, as directors. The Board’s general policy, based on experience, is that the positions of Chairman of the Board and Chief Executive Officer should be held by separate persons as an aid in the Board’s oversight of management. In addition, the Board has an independent director designated as the Lead Independent Director, who is responsible for coordinating the activities of the other independent directors and performs various other duties. The general authority and responsibilities of the Lead Independent Director are established in a written charter adopted by the Board. The current Board members include ten independent directors and three members of Intel’s senior management. The Board members include Craig R. Barrett, Intel’s Chief Executive Officer; Ambassador Charlene Barshefsky, Senior International Partner at the Wilmer, Cutler & Pickering law firm; E. John P. Browne, Group Chief Executive of BP plc; Winston H. Chen, Chairman of Paramitas Foundation; Andrew S. Grove, Intel’s Chairman of the Board; D. James Guzy, Chairman of Arbor Company; Reed E. Hundt, Advisor to McKinsey and Company and Venture Partner of Benchmark Capital; Paul S. Otellini, Intel’s President and Chief Operating Officer; David S. Pottruck, President and Chief Executive Officer of The Charles Schwab Corporation; Jane E. Shaw, Chairman and Chief Executive Officer of Aerogen, Inc.; John L. Thornton, Professor and Director of Global Leadership at Tsinghua University, Beijing, China; David B. Yoffie, Professor of International Business Administration, Harvard Business School; and Charles E. Young, President Emeritus of the University of Florida and Chancellor Emeritus of the University of California at Los Angeles. Messrs. Chen and Young are not standing for reelection at the next Annual Stockholders’ Meeting. The Board also has two Directors Emeriti, Gordon E. Moore and Leslie L. Vadasz, who may participate in Board meetings but do not vote. “Independent” Directors. Each of the company’s directors other than Messrs. Grove, Barrett and Otellini qualify as “independent” in accordance with the published listing requirements of The NASDAQ Stock Market (NASDAQ)*. The NASDAQ independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company. In addition, as further required by the NASDAQ rules, the Board of Directors has made a subjective determination as to each independent director that no relationships exist which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the directors reviewed and discussed information provided by the directors and the company with regard to each director’s business and personal activities as they may relate to Intel and Intel’s management. In addition, the members of the Audit Committee of the Board also each qualify as “independent” under special standards established by the Securities and Exchange Commission (SEC) for members of audit committees, and the Audit Committee includes at least one member who is determined by the Board to meet the qualifications of an “audit committee financial expert” in accordance with SEC rules, including that the person meets the relevant definition of an “independent” director. E. John P. Browne is the independent director who has been determined to be an audit committee financial expert. Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Browne’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose on Mr. Browne any duties, obligations or liability that are greater than are generally imposed on him as a member of the Audit Committee and Board of Directors, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors. Board Responsibilities and Structure. The primary responsibilities of the Board of Directors are oversight, counseling and direction to Intel’s management in the long-term interests of Intel and its stockholders. The Board’s detailed responsibilities include: (a) selecting, regularly evaluating the performance of, and approving the compensation of the Chief Executive Officer and other senior executives; (b) planning for succession with respect to the position of Chief Executive Officer and monitoring management’s succession planning for other senior executives; (c) reviewing and, where appropriate, approving Intel’s major financial objectives, strategic and operating plans and actions; (d) overseeing the conduct of Intel’s business to evaluate whether the business is being properly managed; and (e) overseeing the processes for maintaining Intel’s integrity with regard to its financial statements and other public disclosures and compliance with law and ethics. The Chief Executive Officer, working with Intel’s other executive officers, has the authority and responsibility for managing Intel’s business in a manner consistent with Intel’s standards and practices, and in 19

accordance with any specific plans, instructions or directions of the Board. The Chief Executive Officer and management are responsible for seeking the advice and, in appropriate situations, the approval of the Board with respect to extraordinary actions to be undertaken by Intel. The Board and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written consent from time to time as appropriate. Board agendas include regularly scheduled sessions for the independent directors to meet without management present, and the Board’s Lead Independent Director leads those sessions. The Board has delegated various responsibilities and authority to different Board committees as generally described below. Committees regularly report on their activities and actions to the full Board. Board members have access to all Intel employees outside of Board meetings, and the Board has a program that encourages each director to visit different Intel sites and events worldwide on a regular basis and meet with local management at those sites and events. Board Committees and Charters. The Board currently has, and appoints the members of, standing Audit, Compensation, Corporate Governance, Executive, Finance and Nominating Committees. Each member of the Audit, Compensation, Corporate Governance and Nominating Committees is an independent director in accordance with NASDAQ standards described above. Each of the Board committees has a written charter approved by the Board. Copies of each charter, including the charter describing the position of Lead Independent Director, are posted on the company’s web site at www.intc.com under the “Corporate Governance and Social Responsibility” section. The Audit Committee assists the Board in its general oversight of Intel’s financial reporting, internal controls and audit functions, and is directly responsible for the appointment, retention, compensation and oversight of the work of Intel’s independent auditors. The Compensation Committee reviews and approves salaries, equity incentives and other matters relating to executive compensation, and administers Intel’s stock option plans, including reviewing and granting stock options to executive officers. The Compensation Committee also reviews and approves various other company compensation policies and matters. The Corporate Governance Committee reviews and reports to the Board on a periodic basis with regard to matters of corporate governance. The Corporate Governance Committee also reviews and assesses the effectiveness of the Board’s Guidelines on Significant Corporate Governance Issues and recommends to the Board proposed revisions to the Guidelines. In addition, the Corporate Governance Committee makes recommendations to the Board regarding the agenda for Intel’s annual stockholders’ meetings, reviews stockholder proposals and makes recommendations to the Board for action on such proposals. The Executive Committee may exercise the authority of the Board between Board meetings, except to the extent that the Board has delegated authority to another committee or to other persons, and except as limited by Delaware law. The Finance Committee reviews and recommends matters related to Intel’s capital structure, including the issuance of debt and equity securities; Intel’s dividend policy and dividend declarations; banking arrangements, including investment of corporate cash; and management of the corporate debt structure. In addition, the Finance Committee reviews and approves structured finance and other cash management transactions whose authorization is not otherwise approved by the Board or delegated to Intel’s management. The Nominating Committee makes recommendations to the Board regarding the size and composition of the Board. The Nominating Committee is responsible for reviewing with the Board from time to time the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board. This assessment includes issues of diversity in numerous factors such as age; understanding of and experience in manufacturing, technology, finance and marketing; and international experience and culture. These factors, and others as considered useful by the Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a result, the priorities and emphasis of the Committee and of the Board may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective Board members. The Nominating Committee establishes procedures for the nomination process, recommends candidates for election to the Board and also nominates officers for election by the Board. Consideration of new Board nominee candidates typically involves a series of internal discussions, review of information concerning candidates and interviews with selected candidates. Candidates for nomination to the Board typically are suggested by Board members or by employees. With regard to the company’s newest directors, Ambassador Barshefsky was initially suggested as a candidate by an executive officer of the company, and Mr. Thornton was initially suggested as a candidate by a non-management director. In 2003, the company did not employ a search firm or pay fees to other third parties in connection with seeking or evaluating Board nominee candidates. The Nominating Committee will consider candidates proposed by stockholders, and has from time to time received unsolicited candidate proposals from stockholders. Candidates proposed by stockholders are evaluated by the Committee using the same criteria as for other candidates. 20

