Intel 2012 Annual Report Download - page 32

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in
addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results
of operations, financial condition, and cash flows. MD&A is organized as follows:
• Overview. Discussion of our business and overall analysis of financial and other highlights affecting the company
in order to provide context for the remainder of MD&A.
• Critical Accounting Estimates. Accounting estimates that we believe are most important to understanding the
assumptions and judgments incorporated in our reported financial results and forecasts.
• Results of Operations. An analysis of our financial results comparing 2012 to 2011 and comparing 2011 to 2010.
• Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of
our financial condition and potential sources of liquidity.
• Fair Value of Financial Instruments. Discussion of the methodologies used in the valuation of our financial
instruments.
• Contractual Obligations and Off-Balance-Sheet Arrangements. Overview of contractual obligations, contingent
liabilities, commitments, and off-balance-sheet arrangements outstanding as of December 29, 2012, including
expected payment schedule.
The various sections of this MD&A contain a number of forward-looking statements that involve a number of risks and
uncertainties. Words such as “anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,”
“continues,” “may,” “will,” “should,” and variations of such words and similar expressions are intended to identify such
forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our
anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future
events or circumstances are forward-looking statements. Such statements are based on our current expectations and
could be affected by the uncertainties and risk factors described throughout this filing and particularly in “Risk Factors” in
Part I, Item 1A of this Form 10-K. Our actual results may differ materially, and these forward-looking statements do not
reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been
completed as of February 19, 2013.
Overview
Our results of operations were as follows:
Three Months Ended
Twelve Months Ended
(Dollars in Millions)
Dec. 29,
2012
Sept. 29,
2012
Change
Dec. 29,
2012
Dec. 31,
2011
Change
Net revenue...............................................
$ 13,477
$ 13,457
$ 20
$ 53,341
$ 53,999
$ (658)
Gross margin.............................................
$ 7,817
$ 8,515
$ (698)
$ 33,151
$ 33,757
$ (606)
Gross margin percentage..........................
58.0%
63.3%
(5.3)%
62.1%
62.5%
(0.4)%
Operating income ......................................
$ 3,155
$ 3,841
$ (686)
$ 14,638
$ 17,477
$ (2,839)
Net income ................................................
$ 2,468
$ 2,972
$ (504)
$ 11,005
$ 12,942
$ (1,937)
Diluted earnings per common share ..........
$ 0.48
$ 0.58
$ (0.10)
$ 2.13
$ 2.39
$ (0.26)
Our revenue for 2012 was down 1% from 2011 and lower than we expected at the start of the year. Worldwide gross
domestic product growth was less than expected as we entered 2012, and PC Client Group revenue was negatively
impacted by the growth of tablets as these devices compete with PCs for consumer sales. Data Center Group revenue
grew 6% in 2012 as a richer mix of products and significant growth in the Internet cloud segment was partially offset by
weakness in the enterprise market segment. Our gross margin percentage for 2012 was flat compared to 2011 as higher
excess capacity charges and higher platform unit costs were offset by lower start-up costs and no impact in 2012 for the
Intel® 6 Series Express Chipset design issue.
Our fourth quarter revenue of $13.5 billion was flat from the third quarter of 2012. Historically, our revenue generally has
increased in the fourth quarter. However, softness in PC demand and continued decline of inventory in the PC supply
chain as OEMs reduce inventory on older-generation products negatively impacted our results for the fourth quarter. The
decline in our gross margin percentage in the fourth quarter was driven by excess capacity charges as we responded to
lower demand by bringing down inventory levels and redirecting capital resources to our 14nm process technology. Our
gross margin was also negatively impacted by higher inventory reserves on production of our next-generation
microarchitecture products, code-named Haswell, which we expect to qualify for sale in the first quarter of 2013.
During 2012 we made significant product introductions across all our businesses, including PC client, servers,
smartphones and tablets, and extended our manufacturing and process technology leadership. We launched our next-