Intel 2013 Annual Report Download - page 22

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ITEM 1A. RISK FACTORS
Changes in product demand may harm our financial results and are hard to predict.
If product demand decreases, our revenue and profit could be harmed. Important factors that could cause demand
for our products to decrease include changes in:
• business conditions, including downturns in the computing industry, regional economies, and the overall
economy;
• consumer confidence or income levels caused by changes in market conditions, including changes in
government borrowing, taxation, or spending policies; the credit market; or expected inflation, employment, and
energy or other commodity prices;
• the level of customers’ inventories;
• competitive and pricing pressures, including actions taken by competitors;
• customer product needs;
• market acceptance of our products and maturing product cycles; and
• the technology supply chain, including supply constraints caused by natural disasters or other events.
Our operations have high costs—including costs related to facility construction and equipment, R&D, and
employment and training of a highly skilled workforce—that are either fixed or difficult to reduce in the short term. At
the same time, demand for our products is highly variable and, in recent years, we have experienced declining
orders in the traditional PC market segment, which has been negatively impacted by the growth in ultra-mobile
devices such as tablets and smartphones. If product demand decreases or we fail to forecast demand accurately,
we could be required to write off inventory or record excess capacity charges, which would lower our gross margin.
Our manufacturing or assembly and test capacity could be underutilized, and we may be required to write down our
long-lived assets, which would increase our expenses. Factory-planning decisions may shorten the useful lives of
facilities and equipment and cause us to accelerate depreciation. If product demand increases, we may be unable
to add capacity fast enough to meet market demand. Our revenue and gross margin percentage can also be
affected by the timing of our product introductions and related expenses, including marketing expenses. Changes in
product demand, and changes in our customers’ product needs, could negatively affect our competitive position and
may reduce our revenue, increase our costs, lower our gross margin percentage, or require us to write down our
assets.
We operate in highly competitive industries, and our failure to anticipate and respond to technological and
market developments could harm our ability to compete.
We operate in highly competitive industries that experience rapid technological and market developments, changes
in industry standards, changes in customer needs, and frequent product introductions and improvements. If we are
unable to anticipate and respond to these developments, we might weaken our competitive position, and our
products or technologies might be uncompetitive or obsolete. As computing market segments emerge, such as
smartphones, tablets, and consumer electronics devices, we face new sources of competition and customers with
needs different from those of customers in the PC market segment. Some of our competitors are pursuing a vertical
integration strategy, incorporating their SoC solutions into the smartphones and tablets they offer, which could make
it less likely that they will adopt our SoC solutions. To be successful, we need to cultivate new industry relationships
in these market segments. As the number and variety of Internet-connected devices increase, we need to
continuously improve the cost, connectivity, integration, features, energy efficiency, and security of our platforms,
among other things, to succeed in these market segments. In addition, we need to expand our software capabilities
to provide customers with comprehensive computing solutions.
To compete successfully, we must maintain a successful R&D effort, develop new products and production
processes, and improve our existing products and processes ahead of competitors. For example, we invest
substantially in our network of manufacturing, assembly and test facilities, including the construction of new
fabrication facilities to support smaller transistor geometries and larger wafers. Our R&D efforts are critical to our
success and are aimed at solving complex problems, and we do not expect all of our projects to be successful. We
may be unable to develop and market new products successfully, and the products we invest in and develop may
not be well received by customers. Our R&D investments may not generate significant operating income or
contribute to our future operating results for several years and such contributions may not meet our expectations or
even cover the costs of such investments. Additionally, the products and technologies offered by others may affect
demand for or pricing of our products. These types of events could negatively affect our competitive position and
may reduce revenue, increase costs, lower gross margin percentage, or require us to impair our assets.
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