Board members also sit on the Investment Policy Committee for Intel’s U.S. employee retirement plans. This committee includes Intel management representatives, and is responsible for adopting and amending investment policies as well as selecting and monitoring service providers for the plans. The committee also selects the investment alternatives offered under Intel’s 401(k) Savings Plan. Attendance at Board, Committee and Annual Stockholders’ Meetings. All directors are expected to attend each meeting of the Board and the committees on which he or she serves, and are also expected to attend the Annual Stockholders’ Meeting. The Board does not have a formal policy that seeks to limit the number of board seats held by an independent director, but the Board’s guideline of 100% attendance at meetings reflects the Board’s expectation that each director will meet his or her commitments to the position. The time commitments of directors vary substantially with regard to their individual involvement with their primary positions; their involvement with other commercial, charitable and other organizations; and otherwise. The Board believes that a limitation on board seats held by a director will not adequately express the key functional point about the director’s time commitment to Intel. Intel has a policy, and an approval process, that generally limits each employee to serving on no more than one company board as a personal, non-Intel activity. The approval process considers both the time commitment involved and the potential for business conflicts between Intel and the other company. This policy is applicable to Intel’s three management directors and its other officers. Corporate Governance Guidelines. The Board has adopted a set of Guidelines on Significant Corporate Governance Issues, and the Board’s Corporate Governance Committee is responsible for overseeing the Guidelines and reporting and making recommendations to the Board concerning corporate governance matters. The Guidelines are posted on the company’s web site at www.intc.com under the “Corporate Governance and Social Responsibility” section. Among other matters, the Guidelines include the following items concerning the Board of Directors: • The Board believes that there should be a substantial majority of independent directors on the Board. The Board’s general policy, based on experience, is that the positions of Chairman of the Board and Chief Executive Officer should be held by separate persons as an aid in the Board’s oversight of management. The Board has an independent director designated as Lead Independent Director, who is responsible for coordinating the activities of the other independent directors and performs various other duties. Independent directors meet on a regular basis apart from other Board members and management representatives, and the Lead Independent Director is responsible for setting the agenda and running the meetings. All directors stand for reelection every year. The Board has adopted a retirement policy for officers and directors. Under the policy, independent directors may not stand for reelection after age 72, and management directors, other than former Chief Executive Officers, may not stand for reelection after age 65. Following Dr. Barrett’s tenure, the Chief Executive Officer may continue as CEO no later than the annual meeting at which the person is age 60; however, a former CEO may continue to be employed by the company in another capacity beyond that time, including until age 72 as a director and as Chairman of the Board. Other Corporate Officers may continue as such no later than age 65. Board compensation should be a mix of cash and equity-based compensation. Management directors will not be paid for Board membership in addition to their regular employee compensation. Independent directors may not receive consulting, advisory or other compensatory fees from the company in addition to their Board compensation. To the extent practicable, independent directors who are affiliated with the company’s service providers will undertake to ensure that their compensation from such providers does not include amounts connected to payments by the company. Members of the Board must act at all times in accordance with the requirements of Intel’s Corporate Business Principles, which are applicable to each director in connection with his or her activities relating to Intel. This obligation includes adherence to Intel’s policies with respect to conflicts of interest, confidentiality, protection of Intel’s assets, ethical conduct in business dealings, and respect for and compliance with applicable law. Any waiver of the requirements of the Corporate Business Principles with respect to any individual director or executive officer is reported to, and subject to the approval of, the Board of Directors. 21

• • •

•

•

• •

The Audit, Compensation, Corporate Governance and Nominating Committees consist entirely of independent directors. The annual cycle of agenda items for Board meetings is expected to change on a periodic basis to reflect Board requests and changing business and legal issues. The Board will have regularly scheduled presentations from Finance, Sales and Marketing, and the major business segments and operations of the company. The Board’s annual agenda will include, among other items, the long-term strategic plan for the company, capital projects, budget matters and management succession. The Board has access to contact and meet with any Intel employee. The Board has a program for members, when traveling, to make arrangements in advance to visit Intel sites and meet with local management and other employees on a worldwide basis. The Chief Executive Officer reports at least annually to the Board on succession planning and management development. At least annually, the Board evaluates the performance of the Chief Executive Officer and other senior management personnel. The Board has a process whereby the Board and its members are subject to periodic self-evaluation and self-assessment. The Board works with management to schedule new-director orientation programs and director continuing education programs. The orientation programs are designed to familiarize new directors with the company’s businesses, strategies and challenges, and to assist new directors in developing and maintaining skills necessary or appropriate for the performance of their responsibilities. Continuing education programs for Board members may include a mix of in-house and third-party presentations and programs.

• • • • •

Directors and officers are encouraged to be stockholders of the company through their participation in the company’s stock option and employee stock participation plans. Stock ownership guidelines have been established by the Board of Directors for independent directors and corporate officers to better ensure that they each maintain an equity stake in the company, and by doing so appropriately link their interests with those of the other stockholders. These guidelines provide that, within a five-year period following appointment or election, the covered individuals should attain and hold an investment position (not including unexercised stock options) of no less than a specified number of shares of Intel stock (for officers, approximating three to five times the sum of their base salary and annual incentive target, depending on the individual’s scope of responsibilities, and a similar guideline for independent directors). Directors and officers may not invest in (purchase or otherwise receive, or write) derivatives of Intel securities, e.g., puts and calls on Intel securities (with limited exceptions) or enter into any “short sales” or “short positions” with respect to Intel securities. A short position is one in which the person will profit if the market price of Intel securities either remains the same or decreases. Intel considers it inappropriate and contrary to the interests of Intel and its stockholders for directors and officers to take investment positions when the person would obtain a personal benefit in such a case.

22

ITEM 2.

PROPERTIES

At December 27, 2003, we owned the major facilities described below:
No. of Bldgs. Location Total Sq. Ft. Use

121 9 12 16 5 4 4 1 1 3 1
(A) (B) (C) (D)

United States Ireland Malaysia(A) Israel(B) Philippines(C) Costa Rica People’s Republic of China(D) India United Kingdom Japan Germany

27,092,000 3,443,000 2,223,000 1,978,000 1,518,000 863,000 685,000 271,000 175,000 158,000 80,000

Executive and administrative offices, wafer fabrication, research and development, sales and marketing, computer and service functions, boards and systems manufacturing, and warehousing. Wafer fabrication, warehousing and administrative offices. Components assembly and testing, boards and systems manufacturing, research and development, warehousing and administrative offices. Wafer fabrication, research and development, warehousing and administrative offices. Components assembly and testing, warehousing and administrative offices. Components assembly and testing, warehousing and administrative offices. Components assembly and testing, research and development, and administrative offices. Sales and marketing, research and development, and administrative offices. Sales and marketing and administrative offices. Sales and marketing and administrative offices. Sales and marketing and administrative offices.

Leases on portions of the land used for these facilities expire in 2033 through 2057. Leases on portions of the land used for these facilities expire in 2039. Leases on portions of the land used for these facilities expire in 2046. Leases on portions of the land used for these facilities expire in 2046 through 2053.

As of December 27, 2003, we also leased 63 major facilities in the U.S. totaling approximately 2,735,000 square feet and 51 facilities in other countries totaling approximately 1,920,000 square feet. These leases expire at varying dates through 2021 and include renewals at our option. Leased facilities in the U.S. decreased during 2003, primarily due to the expiration or termination of leases on facilities no longer needed. We are seeking to sublease approximately 700,000 square feet of building space. We believe that our existing facilities are suitable and adequate for our present purposes, and that, except as we have discussed above, the productive capacity in such facilities is substantially being utilized or we have plans to utilize it. We also have approximately 240,000 square feet of building space at one international site under construction for research and development purposes. For information regarding environmental proceedings related to certain facilities, refer to the heading “Legal Proceedings” in Part I, Item 3 of this Form 10-K. We do not identify or allocate assets or depreciation by operating segment. Information on net property, plant and equipment by country is included under the heading “Note 22: Operating Segment and Geographic Information” in Part II, Item 8 of this Form 10-K.

23

ITEM 3.

