# INTEL CORP (INTC) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from INTEL CORP's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/50863/000005086322000007/intc-20211225.htm Accession: 0000050863-22-000007 Filing date: 2022-01-27 Report date: 2021-12-25 Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Confidence: high Company profile: /company/INTC/ All MD&A years: /company/INTC/mda/ Next year: /company/INTC/mda/fy2022/ (FY 2022) Management's Discussion and Analysis Our Products Our product offerings provide end-to-end solutions, scaling from edge computing to 5G networks, the cloud, and the emerging fields of AI and autonomous driving. Products, such as our gaming CPUs, may be sold directly to end consumers, or they may be further integrated by our customers into end products such as notebooks and storage servers. Combining some of these products—for example, integrating FPGAs and memory with Intel Xeon processors in a data center solution—enables incremental synergistic value and performance. We launched new products in 2021, such as the 12th Gen Intel Core processors (Alder Lake), the first on the Intel 7 process, and 3rd Gen Intel Xeon Scalable processors (Ice Lake). Platform Products: Our platform products can be a CPU and chipset, an SoC, or a multichip package based on Intel® architecture that processes data and controls other devices in a system. The primary CPU products in CCG are our Intel Core and Intel Atom® processors, which include Intel Core processors designed specifically for notebook and desktop applications. We introduced our 12th Gen Intel Core desktop processors and additional 11th Gen Intel Core processors (Tiger Lake) this year. The primary CPU product in DCG is our Intel Xeon processor, which includes solutions for data center compute, networking, and the intelligent edge. Our latest Xeon processor, the 3rd Gen Xeon, launched this year. We sell Xeon, Intel Core, and Intel Atom processor products as part of our IOTG offerings. Adjacent Products: Our non-platform, or adjacent, products can be combined with platform products to form comprehensive platform solutions to meet customer needs. These products are used in solutions sold through each of our businesses and include the following: ▪Accelerators—Silicon products that can operate alone or accompany our processors in a system, such as Habana Gaudi for DCG, FPGAs for PSG, VPUs for IOTG, and Mobileye EyeQ SoCs ▪Boards and Systems—Server boards and small form factor systems such as Intel® NUCs for CCG ▪Connectivity Products—Ethernet controllers and silicon photonics for DCG; and cellular modems, Wi-Fi, and Bluetooth® for CCG ▪Graphics— Discrete graphics products for CCG and DCG ▪Memory and Storage Products—NAND SSD products for NSG and Intel® OptaneTM memory products sold through DCG [[GREPCENT_TABLE]] [["","","","\u201cAt Intel our customer first mindset means that we put customer needs at the center of our business. We are committed to our customers' success by delivering a portfolio of high quality products, performance, and experiences to solve the world\u2019s most challenging problems.\" \u2014Michelle Johnston Holthaus, Executive Vice President and General Manager of the Sales, Marketing, and Communications Group"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","18"]] [[/GREPCENT_TABLE]] Table of Contents How We Organize Our Business [[GREPCENT_TABLE]] [["% Intel Revenue","","","Key Markets and Products"],["","","","Includes platforms designed for end-user form factors, focusing on higher growth segments of 2-in-1, thin-and-light, commercial and gaming, and growing adjacencies such as connectivity and graphics."],["","","","Includes workload-optimized platforms and related products designed for cloud service providers, enterprise and government, and communications service providers market segments."],["","","","Includes high-performance compute solutions for targeted verticals and embedded applications in market segments such as retail, industrial, and healthcare."],["","","","Includes comprehensive solutions required for autonomous driving, including compute platforms, computer vision, and machine learning-based sensing, mapping and localization, driving policy, and active sensors in development, utilized for both Robotaxi and consumer level autonomy."],["","","","Includes memory and storage products like Intel 3D NAND technology, primarily used in SSDs."],["","","","Includes programmable semiconductors, primarily FPGAs and structured ASICs, and related products for communications, cloud and enterprise, and embedded market segments."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","19"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview"],["We are committed to advancing PC experiences by delivering an annual cadence of leadership products and deepening our relationships with industry partners to co-engineer and deliver leading platform innovation. We engage in an intentional effort focused on long-term operating system, system architecture, hardware, and application integration that enables industry-leading PC experiences. We will embrace these opportunities by investing more heavily in the PC, ramping its capabilities even more aggressively, and designing the PC experience even more deliberately. By doing this, we will continue to fuel innovation across Intel, providing a growing source of IP, scale, and cash flow."],["Key Developments"],["\u25a0","We delivered our sixth consecutive year of revenue growth, to $40.5 billion, as the PC continues to be more essential than ever.","\"The PC is one of the most essential tools of modern times. This makes Intel's role more critical than ever. You can count on us to boldly innovate and deliver industry-leading PC experiences that connect people globally to what matters most to them.\" \u2014Jim Johnson, Interim General Manager, CCG"],["\u25a0","We launched our 11th Gen Intel Core H-series processors and introduced our 12th Gen Intel Core processor family, our all-new performance hybrid architecture built on Intel 7 process technology."],["\u25a0","We launched the world's first Wi-Fi 6E certified product for PCs, enabling Intel Wi-Fi based PCs to access as much as 1200 MHz of new Wi-Fi spectrum \u2013 the first new spectrum for Wi-Fi in over a decade. In May, we launched the Intel 5G Solution 5000 modem for PCs, delivering speeds that significantly exceed those of our Intel Gigabit LTE. We also introduced our new high-performance discrete graphics products: Intel\u00ae Arc\u2122, with our first generation (Alchemist) GPU shipping to OEMs in Q1 2022."],["\u25a0","We worked with industry partners to co-engineer and deliver more than 100 verified Intel\u00ae Evo\u2122 designs and grew the commercial market segment with the launch of our 11th Gen Intel Core vPro platform."]] [[/GREPCENT_TABLE]] 5-Year Trends [[GREPCENT_TABLE]] [["","\u25a0 Revenue $B","","\u25a0 Op Income $B"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","20"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy Since the onset of the COVID-19 pandemic, time spent on PCs has increased dramatically across all major usage categories—as did PCs per household—reinforcing the importance of bringing innovative platforms and form factors to market that unlock real-world experiences. This trend is expected to remain in a post-pandemic world, driving a year over year growth in revenue TAM1. The ecosystem is shipping over one million PC units a day and we believe there is sustained strength in PC demand. In addition, the COVID-19 pandemic has driven significant behavior changes that have positioned the PC as an essential tool in people's lives. PC density, or PCs per household, is increasing as COVID-19 has irreversibly changed the way we focus, create, connect, and care for each other. In addition, we continue to see an increase in PCs per student. There is a significant opportunity in the commercial segment, driven by refresh of older Windows devices. Currently, there are approximately 140 million devices that are more than four years old2. The experience and capabilities delivered on new PCs are dramatically better today, reinforcing the opportunity to drive a refresh cycle among enterprise customers. Products and Competition We operate in a particularly competitive market. In processors, we compete with AMD and vendors who design applications processors based on ARM* architecture, such as Qualcomm Inc. (Qualcomm), and, increasingly, Apple Inc., (Apple) with its most recent launch of M1 Max and M1 Pro. We expect this competitive environment to intensify in 2022. Our role as a technology leader is more important than ever, and our commitment to creating an open ecosystem is critical to delivering on our ambition. That is why we embrace and collaborate with a vibrant ecosystem of OEM partners to identify innovation vectors. The breadth of a robust ecosystem like Windows/x86 is an incredibly powerful combination, bringing together hundreds of companies and creative and innovative advancements that are not possible for one company alone to deliver. We launched our 12th Gen Intel Core desktop processors based on our first performance hybrid architecture, which combines two all-new core microarchitectures instead of one and can scale across PC segments and out to the edge. The 12th Gen processor family is set to deliver superior computing performance for every PC segment and out to the edge. In total, we expect to deliver more than 60 processors and 500 desktop and mobile designs from partners across major multinational corporations and leading manufacturers. Unique to Intel, we innovate beyond the CPU to deliver premium PC experiences with Intel Evo and Intel vPro platforms. More than 100 advanced laptop designs have been built on the Intel Evo platform, which signals they are tested and verified in Intel labs. This ensures they deliver key experience indicators defined by real-world usage models and innovation across areas like responsiveness, battery life, instant wake, and connectivity. Intel vPro is designed for enterprise needs and delivers increased productivity improvements, connectivity, security features, and remote manageability. We are leading Intel as we embark on our new IDM 2.0 strategy to develop more competitive products and more capabilities for customers. As a result, we are designing our product roadmap to drive product leadership grounded in a philosophy of openness and choice. We deliver value to our customers by leveraging our engineering capabilities and working with our partners across an open, innovative ecosystem to deliver technology that drives every major vector of the computing experience, including performance, battery life, connectivity, graphics, and form factors to create the most advanced PC platforms. We continue to face industry-wide supply constraints, which are expected to persist into 2022. Given our unique position in the industry, we have taken major actions along the supply chain to eliminate bottlenecks—increasing substrate capacity, removing third-party component bottlenecks, increasing our own internal capacity, and obtaining more external capacity. We are also working with the industry to provide TAM forecasts that help our suppliers better deliver on industry needs. 1 Source: Intel calculated 2022 TAM derived from industry analyst reports. 