Edgar Filing: INTEL CORP

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller reporting company)

10K Document 12.28.2013

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 28, 2013.
	or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to .

Commission File Number 000-06217

INTEL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		94-1672743
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

2200 Mission College Boulevard, Santa Clara, California		95054-1549
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (408) 765-8080

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common stock, $0.001 par value		The NASDAQ Global Select Market*

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2013, based upon the closing price of the common stock as reported by The NASDAQ Global Select Market* on such date, was

$120.6 billion

4,972 million shares of common stock outstanding as of February 7, 2014

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement related to its 2014 Annual Stockholders’ Meeting to be filed subsequently are incorporated by reference into Part III of this Annual Report on Form 10-K. Except as expressly incorporated by reference, the registrant’s Proxy Statement shall not be deemed to be part of this report.

INTEL CORPORATION

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 28, 2013

INDEX



		Page

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8.	Financial Statements and Supplementary Data	49
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	110
Item 9A.	Controls and Procedures	110
Item 9B.	Other Information	110

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	111
Item 11.	Executive Compensation	111
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	112
Item 13.	Certain Relationships and Related Transactions, and Director Independence	113
Item 14.	Principal Accounting Fees and Services	113

PART IV
Item 15.	Exhibits, Financial Statement Schedules	114

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PART I


ITEM 1.	BUSINESS

Company Overview

We design and manufacture advanced integrated digital technology platforms. A platform consists of a microprocessor and chipset, and may be enhanced by additional hardware, software, and services. We sell these platforms primarily to original equipment manufacturers (OEMs), original design manufacturers (ODMs), and industrial and communications equipment manufacturers in the computing and communications industries. Our platforms are used in a wide range of computing applications, such as notebooks (including Ultrabook™ devices and 2 in 1 systems), desktops, servers, tablets, smartphones, automobile infotainment systems, automated factory systems, and medical devices. We also develop and sell software and services primarily focused on security and technology integration. We were incorporated in California in 1968 and reincorporated in Delaware in 1989.

Company Strategy

Our goal is to be the preeminent computing solutions company that powers the worldwide digital economy. Over time, the number of devices connected to the Internet and each other has grown from hundreds of millions to billions, and the variety of devices also continues to increase. The combination of embedding computing into devices and connecting them to the Internet, known as the Internet of Things, as well as a build-out of the cloud infrastructure supporting these devices is driving fundamental changes in the computing industry. As a result, we are transforming our primary focus from the design and manufacture of semiconductor chips for personal computing (PC) and servers to the delivery of solutions consisting of hardware and software platforms and supporting services across a wide range of computing devices. Examples of these solutions can be seen across the computing continuum, from the teraflops of operations per second for high performance computing (HPC) to the milliwatts of energy consumed by an embedded application. Additionally, computing is becoming an increasingly mobile, personal, and ubiquitous experience. End users value consistency across devices that connect seamlessly and securely to the Internet and to each other. We enable this experience by innovating around energy-efficient performance, connectivity, and security.

To succeed in this changing computing environment, we have the following key objectives:


•	strive to ensure that Intel^® technology is the best choice for any computing device, including PCs, data centers, cloud computing, ultra-mobile devices, and wearables;


•	be the platform of choice for any operating system;


•	maximize and extend our manufacturing technology leadership;


•	extend to adjacent services such as security, cloud, and foundry;


•	expand platforms into adjacent market segments to bring compelling new System-on-Chip (SoC) solutions and user experiences to ultra-mobile form factors including smartphones and tablets, as well as notebooks (including Ultrabook devices and 2 in 1 systems), embedded systems, and microserver applications;


•	develop platforms to enable devices that connect to the Internet of Things and to each other to create a computing continuum offering consumers a set of secure, consistent, engaging, and personalized forms of computing; and


•	strive to lower the footprint of our products and operations as well as be an asset to the communities we work in.

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We use our core assets to meet these objectives. Our core assets include our silicon and manufacturing technology leadership, our architecture and platforms, our software and services, our security solutions, our customer orientation, our strategic investments, and our corporate stewardship. We believe that applying these core assets to our key objectives provides us with the scale, capacity, and global reach to establish new technologies and respond to customers’ needs quickly. Our core assets and key objectives include the following:

•

Silicon and Manufacturing Technology Leadership. We have long been a leader in silicon process technology and manufacturing, and we aim to continue our lead through investment and innovation in this critical area. We drive a regular two-year upgrade cycle—introducing a new microarchitecture approximately every two years and ramping the next generation of silicon process technology in the intervening years. We refer to this as our “tick-tock” technology development cadence. With our continued focus on silicon and manufacturing technology leadership, we are collaborating on the development of 450-millimeter (mm) wafer technology and extreme ultraviolet lithography (EUV). We expect larger silicon wafers and enhanced lithography technologies with EUV to allow Moore’s Law to continue. Moore’s Law predicted that transistor density on integrated circuits would double about every two years. We aim to have the best process technology, and unlike many semiconductor companies, we primarily manufacture our products in our own facilities. This in-house manufacturing capability allows us to optimize performance, shorten our time to market, and scale new products more rapidly. We believe this competitive advantage will be extended in the future as the costs to build leading-edge fabrication facilities increase, and as fewer semiconductor companies will be able to combine platform design and manufacturing.

•

Architecture and Platforms. We are developing a wide range of solutions for devices that span the computing continuum and allow for computing experiences from notebooks (including Ultrabook devices and 2 in 1 systems), desktops, tablets, and smartphones to in-vehicle infotainment systems and beyond. We believe that users want consistent computing experiences and interoperable devices and that users and developers value consistency of architecture. This provides a common framework that results in shortened time to market, and the ability to leverage technologies across multiple form factors. We believe that we can meet the needs of users and developers to offer computing solutions across the computing continuum through our partnership with the industry on open, standards-based platform innovation around Intel^® architecture. We continue to invest in improving Intel architecture to deliver increased value to our customers and expand the capabilities of the architecture in adjacent market segments. For example, we focus on delivering improved energy-efficient performance, which involves balancing higher performance with lower power consumption. In addition, we are focusing on perceptual computing, which brings exciting user experiences through devices that sense and perceive the user’s actions.

•

Software and Services. We offer software and services that provide solutions through a combination of hardware and software for consumer, ultra-mobile, and corporate environments. Additionally, we seek to enable and advance the computing ecosystem by providing development tools and support to help software developers create software applications and operating systems that take advantage of our platforms. We seek to expedite growth in various market segments, such as the embedded market segment, through our software offerings. We continue to collaborate with companies to develop software platforms optimized for our Intel processors and that support multiple hardware architectures and operating systems.


•	Security. Through our expertise in hardware and software, we are able to embed security into many facets of computing. We expect to bring unique hardware, software, and end-to-end security solutions to the market in order to offer increased protection against security risks for consumers and businesses worldwide.

•

Customer Orientation. Our strategy focuses on developing our next generation of products based on the needs and expectations of our customers. In turn, our products help enable the design and development of new user experiences, form factors, and usage models for businesses and consumers. We offer platforms that incorporate various components and capabilities designed and configured to work together to provide an optimized solution that customers can easily integrate into their end products. Additionally, we promote industry standards that we believe will yield innovation and improved technologies for users.

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•

Strategic Investments. We make investments in companies around the world that we believe will further our strategic objectives, support our key business initiatives, and generate financial returns. Our investments—including those made through our Intel Capital program—generally focus on investing in companies and initiatives that we believe will stimulate growth in the digital economy, create new business opportunities for Intel, and expand global markets for our products. Additionally, we plan to continue to purchase and license intellectual property to support our current and expanding business.

•

Corporate Stewardship. We are committed to developing energy-efficient technology solutions that can be used to address major global problems while reducing our environmental impact. We are also committed to empowering people and expanding economic opportunity through education and technology, driven by our corporate and Intel Foundation programs, policy leadership, and collaborative engagements. In addition, we strive to cultivate a work environment in which engaged, energized employees can thrive in their jobs and in their communities.

Our continued investment in developing our assets and execution in key focus areas is intended to help strengthen our competitive position as we enter and expand into adjacent market segments, such as smartphones and tablets. These market segments change rapidly, and we need to adapt to this environment. A key characteristic of these adjacent market segments is low-power consumption based on SoC products. We are making significant investments in this area with the accelerated development of our SoC solutions based on the 64-bit Intel^® Atom^™ microarchitecture. We are also optimizing our server products for energy-efficient performance as we believe that increased Internet traffic and the use of ultra-mobile devices, the Internet of Things, and cloud computing has created the need for an improved server infrastructure.

At the 2013 Intel Developer Forum, we introduced the Intel^® Quark SoC family of products. Designed for applications where low power and size take priority over high performance, the IntelQuark SoC offers extremely low power consumption and a high level of integration in a low-cost package to be used in the next wave of intelligent connected devices. In addition, we also announced the Arduino*-compatible Intel^® Galileo microcontroller board and the Intel^® Edison development board at the Maker Faire* in Rome and the International Consumer Electronics Show, respectively. When combined with IntelQuark SoC, these systems provide an open-source platform for customers to design products such as, but not limited to, automation for home appliances or industrial manufacturing, home media centers, and robots. In combination with the continued build out of the cloud and the announcement of the Intel Quark technologies, we expect to be on the forefront of the acceleration and proliferation of the Internet of Things.

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Business Organization

As of December 28, 2013, we managed our business through the following operating segments:

For a description of our operating segments, see “Note 27: Operating Segments and Geographic Information,” in Part II, Item 8 of this Form 10-K.

Products

Platforms

We offer platforms that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or multichip package. Additionally, a platform may be enhanced by additional hardware, software, and services.

A microprocessor—the central processing unit (CPU) of a computer system—processes system data and controls other devices in the system. We offer microprocessors with one or multiple processor cores. Multi-core microprocessors can enable improved multitasking and energy-efficient performance by distributing computing tasks across two or more cores. Our 2nd, 3rd, 4th, and expected-to-be-released 5th generation Intel^® Core^™ (code-named "Broadwell") processor families integrate graphics functionality onto the processor die. In contrast, some of our previous-generation processors incorporated a separate graphics chip inside the processor package. Processor packages may also integrate a memory controller.

A chipset sends data between the microprocessor and input, display, and storage devices, such as the keyboard, mouse, monitor, hard drive or solid-state drive, and optical disc drives. Chipsets extend the audio, video, and other capabilities of many systems and perform essential logic functions, such as balancing the performance of the system and removing bottlenecks.

We offer and continue to develop SoC products that integrate our core processing functions with other system components, such as graphics, audio, and video, onto a single chip. SoC products are designed to reduce total cost of ownership, provide improved performance due to higher integration and lower power consumption, and enable ultra-mobile form factors such as smartphones, tablets, Ultrabook devices, and 2 in 1 systems, as well as notebooks, desktops, embedded systems and microserver applications.

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With the release of our 4th generation Intel Coreprocessor in 2013, we introduced a multichip package that integrates the chipset on one die with the CPU and graphics on another die, connected via a lower power on-package interface. Similar to a SoC, the multichip package can provide improved performance due to higher integration coupled with lower power consumption, which enables smaller form factors.

We also offer features designed to improve our platform capabilities. For example, Intel^® vPro^™ technology is a computer hardware-based security technology for the notebook and desktop market segments. Intel vPro is designed to provide businesses with increased manageability, upgradeability, energy-efficient performance, and security while lowering the total cost of ownership. We also offer Intel^® Iris^™ technology, which provides graphics enhancements for 4th and expected-to-be-released 5th generation Intel Core processors.

We offer a range of platforms based upon the following microprocessors:

McAfee, Inc.

McAfee, Inc. (McAfee) has the objective of improving the overall security of our platforms. McAfee offers software products that provide security solutions designed to protect systems in consumer, mobile, and corporate environments from malicious virus attacks as well as loss of data. McAfee’s products include software solutions for end-point security, network and content security, risk and compliance, and consumer and mobile security.

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Phone and Tablet Components

We offer components for smartphones, tablets, and connected devices which include baseband processors, radio frequency transceivers, and power management integrated circuits. We also offer comprehensive smartphone and tablet platforms, including multimode Long Term Evolution (LTE*) modems, Bluetooth^® wireless technology and Global Positioning System (GPS) receivers, software solutions, customization, and essential interoperability tests. Our mobile phone solutions, which are based on multiple industry standards, help enable mobile voice and high-speed data communications for a broad range of devices around the world.

Non-Volatile Memory Solutions

We offer NAND flash memory products primarily used in solid-state drives. Our NAND flash memory products are manufactured by IM Flash Technologies, LLC (IMFT). We also purchase NAND flash components from Micron Technology, Inc. (Micron).

Intel Custom Foundry

We offer our silicon and manufacturing technology leadership as a service for our customers. Our foundry offerings include semi-custom services (using Intel architecture and silicon with our customer's intellectual property) and fully custom foundry services.

Products and Product Strategy by Operating Segment

Our PC Client Group operating segment offers products that are incorporated in notebook (including Ultrabook devices and 2 in 1 systems) and desktop computers for consumers and businesses. In 2013, we introduced the 4th generation Intel Core processor family for use in notebooks, desktops, 2 in 1 systems, and tablets. These processors use 22-nanometer (nm) transistors and our Tri-Gate transistor processor technology. Our Tri-Gate transistor technology extends Moore’s Law and is the world’s first 3-D Tri-Gate transistor on a production technology. In combination, these enhancements can provide significant power savings and performance gains when compared to previous-generation technologies.

Notebook

Our strategy for the notebook computing market segment is to offer notebook technologies designed to bring exciting new user experiences to life and improve performance, battery life, wireless connectivity, manageability and security. In addition, we are designing for smaller, lighter, and thinner form factors. In the second half of 2014, we expect to introduce our 5th generation Intel Core processor family. We believe these processors will continue to deliver increasing levels of battery life and graphics performance, as well as provide OEMs and end users with more choice in operating system compatibility, energy efficiency, processor cores, and graphics performance.

In addition to offering notebooks, we have worked with our customers to help them develop a new class of personal computing devices that includes Ultrabook devices and 2 in 1 systems. These computers combine the energy-efficient performance and capabilities of today’s notebooks and tablets with enhanced graphics and improved user interfaces such as touch and voice in a thin, light form factor that is highly responsive and secure, and that can seamlessly connect to the Internet. We believe the renewed innovation in the PC industry that we fostered with Ultrabook devices and expanded to 2 in 1 systems will continue.

Desktop

Our strategy for the desktop computing market segment is to offer exciting new user experiences and products that provide increased manageability, security, and energy-efficient performance. We are also focused on lowering the total cost of ownership for businesses. The desktop computing market segment includes all-in-one desktop products, which combine traditionally separate desktop components into one form factor. Additionally, all-in-one computers have transformed into portable and flexible form factors that offer users increased portability and new multi-user applications and uses. For desktop consumers, we also focus on the design of products for high-end enthusiast PCs and mainstream PCs with rapidly increasing audio and media capabilities.

Our Data Center Group operating segment offers products designed to provide leading energy-efficient performance for all compute, network and storage platforms. In addition, the Data Center Group (DCG) focuses on specific optimizations for the Enterprise, Cloud, Communications Infrastructure and Technical Computing segments. DCG is continuing to ramp the many-core Intel^® Xeon Phi^™ coprocessor with 60 or more high-performance, low-power Intel processor cores. The Intel Xeon Phi coprocessors are positioned to boost the power of the world’s most advanced supercomputers, allowing for trillions of calculations per second. We recently introduced new Intel^® Xeon^®

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processors incorporating Intel’s industry leading 22nm process technology. The 22nm Intel Xeon processors provide improved performance and better power consumption across the compute, network and storage portfolio. We also announced the second generation 64-bit Intel Atom microarchitecture-based SoC solutions to focus on storage, networking and highly dense, low-power server configurations.

