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| Derivative assets are recorded as other assets, current and non-current. |
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| Derivative liabilities are recorded as other liabilities, current and non-current. |
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| The majority of these instruments mature within 12 months. |
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 1721 |
AMOUNTS OFFSET IN THE CONSOLIDATED CONDENSED BALANCE SHEETS
The gross amounts of our derivative instruments and reverse repurchase agreements subject to master netting arrangements with various counterparties, and cash and non-cash collateral posted under such agreements at the end of each period were as follows:
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| | Sep 26, 2020 | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | | | |
| (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount |
| Assets: | | | | | | | | | | | | |
Derivative assets subject to master
netting arrangements | | $ | 1,996 | | | $ | 0 | | | $ | 1,996 | | | $ | (328) | | | $ | (1,587) | | | $ | 81 | |
| Reverse repurchase agreements | | 1,250 | | | 0 | | | 1,250 | | | 0 | | | (1,250) | | | 0 | |
| Total assets | | 3,246 | | | 0 | | | 3,246 | | | (328) | | | (2,837) | | | 81 | |
| Liabilities: | | | | | | | | | | | | |
Derivative liabilities subject to master
netting arrangements | | 530 | | | 0 | | | 530 | | | (328) | | | (202) | | | 0 | |
| Total liabilities | | $ | 530 | | | $ | 0 | | | $ | 530 | | | $ | (328) | | | $ | (202) | | | $ | 0 | |
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| | | September 28, 2019 |
| | | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | |
| (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount |
| Assets: | | | | | | | | | | | | |
| Derivative assets subject to master netting arrangements | | $ | 1,299 |
| | $ | — |
| | $ | 1,299 |
| | $ | (240 | ) | | $ | (1,053 | ) | | $ | 6 |
|
| Reverse repurchase agreements | | 1,845 |
| | — |
| | 1,845 |
| | — |
| | (1,845 | ) | | — |
|
| Total assets | | 3,144 |
| | — |
| | 3,144 |
| | (240 | ) | | (2,898 | ) | | 6 |
|
| Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | | 407 |
| | — |
| | 407 |
| | (240 | ) | | (128 | ) | | 39 |
|
| Total liabilities | | $ | 407 |
| | $ | — |
| | $ | 407 |
| | $ | (240 | ) | | $ | (128 | ) | | $ | 39 |
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| | | December 29, 2018 |
| | | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | |
| (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount |
| Assets: | | | | | | | | | | | | |
| Derivative assets subject to master netting arrangements | | $ | 292 |
| | $ | — |
| | $ | 292 |
| | $ | (220 | ) | | $ | (72 | ) | | $ | — |
|
| Reverse repurchase agreements | | 2,099 |
| | — |
| | 2,099 |
| | — |
| | (1,999 | ) | | 100 |
|
| Total assets | | 2,391 |
| | — |
| | 2,391 |
| | (220 | ) | | (2,071 | ) | | 100 |
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| Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | | 890 |
| | — |
| | 890 |
| | (220 | ) | | (576 | ) | | 94 |
|
| Total liabilities | | $ | 890 |
| | $ | — |
| | $ | 890 |
| | $ | (220 | ) | | $ | (576 | ) | | $ | 94 |
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| | Dec 28, 2019 | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | | | |
| (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount |
| Assets: | | | | | | | | | | | | |
Derivative assets subject to master
netting arrangements | | $ | 974 | | | $ | 0 | | | $ | 974 | | | $ | (144) | | | $ | (808) | | | $ | 22 | |
| Reverse repurchase agreements | | 1,850 | | | 0 | | | 1,850 | | | 0 | | | (1,850) | | | 0 | |
| Total assets | | 2,824 | | | 0 | | | 2,824 | | | (144) | | | (2,658) | | | 22 | |
| Liabilities: | | | | | | | | | | | | |
Derivative liabilities subject to master
netting arrangements | | 262 | | | 0 | | | 262 | | | (144) | | | (72) | | | 46 | |
| Total liabilities | | $ | 262 | | | $ | 0 | | | $ | 262 | | | $ | (144) | | | $ | (72) | | | $ | 46 | |
We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
The before-tax net gains or losses attributed to the effective portion of cash flow hedges, recognized in other comprehensive income (loss), were $203$267 million net gains in the third quarter of 2020 and $286 million net gains in the first nine months of 2020 ($203 million net losses in the third quarter of 2019 and $52 million net losses in the first nine months of 2019 ($69 million net losses in the third quarter of 2018 and $203 million net losses in the first nine months of 2018)2019). Substantially all of our cash flow hedges were foreign currency contracts for all periods presented.
During the first nine months of 20192020 and 2018,2019, the amounts excluded from effectiveness testing were insignificant.
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 1822 |
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
The effects of derivative instruments designated as fair value hedges, recognized in interest and other, net for each period were as follows:
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| | | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Sep 28,
2019 | | Sep 29,
2018 | | Sep 28,
2019 | | Sep 29,
2018 |
| Interest rate contracts | | $ | 273 |
| | $ | (230 | ) | | $ | 1,312 |
| | $ | (601 | ) |
| Hedged items | | (273 | ) | | 230 |
| | (1,312 | ) | | 601 |
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| Total | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
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| | Gains (Losses) Recognized in Consolidated Condensed Statements of Income on Derivatives | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 |
| Interest rate contracts | | $ | (36) | | | $ | 273 | | | $ | 996 | | | $ | 1,312 | |
| Hedged items | | 36 | | | (273) | | | (996) | | | (1,312) | |
| Total | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
The amounts recorded on the consolidated condensed balance sheetsConsolidated Condensed Balance Sheets related to cumulative basis adjustments for fair value hedges for each period were as follows: |
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| Line Item in the Consolidated Condensed Balance Sheet in Which the Hedged Item is Included | | Carrying Amount of the Hedged Item Asset/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount Assets/(Liabilities) |
Years Ended
(In Millions) | | Sep 28,
2019 | | Dec 29,
2018 | | Sep 28,
2019 | | Dec 29,
2018 |
| Long-term debt | | $ | (13,834 | ) | | $ | (19,622 | ) | | $ | (922 | ) | | $ | 390 |
|
As of September 28, 2019 and December 29, 2018, the | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Line Item in the Consolidated Condensed Balance Sheet in Which the Hedged Item is Included | | Carrying Amount of the Hedged Item Asset/(Liabilities) | | | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount Assets/(Liabilities) | | | |
| (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 | | Sep 26, 2020 | | Dec 28, 2019 | |
| Long-term debt | | $ | (13,674) | | | $ | (12,678) | | | $ | (1,677) | | | $ | (681) | | |
The total notional amount of pay variable/receive fixed-interestpay-variable and receive-fixed interest rate swaps was $12.9$12.0 billion as of September 26, 2020 and $20.0 billion, respectively. During the third quarteras of 2019, we unwound $7.1 billion of swaps resulting in a $111 million gain to be amortized over the remaining life of the debt.December 28, 2019.
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statementsConsolidated Condensed Statements of incomeIncome for each period were as follows:
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| | | | | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Location of Gains (Losses) Recognized in Income on Derivatives | | Sep 28,
2019 | | Sep 29,
2018 | | Sep 28,
2019 | | Sep 29,
2018 |
| Foreign currency contracts | | Interest and other, net | | $ | 150 |
| | $ | (1 | ) | | $ | 187 |
| | $ | 268 |
|
| Interest rate contracts | | Interest and other, net | | (12 | ) | | 3 |
| | (51 | ) | | 22 |
|
| Other | | Various | | 17 |
| | 53 |
| | 198 |
| | 49 |
|
| Total | | | | $ | 155 |
| | $ | 55 |
| | $ | 334 |
| | $ | 339 |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | | | Nine Months Ended | | |
| (In Millions) | | Location of Gains (Losses) Recognized in Income on Derivatives | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 |
| Foreign currency contracts | | Interest and other, net | | $ | (166) | | | $ | 150 | | | $ | (228) | | | $ | 187 | |
| Interest rate contracts | | Interest and other, net | | (3) | | | (12) | | | (94) | | | (51) | |
| Other | | Various | | 138 | | | 17 | | | 95 | | | 198 | |
| Total | | | | $ | (31) | | | $ | 155 | | | $ | (227) | | | $ | 334 | |
LEGAL PROCEEDINGS
We are a party to various legal proceedings, including those noted in this section. Although management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices, or requiring other remedies. An unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, and overall trends. We might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. Except as specifically described below, we have not concluded that settlement of any of the legal proceedings noted in this section is appropriate at this time.
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 1923 |
European Commission Competition Matter
In 2001, the European Commission (EC)EC commenced an investigation regarding claims by Advanced Micro Devices, Inc. (AMD) that we used unfair business practices to persuade customers to buy our microprocessors. We received numerous requests for information and documents from the EC and we responded to each of those requests. The EC issued a Statement of Objections in July 2007 and held a hearing on that Statement in March 2008. The EC issued a Supplemental Statement of Objections in July 2008. In May 2009, the EC issued a decision finding that we had violated Article 82 of the EC Treaty and Article 54 of the European Economic Area Agreement. In general, the EC found that we violated Article 82 (later renumbered as Article 102 by a new treaty) by offering alleged "conditional rebates and payments" that required our customers to purchase all or most of their x86 microprocessors from us. The EC also found that we violated Article 82 by making alleged "payments to prevent sales of specific rival products." The EC imposed a fine in the amount of €1.1 billion ($1.4 billion as of May 2009), which we subsequently paid during the third quarter of 2009, and ordered us to "immediately bring to an end the infringement referred to in" the EC decision.
The EC decision contained no specific direction on whether or how we should modify our business practices. Instead, the decision stated that we should "cease and desist" from further conduct that, in the EC's opinion, would violate applicable law. We took steps, which are subject to the EC's ongoing review, to comply with that decision pending appeal. We had discussions with the EC to better understand the decision and to explain changes to our business practices.
We appealed the EC decision to the Court of First Instance (which has been renamed the General Court) in July 2009. The hearing of our appeal took place in July 2012. In June 2014, the General Court rejected our appeal in its entirety. In August 2014, we filed an appeal with the European Court of Justice. In November 2014, Intervener Association for Competitive Technologies filed comments in support of Intel’s grounds of appeal. The EC and interveners filed briefs in November 2014, we filed a reply in February 2015, and the EC filed a rejoinder in April 2015. The Court of Justice held oral argument in June 2016. In October 2016, Advocate General Wahl, an advisor to the Court of Justice, issued a non-binding advisory opinion that favored Intel on a number of grounds. The Court of Justice issued its decision in September 2017, setting aside the judgment of the General Court and sending the case back to the General Court to examine whether the rebates at issue were capable of restricting competition. The General Court has appointed a panel of five judges to consider our appeal of the EC’s 2009 decision in light of the Court of Justice’s clarifications of the law. In November 2017, the parties filed initial “Observations” about the Court of Justice’s decision and the appeal and were invited by the General Court to offer supplemental comments to each other’s “Observations,” which the parties submitted in March 2018. Responses to other questions posed by the General Court were filed in May and June 2018. We anticipate that theThe General Court will scheduleheard oral argument for earlyin March 2020. Pending the final decision in this matter, the fine paid by Intel has been placed by the EC in commercial bank accounts where it accrues interest.
