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 25, 2021October 1, 2022 |
Oror
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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)
| | | | | | | | | | | | | | |
| 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 25, 2021,October 1, 2022, the registrant had outstanding 4,0674,127 million shares of common stock.
Table of Contents
The 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.
We have defined certain terms and abbreviations used throughout our Form 10-Q in "Key Terms" within 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 | |
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| A Quarter in Review | |
| 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 Analysis | |
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| Segment Trends and Results | |
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| Consolidated Results of Operations | |
| Liquidity and Capital Resources | |
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| Non-GAAP Financial Measures | |
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| Other Key Information | |
| Quantitative and Qualitative Disclosures about Market Risk | |
| Risk Factors | |
| Controls and Procedures | |
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| Issuer Purchases of Equity Securities | |
| Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | |
| Exhibits | |
| Form 10-Q Cross-Reference Index | |
Forward-Looking Statements
This Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "accelerate," "adjust," "allow," "anticipate," "believe," "committed," "continue," "could," "deliver," "estimate," "expect," "focus," "goals," "grow," "guidance," "improve," "increase," "intend," "plan,"likely," "goal," "forecast," "opportunity," "future," "scheduled," "pending," "to be," "believes," "estimated," "continue," "likely,"manage," "may," "might," "on track," "opportunity," "plans," "position," "potentially," "roadmap," "seeks," "should," "targets," "to be," "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;strategy and its anticipated benefits, including SCIP, our partnership with Brookfield, the transition to an internal foundry model, and updates to our reporting structure; Intel's process and packaging technology, roadmap, and schedules, including future node performance and other metrics; manufacturing expansion and financing plans; investment plans, and impacts of investment plans;plans, including in the U.S. and abroad; future responses to and effects of COVID-19;COVID-19, including manufacturing, transportation, and operational restrictions or disruptions, such as port shutdowns in China; future economic conditions, including regional or global downturns or recessions; projections of our future financial performance; future business, social, and environmental performance, including future gross margins, capital expenditures,goals, measures and cash flows; projections of future demand, including the impact of regulatory changes and conditions;strategies; our anticipated growth and trends in our businesses orand operations; projected growth and trends in markets relevant to our businesses; business plans; future products, services and technology, and the expected regulation, availability, production, and benefits of such products, services and technology, including future process nodestechnology; projected costs and technologies,yield trends; product and manufacturing plans, goals, timelines, ramps, progress and future product architectures, our announcements at our Intel Accelerated and Architecture Day events, and process technologyleadership and product leadership goals;performance; geopolitical conditions, including the impacts of Russia's war on Ukraine and the suspension of our operations; expected timing and impact of acquisitions, divestitures, and other significant transactions, including statements relating to the pending divestitureacquisition of Tower Semiconductor Ltd., the sale of our NAND memory business, the initial public offering of Mobileye, the wind-down of our Intel® Optane™ memory business, and the close of our transactions with Brookfield; expected completion and impacts of restructuring activities and cost-saving or efficiency initiatives, including related to SK hynix Inc. (SK hynix), NAND manufacturing and supply arrangements between Intel and SK hynix, and expected additions to held for sale NAND property, plant and equipment;the 2022 Restructuring Program; availability, uses, sufficiency, and cost of capital and of capital resources, and funding sources, including expected returns to stockholders such as 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;valuation; future production capacity and product supply; anticipated trendssupply expectations, including regarding constraints, limitations, pricing, 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; tax-relatedparties, including third-party IP and manufacturing services; tax- and accounting-related expectations; our role in the Rapid Assured Microelectronics Prototypes - Commercial program; expectations regarding our relationships with certain sanctioned parties;LIBOR-related expectations; uncertain events or assumptions;assumptions, including statements relating to total addressable market, product or customer demand or market opportunity; 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, including expectations based on third-party information and projections that management believes to be reputable. Such statements 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 20202021 Form 10-K, and subsequentour Form 10-Qs,10-Q for the quarter ended April 2, 2022, particularly thein "Risk Factors" sectionswithin Other Key Information, including changes in demand for our products, changes in product mix, the complexity of such reports,our manufacturing operations, competition, investments in R&D and our other SEC filings.business, products, and technologies, vulnerability to product and manufacturing-related risks, the effects of the COVID-19 pandemic, supply chain risks, cybersecurity and privacy risks, investment and transaction risk, evolving regulatory and legal requirements, and the risks of our global operations, among others. 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, Intel Core, Intel Evo,and Intel Optane and 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.
Total revenue of $19.2$15.3 billion was up $859 milliondown $3.9 billion year over year or 20%, as DCG grew 10%CCG revenue decreased 17%, DCAI revenue decreased 27%, and CCG decreased 2%. DCGNEX revenue increased on higher platform volume14%. Q3 2022 results were impacted by an uncertain macroeconomic environment that continues to deteriorate, with slowing consumer demand, persistent inflation, and higher platforminterest rates, that we believe impacts our target markets and creates a high level of uncertainty with our customers. CCG revenue was down on lower Notebook volume in the consumer and education market segments, though Notebook ASPs were higher due to strong recoverya resulting change in product mix. DCAI Server volume decreased, led by enterprise customers, and government,due to customers tempering purchases to reduce existing inventories in a softening datacenter market. Server ASPs decreased due to a higher mix of revenue from hyperscale customers within a competitive environment. NEX revenue increased primarily due to increased demand for 5G products, higher Ethernet demand and stronger core mix,ASPs, and accelerated demand for Edge products, partially offset by lower revenue in the cloud service providers market segment compared to a strong, COVID-driven Q3 2020. CCG revenue was down due to lower notebook volume in consumer and education due to industry-wide component shortages, and down on adjacent revenue primarily driven by continued ramp down of our 5G smartphone modem business, partially offset by higher platform ASPs and by increased desktop volume. IOTG and Mobileye were both up primarily on higher demand amid recovery from the economic impacts of COVID-19.for Network Xeon.
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| Revenue | | Operating IncomeGross Margin | | Diluted EPS | | Cash Flows |
■ GAAP $B ■ Non-GAAP $B | | ■ GAAP $B■ Non-GAAP $B | | ■ GAAP ■ Non-GAAP | | ■ Operating Cash Flow $B ■ AdjustedFree Cash Flow $B |
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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. |
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| $15.3B | | 42.6% | | 45.9% | | $0.25 | | $0.59 | | $7.7B | | $(7.1)B |
| GAAP | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 |
| Revenue down $3.9B or 20% from Q3 2021 | | Gross margin down 13.4 ppts from Q3 2021 | | Gross margin down 12.4 ppts from Q3 2021 | | Diluted EPS down $1.42 or 85% from Q3 2021 | | Diluted EPS down $0.86 or 59% from Q3 2021 | | Operating cash flow down $16.3B or 68% from YTD 2021 | | Adjusted free cash flow down $19.7B or 157% from YTD 2021 |
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| Lower revenue in CCG and DCAI; higher revenue in NEX; lack of NAND revenue compared to Q3 2021. | | Lower gross margin from lower revenue, higher unit cost, higher inventory reserves, and higher period charges from ramp of Intel 4 and Intel 7. | | Lower EPS from lower gross margin, higher operating expenses from additional investment in R&D and higher losses on equity investments, partially offset by a tax benefit on the operating loss. | | Lower operating cash flow driven by lower income after adjusting for non-cash items, including the gain on the sale of McAfee and the pre-tax gain from the divestiture of our NAND business; also affected by unfavorable working capital changes. |
Key Developments▪In July 2021, we provided an update on our manufacturing process and packaging technology roadmaps at our Intel Accelerated event. As part of the update, we also introduced a new naming structure for our manufacturing process nodes, which includes the name changes summarized in Key Terms2. We introduced additional future nodes, including Intel 3 and Intel 20A, and discussed future process and packaging technologies, such as our PowerVia, RibbonFET, Foveros Omni, and Foveros Direct technologies.
▪At Intel Architecture Day 2021, we detailed our architectural innovations to meet increasing demand for computing performance and set the stage for new generationsWe began high-volume manufacturing of leadership products. We provided details on two new x86 CPU architectures, our first performance hybrid architecture and our Intel® Thread Director intelligent workload scheduler; our next-generation data center processor Sapphire Rapids; infrastructure processing unit architecture; and upcoming graphics architectures, which will power our upcoming Alchemist SoC for client discrete graphicsRapids, Raptor Lake, and Ponte Vecchio SoC for high-performance computing applications.and expect to begin shipping to customers in Q4 2022.
▪In August 2021 it wasWe introduced the Intel® Data Center GPU Flex Series for the intelligent visual cloud, which provides a GPU solution built to flexibly handle a wide range of workloads and helps lower and optimize the total cost of ownership for diverse cloud workloads. We also announced that Intel Foundry Servicesthe 12th Gen Intel® Core™ SoC processors for IoT Edge, a new lineup of purpose-built edge products optimized for IoT applications, and we revealed the 13th Gen Intel® Core™ processor family with six new unlocked desktop processors with up to 24 cores and 32 threads and clock speeds up to 5.8 GHz for leading gaming, streaming and recording experiences.
▪We announced the Semiconductor Co-Investment Program (SCIP), a program which introduces a new funding model to the capital-intensive semiconductor industry. As part of this program, we signed a definitive agreement with Brookfield Asset Management (Brookfield). SCIP is an element of our Smart Capital approach, which aims to provide innovative ways to fund growth and accelerate our IDM 2.0 strategy. This arrangement represents an equity partnership whereby we and Brookfield will leadown 51% and 49%, respectively, of what will be a newly-formed entity, Arizona Fab LLC (Arizona Fab), which we will fully consolidate into our consolidated financial statements. We expect Arizona Fab will spend up to $30.0 billion of investments in expanded manufacturing infrastructure at our Ocotillo campus in Chandler, Arizona where we will be the first phasesole operator of the U.S. Departmenttwo new chip factories, which will support long-term demand for our products and provide capacity for IFS customers. The definitive agreement includes provisions that require us to utilize these two new chip factories at specified minimum levels or be subject to penalties.
▪We expect Mobileye to receive net proceeds of Defense's multi-phase Rapid Assured Microelectronics Prototypes - Commercial programapproximately $0.9 billion from completing their IPO and concurrent private placement in Q4 2022. At closing, we expect to facilitate the useown roughly 94% of a domestic commercial foundry infrastructure.their common stock and to continue to consolidate their results.
1 See "Non-GAAP Financial Measures" within MD&A.
2 See "Key Terms" within Consolidated Condensed Financial Statements and Supplemental Details.
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| Consolidated 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 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions, Except Per Share Amounts; Unaudited) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 |
| Net revenue | Net revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | | Net revenue | | $ | 15,338 | | | $ | 19,192 | | | $ | 49,012 | | | $ | 58,496 | |
| Cost of sales | Cost of sales | | 8,446 | | | 8,592 | | | 25,690 | | | 25,625 | | Cost of sales | | 8,803 | | | 8,446 | | | 27,646 | | | 25,690 | |
| Gross margin | Gross margin | | 10,746 | | | 9,741 | | | 32,806 | | | 32,264 | | Gross margin | | 6,535 | | | 10,746 | | | 21,366 | | | 32,806 | |
| Research and development | Research and development | | 3,803 | | | 3,272 | | | 11,141 | | | 9,901 | | Research and development | | 4,302 | | | 3,803 | | | 13,064 | | | 11,141 | |
| Marketing, general and administrative | Marketing, general and administrative | | 1,674 | | | 1,435 | | | 4,601 | | | 4,423 | | Marketing, general and administrative | | 1,744 | | | 1,674 | | | 5,296 | | | 4,601 | |
| Restructuring and other charges | Restructuring and other charges | | 42 | | | (25) | | | 2,597 | | | 146 | | Restructuring and other charges | | 664 | | | 42 | | | (460) | | | 2,597 | |
| Operating expenses | Operating expenses | | 5,519 | | | 4,682 | | | 18,339 | | | 14,470 | | Operating expenses | | 6,710 | | | 5,519 | | | 17,900 | | | 18,339 | |
| Operating income | | 5,227 | | | 5,059 | | | 14,467 | | | 17,794 | | |
| Operating income (loss) | | Operating income (loss) | | (175) | | | 5,227 | | | 3,466 | | | 14,467 | |
| Gains (losses) on equity investments, net | Gains (losses) on equity investments, net | | 1,707 | | | 56 | | | 2,370 | | | 212 | | Gains (losses) on equity investments, net | | (151) | | | 1,707 | | | 4,082 | | | 2,370 | |
| Interest and other, net | Interest and other, net | | (76) | | | (74) | | | (328) | | | (416) | | Interest and other, net | | 138 | | | (76) | | | 1,016 | | | (328) | |
| Income before taxes | | 6,858 | | | 5,041 | | | 16,509 | | | 17,590 | | |
| Provision for taxes | | 35 | | | 765 | | | 1,264 | | | 2,548 | | |
| Income (loss) before taxes | | Income (loss) before taxes | | (188) | | | 6,858 | | | 8,564 | | | 16,509 | |
| Provision for (benefit from) taxes | | Provision for (benefit from) taxes | | (1,207) | | | 35 | | | (114) | | | 1,264 | |
| Net income | Net income | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | | Net income | | $ | 1,019 | | | $ | 6,823 | | | $ | 8,678 | | | $ | 15,245 | |
| Earnings per share—basic | Earnings per share—basic | | $ | 1.68 | | | $ | 1.02 | | | $ | 3.76 | | | $ | 3.55 | | Earnings per share—basic | | $ | 0.25 | | | $ | 1.68 | | | $ | 2.11 | | | $ | 3.76 | |
| Earnings per share—diluted | Earnings per share—diluted | | $ | 1.67 | | | $ | 1.02 | | | $ | 3.73 | | | $ | 3.52 | | Earnings per share—diluted | | $ | 0.25 | | | $ | 1.67 | | | $ | 2.10 | | | $ | 3.73 | |
| | Weighted average shares of common stock outstanding: | Weighted average shares of common stock outstanding: | | | | | | | | | Weighted average shares of common stock outstanding: | | | | | | | | |
| Basic | Basic | | 4,061 | | | 4,188 | | | 4,055 | | | 4,233 | | Basic | | 4,118 | | | 4,061 | | | 4,104 | | | 4,055 | |
| Diluted | Diluted | | 4,086 | | | 4,211 | | | 4,089 | | | 4,269 | | Diluted | | 4,125 | | | 4,086 | | | 4,123 | | | 4,089 | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Income | 3 |
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| Consolidated 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 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions; Unaudited) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 |
| Net income | Net income | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | | Net income | | $ | 1,019 | | | $ | 6,823 | | | $ | 8,678 | | | $ | 15,245 | |
| 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 | | (46) | | | 206 | | | (390) | | | 257 | | Net unrealized holding gains (losses) on derivatives | | (436) | | | (46) | | | (1,178) | | | (390) | |
| Actuarial valuation and other pension benefits (expenses), net | Actuarial valuation and other pension benefits (expenses), net | | 13 | | | 11 | | | 38 | | | 34 | | Actuarial valuation and other pension benefits (expenses), net | | 10 | | | 13 | | | 37 | | | 38 | |
| Translation adjustments and other | Translation adjustments and other | | (19) | | | (5) | | | (44) | | | 49 | | Translation adjustments and other | | — | | | (19) | | | (30) | | | (44) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | (52) | | | 212 | | | (396) | | | 340 | | Other comprehensive income (loss) | | (426) | | | (52) | | | (1,171) | | | (396) | |
| Total comprehensive income | Total comprehensive income | | $ | 6,771 | | | $ | 4,488 | | | $ | 14,849 | | | $ | 15,382 | | Total comprehensive income | | $ | 593 | | | $ | 6,771 | | | $ | 7,507 | | | $ | 14,849 | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Comprehensive Income | 4 |
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| Consolidated Condensed Balance Sheets | |
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| | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | |
| (In Millions; Unaudited) | | (In Millions; Unaudited) | | Oct 1, 2022 | | Dec 25, 2021 |
| | | (unaudited) | | | | | | | |
| Assets | Assets | | Assets | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 7,870 | | | $ | 5,865 | | Cash and cash equivalents | | $ | 4,529 | | | $ | 4,827 | |
| Short-term investments | Short-term investments | | 4,004 | | | 2,292 | | Short-term investments | | 18,030 | | | 24,426 | |
| Trading assets | | 22,761 | | | 15,738 | | |
| | Accounts receivable | Accounts receivable | | 8,400 | | | 6,782 | | Accounts receivable | | 7,469 | | | 9,457 | |
| Inventories | Inventories | | 9,798 | | | 8,427 | | Inventories | | 12,831 | | | 10,776 | |
| Assets held for sale | Assets held for sale | | 6,398 | | | 5,400 | | Assets held for sale | | 56 | | | 6,942 | |
| Other current assets | Other current assets | | 2,073 | | | 2,745 | | Other current assets | | 6,348 | | | 2,130 | |
| Total current assets | Total current assets | | 61,304 | | | 47,249 | | Total current assets | | 49,263 | | | 58,558 | |
| | Property, plant and equipment, net of accumulated depreciation of $83,424 ($77,645 as of December 26, 2020) | | 59,733 | | | 56,584 | | |
| Property, plant and equipment, net of accumulated depreciation of $91,417 ($85,294 as of December 25, 2021) | | Property, plant and equipment, net of accumulated depreciation of $91,417 ($85,294 as of December 25, 2021) | | 75,763 | | | 63,245 | |
| Equity investments | Equity investments | | 6,050 | | | 5,152 | | Equity investments | | 5,822 | | | 6,298 | |
| Other long-term investments | | 953 | | | 2,192 | | |
| | Goodwill | Goodwill | | 26,786 | | | 26,971 | | Goodwill | | 27,591 | | | 26,963 | |
| Identified intangible assets, net | Identified intangible assets, net | | 7,684 | | | 9,026 | | Identified intangible assets, net | | 6,268 | | | 7,270 | |
| Other long-term assets | Other long-term assets | | 5,452 | | | 5,917 | | Other long-term assets | | 10,134 | | | 6,072 | |
| Total assets | Total assets | | $ | 167,962 | | | $ | 153,091 | | Total assets | | $ | 174,841 | | | $ | 168,406 | |
| | Liabilities and stockholders’ equity | Liabilities and stockholders’ equity | | Liabilities and stockholders’ equity | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Short-term debt | Short-term debt | | $ | 4,694 | | | $ | 2,504 | | Short-term debt | | $ | 2,283 | | | $ | 4,591 | |
| Accounts payable | Accounts payable | | 6,792 | | | 5,581 | | Accounts payable | | 7,133 | | | 5,747 | |
| Accrued compensation and benefits | Accrued compensation and benefits | | 4,026 | | | 3,999 | | Accrued compensation and benefits | | 3,421 | | | 4,535 | |
| | Other accrued liabilities | Other accrued liabilities | | 14,060 | | | 12,670 | | Other accrued liabilities | | 14,976 | | | 12,589 | |
| Total current liabilities | Total current liabilities | | 29,572 | | | 24,754 | | Total current liabilities | | 27,813 | | | 27,462 | |
| | Debt | Debt | | 35,610 | | | 33,897 | | Debt | | 37,240 | | | 33,510 | |
| Contract liabilities | | 62 | | | 1,367 | | |
| | Income taxes payable | Income taxes payable | | 4,223 | | | 4,578 | | Income taxes payable | | 3,782 | | | 4,305 | |
| Deferred income taxes | Deferred income taxes | | 3,019 | | | 3,843 | | Deferred income taxes | | 361 | | | 2,667 | |
| Other long-term liabilities | Other long-term liabilities | | 5,389 | | | 3,614 | | Other long-term liabilities | | 5,760 | | | 5,071 | |
| Contingencies (Note 13) | | 0 | | 0 | |
| Commitments and Contingencies (Note 12) | | Commitments and Contingencies (Note 12) | |
| | Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
| | 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 | | |
| Common stock and capital in excess of par value, 4,127 issued and outstanding (4,070 issued and outstanding as of December 25, 2021) | | Common stock and capital in excess of par value, 4,127 issued and outstanding (4,070 issued and outstanding as of December 25, 2021) | | 30,912 | | | 28,006 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | (1,147) | | | (751) | | Accumulated other comprehensive income (loss) | | (2,051) | | | (880) | |
| Retained earnings | Retained earnings | | 63,642 | | | 56,233 | | Retained earnings | | 71,024 | | | 68,265 | |
| Total stockholders’ equity | Total stockholders’ equity | | 90,087 | | | 81,038 | | Total stockholders’ equity | | 99,885 | | | 95,391 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | | $ | 167,962 | | | $ | 153,091 | | Total liabilities and stockholders’ equity | | $ | 174,841 | | | $ | 168,406 | |
See accompanying notes.