LEGAL PROCEEDINGS

A. Tax Matters In August 2003, in connection with the Internal Revenue Service (IRS) regular examination of Intel’s tax returns for the years 1999 and 2000, the IRS proposed certain adjustments to the amounts reflected by Intel on these returns as a tax benefit for its export sales. If the IRS issues formal assessments consistent with the notices and ultimately prevails in its position, Intel’s federal income tax liability for these years would increase by approximately $600 million, plus interest. The IRS may make similar claims for years subsequent to 2000 in future audits. Intel disputes the proposed adjustments and intends to pursue this matter through applicable IRS and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain, based on currently available information, management believes that the ultimate outcome will not have a material adverse effect on the company’s financial position, cash flows or overall trends in results of operations. In the event of an unfavorable resolution, there exists the possibility of a material adverse impact on the results of operations of the period in which the matter is ultimately resolved, or an unfavorable outcome becomes probable and reasonably estimable. B. Litigation Intel currently is a party to various legal proceedings, including those noted below. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include money damages or, in cases for which injunctive relief is sought, an injunction prohibiting Intel from selling one or more products. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the net income of the period in which the ruling occurs or future periods. Intergraph Corporation v. Intel U.S. District Court, Northern District of Alabama, Northeastern Division U.S. District Court, Eastern District of Texas In 1997, Intergraph Corporation filed suit in Federal District Court in Alabama, generally alleging, among other claims, that Intel infringed certain Intergraph patents. In August 2001, Intergraph filed a second suit in the U.S. District Court for the Eastern District of Texas, alleging that the Intel® Itanium® processor infringes two Intergraph microprocessor-related patents, and seeking an injunction and unspecified damages. In April 2002, Intel and Intergraph announced that they entered into a settlement agreement, pursuant to which they agreed to settle the Alabama lawsuit and dismiss it with prejudice. Under the settlement agreement, the Texas case would proceed to trial. If the patents in the Texas case were found to be infringed, not invalid and enforceable, Intel would pay Intergraph $150 million within 30 days of the entry of a final judgment. If Intergraph prevailed on either patent on appeal, the settlement agreement provides that Intel would pay Intergraph an additional $100 million and would receive a license for the patents at issue in the case. In October 2002, the Texas District Court ruled that Intel infringed both patents at issue in that case. Pursuant to the settlement agreement, Intel paid Intergraph $150 million. Intel then appealed the trial court’s decision. In February 2004, the Court of Appeals for the Federal Circuit found that the District Court erred in construing a claim term, revised the claim construction, vacated the District Court ruling and remanded the case to the District Court to determine in the first instance whether the Intel Itanium processor infringes the patents. Intel is currently evaluating the impact that the Court of Appeals’ opinion has on the 2002 settlement agreement. Intergraph Corporation v. Dell Inc., et al. U.S. District Court, Eastern District of Texas In December 2002, Intergraph filed suit in the Eastern District of Texas against Dell Inc., Gateway Inc. and Hewlett-Packard Company, alleging infringement of three of Intergraph’s patents. These three patents are a subset of the patents that were the subject of a now settled lawsuit that Intergraph had filed against Intel in Alabama. In May 2003, Dell filed its answer and counterclaim and named Intel as well as Intergraph in a counterclaim for declaratory judgment. None of the other defendants have named Intel as a counter-defendant. The claim against Intel does not seek any monetary or other specific relief. Rather, Dell seeks a judicial interpretation of the April 2002 settlement and license agreement between Intel and Intergraph insofar as that agreement relates to any 24

express and implied licenses and patent exhaustion defenses Dell has raised to defend the Intergraph claims. Dell has also issued a request for indemnity from Intel for any damages awarded against Dell, although this issue has not been made an element of the pending litigation. Intel intends to participate vigorously in the defense of all relevant claims. In re Intel Corporation Securities Litigation (Consolidated), U.S. Dist. Ct., Northern Calif. Dr. Jayant S. Patel, et al. v. Gordon Moore, et al., Calif. Superior Ct., Santa Clara County Howard Lasker, et al. v. Gordon Moore, et al., Del. Chancery Ct., New Castle County In 2001, various plaintiffs filed five class-action lawsuits against Intel alleging violations of the Securities Exchange Act of 1934. These complaints were consolidated in an amended complaint filed in the U.S. District Court for the Northern District of California. The lawsuit alleged that purchasers of Intel stock between July 19, 2000 and September 29, 2000 were misled by false and misleading statements by Intel and certain of its officers and directors concerning the company’s business and financial condition. In July 2003, the court granted Intel’s motion to dismiss the plaintiffs’ second amended complaint in its entirety with prejudice, and the plaintiffs did not appeal the court’s dismissal of the suit. In addition, various plaintiffs filed stockholder derivative complaints in California Superior Court and Delaware Chancery Court against the company’s directors and certain officers, alleging that they mismanaged the company and otherwise breached their fiduciary obligations to the company. The plaintiffs in the California action filed the original and two successive amended complaints, and the California Superior Court sustained Intel’s demurrers on each of these complaints. Following the court’s dismissal without prejudice of these complaints, the plaintiffs notified the court and Intel in June 2003 that they would not file a fourth complaint, and they signed a stipulation withdrawing their lawsuit with prejudice, which the court approved. In December 2003, the plaintiffs in the Delaware action withdrew their complaint and the case was dismissed with prejudice. Deanna Neubauer et al. v. Intel Corporation, Gateway Inc., Hewlett-Packard Co. and HPDirect, Inc., Third Judicial Circuit Court, Madison County, Illinois In June 2002, various plaintiffs filed a lawsuit in the Third Judicial Circuit Court, Madison County, Illinois, against Intel, Hewlett-Packard Company, HPDirect, Inc. and Gateway Inc., alleging that the defendants’ advertisements and statements misled the public by suppressing and concealing the alleged material fact that systems that use the Intel® Pentium 4® processor are less powerful and slower than systems using the Intel® Pentium® III processor and a competitor’s processors. The plaintiffs claim that their lawsuit should be treated as a nationwide class action. The plaintiffs seek unspecified damages, and attorneys’ fees and costs. The company disputes the plaintiffs’ claims and intends to defend the lawsuit vigorously. C. Environmental Proceedings Intel has been named to the California and U.S. Superfund lists for three of our sites and has completed, along with two other companies, a Remedial Investigation/Feasibility study with the U.S. Environmental Protection Agency (EPA) to evaluate the groundwater in areas adjacent to one of our former sites. The EPA has issued a Record of Decision with respect to a groundwater cleanup plan at that site, including expected costs of completion. Under the California and U.S. Superfund statutes, liability for cleanup of this site and the adjacent area is joint and several. The company, however, has reached agreement with those same two companies that significantly limits the company’s liabilities under the proposed cleanup plan. Also, the company has completed extensive studies at our other sites and is engaged in cleanup at several of these sites. In the opinion of management, the potential losses to the company in excess of amounts already accrued arising out of these matters would not have a material adverse effect on the company’s financial position or overall trends in results of operations, even if joint and several liability were to be assessed. The estimate of the potential impact on the financial position or overall results of operations for the above legal and environmental proceedings could change in the future.

25

ITEM 4. None.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information regarding market, market price range and dividend information may be found in “Financial Information by Quarter (Unaudited)” in Item 8 on page 85 of this Form 10-K. Additional information concerning dividends may be found in the following sections of this Form 10-K: “Selected Financial Data” in Item 6 and “Consolidated Statements of Cash Flows” and “Consolidated Statements of Stockholders’ Equity” in Item 8. In each quarter during 2002 and 2003, we declared and paid a cash dividend of $0.02 per common share, for a total of $0.08 in each year. We have paid a cash dividend in each of the past 45 consecutive quarters. In January 2004, our Board of Directors approved an increase in the quarterly cash dividend from $0.02 per share to $0.04 per share, effective for the first quarter 2004 dividend. As of January 30, 2004, there were approximately 235,000 registered holders of record of Intel’s common stock.

26

ITEM 6.

SELECTED FINANCIAL DATA

Ten Years Ended December 27, 2003
Purchased In-Process Research & Development Amortization and Impairment of AcquisitionRelated Intangibles and Costs

(In Millions)

Net Revenue

Gross Margin

Research & Development

Impairment of Goodwill

Amortization of Goodwill

2003 2002 2001 2000 1999 1998 1997 1996 1995 1994

............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................

$30,141 $26,764 $26,539 $33,726 $29,389 $26,273 $25,070 $20,847 $16,202 $11,521

$17,094 $13,318 $13,052 $21,076 $17,553 $14,185 $15,125 $11,683 $ 8,391 $ 5,945
Operating Income

$4,360 $4,034 $3,796 $3,897 $3,111 $2,509 $2,347 $1,808 $1,296 $1,111
Net Income

$ 5 $ 20 $198 $109 $392 $165 — — — —
Basic Earnings Per Share1

$617 — $ 98 — — — — — — —
Diluted Earnings Per Share2

— — $1,612 $1,310 $ 307 $ 17 — — — —
Dividends Declared Per Share

$301 $548 $628 $276 $104 $ 39 — — — —
Dividends Paid Per Share

(In Millions—Except Per Share Amounts)

Weighted Average Diluted Shares Outstanding

2003 2002 2001 2000 1999 1998 1997 1996 1995 1994

.................................... .................................... .................................... .................................... .................................... .................................... .................................... .................................... .................................... ....................................

$ 7,533 $ 4,382 $ 2,256 $10,395 $ 9,767 $ 8,379 $ 9,887 $ 7,553 $ 5,252 $ 3,387

$ 5,641 $ 3,117 $ 1,291 $10,535 $ 7,314 $ 6,068 $ 6,945 $ 5,157 $ 3,566 $ 2,288
Total Assets

$0.86 $0.47 $0.19 $1.57 $1.10 $0.91 $1.06 $0.78 $0.54 $0.34

$0.85 $0.46 $0.19 $1.51 $1.05 $0.86 $0.97 $0.73 $0.50 $0.33

6,621 6,759 6,879 6,986 6,940 7,035 7,179 7,101 7,072 6,992

$.080 $.080 $.080 $.070 $.055 $.025 $.029 $.024 $.019 $.014

$.080 $.080 $.080 $.070 $.055 $.033 $.028 $.023 $.018 $.014

(In Millions—Except Employees)

Net Investment in Property, Plant & Equipment

Long-Term Debt & Put Warrants

Stockholders’ Equity

Additions to Property, Plant & Equipment

Employees at Year-End (In Thousands)

2003 2002 2001 2000 1999 1998 1997 1996 1995 1994
1

..................................... ..................................... ..................................... ..................................... ..................................... ..................................... ..................................... ..................................... ..................................... .....................................