McAfee, Inc. Shareholder Litigation
On August 19, 2010, we announced that we had agreed to acquire all of the common stock of McAfee, Inc. (McAfee) for $48.00 per share. Four McAfee shareholders filed putative class-action lawsuits in Santa Clara County, California Superior Court challenging the proposed transaction. The cases were ordered consolidated in September 2010. Plaintiffs filed an amended complaint that named former McAfee board members, McAfee, and Intel as defendants, and alleged that the McAfee board members breached their fiduciary duties and that McAfee and Intel aided and abetted those breaches of duty. The complaint requested rescission of the merger agreement, such other equitable relief as the court may deem proper, and an award of damages in an unspecified amount. In June 2012, the plaintiffs’ damages expert asserted that the value of a McAfee share for the purposes of assessing damages should be $62.08.
In January 2012, the court certified the action as a class action, appointed the Central Pension Laborers’ Fund to act as the class representative, and scheduled trial to begin in January 2013. In March 2012, defendants filed a petition with the California Court of Appeal for a writ of mandate to reverse the class certification order; the petition was denied in June 2012. In March 2012, at defendants’ request, the court held that plaintiffs were not entitled to a jury trial and ordered a bench trial. In April 2012, plaintiffs filed a petition with the California Court of Appeal for a writ of mandate to reverse that order, which the court of appeal denied in July 2012. In August 2012, defendants filed a motion for summary judgment. The trial court granted that motion in November 2012 and entered final judgment in the case in February 2013. In April 2013, plaintiffs appealed the final judgment. The California Court of Appeal heard oral argument in October 2017, and in November 2017, affirmed the judgment as to McAfee's nine outside directors, reversed the judgment as to former McAfee director and chief executive officer David DeWalt, Intel, and McAfee, and affirmed the trial court's ruling that the plaintiffs are not entitled to a jury trial. At a June 2018 case management conference following remand, the Superior Court set an October hearing date for any additional summary judgment motions that may be filed, and set trial to begin in December 2018. In July 2018, plaintiffs filed a motion for leave to amend the complaint, which the court denied in September 2018. Also, in July 2018, McAfee and Intel filed a motion for summary judgment on the aiding and abetting claims asserted against them; in October 2018, the court granted the motion as to McAfee and denied the motion as to Intel.
The parties agreed in principle to settle the case in late October 2018, and finalized the settlement agreement in March 2019. The court granted plaintiffs' motion for preliminary approval of the settlement in May 2019, and granted plaintiffs' motion for final approval of the settlement in October 2019. The settlement requires an aggregate payment by defendants of $12 million. Intel’s contribution to the settlement is immaterial to its financial statements.
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 FINANCIAL STATEMENTS | Notes to Financial Statements | 20 |
Litigation Related to Security Vulnerabilities
In June 2017, a Google research team notified us and other companies that it had identified security vulnerabilities (now commonly referred to as “Spectre” and “Meltdown”) that affect many types of microprocessors, including our products. As is standard when findings like these are presented, we worked together with other companies in the industry to verify the research and develop and validate software and firmware updates for impacted technologies. On January 3, 2018, information on the security vulnerabilities was publicly reported, before software and firmware updates to address the vulnerabilities were made widely available.
Numerous lawsuits have been filed against Intel and, in certain cases, our current and former executives and directors, in U.S. federal and state courts and in certain courts in other countries relating to the Spectre and Meltdown security vulnerabilities, as well as another variantother variants of these vulnerabilities (“Foreshadow”) that hashave since been identified.
As of October 23, 2019,21, 2020, consumer class action lawsuits relating to certainthe above class of security vulnerabilities publicly disclosed insince 2018 were pending in the United States,U.S., Canada, and Israel. The plaintiffs, who purport to represent various classes of purchasers of our products, generally claim to have been harmed by Intel's actions and/or omissions in connection with the security vulnerabilities and assert a variety of common law and statutory claims seeking monetary damages and equitable relief. In the U.S., numerous individual class action suits filed in various jurisdictions were consolidated in April 2018 for all pretrial proceedings in the U.S. District Court for the District of Oregon. Intel filed aIn March 2020, the court granted Intel's motion to dismiss the complaint in that consolidated action but granted plaintiffs leave to amend. Plaintiffs filed an amended complaint in October 2018, and a hearingMay 2020, which Intel moved to dismiss in July 2020; argument on thatthe motion was held in February 2019.is scheduled for December 2020. In Canada, in one case pending in the Superior Court of Justice of Ontario, an initial status conference has not yet been scheduled. In a second case pending in the Superior Court of Justice of Quebec, the court entered an order in October 2018, staying thathas stayed the case for one year.until January 2021. In Israel, both consumer class action lawsuits were filed in the District Court of Haifa. In the first case, the District Court denied the parties' joint motion to stay filed in January 2019, but to date has deferred Intel’sIntel's deadline to respond to the complaint in view of Intel’s pending motion to dismiss in the consolidated proceeding in the U.S.complaint. Intel filed a motion to stay the second case pending resolution of the consolidated proceeding in the U.S., and a hearing on that motion has been scheduled for November 2019.2020. Additional lawsuits and claims may be asserted seeking monetary damages or other related relief. We dispute the pending claims described above and intend to defend those lawsuits vigorously. Given the procedural posture and the nature of those cases, including that the pending proceedings are in the early stages, that alleged damages have not been specified, that uncertainty exists as to the likelihood of a class or classes being certified or the ultimate size of any class or classes if certified, and that there are significant factual and legal issues to be resolved, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from those matters.
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 24 |
In addition to these lawsuits, Intel stockholders have filed multiple shareholder derivative lawsuits since January 2018 against certain current and former members of our Board of Directors and certain current and former officers, alleging that the defendants breached their duties to Intel in connection with the disclosure of the security vulnerabilities and the failure to take action in relation to alleged insider trading. The complaints seeksought to recover damages from the defendants on behalf of Intel. Some of the derivative actions were filed in the U.S. District Court for the Northern District of California and were consolidated, and the others were filed in the Superior Court of the State of California in San Mateo County and were consolidated. The federal court granted defendants' motion to dismiss the consolidated complaint in the federal action in August 2018 on the ground that plaintiffs failed to plead facts sufficient to show they were excused from making a pre-lawsuit demand on the Board. The federal court granted plaintiffs leave to amend their complaint, but subsequently dismissed the cases without prejudice in January 2019 at plaintiffs' request. In August 2018, theThe California Superior Court grantedentered judgment in defendants' motionfavor in August 2020 after granting defendants' motions to dismiss theplaintiffs' consolidated complaint in the state court action on the ground that plaintiffs failedand three successive amended complaints, all for failure to plead facts sufficient to show theyplaintiffs were excused from making a pre-lawsuit demand on the Board. Plaintiffs filed a notice of appeal of the California court's judgment in October 2020.
Institute of Microelectronics, Chinese Academy of Sciences v. Intel China, Ltd., et al.
In February 2018, the Institute of Microelectronics of the Chinese Academy of Sciences (IMECAS) sued Intel China, Ltd., Dell China, Ltd. (Dell) and Beijing JingDong Century Information Technology, Ltd. (JD) for patent infringement in the Beijing High Court. IMECAS alleges that Intel’s Core series processors infringe Chinese patent CN 102956457 (’457 Patent). The complaint demands an injunction and damages of at least RMB 200,000,000 plus the cost of litigation. A trial date is not yet set. In March 2018, Dell tendered indemnity to Intel, which Intel granted in April 2018. JD also tendered indemnity to Intel, which Intel granted in October 2018. In March 2018, Intel filed an invalidation request on the ‘457 patent with the Chinese Patent Reexamination Board (PRB). The PRB held an oral hearing in September 2018 and in February 2019 upheld the validity of the challenged claims. In January 2020, Intel filed a second invalidation request on the ‘457 patent with the PRB, for which the PRB heard oral argument in July 2020. In September 2018 and March 2019, Intel filed petitions with the United States Patent & Trademark Office (USPTO) requesting institution of inter partes review (IPR) of U.S. Patent No. 9,070,719, the U.S. counterpart to the ‘457 patent. The USPTO denied institution of Intel’s petitions in March and October 2019, respectively. In April 2019, Intel filed a request for rehearing and a petition for Precedential Opinion Panel (POP) in the USPTO to challenge the denial of its first IPR petition, and in November 2019 Intel filed a request for rehearing on the second IPR petition. In January 2020, the USPTO denied the POP petition on the first IPR petition. In June 2020, the Patent Trial and Appeal Board denied Intel's rehearing requests on both petitions.
In October 2019, IMECAS filed second and third lawsuits, in the Beijing IP Court, alleging infringement of Chinese Patent No. CN 102386226 (‘226 Patent) based on the manufacturing and sale of Intel’s Core i3 microprocessors. Defendants in the second case are Lenovo (Beijing) Co., Ltd. (Lenovo) and Beijing Jiayun Huitong Technology Development Co. Ltd. (BJHT). Defendants in the third case are Intel Corp., Intel China Co., Ltd., the Intel China Beijing Branch, Beijing Digital China Co., Ltd. (Digital China), and JD. Both complaints demand injunctions plus litigation costs and reserve the right to claim damages in unspecified amounts. No proceedings have occurred or are yet scheduled in these lawsuits. In December 2019, Lenovo tendered indemnity to Intel, which Intel granted in March 2020. In July 2020, Intel filed two invalidation requests on the '226 patent with the Chinese PRB. Given the procedural posture and the nature of these cases, the unspecified nature and extent of damages claimed by IMECAS, and uncertainty regarding the availability of injunctive relief under applicable law, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from these matters. We dispute IMECAS’s claims and intend to vigorously defend against them.
VLSI Technology LLC v. Intel
In October 2017, VLSI Technology LLC (VLSI) filed a complaint against Intel in the U.S. District Court for the Northern District of California alleging infringement of eight patents acquired from NXP Semiconductors, N.V. (NXP). The patents, which originated at Freescale Semiconductor, Inc. and NXP B.V., are U.S. Patent Nos. 7,268,588; 7,675,806; 7,706,207; 7,709,303; 8,004,922; 8,020,014; 8,268,672; and 8,566,836. VLSI accuses various FPGA and processor products of infringement. VLSI estimated its damages to be as high as $7.1 billion, and its complaint further sought enhanced damages, future royalties, attorneys’ fees, costs, and interest. In May, June, September, and October 2018, Intel filed requests with the Patent Trial and Appeals Board (PTAB) to institute inter partes review of the patentability of claims in all eight of the patents in-suit. The PTAB instituted review of six patents and denied institution on two patents. As a result of the institution decisions, the parties stipulated to stay the District Court action in March 2019. In December 2019 and February 2020, the PTAB found all claims of the '588 and '303 patents, and some claims of the '922 patent, to be unpatentable. The PTAB found the challenged claims of the '014, '672 and '207 patents to be patentable. Intel moved for a continuation of the stay in March 2020 as it appealed certain rulings by the PTAB. In June 2020, the District Court issued an order continuing the stay through August 2021 and setting trial for December 2022.
In June 2018, VLSI filed a second suit against Intel, in U.S. District Court for the District of Delaware, alleging infringement by various Intel processors of five additional patents acquired from NXP: U.S. Patent Nos. 6,212,663; 7,246,027; 7,247,552; 7,523,331; and 8,081,026. VLSI accused Intel of willful infringement and seeks an injunction or, in the alternative, ongoing royalties, enhanced damages, attorneys’ fees and costs, and interest. In March 2019, the District Court dismissed VLSI’s claims for willful infringement as to all the patents-in-suit except the ‘027 patent, and also dismissed VLSI’s allegations of indirect infringement as to the ‘633, ‘331, and ‘026 patents. In June 2019, Intel filed requests for inter partes review of the patentability of claims in all five patents-in-suit. In January 2020, the District Court vacated the November 2020 trial date based on agreement of the parties; no trial date is currently set. In January and February 2020, the PTAB instituted review of the '552, '633, '331 and '026 patents and as a result Intel moved for stay of the District Court proceedings. In May 2020, the District Court stayed the case as to the '026 and '552 patents but allowed the case to proceed on the '027 and '331 patents. For these two patents, VLSI is seeking damages of approximately $4.13 billion. VLSI also alleges willful infringement and seeks enhanced damages as to the '027 patent. VLSI is no longer asserting claims from the '633 patent.