| | | | | | | | | | | |
| Financial Statements | Consolidated Condensed Balance Sheets | 5 |
| | | | | |
| Consolidated Condensed Statements of Cash Flows | |
| |
| | | | | Nine Months Ended | | | Nine Months Ended |
| (In Millions; Unaudited) | (In Millions; Unaudited) | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions; Unaudited) | | Oct 1, 2022 | | Sep 25, 2021 |
| | Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | | $ | 5,865 | | | $ | 4,194 | | Cash and cash equivalents, beginning of period | | $ | 4,827 | | | $ | 5,865 | |
| 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 | | 15,245 | | | 15,042 | | Net income | | 8,678 | | | 15,245 | |
| 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 | | 7,357 | | | 7,925 | | Depreciation | | 8,309 | | | 7,357 | |
| Share-based compensation | Share-based compensation | | 1,587 | | | 1,393 | | Share-based compensation | | 2,392 | | | 1,587 | |
| | Restructuring and other charges | Restructuring and other charges | | 2,597 | | | 146 | | Restructuring and other charges | | 665 | | | 2,597 | |
| Amortization of intangibles | Amortization of intangibles | | 1,361 | | | 1,311 | | Amortization of intangibles | | 1,439 | | | 1,361 | |
| (Gains) losses on equity investments, net | (Gains) losses on equity investments, net | | (1,113) | | | (105) | | (Gains) losses on equity investments, net | | (4,075) | | | (1,113) | |
| | (Gains) losses on divestitures | | (Gains) losses on divestitures | | (1,072) | | | — | |
| | Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
| Accounts receivable | Accounts receivable | | (1,618) | | | 525 | | Accounts receivable | | 1,991 | | | (1,618) | |
| Inventories | Inventories | | (1,212) | | | (570) | | Inventories | | (2,043) | | | (1,212) | |
| Accounts payable | Accounts payable | | 1,095 | | | 355 | | Accounts payable | | (485) | | | 1,095 | |
| Accrued compensation and benefits | Accrued compensation and benefits | | (16) | | | (569) | | Accrued compensation and benefits | | (1,912) | | | (16) | |
| Prepaid supply agreements | | (1,577) | | | (91) | | |
| Prepaid customer supply agreements | | Prepaid customer supply agreements | | (18) | | | (1,577) | |
| Income taxes | Income taxes | | (570) | | | 493 | | Income taxes | | (4,062) | | | (570) | |
| Other assets and liabilities | Other assets and liabilities | | 1,058 | | | (361) | | Other assets and liabilities | | (2,077) | | | 917 | |
| Total adjustments | Total adjustments | | 8,949 | | | 10,452 | | Total adjustments | | (948) | | | 8,808 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 24,194 | | | 25,494 | | Net cash provided by operating activities | | 7,730 | | | 24,053 | |
| 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 | | (11,579) | | | (10,392) | | Additions to property, plant and equipment | | (19,145) | | | (11,579) | |
| Additions to held for sale NAND property, plant and equipment | Additions to held for sale NAND property, plant and equipment | | (1,118) | | | — | | Additions to held for sale NAND property, plant and equipment | | (206) | | | (1,118) | |
| | Purchases of available-for-sale debt investments | | (3,983) | | | (6,323) | | |
| | Maturities and sales of available-for-sale debt investments | | 3,457 | | | 5,037 | | |
| Purchases of trading assets | | (26,343) | | | (14,744) | | |
| Maturities and sales of trading assets | | 18,813 | | | 11,227 | | |
| Purchases of short-term investments | | Purchases of short-term investments | | (31,669) | | | (30,326) | |
| Maturities and sales of short-term investments | | Maturities and sales of short-term investments | | 35,129 | | | 22,270 | |
| | Sales of equity investments | | Sales of equity investments | | 4,880 | | | 444 | |
| | Proceeds from divestitures | | Proceeds from divestitures | | 6,579 | | | — | |
| Other investing | Other investing | | 620 | | | 83 | | Other investing | | (2,614) | | | 766 | |
| Net cash used for investing activities | Net cash used for investing activities | | (20,133) | | | (15,112) | | Net cash used for investing activities | | (7,046) | | | (19,543) | |
| Cash flows provided by (used for) financing activities: | Cash flows provided by (used for) financing activities: | | | | | Cash flows provided by (used for) financing activities: | | | | |
| | Payments on finance leases | | Payments on finance leases | | (341) | | | — | |
| Issuance of long-term debt, net of issuance costs | Issuance of long-term debt, net of issuance costs | | 4,974 | | | 10,247 | | Issuance of long-term debt, net of issuance costs | | 6,103 | | | 4,974 | |
| Repayment of debt and debt conversion | | (500) | | | (4,525) | | |
| Repayment of debt | | Repayment of debt | | (3,088) | | | (500) | |
| Proceeds from sales of common stock through employee equity incentive plans | Proceeds from sales of common stock through employee equity incentive plans | | 1,016 | | | 897 | | Proceeds from sales of common stock through employee equity incentive plans | | 972 | | | 1,016 | |
| Repurchase of common stock | Repurchase of common stock | | (2,415) | | | (12,229) | | Repurchase of common stock | | — | | | (2,415) | |
| Accelerated share repurchase forward agreements | | — | | | (2,000) | | |
| | | Payment of dividends to stockholders | Payment of dividends to stockholders | | (4,231) | | | (4,215) | | Payment of dividends to stockholders | | (4,488) | | | (4,231) | |
| | Other financing | Other financing | | (900) | | | 605 | | Other financing | | (140) | | | (1,349) | |
| Net cash provided by (used for) financing activities | | (2,056) | | | (11,220) | | |
| Net cash used for financing activities | | Net cash used for financing activities | | (982) | | | (2,505) | |
| | Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | 2,005 | | | (838) | | Net increase (decrease) in cash and cash equivalents | | (298) | | | 2,005 | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | | $ | 7,870 | | | $ | 3,356 | | Cash and cash equivalents, end of period | | $ | 4,529 | | | $ | 7,870 | |
| | Supplemental disclosures of noncash investing activities and cash flow information: | | |
| Supplemental disclosures: | | Supplemental disclosures: | |
| 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 | | $ | 2,693 | | | $ | 2,752 | | Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 3,386 | | | $ | 2,693 | |
| | 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 | | $ | 271 | | | $ | 459 | | Interest, net of capitalized interest | | $ | 315 | | | $ | 271 | |
| Income taxes, net of refunds | Income taxes, net of refunds | | $ | 1,831 | | | $ | 1,986 | | Income taxes, net of refunds | | $ | 3,960 | | | $ | 1,831 | |
| |
See accompanying notes.
| | | | | | | | | | | |
| Financial Statements | Consolidated Condensed Statements of Cash Flows | 6 |
| | | | | |
| Consolidated Condensed Statements of Stockholders' Equity | |
| |
| | | Common Stock and Capital in Excess of Par Value | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings1 | | 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 | |
| Three Months Ended | Three Months Ended | | Three Months Ended | |
| | Balance as of June 26, 2021 | | 4,057 | | | $ | 26,655 | | | $ | (1,095) | | | $ | 59,647 | | | $ | 85,207 | | |
| Balance as of July 02, 2022 | | Balance as of July 02, 2022 | | 4,106 | | | $ | 29,858 | | | $ | (1,625) | | | $ | 72,985 | | | $ | 101,218 | |
| Net income | Net income | | — | | | — | | | — | | | 6,823 | | | 6,823 | | Net income | | — | | | — | | | — | | | 1,019 | | | 1,019 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | (52) | | | — | | | (52) | | Other comprehensive income (loss) | | — | | | — | | | (426) | | | — | | | (426) | |
| Employee equity incentive plans and other | Employee equity incentive plans and other | | 11 | | | 427 | | | — | | | — | | | 427 | | Employee equity incentive plans and other | | 24 | | | 399 | | | — | | | — | | | 399 | |
| Share-based compensation | Share-based compensation | | — | | | 543 | | | — | | | — | | | 543 | | Share-based compensation | | — | | | 793 | | | — | | | — | | | 793 | |
| | Repurchase of common stock | | — | | | — | | | — | | | — | | | — | | |
| Accelerated share repurchase forward agreements | | — | | | — | | | — | | | — | | | — | | |
| | Restricted stock unit withholdings | Restricted stock unit withholdings | | (1) | | | (33) | | | — | | | (4) | | | (37) | | Restricted stock unit withholdings | | (3) | | | (138) | | | — | | | 32 | | | (106) | |
| Cash dividends declared ($0.70 per share) | | — | | | — | | | — | | | (2,824) | | | (2,824) | | |
| Balance as of September 25, 2021 | | 4,067 | | | $ | 27,592 | | | $ | (1,147) | | | $ | 63,642 | | | $ | 90,087 | | |
| Cash dividends declared ($0.73 per share) | | Cash dividends declared ($0.73 per share) | | — | | | — | | | — | | | (3,012) | | | (3,012) | |
| Balance as of October 01, 2022 | | Balance as of October 01, 2022 | | 4,127 | | | $ | 30,912 | | | $ | (2,051) | | | $ | 71,024 | | | $ | 99,885 | |
| | Balance as of June 27, 2020 | | 4,253 | | | $ | 25,516 | | | $ | (1,152) | | | $ | 57,646 | | | $ | 82,010 | | |
| 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 | | — | | | — | | | — | | | 4,276 | | | 4,276 | | Net income | | — | | | — | | | — | | | 6,823 | | | 6,823 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | 212 | | | — | | | 212 | | Other comprehensive income (loss) | | — | | | — | | | (52) | | | — | | | (52) | |
| Employee equity incentive plans and other | Employee equity incentive plans and other | | 12 | | | 385 | | | — | | | — | | | 385 | | Employee equity incentive plans and other | | 11 | | | 427 | | | — | | | — | | | 427 | |
| Share-based compensation | Share-based compensation | | — | | | 452 | | | — | | | — | | | 452 | | Share-based compensation | | — | | | 543 | | | — | | | — | | | 543 | |
| | Repurchase of common stock | | (166) | | | (993) | | | — | | | (7,007) | | | (8,000) | | |
| Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | | |
| | Restricted stock unit withholdings | Restricted stock unit withholdings | | (1) | | | (25) | | | — | | | — | | | (25) | | Restricted stock unit withholdings | | (1) | | | (33) | | | — | | | (4) | | | (37) | |
| Cash dividends declared ($0.66 per share) | | — | | | — | | | — | | | (2,756) | | | (2,756) | | |
| Cash dividends declared ($0.70 per share) | | Cash dividends declared ($0.70 per share) | | — | | | — | | | — | | | (2,824) | | | (2,824) | |
| | Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | | |
| Balance as of September 25, 2021 | | Balance as of September 25, 2021 | | 4,067 | | | $ | 27,592 | | | $ | (1,147) | | | $ | 63,642 | | | $ | 90,087 | |
| | Nine Months Ended | Nine Months Ended | | Nine Months Ended | |
| | Balance as of December 25, 2021 | | Balance as of December 25, 2021 | | 4,070 | | | $ | 28,006 | | | $ | (880) | | | $ | 68,265 | | | $ | 95,391 | |
| Net income | | Net income | | — | | | — | | | — | | | 8,678 | | | 8,678 | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | | — | | | — | | | (1,171) | | | — | | | (1,171) | |
| Employee equity incentive plans and other | | Employee equity incentive plans and other | | 66 | | | 1,000 | | | — | | | — | | | 1,000 | |
| Share-based compensation | | Share-based compensation | | — | | | 2,392 | | | — | | | — | | | 2,392 | |
| | Repurchase of common stock | | Repurchase of common stock | | — | | | — | | | — | | | — | | | — | |
| | Restricted stock unit withholdings | | Restricted stock unit withholdings | | (9) | | | (486) | | | — | | | 79 | | | (407) | |
| Cash dividends declared ($1.46 per share) | | Cash dividends declared ($1.46 per share) | | — | | | — | | | — | | | (5,998) | | | (5,998) | |
| Balance as of October 01, 2022 | | Balance as of October 01, 2022 | | 4,127 | | | $ | 30,912 | | | $ | (2,051) | | | $ | 71,024 | | | $ | 99,885 | |
| | Balance as of December 26, 2020 | Balance as of December 26, 2020 | | 4,062 | | | $ | 25,556 | | | $ | (751) | | | $ | 56,268 | | | $ | 81,073 | | Balance as of December 26, 2020 | | 4,062 | | | $ | 25,556 | | | $ | (751) | | | $ | 56,268 | | | $ | 81,073 | |
| Net income | Net income | | — | | | — | | | — | | | 15,245 | | | 15,245 | | Net income | | — | | | — | | | — | | | 15,245 | | | 15,245 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | — | | | — | | | (396) | | | ��� | | | (396) | | Other comprehensive income (loss) | | — | | | — | | | (396) | | | — | | | (396) | |
| Employee equity incentive plans and other | Employee equity incentive plans and other | | 52 | | | 1,015 | | | — | | | — | | | 1,015 | | Employee equity incentive plans and other | | 52 | | | 1,015 | | | — | | | — | | | 1,015 | |
| Share-based compensation | Share-based compensation | | — | | | 1,587 | | | — | | | — | | | 1,587 | | Share-based compensation | | — | | | 1,587 | | | — | | | — | | | 1,587 | |
| Temporary equity reduction | | — | | | — | | | — | | | — | | | — | | |
| Convertible debt | | — | | | — | | | — | | | — | | | — | | |
| | | Repurchase of common stock | Repurchase of common stock | | (40) | | | (249) | | | — | | | (2,166) | | | (2,415) | | Repurchase of common stock | | (40) | | | (249) | | | — | | | (2,166) | | | (2,415) | |
| Accelerated share repurchase forward agreements | | — | | | — | | | — | | | — | | | — | | |
| | Restricted stock unit withholdings | Restricted stock unit withholdings | | (7) | | | (317) | | | — | | | (60) | | | (377) | | Restricted stock unit withholdings | | (7) | | | (317) | | | — | | | (60) | | | (377) | |
| Cash dividends declared ($1.39 per share) | Cash dividends declared ($1.39 per share) | | — | | | — | | | — | | | (5,645) | | | (5,645) | | 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 September 25, 2021 | | 4,067 | | | $ | 27,592 | | | $ | (1,147) | | | $ | 63,642 | | | $ | 90,087 | |
| | Balance as of December 28, 2019 | | 4,290 | | | $ | 25,261 | | | $ | (1,280) | | | $ | 53,523 | | | $ | 77,504 | | |
| Net income | | — | | | — | | | — | | | 15,042 | | | 15,042 | | |
| Other comprehensive income (loss) | | — | | | — | | | 340 | | | — | | | 340 | | |
| Employee equity incentive plans and other | | 54 | | | 1,014 | | | — | | | — | | | 1,014 | | |
| Share-based compensation | | — | | | 1,393 | | | — | | | — | | | 1,393 | | |
| Temporary equity reduction | | — | | | 155 | | | — | | | — | | | 155 | | |
| Convertible debt | | — | | | (750) | | | — | | | — | | | (750) | | |
| Repurchase of common stock | | (237) | | | (1,413) | | | — | | | (10,696) | | | (12,109) | | |
| Accelerated share repurchase forward agreements | | — | | | (2,000) | | | — | | | — | | | (2,000) | | |
| Restricted stock unit withholdings | | (9) | | | (325) | | | — | | | (135) | | | (460) | | |
| Cash dividends declared ($1.32 per share) | | — | | | — | | | — | | | (5,575) | | | (5,575) | | |
| Balance as of September 26, 2020 | | 4,098 | | | $ | 23,335 | | | $ | (940) | | | $ | 52,159 | | | $ | 74,554 | | |
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 Statements | Consolidated Condensed Statements of Stockholders' Equity | 7 |
| | | | | |
| Notes to Consolidated Condensed Financial Statements | |
| |
| | | | | |
| Note 1 : | Basis 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 20202021 Form 10-K.10-K and as updated by our Form 10-Q for the quarter ended April 2, 2022.
We have made estimates and judgments affecting the amounts reported in our Consolidated Condensed Financial Statements and the accompanying notes. 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 20202021 Form 10-K where we include additional information abouton our critical accounting estimates, policies, and the methods and assumptions used in our estimates.
| | | | | |
| Note 2 : | Operating Segments |
We previously announced several organizational changes that would accelerate the execution and innovation of our Company by allowing us to capture growth in both large traditional markets and high-growth emerging markets. This includes reorganization of our business units to capture this growth and to provide increased transparency, focus and accountability. As a result, we modified our segment reporting in the first quarter of 2022 to align to the previously-announced business reorganization. All prior-period segment data has been retrospectively adjusted to reflect the way our CODM internally receives information, and manages and monitors our operating segment performance starting in fiscal year 2022.
We now manage our business through the following operating segments:
▪CCGClient Computing (CCG)
▪DCGDatacenter and AI (DCAI)
▪IOTGNetwork and Edge (NEX)
▪Accelerated Computing Systems and Graphics (AXG)
▪Mobileye
▪NSGIntel Foundry Services (IFS)
▪PSG
We derive a substantial majority of our revenue from platform products, which are our principal products and considered as one 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, which is based on Intel® architecture. Platform products are used in various form factors across our
CCG, DCG,DCAI and IOTG operating segments. Our non-platform, or adjacent products, can be combined with platform products to form comprehensive platform solutions to meet customer needs.
CCG and DCGNEX are our reportable operating segments. IOTG,AXG, Mobileye, NSG, and PSGIFS 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, presentedAXG revenue includes integrated graphics royalties from our CCG and NEX operating segments and are recorded as Internet of Things, is comprised of IOTGif the sales or transfers were to third parties at prices that approximate market-based selling prices. When we enter into federal contracts, they are aligned to the sponsoring operating segment.
