# INTEL CORP (INTC) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from INTEL CORP's 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/50863/000005086323000006/intc-20221231.htm Accession: 0000050863-23-000006 Filing date: 2023-01-27 Report date: 2022-12-31 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/ Previous year: /company/INTC/mda/fy2021/ (FY 2021) Next year: /company/INTC/mda/fy2023/ (FY 2023) Management's Discussion and Analysis Our Products We are a global IDM of CPUs and related solutions that we design, develop, manufacture, market, sell, support and service. Our CPUs and related solutions are incorporated in computing and related end products and services, and utilized globally by consumers, enterprises, governments, and educational organizations. Our customers primarily include OEMs, ODMs, cloud service providers, and other equipment manufacturers that we market and sell to directly through our global sales and marketing organizations and indirectly through channel partners. We manufacture our products at our fabrication and assembly and test facilities located throughout the world. Our CPU and related 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 with Intel Xeon processors in a data center solution—enables incremental synergistic value and performance. We launched new products in 2022, such as the 12th Gen Intel Core HX processors, the final products in our Alder Lake family; Raptor Lake, our 13th Gen Intel 7 client product; and Sapphire Rapids, the first of our 4th Gen Intel Xeon Scalable processors. We also added to our graphics offerings with the introduction of Ponte Vecchio and Alchemist. Our diverse product line includes 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 processors, which include designs specifically for notebook and desktop applications. The primary CPU product in DCAI is our Intel Xeon processor, which includes solutions for data center compute, networking, and the intelligent edge. The primary offerings of NEX include Intel Xeon, Intel Core, and Intel Atom® processor products. During 2022, we managed our business through the operating segments that are presented below and have included the 2022, 2021 and 2020 financial results for each segment. "Note 3: Operating Segments” within the Notes to Consolidated Financial Statements of this Form 10-K reconciles our segment revenues presented below to our total revenues, and our segment operating margin (loss) presented below to our total operating margin (loss), for each of the periods presented. We have also included a discussion of our 2022, 2021 and 2020 consolidated results of operations and related information subsequent to the operating segment discussion below. [[GREPCENT_TABLE]] [["","MD&A","19"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview","% Intel Revenue"],["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 simplifying and focusing our roadmap, ramping PC capabilities even more aggressively, and designing PC experiences even more deliberately. By doing this, we believe we will continue to fuel innovation across Intel, providing a growing source of IP, scale, and cash flow."],["Key Developments"],["\u25a0","Our revenue was $31.7 billion, down 23% in 2022, driven by macroeconomic weakness that negatively impacted PC TAM, particularly in the consumer, education and small/medium business markets. Operating margin was $6.3 billion, down 60% year over year primarily due to lower notebook and desktop revenue, higher unit costs, increased investments in leadership products, and higher inventory reserves."],["\u25a0","COVID-related dynamics like work- and learn-from-home solidified the PC as an essential tool in the post-pandemic world. We launched our 12th Gen Intel Core H, S, U, and P-series processors and introduced our 13th Gen Intel Core processor family starting with our desktop processors, the second iteration of our performance hybrid architecture built on Intel 7 process technology."],["\u25a0","We worked with industry partners to co-engineer and deliver more than 153 verified Intel\u00ae Evo\u2122 designs and grew the commercial market segment with the launch of our Intel vPro\u00ae platform with the 12th Gen Intel Core processor and commercial offerings."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","20"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy In 2022, the PC business experienced one of the most challenging years in recent history, resulting from a softening macroeconomic environment and inflationary pressures. Despite these headwinds in 2022—which resulted in a double-digit TAM decline1—PC usage remains strong, demonstrating the increased utility and value of the PC and we believe ultimately supporting a TAM well above pre-pandemic levels, once this period of adjustment subsides. The significant behavior changes that took shape amid the pandemic solidified the PC as an essential tool in people's lives. PC density, including PCs per household, increased during the pandemic, which irreversibly changed the way we focus, create, connect, and care for each other2. In addition, the installed base of PCs per student continues to grow compared to pre-pandemic levels. Commercial growth opportunities also remain as corporations expand the size of their PC fleets, while also replacing older devices. Currently, approximately 200 million commercial devices are more than four years old3. The experience and capabilities delivered on new PCs are dramatically better today, reinforcing the opportunity to drive a refresh cycle among enterprise customers. As we continue on our strategy to develop more competitive products and more capabilities for customers, 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. Products and Competition We released our 13th Gen Intel Core desktop processors, the second generation of our performance hybrid architecture, which combines efficient-cores and performance-cores to deliver performance and experiences that are scalable across all PC market segments. The 13th Gen processor family is expected to deliver uncompromised computing performance for every PC segment and out to the edge. In total, we expect to deliver more than 500 designs from partners across major multinational corporations and leading manufacturers. 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 M1 and M2 products. We expect this competitive environment to continue to intensify in 2023. 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. This is why we embrace and collaborate with a vibrant ecosystem of OEM partners to identify innovation vectors and deliver leadership technologies together. The breadth of a robust ecosystem like Microsoft Windows/x86 is a powerful combination, bringing together hundreds of companies around the globe and creative and innovative advancements that are not possible for one company to deliver alone. Unique to Intel, we innovate beyond the CPU to deliver premium PC experiences with Intel Evo and Intel vPro platforms. More than 150 advanced laptop designs have been built on the Intel Evo platform, and we test and verify these to confirm they deliver key experience indicators such as 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. Through our efforts to increase internal and external capacity, supply availability for our products has improved, which enables us to service our customers in a more consistent and responsive manner. We have also seen near-term improvements in industry-wide constraints, which include improvements in third-party component availability and a stabilization of lead times for those components. We remain committed to further remove bottlenecks of third-party components and prepare for longer term demand growth. 1 Source: Intel calculated 2022 TAM derived from industry analyst reports. 2 Source. Intel calculated PC density from industry analyst reports. 3 Source: Intel calculated 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 | \u25a0 Notebook","\u25a0 | \u25a0 Desktop","\u25a0 | \u25a0 Other"]] [[/GREPCENT_TABLE]] Revenue Summary 2022 vs. 2021 ▪Notebook revenue was $18.8 billion, down $6.7 billion from 2021. Notebook unit sales decreased 36%, driven by lower demand in the consumer and education market segments, and notebook ASPs increased 15% due to an increased mix of commercial and consumer products and a lower mix of education products. ▪Desktop revenue was $10.7 billion, down $1.8 billion from 2021. Desktop unit sales decreased 19%, driven by lower demand in the consumer and education market segments, and desktop ASPs increased 5%, primarily from an increased mix of commercial products. ▪Other revenue was $2.3 billion, down $923 million from 2021, primarily driven by the continued ramp down from the exit of our 5G smartphone modem business and lower demand for our wireless and connectivity products. 