10-K 1 a12302017q4-10kdocument.htm 10-K Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 30, 2017.
 
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                    .
Commission File Number 000-06217
 
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INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
94-1672743
State or other jurisdiction of
incorporation or organization
 
(I.R.S. Employer
Identification No.)
 
 
 
2200 Mission College Boulevard, Santa Clara, California
 
95054-1549
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock, $0.001 par value
 
The Nasdaq Global Select Market*
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x  No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ¨  No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x  No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
Accelerated filer  ¨
Non-accelerated filer  ¨
Smaller reporting company  ¨
Emerging growth company  ¨
 

(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ¨  No x
Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017, based upon the closing price of the common stock as reported by the Nasdaq Global Select Market on such date, was $158.3 billion. 4,668 million shares of common stock were outstanding as of February 7, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement related to its 2018 Annual Stockholders’ Meeting to be filed subsequently are incorporated by reference into Part III of this Annual Report on Form 10-K. Except as expressly incorporated by reference, the registrant’s proxy statement shall not be deemed to be part of this report.



Table of contents
CHANGES TO OUR ANNUAL REPORT ON FORM 10-K
To improve readability and better present how we organize and manage our business, we have changed the order and presentation of content in our Annual Report on Form 10-K (Form 10-K). See "Form 10-K Cross-Reference Index" within the Consolidated Financial Statements and Supplemental Details for a cross-reference index to the traditional U.S. Securities and Exchange Commission (SEC) Form 10-K format.
We have included key metrics that we use to measure our business, some of which are non-GAAP measures. See these "Non-GAAP Financial Measures" within Other Key Information.
FUNDAMENTALS OF OUR BUSINESS
 
OTHER KEY INFORMATION
Business Introduction
 
Stock Performance Graph
A Year in Review
 
Selected Financial Data
How We Organize Our Business
 
Sales and Marketing
Capital Allocation
 
Competition
Our Strategy
 
Intellectual Property Rights and Licensing
Research and Development (R&D) and Manufacturing
 
Critical Accounting Estimates
Who Manages Our Business
 
Risk Factors
Human Capital
 
Non-GAAP Financial Measures
Corporate Responsibility and Sustainability
 
Properties
 
 
 
Market for Registrant's Common Equity
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) -
RESULTS OF OPERATIONS
 
Availability of Company Information
 
 
 
Overview
 
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DETAILS
Revenue, Gross Margin, and Operating Expenses
 
 
Business Unit Trends and Results
 
Index to Financial Statements and Supplemental Details
Client Computing Group (CCG)
 
Auditor's Report
Data Center Group (DCG)
 
Consolidated Financial Statements
Internet of Things Group (IOTG)
 
Notes to the Consolidated Financial Statements
Non-Volatile Memory Solutions Group (NSG)
 
Financial Information by Quarter
Programmable Solutions Group (PSG)
 
Controls and Procedures
Other Consolidated Results of Operations
 
Exhibits and Financial Statement Schedules
Liquidity and Capital Resources
 
Form 10-K Cross-Reference Index
Contractual Obligations
 
 
 
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Forward-Looking Statements
This Annual Report on Form 10-K contains 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,” “would,” “should,” “could,” 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, projected growth of markets relevant to our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and particularly in “Risk Factors” within Other Key Information. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-K and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-K do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of February 16, 2018. In addition, the forward-looking statements in this Form 10-K are made as of the date of this filing, including expectations based on third-party information and projections that management believes to be reputable, and Intel does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.
Note Regarding Third-Party Information
This Annual Report on Form 10-K includes market data and certain other statistical information and estimates that are based on reports and other publications from industry analysts, market research firms, and other independent sources, as well as management’s own good faith estimates and analyses. Intel believes these third-party reports to be reputable, but has not independently verified the underlying data sources, methodologies or assumptions. The reports and other publications referenced are generally available to the public and were not commissioned by Intel. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information.
Intel unique terms
We use specific terms throughout this document to describe our business and results. Below are key terms and how we define them:
PLATFORM PRODUCTS
 
A microprocessor (processor or central processing unit (CPU)) and chipset, a stand-alone System-on-Chip (SoC), or a multichip package. Platform products, or platforms, are primarily used in solutions sold through CCG, DCG, and IOTG segments.
 
 
 
ADJACENT PRODUCTS
 
All of our non-platform products, for CCG, DCG, and IOTG like modem, ethernet and silicon photonics, as well as NSG, PSG, and Mobileye products. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needs.
 
 
 
PC-CENTRIC BUSINESS
 
Is made up of our CCG business, both platform and adjacent products.
 
 
 
DATA-CENTRIC BUSINESSES
 
Includes our DCG, IOTG, NSG, PSG, and all other businesses.





*Other names and brands may be claimed as the property of others. Radeon and the Radeon RX Vega logo are trademarks of Advanced Micro Devices, Inc.

Intel, the Intel logo, 3D XPoint, AnyWAN, Arria, Celeron, Cyclone, Enpirion, Intel Atom, Intel Core, Intel Inside, the Intel Inside logo, Intel Optane, Intel Xeon Phi, Itanium, MAX, Movidius, Myriad, Pentium, Puma, Quark, Stratix, Thunderbolt, Xeon, and XMM are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.

 
 
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Introduction to our business
 
 
 
 
 
We are a world leader in the design and manufacturing of essential technologies that power the cloud and an increasingly smart, connected world. We offer computing, networking, data storage, and communications solutions to a broad set of customers spanning multiple industries. In 1968, Intel was incorporated in California (reincorporated in Delaware in 1989), in what became known as Silicon Valley, and our technology has been at the heart of computing breakthroughs ever since.

 
 
We're now in the midst of a corporate transformation as we grow beyond our traditional PC and server businesses into data-rich markets addressing the explosive demands to process, analyze, store, and transfer data. The transformation is well underway, with our data-centric businesses representing an increasing share of our overall revenue.

 
 
Our vision is to build a smart and connected world that runs on Intel® solutions. This vision is supported by our commitment to corporate responsibility and our relentless pursuit of Moore's Law. As we enter Intel’s 50th year in business, we continue to follow the advice of Intel co-founder Bob Noyce: "Don’t be encumbered by history, go off and do something wonderful."
 
 
 
 

 
 
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Our Strategy
Data is a significant force in society and will be essential in shaping the future of every person on the planet. From large complex applications in the cloud to small low-power mobile devices at the edge, our customers are looking for solutions that can process, analyze, store, and transfer data—turning it into actionable insights, amazing experiences, and competitive advantages.

 
 
"Intel's strategy is to provide the technological foundation of the new data world."

—Brian Krzanich, Intel Chief Executive Officer
We strive to unlock the power of data so people can ride in self-driving cars, experience virtual worlds, connect with each other over fast mobile networks, and be touched by computer-assisted intelligence in ways yet unimagined.
 
 
 
 
 
 
We are well-positioned to be the driving force of this data revolution. Intel technology powers the devices and infrastructure that power the data-centric world, from PCs and the cloud to telecommunications equipment and data centers. Our computing solutions from the cloud to the edge enable a Virtuous Cycle of Growth. Our strategy is to provide the technological foundation of the new data world—a world that is always learning, smarter and faster.
COMPUTE PERFORMANCE FROM CLIENT TO CLOUD
 
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The most important trend shaping the future of the data- centric world is the cloud and its connection to billions of smart devices, including PCs, autonomous cars, and virtual reality systems. When smart devices are connected to the cloud, the data can be analyzed real-time, making these devices more useful. Our continuous innovation of client and Internet of Things products, designed to connect even more seamlessly, is shaping this trend.
Our data center products are optimized to deliver industry-leading performance and best-in-class total cost of ownership for cloud workloads. We add new products and features to our portfolio to address emerging, high-growth workloads such as artificial intelligence, virtual reality systems, and the 5G network.

 
 
 
ACCELERANT TECHNOLOGIES
 
 
 
 
 
Advancements in memory technology and programmable solutions, such as FPGAs, drive performance in smart devices as well as data centers. Intel's 3D XPointtechnology significantly improves access to large amounts of data. FPGAs can efficiently manage the changing demands of next-generation data centers and accelerate the performance in other applications. The combination of memory and FPGAs with client and cloud products enables new solutions such as deep learning acceleration engines.
 
 
 
CONNECTIVITY
 
 
 
 
 
With our wireless, computing, and cloud capabilities, we are driving the development of technologies and collaborating on the rapid definition of open standards that will help define the 5G market. Our collaborations shape the connectivity ecosystem and enable new opportunities to meet the diverse connectivity needs of data. From smart devices to network infrastructure to the cloud and back, we aim to offer scale, innovation, and expertise to our customers.
 
 



FUNDAMENTALS OF OUR BUSINESS
  Our Strategy
8


STRATEGIC ENABLERS
 
We meet our customer needs with discrete platforms and platforms that are integrated with software and other technologies to provide end-to-end solutions. Our solutions are enabled by:
Shared architecture and intellectual property. We have developed a common architecture and intellectual property across our platforms. We continue to invest in improving our architecture and product platforms that deliver increasing value to our customers. Our proprietary technologies make it possible to integrate products and platforms that address evolving customer needs and expand the markets we serve. Sharing a common architecture and intellectual property enables us to spread our costs over a large manufacturing base of products, which reduces our costs and increases our return on capital.
Silicon manufacturing technologies. We make significant investments and innovations in our silicon manufacturing technologies. Unlike many semiconductor companies, we primarily develop and manufacture our products in our own facilities using our proprietary process technologies. This competitive advantage enables us to optimize performance, shorten time-to-market for new product introduction, and more quickly scale products in high volume.
Moore's Law. Intel’s advancement of Moore’s Law has driven significant computing power growth and better economics. Through Moore's Law we enable new devices and capabilities that meet our customers' needs for balancing performance, power efficiency, and cost.
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CORPORATE TRANSFORMATION
 
We are in the midst of a corporate transformation. Over the last four years, we’ve grown outside our traditional PC and server businesses, where we had roughly 90% market share. By making key investments and decisions to enter data-rich markets, we have redefined our target market well beyond our traditional businesses and estimated a total addressable market (TAM) of $260 billion1, where we have greater opportunity to grow. The expanded TAM leverages our manufacturing technologies and intellectual properties and provides growth opportunities in our revenue and profit. We have evolved from a PC company with a server business to a data-centric company, and have begun the next phase of our journey—to build a world that runs on Intel.





1 Source: Intel calculated 2021 TAM derived from industry analyst reports and internal estimates.

FUNDAMENTALS OF OUR BUSINESS
  Our Strategy
9


Research AND development (R&D) and Manufacturing
We are committed to investing in R&D. Realizing the benefits from Moore’s Law provides flexibility in balancing production costs and the increased functionality of our products. In addition, intellectual property that we have developed for our platforms reduces our costs, creates synergies across our businesses, and provides a higher return as we expand into new markets.
We design and manufacture silicon technology products. Unlike many other semiconductor companies, we primarily manufacture our products in our own manufacturing facilities. We see our in-house manufacturing as one of our most critical assets and advantages. This advantage is now expanding to our adjacent businesses, for example, FPGA, modem, and memory, which are enabling our transformation to a data-centric company.
Moore's Law — a law of economics
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Moore’s Law is not a law of physics, but instead a law of economics predicted by Intel's co-founder Gordon Moore 50 years ago. It is the keystone of our manufacturing advancement. We measure Moore's Law primarily using a quantitative transistor density metric (transistors per square millimeter). In addition, we are optimizing process technology within each node to enable an annual cadence of product improvements.
Realizing Moore’s Law results in economic benefits as we are able to either reduce a chip's cost as we shrink its size, or increase functionality and performance of a chip while maintaining the same cost. At Intel, we continue to develop new generations of manufacturing process technology and realize the benefits from Moore’s Law. This makes possible the innovation of new products with higher functionality while balancing power efficiency, cost, and size to meet customers' needs. As of the end of 2017, our platform products were manufactured on 300mm wafers, with the majority manufactured using our 14nm process node.
Research and Development
We focus our R&D activities on developing new microarchitectures, advancing our manufacturing process technology, delivering the next generation of products, ensuring our products and technologies are secure, and developing new solutions in emerging technologies, for example, artificial intelligence, 5G wireless connectivity, and autonomous vehicles.
In conjunction with our R&D efforts, we plan to introduce new microarchitectures for our various products on a regular cadence. We have lengthened the amount of time we are using our 14nm process node, further optimizing our technology and meeting the yearly market cadence for product introductions with multiple waves of product offerings. While we have lengthened our utilization of 14nm, we are accelerating transistor density improvement with hyper-scaling technology, resulting in the same density and cost improvements over time as predicted by Moore's Law. We expect the same trends to continue as we introduce our next-generation 10nm process node.

FUNDAMENTALS OF OUR BUSINESS
  Research and Development (R&D) and Manufacturing
10


We centrally manage key cross-business group product initiatives to align and prioritize our R&D activities. In addition, we may augment our R&D initiatives by investing in companies or entering into agreements with companies that have similar R&D focus areas, as well as directly purchasing or licensing applicable technology. To drive innovation and gain efficiencies, we intend to utilize our investments in intellectual property and R&D across our platforms and businesses.
manufacturing footprint
In 2017, the majority of our wafer manufacturing was conducted within the U.S. We incur factory start-up costs as we ramp our facilities for new process technologies. In 2017 we continued to ramp the 10nm process node in our Oregon and Israel locations, began 10nm production in Oregon, and restarted construction on one of our Arizona wafer fabs, which is targeted for leading-edge process technologies. We ramped our first memory fab, Fab 68, with investments representing approximately 20% of total capital spending in 2017.
The map below marks our manufacturing facilities and their primary manufacturing functions as of the end of 2017, as well as the countries where we have a significant R&D or sales and marketing presence.
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supply chain and factory network
Our manufacturing facilities are primarily used for silicon wafer manufacturing of our platform and memory products. These facilities are built following a “copy exactly” methodology, whereby new process technologies are transferred identically from a central development fab to each manufacturing facility. This enables fast ramp of the operation as well as better quality control. These wafer fabs operate in a network of manufacturing facilities integrated as one factory to provide the most flexible supply capacity, allowing us to better analyze our production costs and manage capacity.
We use third-party foundries to manufacture wafers for certain components, including communications, connectivity, networking, FPGA, and memory products. We also leverage subcontractors to augment capacity to perform assembly and test in addition to our in-house manufacturing, primarily for chipsets and adjacent products.
We use a multi-source strategy for our memory business to enable a robust and flexible supply chain. The ramping of Fab 68 in 2017 enabled us to maintain a cost-effective strategy to better serve our customers. We expect this expansion to continue to provide significant manufacturing capacity. As of the end of 2017, over half of the 3D NAND we supplied was manufactured in Fab 68. In addition to the memory we manufacture internally, we have a supplemental supply agreement with Micron Technology, Inc. (Micron), as well as capacity from our joint venture, IM Flash Technologies, LLC (IMFT) factory in Lehi, Utah.