We have sales and Mobileyemarketing, manufacturing, engineering, finance, and administration groups. Expenses for these groups are generally allocated to the 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”"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;initiatives;
▪amounts included within restructuring and other charges;
▪a portion of employee benefits, compensation, impairment charges, and other expenses not allocated to the operating segments;segments (beginning the first quarter of 2022, this includes all of our stock-based compensation); 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 Statements | Notes to Financial Statements | 8 |
The CODM, who is our CEO, allocates resources to and assesses the performance of each operating segment using information about the operating segment's revenue and operating income (loss). The CODM does not evaluate operating segments using discrete asset information and we do not identify or allocate assets by operating segments. Based on the interchangeable nature of our manufacturing and assembly and test assets, most of the related depreciation expense is not directly identifiable within our operating segments, as it is included in overhead cost pools and subsequently absorbed into inventory as each product passes through our manufacturing process. Because our products are then sold across multiple operating segments, it is impracticable to determine the total depreciation expense included as a component of each operating segment's operating income (loss) results. We do not allocate gains and losses from equity investments, interest and other income, share-based compensation, or taxes to our operating segments. Although the CODM uses operating income (loss) 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. There have been no changes to our segment accounting policies disclosed in our 2021 Form 10-K except for the organizational changes and the change in allocation of stock-based compensation expense described above.
Net revenue and operating income (loss) 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 revenue: | | | | | | | | |
| Client Computing Group | | | | | | | | |
| Platform | | $ | 8,954 | | | $ | 8,762 | | | $ | 27,968 | | | $ | 25,703 | |
| Adjacent | | 710 | | | 1,085 | | | 2,410 | | | 3,415 | |
| | 9,664 | | | 9,847 | | | 30,378 | | | 29,118 | |
| Data Center Group | | | | | | | | |
| Platform | | 5,747 | | | 5,151 | | | 16,261 | | | 17,759 | |
| Adjacent | | 749 | | | 754 | | | 2,254 | | | 2,256 | |
| | 6,496 | | | 5,905 | | | 18,515 | | | 20,015 | |
| Internet of Things | | | | | | | | |
| IOTG | | 1,042 | | | 677 | | | 2,940 | | | 2,230 | |
| Mobileye | | 326 | | | 234 | | | 1,030 | | | 634 | |
| | 1,368 | | | 911 | | | 3,970 | | | 2,864 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Non-Volatile Memory Solutions Group | | 1,105 | | | 1,153 | | | 3,310 | | | 4,150 | |
| Programmable Solutions Group | | 478 | | | 411 | | | 1,450 | | | 1,431 | |
| | | | | | | | |
| All other | | 81 | | | 106 | | | 873 | | | 311 | |
| Total net revenue | | $ | 19,192 | | | $ | 18,333 | | | $ | 58,496 | | | $ | 57,889 | |
| | | | | | | | |
| Operating income (loss): | | | | | | | | |
| Client Computing Group | | $ | 3,317 | | | $ | 3,554 | | | $ | 11,197 | | | $ | 10,621 | |
| Data Center Group | | 2,057 | | | 1,903 | | | 5,271 | | | 8,494 | |
| | | | | | | | |
| Internet of Things | | | | | | | | |
| IOTG | | 276 | | | 61 | | | 775 | | | 374 | |
| Mobileye | | 105 | | | 47 | | | 361 | | | 131 | |
| | 381 | | | 108 | | | 1,136 | | | 505 | |
| | | | | | | | |
| | | | | | | | |
| Non-Volatile Memory Solutions Group | | 442 | | | 29 | | | 1,015 | | | 285 | |
| Programmable Solutions Group | | 76 | | | 40 | | | 246 | | | 217 | |
| All other | | (1,046) | | | (575) | | | (4,398) | | | (2,328) | |
| Total operating income | | $ | 5,227 | | | $ | 5,059 | | | $ | 14,467 | | | $ | 17,794 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 |
| Operating segment revenue: | | | | | | | | |
| Client Computing | | | | | | | | |
| Desktop | | $ | 3,222 | | | $ | 3,119 | | | $ | 8,152 | | | $ | 8,682 | |
| Notebook | | 4,410 | | | 5,944 | | | 15,119 | | | 19,634 | |
| Other | | 492 | | | 725 | | | 1,812 | | | 2,448 | |
| | 8,124 | | | 9,788 | | | 25,083 | | | 30,764 | |
| | | | | | | | |
| Datacenter and AI | | 4,209 | | | 5,778 | | | 14,892 | | | 16,265 | |
| Network and Edge | | 2,266 | | | 1,986 | | | 6,812 | | | 5,890 | |
| Accelerated Computing Systems and Graphics | | 185 | | | 171 | | | 590 | | | 529 | |
| Mobileye | | 450 | | | 326 | | | 1,304 | | | 1,030 | |
| Intel Foundry Services | | 171 | | | 174 | | | 576 | | | 541 | |
| All other | | 67 | | | 1,133 | | | 166 | | | 3,986 | |
| Total operating segment revenue | | $ | 15,472 | | | $ | 19,356 | | | $ | 49,423 | | | $ | 59,005 | |
| | | | | | | | |
| Operating income (loss): | | | | | | | | |
| Client Computing | | $ | 1,655 | | | $ | 3,592 | | | $ | 5,567 | | | $ | 11,909 | |
| Datacenter and AI | | 17 | | | 2,293 | | | 1,917 | | | 6,089 | |
| Network and Edge | | 75 | | | 511 | | | 682 | | | 1,359 | |
| Accelerated Computing Systems and Graphics | | (378) | | | (222) | | | (1,275) | | | (566) | |
| Mobileye | | 142 | | | 127 | | | 480 | | | 431 | |
| Intel Foundry Services | | (103) | | | (44) | | | (289) | | | (26) | |
| All other | | (1,583) | | | (1,030) | | | (3,616) | | | (4,729) | |
| Total operating income (loss) | | $ | (175) | | | $ | 5,227 | | | $ | 3,466 | | | $ | 14,467 | |
Disaggregated netThe following table presents intersegment revenue for each period was as follows:before eliminations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total operating segment revenue | | $ | 15,472 | | | $ | 19,356 | | | $ | 49,423 | | | $ | 59,005 | |
| | | | | | | | |
| Less: Accelerated Computing Systems and Graphics intersegment revenue | | (134) | | | (164) | | | (411) | | | (509) | |
| Total net revenue | | $ | 15,338 | | | $ | 19,192 | | | $ | 49,012 | | | $ | 58,496 | |
1 Includes our tablet and service provider revenue.
2 Includes allIn the first nine months of 2022, we initiated the wind-down of our non-platform products for CCG, DCG, and IOTG suchIntel Optane memory business, which is part of our DCAI operating segment. While Intel Optane is a leading technology, it was not aligned to our strategic priorities. Separately, we continue to embrace the CXL standard. As a result, we recognized an inventory impairment of $559 million in Cost of sales on the Consolidated Condensed Statements of Income in the first nine months of 2022. The impairment charge is recognized as modem, Ethernet, and silicon photonics, as well as Mobileye, NSG, and PSG products, as well as revenue includeda Corporate charge in ourthe "all other" category.category presented above. As we wind down the Intel Optane business, we expect to continue to meet existing customer commitments.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 9 |
| | | | | |
| Note 3 : | Earnings 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 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions, Except Per Share Amounts) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 |
| Net income available to common stockholders | Net income available to common stockholders | | $ | 6,823 | | | $ | 4,276 | | | $ | 15,245 | | | $ | 15,042 | | Net income available to common stockholders | | $ | 1,019 | | | $ | 6,823 | | | $ | 8,678 | | | $ | 15,245 | |
| Weighted average shares of common stock outstanding—basic | Weighted average shares of common stock outstanding—basic | | 4,061 | | | 4,188 | | | 4,055 | | | 4,233 | | Weighted average shares of common stock outstanding—basic | | 4,118 | | | 4,061 | | | 4,104 | | | 4,055 | |
| Dilutive effect of employee equity incentive plans | Dilutive effect of employee equity incentive plans | | 25 | | | 23 | | | 34 | | | 36 | | Dilutive effect of employee equity incentive plans | | 7 | | | 25 | | | 19 | | | 34 | |
| | Weighted average shares of common stock outstanding—diluted | Weighted average shares of common stock outstanding—diluted | | 4,086 | | | 4,211 | | | 4,089 | | | 4,269 | | Weighted average shares of common stock outstanding—diluted | | 4,125 | | | 4,086 | | | 4,123 | | | 4,089 | |
Earnings per share—basic
| Earnings per share—basic
| | $ | 1.68 | | | $ | 1.02 | | | $ | 3.76 | | | $ | 3.55 | | Earnings per share—basic
| | $ | 0.25 | | | $ | 1.68 | | | $ | 2.11 | | | $ | 3.76 | |
Earnings per share—diluted
| Earnings per share—diluted
| | $ | 1.67 | | | $ | 1.02 | | | $ | 3.73 | | | $ | 3.52 | | Earnings per share—diluted
| | $ | 0.25 | | | $ | 1.67 | | | $ | 2.10 | | | $ | 3.73 | |
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.
Securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share in all periods presented.
| | | | | |
Note 4 : | Contract Liabilities |
Contract liabilities consist of prepayments received from customers on long-term prepaid supply agreements toward future product delivery and other revenue deferrals from regular ongoing business activity. Contract liabilities were $351 million as of September 25, 2021 ($1.9 billion as of December 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 2021:
| | | | | | | | |
(In Millions) | | |
Prepaid supply agreements balance as of December 26, 2020 | | $ | 1,625 | |
| | |
Concession payment | | (950) | |
Prepaids utilized | | (627) | |
Prepaid supply agreements balance as of September 25, 2021 | | $ | 48 | |
During the first quarter of 2021, we settled an agreement with our largest prepaid customer whose prepayment balance made up $1.6 billion of our contract liability balance as 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 the 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 Consolidated Condensed Financial Statements.
| | | | | |
Note 54 : | Other Financial Statement Details |
Inventories
| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | (In Millions) | | Oct 1, 2022 | | Dec 25, 2021 |
| Raw materials | Raw materials | | $ | 1,274 | | | $ | 908 | | Raw materials | | $ | 1,635 | | | $ | 1,441 | |
| Work in process | Work in process | | 6,304 | | | 5,693 | | Work in process | | 7,030 | | | 6,656 | |
| Finished goods | Finished goods | | 2,220 | | | 1,826 | | Finished goods | | 4,166 | | | 2,679 | |
| Total inventories | Total inventories | | $ | 9,798 | | | $ | 8,427 | | Total inventories | | $ | 12,831 | | | $ | 10,776 | |
Interest and Other, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 |
| Interest income | | $ | 170 | | | $ | 37 | | | $ | 315 | | | $ | 111 | |
| Interest expense | | (114) | | | (144) | | | (347) | | | (463) | |
| Other, net | | 82 | | | 31 | | | 1,048 | | | 24 | |
| Total interest and other, net | | $ | 138 | | | $ | (76) | | | $ | 1,016 | | | $ | (328) | |
Interest expense is net of $220 million of interest capitalized in the third quarter of 2022 and $516 million in the first nine months of 2022 ($95 million in the third quarter of 2021 and $288 million in the first nine months of 2021). Other, net in the first nine months of 2022 includes a gain of $1.0 billion resulting from the divestiture of our NAND memory business as more fully described in "Note 7: Acquisitions and Divestitures" within Notes to Consolidated Condensed Financial Statements.
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 10 |
Interest and Other, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 and $251 million in the first nine months of 2020).
| | | | | |
Note 65 : | Restructuring and Other Charges |
A restructuring program | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 |
| Employee severance and benefit arrangements | | $ | 607 | | | $ | 21 | | | $ | 650 | | | $ | 43 | |
| | | | | | | | |
| Litigation charges and other | | 4 | | | 16 | | | (1,199) | | | 2,267 | |
| Asset impairment charges | | 53 | | | 5 | | | 89 | | | 287 | |
| Total restructuring and other charges | | $ | 664 | | | $ | 42 | | | $ | (460) | | | $ | 2,597 | |
In the third quarter of 2022, the 2022 Restructuring Program was approved to rebalance our workforce and operations to create efficiencies and improve our product execution in alignment with our IDM 2.0 strategy. Restructuring charges are recorded as Corporate charges in the "all other" category presented in Note 2: Operating Segments within Notes to Consolidated Condensed Financial Statements and are primarily comprised of employee severance and benefits arrangements. As of October 1, 2022 we recorded $537 million as a current liability within Accrued compensation and benefits on the Consolidated Condensed Balance Sheets. We expect these actions to be substantially completed by the end of the first half of 2023, but they are subject to change. Any changes to the estimates or timing of executing the 2022 Restructuring Program will be reflected in our future results of operations.
Litigation charges and other includes a $1.2 billion benefit in the first quarternine months of 20202022 from the annulled penalty related to further align our workforce with our continuing investmentsan EC fine that was recorded and paid in the business2009, and to execute the planned divestiture of Home Gateway Platform, a division of CCG. These actions are substantially 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 quarternine months of 2021 related to the VLSI litigation, which islitigation. These were recorded as a Corporate benefit and charge in the "all other" category presented in "Note 2: Operating Segments" within Notes to Consolidated Condensed Financial Statements. Refer to "Note 13:12: Commitments and Contingencies" within Notes to Consolidated Condensed Financial Statements for further information on legal proceedings related to the EC fine and the VLSI litigation.
Asset impairment charges includes $237 million of goodwill and other impairments related to the shutdown in the second quarterfirst nine months of 2021 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 Consolidated 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 other impairment charges related to these businesses.
DebtShort-term Investments
Trading Assets
For trading assets still held at the reporting date we recorded net losses of $144 million in the third quarter of 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).
Available-for-Sale Debt Investments
Available-for-saleShort-term investments include marketable debt investments in corporate debt, government debt, and financial 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 financial institutions in various forms, such as commercial paper, fixed- and floating-rate bonds, money market fund deposits, and time deposits. As of SeptemberOctober 1, 2022 and December 25, 2021, and December 26, 2020, substantially all time deposits were issued by institutions outside the U.S.
For certain of our marketable debt investments, we economically hedge market risks at inception with a related derivative instrument or the marketable debt investment itself is used to economically hedge currency exchange rate risk from remeasurement. These hedged investments are reported at fair value with gains or losses from the investments and the related derivative instruments recorded in Interest and other, net. The fair value of our hedged investments was $16.6 billion as of October 1, 2022 and $21.5 billion as of December 25, 2021. For hedged investments still held at the reporting date, we recorded net losses of $861 million in the third quarter of 2022 and net losses of $1.8 billion in the first nine months of 2022 ($144 million of net losses in the third quarter of 2021 and $329 million of net losses in the first nine months of 2021). We recorded net gains on the related derivatives of $916 million in the third quarter of 2022 and net gains of $1.8 billion in the first nine months of 2022 ($156 million of net gains in the third quarter of 2021 and $346 million of net gains in the first nine months of 2021).
Our remaining unhedged marketable debt investments are reported at fair value, with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss). The adjusted cost of our available-for-salethese investments was $10.8$3.6 billion as of September 25, 2021October 1, 2022 and $7.8$5.0 billion as of December 26, 2020. The adjusted cost of our available-for-sale investments25, 2021, which approximated the fair value for these periods.
The fair value of marketable debt investments, by contractual maturity, as of October 1, 2022, was as follows:
| | | | | | | | |
| (In Millions) | | Fair Value |
| Due in 1 year or less | | $ | 11,457 | |
| Due in 1–2 years | | 2,208 | |
| Due in 2–5 years | | 4,962 | |
| Due after 5 years | | 720 | |
| Instruments not due at a single maturity date | | 861 | |
| Total | | $ | 20,208 | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 11 |
The fair value of available-for-sale debt investments, by contractual maturity, as of September 25, 2021, was as follows:
| | | | | | | | |
(In Millions) | | Fair Value |
Due in 1 year or less | | $ | 7,823 | |
Due in 1–2 years | | 631 | |
Due in 2–5 years | | 322 | |
Due after 5 years | | — | |
Instruments not due at a single maturity date | | 2,035 | |
Total | | $ | 10,811 | |
Equity Investments
| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | (In Millions) | | Oct 1, 2022 | | Dec 25, 2021 |
| Marketable equity securities | Marketable equity securities | | $ | 2,064 | | | $ | 1,830 | | Marketable equity securities | | $ | 1,185 | | | $ | 2,171 | |
| Non-marketable equity securities | Non-marketable equity securities | | 3,970 | | | 3,304 | | Non-marketable equity securities | | 4,626 | | | 4,111 | |
| Equity method investments | Equity method investments | | 16 | | | 18 | | Equity method investments | | 11 | | | 16 | |
| Total | Total | | $ | 6,050 | | | $ | 5,152 | | Total | | $ | 5,822 | | | $ | 6,298 | |
The components of gains (losses) on equity investments, net for each period were as follows:
| | | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Nine Months Ended | |
| (In Millions) | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 | |
| Ongoing mark-to-market adjustments on marketable equity securities | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (192) | | | $ | (146) | | | $ | (345) | | | $ | (84) | | | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (244) | | | $ | (192) | | | $ | (883) | | | $ | (345) | | |
| Observable price adjustments on non-marketable equity securities | Observable price adjustments on non-marketable equity securities | | 79 | | | 5 | | | 702 | | | 142 | | | Observable price adjustments on non-marketable equity securities | | 67 | | | 79 | | | 273 | | | 702 | | |
| Impairment charges | Impairment charges | | (38) | | | (40) | | | (111) | | | (233) | | | Impairment charges | | (45) | | | (38) | | | (112) | | | (111) | | |
| Sale of equity investments and other¹ | Sale of equity investments and other¹ | | 1,858 | | | 237 | | | 2,124 | | | 387 | | | Sale of equity investments and other¹ | | 71 | | | 1,858 | | | 4,804 | | | 2,124 | | |
| Total gains (losses) on equity investments, net | Total gains (losses) on equity investments, net | | $ | 1,707 | | | $ | 56 | | | $ | 2,370 | | | $ | 212 | | | Total gains (losses) on equity investments, net | | $ | (151) | | | $ | 1,707 | | | $ | 4,082 | | | $ | 2,370 | | |
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 | | | Three Months Ended | | Nine Months Ended | |
| (In Millions) | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 | |
| Net gains (losses) recognized during the period on equity securities | Net gains (losses) recognized during the period on equity securities | | $ | 346 | | | $ | 19 | | | $ | 883 | | | $ | 102 | | | Net gains (losses) recognized during the period on equity securities | | $ | (154) | | | $ | 346 | | | $ | (490) | | | $ | 883 | | |
| Less: Net (gains) losses recognized during the period on equity securities sold during the period | Less: Net (gains) losses recognized during the period on equity securities sold during the period | | (46) | | | (12) | | | (189) | | | (87) | | | Less: Net (gains) losses recognized during the period on equity securities sold during the period | | 1 | | | (46) | | | 15 | | | (189) | | |
| Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | 300 | | | $ | 7 | | | $ | 694 | | | $ | 15 | | | Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | (153) | | | $ | 300 | | | $ | (475) | | | $ | 694 | | |
McAfee Corp.