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 25 |
In March 2019, VLSI filed a third suit against Intel, also in U.S. District Court for the District of Delaware, alleging infringement of six more patents acquired from NXP: U.S. Patent Nos. 6,366,522; 6,663,187; 7,292,485; 7,606,983; 7,725,759; and 7,793,025. In April 2019, VLSI voluntarily dismissed this Delaware case without prejudice. In April 2019, VLSI filed three new infringement suits against Intel in the U.S. District Court for the Western District of Texas (WDTX) accusing various Intel processors of infringement. The three suits collectively assert the same six patents from the voluntarily dismissed Delaware case plus two additional patents acquired from NXP, U.S. Patent Nos. 7,523,373 and 8,156,357. VLSI accuses Intel of willful infringement and seeks an injunction or, in the alternative, ongoing royalties, enhanced damages, attorneys’ fees and costs, and interest. Specifically, VLSI is seeking damages of approximately $11.01 billion collectively in the Texas cases, plus enhanced damages for alleged willful infringement. VLSI seeks approximately $2.5 billion plus enhanced damages for alleged willful infringement in the first Texas case. That case was originally scheduled for trial in November 2020, but the court has now moved trial to January 2021. In October and November 2019, and in February 2020, Intel filed inter partes review requests on certain asserted claims across six of the patents-in-suit in WDTX. Between May and October 2020, the PTAB denied all of these requests, and Intel is asking for a rehearing on these denials.
In May 2019, VLSI filed a case in Shenzhen Intermediate People’s Court against Intel, Intel (China) Co., Ltd., Intel Trading (Shanghai) Co., Ltd., and Intel Products (Chengdu) Co., Ltd. VLSI asserts Chinese Patent 201410094015.9 accusing Intel Core processors of infringement. VLSI requests an injunction as well as RMB 1.3 million in damages. Defendants filed an invalidation petition in October 2019. In May 2020, defendants filed a motion to stay the trial court proceedings pending a determination on invalidity. The court has not yet ruled on the motion to stay.
In May 2019, VLSI filed a second case in Shanghai Intellectual Property Court against Intel (China) Co., Ltd., Intel Trading (Shanghai) Co., Ltd., and Intel Products (Chengdu) Co., Ltd. VLSI asserts Chinese Patent 201080024173.7. The accused Intel products and the claims of VLSI in the Shanghai case are the same as in the Shenzhen case. Defendants filed an invalidation petition in October 2019. In June 2020, defendants filed a motion to stay the trial court proceedings pending a determination on invalidity. The court has not yet ruled on the motion to stay. The court held its first evidentiary hearing in September 2020.
In November 2019, Intel, along with Apple Inc., filed a complaint against Fortress Investment Group LLC, Fortress Credit Co. LLC, Uniloc 2017 LLC, Uniloc USA, Inc., Uniloc Luxembourg S.A.R.L., VLSI, INVT SPE LLC, Inventergy Global, Inc., DSS Technology Management, Inc., IXI IP, LLC, and Seven Networks, LLC. Plaintiffs allege violations of Section 1 of the Sherman Act by certain defendants, Section 7 of the Clayton Act by certain defendants, and California Business and Professions Code section 17200 by all defendants based on defendants' unlawful aggregation of patents. In February 2020, defendants moved to dismiss plaintiffs' complaint. In July 2020, the court granted plaintiffsdefendants’ motion to dismiss with leave to amend. In July 2019, the California Superior CourtThe court dismissed plaintiffs'antitrust claims related to two DSS patents with prejudice. The plaintiffs filed an amended complaint on the same grounds as the previous complaint, but again granted plaintiffs leavein August 2020, and defendants moved to amend. Defendants'dismiss in September 2020. The court will hear defendants' motion to dismiss plaintiffs' second amended complaint is scheduled for hearing in December 2020.
In June 2020, affiliates controlled by Fortress Investment Group, which also controls VLSI, acquired Finjan Holdings, Inc. Intel had signed a “Settlement, Release and Patent License Agreement” with Finjan in 2012, acquiring a license to the patents of Finjan and its affiliates, current or future, through a capture period of November 2019.20, 2022. The agreement also contains covenants wherein Finjan agrees to cause its affiliates to comply with the agreement. As such, Intel maintains that it now has a license to the patents of VLSI, which has become a Finjan affiliate, and that Finjan must cause VLSI to dismiss its suits against Intel. In August 2020, Intel started dispute resolution proceedings under the agreement. In September 2020, Intel filed motions to stay the Texas, Delaware, and Shanghai matters pending resolution of its dispute with Finjan. Those motions remain pending.
Given the procedural posture and the nature of these cases and that there are significant factual and legal issues to be resolved, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, arising from these matters. We dispute VLSI’s claims and intend to vigorously defend against them.
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 26 |
We use terms throughout our document that are specific to Intel or that are abbreviations that may not be commonly known or used. Below is a list of these terms used in our document.
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| TERM | | DEFINITION |
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| 2009 Debentures | | 3.25% junior subordinated convertible debentures due 2039 |
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| 2019 Form 10-K | | Our Annual Report on Form 10-K for the fiscal year ended December 28, 2019 |
| 5G | | The next-generation mobile network, which is expected to bring dramatic improvements in network speeds and latency, and which we view as a transformative technology and opportunity for many industries. |
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| ADAS | | Advanced driver-assistance systems |
| Adjacent products | | All of our non-platform products for CCG, DCG, and IOTG, such as modem, Ethernet and silicon photonics, as well as Mobileye, Non-Volatile Memory Solutions Group (NSG), and Programmable Solutions Group (PSG) products. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needs. |
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| ASIC | | Application-specific integrated circuit |
| ASP | | Average Selling Price |
| ASR | | Accelerated Share Repurchase |
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| CODM | | Chief operating decision maker |
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| COVID-19 | | The infectious disease caused by the most recently discovered coronavirus (aka SARS-CoV-2), which was declared a global pandemic by the World Health Organization. |
| CPU | | Processor or central processing unit |
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| Data-centric businesses | | Includes our Data Center Group (DCG), Internet of Things Group (IOTG), Mobileye, Non-Volatile Memory Solutions Group (NSG), Programmable Solutions Group (PSG), and all other businesses |
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| EC | | European Commission |
| Edge | | Allocated resources that move, store, and process data closer to the source or point of service delivery. |
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| Form 10-Q | | Quarterly Report on Form 10-Q |
| FPGA | | Field-programmable gate array |
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| IMFT | | IM Flash Technologies, LLC |
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| Internet of Things | | Refers to the Internet of Things market in which we sell our IOTG and Mobileye products |
| IOT | | Internet of Things portfolio |
| IOTG | | Internet of Things Group operating segment |
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| IP | | Intellectual property |
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| MaaS | | Mobility-as-a-Service |
| McAfee | | Business, post divestiture of Intel Security Group in Q2 2017, which we retained an interest in as part of our investment strategy |
| MD&A | | Management's Discussion & Analysis |
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| MG&A | | Marketing, general and administrative |
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| Moovit | | Moovit App Global Ltd, a MaaS solutions company acquired in Q2 2020 |
| NAND | | NAND flash memory |
| nm | | Nanometer |
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| OEM | | Original equipment manufacturer |
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| PC-centric business | | Our Client Computing Group (CCG) business, including both platform and adjacent products |
| Platform products | | |
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| QLC | | Quad-level cell |
| R&D | | Research and development |
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| RSU | | Restricted stock unit |
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| SEC | | U.S. Securities and Exchange Commission |
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| SoC | | A System-on-a-Chip, integrates most of the components of a computer or other electronic system into a single silicon chip. We offer a range of SoC platform products in DCG, IOTG, and CCG. In our DCG business, we offer SoCs across many market segments for a variety of applications, including products targeted for 5G base stations and network infrastructure. |
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| SSD | | Solid-state drive |
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| TLC | | Triple-level cell |
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| U.S. GAAP | | U.S. Generally Accepted Accounting Principles |
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 2127 |
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MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) |
Third quarter revenue was $19.2 billion as our data-centric businesses grew 6% year over year, offset by the PC-centric business decline of 5%. Data-centric revenue was up compared to a year ago, driven by a strong mix of high-performance Intel® Xeon® processors in our DCG business and growth across all businesses. Our PC-centric business was down on lower year over year platform volume, partially offset by a strong mix of higher performance products as the commercial segment of the PC market remained strong. Lower platform unit sales and margin compression on memory products resulted in lower gross margins and operating income, which was partially offset by platform ASP strength and lower investments in modem. In the first nine months we generated $23.3 billion of cash flow from operations and returned $14.3 billion to stockholders, including $4.2 billion in dividends and $10.1 billion in buybacks.For additional key highlights of theour results of our operations, see "A Quarter in Review."
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| | | Three Months Ended | | Nine Months Ended |
| | | Q3 2019 | | Q3 2018 | | YTD 2019 | | YTD 2018 |
| (Dollars in Millions, Except Per Share Amounts) | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue |
| Net revenue | | $ | 19,190 |
| | 100.0 | % | | $ | 19,163 |
| | 100.0 | % | | $ | 51,756 |
| | 100.0 | % | | $ | 52,191 |
| | 100.0 | % |
| Cost of sales | | 7,895 |
| | 41.1 | % | | 6,803 |
| | 35.5 | % | | 21,494 |
| | 41.5 | % | | 19,681 |
| | 37.7 | % |
| Gross margin | | 11,295 |
| | 58.9 | % | | 12,360 |
| | 64.5 | % | | 30,262 |
| | 58.5 | % | | 32,510 |
| | 62.3 | % |
| Research and development | | 3,208 |
| | 16.7 | % | | 3,428 |
| | 17.9 | % | | 9,978 |
| | 19.3 | % | | 10,110 |
| | 19.4 | % |
| Marketing, general and administrative | | 1,486 |
| | 7.7 | % | | 1,605 |
| | 8.4 | % | | 4,608 |
| | 8.9 | % | | 5,230 |
| | 10.0 | % |
| Restructuring and other charges | | 104 |
| | 0.5 | % | | (72 | ) | | (0.4 | )% | | 288 |
| | 0.6 | % | | (72 | ) | | (0.1 | )% |
| Amortization of acquisition-related intangibles | | 50 |
| | 0.3 | % | | 50 |
| | 0.3 | % | | 150 |
| | 0.3 | % | | 150 |
| | 0.3 | % |
| Operating income | | 6,447 |
| | 33.6 | % | | 7,349 |
| | 38.3 | % | | 15,238 |
| | 29.4 | % | | 17,092 |
| | 32.7 | % |
| Gains (losses) on equity investments, net | | 318 |
| | 1.7 | % | | (75 | ) | | (0.4 | )% | | 922 |
| | 1.8 | % | | 365 |
| | 0.7 | % |
| Interest and other, net | | (46 | ) | | (0.2 | )% | | (132 | ) | | (0.7 | )% | | (170 | ) | | (0.3 | )% | | 225 |
| | 0.4 | % |
| Income before taxes | | 6,719 |
| | 35.0 | % | | 7,142 |
| | 37.3 | % | | 15,990 |
| | 30.9 | % | | 17,682 |
| | 33.9 | % |
| Provision for taxes | | 729 |
| | 3.8 | % | | 744 |
| | 3.9 | % | | 1,847 |
| | 3.6 | % | | 1,824 |
| | 3.5 | % |
| Net income | | $ | 5,990 |
| | 31.2 | % | | $ | 6,398 |
| | 33.4 | % | | $ | 14,143 |
| | 27.3 | % | | $ | 15,858 |
| | 30.4 | % |
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| Earnings per share – diluted | | $ | 1.35 |
| | | | $ | 1.38 |
| | | | $ | 3.14 |
| | | | $ | 3.35 |
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MD&A | Consolidated Results & Analysis | 22 |
REVENUE
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| SEGMENTDCG REVENUE WALKS $B | |
| Q3 2019 vs. Q3 2018 | | YTD 2019 vs. YTD 2018 | DCG OPERATING INCOME $B |
Q3 2019 vs. Q3 2018
Our Q3 2019 revenue was $19.2 billion, flat from Q3 2018. Compared to a year ago, our data-centric businesses were collectively up 6% as platform ASPs increased due to richer core mix and NAND bit growth, partially offset by NSG ASP decline due to lower NAND market pricing. Revenue for our PC-centric business decreased by 5% year over year, primarily driven by platform volume decline compared to Q3 2018, when internal inventory was drawn on to meet demand, offset by ASP strength in our commercial market segment.