FUNDAMENTALS OF OUR BUSINESS
  Research and Development (R&D) and Manufacturing
11


who manages our business
Executive Officers of the Registrant
NAME
 
AGE
 
OFFICE(S)
Andy D. Bryant
 
67
 
Chairman of the Board
Brian M. Krzanich
 
57
 
Chief Executive Officer
Dr. Venkata S.M. Renduchintala
 
52
 
Executive Vice President; President, Client and Internet of Things Businesses and System Architecture Group
Navin Shenoy
 
44
 
Executive Vice President; General Manager, Data Center Group
Robert H. Swan
 
57
 
Executive Vice President, Chief Financial Officer
Andy D. Bryant has been Chairman of our Board of Directors since May 2012. Mr. Bryant served as Vice Chairman of the Board of Directors of Intel from July 2011 to May 2012. From 2007 to 2012, Mr. Bryant served as Chief Administrative Officer. Mr. Bryant joined Intel in 1981 and served in a number of executive roles at the company. He was Executive Vice President, Technology, Manufacturing, and Enterprise Services from 2009 to 2012. Mr. Bryant previously served as Executive Vice President, Finance and Enterprise Services from 2007 to 2009; Executive Vice President, Chief Financial and Enterprise Services Officer from 2001 to 2007; Senior Vice President, Chief Financial and Enterprise Services Officer from 1999 to 2001; Senior Vice President, Chief Financial Officer from January 1999 to December 1999; and Vice President, Chief Financial Officer from 1994 to 1999. Mr. Bryant also serves on the board of directors of Columbia Sportswear and McKesson Corporation.
Brian M. Krzanich has been Chief Executive Officer and a member of our Board of Directors since May 2013. Mr. Krzanich served as Executive Vice President, Chief Operating Officer from 2012 to 2013. As CEO, his focus has been transforming Intel from a PC-centric company to a data-centric company, delivering the technology foundations for the new data economy. Mr. Krzanich joined Intel in 1982 and served in a number of executive roles prior to his appointment as CEO. From 2010 to 2012, he was Senior Vice President, General Manager of Manufacturing and Supply Chain. From 2006 to 2010, he was Vice President, General Manager of Assembly and Test. Prior to 2006, Mr. Krzanich held various senior leadership positions within Intel’s manufacturing organization. Mr. Krzanich is also a member of Deere & Company’s board of directors, and chairman of the board of directors of the Semiconductor Industry Association.
Dr. Venkata S.M. (“Murthy”) Renduchintala joined Intel in November 2015. Since then, he has served as our Executive Vice President and President, Client and Internet of Things Businesses and System Architecture Group. In this role, Dr. Renduchintala oversees Intel’s Platform Engineering, Client Computing, Internet of Things, Software and Services, and Design and Technology Solutions divisions. From 2004 to 2015, Dr. Renduchintala held various senior positions at Qualcomm Incorporated, most recently as Co-President of Qualcomm CDMA Technologies from June 2012 to November 2015 and Executive Vice President of Qualcomm Technologies Inc. from October 2012 to November 2015. Before joining Qualcomm, Dr. Renduchintala served as Vice President and General Manager of the Cellular Systems Division of Skyworks Solutions Inc./Conexant Systems Inc. and he spent a decade with Philips Electronics, where he held various positions, including Vice President of Engineering for its consumer communications business.
Navin Shenoy has been Executive Vice President and General Manager of the Data Center Group since May 2017. In this role, he oversees the strategy and product development of our data center platforms, a business that spans servers, networks, and storage across all customer segments. From May 2016 to May 2017, Mr. Shenoy was Senior Vice President and General Manager of the Client Computing Group. From April 2012 to April 2016, he served as General Manager of the Mobility Client Platform Division, as Vice President from April 2012 until December 2014 and Corporate Vice President from January 2015 to May 2016. From October 2007 to April 2012, Mr. Shenoy served as Vice President and General Manager of our Asia-Pacific business. Mr. Shenoy joined Intel in 1995.
Robert ("Bob") H. Swan has been our Executive Vice President, Chief Financial Officer since joining Intel in October 2016. He oversees Intel’s global finance organization—including finance, accounting and reporting, tax, treasury, internal audit, and investor relations—IT, and the Corporate Strategy Office. From September 2015 to September 2016, Mr. Swan served as an Operating Partner at General Atlantic LLC, a private equity firm. He served as Senior Vice President, Finance and Chief Financial Officer of eBay Inc. from March 2006 to July 2015. Previously, Mr. Swan served as Executive Vice President, Chief Financial Officer of Electronic Data Systems Corporation, Executive Vice President, Chief Financial Officer of TRW Inc., as well as Chief Financial Officer, Chief Operating Officer, and Chief Executive Officer of Webvan Group, Inc. Mr. Swan began his career in 1985 at General Electric, serving for 15 years in numerous senior finance roles. Mr. Swan also serves on the board of directors of eBay.

FUNDAMENTALS OF OUR BUSINESS
  Who Manages Our Business
12


human capital
Given the highly technical nature of our business, our success depends on our ability to attract and retain talented and skilled employees. Our global workforce of 102,700 is highly educated, with approximately 87% of our people working in technical roles.

 
 
"Through a focused effort across Intel, we are building diverse and inclusive teams and embedding this capability in all that we do. We believe a more diverse and inclusive Intel provides a better work environment for our employees and enables better business results."

—Leslie Culbertson, Senior Vice President and Director of Human Resources (2017)
We invest in creating a diverse and inclusive environment where our employees can deliver their workplace best every day, and empower them to give back to the communities where we operate.
 
 
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GROWTH AND DEVELOPMENT
We invest significant resources to develop the talent needed to keep the company at the forefront of innovation, delivering millions of hours of web-based and face-to-face training annually and providing rotational or temporary assignment development opportunities. Through our new “Managing at Intel” course, we are training every manager in the company in inclusive management practices and providing resources and tools to support them.
COMMUNICATION AND ENGAGEMENT
We believe that our success depends on employees understanding how their work contributes to the company’s overall strategy. We use a variety of communications channels to facilitate open and direct communication, including open forums with our executives, quarterly Organizational Health Polls, and engagement through 30 different employee resource groups, including the Women at Intel Network.
COMPENSATION AND BENEFITS
We strive to provide benefits and services that help meet the varying needs of our employees—from working parents and those with eldercare responsibilities, to those in the military reserves. Our total rewards package provides highly competitive compensation, with the inclusion of stock grants, retirement benefits, generous paid time off, bonding leave, flexible work schedules, sabbaticals, on-site services, and more.
HEALTH, SAFETY, AND WELLNESS
Our ultimate goal is to achieve zero injuries through continued investment in and focus on our core safety programs and injury-reduction initiatives. We provide access to a variety of innovative, flexible, and convenient employee health and wellness programs, including on-site health centers and fitness classes and facilities.



FUNDAMENTALS OF OUR BUSINESS
 Human Capital
13


Corporate responsibility and sustainability
Our commitment to corporate responsibility and sustainability—built on a strong foundation of transparency, governance, and ethics—creates value for Intel and our stockholders by helping us mitigate risks, reduce costs, build brand value, and identify new market opportunities. We set ambitious goals for our company and make strategic investments to advance progress in the areas of environmental sustainability, supply chain responsibility, diversity and inclusion, and social impact that benefit the environment and society. Through our technology we enable more people to harness the power of data to help address society’s most complex issues—from climate change and energy efficiency, to economic empowerment and human rights.
We have established formal board-level oversight responsibility for corporate responsibility and, since 2008, have linked a portion of employee and executive pay to corporate responsibility factors. A foundational element of our approach to corporate responsibility is our commitment to transparency. For more information, read our most recent Corporate Responsibility Report and Diversity and Inclusion Report.
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ENVIRONMENTAL SUSTAINABILITY
 
 
 
 
 
Driving to the lowest environmental footprint possible helps us achieve efficiency, lower costs, and respond to the needs of our customers and community stakeholders. We invest in conservation projects and set company-wide environmental targets, seeking to drive reductions in greenhouse gas emissions, energy use, water use, and waste generation. Since 2012, we have invested more than $185 million in approximately 2,000 energy conservation projects, resulting in annual cost savings of approximately $120 million and cumulative energy savings of more than 3 billion kilowatt hours. We are also working with others to apply Internet of Things technologies to environmental challenges such as climate change and water conservation.

 
 
 
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SUPPLY CHAIN RESPONSIBILITY
 
 
 
 
 
Actively managing our supply chain creates business value for Intel and our customers by helping us reduce risks, improve product quality, achieve environmental and social goals, and raise the overall performance of our suppliers. Over the past five years, we have completed more than 450 supplier audits using the Responsible Business Alliance Code of Conduct standard and have expanded training and capacity building programs with our suppliers. We actively collaborate with others and lead industry initiatives on key issues such as advancing responsible minerals sourcing, addressing risks of forced and bonded labor, and improving transparency around climate and water impacts in the global electronics supply chain.

 
 
 
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DIVERSITY AND INCLUSION
 
 
 
 
 
Building an inclusive workforce, industry, and ecosystem is critical to helping us attract and retain the talent needed to advance innovation and drive our business forward. We have committed $300 million to advance diversity and inclusion in our workforce and in the technology industry, and are making progress toward our goal to achieve full representation of women and underrepresented minorities in our U.S. workforce by the end of 2018. We are increasing spending with diverse-owned suppliers with a goal of reaching $1.0 billion by 2020, and are investing in programs to create new career pathways into the technology industry.


 
 
 
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SOCIAL IMPACT
 
 
 
 
 
Empowering people through technology and advancing social impact initiatives helps build trust with key external stakeholders and engages and supports the interests of our employees. Our employees actively share their expertise and skills through technology-related volunteer initiatives, and over the past 10 years have contributed approximately 10 million hours of service in the communities where we operate.


 
 
 


FUNDAMENTALS OF OUR BUSINESS
 Corporate Responsibility and Sustainability
14


Management's Discussion and analysis (md&A) - results of operations
2017 was another record year for Intel and shows we have made progress on our shift from being primarily a PC-centric company to a data-centric company. We achieved record revenue in 2017 and strong operating income growth and bottom line results. Our growth was primarily driven by our data-centric businesses, while our PC-centric business exceeded our expectation and continues to be a source of profit, cash flow, scale, and intellectual property. The strategic investments we have made in data-rich markets like memory, programmable solutions, and autonomous driving are starting to pay off and are becoming an increasingly larger portion of our business. For a more comprehensive overview of the results of our operations, see "A Year in Review" within Fundamentals of Our Business.
Years Ended
(In Millions, Except Per Share Amounts)
 
December 30, 2017
 
December 31, 2016
 
December 26, 2015
 
Dollars
 
% of Net
Revenue
 
Dollars
 
% of Net
Revenue
 
Dollars
 
% of Net
Revenue
Net revenue
 
$
62,761

 
100.0
 %
 
$
59,387

 
100.0
 %
 
$
55,355

 
100.0
 %
Cost of sales
 
23,692

 
37.7
 %
 
23,196

 
39.1
 %
 
20,676

 
37.4
 %
Gross margin
 
39,069

 
62.3
 %
 
36,191

 
60.9
 %
 
34,679

 
62.6
 %
Research and development
 
13,098

 
20.9
 %
 
12,740

 
21.5
 %
 
12,128

 
21.9
 %
Marketing, general and administrative
 
7,474

 
11.9
 %
 
8,397

 
14.1
 %
 
7,930

 
14.3
 %
Restructuring and other charges
 
384

 
0.6
 %
 
1,886

 
3.2
 %
 
354

 
0.6
 %
Amortization of acquisition-related intangibles
 
177

 
0.3
 %
 
294

 
0.5
 %
 
265

 
0.5
 %
Operating income
 
17,936

 
28.6
 %
 
12,874

 
21.7
 %
 
14,002

 
25.3
 %
Gains (losses) on equity investments, net
 
2,651

 
4.2
 %
 
506

 
0.9
 %
 
315

 
0.6
 %
Interest and other, net
 
(235
)
 
(0.4
)%
 
(444
)
 
(0.8
)%
 
(105
)
 
(0.2
)%
Income before taxes
 
20,352

 
32.4
 %
 
12,936

 
21.8
 %
 
14,212

 
25.7
 %
Provision for taxes
 
10,751

 
17.1
 %
 
2,620

 
4.4
 %
 
2,792

 
5.1
 %
Net income
 
$
9,601

 
15.3
 %
 
$
10,316

 
17.4
 %
 
$
11,420

 
20.6
 %
Earnings per share - Diluted
 
$
1.99

 
 
 
$
2.12

 
 
 
$
2.33

 
 


MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
15


REVENUE
(Dollars in charts are shown in billions)
REVENUE
 
SEGMENT REVENUE
a018pcvsdatacentricrevenue.jpg   a019segmentrevenue.jpg

SEGMENT REVENUE WALK
a020segmentrevenuewalk.jpg
2017 vs. 2016
We have achieved record revenue two years in a row, with 2017 revenue of $62.8 billion, up $3.4 billion, or 6%, from 2016. After adjusting for the Q2 2017 divestiture of ISecG, revenue grew 9% from 2016. The increase in revenue was primarily driven by strong performance across our data-centric businesses, which collectively grew 16% year over year after adjusting for ISecG. We saw revenue growth across our DCG, IOTG, NSG, and PSG businesses, and 2017 revenue includes $210 million from our Mobileye business. The increase in revenue was partially offset by $1.6 billion from the divestiture of ISecG and by a change to the Intel Inside® program in 2017.
We implemented a change to the Intel Inside program to make the program more efficient and effective, and to provide more flexibility to our customers. This change affects the way we classify our cooperative advertising costs and resulted in a reduction to 2017 revenue of approximately $500 million compared to 2016, which would have been classified as marketing expenses prior to program changes.
2016 vs. 2015
In 2016, we achieved revenue of $59.4 billion, up $4.0 billion, or 7%, from 2015. Our 2016 results reflected the inclusion of PSG and an extra workweek when compared to 2015. In addition, our revenue growth in 2016 was driven by higher unit sales from our DCG platform and higher average selling prices (ASPs) for our notebook and desktop platforms.

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
16


GROSS MARGIN
(Dollars in chart are shown in billions; percentages indicate gross margin as a percentage of total revenue)
GROSS MARGIN
a021grossmargin.jpg
We derived most of our overall gross margin dollars from the sale of platform products in the CCG and DCG operating segments. Our overall gross margin dollars in 2017 increased by $2.9 billion, or 8%, compared to 2016, and in 2016 increased by $1.5 billion, or 4%, compared to 2015.
(In Millions)
 
GROSS MARGIN WALK
$
39,069

 
2017 Gross Margin
2,380

 
Higher gross margin from platform revenue
1,010

 
Lower platform unit cost, primarily on 14nm cost improvement
420

 
Lower Altera and other acquisition-related charges
315

 
Lower period charges associated with product warranty and intellectual property agreements incurred in 2016
(535
)
 
Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology
(390
)
 
Impact of the ISecG divestiture, offset by higher gross margin from adjacent businesses
(275
)
 
Period charges primarily associated with engineering samples and higher initial production costs from our 10nm products
(47
)
 
Other
$
36,191

 
2016 Gross Margin
1,830

 
Higher gross margin from platform revenue
1,150

 
PSG gross margin from acquisition of Altera
935

 
Lower platform unit cost
(1,045
)
 
Altera and other acquisition-related charges
(690
)
 
Lower NSG gross margin
(645
)
 
Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology
(315
)
 
Period charges associated with product warranty and intellectual property agreements
292

 
Other
$
34,679

 
2015 Gross Margin

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
17


OPERATING EXPENSEs
(Dollars in charts are shown in billions; percentages indicate expenses as a percentage of total revenue)
RESEARCH AND DEVELOPMENT
 
MARKETING, GENERAL AND ADMINISTRATIVE
a022researchanddevelopment.jpga023marketinggeneralanddadmi.jpg
Total R&D and marketing, general and administrative (MG&A) for 2017 were $20.6 billion, down 3% from 2016. These expenses represent 32.8% of revenue for 2017 and 35.6% of revenue for 2016. We are making progress toward our goal to have annual R&D and MG&A be 30% of revenue by 2020, and are now expecting to meet this goal by 2019. See additional operating expense details within Restructuring and Other, below.
RESEARCH AND DEVELOPMENT
2017-2016
R&D spending increased by $358 million, or 3%, driven by the following:
+
Investments in data-centric businesses, including the addition of Mobileye
+ Process development costs for our 7nm process technology
+
Profit-dependent compensation due to an increase in net income, excluding Tax Reform impacts
-
Lower expenses due to the ISecG divestiture
-
Cost savings from gained efficiencies
2016-2015
R&D spending increased by $612 million, or 5%, driven by the following:
+
Addition of PSG expenses from the acquisition of Altera Corporation (Altera)
+
Higher investment, net of 2016 restructuring program savings, in strategically important areas such as servers, Internet of Things, new devices, and memory
+
Higher process development costs for our 7nm process technology
-
Lower depreciation expense due to a change at the beginning of fiscal year 2016 to the estimated useful life of the machinery and equipment in our wafer fabrication facilities

MARKETING, GENERAL AND ADMINISTRATIVE
2017-2016
MG&A expenses decreased by $923 million, or 11%, driven by the following:
-
Lower expenses due to the ISecG divestiture
-
Change to the Intel Inside program
+
Profit-dependent compensation due to an increase in net income, excluding Tax Reform impacts
2016-2015
MG&A expenses increased by $467 million, or 6%, primarily driven by PSG expenses due to the acquisition of Altera.



MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
18


a024ccgtitlepagea02.jpg



MARKET AND BUSINESS OVERVIEW
Market trends and strategy
Worldwide PC shipments have decreased over the last few years1. However, our CCG profitability has increased over 45% since 2013. The CCG business provides scale, funds intellectual property, and continues to generate a significant portion of our consolidated profit and cash flow.
The landscape of the client computing market is shifting, with new markets and devices, new consumer expectations, and new ways to connect to the cloud. We have focused our strategy on these growth opportunities by enhancing platforms and adjacent technologies to reinvigorate PC demand and provide new user experiences. Today, CCG spans a broader set of devices and a wider array of uses, such as smart homes, virtual reality, and video streaming.
As these new uses become mainstream in our daily lives, an increasing amount of data will flow between PCs or PC-like devices and the data center. While we are transforming from a PC-centric to a data-centric company, CCG continues to be a critical part of the Virtuous Cycle of Growth, generating significant amounts of data and driving the growth of new uses, as well as the need for continued expansion of the cloud and data center.
a025ccgmarketoverview01.jpg
Products and competitiveness
To focus our business and better serve our customers, we have established an annual cadence of leadership product introductions. This year we launched the latest flagship product, the Intel® Core™ i9 processor family, and the 8th generation Intel Core processors. These platform products address a wide range of needs for rapidly growing markets, from notebook products such as 2 in 1 systems, thin-and-lights, and Chromebook* systems, to desktop products such as gaming systems and mini desktops.
Our platform products are enhanced by new adjacent technologies. During the year, we introduced our 5th generation LTE* modem, the Intel® XMM™ 7560 modem, built on Intel's 14nm process technology, and our first family of 5G NR multi-mode commercial modems, the Intel XMM 8000 series modems. In addition, we offer Intel Optane memory, an adaptive caching technology for accelerating system performance, and advanced connectivity like Thunderbolt™ technology.
To enable the smart and connected home, Intel delivers SoCs and Wi-Fi chipsets for home gateways, routers, modems, and personal assistants. Intel® Puma™ and Intel® AnyWAN™ SoCs enable high-performance connectivity that can keep up with increasing demands for bandwidth. Intel® Home Wi-Fi Chipsets enable home networks to scale for more connected devices and experiences and Intel Atom® SoCs enable a new class of premium personal assistant experiences for the smart home.
a026ccgmarketoverview02.jpg

1 Source: Intel calculated PC shipment estimate derived from industry analyst reports.

MD&A - RESULTS OF OPERATIONS
 Client Computing Group
20


FINANCIAL PERFORMANCE
(Dollars in charts are shown in billions)
a027ccgrevenuewalk.jpg
Revenue Summary
 
2017 vs. 2016
 
+
Growth in notebook (NB) from the strength in commercial and gaming and improving market conditions
 
+
Higher adjacent revenue, primarily from modem product ramp
 
-
Continued desktop (DT) market decline and the impact from the change of Intel Inside program, partially offset by higher demand for high-performance processors
 
 
 
 
2016 vs. 2015
 
+
Ramp of our adjacent products, primarily modem
 
-
PC market decline, offset by mix of high-performance processors
 
 
 
 
Key Revenue Metrics
 
 
2017 vs. 2016
 
2016 vs. 2015
Desktop Platform
 
 
 
 
 
 
Volume
down
(5)%
 
down
(6)%
 
ASP
flat
—%
 
up
2%
 
 
 
 
 
 
 
Notebook Platform
 
 
 
 
 
 
Volume
up
5%
 
down
(1)%
 
ASP
up
2%
 
up
2%
 
 
 
 
 
 
 
Adjacent Products
 
 
 
 
 
 
Revenue
up
29%
 
up
40%
 
 
 
 
 
 
 
a028ccgoperatingincome.jpg
(In Millions)
 
CCG Operating Income Walk
$
12,919

 
2017 Operating Income
1,135

 
Lower CCG platform unit cost, primarily on 14nm cost improvement
630

 
Lower CCG spending and share of technology development and MG&A costs
635

 
Higher gross margin from CCG platform revenue
(430
)
 
Period charges primarily associated with engineering samples and higher initial production costs from our 10nm products
303

 
Other
$
10,646

 
2016 Operating Income
1,250

 
Lower CCG platform unit cost
905

 
Lower CCG operating expense
625

 
Higher gross margin from CCG platform revenue
(645
)
 
Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology
345

 
Other
$
8,166

 
2015 Operating Income


MD&A - RESULTS OF OPERATIONS
 Client Computing Group
21


a029dcgtitlepagea01.jpg



MARKET AND BUSINESS OVERVIEW
Market trends and strategy
The infographic below illustrates multiple ways that we analyze the DCG business. The “What’s in the box?” line shows all DCG products —for example, CPUs, and silicon photonics—that are integrated in the form of server, storage, and network ("What is the box?") and sold to DCG’s end users ("Who bought the box?").
a030dcgtaxonomy.jpg
Data is a significant force in society today and data is generated by intelligent and connected machines. Data is the lifeblood for the future of technology innovation and actionable insights. Data is transmitted through network infrastructure, processed, and analyzed to become real-time information.
The data center TAM is expected to surpass $70 billion by 20221. Currently, we have less than a 40% market share. We see significant opportunities in cloud, networking, and analytics/artificial intelligence and the chance to drive higher growth as we expand our product offerings with our adjacent products. The cloud and communications service provider market segments continue to grow significantly, while the enterprise and government market segment continues to decline as workloads move to the public cloud.
a031dcgfloodofdata.jpg
 
Products and competitiveness

 
 
 
We offer a broad portfolio of platforms and technologies designed to provide workload-optimized performance across compute, storage, and network. These offerings span the full spectrum from the data center core to the network edge. In addition, DCG focuses on lowering the total cost of ownership and on other specific workload optimizations for the enterprise, cloud service provider, and communications service provider market segments with hardware-enhanced performance, security, and reliability. DCG's platform value can be extended through Intel adjacent products such as FPGAs and SSDs.

 
In early Q3 2017, we launched the Intel Xeon Scalable processors, formerly code-named Skylake-SP. The new product delivers performance improvement over the prior generation on popular workloads, and was broadly available in more than 200 original equipment manufacturer (OEM) systems as of the end of 2017.


1 Source: Intel calculated Data Center TAM derived from industry analyst reports.

MD&A - RESULTS OF OPERATIONS
 Data Center Group
23


FINANCIAL PERFORMANCE
(Dollars in charts are shown in billions)
a032dcgrevenuewalk.jpg
Market Segment Revenue Growth1
 
2017 vs. 2016
 
2016 vs. 2015
Cloud Service Provider
up
28%
 
up
24%
Enterprise and Government
down
(3)%
 
down
(3)%
Communication Service Provider
up
15%
 
up
19%
1 DCG platform products are sold across all three market segments.
Revenue Summary
 
2017 vs. 2016
 
+
Growth in server box type, primarily with cloud service providers and increased market share in network box type, and higher mix of our 14nm processors that have higher ASPs
 
+
Higher revenue across our adjacent products
 
 
 
 
2016 vs. 2015
 
+
Growth in cloud and network, offset by mix of processors
 
+
Higher revenue across our adjacent products
 
 
 
 
Key Revenue Metrics
 
 
2017 vs. 2016
 
2016 vs. 2015
DCG Platform
 
 
 
 
 
 
Volume
up
5%
 
up
8%
 
ASP
up
4%
 
down
(1)%
 
 
 
 
 
 
 
Adjacent Products
 
 
 
 
 
 
Revenue
up
21%
 
up
19%
 
 
 
 
 
 
 
a033dcgoperatingincome.jpg
(In Millions)
 
DCG Operating Income Walk
$
8,395

 
2017 Operating Income
1,450

 
Higher gross margin from DCG platform revenue
215

 
Lower period charges associated with product warranty and intellectual property agreements incurred in 2016
(585
)
 
Higher factory start-up costs, primarily driven by the ramp of our 10nm process technology
(315
)
 
Higher DCG spending and share of technology development and MG&A costs
110

 
Other
$
7,520

 
2016 Operating Income
930

 
Higher gross margin from DCG platform revenue
(655
)
 
Higher DCG operating expense
(335
)
 
Higher DCG platform unit costs
(215
)
 
Period charges associated with product warranty and intellectual property agreements
(52
)
 
Other
$
7,847

 
2015 Operating Income
    


MD&A - RESULTS OF OPERATIONS
 Data Center Group
24


a034iotgtitlepagea02.jpg



MARKET AND BUSINESS OVERVIEW
Market trends and strategy
The world is becoming smarter, more connected, and more data driven, and the Internet of Things sits at the center of this global digital transformation. Through a robust network of devices, software, networks, and sensors the Internet of Things is transforming the way we live, connect, work, create, and conduct business—from smart cities, to smart and efficient manufacturing. Creating, transferring, and harnessing the power of data, Internet of Things-based solutions represent one of the fastest growing segments within the semiconductor industry, with 9% compound annual growth rate (CAGR) forecast from 2017 to 20221. However, the Internet of Things is a highly fragmented market with a diverse collection of competitors, products, and vertical segments. As such, we are specifically focused on market sectors that align well with Intel’s ability to provide high-performance computing solutions.
a035iotgmarketsa01.jpg
Intel's vision for this market revolves around powering the evolution of the smart and connected world by providing distributed compute from the edge through the network to the cloud. We focus our efforts partnering with industry leaders to lead the transition from connected to smart and eventually autonomous devices capable of creating learning systems.
a036iotg3phasesofiota01.jpg
Products and competitiveness
We are uniquely equipped to offer technologies that enable solutions that work across the entire Internet of Things—at the edge, in the network, or in the cloud—enabling businesses to extract the right insights, in the right place, at the right time. We offer end-to-end solutions with our wide spectrum of products, including Intel Atom to Intel Xeon processor-based computing, wireless connectivity, FPGAs, and Wind River* software. IOTG leverages adjacent product investments across Intel while making the investments needed to adapt products to the specific requirements for IOTG vertical segments. For example, applications in the industrial sector require technologies such as extended temperature ranges, functional safety, time-coordinated computing, and long-life support.
With IOTG, we enable a global ecosystem of industry partners, developers, and innovators to create solutions based on our products that accelerate return on investment and time-to-value for end customers. These Intel® IoT Ready Solutions are vetted and tested in the market, commercially available, and fully supported through our ecosystem partners. One example is the Intel architecture-based Cisco* Connected Factory Network*, which improves factory operation efficiency and reduces costs by connecting factory automation and control systems to IT systems. 
1 Source: Intel calculated Internet of Things CAGR derived from industry analyst reports.

MD&A - RESULTS OF OPERATIONS
 Internet of Things Group
26


FINANCIAL PERFORMANCE
(Dollars in charts are shown in billions)
a038iotgrevenue02.jpga037iotgrevenue01.jpga039iotgoperatingincome.jpg
Revenue Summary
2017 vs. 2016
Net revenue increased $531 million, driven by $329 million higher IOTG platform unit sales and $176 million growth in IOTG adjacent products including $74 million from milestone-based revenue. Revenue grew across the retail, industrial, and smart video market segments.
2016 vs. 2015
Net revenue increased $340 million, driven by $192 million higher IOTG platform unit sales and $122 million higher IOTG platform ASP.
Operating Income Summary
2017 vs. 2016
Operating income increased $65 million due to higher revenue offset by higher investment in growth areas such as automotive, and by increased share of technology development and MG&A costs.
2016 vs. 2015
Operating income increased $70 million, driven by higher gross margin from IOTG revenue and partially offset by higher IOTG operating expenses.



MD&A - RESULTS OF OPERATIONS
 Internet of Things Group
27


a040nsgtitlepagea02.jpg



MARKET AND BUSINESS OVERVIEW
Market trends and strategy
The world is grappling with increasing amounts of data created by such applications as social media, smart hospitals, airplanes, smart factories, and autonomous driving. This data all needs to be stored, accessed, and analyzed, easily and quickly. The TAM in 2017 for storage and memory is approximately $150 billion1. With our breadth of products, our focus is on segments that have a growing need for storage, including cloud service providers, financial services, high-performance computing, and Internet usage.
a041nsgmarkets.jpg
With data growth expanding, our customers face the challenge of getting critical, or "hot," data close to the CPU for rapid access. Intel's innovations in technology address the need for various storage tiers, based on different usages, while keeping a focus on performance and cost. As customers look to improve the performance of their storage and memory devices, we are seeing and leading a transition to the PCI Express* interface with Non-Volatile Memory Express* for SSDs.

In the face of these growing volumes of data, Intel took on the exacting needs of data centers for growing capacity, easy serviceability, and thermal efficiency and announced our invention of the innovative "ruler" form factor that will solve customer requirements without the constraints of legacy form factors. The innovative ruler will enable up to one petabyte of storage in a single server rack unit.
a042nsgrulerformfactor.jpg
"Ruler" form factor
Products and competitiveness
Intel Optane technology is a major memory breakthrough with revolutionary performance profiles. This innovative technology combines the performance, density, power, non-volatility, and cost advantages of existing non-volatile memories with the attributes of conventional memories like DRAM. In 2017, we expanded our portfolio by delivering products based on Intel Optane technology, specifically Intel Optane memory, a PC system acceleration module, and highly responsive SSDs for both the data center and enthusiast markets.
Our Intel 3D NAND technology offers the highest density in the industry, enabling higher capacity media and more gigabytes per wafer. By transitioning our manufacturing capacity from a 2D NAND/3D NAND mix to 100% 3D NAND by the end of 2017, we helped drive a transformation in storage economics, with our cost-per-gigabyte approaching the cost of traditional hard disk drives. In 2017, we led the industry with the first 64-layer, TLC, 3D NAND SSDs for data center, client, and embedded segments.
a043nsgdataspherea01.jpg

1 Source: Storage and memory market opportunity is based on Forward Insights Q4'17 for Client and DC SSDs; DRAM Market Statistics, Worldwide, 2014-2021; Hard-Disk Drives, Worldwide, 2014-2021; NAND Flash Supply and Demand, Worldwide, 1Q16-4Q18. Note: DRAM and Hard-Disk Drives are excluded from Intel TAM of $260 billion in 2021.