McAfee Corp. (McAfee) completed its initial public offering in October 2020. Due to our 41% ownership and significant influence as of December 25, 2021, we accounted for our investment in McAfee as an equity method investment. We had no accounting carrying value as of December 25, 2021.
In the first nine months of 2022, the sale of McAfee to an investor group was completed and we received $4.6 billion in cash for the sale of our remaining share of McAfee, recognizing a $4.6 billion gain in 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.other.
Beijing Unisoc Technology Ltd.
We account for our interest in Beijing Unisoc Technology Ltd. (Unisoc) as a non-marketable equity security. In the first quarternine months of 2021, we recognized $471 million inof observable price adjustments infor our investment in Unisoc and asUnisoc. As of September 25, 2021,October 1, 2022 the net bookcarrying value of the investment was $1.1 billion ($658 million1.1 billion as of December 26, 2020)25, 2021).
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 12 |
| | | | | |
Note 87 : | Acquisitions and Divestitures |
Acquisitions
On May 4, 2020,Pending acquisition of Tower Semiconductor
During the first quarter of 2022, we acquired Moovit, entered into aMaaS solutions company, definitive agreement to acquire Tower Semiconductor Ltd. (Tower) in a cash for total consideration of $915 million. The fair valuesstock transaction expected to close within twelve months from the date of the assets acquired relate to goodwill of $638 millionand intangible assets of $331 million.agreement. Tower is a leading foundry for analog semiconductor solutions. The goodwill arising from the acquisition is attributedexpected to the expected synergies and other benefits thatadvance our IDM 2.0 strategy by accelerating our global end-to-end foundry business. Tower will be generated from the combination of Intel and Moovit. 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. The goodwill and operating results of Moovit are included in our MobileyeIFS operating segment. Upon completion of the acquisition, each issued and outstanding ordinary share of Tower will be converted into the right to receive $53 per share in cash, representing a total enterprise value of approximately $5.4 billion as of the agreement date. This transaction is subject to certain regulatory approvals and customary closing conditions. If the agreement is terminated under certain circumstances involving the failure to obtain required regulatory approvals, we will be obligated to pay Tower a termination fee of $353 million.
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| Financial Statements | Notes to Financial Statements | 12 |
Divestitures
NAND Memory Business
OnIn October 19, 2020, we signed an agreement with SK hynix Inc. (SK hynix) to divest our NAND memory business includingfor $9.0 billion in cash. The NAND memory business includes 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 transaction. The transaction will occur overbe completed in two closings for total consideration of $9.0 billion in cash, of whichclosings.
The first closing was completed on December 29, 2021. At first closing, SK hynix paid $7.0 billion will be received upon initial closing, not to occur prior to November 1, 2021, andof consideration, with the remaining $2.0 billion willto be received by the second closing of the transaction, expected to be no earlier than March 2025. The consummationsIn connection with the first closing, we recognized a pre-tax gain of $1.0 billion within Interest and other, net, and tax expense of $495 million. Based on our ongoing obligation under the NAND wafer manufacturing and sale agreement, $583 million of the first closing consideration was deferred and will be recognized between the first and second closing are subject to customary conditions, including the receipt of certain governmental approvals.within Interest and other, net.
At the first closing, Intel will sellwe sold to SK hynix the Fab Assets and the NAND SSD Business and SK hynix will assume from Inteltransferred certain liabilitiesemployees, IP, and other assets related to the Fab Assets andNAND OpCo Business to separately created wholly owned subsidiaries of Intel. The equity interest of the NAND SSD Business.OpCo Business will transfer to SK hynix at the second closing. In connection with the first closing, we and certain affiliates of SK hynix will also enterentered 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.
We will transfer certain employees, IP, and other assets related to the NAND OpCo Business to separately created, wholly owned subsidiaries of 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 beare variable interest entities for which we are not the primary beneficiary, because the governance structure of these entities does not allow us to direct the activities that would most significantly impact their economic performance. In line with this conclusion, we fully deconsolidated our ongoing interests in the NAND OpCo Business, and accordingly will deconsolidate atrecorded a receivable for the first closing.remaining proceeds of $1.9 billion in Other long-term assets, which remains outstanding as of October 1, 2022.
The carrying amounts of the major classes of NAND assets held for saleas of the first closing date included the following:
| | | | | | | | | | | | | | |
| (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 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 on the Consolidated Condensed Statements of Cash Flows.
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Note 9 :(In Millions) | | | | Dec 29, 2021 |
| Inventories | | | | $ | Borrowings941 | |
| Property, plant and equipment, net | | | | 6,018 | |
| Total sold | | | | $ | 6,959 | |
AsThe wafer manufacturing and sale agreement includes incentives and penalties that are contingent on the cost of September 25, 2021, our short-term debt was $4.7operation and output of the NAND OpCo Business. These incentives and penalties present a maximum exposure of up to $500 million annually, and $1.5 billion primarily comprisedin the aggregate. We are currently in negotiations with SK hynix to update the operating plan of the NAND OpCo Business in light of the current portion ofbusiness environment and projections, which may impact the metrics associated with the incentives and penalties and our long-term debt ($2.5 billion as of December 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 offeringexpectations of the notes for general corporate purposes, including, but not limited to, refinancingperformance of outstanding debt, funding for working capital, and capital expenditures. Inthe NAND OpCo Business against those metrics.
Our transactions with the NAND OpCo Business between the first quarterand second closings are considered related party transactions due to our equity interests and the wafer manufacturing and sales agreement. Related party transactions include certain assets that transferred at first closing between Intel and the NAND OpCo Business, or costs that we incurred on behalf of 2021,the NAND OpCo Business, for which we entered into a $5.0 billion variable-rate revolving credit facility which, if drawn, is expectedare entitled to be usedreimbursed. As of October 1, 2022, we have a receivable due to Intel of $346 million recorded within Other current assets on our Consolidated Condensed Balance Sheets. We will be reimbursed for generalcosts of approximately $35 million per quarter for 2022 for corporate purposes. The revolving credit facility matures in March 2026function services, which include human resources, information technology, finance, supply chain, and had no borrowings outstanding as of September 25, 2021.other compliance requirements associated with being wholly owned subsidiaries.
We have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion under our commercial paper program.
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 our 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.
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| Financial Statements | Notes to Financial Statements | 13 |
| | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | |
1 To manage foreign currency risk associatedIn the third quarter of 2022, we issued a total of $6.0 billion aggregate principal amount of senior notes, including our inaugural green bond issuance of $1.3 billion principal amount.
During the third quarter of 2022, we received proceeds of $140 million in the aggregate for the sale of bonds issued by the Industrial Development Authority of the City of Chandler, Arizona (CIDA). The bonds are our unsecured general obligations in accordance with the Australian-dollar-denominated notes issued in 2015,loan agreement we entered into currencywith the CIDA. The bonds mature in 2042 and carry an interest rate swapsof 5.0%. The bonds are subject to mandatory tender in September 2027, at which time we can re-market the bonds as either fixed-rate bonds for a specified period or as variable rate-bonds until another fixed-rate period is selected or until their final maturity date.
In the first quarter of 2022, we amended our $5.0 billion variable-rate revolving credit facility agreement, extending the maturity date by one year to March 2027 and transitioning the interest terms from LIBOR to term SOFR. The revolving credit facility had no borrowings outstanding as of October 1, 2022.
We have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion under our commercial paper program.
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 our senior fixed rate notes rank equally in the right of payment with an aggregate notional amountall of $396 million, whichour other existing and future senior unsecured indebtedness and effectively converted these notesrank junior to U.S.-dollar-denominated notes. For further discussion on derivatives in cash flow hedging relationships, see "Note 12: Derivative Financial Instruments."
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| Financial Statements | Notes to Financial Statements | 14 |
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
| | | Sep 25, 2021 | | Dec 26, 2020 | | | Oct 1, 2022 | | Dec 25, 2021 | |
| | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | | Fair Value Measured and Recorded at Reporting Date Using | | | | Fair Value Measured and Recorded at Reporting Date Using | | | |
| (In Millions) | (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | (In Millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | |
| Assets | Assets | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | |
| Cash equivalents: | Cash equivalents: | | | Cash equivalents: | | |
| Corporate debt | Corporate debt | | $ | — | | | $ | 736 | | | $ | — | | | $ | 736 | | | $ | — | | | $ | 50 | | | $ | — | | | $ | 50 | | | Corporate debt | | $ | — | | | $ | 103 | | | $ | — | | | $ | 103 | | | $ | — | | | $ | 65 | | | $ | — | | | $ | 65 | | |
| Financial institution instruments¹ | Financial institution instruments¹ | | 2,035 | | | 718 | | | — | | | 2,753 | | | 2,781 | | | 636 | | | — | | | 3,417 | | | Financial institution instruments¹ | | 644 | | | 1,431 | | | — | | | 2,075 | | | 1,216 | | | 763 | | | — | | | 1,979 | | |
| Government debt² | | 2,200 | | | 164 | | | — | | | 2,364 | | | — | | | — | | | — | | | — | | | |
| | Reverse repurchase agreements | Reverse repurchase agreements | | — | | | 1,350 | | | — | | | 1,350 | | | — | | | 1,900 | | | — | | | 1,900 | | | Reverse repurchase agreements | | — | | | 1,750 | | | — | | | 1,750 | | | — | | | 1,595 | | | — | | | 1,595 | | |
| Short-term investments: | Short-term investments: | | | 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 | Corporate debt | | — | | | 5,121 | | | — | | | 5,121 | | | — | | | 3,815 | | | — | | | 3,815 | | | Corporate debt | | — | | | 6,457 | | | — | | | 6,457 | | | — | | | 6,367 | | | — | | | 6,367 | | |
| Financial institution instruments¹ | Financial institution instruments¹ | | 67 | | | 4,014 | | | — | | | 4,081 | | | 131 | | | 2,847 | | | — | | | 2,978 | | | Financial institution instruments¹ | | 217 | | | 5,615 | | | — | | | 5,832 | | | 154 | | | 5,162 | | | — | | | 5,316 | | |
| Government debt² | Government debt² | | — | | | 13,559 | | | — | | | 13,559 | | | — | | | 8,945 | | | — | | | 8,945 | | | Government debt² | | 48 | | | 5,693 | | | — | | | 5,741 | | | 50 | | | 12,693 | | | — | | | 12,743 | | |
| Other current assets: | Other current assets: | | | Other current assets: | | |
| Derivative assets | Derivative assets | | 4 | | | 323 | | | — | | | 327 | | | 48 | | | 644 | | | — | | | 692 | | | Derivative assets | | — | | | 2,003 | | | — | | | 2,003 | | | 80 | | | 576 | | | — | | | 656 | | |
| Loans receivable³ | Loans receivable³ | | — | | | 211 | | | — | | | 211 | | | — | | | 439 | | | — | | | 439 | | | Loans receivable³ | | — | | | — | | | — | | | — | | | — | | | 152 | | | — | | | 152 | | |
| 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 | | | |
Marketable equity securities4 | | Marketable equity securities4 | | 1,100 | | | 85 | | | — | | | 1,185 | | | 1,854 | | | 317 | | | — | | | 2,171 | | |
| Other long-term assets: | Other long-term assets: | | | Other long-term assets: | | |
| Derivative assets | Derivative assets | | — | | | 961 | | | 13 | | | 974 | | | — | | 1,520 | | | 30 | | | 1,550 | | | Derivative assets | | — | | | 10 | | | — | | | 10 | | | — | | 772 | | | 7 | | | 779 | | |
| Loans receivable³ | Loans receivable³ | | — | | | — | | | — | | | — | | | — | | 157 | | | — | | 157 | | | Loans receivable³ | | — | | | 48 | | | — | | | 48 | | | — | | 57 | | | — | | 57 | | |
| Total assets measured and recorded at fair value | Total assets measured and recorded at fair value | | $ | 4,578 | | | $ | 33,906 | | | $ | 13 | | | $ | 38,497 | | | $ | 3,096 | | | $ | 27,131 | | | $ | 30 | | | $ | 30,257 | | | Total assets measured and recorded at fair value | | $ | 2,009 | | | $ | 23,195 | | | $ | — | | | $ | 25,204 | | | $ | 3,354 | | | $ | 28,519 | | | $ | 7 | | | $ | 31,880 | | |
| Liabilities | Liabilities | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | |
| Other accrued liabilities: | Other accrued liabilities: | | | Other accrued liabilities: | | |
| Derivative liabilities | Derivative liabilities | | $ | 29 | | | $ | 527 | | | $ | — | | | $ | 556 | | | $ | — | | | $ | 810 | | | $ | — | | | $ | 810 | | | Derivative liabilities | | $ | 151 | | | $ | 1,386 | | | $ | — | | | $ | 1,537 | | | $ | 4 | | | $ | 516 | | | $ | — | | | $ | 520 | | |
| | Other long-term liabilities: | Other long-term liabilities: | | | Other long-term liabilities: | | |
| Derivative liabilities | Derivative liabilities | | — | | | 9 | | | — | | | 9 | | | — | | | 5 | | | — | | | 5 | | | Derivative liabilities | | — | | | 689 | | | 89 | | | 778 | | | — | | | 9 | | | — | | | 9 | | |
| Total liabilities measured and recorded at fair value | Total liabilities measured and recorded at fair value | | $ | 29 | | | $ | 536 | | | $ | — | | | $ | 565 | | | $ | — | | | $ | 815 | | | $ | — | | | $ | 815 | | | Total liabilities measured and recorded at fair value | | $ | 151 | | | $ | 2,075 | | | $ | 89 | | | $ | 2,315 | | | $ | 4 | | | $ | 525 | | | $ | — | | | $ | 529 | | |
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.
4Level 2 investments consist of marketable equity securities subject to security-specific restrictions.
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.
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| Financial Statements | Notes to Financial Statements | 15 |
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.
We classify the fair value of grants receivable and reverse repurchase agreements with original maturities greater than three months 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, 2021October 1, 2022 was $399$569 million (the aggregate carrying value of grants receivable as of December 26, 202025, 2021 was $139$317 million). The aggregate carrying value of reverse repurchase agreements with original maturities greater than three months as of October 1, 2022 was $400 million (the aggregate carrying value as of December 25, 2021 was $0).
We classify the fair value of issued debt (excluding any commercial paper, drafts payable, and drafts payable)finance leases) as Level 2. The fair value of these instrumentsour issued debt was $44.6$34.8 billion as of September 25, 2021October 1, 2022 ($40.941.5 billion as of December 26, 2020)25, 2021).
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Note 1110 : | Other Comprehensive Income (Loss) |
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the first nine months of 20212022 were as follows:
| | (In Millions) | (In Millions) | | | Unrealized Holding Gains (Losses) on Derivatives | | Actuarial Valuation and Other Pension Expenses | | Translation Adjustments and Other | | Total | (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) | | |
| Balance as of December 25, 2021 | | Balance as of December 25, 2021 | | | $ | 211 | | | $ | (1,114) | | | $ | 23 | | | $ | (880) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | | (313) | | | 5 | | | (41) | | | (349) | | Other comprehensive income (loss) before reclassifications | | | (1,575) | | | — | | | (38) | | | (1,613) | |
| Amounts reclassified out of accumulated other comprehensive income (loss) | Amounts reclassified out of accumulated other comprehensive income (loss) | | | (196) | | | 47 | | | (14) | | | (163) | | Amounts reclassified out of accumulated other comprehensive income (loss) | | | 205 | | | 34 | | | 239 | |
| Tax effects | Tax effects | | | 119 | | | (14) | | | 11 | | | 116 | | Tax effects | | | 192 | | | 3 | | | 8 | | | 203 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | | (390) | | | 38 | | | (44) | | | (396) | | Other comprehensive income (loss) | | | (1,178) | | | 37 | | | (30) | | | (1,171) | |
| Balance as of September 25, 2021 | | | $ | 341 | | | $ | (1,527) | | | $ | 39 | | | $ | (1,147) | | |
| Balance as of October 1, 2022 | | Balance as of October 1, 2022 | | | $ | (967) | | | $ | (1,077) | | | $ | (7) | | | $ | (2,051) | |
We estimate that we will reclassify approximately $90$623 million (before taxes) of net derivative gainslosses included in accumulated other comprehensive income (loss) into earnings within the next 12 months.
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Note 1211 : | Derivative Financial Instruments |
Volume of Derivative Activity
Total gross notional amounts for outstanding derivatives at the end of each period were as follows:
| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | | (In Millions) | | Oct 1, 2022 | | Dec 25, 2021 | |
| Foreign currency contracts | Foreign currency contracts | | $ | 35,012 | | | $ | 31,209 | | | Foreign currency contracts | | $ | 32,561 | | | $ | 38,024 | | |
| Interest rate contracts | Interest rate contracts | | 14,960 | | | 14,461 | | | Interest rate contracts | | 16,760 | | | 15,209 | | |
| Other | Other | | 2,419 | | | 2,026 | | | Other | | 2,055 | | | 2,517 | | |
| Total | Total | | $ | 52,391 | | | $ | 47,696 | | | Total | | $ | 51,376 | | | $ | 55,750 | | |
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| Financial Statements | Notes to Financial Statements | 16 |
Fair Value of Derivative Instruments
| | | | | Sep 25, 2021 | | Dec 26, 2020 | | | Oct 1, 2022 | | Dec 25, 2021 |
| (In Millions) | (In Millions) | | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 | (In Millions) | | Assets1 | | Liabilities2 | | Assets1 | | Liabilities2 |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | Foreign currency contracts3 | | $ | 99 | | | $ | 74 | | | $ | 551 | | | $ | 2 | | Foreign currency contracts3 | | $ | 1 | | | $ | 1,164 | | | $ | 80 | | | $ | 163 | |
| Interest rate contracts | Interest rate contracts | | 966 | | | — | | | 1,498 | | | — | | Interest rate contracts | | — | | | 762 | | | 774 | | | — | |
| Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | | 1,065 | | | 74 | | | 2,049 | | | 2 | | Total derivatives designated as hedging instruments | | 1 | | | 1,926 | | | 854 | | | 163 | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign currency contracts3 | Foreign currency contracts3 | | 221 | | | 378 | | | 142 | | | 685 | | Foreign currency contracts3 | | 1,703 | | | 215 | | | 475 | | | 297 | |
| Interest rate contracts | Interest rate contracts | | 11 | | | 84 | | | 3 | | | 128 | | Interest rate contracts | | 309 | | | 23 | | | 26 | | | 65 | |
| Equity contracts | Equity contracts | | 4 | | | 29 | | | 48 | | | — | | Equity contracts | | — | | | 151 | | | 80 | | | 4 | |
| Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | | 236 | | | 491 | | | 193 | | | 813 | | Total derivatives not designated as hedging instruments | | 2,012 | | | 389 | | | 581 | | | 366 | |
| Total derivatives | Total derivatives | | $ | 1,301 | | | $ | 565 | | | $ | 2,242 | | | $ | 815 | | Total derivatives | | $ | 2,013 | | | $ | 2,315 | | | $ | 1,435 | | | $ | 529 | |
1Derivative assets are recorded as other assets, current and non-current.long-term.
2Derivative liabilities are recorded as other liabilities, current and non-current.long-term.