2 Source: Intel calculated the volume of devices over four years old from industry analyst reports and internal data. [[GREPCENT_TABLE]] [["","MD&A","21"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","CCG Revenue $B","","CCG Operating Income $B"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25a0 Platform","\u25a0 Adjacent"]] [[/GREPCENT_TABLE]] Revenue Summary ▪Increased unit sales driven by continued strength in notebook demand and recovery in desktop demand driven by consumer and commercial recovery from COVID-19 lows. ▪Lower notebook ASPs due to strength in the consumer and education market segments, partially offset by higher desktop ASPs driven by commercial recovery from COVID-19. ▪Decrease in adjacent revenue primarily driven by the continued ramp down from the exit of our 5G smartphone modem and Home Gateway Platform businesses, partially offset by strength in wireless and connectivity. [[GREPCENT_TABLE]] [["","","2021 vs. 2020","","2020 vs. 2019"],["(In Millions)","","%","","$ Impact","","%","","$ Impact"],["Desktop platform volume","","up","8%","","$","851","","","down","(11)%","","$","(1,316)"],["Desktop platform ASP","","up","3%","","292","","","up","2%","","186"],["Notebook platform volume","","up","8%","","2,102","","","up","28%","","5,770"],["Notebook platform ASP","","down","(6)%","","(1,530)","","","down","(6)%","","(1,646)"],["Adjacent products and other","","","","","(1,261)","","","","","","(83)"],["Total change in revenue","","","","","$","454","","","","","","$","2,911"]] [[/GREPCENT_TABLE]] Operating Income Summary Operating income decreased 3% year over year, and operating margin was 36% in 2021. [[GREPCENT_TABLE]] [["(In Millions)"],["$","14,672","","","2021 Operating Income"],["(850)","","","Higher operating expenses driven by increased investment in leadership products"],["(565)","","","Higher period charges primarily associated with the ramp up of Intel 4"],["(240)","","","Higher period charges primarily associated with the ramp down of 14nm"],["(185)","","","Lower adjacent product margin primarily driven by the exit of our 5G smartphone modem business"],["(140)","","","Higher period charges driven by less sell-through of reserves on non-qualified platform products in 2021 as compared to in 2020, and other reserves taken in 2021"],["710","","","Higher gross margin from platform revenue"],["655","","","Lower platform unit cost primarily due to cost improvements in 10nm SuperFin"],["165","","","Lower period charges primarily driven by a decrease in engineering samples"],["(7)","","","Other"],["$","15,129","","","2020 Operating Income"],["(3,025)","","","Higher platform unit cost primarily from increased mix of 10nm products"],["(125)","","","Primarily driven by higher logistic expenses due to COVID-19"],["1,715","","","Higher gross margin from platform revenue"],["640","","","Lower operating expenses"],["420","","","Lower period charges due to lower start-up cost associated with 10nm products and sell-through of previously reserved platform products related to our 10nm process technology"],["300","","","Higher CCG adjacent product margin"],["2","","","Other"],["$","15,202","","","2019 Operating Income"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","22"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview"],["DCG develops workload-optimized platforms for compute, storage, and network functions. With unmatched scale, hardware and software portfolio breadth, and expansive partner ecosystem support, we are uniquely positioned to enable the world to unleash the potential of data, unlocking value for people, business, and society on a global scale. Market segments include cloud service providers, enterprise and government, and communications service providers. We serve the global appetite for cloud computing and enable digital transformation from edge to cloud."],["Key Developments","\"Intel has the breadth and depth of leadership products to solve our customers' most complex problems in a world where the digitization of everything is accelerating the need for high-performance computing.\"\u2014Sandra Rivera, Executive Vice President and General Manager, Data Center and AI Group"],["\u25a0","We introduced multiple products and continued to invest in our leadership roadmap throughout the year. Amid effects of industry component supply constraints and a competitive environment, revenue decreased 1% year over year."],["\u25a0","We launched the 3rd Gen Intel Xeon Scalable processors (Ice Lake), the only x86 data center processors with built-in AI acceleration. We also announced the IPU, a platform that enables superior security capabilities and enables our cloud customers to handle infrastructure tasks more efficiently."],["\u25a0","We expanded our broad, data-centric portfolio for 5G network infrastructure including the 3rd Gen Intel Xeon Scalable processor \"N-SKUs\", a 5G network-optimized Ethernet NIC, and the Intel Network Platform. We also began sampling the next-generation Intel Xeon D processors, which are built for the edge."]] [[/GREPCENT_TABLE]] 5-year Trends [[GREPCENT_TABLE]] [["","\u25a0 Revenue $B","","\u25a0 Op Income $B"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","23"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy Data is a significant force in society and is being generated at an unprecedented pace. In the context of the data center, four superpowers are shaping the future of technology: ▪Ubiquitous Compute: Businesses are demanding compute at the edge to drive insights more quickly from growing amounts of data as everything consumers interact with involves computer technology. ▪Pervasive Connectivity: Increased connectivity is enabling a universal reach with more data movement than ever before, connecting billions of devices and putting more powerful compute resources in the hands of consumers. ▪Cloud to Edge: The proliferation of cloud architectures, which started inside the data center to deliver new levels of efficiency and scale, is now the core of the data infrastructure. The growth and prevalence of the cloud is leading to the democratization of high-performance computing, which opens new frontiers of knowledge in areas like precision medicine and numerical weather prediction. Rapid adoption of 5G is enabling increased bandwidth and fueling continued transformation of the network. The evolution of the networks is creating unlimited scale and giving rise to the intelligent edge. ▪AI: AI is fundamental and becoming pervasive in all applications, creating intelligence everywhere, and enabling powerful new uses of compute across all fields. Data centers—whether servicing compute, networking, or edge workloads—will go through a massive architectural transformation, leveraging heterogeneous computing with different types of processor architectures optimized for different workloads. With unmatched scale, hardware and software portfolio breadth, and ecosystem support, we are uniquely positioned to unlock the value of data for people, business, and society on a global scale. The on-premise enterprise market segment revenue grew as customers demonstrated strong recovery from COVID-19. Cloud market segment revenue decreased in 2021 driven by an increasingly competitive environment, and industry component supply constraints. The communications service provider segment continued to see strong growth with the build-out of 5G, and we collaborated with operators on the next wave of virtualization in the radio access network and build-out of the intelligent edge. Products and Competition We offer customers a broad portfolio of silicon and software designed to provide workload-optimized performance across computing, storage, and networking. As a leading provider of data center platforms, we have competitors such as Advanced Micro Devices, Inc. (AMD), providers of GPU products such as NVIDIA Corporation (NVIDIA), companies using ARM architecture, new entrants developing products customized for specific data center workloads, and internally developed solutions by cloud service providers and others. We expect the competitive environment to continue in 2022. In 2021, we launched our 3rd Gen Intel Xeon Scalable processors (Ice Lake), and we shipped 1 million units faster than the previous Xeon generations. All of our OEM partners are currently shipping 3rd Gen Intel Xeon enabled systems and all major cloud service provider customers have deployed services using 3rd Gen Intel Xeon processors. In 2021, we also introduced the Intel Optane Persistent Memory 200 Series and Optane SSD P5800X and began sampling the next generation of Intel Xeon D processors, which are built for the edge. In 2021, we also announced the IPU, a platform that enables superior security capabilities and lets our cloud customers handle infrastructure tasks more efficiently, enabling the Intel Xeon CPU to focus on the tenant software. Intel announced two types of IPUs, an FPGA-based IPU (Oak Springs Canyon) and an ASIC-based IPU co-developed with Google (Mount Evans). [[GREPCENT_TABLE]] [["","MD&A","24"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","DCG Revenue $B","","DCG Operating Income $B"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25a0 Platform","\u25a0 Adjacent"]] [[/GREPCENT_TABLE]] Revenue Summary ▪Lower platform ASP driven by product mix and a competitive environment, partially offset by recovery in the enterprise and government market segment, compared to COVID-driven lows in 2020. ▪Higher platform volume driven by recovery in the enterprise and government market segment (up 21% from 2020) and growth in the communications service providers market segment (up 9% from 2020), partially offset by a decline in the cloud service providers market segment (down 19% from 2020). (2020 compared to 2019, the cloud service providers market segment was up 20% and communications service providers market segment up 17%, partially offset by enterprise and government market segment down 8%). ▪Adjacent revenue grew primarily due to the inclusion of the Intel Optane memory business and growth in Ethernet, partially offset by a reduction in the 5G networking volume from elevated levels in 2020. [[GREPCENT_TABLE]] [["","","2021 vs. 2020","","2020 vs. 2019"],["(In Millions)","","% Growth","","$ Impact","","% Growth","","$ Impact"],["Platform ASP","","down","(4)%","","$","(924)","","","down","(3)%","","$","(701)"],["Platform volume","","up","2%","","571","","","up","11%","","2,316"],["Adjacent products","","up","2%","","71","","","up","49%","","1,007"],["Total change in revenue","","","","","$","(282)","","","","","","$","2,622"]] [[/GREPCENT_TABLE]] Operating Income Summary Operating income decreased 34% year over year, and operating margin was 27% in 2021. [[GREPCENT_TABLE]] [["(In Millions)"],["$","6,997","","","2021 Operating Income"],["(1,185)","","","Higher operating expenses driven by investment in leadership products"],["(840)","","","Higher platform unit cost primarily from increased mix of 10nm SuperFin products"],["(685)","","","Higher period charges primarily associated with ramp up of Intel 4"],["(435)","","","Lower gross margin from platform revenue"],["(250)","","","Higher period charges primarily associated with ramp down of 14nm"],["(160)","","","Higher period charges driven by increased engineering samples"],["(155)","","","Lower adjacent product margin"],["145","","","Lower period charges driven by absence of other reserves taken in 