MD&A - RESULTS OF OPERATIONS
 Non-Volatile Memory Solutions Group
29


Investing in the future
a044nsgf68a01.jpg
FINANCIAL PERFORMANCE
(Dollars in charts are shown in billions)
    a045nsgrevenue.jpga046nsgoperatingincome.jpg
Revenue Summary
2017 vs. 2016
Net revenue increased $944 million, driven by $1.6 billion from higher unit sales due to strong demand in data center, partially offset by $655 million lower ASP due to market conditions and the ramp of our new TLC 3D NAND product line, which has a lower cost, and ASP compared to our primary multi-level cell 3D NAND.
2016 vs. 2015
Net revenue decreased $21 million due to lower ASP offset by higher unit sales.
Operating Income Summary
2017 vs. 2016
Operating loss decreased $284 million driven primarily by $725 million unit cost reductions due to the cost improvements associated with Fab 68 and lower costs from the ramp of the Intel® 3D NAND product line compared to prior generation NAND products. The lower unit cost impact was offset by $380 million lower gross margin from NSG revenue. We expect NSG to be profitable for the full year of 2018.
2016 vs. 2015
Operating income decreased $783 million in 2016 to an operating loss compared to 2015, driven by lower ASP on competitive pricing pressures, offset by higher volume. The decrease in operating income was also affected by higher costs on the ramp of Intel® 3D NAND flash memory in Fab 68, and higher spending on 3D XPoint technology, and partially offset by lower unit costs.


MD&A - RESULTS OF OPERATIONS
 Non-Volatile Memory Solutions Group
30


a047psgtitlepagea01.jpg



MARKET AND BUSINESS OVERVIEW
Market trends and strategy
PSG delivers solutions in the programmable logic device (PLD) market, primarily FPGAs, to enable smarter and more connected systems. Our focus is on enabling a broad range of solutions, including in the data center, wireless, networking, automotive, military, medical, and industrial markets. We expect the PLD market to grow at 9% CAGR through 2021.1 FPGAs are a key technology, enabling transformative applications such as AI, baseband processing and radio for 5G wireless connectivity, packet processing and virtual network functions offload for NFV, edge acceleration like video and vision for analytics and intelligence, and workload consolidation of things through fog computing for Industry 4.0.
a048psgmarketsa02.jpg
Products and competitiveness
With the rise of pervasive connectivity and autonomous transactions, a vast network of devices and systems are linked from the edge through infrastructure to the cloud. The Intel® FPGA portfolio enables this transformation with discrete FPGAs and software defined-hardware based multi-function acceleration cards that allow faster end-product development times, high performance, and power efficiency with overall lower total cost of ownership. In the cloud, where workloads shift dynamically and algorithms change, Intel FPGAs are the ideal solution for adapting to new demands through reconfigurability.
In 2017, PSG began shipping the industry’s first high-density >1million logic elements ARM-based FPGA (Intel Stratix 10 SX FPGAs), which provide an ideal solution for 5G wireless communication, software defined radios, secure computing for military applications, NFV, and data center acceleration. In addition, we announced availability of the Intel Stratix 10 MX FPGA, the industry’s first FPGA with integrated High Bandwidth Memory DRAM for high-performance computing, data centers, NFV, and broadcast applications. It enables the ability to compress and decompress data before or after mass data movements. To simplify and expedite the benefits of FPGA-accelerated solutions, PSG developed a combination of hardware platforms, a software acceleration stack, and ecosystem support in a compelling new approach and introduced the first in a family of Intel Programmable Acceleration Cards. These cards, when combined with an Acceleration Stack, plug easily into any Intel Xeon processor-based server and boost performance while minimizing power consumption for complex, data-intensive applications such as AI inference, video streaming analytics, database acceleration, and more.
1 Source: The PLD market growth is based on Gartner, Inc., 3Q17 Forecast Analysis; Electronics and Semiconductors, Worldwide, 2017-2021.

MD&A - RESULTS OF OPERATIONS
 Programmable Solutions Group
32


FINANCIAL PERFORMANCE
(Dollars in charts are shown in billions)
    a049psgrevenue.jpga050psgoperatingincome.jpg
Revenue Summary
2017 vs. 2016
PSG revenue increased $233 million, driven by growth in industrial, military, and automotive market segments as well as in our advanced products and last-time buys of our legacy products. Also, in 2016 a one-time $99 million deferred revenue write-down due to the acquisition of Altera negatively impacted 2016 PSG revenue.
Operating Income Summary
2017 vs. 2016
PSG operating income increased $562 million. Higher revenue and operational synergies contributed $111 million of the year over year increase. The remainder was due to one-time acquisition-related charges, including a $99 million deferred revenue write-down with a $64 million operating income impact and an inventory valuation adjustment of approximately $387 million.

MD&A - RESULTS OF OPERATIONS
 Programmable Solutions Group
33



Restructuring and Other Charges
Years Ended
(In Millions)
 
Dec 30,
2017
 
Dec 31,
2016
 
Dec 26,
2015
2016 Restructuring Program
 
$
135

 
$
1,823

 
$

2015 and 2013 Restructuring Programs
 

 

 
354

ISecG separation costs and other charges
 
249

 
63

 

Total restructuring and other charges
 
$
384

 
$
1,886

 
$
354

2016 RESTRUCTURING PROGRAM
We commenced the 2016 Restructuring Program in the second quarter of 2016. This program was completed in 2017.
Restructuring actions related to this program, which were approved in 2016, impacted approximately 16,000 employees. The charges incurred as part of the 2016 Restructuring Program resulted in net annual headcount savings of approximately $1.8 billion as we re-balanced our workforce. On an annual basis, $1.6 billion of these savings reduced our R&D and MG&A spending, and the remainder reduced our cost of sales. We began to realize these savings in Q2 2016 and most of these savings were realized by the end of 2017. We reallocated these savings to our growth segments, such as the data center and Internet of Things, and continue to invest in areas that extend our leadership in Moore's Law and expand market opportunities in areas such as memory and autonomous driving.
OTHER CHARGES
Other charges consist primarily of expenses associated with the divestiture of ISecG that was completed in Q2 2017.
For further information, see "Note 7: Restructuring and Other Charges" within the Consolidated Financial Statements.
Gains (Losses) on Equity Investments and Interest and Other, Net
Years Ended
(In Millions)
 
Dec 30,
2017
 
Dec 31,
2016
 
Dec 26,
2015
Gains (losses) on equity investments, net
 
$
2,651

 
$
506

 
$
315

Interest and other, net
 
$
(235
)
 
$
(444
)
 
$
(105
)
GAINS (LOSSES) ON EQUITY INVESTMENTS, NET
We recognized higher net realized gains on sales of a portion of our interest in ASML Holding N.V. (ASML) of $3.4 billion in 2017 compared to $407 million in 2016. The higher net realized gains were partially offset by $833 million of impairment charges and our share of equity method investee losses in 2017.
We recognized higher net gains on equity investments in 2016 compared to 2015 primarily due to gains of $407 million related to sales of a portion of our interest in ASML.
INTEREST AND OTHER, NET
We recognized a lower net loss in interest and other in 2017 compared to 2016 primarily due to higher interest income in 2017.
We recognized a higher net loss in interest and other in 2016 compared to 2015 primarily due to higher interest expense from debt issued or acquired in 2015 and 2016, as well as lower capitalized interest due to lower eligible capital expenditures in 2016.

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
34


Provision for Taxes
Years Ended
(Dollars in Millions)
 
Dec 30,
2017
 
Dec 31,
2016
 
Dec 26,
2015
Income before taxes
 
$
20,352

 
$
12,936

 
$
14,212

Provision for taxes
 
$
10,751

 
$
2,620

 
$
2,792

Effective tax rate
 
52.8
%
 
20.3
%
 
19.6
%
Substantially all of the increase in our effective tax rate in 2017 compared to 2016 was driven by the one-time provisional impacts from the U.S. Tax Cuts and Jobs Act (Tax Reform) that was enacted in December 2017, the 2017 ISecG divestiture, and a higher proportion of our income in higher tax rate jurisdictions. In addition to the one-time impacts from Tax Reform, we expect the new legislation will significantly lower our effective tax rate starting in 2018. For further information on Tax Reform and its impacts, see "Note 8: Income Taxes" within the Consolidated Financial Statements.
The majority of the increase in our effective tax rate in 2016 compared to 2015 was driven by one-time items and our 2015 decision to indefinitely reinvest some of our prior years' non-U.S. earnings, partially offset by a higher proportion of our income in lower tax jurisdictions.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
(Dollars in Millions)
 
Dec 30,
2017
 
Dec 31,
2016
Cash and cash equivalents, short-term investments, and trading assets
 
$
14,002

 
$
17,099

Other long-term investments
 
$
3,712

 
$
4,716

Loans receivable and other
 
$
1,097

 
$
996

Reverse repurchase agreements with original maturities greater than three months
 
$
250

 
$
250

Total debt
 
$
26,813

 
$
25,283

Temporary equity
 
$
866

 
$
882

Debt as a percentage of permanent stockholders’ equity
 
38.8
%
 
38.2
%
Cash generated by operations is our primary source of liquidity. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. When assessing our sources of liquidity, we include investments as shown in the preceding table. Substantially all of our investments in debt instruments and financing receivables are in investment-grade securities.
Other potential sources of liquidity include our commercial paper program and our automatic shelf registration statement on file with the SEC, pursuant to which we may offer an unspecified amount of debt, equity, and other securities. Under our commercial paper program, we have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion. This amount includes an increase of $5.0 billion in the authorization limit approved by our Board of Directors in April 2017. No commercial paper remained outstanding as of December 30, 2017. During 2017, we issued a total of $7.7 billion aggregate principal amount of senior notes. Additionally, we redeemed our $1.0 billion4.90% senior notes due August 2045. We used the net proceeds from the offerings of the notes to finance a portion of the redemption price of our 4.90% senior notes due August 2045 and for general corporate purposes. During 2017, we repaid $500 million of our 1.75% senior notes that matured in May 2017, and $3.0 billion of our 1.35% senior notes that matured in December 2017. In Q4 2017, we paid $2.8 billion in cash to convert our $1.6 billion 2.95% junior subordinated convertible debentures due 2035.
The enactment of Tax Reform in December 2017, imposes a tax on all previously untaxed earnings of non-U.S. subsidiaries of U.S. corporations. Future distributions of non-U.S. assets to the U.S. will no longer be subject to U.S. taxation. As a result, we recognized a one-time provisional transition tax expense of $6.1 billion. We expect to pay the tax over a period of eight years based on a defined payment schedule and believe that our current U.S. sources of cash and liquidity are sufficient to meet our tax liability.
As of December 30, 2017, $8.4 billion of our $14.0 billion of cash and cash equivalents, short-term investments, and trading assets was held by our non-U.S. subsidiaries.
During Q3 2017, we acquired 97.3% of Mobileye's outstanding ordinary shares for $14.5 billion net cash. We funded the acquisition of shares, and expect to fund the acquisition of the remaining shares, with cash held by our non-U.S. subsidiaries.

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
35


During Q2 2017, we completed the divestiture of our ISecG business for total consideration of $4.2 billion. The consideration included cash proceeds of $924 million and $2.2 billion in the form of promissory notes. During Q3 2017, McAfee and TPG VII Manta Holdings, L.P., now known as Manta Holdings, L.P. (TPG) repaid the $2.2 billion of promissory notes and McAfee paid us a $735 million dividend.
We believe we have sufficient financial resources to meet our business requirements in the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test; working capital requirements; and potential dividends, common stock repurchases, acquisitions, and strategic investments.
SOURCES AND USES OF CASH
(In Millions)
a051sourcesandusesofcash.jpg

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
36


In summary, our cash flows for each period were as follows:
Years Ended
(In Millions)
 
Dec 30,
2017
 
Dec 31,
2016
 
Dec 26,
2015
Net cash provided by operating activities
 
$
22,110

 
$
21,808

 
$
19,018

Net cash used for investing activities
 
(15,762
)
 
(25,817
)
 
(8,183
)
Net cash provided by (used for) financing activities
 
(8,475
)
 
(5,739
)
 
1,912

Net increase (decrease) in cash and cash equivalents
 
$
(2,127
)
 
$
(9,748
)
 
$
12,747

OPERATING ACTIVITIES
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
For 2017 compared to 2016, the $302 million increase in cash provided by operating activities was due to changes to working capital partially offset by adjustments for non-cash items and lower net income. Tax Reform did not have an impact on our 2017 cash provided by operating activities. The increase in cash provided by operating activities was driven by increased income before taxes and $1.0 billion receipts of customer deposits. These increases were partially offset by increased inventory and accounts receivable. Income taxes paid, net of refunds, in 2017 compared to 2016 were $2.9 billion higher due to higher income before taxes, taxable gains on sales of ASML, and taxes on the ISecG divestiture. We expect approximately $2.0 billion of additional customer deposits in 2018.
For 2016 compared to 2015, the $2.8 billion increase in cash provided by operating activities was due to adjustments for non-cash items and changes in working capital, partially offset by lower net income. The adjustments for non-cash items were higher in 2016 primarily due to restructuring and other charges and the change in deferred taxes, partially offset by lower depreciation.
INVESTING ACTIVITIES
Investing cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; and proceeds from divestitures and cash used for acquisitions. Our capital expenditures were $11.8 billion in 2017 ($9.6 billion in 2016 and $7.3 billion in 2015).
The decrease in cash used for investing activities in 2017 compared to 2016 was primarily due to higher net activity of available-for sale-investments in 2017, proceeds from our divestiture of ISecG in 2017, and higher maturities and sales of trading assets in 2017. This activity was partially offset by higher capital expenditures in 2017.
The increase in cash used for investing activities in 2016 compared to 2015 was primarily due to our completed acquisition of Altera, net purchases of trading assets in 2016 compared to net sales of trading assets in 2015, and higher capital expenditures in 2016. This increase was partially offset by lower investments in non-marketable equity investments.
FINANCING ACTIVITIES
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
The increase in cash used for financing activities in 2017 compared to 2016 was primarily due to net long-term debt activity, which was a use of cash in 2017 compared to a source of cash in 2016. During 2017, we repurchased $3.6 billion of common stock under our authorized common stock repurchase program, compared to $2.6 billion in 2016. As of December 30, 2017, $13.2 billion remained available for repurchasing common stock under the existing repurchase authorization limit. We base our level of common stock repurchases on internal cash management decisions, and this level may fluctuate. Proceeds from the sale of common stock through employee equity incentive plans totaled $770 million in 2017 compared to $1.1 billion in 2016. Our total dividend payments were $5.1 billion in 2017 compared to $4.9 billion in 2016. We have paid a cash dividend in each of the past 101 quarters. In January 2018, our Board of Directors approved an increase to our cash dividend to $1.20 per share on an annual basis. The board has declared a quarterly cash dividend of $0.30 per share of common stock for Q1 2018. The dividend is payable on March 1, 2018 to stockholders of record on February 7, 2018.
Cash was used for financing activities in 2016 compared to cash provided by financing activities in 2015, primarily due to fewer debt issuances and the repayment of debt in 2016. This activity was partially offset by repayment of commercial paper in 2015 and fewer common stock repurchases in 2016.