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 25, 2021 | | Oct 1, 2022 | |
| | | Gross Amounts Not Offset in the Balance Sheet | | | | Gross Amounts Not Offset in the Balance Sheet | | |
| (In Millions) | (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 | (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: | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | |
| Derivative assets subject to master netting arrangements | Derivative assets subject to master netting arrangements | | $ | 1,295 | | | $ | — | | | $ | 1,295 | | | $ | (329) | | | $ | (913) | | | $ | 53 | | Derivative assets subject to master netting arrangements | | $ | 1,965 | | | $ | — | | | $ | 1,965 | | | $ | (653) | | | $ | (1,300) | | | $ | 12 | | |
| Reverse repurchase agreements | Reverse repurchase agreements | | 1,350 | | | — | | | 1,350 | | | — | | | (1,350) | | | — | | Reverse repurchase agreements | | 2,150 | | | — | | | 2,150 | | | — | | | (2,150) | | | — | | |
| Total assets | Total assets | | 2,645 | | | — | | | 2,645 | | | (329) | | | (2,263) | | | 53 | | Total assets | | 4,115 | | | — | | | 4,115 | | | (653) | | | (3,450) | | | 12 | | |
| Liabilities: | Liabilities: | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | Derivative liabilities subject to master netting arrangements | | 408 | | | — | | | 408 | | | (329) | | | (79) | | | — | | Derivative liabilities subject to master netting arrangements | | 2,237 | | | — | | | 2,237 | | | (653) | | | (1,350) | | | 234 | | |
| Total liabilities | Total liabilities | | $ | 408 | | | $ | — | | | $ | 408 | | | $ | (329) | | | $ | (79) | | | $ | — | | Total liabilities | | $ | 2,237 | | | $ | — | | | $ | 2,237 | | | $ | (653) | | | $ | (1,350) | | | $ | 234 | | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 17 |
| | | Dec 26, 2020 | | Dec 25, 2021 |
| | | Gross Amounts Not Offset in the Balance Sheet | | | | Gross Amounts Not Offset in the Balance Sheet | |
| (In Millions) | (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 | (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: | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
| Derivative assets subject to master netting arrangements | Derivative assets subject to master netting arrangements | | $ | 2,235 | | | $ | — | | | $ | 2,235 | | | $ | (264) | | | $ | (1,904) | | | $ | 67 | | Derivative assets subject to master netting arrangements | | $ | 1,427 | | | $ | — | | | $ | 1,427 | | | $ | (332) | | | $ | (986) | | | $ | 109 | |
| Reverse repurchase agreements | Reverse repurchase agreements | | 1,900 | | | — | | | 1,900 | | | — | | | (1,900) | | | — | | Reverse repurchase agreements | | 1,595 | | | — | | | 1,595 | | | — | | | (1,595) | | | — | |
| Total assets | Total assets | | 4,135 | | | — | | | 4,135 | | | (264) | | | (3,804) | | | 67 | | Total assets | | 3,022 | | | — | | | 3,022 | | | (332) | | | (2,581) | | | 109 | |
| Liabilities: | Liabilities: | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | |
| Derivative liabilities subject to master netting arrangements | Derivative liabilities subject to master netting arrangements | | 711 | | | — | | | 711 | | | (264) | | | (447) | | | — | | Derivative liabilities subject to master netting arrangements | | 392 | | | — | | | 392 | | | (332) | | | (60) | | | — | |
| Total liabilities | Total liabilities | | $ | 711 | | | $ | — | | | $ | 711 | | | $ | (264) | | | $ | (447) | | | $ | — | | Total liabilities | | $ | 392 | | | $ | — | | | $ | 392 | | | $ | (332) | | | $ | (60) | | | $ | — | |
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$678 million net losses in the third quarter of 2022 and $1.6 billion net losses in the first nine months of 2022 ($28 million net losses in the third quarter of 2021 and $313 million net lossesin 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)2021). Substantially all of our cash flow hedges were foreign currency contracts for all periods presented.
During the first nine months of 20212022 and 2020,2021, 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 Interest and other, net for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gains (Losses) Recognized in Consolidated Condensed Statements of Income on Derivatives |
| | Three Months Ended | | Nine Months Ended | | |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | | | |
| Interest rate contracts | | $ | (55) | | | $ | (36) | | | $ | (532) | | | $ | 996 | | | | | |
| Hedged items | | 55 | | | 36 | | | 532 | | | (996) | | | | | |
| Total | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gains (Losses) Recognized in Consolidated Condensed Statements of Income on Derivatives |
| | Three Months Ended | | Nine Months Ended | | | | |
| (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 | | Oct 1, 2022 | | Sep 25, 2021 | | | | | | | | |
| Interest rate contracts | | $ | (589) | | | $ | (55) | | | $ | (1,536) | | | $ | (532) | | | | | | | | | |
| Hedged items | | 589 | | | 55 | | | 1,536 | | | 532 | | | | | | | | | |
| 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 | | 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 Sheets in Which the Hedged Item is Included | | Line Item in the Consolidated Condensed Balance Sheets 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 25, 2021 | | Dec 26, 2020 | | Sep 25, 2021 | | Dec 26, 2020 | | (In Millions) | | Oct 1, 2022 | | Dec 25, 2021 | | Oct 1, 2022 | | Dec 25, 2021 | |
| Long-term debt | Long-term debt | | $ | (12,963) | | | $ | (13,495) | | | $ | (966) | | | $ | (1,498) | | | Long-term debt | | $ | (11,236) | | | $ | (12,772) | | | $ | 761 | | | $ | (775) | | |
The total notional amount of pay-variable and receive-fixed interest rate swaps was $12.0 billion as of September 25, 2021October 1, 2022 and $12.0 billion as of December 26, 2020.25, 2021.
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| 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 25, 2021 | | Sep 26, 2020 | | Sep 25, 2021 | | Sep 26, 2020 | | (In Millions) | | Location of Gains (Losses)
Recognized in Income on Derivatives | | Oct 1, 2022 | | Sep 25, 2021 | | | Oct 1, 2022 | | Sep 25, 2021 |
| Foreign currency contracts | Foreign currency contracts | | Interest and other, net | | $ | 170 | | | $ | (166) | | | $ | 382 | | | $ | (228) | | | Foreign currency contracts | | Interest and other, net | | $ | 771 | | | $ | 170 | | | | $ | 1,952 | | | $ | 382 | |
| Interest rate contracts | Interest rate contracts | | Interest and other, net | | (7) | | | (3) | | | 14 | | | (94) | | | Interest rate contracts | | Interest and other, net | | 164 | | | (7) | | | | 289 | | | 14 | |
| Other | Other | | Various | | 84 | | | 138 | | | 279 | | | 95 | | | Other | | Various | | (97) | | | 84 | | | | (562) | | | 279 | |
| Total | Total | | $ | 247 | | | $ | (31) | | | $ | 675 | | | $ | (227) | | | Total | | $ | 838 | | | $ | 247 | | | | $ | 1,679 | | | $ | 675 | |
| | | | | |
Note 1312 : | Commitments and Contingencies |
Commitments
In the third quarter of 2022, we signed a definitive agreement with Brookfield Asset Management (Brookfield). This arrangement represents an equity partnership whereby we and Brookfield own 51% and 49%, respectively, of what will be a newly-formed entity, Arizona Fab LLC (Arizona Fab), which we will fully consolidate into our consolidated financial statements. We expect Arizona Fab to spend up to $30.0 billion of investments in expanded manufacturing infrastructure at our Ocotillo campus in Chandler, Arizona. Generally, contributions will be made to, and distributions will be received from, Arizona Fab based upon our and Brookfield’s proportional ownership, subject to the terms and conditions within the definitive agreement. The definitive agreement includes provisions that require us to utilize Arizona Fab’s expanded manufacturing capacity at specified minimum levels or be subject to penalties. Brookfield’s ownership stake as a non-controlling interest holder in Arizona Fab will be shown as a separate component of equity within our consolidated balance sheet. The transaction with Brookfield is expected to close by the end of 2022, subject to customary closing conditions.
Legal Proceedings
We are a party to various legal proceedings, including those noted in this section. In 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; 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.
European Commission Competition Matter
In 2001, the ECEuropean Commission (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.
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| Financial Statements | Notes to Financial Statements | 19 |
The General Court 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, and in January 2022, the General Court issued a decision annulling the EC's findings against Intel regarding rebates as well as the fine imposed on Intel, which was returned to Intel in February 2022. In April 2022, the EC appealed the General Court's decision to the Court of Justice, seeking an order that would require a further proceeding and decision by the General Court. In June 2022, Intel filed a response in opposition to the EC appeal, and in July 2022, the Intervener Association for Competitive Technologies filed a response in opposition to the EC appeal. Given the procedural posture and the nature of this proceeding we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from this matter.
In a related matter, Intel filed applications with the General Court in April 2022 seeking an order requiring the EC to pay Intel approximately €593 million in default interest.
Litigation Related to Security Vulnerabilities
In June 2017, a Google research team notified usIntel and other companies that it had identified security vulnerabilities, (nownow commonly referred to as “Spectre” and “Meltdown”)“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 3,2, 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 asand other variants of thesethe security vulnerabilities that have been identified since been identified.
2018. As of October 20, 2021,26, 2022, consumer class action lawsuits relating to the above class of security vulnerabilities publicly disclosed since 2018against Intel were pending in the United States, Canada, Israel, and Israel.Argentina. 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 United States, numerous individual class action suits filed in various jurisdictions were consolidated in April 2018 for all pretrial proceedings in the U.S.United States District Court for the District of Oregon. In March 2020, the court granted Intel's motion to dismiss the complaintOregon, which entered final judgment 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 a further amended complaint in May 2021 whichfavor of Intel moved to dismiss in July 2021.2022 based on plaintiffs' failure to plead a viable claim. Plaintiffs have appealed that decision to the Ninth Circuit Court of Appeals. In Canada, an initial status conference has not yet been scheduled in one case pending in the Superior Court of Justice of Ontario, an initial status conference has not yet been scheduled. Inand a stay of a second case pending in the Superior Court of Justice of Quebec a stay of the case is in effect until December 2021.November 2022. In Israel, two consumer class action lawsuits were filedthe plaintiff in a lawsuit pending in the District Court of Haifa. The plaintiffHaifa advised the court in September 2022 that it intends to seek leave in October 2022 to withdraw its motion for class certification and voluntarily dismisseddismiss the first lawsuitaction. In Argentina, Intel Argentina was served with, and responded to, a class action complaint in July 2021. Intel filed a motion to stay the second case pending resolution of the consolidated proceeding in the United States, and a hearing on that motion has been scheduled for AprilJune 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. 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 Higher 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 million plus the cost of litigation. 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 China National Intellectual Property Administration (CNIPA). The CNIPA 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 CNIPA, for which the CNIPA heard oral argument in July 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 U.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. 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 invalidation requests on the '226 patent with the 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 $7.1at least $5.5 billion, and its complaint further sought enhanced damages, future royalties, attorneys’ fees, and costs and interest. In May, June, September, and October 2018, Intel filed IPRInter Partes Review (IPR) petitions challenging the patentability of certain claims in all eight of the patents in-suit. The PTABPatent Trial and Appeal Board (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 appealed the PTAB's decision as to '014, '672 and '207 patents. The Federal Circuit affirmed the PTAB's decision as to the '672 and '207 patents, but reversed and remanded as to the '014 patent. Intel moved for a continuation of the stay in March 2020 as it appealed certain rulings bypending the PTAB.appeal. 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.2021. The court lifted the stay in September 2021.
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| Financial Statements | Notes to Financial Statements | 21 |
2021, and scheduled a trial for March 2024.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 ofIPR petitions challenging the patentability of certain claims in all five patents-in-suit. In January 2020, the District Court vacated an 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, but 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. IntelBoth parties filed a noticenotices of appeal regarding the PTAB’s decision as to the ‘026 patent in March 2021, and in April 2021, VLSI filed a notice of appeal of the PTAB's decision as to the '552 patent. The case remains stayed as to that patent and the '552 patent.both of those patents. For the '027 and '331 patents, VLSI is seeking damages of approximately $4.13 billion plus enhanced damages for the '027 patent. The deadline to fileparties have completed summary judgment motions and challengesexpert witness testimony briefing.
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| Financial Statements | Notes to Financial Statements | 20 |
In June 2022, the court granted in part and denied in part Intel’s motion to exclude testimony of VLSI’s technical expert, witnesses isbarring him from testifying regarding Intel’s purported litigation misconduct and the alleged benefits of certain claims of the ‘027 patent. In August 2022, the court stayed the case in January 2022.light of VLSI's failure to fully disclose its investors pursuant to the court's standing order.
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. In the first Texas case, VLSI asserted the ‘373 and ‘759 patents (in December 2020 the court granted Intel summary judgment of non-infringement on the ‘357 patent, which had also been asserted in the first Texas 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, andwhich the court denied in August, a motion for judgment as a matter of law that the ‘373 and ‘759 patents are not infringed and the ‘759 patent is invalid. Theinvalid, and a motion that VLSI is entitled to no damages, both of which 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. IfMarch 2022. In April 2022, the court does not vacateentered final judgment and awarded VLSI $2.175 billion in damages, approximately $162.3 million in pre-judgment interest, and post-judgment interest at the verdictTreasury Bill rate, compounded annually. Intel will challenge it on appeal.filed its opening appellate brief in September 2022.
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$3.0 billion for alleged infringement of those patents, plus enhanced damages for willful infringement. The court has not yet entered final judgment following second trial in Texas.
The third Texas case is scheduledwas set for trial in December 2021, andApril 2022 but was cancelled after the first day due to a COVID-19 outbreak. A new trial date has been set for November 2022. In that case, VLSI seeksinitially sought approximately $2.2 billion to- $2.4 billion for alleged infringement of the ‘983, ‘025 and ‘485 patents, plus enhanced damages for willful infringement. In October and November 2019, andApril 2022, VLSI informed the court that it would not present an infringement case at trial for the '025 patent. Later in February 2020, Intel filed IPR petitions on certain asserted claims across sixApril 2022, VLSI informed the court that it would not present willful infringement or an infringement case for the '485 patent at trial. This limits VLSI's damages demand to approximately $1.0 billion for the alleged infringement of the patents-in-suit in WDTX. Between May and October 2020, the PTAB denied all of these requests and Intel requested a rehearing, 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.remaining '983 patent.
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 million in damages and RMB 300 thousand in expenses. Defendants filed an invalidation petition in October 2019 with the CNIPA, which held a hearing in September 2021. The CNIPA has not yet issued a decision. In May 2020, defendants filed a motion to stay the trial court proceedings pending a determination on invalidity. The court held the 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 indicated those would be stayed pending the outcome of defendants’ invalidity challenge at the CNIPA. In July 2021, VLSI dismissed its case, but refiled it in August 2021. VLSI seeks an injunction in its newly filed case, as well as RMB 1.3 million in reasonable costs and expenses, but no damages. In November 2021, Intel moved for a stay of the August 2021 action pending a ruling on invalidity. The court has not yet ruled on that motion.
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. VLSI accuses certain Intel Core processors and seeks an injunction, as well as RMB 1 million in damages and RMB 300 thousand in expenses. Defendants filed with the CNIPA an invalidation petition in October 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 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 |
the patent to be valid. The court held a second trial in May 2022 following the CNIPA ruling, but has yet to issue its final decision.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,and 2021, the court granted defendants’ motion to dismisstwice dismissed plaintiffs' complaint 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 heard defendants' motion to dismiss the amended complaint in December 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. Intel filed a notice of appeal in December 2021. Appellate briefing concluded in June 2022 and oral argument was held in October 2022.
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| Financial Statements | Notes to Financial Statements | 21 |
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. In November 2020, Intel filed a motion to stay the Shenzhen matter pending resolution of its dispute with Finjan. In November 2020, the Delaware courtCourt 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 courtCourt granted Intel’sIntel's motion in July 2021, but in March 2022, the Texas Court denied Intel's motion, holding, among other things, that it would be futile for Intel to add the license defense as it would not be meritorious. Intel has appealed this ruling as a part of its appeal of the verdict in the first VLSI Texas trial.
In October and November 2019, and in February 2020, Intel filed IPR 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 petitions on a discretionary basis and without reviewing the merits. Intel requested a rehearing, and review from the POP as to all petitions. All requests for POP review and rehearing were denied. Intel filed notices of appeal regarding the discretionary denials for all petitions in February and March of 2021. The Federal Circuit dismissed the appeals in May 2021 for lack of jurisdiction. The Federal Circuit denied Intel’s petition for hearing en banc in August 2021. In March 2022, the Supreme Court denied Intel’s petition for writ of certiorari.
In June 2021, OpenSky Industries LLC (OpenSky) requested IPR of certain claims of the '373 and '759 patents at-issue in the first Texas case, including those claims found to be infringed in that judgment. Both petitions copied Intel's earlier petitions, and used the expert declarations previously submitted by Intel. Another entity named Patent Quality Assurance LLC (PQA) also petitioned for IPR of certain claims of the '373 patent, those claims found to be infringed in the first Texas case judgment. PQA also largely copied Intel's petition, but (1) added a challenge to an additional claim and (2) included newly signed declarations from Intel's experts. In December 2021, the PTAB instituted OpenSky's petition on the '759 patent, but declined to institute on the '373 patent. In December 2021, Intel filed a motion to join OpenSky's '759 IPR. In January 2022, the PTAB instituted PQA's petition on the '373 patent. In February, Intel filed a motion to join PQA's petition. Both of Intel's joinder motions were granted in June 2022, allowing Intel to participate in the IPRs. Hearings were held in September 2022 for the OpenSky petition and in October 2022 for the PQA petition. PTAB decisions are expected in December 2022 on the '759 patent, and January 2023 on the '373 patent. At the same time, the Director of the United States Patent & Trademark Office is reviewing both the OpenSky and PQA IPRs to determine if they should be allowed to proceed to final written decisions. The Director has said that that process may delay the final written decision of the '759 patent IPR, but has not made any similar statement regarding the timeline for the '373 patent IPR.
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 2021.2021 and anticipates losses, if any, in excess of this amount would be immaterial to the financial statements. 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.United States 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 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. In July 2021, Intel introduced a new process node naming structure, and the 7nm process is now Intel 4.
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| Financial Statements | Notes to Financial Statements | 2322 |
We use terms throughout our document that are specific to Intel or that are abbreviations that may not be commonly known or used. Below is a list of these terms used in our document.