YTD 2019 vs. YTD 2018
Our YTD 2019 revenue was $51.8 billion, down $435 million, or 1% from YTD 2018. Our data-centric businesses were collectively down 2% as demand from enterprise and government data center customers weakened in the first half of 2019 and NSG ASPs declined due to lower NAND market pricing. Revenue for our PC-centric business was flat YTD 2019compared toYTD 2018.
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MD&A | Consolidated Results & Analysis | 23 |
GROSS MARGIN
We derived most of our overall gross margin dollars from the sale of platform products in the CCG and DCG operating segments. Our overall gross margin dollars in Q3 2019 decreased by $1.1 billion, or 8.6% compared to Q3 2018.
(Percentages in chart indicate gross margin as a percentage of total revenue)
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| (In Millions) | | |
| $ | 11,295 |
| | Q3 2019 Gross Margin |
| (855 | ) | | Lower gross margin from adjacent businesses primarily due to NAND, modem, and the absence of government grants recognized in Q3 2018 |
| (500 | ) | | Higher platform unit cost primarily from increased mix of performance products |
| (140 | ) | | Lower gross margin from platform revenue |
| 455 |
| | Lower period charges primarily due to lower factory start-up costs and sell-through of previously reserved non-qualified platform product, offset by higher initial production costs associated with our 10nm process technology |
| (25 | ) | | Other |
| $ | 12,360 |
| | Q3 2018 Gross Margin |
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| $ | 30,262 |
| | YTD 2019 Gross Margin |
| (1,300 | ) | | Lower gross margin from adjacent businesses primarily due to NAND, the absence of government grants recognized in Q3 2018, modem, and IOTG |
| (695 | ) | | Higher platform unit cost primarily from increased mix of performance products |
| (370 | ) | | Lower gross margin from platform revenue |
| 105 |
| | Lower period charges primarily due to lower factory start-up costs and sell-through of previously reserved non-qualified platform product, offset by higher initial production costs associated with our 10nm process technology |
| 12 |
| | Other |
| $ | 32,510 |
| | YTD 2018 Gross Margin |
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MD&A | Consolidated Results & Analysis | 24 |
OPERATING EXPENSES
Total research and development (R&D) and marketing, general and administrative (MG&A) expenses for Q3 2019 were $4.7 billion, down 7% from Q3 2018, and were $14.6 billion for YTD 2019, down 5% from YTD 2018. These expenses represent 24.5% of revenue for Q3 2019 and 26.3% of revenue for Q3 2018, and 28.2% of revenue in the first nine months of 2019 and 29.4% of revenue in the first nine months of 2018.
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| RESEARCH AND DEVELOPMENT $B | | MARKETING, GENERAL AND ADMINISTRATIVE $B |
(Percentages indicate expenses as a percentage of total revenue)
Q3 2019 – Q3 2018
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R&D decreased by $220 million, or 6.4%, driven by the following: |
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- | Ramp down of 5G smartphone modem business |
- | Profit dependent compensation due to a decrease in net income |
+ | Investments in data-centric businesses |
YTD 2019 – YTD 2018
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R&D decreased by $132 million, or 1.3%, driven by the following: |
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- | Ramp down of 5G smartphone modem business and other projects |
- | Corporate spending efficiencies |
- | Profit dependent compensation due to a decrease in net income |
+ | Investments in data-centric businesses |
+ | Investments in process technology |
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MARKETING, GENERAL AND ADMINISTRATIVE |
Q3 2019 – Q3 2018
|
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MG&A decreased by $119 million, or 7.4%, driven by the following: |
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- | Corporate spending efficiencies |
- | Profit dependent compensation due to a decrease in net income |
YTD 2019 – YTD 2018
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MG&A decreased by $622 million, or 11.9%, driven by the following: |
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- | Corporate spending efficiencies |
- | Profit dependent compensation due to a decrease in net income |
- | Lack of expenses due to the Wind River Divestiture |
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MD&A | Consolidated Results & Analysis | 25 |
CLIENT COMPUTING GROUP (CCG)
CCGis our largest business unit. The PC market remains a critical facet of our business, providing an important source of intellectual property, scale, and cash flow. CCG is dedicated to delivering client computing end-user solutions, focusing on higher growth segments of 2-in-1, thin-and-light, commercial, and gaming, as well as growing adjacencies such as WiFi and Thunderbolt™ technology. CCG is the human edge in a data-centric world. We deploy platforms that connect people to data and analytics, allowing each person to focus, create, and connect in ways that unlock their individual potential. We continued to be supply constrained in Q3, particularly at the value-end of the market, as higher than expected PC demand strength continues to outpace our supply despite capacity additions we have made this year.
We will be exiting the 5G smartphone modem business, while continuing to meet current customer commitments for our existing 4G modem product lines. We continue to pursue opportunities for 4G and 5G modems in PCs, as well as Internet of Things and other data-centric devices. |
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| CCG REVENUE $B | | CCG OPERATING INCOME $B |
Our revenue in Q3 2019 was down 5% compared to Q3 2018, and flat YTD 2019 compared to YTD 2018. Q3 revenue decreased year over year driven by platform volume decline compared to Q3 2018, when internal inventory was drawn on to meet demand, offset by ASP strength from richer commercial segment mix and modem growth. Revenue was flat year to date compared to 2018, as the decline in platform volume was mostly offset by ASP strength from richer commercial segment mix and modem growth. |
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| | | Q3 2019 vs. Q3 2018 | | YTD 2019 vs. YTD 2018 |
| (Dollars in Millions) | | % | | $ Impact | | % | | $ Impact |
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| Desktop platform volume | | down | (11)% | | $ | (362 | ) | | down | (10)% | | $ | (890 | ) |
| Desktop platform ASP | | up | 3% | | 105 |
| | up | 5% | | 425 |
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| Notebook platform volume | | down | (10)% | | (568 | ) | | down | (6)% | | (998 | ) |
| Notebook platform ASP | | up | 4% | | 187 |
| | up | 6% | | 905 |
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| Adjacent products and other | | | | | 113 |
| | | | | 512 |
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| Total change in revenue | | | | | $ | (525 | ) | | | | | $ | (46 | ) |
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MD&A | Segment Results & Analysis | 26 |
Operating income in Q3 2019 decreased 5% from Q3 2018, with an operating margin of 44%. Operating income YTD 2019 increased 5% from YTD 2018, with an operating margin of 41%. |
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| (In Millions) | | |
| $ | 4,305 |
| | Q3 2019 CCG Operating Income |
| (515 | ) | | Higher platform unit cost |
| (435 | ) | | Lower gross margin from platform revenue |
| (225 | ) | | Lower gross margin from adjacent businesses |
| 690 |
| | Lower period charges primarily due to lower factory start-up costs and sell-through of previously reserved non-qualified platform product, offset by higher initial production costs associated with our 10nm process technology |
| 265 |
| | Lower operating expenses primarily driven by lower investments in modem |
| (7 | ) | | Other |
| $ | 4,532 |
| | Q3 2018 CCG Operating Income |
| | | |
| $ | 11,114 |
| | YTD 2019 CCG Operating Income |
| 820 |
| | Lower period charges primarily due to lower factory start-up costs and sell-through of previously reserved non-qualified platform product, offset by higher initial production costs associated with our 10nm process technology |
| 550 |
| | Lower operating expenses primarily driven by lower investments in modem |
| (595 | ) | | Higher platform unit cost |
| (130 | ) | | Lower gross margin from platform revenue |
| (110 | ) | | Lower gross margin from adjacent businesses |
| 22 |
| | Other |
| $ | 10,557 |
| | YTD 2018 CCG Operating Income |
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MD&A | Segment Results & Analysis | 27 |
DATA CENTER GROUP (DCG)
DCG develops workload-optimized platforms for compute, storage, and network functions. Customers include cloud service providers, enterprise and government, and communications service providers. DCG is fueled by demand in key workloads like artificial intelligence and network function virtualization across key market segments.
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| DCG REVENUE $B | | DCG OPERATING INCOME $B |
DCG delivered record revenueRevenue in Q3 2019, up 4%2020 was down 7% compared to Q3 2018 primarily2019, driven by platform ASP strength partially offset by a decline in platform volume. In Q3 2019, revenue inlower ASPs on higher SoC volume and mix shift from the enterprise and government market segment to cloud service providers. The decline was up 1%,partially offset by higher platform volume overall, and growth in adjacencies driven by 5G networking deployment. Year over year revenue in the cloud service providers market segment was up 3%,15% on continued demand to support a work and learn-at-home environment, and the communicationcommunications service providers market segment was up 11% year over year. Revenue was down 4% YTD 2019 compared to YTD 2018 as customers worked through inventory and the total addressable market (TAM) contracted in the. The enterprise and government market segment was down 47% driven by weaker macroeconomic conditions due to COVID-19.
Revenue was up 23% YTD 2020 compared to YTD 2019 due to increased platform volume as cloud service providers added capacity to serve demand, and continued growth in the first half of 2019, partially offsetcommunications service providers market segment. We also experienced growth in adjacencies driven by platform ASP strength5G networking deployment.
In Q4, we anticipate COVID-19 impacts will drive weaker demand in our data-centric businesses and adjacencies growth.demand in the cloud service providers market segment to moderate.
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| Q3 2020 vs. Q3 2019 | | | | | YTD 2020 vs. YTD 2019 | | | |
| (In Millions) | % | | | $ Impact | | % | | | $ Impact |
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| Platform volume | up | 4% | | $ | 242 | | | up | 19% | | $ | 2,870 | |
| Platform ASP | down | (15)% | | (910) | | | up | —% | | 35 | |
| Adjacent products | up | 34% | | 190 | | | up | 60% | | 842 | |
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| Total change in revenue | | | | $ | (478) | | | | | | $ | 3,747 | |
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| | Q3 2019 vs. Q3 2018 | | YTD 2019 vs. YTD 2018 |
| (Dollars in Millions) | % | | $ Impact | | % | | $ Impact |
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| Platform volume | down | (6)% | | $ | (315 | ) | | down | (8)% | | $ | (1,306 | ) |
| Platform ASP | up | 9% | | 497 |
| | up | 4% | | 599 |
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| Adjacent products | up | 12% | | 62 |
| | up | 4% | | 53 |
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| Total change in revenue | | | | $ | 244 |
| | | | | $ | (654 | ) |
Operating income in Q3 2019 increased 1%2020 decreased 39% from Q3 2018,2019, with an operating margin of 49%32%. Operating income YTD 2019 decreased 20% from YTD 2018,2020 increased 26%, with an operating margin of 42%.