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
37


Contractual Obligations
Significant contractual obligations as of December 30, 2017 were as follows:
  
 
Payments Due by Period
(In Millions)
 
Total
 
Less Than
1 Year
 
1–3 Years
 
3–5 Years
 
More Than
5 Years
Operating lease obligations
 
$
1,245

 
$
215

 
$
348

 
$
241

 
$
441

Capital purchase obligations
 
12,068

 
9,689

 
2,266

 
113

 

Other purchase obligations and commitments
 
2,692

 
1,577

 
1,040

 
55

 
20

Tax obligations3
 
6,120

 
490

 
979

 
979

 
3,672

Long-term debt obligations4
 
42,278

 
1,495

 
5,377

 
8,489

 
26,917

Other long-term liabilities5
 
1,544

 
799

 
422

 
190

 
133

Total6
 
$
65,947

 
$
14,265

 
$
10,432

 
$
10,067

 
$
31,183

1 
Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on our consolidated balance sheets as of December 30, 2017, as we had not yet received the related goods nor taken title to the property.
2 
Other purchase obligations and commitments include payments due under various types of licenses and agreements to purchase goods or services, as well as payments due under non-contingent funding obligations.
3 
Tax obligations represent the future cash payments related to Tax Reform enacted in 2017 for the one-time provisional transition tax on our previously untaxed foreign earnings. For further information, see "Note 8: Income Taxes" within the Consolidated Financial Statements.
4 
Amounts represent principal and interest cash payments over the life of the debt obligations, including anticipated interest payments that are not recorded on our consolidated balance sheets. Debt obligations are classified based on their stated maturity date, regardless of their classification on the consolidated balance sheets. Any future settlement of convertible debt would impact our cash payments.
5 
Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheets, including the short-term portion of these long-term liabilities. Derivative instruments are excluded from the preceding table, as they do not represent the amounts that may ultimately be paid.
6 
Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities, except for the short-term portions of long-term debt obligations and other long-term liabilities.
The expected timing of payments of the obligations in the preceding table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
Contractual obligations for purchases of goods or services included in "Other purchase obligations and commitments" in the preceding table include agreements that are enforceable and legally binding on Intel and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts included in the preceding table were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.
For the purchase of raw materials, we have entered into certain agreements that specify minimum prices and quantities based on a percentage of the total available market or based on a percentage of our future purchasing requirements. Due to the uncertainty of the future market and our future purchasing requirements, as well as the non-binding nature of these agreements, obligations under these agreements have been excluded from the preceding table. Our purchase orders for other products are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements.
Contractual obligations that are contingent upon the achievement of certain milestones have been excluded from the preceding table. Most of our milestone-based contracts are tooling related for the purchase of capital equipment. These arrangements are not considered contractual obligations until the milestone is met by the counterparty. As of December 30, 2017, assuming that all future milestones are met, the additional required payments would be approximately $2.0 billion.
For the majority of restricted stock units (RSUs) granted, the number of shares of common stock issued on the date the RSUs vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. The obligation to pay the relevant taxing authority is excluded from the preceding table, as the amount is contingent upon continued employment. In addition, the amount of the obligation is unknown, as it is based in part on the market price of our common stock when the awards vest.

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
38


During 2014, we entered into a series of agreements with Tsinghua Unigroup Ltd. (Tsinghua Unigroup), an operating subsidiary of Tsinghua Holdings Co. Ltd., to, among other things, jointly develop Intel architecture and communications-based solutions for phones. Subject to regulatory approvals and other closing conditions, we have agreed to invest up to $9.0 billion Chinese yuan (approximately $1.5 billion as of the date of the agreement) for a minority stake of approximately 20% of Beijing UniSpreadtrum Technology Ltd. (UniSpreadtrum). During 2015, we invested $966 million to complete the first phase of the equity investment and the second phase of the investment will require additional funding of approximately $500 million; however, as our obligation is contingent upon regulatory approvals and other closing conditions, it has been excluded from the preceding table.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange and interest rates, as well as equity and commodity prices. Our risk management programs reduce, but may not entirely eliminate, the impacts of these risks. All of the following potential changes are based on sensitivity analyses performed on our financial positions as of December 30, 2017 and December 31, 2016. Actual results may differ materially.
CURRENCY EXCHANGE RATES
We are exposed to currency exchange risks of non-U.S.-dollar-denominated investments in debt instruments and loans receivable, and may economically hedge this risk with foreign currency contracts, such as currency forward contracts or currency interest rate swaps. Gains or losses on these non-U.S.-currency investments are generally offset by corresponding losses or gains on the related hedging instruments. We are exposed to currency exchange risks from our non-U.S.-dollar-denominated debt indebtedness and may use foreign currency contracts designated as cash flow hedges to manage this risk.
Substantially all of our revenue is transacted in U.S. dollars. However, a significant portion of our operating expenditures and capital purchases are incurred in other currencies, primarily the euro, the Japanese yen, the Israeli shekel, and the Chinese yuan. We have established currency risk management programs to protect against currency exchange rate risks associated with non-U.S. dollar forecasted future cash flows and existing non-U.S. dollar monetary assets and liabilities. We may also hedge currency risk arising from funding of foreign currency-denominated future investments. We may utilize foreign currency contracts, such as currency forwards or option contracts in these hedging programs. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that a weighted average adverse change of 20% in currency exchange rates could be experienced in the near term. Such an adverse change, after taking into account balance sheet hedges only and offsetting recorded monetary asset and liability positions, would have resulted in an adverse impact on income before taxes of less than $95 million as of December 30, 2017 (less than $80 million as of December 31, 2016).
INTEREST RATES
We are exposed to interest rate risk related to our fixed-rate investment portfolio and outstanding debt. The primary objective of our investment policy is to preserve principal and the financial flexibility to fund our business while maximizing yields, which generally track the U.S. dollar three-month LIBOR. We generally enter into interest rate contracts to convert the returns on our fixed-rate debt investment with remaining maturities longer than six months into U.S. dollar three-month LIBOR-based returns. We may enter into swaps to convert fixed-rate coupon payments into floating-rate coupon payments for our existing indebtedness. Gains or losses on these instruments are generally offset by corresponding losses or gains on the related hedging instruments.
A hypothetical decrease in benchmark interest rates of up to 1.0%, after taking into account investment hedges, would have resulted in an increase in the fair value of our investment portfolio of approximately $100 million as of December 30, 2017 (an increase of approximately $100 million as of December 31, 2016). After taking into account interest rate and currency swaps, a hypothetical decrease in interest rates of up to 1.0% would have resulted in an increase in the fair value of our indebtedness of approximately $1.6 billion as of December 30, 2017 (an increase of approximately $1.3 billion as of December 31, 2016). The fluctuations in fair value of our investment portfolio and indebtedness reflect only the direct impact of the change in interest rates. Other economic variables, such as equity market fluctuations and changes in relative credit risk, could result in a significantly higher fluctuation in the fair value of our net investment position.
EQUITY PRICES
Our investments include marketable equity securities and equity derivative instruments. We typically do not attempt to reduce or eliminate our equity market exposure through hedging activities at the inception of our investments. In the event we do decide to enter into hedge arrangements, before doing so we evaluate legal, market, and economic factors, as well as the expected timing of disposal, to determine whether hedging is appropriate. Our equity market risk management program may include equity derivatives with or without hedge accounting designation that utilize warrants, equity options, or other equity derivatives.
We also utilize total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains or losses from changes in fair value of these total return swaps are generally offset by the losses or gains on the related liabilities.

MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
39


As of December 30, 2017, the fair value of our marketable equity investments and our equity derivative instruments, including hedging positions, was $4.2 billion ($6.2 billion as of December 31, 2016). A substantial majority of our marketable equity investments portfolio as of December 30, 2017 was concentrated in our investment in ASML of $3.6 billion ($6.1 billion as of December 31, 2016). Our marketable equity method investments are excluded from our analysis, as the carrying value does not fluctuate based on market price changes unless an impairment is deemed necessary. To determine reasonably possible decreases in the market value of our marketable equity investments, we have analyzed the historical market price sensitivity of our marketable equity investment portfolio. Assuming a decline of 25% in market prices, and after reflecting the impact of hedges and offsetting positions, the aggregate value of our marketable equity investments could decrease by approximately $1.1 billion, based on the value as of December 30, 2017 (a decrease in value of approximately $1.9 billion, based on the value as of December 31, 2016 using an assumed decline of 30%). Beginning in 2018, as explained in "Note 3: Recent Accounting Standards" within the Consolidated Financial Statements, changes in the fair value of our marketable equity securities will be measured and recorded at fair value with changes in fair value recorded through the income statement.
Many of the same factors that could result in an adverse movement of equity market prices affect our non-marketable equity investments, although we cannot always quantify the impacts directly. Financial markets are volatile, which could negatively affect the prospects of the companies we invest in, their ability to raise additional capital, and the likelihood of our ability to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales. These types of investments involve a great deal of risk, and there can be no assurance that any specific company will grow or become successful; consequently, we could lose all or part of our investment. Our non-marketable cost method equity investments had a carrying amount of $2.6 billion as of December 30, 2017 ($3.1 billion as of December 31, 2016) and included our investment in UniSpreadtrum of $658 million ($966 million for UniSpreadtrum as of December 31, 2016). The carrying amount of our non-marketable equity method investments was $1.9 billion as of December 30, 2017 ($1.3 billion as of December 31, 2016). A substantial majority of our non-marketable equity method investments balance as of December 30, 2017 was concentrated in our IMFT investment of $1.5 billion ($849 million for IMFT as of December 31, 2016).
COMMODITY PRICE RISK
Although we operate facilities that consume commodities, we are not directly affected by commodity price risk to a material degree. We have established forecasted transaction risk management programs to protect against fluctuations in commodity prices. We may use commodity derivatives contracts, such as commodity swaps, in these hedging programs. In addition, we have sourcing plans in place that mitigate the risk of a potential supplier concentration for our key commodities.


MD&A - RESULTS OF OPERATIONS  
 Consolidated Results and Analysis
40


Other key information
Stock Performance Graph
The graph and table that follow compare the cumulative total stockholder return on Intel's common stock with the cumulative total return of the Dow Jones U.S. Technology Index* and the Standard & Poor’s 500 Stock Index (S&P 500 Index*) for the five years ended December 30, 2017. The cumulative returns shown on the graph are based on Intel's fiscal year.
Comparison of Five-Year Cumulative Return for Intel,
The Dow Jones U.S. Technology Index*, and the S&P 500 Index*
a052stockperfgraph.jpg
Years Ended
 
Dec 29,
2012
 
Dec 28,
2013
 
Dec 27,
2014
 
Dec 26,
2015
 
Dec 31,
2016
 
Dec 30,
2017
Intel Corporation
 
$
100

 
$
132

 
$
199

 
$
191

 
$
205

 
$
268

Dow Jones U.S. Technology Index
 
$
100

 
$
129

 
$
160

 
$
163

 
$
185

 
$
254

S&P 500 Index
 
$
100

 
$
134

 
$
155

 
$
156

 
$
174

 
$
212

1  
The graph and table assume that $100 was invested on the last day of trading for the fiscal year December 29, 2012 in Intel's common stock, the Dow Jones U.S. Technology Index, and the S&P 500 Index, and that all dividends were reinvested.


OTHER KEY INFORMATION
 
41


SELECTED FINANCIAL DATA
Years Ended
(Dollars in Millions, Except Per Share Amounts)
 
Dec 28,
2013
 
Dec 27,
2014
 
Dec 26,
2015
 
Dec 31,
2016
 
Dec 30,
2017
Net revenue
 
$
52,708

 
$
55,870

 
$
55,355

 
$
59,387

 
$
62,761

Gross margin
 
$
31,521

 
$
35,609

 
$
34,679

 
$
36,191

 
$
39,069

Gross margin percentage
 
59.8
%
 
63.7
%
 
62.6
%
 
60.9
%
 
62.3
%
Research and development (R&D)
 
$
10,611

 
$
11,537

 
$
12,128

 
$
12,740

 
$
13,098

Marketing, general and administrative (MG&A)
 
$
8,088

 
$
8,136

 
$
7,930

 
$
8,397

 
$
7,474

R&D and MG&A as a percentage of revenue
 
35.5
%
 
35.2
%
 
36.2
%
 
35.6
%
 
32.8
%
Operating income
 
$
12,291

 
$
15,347

 
$
14,002

 
$
12,874

 
$
17,936

Net income1
 
$
9,620

 
$
11,704

 
$
11,420

 
$
10,316

 
$
9,601

Effective tax rate1
 
23.7
%
 
25.9
%
 
19.6
%
 
20.3
%
 
52.8
%
Earnings per share1
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.94

 
$
2.39

 
$
2.41

 
$
2.18

 
$
2.04

Diluted
 
$
1.89

 
$
2.31

 
$
2.33

 
$
2.12

 
$
1.99

Weighted average diluted shares of common stock outstanding
 
5,097

 
5,056

 
4,894

 
4,875

 
4,835

Dividends per share of common stock, declared and paid
 
$
0.90

 
$
0.90

 
$
0.96

 
$
1.04

 
$
1.0775

Net cash provided by operating activities
 
$
20,776

 
$
20,418

 
$
19,018

 
$
21,808

 
$
22,110

Additions to property, plant and equipment
 
$
10,711

 
$
10,105

 
$
7,326

 
$
9,625

 
$
11,778

Repurchase of common stock
 
$
2,147

 
$
10,792

 
$
3,001

 
$
2,587

 
$
3,615

Payment of dividends to stockholders
 
$
4,479

 
$
4,409

 
$
4,556

 
$
4,925

 
$
5,072

 
 
 
 
 
 
 
 
 
 
 
(Dollars in Millions)
 
Dec 28,
2013
 
Dec 27,
2014
 
Dec 26,
2015
 
Dec 31,
2016
 
Dec 30,
2017
Property, plant and equipment, net
 
$
31,428

 
$
33,238

 
$
31,858

 
$
36,171

 
$
41,109

Total assets
 
$
89,789

 
$
90,012

 
$
101,459

 
$
113,327

 
$
123,249

Debt
 
$
13,385

 
$
13,655

 
$
22,670

 
$
25,283

 
$
26,813

Stockholders’ equity
 
$
58,256

 
$
55,865

 
$
61,085

 
$
66,226

 
$
69,019

Employees (in thousands)
 
107.6

 
106.7

 
107.3

 
106.0

 
102.7

1 
In Q4 2017, we recognized a $5.4 billion higher income tax expense as a result of one-time impacts from Tax Reform.  

OTHER KEY INFORMATION
 
42


Sales and Marketing
CUSTOMERS
We sell our products primarily to original equipment manufacturers (OEMs) and original design manufacturers (ODMs). ODMs provide design and manufacturing services to branded and unbranded private-label resellers. In addition, our customers include other manufacturers and service providers, such as industrial and communication equipment manufacturers and cloud service providers, who buy our products through distributor, reseller, retail, and OEM channels throughout the world. For more information about our customers, including customers who accounted for greater than 10% of our net consolidated revenue, see "Note 4: Operating Segments" within the Consolidated Financial Statements.
Our worldwide reseller sales channel consists of thousands of indirect customers—systems builders that purchase Intel® processors and other products from our distributors. We have incentive programs that allow distributors to sell our microprocessors and other products in small quantities to customers of systems builders. Our microprocessors and other products are also available in direct retail outlets.
SALES ARRANGEMENTS
Our products are sold through sales offices throughout the world. Sales of our products are frequently made via purchase order acknowledgments that contain standard terms and conditions covering matters such as pricing, payment terms, and warranties, as well as indemnities for issues specific to our products, such as patent and copyright indemnities. From time to time, we may enter into additional agreements with customers covering, for example, changes from our standard terms and conditions, new product development and marketing, and private-label branding. Our sales are routinely made using electronic and web-based processes that allow the customer to review inventory availability and track the progress of specific goods ordered. Pricing on particular products may vary based on volumes ordered and other factors. We also offer discounts, rebates, and other incentives to customers to increase acceptance of our products and technology.
Our products are generally shipped under terms that transfer title to the customer, even in arrangements for which the recognition of revenue and related cost of sales is deferred. Our standard terms and conditions of sale typically provide that payment is due at a later date, 30 days after shipment or delivery. We assess credit risk through quantitative and qualitative analysis. From this analysis, we establish shipping and credit limits, and determine whether we will seek to use one or more credit support protection devices, such as obtaining a parent guarantee, standby letter of credit, or credit insurance. Credit losses may still be incurred due to bankruptcy, fraud, or other failure of the customer to pay.
Our sales to distributors are typically made under agreements allowing for price protection on unsold merchandise and a right of return on stipulated quantities of unsold merchandise. Under the price protection program, we give distributors credits for the difference between the original price paid and the current price that we offer. Our products typically have no contractual limit on the amount of price protection, nor is there a limit on the time horizon under which price protection is granted. The right of return granted generally consists of a stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases made by the distributor.
DISTRIBUTION
Distributors typically handle a wide variety of products, including those that compete with our products, and fill orders for many customers. Customers may place orders directly with us or through distributors. We have several distribution warehouses that are located in proximity to key customers.
BACKLOG
Our customers generally operate with lean-inventory or just-in-time operations rather than maintaining larger inventories of our products. As our customers continue to lower their inventories, our processes to fulfill their orders have evolved to meet their needs. As a result, our manufacturing production is based on estimates and advance non-binding commitments from customers as to future purchases. Our order backlog as of any particular date is a mix of these commitments and specific firm orders that are primarily made pursuant to standard purchase orders for delivery of products. Only a small portion of our orders are non-cancelable, and the dollar amount associated with the non-cancelable portion is not significant.
SEASONAL TRENDS
Historically, our net revenue has typically been higher in the second half of the year than in the first half of the year, accelerating in the third quarter and peaking in the fourth quarter.

