UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| | ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| | For the quarterly period ended | September 26, 202025, 2021 |
Or
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| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
Commission File Number 000-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
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| Delaware | | | 94-1672743 |
| (State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
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| 2200 Mission College Boulevard, | Santa Clara, | California | | 95054-1549 |
| (Address of principal executive offices) | | | | (Zip Code) |
(408) 765-8080
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock, $0.001 par value | INTC | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large Accelerated Filer | | Accelerated filer | | Non-accelerated filer | | Smaller reporting company | Emerging growth company |
☑
| | ¨ | | ¨ | | ☐ | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of September 26, 2020,25, 2021, the registrant had outstanding 4,0984,067 million shares of common stock.
TABLE OF CONTENTSTable of Contents
THE ORGANIZATION OF OUR QUARTERLY REPORT ON FORMThe Organization of Our Quarterly Report on Form 10-Q
The order and presentation of content in our Form 10-Q differs from the traditional SEC Form 10-Q format. Our format is designed to improve readability and better present how we organize and manage our business. See "Form 10-Q Cross-Reference Index" within Other Key Information for a cross-reference index to the traditional SEC Form 10-Q format. To reflect our focus on transforming from a PC-centric1 company to a data-centric company, we have presented our data-centric businesses1 first in "Segment Trends and Results" within MD&A.
We have defined certain terms and abbreviations used throughout our Form 10-Q in "Key Terms" within the Consolidated Condensed Financial Statements and Supplemental Details.
The preparation of our Consolidated Condensed Financial Statements is in conformity with U.S. GAAP. Our Form 10-Q includes key metrics that we use to measure our business, some of which are non-GAAP measures. See "Non-GAAP Financial Measures" within MD&A for an explanation of these measures and why management uses them and believes they provide investors with useful supplemental information.
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FORWARD-LOOKING STATEMENTS | | Forward-Looking Statements | |
OUR PANDEMIC RESPONSE | |
| A Quarter in Review | |
A QUARTER IN REVIEWConsolidated Condensed Financial Statements and Supplemental Details | |
| Consolidated Condensed Statements of Income | |
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND SUPPLEMENTAL DETAILS | | | |
| Consolidated Condensed Statements of Income | | |
| Consolidated Condensed Statements of Comprehensive Income | | |
| Consolidated Condensed Balance Sheets | | |
| Consolidated Condensed Statements of Cash Flows | | |
| Consolidated Condensed Statements of Stockholders' Equity | | |
| Notes to Consolidated Condensed Financial Statements | | |
| Key Terms | | |
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MANAGEMENT'S DISCUSSION AND ANALYSISManagement's Discussion and Analysis | |
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| Segment Trends and Results | | |
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| Consolidated Results of Operations | | |
| Liquidity and Capital Resources | | |
| Contractual Obligations | | |
| Quantitative and Qualitative Disclosures about Market Risk | | |
| Non-GAAP Financial Measures | | |
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OTHER KEY INFORMATION | | Other Key Information | |
| Quantitative and Qualitative Disclosures about Market Risk Factors | | |
| Risk Factors | |
| Controls and Procedures | | |
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| Issuer Purchases of Equity Securities | | |
| Exhibits | Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | |
| Exhibits | |
| Form 10-Q Cross-Reference Index | | |
1 Intel's definition is included in "Key Terms" within the Consolidated Condensed Financial Statements and Supplemental Details.
FORWARD-LOOKING STATEMENTSForward-Looking Statements
This Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipate," "expect," "intend," "anticipate," "plan," "mission,"goal," "forecast," "opportunity," "future," "scheduled," "pending," "to be," "believes," "estimated," "continue," "likely," "may," "might," "potentially," "will," "would," "should," "could," “accelerate,” "upcoming," "next-generation," "roadmap," "position," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to Intel’s strategy; manufacturing expansion plans; investment plans, and impacts of investment plans; future responses to and effects of COVID-19; projections of our future financial performance, including future gross margins, capital expenditures, and demand;cash flows; projections of future demand, including the impact of regulatory changes and conditions; our anticipated growth and trends in our businesses or operations; projected growth and trends in markets relevant to our businesses; business plans; future products and technology and the expected availability and benefits of such products and technology;technology, including future process nodes and technologies, future product architectures, our announcements at our Intel Accelerated and Architecture Day events, and process technology and product leadership goals; expected timing and impact of acquisitions, divestitures, and other significant transactions, including statements relating to the pending divestiture of our NAND memory business to SK hynix Inc. (SK hynix), NAND manufacturing and supply arrangements between Intel and SK hynix, and our expected use of proceeds from the divestiture; expected completion of restructuring activities;additions to held for sale NAND property, plant and equipment; availability, uses, sufficiency, and cost of capital, and capital resources, and funding sources, including expected returns to stockholders such as dividends and share repurchases; our valuation; the settlement of our ASR agreements;dividends; accounting estimates and judgments regarding reported matters, events, and contingencies and our intentions with respect to such matters, events, and contingencies, and the actual results thereof; future production capacity and product supply; anticipated trends and impacts related to industry component and substrate shortages; the future purchase, use, and availability of, and payment for, products, components and services supplied by third parties, including third-party manufacturing services;parties; tax-related expectations; our role in the Rapid Assured Microelectronics Prototypes - Commercial program; expectations regarding our relationships with certain sanctioned parties; uncertain events or assumptions; and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing, unless an earlier date is specified, and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report, our 20192020 Form 10-K and oursubsequent Form 10-Q reports for the quarters ended March 28, 2020 and June 27, 2020,10-Qs, particularly the "Risk Factors" sections of such reports, as well as the risks and uncertainties described in our Form 8-K announcing our agreement to divest our NAND memory business to SK hynix, filed with theother SEC on October 20, 2020.filings. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Unless specifically indicated otherwise, the forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that have not been completed as of the date of this filing. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, unless an earlier date is specified, including expectations based on third-party information and projections that management believes to be reputable, and Intel does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.
Intel, the Intel logo, 3D XPoint, Intel Atom, Intel Core, Intel Evo, Iris,Intel Optane, and Intel Optane,Xeon are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.
* Other names and brands may be claimed as the property of others.
As we closely monitor the COVID-19 pandemic, our top priority remains protecting the health and safety of our employees. Our Pandemic Leadership Team regularly reviews and adapts our policies based on evolving research and guidance related to the virus. While essential operations continue in our factories and labs around the world, we have restricted travel and meetings, changed our business processes, published a wealth of information, and adapted to a world where many in our workforce are remote and those coming on-site are following new safety measures. We have a multi-phase plan to return to working on-site, and remain committed to delivering for our customers and supporting our communities. Our world-class safety standards and supply chain operations have to date allowed our factories to continue to operate safely and with mostly on-time deliveries. We will continue to actively monitor the situation and review our plans based on the requirements and recommendations of the federal, state, and local authorities.
| A Quarter in Review | |
A QUARTER IN REVIEW | |
Total revenue of $18.3$19.2 billion was down $857up $859 million year over year as our data-centric businesses declinedDCG grew 10%, partially offset by 1% growth in our PC-centric business. Data-centric and CCG decreased 2%. DCG revenue was down primarilyincreased on higher platform volume and higher platform ASPs due to COVID-related demand impacts. DCG ASPs declined on higher SoC volume and mix shift from thestrong recovery in enterprise and government, market segment to cloud service providers. We also experienced weaker demand for IOTG platform1 products. Our PC-centric business was slightly up, driven by strength in notebook demand,and stronger core mix, partially offset by lower desktop demand, andrevenue in the cloud service providers market segment compared to a strong, COVID-driven Q3 2020. CCG revenue was down due to lower notebook ASP resulting from higher demandvolume in consumer and education segments. Lower platform ASPdue to industry-wide component shortages, and higher platform unit cost resulted in lower gross margin dollars and operating income,down on adjacent revenue primarily driven by continued ramp down of our 5G smartphone modem business, partially offset by higher platform volume growthASPs and improved NAND pricingby increased desktop volume. IOTG and cost. InMobileye were both up primarily on higher demand amid recovery from the first nine months, we generated $25.5 billioneconomic impacts of cash flow from operations and returned $18.4 billion to stockholders, including $4.2 billion in dividends and $14.2 billion in buybacks. Buybacks include those repurchased under ASR agreements entered into in Q3, of which $2.0 billion remains to be settled by the end of 2020.COVID-19.
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REVENUE | | OPERATING INCOMERevenue | | DILUTEDOperating Income | | Diluted EPS | | CASH FLOWSCash Flows |
■ PC-CENTRICGAAP $B ■ DATA-CENTRICNon-GAAP $B | | ■ GAAP $B ■ NON-GAAPNon-GAAP $B | | ■ GAAP■NON-GAAP
| | ■ OPERATING CASH FLOWGAAP $B■ Non-GAAP | | ■Operating Cash Flow $B ■ FREE CASH FLOWFree Cash Flow $B |
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| $18.3B | | | | $5.1B | | $5.4B | | $1.02 | | $1.11 | | $25.5B | | $15.1B |
| GAAP | | | | GAAP | | non-GAAP2 | | GAAP | | non-GAAP2 | | GAAP | | non-GAAP2 |
| Revenue down $857M or 4% from Q3 2019 | | | | Operating income down $1.4B or 22% from Q3 2019; Q3 2020 operating margin at 28% | | Operating income down $1.5B or 22% from Q3 2019; Q3 2020 operating margin at 29% | | Diluted EPS down $0.34 or 25% from Q3 2019 | | Diluted EPS down $0.31 or 22% from Q3 2019 | | Operating cash flow up $2.2B or 10% from YTD Q3 2019 | | Free cash flow up $3.4B or 29% from YTD Q3 2019 |
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| Decline in most data-centric businesses, partially offset by growth in our PC-centric business | | | | Lower gross margin dollars from platform ASP decline, higher platform unit cost from increased mix of 10nm products, higher platform reserves, and lower sell-through of previously reserved non-qualified platform product, partially offset by higher platform unit volume, improved NAND pricing and cost, and lower spending | | | | Lower gross margin dollars and higher tax rate, partially offset by lower shares outstanding | | | | Higher net income, partially offset by working capital changes driven by accounts payable and other assets and liabilities; free cash flow increased due to higher operating cash flow and lower capital spending | | |
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| $19.2B | | $18.1B | | $5.2B | | $5.2B | | $1.67 | | $1.71 | | $24.2B | | $12.6B |
| GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 |
| Revenue up $859M or 4.7% from Q3 2020 | | Revenue up $821M or 4.8% from Q3 2020 | | Operating income up $168M or 3% from Q3 2020; Q3 2021 operating margin at 27% | | Operating income down $49M or 1% from Q3 2020; Q3 2021 operating margin at 29% | | Diluted EPS up $0.65 or 64% from Q3 2020 | | Diluted EPS up $0.63 or 59% from Q3 2020 | | Operating cash flow down $1.3B or 5% from YTD Q3 2020 | | Free cash flow down $2.5B or 16% from YTD Q3 2020 |
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| Higher revenue in DCG, IOTG, Mobileye and PSG, partially offset by declines in CCG and NSG. Non-GAAP revenue excludes NSG. | | Higher gross margin from higher platform2 revenue partially offset by higher operating expenses from additional investment, higher period charges from ramp of process technology, and absence of sell-through on reserved non-qualified platform products compared to Q3 2020. Non-GAAP operating income excludes NSG, amortization of acquisition-related intangibles, and restructuring. | | Higher EPS driven by McAfee special dividend, lower effective tax rate, and lower shares. Non-GAAP results incrementally exclude ongoing mark-to-market adjustments, and tax impacts of non-GAAP adjustments. | | Lower operating cash flow driven by a decrease in net working capital contributions and cash paid to settle a prepaid supply agreement in Q1 2021, partially offset by a McAfee special dividend received in Q3 2021. Free cash flow decreased due to lower operating cash flow and higher capital expenditures. |
Key Developments
1 See "Key Terms" within Consolidated Condensed Financial Statements and Supplemental Details.
2 See "Non-GAAP Financial Measures" within MD&A.
BUSINESS SUMMARY
•Decline in our data-centric businesses was primarily driven by COVID-related demand impacts on the DCG enterprise and government market segment, IOTG, and NSG. DCG ASPs declined on higher SoC volume and mix shift from enterprise and government to cloud service providers. The data-centric decline was partially offset by higher platform volume with continued strength in cloud service providers, and improved NAND pricing and cost.
•Growth in our PC-centric business was driven by strength in notebook demand, partially offset by lower desktop demand, lower notebook ASP resulting from higher demand for consumer and education PCs, and LTE modem volume decline.
•We launched our new processor family for laptops, 11th Gen Intel® CoreTM processors with Intel® Iris® Xe graphics leveraging our new 10nm SuperFin process technology. We also introduced the Intel® EvoTM platform brand for designs powered by 11th Gen Intel® CoreTM processors. Intel® EvoTM technology is verified, measured, and tested against specifications and key experience indicators as part of the next edition of our laptop innovation program Project Athena.
•We announced new IoT enhanced processors, Intel Atom® x6000E Series and 11th Gen Intel® CoreTM for IOT, which are designed to solve customers' challenges at the edge.
•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 certain related equipment and tangible assets (the “Fab Assets”), our NAND solid-state drive business (the “NAND SSD Business”), and our NAND memory technology and manufacturing business (the “NAND Business”), for total consideration of $9.0 billion in cash. We intend to use proceeds from the transaction to invest in our long-term growth priorities. The transaction will occur over two closings, the second of which is expected to occur no earlier than March 2025.
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| A QUARTER IN REVIEWQuarter in Review | 42 |
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CONSOLIDATED CONDENSED STATEMENTS OF INCOMEConsolidated Condensed Statements of Income | |
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| | | | | Three Months Ended | | | Nine Months Ended | | | | Three Months Ended | | Nine Months Ended |
| (In Millions, Except Per Share Amounts; Unaudited) | (In Millions, Except Per Share Amounts; Unaudited) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions, Except Per Share Amounts; Unaudited) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Net revenue | Net revenue | | $ | 18,333 | | | $ | 19,190 | | | $ | 57,889 | | | $ | 51,756 | | Net revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | |
| Cost of sales | Cost of sales | | 8,592 | | | 7,895 | | | 25,625 | | | 21,494 | | Cost of sales | | 8,446 | | | 8,592 | | | 25,690 | | | 25,625 | |
| Gross margin | Gross margin | | 9,741 | | | 11,295 | | | 32,264 | | | 30,262 | | Gross margin | | 10,746 | | | 9,741 | | | 32,806 | | | 32,264 | |
| Research and development | Research and development | | 3,272 | | | 3,208 | | | 9,901 | | | 9,978 | | Research and development | | 3,803 | | | 3,272 | | | 11,141 | | | 9,901 | |
| Marketing, general and administrative | Marketing, general and administrative | | 1,435 | | | 1,536 | | | 4,423 | | | 4,758 | | Marketing, general and administrative | | 1,674 | | | 1,435 | | | 4,601 | | | 4,423 | |
| Restructuring and other charges | Restructuring and other charges | | (25) | | | 104 | | | 146 | | | 288 | | Restructuring and other charges | | 42 | | | (25) | | | 2,597 | | | 146 | |
| Operating expenses | Operating expenses | | 4,682 | | | 4,848 | | | 14,470 | | | 15,024 | | Operating expenses | | 5,519 | | | 4,682 | | | 18,339 | | | 14,470 | |
| Operating income | Operating income | | 5,059 | | | 6,447 | | | 17,794 | | | 15,238 | | Operating income | | 5,227 | | | 5,059 | | | 14,467 | | | 17,794 | |
| Gains (losses) on equity investments, net | Gains (losses) on equity investments, net | | 56 | | | 318 | | | 212 | | | 922 | | Gains (losses) on equity investments, net | | 1,707 | | | 56 | | | 2,370 | | | 212 | |
| Interest and other, net | Interest and other, net | | (74) | | | (46) | | | (416) | | | (170) | | Interest and other, net | | (76) | | | (74) | | | (328) | | | (416) | |
| Income before taxes | Income before taxes | | 5,041 | | | 6,719 | | | 17,590 | | | 15,990 | | Income before taxes | | 6,858 | | | 5,041 | | | 16,509 | | | 17,590 | |
| Provision for taxes | Provision for taxes | | 765 | | | 729 | | | 2,548 | | | 1,847 | | Provision for taxes | | 35 | | | 765 | | | 1,264 | | | 2,548 | |
| Net income | Net income | | $ | 4,276 | | | $ | 5,990 | | | $ | 15,042 | | | $ | 14,143 | | Net income | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | |
| Earnings per share—basic | Earnings per share—basic | | $ | 1.02 | | | $ | 1.36 | | | $ | 3.55 | | | $ | 3.18 | | Earnings per share—basic | | $ | 1.68 | | | $ | 1.02 | | | $ | 3.76 | | | $ | 3.55 | |
| Earnings per share—diluted | Earnings per share—diluted | | $ | 1.02 | | | $ | 1.35 | | | $ | 3.52 | | | $ | 3.14 | | Earnings per share—diluted | | $ | 1.67 | | | $ | 1.02 | | | $ | 3.73 | | | $ | 3.52 | |
| | Weighted average shares of common stock outstanding: | Weighted average shares of common stock outstanding: | | | | | | | | | Weighted average shares of common stock outstanding: | | | | | | | | |
| Basic | Basic | | 4,188 | | | 4,391 | | | 4,233 | | | 4,450 | | Basic | | 4,061 | | | 4,188 | | | 4,055 | | | 4,233 | |
| Diluted | Diluted | | 4,211 | | | 4,433 | | | 4,269 | | | 4,507 | | Diluted | | 4,086 | | | 4,211 | | | 4,089 | | | 4,269 | |
See accompanying notes.
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| FINANCIAL STATEMENTSFinancial Statements | Consolidated Condensed Statements of Income | 53 |
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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOMEConsolidated Condensed Statements of Comprehensive Income | |
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| | | Three Months Ended | | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| (In Millions; Unaudited) | (In Millions; Unaudited) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions; Unaudited) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Net income | Net income | | $ | 4,276 | | | $ | 5,990 | | | $ | 15,042 | | | $ | 14,143 | | Net income | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | |
| Changes in other comprehensive income, net of tax: | Changes in other comprehensive income, net of tax: | | | | | | | | | Changes in other comprehensive income, net of tax: | | | | | | | | |
| | Net unrealized holding gains (losses) on derivatives | Net unrealized holding gains (losses) on derivatives | | 206 | | | (115) | | | 257 | | | 138 | | Net unrealized holding gains (losses) on derivatives | | (46) | | | 206 | | | (390) | | | 257 | |
| Actuarial valuation and other pension benefits (expenses), net | Actuarial valuation and other pension benefits (expenses), net | | 11 | | | 9 | | | 34 | | | 26 | | Actuarial valuation and other pension benefits (expenses), net | | 13 | | | 11 | | | 38 | | | 34 | |
| Translation adjustments and other | Translation adjustments and other | | (5) | | | 6 | | | 49 | | | 88 | | Translation adjustments and other | | (19) | | | (5) | | | (44) | | | 49 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | 212 | | | (100) | | | 340 | | | 252 | | Other comprehensive income (loss) | | (52) | | | 212 | | | (396) | | | 340 | |
| Total comprehensive income | Total comprehensive income | | $ | 4,488 | | | $ | 5,890 | | | $ | 15,382 | | | $ | 14,395 | | Total comprehensive income | | $ | 6,771 | | | $ | 4,488 | | | $ | 14,849 | | | $ | 15,382 | |
See accompanying notes.