2020, partially offset by reserves recorded in 2021"],["(9)","","","Other"],["$","10,571","","","2020 Operating Income"],["1,325","","","Higher gross margin from platform revenue"],["235","","","Lower period charges due to lower factory start-up costs associated with the initial ramp of 10nm, partially offset by lower platform product reserves"],["(425)","","","Higher operating expenses"],["(375)","","","Lower DCG adjacent product margin"],["(295)","","","Higher platform unit cost"],["(125)","","","Primarily driven by higher logistic expenses due to COVID-19"],["4","","","Other"],["$","10,227","","","2019 Operating Income"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","25"]] [[/GREPCENT_TABLE]] More industries are harnessing the power of data to create business value, innovate, and grow. This requires that intelligence move closer to the edge, allowing data to be acted on where it is created. Working with our partners and developers, we use our architecture, accelerators, and software to develop and scale a growing Internet of Things portfolio and ecosystem. Our Internet of Things portfolio is comprised of our IOTG and Mobileye businesses. Internet of Things Group [[GREPCENT_TABLE]] [["Overview"],["IOTG develops high-performance compute platforms that solve the technology needs for business use cases that scale across vertical industries and embedded markets. Our customers include retailers, manufacturers, health and life sciences providers, researchers, governments, and education providers. We reduce complexity in the ecosystem with common silicon architectures and software to help enable our customers to create, store, and process data at the edge."],["Key Developments"],["","","\"The market continues to validate the strategic direction we began several years ago; for operational workloads, compute will move closer to where the data is created and AI inference will be the dominant technology driver.\" \u2014Tom Lantzsch, IOTGGeneral Manager"],["\u25a0","Revenue was up 33%, driven by increased demand for IOTG platform products due to recovery from the economic impacts of COVID-19 across all key market segments. Most notably, we saw strength in our retail, industrial, and healthcare market segments."],["\u25a0","We announced enhanced product capabilities, which include the 11th Gen Intel Core processors and 3rd Gen Intel Xeon Scalable processors, both bring new AI and operational technology features to customers. These products are a response to needs across the verticals we serve to reduce edge complexity, add capabilities to developers, lower the cost of ownership, and support a range of environmental conditions."],["\u25a0","We continue to update solutions to improve developers' digital strategies and to accelerate market adoption of AI applications at the edge. This includes advancing the OpenVINO toolkit for AI inference model deployment. It is supported by Intel DevCloud for the Edge, which allows users to prototype and experiment with AI workloads on Intel hardware prior to deployment. In addition, the Intel\u00ae Edge Software Hub provides access to software packages from Intel and our partners to deliver proven business outcomes."],["\u25a0","We continue to work with our ecosystem partners to expand the portfolio of Intel\u00ae MRS and Intel\u00ae IoT RFP Ready Kit products\u2014scalable, end-to-end solutions that provide solid business results today and lay the foundation for the future. Currently, IOTG has approved over 600 Intel MRS and Intel IoT RFP Ready Kit offerings, with approximately 50,000 new deployments across 160 countries."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","26"]] [[/GREPCENT_TABLE]] Table of Contents 5-Year Trends [[GREPCENT_TABLE]] [["","\u25a0 Revenue $B","","\u25a0 Op Income $B"]] [[/GREPCENT_TABLE]] Market and Business Overview Market Trends and Strategy We are at the center of a global digital transformation. Through our broad portfolio of technology, solutions, and tools, we are transforming the way businesses create products, deliver services, and conduct operations—across schools, hospitals, retailers, governments, utilities, and manufacturers. Driving business benefits requires solving customer challenges in a highly fragmented global market with scalable horizontal technologies. Additionally, it requires building relevant ecosystems and scaling developers specific to diverse verticals. Our vertical market segments include the following: [[GREPCENT_TABLE]] [["","","Retail\u2014Retailers produce mountains of data that can be used to proactively address evolving customer demands and improve operations. We provide solutions that enable retailers to extract the right insights from their data, in the right place, at the right time, allowing them to use intelligence to transform their businesses and to achieve their full potential. The result is greater efficiency, reduced complexity, increased sales, and a more personalized customer experience."],["","Industrial\u2014We are transforming manufacturing today and expanding what is possible for tomorrow's autonomous operations. We are driving the realization of Industry 4.0 and, together with our ecosystem partners, addressing industry challenges like the convergence of information technology with operational technology, while bringing AI and analytics to operations. This enables customers to make informed decisions that lower maintenance costs, create new service opportunities, and increase productivity."],["","Healthcare\u2014We are advancing technologies to enable healthcare providers to focus on patients and their care. Technologies like AI, robotics, and 5G are making healthcare and life sciences more connected, personalized, and intelligent. Our technology innovations give researchers powerful tools to make breakthrough discoveries and solve some of the world's largest healthcare and life science challenges in lab and research environments. By working together with solution providers and end users in the healthcare community, we will continue to develop transformative technologies for the future of healthcare and life sciences."]] [[/GREPCENT_TABLE]] Products and Competition IOTG utilizes Intel's technology portfolio to provide horizontal platforms while making additional investments needed to adapt products to the specific requirements for our vertical segments. We offer end-to-end solutions with our wide spectrum of products, including Intel Atom, Intel Core, Intel Xeon, VPU accelerators, and developer toolkits such as OpenVINO. IOTG product development focuses on addressing the key challenges businesses face, including interoperability, connectivity, safety, and security, to implement transformative edge solutions. We invest heavily in developing the tools to service operational technology developers and independent software vendors. We have a long-standing position as a supplier of components and software for embedded products. As businesses continue to create a deluge of data from more and more smart and connected devices across industries, the demand for high-performance computing at the edge has expanded exponentially. The installed base of Intel architecture-based hardware, and applications that run natively on them, helps us to offer compelling solutions in these markets. As this marketplace evolves, we face numerous large and small incumbent processor competitors, as well as new entrants that use the ARM architecture. The solutions require a broad range of connectivity solutions and we face competition from semiconductor companies providing traditional wireless solutions such as cellular, Wi-Fi, and Bluetooth, as well as several new entrants who are taking advantage of new focused communications protocols with the goal of expanding into computational silicon. The market is fragmented and complex, requiring interoperability, standard-based approaches, software, developer tools, and the ecosystem working together to accelerate time to value with commercial solutions at scale. [[GREPCENT_TABLE]] [["","MD&A","27"]] [[/GREPCENT_TABLE]] Table of Contents Mobileye [[GREPCENT_TABLE]] [["Overview"],["Mobileye is a global leader in driving assistance and self-driving solutions. Our product portfolio covers the entire stack required for assisted and autonomous driving, including compute platforms, computer vision and machine learning-based sensing, mapping and localization, driving policy, and active sensors in development. Mobileye's unique assets in ADAS allow for building a scalable self-driving stack that meets the requirements for both Robotaxi and consumer level autonomy. Our customers and strategic partners include major global OEMs, Tier 1 automotive system integrators, and public transportation operators."],["Key Developments"],["\u25a0","We achieved record revenue in 2021 as global vehicle production improved amid recovery from the economic impacts of COVID-19. Our EyeQ SoC volume grew 42% and we expect to see additional growth in the adoption of enhanced ADAS technologies. We have shipped over 100 million chips to date, including 28 million EyeQ SoCs in 2021.","\"The future of autonomous driving will be driven by the expansion of Robotaxis, followed by the proliferation of consumer level AVs. While it is too early to determine which realm will dominate, Mobileye is uniquely positioned to become a leader in both spaces.\" \u2014Prof. Amnon Shashua, President and Chief Executive Officer, Mobileye"],["\u25a0","We secured a record 41 new ADAS design wins, including deals with major OEMs such as Toyota, VW, BMW, Nissan, Honda, and PSA Group. We are currently active in 71 production programs1 across over 30 OEMs."],["\u25a0","We launched our SAE L4 SDS, Mobileye Drive\u2122, and secured multiple collaborations for commercial use, including with Udelv for autonomous cargo delivery, and with Transdev for self-driving mobility services. We also achieved our first consumer L4 design win with Geely."],["\u25a0","We unveiled the Mobileye Robotaxi, a production-grade self-driving electric vehicle, with mobility rider services and MaaS platform, as well as mobility intelligence, tele-operations and data services by Moovit. Through the partnership with SIXT, Robotaxi services will begin in Germany in 2022, along with the already announced Robotaxi services in Tel Aviv."],["\u25a0","In December 2021, we announced our intention to take Mobileye public in the US via an IPO of newly issued Mobileye stock. Intel expects to retain majority ownership of Mobileye following the completion of the IPO."]] [[/GREPCENT_TABLE]] 5-Year Trends2 [[GREPCENT_TABLE]] [["","\u25a0 Revenue $B","","\u25a0 Op Income $B"]] [[/GREPCENT_TABLE]] Market and Business Overview Market Trends and Strategy While the vehicle industry shows recovery from the COVID-19 pandemic with approximately 2%3 growth year over year, production is still roughly 15% below 2019 levels. We expect ADAS volume to overcome the COVID-19 effects faster than overall global vehicle production, given the significant growth shown in 2021. We anticipate long-term ADAS growth from a strong build-up in L1-L2 ADAS fitment rates, increasing the number of vehicles that will have basic ADAS features from the factory. In addition, we expect increased demand for new generations of cloud-enhanced ADAS as OEMs continue to look to boost current L2 solutions by improving system fidelity, availability, and performance. A crucial building block for L4 autonomy, our REM high-definition maps with constant updates, global coverage, and crowd-based semantics provide a unique value proposition for enhanced L2 systems. We see great traction from leading OEMs (including VW and Ford, as recently announced) as REM-based enhancements can be achieved based on economical configuration. We believe the future of autonomous driving will unfold in two phases: commercial services like Robotaxi and cargo, followed by series-production passenger car consumer AVs. We expect consumer AVs to materialize only after the Robotaxi industry deploys and matures. The main inhibitors of a mass market product offering of consumer AV are the cost of AV technology, ability to scale at a low cost, regulatory framework, public acceptance, and the ability to scale geographically. Thus, we see the Robotaxi phase as a necessary corridor to consumer AV. Because of our scalable approach, Mobileye is well-positioned to play a significant role in both the Robotaxi market and the future consumer AV market. This is driven by three elements in our strategy: lean compute enabled by the tight co-design of hardware and software, REM crowdsourced maps that provide unparalleled global coverage and constant updates, and development of high-resolution imaging radars to reduce the use of costly LiDAR sensors. 