Intel 2003 Annual Report Download - page 41

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Table of Contents
Index to Financial Statements
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Intel Communications Group
The revenue and operating loss for the ICG operating segment for the three years ended December 27, 2003 were as follows:
Net revenue increased by $67 million, or 3%, in 2003 compared to 2002. Revenue increased for wireless connectivity products, including
the wireless component of our Intel Centrino mobile technology, and for embedded processing components. These increases were partially
offset by lower revenue from sales of telecommunications-
related board products and lower revenue from wired Ethernet connectivity products
due to the continuing shift in product mix to LAN on motherboard products.
The operating loss decreased to $426 million in 2003 from a $622 million loss in 2002, primarily due to a decrease in operating expenses
of $194 million in 2003 as we continued our efforts to streamline operations and refocus on our core strategic areas. In addition, operating
results improved due to higher revenue from sales of embedded processing components and lower unit costs of microcontrollers. These
improvements were partially offset by the mix shift to lower margin wired Ethernet connectivity products. Finally, in the current competitive
environment, sales of wireless connectivity products in support of expanded adoption of Intel Centrino mobile technology increased the
operating loss in 2003.
For 2002, net revenue decreased by $500 million, or 19%, compared to 2001, primarily due to lower overall unit volumes for
telecommunications-related products, consistent with the decline in industry-
wide demand for these products. In addition, net revenue for wired
Ethernet connectivity products decreased, even as units increased, due to the shift in product mix from adapter cards to LAN on motherboard
products.
Despite the decline in net revenue for ICG, 2002 net operating results improved, with a loss of $622 million compared to a loss of $735
million in 2001. The impact of lower revenue was more than offset by the impact of operating expenses, which were lower by approximately
$137 million, as well as by reduced inventory write-downs in 2002 compared to 2001 and a mix shift to higher margin products, including
embedded processing components.
Wireless Communications and Computing Group
The revenue and operating loss for the WCCG operating segment for the three years ended December 27, 2003 were as follows:
Net revenue decreased by $382 million, or 17%, in 2003 compared to 2002 due to lower unit sales of flash memory products. In 2003,
revenue for flash memory products was negatively affected by lost business as a result of the pricing strategy on certain products. Revenue
from sales of application processors for data-enabled cellular phones and handheld computing devices increased.
The operating loss increased by $145 million to a loss of $432 million in 2003 compared to a loss of $287 million in 2002, primarily due
to lower revenue for flash memory products and the impact of higher inventory write-offs.
Net revenue was flat from 2001 to 2002. Revenue for flash memory products was slightly lower due to a decrease in average selling
prices stemming from competitive pricing pressures, mostly offset by an increase in unit volumes. Revenue on higher volumes of application
processors and baseband chipsets offset the lower revenue from flash memory products.
The net operating loss increased by $38 million to a loss of $287 million in 2002 compared to a loss of $249 million in 2001. Lower
average selling prices in 2002 for flash memory products were partially offset by the impact of charges for under-utilized factory capacity that
were reduced by approximately $170 million. Higher revenue and lower costs for application processors and baseband chipsets offset a portion
of the negative impact for flash memory products.
38
(In Millions)
2003
2002
2001
Revenue
$
2,147
$
2,080
$
2,580
Operating loss
$
(426
)
$
(622
)
$
(735
)
(In Millions)
2003
2002
2001
Revenue
$
1,857
$
2,239
$
2,232
Operating loss
$
(432
)
$
(287
)
$
(249
)