OTHER KEY INFORMATION
 
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MARKETING
Our global marketing objectives are to build a strong, well-known, differentiated, and meaningful Intel corporate brand that drives preference with businesses and consumers, and to offer a limited number of meaningful and valuable brands in our portfolio to aid businesses and consumers in making informed choices about technology purchases. The Intel Core processor family and the Intel® Quark™, Intel Atom®, Intel® Celeron®, Intel® Pentium®, Intel® Xeon®, Intel® Xeon Phi™, and Intel® Itanium® trademarks make up our processor brands.
We promote brand awareness and preference, and generate demand through our own direct marketing, as well as through co-marketing programs. Our direct marketing activities primarily include advertising through digital and social media and television, as well as consumer and trade events, industry and consumer communications, and press relations. We market to consumer and business audiences, and focus on building awareness and generating demand for new form factors such as all-in-one devices and 2 in 1 systems powered by Intel technologies. Our key messaging focuses on increased performance, improved energy efficiency, and other capabilities such as connectivity and communications.
Purchases by customers often allow them to participate in cooperative advertising and marketing programs such as the Intel Inside program. This program broadens the reach of our brands beyond the scope of our own direct marketing. Through the Intel Inside program, certain customers are licensed to place Intel® logos on computing devices containing our microprocessors and processor technologies, and to use our brands in their marketing activities. The program includes a market development component that accrues funds based on purchases and partially reimburses customers for marketing activities for products featuring Intel® brands, subject to customers meeting defined criteria. These marketing activities primarily include advertising through digital and social media and television, as well as press relations. We have also entered into joint marketing arrangements with certain customers.
Competition
The computing industry continuously evolves with new and enhanced technologies and products from existing and new providers. The marketplace can change quickly in response to the introduction of such technologies and products and other factors such as changes in customer and end-user requirements, expectations, and preferences. As technologies evolve and new market segments emerge, the boundaries between the market segments that we compete in are also subject to change.
Intel faces significant competition in the development and market acceptance of our products in this environment. Our platforms, based on Intel architecture, are positioned to compete across the compute continuum, from low-power devices to the most powerful data center servers. These platforms have integrated hardware and software and offer our customers benefits such as ease of use, savings in total cost of ownership, and the ability to scale systems to accommodate increased usage.
COMPETITORS
We compete against other companies that make and sell platforms, other silicon components, and software to businesses that build and sell computing and communications systems to end users. Our competitors also include companies that sell goods and services to businesses that use them for their internal and/or customer-facing processes (e.g., businesses running large data centers). In addition, we face competition from OEMs, ODMs, and other industrial and communications equipment manufacturers that, to some degree, choose to vertically integrate their own proprietary semiconductor and software assets. By doing so, these competitors may be attempting to offer greater differentiation in their products and to increase their share of the profits for each finished product they sell. Continuing changes in industry participants through, for example, acquisitions or business collaborations could also have a significant impact on our competitive position.
In the PC market segment, we are a leading provider of platforms for notebooks, 2 in 1 systems, and desktops (including all-in-ones and high-end enthusiast PCs). We face existing and emerging competition in these product areas. Tablets, phones, and other mobile devices offered by numerous vendors are significant competitors to traditional PCs for many usages, and considerable blurring of system form factors currently exists in the marketplace. We face strong competition from vendors who use applications processors that are based on the ARM* architecture, feature low-power or long battery-life operation, and are built in SoC formats that integrate numerous functions on one chip.
In the data center market segment, we are a leading provider of data center platforms, and face competition from companies using ARM architecture or other technologies. Internet cloud computing, storage, and networking are areas of significant targeted growth for us in the data center segment, including as a result of increasing amounts of data created by artificial intelligence, autonomous driving, and other applications. We face strong competition in these market segments.
In the Internet of Things market segment, we have a long-standing position as a supplier of components and software for embedded products. This marketplace continues to expand significantly with increasing types and numbers of smart and connected devices for retail, automotive, industrial, and consumer uses, including smart video. As this market segment evolves, we face numerous large and small incumbent processor competitors, as well as new entrants that use ARM architecture and other operating systems and software. In addition, the Internet of Things requires a broad range of connectivity solutions and we face competition from companies providing traditional wireless solutions such as cellular, WiFi, and Bluetooth*, as well as several new entrants who are taking advantage of new focused communications protocols.

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In the memory market segment, we compete against other providers of NAND flash memory products. We focus our efforts primarily on incorporating NAND flash memory into solution products, such as SSDs supporting enterprise and consumer applications. We believe that our memory offerings, including innovative developments such as Intel Optane technology, complement our product offerings in our other segments.
In the programmable solutions market segment, we are a leading provider of programmable semiconductors and related products, including FPGAs and SoC FPGAs. We face competition from other programmable logic companies, as well as companies that make other types of semiconductor products, such as application-specific integrated circuits, application-specific standard products, graphics processing units, digital signal processors, and CPUs. Targeted growth areas for our programmable solutions include communications, data center, and automotive applications. The FPGA life cycle is long relative to other Intel products—from the time that a design win is secured, it generally takes three or more years before a customer starts volume production and we receive the associated revenue from such design win.

Our products primarily compete based on performance, energy efficiency, integration, innovative design, features, price, quality, reliability, brand recognition, technical support, and availability. The importance of these factors varies by the type of end system for the products. For example, performance might be among the most important factors for our products for data center servers, while energy efficiency and price, as well as density and non-volatility, might be among the most important factors for our memory products.
COMPETITIVE ADVANTAGES
Our key competitive advantages include:
Well-positioned for growth in smart, connected world. We offer solutions across every segment of the smart, connected world—from the cloud, to the network, to devices—and believe that we are well-positioned for growth through our strategy of the Virtuous Cycle of Growth. The expansion and proliferation of the cloud and data center, Internet of Things, memory, and FPGAs—all of which are connected—help grow our business. As more devices connect to the cloud, we have increased opportunities for growth. We are uniquely positioned to meet customer needs with platform solutions that leverage our breadth of products. Our range of silicon products and associated software gives us an end-to-end capability supported by our manufacturing expertise and intellectual property.
Transitions to next-generation technologies. We have a market lead in transitioning to the next-generation process technology and bringing products to market using such technology. In Q4 2017, we began to ship products utilizing our 10nm process technology and we are continuing to work on the development of our next-generation 7nm process technology. We believe that these advancements will offer significant improvements in one or more of the following areas: performance, new features, energy efficiency, and cost.
Combination of our network of manufacturing and assembly and test facilities with our global architecture design teams. We have made significant capital and R&D investments into our integrated manufacturing network, which enables us to have more direct control over our design, development, and manufacturing processes; quality control; product cost; production timing; performance; power consumption; and manufacturing yield. The increased cost of constructing new fabrication facilities to support smaller transistor geometries and larger wafers has led to a reduced number of companies that can build and equip leading-edge manufacturing facilities. Most of our competitors rely on third-party foundries and subcontractors for manufacturing and assembly and test needs. We provide foundry services as an alternative to such foundries.
Intellectual Property Rights and Licensing
Intel owns and develops significant intellectual property (IP) and related IP rights around the world that relate to our products, services, R&D, and other activities and assets. Our IP portfolio includes patents, copyrights, trade secrets, trademarks, trade dress rights, and maskwork rights. We actively seek to protect our global IP rights and to deter unauthorized use of our IP and other assets. Such efforts can be difficult, however, particularly in countries that provide less protection to IP rights and in the absence of harmonized international IP standards. While our IP rights are important to our success, our business as a whole is not significantly dependent on any single patent, copyright, or other IP right.
We have obtained patents in the U.S. and other countries. Because of the fast pace of innovation and product development, and the comparative pace of governments’ patenting processes, our products are often obsolete before the patents related to them expire; in some cases, our products may be obsolete before the patents related to them are granted. As we expand our products into new industries, we also seek to extend our patent development efforts to patent such products. In addition to developing patents based on our own R&D efforts, we may purchase or license patents from third parties. Established competitors in existing and new industries, as well as companies that purchase and enforce patents and other IP, may already have patents covering similar products. There is no assurance that we will be able to obtain patents covering our own products, or that we will be able to obtain licenses from other companies on favorable terms or at all.
The software that we distribute, including software embedded in our component-level and platform products, is entitled to copyright and other IP protection. To distinguish our products from our competitors’ products, we have obtained trademarks and trade names for our products, and we maintain cooperative advertising programs with customers to promote our brands and to identify products containing genuine Intel components. We also protect details about our processes, products, and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage.

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Critical Accounting Estimates
The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain. We consider an accounting policy to be a critical estimate if: (1) we must make assumptions that were uncertain when the judgment was made, and (2) changes in the estimate assumptions, or selection of a different estimate methodology could have a significant impact on our financial position and the results that we report in our consolidated financial statements. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made.
Refer to "Note 2: Accounting Policies" within the Consolidated Financial Statements for further information on our critical accounting estimates and policies, which are as follows:
Inventories - the transition of manufacturing costs to inventory excluding factory excess capacity costs. Inventoried product reflected at the lower of cost or net realizable value considering future demand and market conditions;
Property, plant and equipment - the useful life determination and the related timing of when depreciation begins;
Long-lived assets - the valuation methods and assumptions used in assessing the impairment of property, plant and equipment, identified intangibles, and goodwill, including the determination of asset groupings and the identification and allocation of goodwill to reporting units;
Non-marketable equity investments - the valuation estimates and assessment of other-than-temporary impairment;
Business combinations - the assumptions used to allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions;
Income taxes - the identification and measurement of deferred tax assets and liabilities and the provisional estimates associated with Tax Reform; and
Loss contingencies - the estimation of when a loss is probable and reasonably estimable.
RISK FACTORS
The following risks could materially and adversely affect our business, financial condition, cash flows, and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Refer also to the other information set forth in this Annual Report on Form 10-K, including "MD&A - Results of Operations" and our financial statements and the related notes.
CHANGES IN PRODUCT DEMAND CAN ADVERSELY AFFECT OUR FINANCIAL RESULTS.
Demand for our products is variable and hard to predict. Our platform products are used across different market segments, and demand for our platforms may vary within or among our client computing, data center, Internet of Things, and other market segments. It is difficult to anticipate the impact of these changes, as demand may increase in one or more market segments while decreasing in others. Changes in the demand for our products, particularly in the client computing or data center market segments, may reduce our revenue, lower our gross margin, or require us to write down the value of our assets.
Important factors that could lead to variation in the demand for our products include changes in:
business conditions, including downturns in the market segments in which we operate, or in the global or regional economies;
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 our customers’ inventories;
competitive and pricing pressures, including actions taken by competitors;
customer order patterns, including order cancellations;
failure to timely introduce competitive products; and
market acceptance and industry support of our new and maturing products.
Due to the complexity of our manufacturing operations, we may be unable to timely respond to fluctuations in demand and we may incur significant charges and costs. Because we own and operate high-tech fabrication facilities, our operations have high costs that are fixed or difficult to reduce in the short term, including our costs related to utilization of existing facilities, facility construction and equipment, R&D, and the employment and training of a highly skilled workforce. 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. If the demand decrease is prolonged, 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. We may also be required to shorten the useful lives of under-used facilities and equipment and accelerate depreciation. Conversely, if product demand increases, we may be unable to add capacity fast enough to meet market demand.
We face significant competition. The industry in which we operate is highly competitive and subject to rapid technological and market developments, changes in industry standards, changes in customer needs, and frequent product introductions and improvements. If we do not anticipate and respond to these developments, our competitive position may weaken, and our products or technologies might be uncompetitive or become obsolete. Additionally, a number of business combinations—including mergers, asset acquisitions, and strategic partnerships—in the semiconductor industry have occurred over the last several years, and more could occur in the future. Consolidation in the industry could lead to fewer customers, partners, or suppliers, any of which could negatively affect our financial results.
In recent years, in connection with our strategic transformation to a data-centric company, we have entered new areas and introduced adjacent products in programmable solutions, AI, and autonomous driving; we have also expanded our adjacent product offerings in client computing, the data center, the Internet of Things, and memory, with offerings such as modems, silicon photonics solutions, and 3D XPoint technology products. As a result, we face new sources of competition, including, in certain of these market segments, from incumbent competitors with established customer bases and greater brand recognition. These developing products and market segments may not grow as significantly as projected, or at all, or may utilize technologies that are different from the ones that we develop and manufacture. To be successful, we need to cultivate new industry relationships with customers and partners in these market segments. In addition, we must continually improve the cost, performance, integration, and energy efficiency of our products, as well as expand our software capabilities to provide customers with comprehensive computing solutions. Despite our ongoing efforts, there is no guarantee that we will achieve or maintain market demand or acceptance for our products and services in these various market segments.

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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 and assembly and test facilities, including the construction of new fabrication facilities to support smaller transistor geometries and larger wafers. We do not expect all of our R&D investments to be successful. We may be unable to develop and market new products successfully, and the products and technologies we invest in and develop may not be well-received by customers. Our R&D investments may not contribute to our future operating results for several years, if at all, 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.
If we are not able to compete effectively, our financial results will be adversely affected, including reduced revenue and gross margin, and we may be required to accelerate the write-down of the value of certain assets.
Changes in the mix of products sold may impact our financial results. Our pricing and margins vary across our products and market segments due in part to marketability of our products and differences in their features or manufacturing costs. For example, our platform product offerings range from lower-priced and entry-level platforms, such as those based on Intel Atom processors, to higher-end platforms based on Intel Xeon processors. If demand shifts from our higher-priced to lower-priced products in any of our market segments, our gross margin and revenue would decrease.
WE OPERATE GLOBALLY AND ARE SUBJECT TO SIGNIFICANT RISKS IN MANY JURISDICTIONS.
Global or regional conditions may harm our financial results. We have manufacturing, assembly and test, R&D, sales, and other operations in many countries, and some of our business activities may be concentrated in one or more geographic areas. Moreover, sales outside the U.S. accounted for approximately 83% of our revenue for the fiscal year ended December 30, 2017. As a result, our operations and our financial results, including our ability to manufacture, assemble and test, design, develop, or sell products, may be adversely affected by a number of factors outside of our control, including:
global and regional economic conditions;
geopolitical and security issues, such as armed conflict and civil or military unrest, political instability (including geopolitical uncertainty on the Korean peninsula), human rights concerns, and terrorist activity;
natural disasters, public health issues, and other catastrophic events;
inefficient infrastructure and other disruptions, such as supply chain interruptions and large-scale outages or unreliable provision of services from utilities, transportation, data hosting, or telecommunications providers;
government restrictions on, or nationalization of our operations in any country, or restrictions on our ability to repatriate earnings from a particular country;
differing employment practices and labor issues;
formal or informal imposition of new or revised export and/or import and doing-business regulations, including trade sanctions and tariffs, which could be changed without notice;
ineffective legal protection of our IP rights in certain countries;
local business and cultural factors that differ from our current standards and practices; and
continuing uncertainty regarding social, political, immigration, and tax and trade policies in the U.S. and abroad, including the United Kingdom's vote to withdraw from the European Union.
We are subject to laws and regulations worldwide, which may differ among jurisdictions, affecting our operations in areas including, but not limited to: IP ownership and infringement; tax; import and export requirements; anti-corruption; foreign exchange controls and cash repatriation restrictions; data privacy requirements; competition; advertising; employment; product regulations; environment, health, and safety requirements; and consumer laws. Compliance with such requirements may be onerous and expensive, and may otherwise impact our business operations negatively. For example, unfavorable developments with evolving laws and regulations worldwide related to 5G technology may limit its global introduction and adoption, which could impede our modem strategy and negatively impact our long-term outlook. Although we have policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, and/or agents will not violate such laws or our policies. Violations of these laws and regulations could result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation.
We may be affected by fluctuations in currency exchange rates. We are potentially exposed to adverse as well as beneficial movements in currency exchange rates. Although most of our sales occur in U.S. dollars, expenses may be paid in local currencies. An increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside the U.S. where we sell in dollars, and a weakened dollar could increase the cost of expenses such as payroll, utilities, tax, and marketing expenses, as well as overseas capital expenditures. We also conduct certain investing and financing activities in local currencies. Our hedging programs reduce, but do not eliminate, the impact of currency exchange rate movements; therefore, changes in exchange rates could harm our results of operations and financial condition.