2021 vs. 2020 ▪Notebook revenue increased $546 million. Notebook unit sales increased 8%, driven by consumer and commercial recovery from COVID-19 lows offset by 6% lower ASPs due to strength in consumer and education market segments. ▪Desktop revenue increased $1.3 billion. Desktop unit sales increased 8%, driven by recovery in desktop demand driven by consumer and commercial recovery from COVID-19 lows, and ASP increased 3%, driven by commercial recovery from COVID-19. ▪Other revenue decreased $1.3 billion, primarily driven by the continued ramp down from the exit of our 5G smartphone modem and Home Gateway Platform businesses, partially offset by strength in wireless and connectivity. [[GREPCENT_TABLE]] [["","MD&A","22"]] [[/GREPCENT_TABLE]] Table of Contents Operating Income Summary Operating income decreased 60% year over year, and operating margin was 20% in 2022 and 38% in 2021. [[GREPCENT_TABLE]] [["(In Millions)"],["$","6,266","","","2022 Operating Income"],["(3,047)","","","Lower gross margin from notebook revenue"],["(2,183)","","","Higher notebook and desktop unit cost primarily from increased mix of Intel 7 products"],["(1,306)","","","Lower gross margin from desktop revenue"],["(1,284)","","","Higher operating expenses driven by increased investments in leadership products"],["(969)","","","Higher period charges primarily driven by inventory reserves taken in 2022"],["(320)","","","Lower CCG other product gross margin driven by lower demand for our wireless and connectivity products and the continued ramp down from the exit of our 5G smartphone modem business"],["(262)","","","Higher period charges primarily associated with the ramp of Intel 4"],["(162)","","","Higher period charges related excess capacity charges"],["192","","","Lower period charges due to a benefit related to insurance proceeds received for business interruption and property damage that occurred in 2020"],["(97)","","","Other"],["$","15,704","","","2021 Operating Income"],["(840)","","","Higher period charges primarily associated with ramp up of Intel 4 and subsequent ramp down of 14nm"],["(675)","","","Higher operating expenses driven by increased investment in leadership products"],["(290)","","","Lower gross margin from notebook revenue"],["(140)","","","Higher period charges driven by less sell-through of reserves on products in 2021 as compared to in 2020, and additional reserves taken in 2021"],["1,080","","","Higher gross margin from desktop revenue"],["660","","","Lower unit cost primarily due to cost improvements in 10nm SuperFin"],["165","","","Lower period charges primarily driven by a decrease in engineering samples"],["(56)","","","Other"],["$","15,800","","","2020 Operating Income"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","23"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview","% Intel Revenue"],["DCAI delivers industry-leading workload-optimized solutions to cloud service providers and enterprise customers, along with silicon devices for communications service providers and high-performance computing customers. We are uniquely positioned to deliver solutions to help solve our customers\u2019 most complex challenges with the depth and breadth of our hardware and software portfolio combined with silicon and platforms, advanced packaging, and at-scale manufacturing made possible by being the world\u2019s only IDM at scale. Our customers and partners include cloud hyperscalers, MNCs, small and medium-sized businesses, independent software vendors, systems integrators, communications service providers, and governments around the world."],["Key Developments"],["\u25a0","Our revenue was $19.2 billion, down 15% in 2022, driven by challenging macroeconomic conditions and industry supply constraints, that both negatively impacted TAM, in addition to competitive pressures and product execution delays. Operating margin was $2.3 billion, down 73% year over year, primarily due to top-line headwinds paired with process node acceleration and increased investments in leadership products."],["\u25a0","We began high-volume manufacturing of 4th Gen Intel Xeon Scalable processors and started shipping to customers, including Amazon Web Services and Google Cloud."],["\u25a0","We launched five new Intel FPGA products, including the Intel\u00ae Agilex\u2122 FPGA, which extends capabilities to cost-optimized, lower-power, and small-form factor applications, including embedded and edge. We also launched Habana Gaudi2 and Habana Greco, our second-generation deep-learning processors for training and inference."],["\u25a0","We introduced an innovative service-based security implementation, named Project Amber, which provides customers and partners with a secure foundation for confidential computing, secure and responsible AI, and quantum-resistant crypto in the quantum era."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","24"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy Data is a significant force in society and is generated daily at an unprecedented pace. The desire to harness insights from data to drive better outcomes for businesses and society is ever-expanding. AI is nearly pervasive in all applications, creating the potential for intelligence everywhere, and enabling powerful new uses of compute resources across all market segments. The installed base of Intel Xeon processors combined with our rich portfolio of heterogeneous compute solutions (FPGAs, GPUs, IPUs, and AI accelerators) position us to lead in this high-growth area. DCAI is integral to our growth in AI through deep investments in the AI ecosystem, developer tools, frameworks, technologies, and open standards to drive a scalable path forward. We take a system-level approach that supplies the necessary hardware and software that are optimized for power and performance. Our technology is differentiated at the system level and in high-growth workloads based on our integrated hardware acceleration engines and software. For example, architected into our Intel Xeon processors are Intel® Advanced Matrix Extensions (Intel® AMX) for AI acceleration; Intel® Software Guard Extensions (Intel® SGX), providing enclaves of protected memory to deliver enhanced security for sensitive data; and Intel® Crypto Acceleration that delivers breakthrough performance across a host of important cryptographic algorithms. This is the type of acceleration and differentiated performance that we believe will continue to drive our value and growth across our customer base. Products and Competition Our products and services include: [[GREPCENT_TABLE]] [["\u25a0","A portfolio of hardware, including Intel Xeon processors, Intel Agilex and Intel\u00ae Stratix\u00ae FPGAs, Intel\u00ae eASIC\u2122 devices, Habana Gaudi and Habana Greco AI accelerators."],["\u25a0","Platform enabling and validation in partnership with ODMs, OEMs, and independent software vendors."],["\u25a0","Optimized solutions for leading workloads such as AI, cryptography, security, and networking, leveraging differentiated features supporting diverse compute environments."]] [[/GREPCENT_TABLE]] We offer customers a broad portfolio of silicon and software designed to provide workload-optimized performance. Our hardware portfolio comprises CPUs, domain-specific accelerators, and FPGAs. Each of these is designed to support the performance, agility, and security that our customers demand. This hardware portfolio strategy and investment in complementary software enable users to execute their workloads with low latency and on the most appropriate hardware for their needs. Our competitors include AMD, providers of GPU products such as NVIDIA, companies developing their own custom silicon, and new entrants developing ARM- and RISC-V-based products customized for specific data center workloads. We expect this competitive landscape to continue. The Intel Xeon Scalable processor family delivers advanced CPUs for the data center, the network, and edge, driving industry-leading performance, manageability, and security with differentiated features and capabilities. All major hyperscale customers have deployed services using 3rd Gen Intel Xeon processors. The 4th Gen Intel Xeon Scalable processors will ramp up throughout 2023. Our 4th generation introduces new accelerators to provide more options for developers to adapt to changes and optimize for workloads, such as AI, analytics, networking, storage, and high-performance computing. Our Habana Gaudi AI training accelerator is at the forefront of AI solutions for data centers and in 2022, the second generation of deep learning processors for training and inference were launched with Habana Gaudi2 and Habana Greco. These new processors address an industry gap by providing customers with high-performance, high-efficiency deep learning compute choices for both training workloads and inference deployments in the data center while lowering the AI barrier to entry for companies of all sizes. Our FPGA and structured ASIC portfolio enhances Intel’s