Our other Intel architecture operating segments offer products designed to be used in the Internet of Things, mobile communications, tablet, smartphone, service provider, netbook, and ultra-low power market segments.


•	Our strategy for the mobile communications market segment is to offer a portfolio of products that covers a broad range of wireless connectivity options by combining Intel WiFi technology with our 2G, 3G, and 4G LTE technologies. These products feature low power consumption, innovative designs, and multi-standard platform solutions.


•	Our strategy for the embedded market segment, addressed by our Intelligent Systems Group (ISG), is to lead the Internet of Things evolution by delivering new user experiences, business efficiencies, and productivity utilizing Intel architecture based solutions that provide long life-cycle support, software and architectural scalability, and platform integration.


•	Our strategy for the tablet market segment is to offer Intel architecture solutions optimized for multiple operating systems and application ecosystems. We are accelerating the process technology development for our Intel Atom processor product line to deliver increased battery life, performance, and feature integration.


•	Our strategy for the smartphone device market segment is to offer Intel Atom microarchitecture-based products that enable smartphones to deliver innovative content and services. These products are designed to deliver increased performance and system responsiveness while also enabling longer battery life.


•	Our strategy for the ultra-low power market segment is to offer Intel Quark SoCs designed for wearable and other emerging compute devices.

Our software and services operating segments seek to create differentiated user experiences on Intel-based platforms. We differentiate by combining Intel platform features and enhanced software and services. Our three primary initiatives are:


•	enabling platforms that can be used across multiple operating systems, applications, and services across all Intel products;


•	optimizing features and performance by enabling the software ecosystem to quickly take advantage of new platform features and capabilities; and


•	delivering comprehensive solutions by using software, services, and hardware to enable a more secure online experience, such as our McAfee LiveSAFE* technology platform, which provides a comprehensive security suite that offers consumer protection across a range of devices such as PCs, tablets, and smartphones.

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Revenue by Major Operating Segment

Net revenue for the PC Client Group (PCCG) operating segment, the DCG operating segment, the other Intel architecture (Other IA) operating segments, and the software and services (SSG) operating segments is presented as a percentage of our consolidated net revenue. Other IA includes ISG, Multi-Comm, the Phone Group, the Service Provider Group, the Tablet Group, the Netbook Group, and the New Devices Group operating segments. SSG includes McAfee, the Wind River Software Group, and the Software and Services Group operating segments. All other consists primarily of revenue from the Non-Volatile Memory Solutions Group.

Percentage of Revenue by Major Operating Segment

(Dollars in Millions)

Percentage of Revenue by Principal Product from Reportable Segments

(Dollars in Millions)

Competition

The computing industry continuously evolves with new and enhanced technologies and products from existing and new providers. The markets for current and planned technologies can change quickly in response to the introduction of such technologies and products and other factors such as changes in consumer tastes.

Intel faces significant competition in the development and market acceptance of technologies and products in this environment. Our platforms, based on Intel architecture, are positioned to compete across the spectrum of Internet-connected computing devices, from the lowest-power portable devices to the most powerful data center servers.

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We are a leading provider in the PC and server segments, where we face existing and emerging competition. In the PC segment, smaller mobile devices, such as tablets and smartphones, offered by numerous vendors have become significant competitors to PCs for many usages. Most of these small devices currently use applications processors based on the ARM* architecture; feature low-power, long battery-life operation; and are built in SoC formats which integrate numerous functions on one chip. In the server segment, our data center products and platforms face emerging competition from many new entrants using ARM architecture or other technologies.

We are a relatively new entrant to the segments for tablets, smartphones and similar mobile devices. We have adjusted our product roadmaps to emphasize the development of low-power SoC chips for these and other devices. The boundaries between the various segments are changing as the industry evolves and new segments emerge.

We have a long-standing position as a supplier of components and software for embedded products and this marketplace is significantly expanding with increasing types and numbers of Internet-connected devices for industrial, commercial and consumer uses, which we refer to as the Internet of Things. We face numerous large and small incumbent competitors as well as new entrants in this growing market segment that use ARM architecture as well as other operating systems and software.

Our products primarily compete based on performance, energy efficiency, integration, innovative design, features, price, quality, reliability, brand recognition and availability. The importance of these items will vary by the type of end system for the products. For example, performance might be among the most important factors for our products for servers, while price and integration might be among the most important factors for our products for tablets and smartphones.

We are the owner of McAfee, a major provider of digital security products and services to businesses and consumers. There are numerous competitors offering security products and services, and we seek to offer competitive differentiation by integrating hardware and software security features in many of our offerings and to have security offerings in numerous market segments including mobile and embedded devices and for data centers.

The ability of our products to operate on multiple operating systems in end-user products and platforms operated or sold by third parties, including OEMs, is a key competitive advantage. We seek to optimize our products for multiple operating systems and invest substantial resources working with third parties to do so, but such investments are risky given that it is not clear which products will succeed in the market.

We have competitors in each of the market segments including other companies that make and sell microprocessors, SoCs, other silicon components, software and platforms to businesses which build and sell computing and communications devices to end-users. We also compete against others selling these goods and services to businesses that utilize the products for their internal processes (e.g., businesses running large data centers). We also face competition from OEMs that, to some degree, choose to vertically integrate their own proprietary semiconductor and software assets. By doing so, these OEMs may be attempting to offer greater differentiation in their products and to increase their share of the profits for each finished product they sell.

Continuing changes in the industry such as acquisitions, business collaborations or licensing scenarios (such as injunctions or other litigation outcomes), could have a significant impact on our competitive position.

One of our important competitive advantages is the combination of our network of manufacturing, assembly and test facilities with our global architecture design teams. We have made significant capital and research and development (R&D) investments into this integrated manufacturing network, which enables us to have more direct control over our processes, quality control, product cost, production timing, performance, power consumption, and manufacturing yield. The increased cost of constructing new fabrication facilities supporting smaller transistor geometries and larger wafers has led to a smaller pool of companies that can afford to build and equip leading-edge manufacturing facilities. Most of our competitors rely on third-party foundries and subcontractors such as Taiwan Semiconductor Manufacturing Company, Ltd. and GlobalFoundries Inc. for manufacturing and assembly and test needs. We have recently started providing foundry services as an alternative to such foundries.

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Manufacturing and Assembly and Test

As of December 28, 2013, 46% of our wafer fabrication, including microprocessors and chipsets, was conducted within the U.S. at our facilities in New Mexico, Arizona, Oregon, and Massachusetts. The remaining 54% of our wafer fabrication was conducted outside the U.S. at our facilities in Israel and China. Our fabrication facility in Ireland is currently transitioning to a newer process technology node, with manufacturing expected to recommence in 2015. Wafer fabrication conducted within and outside the U.S. may be impacted by the timing of a facility’s transition to a newer process technology, as well as a facility’s capacity utilization.

As of December 28, 2013, we primarily manufactured our products in wafer fabrication facilities at the following locations:



Products	Wafer Size	Process Technology	Locations
Microprocessors	300mm	22nm	Israel, Arizona, Oregon
Microprocessors and chipsets	300mm	32nm	New Mexico
Microprocessors	300mm	45nm	New Mexico
Chipsets	300mm	65nm	China
Chipsets and other products	300mm	90nm	China
Chipsets	200mm	130nm	Massachusetts

As of December 28, 2013, most of our microprocessors were manufactured on 300mm wafers using our 22nm and 32nm process technology. Our Massachusetts fabrication facility is our last manufacturing on 200mm wafers and is expected to cease production by the end of 2014. As we move to each succeeding generation of manufacturing process technology, we incur significant start-up costs to prepare each factory for manufacturing. However, continuing to advance our process technology provides benefits that we believe justify these costs. The benefits of moving to each succeeding generation of manufacturing process technology can include using less space per transistor, reducing heat output from each transistor, and increasing the number of integrated features on each chip. These advancements can result in microprocessors that are higher performing, consume less power, and cost less to manufacture. In addition, with each shift to a new process technology, we are able to produce more microprocessors per square foot of our wafer fabrication facilities. The costs to develop our process technology are significantly less than adding capacity by building additional wafer fabrication facilities using older process technology.

We use third-party foundries to manufacture wafers for certain components, including networking and communications products. In addition, we primarily use subcontractors to manufacture board-level products and systems. We purchase certain communications networking products and mobile phone components from external vendors primarily in the Asia-Pacific region.

Following the manufacturing process, the majority of our components are subject to assembly and test. We perform our components assembly and test at facilities in Malaysia, China, Costa Rica, and Vietnam. To augment capacity, we use subcontractors to perform assembly of certain products, primarily chipsets and networking and communications products. In addition, we use subcontractors to perform assembly and test of our mobile phone components.

Our NAND flash memory products are manufactured by IMFT and Micron using 20nm, 25nm, or 34nm process technology, and assembly and test of these products is performed by Micron and other external subcontractors. For further information, see “Note 5: Cash and Investments” in Part II, Item 8 of this Form 10-K.

Our employment practices are consistent with, and we expect our suppliers and subcontractors to abide by, local country law. In addition, we impose a minimum employee age requirement as well as progressive Environmental, Health, and Safety (EHS) requirements, regardless of local law.

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

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Our products are typically manufactured at multiple Intel facilities around the world or by subcontractors. However, some products are manufactured in only one Intel or subcontractor facility, and we seek to implement action plans to reduce the exposure that would result from a disruption at any such facility. See “Risk Factors” in Part I, Item 1A of this Form 10-K.

Research and Development

We are committed to investing in world-class technology development, particularly in the design and manufacture of integrated circuits. R&D expenditures were $10.6 billion in 2013 ($10.1 billion in 2012 and $8.4 billion in 2011).

Our R&D activities are directed toward the delivery of solutions consisting of hardware and software platforms and supporting services across a wide range of computing devices. We are focused on developing the technology innovations that we believe will deliver our next generation of products, which will in turn enable new form factors and usage models for businesses and consumers. We focus our R&D efforts on advanced computing technologies, developing new microarchitectures, advancing our silicon manufacturing process technology, delivering the next generation of platforms, improving our platform initiatives, developing new solutions in emerging technologies including wearable devices and embedded applications, and developing software solutions and tools. Our R&D efforts are intended to enable new levels of performance and address areas such as energy efficiency, security, scalability for multi-core architectures, system manageability, and ease of use.

As part of our R&D efforts, we plan to introduce a new Intel Core microarchitecture for desktops, notebooks (including Ultrabook devices and 2 in 1 systems), and Intel Xeon processors approximately every two years and ramp the next generation of silicon process technology in the intervening years. We refer to this as our “tick-tock” technology development cadence as subsequently illustrated.

Advances in our silicon technology have enabled us to continue making Moore’s Law a reality. We expect to begin manufacturing products using our 14nm process technology in Q1 2014. We are currently developing our 5th generation Intel Core processor family (code-named “Broadwell”) using our 14nm process technology, expected to be released in the second half of 2014. We are also developing 10nm manufacturing process technology, our next-generation process technology.

We have continued expanding on the advances anticipated by Moore’s Law by bringing new capabilities into silicon and producing new products optimized for a wider variety of applications. We have accelerated the Intel Atom processor-based SoC roadmap for ultra-mobile form factors, including smartphones and tablets, as well as notebooks (including Ultrabook devices and 2 in 1 systems), embedded systems, and microserver applications, from 32nm through 22nm to 14nm. We intend that Intel Atom processors for ultra-mobile form factors will eventually be on the same process technology as our leading-edge products. We expect that this acceleration will result in a significant reduction in transistor leakage, lower active power, and an increase in transistor density to enable more powerful, feature-rich smartphones and tablets with longer battery life. Intel Quark SoC, our newest technology announced in Q3 2013, is an ultra-low power and low-cost architecture designed for the Internet of Things, from industrial machines to wearable devices.

With our continued focus on silicon and manufacturing technology leadership, we entered into a series of agreements with ASML Holding N.V. (ASML) in 2012. These agreements, in which Intel purchased ASML securities and agreed to provide R&D funding over five years, are intended to accelerate the development of 450mm wafer technology and EUV lithography.

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Our R&D activities range from designing and developing new products and manufacturing processes to researching future technologies and products. We continue to make significant R&D investments in the development of SoCs to enable growth in ultra-mobile form factors. In addition, we continue to make significant investments in wireless technologies including our work to develop a high-speed LTE solution for smartphones. Our second generation VoLTE product with LTE-advanced features, such as carrier aggregation, is expected to be available in the first half of 2014. We also continue to invest in graphics and HPC.

Our R&D model is based on a global organization that emphasizes a collaborative approach to identifying and developing new technologies, leading standards initiatives, and influencing regulatory policies to accelerate the adoption of new technologies, including joint pathfinding conducted between researchers at Intel Labs and our business groups. We centrally manage key cross-business group product initiatives to align and prioritize our R&D activities across these groups. In addition, we may augment our R&D activities by investing in companies or entering into agreements with companies that have similar R&D focus areas, as well as directly purchasing or licensing technology applicable to our R&D initiatives.

Employees

As of December 28, 2013, we had 107,600 employees worldwide (105,000 as of December 29, 2012), with approximately 51% of those employees located in the U.S. (51% as of December 29, 2012).

Sales and Marketing

Customers

We sell our products primarily to OEMs and ODMs. ODMs provide design and manufacturing services to branded and unbranded private-label resellers. In addition, we sell our products to other manufacturers, including makers of a wide range of industrial and communications equipment. Our customers also include those who buy PC components and our other products through distributor, reseller, retail, and OEM channels throughout the world.

Our worldwide reseller sales channel consists of thousands of indirect customers—systems builders that purchase Intel microprocessors and other products from our distributors. We have a boxed processor program that allows distributors to sell our microprocessors in small quantities to customers of systems builders; boxed processors are also available in direct retail outlets.

In 2013, Hewlett-Packard Company accounted for 17% of our net revenue (18% in 2012 and 19% in 2011), Dell Inc. accounted for 15% of our net revenue (14% in 2012 and 15% in 2011), and Lenovo Group Limited accounted for 12% of our net revenue (11% in 2012 and 9% in 2011). No other customer accounted for more than 10% of our net revenue during such periods. For information about net revenue and operating income by operating segment, and net revenue from unaffiliated customers by country, see “Note 27: Operating Segments and Geographic Information” in Part II, Item 8 of this Form 10-K.

Sales Arrangements

Our products are sold through sales offices throughout the world. Sales of our products are typically made via purchase order acknowledgments that 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. Most of our sales are made using electronic and web-based processes that allow the customer to review inventory availability and track the progress of specific goods ordered. Pricing on particular products may vary based on volumes ordered and other factors. We also offer discounts, rebates, and other incentives to customers to increase acceptance of our products and technology.

Our products are typically shipped under terms that transfer title to the customer, even in arrangements for which the recognition of revenue and related cost of sales is deferred. Our standard terms and conditions of sale typically provide that payment is due at a later date, generally 30 days after shipment or delivery. Our credit department sets accounts receivable and shipping limits for individual customers to control 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 use one or more credit support devices, such as a parent guarantee or standby letter of credit, or credit insurance. Credit losses may still be incurred due to bankruptcy, fraud, or other failure of the customer to pay. For information about our allowance for doubtful receivables, see “Schedule II—Valuation and Qualifying Accounts” in Part IV of this Form 10-K.

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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. Under the price protection program, we give distributors credits for the difference between the original price paid and the current price that we offer. On most products, there is no contractual limit on the amount of price protection, nor is there a limit on the time horizon under which price protection is granted. The right of return granted generally consists of a stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases made by the distributor. We have the option to grant credit for, repair, or replace defective products, and there is no contractual limit on the amount of credit that may be granted to a distributor for defective products.

Distribution

Distributors typically handle a wide variety of products, including those that compete with our products, and fill orders for many customers. 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. We have several distribution warehouses that are located in proximity to key customers.