1 This refers to the total number of production programs with active project managers. Intel's definition of program is included in "Key Terms" within the Financial Statements and Supplemental Details. 2 Mobileye was acquired in Q3 2017; 2017 results do not represent the full year. 3 Source: IHS Markit. [[GREPCENT_TABLE]] [["","MD&A","28"]] [[/GREPCENT_TABLE]] Table of Contents In Robotaxi, Mobileye is active via two major business models: First, we are positioning ourselves to be an end-to-end service provider together with Moovit's complementary go-to-market assets and service layers. Second, we are also engaging with various public transportation operators, goods delivery, and mobility providers via a Vehicle-as-a-Service business model in which we provide a fully integrated self-driving platform. Regulatory approval and framework are a prerequisite for AV proliferation. In 2021, Germany became the first country in the world to allow autonomous vehicles onto public roads without requiring a human backup safety driver behind the wheel. We anticipate one or more additional countries will soon provide similar regulation, enabling regular deployment and operation of MaaS fleets with self-driving vehicles starting in 2022. Products and Competition Our offering for ADAS and AV is propelled by our computer vision, AI expertise, and software assets, deployed on our EyeQ SoC family. The tight co-design of hardware and software gives the EyeQ SoC the ability to support complex and computationally intense tasks and sets it apart from competition because it is purpose-fit for high-compute, low-power, automotive-compliant mission profiles. Our 5th Gen EyeQ5 SoC is designed to act as the core building block of central compute for fully autonomous driving vehicles. We have been able to achieve power, performance, and cost targets by employing proprietary computational cores that are optimized for a wide variety of computer vision, signal processing, and machine learning tasks, including deep neural networks. Starting with EyeQ5, we are supporting an automotive-grade standard operating system and providing a complete software development kit to allow customers to differentiate their solutions by deploying their algorithms on EyeQ5. The EyeQ5 SoC is already available for commercial vehicles and is already operational in our autonomous test vehicles. EyeQ5 serves as the computational foundation for our scalable camera-only surround sensing system. The system consists of multiple independent computer vision engines and deep networks for algorithmic redundancy. The result is a robust and comprehensive model of the environment that allows end-to-end autonomous driving. The surround computer vision system is the backbone of Mobileye's AV architecture and the flagship offering for next-generation ADAS. We recently introduced EyeQ6L and EyeQ6H, which are designed to provide a scalable solution from entry level ADAS to L2+ and L4 systems. The EyeQ6 platform opens Mobileye to host and process parking and DMS data. EyeQ6L is expected to be deployed in 2023, while EyeQ6H will start production in 2024. We also introduced the EyeQ® Ultra™, our most advanced, highest performing SoC purpose-built for autonomous driving. EyeQ Ultra maximizes both performance and efficiency at 176 tera operations per second. This efficiently designed SoC builds on six generations of proven EyeQ architecture and four classes of proprietary accelerator cores to deliver the power and performance needed for AVs. The first silicon for the EyeQ Ultra SoC is expected at the end of 2023, with full automotive-grade production in 2025. The next significant building block in our complete offering is REM mapping technology, which compiles crowdsourced mapping data from EyeQ SoC-equipped vehicles. Together with our OEM partners, we are utilizing our strong presence in ADAS to gain crowd knowledge that is required for building AV maps. After five years of intense development, the REM technology is fully functional for L2/L2+ applications and provides a variety of advanced features, including predictive adaptive cruise control, lane-level localization in all weather and road conditions, hands-free driving application, and real-time alerts. REM also provides intelligent speed adaptation functionality for regulation required by GSR and EUNCAP starting in 2022. REM technology is one of our key differentiators. The third building block in our full stack offering is our unique formal model for AV safety (RSS). At its core, RSS is a pragmatic method to design and then efficiently validate the safety of an AV, serving as the governing safety layer for the decision-making system. RSS formalizes human decision making for safe driving. It acknowledges the need to balance safety with useful driving by making plausible worst-case scenario assumptions for other road users. By using induction and analytical calculations, the RSS model allows for a lean driving policy with high computational efficiency. The fourth building block is True Redundancy™, which manifests our approach to AV sensing. True Redundancy combines two independent perception sub-systems—one powered by cameras, and another by radar and LiDAR—and supports full end-to-end autonomous capabilities. Our Level 4 self-driving system, Mobileye Drive, incorporates both systems. Our last building block is active sensors development. Mobileye and Intel's combined competencies put us in a unique position to advance with the development of a software-defined imaging radar designed to deliver rich point cloud modeling capabilities to enable sensing-state and driving decisions solely on radar. Our imaging radars would replace most of the field of view covered by today's costly LiDARs. LiDAR would be retained only for the front-facing field of view, where it would operate in three-way redundancy with cameras and radar, enabling a major cost reduction for the entire sensor configuration. The proof of concept and modelling using this new radar technology has already been demonstrated. We are also developing a unique Frequency-Modulated Continuous Wave LiDAR designed to provide high point density with relative speed measurement and superior immunity for additional safety in time-critical decisions. [[GREPCENT_TABLE]] [["","MD&A","29"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","Internet of Things Revenue $B","","Internet of Things Op Income $B"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["\u25a0 IOTG","\u25a0 Mobileye"]] [[/GREPCENT_TABLE]] Revenue Summary 2021 vs. 2020 IOTG revenue increased $991 million, primarily driven by $1.1 billion related to higher demand for IOTG platform products amid recovery from the economic impacts of COVID-19, partially offset by $115 million due to lower ASPs. Mobileye revenue increased $419 million, driven by improvement in global vehicle production, recovery from the economic impacts of COVID-19, and increasing adoption of ADAS compared to 2020. 2020 vs. 2019 IOTG revenue decreased $814 million, or 21%, primarily driven by the economic impacts of COVID-19 with $470 million in lower ASPs driven by weaker core mix and $265 million driven by weaker demand for IOTG platform products. Revenue was also negatively affected by considerations related to the US government Entity List. Mobileye revenue was $967 million, up $88 million, driven by higher demand from improved global vehicle production in the second half of 2020, offsetting the decline in production experienced in the first half of the year due to the effects of the COVID-19 pandemic. Operating Income Summary 2021 vs. 2020 IOTG operating income increased $548 million, primarily due to higher platform revenue. Mobileye operating income increased $219 million, due to higher revenue driven by improvement in global vehicle production, recovery from the economic impacts of COVID-19, and increasing adoption of ADAS compared to 2020. 2020 vs. 2019 IOTG operating income decreased $600 million, primarily due to lower platform revenue. Mobileye operating income was $241 million, down $4 million, due to higher spending primarily driven by the Moovit acquisition, partially offset by growth in revenue. [[GREPCENT_TABLE]] [["","MD&A","30"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview"],["NSG provides next-generation memory and storage products based on innovative Intel 3D NAND technology. NSG is disrupting the memory and storage hierarchy with new tiers that balance capacity, performance, and cost. Our products are available in innovative form factors and densities to address the memory and storage challenges our customers face in a rapidly evolving technological landscape. Our customers include enterprise and cloud-based data centers, and users of business and consumer desktops and laptops."],["Key Developments"],["","","\"Storage technologies help drive the computing experience. Put simply, in today\u2019s data-driven world, advances in both data center and client computing need to be matched by cutting-edge innovation in the memory-and-storage space.