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| FINANCIAL STATEMENTSFinancial Statements | Consolidated Condensed Statements of Comprehensive Income | 64 |
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CONSOLIDATED CONDENSED BALANCE SHEETSConsolidated Condensed Balance Sheets | |
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| | (In Millions) | (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 |
| | | (unaudited) | | | | | (unaudited) | | |
| Assets | Assets | | Assets | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 3,356 | | | $ | 4,194 | | Cash and cash equivalents | | $ | 7,870 | | | $ | 5,865 | |
| Short-term investments | Short-term investments | | 2,987 | | | 1,082 | | Short-term investments | | 4,004 | | | 2,292 | |
| Trading assets | Trading assets | | 11,910 | | | 7,847 | | Trading assets | | 22,761 | | | 15,738 | |
| Accounts receivable | Accounts receivable | | 7,140 | | | 7,659 | | Accounts receivable | | 8,400 | | | 6,782 | |
| Inventories | Inventories | | 9,273 | | | 8,744 | | Inventories | | 9,798 | | | 8,427 | |
| | Assets held for sale | | Assets held for sale | | 6,398 | | | 5,400 | |
| Other current assets | Other current assets | | 2,119 | | | 1,713 | | Other current assets | | 2,073 | | | 2,745 | |
| Total current assets | Total current assets | | 36,785 | | | 31,239 | | Total current assets | | 61,304 | | | 47,249 | |
| | Property, plant and equipment, net of accumulated depreciation of $80,084 ($73,321 as of December 28, 2019) | | 59,205 | | | 55,386 | | |
| Property, plant and equipment, net of accumulated depreciation of $83,424 ($77,645 as of December 26, 2020) | | Property, plant and equipment, net of accumulated depreciation of $83,424 ($77,645 as of December 26, 2020) | | 59,733 | | | 56,584 | |
| Equity investments | Equity investments | | 3,679 | | | 3,967 | | Equity investments | | 6,050 | | | 5,152 | |
| Other long-term investments | Other long-term investments | | 2,720 | | | 3,276 | | Other long-term investments | | 953 | | | 2,192 | |
| Goodwill | Goodwill | | 26,955 | | | 26,276 | | Goodwill | | 26,786 | | | 26,971 | |
| Identified intangible assets, net | Identified intangible assets, net | | 9,881 | | | 10,827 | | Identified intangible assets, net | | 7,684 | | | 9,026 | |
| Other long-term assets | Other long-term assets | | 6,036 | | | 5,553 | | Other long-term assets | | 5,452 | | | 5,917 | |
| Total assets | Total assets | | $ | 145,261 | | | $ | 136,524 | | Total assets | | $ | 167,962 | | | $ | 153,091 | |
| | Liabilities, temporary equity, and stockholders’ equity | | |
| Liabilities and stockholders’ equity | | Liabilities and stockholders’ equity | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Short-term debt | Short-term debt | | $ | 504 | | | $ | 3,693 | | Short-term debt | | $ | 4,694 | | | $ | 2,504 | |
| Accounts payable | Accounts payable | | 5,159 | | | 4,128 | | Accounts payable | | 6,792 | | | 5,581 | |
| Accrued compensation and benefits | Accrued compensation and benefits | | 3,197 | | | 3,853 | | Accrued compensation and benefits | | 4,026 | | | 3,999 | |
| | Other accrued liabilities | Other accrued liabilities | | 13,252 | | | 10,636 | | Other accrued liabilities | | 14,060 | | | 12,670 | |
| Total current liabilities | Total current liabilities | | 22,112 | | | 22,310 | | Total current liabilities | | 29,572 | | | 24,754 | |
| | Debt | Debt | | 36,059 | | | 25,308 | | Debt | | 35,610 | | | 33,897 | |
| Contract liabilities | Contract liabilities | | 1,381 | | | 1,368 | | Contract liabilities | | 62 | | | 1,367 | |
| Income taxes payable, non-current | | 4,811 | | | 4,919 | | |
| Income taxes payable | | Income taxes payable | | 4,223 | | | 4,578 | |
| Deferred income taxes | Deferred income taxes | | 2,995 | | | 2,044 | | Deferred income taxes | | 3,019 | | | 3,843 | |
| Other long-term liabilities | Other long-term liabilities | | 3,349 | | | 2,916 | | Other long-term liabilities | | 5,389 | | | 3,614 | |
| Contingencies (Note 13) | Contingencies (Note 13) | | Contingencies (Note 13) | | 0 | | 0 |
| Temporary equity | | 0 | | | 155 | | |
| | Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
| Preferred stock | | 0 | | | 0 | | |
| Common stock and capital in excess of par value, 4,098 issued and outstanding (4,290 issued and outstanding as of December 28, 2019) | | 23,335 | | | 25,261 | | |
| | Common stock and capital in excess of par value, 4,067 issued and outstanding (4,062 issued and outstanding as of December 26, 2020) | | Common stock and capital in excess of par value, 4,067 issued and outstanding (4,062 issued and outstanding as of December 26, 2020) | | 27,592 | | | 25,556 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | (940) | | | (1,280) | | Accumulated other comprehensive income (loss) | | (1,147) | | | (751) | |
| Retained earnings | Retained earnings | | 52,159 | | | 53,523 | | Retained earnings | | 63,642 | | | 56,233 | |
| Total stockholders’ equity | Total stockholders’ equity | | 74,554 | | | 77,504 | | Total stockholders’ equity | | 90,087 | | | 81,038 | |
| Total liabilities, temporary equity, and stockholders’ equity | | $ | 145,261 | | | $ | 136,524 | | |
| Total liabilities and stockholders’ equity | | Total liabilities and stockholders’ equity | | $ | 167,962 | | | $ | 153,091 | |
See accompanying notes.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Consolidated Condensed Balance Sheets | 75 |
| | | | | |
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSConsolidated Condensed Statements of Cash Flows | |
| |
| | | | | Nine Months Ended | | | | Nine Months Ended |
| (In Millions; Unaudited) | (In Millions; Unaudited) | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions; Unaudited) | | Sep 25, 2021 | | Sep 26, 2020 |
| | Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | | $ | 4,194 | | | $ | 3,019 | | Cash and cash equivalents, beginning of period | | $ | 5,865 | | | $ | 4,194 | |
| Cash flows provided by (used for) operating activities: | Cash flows provided by (used for) operating activities: | | | | | Cash flows provided by (used for) operating activities: | | | | |
| Net income | Net income | | 15,042 | | | 14,143 | | Net income | | 15,245 | | | 15,042 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation | Depreciation | | 7,925 | | | 6,647 | | Depreciation | | 7,357 | | | 7,925 | |
| Share-based compensation | Share-based compensation | | 1,393 | | | 1,290 | | Share-based compensation | | 1,587 | | | 1,393 | |
| | Restructuring and other charges | | Restructuring and other charges | | 2,597 | | | 146 | |
| Amortization of intangibles | Amortization of intangibles | | 1,311 | | | 1,211 | | Amortization of intangibles | | 1,361 | | | 1,311 | |
| (Gains) losses on equity investments, net | (Gains) losses on equity investments, net | | (105) | | | (395) | | (Gains) losses on equity investments, net | | (1,113) | | | (105) | |
| | Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
| Accounts receivable | Accounts receivable | | 525 | | | (156) | | Accounts receivable | | (1,618) | | | 525 | |
| Inventories | Inventories | | (570) | | | (1,376) | | Inventories | | (1,212) | | | (570) | |
| Accounts payable | Accounts payable | | 355 | | | 728 | | Accounts payable | | 1,095 | | | 355 | |
| Accrued compensation and benefits | Accrued compensation and benefits | | (488) | | | (365) | | Accrued compensation and benefits | | (16) | | | (569) | |
| Prepaid supply agreements | Prepaid supply agreements | | (91) | | | (674) | | Prepaid supply agreements | | (1,577) | | | (91) | |
| Income taxes | Income taxes | | 493 | | | 435 | | Income taxes | | (570) | | | 493 | |
| Other assets and liabilities | Other assets and liabilities | | (296) | | | 1,769 | | Other assets and liabilities | | 1,058 | | | (361) | |
| Total adjustments | Total adjustments | | 10,452 | | | 9,114 | | Total adjustments | | 8,949 | | | 10,452 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 25,494 | | | 23,257 | | Net cash provided by operating activities | | 24,194 | | | 25,494 | |
| Cash flows provided by (used for) investing activities: | Cash flows provided by (used for) investing activities: | | | | | Cash flows provided by (used for) investing activities: | | | | |
| Additions to property, plant and equipment | Additions to property, plant and equipment | | (10,392) | | | (11,547) | | Additions to property, plant and equipment | | (11,579) | | | (10,392) | |
| Additions to held for sale NAND property, plant and equipment | | Additions to held for sale NAND property, plant and equipment | | (1,118) | | | — | |
| | Purchases of available-for-sale debt investments | Purchases of available-for-sale debt investments | | (6,323) | | | (2,028) | | Purchases of available-for-sale debt investments | | (3,983) | | | (6,323) | |
| | Maturities and sales of available-for-sale debt investments | Maturities and sales of available-for-sale debt investments | | 5,037 | | | 3,118 | | Maturities and sales of available-for-sale debt investments | | 3,457 | | | 5,037 | |
| Purchases of trading assets | Purchases of trading assets | | (14,744) | | | (5,769) | | Purchases of trading assets | | (26,343) | | | (14,744) | |
| Maturities and sales of trading assets | Maturities and sales of trading assets | | 11,227 | | | 5,467 | | Maturities and sales of trading assets | | 18,813 | | | 11,227 | |
| | Sales of equity investments | | 339 | | | 1,414 | | |
| | | Other investing | Other investing | | (256) | | | (575) | | Other investing | | 620 | | | 83 | |
| Net cash used for investing activities | Net cash used for investing activities | | (15,112) | | | (9,920) | | Net cash used for investing activities | | (20,133) | | | (15,112) | |
| Cash flows provided by (used for) financing activities: | Cash flows provided by (used for) financing activities: | | | | | Cash flows provided by (used for) financing activities: | | | | |
| Increase (decrease) in short-term debt, net | | 0 | | | 835 | | |
| | | Issuance of long-term debt, net of issuance costs | Issuance of long-term debt, net of issuance costs | | 10,247 | | | 650 | | Issuance of long-term debt, net of issuance costs | | 4,974 | | | 10,247 | |
| Repayment of debt and debt conversion | Repayment of debt and debt conversion | | (4,525) | | | (1,478) | | Repayment of debt and debt conversion | | (500) | | | (4,525) | |
| Proceeds from sales of common stock through employee equity incentive plans | Proceeds from sales of common stock through employee equity incentive plans | | 897 | | | 797 | | Proceeds from sales of common stock through employee equity incentive plans | | 1,016 | | | 897 | |
| Repurchase of common stock | Repurchase of common stock | | (12,229) | | | (10,100) | | Repurchase of common stock | | (2,415) | | | (12,229) | |
| Accelerated share repurchase forward agreements | Accelerated share repurchase forward agreements | | (2,000) | | | 0 | | Accelerated share repurchase forward agreements | | — | | | (2,000) | |
| | Payment of dividends to stockholders | Payment of dividends to stockholders | | (4,215) | | | (4,214) | | Payment of dividends to stockholders | | (4,231) | | | (4,215) | |
| | Other financing | Other financing | | 605 | | | 1,089 | | Other financing | | (900) | | | 605 | |
| Net cash provided by (used for) financing activities | Net cash provided by (used for) financing activities | | (11,220) | | | (12,421) | | Net cash provided by (used for) financing activities | | (2,056) | | | (11,220) | |
| | Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | (838) | | | 916 | | Net increase (decrease) in cash and cash equivalents | | 2,005 | | | (838) | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | | $ | 3,356 | | | $ | 3,935 | | Cash and cash equivalents, end of period | | $ | 7,870 | | | $ | 3,356 | |
| | Supplemental disclosures of noncash investing activities and cash flow information: | Supplemental disclosures of noncash investing activities and cash flow information: | | Supplemental disclosures of noncash investing activities and cash flow information: | |
| Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 2,752 | | | $ | 2,376 | | Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 2,693 | | | $ | 2,752 | |
| | Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
| Interest, net of capitalized interest | Interest, net of capitalized interest | | $ | 459 | | | $ | 312 | | Interest, net of capitalized interest | | $ | 271 | | | $ | 459 | |
| Income taxes, net of refunds | Income taxes, net of refunds | | $ | 1,986 | | | $ | 1,334 | | Income taxes, net of refunds | | $ | 1,831 | | | $ | 1,986 | |
See accompanying notes.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Consolidated Condensed Statements of Cash Flows | 86 |
| | | | | |
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITYConsolidated Condensed Statements of Stockholders' Equity | |
| |
| | | Common Stock and Capital in Excess of Par Value | | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | | Common Stock and Capital in Excess of Par Value | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings1 | | Total |
| (In Millions, Except Per Share Amounts; Unaudited) | (In Millions, Except Per Share Amounts; Unaudited) | | Shares | | Amount | | | | | | | (In Millions, Except Per Share Amounts; Unaudited) | | Shares | | Amount | Accumulated Other Comprehensive Income (Loss) | Retained Earnings1 | Total |
| Three Months Ended | Three Months Ended | | Three Months Ended | |
| | Balance as of June 26, 2021 | | Balance as of June 26, 2021 | | 4,057 | | | $ | 26,655 | | | $ | (1,095) | | | $ | 59,647 | | | $ | 85,207 | |
| Net income | | Net income | | — | | | — | | | — | | | 6,823 | | | 6,823 | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | | — | | | — | | | (52) | | | — | | | (52) | |
| Employee equity incentive plans and other | | Employee equity incentive plans and other | | 11 | | | 427 | | | — | | | — | | | 427 | |
| Share-based compensation | | Share-based compensation | | — | | | 543 | | | — | | | — | | | 543 | |
| | Repurchase of common stock | | Repurchase of common stock | | — | | | — | | | — | | | — | | | — | |
| Accelerated share repurchase forward agreements | | Accelerated share repurchase forward agreements | | — | | | — | | | — | | | — | | | — | |
| Restricted stock unit withholdings | | Restricted stock unit withholdings | | (1) | | | (33) | | | — | | | (4) | | | (37) | |
| Cash dividends declared ($0.70 per share) | | Cash dividends declared ($0.70 per share) | | — | | | — | | | — | | | (2,824) | | | (2,824) | |
| Balance as of September 25, 2021 | | Balance as of September 25, 2021 | | 4,067 | | | $ | 27,592 | | | $ | (1,147) | | | $ | 63,642 | | | $ | 90,087 | |
| | Balance as of June 27, 2020 | Balance as of June 27, 2020 | | 4,253 | | | $ | 25,516 | | | $ | (1,152) | | | $ | 57,646 | | | $ | 82,010 | | Balance as of June 27, 2020 | | 4,253 | | | $ | 25,516 | | | $ | (1,152) | | | $ | 57,646 | | | $ | 82,010 | |
| | Net income | | Net income | | — | | | — | | | — | | | 4,276 | | | 4,276 | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | | — | | | — | | | 212 | | | — | | | 212 | |
| Employee equity incentive plans and other | | Employee equity incentive plans and other | | 12 | | | 385 | | | — | | | — | | | 385 | |
| Share-based compensation | | Share-based compensation | | — | | | 452 | | | — | | | — | | | 452 | |
| | Repurchase of common stock | | Repurchase of common stock | | (166) | | | (993) | | | — | | | (7,007) | | | (8,000) | |
| Accelerated share repurchase forward agreements | | Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | |
| Restricted stock unit withholdings | | Restricted stock unit withholdings | | (1) | | | (25) | | | — | | | — | | | (25) | |
| Cash dividends declared ($0.66 per share) | | Cash dividends declared ($0.66 per share) | | — | | | — | | | — | | | (2,756) | | | (2,756) | |
| | Balance as of September 26, 2020 | | Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | |
| | Nine Months Ended | | Nine Months Ended | |
| | Balance as of December 26, 2020 | | Balance as of December 26, 2020 | | 4,062 | | | $ | 25,556 | | | $ | (751) | | | $ | 56,268 | | | $ | 81,073 | |
| Net income | Net income | | — | | | — | | | — | | | 4,276 | | | 4,276 | | Net income | | — | | | — | | | — | | | 15,245 | | | 15,245 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | 212 | | | — | | | 212 | | Other comprehensive income (loss) | | — | | | — | | | (396) | | | ��� | | | (396) | |
| Employee equity incentive plans and other | Employee equity incentive plans and other | | 12 | | | 385 | | | — | | | — | | | 385 | | Employee equity incentive plans and other | | 52 | | | 1,015 | | | — | | | — | | | 1,015 | |
| Share-based compensation | Share-based compensation | | — | | | 452 | | | — | | | — | | | 452 | | Share-based compensation | | — | | | 1,587 | | | — | | | — | | | 1,587 | |
| Temporary equity reduction | Temporary equity reduction | | — | | | 0 | | | — | | | — | | | 0 | | Temporary equity reduction | | — | | | — | | | — | | | — | | | — | |
| Convertible debt | Convertible debt | | — | | | 0 | | | — | | | — | | | 0 | | Convertible debt | | — | | | — | | | — | | | — | | | — | |
| | Repurchase of common stock | Repurchase of common stock | | (166) | | | (993) | | | — | | | (7,007) | | | (8,000) | | Repurchase of common stock | | (40) | | | (249) | | | — | | | (2,166) | | | (2,415) | |
| Accelerated share repurchase forward agreements | Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | | Accelerated share repurchase forward agreements | | — | | | — | | | — | | | — | | | — | |
| Restricted stock unit withholdings | Restricted stock unit withholdings | | (1) | | | (25) | | | — | | | 0 | | | (25) | | Restricted stock unit withholdings | | (7) | | | (317) | | | — | | | (60) | | | (377) | |
| Cash dividends declared ($0.66 per share) | | — | | | — | | | — | | | (2,756) | | | (2,756) | | |
| Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | | |
| | Balance as of June 29, 2019 | | 4,430 | | | $ | 25,140 | | | $ | (622) | | | $ | 50,429 | | | $ | 74,947 | | |
| | Net income | | — | | | — | | | — | | | 5,990 | | | 5,990 | | |
| Other comprehensive income (loss) | | — | | | — | | | (100) | | | — | | | (100) | | |
| Employee equity incentive plans and other | | 13 | | | 466 | | | — | | | — | | | 466 | | |
| Share-based compensation | | — | | | 427 | | | — | | | — | | | 427 | | |
| Temporary equity reduction | | — | | | 80 | | | — | | | — | | | 80 | | |
| Convertible debt | | — | | | (278) | | | — | | | — | | | (278) | | |
| | Repurchase of common stock | | (92) | | | (523) | | | — | | | (3,966) | | | (4,489) | | |
| Restricted stock unit withholdings | | (1) | | | (22) | | | — | | | (6) | | | (28) | | |
| Cash dividends declared ($0.63 per share) | | — | | | — | | | — | | | (2,773) | | | (2,773) | | |
| | Balance as of September 28, 2019 | | 4,350 | | | $ | 25,290 | | | $ | (722) | | | $ | 49,674 | | | $ | 74,242 | | |
| | Nine Months Ended | | |
| Cash dividends declared ($1.39 per share) | | Cash dividends declared ($1.39 per share) | | — | | | — | | | — | | | (5,645) | | | (5,645) | |
| Balance as of September 25, 2021 | | Balance as of September 25, 2021 | | 4,067 | | | $ | 27,592 | | | $ | (1,147) | | | $ | 63,642 | | | $ | 90,087 | |
| | Balance as of December 28, 2019 | Balance as of December 28, 2019 | | 4,290 | | | $ | 25,261 | | | $ | (1,280) | | | $ | 53,523 | | | $ | 77,504 | | Balance as of December 28, 2019 | | 4,290 | | | $ | 25,261 | | | $ | (1,280) | | | $ | 53,523 | | | $ | 77,504 | |
| Net income | Net income | | — | | | — | | | — | | | 15,042 | | | 15,042 | | Net income | | — | | | — | | | — | | | 15,042 | | | 15,042 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | 340 | | | — | | | 340 | | Other comprehensive income (loss) | | — | | | — | | | 340 | | | — | | | 340 | |
| Employee equity incentive plans and other | Employee equity incentive plans and other | | 54 | | | 1,014 | | | — | | | — | | | 1,014 | | Employee equity incentive plans and other | | 54 | | | 1,014 | | | — | | | — | | | 1,014 | |
| Share-based compensation | Share-based compensation | | — | | | 1,393 | | | — | | | — | | | 1,393 | | Share-based compensation | | — | | | 1,393 | | | — | | | — | | | 1,393 | |
| Temporary equity reduction | Temporary equity reduction | | — | | | 155 | | | — | | | — | | | 155 | | Temporary equity reduction | | — | | | 155 | | | — | | | — | | | 155 | |
| Convertible debt | Convertible debt | | — | | | (750) | | | — | | | — | | | (750) | | Convertible debt | | — | | | (750) | | | — | | | — | | | (750) | |
| | Repurchase of common stock | Repurchase of common stock | | (237) | | | (1,413) | | | — | | | (10,696) | | | (12,109) | | Repurchase of common stock | | (237) | | | (1,413) | | | — | | | (10,696) | | | (12,109) | |
| Accelerated share repurchase forward agreements | Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | | Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | |
| Restricted stock unit withholdings | Restricted stock unit withholdings | | (9) | | | (325) | | | — | | | (135) | | | (460) | | Restricted stock unit withholdings | | (9) | | | (325) | | | — | | | (135) | | | (460) | |
| Cash dividends declared ($1.32 per share) | Cash dividends declared ($1.32 per share) | | — | | | — | | | — | | | (5,575) | | | (5,575) | | Cash dividends declared ($1.32 per share) | | — | | | — | | | — | | | (5,575) | | | (5,575) | |
| Balance as of September 26, 2020 | Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | | Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | |
| | Balance as of December 29, 2018 | | 4,516 | | | $ | 25,365 | | | $ | (974) | | | $ | 50,172 | | | $ | 74,563 | | |
| Net income | | — | | | — | | | — | | | 14,143 | | | 14,143 | | |
| Other comprehensive income (loss) | | — | | | — | | | 252 | | | — | | | 252 | | |
| Employee equity incentive plans and other | | 52 | | | 869 | | | — | | | — | | | 869 | | |
| Share-based compensation | | — | | | 1,287 | | | — | | | — | | | 1,287 | | |
| Temporary equity reduction | | — | | | 253 | | | — | | | — | | | 253 | | |
| Convertible debt | | — | | | (990) | | | — | | | — | | | (990) | | |
| Repurchase of common stock | | (209) | | | (1,182) | | | — | | | (8,902) | | | (10,084) | | |
| Restricted stock unit withholdings | | (9) | | | (312) | | | — | | | (137) | | | (449) | | |
| Cash dividends declared ($1.26 per share) | | — | | | — | | | — | | | (5,602) | | | (5,602) | | |
| Balance as of September 28, 2019 | | 4,350 | | | $ | 25,290 | | | $ | (722) | | | $ | 49,674 | | | $ | 74,242 | | |
1The retained earnings balance as of December 26, 2020 includes an opening balance adjustment made as a result of the adoption of a new accounting standard in 2021.
See accompanying notes.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Consolidated Condensed Statements of Stockholders' Equity | 97 |
| | | | | |
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTSNotes to Consolidated Condensed Financial Statements | |
| |
| | | | | |
NOTENote 1 : | BASIS OF PRESENTATIONBasis of Presentation |
We prepared our interim Consolidated Condensed Financial Statements that accompany these notes in conformity with U.S. GAAP, consistent in all material respects with those applied in our 20192020 Form 10-K.
We have made estimates and judgments affecting the amounts reported in our Consolidated Condensed Financial Statements and the accompanying notes. The inputs into our judgments and estimates consider the economic implications of COVID-19 on our critical and significant accounting estimates. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with the Consolidated Financial Statements in our 20192020 Form 10-K where we include additional information about our policies and the methods and assumptions used in our estimates.
| | | | | |
NOTENote 2 : | OPERATING SEGMENTSOperating Segments |
We manage our business through the following operating segments:
•▪CCG
▪DCG
•▪IOTG
•▪Mobileye
•▪NSG
•▪PSG
•CCG
We derive a substantial majority of our revenue from platform products, which are our principal products and considered as one class of product.product class. We offer platform products that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multichip package.package based on Intel architecture. Platform products are used in various form factors across our CCG, DCG, IOTG, and CCGIOTG operating segments. Our non-platform, or adjacent products, can be combined with platform products to form comprehensive platform solutions to meet customer needs.