Backlog

Over time, our larger customers have generally moved to lean-inventory or just-in-time operations rather than maintaining larger inventories of our products. As our customers continue to lower their inventories, our processes to fulfill their orders have evolved to meet their needs. As a result, our manufacturing production is based on estimates and advance non-binding commitments from customers as to future purchases. Our order backlog as of any particular date is a mix of these commitments and specific firm orders that are primarily made pursuant to standard purchase orders for delivery of products. Only a small portion of our orders is non-cancelable, and the dollar amount associated with the non-cancelable portion is not significant.

Seasonal Trends

Historically, our platform sales have generally been higher in the second half of the year than in the first half of the year, accelerating in the third quarter and peaking in the fourth quarter.

Marketing

Our corporate marketing objectives are to build a strong, well-known Intel corporate brand that connects with businesses and consumers, and to offer a limited number of meaningful and valuable brands in our portfolio to aid businesses and consumers in making informed choices about technology purchases. The Intel Core processor family and the Intel Atom, Intel^® Pentium^®, Intel Xeon, Intel Xeon Phi and Intel^® Itanium^® trademarks make up our processor brands.

We promote brand awareness and generate demand through our own direct marketing as well as through co-marketing programs. Our direct marketing activities include television, print, and Internet advertising, as well as press relations and social media, consumer and trade events, and industry and consumer communications. We market to consumer and business audiences, and focus on building awareness and generating demand for new form factors such as Ultrabook and 2 in 1 systems, and for increased performance, improved energy efficiency, and other capabilities such as Internet connectivity and security.

Purchases by customers often allow them to participate in cooperative advertising and marketing programs such as the Intel Inside^® Program. This program broadens the reach of our brands beyond the scope of our own direct marketing. Through the Intel Inside Program, certain customers are licensed to place Intel logos on computing devices containing our microprocessors and processor technologies, and to use our brands in their marketing activities. The program includes a market development component that accrues funds based on purchases and partially reimburses the OEMs for marketing activities for products featuring Intel brands, subject to the OEMs meeting defined criteria. These marketing activities primarily include television, print, and Internet marketing. We have also entered into joint marketing arrangements with certain customers.

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Intellectual Property Rights and Licensing

Intel owns significant intellectual property (IP) around the world that relates to our products, services, research and development, and other activities and assets. Our IP portfolio includes patents, copyrights, trade secrets, trademarks, trade dress rights, and maskwork rights. We actively seek to protect our global IP rights and to deter unauthorized use of our IP and other assets. Such efforts can be difficult, however, particularly in countries that provide less protection to IP rights and in the absence of harmonized international IP standards. See “Risk Factors” in Part I, Item 1A, and “Note 26: Contingencies” in Part II, Item 8 of this Form 10-K.

We have obtained patents in the U.S. and other countries. While our patents are an important element of our success, our business as a whole is not significantly dependent on any one patent. Because of the fast pace of innovation and product development, and the comparative pace of governments’ patenting processes, our products are often obsolete before the patents related to them expire; in some cases, our products may be obsolete before the patents related to them are granted. As we expand our products into new industries, we also seek to extend our patent development efforts to patent such products. In addition to developing patents based on our own research and development efforts, we purchase patents from third parties to supplement our patent portfolio. Established competitors in existing and new industries, as well as companies that purchase and enforce patents and other IP, may already have patents covering similar products. There is no assurance that we will be able to obtain patents covering our own products, or that we will be able to obtain licenses from other companies on favorable terms or at all.

The software that we distribute, including software embedded in our component-level and platform products, is entitled to copyright and other IP protection. To distinguish our products from our competitors’ products, we have obtained trademarks and trade names for our products, and we maintain cooperative advertising programs with customers to promote our brands and to identify products containing genuine Intel components. We also protect details about our processes, products, and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage.

Compliance with Environmental, Health, and Safety Regulations

Our compliance efforts focus on monitoring regulatory and resource trends and setting company-wide performance targets for key resources and emissions. These targets address several parameters, including product design; chemical, energy, and water use; waste recycling; the source of certain minerals used in our products; climate change; and emissions.

As a company, we focus on reducing natural resource use, the solid and chemical waste by-products of our manufacturing processes, and the environmental impact of our products. We currently use a variety of materials in our manufacturing process that have the potential to adversely impact the environment and are subject to a variety of EHS laws and regulations. Over the past several years, we have significantly reduced the use of lead and halogenated flame retardants in our products and manufacturing processes.

We work with the U.S. Environmental Protection Agency (EPA), non-governmental organizations (NGOs), OEMs, and retailers to help manage e-waste (including electronic products nearing the end of their useful lives) and to promote recycling. The European Union requires producers of certain electrical and electronic equipment to develop programs that let consumers return products for recycling. Many states in the U.S. have similar e-waste take-back laws. Although these laws are typically targeted at the end electronic product and not the component products that we manufacture, the inconsistency of many e-waste take-back laws and the lack of local e-waste management options in many areas pose a challenge for our compliance efforts.

We are an industry leader in our efforts to build ethical sourcing of minerals for our products, including “conflict minerals” from the Democratic Republic of the Congo (DRC) and adjoining countries. In 2013, we accomplished our goal to manufacture microprocessors that are DRC conflict free for tantalum, tin, tungsten, and gold. In 2014, we will continue our work to establish DRC conflict free supply chains for these minerals for our company and our industry.

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We seek to reduce our global greenhouse gas emissions by investing in energy conservation projects in our factories and working with suppliers to improve energy efficiency. We take a holistic approach to power management, addressing the challenge at the silicon, package, circuit, micro-architecture, macro architecture, platform, and software levels. We recognize that climate change may cause general economic risk. For further information on the risks of climate change, see “Risk Factors” in Part I, Item 1A of this Form 10-K. We see a potential for higher energy costs driven by climate change regulations. This could include items applied to utility companies that are passed along to customers, such as carbon taxes or costs associated with obtaining permits for our manufacturing operations, emission cap and trade programs, or renewable portfolio standards.

We are committed to sustainability and take a leadership position in promoting voluntary environmental initiatives and working proactively with governments, environmental groups, and industry to promote global environmental sustainability. We believe that technology will be fundamental to finding solutions to the world’s environmental challenges, and we are joining forces with industry, business, and governments to find and promote ways that technology can be used as a tool to combat climate change.

We have been purchasing wind power and other forms of renewable energy at some of our major sites for several years. We purchase renewable energy certificates under a multi-year contract. This purchase has placed Intel at the top of the EPA’s Green Power Partnership for the past four years and is intended to help stimulate the market for green power, leading to additional generating capacity and, ultimately, lower costs.

Distribution of Company Information

Our Internet address is www.intel.com. We publish voluntary reports on our web site that outline our performance with respect to corporate responsibility, including EHS compliance.

We use our Investor Relations web site, www.intc.com, as a routine channel for distribution of important information, including news releases, analyst presentations, and financial information. We post filings on our web site the same day they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC), including our annual and quarterly reports on Forms 10-K and 10-Q and current reports on Form 8-K; our proxy statements; and any amendments to those reports or statements. We post our quarterly and annual earnings results on our Investor Relations website, at www.intc.com/results.cfm, and do not distribute our financial results via a news wire service. All such postings and filings are available on our Investor Relations web site free of charge. In addition, our Investor Relations web site allows interested persons to sign up to automatically receive e-mail alerts when we post news releases and financial information. The SEC’s web site, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The content on any web site referred to in this Form 10-K is not incorporated by reference in this Form 10-K unless expressly noted.

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Executive Officers of the Registrant

The following sets forth certain information with regard to our executive officers as of February 14, 2014 (ages are as of December 28, 2013):



Andy D. Bryant, age 63		Brian M. Krzanich, age 53
• 2012 – present,	Chairman of the Board	• 2013 – present,	Chief Executive Officer
• 2011 – 2012,	Vice Chairman of the Board, Executive VP, Technology, Manufacturing and Enterprise Services, Chief Administrative Officer	• 2012 – 2013,	Executive VP, Chief Operating Officer
		• 2010 – 2012,	Senior VP, GM, Manufacturing and Supply Chain
			Senior VP, GM, Manufacturing and Supply Chain
• 2009 – 2011,	Executive VP, Technology, Manufacturing, and Enterprise Services, Chief Administrative Officer	• 2006 – 2010,	VP, GM, Assembly and Test
		• Joined Intel in 1982

• 2007 – 2009,	Executive VP, Finance and Enterprise Services, Chief Administrative Officer	A. Douglas Melamed, age 68
		• 2009 – present,	Senior VP, General Counsel
• 2001 – 2007,	Executive VP, Chief Financial and Enterprise Services Officer	• 2001 – 2009,	Partner, Wilmer Cutler Pickering Hale and Dorr LLP
			Partner, Wilmer Cutler Pickering Hale and Dorr LLP
• Member of Intel Corporation Board of Directors		• Joined Intel in 2009
• Member of Columbia Sportswear Company Board of Directors
• Member of Columbia Sportswear Company Board of Directors		Stacy J. Smith, age 51
• Member of McKesson Corporation Board of Directors		• 2012 – present,	Executive VP, Chief Financial Officer
• Joined Intel in 1981		• 2010 – 2012,	Senior VP, Chief Financial Officer
		• 2007 – 2010,	VP, Chief Financial Officer
William M. Holt, age 61		• 2006 – 2007,	VP, Assistant Chief Financial Officer
• 2013 – present,	Executive VP, GM, Technology and Manufacturing Group	• 2004 – 2006,	VP, Finance and Enterprise Services, Chief Information Officer
	Executive VP, GM, Technology and Manufacturing Group
• 2006 – 2013,	Senior VP, GM, Technology and Manufacturing Group	• Member of Autodesk, Inc. Board of Directors
	Senior VP, GM, Technology and Manufacturing Group	• Member of Gevo, Inc. Board of Directors
• 2005 – 2006,	VP, Co-GM, Technology and Manufacturing Group	• Joined Intel in 1988
	VP, Co-GM, Technology and Manufacturing Group
• Joined Intel in 1974		Arvind Sodhani, age 59
		• 2007 – present,	Executive VP, President of Intel Capital
Renee J. James, age 49		• 2005 – 2007,	Senior VP, President of Intel Capital
• 2013 – present,	President	• Joined Intel in 1981
• 2012 – 2013,	Executive VP, GM, Software and Services Group
	Executive VP, GM, Software and Services Group
• 2005 – 2012,	Senior VP, GM, Software and Services Group
	Senior VP, GM, Software and Services Group
• 2002 – 2005,	VP, Developer Programs
• Member of Vodafone Group plc Board of Directors
• Joined Intel in 1988

Thomas M. Kilroy, age 56
• 2013 – present,	Executive VP, GM, Sales and Marketing Group
	Executive VP, GM, Sales and Marketing Group
• 2010 – 2013,	Senior VP, GM, Sales and Marketing Group
	Senior VP, GM, Sales and Marketing Group
• 2009 – 2010,	VP, GM, Sales and Marketing Group
• 2005 – 2009,	VP, GM, Digital Enterprise Group
• Joined Intel in 1990

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ITEM 1A.	RISK FACTORS

Changes in product demand may harm our financial results and are hard to predict.

If product demand decreases, our revenue and profit could be harmed. Important factors that could cause demand for our products to decrease include changes in:


•	business conditions, including downturns in the computing industry, regional economies, and the overall economy;


•	consumer confidence or income levels caused by changes in market conditions, including changes in government borrowing, taxation, or spending policies; the credit market; or expected inflation, employment, and energy or other commodity prices;


•	the level of customers’ inventories;


•	competitive and pricing pressures, including actions taken by competitors;


•	customer product needs;


•	market acceptance of our products and maturing product cycles; and


•	the technology supply chain, including supply constraints caused by natural disasters or other events.

Our operations have high costs—including costs related to facility construction and equipment, R&D, and employment and training of a highly skilled workforce—that are either fixed or difficult to reduce in the short term. At the same time, demand for our products is highly variable and, in recent years, we have experienced declining orders in the traditional PC market segment, which has been negatively impacted by the growth in ultra-mobile devices such as tablets and smartphones. If product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record excess capacity charges, which would lower our gross margin. Our manufacturing or assembly and test capacity could be underutilized, and we may be required to write down our long-lived assets, which would increase our expenses. Factory-planning decisions may shorten the useful lives of facilities and equipment and cause us to accelerate depreciation. If product demand increases, we may be unable to add capacity fast enough to meet market demand. Our revenue and gross margin percentage can also be affected by the timing of our product introductions and related expenses, including marketing expenses. Changes in product demand, and changes in our customers’ product needs, could negatively affect our competitive position and may reduce our revenue, increase our costs, lower our gross margin percentage, or require us to write down our assets.

We operate in highly competitive industries, and our failure to anticipate and respond to technological and market developments could harm our ability to compete.

We operate in highly competitive industries that experience rapid technological and market developments, changes in industry standards, changes in customer needs, and frequent product introductions and improvements. If we are unable to anticipate and respond to these developments, we might weaken our competitive position, and our products or technologies might be uncompetitive or obsolete. As computing market segments emerge, such as smartphones, tablets, and consumer electronics devices, we face new sources of competition and customers with needs different from those of customers in the PC market segment. Some of our competitors are pursuing a vertical integration strategy, incorporating their SoC solutions into the smartphones and tablets they offer, which could make it less likely that they will adopt our SoC solutions. To be successful, we need to cultivate new industry relationships in these market segments. As the number and variety of Internet-connected devices increase, we need to continuously improve the cost, connectivity, integration, features, energy efficiency, and security of our platforms, among other things, to succeed in these market segments. In addition, we need to expand our software capabilities to provide customers with comprehensive computing solutions.

To compete successfully, we must maintain a successful R&D effort, develop new products and production processes, and improve our existing products and processes ahead of competitors. For example, we invest substantially in our network of manufacturing, assembly and test facilities, including the construction of new fabrication facilities to support smaller transistor geometries and larger wafers. Our R&D efforts are critical to our success and are aimed at solving complex problems, and we do not expect all of our projects to be successful. We may be unable to develop and market new products successfully, and the products we invest in and develop may not be well received by customers. Our R&D investments may not generate significant operating income or contribute to our future operating results for several years and such contributions may not meet our expectations or even cover the costs of such investments. Additionally, the products and technologies offered by others may affect demand for or pricing of our products. These types of events could negatively affect our competitive position and may reduce revenue, increase costs, lower gross margin percentage, or require us to impair our assets.

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Changes in the mix of products sold may harm our financial results.

Because of the wide price differences of platform average selling prices among our data center, PC client, and Other IA platforms, a change in the mix of platforms among these market segments may impact our revenue and gross margin. For example, our PC client platforms that are incorporated in notebook and desktop computers tend to have lower average selling prices and gross margin than our data center platforms that are incorporated in servers, workstations and storage products. Therefore, if there is less demand for our data center platforms, and a resulting mix shift to our PC client platforms, our gross margins and revenue would decrease. Also, more recently introduced products tend to have higher costs because of initial development costs and lower production volumes relative to the previous product generation, which can impact gross margin.

Our global operations subject us to risks that may harm our results of operations and financial condition.

We have sales offices, R&D, manufacturing, assembly and test facilities, and other facilities in many countries, and some business activities may be concentrated in one or more geographic areas. As a result, our ability to manufacture, assemble and test, design, develop, or sell products may be affected by:


•	security concerns, such as armed conflict and civil or military unrest, crime, political instability, and terrorist activity;


•	natural disasters and health concerns;


•	inefficient and limited infrastructure and disruptions, such as supply chain interruptions and large-scale outages or interruptions of service from utilities, transportation, or telecommunications providers;


•	restrictions on our operations by governments seeking to support local industries, nationalization of our operations, and restrictions on our ability to repatriate earnings;


•	differing employment practices and labor issues; and


•	local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act (FCPA) and other anti-corruption laws and regulations.

Legal and regulatory requirements differ among jurisdictions worldwide. Violations of these laws and regulations could result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation. Although we have policies, controls, and procedures designed to ensure compliance with these laws, our employees, contractors, or agents may violate our policies.