\" \u2014Rob Crooke, NSG General Manager"],["\u25a0","Revenue was lower in 2021, driven by market softness and pricing pressure. NAND profitability improved due to the absence of depreciation expense from NAND property, plant and equipment that was held for sale throughout 2021."],["\u25a0","We launched the Intel\u00ae SSD D5-P5316, our first 144-layer QLC NAND SSD for the Data Center, which is available up to 30.72TB in both the U.2 and efficient E1.L form factors. An upgrade of our SATA drive, the Intel\u00ae SSD D3-S4520 and D3-S4620, also launched with Intel\u2019s latest-gen 144-layer TLC NAND and is available in 2.5\u201d and M.2 form factors up to 7.68TB capacity. For our consumer market, the Intel\u00ae SSD 670p with 144-layer QLC NAND launched with improved performance, storage responsiveness, and endurance with high capacity (up to 2TB)."],["\u25a0","In October 2020, we signed an agreement with SK hynix to divest our NAND memory business. The NAND memory business makes up our NSG segment. The transaction will occur over two closings, the first of which was completed on December 29, 2021, subsequent to our fiscal 2021 year-end. We will fully deconsolidate our ongoing interests in the NAND OpCo Business in the first quarter of 2022. Refer to \"Note 10 : Acquisitions and Divestitures\" within Notes to Consolidated Financial Statements for further information on the divestiture."]] [[/GREPCENT_TABLE]] 5-Year Trends [[GREPCENT_TABLE]] [["","\u25a0 Revenue $B","","\u25a0 Op Income $B"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","31"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy The combination of ever-exploding growth in data and the desire to analyze data for actionable insights requires our customers to balance performance, real-time access, and cost. Our 3D NAND TLC and QLC technology innovations enable our customers to have access to efficient, cost-effective capacity storage. In October of 2020, we signed an agreement with SK hynix to divest our NAND memory business, including our NAND memory fabrication facility in Dalian, China and certain related equipment and tangible assets (the Fab Assets), our NAND SSD Business (the NAND SSD Business), and our NAND memory technology and manufacturing business (the NAND OpCo Business). The first closing was completed on December 29, 2021, subsequent to our fiscal 2021 year-end. At first closing, we sold to SK hynix the Fab Assets and the NAND SSD Business. In connection with the first closing, we and certain affiliates of SK hynix also entered into a NAND wafer manufacturing and sale agreement, pursuant to which we will manufacture and sell to SK hynix NAND memory wafers to be manufactured using the Fab Assets in Dalian, China until the second closing. Products and Competitiveness We compete against other providers of NAND products. We offer 96-layer and 64-layer TLC NAND high-capacity SSDs, and 144-layer QLC NAND high-capacity SSDs. We focus our efforts primarily on incorporating NAND into solution products. The acceleration in data growth across our customer base requires significant innovation in storage technology. Our storage roadmap led the way in re-imagining usages and architecting innovative solutions that have disrupted the industry with 96-layer and 144-layer 3D NAND TLC and QLC solutions. We launched four new products with multiple densities to keep up with the evolving business needs of our customers. [[GREPCENT_TABLE]] [["","MD&A","32"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","NSG Revenue $B","","NSG Operating Income $B"]] [[/GREPCENT_TABLE]] Revenue Summary 2021 vs. 2020 Revenue decreased $1.1 billion, driven by $712 million lower ASPs due to market softness and pricing pressure and $392 million due to the transfer of the Intel Optane memory business to DCG. 2020 vs. 2019 Revenue increased $996 million, driven by $716 million higher ASP from improved NAND pricing and $280 million from improved overall demand. Operating Income Summary 2021 vs. 2020 NSG had an operating profit of $1.4 billion, up from an operating profit of $361 million in 2020. The operating profit was driven by $1.4 billion of improvements in unit cost, primarily driven by the absence of depreciation expense from NAND property, plant and equipment that was held for sale, $366 million of lower period charges, and $220 million of lower operating expenses, partially offset by $929 million of lower revenue primarily on ASP decline. Operating income also benefited from the transfer of the Intel Optane memory business from 2021 NSG results (a loss of $576 million in 2020). 2020 vs. 2019 NSG had an operating profit of $361 million, up from an operating loss of $1.2 billion in 2019. The operating profit was driven by $716 million higher ASPs from market pricing recovery and $741 million due to continued improvements in unit cost. [[GREPCENT_TABLE]] [["","MD&A","33"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Overview"],["","PSG offers programmable semiconductors, primarily FPGAs, structured ASICs, and related products, for a broad range of applications across our embedded, communications, and cloud and enterprise market segments. Our product portfolio delivers FPGA acceleration in tandem with Intel microprocessors, which enables us to combine the benefits of our broad portfolio of technologies to allow more flexibility for systems to operate with increased efficiency and higher performance."],["","Key Developments"],["","\u25a0","Revenue was up 4% year over year, driven by recovery in the embedded and communications market segments from COVID-19 lows. Revenue was limited by ongoing industry component, substrate, and foundry capacity shortages.","\"Intel FPGAs and Structured ASICs, unleashed with software, platform and workload innovations, are accelerating a smart and connected world.\" \u2014Shannon Poulin, PSG General Manager"],["","\u25a0","We are shipping our Intel\u00ae Agilex\u2122 FPGA family, featuring industry-leading FPGA fabric performance, power efficiency, and transceiver performance. We released our Intel\u00ae eASIC\u2122 N5X device family (Diamond Mesa) for low-latency 5G network acceleration, cloud acceleration, and storage, AI, and edge applications."],["","\u25a0","We announced Arrow Creek, an FPGA-based Acceleration Development Platform SmartNIC adapter for high-performance 100G networking acceleration, and RedHat support for our Intel Open FPGA Stack scalable, source-accessible FPGA hardware and software infrastructure."],["","\u25a0","We announced that Intel\u00ae FPGA-based IPU platforms are currently deployed at multiple cloud service providers. We also announced Oak Springs Canyon, an IPU platform built with the Intel\u00ae Xeon\u00ae D processor and the Intel Agilex FPGA."]] [[/GREPCENT_TABLE]] 5-Year Trends [[GREPCENT_TABLE]] [["","\u25a0 Revenue $B","","\u25a0 Op Income $B"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","34"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy With the rise of pervasive connectivity and autonomous transactions, vast networks of devices and systems are linked from the edge through infrastructure to the cloud. Our FPGA and structured ASIC technologies enhance Intel's ability to meet the needs of customers in the data center, across the network, and at the edge by extending platform capabilities, intercepting evolving requirements when standards are still changing, and enabling customers to validate next-generation technology proof points early in the market transition. The Intel FPGA portfolio enables this transformation with discrete FPGAs and software-defined, hardware-based, multi-function acceleration cards and IPUs that allow faster development times, high performance, and power efficiency with lower overall total cost of ownership. We enable a broad range of solutions targeting applications across our embedded, communications, and cloud and enterprise market segments. The configurability and efficiency of FPGAs provide advantages to enable transformative applications such as 5G wireless, network function virtualization acceleration, and edge acceleration for video analytics and Industry 4.0. At the edge, where systems ingest large amounts of data, Intel FPGAs are ideal for pre-processing data to accelerate Intel processors. In the network, where data traffic is increasing and network functions are being virtualized to improve transport efficiency, Intel FPGAs are built to deliver high-bandwidth aggregation and processing. In the cloud, where workloads shift dynamically and algorithms change, Intel FPGAs are the ideal solution for adapting to new demands through reconfigurability and enabling the offload of infrastructure processing tasks from CPUs as part of an IPU platform. Products and Competition We deliver solutions in the PLD market, primarily FPGAs and structured ASICs, to accelerate applications that help secure, power, and connect billions of devices and the infrastructure of the smart, connected, data-centric world. We face competition from other programmable logic companies, as well as companies that make other types of semiconductor products, such as ASICs, application-specific standard products, GPUs, digital signal processors, and CPUs. Targeted growth areas for our programmable solutions include 5G, AI, intelligent edge, and cloud applications. The FPGA life cycle generally takes three or more years from the time that a design win is secured before a customer starts volume production and we receive the associated revenue. [[GREPCENT_TABLE]] [["We continue to leverage our heterogeneous architecture on advanced nodes to deliver innovative products at an accelerated pace, allowing the integration of analog, memory, custom computing, custom I/O, and Intel eASIC chiplets into a single package. Our Intel Agilex FPGA family, built on Intel 10nm SuperFin technology, is now shipping. The Agilex family delivers leading performance and power efficiency for diverse workloads."],["We continue to invest in our Intel eASIC portfolio. Our Intel eASIC N5X, the next-generation Intel eASIC device, is now in production. Structured ASIC products serve as an intermediary technology between FPGAs and standard-cell ASICs that provides lower unit cost and lower power compared to FPGAs, and faster time-to-market and lower non-recurring engineering cost compared to standard-cell ASICs. Intel eASIC products have growth opportunities through adoption in 5G applications and scale across a wide range of markets."],["We continue to execute to our developer-first strategy with oneAPI support for several Intel FPGA families and the Intel\u00ae FPGA Programmable Acceleration Card. The oneAPI programming model allows users to save significant development time and enhance productivity while using a single, unified language for CPUs, GPUs, and FPGAs."],["We introduced several new platforms, solutions, and partnerships during the year. We announced Arrow Creek, an FPGA-based Acceleration Development Platform SmartNIC adapter that can flexibly accelerate several infrastructure workloads and enable high-performance 100G connectivity by combining Intel\u2019s Agilex FPGA and the Intel Ethernet 800 Series controller. We introduced RedHat support for Intel Open FPGA Stack, further enabling solution and board providers to build their own differentiated FPGA platforms for servers with Intel Xeon CPUs. We also announced with the US Defense Advanced Research Projects Agency a three-year partnership to advance the development of domestically manufactured structured ASIC platforms."],["Intel FPGAs play a critical role in Intel\u2019s announced IPU vision, enabling cloud and communications service providers to reduce overhead and free up performance for CPUs. Intel FPGA-based IPU platforms are currently deployed at multiple cloud service providers. We also announced Oak Springs Canyon, an IPU reference platform built with our Intel Xeon D processor and our Intel Agilex FPGA."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","35"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","PSG Revenue $B","","PSG Operating Income $B"]] [[/GREPCENT_TABLE]] Revenue Summary 2021 vs. 2020 Revenue increased $81 million, driven by recovery in the embedded and communications market segments from COVID-19 lows, partially offset by customer inventory digestion in the cloud market segment. 