ability to meet the needs of customers in the data center, across the network, and at the edge. We are shipping our Intel Agilex FPGA family, featuring industry-leading FPGA fabric performance, power efficiency, and transceiver performance. We released our Intel eASIC N5X device family (Diamond Mesa) for low-latency 5G network acceleration, hyperscale acceleration and storage, AI, and edge applications. We also introduced an FPGA-based IPU (Oak Springs Canyon) that enables superior security capabilities and allows our hyperscale customers to isolate the infrastructure from the tenant workloads running on Intel Xeon. The ubiquity of Intel Xeon in the installed base, along with our heterogeneous compute solutions combined with software that unlocks the value of our hardware, enable our customers to develop highly differentiated solutions. Our integrated approach has created significant value for Intel, our customers and our partners by helping us mitigate risks, reduce costs, build brand value, and identify new market opportunities to apply our technology to address our customers' and society’s most complex issues. [[GREPCENT_TABLE]] [["","MD&A","25"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","DCAI Revenue $B","","DCAI Operating Income $B"]] [[/GREPCENT_TABLE]] Revenue Summary 2022 vs. 2021 Revenue was $19.2 billion, down $3.5 billion from 2021, due to a decrease in server revenue, partially offset by higher other DCAI revenue. Server volume decreased 16% from 2021, led by enterprise customers in a competitive environment, and due to customers tempering purchases to reduce existing inventories in a softening data center market. Server ASPs decreased 5% from 2021, driven by a higher mix of revenue from hyperscale customers. Other DCAI revenue increased 14% due to growth in our FPGA business. 2021 vs. 2020 Revenue was $22.7 billion, down $722 million, primarily due to lower server revenue, partially offset by increased revenue from other DCAI products. Server volume decreased 4%, driven by an increasingly competitive environment, partially offset by recovery in government and broader market products. Operating Income Summary Operating income decreased 73% year over year, and operating margin was 12% in 2022 and 37% in 2021. [[GREPCENT_TABLE]] [["(In Millions)"],["$","2,288","","","2022 Operating Income"],["(3,330)","","","Lower gross margin from server revenue"],["(1,139)","","","Higher period charges primarily associated with the ramp up of Intel 4"],["(1,001)","","","Higher operating expenses driven by increased investments in leadership products"],["(671)","","","Higher server unit cost from increased mix of 10nm SuperFin products"],["(441)","","","Higher period charges driven by inventory reserves taken in 2022"],["(305)","","","Higher other period charges primarily related to product development costs"],["(189)","","","Higher period charges related to excess capacity charges"],["702","","","Higher gross margin from DCAI other product revenue"],["223","","","Lower period charges due to a benefit related to insurance proceeds received for business interruption and property damage that occurred in 2020"],["$","8,439","","","2021 Operating Income"],["(1,050)","","","Higher DCAI server unit cost primarily from increased mix of 10nm SuperFin products"],["(820)","","","Higher period charges primarily driven by ramp up of Intel 4 and subsequent ramp down of 14nm"],["(725)","","","Lower gross margin from server revenue"],["(475)","","","Higher operating expenses driven by investment in leadership products"],["(65)","","","Higher period charges driven by increased engineering samples"],["375","","","Higher gross margin from other DCAI product revenue"],["130","","","Lower period charges driven by absence of reserves taken in 2020, partially offset by reserves recorded in 2021"],["(7)","","","Other"],["$","11,076","","","2020 Operating Income"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","26"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview","% Intel Revenue"],["NEX lifts the world's networks and edge compute systems from inflexible fixed-function hardware to general-purpose compute, acceleration, and networking devices running cloud native software on programmable hardware. We work with partners and customers to deliver and deploy intelligent edge platforms that allow software developers to achieve agility and to drive automation using AI for efficient operations while securing the integrity of their data at the edge. We have a broad portfolio of hardware and software platforms, tools, and ecosystem partnerships for the rapid digital transformation happening from the cloud to the edge. We are leveraging our core strengths in process, software, and manufacturing at scale to grow traditional markets and to accelerate entry into emerging ones."],["Key Developments"],["\u25a0","Our revenue was $8.9 billion, up 11% in 2022, driven by the cloud networking and telecommunications market segments. Most notably, we saw strength in our Ethernet ASPs and in 5G product demand. Operating margin was $740 million, down $971 million year over year primarily due to higher investments in product roadmap leadership and process node acceleration, and higher inventory reserves."],["\u25a0","We announced the Mount Evans IPU, Intel's first dedicated ASIC-based IPU, the Intel Xeon D-1700 series, the Intel Xeon D-2700 series, and the 4th Gen Intel Xeon processor with Intel\u00ae vRAN Boost."],["\u25a0","We continue to update solutions to improve developers' digital strategies and to accelerate market adoption of edge and AI applications. We announced 12th Gen Intel Core Processors for Internet of Things Edge and the Intel\u00ae Geti\u2122 computer vision platform with OpenVINO toolkit built in."],["\u25a0","We continue to work with our ecosystem partners like Ericsson, Nokia, Cisco, Dell Technologies, HPE, Lenovo, Amazon, Google, and Microsoft to drive the software defined transformation of the world\u2019s network and edge infrastructure and accelerate AI driven automation of physical operations."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","27"]] [[/GREPCENT_TABLE]] Market and Business Overview Market Trends and Strategy The Internet is undergoing a shift toward a cloud-to-edge infrastructure, combining unrivaled scale and capacity in the cloud with faster response times at nearby edges. As AI inference is transforming and automating every industry—from factories to smart cities and hospitals—the demand for high-performance computing at the edge has expanded exponentially. Networks are moving toward software, becoming more programmable and flexible. Our network and edge solutions aim to (1) move the world's networks to run in software on Intel technologies at the core of cloud data centers, the public Internet, and public and private 5G/6G networks; (2) deploy and run software that monitors and controls factories, cities, commerce, energy, and healthcare on Intel technologies; and (3) run every workload at the edge, between the cloud and the end user, whether deployed by a CSP, CoSP, or an alternative service provider. Products and Competition With a greater emphasis on systems and solutions designed to harness the growth of data processed at the edge to yield insights, our competitive landscape has shifted beyond application-specific standard product vendors to include cloud, network, and AI computing platform providers. Today, we speed the deployment of network and edge computing solutions based on our open software frameworks and broad silicon portfolio to address a broad range of applications in many markets. Cloud Networking: Our cloud customers require uncompromised data center network performance and reliability. Intel® Intelligent Fabric allows customers to program network behavior from end to end, from one Intel Xeon server to the next, through Intel® Ethernet NICs, IPUs, and Ethernet Switch ASICs. This control gives customers the ability to advance and differentiate their cloud infrastructure based on the unique needs of their business. The IPU, a new class of product introduced by Intel, is an open and programmable compute platform that frees up more compute cycles for customers by running infrastructure workloads in a separate, secure, and isolated set of CPU cores. Our Intel® Silicon Photonics Optical Transceivers are the backbone of the data center network, building reliable optical links on an industry-leading manufacturing process. Telecommunications Networks: Intel led the world’s shift to running networking workloads in software and created network function virtualization, providing customers with more efficient, cost-effective, and programmable platforms. Now we are leading the first wave of 5G core network deployments and demonstrating that 5G base stations can be almost entirely built from software running on Intel Xeon processors with Intel vRAN Boost. Our growth comes from