DCGCCG and CCGDCG are our reportable operating segments. IOTG, Mobileye, NSG, and PSG do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. Our Internet of Things portfolio, presented as Internet of Things, is comprised of IOTG and Mobileye operating segments. In 2021, our DCG operating segment includes the results of our Intel® OptaneTM memory business, and our NSG operating segment is composed of our NAND memory business. Refer to "Note 8: Acquisitions and Divestitures" within Notes to Consolidated Condensed Financial Statements for further information on the pending divestiture of our NAND memory business.
We have an “all other” category that includes revenue, expenses, and charges such as:
•▪results of operations from non-reportable segments not otherwise presented;
•▪historical results of operations from divested businesses;
•▪results of operations of start-up businesses that support our initiatives, including our foundry business;
•▪amounts included within restructuring and other charges;
•▪a portion of employee benefits, compensation, and other expenses not allocated to the operating segments; and
•▪acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.
The CODM, who is our CEO, does not evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. The accounting policies for segment reporting are the same as for Intel as a whole.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 108 |
Net revenue and operating income (loss) for each period were as follows:
| | | Three Months Ended | | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| (In Millions) | (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Net revenue: | Net revenue: | | | | | | | | | Net revenue: | | | | | | | | |
| Client Computing Group | | Client Computing Group | |
| Platform | | Platform | | $ | 8,954 | | | $ | 8,762 | | | $ | 27,968 | | | $ | 25,703 | |
| Adjacent | | Adjacent | | 710 | | | 1,085 | | | 2,410 | | | 3,415 | |
| | | 9,664 | | | 9,847 | | | 30,378 | | | 29,118 | |
| Data Center Group | Data Center Group | | Data Center Group | |
| Platform | Platform | | $ | 5,151 | | | $ | 5,819 | | | $ | 17,759 | | | $ | 14,854 | | Platform | | 5,747 | | | 5,151 | | | 16,261 | | | 17,759 | |
| Adjacent | Adjacent | | 754 | | | 564 | | | 2,256 | | | 1,414 | | Adjacent | | 749 | | | 754 | | | 2,254 | | | 2,256 | |
| | 5,905 | | | 6,383 | | | 20,015 | | | 16,268 | | | 6,496 | | | 5,905 | | | 18,515 | | | 20,015 | |
| Internet of Things | Internet of Things | | Internet of Things | |
| IOTG | IOTG | | 677 | | | 1,005 | | | 2,230 | | | 2,901 | | IOTG | | 1,042 | | | 677 | | | 2,940 | | | 2,230 | |
| Mobileye | Mobileye | | 234 | | | 229 | | | 634 | | | 639 | | Mobileye | | 326 | | | 234 | | | 1,030 | | | 634 | |
| | 911 | | | 1,234 | | | 2,864 | | | 3,540 | | | 1,368 | | | 911 | | | 3,970 | | | 2,864 | |
| | | | Non-Volatile Memory Solutions Group | Non-Volatile Memory Solutions Group | | 1,153 | | | 1,290 | | | 4,150 | | | 3,145 | | Non-Volatile Memory Solutions Group | | 1,105 | | | 1,153 | | | 3,310 | | | 4,150 | |
| Programmable Solutions Group | Programmable Solutions Group | | 411 | | | 507 | | | 1,431 | | | 1,482 | | Programmable Solutions Group | | 478 | | | 411 | | | 1,450 | | | 1,431 | |
| Client Computing Group | | |
| Platform | | 8,762 | | | 8,379 | | | 25,703 | | | 24,128 | | |
| Adjacent | | 1,085 | | | 1,330 | | | 3,415 | | | 3,008 | | |
| 9,847 | | | 9,709 | | | 29,118 | | | 27,136 | | |
| | All other | All other | | 106 | | | 67 | | | 311 | | | 185 | | All other | | 81 | | | 106 | | | 873 | | | 311 | |
| Total net revenue | Total net revenue | | $ | 18,333 | | | $ | 19,190 | | | $ | 57,889 | | | $ | 51,756 | | Total net revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | |
| | Operating income (loss): | Operating income (loss): | | Operating income (loss): | |
| Client Computing Group | | Client Computing Group | | $ | 3,317 | | | $ | 3,554 | | | $ | 11,197 | | | $ | 10,621 | |
| Data Center Group | Data Center Group | | $ | 1,903 | | | $ | 3,115 | | | 8,494 | | | $ | 6,756 | | Data Center Group | | 2,057 | | | 1,903 | | | 5,271 | | | 8,494 | |
| | Internet of Things | Internet of Things | | Internet of Things | |
| IOTG | IOTG | | 61 | | | 309 | | | 374 | | | 854 | | IOTG | | 276 | | | 61 | | | 775 | | | 374 | |
| Mobileye | Mobileye | | 47 | | | 67 | | | 131 | | | 188 | | Mobileye | | 105 | | | 47 | | | 361 | | | 131 | |
| | 108 | | | 376 | | | 505 | | | 1,042 | | | 381 | | | 108 | | | 1,136 | | | 505 | |
| | | Non-Volatile Memory Solutions Group | Non-Volatile Memory Solutions Group | | 29 | | | (499) | | | 285 | | | (1,080) | | Non-Volatile Memory Solutions Group | | 442 | | | 29 | | | 1,015 | | | 285 | |
| Programmable Solutions Group | Programmable Solutions Group | | 40 | | | 92 | | | 217 | | | 233 | | Programmable Solutions Group | | 76 | | | 40 | | | 246 | | | 217 | |
| Client Computing Group | | 3,554 | | | 4,305 | | | 10,621 | | | 11,114 | | |
| All other | All other | | (575) | | | (942) | | | (2,328) | | | (2,827) | | All other | | (1,046) | | | (575) | | | (4,398) | | | (2,328) | |
| Total operating income | Total operating income | | $ | 5,059 | | | $ | 6,447 | | | $ | 17,794 | | | $ | 15,238 | | Total operating income | | $ | 5,227 | | | $ | 5,059 | | | $ | 14,467 | | | $ | 17,794 | |
Disaggregated net revenue for each period was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Platform revenue | | | | | | | | |
| CCG desktop platform | | $ | 2,983 | | | $ | 2,483 | | | $ | 8,262 | | | $ | 7,691 | |
| CCG notebook platform | | 5,953 | | | 6,275 | | | 19,655 | | | 17,976 | |
CCG other platform1 | | 18 | | | 4 | | | 51 | | | 36 | |
| DCG platform | | 5,747 | | | 5,151 | | | 16,261 | | | 17,759 | |
| IOTG platform | | 948 | | | 595 | | | 2,679 | | | 2,008 | |
| | 15,649 | | | 14,508 | | | 46,908 | | | 45,470 | |
| | | | | | | | |
Adjacent revenue2 | | 3,543 | | | 3,825 | | | 11,588 | | | 12,419 | |
| Total revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | |
1 Includes our tablet and service provider revenue.
2 Includes all of our non-platform products for CCG, DCG, and IOTG such as modem, Ethernet, and silicon photonics, as well as Mobileye, NSG, and PSG products, as well as revenue included in our "all other" category.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 119 |
Disaggregated net revenue for each period was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 |
| Platform revenue | | | | | | | | |
| DCG platform | | $ | 5,151 | | | $ | 5,819 | | | $ | 17,759 | | | $ | 14,854 | |
| IOTG platform | | 595 | | | 923 | | | 2,008 | | | 2,639 | |
| CCG desktop platform | | 2,483 | | | 2,968 | | | 7,691 | | | 8,621 | |
| CCG notebook platform | | 6,275 | | | 5,393 | | | 17,976 | | | 15,456 | |
CCG other platform1 | | 4 | | | 18 | | | 36 | | | 51 | |
| | 14,508 | | | 15,121 | | | 45,470 | | | 41,621 | |
| | | | | | | | |
Adjacent revenue2 | | 3,825 | | | 4,069 | | | 12,419 | | | 10,135 | |
| Total revenue | | $ | 18,333 | | | $ | 19,190 | | | $ | 57,889 | | | $ | 51,756 | |
1 Includes our tablet and service provider revenue.
2 Includes all of our non-platform products for DCG, IOTG, and CCG such as modem, Ethernet, and silicon photonics, as well as Mobileye, NSG, and PSG products.
Planned divestiture of NAND Memory Business
On October 19, 2020, we signed an agreement with SK hynix Inc. (SK hynix), to divest of our NAND memory business, including our NAND memory fabrication facility in Dalian, China and certain related equipment and tangible assets (the “Fab Assets”), our NAND solid-state drive business (the “NAND SSD Business”), and our NAND memory technology and manufacturing business (the “NAND Business”). Our Intel® Optane™ memory business is expressly excluded from the transaction.
The transaction will occur over two closings for total consideration of $9.0 billion in cash, of which, $7.0 billion will be received upon initial closing and the remaining $2.0 billion will be received no earlier than March 2025.
In connection with the first closing, we and certain affiliates of SK hynix will also enter into a NAND wafer manufacturing and sale agreement pursuant to which, we will manufacture and sell to SK hynix, NAND memory wafers to be manufactured using the Fab Assets in Dalian, China, until the second closing.
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.
Beginning with the first quarter of 2021, we expect our DCG operating segment to include the results of our Intel® Optane™ memory business, and our NSG segment will be composed of our NAND businesses.
| | | | | |
NOTENote 3 : | EARNINGS PER SHAREEarnings Per Share |
We computed basic earnings per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings per share of common stock based on the weighted average number of shares of common stock outstanding plus potentially dilutive shares of common stock outstanding during the period.
| | | | | Three Months Ended | | | Nine Months Ended | | | | Three Months Ended | | Nine Months Ended |
| (In Millions, Except Per Share Amounts) | (In Millions, Except Per Share Amounts) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions, Except Per Share Amounts) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Net income available to common stockholders | Net income available to common stockholders | | $ | 4,276 | | | $ | 5,990 | | | $ | 15,042 | | | $ | 14,143 | | Net income available to common stockholders | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | |
| Weighted average shares of common stock outstanding—basic | Weighted average shares of common stock outstanding—basic | | 4,188 | | | 4,391 | | | 4,233 | | | 4,450 | | Weighted average shares of common stock outstanding—basic | | 4,061 | | | 4,188 | | | 4,055 | | | 4,233 | |
| Dilutive effect of employee equity incentive plans | Dilutive effect of employee equity incentive plans | | 23 | | | 30 | | | 36 | | | 41 | | Dilutive effect of employee equity incentive plans | | 25 | | | 23 | | | 34 | | | 36 | |
| Dilutive effect of convertible debt | | 0 | | | 12 | | | 0 | | | 16 | | |
| | Weighted average shares of common stock outstanding—diluted | Weighted average shares of common stock outstanding—diluted | | 4,211 | | | 4,433 | | | 4,269 | | | 4,507 | | Weighted average shares of common stock outstanding—diluted | | 4,086 | | | 4,211 | | | 4,089 | | | 4,269 | |
Earnings per share—basic
| Earnings per share—basic
| | $ | 1.02 | | | $ | 1.36 | | | $ | 3.55 | | | $ | 3.18 | | Earnings per share—basic
| | $ | 1.68 | | | $ | 1.02 | | | $ | 3.76 | | | $ | 3.55 | |
Earnings per share—diluted
| Earnings per share—diluted
| | $ | 1.02 | | | $ | 1.35 | | | $ | 3.52 | | | $ | 3.14 | | Earnings per share—diluted
| | $ | 1.67 | | | $ | 1.02 | | | $ | 3.73 | | | $ | 3.52 | |
Potentially dilutive shares of common stock from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, and the assumed issuance of common stock under the stock purchase plan. We used the treasury stock method to consider the dilutive effect of the forward contracts related to the ASR transactions entered into in August 2020 and determined that the forward contracts were anti-dilutive in calculating diluted EPS.
| | | | | | | | | | | |
| FINANCIAL STATEMENTS | Notes to Financial Statements | 12 |
In January 2020, we fully redeemed the remaining principal of our 2009 Debentures. We included our 2009 Debentures in the calculation of diluted earnings per share of common stock in 2019 by applying the treasury stock method because the average market price was above the conversion price.
Securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share in all periods presented.
| | | | | |
NOTENote 4 : | CONTRACT LIABILITIESContract Liabilities |
| | | | | | | | | | | | | | |
| (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 |
| Prepaid supply agreements | | $ | 1,714 | | | $ | 1,805 | |
| | | | |
| Other | | 264 | | | 236 | |
| Total contract liabilities | | $ | 1,978 | | | $ | 2,041 | |
| | | | |
| | | | |
Contract liabilities are primarily related toconsist of prepayments received from customers on long-term prepaid supply agreements toward future NSG product delivery. The short-term portion of contractdelivery and other revenue deferrals from regular ongoing business activity. Contract liabilities ($597were $351 million as of September 26, 2020 and $673 million25, 2021 ($1.9 billion as of December 28, 2019) is reported on the Consolidated Condensed Balance Sheets within other accrued liabilities.26, 2020).
The following table shows the changes in contract liability balances relating to long-term prepaid supply agreements during the first nine months of 2020:2021:
| | | | | | | | |
| (In Millions) | | |
Prepaid supply agreements balance as of December 28, 201926, 2020 | | $ | 1,8051,625 | |
| | |
Additions
Concession payment | | 70 (950) | |
PrepaymentsPrepaids utilized | | (161)(627) | |
Prepaid supply agreements balance as of September 26, 202025, 2021 | | $ | 1,71448 | |
During the secondfirst quarter of 2020,2021, we issued a contract termination notification for breach tosettled an agreement with our largest prepaid supply customer with awhose prepayment balance made up $1.6 billion contract liability balance. The timing and amount of future anticipated revenue, or reversal of anyour contract liability balance resultingas of December 26, 2020. We returned $950 million to the customer and recognized $584 million in revenue for having completed performance of the prepaid supply agreement. The prepaid supply agreement is excluded from contract termination may vary duethe NAND memory business and is recorded as Corporate revenue in the first nine months of 2021 in the "all other" category presented in "Note 2: Operating Segments" within Notes to ongoing customer negotiations.Consolidated Condensed Financial Statements.
| | | | | |
NOTENote 5 : | OTHER FINANCIAL STATEMENT DETAILSOther Financial Statement Details |
INVENTORIESInventories
| | | | | | | | | | | | | | |
| (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 |
| Raw materials | | $ | 975 | | | $ | 840 | |
| Work in process | | 6,313 | | | 6,225 | |
| Finished goods | | 1,985 | | | 1,679 | |
| Total inventories | | $ | 9,273 | | | $ | 8,744 | |
INTEREST AND OTHER, NET
The components of interest and other, net for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | Nine Months Ended | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 |
| Interest income | | $ | 53 | | | $ | 114 | | | $ | 229 | | | $ | 374 | |
| Interest expense | | (160) | | | (107) | | | (481) | | | (381) | |
| Other, net | | 33 | | | (53) | | | (164) | | | (163) | |
| Total interest and other, net | | $ | (74) | | | $ | (46) | | | $ | (416) | | | $ | (170) | |
Interest expense in the preceding table is net of $81 million of interest capitalized in the third quarter of 2020 and $251 million in the first nine months of 2020 ($122 million in the third quarter of 2019 and $366 million in the first nine months of 2019). | | | | | | | | | | | | | | |
| (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 |
| Raw materials | | $ | 1,274 | | | $ | 908 | |
| Work in process | | 6,304 | | | 5,693 | |
| Finished goods | | 2,220 | | | 1,826 | |
| Total inventories | | $ | 9,798 | | | $ | 8,427 | |
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 1310 |
ACCELERATED SHARE REPURCHASEInterest and Other, Net
In August | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 |
| Interest income | | $ | 37 | | | $ | 53 | | | $ | 111 | | | $ | 229 | |
| Interest expense | | (144) | | | (160) | | | (463) | | | (481) | |
| Other, net | | 31 | | | 33 | | | 24 | | | (164) | |
| Total interest and other, net | | $ | (76) | | | $ | (74) | | | $ | (328) | | | $ | (416) | |
Interest expense in the preceding table is net of $95 million of interest capitalized in the third quarter of 2021 and $288 million in the first nine months of 2021 ($81 million in the third quarter of 2020 we entered into ASR agreements with financial institutions under which we paid an aggregateand $251 million in the first nine months of $10.0 billion and received an aggregate initial share delivery of 166 million shares of our common stock, which were immediately retired. In accordance with the terms of the ASR agreements, the final number of shares to be repurchased and the average price paid per share will be determined upon settlement of the agreements by the end of 2020. The final number of shares to be repurchased will be based on the volume-weighted average price of our common stock over the duration of the ASR agreements, less applicable discounts. Upon settlement, the financial institutions may be required to deliver additional shares of common stock to us, or under certain conditions, we may be required to make a cash payment or deliver shares of common stock, at our election, to one or more of the financial institutions. The unsettled portion of each ASR agreement qualifies as a forward contract indexed to our own stock which has been classified within stockholders’ equity as additional paid in capital. The ASR agreements were entered into pursuant to our existing share repurchase program.2020).
| | | | | |
NOTENote 6 : | RESTRUCTURING AND OTHER CHARGESRestructuring and Other Charges |
A restructuring program was approved in the first quarter of 2020 which is ongoing, to further align our workforce with our continuing investments in the business and to execute the planned divestiture of Home Gateway Platform, a division of CCG. These actions are expectedsubstantially complete as of September 25, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | |
| Employee severance and benefit arrangements | | $ | 21 | | | $ | (17) | | | $ | 43 | | | $ | 90 | | |
| | | | | | | | | |
| Litigation charges and other | | 16 | | | (2) | | | 2,267 | | | 54 | | |
| Asset impairment charges | | 5 | | | (6) | | | 287 | | | 2 | | |
| Total restructuring and other charges | | $ | 42 | | | $ | (25) | | | $ | 2,597 | | | $ | 146 | | |
Litigation charges and other includes a charge of $2.2 billion in the first quarter of 2021 related to be substantially completedthe VLSI litigation, which is recorded as a Corporate charge in 2021.the "all other" category presented in "Note 2: Operating Segments" within Notes to Consolidated Condensed Financial Statements. Refer to "Note 13: Contingencies" within Notes to Consolidated Condensed Financial Statements for further information on legal proceedings related to the VLSI litigation.
A restructuring program was approvedAsset impairment charges includes impairments related to the shutdown in the second quarter of 20192021 of two of our non-strategic businesses, the results of which are included in the “all other” category presented in “Note 2: Operating Segments” within Notes to align our workforceConsolidated Condensed Financial Statements. The goodwill related to these businesses was impaired, resulting in a charge of $237 million recognized in the second quarter of 2021 in the “all other” category along with our exitother impairment charges related to these businesses.
Debt Investments
Trading Assets
For trading assets still held at the reporting date we recorded net losses of the 5G smartphone modem business. This action was substantially completed$144 million in the third quarter of 2020.2021 and $329 million in the first nine months of 2021 ($205 million of net gains in the third quarter of 2020 and $347 million of net gains in the first nine months of 2020). Net gains on the related derivatives were $156 million in the third quarter of 2021 and $346 million in the first nine months of 2021 ($163 million of net losses in the third quarter of 2020 and $334 million of net losses in the first nine months of 2020).
RestructuringAvailable-for-Sale Debt Investments
Available-for-sale investments include corporate debt, government debt, and other chargesfinancial institution instruments. Government debt includes instruments such as non-U.S. government bonds and U.S. agency securities. Financial institution instruments include instruments issued or managed by typefinancial institutions in various forms, such as commercial paper, fixed- and floating-rate bonds, money market fund deposits, and time deposits. As of September 25, 2021 and December 26, 2020, substantially all time deposits were issued by institutions outside the U.S. The adjusted cost of our available-for-sale investments was $10.8 billion as of September 25, 2021 and $7.8 billion as of December 26, 2020. The adjusted cost of our available-for-sale investments approximated the fair value for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 | |
| Employee severance and benefit arrangements | | $ | (17) | | | $ | 40 | | | $ | 90 | | | $ | 208 | | |
| | | | | | | | | |
| Asset impairment and other charges | | (8) | | | 64 | | | 56 | | | 80 | | |
| Total restructuring and other charges | | $ | (25) | | | $ | 104 | | | $ | 146 | | | $ | 288 | | |
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 1411 |
DEBT INVESTMENTS
Trading Assets
Net gains recorded for trading assets still held at the reporting date were $205 million in the third quarter of 2020 and $347 million in the first nine months of 2020 ($75 million of net losses in the third quarter of 2019 and $21 million of net gains in the first nine months of 2019). Net losses on the related derivatives were $163 million in the third quarter of 2020 and $334 million in the first nine months of 2020 ($81 million of net gains in the third quarter of 2019 and $7 million of net losses in the first nine months of 2019).
Available-for-Sale Debt Investments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sep 26, 2020 | | | | | | | | Dec 28, 2019 | | | | | | |
| (In Millions) | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | | | | | | | | | | | | | | |
| Corporate debt | | $ | 2,077 | | | $ | 92 | | | $ | 0 | | | $ | 2,169 | | | $ | 2,914 | | | $ | 44 | | | $ | 0 | | | $ | 2,958 | |
Financial institution
instruments | | 3,431 | | | 20 | | | 0 | | | 3,451 | | | 3,007 | | | 15 | | | (1) | | | 3,021 | |
| Government debt | | 1,604 | | | 12 | | | 0 | | | 1,616 | | | 560 | | | 4 | | | 0 | | | 564 | |
Total available-for-sale debt investments | | $ | 7,112 | | | $ | 124 | | | $ | 0 | | | $ | 7,236 | | | $ | 6,481 | | | $ | 63 | | | $ | (1) | | | $ | 6,543 | |
Government debt includes instruments such as non-U.S. government bonds and U.S. agency securities. Financial institution instruments include instruments issued or managed by financial institutions in various forms such as commercial paper, fixed and floating rate bonds, money market fund deposits, and time deposits. Substantially all time deposits were issued by institutions outside the U.S. as of September 26, 2020 and December 28, 2019.
