Intel 2005 Annual Report Download - page 38

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Digital Enterprise Group
The revenue and operating income for the Digital Enterprise Group (DEG) for the three years ended December 31, 2005 were as follows:
Revenue for the DEG operating segment was approximately flat compared to 2004. Revenue from sales of microprocessors was approximately flat,
with slightly higher unit sales being offset by slightly lower average selling prices. Revenue from sales of server microprocessors in 2005 was
negatively affected by the highly competitive server market. Chipsets, motherboard and other revenue was higher, primarily due to higher average
selling prices of chipsets. Microprocessors within DEG include microprocessors designed for the desktop and enterprise computing market segments,
previously included within the former Intel Architecture business operating segment, as well as embedded microprocessors. Revenue from network
processors, which are based on our Intel XScale technology, is included in other revenue above.
Operating income was also approximately flat, at $9.0 billion in 2005 compared to $8.85 billion in 2004. The operating income for DEG was
positively affected by lower microprocessor unit costs and higher chipset revenue. These improvements were offset by approximately $380 million of
higher start-up costs in 2005, primarily related to our 65-nanometer process technology. Products based on our 65-nanometer process technology
began shipping in the fourth quarter of 2005. Although revenue was flat, operating expenses increased in 2005, which negatively affected operating
income. Both periods were negatively affected by litigation settlement agreements. Results for 2005 included a charge related to a settlement
agreement with MicroUnity, and results for 2004 included a charge related to a settlement agreement with Intergraph.
For 2004, revenue for the DEG operating segment increased by $1.7 billion, or 7%, compared to 2003. The increase in DEG revenue was primarily
due to higher unit sales of microprocessors and motherboards. The increase was partially offset by lower average selling prices for microprocessors
designed for desktop platforms, and lower chipset revenue. We ramped our 90-nanometer process technology in 2004 and exited the year with the
majority of microprocessors shipped by the DEG operating segment being manufactured on this technology.
Operating income increased to $8.85 billion in 2004 compared to $8.0 billion in 2003. The increase was primarily due to the impact of higher revenue
and lower unit costs for microprocessors, as well as approximately $160 million of lower manufacturing start-up costs. These increases in operating
income were partially offset by higher operating expenses, lower chipset revenue and the negative impact of reducing the carrying value of ending
chipset inventory to lower current replacement costs. In addition, we recorded a charge in 2004 related to a settlement agreement with Intergraph.
34
(In Millions)
2005
2004
2003
Microprocessor revenue
$
19,412
$
19,426
$
17,991
Chipset, motherboard and other revenue
5,725
5,352
5,068
Total revenue
$
25,137
$
24,778
$
23,059
Operating income
$
9,006
$
8,851
$
8,017