Intel 2003 Annual Report Download - page 38

Table of Contents
Index to Financial Statements
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations
Overview
In 2003, we saw a substantial improvement in our Intel Architecture business compared to 2002, and as we look ahead to the rest of 2004,
we are planning for growth in annual revenue and further progress in overall gross profit margin. Our growth continues to be largely dependent
on the success of our microprocessor business. Revenue from sales of microprocessors within our Intel Architecture business represented
approximately 73% of our consolidated net revenue in 2003. Rapid technological advances characterize the semiconductor industry. Therefore,
we must continue to deliver leading-edge products that appeal to users of technology by integrating higher performance and/or added features
into our products. In addition, growth in sales of microprocessors is dependent on continued sales growth in emerging markets in both Asia and
Europe, which have been growing faster on a percentage basis than our other regions. In 2003, 72% of our sales came from geographies outside
of the Americas. Finally, growth in sales of microprocessors depends on continued business and consumer investment in technologies that use
our microprocessors in mature markets.
We plan to continue to streamline operations and refocus on core strategic areas within our communications-related businesses. In line
with this effort, in December 2003, we announced that we would be consolidating communications-related businesses within ICG and WCCG
into a single organization, the Intel Communications Group, effective for 2004. We believe that as wireless LAN and cellular technologies
come together, the combination of these organizations gives us the opportunity to better coordinate product planning and customer focus. The
losses in our flash memory business have been disappointing. However, we intend to use leading technology products and manufacturing
processes to turn this business around. In addition, our networking business has experienced the negative effect of an overall decline in the
telecommunications industry in the last few years; however, we have been cutting costs and trimming the losses in this business, and believe
that this market segment will eventually improve.
Sustaining or growing our profitability depends on our ability to obtain continuing benefits from the productive use of our manufacturing
assets, in particular our new equipment used for 90-nanometer process technology and 300mm wafers, as we build more of our mainstream
products with these technologies. We consider our manufacturing capability to be a competitive advantage, and our success is dependent on our
continued ability to lower our unit costs through manufacturing efficiencies. Because we have high fixed costs, our profitability could be
negatively affected if we do not achieve sufficient sales-volume growth. Despite the economic downturn of the last few years, we continued to,
and currently plan to continue to, invest in capital equipment and increase research and development spending with the goal of delivering
leading-edge products on advanced manufacturing processes.
The following table sets forth certain consolidated statements of income data as a percentage of net revenue for the periods indicated:
35
2003 2002 2001
Net revenue
100.0
%
100.0
%
100.0
%
Cost of sales
43.3
%
50.2
%
50.8
%
Gross margin
56.7
%
49.8
%
49.2
%
Research and development
14.5
%
15.1
%
14.3
%
Marketing, general and administrative
14.2
%
16.2
%
16.8
%
Impairment of goodwill
2.0
%
—
.
5
%
Amortization of goodwill
—
—
6.0
%
Amortization and impairment of acquisition
-
related intangibles and costs
1.0
%
2.0
%
2.4
%
Purchased in
-
process research and development
—
.
1
%
.7
%
Operating income
25.0
%
16.4
%
8.5
%