The fair value of available-for-sale debt investments, by contractual maturity, as of September 26, 2020,25, 2021, was as follows:
| | | | | | | | |
| (In Millions) | | Fair Value |
| Due in 1 year or less | | $ | 3,5047,823 | |
| Due in 1–2 years | | 1,450631 | |
| Due in 2–5 years | | 1,270322 | |
| Due after 5 years | | 0— | |
| Instruments not due at a single maturity date | | 1,0122,035 | |
| Total | | $ | 7,23610,811 | |
EQUITY INVESTMENTSEquity Investments
| | (In Millions) | (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 |
| Marketable equity securities | Marketable equity securities | | $ | 481 | | | $ | 450 | | Marketable equity securities | | $ | 2,064 | | | $ | 1,830 | |
| Non-marketable equity securities | Non-marketable equity securities | | 3,189 | | | 3,480 | | Non-marketable equity securities | | 3,970 | | | 3,304 | |
| Equity method investments | Equity method investments | | 9 | | | 37 | | Equity method investments | | 16 | | | 18 | |
| Total | Total | | $ | 3,679 | |
| $ | 3,967 | | Total | | $ | 6,050 | | | $ | 5,152 | |
The components of gains (losses) on equity investments, net for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | | | |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | | | |
| Ongoing mark-to-market adjustments on marketable equity securities | | $ | (192) | | | $ | (146) | | | $ | (345) | | | $ | (84) | | | | | |
| Observable price adjustments on non-marketable equity securities | | 79 | | | 5 | | | 702 | | | 142 | | | | | |
| Impairment charges | | (38) | | | (40) | | | (111) | | | (233) | | | | | |
| Sale of equity investments and other¹ | | 1,858 | | | 237 | | | 2,124 | | | 387 | | | | | |
| Total gains (losses) on equity investments, net | | $ | 1,707 | | | $ | 56 | | | $ | 2,370 | | | $ | 212 | | | | | |
1 Sale of equity investments and other includes realized gains (losses) on sales of non-marketable equity investments, our share of equity method investees' gains (losses) and distributions, and initial fair value adjustments recorded upon a security becoming marketable.
Gains and losses for our marketable and non-marketable equity securities for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | |
| Net gains (losses) recognized during the period on equity securities | | $ | 346 | | | $ | 19 | | | $ | 883 | | | $ | 102 | | |
| Less: Net (gains) losses recognized during the period on equity securities sold during the period | | (46) | | | (12) | | | (189) | | | (87) | | |
| Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | 300 | | | $ | 7 | | | $ | 694 | | | $ | 15 | | |
Sale of equity investments and other during the third quarter of 2021 includes $447 million of initial fair value adjustments related to four companies that went public, and a McAfee special dividend of $1.1 billion paid in connection with the sale of McAfee's Enterprise Business to Symphony Technology Group.
Beijing Unisoc Technology Ltd.
We account for our interest in Beijing Unisoc Technology Ltd. (Unisoc) as a non-marketable equity security. In the first quarter of 2021, we recognized $471 million in observable price adjustments in our investment in Unisoc and as of September 25, 2021, the net book value of the investment was $1.1 billion ($658 million as of December 26, 2020).
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 1512 |
The components of gains (losses) on equity investments, net for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | Nine Months Ended | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 |
Ongoing mark-to-market adjustments on marketable equity securities | | $ | (146) | | | $ | 114 | | | $ | (84) | | | $ | 188 | |
| Observable price adjustments on non-marketable equity securities | | 5 | | | 84 | | | 142 | | | 100 | |
| Impairment charges | | (40) | | | (17) | | | (233) | | | (79) | |
| Sale of equity investments and other¹ | | 237 | | | 137 | | | 387 | | | 713 | |
| Total gains (losses) on equity investments, net | | $ | 56 | | | $ | 318 | | | $ | 212 | | | $ | 922 | |
1 Sale of equity investments and other includes realized gains (losses) on sales of non-marketable equity investments, our share of equity method investee gains (losses) and distributions, and initial fair value adjustments recorded upon a security becoming marketable.
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.
Gains and losses for our marketable and non-marketable equity securities during the period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 |
| Net gains (losses) recognized during the period on equity securities | | $ | 19 | | | $ | 281 | | | $ | 102 | | | $ | 366 | |
Less: Net (gains) losses recognized during the period on equity securities sold during the period | | (12) | | | (54) | | | (87) | | | (321) | |
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | 7 | | | $ | 227 | | | $ | 15 | | | $ | 45 | |
IMFT
IMFT was formed in 2006 by Micron Technology, Inc. (Micron) and Intel to jointly develop NAND flash memory and 3D XPoint™ technology products. As of September 28, 2019, we had a carrying value of $1.1 billion in IMFT and owned a 49% interest in the unconsolidated variable interest entity. We sold our non-controlling interest in IMFT to Micron in October 2019. We will continue to purchase product manufactured by Micron under our supply agreement, which includes the next generation of 3D XPoint™ technology.
| | | | | |
NOTENote 8 : | ACQUISITIONS AND DIVESTITURESAcquisitions and Divestitures |
ACQUISITIONSAcquisitions
Acquisition of Moovit
On May 4, 2020, we acquired Moovit, aMaaS solutions company, for total consideration of $915$915 million. The fair values of the assets acquired relate to goodwill of $638 millionand intangible assets of $331 million.million. The goodwill arising from the acquisition is attributed to the expected synergies and other benefits that will be generated from the combination of Intel and Moovit. We expect substantiallyMoovit. Substantially all of the goodwill will not be deductible for local tax purposes. The acquisition-related intangible assets are primarily related to Moovit's monthly active user base and application platform.platform. The goodwill and operating results of Moovit are included in our Mobileye operating segment.
DIVESTITURESDivestitures
Home Gateway Platform DivisionNAND Memory Business
On July 31,October 19, 2020, we completedsigned an agreement with SK hynix Inc. (SK hynix) to divest our NAND memory business, including our NAND memory fabrication facility in Dalian, China and certain related equipment and tangible assets (the Fab Assets), our NAND SSD business (the NAND SSD Business), and our NAND memory technology and manufacturing business (the NAND OpCo Business). Our Intel Optane memory business is expressly excluded from the divestituretransaction. The transaction will occur over two closings for total consideration of $9.0 billion in cash, of which $7.0 billion will be received upon initial closing, not to occur prior to November 1, 2021, and the remaining $2.0 billion will be received no earlier than March 2025. The consummations of the majorityfirst closing and the second closing are subject to customary conditions, including the receipt of Home Gateway Platform,certain governmental approvals.
At the first closing, Intel will sell to SK hynix the Fab Assets and the NAND SSD Business, and SK hynix will assume from Intel certain liabilities related to the Fab Assets and the NAND SSD Business. In connection with the first closing, we and certain affiliates of SK hynix will also enter into a divisionNAND wafer manufacturing and sale agreement pursuant to which we will manufacture and sell to SK hynix NAND memory wafers to be manufactured using the Fab Assets in Dalian, China, until the second closing.
We will transfer certain employees, IP, and other assets related to the NAND OpCo Business to separately created, wholly owned subsidiaries of CCG,Intel at the first closing. The equity interest of these wholly owned subsidiaries will transfer to SK hynix at the second closing. We have concluded based on the terms of the transaction agreements that the subsidiaries will be variable interest entities for proceedswhich we are not the primary beneficiary, and accordingly will deconsolidate at the first closing.
The carrying amounts of $150 million. The divestiturethe major classes of NAND assets held for sale included the transferfollowing:
| | | | | | | | | | | | | | |
| (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 |
| Inventories | | $ | 804 | | | $ | 962 | |
| Property, plant and equipment, net | | 5,594 | | | 4,363 | |
| Total assets held for sale | | $ | 6,398 | | | $ | 5,325 | |
We ceased recording depreciation on property, plant and equipment as of certain employees,the date the assets triggered held for sale accounting. The agreement provides for total capital purchases of approximately $1.8 billion in 2021 and amounts prior to the first closing will be classified as assets held for sale in the Consolidated Condensed Balance Sheets and within additions to held for sale NAND property, plant and equipment and an on-going supply agreement for future units.on the Consolidated Condensed Statements of Cash Flows.
| | | | | | | | | | | |
| FINANCIAL STATEMENTS | Notes to Financial Statements | 16 |
| | | | | |
NOTENote 9 : | BORROWINGSBorrowings |
As of September 26, 2020,25, 2021, our short-term debt was $504 million,$4.7 billion, primarily comprised of the current portion of our long-term debt ($3.72.5 billion as of December 28, 2019)26, 2020).
In the second quarter of 2021, we settled $500 million of our senior notes due May 2021.
In the third quarter of 2021, we issued a total of $5.0 billion aggregate principal senior notes. We intend to use the proceeds from the offering of the notes for general corporate purposes, including, but not limited to, refinancing of outstanding debt, funding for working capital, and capital expenditures. In the first quarter of 2021, we entered into a $5.0 billion variable-rate revolving credit facility which, if drawn, is expected to be used for general corporate purposes. The revolving credit facility matures in March 2026 and had no borrowings outstanding as of September 25, 2021.
We have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion under our commercial paper program.
LONG-TERM DEBT
| | | | | | | | | | | | | | | | | | | | |
| | Sep 26, 2020 | | | | Dec 28, 2019 |
| (In Millions) | | Effective Interest Rate | | Amount | | Amount |
| Floating-rate senior notes: | | | | | | |
| Three-month LIBOR plus 0.08%, due May 2020 | | 0 | % | | $ | 0 | | | $ | 700 | |
| Three-month LIBOR plus 0.35%, due May 2022 | | 1.47 | % | | 800 | | | 800 | |
| Fixed-rate senior notes: | | | | | | |
| 1.85%, due May 2020 | | 0 | % | | 0 | | | 1,000 | |
| 2.45%, due July 2020 | | 0 | % | | 0 | | | 1,750 | |
| 1.70%, due May 2021 | | 1.79 | % | | 500 | | | 500 | |
| 3.30%, due October 2021 | | 2.98 | % | | 2,000 | | | 2,000 | |
| 2.35%, due May 2022 | | 1.96 | % | | 750 | | | 750 | |
| 3.10%, due July 2022 | | 2.70 | % | | 1,000 | | | 1,000 | |
| 4.00%, due December 2022¹ | | 3.04 | % | | 388 | | | 382 | |
| 2.70%, due December 2022 | | 2.28 | % | | 1,500 | | | 1,500 | |
| 4.10%, due November 2023 | | 3.22 | % | | 400 | | | 400 | |
| 2.88%, due May 2024 | | 2.31 | % | | 1,250 | | | 1,250 | |
| 2.70%, due June 2024 | | 2.13 | % | | 600 | | | 600 | |
| 3.40%, due March 2025 | | 3.46 | % | | 1,500 | | | 0 | |
| 3.70%, due July 2025 | | 3.15 | % | | 2,250 | | | 2,250 | |
| 2.60%, due May 2026 | | 1.57 | % | | 1,000 | | | 1,000 | |
| 3.75%, due March 2027 | | 3.80 | % | | 1,000 | | | 0 | |
| 3.15%, due May 2027 | | 2.16 | % | | 1,000 | | | 1,000 | |
| 2.45%, due November 2029 | | 2.39 | % | | 2,000 | | | 1,250 | |
| 3.90%, due March 2030 | | 3.94 | % | | 1,500 | | | 0 | |
| 4.00%, due December 2032 | | 2.00 | % | | 750 | | | 750 | |
| 4.60%, due March 2040 | | 4.62 | % | | 750 | | | 0 | |
| 4.80%, due October 2041 | | 3.08 | % | | 802 | | | 802 | |
| 4.25%, due December 2042 | | 2.18 | % | | 567 | | | 567 | |
| 4.90%, due July 2045 | | 3.11 | % | | 772 | | | 772 | |
| 4.10%, due May 2046 | | 2.34 | % | | 1,250 | | | 1,250 | |
| 4.10%, due May 2047 | | 2.29 | % | | 1,000 | | | 1,000 | |
| 4.10%, due August 2047 | | 1.84 | % | | 640 | | | 640 | |
| 3.73%, due December 2047 | | 2.57 | % | | 1,967 | | | 1,967 | |
| 3.25%, due November 2049 | | 3.20 | % | | 2,000 | | | 1,500 | |
| 4.75%, due March 2050 | | 4.76 | % | | 2,250 | | | 0 | |
| 3.10%, due February 2060 | | 3.12 | % | | 1,000 | | | 0 | |
| 4.95%, due March 2060 | | 5.00 | % | | 1,000 | | | 0 | |
| Oregon and Arizona bonds: | | | | | | |
| 2.40%-2.70%, due December 2035 - 2040 | | 2.49 | % | | 423 | | | 423 | |
| 5.00%, due March 2049 | | 2.12 | % | | 138 | | | 138 | |
| 5.00%, due June 2049 | | 2.15 | % | | 438 | | | 438 | |
| Junior Subordinated Convertible Debentures: | | | | | | |
| 3.25%, due August 2039 | | 0 | | | 0 | | | 372 | |
| Total Senior Notes and Other Borrowings | | | | 35,185 | | | 28,751 | |
| Unamortized Premium/Discount and Issuance Costs | | | | (374) | | | (529) | |
| Hedge Accounting Fair Value Adjustments | | | | 1,752 | | | 781 | |
| Long-term debt | | | | 36,563 | | | 29,003 | |
| Current portion of long-term debt | | | | (504) | | | (3,695) | |
| | | | | | |
| Total long-term debt | | | | $ | 36,059 | | | $ | 25,308 | |
1 To manage foreign currency risk associated with the Australian-dollar-denominated notes issued in 2015, we entered into currency interest rate swaps with an aggregate notional amount of $396 million, which effectively converted these notes to U.S.-dollar-denominated notes. For further discussion on our currency interest rate swaps, see "Note 12: Derivative Financial Instruments."
| | | | | | | | | | | |
| FINANCIAL STATEMENTS | Notes to Financial Statements | 17 |
In the first nine months of 2020, we settled $3.8 billion in short-term debt. In the first quarter of 2020, the remaining $372 million of our 2009 Debentures were converted or redeemed, in the second quarter of 2020, we settled $1.7 billion of our notes due May 2020, and in the third quarter of 2020, we settled $1.8 billion of our notes due July 2020.
In the first nine months of 2020, we issued a total of $10.3 billion aggregate principal amount of senior notes. We intend to use the net proceeds from the offering for general corporate purposes, which may include refinancing outstanding debt, funding for working capital and capital expenditures, and repurchasing shares of our common stock.
Our senior floating rate notes pay interest quarterly and our senior fixed rate notes pay interest semiannually. We may redeem the fixed rate notes prior to their maturity at our option at specified redemption prices and subject to certain restrictions. The obligations under theour notes rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and effectively rank junior to all liabilities of our subsidiaries.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 1813 |
ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS | | | | | | | | | | | | | | | | | | | | | | |
| | Sep 25, 2021 | | Dec 26, 2020 | | |
| (In Millions) | | Effective Interest Rate | | Amount | | Amount | | |
| Floating-rate senior notes: | | | | | | | | |
| Three-month LIBOR plus 0.35%, due May 2022 | | 0.56 | % | | $ | 800 | | | $ | 800 | | | |
| Fixed-rate senior notes: | | | | | | | | |
| 1.70%, due May 2021 | | — | % | | — | | | 500 | | | |
| 3.30%, due October 2021 | | 2.98 | % | | 2,000 | | | 2,000 | | | |
| 2.35%, due May 2022 | | 1.96 | % | | 750 | | | 750 | | |
| 3.10%, due July 2022 | | 2.70 | % | | 1,000 | | | 1,000 | | | |
| 4.00%, due December 2022¹ | | 2.95 | % | | 400 | | | 417 | | | |
| 2.70%, due December 2022 | | 2.28 | % | | 1,500 | | | 1,500 | | | |
| 4.10%, due November 2023 | | 3.22 | % | | 400 | | | 400 | | | |
| 2.88%, due May 2024 | | 2.31 | % | | 1,250 | | | 1,250 | | | |
| 2.70%, due June 2024 | | 2.14 | % | | 600 | | | 600 | | | |
| 3.40%, due March 2025 | | 3.45 | % | | 1,500 | | | 1,500 | | | |
| 3.70%, due July 2025 | | 2.16 | % | | 2,250 | | | 2,250 | | | |
| 2.60%, due May 2026 | | 0.64 | % | | 1,000 | | | 1,000 | | | |
| 3.75%, due March 2027 | | 3.79 | % | | 1,000 | | | 1,000 | | | |
| 3.15%, due May 2027 | | 1.22 | % | | 1,000 | | | 1,000 | | | |
| 1.60%, due August 2028 | | 1.68 | % | | 1,000 | | | — | | | |
| 2.45%, due November 2029 | | 2.39 | % | | 2,000 | | | 2,000 | | | |
| 3.90%, due March 2030 | | 3.92 | % | | 1,500 | | | 1,500 | | | |
| 2.00%, due August 2031 | | 2.04 | % | | 1,250 | | | — | | | |
| 4.00%, due December 2032 | | 1.25 | % | | 750 | | | 750 | | | |
| 4.60%, due March 2040 | | 4.60 | % | | 750 | | | 750 | | | |
| 2.80%, due August 2041 | | 2.82 | % | | 750 | | | — | | | |
| 4.80%, due October 2041 | | 2.02 | % | | 802 | | | 802 | | | |
| 4.25%, due December 2042 | | 1.42 | % | | 567 | | | 567 | | | |
| 4.90%, due July 2045 | | 2.12 | % | | 772 | | | 772 | | | |
| 4.10%, due May 2046 | | 1.41 | % | | 1,250 | | | 1,250 | | | |
| 4.10%, due May 2047 | | 1.37 | % | | 1,000 | | | 1,000 | | | |
| 4.10%, due August 2047 | | 0.92 | % | | 640 | | | 640 | | | |
| 3.73%, due December 2047 | | 1.77 | % | | 1,967 | | | 1,967 | | | |
| 3.25%, due November 2049 | | 3.19 | % | | 2,000 | | | 2,000 | | | |
| 4.75%, due March 2050 | | 4.74 | % | | 2,250 | | | 2,250 | | | |
| 3.05%, due August 2051 | | 3.07 | % | | 1,250 | | | — | | | |
| 3.10%, due February 2060 | | 3.11 | % | | 1,000 | | | 1,000 | | | |
| 4.95%, due March 2060 | | 4.99 | % | | 1,000 | | | 1,000 | | | |
| 3.20%, due August 2061 | | 3.22 | % | | 750 | | | — | | | |
| Oregon and Arizona bonds: | | | | | | | | |
| 2.40%-2.70%, due December 2035 - 2040 | | 2.49 | % | | 423 | | | 423 | | | |
| 5.00%, due March 2049 | | 2.12 | % | | 138 | | | 138 | | | |
| 5.00%, due June 2049 | | 2.15 | % | | 438 | | | 438 | | | |
| Total Senior Notes and Other Borrowings | | | | 39,697 | | | 35,214 | | | |
| Unamortized premium/discount and issuance costs | | | | (402) | | | (378) | | | |
| Hedge accounting fair value adjustments | | | | 1,009 | | | 1,565 | | | |
| Long-term debt | | | | 40,304 | | | 36,401 | | | |
| Current portion of long-term debt | | | | (4,694) | | | (2,504) | | | |
| | | | | | | | |
| Total long-term debt | | | | $ | 35,610 | | | $ | 33,897 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sep 26, 2020 | | | | | | | | Dec 28, 2019 | | | | | | |
| | Fair Value Measured and Recorded at Reporting Date Using | | | | | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | | | |
| (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Cash equivalents: | | | | | | | | | | | | | | | | |
| Corporate debt | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 713 | | | $ | 0 | | | $ | 713 | |
| Financial institution instruments¹ | | 1,012 | | | 467 | | | 0 | | | 1,479 | | | 1,064 | | | 408 | | | 0 | | | 1,472 | |
| Government debt² | | 0 | | | 50 | | | 0 | | | 50 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Reverse repurchase agreements | | 0 | | | 1,250 | | | 0 | | | 1,250 | | | 0 | | | 1,500 | | | 0 | | | 1,500 | |
| Short-term investments: | | | | | | | | | | | | | | | | |
| Corporate debt | | 0 | | | 442 | | | 0 | | | 442 | | | 0 | | | 347 | | | 0 | | | 347 | |
| Financial institution instruments¹ | | 0 | | | 1,547 | | | 0 | | | 1,547 | | | 0 | | | 724 | | | 0 | | | 724 | |
| Government debt² | | 0 | | | 998 | | | 0 | | | 998 | | | 0 | | | 11 | | | 0 | | | 11 | |
| Trading assets: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Corporate debt | | 0 | | | 3,845 | | | 0 | | | 3,845 | | | 0 | | | 2,848 | | | 0 | | | 2,848 | |
| Financial institution instruments¹ | | 220 | | | 2,670 | | | 0 | | | 2,890 | | | 87 | | | 1,578 | | | 0 | | | 1,665 | |
| Government debt² | | 0 | | | 5,175 | | | 0 | | | 5,175 | | | 0 | | | 3,334 | | | 0 | | | 3,334 | |
| Other current assets: | | | | | | | | | | | | | | | | |
| Derivative assets | | 15 | | | 310 | | | 0 | | | 325 | | | 50 | | | 230 | | | 0 | | | 280 | |
| Loans receivable³ | | 0 | | | 361 | | | 0 | | | 361 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Marketable equity securities | | 357 | | | 124 | | | 0 | | | 481 | | | 450 | | | 0 | | | 0 | | | 450 | |
| Other long-term investments: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Corporate debt | | 0 | | | 1,727 | | | 0 | | | 1,727 | | | 0 | | | 1,898 | | | 0 | | | 1,898 | |
| Financial institution instruments¹ | | 0 | | | 425 | | | 0 | | | 425 | | | 0 | | | 825 | | | 0 | | | 825 | |
| Government debt² | | 0 | | | 568 | | | 0 | | | 568 | | | 0 | | | 553 | | | 0 | | | 553 | |
| Other long-term assets: | | | | | | | | | | | | | | | | |
| Derivative assets | | 0 | | | 1,648 | | | 31 | | | 1,679 | | | 0 | | | 690 | | | 16 | | | 706 | |
| Loans receivable³ | | 0 | | | 215 | | | 0 | | | 215 | | | 0 | | | 554 | | | 0 | | | 554 | |
| Total assets measured and recorded at fair value | | $ | 1,604 | | | $ | 21,822 | | | $ | 31 | | | $ | 23,457 | | | $ | 1,651 | | | $ | 16,213 | | | $ | 16 | | | $ | 17,880 | |
| Liabilities | | | | | | | | | | | | | | | | |
| Other accrued liabilities: | | | | | | | | | | | | | | | | |
| Derivative liabilities | | $ | 52 | | | $ | 556 | | | $ | 0 | | | $ | 608 | | | $ | 3 | | | $ | 287 | | | $ | 0 | | | $ | 290 | |
| | | | | | | | | | | | | | | | |
| Other long-term liabilities: | | | | | | | | | | | | | | | | |
| Derivative liabilities | | 0 | | | 26 | | | 0 | | | 26 | | | 0 | | | 13 | | | 0 | | | 13 | |
| Total liabilities measured and recorded at fair value | | $ | 52 | | | $ | 582 | | | $ | 0 | | | $ | 634 | | | $ | 3 | | | $ | 300 | | | $ | 0 | | | $ | 303 | |
1Level 1 investments consist To manage foreign currency risk associated with the Australian-dollar-denominated notes issued in 2015, we entered into currency interest rate swaps with an aggregate notional amount of money market funds. Level 2 investments consist primarily of commercial paper, certificates of deposit, time deposits, and$396 million, which effectively converted these notes and bonds issued by financial institutions.to U.S.-dollar-denominated notes. For further discussion on derivatives in cash flow hedging relationships, see "Note 12: Derivative Financial Instruments."