2020 vs. 2019 Revenue decreased $134 million, driven by a decline in our communications market segment due to customer transition to 5G ASICs that benefited DCG adjacencies, and decline in our embedded market segment. The decline was partially offset by strength in the cloud and enterprise market segment. Operating Income Summary 2021 vs. 2020 Operating income increased $37 million, driven by higher revenue due to recovery in the embedded and communications market segments from COVID-19 lows, partially offset by a decrease in the cloud market segment. 2020 vs. 2019 Operating income decreased $58 million, driven by lower revenue in our embedded and communications market segments, partially offset by strength in the cloud and enterprise market segment [[GREPCENT_TABLE]] [["","MD&A","36"]] [[/GREPCENT_TABLE]] Table of Contents Consolidated Results of Operations For additional key highlights of our results of operations, see "A Year in Review." [[GREPCENT_TABLE]] [["Years Ended (In Millions, Except Per Share Amounts)","","December 25, 2021","","December 26, 2020","","December 28, 2019"],["","Amount","","% of Net Revenue","","Amount","","% of Net Revenue","","Amount","","% of Net Revenue"],["Net revenue","","$","79,024","","","100.0","%","","$","77,867","","","100.0","%","","$","71,965","","","100.0","%"],["Cost of sales","","35,209","","","44.6","%","","34,255","","","44.0","%","","29,825","","","41.4","%"],["Gross margin","","43,815","","","55.4","%","","43,612","","","56.0","%","","42,140","","","58.6","%"],["Research and development","","15,190","","","19.2","%","","13,556","","","17.4","%","","13,362","","","18.6","%"],["Marketing, general and administrative","","6,543","","","8.3","%","","6,180","","","7.9","%","","6,350","","","8.8","%"],["Restructuring and other charges","","2,626","","","3.3","%","","198","","","0.3","%","","393","","","0.5","%"],["Operating income","","19,456","","","24.6","%","","23,678","","","30.4","%","","22,035","","","30.6","%"],["Gains (losses) on equity investments, net","","2,729","","","3.5","%","","1,904","","","2.4","%","","1,539","","","2.1","%"],["Interest and other, net","","(482)","","","(0.6)","%","","(504)","","","(0.6)","%","","484","","","0.7","%"],["Income before taxes","","21,703","","","27.5","%","","25,078","","","32.2","%","","24,058","","","33.4","%"],["Provision for taxes","","1,835","","","2.3","%","","4,179","","","5.4","%","","3,010","","","4.2","%"],["Net income","","$","19,868","","","25.1","%","","$","20,899","","","26.8","%","","$","21,048","","","29.2","%"],["Earnings per share\u2014diluted","","$","4.86","","","","","$","4.94","","","","","$","4.71"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","37"]] [[/GREPCENT_TABLE]] Table of Contents Revenue Our total revenue grew from $62.8 billion in 2017 to $79.0 billion in 2021, representing 6% CAGR. 5-year Revenue Trend Segment Revenue Walk $B 2021 vs. 2020 In 2021, revenue was $79.0 billion, up $1.2 billion, or 1%, from 2020. CCG revenue grew 1% due to continued strength in notebook demand and recovery in desktop demand, partially offset by lower notebook ASPs due to strength in the consumer and education market segments. CCG adjacent revenue decreased primarily due to the continued ramp down from the exit of our 5G smartphone modem and Home Gateway Platform businesses. IOTG and Mobileye were both up 33% and 43%, respectively, on higher demand amid recovery from the economic impacts of COVID-19. DCG revenue decreased 1% primarily due to lower ASPs driven by product mix and a competitive environment, partially offset by higher platform volume from recovery in the enterprise and government market segment. NSG revenue decreased primarily driven by lower ASPs due to market softness and pricing pressure. Our "all other" revenue increased primarily due to $584 million from a prepaid customer supply agreement settled in Q1 2021 for which we recognized related revenue for completing performance. We saw impacts from ongoing industry component, substrate, and foundry silicon shortages across a majority of our businesses and we expect these constraints to continue. 2020 vs. 2019 In 2020, revenue was $77.9 billion, up $5.9 billion, or 8%, from 2019. Our DCG revenue grew 11% due to increased platform volume as cloud service providers increased capacity to serve customer demand. We also saw continued growth in DCG communications service providers, partially offset by enterprise and government decline. We saw growth in DCG adjacencies driven by 5G networking deployment and saw improved NAND pricing and higher demand in NSG, partially offset by weaker core mix and higher demand in IOTG platform products due to COVID-19. Our CCG revenue was up 8% year over year driven by strength in notebook and Wi-Fi sales. That growth was slightly offset by lower desktop volume and lower notebook ASPs resulting from higher demand for consumer and education PCs, and volume decline in LTE modem and connected home following the exit of those businesses. [[GREPCENT_TABLE]] [["","MD&A","38"]] [[/GREPCENT_TABLE]] Table of Contents Gross Margin We derived a substantial majority 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 2021 increased by $203 million, or approximately flat compared to 2020, and in 2020 increased by $1.5 billion, or 3%, compared to 2019. Our gross margin percentage was down as the increase in platform revenue was offset by higher period charges and higher unit cost. [[GREPCENT_TABLE]] [["","Gross Margin $B"],["","(Percentages in chart indicate gross margin as a percentage of total revenue)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(In Millions)"],["$","43,815","","","2021 Gross Margin"],["1,010","","","Higher gross margin from platform revenue"],["680","","","Higher gross margin from adjacent businesses primarily due to the absence of depreciation expense from NAND property, plant and equipment that was held for sale, increased Mobileye volume and higher margins on wireless and connectivity"],["585","","","Prepaid customer supply agreement settled and recognized to revenue in Q1 2021"],["75","","","Lower period charges driven by a decrease in engineering samples and lower reserves taken on non-qualified platform products compared to 2020, partially offset by 2020 sell-through of other reserves and other reserves taken in 2021"],["(1,325)","","","Higher period charges primarily associated with the ramp up of Intel 4"],["(515)","","","Higher period charges primarily associated with the ramp down of 14nm"],["(235)","","","Higher platform unit cost primarily from increased mix of 10nm SuperFin products"],["(72)","","","Other"],["$","43,612","","","2020 Gross Margin"],["2,360","","","Higher gross margin from platform revenue"],["1,855","","","Higher gross margin from adjacent businesses primarily due to higher margins on NAND, modem, and WIFI, partially offset by lower margins on DCG adjacencies"],["630","","","Lower factory start-up costs associated with our 10nm process technology"],["155","","","Lower period charges"],["(3,285)","","","Higher platform unit cost primarily from increased mix of 10nm products"],["(255)","","","Primarily driven by higher logistic expenses due to COVID-19"],["12","","","Other"],["$","42,140","","","2019 Gross Margin"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","39"]] [[/GREPCENT_TABLE]] Table of Contents Operating Expenses Total R&D and MG&A expenses for 2021 were $21.7 billion, up 10% compared to 2020. These expenses represented 27.5% of revenue for 2021 and 25.3% of revenue for 2020. We continue to invest in R&D to accelerate our growth. [[GREPCENT_TABLE]] [["Research and Development $B","","Marketing, General and Administrative $B"],["(Percentages indicate expenses as a percentage of total revenue)"]] [[/GREPCENT_TABLE]] Research and Development [[GREPCENT_TABLE]] [["2021 vs. 2020"],["R&D spending increased by $1.6 billion, or 12.1%, driven by the following:"],["+","Investments in DCG, CCG, and Mobileye"],["+","Investments in our process technology"],["+","Incentive-based cash compensation"],["2020 vs. 2019"],["R&D spending increased by $194 million, or 1%, driven by the following:"],["+","Investments in our process technology"],["+","Investments in CCG and DCG"],["-","Ramp down of 5G smartphone modem business"],["-","Incentive-based cash compensation"]] [[/GREPCENT_TABLE]] Marketing, General and Administrative [[GREPCENT_TABLE]] [["2021 vs. 2020"],["MG&A spending increased by $363 million, or 5.9%, driven by the following:"],["+","Increase in corporate spending"],["+","Incentive-based cash compensation"],["2020 vs. 2019"],["MG&A spending decreased by $170 million, or 3%, driven by the following:"],["-","Corporate spending efficiencies"],["-","Incentive-based cash compensation"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","40"]] [[/GREPCENT_TABLE]] Table of Contents Restructuring and Other Charges [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 25, 2021","","Dec 26, 2020"],["Employee severance and benefit arrangements","","$","48","","","$","124"],["Litigation charges and other","","2,291","","","67"],["Asset impairment charges","","287","","","7"],["Total restructuring and other charges","","$","2,626","","","$","198"]] [[/GREPCENT_TABLE]] Litigation charges and other includes a charge of $2.2 billion in the first quarter of 2021 related to the VLSI Technology LLC (VLSI) litigation, which is recorded as a corporate charge in the "all other" category presented in "Note 3: Operating Segments" within Notes to Consolidated Financial Statements. Refer to "Note 19: Commitments and Contingencies" within Notes to Consolidated Financial Statements for further information on legal proceedings related to the VLSI litigation. Asset impairment charges includes impairments related to the shutdown in the second quarter of 2021 of two of our non-strategic businesses, the results of which are included in the "all other" category presented in "Note 3: Operating Segments" within Notes to Consolidated Financial Statements. The goodwill related to these businesses was impaired, resulting in a charge of $238 million recognized in the second quarter of 2021 in the "all other" category along with other impairment charges related to these businesses. Gains (Losses) on Equity Investments and Interest and Other, Net [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 25, 2021","","Dec 26, 2020","","Dec 28, 2019"],["Ongoing mark-to-market adjustments on marketable equity securities","","$","(130)","","","$","(133)","","","$","277"],["Observable price adjustments on non-marketable equity securities","","750","","","176","","","293"],["Impairment charges","","(154)","","","(303)","","","(122)"],["Sale of equity investments and other","","2,263","","","2,164","","","1,091"],["Gains (losses) on equity investments, net","","$","2,729","","","$","1,904","","","$","1,539"],["Interest and other, net","","$","(482)","","","$","(504)","","","$","484"]] [[/GREPCENT_TABLE]] Gains (Losses) on Equity Investments, Net Ongoing mark-to-market net gains and losses reported during 2021 were primarily driven by Montage Technology, Co. Ltd. (Montage); 2020 and 2019 net gains and losses were primarily driven by Montage and Cloudera. We sold our interest in Cloudera in 2020. In the first quarter of 2021, we recognized $471 million in observable price adjustments in our investment in Beijing Unisoc Technology Ltd. In sale of equity investments and other, we