Although most of our sales occur in U.S. dollars, expenses such as payroll, utilities, tax, and marketing expenses may be paid in local currencies. We also conduct certain investing and financing activities in local currencies. Our hedging programs reduce, but do not eliminate, the impact of currency exchange rate movements; therefore, changes in exchange rates could harm our results of operations and financial condition. Changes in tariff and import regulations and in U.S. and non-U.S. monetary policies may harm our results of operations and financial condition by increasing our expenses and reducing revenue. Differing tax rates in various jurisdictions could harm our results of operations and financial condition by increasing our overall tax rate.

We maintain a program of insurance coverage for a variety of property, casualty, and other risks. We place our insurance coverage with multiple carriers in numerous jurisdictions. However, one or more of our insurance providers may be unable or unwilling to pay a claim. The types and amounts of insurance we obtain vary depending on availability, cost, and decisions with respect to risk retention. The policies have deductibles and exclusions that result in us retaining a level of self-insurance. Losses not covered by insurance may be large, which could harm our results of operations and financial condition.

Failure to meet our production targets, resulting in undersupply or oversupply of products, may harm our business and results of operations.

Production of integrated circuits is a complex process. Disruptions in this process can result from errors, difficulties in our development and implementation of new processes, defects in materials, disruptions in our supply of materials or resources, and disruptions at our fabrication and assembly and test facilities due to accidents, maintenance issues, or unsafe working conditions—all of which could affect the timing of production ramps and yields. We may not be successful or efficient in developing or implementing new production processes. Production issues may result in our failure to meet or increase production as desired, resulting in higher costs or large decreases in yields, which could affect our ability to produce sufficient volume to meet product demand. The unavailability or reduced availability of products could make it more difficult to deliver computing platforms. The occurrence of these events could harm our business and results of operations.

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We may have difficulties obtaining the resources or products we need for manufacturing, assembling and testing our products, or operating other aspects of our business, which could harm our ability to meet demand and increase our costs.

We have thousands of suppliers providing materials that we use in production and other aspects of our business, and where possible, we seek to have several sources of supply for all of those materials. However, we may rely on a single or a limited number of suppliers, or upon suppliers in a single location, for these materials. The inability of suppliers to deliver adequate supplies of production materials or other supplies could disrupt our production processes or make it more difficult for us to implement our business strategy. Production could be disrupted by the unavailability of resources used in production, such as water, silicon, electricity, gases, and other materials. Future environmental regulations could restrict the supply or increase the cost of materials that we use in our business and make it more difficult to obtain permits to build or modify manufacturing capacity to meet demand. The unavailability or reduced availability of materials or resources may require us to reduce production or incur additional costs. The occurrence of these events could harm our business and results of operations.

Costs related to product defects and errata may harm our results of operations and business.

Costs of product defects and errata (deviations from published specifications) due to, for example, problems in our design and manufacturing processes, could include:


•	writing off the value of inventory;


•	disposing of products that cannot be fixed;


•	recalling products that have been shipped;


•	providing product replacements or modifications; and


•	defending against litigation.

These costs could be large and may increase expenses and lower gross margin. Our reputation with customers or end users could be damaged as a result of product defects and errata, and product demand could be reduced. The announcement of product defects and errata could cause customers to purchase products from competitors as a result of possible shortages of Intel components or for other reasons. These factors could harm our business and financial results.

Third parties might attempt to gain unauthorized access to our network or seek to compromise our products and services, which could damage our reputation and financial results.

We regularly face attempts by others to gain unauthorized access through the Internet or to introduce malicious software to our IT systems. Additionally, malicious hackers may attempt to gain unauthorized access and corrupt the processes of hardware and software products that we manufacture and services we provide. These attempts might be the result of industrial or other espionage or actions by hackers seeking to harm our company, our products and services, or users of our products and services. Due to the widespread use of our products and due to the high profile of our McAfee subsidiary, we or our products and services are a frequent target of computer hackers and organizations that intend to sabotage, take control of, or otherwise corrupt our manufacturing or other processes, products and services. We are also a target of malicious attackers who attempt to gain access to our network or data centers or those of our customers or end users; steal proprietary information related to our business, products, employees and customers; or interrupt our systems and services or those of our customers or others. We believe such attempts are increasing in number and in technical sophistication. These attacks are sometimes successful; and in some instances, we, our customers, and the users of our products and services might be unaware of an incident or its magnitude and effects. We seek to detect and investigate such attempts and incidents and to prevent their recurrence where practicable through changes to our internal processes and tools and/or changes or patches to our products and services, but in some cases preventive and remedial action might not be successful. Such attacks, whether successful or unsuccessful, could result in our incurring costs related to, for example, rebuilding internal systems, reduced inventory value, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties. Publicity about vulnerabilities and attempted or successful incursions could damage our reputation with customers or users and reduce demand for our products and services.

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We may be subject to theft, loss or misuse of personal data about us or our employees, customers or other third parties, which could increase our expenses, damage our reputation or result in litigation.

Global privacy legislation, enforcement, and policy activity are rapidly expanding and creating a complex compliance environment. The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business could result in increased security costs or costs related to defending legal claims. Costs to comply with and implement privacy-related and data protection measures could be significant. Our failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others.

Third parties may claim infringement of IP rights, which could harm our business.

We may face IP rights infringement claims from individuals and companies, including those who have acquired patent portfolios to assert claims against other companies. We are engaged in a number of litigation matters involving IP rights. Claims that our products or processes infringe the IP rights of others could cause us to incur large costs to respond to, defend, and resolve the claims, and they may divert the efforts and attention of management and technical personnel. As a result of IP rights infringement claims, we could:


•	pay monetary damages for infringement claims;


•	stop manufacturing, using, selling, offering to sell or importing products or technology subject to infringement claims;


•	develop other products or technology not subject to infringement claims, which could be time-consuming, costly or impossible; or


•	license technology from the party claiming infringement, which license may not be available on commercially reasonable terms.

These actions could harm our competitive position, result in expenses, or require us to impair our assets. If we alter or stop production of affected items, our revenue could be harmed.

We may be unable to enforce or protect our IP rights, which may harm our ability to compete and may harm our business.

Our ability to enforce our patents, copyrights, software licenses, and other IP rights is subject to general litigation risks, as well as uncertainty as to the enforceability of our IP rights in various countries. When we seek to enforce our rights, we are often subject to claims that the IP rights are invalid, not enforceable, or licensed to the opposing party. Our assertion of IP rights often results in the other party seeking to assert claims against us, which could harm our business. Governments may adopt regulations—and governments or courts may render decisions—requiring compulsory licensing of IP rights, or governments may require products to meet standards that serve to favor local companies. Our inability to enforce our IP rights under these circumstances may harm our competitive position and business.

We may be subject to IP theft or misuse, which could result in claims against us and harm our business and results of operations.

The theft or unauthorized use or publication of our trade secrets and other confidential business information could harm our competitive position and reduce acceptance of our products; the value of our investment in R&D, product development, and marketing could be reduced. In addition, the theft or unauthorized use or publication of third party trade secrets and other confidential business information that we obtain in conducting our business might lead to third-party claims against us related to the loss of the confidential or proprietary information or end-user data. Any such incidents and claims could severely disrupt our business, and we could suffer losses, including the cost of product recalls and returns and reputational harm.

Our licenses with other companies and participation in industry initiatives may allow competitors to use our patent rights.

Companies in the computing industry often bilaterally license patents between each other to settle disputes or as part of business agreements between them. Our competitors may have licenses to our patents, and under current case law, some of the licenses may permit these competitors to pass our patent rights on to others under some circumstances. Our participation in industry standards organizations or with other industry initiatives may require us to license our patents to companies that adopt industry-standard specifications. Depending on the rules of the organization, we might have to grant these licenses to our patents for little or no cost, and as a result, we may be unable to enforce certain patents against others, our costs of enforcing our licenses or protecting our patents may increase, and the value of our IP rights may be impaired. In addition, we may not be able to obtain licenses on fair, reasonable and non-discriminatory terms to patents asserted to be essential to standards that we implement in our products.

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Litigation or regulatory proceedings could harm our business.

We may face legal claims or regulatory matters involving stockholder, consumer, competition, and other issues on a global basis. As described in “Note 26: Contingencies” in Part II, Item 8 of this Form 10-K, we are engaged in a number of litigation and regulatory matters. Litigation and regulatory proceedings are inherently uncertain, and adverse rulings could occur, including monetary damages, or an injunction stopping us from manufacturing or selling products, engaging in business practices, or requiring other remedies, such as compulsory licensing of patents.

We face risks related to sales through distributors and other third parties.

We sell a portion of our products through third parties such as distributors, value-added resellers, OEMs, Internet service providers, and channel partners (collectively referred to as distributors). Using third parties for distribution exposes us to many risks, including competitive pressure, concentration, credit risk, and compliance risks. Distributors may sell products that compete with our products, and we may need to provide financial and other incentives to focus distributors on the sale of our products. We may rely on one or more key distributors for a product, and the loss of these distributors could reduce our revenue. Distributors may face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable and financial results. Violations of FCPA or similar laws by distributors or other third-party intermediaries could have a material impact on our business. Failing to manage risks related to our use of distributors may reduce sales, increase expenses, and weaken our competitive position.

We face risks related to sales to government entities.

We derive a portion of our revenue from sales to government entities and their respective agencies. Government demand and payment for our products may be affected by public sector budgetary cycles and funding authorizations. Government contracts are subject to oversight, including special rules on accounting, expenses, reviews, and security. Failing to comply with these rules could result in civil and criminal penalties and sanctions, including termination of contracts, fines and suspensions, or debarment from future government business.

We invest in companies for strategic reasons and may not realize a return on our investments.

We make investments in companies around the world to further our strategic objectives and support key business initiatives. These investments include equity or debt instruments of public or private companies, and many of these instruments are non-marketable at the time of our initial investment. Companies range from early-stage companies that are still defining their strategic direction to more mature companies with established revenue streams and business models. The companies in which we invest may fail because they are unable to secure additional funding, obtain favorable terms for future financings, or participate in liquidity events such as public offerings, mergers, and private sales. If any of these companies fail, we could lose all or part of our investment. If we determine that an other-than-temporary decline in the fair value exists for an investment, we write down the investment to its fair value and recognize a loss, impacting gains (losses) on equity investments, net.

Our results of operations could vary as a result of the methods, estimates, and judgments that we use in applying accounting policies.

The methods, estimates, and judgments that we use in applying accounting policies have a large impact on our results of operations. For more information, see “Critical Accounting Estimates” in Part II, Item 7 of this Form 10-K. These methods, estimates, and judgments are subject to large risks, uncertainties, and assumptions, and changes could affect our results of operations.

Changes in our effective tax rate may harm our results of operations.

A number of factors may increase our effective tax rates, which could reduce our net income, including:


•	the jurisdictions in which profits are determined to be earned and taxed;


•	the resolution of issues arising from tax audits;


•	changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances;


•	adjustments to income taxes upon finalization of tax returns;


•	increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairments of goodwill;


•	changes in available tax credits;


•	changes in tax laws or their interpretation, including changes in the U.S. to the taxation of non-U.S income and expenses;


•	changes in U.S. generally accepted accounting principles; and


•	our decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes.

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Decisions about the scope of operations of our business could affect our results of operations and financial condition.

Changes in the business environment could lead to changes in the scope of our operations, resulting in restructuring and asset impairment charges in addition to those announced in the last twelve months. Factors that could affect our results of operations and financial condition due to a change in the scope of our operations include:


•	timing and execution of plans and programs subject to local labor law requirements, including consultation with work councils;


•	changes in assumptions related to severance and postretirement costs;


•	divestitures;


•	new business initiatives and changes in product roadmap, development, and manufacturing;


•	changes in employment levels and turnover rates;


•	changes in product demand and the business environment; and


•	changes in the fair value of long-lived assets.

Our acquisitions, divestitures, and other transactions could disrupt our ongoing business and harm our results of operations.

In pursuing our business strategy, we routinely conduct discussions, evaluate opportunities, and enter into agreements for possible investments, acquisitions, divestitures, and other transactions, such as joint ventures. Acquisitions and other transactions involve large challenges and risks, including risks that:


•	we may be unable to identify opportunities on terms acceptable to us;


•	the transaction may not advance our business strategy;


•	we may not realize a satisfactory return;


•	we may be unable to retain key personnel;


•	we may experience difficulty in integrating new employees, business systems, and technology;


•	acquired businesses may not have adequate controls, processes, and procedures to ensure compliance with laws and regulations, and our due diligence process may not identify compliance issues or other liabilities;


•	we may have difficulty entering new market segments; or


•	we may be unable to retain the customers and partners of acquired businesses.

When we decide to sell assets or a business, we may have difficulty selling on acceptable terms in a timely manner, and the agreed-upon terms and financing arrangements could be renegotiated due to changes in business or market conditions. These circumstances could delay the achievement of our strategic objectives or cause us to incur added expense, or we may sell a business at a price or on terms that are less favorable than we had anticipated, resulting in a loss on the transaction.

If we do enter into agreements with respect to acquisitions, divestitures, or other transactions, we may fail to complete them due to factors such as:


•	failure to obtain regulatory or other approvals;


•	IP disputes or other litigation; or


•	difficulties obtaining financing for the transaction.

Our failure to comply with environmental laws and regulations could harm our business and results of operations.

The manufacturing and assembly and test of our products require the use of hazardous materials that are subject to a broad array of EHS laws and regulations. Our failure to comply with these laws or regulations could result in:


•	regulatory penalties, fines, and legal liabilities;


•	suspension of production;


•	alteration of our fabrication and assembly and test processes;


•	reputational challenges; and


•	restrictions on our operations or sales.

Our failure to manage the use, transportation, emissions, discharge, storage, recycling, or disposal of hazardous materials could lead to increased costs or future liabilities. Environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify product designs, or incur other expenses. Many new materials that we are evaluating for use in our operations may be subject to regulation under environmental laws and regulations. These restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter manufacturing and assembly and test processes.

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In addition, the SEC has adopted disclosure rules for companies that use conflict minerals (commonly referred to as tantalum, tin, tungsten, and gold) in their products, with substantial supply chain verification requirements in the event that the materials come from the DRC or adjoining countries. The European Union and other foreign jurisdictions may in the future also enact rules regarding conflict minerals, which could potentially cover additional minerals or locations where minerals originate. Due to the complexity of our supply chain, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to sufficiently verify the origins of the conflict minerals used in our products.

Climate change poses both regulatory and physical risks that could harm our results of operations and affect the way we conduct business.

In addition to the possible direct economic impact that climate change could have on us, climate change mitigation programs and regulations can increase our costs. The cost of perfluorocompounds (PFCs)—a gas that we use in manufacturing—could increase under some climate-change-focused emissions trading programs that may be imposed through regulation. If the use of PFCs is prohibited, we would need to obtain substitute materials that may cost more or be less available for our manufacturing operations. Air-quality permit requirements for our manufacturing operations could become more burdensome and cause delays in our ability to modify or build additional manufacturing capacity. Under recently adopted greenhouse gas regulations in the U.S., many of our manufacturing facilities have become “major” sources under the Clean Air Act. At a minimum, this change in status results in some uncertainty as the EPA adopts guidance on its greenhouse gas regulations. Due to the dynamic nature of our operations, these regulations will likely result in increased costs for our U.S. operations. These cost increases could be associated with new air pollution control requirements, and increased or new monitoring, recordkeeping, and reporting of greenhouse gas emissions. We also see the potential for higher energy costs driven by climate change regulations. Our costs could increase if utility companies pass on their costs, such as those associated with carbon taxes, emission cap and trade programs, or renewable portfolio standards. While we maintain business recovery plans that are intended to allow us to recover from natural disasters or other events that can be disruptive to our business, we cannot be sure that our plans will fully protect us from all such disasters or events. Many of our operations are located in semi-arid regions, such as Israel and the southwestern U.S. Some scenarios predict that these regions may become even more vulnerable to prolonged droughts due to climate change.