$16,661 $17,847 $18,121 $15,013 $11,715 $11,609 $10,666 $ 8,487 $ 7,471 $ 5,367

$47,143 $44,224 $44,395 $47,945 $43,849 $31,471 $28,880 $23,735 $17,504 $13,816

$ 936 $ 929 $1,050 $ 707 $1,085 $ 903 $2,489 $1,003 $1,125 $1,136

$37,846 $35,468 $35,830 $37,322 $32,535 $23,377 $19,295 $16,872 $12,140 $ 9,267

$3,656 $4,703 $7,309 $6,674 $3,403 $4,032 $4,501 $3,024 $3,550 $2,441

79.7 78.7 83.4 86.1 70.2 64.5 63.7 48.5 41.6 32.6

Amortization of goodwill reduced basic earnings per share in 2001 by $0.23 ($0.19 in 2000 and $0.05 in 1999). Goodwill is no longer amortized, beginning in 2002. Amortization of goodwill reduced diluted earnings per share in 2001 by $0.22 ($0.18 in 2000 and $0.05 in 1999).

2

27

In addition, the ratio of earnings to fixed charges for each of the five years in the period ended December 27, 2003 was as follows:
2003 2002 Fiscal Year 2001 2000 1999

72x

32x

18x

171x

166x

Fixed charges consist of interest expense and the estimated interest component of rent expense.

28

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) with Intel’s overall strategy and the strategy for our major business units to give the reader an overview of the goals of our business and the direction in which our business and products are moving. This is followed by a discussion of the Critical Accounting Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, beginning on page 35, we discuss our Results of Operations for 2003 compared to 2002, and for 2002 compared to 2001, beginning with an Overview. We then provide an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the sections entitled “Financial Condition,” “Contractual Obligations” and “Off-Balance-Sheet Arrangements.” On page 46, we conclude this MD&A with our “Business Outlook” section, discussing our outlook for 2004. This MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business”; “Item 6: Selected Financial Data”; and “Item 8: Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which 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. 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 18, 2004. Strategy Our goal is to be the preeminent building block supplier to the worldwide Internet economy. As part of our overall strategy to compete in each relevant market segment, we use our core competencies and financial resources, as well as our global presence and brand recognition. Our global marketing strategy is designed to associate our brands with advanced technology and innovation. In addition, under our Intel Capital program, we make equity investments in companies around the world to further our strategic objectives and support our key business initiatives. Our primary focus is on developing advanced integrated silicon technology solutions, which we believe will provide the performance and technology features necessary to help accelerate the convergence of computing and communications capabilities. Convergence refers to having computing and communications capabilities in an integrated product solution. We also provide key components for networking and communications infrastructures used to connect technology users. We believe users of computing and communications devices want not only higher performance but also other capabilities such as multithreaded or multitasking capability, seamless networking connectivity, improved security, reliability, ease of use and interoperability among devices. It is our goal to incorporate features addressing these capabilities in our various products to meet user demands. Each of our operating segments uses its core competencies in the design and manufacture of integrated circuits, as well as key silicon and platform capabilities, to provide building blocks for technology solutions. The Intel Architecture business provides the advanced technologies to support the desktop, mobile and enterprise computing platforms. During 2003, our Intel Communications Group (ICG) focused on wired and wireless network connectivity products, and provided key components for networking and communications infrastructure devices and other industrial and commercial purposes. Finally, during 2003, our Wireless Communications and Computing Group (WCCG) focused on component-level products and platform solutions for the wireless handheld communications and computing market segments. As we move to each succeeding generation of manufacturing process technology, we use less space per transistor, which enables us to fit more transistors on an equivalent size chip, decrease the size of the chip or offer an increased number of integrated features. This decrease in size can also result in faster microprocessors and semiconductor products that consume less power and/or products that cost less to manufacture. In December 2003, we announced that we would be consolidating our communications-related businesses into a single organization, the Intel Communications Group. We believe that as computing and communications converge, the consolidation of ICG and WCCG will give us the opportunity to better coordinate product planning and customer focus between our communications infrastructure and wireless client efforts going forward. This reorganization was not effective until fiscal 2004. Because the reporting period for this Form 10-K is as of December 27, 2003, the communications-related businesses discussed below and the results of operations for our operating segments in this MD&A are presented under the organizational structure that existed as of December 27, 2003. 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Intel Architecture Business The Intel Architecture business supports the desktop, mobile and enterprise computing platforms. As devices take advantage of converged computing and communications capabilities, our goal is to continue to deliver processors with higher performance and/or advanced technology features such as HT Technology, which can enable multithreading and multitasking, and the features offered with our Intel® Centrino™ mobile technology, which can enhance the mobile computing experience. In addition, we believe that system security and reliability features at the hardware level will facilitate an enhanced computing experience for end users. For the desktop platform, our strategy is to introduce microprocessors and chipsets with higher performance and/or advanced technology features tailored to the needs of different market segments using a tiered branding approach. For the mobile platform, our strategy is to deliver products optimized for some or all of the four mobility vectors: performance, battery life, form factor (the physical size and shape of a device) and wireless connectivity. Our strategy for the enterprise platform is to provide processors and chipsets with high performance and/or advanced technology features, as well as competitive price for performance for entry-level to high-end servers and workstations. For the desktop performance market segment, we offer the Intel® Pentium® 4 processor to meet the computing needs of users both at home and at work. These processors are optimized to deliver high performance as well as added features across a broad range of business and consumer applications. For the performance desktop, we offer the Pentium® 4 processor with HT Technology. When used in a computer system with the other features required to take advantage of this technology, HT Technology allows a multithreaded software program to run as though it uses two processors, even though it uses only one processor. Our current versions of the Pentium 4 processor with HT Technology support the 800-MHz system bus, which allows for faster data transfer into and out of the processor. For the desktop value market segment, we offer the Intel® Celeron® processor, designed to meet the core computing needs and affordability requirements of value-conscious PC users. For the mobile market segment, we offer processors optimized for performance mobility and portability users, with form factors from sub-notebook and tablet PCs to thin-and-light and full-size notebook PCs. In 2003, for performance mobility users, we introduced Intel Centrino mobile technology, our first computing technology designed and optimized specifically for the four key vectors of mobility. Intel Centrino mobile technology consists of an Intel® Pentium® M processor and the Intel® 855 chipset family, both offered by the Mobile Platforms Group within the Intel Architecture business, as well as a wireless network connection, which is based on the 802.11 industry standard, from ICG. For portability PC users—who want systems with near-desktop features, including high performance, larger screens, full-size keyboards and multiple hard drives—we offer the Mobile Intel® Pentium® 4 processor. In addition, for the mobile value market segment, we offer the mobile Intel Celeron processor. The Intel Architecture business also supports the enterprise platform by offering products that address various levels of data processing and compute-intensive applications. Our Intel® Xeon™ processor family of products supports a range of entry-level to highend technical and commercial computing applications for the workstation and server market segments, while our Intel® Itanium® processor family of products supports an even higher level of 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. The Intel® Xeon™ processor with HT Technology is aimed at two-way servers, also known as dual-processing (DP) servers, and workstations. For servers based on four or more processors, we offer the Intel® Xeon™ processor MP with HT Technology. For the enterprise-class market segment, we offer the Intel® Itanium® 2 processor. We believe that technology industry product developments and the convergence of computing and communications will increase demand for our higher performance enterprise platform products. In particular, we anticipate increased demand for our products to support new developments in data traffic management, storage, and wireless computing and communications needs. Intel Communications Group Within ICG, our strategy is to be the leading supplier of silicon and integrated networking and communications building blocks for original equipment manufacturers (OEMs) and other systems builders. We are developing products that we believe will help to build out the Internet: products designed for wired and wireless connectivity; the communications infrastructure, including network and embedded processors; and networked storage. Our strategy for Ethernet connectivity is to expand our product portfolio in the local area network (LAN) market segment and to address the metropolitan area network (MAN) and networked storage market segments. Within the LAN and MAN market segments, we are investing in Gigabit Ethernet, 10-Gigabit Ethernet and wireless technologies based on 30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) industry standards for wireless 802.11 (WLAN, or “WiFi”) mobile applications and the emerging standard supporting 802.16 (or WiMAX) for broadband connectivity. In network processing, we deliver products that are basic building blocks for modular communications platforms. These products include advanced, programmable processors used to manage and direct data moving across the Internet and corporate networks. We also offer embedded processors that can be used for modular communications platform applications as well as for industrial equipment and point-of-sale systems. The modular communications platform is supported by solutions such as the Advanced Telecommunications Computing Architecture (ATCA) for building standards-based wireless base station equipment and high-speed interconnect technologies such as PCI Express and Advanced Switching. In the networked storage market segment, we are developing products that allow storage resources to be added at any location on either of the two most prevalent types of storage networks: Ethernet or Fibre Channel. The transition to our internal manufacturing processes is a key factor in our execution of these strategies. Although third-party foundry manufacturers currently perform a significant portion of ICG’s manufacturing, we will be transitioning more of the manufacturing of our communications products onto 130-nanometer and 90nanometer process technologies, which will enable us to build more of our communications products internally. Wireless Communications and Computing Group Within WCCG, our current products include flash memory, application and cellular processors based on Intel XScale® microarchitecture, and cellular baseband chipsets. Our strategy for our flash memory products is to offer a broad range of memory densities, leading-edge packaging technology and high-performance functionality. In addition to having offerings meeting the needs of our cellular customers, we plan to further expand our customer base beyond the core cellular market segment to applications such as personal digital assistants (PDAs), set-top boxes, MP3 music players and networking equipment. In our flash memory product portfolio, we currently offer NOR flash memory products such as Intel StrataFlash® Wireless Memory, which uses two-bit-per-cell technology to provide a single-chip solution for fast code execution with higher storage densities and 1.8-volt operation optimized for advanced mobile phone designs. In application and cellular processing, Intel XScale technology provides the processing capability in data-enabled mobile phones and PDAs. Addressing the trend toward convergence in computing and communications, we offer the PXA800 cellular processor family, which combines baseband communications features with memory and applications processing onto a single microchip. We also offer stacked packaging solutions (stacking an applications processor on top of memory) as well as packaging that stacks several memory chips together, allowing our customers to decrease the size of their products as well as helping to reduce their time-to-market. Finally, the Intel® Personal Internet Client Architecture (Intel® PCA) outlines an architecture for communications, application and memory subsystems for data-enabled mobile phones and portable handheld devices. We believe that the Intel PCA scalable platform can speed application development and allow faster time-to-market for our customers.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Critical Accounting Estimates The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements, which we discuss under the heading “Results of Operations” following this section of our MD&A. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include the assessment of recoverability of goodwill, which impacts goodwill impairments; valuation of non-marketable equity securities, which impacts net gains (losses) on equity securities when we record impairments; valuation of inventory, which impacts gross margin; assessment of recoverability of long-lived assets, which primarily impacts gross margin when we impair manufacturing assets or accelerate their depreciation; and recognition and measurement of current and deferred income tax assets and liabilities, which impacts our tax provision. 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 our policies for revenue recognition, including the deferral of revenue on sales to distributors; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective. Goodwill. Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. We perform an annual review in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. Our impairment review process compares the fair value of the reporting unit to its carrying value, including the goodwill related to the reporting unit. To determine the fair value, our review process uses the income method and is based on a discounted future cash flow approach that uses estimates including the following for the reporting units: revenue, based on assumed market segment growth rates and Intel’s assumed market segment share; estimated costs; and appropriate discount rates based on the particular business’s weighted average cost of capital. Our estimates of market segment growth, our market segment share and costs are based on historical data, various internal estimates and a variety of external sources, and are developed as part our routine long-range planning process. In addition to being used in our goodwill impairment analysis, the same estimates are used in the planning for our long-term manufacturing capacity needs as part of our capital budgeting process and for both long-term and short-term business planning and forecasting. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis by comparison to available and comparable market data. In determining the carrying value of the reporting unit, we must include an allocation of our manufacturing assets because of the interchangeable nature of our manufacturing capacity. This allocation is based on each reporting unit’s relative percentage of utilization of our manufacturing assets. During the fourth quarter of 2003, the company completed its most recent review, resulting in a $611 million non-cash goodwill impairment charge related to the WCCG reporting unit (see “Note 16: Goodwill” in the Notes to the Consolidated Financial Statements and the WCCG discussion in the “Results of Operations” section of this MD&A). A substantial majority of our remaining recorded goodwill is related to the ICG reporting unit. The estimates we used in our most recent review for ICG assume that we will gain market segment share in the future and that the communications business will experience a gradual recovery and return to growth from the current trends. We may incur charges for the impairment of goodwill in the future if the communications sector does not recover as we expect, if we fail to deliver new products for ICG, if the products fail to gain expected market acceptance, if we fail to achieve our assumed revenue growth rates or assumed gross margin, or if interest rates increase significantly. Non-Marketable Equity Securities. At December 27, 2003, the carrying value of our portfolio of strategic investments in nonmarketable equity securities, excluding equity derivatives, totaled $665 million ($730 million at December 28, 2002). Under our Intel Capital program, we make equity investments in companies around the world to further our strategic objectives and support our key business initiatives. The Intel Capital program focuses on investing in companies and initiatives to stimulate growth in the Internet economy and its infrastructure, create new business opportunities for Intel and expand global markets for our products. The investments may support, among other things, Intel product initiatives, emerging trends in the technology industry or worldwide Internet deployment. This strategic investment program helps advance our overall mission to be the preeminent supplier of building blocks to the worldwide Internet economy. We invest in companies that develop software, hardware and other technologies or provide services supporting technologies. Our current investment focus areas include: enabling mobile and Internet client devices, helping to create the digital home, advancing highperformance communications infrastructure and developing the next generation of silicon production technologies. Our focus areas tend to develop and change over time due to rapid advancements in technology.