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Catastrophic events could have a material adverse effect on our operations and financial results. Our operations and business could be disrupted by natural disasters; industrial accidents; public health issues; cybersecurity incidents; interruptions of service from utilities, transportation, or telecommunications providers; or other catastrophic events. Such events could make it difficult or impossible to manufacture or deliver products to our customers, receive production materials from our suppliers, or perform critical functions, which could adversely affect our revenue and require significant recovery time and expenditures to resume operations. While we maintain business recovery plans that are intended to enable us to recover from natural disasters or other events that can be disruptive to our business, some of our systems are not fully redundant and we cannot be sure that our plans will fully protect us from all such disruptions.
We maintain a program of insurance coverage for a variety of property, casualty, and other risks. The types and amounts of insurance we obtain vary depending on availability, cost, and decisions with respect to risk retention. Some of our policies have large deductibles and broad exclusions. In addition, one or more of our insurance providers may be unable or unwilling to pay a claim. Losses not covered by insurance may be large, which could harm our results of operations and financial condition.
WE ARE VULNERABLE TO PRODUCT AND MANUFACTURING-RELATED RISKS.
We are subject to risks associated with the development and implementation of new manufacturing process technology. Production of integrated circuits is a complex process. Our strategy is significantly dependent upon the timely advancement of Moore’s Law and we are continually engaged in the development of next-generation process technologies. We may not be successful or efficient in developing or implementing new process nodes and production processes. Our efforts to innovate involve significant expense and carry inherent risks, including difficulties in designing and developing such next-generation process technologies, and investments in manufacturing assets and facilities years in advance of the process node introduction.
Risks inherent in the development of next-generation process technologies include production timing delays, lower than anticipated manufacturing yields, and product defects and errata. Disruptions in the production process can also result from errors, defects in materials, delays in obtaining or revising operating permits and licenses, interruption in our supply of materials or resources, and disruptions at our fabrication and assembly and test facilities due to accidents, maintenance issues, or unsafe working conditions—all of which could affect the timing of production ramps and yields. Production issues can lead to increased costs and may affect our ability to meet product demand, which could adversely impact our business and the results of operations. In addition, if we face unexpected delays in the timing of our product introductions, our revenue and gross margin could be adversely affected because we incur significant costs up front in the product development stage and earn revenue to offset these costs over time.
We face supply chain risks. Thousands of suppliers provide materials and equipment that we use in production and other aspects of our business. Where possible, we seek to have several sources of supply. However, for certain materials, we may rely on a single or a limited number of suppliers, or upon suppliers in a single location. In addition, consolidation among suppliers could impact the nature, quality, availability, and pricing of the products and services available to us. The inability of suppliers to deliver necessary production materials or equipment could disrupt our production processes and make it more difficult for us to implement our business strategy. Production could be disrupted by the unavailability of resources, such as water, silicon, electricity, gases, and other materials. The unavailability or reduced availability of materials or resources may require us to reduce production or incur additional costs, which could harm our business and results of operations. Our manufacturing operations and ability to meet product demand may also be impacted by IP or other litigation between our suppliers, where an injunction against Intel or a supplier could interrupt the availability of goods or services supplied to Intel by others.
We also rely on third-party providers to manufacture and assemble and test certain components or products, particularly those related to networking, communications, programmable semiconductor solutions, and NAND flash memory. If any of these third parties are unable to perform these services on a timely or cost-effective basis, we may encounter supply delays or disruptions that could adversely affect our business and financial results.
In addition, increased regulation or stakeholder expectations regarding responsible sourcing practices could cause our compliance costs to increase or result in publicity that negatively affects our reputation. Moreover, given that we use many materials in the manufacturing of our products and rely on many suppliers to provide these materials, but do not directly control the procurement or employment practices of such suppliers, we could be subject to similar financial or reputational risks as a result of our suppliers' conduct.

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We are subject to the risks of product defects, errata, or other product issues. Product defects and errata (deviations from published specifications) may result from problems in our product design or our manufacturing and assembly and test processes. Components and products we purchase or license from third-party suppliers, or attain through acquisitions, may also contain defects. We could face risks if products that we design, manufacture, or sell, or that include our technology, cause personal injury or property damage, even where the cause is unrelated to product defects or errata. These risks may increase as our products are introduced into new devices, market segments, technologies, or applications, including wearables, drones and transportation, health care and financial transactions, and other industrial and consumer uses. Costs from defects, errata, or other product issues could include:
writing off some or all of the value of inventory;
recalling products that have been shipped;
providing product replacements or modifications;
reimbursing customers for certain costs they incur;
defending against litigation and/or paying resulting damages; and
paying fines imposed by regulatory agencies.
These costs could be large and may increase expenses and lower gross margin, and result in delay or loss of revenue. Any product defects, errata, or other issues could also damage our reputation, negatively affect product demand, delay product releases, or result in legal liability. The announcement of product defects or errata could cause customers to purchase products from competitors. Any of these occurrences could harm our business and financial results. In addition, although we maintain liability insurance, our coverage has certain exclusions and/or may not adequately cover liabilities incurred. Our insurance providers may be unable or unwilling to pay a claim, and losses not covered by insurance could be large, which could harm our financial condition.
We are subject to risks associated with environmental, health, and safety regulations and climate change. The manufacturing and assembly and test of our products require the use of hazardous materials that are subject to a broad array of environmental, health, and safety laws and regulations. Our failure to comply with these laws or regulations could result in:
regulatory penalties, fines, and legal liabilities;
suspension of production;
alteration of our manufacturing and assembly and test processes;
damage to our reputation; and
restrictions on our operations or sales.
Our failure to manage the use, transportation, emissions, discharge, storage, recycling, or disposal of hazardous materials could lead to increased costs or future liabilities. Our ability to expand or modify our manufacturing capability in the future may be impeded by environmental regulations, such as air quality and wastewater requirements. Environmental laws and regulations could also require us to acquire additional pollution abatement or remediation equipment, modify product designs, or incur other expenses. Many new materials that we are evaluating for use in our operations may be subject to regulation under environmental laws and regulations. These restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter manufacturing and assembly and test processes.
Climate change may also pose regulatory and environmental risks that could harm our results of operations and affect the way we conduct business. For example, climate change regulation could result in increased manufacturing costs associated with air pollution control requirements, and increased or new monitoring, recordkeeping, and reporting of greenhouse gas emissions. We also see the potential for higher energy costs driven by climate change regulations if, for example, utility companies pass on their costs to their customers. Furthermore, many of our operations are located in semi-arid regions such as Arizona, New Mexico, and Israel that may become increasingly vulnerable to rising average temperatures or prolonged droughts due to climate change. Our fabrication facilities require significant water use and, while we recycle and reuse a portion of the water used, we may have difficulties obtaining sufficient water to fulfill our operational needs. In addition, climate change may pose physical and regulatory risks to our suppliers, including increased extreme weather events that could result in supply delays or disruptions.
WE ARE SUBJECT TO CYBERSECURITY AND PRIVACY RISKS.
Third parties regularly attempt to gain unauthorized access to our network, products, services, and infrastructure. We regularly face attempts by others to gain unauthorized access through the Internet or to introduce malicious software to our IT systems. Additionally, individuals or organizations, including malicious hackers or intruders into our physical facilities, may attempt to gain unauthorized access and corrupt the processes of hardware and software products that we manufacture and services we provide. Due to the widespread use of our products, we are a frequent target of computer hackers and organizations that intend to sabotage, take control of, or otherwise corrupt our manufacturing or other processes, products, and services. We are also a target of malicious attackers who attempt to gain access to our network or data centers or those of our customers or end users; steal proprietary information related to our business, products, employees, and customers; or interrupt our systems and services or those of our customers or others. We believe such attempts are increasing in number and in technical sophistication. As we become a more data-centric company, our processors may be used in more and different critical application areas and may be subject to increased cybersecurity and privacy risks.
From time to time, we encounter intrusions or unauthorized access to our network, products, services, or infrastructure. To date, none have resulted in any material adverse impact to our business or operations. Such incidents, whether or not successful, could result in our incurring significant costs related to, for example, rebuilding internal systems, writing down inventory value, implementing

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additional threat protection measures, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions, paying damages, providing customers with incentives to maintain the business relationship, or taking other remedial steps with respect to third parties. In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures. While we seek to detect and investigate all unauthorized attempts and attacks against our network, products, and services, and to prevent their recurrence where practicable through changes to our internal processes and tools and/or changes or updates to our products and services, we remain potentially vulnerable to additional known or unknown threats. In some instances, we, our customers, and the users of our products and services may be unaware of an incident or its magnitude and effects.
Security vulnerabilities may exist with respect to our processors and other products as well as the operating systems and workloads running on them. Mitigation techniques designed to address these security vulnerabilities, including software and firmware updates or other preventative measures, may not operate as intended or effectively resolve these vulnerabilities. In addition, we may be required to rely on third parties, including hardware, software, and services vendors, as well as end users, to develop and deploy mitigation techniques, and the effectiveness of mitigation techniques may depend solely or in part on the actions of these third parties. Security vulnerabilities and/or mitigation techniques, including software and firmware updates, may result in adverse performance, reboots, system instability, data loss or corruption, unpredictable system behavior, or the misappropriation of data by third parties, which could adversely impact our business and harm our reputation.
A side-channel exploit is a type of security vulnerability that has recently received attention as a result of the variants referred to as “Spectre” and “Meltdown.” Information on these variants was prematurely reported publicly before mitigation techniques to address all vulnerabilities were made widely available, and certain of the mitigation techniques did not operate as intended. To date, we do not expect a material financial impact to our business or operations from these security vulnerabilities. However, subsequent events or new information could develop which changes our expectations, including additional information learned as we deploy updates, evaluate the competitiveness of existing and new products, address future warranty or other claims or customer satisfaction considerations, as well as developments in the course of responding to any litigation or investigations over these matters. The recent publicity regarding side-channel exploits may also result in increased attempts by third parties to identify additional variants. We will continue to reassess whether or not we expect to be exposed to a loss that could be material.
As a result of the foregoing risks, we have and may continue to face product claims, litigation, and adverse publicity and customer relations from security vulnerabilities and/or mitigation techniques. Publicity about security vulnerabilities and attempted or successful exploits, whether accurate or inaccurate, may result in increased attempts by third parties to identify additional vulnerabilities. This publicity could damage our reputation with customers or users and reduce demand for our products and services. In addition, future vulnerabilities and mitigation of those vulnerabilities may also adversely impact our results of operations, financial condition, customer relationships, and reputation. Moreover, we may be unable to anticipate the timing of the release of information by third parties regarding potential vulnerabilities of our products, which, in turn, has and could adversely impact our ability to timely introduce mitigation techniques and thereby harm our business and reputation.
We may be subject to theft, loss, or misuse of personal data about our employees, customers, or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings. The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business could result in significantly increased business and security costs or costs related to defending legal claims. Global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. In addition, even our inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others.
WE ARE SUBJECT TO IP RISKS AND RISKS ASSOCIATED WITH LITIGATION AND REGULATORY PROCEEDINGS.
We may be unable to enforce or protect our IP rights. We regard our patents, copyrights, trade secrets, and other IP rights as important to the success of our business. We rely on IP law—as well as confidentiality and licensing agreements with our customers, employees, technology development partners, and others—to protect our IP rights. Our ability to enforce these rights is subject to general litigation risks, as well as uncertainty as to the enforceability of our IP rights in various countries. When we seek to enforce our rights, we may be subject to claims that our IP rights are invalid, not enforceable, or licensed to an opposing party. Our assertion of IP rights may result in another party seeking to assert claims against us, which could harm our business. Governments may adopt regulations—and governments or courts may render decisions—requiring compulsory licensing of IP rights, or governments may require products to meet standards that favor local companies. Our inability to enforce our IP rights under any of these circumstances may harm our competitive position and business. In addition, the theft or unauthorized use or publication of our trade secrets and other confidential business information could harm our competitive position and reduce acceptance of our products; as a result, the value of our investment in R&D, product development, and marketing could be reduced.
Our licenses with other companies and participation in industry initiatives may allow competitors to use our patent rights. Technology companies often bilaterally license patents between each other to settle disputes or as part of business agreements. Our competitors may have licenses to our patents, and under current case law, some of the licenses may exhaust our patent rights as to licensed product sales under some circumstances. Our participation in industry standards organizations or with other industry initiatives may require us to license our patents to companies that adopt industry-standard specifications. Depending on the rules of the organization, government regulations, or court decisions, we might have to grant licenses to our patents for little or no cost, and as a result, we may be unable to enforce certain patents against others, our costs of enforcing our licenses or protecting our patents may increase, and the value of our IP rights may be impaired.