recognized $447 million of initial fair value adjustments related to four companies that went public in 2021; in 2020 we recognized $1.1 billion from Montage becoming marketable and $606 million related to four other equity investments that went public. During 2021, we recognized McAfee Corp. (McAfee) dividends of $1.3 billion, which included a special dividend of $1.1 billion paid in connection with the sale of McAfee's Enterprise Business to Symphony Technology Group, and recognized $228 million related to the partial sale of our investment in McAfee. We recognized McAfee dividends of $126 million in 2020 and $632 million in 2019. In November 2021, McAfee announced an agreement to be acquired by an investor group, which is subject to closing conditions. Interest and Other, Net The net loss in interest and other, net in 2021 was relatively flat compared to 2020. We recognized a net loss in interest and other, net in 2020 compared to a net gain in 2019, primarily due to lower divestiture gains in 2020 compared to 2019. Provision for Taxes [[GREPCENT_TABLE]] [["Years Ended (Dollars in Millions)","","Dec 25, 2021","","Dec 26, 2020","","Dec 28, 2019"],["Income before taxes","","$","21,703","","","$","25,078","","","$","24,058"],["Provision for taxes","","$","1,835","","","$","4,179","","","$","3,010"],["Effective tax rate","","8.5","%","","16.7","%","","12.5","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","41"]] [[/GREPCENT_TABLE]] Table of Contents Our effective tax rate decreased in 2021 compared to 2020, primarily driven by one-time tax benefits due to the restructuring of certain non-US subsidiaries as well as a higher proportion of our income in non-US jurisdictions. As a result of the restructuring, we established deferred tax assets and released the valuation allowances of certain foreign deferred tax assets. The majority of these deferred tax assets established in 2021 fully offset the deferred tax liabilities recognized in 2020 driven by a change in our permanent reinvestment assertion with respect to undistributed earnings in China, as a result of our planned divestiture of our NAND memory business. Our effective tax rate increased in 2020 compared to 2019, primarily driven by a change in our permanent reinvestment assertion with respect to undistributed earnings in China, as a result of our planned divestiture of our NAND memory business. It also increased due to the reduction in our foreign derived intangible income benefit in 2020. Liquidity and Capital Resources We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. Cash generated by operations, supplemented by our total cash and investments1, is our primary source of liquidity for funding our strategic business requirements. Our short-term requirements include capital expenditures for worldwide manufacturing and assembly and test, including investments in our process technology roadmap; working capital requirements; and potential acquisitions, strategic investments, and dividends. Our long-term requirements incrementally contemplate additional investments in the significant manufacturing expansion plans we announced as part of our IDM 2.0 strategy and additional investments to accelerate our process technology. These plans include investment to build two new fabs in Arizona as well as plans for a next phase of capacity expansions in Ohio, Europe, and other global locations. Our plans include utilizing a "smart capital" strategy in which we focus first on aggressively building out fab shells, which are the smaller portion of the overall cost of a fab but have the longest lead time, giving us flexibility in how and when we bring additional capacity and tools online. Additionally, as we have faced industry shortages of substrates and other components, we have increasingly entered into long-term agreements with suppliers and foundry service providers, some of which involve prepayments that will help us secure future supply. As we invest in these expansions and in the acceleration of our process technology roadmap, we expect our capital expenditures to increase above historical levels for the next several years. The prepayments for future supply of substrates and other components accelerate cash outflows into the near term, and we expect to apply the prepayments to future purchases, resulting in a positive impact on our liquidity in subsequent periods. We expect our capital expenditures to increase above historical levels for the next several years. As of December 25, 2021 we had commitments for capital expenditures of $22.3 billion for 2022, and we expect our total capital expenditures for 2022 to be above that amount. We also had $4.6 billion in capital expenditures committed in the long term. As of December 25, 2021, other purchase obligations and commitments in 2022 under our binding commitments for purchases of goods and services were $3.1 billion with an additional $9.3 billion committed in the long term. We have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures and other purchase obligations and commitments for purchases of goods and services. For example, see "Note 19: Commitments and Contingencies" within Consolidated Financial Statements for information about our lease obligations, which include supply agreements structured as leases, "Note 8: Income Taxes" within Consolidated Financial Statements for information about our tax obligations related to Tax Reform enacted in 2017 for the one-time transition tax on previously untaxed foreign earnings, and "Note 13: Borrowings" within Consolidated Financial Statements for information about our long-term debt obligations. The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In addition, some of our purchasing requirements are not current obligations and are therefore not included in the amounts above. For example, some of these requirements are not handled through binding contracts or are fulfilled by vendors on a purchase order basis within short time horizons. We anticipate that we will continue to primarily rely on operating cash flows, supplemented by our total cash and investments1, to fund IDM 2.0 and other cash requirements in the ordinary course of business. We also expect to benefit from government incentives under pending legislation, and any incentives above our current expectations would enable us to increase the pace and size of our IDM 2.0 investments. Conversely, incentives below our expectations would increase our anticipated cash requirements. We expect our increased capital investments to pressure our free cash flow in the short term. When assessing our current sources of liquidity, we include our total cash and investments1 as shown in the following table: [[GREPCENT_TABLE]] [["(In Millions)","","Dec 25, 2021","","Dec 26, 2020"],["Cash and cash equivalents","","$","4,827","","","$","5,865"],["Short-term investments","","2,103","","","2,292"],["Trading assets","","21,483","","","15,738"],["Other long-term investments","","840","","","2,192"],["Loans receivable and other","","240","","","947"],["Total cash and investments1","","$","29,493","","","$","27,034"],["Total debt","","$","38,101","","","$","36,401"]] [[/GREPCENT_TABLE]] 1 See "Non-GAAP Financial Measures" within MD&A. [[GREPCENT_TABLE]] [["","MD&A","42"]] [[/GREPCENT_TABLE]] Table of Contents 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. During 2021, we issued a total of $5.0 billion aggregate principal amount of senior notes, and entered into a $5.0 billion variable-rate revolving credit facility that matures in March 2026. We repaid $500 million of our 1.70% senior notes that matured in May 2021 and $2.0 billion of our 3.30% senior notes that matured in October 2021. As of December 25, 2021, we had no outstanding commercial paper or borrowing on the revolving credit facility. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. Substantially all of our investments in debt instruments are in investment-grade securities. In the first quarter of 2021, we repurchased the remaining $2.4 billion in shares of our planned $20.0 billion share repurchases announced in October 2019. We expect our future stock repurchases to be significantly below our levels from the last few years. Sources and Uses of Cash(In Millions) [[GREPCENT_TABLE]] [["","MD&A","43"]] [[/GREPCENT_TABLE]] Table of Contents In summary, our cash flows for each period were as follows: [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 25, 2021","","Dec 26, 2020","","Dec 28, 2019"],["Net cash provided by operating activities","","$","29,991","","","$","35,384","","","$","33,145"],["Net cash used for investing activities","","(25,167)","","","(20,796)","","","(14,405)"],["Net cash provided by (used for) financing activities","","(5,862)","","","(12,917)","","","(17,565)"],["Net increase (decrease) in cash and cash equivalents","","$","(1,038)","","","$","1,671","","","$","1,175"]] [[/GREPCENT_TABLE]] Operating Activities Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. For 2021 compared to 2020, the $5.4 billion decrease in cash provided by operating activities was primarily driven by a decrease in net working capital contributions and cash paid to settle a prepaid customer supply agreement in Q1 2021, partially offset by a McAfee special dividend received in Q3 2021. For 2020 compared to 2019, the $2.2 billion increase in cash provided by operating activities was primarily due to changes in working capital. Changes in working capital were driven by accounts receivable, inventory, and income taxes, offset by other assets and liabilities. 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 $18.7 billion in 2021 ($14.3 billion in 2020 and $16.2 billion in 2019). The increase in cash used for investing activities in 2021 compared to 2020 was primarily due to an increase in capital expenditures, partially offset by a decrease in purchases of available-for-sale debt investments. The increase in cash used for investing activities in 2020 compared to 2019 was primarily due to an increase in purchases of available-for-sale debt investments and trading assets, offset by an increase in maturities and sales of available-for-sale debt investments and trading assets, and a decrease in capital expenditures and cash paid for acquisitions. Financing Activities Financing cash flows consist primarily of payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, repurchases of common stock, and proceeds from the sale of shares of common stock through employee equity incentive plans. The decrease in cash used for financing activities in 2021 compared to 2020 was primarily due to a decrease in repurchases of common stock and a decrease in repayments of debt and debt conversions, partially offset by a decrease in cash provided by long-term debt issuances. During 2021, we repurchased $2.4 billion of common stock under our authorized common stock repurchase program, compared to $14.2 billion in 2020. Our total dividend payments were $5.6 billion in 2021 compared to $5.6 billion in 2020. We have paid a cash dividend in each of the past 117 quarters. The decrease in cash used for financing activities in 2020 compared to 2019 was primarily due to an increase in cash provided by long-term debt issuances, offset by an increase in repayments of debt and debt conversions and an increase in repurchases of common stock. 