32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) We typically invest in non-marketable equity securities of private companies and contribute a portion of the funds required for them to grow. Our investment portfolio ranges from early-stage companies that are often still defining their strategic direction to more mature companies whose products or technologies may directly support an Intel product or initiative. We invest for strategic reasons, with each investment also evaluated for potential financial returns. The program seeks to invest in companies and businesses that can succeed and have an impact on their market segment. However, these types of investments involve a great deal of risk, and there can be no assurance that any specific company, whether at an early or mature stage, or somewhere in between, will grow or will become successful, and consequently, we could lose all or part of our investment. When the strategic objectives of an investment have been achieved, or if the investment or business diverges from our strategic objectives, we may decide to dispose of the investment. However, our investments in non-marketable equity securities are not liquid, and there can be no assurance that we will be able to dispose of these investments on favorable terms or at all. As of December 27, 2003, we had invested $124 million in non-voting stock of Elpida Memory, Inc., a Japanese provider of Dynamic Random Access Memory (DRAM). This investment is intended to help align Elpida’s product roadmap, as appropriate, with our roadmap and is part of our investment strategy to support the development and supply of DRAM products. No other investment in our non-marketable portfolio was individually significant. Our ability to recover our strategic investments in non-marketable equity securities and to earn a return on these investments is primarily dependent on how successfully these companies are able to execute to their business plans and how well their products are accepted, as well as their ability to obtain venture capital funding to continue operations, to grow and to take advantage of liquidity events. In the current equity market environment, their ability to obtain additional funding as well as to take advantage of liquidity events, such as initial public offerings (IPOs), mergers and private sales, remains constrained. We review all of our investments quarterly for impairment; however, for non-marketable equity securities, the impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the fair value of the investment. The indicators that we use to identify those events or circumstances include (a) the investee’s revenue and earnings trends relative to predefined milestones and overall business prospects, (b) the technological feasibility of the investee’s products and technologies, (c) the general market conditions in the investee’s industry, and (d) the investee’s liquidity, debt ratios and the rate at which the investee is using its cash. Investments identified 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 the investment down to its impaired value. When an investee is not considered viable from a financial or technological point of view, we write down the entire investment since we consider the estimated fair market value to be nominal. If an investee obtains additional funding at a valuation lower than our carrying amount or requires a new round of equity funding to stay in operation and the new funding does not appear imminent, we presume that the investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise. We have experienced substantial impairments in our portfolio of non-marketable equity securities as equity markets declined significantly over the past few years. If the level of IPO market activity does not increase and the availability of venture capital funding for technology investments does not improve, our non-marketable investments may be adversely affected. As companies within our portfolio attempt to raise additional funds, the funds may not be available to them or they may receive lower valuations, with less favorable investment terms than in previous financings, and the investments would likely become impaired. However, we are not able to determine at the present time which specific investments are likely to be impaired in the future, or the extent or timing of individual impairments. Impairments of investments in our portfolio, primarily impairments of non-marketable equity securities, were $319 million in 2003 ($524 million in 2002 and $1.1 billion in 2001). Inventory. The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products within specific time horizons, generally six months or less. The estimates of future demand that we use in the valuation of inventory are the basis for our published revenue forecast, which is also consistent with our short-term manufacturing plan. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory reserves, which would have a negative impact on our gross margin.