moving fixed-function networks onto Intel Xeon Scalable processors and Intel Xeon D processors running our FlexCore and FlexRAN™ software. Our customers are tier-one global communication service providers and their equipment suppliers. Our software-based cloud RAN platform allows operators to deploy the fastest cloud-native 5G infrastructure quickly and efficiently at scale to meet the needs of their end customers. On-premises Edge: More than just a silicon provider, we partner with companies to design and deliver solutions to help a wide range of customers transform their businesses and take advantage of the rapidly increasing number of connected devices and customers. We develop high-performance compute platforms that solve for technology and business use cases that scale across vertical industries and embedded markets such as retail, banking, hospitality, education, manufacturing, energy, healthcare, and medical. A common architecture from intelligent edge platforms based on our Intel Xeon, Intel Core, Intel Atom and vision processing unit silicon portfolio reduces complexity in the ecosystem and helps our customers create, store, and process data at the edge, analyzing it faster and acting on it sooner. Software frameworks like the OpenVINO toolkit enable software developers to deploy new automation solutions on Intel hardware, particularly for those running AI inference workloads. Software and Platforms: Our customers’ need for flexibility, programmability, and versatility drives workloads toward software and away from fixed-function hardware. As networking in the cloud, core network, 5G, and private networks move to software, and as our edge customers increasingly deploy AI inference applications, we aim to simplify innovation on Intel hardware. We support our customers with open, containerized software frameworks, such as Intel® Smart Edge, the OpenVINO toolkit, and the Infrastructure Programmer Developer Kit, enabling the network to continue to improve and evolve without locking customers into a single solution. Intel Geti software is designed to enable teams to rapidly develop AI models, and its intuitive computer vision solution is designed to reduce the time needed to build models by easing the complexities of model development and harnessing greater collaboration between teams at the edge. [[GREPCENT_TABLE]] [["","MD&A","28"]] [[/GREPCENT_TABLE]] Financial Performance [[GREPCENT_TABLE]] [["","NEX Revenue $B","","NEX Operating Income $B"]] [[/GREPCENT_TABLE]] Revenue Summary 2022 vs. 2021 Revenue was $8.9 billion, up $897 million from 2021, driven by higher Ethernet ASPs and increased demand for 5G products, partially offset by lower demand for Network Xeon. Ethernet demand declined in Q4 2022 due to lower server demand, and Edge demand declined in Q4 2022 due to macroeconomic factors. 2021 vs. 2020 Revenue was $8.0 billion, up $844 million, primarily driven by higher demand for Edge products amid recovery from the economic impacts of COVID-19, as well as a recovery in cloud networking revenue. These increases were partially offset by a reduction in the 5G networking volume from elevated levels in 2020. Operating Income Summary Operating income decreased 57% year over year, and operating margin was 8% in 2022 and 21% in 2021. [[GREPCENT_TABLE]] [["(In Millions)"],["$","740","","","2022 Operating Income"],["(530)","","","Higher operating expenses driven by increased investments in leadership products"],["(461)","","","Higher period charges primarily associated with the ramp up of Intel 4"],["(359)","","","Higher period charges driven by reserves taken in 2022 and lack of sell-through of reserves compared to 2021"],["(150)","","","Higher period charges primarily due to other product enhancements"],["(98)","","","Lower gross margin from Network Xeon revenue"],["522","","","Higher gross margin from Ethernet revenue"],["191","","","Lower unit cost primarily from10nm SuperFin products"],["(86)","","","Other"],["$","1,711","","","2021 Operating Income"],["895","","","Lower NEX unit cost due to cost improvements in the 10nm SuperFin process"],["285","","","Lower period charges due to reserve sell through and a decrease in engineering samples"],["215","","","Higher gross margin from NEX revenue, primarily driven by Ethernet and Edge"],["(300)","","","Higher operating expenses primarily due to roadmap investments"],["(220)","","","Higher period charges primarily associated with the ramp of Intel 4"],["(10)","","","Other"],["$","846","","","2020 Operating Income"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","29"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview","% Intel Revenue"],["Mobileye is a global leader in driving assistance and self-driving solutions. Our product portfolio is designed to encompass the entire stack required for assisted and autonomous driving, including compute platforms, computer vision, and machine learning-based perception; mapping and localization, driving policy, and active sensors in development. We pioneered ADAS technology more than 20 years ago, and have continuously expanded the scope of our ADAS offerings while leading the evolution to autonomous driving solutions. Our unique assets in ADAS allow for building a scalable self-driving stack that meets the requirements for both robotaxi and consumer-owned autonomous vehicles. 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 2022 of $1.9 billion, up 35%, primarily driven by higher demand for EyeQ\u00ae products and the introduction of Mobileye SuperVision*. Operating income was $690 million, up 25%, primarily due to higher revenues partially offset by increased investments in leadership products."],["\u25a0","2022 was a very active year as we launched EyeQ-based systems into 233 different vehicle models, achieved a record-setting volume of projected future design wins, including wins for our next-generation EyeQ6 chip, and advanced solutions such as Cloud-enhanced ADAS and Mobileye SuperVision*."],["\u25a0","On October 26, 2022, we completed the IPO of Mobileye class A common shares (class A shares), and certain other equity financing transactions, which represented approximately 6% of the capital stock of Mobileye, and our class A shares began trading on the Nasdaq Global Select Market under the symbol \u201cMBLY\u201d."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","30"]] [[/GREPCENT_TABLE]] Market and Business Overview Market Trends and Strategy While the automotive industry has moderately recovered from the effects of the COVID-19 pandemic and from acute supply chain shortages, with approximately 6% growth in global vehicle production year over year, production in 2022 was still roughly 8% below 2019 levels. We expect ADAS volumes to continue to grow faster than overall global vehicle production in the coming years and anticipate long-term ADAS growth from continued increases in the percentage of vehicles that are equipped with basic ADAS features from the factory. In addition to potential volume growth, our portfolio of advanced solutions has the potential to drive higher average system price over time. Beyond ADAS solutions, we believe that the availability of AVs will cause a significant transformation in mobility, including vehicle ownership and utilization. We expect that AV technology will eventually be accessed by consumers through shared-vehicle MaaS networks and in consumer-owned and operated AVs. We are pursuing this market trend by using our eyes-on/hands-off Mobileye SuperVision* solution as a baseline to scale to our eyes-off/hands-off Chauffeur* consumer AV product in a variety of operational design domains. As it relates to AMaaS, we intend to primarily go to market by supplying Mobileye Drive* self-driving system to transportation network companies, public transit operators, and suppliers of AV-ready vehicle platforms. In some cases, we expect to bundle our Mobileye Drive self-driving system with Moovit’s urban mobility and transit intelligence application and its global user base. Products and Competition We currently ship a variety of ADAS solutions to a large number of global automakers. We are recognized for our top-rated safety solutions globally, and since 2007, we have introduced numerous industry-first ADAS products. We are building a robust portfolio of end-to-end ADAS and autonomous driving solutions to provide the capabilities needed for the future of autonomous driving, leveraging a comprehensive suite of purpose-built software and hardware technologies. We pioneered “base” ADAS features to enhance vehicle safety and to meet global regulatory requirements and safety ratings with our driver assist solution and we have since created new categories of ADAS with our cloud-enhanced driver assist and premium driver assist offerings such as Mobileye SuperVision*. By leveraging Mobileye SuperVision’s full-surround computer vision and True Redundancy*, we are