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. [[GREPCENT_TABLE]] [["","MD&A","44"]] [[/GREPCENT_TABLE]] Table of Contents 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. Inventory reflected at the lower of cost or net realizable value considering future demand and market conditions; ▪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 impairment and observable price adjustments; and ▪Loss contingencies—the estimation of when a loss is probable and reasonably estimable. Non-GAAP Financial Measures In addition to disclosing financial results in accordance with US GAAP, this document contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about our operating performance, enable comparison of financial trends and 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. Certain of these non-GAAP financial measures are used in our performance-based RSUs and our annual cash bonus plan. Long-term gross margin outlook range is provided on a non-GAAP basis and excludes the impact of amortization of acquisition-related intangible assets and share-based compensation expense. We are unable to provide a full reconciliation of this measure to the corresponding GAAP measure without unreasonable efforts, as the amount and timing of such adjustments on a long-term basis are subject to considerable uncertainty. We believe such a reconciliation would also imply a degree of precision that is inappropriate for this forward-looking measure. Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with US GAAP, and the financial results calculated in accordance with US GAAP and reconciliations from these results should be carefully evaluated. [[GREPCENT_TABLE]] [["Non-GAAP adjustment or measure","Definition","Usefulness to management and investors"],["NAND memory business","Our NAND memory business is subject to a pending sale to SK hynix, as announced in October 2020. While the second closing of the sale is still pending, we completed the first closing on December 29, 2021, subsequent to our fiscal 2021 year-end. We will fully deconsolidate our ongoing interests in the NAND OpCo Business in the first quarter of 2022.","We exclude the impact of our NAND memory business in certain non-GAAP measures. While the second closing of the sale is still pending and subject to closing conditions, management does not currently view the business as part of the company\u2019s core operations or its long-term strategic direction. We believe these adjustments provide investors with a useful view, through the eyes of management, of the company\u2019s core business model and how management currently evaluates core operational performance. We believe they also provide investors with an additional means to understand the potential impact of the divestiture over time. In making these adjustments, we have not made any changes to our methods for measuring and calculating revenue or other financial statement amounts."],["Acquisition-related adjustments","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. Charges related to the amortization of these intangibles are recorded within both cost of sales and MG&A in our US GAAP financial statements. Amortization charges are recorded over the estimated useful life of the related acquired intangible asset, and thus are generally recorded over multiple years.","We exclude amortization charges for our acquisition-related intangible assets for purposes of calculating certain non-GAAP measures because these charges are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. These adjustments facilitate a useful evaluation of our current operating performance and comparison to our past operating performance and provide investors with additional means to evaluate cost and expense trends."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","45"]] [[/GREPCENT_TABLE]] Table of Contents [[GREPCENT_TABLE]] [["Non-GAAP adjustment or measure","Definition","Usefulness to management and investors"],["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 a charge related to the VLSI litigation, goodwill and asset impairments, pension charges, and costs associated with restructuring activity.","We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures because these costs do not reflect our core operating performance. These adjustments facilitate a useful evaluation of our core operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends."],["(Gains) losses from divestiture","Gains or losses are recognized in connection with a divestiture.","We exclude gains or losses resulting from divestitures for purposes of calculating certain non-GAAP measures because they do not reflect our current operating performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results."],["Ongoing mark-to-market on marketable equity securities","After the initial mark-to-market adjustment is recorded upon a security becoming marketable, gains and losses are recognized from ongoing mark-to-market adjustments of our marketable equity securities.","We exclude these ongoing gains and losses for purposes of calculating certain non-GAAP measures because we do not believe this volatility correlates to our core operational performance. These adjustments facilitate a useful evaluation of our current operating performance and comparisons to past operating results."],["Free cash flow","We reference a non-GAAP financial measure of free cash flow, which is used by management when assessing our sources of liquidity, capital resources, and quality of earnings. Free cash flow is operating cash flow adjusted to exclude additions to property, plant and equipment.","This non-GAAP financial measure is helpful in understanding our capital requirements and provides an additional means to evaluate the cash flow trends of our business. We exclude additions to held for sale NAND property, plant and equipment because the additions are not representative of our long-term capital requirements and these assets were sold upon the first closing of the transaction that occurred on December 29, 2021, subsequent to our fiscal 2021 year-end."],["Total cash and investments","Total cash and investments is used by management when assessing our sources of liquidity, which includes cash and cash equivalents, short-term investments, trading assets, other long-term investments, and loans receivable and other.","This non-GAAP measure is helpful in understanding our capital resources and liquidity position."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","46"]] [[/GREPCENT_TABLE]] Table of Contents Following are the reconciliations of our most comparable US GAAP measures to our non-GAAP measures presented: [[GREPCENT_TABLE]] [["Years Ended (In Millions, Except Per Share Amounts)","","Dec 25, 2021","","Dec 26, 2020","","Dec 28, 2019"],["Net revenue","","$","79,024","","","$","77,867","","","$","71,965"],["NAND memory business","","(4,306)","","","(4,967)","","","(4,059)"],["Non-GAAP net revenue","","$","74,718","","","$","72,900","","","$","67,906"],["Operating income","","$","19,456","","","$","23,678","","","$","22,035"],["Acquisition-related adjustments","","1,492","","","1,416","","","1,324"],["Restructuring and other charges","","2,626","","","198","","","393"],["NAND memory business","","(1,369)","","","(937)","","","600"],["Non-GAAP operating income","","$","22,205","","","$","24,355","","","$","24,352"],["Operating margin","","24.6","%","","30.4","%","","30.6","%"],["Acquisition-related adjustments","","1.9","%","","1.8","%","","1.8","%"],["Restructuring and other charges","","3.3","%","","0.3","%","","0.5","%"],["NAND memory business","","(0.1)","%","","0.9","%","","2.9","%"],["Non-GAAP operating margin","","29.7","%","","33.4","%","","35.9","%"],["Earnings per share\u2014diluted","","$","4.86","","","$","4.94","","","$","4.71"],["Acquisition-related adjustments","","0.36","","","0.33","","","0.29"],["Restructuring and other charges","","0.65","","","0.05","","","0.09"],["(Gains) losses from divestiture","","\u2014","","","\u2014","","","(0.16)"],["Ongoing mark-to-market on marketable equity securities","","0.03","","","0.03","","","(0.06)"],["NAND memory business","","(0.33)","","","(0.22)","","","0.13"],["Income tax effects","","(0.10)","","","(0.03)","","","(0.03)"],["Non-GAAP earnings per share\u2014diluted","","$","5.47","","","$","5.10","","","$","4.97"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 25, 2021","","Dec 26, 2020","","Dec 28, 2019","","Dec 29, 2018","","Dec 30, 2017"],["Net cash provided by operating activities","","$","29,991","","","$","35,384","","","$","33,145","","","$","29,432","","","$","22,110"],["Additions to property, plant and equipment","","(18,733)","","","(14,259)","","","(16,213)","","","(15,181)","","","(11,778)"],["Free cash flow","","$","11,258","","","$","21,125","","","$","16,932","","","$","14,251","","","$","10,332"],["Net cash used for investing activities","","$","(25,167)","","","$","(20,796)","","","$","(14,405)","","","$","(11,239)","","","$","(15,762)"],["Net cash provided by (used for) financing activities","","$","(5,862)","","","$","(12,917)","","","$","(17,565)","","","$","(18,607)","","","$","(8,475)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","47"]] [[/GREPCENT_TABLE]] Table of Contents Other Key Information Sales and Marketing Customers We sell our products primarily to OEMs, ODMs, and cloud service providers. 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 other 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 3: 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 systems integrators. Our microprocessors and other products are also available in direct retail outlets. Sales Arrangements Our products are sold through distribution channels 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. Because our customers generally order from us on a purchase order basis, they can typically cancel, change, or delay product purchase commitments with little or no notice to us and without penalty. 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. In accordance with contract terms, revenue for product sales is recognized at the time of product shipment from our facilities or delivery to the customer location, as determined by the agreed upon shipping terms. Our standard terms and conditions of sale typically provide that payment is due at a later date, usually 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 can 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. 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. In 2021, continued strong COVID-driven notebook demand in the first half of the year contributed to a flatter trend than we historically observe. 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 Atom, Celeron®, Pentium®, and Intel Xeon trademarks make up our key CPU brands. This year, we introduced the Intel Arc brand for our upcoming high-performance graphics products. [[GREPCENT_TABLE]] [["","Other Key Information","48"]] [[/GREPCENT_TABLE]] Table of Contents 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 our products. Our key messaging focuses on increased performance, improved energy efficiency, and other capabilities such as connectivity. Certain customers participate in cooperative advertising and marketing programs. These cooperative advertising and marketing programs broaden the reach of our brands beyond the scope of our own direct marketing. 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 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.