2Level 2 investments consist primarily of U.S. agency notes and non-U.S. government debt.
3The fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance based on the contractual currency.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 1914 |
ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASISAssets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sep 25, 2021 | | Dec 26, 2020 | | |
| | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | |
| (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | |
| Assets | | | | | | | | | | | | | | | | | | |
| Cash equivalents: | | | | | | | | | | | | | | | | | | |
| Corporate debt | | $ | — | | | $ | 736 | | | $ | — | | | $ | 736 | | | $ | — | | | $ | 50 | | | $ | — | | | $ | 50 | | | |
| Financial institution instruments¹ | | 2,035 | | | 718 | | | — | | | 2,753 | | | 2,781 | | | 636 | | | — | | | 3,417 | | | |
| Government debt² | | 2,200 | | | 164 | | | — | | | 2,364 | | | — | | | — | | | — | | | — | | | |
| Reverse repurchase agreements | | — | | | 1,350 | | | — | | | 1,350 | | | — | | | 1,900 | | | — | | | 1,900 | | | |
| Short-term investments: | | | | | | | | | | | | | | | | | | |
| Corporate debt | | — | | | 870 | | | — | | | 870 | | | — | | | 428 | | | — | | | 428 | | | |
| Financial institution instruments¹ | | — | | | 2,066 | | | — | | | 2,066 | | | — | | | 1,179 | | | — | | | 1,179 | | | |
| Government debt² | | — | | | 1,068 | | | — | | | 1,068 | | | — | | | 685 | | | — | | | 685 | | | |
| Trading assets: | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Corporate debt | | — | | | 5,121 | | | — | | | 5,121 | | | — | | | 3,815 | | | — | | | 3,815 | | | |
| Financial institution instruments¹ | | 67 | | | 4,014 | | | — | | | 4,081 | | | 131 | | | 2,847 | | | — | | | 2,978 | | | |
| Government debt² | | — | | | 13,559 | | | — | | | 13,559 | | | — | | | 8,945 | | | — | | | 8,945 | | | |
| Other current assets: | | | | | | | | | | | | | | | | | | |
| Derivative assets | | 4 | | | 323 | | | — | | | 327 | | | 48 | | | 644 | | | — | | | 692 | | | |
| Loans receivable³ | | — | | | 211 | | | — | | | 211 | | | — | | | 439 | | | — | | | 439 | | | |
| Marketable equity securities | | 272 | | | 1,792 | | | — | | | 2,064 | | | 136 | | | 1,694 | | | — | | | 1,830 | | | |
| Other long-term investments: | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Corporate debt | | — | | | 684 | | | — | | | 684 | | | — | | 1,520 | | | — | | 1,520 | | | |
| Financial institution instruments¹ | | — | | | 203 | | | — | | | 203 | | | — | | 257 | | | — | | 257 | | | |
| Government debt² | | — | | | 66 | | | — | | | 66 | | | — | | 415 | | | — | | 415 | | | |
| Other long-term assets: | | | | | | | | | | | | | | | | | | |
| Derivative assets | | — | | | 961 | | | 13 | | | 974 | | | — | | 1,520 | | | 30 | | | 1,550 | | | |
| Loans receivable³ | | — | | | — | | | — | | | — | | | — | | 157 | | | — | | 157 | | | |
| Total assets measured and recorded at fair value | | $ | 4,578 | | | $ | 33,906 | | | $ | 13 | | | $ | 38,497 | | | $ | 3,096 | | | $ | 27,131 | | | $ | 30 | | | $ | 30,257 | | | |
| Liabilities | | | | | | | | | | | | | | | | | | |
| Other accrued liabilities: | | | | | | | | | | | | | | | | | | |
| Derivative liabilities | | $ | 29 | | | $ | 527 | | | $ | — | | | $ | 556 | | | $ | — | | | $ | 810 | | | $ | — | | | $ | 810 | | | |
| | | | | | | | | | | | | | | | | | |
| Other long-term liabilities: | | | | | | | | | | | | | | | | | | |
| Derivative liabilities | | — | | | 9 | | | — | | | 9 | | | — | | | 5 | | | — | | | 5 | | | |
| Total liabilities measured and recorded at fair value | | $ | 29 | | | $ | 536 | | | $ | — | | | $ | 565 | | | $ | — | | | $ | 815 | | | $ | — | | | $ | 815 | | | |
1Level 1 investments consist of money market funds. Level 2 investments consist primarily of commercial paper, certificates of deposit, time deposits, and notes and bonds issued by financial institutions.
2Level 1 investments consist primarily of U.S. Treasury securities. Level 2 investments consist primarily of U.S. agency notes and non-U.S. government debt.
3The fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-marketable equity securities, equity method investments, and certain non-financial assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period. If an observable price adjustment or impairment is recognized on our non-marketable equity securities during the period, we classify these assets as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.
FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS
Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities and equity method investments that have not been remeasured or impaired in the current period, grants receivable, reverse repurchase agreements with original maturities greater than three months, and issued debt.
As of September 26, 2020, the aggregate carrying value of grants receivable and reverse repurchase agreements with original maturities greater than three months was $206 million ($543 million as of December 28, 2019). The estimated fair value of these financial instruments approximates their carrying value and is categorized as Level 2 within the fair value hierarchy based on the nature of the fair value inputs.
As of September 26, 2020, the fair value of our issued debt was$41.0 billion($30.6 billion as of December 28, 2019). These liabilities are classified as Level 2 within the fair value hierarchy based on the nature of the fair value inputs.
| | | | | |
NOTE 11 : | OTHER COMPREHENSIVE INCOME (LOSS) |
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the first nine months of 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In Millions) | | | | | | Unrealized Holding Gains (Losses) on Derivatives | | Actuarial Valuation and Other Pension Expenses | | Translation Adjustments and Other | | Total |
| Balance as of December 28, 2019 | | | | | | $ | 54 | | | $ | (1,382) | | | $ | 48 | | | $ | (1,280) | |
| Other comprehensive income (loss) before reclassifications | | | | | | 286 | | | (8) | | | 62 | | | 340 | |
Amounts reclassified out of accumulated other comprehensive
income (loss) | | | | | | 48 | | | 43 | | | 0 | | | 91 | |
| Tax effects | | | | | | (77) | | | (1) | | | (13) | | | (91) | |
| Other comprehensive income (loss) | | | | | | 257 | | | 34 | | | 49 | | | 340 | |
| Balance as of September 26, 2020 | | | | | | $ | 311 | | | $ | (1,348) | | | $ | 97 | | | $ | (940) | |
We estimate that we will reclassify approximately $118 million (before taxes) of net derivative gains included in accumulated other comprehensive income (loss) into earnings within the next 12 months.3.
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 2015 |
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities and equity method investments that have not been remeasured or impaired in the current period, grants receivable, and issued debt.
We classify the fair value of grants receivable as Level 2. The estimated fair value of these financial instruments approximates their carrying value. The aggregate carrying value of grants receivable as of September 25, 2021 was $399 million (the aggregate carrying value of grants receivable as of December 26, 2020 was $139 million).
We classify the fair value of issued debt (excluding commercial paper and drafts payable) as Level 2. The fair value of these instruments was $44.6 billion as of September 25, 2021 ($40.9 billion as of December 26, 2020).
| | | | | |
| Note 11 : | Other Comprehensive Income (Loss) |
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the first nine months of 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In Millions) | | | | | | Unrealized Holding Gains (Losses) on Derivatives | | Actuarial Valuation and Other Pension Expenses | | Translation Adjustments and Other | | Total |
| Balance as of December 26, 2020 | | | | | | $ | 731 | | | $ | (1,565) | | | $ | 83 | | | $ | (751) | |
| Other comprehensive income (loss) before reclassifications | | | | | | (313) | | | 5 | | | (41) | | | (349) | |
| Amounts reclassified out of accumulated other comprehensive income (loss) | | | | | | (196) | | | 47 | | | (14) | | | (163) | |
| Tax effects | | | | | | 119 | | | (14) | | | 11 | | | 116 | |
| Other comprehensive income (loss) | | | | | | (390) | | | 38 | | | (44) | | | (396) | |
| Balance as of September 25, 2021 | | | | | | $ | 341 | | | $ | (1,527) | | | $ | 39 | | | $ | (1,147) | |
We estimate that we will reclassify approximately $90 million (before taxes) of net derivative gains included in accumulated other comprehensive income (loss) into earnings within the next 12 months.
| | | | | |
NOTENote 12 : | DERIVATIVE FINANCIAL INSTRUMENTSDerivative Financial Instruments |
VOLUME OF DERIVATIVE ACTIVITYVolume of Derivative Activity
Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows:
| | | | | | | | | | | | | | | | |
| (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 | | |
| Foreign currency contracts | | $ | 28,743 | | | $ | 23,981 | | | |
| Interest rate contracts | | 14,410 | | | 14,302 | | | |
| Other | | 1,946 | | | 1,753 | | | |
| Total | | $ | 45,099 | | | $ | 40,036 | | | |
FAIR VALUE OF DERIVATIVE INSTRUMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Sep 26, 2020 | | | | Dec 28, 2019 | | |
| (In Millions) | | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 |
| Derivatives designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | | $ | 233 | | | $ | 58 | | | $ | 56 | | | $ | 159 | |
| Interest rate contracts | | 1,677 | | | 0 | | | 690 | | | 9 | |
| Total derivatives designated as hedging instruments | | 1,910 | | | 58 | | | 746 | | | 168 | |
| Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | | 76 | | | 381 | | | 179 | | | 78 | |
| Interest rate contracts | | 3 | | | 143 | | | 11 | | | 54 | |
| Equity contracts | | 15 | | | 52 | | | 50 | | | 3 | |
| Total derivatives not designated as hedging instruments | | 94 | | | 576 | | | 240 | | | 135 | |
| Total derivatives | | $ | 2,004 | | | $ | 634 | | | $ | 986 | | | $ | 303 | |
1Derivative assets are recorded as other assets, current and non-current.
2Derivative liabilities are recorded as other liabilities, current and non-current.
3The majority of these instruments mature within 12 months.
| | | | | | | | | | | | | | | | |
| (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | | |
| Foreign currency contracts | | $ | 35,012 | | | $ | 31,209 | | | |
| Interest rate contracts | | 14,960 | | | 14,461 | | | |
| Other | | 2,419 | | | 2,026 | | | |
| Total | | $ | 52,391 | | | $ | 47,696 | | | |
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 2116 |
AMOUNTS OFFSET IN THE CONSOLIDATED CONDENSED BALANCE SHEETSFair Value of Derivative Instruments
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Sep 25, 2021 | | Dec 26, 2020 |
| (In Millions) | | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 |
| Derivatives designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | | $ | 99 | | | $ | 74 | | | $ | 551 | | | $ | 2 | |
| Interest rate contracts | | 966 | | | — | | | 1,498 | | | — | |
| Total derivatives designated as hedging instruments | | 1,065 | | | 74 | | | 2,049 | | | 2 | |
| Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | | 221 | | | 378 | | | 142 | | | 685 | |
| Interest rate contracts | | 11 | | | 84 | | | 3 | | | 128 | |
| Equity contracts | | 4 | | | 29 | | | 48 | | | — | |
| Total derivatives not designated as hedging instruments | | 236 | | | 491 | | | 193 | | | 813 | |
| Total derivatives | | $ | 1,301 | | | $ | 565 | | | $ | 2,242 | | | $ | 815 | |
1Derivative assets are recorded as other assets, current and non-current.
2Derivative liabilities are recorded as other liabilities, current and non-current.
3The majority of these instruments mature within 12 months.
Amounts Offset in the Consolidated Condensed Balance Sheets
The gross amounts of our derivative instruments and reverse repurchase agreements subject to master netting arrangements with various counterparties, and cash and non-cash collateral posted under such agreements at the end of each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sep 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 cash flow hedges, recognized in other comprehensive income (loss), were $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). Substantially all of our cash flow hedges were foreign currency contracts for all periods presented.
During the first nine months of 2020 and 2019, the amounts excluded from effectiveness testing were insignificant. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sep 25, 2021 |
| | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | |
| (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount |
| Assets: | | | | | | | | | | | | |
| Derivative assets subject to master netting arrangements | | $ | 1,295 | | | $ | — | | | $ | 1,295 | | | $ | (329) | | | $ | (913) | | | $ | 53 | |
| Reverse repurchase agreements | | 1,350 | | | — | | | 1,350 | | | — | | | (1,350) | | | — | |
| Total assets | | 2,645 | | | — | | | 2,645 | | | (329) | | | (2,263) | | | 53 | |
| Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | | 408 | | | — | | | 408 | | | (329) | | | (79) | | | — | |
| Total liabilities | | $ | 408 | | | $ | — | | | $ | 408 | | | $ | (329) | | | $ | (79) | | | $ | — | |
| | | | | | | | | | | |
| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 2217 |
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dec 26, 2020 |
| | | | | | | | Gross Amounts Not Offset in the Balance Sheet | | |
| (In Millions) | | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments | | Cash and Non-Cash Collateral Received or Pledged | | Net Amount |
| Assets: | | | | | | | | | | | | |
| Derivative assets subject to master netting arrangements | | $ | 2,235 | | | $ | — | | | $ | 2,235 | | | $ | (264) | | | $ | (1,904) | | | $ | 67 | |
| Reverse repurchase agreements | | 1,900 | | | — | | | 1,900 | | | — | | | (1,900) | | | — | |
| Total assets | | 4,135 | | | — | | | 4,135 | | | (264) | | | (3,804) | | | 67 | |
| Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | | 711 | | | — | | | 711 | | | (264) | | | (447) | | | — | |
| Total liabilities | | $ | 711 | | | $ | — | | | $ | 711 | | | $ | (264) | | | $ | (447) | | | $ | — | |
We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.
Derivatives in Cash Flow Hedging Relationships
The before-tax net gains or losses attributed to cash flow hedges, recognized in other comprehensive income (loss), were $28 million net losses in the third quarter of 2021 and $313 million net losses in the first nine months of 2021 ($267 million net gains in the third quarter of 2020 and $286 million net gains in the first nine months of 2020). Substantially all of our cash flow hedges were foreign currency contracts for all periods presented.
During the first nine months of 2021 and 2020, the amounts excluded from effectiveness testing were insignificant.
Derivatives in Fair Value Hedging Relationships
The effects of derivative instruments designated as fair value hedges, recognized in interest and other, net for each period were as follows:
| | | Gains (Losses) Recognized in Consolidated Condensed Statements of Income on Derivatives | | | Gains (Losses) Recognized in Consolidated Condensed Statements of Income on Derivatives |
| | Three Months Ended | | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended | |
| (In Millions) | (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | |
| Interest rate contracts | Interest rate contracts | | $ | (36) | | | $ | 273 | | | $ | 996 | | | $ | 1,312 | | Interest rate contracts | | $ | (55) | | | $ | (36) | | | $ | (532) | | | $ | 996 | | |
| Hedged items | Hedged items | | 36 | | | (273) | | | (996) | | | (1,312) | | Hedged items | | 55 | | | 36 | | | 532 | | | (996) | | |
| Total | Total | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Total | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
The amounts recorded on the Consolidated Condensed Balance Sheets related to cumulative basis adjustments for fair value hedges for each period were as follows:
| | Line Item in the Consolidated Condensed Balance Sheet in Which the Hedged Item is Included | 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) | | 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) | (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 | | Sep 26, 2020 | | Dec 28, 2019 | | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | | Sep 25, 2021 | | Dec 26, 2020 | |
| Long-term debt | Long-term debt | | $ | (13,674) | | | $ | (12,678) | | | $ | (1,677) | | | $ | (681) | | | Long-term debt | | $ | (12,963) | | | $ | (13,495) | | | $ | (966) | | | $ | (1,498) | | |
The total notional amount of pay-variable and receive-fixed interest rate swaps was $12.0 billion as of September 26, 202025, 2021 and $12.0 billion as of December 28, 2019.26, 2020.
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 18 |
Derivatives Not Designated as Hedging Instruments
The effects of derivative instruments not designated as hedging instruments on the Consolidated Condensed Statements of Income for each period were as follows:
| | | | | | | Three Months Ended | | | Nine Months Ended | | | | Three Months Ended | | Nine Months Ended | |
| (In Millions) | (In Millions) | | Location of Gains (Losses) Recognized in Income on Derivatives | | Sep 26, 2020 | | Sep 28, 2019 | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions) | | Location of Gains (Losses)
Recognized in Income on Derivatives | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | |
| Foreign currency contracts | Foreign currency contracts | | Interest and other, net | | $ | (166) | | | $ | 150 | | | $ | (228) | | | $ | 187 | | Foreign currency contracts | | Interest and other, net | | $ | 170 | | | $ | (166) | | | $ | 382 | | | $ | (228) | | |
| Interest rate contracts | Interest rate contracts | | Interest and other, net | | (3) | | | (12) | | | (94) | | | (51) | | Interest rate contracts | | Interest and other, net | | (7) | | | (3) | | | 14 | | | (94) | | |
| Other | Other | | Various | | 138 | | | 17 | | | 95 | | | 198 | | Other | | Various | | 84 | | | 138 | | | 279 | | | 95 | | |
| Total | Total | | $ | (31) | | | $ | 155 | | | $ | (227) | | | $ | 334 | | Total | | $ | 247 | | | $ | (31) | | | $ | 675 | | | $ | (227) | | |
| | | | | |
NOTENote 13 : | CONTINGENCIESContingencies |
LEGAL PROCEEDINGSLegal Proceedings
We are a party to various legal proceedings, including those noted in this section. AlthoughIn the first quarter of 2021, we accrued a charge of $2.2 billion related to litigation involving VLSI, described below. Excluding this charge, management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends,trends; however, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices, or requiring other remedies. An unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, and overall trends. We might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. Except as specifically described below, we have not concluded that settlement of any of the legal proceedings noted in this section is appropriate at this time.
| | | | | | | | | | | |
| FINANCIAL STATEMENTS | Notes to Financial Statements | 23 |
European Commission Competition Matter
In 2001, the 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. The General Court heard oral argument in 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.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 19 |
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 other variants of these vulnerabilities that have since been identified.
As of October 21, 2020,20, 2021, consumer class action lawsuits relating to the above class of security vulnerabilities publicly disclosed since 2018 were pending in the U.S.,United States, Canada, and Israel. The plaintiffs, who purport to represent various classes of purchasers of our products, generally claim to have been harmed by Intel's actions and/or omissions in connection with the security vulnerabilities and assert a variety of common law and statutory claims seeking monetary damages and equitable relief. In the U.S.,United States, 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. In March 2020, the court granted Intel's motion to dismiss the complaint in that consolidated action but granted plaintiffs leave to amend. In March 2021, the court granted Intel’s motion to dismiss the amended complaint, but granted plaintiffs leave to further amend in part. Plaintiffs filed ana further amended complaint in May 2020,2021 which Intel moved to dismiss in July 2020; argument on the motion is scheduled for December 2020.2021. 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 has stayeda stay of the case is in effect until JanuaryDecember 2021. In Israel, bothtwo consumer class action lawsuits were filed in the District Court of Haifa. InThe plaintiff voluntarily dismissed the first case, the District Court denied the parties' joint motion to stay filedlawsuit in January 2019, but to date has deferred Intel's deadline to respond to the complaint.July 2021. Intel filed a motion to stay the second case pending resolution of the consolidated proceeding in the U.S.,United States, and a hearing on that motion has been scheduled for November 2020.April 2022. Additional lawsuits and claims may be asserted seeking monetary damages or other related relief. We dispute the pending claims described above and intend to defend those lawsuits vigorously. Given the procedural posture and the nature of those cases, including that the pending proceedings are in the early stages, that alleged damages have not been specified, that uncertainty exists as to the likelihood of a class or classes being certified or the ultimate size of any class or classes if certified, and that there are significant factual and legal issues to be resolved, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from those matters.
