Intel 2004 Annual Report Download - page 36

Download and view the complete annual report

Please find page 36 of the 2004 Intel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 111

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating Expenses
Operating expenses for the three years ended December 25, 2004 were as follows:
Research and development spending increased $418 million, or 10%, in 2004 compared to 2003, and increased $326 million, or 8%, in
2003 compared to 2002. This increase in 2004 compared to 2003 was primarily due to higher expenses related to development for
manufacturing process technologies, including the 65-nanometer process on 300mm wafers, and higher expenses for product development
programs in the Intel Architecture business, as well as higher profit-dependent compensation expenses. The increase in 2003 compared to 2002
was primarily due to higher expenses for product development programs in the Intel Architecture business and higher spending on the
development of manufacturing process technologies, including the 65-nanometer process technology, as well as higher profit-dependent
compensation expenses.
Marketing, general and administrative expenses increased $381 million, or 9%, in 2004 compared to 2003. The increase in 2004 was
primarily due to higher cooperative advertising expenses (as a result of higher revenue in our Intel Architecture business and because our
customers used a higher percentage of their available Intel Inside
®
program funds) and increased profit-dependent compensation expenses. In
addition, the increase was due to higher marketing expenses from additional marketing programs and increased advertising expenses.
Marketing, general and administrative expenses were flat in 2003 compared to 2002. In 2003, we lowered our discretionary spending and other
expenses as we reduced headcount and refocused on core strategic areas. This decrease in expenses was offset by higher marketing expenses
due to the launch of the Intel Centrino mobile technology brand in 2003; increased profit-dependent compensation expenses; and higher
expenses related to the Intel Inside cooperative advertising program, primarily due to higher microprocessor revenue.
Research and development along with marketing, general and administrative expenses were approximately 28% of net revenue in 2004,
29% of net revenue in 2003 and 31% of net revenue in 2002.
Amortization of acquisition-related intangibles and costs was $179 million in 2004, $301 million in 2003 and $548 million in 2002. The
decreased amortization each year compared to the previous year was primarily due to a portion of the intangibles related to prior acquisitions
becoming fully amortized.
During the fourth quarter of 2004, we completed our annual impairment review for goodwill and determined that the fair value of the ICG
reporting unit was in excess of its carrying value; therefore goodwill was not impaired. In our 2003 goodwill impairment review, we found
indicators of impairment for the then-existing WCCG reporting unit. At that time, the WCCG business, comprising primarily flash memory
products and cellular baseband chipsets, had not performed as management had expected. In the fourth quarter of 2003, it became apparent that
WCCG was expected to grow more slowly than previously projected. A slower-than-expected rollout of products and slower-than-expected
customer acceptance of our products in the baseband chipset business, as well as a delay in the transition to next-generation phone networks,
had pushed out the forecasts for sales of products for high-end data cell phones. These factors resulted in lower growth expectations for the
reporting unit and triggered a $611 million charge for impairment of goodwill. Also during 2003, we recorded a $6 million charge for
impairment of the goodwill related to one of our seed businesses. Seed businesses support the company’s strategic initiatives.
33
(In Millions)
2004
2003
2002
Research and development
$
4,778
$
4,360
$
4,034
Marketing, general and administrative
$
4,659
$
4,278
$
4,334
Impairment of goodwill
$
—
$
617
$
—
Amortization and impairment of acquisition
-
related intangibles and costs
$
179
$
301
$
548
Purchased in
-
process research and development
$
—
$
5
$
20