developing Chauffeur, our consumer AV solution and Mobileye Drive, our Level 4 autonomous driving solution designed for fleet deployment. Though our current offerings to Tier 1 and OEM customers do not include cameras, radars, lidar systems, or other sensors (except in particular cases), we have radar and lidar products that are currently in advanced development stages, which we intend to offer to customers in the future. The ADAS and autonomous driving industries are highly competitive. In the ADAS and consumer AV market, we face competition primarily from other external providers, including Tier 1 automotive suppliers and silicon providers, and in-house solutions developed by OEMs. Our Tier 1 customers may be developing or may in the future develop competing solutions. In the autonomous driving market, including AMaaS and consumer AV, we face competition from technology companies; internal development teams from the automakers themselves, sometimes in combination with investments in early-stage autonomous vehicle technology companies, Tier 1 automotive companies, and robotaxi providers. [[GREPCENT_TABLE]] [["","MD&A","31"]] [[/GREPCENT_TABLE]] Financial Performance [[GREPCENT_TABLE]] [["","Mobileye Revenue $B","","Mobileye Operating Income $B"]] [[/GREPCENT_TABLE]] Revenue and Operating Income Summary 2022 vs. 2021 Revenue was $1.9 billion, up $483 million from 2021, primarily driven by higher demand for EyeQ products and Mobileye SuperVision* systems. Operating income was $690 million, up $136 million from 2021, primarily due to higher revenue, partially offset by increased investments in leadership products. 2021 vs. 2020 Revenue was $1.4 billion, up $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. Operating income was $554 million, up $231 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. [[GREPCENT_TABLE]] [["","MD&A","32"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Overview","% Intel Revenue"],["AXG delivers products and technologies designed to help our customers solve the toughest computational problems. Our vision is to enable persistent and immersive computing, at scale and accessible by billions of people within milliseconds, which drives an incredible demand for compute\u2014from endpoints to data centers. Our portfolio includes CPUs for high-performance computing and GPUs targeted for a range of workloads and platforms, from gaming and content creation on client devices to delivering media and gaming in the cloud, and the most demanding high-performance computing and AI workloads on supercomputers. To address new market opportunities and emerging workloads, we also develop solutions such as custom accelerators with blockchain acceleration."],["Key Developments"],["\u25a0","Our revenue was $837 million, up 8% in 2022. Operating loss was $1.7 billion, compared to a loss of $1.2 billion in 2021, primarily due to increased inventory reserves taken and investments in our product roadmap."],["\u25a0","We launched our Intel Arc A-series GPUs, also known as Alchemist, which offer industry-leading advanced features, including hardware accelerated ray tracing, Xe Super Sampling AI-driven upscaling technology, and Intel\u00ae Deep Link technology."],["\u25a0","We launched Ponte Vecchio, the first Xe-based GPU optimized for high-performance computing and AI workloads."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","33"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy We are surrounded by immersive and visual content. Technology has made great advances in computer graphics, gaming and media, and AI supercomputing technologies that have enabled us to push toward simulating everything. The pursuit of simulating everything is driving the demand for accelerated computing. To address that opportunity, we are developing products that cover gaming and content creation, and that can enable consumers to experience immersive, photo-realistic virtual worlds. Our high-performance computing products are intended to power supercomputers that simulate our world from submicron levels to the entire galaxy. We are also building tailored products and have custom design services that we believe will unlock additional market opportunities. We leverage Intel’s expansive portfolio of IP cores and technologies, from our process and packaging to our x86 architecture and a rich set of open software tools, libraries, drivers, and operating systems. We build upon the core foundation and combine our scalable Xe Architecture and acceleration IP blocks to address the accelerated computing market. Products and Competitiveness We operate in a very competitive market. NVIDIA is a competitor in the GPU and CPU market for high-performance computing and AI, as well as graphics solutions for content creation and gaming. AMD is also a competitor in the client and server segments with its line of GPUs and CPUs. CSPs are both customers and indirect competitors as they integrate vertically. Our advanced and groundbreaking Xe Architecture excels at rendering content and accelerating computing that scales from the client to the data center. We empower the industry with open and scalable toolkits and software libraries that enable heterogeneous compute through our oneAPI programming model. Intel Arc graphics is our high-performance graphics offering for gaming, content creation, and emerging opportunities to enable persistent and immersive computing. To provide a valuable user experience and bring Intel Arc graphics to market, we work with hundreds of software partners to deliver games and applications that are designed to work seamlessly with our products. We also collaborate with the ecosystem to integrate new functionality and features that take advantage of both our hardware and software technologies to boost performance and enable high-quality rendering and fluid frame rates. High-performance computing takes advantage of our CPUs and GPUs to power supercomputers that tackle the most computationally challenging problems of our increasingly complex world. Today, many of the world’s supercomputers are based on Intel Xeon processors. Our CPU roadmap strategy is to build upon this foundation and extend to higher compute and memory bandwidth for workloads with increasingly large data sets. Our flagship data center GPU, Ponte Vecchio, is designed to take on the most demanding AI and high-performance computing workloads. Combining Ponte Vecchio with Intel Xeon processors can supercharge a platform’s compute density. Our oneAPI cross-architecture programming model is architected to leverage the broad software ecosystem of Intel Xeon processors so that software developers can work across a range of CPUs and accelerators with a single code base. With a rich portfolio and a strong roadmap for leadership in visual computing, supercomputing, and custom computing, we have a unique opportunity to define the future of computing and accelerate growth for Intel. [[GREPCENT_TABLE]] [["","MD&A","34"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","AXG Revenue $B","","AXG Operating Income (Loss) $B"]] [[/GREPCENT_TABLE]] Revenue and Operating Income (Loss) Summary 2022 vs. 2021 Revenue was $837 million, up $63 million from 2021. We had an operating loss of $1.7 billion, compared to an operating loss of $1.2 billion in 2021, due to increased inventory reserves taken and investments in our product roadmap. 2021 vs. 2020 Revenue was $774 million, up $123 million primarily due to increased demand for our integrated graphics portfolio. We had an operating loss of $1.2 billion, compared to an operating loss of $403 million in 2020, primarily driven by a charge incurred on a federal contract of $333 million and ongoing investments in the business. [[GREPCENT_TABLE]] [["","MD&A","35"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Overview","% Intel Revenue"],["","As the first Open System Foundry, we offer customers differentiated full stack solutions created from the best of Intel and the foundry industry ecosystem, delivered from a secure and sustainable source of supply with an array of flexible business models to enable customers to lead in their industry. In addition to a world-class foundry offering enabled by a rich ecosystem, customers have access to our expertise and technologies, including cores, accelerators, and advanced packaging such as EMIB. Our early customers and strategic partners include traditional fabless customers, cloud service providers, automotive customers, and military, aerospace, and defense firms. We also offer mask-making equipment for advanced lithography used by many of the world\u2019s leading-edge foundries."],["","Key Developments"],["","\u25a0","Our revenue was $895 million, up 14% in 2022, primarily driven by higher sales of MBMW tools. Operating loss was $320 million, compared to a loss of $23 million in 2021, primarily due to increased spending to drive strategic growth."],["","\u25a0","We