In order to compete, we must attract, retain, and motivate key employees, and our failure to do so could harm our results of operations.

In order to compete, we must attract, retain, and motivate executives and other key employees. Hiring and retaining qualified executives, scientists, engineers, technical staff, and sales representatives are critical to our business, and competition for experienced employees in the semiconductor industry can be intense. To help attract, retain, and motivate qualified employees, we use share-based incentive awards such as employee stock options and non-vested share units (restricted stock units). If the value of such stock awards does not appreciate as measured by the performance of the price of our common stock, or if our share-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain, and motivate employees could be weakened, which could harm our results of operations.

A number of factors could lower interest and other, net harming our results of operations.

Factors that could lower interest and other, net in our consolidated statements of income include changes in fixed-income, equity, and credit markets; foreign currency exchange rates; interest rates; credit standing of financial instrument counterparties; our cash and investment balances; and our indebtedness.

There are inherent limitations on the effectiveness of our controls.

We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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ITEM 1B.	UNRESOLVED STAFF COMMENTS

Not applicable.


ITEM 2.	PROPERTIES

As of December 28, 2013, our major facilities consisted of:



(Square Feet in Millions)	United States	Other Countries	Total
Owned facilities¹	29.9	16.7	46.6
Leased facilities²	2.3	6.0	8.3
Total facilities	32.2	22.7	54.9


¹	Leases on portions of the land used for these facilities expire on varying dates through 2062.


²	Leases expire on varying dates through 2028 and generally include renewals at our option.

Our principal executive offices are located in the U.S. and a significant amount of our wafer fabrication activities are also located in the U.S. In addition to our current facilities, we are building a development fabrication facility in Oregon which began R&D start-up in 2013. We expect that this new facility will allow us to widen our process technology lead. We also completed construction of a large-scale fabrication building in Arizona in 2013, which is currently not in use and is not being depreciated. We recently announced that we plan to delay equipment installation in this building and leverage existing fabrication facilities, reserving this new facility for additional capacity and future technologies. Outside the U.S., we have wafer fabrication facilities in Israel, China, and Ireland. Our fabrication facility in Ireland is currently transitioning to a newer process technology node, with manufacturing expected to recommence in 2015. Our assembly and test facilities are located in Malaysia, China, Costa Rica, and Vietnam. In addition, we have sales and marketing offices worldwide that are generally located near major concentrations of customers.

We believe that the facilities described above are suitable and adequate for our present purposes and that the productive capacity in our facilities is substantially being utilized or we have plans to utilize it.

We do not identify or allocate assets by operating segment. For information on net property, plant and equipment by country, see “Note 27: Operating Segments and Geographic Information” in Part II, Item 8 of this Form 10-K.


ITEM 3.	LEGAL PROCEEDINGS

For a discussion of legal proceedings, see “Note 26: Contingencies” in Part II, Item 8 of this Form 10-K.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

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PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Information regarding the principal U.S. market in which Intel common stock is traded, including the market price range of Intel common stock and dividend information, can be found in “Financial Information by Quarter (Unaudited)” in Part II, Item 8 of this Form 10-K.

As of February 7, 2014, there were approximately 144,000 registered holders of record of Intel’s common stock. A substantially greater number of holders of Intel common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.

Issuer Purchases of Equity Securities

We have an ongoing authorization, originally approved by our Board of Directors in October 2005, and subsequently amended, to repurchase up to $45 billion in shares of our common stock in open market purchases or negotiated transactions. As of December 28, 2013, $3.2 billion remained available for repurchase under the existing repurchase authorization limit.

Common stock repurchase activity under our publicly announced stock repurchase plan during each quarter of 2013 was as follows:



Period	Total Number of Shares Purchased (In Millions)	Average Price Paid Per Share		Dollar Value of Shares That May Yet Be Purchased (In Millions)
December 30, 2012 – March 30, 2013	25.2	$	21.13	$	4,799
March 31, 2013 – June 29, 2013	23.3	$	23.58	$	4,249
June 30, 2013 – September 28, 2013	23.6	$	22.79	$	3,713
September 29, 2013 – December 28, 2013	22.0	$	24.02	$	3,185
Total	94.1	$	22.83

Common stock repurchase activity under our publicly announced stock repurchase plan during the fourth quarter of 2013 was as follows:



Period	Total Number of Shares Purchased (In Millions)	Average Price Paid Per Share		Dollar Value of Shares That May Yet Be Purchased Under the Plans (In Millions)
September 29, 2013 – October 26, 2013	6.4	$	23.16	$	3,565
October 27, 2013 – November 23, 2013	6.7	$	24.30	$	3,402
November 24, 2013 – December 28, 2013	8.9	$	24.43	$	3,185
Total	22.0	$	24.02

In our consolidated financial statements, we also treat shares withheld for tax purposes on behalf of our employees in connection with the vesting of restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares are not considered common stock repurchases under our authorized common stock repurchase plan and accordingly are not included in the common stock repurchase totals in the preceding table.

For further discussion, see “Note 20: Common Stock Repurchases” in Part II, Item 8 of this Form 10-K.

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Stock Performance Graph

The line graph that follows compares the cumulative total stockholder return on our common stock with the cumulative total return of the Dow Jones U.S. Technology Index* and the Standard & Poor’s S&P 500* Index for the five years ended December 28, 2013. The graph and table assume that $100 was invested on December 26, 2008 (the last day of trading for the fiscal year ended December 27, 2008) in each of our common stock, the Dow Jones U.S. Technology Index, and the S&P 500 Index, and that all dividends were reinvested. Cumulative total stockholder returns for our common stock, the Dow Jones U.S. Technology Index, and the S&P 500 Index are based on our fiscal year.

Comparison of Five-Year Cumulative Return for Intel,

the Dow Jones U.S. Technology Index*, and the S&P 500* Index



	2008		2009		2010		2011		2012		2013
Intel Corporation	$	100	$	148	$	157	$	191	$	163	$	214
Dow Jones U.S. Technology Index	$	100	$	170	$	191	$	191	$	209	$	270
S&P 500 Index	$	100	$	132	$	151	$	154	$	175	$	236

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ITEM 6.	SELECTED FINANCIAL DATA



(Dollars in Millions, Except Per Share Amounts)	2013			2012			2011			2010			2009
Net revenue	$	52,708		$	53,341		$	53,999		$	43,623		$	35,127
Gross margin	$	31,521		$	33,151		$	33,757		$	28,491		$	19,561
Gross margin percentage	59.8		%	62.1		%	62.5		%	65.3		%	55.7		%
Research and development (R&D)	$	10,611		$	10,148		$	8,350		$	6,576		$	5,653
Marketing, general and administrative (MG&A)	$	8,088		$	8,057		$	7,670		$	6,309		$	7,931
R&D and MG&A as percentage of revenue	35.5		%	34.1		%	29.7		%	29.5		%	38.7		%
Operating income	$	12,291		$	14,638		$	17,477		$	15,588		$	5,711
Net income	$	9,620		$	11,005		$	12,942		$	11,464		$	4,369
Earnings per common share
Basic	$	1.94		$	2.20		$	2.46		$	2.06		$	0.79
Diluted	$	1.89		$	2.13		$	2.39		$	2.01		$	0.77
Weighted average diluted common shares outstanding	5,097			5,160			5,411			5,696			5,645
Dividends per common share
Declared	$	0.90		$	0.87		$	0.7824		$	0.63		$	0.56
Paid	$	0.90		$	0.87		$	0.7824		$	0.63		$	0.56
Net cash provided by operating activities	$	20,776		$	18,884		$	20,963		$	16,692		$	11,170
Additions to property, plant and equipment	$	10,711		$	11,027		$	10,764		$	5,207		$	4,515
Repurchase of common stock	$	2,440		$	5,110		$	14,340		$	1,736		$	1,762
Payment of dividends to stockholders	$	4,479		$	4,350		$	4,127		$	3,503		$	3,108

(Dollars in Millions)	Dec. 28, 2013			Dec. 29, 2012			Dec. 31, 2011			Dec. 25, 2010			Dec. 26, 2009
Property, plant and equipment, net	$	31,428		$	27,983		$	23,627		$	17,899		$	17,225
Total assets	$	92,358		$	84,351		$	71,119		$	63,186		$	53,095
Long-term debt	$	13,165		$	13,136		$	7,084		$	2,077		$	2,049
Stockholders’ equity	$	58,256		$	51,203		$	45,911		$	49,430		$	41,704
Employees (in thousands)	107.6			105.0			100.1			82.5			79.8

During the third quarter of 2013, management approved and communicated several restructuring actions including targeted workforce reductions as well as exit of certain businesses and facilities. For further information, see "Note 13: Restructuring and Asset Impairment Charges" in Part II, Item 8 of this Form 10-K.

In 2011, we acquired McAfee and the Wireless Solutions (WLS) business of Infineon Technologies AG, which operates as part of our Multi-Comm and Phone Group operating segments. For further information, see “Note 8: Acquisitions” in Part II, Item 8 of this Form 10-K.

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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


•	Overview. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.


•	Critical Accounting Estimates. Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.


•	Results of Operations. An analysis of our financial results comparing 2013 to 2012 and comparing 2012 to 2011.


•	Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.


•	Fair Value of Financial Instruments. Discussion of the methodologies used in the valuation of our financial instruments.


•	Contractual Obligations and Off-Balance-Sheet Arrangements. Overview of contractual obligations, contingent liabilities, commitments, and off-balance-sheet arrangements outstanding as of December 28, 2013, including expected payment schedule.

The various sections of this MD&A contain a number of forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in “Risk Factors” in Part I, Item 1A of this Form 10-K. Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of February 14, 2014.

Overview

Our results of operations for each period were as follows:



	Three Months Ended									Twelve Months Ended
(Dollars in Millions, Except Per Share Amounts)	Dec. 28, 2013			Sept. 28, 2013			Change			Dec. 28, 2013			Dec. 29, 2012			Change
Net revenue	$	13,834		$	13,483		$	351		$	52,708		$	53,341		$	(633	)
Gross margin	$	8,571		$	8,414		$	157		$	31,521		$	33,151		$	(1,630	)
Gross margin percentage	62.0		%	62.4		%	(0.4		)%	59.8		%	62.1		%	(2.3		)%
Operating income	$	3,549		$	3,504		$	45		$	12,291		$	14,638		$	(2,347	)
Net income	$	2,625		$	2,950		$	(325	)	$	9,620		$	11,005		$	(1,385	)
Diluted earnings per common share	$	0.51		$	0.58		$	(0.07	)	$	1.89		$	2.13		$	(0.24	)

Revenue for 2013 was down 1% from 2012. PCCG experienced lower platform unit sales in the first half of the year, but saw offsetting growth in the back half as the PC market began to show signs of stabilization. DCG continued to benefit from the build out of Internet cloud computing and the strength of our product portfolio resulting in increased platform volumes for DCG for the year. Higher factory start-up costs for our next-generation 14nm process technology led to a decrease in gross margin compared to 2012. In response to the current business environment and to better align resources, management approved several restructuring actions including targeted workforce reductions as well as the exit of certain businesses and facilities. These actions resulted in restructuring and asset impairment charges of $240 million for 2013.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Our Q4 2013 revenue of $13.8 billion was up 3% from Q3 2013. The sequential increase was a result of stabilization in the PC market which generated 3% higher platform unit sales for PCCG. Gross margin remained flat sequentially as lower platform unit costs were offset by higher factory start-up costs for our 14nm process technology. The platform unit cost decline is attributable to our 22nm process technology coming down the cost curve as we ramp the 4th generation Intel Core processor family products in multiple fabrication facilities.

In 2013, we introduced many new product technologies across all of our businesses. Our product launches included the 4th generation Intel Core processor family, Intel Xeon 22nm processors, and Intel Atom microarchitecture platforms. As 2013 progressed, we shifted our focus and investment strategy in order to increase our cadence for bringing innovative products to market. One example is the announcement of Intel Quark SoC which is an ultra-low power and cost architecture designed for the Internet of Things, from industrial machines to future wearable devices.

The cash generation from our business remained strong with cash from operations of $20.8 billion in 2013. We ended the year with an investment portfolio of $20.1 billion, which consisted of cash and cash equivalents, short-term investments, and trading assets. We returned $4.5 billion to stockholders through dividends and repurchased $2.1 billion of common stock through our common stock repurchase program. We purchased $10.7 billion in capital assets as we continued making investments in new architectures and product offerings. In January 2014, the Board of Directors declared a cash dividend of $0.225 per common share to be paid in Q1 2014.

Looking ahead to 2014, we expect revenue and gross margin to remain flat. We believe our product offerings and architectures will enable innovation and allow for future growth in the PC market through all-in-ones, 2 in 1s, convertibles and detachables. The launch of new low-power, high-performance products will continue to expand our footprint in tablets and our Internet of Things business. We also continue to make progress with the industry’s first 14nm manufacturing process and our second generation 3-D transistors (code-named “Broadwell”). Our second generation 3-D transistors will begin production in Q1 2014 and is expected to launch in the second half of 2014. As we continue to align resources to focus on tablets, low-power SoCs, and the data center, we will also streamline our overall investment position in order to hold spending flat for the year.

Our Business Outlook for Q1 2014 and full-year 2014 includes, where applicable, our current expectations for revenue, gross margin percentage, spending (R&D plus MG&A), and capital expenditures. We will keep our most current Business Outlook publicly available on our Investor Relations web site www.intc.com. This Business Outlook is not incorporated by reference in this Form 10-K. We expect that our corporate representatives will, from time to time, meet publicly or privately with investors and others, and may reiterate the forward-looking statements contained in the Business Outlook or in this Form 10-K.

The statements in the Business Outlook and forward-looking statements in this Form 10-K are subject to revision during the course of the year in our quarterly earnings releases and SEC filings and at other times. The forward-looking statements in the Business Outlook will be effective through the close of business on March 14, 2014, unless updated earlier. From the close of business on March 14, 2014, until our quarterly earnings release is published, currently scheduled for April 15, 2014, we will observe a “quiet period.” During the quiet period, the Business Outlook and other forward-looking statements first published in our Form 8-K filed on January 16, 2014, and other forward-looking statements disclosed in the company's news releases and filings with the SEC, as reiterated or updated as applicable in this Form 10-K, should be considered historical, speaking as of prior to the quiet period only and not subject to update. During the quiet period, our representatives will not comment on our Business Outlook or our financial results or expectations. The exact timing and duration of the routine quiet period, and any others that we utilize from time to time, may vary at our discretion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Estimates

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include:


•	the valuation of non-marketable equity investments and the determination of other-than-temporary impairments, which impact gains (losses) on equity investments, net when we record impairments;


•	the assessment of recoverability of long-lived assets (property, plant and equipment; goodwill; and identified intangibles), which impacts gross margin or operating expenses when we record asset impairments or accelerate their depreciation or amortization;


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


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


•	the recognition and measurement of loss contingencies, which impact gross margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.

In the following section, we discuss these policies further, as well as the estimates and judgments involved.

Non-Marketable Equity Investments

We regularly invest in non-marketable equity instruments of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies with established revenue streams and business models. The carrying value of our non-marketable equity investment portfolio, excluding equity derivatives, totaled $2.3 billion as of December 28, 2013 ($2.2 billion as of December 29, 2012).

Our non-marketable equity investments are recorded using the cost method or the equity method of accounting, depending on the facts and circumstances of each investment. Our non-marketable equity investments are classified within other long-term assets on the consolidated balance sheets.