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| FINANCIAL STATEMENTS | Notes to Financial Statements | 24 |
In addition to these lawsuits, Intel stockholders filed multiple shareholder derivative lawsuits since January 2018 against certain current and former members of our Board of Directors and certain current and former officers, alleging that the defendants breached their duties to Intel in connection with the disclosure of the security vulnerabilities and the failure to take action in relation to alleged insider trading. The complaints sought to recover damages from the defendants on behalf of Intel. Some of the derivative actions were filed in the U.S. District Court for the Northern District of California and were consolidated, and the others were filed in the Superior Court of the State of California in San Mateo County and were consolidated. The federal court granted defendants' motion to dismiss in August 2018 on the ground that plaintiffs failed to plead facts sufficient to show they were excused from making a pre-lawsuit demand on the Board. The federal court granted plaintiffs leave to amend their complaint, but subsequently dismissed the cases in January 2019 at plaintiffs' request. The California Superior Court entered judgment in defendants' favor in August 2020 after granting defendants' motions to dismiss plaintiffs' consolidated complaint and three successive amended complaints, all for failure to plead facts sufficient to show plaintiffs were excused from making pre-lawsuit demand on the Board. Plaintiffs filed a notice of appeal of the California court's judgment in October 2020.
In January 2021, another Intel stockholder filed a derivative lawsuit in the Superior Court in San Mateo County against certain current and former officers and members of our Board of Directors. The lawsuit asserts claims similar to those dismissed in August 2020, except that it alleges that the stockholder made a pre-lawsuit demand on our Board of Directors and that the demand was wrongfully refused. In May 2021, the court granted defendants' motion to stay the action pending the outcome of any litigation plaintiff may choose to file in Delaware where Intel’s bylaws require such claims be filed.
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| Financial Statements | Notes to Financial Statements | 20 |
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 HighHigher People's 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 200,000,000200 million 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. The Beijing Higher People’s Court held a final trial hearing in September 2021. No ruling has been issued. In March 2018, Intel filed an invalidation request on the ‘457 patent with the Chinese Patent Reexamination Board (PRB)China National Intellectual Property Administration (CNIPA). The PRBCNIPA held an oral hearing in September 2018 and in February 2019 upheld the validity of the challenged claims. Intel filed a complaint in April 2019 with the Beijing Intellectual Property Court challenging the February 2019 CNIPA ruling, and the Beijing IP Court held oral arguments in July 2021. In January 2020, Intel filed a second invalidation request on the ‘457 patent with the PRB,CNIPA, for which the PRBCNIPA heard oral argument in July 2020.2020 and in November 2020 held the challenged apparatus claims invalid. IMECAS filed a complaint in February 2021 with the Beijing IP Court challenging the November 2020 CNIPA ruling. In December 2020, Intel filed a third invalidation request on the ’457 patent with the CNIPA, which heard oral argument in June 2021 and issued a ruling in September 2021 holding the challenged claims not invalid. In September 2018 and March 2019, Intel filed petitions with the United StatesU.S. 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 a Precedential Opinion Panel (POP) in the USPTO to challenge the denial of its first IPR petition, and in November 2019 Intel filed a request for rehearing on the second IPR petition. In January 2020, the USPTO denied the POP petition on the first IPR petition. In June 2020, the Patent Trial and Appeal Board 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 reservecosts. The complaint in the second lawsuit reserves the right to claim damages in unspecified amounts. The complaint in the third lawsuit claims damages of RMB 10 million. Intel China's jurisdictional challenge was denied in June 2021. No trial 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 and Lenovo filed two invalidation requests on the '226 patent with the Chinese PRB. CNIPA. The CNIPA heard oral argument in December 2020, during which IMECAS proposed amendments to two claims. The CNIPA ruled in April 2021 on both invalidation requests, finding the two amended claims as well as the unamended claims not invalid. Intel and Lenovo filed complaints in July 2021 with the Beijing IP Court challenging the April 2021 CNIPA rulings.
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 ofIPR petitions challenging the patentability of certain claims in all eight of the patents in-suit. The PTAB instituted review of six patents and denied institution on two patents. As a result of the institution decisions, the parties stipulated to stay the District Court action in March 2019. In December 2019 and February 2020, the PTAB found all claims of the '588 and '303 patents, and some claims of the '922 patent, to be unpatentable. The PTAB found the challenged claims of the '014, '672, and '207 patents to be patentable. Intel 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. The Federal Circuit has thus far affirmed the PTAB’s decisions as to the ‘207 and ‘672 patents, and reversed the PTAB’s decision as to the ‘014 patent. The court lifted the stay in September 2021.
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| Financial Statements | Notes to Financial Statements | 21 |
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 thean earlier November 2020 trial date based on agreement of the parties; no trial date is currently set. In January 2020, VLSI said that it was no longer asserting any claims of the ‘633 patent. In January and February 2020, the PTAB instituted review of the '552, '633, '331, and '026 patents, and asbut declined to institute review on the '027 patent. As a result, Intel moved for stay of the District Court proceedings. In May 2020, the District Court stayed the case as to the '026 and '552 patents but allowed the case to proceed on the '027 and '331 patents. In January 2021, the PTAB invalidated certain asserted claims of the ‘026 patent, and in February the PTAB invalidated all asserted claims of the ‘552 patent. Intel filed a notice of appeal regarding the PTAB’s decision as to the ‘026 patent in March 2021, and the case remains stayed as to that patent and the '552 patent. For these twothe '027 and '331 patents, VLSI is seeking damages of approximately $4.13 billion. VLSI also alleges willful infringement and seeksbillion plus enhanced damages as tofor the '027 patent. VLSIThe deadline to file summary judgment motions and challenges to expert witnesses is no longer asserting claims from the '633 patent.in January 2022.
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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,In the first Texas case, VLSI is seeking damagesasserted the ‘373 and ‘759 patents (in December 2020 the court granted Intel summary judgment of approximately $11.01 billion collectivelynon-infringement on the ‘357 patent, which had also been asserted in the first Texas cases,case). That case went to trial in February 2021, and the jury awarded a “lump sum” to VLSI of $1.5 billion for literal infringement of the ‘373 patent and $675 million for infringement under the doctrine of equivalents of the ‘759 patent. The jury found that Intel had not willfully infringed either patent. Intel plans to challenge the verdict in post-trial motions and on appeal. Intel has challenged the verdict with post-trial motions, including filing in May 2021 a motion for a new trial and a motion for judgment as a matter of law that the ‘373 and ‘759 patents are not infringed and the ‘759 patent is invalid. The court denied the motion for new trial in August 2021, but other post-trial motions, including the motion for judgment as a matter of law, remain pending. If the court does not vacate the verdict Intel will challenge it on appeal.
The second Texas case went to trial in April 2021, and the jury found that Intel does not infringe the ‘522 and ‘187 patents. VLSI had sought approximately $3 billion for alleged infringement of those patents, plus enhanced damages for alleged willful infringement. The third case is scheduled for trial in December 2021, and VLSI seeks approximately $2.5$2.2 billion to $2.4 billion for alleged infringement of the ‘983, ‘025 and ‘485 patents, 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.infringement. In October and November 2019, and in February 2020, Intel filed inter partes review requestsIPR petitions on certain asserted claims across six of the patents-in-suit in WDTX. Between May and October 2020, the PTAB denied all of these requests and Intel is asking forrequested a rehearing, on these denials.as well as review from the POP as to all petitions. All requests for POP review were denied in October and December 2020, and all requests for rehearing were denied as to all petitions between December 2020 and February 2021. Intel filed notices of appeal regarding the discretionary denials for all petitions in February and March of 2021, and VLSI moved to dismiss those appeals in March 2021. The Court dismissed the appeals in May 2021, and Intel petitioned for hearing en banc in June 2021. The Federal Circuit denied the petition in August 2021.
In May 2019, VLSI filed a case in Shenzhen Intermediate People’s Court against Intel, Intel (China) Co., Ltd., Intel Trading (Shanghai) Co., Ltd., and Intel Products (Chengdu) Co., Ltd. VLSI asserts Chinese Patent 201410094015.9 accusing certain Intel Core processors of infringement. VLSI requests an injunction as well as RMB 1.31 million in damages.damages and RMB 300 thousand in expenses. Defendants filed an invalidation petition in October 2019.2019 with the CNIPA, which held a hearing in September 2021. In May 2020, defendants filed a motion to stay the trial court proceedings pending a determination on invalidity. The court has not yet ruled onheld the motion to stay.first evidentiary hearing in November 2020 and the second in July 2021. The court also held trial proceedings in the hearing in July 2021 and concluded that further trial proceedings were needed but would be stayed pending the outcome of defendants’ invalidity challenge at the CNIPA.
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 accusedVLSI accuses certain Intel productsCore processors and the claims of VLSIseeks an injunction, as well as RMB 1 million in the Shanghai case are the same asdamages and RMB 300 thousand in the Shenzhen case.expenses. Defendants filed with the CNIPA an invalidation petition in October 2019.2019, and the CNIPA held a hearing in September 2021, but has not yet issued a decision. In June 2020, defendants filed a motion to stay the trial court proceedings pending a determination on invalidity. The court has not yet ruled on the motion to stay. The court held its first evidentiary hearing in September 2020. The court held a second evidentiary hearing in December 2020, and a trial the same month. At trial, VLSI dropped its monetary damages claim, but still requested expenses (RMB 300 thousand) and an injunction. The court held a second evidentiary hearing in December 2020. The court has not yet issued a decision following the trial. Rather, the court stayed the case in December 2020 pending a determination on invalidity by the CNIPA.
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| Financial Statements | Notes to Financial Statements | 22 |
In November 2019, Intel, along with Apple Inc., filed a complaint against Fortress Investment Group LLC, Fortress Credit Co. LLC, Uniloc 2017 LLC, Uniloc USA, Inc., Uniloc Luxembourg S.A.R.L., VLSI, INVT SPE LLC, Inventergy Global, Inc., DSS Technology Management, Inc., IXI IP, LLC, and Seven Networks, LLC. Plaintiffs allege violations of Section 1 of the Sherman Act by certain defendants, Section 7 of the Clayton Act by certain defendants, and California Business and Professions Code section 17200 by all defendants based on defendants' unlawful aggregation of patents. In February 2020, defendants moved to dismiss plaintiffs' complaint. In July 2020, the court granted defendants’ motion to dismiss with leave to amend. The court dismissed antitrust claims related to two DSS patents with prejudice. The plaintiffs filed an amended complaint in August 2020, and defendants moved to dismiss in September 2020. The court will hearheard defendants' motion to dismiss the amended complaint in December 2020.2020 and dismissed plaintiffs’ amended complaint in January 2021, with leave to further amend. In December 2020, the court granted a joint motion by Apple and Seven Networks to dismiss with prejudice Apple’s claims against Seven Networks. Plaintiffs filed a second amended complaint in March 2021. Defendants moved to dismiss the Second Amended Complaint in May 2021. Apple withdrew from the case and dismissed its claims in June 2021. The court heard defendants’ motion to dismiss the Second Amended Complaint in September 2021, and dismissed Intel’s claims with prejudice that same month, entering judgment in favor of defendants.
In June 2020, affiliates controlled by Fortress Investment Group, which also controls VLSI, acquired Finjan Holdings, Inc. Intel had signed a “Settlement, Release and Patent License Agreement” with Finjan in 2012, acquiring a license to the patents of Finjan and its affiliates, current or future, through a capture period of November 20, 2022. The agreement also contains covenants wherein Finjan agrees to cause its affiliates to comply with the agreement. As such, Intel maintains that it now has a license to the patents of VLSI, which has become a Finjan affiliate, and that Finjan must cause VLSI to dismiss its suits against Intel. In August 2020, Intel started dispute resolution proceedings under the agreement. As a part of this dispute resolution process, Intel and Finjan held a mediation in December 2020, but failed to resolve their differences. Intel filed suit to enforce its rights under the License Agreement with Finjan in January 2021 in Delaware Chancery Court. In March 2021, defendants filed motions to dismiss the Chancery Court proceedings. The court heard those motions in May 2021, and dismissed all of Intel’s claims—except the breach of contract claim—with prejudice in September 2021 for lack of jurisdiction because, the court reasoned, Intel’s license defense has been raised in the other U.S. suits between Intel and VLSI and could be adjudicated in one of those actions. The court stayed Intel’s breach of contract claim pending a determination on whether Intel is licensed to VLSI’s patents. In September 2020, Intel filed motions to stay the Texas, Delaware, and Shanghai matters pending resolution of its dispute with Finjan. ThoseIn November 2020, Intel filed a motion to stay the Shenzhen matter pending resolution of its dispute with Finjan. In November 2020, the Delaware court denied Intel’s motion to stay. The other stay motions remain pending. Finally, Intel filed a motion to amend its answer in the Texas matters to add a license defense in November 2020, and filed a motion to amend its answer in the Delaware matter to add a license defense in February 2021. The Texas court has not yet ruled on Intel’s motion to amend, but the Delaware court granted Intel’s motion in July 2021.
After consideration of the verdicts in the WDTX cases and the additional pending lawsuits filed by VLSI, Intel accrued a charge of $2.2 billion in the first quarter of 2021. We dispute VLSI’s claims and intend to vigorously defend against them.
Litigation Related to 7nm Product Delay Announcement
Starting in July 2020, five securities class action lawsuits were filed in the U.S. District Court for the Northern District of California against Intel and certain current and former officers based on Intel’s July 2020 announcement of 7nm product delays. The plaintiffs, who purport to represent classes of acquirers of Intel stock between October 2019 and July 2020, generally allege that the defendants violated securities laws by making false or misleading statements about the timeline for 7nm products in light of subsequently announced delays. In October 2020, the court consolidated the lawsuits and appointed lead plaintiffs, and in January 2021 the lead plaintiffs filed a consolidated complaint. Defendants moved to dismiss the consolidated complaint in March 2021. We dispute the claims described above and intend to defend the lawsuits vigorously. Given the procedural posture and the nature of thesethose 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, arisingthat might arise from thesethose matters. We dispute VLSI’s claimsIn July 2021, Intel introduced a new process node naming structure, and intend to vigorously defend against them.the 7nm process is now Intel 4.
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| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 2623 |
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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TERMTerm | | DEFINITIONDefinition |
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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-generationfifth-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.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),NSG, and Programmable Solutions Group (PSG)PSG products. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needs.needs |
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| ASIC | | Application-specific integrated circuit |
| ASP | | Average Selling Priceselling price |
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ASRAV | | Accelerated Share RepurchaseAutonomous vehicle |
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| CCG | | Client Computing Group operating segment |
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| CODM | | Chief operating decision maker |
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| COVID-19 | | The infectious disease caused by the most recently discovered coronavirus (aka SARS-CoV-2), which was declared a global pandemic by the World Health Organization.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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| DCG | | Data Center Group operating segment |
| 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-K | | Annual Report on Form 10-K |
| Form 10-Q | | Quarterly Report on Form 10-Q |
| FPGA | | Field-programmable gate array |
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IMFT | | IM Flash Technologies, LLC |
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| Internet of Things | | Refers to theThe 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 |
| NSG | | Non-Volatile Memory Solutions Group operating segment |
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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 | | A microprocessor (CPU) and chipset, a stand-alone SoC, or a multichip package, based on Intel® architecture. Platform products are primarily used in solutions sold through the CCG, DCG, and IOTG segments.segments |
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QLCPSG | | Quad-level cellProgrammable Solutions Group operating segment |
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| R&D | | Research and development |
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| RSU | | Restricted stock unit |
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| SEC | | U.S. Securities and Exchange Commission |
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| SoC | | A System-on-a-Chip, which integrates most of the components of a computer or other electronic system into a single silicon chip. We offer a range of SoC platform products in CCG, DCG, IOTG, and CCG.IOTG. 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.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 |
| VLSI | | VLSI Technology LLC |
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On July 26, 2021, we provided an update on our manufacturing process and packaging technology roadmaps. As part of this update, we also introduced a new naming structure for our manufacturing process nodes, which includes the name changes summarized below:
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| 10nm SuperFin | | 10nm SuperFin (unchanged) |
| 10nm Enhanced SuperFin | | Intel 7 |
| Intel 7nm | | Intel 4 |
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| FINANCIAL STATEMENTSFinancial Statements | Notes to Financial Statements | 2724 |
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MANAGEMENT'S DISCUSSION AND ANALYSISManagement's Discussion and Analysis | |
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For additional key highlights of our results of operations, see "A Quarter in Review."
DATA CENTER GROUPClient Computing Group
DCG develops workload-optimized platformsThe PC is more essential than ever, enriching lives by helping people focus, create, and connect with friends, family, and coworkers around the world. Working with our partners across the industry, we intend to continue to advance PC experiences with innovations like our Intel® Evo™ platform which delivers exceptional mobile computing experiences for compute, storage,PC customers. As the largest business unit at Intel, CCG is investing more heavily in the PC, ramping up its capabilities even more aggressively, and network functions. Market segments include cloud service providers, enterprisedesigning the PC experience even more deliberately, delivering a predictable cadence of leadership products. As a result, we are able to fuel innovation across Intel, providing an important source of IP, scale, and government, and communications service providers. We offer customers an unmatched, broad portfolio of platforms and technologies designed to provide workload-optimized performance across compute, storage, and network. These offerings span the full spectrum from the data center core to the network edge.cash flow.
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| DCG REVENUECCG Revenue $B | | DCG OPERATING INCOMECCG Operating Income $B |
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REVENUE SUMMARYRevenue Summary |
Revenue in Q3 20202021 was down 7% compared2% due to Q3 2019, driven by lower ASPs on higher SoCnotebook volume and mix shift from the enterprise and government market segment to cloud service providers. The decline wasadjacent revenue, partially offset by higher platform ASPs and increased desktop volume. Notebook volume overall, and growth in adjacencies driven by 5G networking deployment. Year over year revenuedeclined in the cloud service providersconsumer and education market segmentsegments due to industry-wide component shortages. Platform ASPs were higher in both notebook and desktop from a higher mix of large core products. Desktop demand strengthened due to consumer and commercial recovery from COVID-19 lows. Adjacent revenue was down compared to Q3 2020 due to the continued ramp down from the exit of our 5G smartphone modem and Home Gateway Platform businesses, partially offset by strength in wireless and connectivity.
Revenue YTD 2021 was up 15% on continued demand to support a work and learn-at-home environment, and the communications service providers market segment was up 4%. 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 20192020 due to increased platform volume as cloud service providers added capacity to servecontinued strong demand in notebook and continued growthstrength in desktop driven by consumer and commercial recovery from COVID-19 lows, partially offset by lower notebook and desktop ASPs due to strength in the communications service providersconsumer and education market segment. We also experienced growthsegments. Adjacent revenue was down compared to YTD 2020 due to the continued ramp down from the exit of our 5G smartphone modem and Home Gateway Platform businesses, partially offset by strength in adjacencies driven by 5G networking deployment.wireless and connectivity.
In Q4, we anticipate COVID-19 impacts will drive weaker demand in our data-centric businesses and demand in the cloud service providers market segment to moderate.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Q3 2020 vs. Q3 2019 | | | | | YTD 2020 vs. YTD 2019 | | | |
| (In Millions) | % | | | $ Impact | | % | | | $ Impact |
| | | | | | | | | |
| Platform volume | up | 4% | | $ | 242 | | | up | 19% | | $ | 2,870 | |
| Platform ASP | down | (15)% | | (910) | | | up | —% | | 35 | |
| Adjacent products | up | 34% | | 190 | | | up | 60% | | 842 | |
| | | | | | | | | |
| Total change in revenue | | | | $ | (478) | | | | | | $ | 3,747 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
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| | Q3 2021 vs. Q3 2020 | | YTD 2021 vs. YTD 2020 |
| (In Millions) | | % | | $ Impact | | % | | $ Impact |
| | | | | | | | | | |
| Desktop platform volume | | up | 16% | | $ | 394 | | | up | 8% | | $ | 648 | |
| Desktop platform ASP | | up | 4% | | 106 | | | down | (1)% | | (77) | |
| Notebook platform volume | | down | (14)% | | (847) | | | up | 24% | | 4,364 | |
| Notebook platform ASP | | up | 10% | | 525 | | | down | (12)% | | (2,685) | |
| Adjacent products and other | | | | | (361) | | | | | | (990) | |
| | | | | | | | | | |
| Total change in revenue | | | | | $ | (183) | | | | | | $ | 1,260 | |
| | |
OPERATING INCOME SUMMARYOperating Income Summary |
Operating income in Q3 20202021 decreased 39%7% from Q3 2019,2020, with an operating margin of 34%. Operating income YTD 2021 increased 5%, with an operating margin of 37%.
| | | | | | | | |
| (In Millions) | | |
| $ | 3,317 | | | Q3 2021 CCG Operating Income |
| (440) | | | Higher period charges driven by sell-through of reserved non-qualified platform products net of other reserves in Q3 2020, and reserves taken on non-qualified platform products in Q3 2021 |
| (215) | | | Higher operating expenses driven by increased investment in support of leadership products |
| (205) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
| (105) | | | Lower adjacent product margin primarily driven by the exit of our 5G smartphone modem and Home Gateway Platform businesses |
| (85) | | | Higher period charges primarily associated with the ramp down of 14nm |
| 510 | | | Higher gross margin from platform revenue |
| 185 | | | Lower platform unit cost primarily due to cost improvements in 10nm SuperFin |
| 125 | | | Lower period charges primarily driven by a decrease in engineering samples |
| (7) | | | Other |
| $ | 3,554 | | | Q3 2020 CCG Operating Income |
| | |
| $ | 11,197 | | | YTD 2021 CCG Operating Income |
| 855 | | | Lower platform unit cost primarily due to cost improvements in 10nm SuperFin |
| 450 | | | Higher gross margin from platform revenue |
| 255 | | | Lower period charges driven by lower reserves taken on non-qualified platform products |
| 125 | | | Lower period charges primarily driven by a decrease in engineering samples |
| (540) | | | Higher operating expenses driven by increased investment in support of leadership products |
| (280) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
| (250) | | | Higher period charges primarily associated with the ramp down of 14nm |
| | |
| (39) | | | Other |
| $ | 10,621 | | | YTD 2020 CCG Operating Income |
Data Center Group
DCG develops workload-optimized platforms for compute, storage, and network functions. With unmatched scale, portfolio breadth, and ecosystem support, we are uniquely positioned to enable the world to unleash the potential of data, unlocking value for people, business, and society on a global scale. Market segments include cloud service providers, enterprise and government, and communications service providers. We serve the global appetite for cloud computing and enable transformation of the network and edge. In 2021, our DCG operating segment includes the results of our Intel Optane memory business.
| | | | | | | | | | | |
| DCG Revenue $B | | DCG Operating Income $B |
Revenue in Q3 2021 was up 10% on higher platform volume and higher ASPs, primarily due to recovery in the enterprise and government market segment, compared to COVID-driven lows, and stronger core mix, partially offset by lower revenue in the cloud service providers market segment compared to a strong, COVID-driven Q3 2020. Adjacent revenue was down, primarily due to accelerated 5G networking related purchases in Q3 2020, partially offset by the inclusion of the Intel Optane memory business, which grew year over year. Year over year, the enterprise and government market segment was up 70%, the communications service providers market segment was up 18% and the cloud service providers market segment was down 20%.