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| Term | | Definition |
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2009 Debentures | | 3.25% junior subordinated convertible debentures due 2039 |
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| 5G | | The fifth-generationfifth-gen mobile network, which is expected to bring dramatic improvements in network speeds and latency, and which we view as a transformative technology and opportunity for many industries |
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| ADAS | | Advanced driver-assistance systems |
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Adjacent productsAI | | 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. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needsArtificial intelligence |
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ASIC | | Application-specific integrated circuit |
| ASP | | Average selling price |
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AV | | Autonomous vehicle |
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| AXG | | Advanced Computing and Graphics operating segment |
| 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 |
| CPU | | Processor or central processing unit |
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DCGCXL standard | | Data Center GroupCompute Express Link standard | | |
| DCAI | | Datacenter and AI operating segment |
| EC | | European Commission |
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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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| GPU | | Graphics processing unit |
| IDM | | Integrated device manufacturer, a semiconductor company that both designs and builds chips |
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Internet of Things | | The Internet of Things market in which we sell our IOTG and Mobileye products |
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IOTGIFS | | Internet of Things GroupIntel Foundry Services operating segment |
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| IP | | Intellectual property |
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| LIBOR | | London Inter-Bank Offered Rate, an interest rate average calculated from estimates by the leading banks in London |
| MBMW | | Multi-Beam Mask Writer |
| MD&A | | Management's Discussion & Analysis |
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| MG&A | | Marketing, general and administrative |
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| NAND | | NAND flash memory |
| NEX | | Networking and Edge operating segment |
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| nm | | Nanometer |
NSG | | Non-Volatile Memory Solutions Group operating segment |
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| ODM | | Original design manufacturer |
| OEM | | Original equipment manufacturer |
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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 |
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PSG | | Programmable 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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| SCIP | | Semiconductor Co-Investment Program | | |
| 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,DCAI, and IOTG.NEX. In our DCG business,DCAI and NEX businesses, we offer SoCs across many market segments for a variety of applications, including products targeted for 5G base stations and network infrastructure |
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| SOFR | | Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated derivatives and loans, replacing LIBOR |
| SSD | | Solid-state drive |
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| Tax Reform | | U.S. Tax Cuts and Jobs Act | | |
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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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| | Previous Process Node Name
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| 10nm SuperFin | | 10nm SuperFin (unchanged) |
| 10nm Enhanced SuperFin | | Intel 7 |
| Intel 7nm | | Intel 4 |
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| Financial Statements | Notes to Financial Statements | 2423 |
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| Management's Discussion and Analysis | |
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This report should be read in conjunction with the Consolidated Financial Statements in our 2021 Form 10-K where we include additional information on our business, operating segments, risk factors, critical accounting estimates, policies, and the methods and assumptions used in our estimates, among other important information.We previously announced several organizational changes that we believe will accelerate the execution and innovation of our Company by allowing us to capture growth in both large traditional markets and high-growth emerging markets. These changes include the reorganization of our business units to be positioned to capture this growth and to provide increased transparency, focus and accountability. As a result, we modified our segment reporting in Q1 2022 to align to this previously announced business reorganization. All prior-period segment data has been retrospectively adjusted to reflect the way we internally manage and monitor segment performance starting in fiscal year 2022.
"Note 2: Operating Segments” within Notes to Consolidated Condensed Financial Statements of this Form 10-Q reconciles our segment revenues presented below to our total revenues, and our segment operating margin (loss) presented below to our total operating margin (loss), for each of the periods presented.
For additional key highlights of our results of operations, see "A Quarter in Review."
Client Computing Group
TheWe are committed to advancing PC is more essential than ever, enriching livesexperiences by helping peopledelivering an annual cadence of leadership products and deepening our relationships with industry partners to co-engineer and deliver leading platform innovation. We focus create,on long-term operating systems, system architecture, hardware, and connect with friends, family, and coworkers around the world. Working with our partners across the industry, weapplication integration that enables industry-leading PC experiences. We intend to continue to advance PC experiences with innovations like our Intel® Evo™ platform which delivers exceptional mobile computing experiences for PC customers. As the largest business unit at Intel, CCG isembrace these opportunities by investing more heavily in the PC, ramping up its capabilities even more aggressively, and designing the PC experience even more deliberately, delivering a predictable cadence of leadership products. As a result,deliberately. By doing this, we are ablebelieve we will continue to fuel innovation across Intel, providing an importanta growing source of IP, scale, and cash flow.
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| CCG Revenue $B | | CCG Operating Income $B |
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| ■ PlatformNotebook | ■ AdjacentDesktop | ■Other | |
Revenue in■Notebook revenue was $4.4 billion, down $1.5 billion from Q3 2021 was down 2% due to2021. Notebook unit sales decreased 28% driven by lower notebook volume and adjacent revenue, partially offset by higher platform ASPs and increased desktop volume. Notebook volume declineddemand in the consumer and education market segmentssegments. Notebook ASPs increased 3% due to industry-wide component shortages. Platform ASPs were higher in both notebook and desktop from a higheran increased mix of large corecommercial products and lower mix of consumer and education products.
■Desktop demand strengthenedrevenue was $3.2 billion, up $103 million from Q3 2021. Desktop unit sales increased 2% partially due to consumerincreased demand for Enthusiast and commercial recovery from COVID-19 lows. Adjacentgaming products, while ASPs remained flat.
■Other revenue was $492 million, down compared to Q3 2020 due to$233 million primarily driven by the continued ramp down from the exit of our 5G smartphone modem business and Home Gateway Platform businesses, partially offset by strength inlower demand for our wireless and connectivity.connectivity products.
■Notebook revenue was $15.1 billion, down $4.5 billion from YTD 2021 was up 4% compared to YTD 2020 due to continued strong demand in notebook and continued strength in desktop2021. Notebook unit sales decreased 34% driven by consumer and commercial recovery from COVID-19 lows, partially offset by lower notebook and desktop ASPs due to strengthdemand in the consumer and education market segments. Adjacentsegments, and Notebook ASPs increased 17% due to an increased mix of commercial and consumer products and lower mix of education.
■Desktop revenue was $8.2 billion, down $530 million from YTD 2021. Desktop unit sales decreased 9% driven by lower demand for consumer and education products, and Desktop ASPs increased 3%, primarily from an increased mix of commercial products compared to YTD 2020 due to2021.
■Other revenue was $1.8 billion, down $636 million from YTD 2021 primarily driven by the continued ramp down from the exit of our 5G smartphone modem business and Home Gateway Platform businesses, partially offset by strength inlower demand for our wireless and connectivity.
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| | Q3 2021 vs. Q3 2020 | | YTD 2021 vs. YTD 2020 |
| (In Millions) | | % | | $ Impact | | % | | $ Impact |
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| 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) | |
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| Total change in revenue | | | | | $ | (183) | | | | | | $ | 1,260 | |
Operating income indecreased 54% from Q3 2021, decreased 7% from Q3 2020, with an operating margin of 34%20%.
Operating income decreased 53% from YTD 2021, increased 5%, with an operating margin of 37%22%.
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| (In Millions) | | |
| $ | 3,3171,655 | | | Q3 2022 CCG Operating Income |
| (801) | | | Lower gross margin from revenue, primarily driven by Notebook |
| (490) | | | Higher Desktop and Notebook unit cost primarily from increased mix of Intel 7 products |
| (400) | | | Higher operating expenses driven by increased investments in leadership products |
| (160) | | | Higher period charges primarily driven by inventory reserves taken in Q3 2022 |
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| (86) | | | Other |
| $ | 3,592 | | | Q3 2021 CCG Operating Income |
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(440)$ | 5,567 | | | YTD 2022 CCG Operating Income |
| (2,160) | | | Lower gross margin from revenue, primarily driven by Notebook and Desktop |
| (1,715) | | | Higher period charges driven by sell-throughDesktop and Notebook unit cost primarily from increased mix of reserved non-qualified platformIntel 7 products net of other reserves in Q3 2020, and reserves taken on non-qualified platform products in Q3 2021 |
(215)(1,190) | | | Higher operating expenses driven by increased investmentinvestments in support of leadership products |
(205)(625) | | | Higher period charges primarily driven by inventory reserves taken in 2022 |
| (345) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(105)(180) | | | Lower adjacent productgross margin primarily driven by the continued ramp down from the exit of our 5G smartphone modem and Home Gateway Platform businessesbusiness |
(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)(127) | | | Other |
| $ | 3,554 | | | Q3 2020 CCG Operating Income |
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$ | 11,19711,909 | | | 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 |
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(39) | | | Other |
$ | 10,621 | | | YTD 2020 CCG Operating Income |
Data Center GroupDatacenter and AI
DCG developsDCAI delivers workload-optimized platforms to empower datacenter and hyperscale solutions for compute, storage,diverse computing needs. We are focused on delivering the hardware and network functions. With unmatched scale,software portfolio breadth,our customers need to support the increased demand for high performance computing and ecosystem support, we are uniquely positionedprocessing of increasingly complex workloads. DCAI offers a portfolio of leadership products, including CPUs, FPGAs, and AI accelerators, and a broad portfolio of software and solutions that enable our hardware’s differentiated features to enable the worlddeliver performance to unleash the potential of data, unlocking value for people, business,our customers. Our customers and society on a global scale. Market segmentspartners include cloudhyperscale customers, OEM/ODMs, enterprises, independent software vendors, system integrators, communications 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.governments.
| | | | | | | | | | | |
| DCGDCAI Revenue $B | | DCGDCAI Operating Income $B |
| | | | | | | | |
| ■Revenue SummaryPlatform
| ■Adjacent
|
| | |
Revenue SummaryQ3 2022 vs. Q3 2021 |
Revenue was $4.2 billion, down $1.6 billion from Q3 2021, driven by a decrease in Server revenue. Server volume decreased 29%, led by enterprise customers, and due to customers tempering purchases to reduce existing inventories in a softening datacenter market. The higher mix of revenue from hyperscale customers within a competitive environment, drove a 7% decrease in Server ASPs. The decrease in Server revenue was partially offset by an increase in other DCAI revenue in Q3 2022 due to growth in our FPGA business.
Revenue was $14.9 billion, down $1.4 billion from YTD 2021, was up 10% on higher platformdue to a decrease in Server revenue. Server volume decreased 6% from YTD 2021, led by enterprise customers, and higherdue to customers tempering purchases to reduce existing inventories in a softening datacenter market. Server ASPs decreased 6% from YTD 2021 primarily due to recovery in the enterprisecustomer and government market segment, compared to COVID-driven lows, and stronger core mix, partially offset by lowerproduct mix. Other DCAI revenue in the cloud service providers market segment compared to a strong, COVID-driven Q3 2020. Adjacent revenue was down, primarilyincreased from YTD 2021 due to accelerated 5G networking related purchasesgrowth 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) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | |
Operating income indecreased 99% from Q3 2021, increased 8% from Q3 2020, with an operating margin of 32%0%.
Operating income decreased 69% from YTD 2021, decreased 38%, with an operating margin of 28%13%.
| | | | | | | | |
| (In Millions) | | |
| $ | 2,05717 | | | Q3 2021 DCG2022 DCAI Operating Income |
530 | | | Higher gross margin from platform revenue |
285 | | | Higher adjacent gross margin |
100 (1,350) | | | 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 2021gross margin from Server revenue |
(285)(320) | | | Higher operating expenses driven by increased investmentinvestments in leadership products |
(225)(235) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(170)(235) | | | Higher platformServer unit cost primarily from increased mix of 10nm SuperFin products |
(75)(205) | | | Higher period charges primarily associated with the ramp downdriven by inventory reserves taken in Q3 2022, and lack of 14nmsell-through of reserves compared to Q3 2021 |
| | |
| | |
(6)69 | | | Other |
| $ | 1,9032,293 | | | Q3 2020 DCG2021 DCAI Operating Income |
| | |
| $ | 5,2711,917 | | | YTD 2021 DCG2022 DCAI Operating Income |
(1,445)(1,535) | | | Lower gross margin from platformServer revenue |
(900) | | | Higher operating expenses driven by increased investment in leadership products |
(530) | | | Higher platform unit cost primarily from increased mix of 10nm SuperFin products |
(390)(985) | | | Higher period charges primarily associated with the ramp up of Intel 4 |
(260)(915) | | | Higher operating expenses driven by increased investments in leadership products |
| (610) | | | Higher period charges primarily associated with the ramp down of 14nmdriven by inventory reserves taken in 2022 |
285 (555) | | | Higher adjacent product marginServer unit cost from increased mix of 10nm SuperFin products |
25275 | | | Lower period charges driven by an absence of reserves, including reserves taken on non-qualified platform products in 2020, partially offset byHigher gross margin from DCAI other reserves recorded in 2021product revenue |
| | |
| | |
(8)153 | | | Other |
| $ | 8,4946,089 | | | YTD 2020 DCG2021 DCAI Operating Income |
InternetNetwork & Edge
NEX lifts the world's networks and edge systems from fixed function hardware into open software running on programmable hardware. We work with partners and customers to deliver and deploy intelligent edge platforms that allow software developers to continuously evolve, improve, and tailor systems to gain more control, security, and flexibility. We have a broad portfolio of Things
More industrieshardware and software platforms, tools and ecosystem partnerships for the rapid digital transformation happening from edge to cloud. We are harnessing the power of data to create business value, innovate, and grow. This requires that intelligence move closer to the edge, allowing data to be acted on where it is created. Working withleveraging our partners, we are using our architecture, accelerators,core strengths in process, manufacturing at scale, and software, to develop and scale a growing Internet of Things 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 technology and business use cases that can scale across vertical industries and embedded markets. Our customers include retailers, manufacturers, health and life sciences, governments, and education providers. We reduce complexity in the ecosystem with a common architecture and software to help enable our customers to create and process data at the edge to analyze it fastergrow traditional markets and to act on it sooner.accelerate entry into emerging ones.
Mobileye is the global leader in driving assistance and self-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 AVs. Mobileye's ADAS products form the building blocks for higher levels of autonomy. Our customers and strategic partners include major global OEMs, Tier 1 automotive system integrators, fleet managers, and transportation operators.
| | | | | | | | | | | |
| Internet of ThingsNEX Revenue $B | | Internet of ThingsNEX Operating Income $B |
Revenue was $2.3 billion, up $280 million from Q3 2021, driven by increased demand for 5G products, higher Ethernet demand and ASPs, and accelerated demand for Edge products, partially offset by lower demand for Network Xeon.
Revenue was $6.8 billion, up $922 million from YTD 2021, driven by increased demand for Ethernet and 5G products, accelerated demand for Edge products, and higher ASPs, partially offset by lower demand for Network Xeon.
Operating income decreased 85% from Q3 2021, with an operating margin of 3%.
Operating income decreased 50% from YTD 2021, with an operating margin of 10%.
| | | | | | | | | | |
| (In Millions) | | | | |
| $ | 75 | | | Q3 2022 NEX Operating Income | | |
| (200) | | | Higher period charges primarily driven by inventory reserves taken in Q3 2022 and lack of sell-through of reserves compared to Q3 2021 | | |
| (190) | | | Higher operating expenses driven by increased investments in leadership products | | |
| (160) | | | Lower gross margin from Network Xeon revenue | | |
| (105) | | | Higher period charges primarily associated with the ramp of Intel 4 | | |
| 183 | | | Higher gross margin from Ethernet and Edge revenue | | |
| | | | |
| ■ IOTG
| ■ Mobileye
| | | ■ IOTG
| ■ Mobileye
| |
| | |
Revenue and Operating Income Summary |
| | |
| 36 | | | Other | | |
| $ | 511 | | | Q3 2021 vs. Q3 2020NEX Operating Income | | |
IOTG revenue was $1.0 billion, up $365 million, driven by higher demand for IOTG platform products amid recovery from the economic impacts of COVID-19. Operating income was $276 million, up $215 million year over year.
Mobileye revenue was $326 million, up $92 million driven by improvement in global vehicle production year over year. Operating income was $105 million, up $58 million year over year.
| | | | |
| $ | 682 | | | YTD 2022 NEX Operating Income | | |
| (450) | | | Higher operating expenses driven by increased investments in leadership products | | |
| (365) | | | Higher period charges primarily associated with the ramp up of Intel 4 | | |
| (375) | | | Higher period charges driven by reserves taken in 2022 and lack of sell-through of reserves compared to 2021 | | |
| (150) | | | Higher period charges primarily due to other product enhancements | | |
| (100) | | | Lower gross margin from Network Xeon revenue | | |
| 425 | | | Higher gross margin from Ethernet revenue | | |
| 250 | | | Lower unit cost primarily from increased mix of 10nm SuperFin products | | |
| 205 | | | Higher gross margin from Edge revenue | | |
| (117) | | | Other | | |
| $ | 1,359 | | | YTD 2021 vs. YTD 2020NEX Operating Income | | |
IOTG revenue was $2.9 billion, up $710 million, driven by higher demand for IOTG platform products amid recovery from the economic impacts of COVID-19, partially offset by lower ASPs. Operating income was $775 million, up $401 million.
Mobileye revenue was $1.0 billion, up $396 million, driven by improvement in global vehicle production compared to the same period in 2020. Operating income was $361 million, up $230 million.
Non-Volatile Memory Solutions GroupAccelerated Computing Systems and Graphics
On October 19, 2020, we signedAXG delivers products and technologies designed to help our customers solve the toughest computational problems. Our vision is to enable persistent and immersive computing, at scale, and accessible by billions of people within milliseconds, which drives an agreement with SK hynix Inc. (SK hynix)incredible demand for compute - from endpoints to divest our NAND memory business. The transaction will occur over two closings as described in detail in "Note 8: Acquisitionsdata centers.
Our portfolio includes CPUs for high performance computing and Divestitures" in Notes to Consolidated Condensed Financial Statements.
Our NAND business continues to develop storage solutions using our innovative Intel® 3D NAND Technology. Our data center products are optimized to deliver world-class performance and drive lower total cost of ownership, and our client SSDs provide a fast and productive computing environmentGPUs targeted for a varietyrange of segments. Our Intel Optane memory business is expressly excludedworkloads and platforms from gaming and content creation on client devices to delivering media and gaming in the sale to SK hynix,cloud, and beginning in 2021, the results of our Intel Optane memory business are included in our DCG operating segment,most demanding HPC and our NSG operating segment is composed entirely of our NAND memory business.AI workload on supercomputers. To address new market opportunities and emerging workloads, we also develop custom accelerators with blockchain acceleration, as an example.
| | | | | | | | | | | |
| NSGAXG Revenue $B | | NSGAXG Operating Income (Loss) $B |
| | |
| Revenue and Operating Income (Loss) Summary |
| | |
Q3 20212022 vs. Q3 20202021 |
Revenue was $1.1 billion, down $48$185 million, up $14 million from Q3 2020, primarily due2021. We had an operating loss of $378 million, compared to supply chain constraints, $151 million lower ASPs due to mix shift, and the transferan operating loss of the Intel Optane memory business to DCG ($86$222 million in Q3 2020), partially offset by $188 million higher volume. Operating income was $442 million, up $413 million from Q3 20202021, due to $411 million improvementsincreased inventory reserves taken and investments 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).our product roadmap.
| | |
YTD 20212022 vs. YTD 20202021 |
Revenue was $3.3 billion, down $840$590 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$61 million from YTD 2020, due2021. We had an operating loss of $1.3 billion, compared to $1.1 billionan operating loss 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$566 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).due to increased inventory reserves taken and investments in our product roadmap.
Programmable Solutions GroupMobileye
PSG offers programmable semiconductors, primarily FPGAs, structured ASICs,Mobileye is a global leader in driving assistance and related products, for a broad range of applications across our embedded, communications, and cloud and enterprise market segments. Ourself-driving solutions. Mobileye's product portfolio delivers FPGA accelerationcovers the stack required for assisted and autonomous driving, including compute platforms, computer vision and machine learning-based sensing, mapping and localization, driving policy, and active sensors in tandem with Intel microprocessors, which enables us to combinedevelopment. Mobileye's unique assets in ADAS allow for building a scalable self-driving stack that meets the benefits of our broad portfolio of technologies to allow more flexibilityrequirements for systems to operate with increased efficiencyboth Robotaxi and higher performance.consumer-level autonomy. Customers and strategic partners include major global OEMs, Tier 1 automotive system integrators, and public transportation operators.