Non-marketable equity investments are inherently risky, and their success depends on product development, market acceptance, operational efficiency, and other key business factors. The companies could fail or not be able to raise additional funds when needed, or they may receive lower valuations with less favorable investment terms than previous financings. These events could cause our investments to become impaired. In addition, financial market volatility could negatively affect our ability to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales. For further information about our investment portfolio risks, see “Risk Factors” in Part I, Item 1A of this Form 10-K.

We determine the fair value of our non-marketable equity investments portfolio quarterly for disclosure purposes; however, the investments are recorded at fair value only if an impairment charge is recognized. We determine the fair value of our non-marketable equity investments using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable public companies, such as projected revenue, earnings, and comparable performance multiples. The selection of comparable companies requires management judgment and is based on a number of factors, including comparable companies’ sizes, growth rates, industries, and development stages. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding the investees' revenue, costs, and discount rates based on the risk profile of comparable companies. Estimates of revenue and costs are developed using available market, historical, and forecast data. The valuation of these non-marketable equity investments also takes into account variables such as conditions reflected in the capital markets, recent financing activities by the investees, the investees’ capital structures, the terms of the investees’ issued interests, and the lack of marketability of the investments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

For non-marketable equity investments, the measurement of fair value requires significant judgment and includes quantitative and qualitative analysis of identified events or circumstances that impact the fair value of the investment, such as:


•	the investee’s revenue and earnings trends relative to pre-defined milestones and overall business prospects;


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


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


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


•	the investee’s receipt of additional funding at a lower valuation.

If the fair value of an investment is below our carrying value, we determine whether the investment is other-than-temporarily impaired based on our quantitative and qualitative analysis, which includes assessing the severity and duration of the impairment and the likelihood of recovery before disposal. If the investment is considered to be other-than-temporarily impaired, we write down the investment to its fair value. Impairments of non-marketable equity investments were $112 million in 2013 ($104 million in 2012 and $63 million in 2011).

Long-Lived Assets

Property, Plant and Equipment

We assess property, plant and equipment for impairment 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. We measure the recoverability of assets that we will continue to use in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows. If an asset grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired. We measure the impairment by comparing the difference between the asset grouping’s carrying value and its fair value. Property, plant and equipment is considered a non-financial asset and is recorded at fair value only if an impairment charge is recognized.

Impairments 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, we accelerate the rate of depreciation over the assets’ new, shorter useful lives. Based on our analysis, impairments and accelerated depreciation of our property, plant, and equipment was $172 million in 2013 ($73 million in 2012 and $100 million in 2011).

Goodwill

Goodwill is recorded when the purchase price for an acquisition exceeds the estimated fair value of the net tangible and identified intangible assets acquired. Goodwill is allocated to our reporting units based on relative fair value of the future benefit of the purchased operations to our existing business units as well as the acquired business unit. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. Our reporting units are consistent with the operating segments identified in “Note 27: Operating Segments and Geographic Information” in Part II, Item 8 of this Form 10-K.

We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. For reporting units in which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is not considered impaired and we are not required to perform the two-step goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit.

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For reporting units in which the impairment assessment concludes that it is more likely than not that the fair value is less than its carrying value, we perform the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform additional analysis. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill. If we determine during the second step that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, we record an impairment loss equal to the difference.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Our goodwill impairment test uses a weighting of the income method and the market method to estimate a reporting unit’s fair value. The income method is based on a discounted future cash flow approach that uses the following reporting unit estimates: revenue, based on assumed market segment growth rates and our assumed market segment share; estimated costs; and appropriate discount rates based on a reporting unit's weighted average cost of capital as determined by considering the observable weighted average cost of capital of comparable companies. 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. These estimates are developed as part of our routine long-range planning process. The same estimates are also used in planning for our long-term manufacturing and assembly and test capacity needs as part of our capital budgeting process, and for long-term and short-term business planning and forecasting. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data. The market method is based on financial multiples of comparable companies and applies a control premium. A reporting unit’s carrying value represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments, and debt.

For the annual impairment assessment in 2013, we determined that for each of our reporting units with significant amounts of goodwill, it was more likely than not that the fair value of the reporting units exceeded the carrying value. As a result, we concluded that performing the first step of the goodwill impairment test was not necessary for those reporting units. During the fourth quarter of each of the prior three fiscal years, we have completed our annual impairment assessments and concluded that goodwill was not impaired in any of these years.

Identified Intangibles

We make judgments about the recoverability of purchased finite-lived intangible assets whenever events or changes in circumstances indicate that an impairment may exist. Recoverability of finite-lived intangible assets is measured by comparing the carrying amount of the asset to the future undiscounted cash flows that the asset is expected to generate. We perform an annual impairment assessment in the fourth quarter of each year for indefinite-lived intangible assets, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the carrying value of the assets may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to the future discounted cash flows that the asset is expected to generate. If we determine that an individual asset is impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines. Based on our impairment assessment, we recognized impairment charges of $17 million in 2013 ($21 million in 2012 and $10 million in 2011).

Income Taxes

We must make estimates and judgments in determining the provision for taxes for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to our tax provision in a subsequent period.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more likely than not, 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. We believe that we will ultimately recover the deferred tax assets recorded on our consolidated balance sheets. However, should a change occur in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery is not more likely than not. Recovery of a portion of our deferred tax assets is impacted by management’s plans with respect to holding or disposing of certain investments; therefore, changes in management’s plans with respect to holding or disposing of investments could affect our future provision for taxes.

We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that a tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately forecast actual outcomes. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

We have not recognized U.S. deferred income taxes on certain undistributed non-U.S. earnings because we plan to indefinitely reinvest such earnings outside the U.S. Remittances of non-U.S. earnings are based on estimates and judgments of projected cash flow needs as well as the working capital and investment requirements of our non-U.S. and U.S. operations. Material changes in our estimates of cash, working capital, and investment needs in the various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.

Inventory

Intel has a product development lifecycle that corresponds with substantive engineering milestones. These engineering milestones are regularly and consistently applied in assessing the point at which our activities, and associated costs, change in nature from R&D to cost of sales. In order for a product to be manufactured in high volumes and sold to our customers under our standard warranty, it must meet our rigorous technical quality specifications. This milestone is known as product release qualification (PRQ). We have identified PRQ as the point at which the costs incurred to manufacture our products are included in the valuation of inventory.

To determine which costs can be included in the valuation of inventory, we must determine normal capacity at our manufacturing and assembly and test facilities, based on historical loadings compared to total available capacity. If the factory loadings are below the established normal capacity level, a portion of our manufacturing overhead costs would not be included in the cost of inventory; therefore, it would be recognized as cost of sales in that period, which would negatively impact our gross margin. We refer to these costs as excess capacity charges. Excess capacity charges were $319 million in 2013 ($540 million in 2012 and $46 million in 2011).

Inventory is valued at the lower of cost or market based upon assumptions about future demand and market conditions. Product-specific facts and circumstances reviewed in the inventory valuation process include a review of our customer base, the stage of the product life cycle of our products, consumer confidence, customer acceptance of our products, and an assessment of selling price in relation to product cost. If the estimated market value of the inventory is less than the carrying value, we write down the inventory and record the difference as a charge to cost of sales.

The valuation of inventory also requires us to estimate obsolete and excess inventory as well as inventory that is not of saleable quality. The demand forecast is utilized in the development of our short-term manufacturing plans to enable consistency between inventory valuation and build decisions. The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of obsolete or excess inventory. 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 write off inventory, which would negatively impact our gross margin.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Loss Contingencies

We are subject to various legal and administrative proceedings and asserted and potential claims, as well as accruals related to repair or replacement of parts in connection with product errata and product warranties that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is required if there is at least a reasonable possibility that a material loss has been incurred. The outcomes of legal and administrative proceedings and claims, and the estimation of product warranties and asset impairments, are subject to significant uncertainty. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. With respect to estimating the losses associated with repairing and replacing parts in connection with product errata, we make judgments with respect to the return rates to our customers, our customers' return rates, and the costs to repair or replace parts. At least quarterly, we review the status of each significant matter, and we may revise our estimates. These revisions could have a material impact on our results of operations and financial position.

Accounting Changes

For a description of accounting changes, see “Note 3: Accounting Changes” in Part II, Item 8 of this Form 10-K.

Results of Operations

Certain consolidated statements of income data as a percentage of net revenue for each period were as follows:



	2013					2012				2011
(Dollars in Millions, Except Per Share Amounts)	Dollars			% of Net Revenue		Dollars		% of Net Revenue		Dollars		% of Net Revenue
Net revenue	$	52,708		100.0	%	$	53,341	100.0	%	$	53,999	100.0	%
Cost of sales	21,187			40.2	%	20,190		37.9	%	20,242		37.5	%
Gross margin	31,521			59.8	%	33,151		62.1	%	33,757		62.5	%
Research and development	10,611			20.1	%	10,148		19.0	%	8,350		15.4	%
Marketing, general and administrative	8,088			15.3	%	8,057		15.1	%	7,670		14.2	%
Restructuring and asset impairment charges	240			0.5	%	—		—	%	—		—	%
Amortization of acquisition-related intangibles	291			0.6	%	308		0.6	%	260		0.5	%
Operating income	12,291			23.3	%	14,638		27.4	%	17,477		32.4	%
Gains (losses) on equity investments, net	471			0.9	%	141		0.3	%	112		0.2	%
Interest and other, net	(151		)	(0.3	)%	94		0.2	%	192		0.3	%
Income before taxes	12,611			23.9	%	14,873		27.9	%	17,781		32.9	%
Provision for taxes	2,991			5.7	%	3,868		7.3	%	4,839		8.9	%
Net income	$	9,620		18.3	%	$	11,005	20.6	%	$	12,942	24.0	%
Diluted earnings per common share	$	1.89				$	2.13			$	2.39

Our net revenue for 2013 decreased by $633 million, or 1%, compared to 2012. The PCCG and DCG platform unit sales decreased by 3%. Additionally, lower netbook platform and feature and entry phone component unit sales contributed to the decrease. These decreases were partially offset by higher PCCG and DCG platform average selling prices, which were up 2%, as well as higher ISG platform average selling prices.

Our overall gross margin dollars for 2013 decreased by $1.6 billion, or 5%, compared to 2012. The decrease was due in large part to $1.8 billion of higher factory start-up costs primarily for our next-generation 14nm process technology. To a lesser extent, lower overall revenue from our Other IA operating segments, primarily in our phone and mobile component businesses and netbook group, as well as lower PCCG and DCG platform revenue contributed to the decrease. These decreases were partially offset by higher ISG platform revenue, approximately $325 million of lower PCCG and DCG platform unit costs, and $221 million of lower excess capacity charges.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Our overall gross margin percentage decreased to 59.8% in 2013 from 62.1% in 2012. The decrease in the gross margin percentage was primarily due to the gross margin percentage decrease in PCCG. We derived most of our overall gross margin dollars in 2013 and 2012 from the sale of platforms in the PCCG and DCG operating segments.

Our net revenue for 2012, which included 52 weeks, decreased by $658 million, or 1%, compared to 2011, which included 53 weeks. The PCCG and DCG platform unit sales decreased 1% while average selling prices were unchanged. Additionally, lower netbook platform unit sales and Multi-Comm average selling prices, primarily discrete modems, contributed to the decrease. These decreases were partially offset by our McAfee operating segment, which we acquired in the Q1 2011. McAfee contributed $469 million of additional revenue in 2012 compared to 2011.

Our overall gross margin dollars for 2012 decreased by $606 million, or 2%, compared to 2011. The decrease was due in large part to $494 million of excess capacity charges, as well as lower revenue from the PCCG and DCG platform. To a lesser extent, approximately $390 million of higher unit costs on the PCCG and DCG platform as well as lower netbook and Multi-Comm revenue contributed to the decrease. The decrease was partially offset by $643 million of lower factory start-up costs as we transition from our 22nm process technology to R&D of our next-generation 14nm process technology, as well as $422 million of charges recorded in 2011 to repair and replace materials and systems impacted by a design issue related to our Intel^® 6 Series Express Chipset family. The decrease was also partially offset by the two additional months of results from our acquisition of McAfee, which occurred on February 28, 2011, contributing approximately $334 million of additional gross margin dollars in 2012 compared to 2011. The amortization of acquisition-related intangibles resulted in a $557 million reduction to our overall gross margin dollars in 2012, compared to $482 million in 2011, primarily due to acquisitions completed in Q1 2011.

Our overall gross margin percentage in 2012 was flat from 2011 as higher excess capacity charges and higher unit costs on the PCCG and DCG platform were offset by lower factory start-up costs and no impact in 2012 for a design issue related to our Intel 6 Series Express Chipset family. We derived a substantial majority of our overall gross margin dollars in 2012 and 2011 from the sale of platforms in the PCCG and DCG operating segments.

PC Client Group

The revenue and operating income for the PCCG operating segment for each period were as follows:



(In Millions)	2013		2012		2011
Net revenue	$	33,039	$	34,504	$	35,624
Operating income	$	11,827	$	13,106	$	14,840

Net revenue for the PCCG operating segment decreased by $1.5 billion, or 4%, in 2013 compared to 2012. PCCG platform unit sales were down 3% primarily on softness in traditional PC demand during the first nine months of the year. The decrease in revenue was driven by lower notebook and desktop platform unit sales which were down 4% and 2%, respectively. PCCG platform average selling prices were flat, with 6% higher desktop platform average selling prices offset by 4% lower notebook platform average selling prices.

Operating income decreased by $1.3 billion, or 10%, in 2013 compared to 2012, which was driven by $1.5 billion of lower gross margin, partially offset by $200 million of lower operating expenses. The decrease in gross margin was driven by $1.5 billion of higher factory start-up costs primarily on our next-generation 14nm process technology as well as lower PCCG platform revenue. These decreases were partially offset by approximately $520 million of lower PCCG platform unit costs, $260 million of lower excess capacity charges, and higher sell-through of previously non-qualified units.

Net revenue for the PCCG operating segment decreased by $1.1 billion, or 3%, in 2012 compared to 2011. PCCG revenue was negatively impacted by the growth of tablets as these devices compete with PCs for consumer sales. Platform average selling prices and unit sales decreased 2% and 1%, respectively. The decrease was driven by 6% lower notebook platform average selling prices and 5% lower desktop platform unit sales. These decreases were partially offset by a 4% increase in desktop platform average selling prices and a 2% increase in notebook platform unit sales.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating income decreased by $1.7 billion, or 12%, in 2012 compared to 2011 driven by $644 million of lower gross margin and $1.1 billion of higher operating expenses. The decrease in gross margin was primarily due to lower platform revenue. Additionally, $457 million of higher excess capacity charges and approximately $350 million of higher platform unit costs contributed to the decrease. These decreases were partially offset by $785 million of lower factory start-up costs as we transition from manufacturing start-up costs related to our 22nm process technology to R&D of our next-generation 14nm process technology. Additionally, the first half of 2011 included $422 million of charges recorded to repair and replace materials and systems impacted by the design issue related to our Intel 6 Series Express Chipset family.

Data Center Group

The revenue and operating income for the DCG operating segment for each period were as follows:



(In Millions)	2013		2012		2011
Net revenue	$	11,238	$	10,511	$	9,911
Operating income	$	5,164	$	5,020	$	5,053

Net revenue for the DCG operating segment increased by $727 million, or 7%, in 2013 compared to 2012. DCG platform average selling prices and unit sales were up 4% and 3%, respectively. Our platform unit sales continued to benefit from growth in the Internet cloud computing and high performance computing market segments.

Operating income increased $144 million, or 3%, in 2013 compared to 2012 with $148 million of higher gross margin offset by higher operating expenses. Gross margin was positively impacted by higher platform revenue, partially offset by $274 million of higher factory start-up costs for our next-generation 14nm process technology, and approximately $190 million of higher DCG platform unit costs.

Net revenue for the DCG operating segment increased by $600 million, or 6%, in 2012 compared to 2011. The increase in revenue was due to 6% higher platform average selling prices, slightly offset by 1% lower platform unit sales. Our platform average selling prices benefited from significant growth in the Internet cloud computing and high performance computing market segments. This was offset by weakness in the enterprise server market segment.