Revenue YTD 2021 was down 7% compared to YTD 2020 on lower ASPs in a competitive environment, product mix, and on lower platform volume compared to a strong, COVID-driven YTD 2020.
During Q3 2021, demand for DCG products was adversely impacted by industry component supply constraints, as well as demand softness in China, including among cloud service provider customers, as customers adapt to regulatory changes. We expect these trends to continue in Q4 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Q3 2021 vs. Q3 2020 | | YTD 2021 vs. YTD 2020 |
| (In Millions) | | % | | $ Impact | | % | | $ Impact |
| | | | | | | | | | |
| Platform volume | | up | 8% | | $ | 422 | | | down | (2)% | | $ | (377) | |
| Platform ASP | | up | 3% | | 174 | | | down | (6)% | | (1,121) | |
| Adjacent products | | down | (1)% | | (5) | | | down | —% | | (2) | |
| | | | | | | | | | |
| Total change in revenue | | | | | $ | 591 | | | | | | $ | (1,500) | |
| | | | | | | | | | |
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| | | | | | | | | | |
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| | | | | | | | | | |
| | |
Operating income in Q3 2021 increased 8% from Q3 2020, with an operating margin of 32%. Operating income YTD 2020 increased 26%2021 decreased 38%, with an operating margin of 42%28%.
| | | | | | | | |
| (In Millions) | | |
| $ | 2,057 | | | Q3 2021 DCG Operating Income |
| 530 | | | Higher gross margin from platform revenue |
| 285 | | | Higher adjacent gross margin |
| 100 | | | Lower period charges driven by absence of reserves, including reserves taken on non-qualified platform products in 2020, and by sell-through of other reserves in 2021 |
| (285) | | | Higher operating expenses driven by increased investment in leadership products |
| (225) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
| (170) | | | Higher platform unit cost primarily from increased mix of 10nm SuperFin products |
| (75) | | | Higher period charges primarily associated with the ramp down of 14nm |
| | |
| (6) | | | Other |
| $ | 1,903 | | | Q3 2020 DCG Operating Income |
| | |
(695)$ | 5,271 | | | YTD 2021 DCG Operating Income |
| (1,445) | | | 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)(900) | | | Higher operating expenses driven by increased investment in leadership products |
(95)(530) | | | Higher platform unit cost primarily from increased mix of 10nm SuperFin products |
135(390) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
| (260) | | | Higher period charges primarily associated with the ramp down of 14nm |
| 285 | | | Higher adjacent product margin |
| 25 | | | Lower period charges due to lower factory start-up costs associated with the initial rampdriven by an absence of 10nmreserves, including reserves taken on non-qualified platform products in 2020, partially offset by other reserves recorded in 2021 |
| | |
| | |
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| | |
| | |
| | |
(12)(8) | | | Other |
$ | 3,115 | | | Q3 2019 DCG Operating Income |
| | |
| $ | 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 |
| | |
| | |
| | |
| | |
(72) | | | Other |
$ | 6,756 | | | YTD 2019 DCG Operating Income |
INTERNET OF THINGSInternet of Things
As more intelligence is moving to the edge, moreMore industries are harnessing the power of data to create business value, to innovate, and grow. This requires that intelligence move closer to grow. Wethe edge, allowing data to be acted on where it is created. Working with our partners, we are using our architecture, accelerators, and software assets, combined with scale and partners, to develop and scale a growing Internet of Things portfolio.portfolio and ecosystem. Our Internet of Things portfolio is comprised of our IOTG and Mobileye businesses.
IOTG develops high-performance compute platforms that solve for targeted verticalstechnology and business use cases that can scale across vertical industries and embedded markets. Our customers include retailers, manufacturers, health care providers, energy companies, automakers, and governments.life sciences, governments, and education providers. We facilitatereduce complexity in the ecosystem with a common architecture and software to help enable our customers creating, storing,to create and processingprocess data generated by connected devicesat the edge to accelerate business transformations.analyze it faster and to act on it sooner.
Mobileye is the global leader in driving assistance and automationself-driving solutions. Our product portfolio employs a broad set of technologies, covering computer vision and machine learning-based sensing, data analysis, localization, mapping, and driving policy technology for ADAS and autonomous driving. Mobileye’sAVs. Mobileye's ADAS products form the building blocks for higher levels of autonomy. Our customers and strategic partners include major global OEMs, and Tier 1 automotive system integrators.integrators, fleet managers, and transportation operators.
| | | | | | | | | | | |
| INTERNET OF THINGS REVENUEInternet of Things Revenue $B | | INTERNET OF THINGS OPERATING INCOMEInternet of Things Operating Income $B |
| | | | | | | | | | | | | | | | | | | | | | | |
| ■ IOTG | ■Mobileye | | | ■ IOTG | ■Mobileye | |
| | |
REVENUE AND OPERATING INCOME SUMMARYRevenue and Operating Income Summary |
| | |
Q3 20202021 vs. Q3 20192020 |
IOTG revenue was $677 million, down $328$1.0 billion, up $365 million, driven by weakerhigher demand for IOTG platform products primarily due toamid recovery from the 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$276 million, down $248up $215 million year over year.
Mobileye revenue was $234$326 million, up $5$92 million driven by improvement in global vehicle production. Mobileye operatingproduction year over year. Operating income was $47$105 million, down $20up $58 million year over year.
| | |
YTD 20202021 vs. YTD 20192020 |
IOTG revenue was $2.2$2.9 billion, down $671up $710 million, driven by weakerhigher demand for IOTG platform products due to COVID-19. Demand was also negatively affectedamid recovery from the economic impacts of COVID-19, partially offset by trade restrictions related to the U.S. government Entity List impacts.lower ASPs. Operating income was $374$775 million, down $480 million compared to YTD 2019.up $401 million.
Mobileye revenue was $634$1.0 billion, up $396 million, down $5 million, due to lower demand as a result of significant declinedriven by improvement in global vehicle production relatedcompared to COVID-19 with improvementthe same period in Q3 2020. Operating income was $131$361 million, down $57up $230 million.
We expect continued negative COVID-19 related impacts on demand for IOTG in Q4.
Non-Volatile Memory Solutions Group
On October 19, 2020, we signed an agreement with SK hynix Inc. (SK hynix) to divest our NAND memory business. The transaction will occur over two closings as described in detail in "Note 8: Acquisitions and Divestitures" in Notes to Consolidated Condensed Financial Statements.
| | | | | | | | | | | |
| NSG Revenue $B | | NSG Operating Income $B |
| | |
| Revenue and Operating Income Summary |
Revenue was $1.1 billion, down $48 million from Q3 2020, primarily due to supply chain constraints, $151 million lower ASPs due to mix shift, and the transfer of the Intel Optane memory business to DCG ($86 million in Q3 2020), partially offset by $188 million higher volume. Operating income was $442 million, up $413 million from Q3 2020 due to $411 million improvements in unit cost, primarily driven by the absence of depreciation expense from NAND property, plant and equipment that is held for sale, partially offset by $186 million lower revenue on ASP decline. Operating income also benefited from the transfer of the Intel Optane memory business from Q3 2021 NSG results (a loss of $116 million in Q3 2020).
Revenue was $3.3 billion, down $840 million, driven by $814 million lower ASPs due to market softness and pricing pressure, and due to the transfer of the Intel Optane memory business to DCG ($298 million YTD 2020), partially offset by $271 million higher volume on strong demand. Operating income was $1.0 billion, up $730 million from YTD 2020, due to $1.1 billion of improvements in unit cost, primarily driven by the absence of depreciation expense from NAND property, plant and equipment that is held for sale, $376 million of lower period charges, and $162 million of lower operating expenses partially offset by $940 million of lower revenue on ASP decline. Operating income also benefited from the transfer of the Intel Optane memory business from YTD 2021 NSG results (a loss of $473 million YTD 2020).
NON-VOLATILE MEMORY SOLUTIONS GROUP
NSG is a technology leader in next-generation memory and storage 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.
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 certain related Fab Assets, our NAND 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™ memory business is expressly excluded from the transaction.
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| NSG REVENUE $B | | NSG OPERATING INCOME $B |
| | |
REVENUE AND OPERATING INCOME SUMMARY |
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 GROUPProgrammable Solutions Group
PSG offers programmable semiconductors, primarily FPGAs, structured ASICs, and related products, for a broad range of applications across our embedded, communications, and cloud and enterprise market segments, including communications, data center, industrial, and military. The PSGsegments. Our product portfolio delivers FPGA acceleration in tandem with Intel microprocessors, andwhich enables Intelus to combine the benefits of itsour broad portfolio of technologies to allow more flexibility for systems to operate with increased efficiency and higher performance.
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| PSG REVENUERevenue $B | | PSG OPERATING INCOMEOperating Income $B |
| | |
REVENUE AND OPERATING INCOME SUMMARYRevenue and Operating Income Summary |
| | |
Q3 20202021 vs. Q3 20192020 |
Revenue was $411$478 million, down $96up $67 million due to weaknessdriven by recovery in embedded and communicationsall market segments partially offsetfrom COVID-19 lows, led by growth in the cloud and enterprise market segment.embedded. Operating income was $40$76 million, down $52up $36 million.
| | |
YTD 20202021 vs. YTD 20192020 |
Revenue was $1.4$1.5 billion, down $51up $19 million due to declinedriven by strength in the embedded, and communications market segments, partially offset by growth in the cloud and enterprise market segment.customer inventory digestion. Operating income was $217$246 million, down $16up $29 million.
| | | | | |
| Consolidated Results of Operations | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 |
| (In Millions, Except Per Share Amounts) | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue |
| Net revenue | | $ | 19,192 | | | 100.0 | % | | $ | 18,333 | | | 100.0 | % | | $ | 58,496 | | | 100.0 | % | | $ | 57,889 | | | 100.0 | % |
| Cost of sales | | 8,446 | | | 44.0 | % | | 8,592 | | | 46.9 | % | | 25,690 | | | 43.9 | % | | 25,625 | | | 44.3 | % |
| Gross margin | | 10,746 | | | 56.0 | % | | 9,741 | | | 53.1 | % | | 32,806 | | | 56.1 | % | | 32,264 | | | 55.7 | % |
| Research and development | | 3,803 | | | 19.8 | % | | 3,272 | | | 17.8 | % | | 11,141 | | | 19.0 | % | | 9,901 | | | 17.1 | % |
| Marketing, general and administrative | | 1,674 | | | 8.7 | % | | 1,435 | | | 7.8 | % | | 4,601 | | | 7.9 | % | | 4,423 | | | 7.6 | % |
| Restructuring and other charges | | 42 | | | 0.2 | % | | (25) | | | (0.1) | % | | 2,597 | | | 4.4 | % | | 146 | | | 0.3 | % |
| Operating income | | 5,227 | | | 27.2 | % | | 5,059 | | | 27.6 | % | | 14,467 | | | 24.7 | % | | 17,794 | | | 30.7 | % |
| Gains (losses) on equity investments, net | | 1,707 | | | 8.9 | % | | 56 | | | 0.3 | % | | 2,370 | | | 4.1 | % | | 212 | | | 0.4 | % |
| Interest and other, net | | (76) | | | (0.4) | % | | (74) | | | (0.4) | % | | (328) | | | (0.6) | % | | (416) | | | (0.7) | % |
| Income before taxes | | 6,858 | | | 35.7 | % | | 5,041 | | | 27.5 | % | | 16,509 | | | 28.2 | % | | 17,590 | | | 30.4 | % |
| Provision for taxes | | 35 | | | 0.2 | % | | 765 | | | 4.2 | % | | 1,264 | | | 2.2 | % | | 2,548 | | | 4.4 | % |
| Net income | | $ | 6,823 | | | 35.6 | % | | $ | 4,276 | | | 23.3 | % | | $ | 15,245 | | | 26.1 | % | | $ | 15,042 | | | 26.0 | % |
| | | | | | | | | | | | | | | | |
| Earnings per share—diluted | | $ | 1.67 | | | | | $ | 1.02 | | | | | $ | 3.73 | | | | | $ | 3.52 | | | |
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.Revenue
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| CCG REVENUESegment Revenue Walk $B | | CCG OPERATING INCOME $B |
Revenue inQ3 2021 vs. Q3 2020
Our Q3 2021 revenue was $19.2 billion, up $859 million from Q3 2020. DCG revenue grew 10% on higher platform volume and higher platform ASPs, primarily due to recovery in the enterprise and government market segment compared to COVID-driven lows, and stronger core mix, partially offset by lower revenue in the cloud service providers market segment compared to a COVID-driven Q3 2020. IOTG and Mobileye were both up primarily on higher demand amid recovery from the economic impacts of COVID-19. CCG was down 2% due to lower notebook volume and adjacent revenue, partially offset by higher platform ASPs and increased desktop volume. Notebook volume declined in the consumer and education market segments due to industry-wide component shortages. Platform ASPs were higher in both notebook and desktop from a higher mix of large core products. Desktop demand strengthened due to consumer and commercial recovery from COVID-19 lows. NSG was down 4% primarily due to supply chain constraints, lower ASPs due to mix shift, and due to the transfer of the Intel Optane memory business to DCG, partially offset by higher volume.
We saw impacts from ongoing industry component and substrate shortages across a majority of our businesses and we expect these constraints to continue.
YTD 2021 vs. YTD 2020
Our YTD 2021 revenue was $58.5 billion, up $607 million or 1% from YTD 2020. CCG was up 1% compared4% due to Q3 2019, driven bycontinued strength in notebook demand and continued recovery in desktop demand, partially offset by lower notebook and desktop demand, lower notebook ASP resulting from higher demand forASPs due to strength in the consumer and education PCs,market segments. IOTG and LTE modemMobileye were both up 32% and 62%, respectively, on higher demand amid recovery from the economic impacts of COVID-19. Our "all other" revenue increased primarily due to $584 million from a prepaid supply agreement settled in Q1 2021. DCG decreased 7% on lower ASPs in a competitive environment, product mix, and on lower platform volume decline. YTD 2020 revenue was up 7% compared to a strong, COVID-driven YTD 2019, driven by strength in notebook demand and higher LTE modem and Wi-Fi sales,2020. NSG was down 20% primarily due to lower ASPs, partially offset by lower desktop demand and lower notebook ASP resulting from higher demand for consumer and education PCs. Strength in notebook products reflects the increased reliance on PCs as more people continue to work and 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 |
| | | | | | | | | | |
| 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 | |
| | | | | | | | | | |
| Total change in revenue | | | | | $ | 138 | | | | | | $ | 1,982 | |
Gross Margin
We derived a substantial majority of our overall gross margin from the sale of platform products in the CCG and DCG operating segments. Our overall gross margin dollars in Q3 2021 increased by $1.0 billion, or 10% compared to Q3 2020.
Earlier this year, we announced our IDM 2.0 strategy, in which we announced our plans to continue to build a majority of our products in Intel fabs, to expand our use of third-party foundry capacity, and to build a world-class foundry business. As part of our IDM 2.0 strategy, we also announced plans to significantly expand our manufacturing capacity and goals related to process technology and product leadership. While we are analyzing the investment plans required to achieve our objectives, we anticipate that we will accelerate our investments in manufacturing capacity and R&D, including for our process technology roadmap, to position the company for accelerating revenue growth. With the impact of these investments, we anticipate that our gross margin will be approximately in the 51-53%1 range for the next two or three years before moving upward.
| | |
OPERATING INCOME SUMMARYGross Margin $B |
|
Operating income (Percentages in Q3 2020 decreased 17% from Q3 2019, with an operatingchart indicate gross margin as a percentage of 36%. Operating income YTD 2020 decreased 4%, with an operating margin of 36%.total revenue)
| | | | | | | | |
| (In Millions) | | |
| $ | 3,55410,746 | | | Q3 2020 CCG Operating Income2021 Gross Margin |
(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 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
54 | | | Other |
$ | 4,305 | | | Q3 2019 CCG Operating Income |
| | |
$ | 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 |
1,1151,320 | | | Higher gross margin from platform revenue |
695 | | | Lower operating expenses |
350545 | | | Higher CCGgross margin from adjacent product marginbusinesses primarily due to increased volume amidst improvement in global vehicle production |
| (455) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
| (195) | | | Higher period charges driven by sell-through of reserved non-qualified platform products in Q3 2020 and reserves taken on non-qualified platform products in Q3 2021, partially offset by lower reserves compared to Q3 2020 |
| (170) | | | Higher period charges primarily associated with the ramp down of 14nm |
| | |
| | |
| | |
| | |
| | |
| | |
42 (40) | | | Other |
| $ | 11,1149,741 | | | Q3 2020 Gross Margin |
| | |
| $ | 32,806 | | | YTD 2019 CCG Operating Income2021 Gross Margin |
| 1,010 | | | Higher gross margin from adjacent businesses primarily due to improved NAND unit cost, increased volume amidst improvement in global vehicle production and higher margins on wireless and connectivity |
| 585 | | | Prepaid supply agreement settled and recognized to revenue in Q1 2021 |
| 485 | | | Lower period charges driven by lower reserves taken on non-qualified platform products compared to 2020, partially offset by 2020 sell-through of other reserves |
| 315 | | | Lower platform unit cost primarily from cost improvements in 10nm SuperFin products |
| (715) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
| (535) | | | Higher period charges primarily associated with the ramp down of 14nm |
| (535) | | | Lower gross margin from platform revenue |
| | |
| | |
| (68) | | | Other |
| $ | 32,264 | | | YTD 2020 Gross Margin |
1 See "Non-GAAP Financial Measures" within MD&A.
Operating Expenses
Total R&D and MG&A expenses for Q3 2021 were $5.5 billion, up 16% from Q3 2020, and $15.7 billion for YTD 2021, up 10% from YTD 2020. These expenses represent 28.5% of revenue for Q3 2021 and 25.7% of revenue for Q3 2020, and 26.9% of revenue for YTD 2021 and 24.7% of revenue for YTD 2020.
| | | | | | | | | | | |
| Research and Development $B | | Marketing, General, and Administrative $B |
| |
(Percentages indicate expenses as a percentage of total revenue)
| | |
CONSOLIDATED RESULTS OF OPERATIONSResearch and Development |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
| | | | | | | | | | | | | | | | |
| Earnings per share—diluted | | $ | 1.02 | | | | | $ | 1.35 | | | | | $ | 3.52 | | | | | $ | 3.14 | | | |
| | | | | |
| R&D increased by $531 million, or 16.2%, driven by the following: |
| |
| + | Incentive-based cash compensation |
| + | Investments in CCG, DCG, and Mobileye |
| + | Investments in our process technology |
| |
| |
YTD 2021 vs. YTD 2020
| | | | | | | |
| R&D spending increased by $1.2 billion, or 12.5%, driven by the following: | | |
| | | |
| + | Investments in CCG, DCG, and Mobileye | | |
| + | Investments in our process technology | | |
| + | Incentive-based cash compensation | | |
| | | |
| | | |
| | |
| Marketing, General, and Administrative |
Q3 2021 vs. Q3 2020
| | | | | |
| MG&A increased by $239 million, or 16.7%, driven by the following: |
| |
| + | Increase in corporate spending |
| + | Incentive-based cash compensation |
| |
| |
| |
YTD 2021 vs. YTD 2020
| | | | | | | |
| MG&A spending increased by $178 million, or 4.0%, driven by the following: | | |
| | | |
| + | Increase in corporate spending | | |
| + | Incentive-based cash compensation | | |
| | | |
| | | |
| | | |
REVENUEGains (Losses) on Equity Investments and Interest and Other, Net
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)
| | | | | | | | |
(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 |
| | |
| | |
| | |
| | |
| | |
| | |
(4) | | | Other |
$ | 11,295 | | | Q3 2019 Gross Margin |
| | |
$ | 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 |
| | |
| | |
| | |
| | |
| | |
| | |
(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.
| | | | | | | | | | | |
| RESEARCH AND DEVELOPMENT $B | | MARKETING, GENERAL AND ADMINISTRATIVE $B |
| | | |
(Percentages indicate expenses as a percentage of total revenue)
Q3 2020 vs. Q3 2019
| | | | | |
R&D increased by $64 million, or 2%, driven by the following: | |
| |
+ | Investments in our PC and data-centric businesses |
+ | Investments in our process technology |
- | Profit dependent compensation |
- | Ramp down of 5G smartphone modem business |
| |
YTD 2020 vs. YTD 2019
| | | | | | | | | | | |
R&D decreased by $77 million, or 1%, driven by the following: | | | |
| | | |
- | Ramp down of 5G smartphone modem business | | |
- | Profit dependent compensation | | |
+ | Investments in our PC and data-centric businesses | | |
+ | Investments in our process technology | | |
| | | |
| | |
MARKETING, GENERAL AND ADMINISTRATIVE |
Q3 2020 vs. Q3 2019
| | | | | |
MG&A decreased by $101 million, or 7%, driven by the following: | |
| |
- | Corporate spending efficiencies |
- | Profit dependent compensation |
| |
| |
| |
YTD 2020 vs. YTD 2019
| | | | | | | | | | | |
MG&A decreased by $335 million, or 7%, driven by the following: | | | |
| | | |
- | Corporate spending efficiencies | | |
| | | |
- | Profit dependent compensation | | |
| | | |
| | | |
GAINS (LOSSES) ON EQUITY INVESTMENTS AND INTEREST AND OTHER, NET
| | (In Millions) | (In Millions) | | Q3 2020 | | Q3 2019 | | YTD 2020 | | YTD 2019 | (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | |
Ongoing mark-to-market adjustments on marketable equity
securities | Ongoing mark-to-market adjustments on marketable equity
securities | | $ | (146) | | | $ | 114 | | | $ | (84) | | | $ | 188 | | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (192) | | | $ | (146) | | | $ | (345) | | | $ | (84) | | |
| Observable price adjustments on non-marketable equity securities | Observable price adjustments on non-marketable equity securities | | 5 | | | 84 | | | 142 | | | 100 | | Observable price adjustments on non-marketable equity securities | | 79 | | | 5 | | | 702 | | | 142 | | |
| Impairment charges | Impairment charges | | (40) | | | (17) | | | (233) | | | (79) | | Impairment charges | | (38) | | | (40) | | | (111) | | | (233) | | |
Sale of equity investments and other | Sale of equity investments and other | | 237 | | | 137 | | | 387 | | | 713 | | Sale of equity investments and other | | 1,858 | | | 237 | | | 2,124 | | | 387 | | |
| Gains (losses) on equity investments, net | Gains (losses) on equity investments, net | | $ | 56 | | | $ | 318 | | | $ | 212 | | | $ | 922 | | Gains (losses) on equity investments, net | | $ | 1,707 | | | $ | 56 | | | $ | 2,370 | | | $ | 212 | | |
| | Interest and other, net | Interest and other, net | | $ | (74) | | | $ | (46) | | | $ | (416) | | | $ | (170) | | Interest and other, net | | $ | (76) | | | $ | (74) | | | $ | (328) | | | $ | (416) | | |
Gains (losses) on equity investments, net
Ongoing mark-to-market adjustments during the first nine months of 20202021 were primarily related to our interest in Cloudera Inc.Montage Technology, Co. Ltd. During the first nine months of 2019,2020, ongoing mark-to-market adjustments were primarily driven by our interestsinterest in ASML Holdings N.V. and Cloudera, Inc.