33

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Long-Lived Assets. We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. Recoverability of assets that will continue to be used in our operations is measured by comparing the carrying amount of the asset grouping to the related total future net cash flows. If an asset grouping’s carrying value is not recoverable through the related cash flows, the asset grouping is considered to be impaired. The impairment is measured by the difference between the asset grouping’s carrying amount and its fair value, based on the best information available, including market prices or discounted cash flow analysis. Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows. Due to our asset usage model and the interchangeable nature of our semiconductor manufacturing capacity, we must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, as we make manufacturing process conversions and other factory planning decisions, we must make subjective judgments regarding the remaining useful lives of assets, primarily process-specific semiconductor manufacturing tools and building improvements. When we determine that the useful lives of assets are shorter than we had originally estimated, and there are sufficient cash flows to support the carrying value of the assets, we accelerate the rate of depreciation charges in order to fully depreciate the assets over their new shorter useful lives. Income Taxes. We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As of December 27, 2003, we believed that all of the deferred tax assets recorded on our balance sheet would ultimately be recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that the recovery is not probable. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be. For a discussion of current tax matters, see “Note 21: Contingencies” in the Notes to Consolidated Financial Statements.

34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations Overview In 2003, we saw a substantial improvement in our Intel Architecture business compared to 2002, and as we look ahead to the rest of 2004, we are planning for growth in annual revenue and further progress in overall gross profit margin. Our growth continues to be largely dependent on the success of our microprocessor business. Revenue from sales of microprocessors within our Intel Architecture business represented approximately 73% of our consolidated net revenue in 2003. Rapid technological advances characterize the semiconductor industry. Therefore, we must continue to deliver leading-edge products that appeal to users of technology by integrating higher performance and/or added features into our products. In addition, growth in sales of microprocessors is dependent on continued sales growth in emerging markets in both Asia and Europe, which have been growing faster on a percentage basis than our other regions. In 2003, 72% of our sales came from geographies outside of the Americas. Finally, growth in sales of microprocessors depends on continued business and consumer investment in technologies that use our microprocessors in mature markets. We plan to continue to streamline operations and refocus on core strategic areas within our communications-related businesses. In line with this effort, in December 2003, we announced that we would be consolidating communications-related businesses within ICG and WCCG into a single organization, the Intel Communications Group, effective for 2004. We believe that as wireless LAN and cellular technologies come together, the combination of these organizations gives us the opportunity to better coordinate product planning and customer focus. The losses in our flash memory business have been disappointing. However, we intend to use leading technology products and manufacturing processes to turn this business around. In addition, our networking business has experienced the negative effect of an overall decline in the telecommunications industry in the last few years; however, we have been cutting costs and trimming the losses in this business, and believe that this market segment will eventually improve. Sustaining or growing our profitability depends on our ability to obtain continuing benefits from the productive use of our manufacturing assets, in particular our new equipment used for 90-nanometer process technology and 300mm wafers, as we build more of our mainstream products with these technologies. We consider our manufacturing capability to be a competitive advantage, and our success is dependent on our continued ability to lower our unit costs through manufacturing efficiencies. Because we have high fixed costs, our profitability could be negatively affected if we do not achieve sufficient sales-volume growth. Despite the economic downturn of the last few years, we continued to, and currently plan to continue to, invest in capital equipment and increase research and development spending with the goal of delivering leading-edge products on advanced manufacturing processes. The following table sets forth certain consolidated statements of income data as a percentage of net revenue for the periods indicated:
2003 2002 2001

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization and impairment of acquisition-related intangibles and costs . . . . . . . . . . . . . . . . . . Purchased in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0% 100.0% 100.0% 43.3% 50.2% 50.8% 56.7% 14.5% 14.2% 2.0% — 1.0% — 25.0% 49.8% 15.1% 16.2% — — 2.0% .1% 16.4% 49.2% 14.3% 16.8% .5% 6.0% 2.4% .7% 8.5%

35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table sets forth information on our geographic regions for the periods indicated:
2003 (Dollars in Millions) Revenue % of Total Revenue 2002 % of Total Revenue 2001 % of Total

Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,403 12,161 6,868 2,709 $30,141

28% $ 8,648 40% 10,073 23% 6,139 9% 1,904 100% $26,764

32% $ 9,382 38% 8,308 23% 6,500 7% 2,349 100% $26,539

35% 31% 25% 9% 100%

Our net revenue for 2003 was $30.1 billion, an increase of 13% compared to 2002. This increase in net revenue was primarily from our Intel Architecture business, which had increased sales of microprocessors and chipsets, accompanied by slightly higher net revenue for ICG. Net revenue was lower for WCCG. Our Asia-Pacific region’s revenue made up the largest portion of our total revenue and increased 21% in 2003 compared to 2002, reflecting growth in local consumption and Asia’s continued growth as a global manufacturing and design center. Revenue in Europe improved, increasing 12% in 2003 compared to 2002. Japan experienced substantial improvement with increased revenue of 42%, primarily driven by retail sales as well as higher notebook exports by Japanese manufacturers. Revenue from the Americas region continued to decrease as a percent of our total revenue and declined 3% in 2003 compared to 2002. In 2003, we continued to experience growth in emerging markets in Asia and Europe, and began to see some evidence of higher technology infrastructure spending in mature markets in Europe and the U.S. Our overall gross margin percentage increased to 56.7% for 2003 from 49.8% in 2002. Improved gross margin within the Intel Architecture business as well as a shift in the total company revenue mix to the higher margin Intel Architecture business contributed to our improved total gross margin. Improvement in the Intel Architecture gross margin was partially offset by a decline in the gross margin percentage for WCCG. The gross margin percentage for ICG was flat in 2003 compared to 2002. See the “Business Outlook” section below for a discussion of gross margin expectations. Our net revenue for 2002 was $26.8 billion, approximately flat compared to $26.5 billion in 2001. Increased revenue in the Intel Architecture business due to strength in sales of microprocessors and chipsets was offset by significantly lower revenue for ICG. Net revenue for WCCG was flat from 2001 to 2002. In 2002, revenue from our Asia-Pacific region increased 21% from 2001 and surpassed revenue from the Americas for the first time. The growth in Asia was offset by declines in our other geographies. Japan declined 19% due to weakened economic conditions. The Americas region decreased 8%, and Europe decreased 6%. Our overall gross margin percentage in 2002 was approximately flat at 49.8% compared to 49.2% in 2001. The Intel Architecture business gross margin percentage was also relatively flat in 2002 compared to 2001. WCCG experienced a slightly lower gross margin percentage while ICG experienced a slightly higher gross margin percentage. Our gross margin percentage in 2002 was also negatively impacted by the $106 million charge related to the decision to wind down our web hosting business.

36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Intel Architecture Business The revenue and operating income for the Intel Architecture operating segment for the three years ended December 27, 2003 were as follows:
(In Millions) 2003 2002 2001

Microprocessor revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chipset, motherboard and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,867 4,235 $26,102 $10,411

$18,658 3,658 $22,316 $ 6,592

$17,878 3,568 $21,446 $ 6,277

Net revenue for the Intel Architecture operating segment increased by $3.8 billion, or 17%, in 2003 compared to 2002. Revenue from sales of microprocessors increased 17% while revenue from sales of chipsets and motherboards increased 16%. The increase in Intel Architecture revenue was primarily due to significantly higher unit sales and to a lesser extent due to a slightly higher average selling price for microprocessors, as well as significantly higher unit sales of chipsets in 2003. During the year, we rapidly ramped the new Intel Centrino mobile technology and the Pentium M processor for mobile computers. We also saw increased sales of Pentium 4 processors with HT Technology and higher sales of Intel Xeon processors in the server market segment. Operating income increased by $3.8 billion, or 58%, in 2003 compared to 2002. The increase was primarily due to the impact of higher revenue, lower unit costs for microprocessors and chipsets, and charges for under-utilized factory capacity that were lower than in 2002 by approximately $150 million. These improvements were partially offset by approximately $390 million of higher start-up costs in 2003 related to the ramp of 90-nanometer technology on 300-millimeter wafer manufacturing. For 2002, net revenue for the Intel Architecture operating segment increased by $870 million, or 4%, compared to 2001. Revenue from sales of microprocessors increased 4%, and revenue from sales of chipsets and motherboards increased 3%. The increase in microprocessor revenue was primarily due to higher unit volumes, partially offset by lower average selling prices. The increase in revenue from chipsets and motherboards was primarily due to significantly higher unit volumes of motherboards. Operating income for the Intel Architecture business increased by $315 million, or 5%, in 2002 compared to 2001. The increase was primarily due to the impact of higher revenue and approximately $720 million of lower start-up costs related to the 0.13-micron technology manufacturing ramp. These positive impacts were partially offset by higher unit costs for microprocessors. Operating income for 2002 was reduced by a $155 million charge related to the Intergraph Corporation litigation settlement agreement (see “Note 21: Contingencies” in the Notes to Consolidated Financial Statements).