Operating income decreased by $33 million in 2012 compared to 2011 as $356 million of higher gross margin was more than offset by $389 million of higher operating expenses. The increase in gross margin was primarily due to higher platform revenue.

Other Intel Architecture Operating Segments

The revenue and operating income (loss) for the other Intel architecture operating segments, including ISG, Multi-Comm, the Tablet Group, the Phone Group, the Service Provider Group, the Netbook Group, and the New Devices Group for each period were as follows:



(In Millions)	2013			2012			2011
Net revenue	$	4,092		$	4,378		$	5,005
Operating income (loss)	$	(2,445	)	$	(1,377	)	$	(577	)

Net revenue for the Other IA operating segments decreased by $286 million, or 7%, in 2013 compared to 2012. The decrease was primarily due to lower netbook platform, feature and entry phone components, and Multi-Comm unit sales. To a lesser extent, lower Multi-Comm average selling prices contributed to the decrease. These decreases were partially offset by higher ISG revenue on increased platform average selling prices.

Operating results for the Other IA operating segments decreased by $1.1 billion in 2013 compared to 2012. The decline in operating results was primarily due to approximately $590 million of higher operating expenses in the Other IA operating segments on R&D investments in our smartphone and tablet products as well as higher cost of sales as we ramp our tablet business. Additionally, lower netbook platform and Multi-Comm revenue contributed to the decrease. These decreases were partially offset by higher ISG revenue.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Net revenue for the Other IA operating segments decreased by $627 million, or 13%, in 2012 compared to 2011. The decrease was primarily due to lower netbook platform unit sales and lower Multi-Comm average selling prices. To a lesser extent, lower netbook platform average selling prices contributed to the decrease. These decreases were partially offset by higher ISG platform average selling prices.

Operating results for the Other IA operating segments decreased by $800 million from an operating loss of $577 million in 2011 to an operating loss of $1.4 billion in 2012. The decline in operating results was primarily due to lower netbook revenue and higher operating expenses in the Other IA operating segments. To a lesser extent, lower Multi-Comm revenue contributed to the decrease.

Software and Services Operating Segments

The revenue and operating income (loss) for the SSG operating segments, including McAfee, the Wind River Software Group, and the Software and Services Group, for each period were as follows:



(In Millions)	2013		2012			2011
Net revenue	$	2,502	$	2,381		$	1,870
Operating income (loss)	$	1	$	(11	)	$	(32	)

Net revenue for the SSG operating segments increased by $121 million in 2013 compared to 2012. The increase was primarily driven by higher McAfee revenue.

The operating results for the SSG operating segments increased by $12 million in 2013 compared to 2012. The increase was primarily driven by higher McAfee revenue, partially offset by higher McAfee operating expenses.

Net revenue for the SSG operating segments increased by $511 million in 2012 compared to 2011. The increase was primarily due to two months of incremental revenue from McAfee of $469 million. McAfee was acquired on February 28, 2011.

The operating results for the SSG operating segments increased by $21 million in 2012 compared to 2011. The increase was primarily due to higher McAfee revenue, partially offset by higher McAfee operating expenses.

Operating Expenses

Operating expenses for each period were as follows:



(Dollars In Millions)	2013			2012			2011
Research and development (R&D)	$	10,611		$	10,148		$	8,350
Marketing, general and administrative (MG&A)	$	8,088		$	8,057		$	7,670
R&D and MG&A as percentage of net revenue	35		%	34		%	30		%
Restructuring and asset impairment charges	$	240		$	—		$	—
Amortization of acquisition-related intangibles	$	291		$	308		$	260

Research and Development. R&D spending increased by $463 million, or 5%, in 2013 compared to 2012. The increase was driven by higher investments in our products, primarily smartphones and tablets, as well higher compensation expenses due to annual salary increases. This increase was partially offset by lower process development costs as we transitioned from R&D to manufacturing for our 14nm process technology.

R&D spending increased by $1.8 billion, or 22%, in 2012 compared to 2011. The increase was driven by investments in our products for smartphones, tablets, Ultrabook devices, and data centers. Additionally, R&D spending increased due to higher process development costs for our 14nm process technology, higher compensation expenses mainly due to annual salary increases, additional expenses for acquisitions made in Q1 2011, and higher costs related to the development of 450mm wafer technology.

Marketing, General and Administrative. MG&A expenses increased by $31 million in 2013 compared to 2012, and increased by $387 million, or 5%, in 2012 compared to 2011. The increase in 2012 compared to 2011 was primarily due to two additional months of McAfee expenses in 2012 and higher compensation expenses, due to annual salary increases as well as an increase in the number of employees.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Restructuring and Asset Impairment Charges. In response to the current business environment, during 2013, management approved several restructuring actions including targeted workforce reductions as well as exit of certain businesses and facilities. These actions include the wind down of our 200mm wafer fabrication facility in Massachusetts, which we expect to cease production by the end of 2014. These targeted reductions will enable the company to better align our resources in areas providing the greatest benefit in the changing market.

Restructuring and asset impairment charges for each period were as follows:



(In Millions)	2013		2012		2011
Employee severance and benefit arrangements	$	201	$	—	$	—
Asset impairments	39		—		—
Total restructuring and asset impairment charges	$	240	$	—	$	—

The restructuring and asset impairment activity for 2013 was as follows:



(In Millions)	Employee Severance and Benefits			Asset Impairments			Total
Accrued restructuring balance as of December 29, 2012	$	—		$	—		$	—
Additional accruals	195			39			234
Adjustments	6			—			6
Cash payments	(18		)	—			(18		)
Non-cash settlements	—			(39		)	(39		)
Accrued restructuring balance as of December 28, 2013	$	183		$	—		$	183

We recorded the additional accruals and adjustments as restructuring and asset impairment charges in the consolidated statements of income within the “all other” operating segment. The charges incurred during 2013 include $201 million related to employee severance and benefit arrangements, which impacted approximately 3,900 employees. The accrued restructuring balance as of December 28, 2013, relates to employee severance and benefits which are expected to be paid within the next 12 months and was recorded as a current liability within accrued compensation and benefits in the consolidated balance sheets.

We estimate that employee severance and benefit charges to date will result in gross annual savings of approximately $400 million, which will be realized within R&D, cost of sales, and MG&A. We began to realize these savings in Q4 2013 and expect to fully realize these savings by Q1 2015.

We may incur additional charges in the future for employee severance and benefit arrangements, as well as facility-related or other exit activities, as we continue to align our resources to meet the needs of the business.

Amortization of Acquisition-Related Intangibles. Amortization of acquisition-related intangibles decreased by $17 million, or 6%, in 2013 compared to 2012 and increased by $48 million, or 18%, in 2012 compared to 2011. The increase in 2012 compared to 2011 was primarily due to the full year of amortization of intangibles in 2012 related to the acquisitions of McAfee and the WLS business of Infineon, both completed in Q1 2011. For further information, see “Note 8: Acquisitions” and “Note 11: Identified Intangible Assets” in Part II, Item 8 of this Form 10-K.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Share-Based Compensation

Share-based compensation totaled $1.1 billion in 2013 ($1.1 billion in 2012 and $1.1 billion in 2011). Share-based compensation was included in cost of sales and operating expenses.

As of December 28, 2013, unrecognized share-based compensation costs and the weighted average periods over which the costs are expected to be recognized were as follows:

As of December 28, 2013, there was $13 million in unrecognized share-based compensation costs related to the rights to acquire common stock under our stock purchase plan. We expect to recognize those costs over a period of approximately one and a half months.

Gains (Losses) on Equity Investments and Interest and Other

Gains (losses) on equity investments, net and interest and other, net for each period were as follows:



(In Millions)	2013			2012		2011
Gains (losses) on equity investments, net	$	471		$	141	$	112
Interest and other, net	$	(151	)	$	94	$	192

We recognized higher net gains on equity investments in 2013 compared to 2012 due to higher gains on sales of equity investments, partially offset by lower gains on third-party merger transactions. Net gains on equity investments were higher in 2012 compared to 2011 due to lower equity method losses and higher gains on third-party merger transactions, partially offset by lower gains on sales of equity investments.

Net gains on equity investments for 2013 included gains of $439 million on the sales of our interest in Clearwire Communications, LLC (Clearwire LLC) and our shares in Clearwire Corporation in Q3 2013. For further information on these transactions, see "Note 5: Cash and Investments" in Part II, Item 8 of this Form 10-K. Net gains on equity investments for 2011 included a gain of $150 million on the sale of shares in VMware, Inc. Our share of equity method investee losses recognized in 2011 was primarily related to Clearwire LLC ($145 million) and these losses reduced our carrying value in Clearwire LLC to zero.

We recognized an interest and other net loss in 2013 compared to a net gain in 2012. We recognized a net loss in 2013 due to an increase in interest expense related to the issuance of our $6.2 billion aggregate principal amount of senior unsecured notes in Q4 2012. Additionally, in Q2 2012 we received proceeds from an insurance claim related to the floods in Thailand.

Interest and other, net decreased in 2012 compared to 2011, primarily due to a $164 million gain recognized upon formation of the Intel-GE Care Innovations, LLC (Care Innovations) joint venture in Q1 2011 and higher interest expense in 2012.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Provision for Taxes

Our provision for taxes and effective tax rate for each period were as follows:



(Dollars in Millions)	2013			2012			2011
Income before taxes	$	12,611		$	14,873		$	17,781
Provision for taxes	$	2,991		$	3,868		$	4,839
Effective tax rate	23.7		%	26.0		%	27.2		%

The U.S. R&D tax credit was reenacted in January 2013 retroactive to the beginning of 2012. The majority of the decrease in our effective tax rate was driven by the recognition of the 2012 U.S R&D tax credit in Q1 2013. The effective tax rate was also positively impacted by the recognition of the 2013 impact of the U.S. R&D tax credit, partially offset by a lower percentage of our profits generated in lower tax jurisdictions in 2013 compared to 2012.

We generated a higher percentage of our profits from lower tax jurisdictions in 2012 compared to 2011, positively impacting our effective tax rate for 2012. This impact was partially offset by the U.S. R&D tax credit that was not reinstated during 2012.

Liquidity and Capital Resources



(Dollars in Millions)	Dec 28, 2013			Dec 29, 2012
Cash and cash equivalents, short-term investments, and marketable debt instruments included in trading assets	$	20,087		$	18,162
Other long-term investments, and reverse repurchase agreements with original maturities greater than approximately three months	$	1,873		$	543
Short-term and long-term debt	$	13,446		$	13,448
Debt as percentage of stockholders’ equity	23.1		%	26.3		%

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Sources and Uses of Cash

(In Millions)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

In summary, our cash flows for each period were as follows:



(In Millions)	2013			2012			2011
Net cash provided by operating activities	$	20,776		$	18,884		$	20,963
Net cash used for investing activities	(18,073		)	(14,060		)	(10,301		)
Net cash used for financing activities	(5,498		)	(1,408		)	(11,100		)
Effect of exchange rate fluctuations on cash and cash equivalents	(9		)	(3		)	5
Net increase (decrease) in cash and cash equivalents	$	(2,804	)	$	3,413		$	(433	)

Operating Activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.

For 2013 compared to 2012, the $1.9 billion increase in cash provided by operating activities was due to changes in working capital, partially offset by lower net income in 2013. Income taxes paid, net of refunds, in 2013 compared to 2012 were $1.1 billion lower due to lower income before taxes in 2013 and 2012 income tax overpayments.

Changes in assets and liabilities as of December 28, 2013, compared to December 29, 2012, included lower income taxes payable and receivable resulting from a reduction in taxes due in 2013, and lower inventories due to the sell-through of older-generation products, partially offset by the ramp of 4th generation Intel Core Processor family products.

For 2013, our three largest customers accounted for 44% of our net revenue (43% in 2012 and 2011), with Hewlett-Packard Company accounting for 17% of our net revenue (18% in 2012 and 19% in 2011), Dell accounting for 15% of our net revenue (14% in 2012 and 15% in 2011), and Lenovo accounting for 12% of our net revenue (11% in 2012 and 9% in 2011). These three customers accounted for 34% of our accounts receivable as of December 28, 2013 (33% as of December 29, 2012).

For 2012 compared to 2011, the $2.1 billion decrease in cash provided by operating activities was due to lower net income and changes in our working capital, partially offset by adjustments for non-cash items. The adjustments for noncash items were higher due primarily to higher depreciation in 2012 compared to 2011, partially offset by increases in non-acquisition-related deferred tax liabilities as of December 31, 2011.

Investing Activities

Investing cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; as well as cash used for acquisitions.

The increase in cash used for investing activities in 2013 compared to 2012 was primarily due to an increase in purchases of available-for-sale investments and a decrease in maturities and sales of trading assets, partially offset by an increase in maturities and sales of available-for-sale investments and a decrease in purchases of licensed technology and patents. Our capital expenditures were $10.7 billion in 2013 ($11.0 billion in 2012 and $10.8 billion in 2011).

Cash used for investing activities increased in 2012 compared to 2011 primarily due to net purchases of available-for-sale investments and trading assets in 2012, as compared to net maturities and sales of available-for-sale investments and trading assets in 2011, partially offset by a decrease in cash paid for acquisitions. Net purchases of available-for-sale investments in 2012 included our purchase of $3.2 billion of equity securities in ASML in Q3 2012.

Financing Activities

Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of long-term debt, and proceeds from the sale of shares through employee equity incentive plans.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The increase in cash used for financing activities in 2013 compared to 2012 was primarily due to the issuance of long-term debt in 2012 and fewer repurchases of common stock under our authorized common stock repurchase program in 2013. We have an ongoing authorization, originally approved by our Board of Directors in October 2005, and subsequently amended, to repurchase up to $45 billion in shares of our common stock in the open market or negotiated transactions. During 2013, we repurchased $2.1 billion of common stock under our authorized common stock repurchase program compared to $4.8 billion in 2012. As of December 28, 2013, $3.2 billion remained available for repurchase under the existing repurchase authorization limit. We base our level of common stock repurchases on internal cash management decisions, and this level may fluctuate. Proceeds from the sale of shares through employee equity incentive plans totaled $1.6 billion in 2013 compared to $2.1 billion in 2012. Our total dividend payments were $4.5 billion in 2013 compared to $4.4 billion in 2012. We have paid a cash dividend in each of the past 85 quarters. In January 2014, our Board of Directors declared a cash dividend of $0.225 per common share for Q1 2014. The dividend is payable on March 1, 2014 to stockholders of record on February 7, 2014.

The decrease in cash used for financing activities in 2012 compared to 2011, was primarily due to fewer repurchases of common stock under our authorized common stock repurchase program and, to a lesser extent, the issuance of a higher amount of long-term debt in 2012 compared to 2011.

Liquidity

Cash generated by operations is our primary source of liquidity. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. As of December 28, 2013, cash and cash equivalents, short-term investments, and marketable debt instruments included in trading assets totaled $20.1 billion ($18.2 billion as of December 29, 2012). In addition to the $20.1 billion, we have $1.9 billion in other long-term investments, and reverse repurchase agreements with original maturities greater than approximately three months that we include when assessing our sources of liquidity. Most of our investments in debt instruments are in A/A2 or better rated issuances, and the majority of the issuances are rated AA-/Aa3 or better.

Our commercial paper program provides another potential source of liquidity. We have an ongoing authorization from our Board of Directors to borrow up to $3.0 billion, including through the issuance of commercial paper. Maximum borrowings under our commercial paper program during 2013 were $300 million, although no commercial paper remained outstanding as of December 28, 2013. Our commercial paper was rated A-1+ by Standard & Poor’s and P-1 by Moody’s as of December 28, 2013. We also have an automatic shelf registration statement on file with the SEC, pursuant to which we may offer an unspecified amount of debt, equity, and other securities. In 2012, we utilized this shelf registration statement and issued $6.2 billion aggregate principal amount of senior unsecured notes. The proceeds from the sale of these notes were used for general corporate purposes and to repurchase shares of our common stock pursuant to our authorized common stock repurchase program. For further information on the terms of the notes, see “Note 16: Borrowings” in Part II, Item 8 of this Form 10-K.