OTHER KEY INFORMATION
 
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Third parties may assert claims based on IP rights against us or our products, which could harm our business. We may face claims based on IP rights from individuals and companies, including claims from those who have aggregated patents acquired from multiple sources to form a new, larger portfolio to assert claims against us and other companies. Additionally, large patent portfolio owners may divest portions of their portfolios to more than one individual or company increasing the number of parties who own IP rights previously all held by a single party. We are typically engaged in a number of disputes involving IP rights. Claims that our products or processes infringe the IP rights of others, regardless of their merits, could cause us to incur large costs to respond to, defend, and resolve the claims, and they may divert the efforts and attention of our management and technical personnel from our business and operations. In addition, we may face claims based on the alleged theft or unauthorized use or disclosure of third-party trade secrets and other confidential information or end-user data that we obtain in conducting our business. Any such incidents and claims could severely disrupt our business, and we could suffer losses, including the cost of product recalls and returns, and reputational harm. Furthermore, we have agreed to indemnify customers for certain IP rights claims against them. As a result of IP rights claims, we could:
pay monetary damages, including payments to satisfy indemnification obligations;
stop manufacturing, using, selling, offering to sell, or importing products or technology subject to claims;    
need to develop other products or technology not subject to claims, which could be time-consuming or costly; and/or
enter into settlement and license agreements, which agreements may not be available on commercially reasonable terms.
These IP rights claims could harm our competitive position, result in expenses, or require us to impair our assets. If we alter or stop production of affected items, our revenue could be harmed.
We rely on access to third-party IP, which may not be available to us on commercially reasonable terms or at all. Many of our products include third-party technology and/or implement industry standards, and may require licenses from third parties. Based on past experience and industry practice, we believe such licenses generally can be obtained on commercially reasonable terms. However, there is no assurance that the necessary licenses can be obtained on acceptable terms or at all. Failure to obtain the right to use third-party technology, or to license IP on commercially reasonable terms, could preclude us from selling certain products or otherwise have a material adverse impact on our financial condition and operating results.
We are subject to the risks associated with litigation and regulatory proceedings. We may face legal claims or regulatory matters involving stockholder, consumer, competition, and other issues on a global basis. As described in "Note 20: Commitments and Contingencies" within the Consolidated Financial Statements, we are engaged in a number of litigation and regulatory matters. Litigation and regulatory proceedings are inherently uncertain, and adverse rulings could occur, including monetary damages, or an injunction stopping us from manufacturing or selling certain products, engaging in certain business practices, or requiring other remedies, such as compulsory licensing of patents. An unfavorable outcome may result in a material adverse impact on our business, financial condition and results of operations. In addition, regardless of the outcome, litigation and regulatory proceedings can be costly, time-consuming, disruptive to our operations, and distracting to management.
WE MUST ATTRACT, RETAIN, AND MOTIVATE KEY EMPLOYEES.
To be competitive, we must attract, retain, and motivate executives and other key employees. Hiring and retaining qualified executives, scientists, engineers, technical staff, and sales representatives are critical to our business, and competition for experienced employees can be intense. To help attract, retain, and motivate qualified employees, we use share-based and other performance-based incentive awards such as RSUs and cash bonuses. Also key to our employee hiring and retention is our ability to build and maintain an inclusive business culture and be viewed as an employer of choice. If our share-based or other compensation programs and workplace culture cease to be viewed as competitive, our ability to attract, retain, and motivate employees could be weakened, which could harm our results of operations.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR STRATEGIC TRANSACTIONS.
We invest in companies for strategic reasons and may not realize a return on our investments. We make investments in public and private companies around the world to further our strategic objectives and support key business initiatives. Many of the instruments in which we invest are non-marketable at the time of our initial investment. Companies in which we invest range from early-stage companies still defining their strategic direction to mature companies with established revenue streams and business models. The success of our investment in any company is typically dependent on the company’s access to additional funding on favorable terms, or a liquidity event, such as a public offering or acquisition. If any of the companies in which we invest fail, we could lose all or part of our investment.
Our acquisitions, divestitures, and other strategic transactions could fail to achieve our financial or strategic objectives, disrupt our ongoing business, and adversely impact our results of operations. In pursuing our business strategy, we routinely conduct discussions, evaluate opportunities, and enter into agreements for possible acquisitions, divestitures, and other strategic transactions. These transactions involve numerous risks, including:
the transaction may not advance our business strategy and its anticipated benefits may never materialize;
we may experience disruption of our ongoing operations and our management’s attention may be diverted;
we may not realize a satisfactory return on our investment, potentially resulting in an impairment;
we may be unable to retain key personnel of acquired businesses or may have difficulty integrating employees, business systems, and technology;

OTHER KEY INFORMATION
 
51


we may not be able to identify opportunities in a timely manner or on terms acceptable to us;
controls, processes, and procedures of acquired businesses may not adequately ensure compliance with laws and regulations, and we may fail to identify compliance issues or liabilities;
we may be unable to effectively enter new market segments through our strategic transactions or retain customers and partners of acquired businesses;
we may fail to identify the existence of unknown, underestimated, and/or undisclosed commitments or liabilities; and/or
we may fail to complete a transaction in a timely manner, if at all, due to our inability to obtain required government or other approvals, IP disputes or other litigation, difficulty in obtaining financing on terms acceptable to us, or other unforeseen factors.
Moreover, our resources are limited and our decision to pursue a transaction has opportunity costs; accordingly, if we pursue a particular transaction, we may need to forgo the prospect of entering into other transactions that could help us achieve our financial or strategic objectives.
Any of these risks could have a material adverse effect on our business, results of operations, financial condition, or cash flows, particularly in the case of a large acquisition or several concurrent acquisitions.
WE ARE SUBJECT TO SALES-RELATED RISKS.
We face risks related to sales through distributors and other third parties. We sell a significant portion of our products through third parties such as distributors, value-added resellers, and channel partners (collectively referred to as distributors), as well as OEMs, ODMs and Internet service providers. We depend on many distributors to help us create end-customer demand, provide technical support and other value-added services to customers, fill customer orders, and stock our products. We may rely on one or more key distributors for a product, and a material change in our relationship with one or more of these distributors or their failure to perform as expected could reduce our revenue. Our ability to add or replace distributors for some of our products may be limited. In addition, our distributors' expertise in the determination and stocking of acceptable inventory levels for some of our products may not be easily transferable to a new distributor; as a result, end customers may be hesitant to accept the addition or replacement of a distributor. Using third parties for distribution exposes us to many risks, including competitive pressure and concentration, credit, and compliance risks. Distributors and other third parties may sell products that compete with our products, and we may need to provide financial and other incentives to focus them on the sale of our products. They may face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable and financial results. Violations of the Foreign Corrupt Practices Act or similar laws by distributors or other third-party intermediaries could have a material impact on our business. Failure to manage risks related to our use of distributors and other third parties may reduce sales, increase expenses, and weaken our competitive position.
We receive a significant portion of our revenue from a limited number of customers. Collectively, our three largest customers accounted for approximately 40% of our net revenue in 2017 and 38% of our net revenue in 2016. We expect a small number of customers will continue to account for a significant portion of our revenue in the foreseeable future. If one of our key customers stops purchasing from us, materially reduces its demand for our products, or delays its orders for our products, we may experience a reduction in revenue, which could harm our results of operations and financial condition. For more information about our customers, including customers who accounted for greater than 10% of our net consolidated revenue, see "Note 4: Operating Segments" within the Consolidated Financial Statements.
We face risks related to business transactions with U.S. government entities. We receive proceeds from services and products we provide to the U.S. government. U.S. government demand and payment may be affected by public sector budgetary cycles and funding authorizations. U.S. government contracts are subject to oversight, including special rules on accounting, IP rights, expenses, reviews, information handling, and security. Failure to comply with these rules could result in civil and criminal penalties and sanctions, including termination of contracts, fines, and suspensions, or debarment from future business with the U.S. government.
CHANGES IN OUR EFFECTIVE TAX RATE MAY REDUCE OUR NET INCOME.
A number of factors may increase our effective tax rates, which could reduce our net income, including:    
changes in jurisdictions in which our profits are determined to be earned and taxed;
the resolution of issues arising from tax audits;
changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances;
adjustments to income taxes upon finalization of tax returns;
increases in expenses not deductible for tax purposes, including impairments of goodwill;
changes in available tax credits;
changes in our ability to secure new or renew existing tax holidays and incentives;
changes in U.S. federal, state, or foreign tax laws or their interpretation, including changes in the U.S. to the taxation of manufacturing enterprises and of non-U.S. income and expenses;
changes in accounting standards; and
our decision to repatriate non-U.S. earnings for which we have not previously provided for local country withholding taxes incurred upon repatriation.

OTHER KEY INFORMATION
 
52


WE MAY HAVE FLUCTUATIONS IN THE AMOUNT AND FREQUENCY OF OUR STOCK REPURCHASES.
The amount, timing, and execution of our stock repurchase program may fluctuate based on our priorities for the use of cash for other purposes—such as investing in our business, including operational spending, capital spending, and acquisitions, and returning cash to our stockholders as dividend payments—and because of changes in cash flows, tax laws, and the market price of our common stock.
non-GAAP Financial Measures
In addition to disclosing financial results in accordance with GAAP, this document contains references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.
Our non-GAAP operating income and diluted earnings per share reflect adjustments for the following items, as well as the related income tax effects. Income tax effects have been calculated using an appropriate tax rate for each adjustment.
Acquisition-related adjustments:
The non-GAAP financial measures disclosed by the company exclude certain business combination accounting adjustments and certain expenses related to acquisitions as follow:
Revenue and gross margin: Non-GAAP financial measures exclude the impact of the deferred revenue write-down, amortization of acquisition-related intangible assets that impact cost of sales, and the inventory valuation adjustment.

OTHER KEY INFORMATION
 
53


Deferred revenue write-down: Sales to distributors are made under agreements allowing for subsequent price adjustments and returns, and are deferred until the products are resold by the distributor. Business combination accounting principles require us to write down to fair value the deferred revenue assumed in our acquisitions as we have limited performance obligations associated with this deferred revenue. Our GAAP revenues and related cost of sales for the subsequent reselling by distributors to end customers after an acquisition do not reflect the full amounts that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustments made in Q1 2016 eliminate the effect of the deferred revenue write-down associated with our acquisition of Altera. We believe these adjustments are useful to investors as an additional means to reflect revenue and gross margin trends of our business.
Inventory valuation adjustment: Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustments to our cost of sales exclude the expected profit margin component that is recorded under business combination accounting principles associated with our acquisitions of Mobileye and Altera. We believe the adjustments are useful to investors as an additional means to reflect cost of sales and gross margin trends of our business.
Amortization of acquisition-related intangible assets: Amortization of acquisition-related intangible assets consists of amortization of intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. We record charges related to the amortization of these intangibles within both cost of sales and operating expenses in our GAAP financial statements. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.
Other acquisition-related charges: Other acquisition-related charges exclude the impact of other charges associated with the acquisitions of Mobileye and Altera. These charges primarily include bankers' fees, compensation-related costs, and valuation charges for stock-based compensation incurred related to the acquisitions. We believe these adjustments are useful to investors as an additional means to reflect the spending trends of our business.
Restructuring and other charges:
Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include asset impairments, pension charges, and costs associated with the ISecG divestiture. We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures. We believe that these costs do not reflect our current operating performance. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.
Gains or losses from divestiture:
We recognized a gain in Q2 2017 as a result of our divestiture of ISecG. We have excluded this gain for purposes of calculating certain non-GAAP measures. We believe making these adjustments facilitates a better evaluation of our current operating performance and comparisons to past operating results.
Tax Reform:
We recognized a higher income tax expense in Q4 2017 as a result of Tax Reform. We have excluded the one-time tax adjustment relating to the transition tax on our previously untaxed foreign earnings and the remeasurement of our deferred income taxes to the new U.S. statutory tax rate for purposes of calculating certain non-GAAP measures. We believe making these adjustments facilitates a better evaluation of our current operating performance and comparisons to past operating results.
Following are the reconciliations of our most comparable GAAP measures to our non-GAAP measures presented:
(In Millions)
 
Dec 30,
2017
 
Dec 31,
2016
 
Dec 26,
2015
Operating income
 
$
17,936

 
$
12,874

 
$
14,002

Deferred revenue write-down, net of cost of sales
 

 
64

 

Inventory valuation
 
55

 
387

 

Amortization of acquisition-related intangibles
 
1,089

 
1,231

 
608

Restructuring and other charges
 
384

 
1,886

 
354

Other acquisition-related charges
 
113

 
100

 

Non-GAAP operating income
 
$
19,577

 
$
16,542

 
$
14,964


OTHER KEY INFORMATION
 
54


 
 
Dec 30,
2017
 
Dec 31,
2016
 
Dec 26,
2015
Earnings per share - Diluted
 
$
1.99

 
$
2.12

 
$
2.33

Deferred revenue write-down, net of cost of sales
 

 
0.01

 

Inventory valuation
 
0.01

 
0.08

 

Amortization of acquisition-related intangibles
 
0.22

 
0.25

 
0.13

Restructuring and other charges
 
0.08

 
0.39

 
0.07

Other acquisition-related charges
 
0.02

 
0.02

 

(Gains)/Losses from divestiture
 
(0.08
)
 

 

Tax Reform
 
1.13

 

 

Income tax effect
 
0.09

 
(0.15
)
 
(0.04
)
Non-GAAP Earnings per share - Diluted
 
$
3.46

 
$
2.72

 
$
2.49

PROPERTIES
As of December 30, 2017, our major facilities consisted of:
(Square Feet in Millions)
 
United
States
 
Other
Countries
 
Total
Owned facilities
 
31.3

 
17.9

 
49.2

Leased facilities
 
1.6

 
6.3

 
7.9

Total facilities
 
32.9

 
24.2

 
57.1

Our principal executive offices are located in the U.S. and the majority of our wafer manufacturing activities in 2017 were also located in the U.S. In 2017, we restarted construction on one of our Arizona wafer fabrication facilities that was previously on hold and held in a safe state. For more information on our wafer fabrication and our assembly and test facilities, see "Research and Development (R&D) and Manufacturing" within Fundamentals of Our Business.
We believe that the facilities described above are suitable and adequate for our present purposes and that the productive capacity in our facilities is substantially being utilized or we have plans to utilize it.
We do not identify or allocate assets by operating segment as they are interchangeable in nature and used by multiple operating segments. For information on net property, plant and equipment by country, see "Note 6: Other Financial Statement Details" within the Consolidated Financial Statements.
MARKET FOR REGISTRANT’S COMMON EQUITY
The principal U.S. market on which Intel’s common stock (symbol INTC) is traded is the Nasdaq Global Select Market. For information regarding the market price range of Intel common stock and dividend information, see "Financial Information by Quarter (Unaudited)" within the Consolidated Financial Statements.
As of February 7, 2018, there were approximately 120,000 registered holders of record of Intel’s common stock. A substantially greater number of holders of Intel common stock are "street name" or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
ISSUER PURCHASES OF EQUITY SECURITIES
We have an ongoing authorization, originally approved by our Board of Directors in 2005, and subsequently amended, to repurchase shares of our common stock in open market or negotiated transactions. As of December 30, 2017, we were authorized to repurchase up to $75.0 billion, of which $13.2 billion remained available. This amount includes an increase of $10.0 billion in the authorization limit approved by our Board of Directors in April 2017.

OTHER KEY INFORMATION
 
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Common stock repurchase activity under our publicly announced stock repurchase plan during each quarter of 2017 was as follows:
Period
 
Total Number of
Shares Purchased
(In Millions)
 
Average Price
Paid Per Share
 
Dollar Value of
Shares That May
Yet Be Purchased Under the Plans
(In Millions)
January 1, 2017 - April 1, 2017
 
35.1

 
$
35.94

 
$
5,538

April 2, 2017 - July 1, 2017
 
37.6

 
$
35.66

 
$
14,198

July 2, 2017 - September 30, 2017
 
28.6

 
$
35.19

 
$
13,191

October 1, 2017 - December 30, 2017
 

 
$

 
$
13,191

Total
 
101.3

 


 
 
We issue RSUs as part of our equity incentive plans. In our consolidated financial statements, we treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of RSUs as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan, and accordingly are not included in the common stock repurchase totals in the preceding table.
Availability of Company Information
Our Internet address is www.intel.com. We publish voluntary reports on our website that outline our performance with respect to corporate responsibility, including environmental, health, and safety compliance.
We use our Investor Relations website, www.intc.com, as a routine channel for distribution of important information, including news releases, analyst presentations, financial information, corporate governance practices, and corporate responsibility information. We post our filings at www.intc.com/sec the same day they are electronically filed with, or furnished to, the SEC, including our annual and quarterly reports on Forms 10-K and 10-Q and current reports on Form 8-K; our proxy statements; and any amendments to those reports or statements. We post our quarterly and annual earnings results at www.intc.com/results.cfm, and do not distribute our financial results via a news wire service. All such postings and filings are available on our Investor Relations website free of charge. In addition, our Investor Relations website allows interested persons to sign up to automatically receive e-mail alerts when we post financial information. The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Form 10-K is not incorporated by reference in this Form 10-K unless expressly noted.

OTHER KEY INFORMATION
 
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Financial statements and supplemental DETAILS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reports of Independent Registered Public Accounting Firm
 
 
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
 
 
Notes to Consolidated Financial Statements
 
 
Basis
 
Note 1: Basis of Presentation
Note 2: Accounting Policies
Note 3: Recent Accounting Standards