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| (In Millions) | | |
| $ | 3,115 |
| | Q3 2019 DCG Operating Income |
| 225 |
| | Higher gross margin from platform revenue |
| (165 | ) | | Higher period charges, primarily associated with the initial ramp of 10nm |
| (27 | ) | | Other |
| $ | 3,082 |
| | Q3 2018 DCG Operating Income |
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| $ | 6,756 |
| | YTD 2019 DCG Operating Income |
| (610 | ) | | Higher period charges, primarily associated with the initial ramp of 10nm |
| (540 | ) | | Lower gross margin from platform revenue |
| (425 | ) | | Higher DCG operating expenses |
| (90 | ) | | Lower gross margin from adjacent businesses and other |
| $ | 8,421 |
| | YTD 2018 DCG Operating Income |
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| (In Millions) | | |
| $ | 1,903 | | | Q3 2020 DCG Operating Income |
| (695) | | | Lower gross margin from platform revenue |
| (280) | | | Lower DCG adjacent product margin |
| (135) | | | Higher period charges due to reserved non-qualified platform products associated with our 10nm process technology |
| (130) | | | Higher operating expenses |
| (95) | | | Higher platform unit cost |
| 135 | | | Lower period charges due to lower factory start-up costs associated with the initial ramp of 10nm |
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| (12) | | | Other |
| $ | 3,115 MD&A | Segment Results & Analysis | 28 | Q3 2019 DCG Operating Income |
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| $ | 8,494 | | | YTD 2020 DCG Operating Income |
| 2,540 | | | Higher gross margin from platform revenue |
| 280 | | | Lower period charges due to lower factory start-up costs associated with the initial ramp of 10nm |
| (440) | | | Lower DCG adjacent product margin |
| (220) | | | Higher platform unit cost |
| (205) | | | Higher operating expenses |
| (145) | | | Higher period charges due to reserved non-qualified platform products associated with our 10nm process technology |
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| (72) | | | Other |
| $ | 6,756 | | | YTD 2019 DCG Operating Income |
INTERNET OF THINGS
As more intelligence is moving to the edge, more industries want to harnessare harnessing the power of data to create business value, to innovate, and to grow. We are using our architecture, accelerators, and software assets, combined with scale and partners, to develop a growing Internet of Things portfolio. Our Internet of Things portfolio is comprised of our Internet of Things Group (IOTG)IOTG and Mobileye businesses.
IOTG develops high-performance compute for targeted verticals and embedded markets. Our customers include retailers, manufacturers, health care providers, energy companies, automakers, and governments. We facilitate our customers creating, storing, and processing data generated by connected devices to accelerate business transformations.
Mobileye is the global leader in the developmentdriving assistance and automation solutions. Our product portfolio employs a broad set of technologies, covering computer vision and machine learning-based sensing, data analysis, localization, mapping, and driving policy technology for advanced driver assistance systems (ADAS)ADAS and autonomous driving. Mobileye’s ADAS products form the building blocks for higher levels of autonomy that are being pursued by the automotive industry.autonomy. Our customers and strategic partners include major U.S.global OEMs and global Tier 1 automotive system integrators.
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| INTERNET OF THINGS REVENUE $B | | INTERNET OF THINGS OPERATING INCOME $B |
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| INTERNET OF THINGS REVENUE $B | | INTERNET OF THINGS OPERATING INCOME $B |
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| ■ IOTG | ■ Mobileye | | | ■ IOTG | ■ Mobileye | |
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| REVENUE AND OPERATING INCOME SUMMARY |
IOTG delivered record net revenue of $1.0 billion, up $86 million, due to higher platform unit sales and higher ASPs from richer core mix. Operating income was $309 million, down $12 million driven by higher period charges offset by higher platform revenue.
Mobileye recognized record net revenue of $229 million, up $38 million due to increasing adoption of ADAS. Operating income was $67 million, up $15 million.
IOTG net revenue was $2.9 billion, up $262 million, due to $230 million higher ASPs from richer core mix and $90 million higher platform unit sales, partially offset by lower revenue from our divestiture of Wind River in Q2 2018, which negatively impacted the revenue comparison by approximately $153 million in the first half of 2019. After adjusting for the Wind River divestiture, IOTG revenue grew 17%. Operating income was $854 million, up $63 million, primarily driven by higher platform revenue from richer core mix.
Mobileye net revenue was $639 million, up $124 million due to increasing adoption of ADAS. Operating income was $188 million, up $82 million.
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MD&AQ3 2020 vs. Q3 2019 | Segment Results & Analysis | 29 |
IOTG revenue was $677 million, down $328 million, driven by weaker demand for IOTG platform products primarily due to economic impacts of COVID-19. Demand was also negatively affected by trade restrictions related to the U.S. government Entity List impacts. Operating income was $61 million, down $248 million year over year.
Mobileye revenue was $234 million, up $5 million driven by improvement in global vehicle production. Mobileye operating income was $47 million, down $20 million year over year.
IOTG revenue was $2.2 billion, down $671 million, driven by weaker demand for IOTG platform products due to COVID-19. Demand was also negatively affected by trade restrictions related to the U.S. government Entity List impacts. Operating income was $374 million, down $480 million compared to YTD 2019.
Mobileye revenue was $634 million, down $5 million, due to lower demand as a result of significant decline in global vehicle production related to COVID-19 with improvement in Q3 2020. Operating income was $131 million, down $57 million.
We expect continued negative COVID-19 related impacts on demand for IOTG in Q4.
NON-VOLATILE MEMORY SOLUTIONS GROUP (NSG)
NSG's core offerings include Intel® Optane™ and Intel® 3D NAND Technology, driving innovationNSG is a technology leader in SSDs and next-generation memory and storage products.products based on breakthrough Intel® Optane™ technology and Intel® 3D NAND technology. NSG is disrupting the memory and storage hierarchy with new tiers that balance capacity, performance, and cost. We offer 96-layer and 64-layer TLC NAND high-capacity SSDs, and 64-layer QLC NAND high-capacity SSDs. We also provide unparalleled low latency and high performance with Intel® Optane™ technology. Our products are available in innovative new form factors and densities to address the memory and storage challenges our customers face in a rapidly evolving technological landscape. Our customers include enterprise and cloud-based data centers, and users of business and consumer desktops and laptops. We are ramping 64-layer (64L) triple-level cell (TLC)
On October 19, 2020, we signed an agreement with SK hynix to divest of our NAND memory business, including our NAND memory fabrication facility in Dalian, China and quad-level cell (QLC)certain related Fab Assets, our NAND technologies,SDD Business, and our NAND Business. The transaction will occur over two closings. The consummation of the first closing and the second closing is subject to customary conditions, including the receipt of certain governmental approvals. The first closing will not occur prior to November 1, 2021, and the second is expected to occur no earlier than March 2025. In connection with the first closing, the parties will enter into a NAND wafer manufacturing and sale agreement pursuant to which, we will continue to manufacture and sell to SK hynix, NAND wafers to be manufactured at the Dalian memory fabrication facility, until final closing. Our Intel® Optane™ technology in innovative new form factors and densities to addressmemory business is expressly excluded from the challenges our customers face in a rapidly evolving technological landscape. transaction.
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| NSG REVENUE $B | | NSG OPERATING INCOME $B |
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| REVENUE AND OPERATING INCOME SUMMARY |
NSG recognized record net revenue of $1.3 billion, up $209 million from Q3 2018, driven by $1.7 billion higher volume due to an increase in demand for NAND products offset by a $1.5 billion impact from lower ASP due to lower NAND market pricing. NSG had an operating loss of $499 million in Q3 2019, down $659 million from a Q3 2018 operating profit of $160 million. While we continued to see the ramp at Fab 68 drive cost improvements, the decline in ASP and the absence of $160 million in government grants recognized in Q3 2018 more than offset the improved unit cost, resulting in lower gross margins.
Net revenue was $3.1 billion, down $55 million, driven by a $3.2 billion impact from lower ASP due to lower NAND market pricing, offset by $3.1 billion higher volume due to an increase in demand for NAND products. NSG had an operating loss of $1.1 billion, down $1.1 billion from a Q3 YTD 2018 operating profit of $14 million. While we continued to see the ramp at Fab 68 drive cost improvements, the decline in ASP and the absence of $160 million in government grants recognized in Q3 2018 more than offset the improved unit cost, resulting in lower gross margins.
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MD&AQ3 2020 vs. Q3 2019 | Segment Results & Analysis | 30 |
NSG delivered revenue of $1.2 billion, down $137 million from Q3 2019, driven by $460 million lower volume, with COVID-19 impacts contributing to the decrease in demand, partially offset by $323 million higher ASPs from improved NAND pricing. Operating income was $29 million, up $528 million from an operating loss in Q3 2019 due to continued improvements in unit cost and market pricing recovery.
NSG delivered revenue of $4.2 billion, up $1.0 billion, driven by $868 million higher ASP from improved NAND pricing and $138 million higher volume due to strong demand for Intel® Optane™ and NAND products. Operating income was $285 million, up $1.4 billion from an operating loss in YTD 2019, due to market pricing recovery and continued improvements in unit cost.
PROGRAMMABLE SOLUTIONS GROUP (PSG)
PSG offers programmable semiconductors, primarily field-programmable gate array (FPGAs)FPGAs, structured ASICs, and related products, for a broad range of market segments, including communications, data center, industrial, and military. The PSG collaborates with the other Intel businesses to deliverproduct portfolio delivers FPGA acceleration in tandem with Intel microprocessors. This "better together" integration broadens the use of FPGAsmicroprocessors and combinesenables Intel to combine the benefits of bothits broad portfolio of technologies to allow more flexibility for systems to operate with increased efficiency and higher performance.
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| PSG REVENUE $B | | PSG OPERATING INCOME $B |
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| REVENUE AND OPERATING INCOME SUMMARY |
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Q3 20192020 vs. Q3 20182019 |
Revenue was $507$411 million, up $11down $96 million as 5G/wireless grew 64%due to weakness in embedded and advanced products (28nm, 20nm, and 14nm process technologies) grew 26%communications market segments, partially offset by softnessgrowth in cloud and enterprise, which was down 12% year over year. Operating income was $92 million, down $14 million.
Revenue was $1.5 billion, down $29 million, driven by a decline in ourthe cloud and enterprise market segment,segment. Operating income was $40 million, down $52 million.
Revenue was $1.4 billion, down $51 million due to decline in the embedded and communications market segments, partially offset by growth in the cloud and enterprise market segment. Operating income was $217 million, down $16 million.
CLIENT COMPUTING GROUP
As we evolve to deliver leading end-to-end products across architectures and workloads for the data explosion, CCG’s contribution is the human touchpoint of this new data-centric era—the PC. As the largest business unit at Intel, CCG deploys platforms that connect people to data, allowing each person to focus, create, and engage in ways that unlock their individual potential. The PC market remains a critical facet of our business, providing an important source of IP, scale, and cash flow. Our mission is to continue to deliver leadership products in our PC business as well as our adjacent businesses. The PC is more essential than ever before with more people working and learning from home due to COVID-19-related impacts.