As of December 28, 2013, $11.3 billion of our cash and cash equivalents, short-term investments, and marketable debt instruments included in trading assets was held by our non-U.S. subsidiaries. Of the $11.3 billion held by our non-U.S. subsidiaries, approximately $2.1 billion was available for use in the U.S. without incurring additional U.S. income taxes in excess of the amounts already accrued in our financial statements as of December 28, 2013. The remaining amount of non-U.S. cash and cash equivalents, short-term investments, and marketable debt instruments included in trading assets has been indefinitely reinvested and, therefore, no U.S. current or deferred taxes have been accrued and this amount is earmarked for near-term investment in our operations outside the U.S. and future acquisitions of non-U.S. entities. We believe our U.S. sources of cash and liquidity are sufficient to meet our business needs in the U.S. and do not expect that we will need to repatriate the funds we have designated as indefinitely reinvested outside the U.S. Under current tax laws, should our plans change and we were to choose to repatriate some or all of the funds we have designated as indefinitely reinvested outside the U.S., such amounts would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.

We believe that we have the financial resources needed to meet business requirements for the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test; working capital requirements; and potential dividends, common stock repurchases, acquisitions, and strategic investments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Fair Value of Financial Instruments

When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions, such as an obligor’s credit risk, that market participants would use when pricing the asset or liability. For further information, see “Fair Value” in “Note 2: Accounting Policies” in Part II, Item 8 of this Form 10-K.

Marketable Debt Instruments

As of December 28, 2013, our assets measured and recorded at fair value on a recurring basis included $20.3 billion of marketable debt instruments. Of these instruments, $7.2 billion was classified as Level 1, $13.0 billion as Level 2, and $59 million as Level 3.

Our balance of marketable debt instruments that are measured and recorded at fair value on a recurring basis and classified as Level 1 was classified as such due to the use of observable market prices for identical securities that are traded in active markets. We evaluate security-specific market data when determining whether the market for a debt security is active.

Of the $13.0 billion of marketable debt instruments measured and recorded at fair value on a recurring basis and classified as Level 2, approximately 60% was classified as Level 2 due to the use of a discounted cash flow model, and approximately 40% was classified as such due to the use of non-binding market consensus prices that were corroborated with observable market data.

Our marketable debt instruments that are measured and recorded at fair value on a recurring basis and classified as Level 3, are classified as such because the fair values are generally derived from discounted cash flow models, performed either by us or our pricing providers, using inputs that we are unable to corroborate with observable market data. We monitor and review the inputs and results of these valuation models to ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.

Loans Receivable and Reverse Repurchase Agreements

As of December 28, 2013, our assets measured and recorded at fair value on a recurring basis included $805 million of loans receivable and $400 million of reverse repurchase agreements. All of these investments were classified as Level 2, as the fair value is determined using a discounted cash flow model with all significant inputs derived from or corroborated with observable market data.

Marketable Equity Securities

As of December 28, 2013, our assets measured and recorded at fair value on a recurring basis included $6.2 billion of marketable equity securities. All of these securities were classified as Level 1 because the valuations were based on quoted prices for identical securities in active markets. Our assessment of an active market for our marketable equity securities generally takes into consideration the number of days that each individual equity security trades over a specified period.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Contractual Obligations

The following table summarizes our significant contractual obligations as of December 28, 2013:



	Payments Due by Period
(In Millions)	Total		Less Than 1 Year		1–3 Years		3–5 Years		More Than 5 Years
Operating lease obligations	$	870	$	208	$	298	$	166	$	198
Capital purchase obligations¹	5,503		5,375		125		—		3
Other purchase obligations and commitments²	1,859		772		744		307		36
Long-term debt obligations³	22,372		429		2,360		3,761		15,822
Other long-term liabilities^{4, 5}	1,496		569		663		144		120
Total⁶	$	32,100	$	7,353	$	4,190	$	4,378	$	16,179


¹	Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on our consolidated balance sheets as of December 28, 2013, as we had not yet received the related goods or taken title to the property.


²	Other purchase obligations and commitments include payments due under various types of licenses and agreements to purchase goods or services, as well as payments due under non-contingent funding obligations. Funding obligations include agreements to fund various projects with other companies.


³	Amounts represent principal and interest cash payments over the life of the debt obligations, including anticipated interest payments that are not recorded on our consolidated balance sheets. Any future settlement of convertible debt would impact our cash payments.

⁴

We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $188 million of long-term income taxes payable has been excluded from the preceding table. However, long-term income taxes payable, recorded on our consolidated balance sheets, included these uncertain tax positions, reduced by the associated federal deduction for state taxes and U.S. tax credits arising from non-U.S. income taxes.

⁵

Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheets, including the short-term portion of these long-term liabilities. Expected required contributions to our U.S. and non-U.S. pension plans and other postretirement benefit plans of $62 million to be made during 2014 are also included; however, funding projections beyond 2014 are not practicable to estimate.


⁶	Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities except for the short-term portions of long-term debt obligations and other long-term liabilities.

Contractual obligations for purchases of goods or services, included in other purchase obligations and commitments in the preceding table, include 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. For obligations with cancellation provisions, the amounts included in the preceding table were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.

We have entered into certain agreements for the purchase of raw materials that specify minimum prices and quantities based on a percentage of the total available market or based on a percentage of our future purchasing requirements. Due to the uncertainty of the future market and our future purchasing requirements, as well as the non-binding nature of these agreements, obligations under these agreements are not included in the preceding table. Our purchase orders for other products are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Contractual obligations that are contingent upon the achievement of certain milestones are not included in the preceding table. These obligations include milestone-based co-marketing agreements, contingent funding/payment obligations, and milestone-based equity investment funding. These arrangements are not considered contractual obligations until the milestone is met by the third party. During 2012, we entered into a series of agreements with ASML intended to accelerate the development of 450mm wafer technology and EUV lithography. Intel agreed to provide R&D funding totaling €829 million over five years and committed to advance purchase orders for a specified number of tools from ASML. Our remaining obligation, contingent upon ASML achieving certain milestones, is approximately €738 million, or $1.0 billion, as of December 28, 2013. As our obligation is contingent upon ASML achieving certain milestones, we have not included this obligation in the preceding table.

For the majority of restricted stock units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. The obligation to pay the relevant taxing authority is not included in the preceding table, as the amount is contingent upon continued employment. In addition, the amount of the obligation is unknown, as it is based in part on the market price of our common stock when the awards vest.

The expected timing of payments of the obligations in the preceding table 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.

Off-Balance-Sheet Arrangements

As of December 28, 2013, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

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ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are affected by changes in non-U.S. currency exchange rates, interest rates, and equity prices. All of the potential changes presented below are based on sensitivity analyses performed on our financial positions as of December 28, 2013, and December 29, 2012. Actual results may differ materially.

Currency Exchange Rates

In general, we economically hedge currency risks of non-U.S.-dollar-denominated investments in debt instruments and loans receivable with currency forward contracts or currency interest rate swaps. Gains and losses on these non-U.S.-currency investments are generally offset by corresponding losses and gains on the related hedging instruments.

Substantially all of our revenue is transacted in U.S. dollars. However, a significant amount of our operating expenditures and capital purchases is incurred in or exposed to other currencies, primarily the euro, the Japanese yen, and the Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of the functional currency equivalent of future cash flows caused by changes in exchange rates. We generally utilize currency forward contracts in these hedging programs. These programs reduce, but do not eliminate, the impact of currency exchange movements. For further information, see “Risk Factors” in Part I, Item 1A of this Form 10-K. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that a weighted average adverse change of 20% in currency exchange rates could be experienced in the near term. Such an adverse change, after taking into account balance sheet hedges only and offsetting recorded monetary asset and liability positions, would have resulted in an adverse impact on income before taxes of less than $40 million as of December 28, 2013 (less than $80 million as of December 29, 2012).

Interest Rates

We generally hedge interest rate risks of fixed-rate debt instruments with interest rate swaps. Gains and losses on these investments are generally offset by corresponding losses and gains on the related hedging instruments.

We are exposed to interest rate risk related to our investment portfolio and indebtedness. Our indebtedness includes our debt issuances and the liability associated with a long-term patent cross-license agreement with NVIDIA Corporation. The primary objective of our investments in debt instruments is to preserve principal while maximizing yields, which generally track the U.S. dollar three-month LIBOR. A hypothetical decrease in interest rates of up to 1.0% would have resulted in an increase in the fair value of our indebtedness of approximately $1.1 billion as of December 28, 2013 (an increase of approximately $1.5 billion as of December 29, 2012). A hypothetical decrease in benchmark interest rates of up to 1.0%, after taking into account investment hedges, would have resulted in an increase in the fair value of our investment portfolio of approximately $10 million as of December 28, 2013 (an increase of approximately $10 million as of December 29, 2012). The fluctuations in fair value of our investment portfolio and indebtedness reflect only the direct impact of the change in interest rates. Other economic variables, such as equity market fluctuations and changes in relative credit risk, could result in a significantly higher decline in the fair value of our net investment position. For further information on how credit risk is factored into the valuation of our investment portfolio and debt issuances, see “Note 4: Fair Value” in Part II, Item 8 of this Form 10-K.

Equity Prices

Our investments include marketable equity securities and equity derivative instruments. We typically do not attempt to reduce or eliminate our equity market exposure through hedging activities at the inception of the investment. Before we enter into hedge arrangements, we evaluate legal, market, and economic factors, as well as the expected timing of disposal to determine whether hedging is appropriate. Our equity market risk management program may include equity derivatives with or without hedge accounting designation that utilize warrants, equity options, or other equity derivatives.

We also utilize total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains and losses from changes in fair value of these total return swaps are generally offset by the losses and gains on the related liabilities.

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As of December 28, 2013, the fair value of our marketable equity investments and our equity derivative instruments, including hedging positions, was $6.3 billion ($4.4 billion as of December 29, 2012). Our marketable equity investment in ASML was carried at a total fair market value of $5.9 billion, or 94% of our marketable equity portfolio, as of December 28, 2013. Our marketable equity method investments are excluded from our analysis, as the carrying value does not fluctuate based on market price changes unless an other-than-temporary impairment is deemed necessary. To determine reasonably possible decreases in the market value of our marketable equity investments, we have analyzed the historical market price sensitivity of our marketable equity investment portfolio. Assuming a loss of 25% in market prices, and after reflecting the impact of hedges and offsetting positions, the aggregate value of our marketable equity investments could decrease by approximately $1.6 billion, based on the value as of December 28, 2013 (a decrease in value of approximately $1.6 billion, based on the value as of December 29, 2012 using an assumed loss of 35%).

Many of the same factors that could result in an adverse movement of equity market prices affect our non-marketable equity investments, although we cannot always quantify the impact directly. Financial markets are volatile, which could negatively affect the prospects of the companies we invest in, their ability to raise additional capital, and the likelihood of our ability to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales. These types of investments involve a great deal of risk, and there can be no assurance that any specific company will grow or become successful; consequently, we could lose all or part of our investment. Our non-marketable equity investments, excluding investments accounted for under the equity method, had a carrying amount of $1.3 billion as of December 28, 2013 ($1.2 billion as of December 29, 2012). The carrying amount of our non-marketable equity method investments was $1.0 billion as of December 28, 2013 ($1.0 billion as of December 29, 2012). The majority of our non-marketable equity method investments balance as of December 28, 2013, was concentrated in our IMFT investment of $646 million ($642 million as of December 29, 2012).

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ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page

Consolidated Statements of Income	50

Consolidated Statements of Comprehensive Income	51

Consolidated Balance Sheets	52

Consolidated Statements of Cash Flows	53

Consolidated Statements of Stockholders’ Equity	54

Notes to Consolidated Financial Statements	55

Reports of Independent Registered Public Accounting Firm	107

Supplemental Data: Financial Information by Quarter	109

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INTEL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME



Three Years Ended December 28, 2013 (In Millions, Except Per Share Amounts)	2013			2012		2011
Net revenue	$	52,708		$	53,341	$	53,999
Cost of sales	21,187			20,190		20,242
Gross margin	31,521			33,151		33,757
Research and development	10,611			10,148		8,350
Marketing, general and administrative	8,088			8,057		7,670
Restructuring and asset impairment charges	240			—		—
Amortization of acquisition-related intangibles	291			308		260
Operating expenses	19,230			18,513		16,280
Operating income	12,291			14,638		17,477
Gains (losses) on equity investments, net	471			141		112
Interest and other, net	(151		)	94		192
Income before taxes	12,611			14,873		17,781
Provision for taxes	2,991			3,868		4,839
Net income	$	9,620		$	11,005	$	12,942
Basic earnings per common share	$	1.94		$	2.20	$	2.46
Diluted earnings per common share	$	1.89		$	2.13	$	2.39
Weighted average common shares outstanding:
Basic	4,970			4,996		5,256
Diluted	5,097			5,160		5,411

See accompanying notes.

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INTEL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



Three Years Ended December 28, 2013 (In Millions)	2013			2012			2011
Net income	$	9,620		$	11,005		$	12,942
Other comprehensive income, net of tax:
Change in net unrealized holding gains (losses) on available-for-sale investments	1,181			470			(170		)
Change in net deferred tax asset valuation allowance	(26		)	(11		)	(99		)
Change in net unrealized holding gains (losses) on derivatives	(89		)	85			(119		)
Change in net prior service costs	18			—			4
Change in actuarial valuation	520			(172		)	(588		)
Change in net foreign currency translation adjustment	38			10			(142		)
Other comprehensive income (loss)	1,642			382			(1,114		)
Total comprehensive income	$	11,262		$	11,387		$	11,828

See accompanying notes.

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INTEL CORPORATION

CONSOLIDATED BALANCE SHEETS



December 28, 2013, and December 29, 2012 (In Millions, Except Par Value)	2013		2012
Assets
Current assets:
Cash and cash equivalents	$	5,674	$	8,478
Short-term investments	5,972		3,999
Trading assets	8,441		5,685
Accounts receivable, net of allowance for doubtful accounts of $38 ($38 in 2012)	3,582		3,833
Inventories	4,172		4,734
Deferred tax assets	2,594		2,117
Other current assets	1,649		2,512
Total current assets	32,084		31,358
Property, plant and equipment, net	31,428		27,983
Marketable equity securities	6,221		4,424
Other long-term investments	1,473		493
Goodwill	10,513		9,710
Identified intangible assets, net	5,150		6,235
Other long-term assets	5,489		4,148
Total assets	$	92,358	$	84,351
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	281	$	312
Accounts payable	2,969		3,023
Accrued compensation and benefits	3,123		2,972
Accrued advertising	1,021		1,015
Deferred income	2,096		1,932
Other accrued liabilities	4,078		3,644
Total current liabilities	13,568		12,898
Long-term debt	13,165		13,136
Long-term deferred tax liabilities	4,397		3,412
Other long-term liabilities	2,972		3,702
Commitments and contingencies (Notes 18 and 26)
Stockholders’ equity:
Preferred stock, $0.001 par value, 50 shares authorized; none issued	—		—
Common stock, $0.001 par value, 10,000 shares authorized; 4,967 issued and outstanding (4,944 issued and outstanding in 2012) and capital in excess of par value	21,536		19,464
Accumulated other comprehensive income (loss)	1,243		(399		)
Retained earnings	35,477		32,138
Total stockholders’ equity	58,256		51,203
Total liabilities and stockholders’ equity	$	92,358	$	84,351

See accompanying notes.

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INTEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



Three Years Ended December 28, 2013 (In Millions)	2013	2012	2011
Cash