Intel 1995 Annual Report Download - page 32

expenditures increased substantially in both 1994 and 1995, as the Company continued to invest in the property, plant and equipment needed
for future business requirements, including manufacturing capacity. The Company expects to spend approximately $4.1 billion for capital
additions in 1996 and had committed approximately $1.47 billion for the construction or purchase of property, plant and equipment as of
December 30, 1995.
Inventory levels, particularly raw materials and finished goods, increased significantly in 1995. This increase was primarily attributable to the
increased level of business and, to a lesser extent, to an unusually low level of inventory at the end of 1994 because of a writedown of
inventories in the fourth quarter of 1994 in connection with the divide problem in the floating point unit of the Pentium processor. The increase
in accounts receivable in 1995 was mainly due to revenue growth, including the growth of non-domestic sales that have longer payment terms.
During 1995, the Company experienced an increase in its concentration of credit risk due to increasing trade receivables from sales to
manufacturers of microcomputer systems. The Company's five largest customers accounted for approximately 33% of net revenues for 1995.
At December 30, 1995, these customers accounted for approximately 34% of net accounts receivable. A portion of the receivable balance from
one of its five largest customers has been converted into a loan. The total amount receivable from this customer was approximately $400
million at December 30, 1995.
The Company used $1.06 billion and $557 million for financing activities in 1995 and 1994, respectively, while $352 million was provided in
1993. The major financing application of cash in 1995 was for stock repurchases totaling $1.03 billion. Financing applications of cash in 1994
included stock repurchases of $658 million and the early retirement of the Company's 8 1/8% debt. Sources of financing in 1993 included the
Company's public offering of the 1998 Step-Up Warrants, which resulted in proceeds of $287 million.
As part of its authorized stock repurchase program, the Company had outstanding put warrants at the end of 1995, with the potential obligation
to buy back 12 million shares of its Common Stock at an aggregate price of $725 million. The exercise price of these warrants ranges from $38
to $68 per share, with an average exercise price of $60 per share.
Other sources of liquidity include combined credit lines and authorized commercial paper borrowings of $1.86 billion, $57 million of which
was outstanding at December 30, 1995. The Company also maintains the ability to issue an aggregate of approximately $1.4 billion in debt,
equity and other securities under Securities and Exchange Commission (SEC) shelf registration statements. The Company believes that it has
the financial resources needed to meet business requirements in the foreseeable future, including capital expenditures for the recently
announced expansion of international manufacturing sites, working capital requirements, the potential put warrant obligation and the dividend
program.
Outlook. The statements contained in this Outlook are based on current expectations. These statements are forward looking, and actual results
may differ materially.
Intel expects that the total number of personal computers using Intel's Pentium microprocessors and other semiconductor components sold
worldwide will continue to grow in 1996. Intel has expanded manufacturing capacity over the last few years and continues to expand capacity
to be able to meet the potential increase in demand. Intel's financial results are to a large extent dependent on this market segment. Revenue is
also a function of the distribution of microprocessor speed and performance levels, which is difficult to forecast. Because of the large price
difference between components for the highest and lowest performance computers, this distribution affects the average price Intel will realize
and has a large impact on Intel's revenues. Intel's strategy has been, and continues to be, to introduce ever higher performance microprocessors
and work with the software industry to develop compelling applications that can take advantage of this higher performance, thus driving
demand toward the newer products. Capacity has been planned based on the assumed continued success of the Company's strategy.
In line with this strategy, the Company has recently announced higher speed members of the Pentium(R) Pro microprocessor family. If the
market demand does not continue to grow and move rapidly toward higher performance products, revenue growth may be impacted, the
manufacturing capacity installed might be under-utilized and capital spending may be slowed. The Company may continue to reduce
microprocessor prices aggressively and systematically to bring its technology to market.
The Company's gross margin percentage is a sensitive function of the product mix sold in any period. Because the percentage of motherboards
that Intel's customers purchase changes with maturity of the product cycle, and motherboards generally have lower gross margin percentages
than microprocessors, Intel's gross margin percentage varies depending on the mix of microprocessors and related motherboards within a
product family. Various other factors, including unit volumes and costs and yield issues associated with initiating production at new factories
or on new processes, also will continue to affect the amount of cost of sales and the variability of gross margin percentages in future quarters.
From time to time the Company may forecast a range of gross margin percentages for the coming quarter. Actual results may differ. Longer
term gross margin percentages are even more difficult to predict.
To implement its strategy, Intel continues to build capacity to produce high- performance microprocessors and other products. The Company
expects that capital spending will increase to approximately $4.1 billion in 1996. This spending plan is dependent upon delivery times of
various machines and construction schedules for new facilities. Based on this forecast, depreciation for 1996 is expected to be approximately
$1.9 billion, an increase of approximately $500 million from 1995. Most of this increased depreciation will be included in cost of sales and
research and development spending. The industry in which Intel operates is characterized by very short product life cycles. Intel considers it
imperative to maintain a strong research and development program to continue to succeed. Accordingly, research and development spending is
expected to grow in 1996 to approximately $1.6 billion. The Company will also continue spending to promote its products and to increase the
value of its product brands. Based on current forecasts, spending for marketing and general and administrative expenses is expected to increase
in 1996.
The Company expects its tax rate to decrease to 36.5% for 1996. This estimate is based on current tax law and is subject to change.
The Company's future results of operations and the other forward looking statements contained in this Outlook, in particular the statements
regarding growth in the personal computer industry, capital spending, depreciation, research and development, and marketing and general and
administrative expenses, involve a number of risks and uncertainties. In addition to the factors discussed above, among the other factors that
could cause actual results to differ materially are the following: business conditions and the general economy; competitive factors, such as rival
chip architectures, competing software compatible microprocessors, acceptance of new products and price pressures; availability of third-party
component products at reasonable prices; risk of nonpayment of accounts receivable or customer loans; manufacturing ramp and capacity; risks
associated with foreign operations; risk of inventory obsolescence due to shifts in market demand; timing of software industry product
introductions; and litigation involving intellectual property and consumer issues.
Intel believes that it has the product offerings, facilities, personnel, and competitive and financial resources for continued business success, but
future revenues, costs, margins, product mix and profits are all influenced by a number of factors, as discussed above.