have secured anchor customers and are engaged with seven of ten of the industry\u2019s largest foundry customers. Since beginning production in late 2021 with Amazon Web Services as our lead customer, our packaging business expanded to other customers during the year. We expect Mediatek to be a lead silicon customer using Intel 16 process technology to create smart edge devices, with production expected to begin in 2024."],["","\u25a0","We launched the IFS Accelerator program, a comprehensive ecosystem alliance designed to help foundry customers seamlessly bring their silicon products from idea to implementation. IFS Accelerator taps the leading capabilities available in the industry to accelerate customer innovation on IFS manufacturing platforms. It features innovative ecosystem partner companies across each of the five alliances of the program: EDA, IP, Design Services, Cloud, and USMAG Alliances."],["","\u25a0","In Q1 2022, we entered into a definitive agreement to acquire Tower in a cash-for-stock transaction. The acquisition is expected to advance our IDM 2.0 strategy by accelerating our global end-to-end open systems foundry business. While we continue to work to close within the first quarter of 2023, the transaction may close in the first half of 2023, subject to certain regulatory approvals and customary closing conditions. Tower is a leading foundry for analog semiconductor solutions."],["","\u25a0","We continue to grow the Foundry organization and have hired over 50 leaders from the foundry and fabless industry to complement the talent recruited within Intel. The pending acquisition of Tower would further expand our talent pool. This combination of internal and external talent will help us deliver the best of Intel and the foundry industry to our customers."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","36"]] [[/GREPCENT_TABLE]] Table of Contents Market and Business Overview Market Trends and Strategy The chip industry is undergoing a structural transformation driven by: ▪The digitization of everything, accelerated by the five superpowers: compute, pervasive connectivity, cloud-to-edge infrastructure, AI, and sensing. ▪A generational shift in computer architectures: a move from SoC to chiplets, increased tailoring of chips to workloads, and instruction set diversification. ▪The vertical integration into chip making by OEMs and CSPs. ▪Increasing costs of R&D and capacity for advanced node technologies. ▪Supply chain risk highlighted by the pandemic and geo-political issues. These transformation trends are driving significant semiconductor market growth in leading-edge advanced nodes driven by Mobile, Compute, and Automotive applications. The increasing heterogeneity of chips increases the complexity of designing chips with optimized PPAC that are manufacturable with high yield. Additionally, integrating these diverse chips into systems becomes more complex and requires optimized interconnects and a software stack that can easily accept this diversity of chips without compromising PPAC. This is causing a paradigm shift from focusing on optimizing devices to focusing on optimizing the system, known as system technology co-optimization. In this new paradigm, customers require solutions that address every layer of the application stack, rather than just the chip itself. Additionally, the COVID-19 pandemic and recent geo-political issues have highlighted the world’s dependence on semiconductors and the vulnerable supply chain that underpins the industry. Approximately 88% of the world’s semiconductor manufacturing capacity is in Asia, and only 4.5% is in the US1. Products and Competition We seek to address this tectonic shift in the industry by creating an open system foundry that enables our customers to lead in their industries by creating full-stack solutions from their choice of the best of Intel and the ecosystem. The open system foundry has four components: wafer fabrication, packaging, chiplet standard, and software. The open system foundry involves engaging with customers at multiple levels, from basic wafer manufacturing to helping define and implement their desired system architecture. We intend to build our customers' silicon design and deliver full end-to-end capabilities to produce their products, built with our advanced packaging technology and delivered from a resilient, geo-diverse and sustainable source of supply. The foundation of our IFS strategy is a world-class foundry offering consisting of process technologies complemented by a robust ecosystem for IP, EDA, and design services. Chips created with IFS can be packaged using our advanced packaging technologies or by OSATs and connected by optimized interconnects that we will help drive as standard for the industry, such as, UCIe. We expect to accelerate our customers' designs by providing services and software that leverage our vast experience in designing systems of chips, and by providing cores from Intel and the ecosystem that are optimized for Intel process technologies. The combination of cores and accelerators can be seamlessly integrated into systems using oneAPI. These offerings will accelerate customer time to value with PPAC-optimized systems delivered from a reliable supply chain. Our competitors are mostly pure-play foundries that focus on delivering a pure-play foundry offering from fabrication plants based in Asia. Of the five major semiconductor foundries, Taiwan Semiconductor Manufacturing Corporation (TSMC), Samsung, Global Foundries (GF), United Microelectronics Corporation (UMC) and Semiconductor Manufacturing International Corporation, only Samsung is an IDM and foundry, and only GF is headquartered in the US. TSMC and Samsung are the only companies with advanced technologies below 10nm, and TSMC leads the market with 53% market share, followed by Samsung at 18% in 20212. Neither Samsung nor TSMC currently offer its most advanced nodes outside of Asia and both have limited advanced-node capacity in the US. We believe the open system foundry model will deliver differentiated capabilities to help our customers lead in their industries while bringing stability to the global semiconductor supply chain. The interest we are seeing from customers demonstrates that our strategy and offerings are resonating, and we look to continue to build on this in 2023 and in prospective periods. 1Source: 2022 Gartner Worldwide Foundry Capacity Forecast by Region, 2020-2026. 2Source: TrendForce. [[GREPCENT_TABLE]] [["","MD&A","37"]] [[/GREPCENT_TABLE]] Table of Contents Financial Performance [[GREPCENT_TABLE]] [["","IFS Revenue $B","","IFS Operating Income (Loss) $B"]] [[/GREPCENT_TABLE]] Revenue and Operating Income (Loss) Summary 2022 vs. 2021 Revenue was $895 million, up $109 million from 2021, primarily driven by higher sales of MBMW tools. We had an operating loss of $320 million, compared to an operating loss of $23 million from 2021, primarily due to increased spending to drive strategic growth. 2021 vs. 2020 Revenue was $786 million, up $71 million from 2020, primarily due to higher revenue from certain design services. We had an operating loss of $23 million, compared to operating income of $45 million in 2020, due to ongoing investments in the business. [[GREPCENT_TABLE]] [["","MD&A","38"]] [[/GREPCENT_TABLE]] Table of Contents Consolidated Results of Operations For additional key highlights of our results of operations, see "A Year in Review." [[GREPCENT_TABLE]] [["Years Ended (In Millions, Except Per Share Amounts)","","December 31, 2022","","December 25, 2021","","December 26, 2020"],["","Amount","","% of Net Revenue","","Amount","","% of Net Revenue","","Amount","","% of Net Revenue"],["Net revenue","","$","63,054","","","100.0","%","","$","79,024","","","100.0","%","","$","77,867","","","100.0","%"],["Cost of sales","","36,188","","","57.4","%","","35,209","","","44.6","%","","34,255","","","44.0","%"],["Gross margin","","26,866","","","42.6","%","","43,815","","","55.4","%","","43,612","","","56.0","%"],["Research and development","","17,528","","","27.8","%","","15,190","","","19.2","%","","13,556","","","17.4","%"],["Marketing, general and administrative","","7,002","","","11.1","%","","6,543","","","8.3","%","","6,180","","","7.9","%"],["Restructuring and other charges","","2","","","\u2014","%","","2,626","","","3.3","%","","198","","","0.3","%"],["Operating income","","2,334","","","3.7","%","","19,456","","","24.6","%","","23,678","","","30.4","%"],["Gains (losses) on equity investments, net","","4,268","","","6.8","%","","2,729","","","3.5","%","","1,904","","","2.4","%"],["Interest and other, net","","1,166","","","1.8","%","","(482)","","","(0.6)","%","","(504)","","","(0.6)","%"],["Income before taxes","","7,768","","","12.3","%","","21,703","","","27.5","%","","25,078","","","32.2","%"],["Provision for (benefit from) taxes","","(249)","","","(0.4)","%","","1,835","","","2.3","%","","4,179","","","5.4","%"],["Net income","","8,017","","","12.7","%","","19,868","","","25.1","%","","20,899","","","26.8","%"],["Less: Net income attributable to non-controlling interests","","3","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Net income attributable to Intel","","$","8,014","","","\u2014","","","$","19,868","","","\u2014","","","$","20,899","","","\u2014"],["Earnings per share attributable to Intel\u2014diluted","","$","1.94","","","","","$","4.86","","","","","$","4.94"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","39"]] [[/GREPCENT_TABLE]] Table of Contents Revenue Segment Revenue Walk $B 2022 results were impacted by an uncertain macroeconomic environment, with slowing consumer and enterprise demand, persistent inflation, and higher interest rates, which we believe impacts our target markets and creates a high level of uncertainty with our customers. We expect the macroeconomic uncertainty and the challenging market environment will extend into 2023. 