We recognized higher than historically experienced impairment charges on our non-marketable portfolio inIn the first nine monthsquarter of 2020 based on2021, we recognized $471 million in observable price adjustments in our assessment of the impact of recent public and private market volatility and tightening of liquidity.investment in Beijing Unisoc Technology Ltd.
In saleSale of equity investments and other we recognized $166during the third quarter of 2021 includes $447 million onof initial fair value adjustments from an initial public offering related to an equity investmentfour companies that went public, and a McAfee special dividend of $1.1 billion paid in August 2020. We recognized McAfee dividendsconnection with the sale of $515 million during the first nine months of 2019.McAfee's Enterprise Business to Symphony Technology Group.
Interest and other, net
InDuring the first nine months of 2020, we paid $1.1 billion to fully 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 2009 Debentures
Restructuring and recognized a loss of $148 million in interestOther Charges
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | |
| Employee severance and benefit arrangements | | $ | 21 | | | $ | (17) | | | $ | 43 | | | $ | 90 | | |
| | | | | | | | | |
| Litigation charges and other | | 16 | | | (2) | | | 2,267 | | | 54 | | |
| Asset impairment charges | | 5 | | | (6) | | | 287 | | | 2 | | |
| Total restructuring and other charges | | $ | 42 | | | $ | (25) | | | $ | 2,597 | | | $ | 146 | | |
Litigation charges and other net and $990 million asincludes a reductioncharge of $2.2 billion in stockholders' equityQ1 2021 related to the conversion feature.VLSI litigation, and asset impairment charges includes impairments related to the shutdown of two of our non-strategic businesses in Q2 2021. Refer to "Note 6: Restructuring and Other Charges" and "Note 13: Contingencies" within Notes to Consolidated Condensed Financial Statements for further information.
PROVISION FOR TAXESProvision for Taxes
| | (In Millions) | (In Millions) | | Q3 2020 | | Q3 2019 | | YTD 2020 | | YTD 2019 | (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 |
| Income before taxes | Income before taxes | | $ | 5,041 | | | $ | 6,719 | | | $ | 17,590 | | | $ | 15,990 | | Income before taxes | | $ | 6,858 | | | $ | 5,041 | | | $ | 16,509 | | | $ | 17,590 | |
| Provision for taxes | Provision for taxes | | $ | 765 | | | $ | 729 | | | $ | 2,548 | | | $ | 1,847 | | Provision for taxes | | $ | 35 | | | $ | 765 | | | $ | 1,264 | | | $ | 2,548 | |
| Effective tax rate | Effective tax rate | | 15.2 | % | | 10.8 | % | | 14.5 | % | | 11.6 | % | Effective tax rate | | 0.5 | % | | 15.2 | % | | 7.7 | % | | 14.5 | % |
For the first nine months of 2020, the increase inIn Q3 2021, our effective tax rate was driven bydecreased due to the restructuring of certain non-U.S. subsidiaries. As a lower U.S. tax benefit derived from sales to non-U.S. customers, lower foreign tax credits, aresult, we recognized one-time tax charge associated with abenefits from the release of valuation allowance against a net operating lossallowances of certain foreign deferred tax asset, and a one-timeassets. In addition, we established deferred tax charge dueassets in Q3 2021 to a new interpretationoffset the foreign deferred tax liabilities that were originally recognized in 2020 related to the change in our permanent reinvestment assertion with respect to undistributed earnings in China in connection with our planned divestiture of a tax law in a non-U.S. jurisdiction.
LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
| | (In Millions) | (In Millions) | | Sep 26, 2020 | | Dec 28, 2019 | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 |
| Cash and cash equivalents, short-term investments, and trading assets | | $ | 18,253 | | | $ | 13,123 | | |
| Cash and cash equivalents | | Cash and cash equivalents | | $ | 7,870 | | | $ | 5,865 | |
| Short-term investments | | Short-term investments | | 4,004 | | | 2,292 | |
| Trading assets | | Trading assets | | 22,761 | | | 15,738 | |
| Other long-term investments | Other long-term investments | | $ | 2,720 | | | $ | 3,276 | | Other long-term investments | | 953 | | | 2,192 | |
| Loans receivable and other | Loans receivable and other | | $ | 1,298 | | | $ | 1,239 | | Loans receivable and other | | 252 | | | 947 | |
| Reverse repurchase agreements with original maturities greater than three months | | $ | — | | | $ | 350 | | |
Total cash and investments1 | | Total cash and investments1 | | $ | 35,840 | | | $ | 27,034 | |
| | | Total debt | Total debt | | $ | 36,563 | | | $ | 29,001 | | Total debt | | $ | 40,304 | | | $ | 36,401 | |
| Temporary equity | | $ | — | | | $ | 155 | | |
Cash generated by operations is our primary source of liquidity. When assessing our sources of liquidity, we include our total cash and investments1 as shown in the preceding table. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. Substantially all of our investments in debt instruments and financing receivables are in investment-grade securities.
In the third quarter of 2021, we issued a total of $5.0 billion aggregate principal senior notes, and in the first quarter of 2021, we entered into a $5.0 billion variable-rate revolving credit facility which matures in March 2026. 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 26, 2020,25, 2021, we had no outstanding commercial paper.paper or borrowings on the revolving credit facility.
In the first quarter of 2021, we repurchased the remaining $2.4 billion in shares of our planned $20.0 billion share repurchases announced in October 2019.
As described above in “Gross Margin,” we anticipate that we will accelerate our investments in manufacturing capacity and R&D, including for our process technology roadmap. While we are analyzing the investment plans required to achieve our objectives, we forecast that our capital expenditures in 2022 will be approximately in the $25-28 billion range, with potential for further growth in subsequent years. We expect our cash from operations to be strong, but our capital investments to pressure our free cash flow in the short term.
We believe we have sufficient financial resourcessources of funding to meet our business requirements in the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test; working capital requirements; and potential acquisitions, strategic investments, and dividends. 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 OPERATIONSCash from Operations $B | | CAPITAL EXPENDITURESCapital Expenditures $B | | CASH TO STOCKHOLDERSCash to Stockholders $B |
| | | | | | | | | | | | | | |
| | | | ■ Dividends Dividends ■ Buybacks1 |
| | | Nine Months Ended | | | Nine Months Ended |
| (In Millions) | (In Millions) | | Sep 26, 2020 | | Sep 28, 2019 | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 25,494 | | | $ | 23,257 | | Net cash provided by operating activities | | $ | 24,194 | | | $ | 25,494 | |
| Net cash used for investing activities | Net cash used for investing activities | | (15,112) | | | (9,920) | | Net cash used for investing activities | | (20,133) | | | (15,112) | |
| Net cash provided by (used for) financing activities | Net cash provided by (used for) financing activities | | (11,220) | | | (12,421) | | Net cash provided by (used for) financing activities | | (2,056) | | | (11,220) | |
| | Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | $ | (838) | | | $ | 916 | | Net increase (decrease) in cash and cash equivalents | | $ | 2,005 | | | $ | (838) | |
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. See "Non-GAAP Financial Measures" within MD&A.
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
For the first nine months of 20202021 compared to the first nine months of 2019,2020, the increasedecrease in cash provided by operations was primarily due to higher net income, net of non-cash adjustments, offsetdriven by a decrease in working capital. Changes innet working capital were drivencontributions and cash paid to settle a prepaid supply agreement in the first quarter of 2021, partially offset by accounts payable and other assets and liabilities.a McAfee special dividend received in the third quarter of 2021.
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment purchases, sales, maturities, and disposals, and proceeds from divestitures and cash used for acquisitions.
Cash used for investing activities was higher in the first nine months of 20202021 compared to the first nine months of 20192020, primarily due todriven by an increase in purchases of available-for-sale debt investmentstrading assets and trading assets,an increase in capital expenditures, partially offset by an increase in maturities and sales of available-for-sale debt investments and trading assets, and a decrease in capital expenditures.assets.
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 20202021 compared to the first nine months of 2019 primarily2020 due to an increase in long-term debt issuances offset by an increasea decrease in repurchases of common stock and a decrease in repayment of debt repayments.and debt conversion, partially offset by a decrease in cash provided by long-term debt issuances.
CONTRACTUAL OBLIGATIONS
In the first nine months of 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 CondensedNon-GAAP 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. Our 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 as of September 26, 2020, to determine whether material changes in market risks pertaining to currency exchange and interest rates or equity and commodity prices have 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 MD&A in our 2019 Form 10-K.
NON-GAAP FINANCIAL MEASURESMeasures
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. Certain of these non-GAAP financial measures are used in our performance-based RSUs and our annual cash bonus plan.
Long-term gross margin outlook range is provided on a non-GAAP basis and excludes the impact of amortization of acquisition-related intangible assets. It also assumes the completion of the first closing of the divestiture of our NAND business prior to such periods. We are unable to provide a full reconciliation of this measure to the corresponding GAAP measure without unreasonable efforts, as the amount and timing of such adjustments on a long-term basis are subject to considerable uncertainty. We believe such a reconciliation would also imply a degree of precision that is inappropriate for this forward-looking measure.
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 |
| NAND memory business | Our NAND memory business is subject to a pending sale to SK hynix, as announced in October 2020. | We exclude the impact of our NAND memory business in certain non-GAAP measures because these adjustments reflect how management currently views the core operations of the company. While the sale of the NAND memory business is still pending and subject to closing conditions, management does not currently view the business as part of the company’s core operations or its long-term strategic direction. We believe these adjustments provide investors with a useful view, through the eyes of management, of the company’s core business model and how management currently evaluates core operational performance. We believe they also provide investors with an additional means to understand the potential impact of the divestiture over time. In making these adjustments, we have not made any changes to our methods for measuring and calculating revenue or other financial statement amounts. |
| Acquisition-related adjustments | Amortization of acquisition-related intangible assets consists of amortization of intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. Charges related to the amortization of these intangibles are recorded within both cost of sales and MG&A in our U.S. 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 currentcore operating performance and are impacted by the timing of restructuring activity.performance. These adjustments facilitate a useful evaluation of our currentcore 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. In calculating free cash flow, we do not subtract additions to held for sale NAND property, plant and equipment because the additions are not representative of our long-term capital requirements and we expect these assets to be sold. |
| Total cash and investments | Total cash and investments is used by management when assessing our sources of liquidity, which includes cash and cash equivalents, short-term investments, trading assets, other long-term investments, and loans receivable and other. | This non-GAAP measure is helpful in understanding our capital resources and liquidity position. |
Following are the reconciliations of our most comparable U.S. GAAP measures to our non-GAAP measures presented:
| | | Three Months Ended | | | Three Months Ended | |
| (In Millions, Except Per Share Amounts) | (In Millions, Except Per Share Amounts) | | Sep 26, 2020 | | Sep 28, 2019 | | (In Millions, Except Per Share Amounts) | | Sep 25, 2021 | | Sep 26, 2020 | |
| | Net revenue | | Net revenue | | $ | 19,192 | | | $ | 18,333 | | |
| NAND memory business | | NAND memory business | | (1,105) | | | (1,067) | | |
| Non-GAAP net revenue | | Non-GAAP net revenue | | $ | 18,087 | | | $ | 17,266 | | |
| | Operating income | Operating income | | $ | 5,059 | | | $ | 6,447 | | | Operating income | | $ | 5,227 | | | $ | 5,059 | | |
| Acquisition-related adjustments | Acquisition-related adjustments | | 362 | | | 338 | | | Acquisition-related adjustments | | 375 | | | 362 | | |
| | Restructuring and other charges | Restructuring and other charges | | (25) | | | 104 | | | Restructuring and other charges | | 42 | | | (25) | | |
| NAND memory business | | NAND memory business | | (442) | | | (145) | | |
| Non-GAAP operating income | Non-GAAP operating income | | $ | 5,396 | | | $ | 6,889 | | | Non-GAAP operating income | | $ | 5,202 | | | $ | 5,251 | | |
| | Operating margin | Operating margin | | 27.6 | % | | 33.6 | % | | Operating margin | | 27.2 | % | | 27.6 | % | |
| Acquisition-related adjustments | Acquisition-related adjustments | | 2.0 | % | | 1.8 | % | | Acquisition-related adjustments | | 2.0 | % | | 2.0 | % | |
| | Restructuring and other charges | Restructuring and other charges | | (0.1) | % | | 0.5 | % | | Restructuring and other charges | | 0.2 | % | | (0.1) | % | |
| Non-GAAP operating margin | | 29.4 | % | | 35.9 | % | | |
| NAND memory business | | NAND memory business | | (0.6) | % | | 0.9 | % | |
Non-GAAP operating margin1 | | Non-GAAP operating margin1 | | 28.8 | % | | 30.4 | % | |
| | | Earnings per share—diluted | Earnings per share—diluted | | $ | 1.02 | | | $ | 1.35 | | | Earnings per share—diluted | | $ | 1.67 | | | $ | 1.02 | | |
| Acquisition-related adjustments | Acquisition-related adjustments | | 0.09 | | | 0.08 | | | Acquisition-related adjustments | | 0.09 | | | 0.09 | | |
| | Restructuring and other charges | Restructuring and other charges | | (0.01) | | | 0.02 | | | Restructuring and other charges | | 0.01 | | | (0.01) | | |
| | (Gains) losses from divestiture | | — | | | — | | | |
| | Ongoing mark-to-market on marketable equity securities | Ongoing mark-to-market on marketable equity securities | | 0.03 | | | (0.02) | | | Ongoing mark-to-market on marketable equity securities | | 0.04 | | | 0.03 | | |
| | Income tax effect | | (0.02) | | | (0.01) | | | |
| NAND memory business | | NAND memory business | | (0.10) | | | (0.04) | | |
| Income tax effects | | Income tax effects | | — | | | (0.01) | | |
| | Non-GAAP earnings per share—diluted | Non-GAAP earnings per share—diluted | | $ | 1.11 | | | $ | 1.42 | | | Non-GAAP earnings per share—diluted | | $ | 1.71 | | | $ | 1.08 | | |
| | 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) | | | |
1 Our reconciliation of GAAP to non-GAAP operating margin percentage reflects the exclusion of our NAND memory business from net revenue.
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 |
| Net cash provided by operating activities | | $ | 24,194 | | | $ | 25,494 | |
| Additions to property, plant and equipment | | (11,579) | | | (10,392) | |
| Free cash flow | | $ | 12,615 | | | $ | 15,102 | |
| | | | |
| Net cash used for investing activities | | $ | (20,133) | | | $ | (15,112) | |
| Net cash provided by (used for) financing activities | | $ | (2,056) | | | $ | (11,220) | |
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OTHER KEY INFORMATIONOther Key Information | |
| |
RISK FACTORSQuantitative and Qualitative Disclosures About Market Risk
We are affected by changes in currency exchange and interest rates, as well as equity and commodity prices. Our risk management programs are designed to reduce, but may not entirely eliminate, the impacts of these risks. For discussion about market risk and sensitivity analysis related to changes in currency exchange rates, interest rates, equity prices, and commodity prices refer to "Quantitative and Qualitative Disclosures About Market Risk" within MD&A in our 2020 Form 10-K.
Risk Factors
The risks described in "Risk Factors" within Other Key Information in our 20192020 Form 10-K and our subsequent Form 10-Q for the quarter ended March 28, 2020 (Q1 2020 Form 10-Q)10-Qs could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. 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. Refer also to the other information set forth in this Form 10-Q, including in the Forward-Looking Statements, MD&A, and Consolidated Condensed Financial Statements and Supplemental Details sections.
CONTROLS AND PROCEDURESControls 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 26, 202025, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ISSUER PURCHASES OF EQUITY SECURITIESEquity 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 ofNo shares were repurchased during the COVID-19 pandemic. On August 19, 2020, we entered into ASR agreements to repurchase $10.0 billion of our common stock.quarter ending September 25, 2021. As of September 26, 2020,25, 2021, we were authorized to repurchase up to $110.0 billion, of which $9.7$7.2 billion remained available, which reflects the deduction of the $10.0 billion in ASR agreements.
Common stock repurchase activity under our publicly announced stock repurchase program during the third quarter of 2020 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 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.available.
We issue RSUs as part of our equity incentive plans. In our Consolidated Condensed Financial Statements, we treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of RSUs as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase program and accordingly are not included in the preceding table.program.
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| OTHER KEY INFORMATIONOther Key Information | 4541 |
EXHIBITSDisclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934
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| | | | | 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 |
On April 15, 2021, the U.S. Department of the Treasury designated Pozitiv Teknolodzhiz, AO (Positive Technologies), a Russian IT security firm, as a party subject to one of the sanctions specified in Section 13(r). Prior to the designation, we communicated with Positive Technologies regarding its IT security research and coordinated disclosure of security vulnerabilities identified by the firm. Based on a license issued by OFAC, we resumed such communications. There are no gross revenues or net profits directly associated with any such activities. We plan to continue these communications in accordance with the terms and conditions of the OFAC license.
Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Incorporated by Reference | | |
Exhibit
Number | | Exhibit Description | | Form | | File Number | | Exhibit | | Filing
Date | | Filed or
Furnished
Herewith |
| 3.1 | | | | 8-K | | 000-06217 | | 3.1 | | 5/22/2006 | | |
| 3.2 | | | | 8-K | | 000-06217 | | 3.2 | | 3/16/2021 | | |
| 4.1 | | | | 8-K | | 000-06217 | | 4.1 | | 8/12/2021 | | |
10.1† | | | | 8-K | | 000-06217 | | 10.1 | | 7/13/2021 | | |
| 31.1 | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 32.1 | | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
| 104 | | Cover Page Interactive Data File - formatted in Inline XBRL and included as Exhibit 101 | | | | | | | | | | X |
† Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
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| OTHER KEY INFORMATIONOther Key Information | 4643 |
FORMForm 10-Q CROSS-REFERENCE INDEXCross-Reference Index
| | | | | | | | |
| Item Number | Item | |
| Part I - Financial Information | | |
| Item 1. | Financial Statements | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations: | |
| Results of operations | |
| Liquidity and capital resources | |
| | |
| Off-balance sheet arrangements | (a) |
| Contractual obligations | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. | Controls and Procedures | |
| | |
| Part II - Other Information | | |
| Item 1. | Legal Proceedings | |
| Item 1A. | Risk Factors | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. | Defaults Upon Senior Securities | Not applicable |
| Item 4. | Mine Safety Disclosures | Not applicable |
| Item 5. | Other Information | |
| Not applicableDisclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | |
| Item 6. | Exhibits | |
| | |
| Signatures | | |
(a) As of September 26, 2020,25, 2021, we did not have any significant off-balance sheet arrangements, as previously defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
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| OTHER KEY INFORMATIONOther Key Information | 4744 |
SIGNATURESSignatures
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.
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| | | INTEL CORPORATION
(Registrant) | | |
| | | | | |
| Date: | October 22, 202021, 2021 | | By: | | /s/ GEORGE S. DAVIS |
| | | | | George S. Davis |
| | | | | Executive Vice President, Chief Financial Officer and Principal Financial Officer |
| | | | | |
| Date: | October 22, 202021, 2021 | | By: | | /s/ KEVIN T. MCBRIDE |
| | | | | Kevin T. McBride |
| | | | | Vice President of Finance, Corporate Controller and Principal Accounting Officer |