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| CCG REVENUE $B | | CCG OPERATING INCOME $B |
Revenue in Q3 2020 was up 1% compared to Q3 2019, driven by strength in wirelessnotebook demand, partially offset by lower desktop demand, lower notebook ASP resulting from higher demand for consumer and advancededucation PCs, and LTE modem volume decline. YTD 2020 revenue was up 7% compared to YTD 2019, driven by strength in notebook demand and higher LTE modem and Wi-Fi sales, partially offset by lower desktop demand and lower notebook ASP resulting from higher demand for consumer and education PCs. Strength in notebook products (28nm, 20nm,reflects the increased reliance on PCs as more people continue to work and 14nm process technologies)learn from home. As this dynamic continues into Q4, we expect continued strength in consumer notebook PCs.
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| | Q3 2020 vs. Q3 2019 | | | | | YTD 2020 vs. YTD 2019 | | | |
| (In Millions) | | % | | | $ Impact | | % | | | $ Impact |
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| Desktop platform volume | | down | (18)% | | $ | (485) | | | down | (12)% | | $ | (1,090) | |
| Desktop platform ASP | | down | —% | | — | | | up | 2% | | 160 | |
| Notebook platform volume | | up | 25% | | 1,360 | | | up | 19% | | 2,872 | |
| Notebook platform ASP | | down | (7)% | | (478) | | | down | (2)% | | (352) | |
| Adjacent products and other | | | | | (259) | | | | | | 392 | |
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| Total change in revenue | | | | | $ | 138 | | | | | | $ | 1,982 | |
Operating income in Q3 2020 decreased 17% from Q3 2019, with an operating margin of 36%. Operating income was $233 million, down $71 million.YTD 2020 decreased 4%, with an operating margin of 36%.
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| (In Millions) | | |
| $ | 3,554 | | | Q3 2020 CCG Operating Income |
| (795) | | | Higher platform unit cost primarily from increased mix of 10nm products |
| (200) | | | Higher period charges primarily due to lower sell-through of previously reserved non-qualified platform product related to our 10nm process technology |
| 105 | | | Lower operating expenses |
| 85 | | | Higher CCG adjacent product margin |
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| 54 | | | Other |
| $ | 4,305 MD&A | Segment Results & Analysis | 31 | Q3 2019 CCG Operating Income |
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| $ | 10,621 | | | YTD 2020 CCG Operating Income |
| (2,545) | | | Higher platform unit cost primarily from increased mix of 10nm products |
| (150) | | | Higher period charges primarily due to reserved non-qualified platform product, partially offset by sell-through of previously reserved platform products related to our 10nm process technology |
| 1,115 | | | Higher gross margin from platform revenue |
| 695 | | | Lower operating expenses |
| 350 | | | Higher CCG adjacent product margin |
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| 42 | | | Other |
| $ | 11,114 | | | YTD 2019 CCG Operating Income |
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| CONSOLIDATED RESULTS OF OPERATIONS |
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| | Three Months Ended | | | | | | | | Nine Months Ended | | | | | | |
| | Q3 2020 | | | | Q3 2019 | | | | YTD 2020 | | | | YTD 2019 | | |
| (In Millions, Except Per Share Amounts) | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue |
| Net revenue | | $ | 18,333 | | | 100.0 | % | | $ | 19,190 | | | 100.0 | % | | $ | 57,889 | | | 100.0 | % | | $ | 51,756 | | | 100.0 | % |
| Cost of sales | | 8,592 | | | 46.9 | % | | 7,895 | | | 41.1 | % | | 25,625 | | | 44.3 | % | | 21,494 | | | 41.5 | % |
| Gross margin | | 9,741 | | | 53.1 | % | | 11,295 | | | 58.9 | % | | 32,264 | | | 55.7 | % | | 30,262 | | | 58.5 | % |
| Research and development | | 3,272 | | | 17.8 | % | | 3,208 | | | 16.7 | % | | 9,901 | | | 17.1 | % | | 9,978 | | | 19.3 | % |
| Marketing, general and administrative | | 1,435 | | | 7.8 | % | | 1,536 | | | 8.0 | % | | 4,423 | | | 7.6 | % | | 4,758 | | | 9.2 | % |
| Restructuring and other charges | | (25) | | | (0.1) | % | | 104 | | | 0.5 | % | | 146 | | | 0.3 | % | | 288 | | | 0.6 | % |
| Operating income | | 5,059 | | | 27.6 | % | | 6,447 | | | 33.6 | % | | 17,794 | | | 30.7 | % | | 15,238 | | | 29.4 | % |
| Gains (losses) on equity investments, net | | 56 | | | 0.3 | % | | 318 | | | 1.7 | % | | 212 | | | 0.4 | % | | 922 | | | 1.8 | % |
| Interest and other, net | | (74) | | | (0.4) | % | | (46) | | | (0.2) | % | | (416) | | | (0.7) | % | | (170) | | | (0.3) | % |
| Income before taxes | | 5,041 | | | 27.5 | % | | 6,719 | | | 35.0 | % | | 17,590 | | | 30.4 | % | | 15,990 | | | 30.9 | % |
| Provision for taxes | | 765 | | | 4.2 | % | | 729 | | | 3.8 | % | | 2,548 | | | 4.4 | % | | 1,847 | | | 3.6 | % |
| Net income | | $ | 4,276 | | | 23.3 | % | | $ | 5,990 | | | 31.2 | % | | $ | 15,042 | | | 26.0 | % | | $ | 14,143 | | | 27.3 | % |
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| Earnings per share—diluted | | $ | 1.02 | | | | | $ | 1.35 | | | | | $ | 3.52 | | | | | $ | 3.14 | | | |
REVENUE
Q3 2020 vs. Q3 2019
Our Q3 2020 revenue was $18.3 billion, down $857 million or 4% from Q3 2019, primarily due to COVID-related demand impacts on the DCG enterprise and government market segment, IOTG, and NSG. Our data-centric businesses were collectively down 10% year over year driven by lower DCG ASPs on higher SoC volume and mix shift from the enterprise and government market segment to cloud service providers, partially offset by higher DCG platform volume overall. Our PC-centric business was up 1% year over year driven by strength in notebook demand, partially offset by lower desktop demand, lower notebook ASPs resulting from higher demand for consumer and education PCs, and LTE modem volume decline.
YTD 2020 vs. YTD 2019
Our YTD 2020 revenue was $57.9 billion, up $6.1 billion or 12% from YTD 2019. Our data-centric businesses were collectively up 17% due to increased platform volume as cloud service providers increased capacity to serve customer demand, and growth in DCG adjacencies driven by 5G networking deployment. We also saw NSG bit growth and improved NAND pricing, partially offset by weaker demand in IOTG platform products due to COVID-19. Our PC-centric business was up 7% driven by strength in notebook demand and higher LTE modem and Wi-Fi sales, slightly offset by lower desktop demand and lower notebook ASPs resulting from higher demand for consumer and education PCs.
GROSS MARGIN
We derived most of our overall gross margin from the sale of platform products in the DCG and CCG operating segments. Our overall gross margin dollars in Q3 2020 decreased by $1.6 billion, or 14% compared to Q3 2019. Our YTD gross margin percentage was down as the increase in YTD platform revenue was offset by higher platform unit cost, platform reserves and a higher proportion of our revenue from lower margin adjacent businesses.
(Percentages in chart indicate gross margin as a percentage of total revenue)
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| (In Millions) | | |
| $ | 9,741 | | | Q3 2020 Gross Margin |
| (965) | | | Lower gross margin from platform revenue |
| (885) | | | Higher platform unit cost primarily from increased mix of 10nm products |
| (295) | | | Higher period charges due to reserved non-qualified platform product and lower sell-through of previously reserved non-qualified platform product related to our 10nm process technology |
| 430 | | | Higher gross margin from adjacent businesses primarily due to higher margins on NAND and modem, partially offset by lower margins on DCG adjacencies |
| 165 | | | Lower period charges due to lower factory start-up costs associated with our 10nm products |
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| (4) | | | Other |
| $ | 11,295 | | | Q3 2019 Gross Margin |
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| $ | 32,264 | | | YTD 2020 Gross Margin |
| 3,105 | | | Higher gross margin from platform revenue |
| 1,580 | | | Higher gross margin from adjacent businesses primarily due to higher margins on NAND, modem, and Wi-Fi, partially offset by lower margins on DCG adjacencies |
| 450 | | | Lower period charges due to lower factory startup costs associated with our 10nm products |
| (2,730) | | | Higher platform unit cost primarily from increased mix of 10nm products |
| (255) | | | Higher period charges due to reserved non-qualified platform product and lower sell-through of previously reserved non-qualified platform product associated with 10nm |
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| (148) | | | Other |
| $ | 30,262 | | | YTD 2019 Gross Margin |
OPERATING EXPENSES
Total R&D and MG&A expenses for Q3 2020 were $4.7 billion, down 1% from Q3 2019, and $14.3 billion for YTD 2020, down 3% from YTD 2019. These expenses represent 25.7% of revenue for Q3 2020 and 24.7% of revenue for Q3 2019, and 24.7% of revenue in the first nine months of 2020 and 28.5% of revenue in the first nine months of 2019.
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(Percentages indicate expenses as a percentage of total revenue)
Q3 2020 vs. Q3 2019
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| R&D increased by $64 million, or 2%, driven by the following: | |
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| + | Investments in our PC and data-centric businesses |
| + | Investments in our process technology |
| - | Profit dependent compensation |
| - | Ramp down of 5G smartphone modem business |
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YTD 2020 vs. YTD 2019
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| R&D decreased by $77 million, or 1%, driven by the following: | | | |
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| - | Ramp down of 5G smartphone modem business | | |
| - | Profit dependent compensation | | |
| + | Investments in our PC and data-centric businesses | | |
| + | Investments in our process technology | | |
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| MARKETING, GENERAL AND ADMINISTRATIVE |
Q3 2020 vs. Q3 2019
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| MG&A decreased by $101 million, or 7%, driven by the following: | |
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| - | Corporate spending efficiencies |
| - | Profit dependent compensation |
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YTD 2020 vs. YTD 2019
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| MG&A decreased by $335 million, or 7%, driven by the following: | | | |
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| - | Corporate spending efficiencies | | |
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| - | Profit dependent compensation | | |
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GAINS (LOSSES) ON EQUITY INVESTMENTS AND INTEREST AND OTHER, NET
| | | (In Millions) | | Q3 2019 | | Q3 2018 | | YTD 2019 | | YTD 2018 | (In Millions) | | Q3 2020 | | Q3 2019 | | YTD 2020 | | YTD 2019 |
Ongoing mark-to-market adjustments on marketable equity
securities | | Ongoing mark-to-market adjustments on marketable equity
securities | | $ | (146) | | | $ | 114 | | | $ | (84) | | | $ | 188 | |
| Observable price adjustments on non-marketable equity securities | | Observable price adjustments on non-marketable equity securities | | 5 | | | 84 | | | 142 | | | 100 | |
| Impairment charges | | Impairment charges | | (40) | | | (17) | | | (233) | | | (79) | |
Sale of equity investments and other | | Sale of equity investments and other | | 237 | | | 137 | | | 387 | | | 713 | |
| Gains (losses) on equity investments, net | | $ | 318 |
| | $ | (75 | ) | | $ | 922 |
| | $ | 365 |
| Gains (losses) on equity investments, net | | $ | 56 | | | $ | 318 | | | $ | 212 | | | $ | 922 | |
| | Interest and other, net | | $ | (46 | ) | | $ | (132 | ) | | $ | (170 | ) | | $ | 225 |
| Interest and other, net | | $ | (74) | | | $ | (46) | | | $ | (416) | | | $ | (170) | |
Gains (losses) on equity investments, net
We recognized a net gain during Q3 2019 of $318 million due to ongoingOngoing mark-to-market gains of $114 million, primarily related to Cloudera, Inc. (Cloudera), and observable price adjustments of $84 million. We recognized a net gain during the first nine months of 2020 were primarily related to our interest in Cloudera Inc. During the first nine months of 2019, ongoing mark-to-market adjustments were primarily duedriven by our interests in ASML Holdings N.V. and Cloudera Inc.