2022 vs. 2021 2022 revenue was $63.1 billion, down $16.0 billion, or 20%, from 2021. CCG revenue was down 23% from 2021 due to lower notebook and desktop volume in the consumer and education market segments, and lower revenue due to the continued ramp down from the exit of our 5G smartphone modem business and lower demand for our wireless and connectivity products. Notebook volume decreased, driven by lower demand in the consumer and education market segments, while ASPs increased due to the resulting product mix. Desktop volume decreased, driven by lower demand in the consumer and education market segments while ASPs increased due to an increased mix of commercial products. DCAI revenue decreased 15% from 2021 due to lower server demand from enterprise customers, and due to customers tempering purchases to reduce existing inventories in a softening data center market. The decrease was partially offset by higher revenue from our FPGA business. Server ASPs decreased due to customer and product mix. NEX revenue increased 11% from 2021, driven by higher Ethernet ASPs and increased demand for 5G products, partially offset by lower demand for Network Xeon. Mobileye revenue increased 35% from 2021, primarily driven by higher demand for EyeQ products and Mobileye Supervision* systems. The decrease in our "all other" revenue was due to revenue from the divested NAND memory business of $4.3 billion recognized in 2021, for which historical results are recorded in “all other,” and $584 million of revenue recognized in 2021 from a prepaid customer supply agreement. Incentives offered to certain customers to accelerate purchases and to strategically position our products with customers for market segment share purposes, particularly in CCG, contributed approximately $1.7 billion to our revenue during Q4 2022, the impacts of which were contemplated in our financial guidance for Q1 2023, as included in our Form 8-K dated January 26, 2023. We expect CCG demand in Q1 2023 to be impacted as customers work through additional inventory. 2021 vs. 2020 2021 revenue was $79.0 billion, up $1.2 billion, or 1%, from 2020. NEX revenue increased 12% from 2020, primarily driven by higher demand for edge products amid recovery from the economic impacts of COVID-19 as well as a recovery in cloud networking revenue, partially offset by a reduction in the 5G networking volume from elevated levels in 2020. CCG revenue was up 1% from 2020, due to higher notebook and desktop volume driven by consumer and commercial recovery from COVID-19 lows, partially offset by lower revenue due to the continued ramp down from the exit of our 5G smartphone modem business. Notebook ASPs decreased due to the resulting product mix from higher demand in the consumer and education market segments, while desktop ASPs increased driven by commercial recovery from COVID-19. Mobileye revenue increased 43% from 2020, driven by improvement in global vehicle production, recovery from the economic impacts of COVID-19, and increasing adoption of ADAS. DCAI revenue decreased 3% from 2020 due to lower server revenue, partially offset by increased revenue from other DCAI products. Server volume decreased due to an increasingly competitive environment, partially offset by recovery in government and broader market products. [[GREPCENT_TABLE]] [["","MD&A","40"]] [[/GREPCENT_TABLE]] Table of Contents Gross Margin We derived most of our overall gross margin in 2022 from the sale of products in the CCG and DCAI operating segments. Our overall gross margin dollars in 2022 decreased by $16.9 billion, or 39%, compared to 2021, and in 2021 increased by $203 million, or approximately flat, compared to 2020. [[GREPCENT_TABLE]] [["","Gross Margin $B"],["","(Percentages in chart indicate gross margin as a percentage of total revenue)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(In Millions)"],["$","26,866","","","2022 Gross Margin"],["(4,673)","","","Lower gross margin from CCG revenue, driven by notebook and desktop revenue"],["(3,330)","","","Lower gross margin from DCAI server revenue"],["(2,663)","","","Higher unit cost primarily from increased mix of Intel 7 products and 10nm SuperFin"],["(2,159)","","","Higher period charges primarily driven by inventory reserves taken in 2022"],["(2,012)","","","Higher period charges primarily associated with the ramp up of Intel 4 and other product enhancements"],["(1,995)","","","Lower gross margin related to the divested NAND memory business"],["(723)","","","Optane inventory impairment related to the wind down of our Intel Optane memory business"],["(584)","","","Lack of revenue recognized in Q1 2021 from a prepaid customer supply contract"],["(313)","","","Higher stock-based compensation"],["(423)","","","Higher period charges due to excess capacity charges"],["(204)","","","Corporate charges from patent settlement"],["484","","","Lower period charges due to a benefit related to insurance proceeds received for business interruption and property damage that occurred in 2020"],["522","","","Higher gross margin from NEX Ethernet revenue"],["702","","","Higher gross margin from DCAI other product revenue"],["422","","","Other"],["$","43,815","","","2021 Gross Margin"],["790","","","Higher gross margin from CCG revenue, driven by desktop revenue partially offset by notebook"],["584","","","Prepaid customer supply agreement settled and recognized to revenue in Q1 2021"],["505","","","Lower unit cost primarily due to cost improvements in 10nm SuperFin"],["471","","","Higher gross margin related to the NAND memory business"],["375","","","Higher gross margin from DCAI other product revenue"],["262","","","Lower period charges due to reserve sell through, partially offset by reserves taken in 2021"],["215","","","Higher gross margin from NEX revenue, primarily driven by Ethernet and Edge"],["(1,880)","","","Higher period charges primarily associated with ramp up of Intel 4 and subsequent ramp down of 14nm"],["(725)","","","Lower gross margin from DCAI server revenue"],["(394)","","","Other"],["$","43,612","","","2020 Gross Margin"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","41"]] [[/GREPCENT_TABLE]] Table of Contents In 2022, we made, and in the next several years we expect to continue to make, capital investments in furtherance of our IDM 2.0 strategy. As of December 31, 2022, our capital investments classified as construction in progress totaled $36.7 billion. These assets are ready for use but have not yet been placed into service and have not yet begun depreciating. As these construction in progress assets are placed into service, we expect to incur depreciation expense that impacts future production costs and, ultimately, cost of sales. To the extent we are unable to grow our revenues to offset these production costs, our gross margin and operating income will be unfavorably affected. Additionally, we could incur asset impairments on property, plant and equipment assets if our IDM 2.0 strategy is not successful. Effective January 2023, we increased the estimated useful life of certain production machinery and equipment from 5 years to 8 years. We made this change to better reflect the economic value of our machinery and equipment over time. We considered several factors in making this determination, including current usage and expected re-use of machinery and equipment, changes in machinery and equipment technology, future planned cadence between node transitions, a shift to longer duration on trailing-edge technologies, and overall changes in our technology roadmap. Our analysis supported a change in useful life and is consistent with the execution of our IDM 2.0 strategy. This change in estimate will be applied prospectively beginning Q1 2023. When compared to the estimated useful life in place as of the end of 2022, we expect total depreciation expense in 2023 to be reduced by as much as $4.2 billion. We expect this change will result in an