37

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Intel Communications Group The revenue and operating loss for the ICG operating segment for the three years ended December 27, 2003 were as follows:
(In Millions) 2003 2002 2001

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,147 $ (426)

$2,080 $ (622)

$2,580 $ (735)

Net revenue increased by $67 million, or 3%, in 2003 compared to 2002. Revenue increased for wireless connectivity products, including the wireless component of our Intel Centrino mobile technology, and for embedded processing components. These increases were partially offset by lower revenue from sales of telecommunications-related board products and lower revenue from wired Ethernet connectivity products due to the continuing shift in product mix to LAN on motherboard products. The operating loss decreased to $426 million in 2003 from a $622 million loss in 2002, primarily due to a decrease in operating expenses of $194 million in 2003 as we continued our efforts to streamline operations and refocus on our core strategic areas. In addition, operating results improved due to higher revenue from sales of embedded processing components and lower unit costs of microcontrollers. These improvements were partially offset by the mix shift to lower margin wired Ethernet connectivity products. Finally, in the current competitive environment, sales of wireless connectivity products in support of expanded adoption of Intel Centrino mobile technology increased the operating loss in 2003. For 2002, net revenue decreased by $500 million, or 19%, compared to 2001, primarily due to lower overall unit volumes for telecommunications-related products, consistent with the decline in industry-wide demand for these products. In addition, net revenue for wired Ethernet connectivity products decreased, even as units increased, due to the shift in product mix from adapter cards to LAN on motherboard products. Despite the decline in net revenue for ICG, 2002 net operating results improved, with a loss of $622 million compared to a loss of $735 million in 2001. The impact of lower revenue was more than offset by the impact of operating expenses, which were lower by approximately $137 million, as well as by reduced inventory write-downs in 2002 compared to 2001 and a mix shift to higher margin products, including embedded processing components. Wireless Communications and Computing Group The revenue and operating loss for the WCCG operating segment for the three years ended December 27, 2003 were as follows:
(In Millions) 2003 2002 2001

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,857 $ (432)

$2,239 $ (287)

$2,232 $ (249)

Net revenue decreased by $382 million, or 17%, in 2003 compared to 2002 due to lower unit sales of flash memory products. In 2003, revenue for flash memory products was negatively affected by lost business as a result of the pricing strategy on certain products. Revenue from sales of application processors for data-enabled cellular phones and handheld computing devices increased. The operating loss increased by $145 million to a loss of $432 million in 2003 compared to a loss of $287 million in 2002, primarily due to lower revenue for flash memory products and the impact of higher inventory write-offs. Net revenue was flat from 2001 to 2002. Revenue for flash memory products was slightly lower due to a decrease in average selling prices stemming from competitive pricing pressures, mostly offset by an increase in unit volumes. Revenue on higher volumes of application processors and baseband chipsets offset the lower revenue from flash memory products. The net operating loss increased by $38 million to a loss of $287 million in 2002 compared to a loss of $249 million in 2001. Lower average selling prices in 2002 for flash memory products were partially offset by the impact of charges for under-utilized factory capacity that were reduced by approximately $170 million. Higher revenue and lower costs for application processors and baseband chipsets offset a portion of the negative impact for flash memory products. 38

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating Expenses Operating expenses for the three years ended December 27, 2003 were as follows:
(In Millions) 2003 2002 2001

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization and impairment of acquisition-related intangibles and costs . . . . . . . . . . . . . . . Purchased in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,360 $4,278 $ 617 $ — $ 301 $ 5

$4,034 $4,334 $ — $ — $ 548 $ 20

$3,796 $4,464 $ 98 $1,612 $ 628 $ 198

Research and development spending increased $326 million, or 8%, in 2003 compared to 2002, and increased $238 million, or 6%, in 2002 compared to 2001. The increase in 2003 compared to 2002 was primarily due to higher expenses for product development programs in the Intel Architecture business and higher spending on the development of manufacturing process technologies, including the 65-nanometer process technology, as well as higher profit-dependent compensation expenses. The increase in 2002 compared to 2001 was primarily due to higher spending on the development of manufacturing process technologies, including the 90-nanometer process technology. Marketing, general and administrative expenses were flat in 2003 compared to 2002. We lowered our discretionary spending and other expenses as we reduced headcount and refocused on core strategic areas. This decrease in expenses was offset by higher marketing expenses due to the launch of the Intel Centrino mobile technology brand in 2003; increased profit-dependent compensation expenses; and higher spending for the Intel Inside® cooperative advertising program, primarily due to higher microprocessor revenue. Marketing, general and administrative expenses decreased $130 million, or 3%, in 2002 compared to 2001, primarily due to the impact of lower spending within ICG and for certain new business initiatives as we reduced headcount or exited certain businesses, as well as lower overall discretionary spending related to cost containment programs. The spending decreases were partially offset by higher expenses for the Intel Inside cooperative advertising program due to higher microprocessor revenue and the impact of our customers using a slightly higher percentage of their available program funds. During the fourth quarter of 2003, the company completed its annual impairment review for goodwill and found indicators of impairment for the WCCG reporting unit. The WCCG business, comprised primarily of flash memory products and cellular baseband chipsets, has not performed as management had expected. In the fourth quarter of 2003, it became apparent that WCCG was now expected to grow more slowly than previously projected. A slower-than-expected rollout of products and slower-than-expected customer acceptance of our products in the baseband chipset business, as well as a delay in the transition to next-generation phone networks, have pushed out the forecasts for sales of products for high-end data cell phones. These factors resulted in lower growth expectations for the reporting unit and triggered a $611 million charge for impairment of goodwill. Also during 2003, the company recorded a $6 million charge for impairment of the goodwill related to one of the company’s seed businesses. Seed businesses support the company’s strategic initiatives. In 2001, goodwill of $1.6 billion was amortized, and there was a $98 million charge for goodwill impairment related to prior-year acquisitions. Beginning in 2002, goodwill is no longer amortized. Amortization and impairment of acquisition-related intangibles and costs was $301 million in 2003, decreasing from $548 million in 2002 and $628 million in 2001, as intangible assets related to prior acquisitions became fully amortized. The 2002 amount included $127 million of impairments ($26 million in 2001). No impairments were recorded in 2003. Amortization and impairment of both goodwill and acquisition-related costs for all periods are included in the calculation of the operating loss for the “all other” category for segment reporting purposes.

39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Gains (Losses) on Equity Securities, Interest and Other, and Taxes Losses on equity securities, net, interest and other, net and taxes for the three years ended December 27, 2003 were as follows:
(In Millions) 2003 2002 2001

Losses on equity securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (283) $ 192 $1,801

$ (372) $ 194 $1,087

$ (466) $ 393 $ 892

Losses on equity securities and certain equity derivatives for 2003 were $283 million compared to $372 million for 2002. The net loss for 2003 included impairment charges of approximately $319 million, primarily related to non-marketable equity securities, compared to impairment charges of approximately $524 million in 2002. The decrease in the impairment charges in 2003 reflected the decrease in the total carrying amount of the non-marketable equity investment portfolio. The impairment charges in 2002 were partially offset by net gains of approximately $57 million related to equity security trading assets and $110 million of net gains on related equity derivatives. The $57 million net gains included a gain of approximately $120 million, resulting from the designation of formerly restricted equity investments as trading assets as they became marketable. The cumulative difference between their cost and fair market value at the time they became marketable was recorded as a gain in 2002. For 2001, the net loss of $466 million included impairments of $1.1 billion, partially offset by net gains on transactions of $517 million and net mark-to-market gains on equity security trading assets and derivatives of $90 million. Our effective income tax rate was 24.2% in 2003, 25.9% in 2002 and 40.9% in 2001. The decrease in the effective tax rate in 2003 was primarily attributed to tax benefits of $758 million related to divestitures that closed during the year. Although the pre-tax losses on the divestitures for financial statement purposes were not significant, the company was able to recognize tax losses because the tax basis in the stock of the companies sold exceeded the book basis. The impact of these benefits was partially offset by the nondeductible goodwill impairment and a higher percentage of profits in higher tax jurisdictions. The decrease in the effective rate in 2002 compared to 2001 was primarily attributed to a decrease in non-deductible acquisition-related costs, including amortization of goodwill, and tax benefits of $75 million related to divestitures during 2002, partially offset by a greater portion of our profits being generated in higher tax jurisdictions. See “Business Outlook” for a discussion of our income tax rate expectations.