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| PSGMobileye Revenue $B | | PSGMobileye Operating Income $B |
| | |
| Revenue and Operating Income Summary |
| | |
Q3 20212022 vs. Q3 20202021 |
Revenue was $478$450 million, up $67$124 million from Q3 2021 primarily driven by recovery in all market segments from COVID-19 lows, led by embedded.higher demand for EyeQ products. Operating income was $76$142 million, up $36 million.$15 million from Q3 2021, primarily due to higher revenue, partially offset by increased investments in leadership products.
| | |
YTD 20212022 vs. YTD 20202021 |
Revenue was $1.5$1.3 billion, up $19$274 million from YTD 2021 primarily driven by strength in embedded,higher demand for EyeQ products. YTD operating income was $480 million, up $49 million from YTD 2021, primarily due to higher revenue, partially offset by customer inventory digestion. Operating income was $246 million, up $29 million.increased investments in leadership products.
Intel Foundry Services
IFS seeks to empower our customers by delivering industry-leading silicon and packaging services with a differentiated IP portfolio via a secure and sustainable supply of semiconductors. We intend to leverage our decades-long investment in advancing Moore’s Law to spark innovation and customization for our customers on leading edge nodes and mature specialty processes, through support of an open multi-Intel System Architecture ecosystem. Our early customers include traditional fabless customers, cloud service providers, automotive customers and aerospace firms. We offer a combination of leading-edge packaging and process technology services, world-class differentiated internal IPs (e.g., x86, graphics, AI), broad third party ecosystem and silicon design support. Additionally, our IFS offerings include mask-making equipment for advanced lithography used by most of the world’s leading-edge foundries.
| | | | | | | | | | | |
| IFS Revenue $B | | IFS Operating Income (Loss) $B |
| | |
| Revenue and Operating Income (Loss) Summary |
| | | | | | | | | | | | | | |
Consolidated Results of OperationsQ3 2022 vs. Q3 2021 |
Revenue was $171 million, down $3 million from Q3 2021. We had an operating loss of $103 million, compared to an operating loss of $44 million in Q3 2021, primarily due to increased spending to drive strategic growth.
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| | 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 | | | |
Revenue
| | | | | | | | | | |
| Segment Revenue Walk $BConsolidated Results of Operations | |
| | | | |
Q3 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 4% due to continued strength in notebook demand and continued recovery in desktop demand, partially offset by lower notebook and desktop ASPs due to strength in the consumer and education market segments. IOTG and Mobileye 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 compared to a strong, COVID-driven YTD 2020. NSG was down 20% primarily due to lower ASPs, partially offset by higher volume.
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| | Three Months Ended | | Nine Months Ended |
| | Q3 2022 | | Q3 2021 | | YTD 2022 | | YTD 2021 |
| (In Millions, Except Per Share Amounts) | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue |
| Net revenue | | $ | 15,338 | | | 100.0 | % | | $ | 19,192 | | | 100.0 | % | | $ | 49,012 | | | 100.0 | % | | $ | 58,496 | | | 100.0 | % |
| Cost of sales | | 8,803 | | | 57.4 | % | | 8,446 | | | 44.0 | % | | 27,646 | | | 56.4 | % | | 25,690 | | | 43.9 | % |
| Gross margin | | 6,535 | | | 42.6 | % | | 10,746 | | | 56.0 | % | | 21,366 | | | 43.6 | % | | 32,806 | | | 56.1 | % |
| Research and development | | 4,302 | | | 28.0 | % | | 3,803 | | | 19.8 | % | | 13,064 | | | 26.7 | % | | 11,141 | | | 19.0 | % |
| Marketing, general and administrative | | 1,744 | | | 11.4 | % | | 1,674 | | | 8.7 | % | | 5,296 | | | 10.8 | % | | 4,601 | | | 7.9 | % |
| Restructuring and other charges | | 664 | | | 4.3 | % | | 42 | | | 0.2 | % | | (460) | | | (0.9) | % | | 2,597 | | | 4.4 | % |
| Operating income (loss) | | (175) | | | (1.1) | % | | 5,227 | | | 27.2 | % | | 3,466 | | | 7.1 | % | | 14,467 | | | 24.7 | % |
| Gains (losses) on equity investments, net | | (151) | | | (1.0) | % | | 1,707 | | | 8.9 | % | | 4,082 | | | 8.3 | % | | 2,370 | | | 4.1 | % |
| Interest and other, net | | 138 | | | 0.9 | % | | (76) | | | (0.4) | % | | 1,016 | | | 2.1 | % | | (328) | | | (0.6) | % |
| Income (loss) before taxes | | (188) | | | (1.2) | % | | 6,858 | | | 35.7 | % | | 8,564 | | | 17.5 | % | | 16,509 | | | 28.2 | % |
| Provision for (benefit from) taxes | | (1,207) | | | (7.9) | % | | 35 | | | 0.2 | % | | (114) | | | (0.2) | % | | 1,264 | | | 2.2 | % |
| Net income | | $ | 1,019 | | | 6.6 | % | | $ | 6,823 | | | 35.6 | % | | $ | 8,678 | | | 17.7 | % | | $ | 15,245 | | | 26.1 | % |
| | | | | | | | | | | | | | | | |
| Earnings per share—diluted | | $ | 0.25 | | | | | $ | 1.67 | | | | | $ | 2.10 | | | | | $ | 3.73 | | | |
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.
(Percentages in chart indicate gross margin as a percentage of total revenue)
| | | | | | | | |
(In Millions) | | |
$ | 10,746 | | | Q3 2021 Gross Margin |
1,320 | | | Higher gross margin from platform revenue |
545 | | | Higher gross margin from adjacent businesses 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 |
| Segment Revenue Walk $B | |
| | |
| | |
| | |
| | |
| | |
(40) | | | Other |
$ | 9,741 | | | Q3 2020 Gross Margin |
| | |
$ | 32,806 | | | YTD 2021 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 |
Q3 2022 and YTD 2022 results were impacted by an uncertain macroeconomic environment that continues to deteriorate, with slowing consumer demand, persistent inflation, and higher interest rates, and that we believe impacts our target markets and creates a high level of uncertainty with our customers. We expect the macroeconomic uncertainty and the challenging market environment will extend into 2023.
1 See "Non-GAAP Financial Measures" within MD&A.Our YTD 2022 revenue was $49.0 billion, down $9.5 billion or 16% from YTD 2021. CCG revenue was down 18% from YTD 2021 due to lower Notebook and Desktop volume, and lower revenue due to the continued ramp down from the exit of our 5G smartphone modem business. Notebook volume decreased driven by lower demand in the consumer and education market segments, though ASPs increased due to the resulting product mix. Desktop volume decreased driven by lower demand for consumer and education products. DCAI revenue decreased 8% from YTD 2021 led by enterprise customers, and due to customers tempering purchases to reduce existing inventories in a softening datacenter market. Server ASPs decreased due to customer and product mix. NEX revenue increased 16%, driven by increased demand for Ethernet and 5G products, accelerated demand for Edge products, and higher ASPs, partially offset by lower demand for Network Xeon. Mobileye revenue increased 27% from YTD 2021 primarily driven by higher demand for EyeQ products. The decrease in our "all other" revenue is due to revenue from the divested NAND memory business of $3.3 billion recognized in YTD 2021 for which historical results are recorded in “all other”, and $584 million of revenue recognized in YTD 2021 from a prepaid customer supply customer.
Historically, our net revenue has typically been higher in the second half of the year than in the first half of the year, accelerating in the third quarter and peaking in the fourth quarter. In 2021, continued strong COVID-driven Notebook demand in the first half of the year contributed to a flatter trend than we historically observe. For the remainder of 2022, we continue to expect a flatter trend than we historically observed as we experience the uncertainty and impacts, including on demand and the supply chain, of current macroeconomic conditions, the potential for a recession, and the risk for continued COVID-related disruptions or shutdowns.
Gross Margin
We derived a substantial majority of our overall gross margin in Q3 2022, and most of our gross margin in YTD 2022, from the sale of products in the CCG and DCAI operating segments. Our overall gross margin dollars in Q3 2022 decreased by $4.2 billion, or 39% compared to Q3 2021, and YTD 2022, decreased by $11.4 billion, or 35%, compared to YTD 2021.
(Percentages in chart indicate gross margin as a percentage of total revenue)
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| (In Millions) | | |
| $ | 6,535 | | | Q3 2022 Gross Margin |
| (1,350) | | | Lower gross margin from Server revenue |
| (801) | | | Lower gross margin from CCG revenue, driven by lower Notebook and Desktop revenue |
| (725) | | | Higher unit cost primarily from increased mix of 10nm SuperFin and Intel 7 products |
| (616) | | | Lower gross margin related to the divested NAND memory business |
| (565) | | | Higher period charges primarily driven by inventory reserves taken in Q3 2022 |
| (329) | | | Higher period charges primarily associated with the ramp up of Intel 4 and Intel 7 |
| 152 | | | Lower incentive-based cash compensation charges |
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| 23 | | | Other |
| $ | 10,746 | | | Q3 2021 Gross Margin |
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| $ | 21,366 | | | YTD 2022 Gross Margin |
| (2,340) | | | Lower gross margin from CCG revenue, primarily driven by Notebook and Desktop revenue |
| (2,020) | | | Higher unit cost primarily from increased mix of 10nm SuperFin and Intel 7 products |
| (1,967) | | | Higher period charges primarily driven by inventory reserves taken in 2022, including reserves on non-qualified products |
| (1,845) | | | Higher period charges primarily associated with the ramp up of Intel 4 and other product enhancements |
| (1,535) | | | Lower gross margin from Server revenue |
| (1,477) | | | Lower gross margin related to the divested NAND memory business |
| (584) | | | Lack of revenue recognized in Q1 2021 from a prepaid customer supply contract |
| (559) | | | Optane inventory impairment related to the wind down of our Intel Optane memory business |
| (238) | | | Higher stock-based compensation |
| (205) | | | Corporate charges from patent settlement |
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| 325 | | | Higher gross margin from Ethernet revenue, partially offset by Network Xeon revenue |
| 275 | | | Higher gross margin primarily from DCAI other product revenue |
| 205 | | | Higher gross margin from Edge revenue |
| 193 | | | Lower incentive-based cash compensation charges |
| 332 | | | Other |
| $ | 32,806 | | | YTD 2021 Gross Margin |
Operating Expenses
Total R&D and MG&A expenses for Q3 20212022 were $5.5$6.0 billion, up 16%10% from Q3 2020,2021, and $15.7$18.4 billion for YTD 2021,2022, up 10%17% from YTD 2020.2021. These expenses represent 28.5%39% of revenue for Q3 2022 and 29% of revenue for Q3 2021, and 25.7% of revenue for Q3 2020, and 26.9%37% of revenue for YTD 20212022 and 24.7%27% of revenue for YTD 2020.
2021. In support of our IDM 2.0 strategy, described in our 2021 Form 10-K, we continue to make significant investments to accelerate our process technology roadmap. This requires increased investments in R&D, and an intensified effort to attract and retain talent. We expect to complete the year with total R&D and MG&A expenses roughly flat in the second half of 2022 relative to the first half of 2022, as we continue to implement certain cost-cutting measures, including slowing the pace of hiring, while at the same time continuing to improve our product execution in response to the continued decline in the broader macroeconomic environment.
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| Research and Development $B | | Marketing, General, and Administrative $B |
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(Percentages in chart indicate operating expenses as a percentage of total revenue)
Q3 20212022 vs. Q3 20202021
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R&D increased by $531$499 million, or 16.2%13%, driven by the following: |
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| + | Incentive-based cash compensation |
+ | Investments in CCG, DCG, and Mobileyeour process technology |
| + | Investments in our process technologybusinesses to drive strategic growth |
| + | Increase in corporate spending |
| - | Incentive-based cash compensation |
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YTD 20212022 vs. YTD 20202021
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R&D spending increased by $1.2$1.9 billion, or 12.5%17%, driven by the following: | | |
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| + | Investments in CCG, DCG, and Mobileyeour process technology | | |
| + | Investments in our process technologybusinesses to drive strategic growth | | |
| + | Increase in corporate spending | | |
| - | Incentive-based cash compensation | | |
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| Marketing, General, and Administrative |
Q3 20212022 vs. Q3 20202021
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MG&A increased by $239$70 million, or 16.7%4%, driven by the following: |
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| + | Increase in corporate spending |
+- | Incentive-based cash compensation |
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YTD 20212022 vs. YTD 2020
2021
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MG&A spending increased by $178$695 million, or 4.0%15%, driven by the following: | | |
| | | |
| + | Increase in corporate spending | | |
+- | Incentive-based cash compensation | | |
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Gains (Losses) on Equity Investments and Interest and Other, Net
| | (In Millions) | (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | | (In Millions) | | Q3 2022 | | Q3 2021 | | YTD 2022 | | YTD 2021 | |
| Ongoing mark-to-market adjustments on marketable equity securities | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (192) | | | $ | (146) | | | $ | (345) | | | $ | (84) | | | Ongoing mark-to-market adjustments on marketable equity securities | | $ | (244) | | | $ | (192) | | | $ | (883) | | | $ | (345) | | |
| Observable price adjustments on non-marketable equity securities | Observable price adjustments on non-marketable equity securities | | 79 | | | 5 | | | 702 | | | 142 | | | Observable price adjustments on non-marketable equity securities | | 67 | | | 79 | | | 273 | | | 702 | | |
| Impairment charges | Impairment charges | | (38) | | | (40) | | | (111) | | | (233) | | | Impairment charges | | (45) | | | (38) | | | (112) | | | (111) | | |
Sale of equity investments and other | Sale of equity investments and other | | 1,858 | | | 237 | | | 2,124 | | | 387 | | | Sale of equity investments and other | | 71 | | | 1,858 | | | 4,804 | | | 2,124 | | |
| Gains (losses) on equity investments, net | Gains (losses) on equity investments, net | | $ | 1,707 | | | $ | 56 | | | $ | 2,370 | | | $ | 212 | | | Gains (losses) on equity investments, net | | $ | (151) | | | $ | 1,707 | | | $ | 4,082 | | | $ | 2,370 | | |
| | Interest and other, net | Interest and other, net | | $ | (76) | | | $ | (74) | | | $ | (328) | | | $ | (416) | | | Interest and other, net | | $ | 138 | | | $ | (76) | | | $ | 1,016 | | | $ | (328) | | |
Gains (losses) on equity investments, net
Ongoing mark-to-market adjustments during the first nine months offor YTD 2022 and YTD 2021 were primarily related to our interest in Montage Technology, Co. Ltd. During the first nine months of 2020, ongoing mark-to-market adjustments were primarily driven by our interest in Cloudera, Inc.Ltd and others.
In the first quarter ofYTD 2021, we recognized $471 million inof observable price adjustments inrelated to our investment in Beijing Unisoc Technology Ltd.
In YTD 2022, the sale of McAfee to an investor group was completed and we received $4.6 billion in cash for the sale of our remaining share of McAfee, recognizing a $4.6 billion gain in Sale of equity investments and other during the third quarter of. InQ3 2021 includes $447 million of initial fair value adjustments related to four companies that went public, andYTD 2021 we recognized a McAfee special dividend of $1.1 billion paid in connection with the sale to the investor group, and $447 million of McAfee's Enterprise Businessinitial fair value adjustments in Sale of equity investments and other related to Symphony Technology Group.four companies that went public.
Interest and other, net
DuringIn YTD 2022, we recognized a gain of $1.0 billion from the first nine monthsclosing of 2020, we paid $1.1 billion to fully satisfy conversion obligations for $372 millionthe divestiture 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.NAND memory business.
Restructuring and Other Charges
| | (In Millions) | (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | | (In Millions) | | Q3 2022 | | Q3 2021 | | YTD 2022 | | YTD 2021 | |
| Employee severance and benefit arrangements | Employee severance and benefit arrangements | | $ | 21 | | | $ | (17) | | | $ | 43 | | | $ | 90 | | | Employee severance and benefit arrangements | | $ | 607 | | | $ | 21 | | | $ | 650 | | | $ | 43 | | |
| | Litigation charges and other | Litigation charges and other | | 16 | | | (2) | | | 2,267 | | | 54 | | | Litigation charges and other | | 4 | | | 16 | | | (1,199) | | | 2,267 | | |
| Asset impairment charges | Asset impairment charges | | 5 | | | (6) | | | 287 | | | 2 | | | Asset impairment charges | | 53 | | | 5 | | | 89 | | | 287 | | |
| Total restructuring and other charges | Total restructuring and other charges | | $ | 42 | | | $ | (25) | | | $ | 2,597 | | | $ | 146 | | | Total restructuring and other charges | | $ | 664 | | | $ | 42 | | | $ | (460) | | | $ | 2,597 | | |
In Q3 2022, the 2022 Restructuring Program was approved to rebalance our workforce and operations to create efficiencies and improve our product execution in alignment with our IDM 2.0 strategy. We expect that our 2022 Restructuring Plan, in conjunction with other initiatives, will reduce our cost structure and allow us to reinvest certain of these cost savings in resources and capacity to develop, manufacture, market, sell, and deliver our products in furtherance of our IDM 2.0 strategy.
Employee severance and benefit arrangements includes charges incurred to date under the 2022 Restructuring Program of $607 million, which was approved in Q3 2022 and expected to be substantially completed by the end of the first half of 2023, but is subject to change.
Litigation charges and other includes a $1.2 billion benefit in YTD 2022 from the annulled penalty related to an EC fine that was recorded and paid in 2009, and a charge of $2.2 billion in Q1YTD 2021 related to the 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.litigation.