We recognized higher than historically experienced impairment charges on our non-marketable portfolio in the first nine months of 2020 based on our assessment of the impact of recent public and private market volatility and tightening of liquidity.
In sale of equity investments and other, we recognized $166 million on initial fair value adjustments from an initial public offering related to an equity investment that went public in August 2020. We recognized McAfee dividends of $515 million from McAfee and ongoing mark-to-market gains from ASML Holdings N.V. (ASML), partially offset by ongoing mark-to-market losses from Cloudera. We have fully sold our equity investment in ASML.
We recognized a net loss during Q3 2018 primarily due to an impairment charge of $290 million from our equity method investment in IM Flash Technologies, LLC (IMFT). We recognized a net gain during the first nine months of 2018 primarily due to ongoing mark-to-market gains of $379 million on our marketable equity securities, primarily related to our interests in ASML and Cloudera, partially offset by the IMFT impairment charge.2019.
Interest and other, net
In the first nine months of 2020, we paid $1.1 billion to satisfy conversion obligations for $372 million of our $2.0 billion 2009 Debentures and recognized a loss of $109 million in interest and other, net and $750 million as a reduction in stockholders' equity related to the conversion feature. For the nine months ended September 28, 2019, we paid $1.5 billion to satisfy conversion obligations for $590 million of our $2.0 billion 3.25% junior subordinated convertible debentures due 2039 (2009 debentures)2009 Debentures and recognized a loss of $148 million in interest and other, net and $990 million as a reduction in stockholders' equity related to the conversion feature. For the nine months ended September 29, 2018, we paid $1.9 billion to satisfy conversion obligations for $793 million of our 2009 debentures and recognized a loss of $211 million in interest and other, net and $1.3 billion as a reduction in stockholders' equity related to the conversion feature.
We recognized a net gain for
PROVISION FOR TAXES
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| (In Millions) | | Q3 2020 | | Q3 2019 | | YTD 2020 | | YTD 2019 |
| Income before taxes | | $ | 5,041 | | | $ | 6,719 | | | $ | 17,590 | | | $ | 15,990 | |
| Provision for taxes | | $ | 765 | | | $ | 729 | | | $ | 2,548 | | | $ | 1,847 | |
| Effective tax rate | | 15.2 | % | | 10.8 | % | | 14.5 | % | | 11.6 | % |
For the first nine months of 2018 primarily due to a $494 million gain on2020, the divestiture of Wind River in Q2 2018.
PROVISION FOR TAXES
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| (Dollars in Millions) | | Q3 2019 | | Q3 2018 | | YTD 2019 | | YTD 2018 |
| Income before taxes | | $ | 6,719 |
| | $ | 7,142 |
| | $ | 15,990 |
| | $ | 17,682 |
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| Provision for taxes | | $ | 729 |
| | $ | 744 |
| | $ | 1,847 |
| | $ | 1,824 |
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| Effective tax rate | | 10.8 | % | | 10.4 | % | | 11.6 | % | | 10.3 | % |
The increase in effective tax rate was primarily driven by a lower U.S. tax benefit derived from sales to non-U.S. customers, lower foreign tax credits, a one-time benefits that occurredtax charge associated with a valuation allowance against a net operating loss deferred tax asset, and a one-time tax charge due to a new interpretation of a tax law in the first nine months of 2018.a non-U.S. jurisdiction.
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| MD&A | Consolidated Results & Analysis | 3239 |
LIQUIDITY AND CAPITAL RESOURCES
We consider the following when assessing our liquidity and capital resources:
| | | (Dollars in Millions) | | Sep 28,
2019 | | Dec 29,
2018 | |
| (In Millions) | | (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 |
| Cash and cash equivalents, short-term investments, and trading assets | | $ | 12,025 |
| | $ | 11,650 |
| Cash and cash equivalents, short-term investments, and trading assets | | $ | 18,253 | | | $ | 13,123 | |
| Other long-term investments | | $ | 3,428 |
| | $ | 3,388 |
| Other long-term investments | | $ | 2,720 | | | $ | 3,276 | |
| Loans receivable and other | | $ | 1,693 |
| | $ | 1,550 |
| Loans receivable and other | | $ | 1,298 | | | $ | 1,239 | |
| Reverse repurchase agreements with original maturities greater than three months | | $ | 350 |
| | $ | 250 |
| Reverse repurchase agreements with original maturities greater than three months | | $ | — | | | $ | 350 | |
| | Total debt | | $ | 28,907 |
| | $ | 26,359 |
| Total debt | | $ | 36,563 | | | $ | 29,001 | |
| Temporary equity | | $ | 166 |
| | $ | 419 |
| Temporary equity | | $ | — | | | $ | 155 | |
| Debt as percentage of permanent stockholders’ equity | | 38.9 | % | | 35.4 | % | |
Cash generated by operations is our primary source of liquidity. When assessing our sources of liquidity, we include investments as shown in the preceding table. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. When assessing our sources of liquidity, we include investments as shown in the preceding table. Substantially all of our investments in debt instruments and financing receivables are in investment-grade securities.
Other potential sources of liquidity include our commercial paper program and our automatic shelf registration statement on file with the SEC, pursuant to which we may offer an unspecified amount of debt, equity, and other securities. Under our commercial paper program, we have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion. As of September 28, 2019, $1.3 billion of26, 2020, we had no outstanding commercial paper remained outstanding.paper.
We believe we have sufficient financial resources to meet our business requirements in the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test; working capital requirements; and potential acquisitions, strategic investments, dividends, and commondividends. On March 24, 2020, we suspended the use of our financial resources for stock repurchases. On August 19, 2020, in response to our belief that our stock was trading well below its intrinsic valuation at that time, we entered into ASR agreements to repurchase an aggregate of $10.0 billion of our common stock. Following settlement of these agreements by the end of 2020, we will have repurchased a total of approximately $17.6 billion in shares as part of our planned $20.0 billion share repurchases announced in October 2019. We intend to complete the remaining $2.4 billion balance of these planned repurchases and return to our historical capital return practices when markets stabilize.
|
| | | | | | | | | | | | | | | | |
| CASH FROM OPERATIONS $B | | CAPITAL EXPENDITURES $B | | CASH TO STOCKHOLDERS $B |
| | | | | | | | | | | | | | |
| | Nine Months Ended | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 |
| Net cash provided by operating activities | | $ | 25,494 | | | $ | 23,257 | |
| Net cash used for investing activities | | (15,112) | | | (9,920) | |
| Net cash provided by (used for) financing activities | | (11,220) | | | (12,421) | |
| | | | |
| Net increase (decrease) in cash and cash equivalents | | $ | (838) | | | $ | 916 | |
1Buybacks include those repurchased under ASR agreements entered into in Q3 2020, of which $2.0 billion remains to be settled by the end of 2020.
|
| | | | | | | | |
| | | Nine Months Ended |
| (In Millions) | | Sep 28,
2019 | | Sep 29,
2018 |
| Net cash provided by operating activities | | $ | 23,257 |
| | $ | 22,532 |
|
| Net cash used for investing activities | | (9,920 | ) | | (9,419 | ) |
| Net cash provided by (used for) financing activities | | (12,421 | ) | | (13,139 | ) |
| Net increase (decrease) in cash and cash equivalents | | $ | 916 |
| | $ | (26 | ) |
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
For the first nine months of 20192020 compared to the first nine months of 2018,2019, the $725 million increase in cash provided by operations was primarily attributabledue to changeshigher net income, net of non-cash adjustments, offset by a decrease in working capital. Cash flow related toChanges in working capital was up due to changes in income taxwere driven by accounts payable and other assetassets and liability balances offset by customer utilization of prepaid supply agreement payments and continued inventory build.
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| | |
MD&A | Consolidated Results & Analysis | 33 |
Investing Activities
Investing cash flows consist primarily of capital expenditures;expenditures, investment purchases, sales, maturities, and disposals;disposals, and proceeds from divestitures and cash used for acquisitions.
Cash used for investing activities was higher in the first nine months of 20192020 compared to the first nine months of 20182019 primarily due to a lower usean increase in purchases of cash from our net trading assets, lower proceeds from divestitures, and increased capital expenditures. The increase was partially offset by a higher source of cash from available-for-sale debt investments net.and trading assets, offset by an increase in maturities and sales of available-for-sale debt investments and trading assets, and a decrease in capital expenditures.
Financing Activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
Cash used for financing activities was lower in the first nine months of 20192020 compared to the first nine months of 20182019 primarily due to collateral received for our fair value hedges associated with our senior notes and loweran increase in long-term debt conversions and repayments. The decrease was partiallyissuances offset by increasedan increase in repurchases of common stock as well as lower issuanceand debt repayments.
CONTRACTUAL OBLIGATIONS
In the first nine months of commercial paper.2020, we issued a total of $10.3 billion aggregate principal amount of senior notes. Our remaining total cash payments over the life of these long-term debt obligations are expected to be approximately $18.9 billion. These payments include anticipated interest on fixed rate debt that is not recorded on the Consolidated Condensed Balance Sheets. For further information, see "Note 9: Borrowings" within the Consolidated Condensed Financial Statements and Supplemental Details.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange and interest rates, as well as equity and commodity prices. For discussion about marketOur risk management programs are designed to reduce, but may not entirely eliminate, the impacts of these risks. We performed sensitivity analyses of these risks to our financial positions as of December 28, 2019, and updated that sensitivity analysis relatedas of September 26, 2020, to determine whether material changes in market risks pertaining to currency exchange rates,and interest rates or equity prices, and commodity prices refer tohave occurred as a result of the ongoing economic uncertainty resulting from the COVID-19 pandemic. No material revisions were noted since disclosing "Quantitative and Qualitative Disclosures About Market Risk" within "MDMD&A" in our Annual Report on2019 Form 10-K for the fiscal year ended December 29, 2018 (2018 Form 10-K).10-K.
NON-GAAP FINANCIAL MEASURES
In addition to disclosing financial results in accordance with U.S. GAAP, this document contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about our operating performance, enable comparison of financial trends and results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.
Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated.
| | | | | | | | |
| Non-GAAP adjustment or measure | Definition | Usefulness to management and investors |
| Acquisition-related adjustments | Amortization of acquisition-related intangible assets consists of amortization of intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. Charges related to the amortization of these intangibles are recorded within both cost of sales and MG&A in our U.S. GAAP financial statements. Amortization charges are recorded over the estimated useful life of the related acquired intangible asset, and thus are generally recorded over multiple years. | We exclude amortization charges for our acquisition-related intangible assets for purposes of calculating certain non-GAAP measures because these charges are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. These adjustments facilitate a useful evaluation of our current operating performance and comparison to our past operating performance and provide investors with additional means to evaluate cost and expense trends. |
| Restructuring and other charges | Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include asset impairments, pension charges, and costs associated with restructuring activity. | We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures because these costs do not reflect our current operating performance and are impacted by the timing of restructuring activity. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends. |
| Gains (losses) from divestiture | Gains or losses are recognized at the close of a divestiture. | We exclude gains or losses resulting from divestitures for purposes of calculating certain non-GAAP measures because they do not reflect our current operating performance and are impacted by the timing of our divestitures. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results. |
| Ongoing mark-to-market on marketable equity securities | After the initial mark-to-market adjustment is recorded upon a security becoming marketable, gains and losses are recognized from ongoing mark-to-market adjustments of our marketable equity securities. | We exclude these ongoing gains and losses for purposes of calculating certain non-GAAP measures because we do not believe this volatility correlates to our core operational performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results. |
| Free cash flow | We reference a non-GAAP financial measure of free cash flow, which is used by management when assessing our sources of liquidity, capital resources, and quality of earnings. Free cash flow is operating cash flow adjusted to exclude additions to property, plant, and equipment. | This non-GAAP financial measure is helpful in understanding our capital requirements and provides an additional means to evaluate the cash flow trends of our business. |
Following are the reconciliations of our most comparable U.S. GAAP measures to our non-GAAP measures presented:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| (In Millions, Except Per Share Amounts) | | Sep 26, 2020 | | Sep 28, 2019 | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Operating income | | $ | 5,059 | | | $ | 6,447 | | | | | |
| Acquisition-related adjustments | | 362 | | | 338 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Restructuring and other charges | | (25) | | | 104 | | | | | |
| Non-GAAP operating income | | $ | 5,396 | | | $ | 6,889 | | | | | |
| | | | | | | | |
| Operating margin | | 27.6 | % | | 33.6 | % | | | | |
| Acquisition-related adjustments | | 2.0 | % | | 1.8 | % | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Restructuring and other charges | | (0.1) | % | | 0.5 | % | | | | |
| Non-GAAP operating margin | | 29.4 | % | | 35.9 | % | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Earnings per share—diluted | | $ | 1.02 | | | $ | 1.35 | | | | | |
| Acquisition-related adjustments | | 0.09 | | | 0.08 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Restructuring and other charges | | (0.01) | | | 0.02 | | | | | |
| | | | | | | | |
| (Gains) losses from divestiture | | — | | | — | | | | | |
| Ongoing mark-to-market on marketable equity securities | | 0.03 | | | (0.02) | | | | | |
| | | | | | | | |
| Income tax effect | | (0.02) | | | (0.01) | | | | | |
| Non-GAAP earnings per share—diluted | | $ | 1.11 | | | $ | 1.42 | | | | | |
| | | | | | | | |
| | Nine Months Ended | | | | | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | | | |
| Net cash provided by operating activities | | $ | 25,494 | | | $ | 23,257 | | | | | |
| Additions to property, plant and equipment | | (10,392) | | | (11,547) | | | | | |
| Free cash flow | | $ | 15,102 | | | $ | 11,710 | | | | | |
| | | | | | | | |
| Net cash used for investing activities | | $ | (15,112) | | | $ | (9,920) | | | | | |
| Net cash provided by (used for) financing activities | | $ | (11,220) | | | $ | (12,421) | | | | | |
| | |
MD&A | Consolidated Results & Analysis | 34 |
RISK FACTORS
The risks described in "Risk Factors" within "OtherOther Key Information"Information in our 20182019 Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended June 29, 2019 (Q2 2019March 28, 2020 (Q1 2020 Form 10-Q) could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. The Risk Factors section in our 2019 Form 10-K, as updated by our Q1 2020 Form 10-Q and the discussions of the COVID-19 pandemic in our Form 10-Q for the quarter ended June 27, 2020, remains current in all material respects. These risk factors do not identify all risks that we face—our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The Risk Factors section in our 2018 Form 10-K, as updated by our Q2 2019 Form 10-Q, remains current in all material respects.
CONTROLS AND PROCEDURES
Inherent Limitations on Effectiveness of Controls
Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
Evaluation of Disclosure Controls and Procedures
Due to the COVID-19 pandemic, a significant portion of our employees are working from home. Established business continuity plans remain activated in order to mitigate the impact to our control environment, operating procedures, data and internal controls. The design of our processes and controls allow for remote execution with accessibility to secure data.
Based on management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 28, 201926, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
NON-GAAP FINANCIAL MEASURES
In addition to disclosing financial results in accordance with GAAP, this document contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.
Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated.
Amortization of acquisition-related intangible assets
Amortization of acquisition-related intangible assets consists of amortization of intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. We record charges related to the amortization of these intangibles within both cost of sales and operating expenses in our GAAP financial statements. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions, rather than our core operations. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.
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| OTHER KEY INFORMATION | | 3544 |
Restructuring and other charges
Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include asset impairments, pension charges, and costs associated with the exit of the 5G smartphone modem business. We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures. We believe that these costs do not reflect our current operating performance. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.
Ongoing mark-to-market on marketable equity securities
We exclude gains and losses resulting from ongoing mark-to-market adjustments of our marketable equity securities, after the initial mark-to-market adjustment is recorded upon a security becoming marketable, when calculating certain non-GAAP measures, as we do not believe this volatility correlates to our core operational performance. Consequently, our non-GAAP earnings per share figures exclude these impacts to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.
Tax Reform adjustment
During 2018, we made adjustments to our U.S. Tax Cuts and Jobs Act (Tax Reform) provisional tax estimates that we recorded in Q4 2017. We exclude these provisional tax adjustments when calculating certain non-GAAP measures. We believe excluding these adjustments facilitates a better evaluation of our current operating performance and comparisons to past operating performance.
Following are the reconciliations of our most comparable GAAP measures to our non-GAAP measures presented: |
| | | | | | | | |
| | | Three Months Ended |
| (In Millions, Except Per Share Amounts) | | Sep 28,
2019 | | Sep 29,
2018 |
| Operating income | | $ | 6,447 |
| | $ | 7,349 |
|
| Amortization of acquisition-related intangible assets | | 338 |
| | 326 |
|
| Restructuring and other charges | | 104 |
| | (72 | ) |
| Non-GAAP operating income | | $ | 6,889 |
| | $ | 7,603 |
|
|
| | | | | | | | |
| Earnings per share - diluted | | $ | 1.35 |
| | $ | 1.38 |
|
| Amortization of acquisition-related intangible assets | | 0.08 |
| | 0.07 |
|
| Restructuring and other charges | | 0.02 |
| | (0.02 | ) |
| Ongoing mark-to-market on marketable equity securities | | (0.02 | ) | | — |
|
| Tax Reform | | — |
| | (0.02 | ) |
| Income tax effect | | (0.01 | ) | | (0.01 | ) |
| Non-GAAP earnings per share - diluted | | $ | 1.42 |
| | $ | 1.40 |
|
|
| | |
OTHER KEY INFORMATION | | 36 |
ISSUER PURCHASES OF EQUITY SECURITIES
We have an ongoing authorization, originally approved by our Board of Directors in 2005 and subsequently amended, to repurchase shares of our common stock in open market or negotiated transactions. On March 24, 2020, we suspended stock repurchases in light of the COVID-19 pandemic. On August 19, 2020, we entered into ASR agreements to repurchase $10.0 billion of our common stock. As of September 28, 2019,26, 2020, we were authorized to repurchase up to $90.0$110.0 billion, of which $7.2$9.7 billion remained available. Our Boardavailable, which reflects the deduction of Directors subsequently approved a $20.0the $10.0 billion increase in the authorization limit in October 2019.ASR agreements.
Common stock repurchase activity under our publicly announced stock repurchase program during the third quarter of 20192020 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 Program
(In Millions) |
| June 30, 2019 - July 27, 2019 | | 22.5 |
| | $ | 49.63 |
| | $ | 10,621 |
|
| July 28, 2019 - August 24, 2019 | | 36.8 |
| | $ | 47.36 |
| | $ | 8,877 |
|
| August 25, 2019 - September 28, 2019 | | 32.7 |
| | $ | 49.81 |
| | $ | 7,249 |
|
| Total | | 92.0 |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number
of Shares
Purchased
(In Millions) | | Average Price
Paid Per Share | | Dollar Value of
Shares That May
Yet Be Purchased
Under the Program
(In Millions) |
| June 28, 2020 - July 25, 2020 | | — | | | $ | — | | | $ | 19,658 | |
| July 26, 2020 - August 22, 2020 | | | | | | |
Accelerated Share Repurchases1 | | 166 | | | $ | — | | | $ | 9,658 | |
| August 23, 2020 - September 26, 2020 | | — | | | $ | — | | | $ | 9,658 | |
| Total | | 166 | | | | | |
1 In August 2020, we entered into ASR agreements under which we paid an aggregate of $10.0 billion and received an aggregate initial share delivery of 166 million shares of our common stock, which were immediately retired. The final number of shares to be repurchased under the ASR agreements and the average price paid per share will be determined upon settlement of the agreements by the end of 2020.
We issue Restricted Stock Units (RSUs)RSUs as part of our equity incentive plans. In our consolidated condensed financial statements,Consolidated Condensed Financial Statements, we treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of RSUs as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase program and accordingly are not included in the common stock repurchase totals in the preceding table.
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| OTHER KEY INFORMATION | | 3745 |
EXHIBITS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Incorporated by Reference | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | File Number | | Exhibit | | Filing
Date | | Filed or
Furnished
Herewith |
| 3.1 | | | | 8-K | | 000-06217 | | 3.1 | | 5/22/2006 | | |
| 3.2 | | | | 8-K | | 000-06217 | | 3.2 | | 1/17/2019 | | |
10.1† | | | | 8-K | | 000-06217 | | 10.1 | | 8/14/2020 | | |
| 31.1 | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 32.1 | | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
| 104 | | Cover Page Interactive Data File - formatted in Inline XBRL and included as Exhibit 101 | | | | | | | | | | X |
† Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
|
| | | | | | | | | | | | |
| | | | | Incorporated by Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File Number | | Exhibit | | Filing Date | | Filed or Furnished Herewith |
| 3.1 | | | | 8-K | | 000-06217 | | 3.1 | | 5/22/2006 | | |
| 3.2 | | | | 8-K | | 000-06217 | | 3.2 | | 1/17/2019 | | |
| 4.1 | | | | | | | | | | | | X |
| 31.1 | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | X |
| 32.1 | | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
| 104 | | Cover Page Interactive Data File - formatted in Inline XBRL and included as Exhibit 101 | | | | | | | | | | X |
|
| | | | | | | |
| OTHER KEY INFORMATION | | 3846 |
FORM 10-Q CROSS-REFERENCE INDEX
|
| | | | | | | |
| Item Number | Item | |
| Part I - Financial Information | | |
| Item 1. | Financial Statements | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations: | |
| Results of operations | |
| Liquidity and capital resources | |
| | |
| Off-balance sheet arrangements | (a) |
| Contractual obligations | (b) |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. | Controls and Procedures | |
| | |
| Part II - Other Information | | |
| Item 1. | Legal Proceedings | |
| Item 1A. | Risk Factors | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. | Defaults Upon Senior Securities | Not applicable |
| Item 4. | Mine Safety Disclosures | Not applicable |
| Item 5. | Other Information | Not applicable |
| Item 6. | Exhibits | |
| | |
Signatures | | |
| |
(a) | As of September 28, 2019, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. |
| |
(b) | There were no material changes to our significant contractual obligations from those disclosed in our 2018 Form 10-K. |
(a) As of September 26, 2020, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
| | | | | | | | |
| OTHER KEY INFORMATION | | 3947 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | INTEL CORPORATION
(Registrant) | | |
| | | | | |
| Date: | October 22, 2020 | | INTEL CORPORATION
(Registrant) |
| By: | | | | | |
Date: | October 24, 2019 | | By: | | /s/ GEORGE S. DAVIS |
| | | | | George S. Davis |
| | | | | Executive Vice President, Chief Financial Officer and Principal Financial Officer |
| | | | | |
| Date: | October 24, 201922, 2020 | | By: | | /s/ KEVIN T. MCBRIDE |
| | | | | Kevin T. McBride |
| | | | | Vice President of Finance, Corporate Controller and Principal Accounting Officer |