40

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financial Condition Our financial condition remains strong. At December 27, 2003, cash, short-term investments and fixed income instruments included in trading assets totaled $15.9 billion, up from $12.2 billion at December 28, 2002. At December 27, 2003, total short-term and long-term debt was $1.2 billion and represented 3% of stockholders’ equity. At December 28, 2002, total debt was $1.4 billion and represented 4% of stockholders’ equity. For 2003, cash provided by operating activities was $11.5 billion, compared to $9.1 billion in 2002 and $8.8 billion in 2001. Cash was provided by net income adjusted for non-cash-related items. Working capital uses of cash included increases in accounts receivable and inventories, and a decrease in income taxes payable. Accounts receivable increased over December 2002 levels, primarily due to higher revenue. The days’ sales outstanding also increased to 36 days from 34 days at December 2002. For 2003, our three largest customers accounted for approximately 42% of net revenue, with one of these customers accounting for approximately 19% of revenue and another customer accounting for approximately 15%. For 2002, our three largest customers accounted for approximately 38% of net revenue (35% of net revenue for 2001). Additionally, these three largest customers accounted for approximately 43% of net accounts receivable at December 27, 2003 (approximately 39% at December 28, 2002 and December 29, 2001). Overall inventory levels were higher by 11% at the end of 2003 compared to 2002 as we ramped new products for sale in 2004. The decrease in the accrual for income taxes payable was primarily due to the impact of tax benefits related to divestitures in the fourth quarter of 2003. Working capital sources of cash included an increase in accrued compensation and benefits, largely due to higher accruals for employee bonuses related to our higher level of profitability in 2003. We used $7.1 billion in net cash for investing activities during 2003, compared to $5.8 billion during 2002 and $330 million during 2001. The increase in cash generated from operations compared to 2002 resulted in net purchases of available-for-sale investments in 2003. Improved corporate credit profiles facilitated a slight shift in our portfolio of investments in debt securities to longer term maturities. Additionally, during 2003 we used $450 million in cash to acquire stock rights exchangeable into approximately 33.9 million shares of Micron Technology, Inc. Capital expenditures decreased to $3.7 billion in 2003 as we continued to invest in capital equipment and construction, primarily for additional microprocessor manufacturing capacity, but at a lower rate than in the prior two years. Capital expenditures were $4.7 billion in 2002 and $7.3 billion in 2001. The increase in cash used for investing activities in 2002 compared to 2001 reflected the relatively large net sales and maturities of available-for-sale investments that occurred in 2001. We used $3.9 billion in net cash for financing activities in 2003, relatively flat compared to the prior year, which had been up slightly compared to 2001. The major financing use of cash in all three years was for the repurchase of shares. In 2003, we purchased 176 million shares of common stock for $4 billion ($4 billion in 2002 and 2001). At December 27, 2003, approximately 414 million shares remained available for repurchase under the existing repurchase authorization. Another major financing use of cash in all three years was for the payment of dividends. Payment of dividends was $524 million in 2003 ($533 million in 2002 and $538 million in 2001). In January 2004, our Board of Directors approved an increase in the quarterly cash dividend from $0.02 per share to $0.04 per share, effective for the first-quarter 2004 dividend. Financing sources of cash during 2003 were primarily $967 million in proceeds from the sale of shares pursuant to employee stock benefit plans ($681 million in 2002 and $762 million in 2001). Another potential source of liquidity is authorized borrowings, including commercial paper, of $3 billion. Maximum borrowings under our commercial paper program during 2003 were approximately $30 million, although no commercial paper was outstanding at the end of the period. We also maintain the ability to issue an aggregate of approximately $1.4 billion in debt, equity and other securities under U.S. Securities and Exchange Commission shelf registration statements. We believe that we have the financial resources needed to meet business requirements for the next 12 months, including capital expenditures for the expansion or upgrading of worldwide manufacturing and assembly and test capacity, working capital requirements, the dividend program, potential stock repurchases and potential future acquisitions or strategic investments.

41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Contractual Obligations The following table summarizes our significant contractual obligations at December 27, 2003, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on our balance sheet as current liabilities at December 27, 2003.
Payments Due by Period Less than 1 year 1–3 years 3–5 years More than 5 years

(In Millions)

Total

Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital purchase obligations1 . . . . . . . . . . . . . . . . . . . . . . . . . Other purchase obligations and commitments2 . . . . . . . . . . . . Long-term debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

503 1,474 317 1,017

$

101 1,368 173 81

$

135 106 144 102 487

$

64 — — 198 262

$

203 — — 636 839

$ 3,311

$ 1,723

$

$

$

1

Capital purchase obligations represent commitments for construction or purchase of property, plant and equipment. They are not recorded as liabilities on our balance sheet as of December 27, 2003, as we have not yet received the related goods or taken title to the property. Other purchase obligations and commitments include payments due under various types of licenses and non-contingent joint funding obligations. Joint funding obligations are agreements to fund various projects with other companies, such as co-marketing and co-development initiatives. Total does not include contractual obligations recorded on the balance sheet as current liabilities, or certain purchase obligations as discussed below.

2

3

Purchase orders or contracts for the purchase of raw materials and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. For the purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on Intel and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty. Contractual obligations that are contingent upon the achievement of certain milestones are not included in the table above. These include contingent joint funding obligations, milestone-based equity investment funding, and acquisition-related deferred cash compensation contingent on future employment. These arrangements are not considered contractual obligations until the milestone is met by the third party. As of December 27, 2003, assuming all future milestones were met, additional required payments would be approximately $60 million. The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. Amounts disclosed as contingent or milestone-based obligations are dependent on the achievement of the milestones or the occurrence of the contingent events and can vary significantly. Off-Balance-Sheet Arrangements As of December 27, 2003, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. 42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Employee Stock Options Our stock option program is a broad-based, long-term retention program that is intended to attract and retain talented employees and align stockholder and employee interests. The program currently consists of two plans: one under which officers, key employees and non-employee directors may be granted options to purchase shares of our stock (1984 Plan), and a broad-based plan under which options may be granted to all employees other than officers and directors (1997 Plan). Substantially all of our employees participate in one of the plans. Options granted by the company expire no later than 10 years from the grant date. During 2003, options granted to existing and newly hired employees generally vest in increments over four or five years from the date of grant, and certain grants to key employees have delayed vesting generally beginning six years from the date of grant. Our 1984 Stock Option Plan, as amended, expires in May 2004, and our 1997 Stock Option Plan, as amended, expires in January 2007. We presently expect to propose a new equity plan for stockholder vote at our May 2004 Annual Stockholders’ Meeting. Contingent on stockholder approval, this new equity plan would replace both the expiring 1984 Plan and the 1997 Plan, which would be terminated early. We have a goal to keep the potential incremental dilution related to our option program to a long-term average of less than 2% annually. The dilution percentage is calculated using the new option grants for the year, net of options forfeited by employees leaving the company and options expired, divided by the total outstanding shares at the beginning of the year. Options granted to employees, including officers, and non-employee directors from 1999 through 2003 are summarized as follows:
(Shares in Millions) 2003 2002 2001 2000 1999

Total options .............................................. Less options forfeited1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net grants as % of outstanding shares2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants to listed officers3 as % of total options granted . . . . . . . . . . . . . . . . . . . . . . Grants to listed officers as % of outstanding shares . . . . . . . . . . . . . . . . . . . . . . . . Cumulative options held by listed officers as % of total options outstanding . . . . .
1 2 3

granted1

110 174 238 163 81 (40) (44) (47) (31) (25) 70 130 191 132 56 1.1% 1.9% 2.8% 2.0% 0.9% 2.4% 1.7% 0.8% 0.4% 0.9%