Provision for (Benefit from) Taxes
| | (In Millions) | (In Millions) | | Q3 2021 | | Q3 2020 | | YTD 2021 | | YTD 2020 | (In Millions) | | Q3 2022 | | Q3 2021 | | YTD 2022 | | YTD 2021 |
| Income before taxes | | $ | 6,858 | | | $ | 5,041 | | | $ | 16,509 | | | $ | 17,590 | | |
| Provision for taxes | | $ | 35 | | | $ | 765 | | | $ | 1,264 | | | $ | 2,548 | | |
| Income (loss) before taxes | | Income (loss) before taxes | | $ | (188) | | | $ | 6,858 | | | $ | 8,564 | | | $ | 16,509 | |
| Provision for (benefit from) taxes | | Provision for (benefit from) taxes | | $ | (1,207) | | | $ | 35 | | | $ | (114) | | | $ | 1,264 | |
| Effective tax rate | Effective tax rate | | 0.5 | % | | 15.2 | % | | 7.7 | % | | 14.5 | % | Effective tax rate | | 642.0 | % | | 0.5 | % | | (1.3) | % | | 7.7 | % |
In Q3 20212022 we, recognized a benefit from taxes as we applied our estimated annual effective tax rate decreasedto our year-to-date measure of ordinary income. In YTD 2022, we recognized a benefit from taxes as compared to a provision for taxes in YTD 2021 due to lower income before taxes, a higher proportion of our income being taxed in non-U.S. jurisdictions, and a change in tax law from 2017 Tax Reform related to the capitalization of R&D expenses that went into effect in January 2022. These YTD 2022 impacts were partially offset by the unfavorable tax rate effects associated with the gains recognized in YTD 2022 from the equity sale of McAfee and the divestiture of our NAND memory business. In Q3 2021 and YTD 2021, we recognized one-time tax benefits from the restructuring of certain non-U.S. subsidiaries. As a result, we recognized one-time tax benefits from the release of valuation allowances of certain foreign deferred tax assets. In addition, we established deferred tax assets in Q3 2021 to offset 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 the NAND memory business.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
| | (In Millions) | (In Millions) | | Sep 25, 2021 | | Dec 26, 2020 | (In Millions) | | Oct 1, 2022 | | Dec 25, 2021 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 7,870 | | | $ | 5,865 | | Cash and cash equivalents | | $ | 4,529 | | | $ | 4,827 | |
| Short-term investments | Short-term investments | | 4,004 | | | 2,292 | | Short-term investments | | 18,030 | | | 24,426 | |
| Trading assets | | 22,761 | | | 15,738 | | |
| Other long-term investments | | 953 | | | 2,192 | | |
| | Loans receivable and other | Loans receivable and other | | 252 | | | 947 | | Loans receivable and other | | 469 | | | 240 | |
Total cash and investments1 | Total cash and investments1 | | $ | 35,840 | | | $ | 27,034 | | Total cash and investments1 | | $ | 23,028 | | | $ | 29,493 | |
| | Total debt | Total debt | | $ | 40,304 | | | $ | 36,401 | | Total debt | | $ | 39,523 | | | $ | 38,101 | |
1 See "Non-GAAP Financial Measures" within MD&A.
We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. Cash generated by operations, is our primary source of liquidity. When assessing our sources of liquidity, we includesupplemented by our total cash and investments1, as shown in the preceding table. We maintaintable, is our primary source of liquidity for funding our strategic business requirements. Our short-term funding requirements include capital expenditures for worldwide manufacturing and assembly and test, including investments in our process technology roadmap; working capital requirements; and potential and pending acquisitions, strategic investments, and dividends. This includes a diverse investment portfolio thatcommitment of $5.4 billion associated with our pending acquisition of Tower. Our long-term funding requirements incrementally contemplate additional investments in the significant manufacturing expansion plans we continually analyze based on issuer, industry, and country. Substantially allannounced as part of our IDM 2.0 strategy and additional investments to accelerate our process technology.
Our cash and investments and related cash flows may be affected by certain discretionary actions we may take with customers and suppliers to accelerate or delay certain cash receipts or payments to manage liquidity for our strategic business requirements. These actions can include, among others, negotiating with suppliers to optimize our payment terms and conditions, adjusting the timing of cash flows associated with customer sales programs and collections, managing inventory levels and purchasing practices, and beginning in debt instrumentsQ3 2022, selling certain of our accounts receivables on a non-recourse basis to third party financial institutions.
We expect to benefit from government incentives, and financing receivables are in investment-grade securities.any incentives above our current expectations would enable us to increase the pace and size of our IDM 2.0 investments. Conversely, incentives below our expectations would increase our anticipated cash requirements.
In the third quarter of 2021,2022, we issued a total of $5.0$6.0 billion aggregate principal amount of senior notes, including our inaugural green bond issuance of $1.3 billion principal amount. We are using the proceeds from the green bond offering to fund projects that support our investments in sustainable operations. We intend to use the proceeds from the remainder of the offering for general corporate purposes, including, but not limited to, refinancing of outstanding debt and funding for working capital and capital expenditures. We also received proceeds of $140 million in the aggregate from the sale of bonds issued by the Industrial Development Authority of the City of Chandler, Arizona (CIDA). In the first quarter of 2021,2022 we entered into aamended our $5.0 billion variable-rate revolving credit facility, which matures inextending the maturity date by one year to March 2026.2027 and transitioning the interest terms from LIBOR to term SOFR. 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 25, 2021,October 1, 2022, we had no outstanding commercial 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 anticipateWe maintain a diverse investment portfolio that we will acceleratecontinually analyze based on issuer, industry, and country. Substantially all of our investments in manufacturing capacitydebt instruments and R&D, including for our process technology roadmap. While wefinancing receivables 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 sources 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 acquisitions, strategic investments, and dividends.investment-grade securities.
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| Cash from Operations $B | | Capital Expenditures $B | | Cash to Stockholders $B |
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| | | | ■ Dividends ■ Dividends ■Buybacks |
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| | Nine Months Ended |
| (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 |
| Net cash provided by operating activities | | $ | 24,194 | | | $ | 25,494 | |
| 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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| Net increase (decrease) in cash and cash equivalents | | $ | 2,005 | | | $ | (838) | |
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| | Nine Months Ended |
| (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 |
| Net cash provided by operating activities | | $ | 7,730 | | | $ | 24,053 | |
| Net cash used for investing activities | | (7,046) | | | (19,543) | |
| Net cash used for financing activities | | (982) | | | (2,505) | |
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| Net increase (decrease) in cash and cash equivalents | | $ | (298) | | | $ | 2,005 | |
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.
The decrease in cash provided by operations in YTD 2022 was primarily driven by lower net income after adjusting for non-cash items, including the gain on the sale of McAfee and the pre-tax gain from the divestiture of our NAND business; and was also affected by cash-unfavorable working capital changes.
Investing Activities
Investing cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; cash used for acquisitions; and proceeds from divestitures.
Cash used for investing activities was lower in YTD 2022 compared to YTD 2021, primarily due to increased maturities and sales of short-term investments, proceeds from the divestiture of our NAND business, and proceeds from the sale of our remaining share of McAfee, partially offset by higher capital expenditures.
Financing Activities
Financing cash flows consist primarily of payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, proceeds from the sale of shares of common stock through employee equity incentive plans, and repurchases of common stock.
Cash used for financing activities was lower in YTD 2022 compared to YTD 2021, primarily due to our curtailment of common stock repurchases and higher debt issuance, offset by higher debt repayments.
1 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 2021 compared to the first nine months of 2020, the decrease in cash provided by operations was primarily driven by a decrease in net working capital contributions and cash paid to settle a prepaid supply agreement in the first quarter of 2021, partially offset by 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 2021 compared to the first nine months of 2020, primarily driven by an increase in purchases of trading assets and an increase in capital expenditures, partially offset by an increase in maturities and sales of trading 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 2021 compared to the first nine months of 2020 due to a decrease in repurchases of common stock and a decrease in repayment of debt and debt conversion, partially offset by a decrease in cash provided by long-term debt issuances.
Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with U.S.US 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 theseThese 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.plans.
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.adjustment, as applicable. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S.US GAAP, and the financial results calculated in accordance with U.S.US GAAP and reconciliations from these results should be carefully evaluated.
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| Non-GAAP adjustment or measure | Definition | Usefulness to management and investors |
| NAND memory business | OurWe completed the first closing of the divestiture of our NAND memory business is subject to a pending sale to SK hynix as announcedon December 29, 2021 and fully deconsolidated our ongoing interests in October 2020.the NAND OpCo Business in the first quarter of 2022. | We exclude the impact of our NAND memory business in certain non-GAAP measures because these adjustments reflect how management currently viewsmeasures. While the core operationssecond closing of the company. While the sale of the NAND memory business is still pending and subject to closing conditions, we deconsolidated this business in Q1 2022 and management does not currently view the historical results of the business as a part of the company’sour core operations or its long-term strategic direction.operations. We believe these adjustments provide investors with a useful view, through the eyes of management, of the company’sour 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.US 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 periodic goodwill and 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 core operating performance. These adjustments facilitate a useful evaluation of our core operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends. |
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Ongoing mark-to-market on marketable equity securitiesShare-based compensation | After the initial mark-to-market adjustment is recorded upon a security becoming marketable, gains and losses are recognized from ongoing mark-to-market adjustmentsShare-based compensation consists of charges related to our marketableemployee equity securities.incentive plans. | We exclude these ongoing gains and lossescharges related to share-based compensation for purposes of calculating certain non-GAAP measures because we believe these adjustments provide better comparability to peer company results and because these charges are not viewed by management as part of our core operating performance. We believe these adjustments provide investors with a useful view, through the eyes of management, of our core business model, how management currently evaluates core operational performance, and additional means to evaluate expense trends, including in comparison to other peer companies. |
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| Non-GAAP adjustment or measure | Definition | Usefulness to management and investors |
| Gains (losses) from divestiture | Gains or losses are recognized at the close of a divestiture, or over a specified deferral period when deferred consideration is received at the time of closing. Based on our ongoing obligation under the NAND wafer manufacturing and sale agreement entered into in connection with the first closing of the sale of our NAND memory business on December 29, 2021, a portion of the initial closing consideration was deferred and will be recognized between first and second closing. | We exclude gains or losses resulting from divestitures for purposes of calculating certain non-GAAP measures because they do not believe this volatility correlates toreflect our core operationalcurrent operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results. |
Free(Gains) losses on equity investments, net | (Gains) losses on equity investments, net consists of ongoing mark-to-market adjustments on marketable equity securities, observable price adjustments on non-marketable equity securities, related impairment charges, and the sale of equity investments and other. | We exclude these non-operating gains and losses for better comparability between periods. The exclusion reflects how management evaluates the core operations of the business. |
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| Tax Reform | Adjustments for Tax Reform reflect the impact of a change in tax law from 2017 Tax Reform related to the capitalization of R&D costs. | We exclude the impacts of this 2022 change in U.S. tax treatment of R&D costs for purposes of calculating certain non-GAAP measures as we believe these adjustments facilitate a better evaluation of our current operating performance and comparison to past operating results. |
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| Adjusted free cash flow | We reference a non-GAAP financial measure of adjusted free cash flow, which is used by management when assessing our sources of liquidity, capital resources, and quality of earnings. FreeAdjusted free cash flow is operating cash flow adjusted to excludefor 1) additions to property, plant and equipment.equipment, net of proceeds from capital grants, 2) payments on finance leases, and 3) proceeds from the McAfee equity sale. | This non-GAAP financial measure is helpful in understanding our capital requirements and providessources of liquidity by providing an additional means to evaluate the cash flow trends of our business. In calculatingSince the 2017 divestiture, McAfee equity distributions and sales have contributed to operating and free cash flow, and while the McAfee equity sale in Q1 2022 would typically be excluded from adjusted free cash flow as an equity sale, we do not subtract additionsbelieve including the sale proceeds in adjusted free cash flow facilitate a better, more consistent comparison to held for sale NAND property, plant and equipment because the additions are not representativepast presentations of our long-term capital requirements and we expect these assets to be sold.liquidity. |
| | |
| 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 25, 2021 | | Sep 26, 2020 | | (In Millions, Except Per Share Amounts) | | Oct 1, 2022 | | Sep 25, 2021 | |
| | Net revenue | Net revenue | | $ | 19,192 | | | $ | 18,333 | | | Net revenue | | $ | 15,338 | | | $ | 19,192 | | |
| NAND memory business | NAND memory business | | (1,105) | | | (1,067) | | | NAND memory business | | — | | | (1,105) | | |
| Non-GAAP net revenue | Non-GAAP net revenue | | $ | 18,087 | | | $ | 17,266 | | | Non-GAAP net revenue | | $ | 15,338 | | | $ | 18,087 | | |
| | Operating income | | $ | 5,227 | | | $ | 5,059 | | | |
| Acquisition-related adjustments | | 375 | | | 362 | | | |
| | Restructuring and other charges | | 42 | | | (25) | | | |
| | Gross margin percentage | | Gross margin percentage | | 42.6 | % | | 56.0 | % | |
| Acquisition-related adjustments | | Acquisition-related adjustments | | 2.2 | % | | 1.7 | % | |
| Share-based compensation | | Share-based compensation | | 1.1 | % | | 0.5 | % | |
| | NAND memory business | NAND memory business | | (442) | | | (145) | | | NAND memory business | | — | % | | 0.1 | % | |
| Non-GAAP operating income | | $ | 5,202 | | | $ | 5,251 | | | |
| | Operating margin | | 27.2 | % | | 27.6 | % | | |
| Acquisition-related adjustments | | 2.0 | % | | 2.0 | % | | |
Non-GAAP gross margin percentage1 | | Non-GAAP gross margin percentage1 | | 45.9 | % | | 58.3 | % | |
| | Restructuring and other charges | | 0.2 | % | | (0.1) | % | | |
| NAND memory business | | (0.6) | % | | 0.9 | % | | |
Non-GAAP operating margin1 | | 28.8 | % | | 30.4 | % | | |
| | | | Earnings per share—diluted | Earnings per share—diluted | | $ | 1.67 | | | $ | 1.02 | | | Earnings per share—diluted | | $ | 0.25 | | | $ | 1.67 | | |
| Acquisition-related adjustments | Acquisition-related adjustments | | 0.09 | | | 0.09 | | | Acquisition-related adjustments | | 0.09 | | | 0.09 | | |
| | Restructuring and other charges | Restructuring and other charges | | 0.01 | | | (0.01) | | | Restructuring and other charges | | 0.16 | | | 0.01 | | |
| | Share-based compensation | | Share-based compensation | | 0.19 | | | 0.13 | | |
| | Ongoing mark-to-market on marketable equity securities | | 0.04 | | | 0.03 | | | |
| | (Gains) losses from divestiture | | (Gains) losses from divestiture | | (0.01) | | | — | | |
| (Gains) losses on equity investments, net | | (Gains) losses on equity investments, net | | 0.03 | | | (0.42) | | |
| | NAND memory business | NAND memory business | | (0.10) | | | (0.04) | | | NAND memory business | | — | | | (0.10) | | |
| Tax Reform | | Tax Reform | | (0.05) | | | — | | |
| Income tax effects | Income tax effects | | — | | | (0.01) | | | Income tax effects | | (0.07) | | | 0.07 | | |
| | Non-GAAP earnings per share—diluted | Non-GAAP earnings per share—diluted | | $ | 1.71 | | | $ | 1.08 | | | Non-GAAP earnings per share—diluted | | $ | 0.59 | | | $ | 1.45 | | |
|
1 Our reconciliation of GAAP to non-GAAP prior year operating and gross margin percentagepercentages reflects the exclusion of our NAND memory business from net revenue.
| | | Nine Months Ended | | Nine Months Ended |
| (In Millions) | (In Millions) | | Sep 25, 2021 | | Sep 26, 2020 | (In Millions) | | Oct 1, 2022 | | Sep 25, 2021 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 24,194 | | | $ | 25,494 | | Net cash provided by operating activities | | $ | 7,730 | | | $ | 24,053 | |
| Additions to property, plant and equipment | | (11,579) | | | (10,392) | | |
| Free cash flow | | $ | 12,615 | | | $ | 15,102 | | |
Net additions to property, plant and equipment1 | | Net additions to property, plant and equipment1 | | (19,089) | | | (11,486) | |
| Payments on finance leases | | Payments on finance leases | | (341) | | | — | |
| Sale of equity investment | | Sale of equity investment | | 4,561 | | | — | |
| Adjusted free cash flow | | Adjusted free cash flow | | $ | (7,139) | | | $ | 12,567 | |
| | Net cash used for investing activities | Net cash used for investing activities | | $ | (20,133) | | | $ | (15,112) | | Net cash used for investing activities | | $ | (7,046) | | | $ | (19,543) | |
| Net cash provided by (used for) financing activities | | $ | (2,056) | | | $ | (11,220) | | |
| Net cash used for financing activities | | Net cash used for financing activities | | $ | (982) | | | $ | (2,505) | |
|
1 The calculation of adjusted free cash flow includes additions to property, plant and equipment net of proceeds from capital grants.
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. 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 20202021 Form 10-K.
Risk Factors
The risks described in "Risk Factors" within Other Key Information in our 20202021 Form 10-K and our subsequent Form 10-Qs10-Q for the quarter ended April 2, 2022 (Q1 2022 Form 10-Q) could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. The Risk Factors section in our 2021 Form 10-K, as updated by our Q1 2022 Form 10-Q, 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 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
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 25, 2021October 1, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Issuer Purchases of Equity Securities
We have an ongoing authorization, originally approved by our Board of Directors in 2005 and subsequently amended, to repurchase shares of our common stock in open market or negotiated transactions. No shares were repurchased during the quarter ending September 25, 2021.October 1, 2022. As of September 25, 2021,October 1, 2022, we were authorized to repurchase up to $110.0 billion, of which $7.2 billion remained 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 in a similar manner 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.
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| Other Key Information | 4143 |
Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934
Section 13(r) of the Exchange Act requires an issuer to disclose certain information in its periodic reports if it or any of its affiliates knowingly engaged in certain activities, transactions or dealings with individuals or entities subject to specific U.S. economic sanctions during the reporting period, even when the activities, transactions, or dealings are conducted in compliance with applicable law. On March 2, 2021, the U.S. Secretary of State designated the Federal Security Service of the Russian Federation (FSB) as a party subject to one such sanction. From time to time, our local subsidiary issubsidiaries are required to engage with the FSB as a licensing authority and file documents in order to conduct business within the Russian Federation. All such dealings are explicitly authorized by General License 1Bgeneral licenses issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and there are no gross revenues or net profits directly associated with any such dealings by us with the FSB. WeAs announced on April 5, 2022, Intel suspended all business operations in Russia until further notice, and we plan to continue theselimited activities as required to conduct business in the Russian Federation to the extent permitted by applicable law.
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.
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| Other Key Information | 4244 |
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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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 | | 8/5/2022 | | |
| 10.1 | | | | 8-K | | 000-06217 | | 10.1 | | 8/23/2022 | | |
| 10.2 | | | | 8-K | | 000-06217 | | 10.2 | | 8/23/2022 | | |
10.3† | | | | | | | | | | | | X |
| 31.1 | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 32.1 | | | | | | | | | | | | X |
| 101 | | Inline XBRL Document Set for the consolidated condensed financial statements and accompanying notes in Consolidated Condensed Financial Statements and Supplemental Details | | | | | | | | | | 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.
| | | | | | | | |
| Other Key Information | 4345 |
Form 10-Q Cross-Reference Index
| | | | | | | | |
| Item Number | Item | |
| Part I - Financial Information | |
| Item 1. | Financial Statements | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations: | |
| Liquidity and capital resources | |
| Results of operations | |
| Liquidity and capital resources | |
| | |
| Off-balance sheet arrangements | (a) |
| Contractual obligationsCritical accounting estimates | |
| 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 | |
| Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | |
| Item 6. | Exhibits | |
| | |
| Signatures | | |
(a) As of September 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 Information | 4446 |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | INTEL CORPORATION
(Registrant) |
| | | | | |
| Date: | October 21, 202127, 2022 | | By: | | /s/ GEORGE S. DAVISDAVID ZINSNER |
| | | | | George S. DavisDavid Zinsner |
| | | | | Executive Vice President and
Chief Financial Officer and Principal(Principal Financial OfficerOfficer) |
| | | | | |
| Date: | October 21, 202127, 2022 | | By: | | /s/ KEVIN T. MCBRIDESCOTT GAWEL |
| | | | | Kevin T. McBrideScott Gawel |
| | | | | Corporate Vice President of Finance, Corporate Controller and Chief Accounting Officer
(Principal Accounting OfficerOfficer) |