approximately $2.6 billion increase to gross margin, a $400 million decrease in R&D expenses, and a $1.2 billion decrease in ending inventory values. Operating Expenses Total R&D and MG&A expenses for 2022 were $24.5 billion, up 13% compared to 2021. These expenses represent 38.9% of revenue for 2022 and 27.5% of revenue for 2021. In support of our strategy, we continue to make significant investments to accelerate our process technology roadmap. This requires increased investments in R&D and continued focused efforts to attract and retain talent. In the second half of 2022, we implemented certain cost-cutting measures, including a slower pace of hiring and other restructuring actions, while at the same time continued to improve our product execution in response to the continued decline in the broader macroeconomic environment. [[GREPCENT_TABLE]] [["Research and Development $B","","Marketing, General and Administrative $B"],["(Percentages indicate expenses as a percentage of total revenue)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","42"]] [[/GREPCENT_TABLE]] Table of Contents Research and Development [[GREPCENT_TABLE]] [["2022 vs. 2021"],["R&D spending increased by $2.3 billion, or 15%, driven by the following:"],["+","Investments in our process technology"],["+","Increase in corporate spending"],["+","Investments in our businesses to drive strategic growth"],["-","Incentive-based cash compensation"],["2021 vs. 2020"],["R&D spending increased by $1.6 billion, or 12%, driven by the following:"],["+","Investments in our businesses to drive strategic growth"],["+","Investments in our process technology"],["+","Incentive-based cash compensation"]] [[/GREPCENT_TABLE]] Marketing, General and Administrative [[GREPCENT_TABLE]] [["2022 vs. 2021"],["MG&A spending increased by $459 million, or 7%, driven by the following:"],["+","Increase in corporate spending"],["-","Incentive-based cash compensation"],["2021 vs. 2020"],["MG&A spending increased by $363 million, or 6%, driven by the following:"],["+","Increase in corporate spending"],["+","Incentive-based cash compensation"]] [[/GREPCENT_TABLE]] Restructuring and Other Charges [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 31, 2022","","Dec 25, 2021","","Dec 26, 2020"],["Employee severance and benefit arrangements","","$","1,038","","","$","48","","","$","124"],["Litigation charges and other","","(1,187)","","","2,291","","","67"],["Asset impairment charges","","151","","","287","","","7"],["Total restructuring and other charges","","$","2","","","$","2,626","","","$","198"]] [[/GREPCENT_TABLE]] In the third quarter of 2022, the 2022 Restructuring Program was approved to rebalance our workforce and operations to create efficiencies and improve our product execution in alignment with our strategy. We expect that our 2022 Restructuring Plan, in conjunction with other initiatives, will reduce our cost structure and allow us to reinvest certain of these cost savings in resources and capacity to develop, manufacture, market, sell, and deliver our products in furtherance of our strategy. We expect these actions to be substantially completed by the end of 2023, but this is subject to change. Litigation charges and other includes a $1.2 billion benefit in 2022 from the annulled penalty related to an EC fine that was recorded and paid in 2009, and a charge of $2.2 billion in 2021 related to the VLSI litigation. [[GREPCENT_TABLE]] [["","MD&A","43"]] [[/GREPCENT_TABLE]] Table of Contents Gains (Losses) on Equity Investments and Interest and Other, Net [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 31, 2022","","Dec 25, 2021","","Dec 26, 2020"],["Ongoing mark-to-market adjustments on marketable equity securities","","$","(787)","","","$","(130)","","","$","(133)"],["Observable price adjustments on non-marketable equity securities","","299","","","750","","","176"],["Impairment charges","","(190)","","","(154)","","","(303)"],["Sale of equity investments and other","","4,946","","","2,263","","","2,164"],["Gains (losses) on equity investments, net","","$","4,268","","","$","2,729","","","$","1,904"],["Interest and other, net","","$","1,166","","","$","(482)","","","$","(504)"]] [[/GREPCENT_TABLE]] Gains (Losses) on Equity Investments, Net Ongoing mark-to-market adjustments recognized in 2022 and 2021 were primarily driven by our investment in Montage Technology, Co. Ltd. (Montage); mark-to-market adjustments recognized in 2020 were primarily driven by our investments in Montage and Cloudera. We sold our interest in Cloudera in 2020. In 2021, we recognized $471 million in observable price adjustments related to our investment in Beijing Unisoc Technology Ltd. In 2022, the sale of McAfee Corp. (McAfee) consumer business was completed and we received $4.6 billion in cash for the sale of our remaining share of McAfee, recognizing a $4.6 billion gain in Sale of equity investments and other. In 2021, we recognized 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, and recognized $228 million related to the partial sale of our investment in McAfee. We recognized McAfee dividends of $126 million in 2020. In 2022, we also recognized $278 million of initial fair value adjustments in Sale of equity investments and other related to five companies that went public; in 2021, we recognized $447 million of initial fair value adjustments related to four companies that went public; in 2020, we recognized $1.1 billion from Montage becoming marketable and $606 million related to four other equity investments that went public. Interest and Other, Net In 2022, we recognized a gain of $1.0 billion from the first closing of the divestiture of our NAND memory business. Provision for (Benefit from) Taxes [[GREPCENT_TABLE]] [["Years Ended (Dollars in Millions)","","Dec 31, 2022","","Dec 25, 2021","","Dec 26, 2020"],["Income before taxes","","$","7,768","","","$","21,703","","","$","25,078"],["Provision for (benefit from) taxes","","$","(249)","","","$","1,835","","","$","4,179"],["Effective tax rate","","(3.2)","%","","8.5","%","","16.7","%"]] [[/GREPCENT_TABLE]] Our effective tax rate decreased in 2022 compared to 2021, primarily driven by a higher proportion of our income being taxed in non-US jurisdictions and a change in tax law from 2017 Tax Reform related to the capitalization of R&D expenses that went into effect in January 2022. In 2022 we recognized a benefit from taxes as compared to a provision for taxes in 2021 as the higher proportion of our income being taxed in non-US jurisdictions and the change in tax law from 2017 Tax Reform were only partially offset by the tax costs associated with the gains recognized from the equity sale of McAfee and the divestiture of our NAND memory business. 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 divestiture of our NAND memory business. [[GREPCENT_TABLE]] [["","MD&A","44"]] [[/GREPCENT_TABLE]] Table of Contents 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 funding requirements include capital expenditures for worldwide manufacturing and assembly and test, including investments in our process technology roadmap; working capital requirements; and potential and pending acquisitions, strategic investments, and dividends. This includes a commitment of $5.4 billion associated with our pending acquisition of Tower. See “Note 10: Acquisitions and Divestitures” within the Notes to Consolidated Financial Statements for further information. Our long-term funding requirements incrementally contemplate investments in significant manufacturing expansion plans and investments to accelerate our process technology. These plans include an investment to build two new fabs in Arizona and capacity expansions in Ohio and Europe and involve utilizing SCIP and smart capacity investments, both elements of our Smart Capital strategy. We also expect to benefit from government incentives; any incentives above our current expectations would enable us to increase the pace and size of our investments. Conversely, incentives below our expectations would increase our anticipated cash requirements. We expect our planned capital investments to continue to put pressure on our adjusted free cash flow in the short term. As we invest in multiple expansions, we expect our capital expenditures to continue to be higher than historical levels for the next several years. We expect to adjust the cadence of our investments based on the execution of our roadmap and changing business conditions. As of December 31, 2022, we had commitments for capital expenditures of $22.7 billion for 2023 and had $8.3 billion in capital expenditures committed in the long term. As of December 31, 2022, other purchase obligations and commitments in 2022 under our binding commitments for purchases of goods and services were $3.1 billion, with an additional $7.6 billion committed in the long term. 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. These prepayments 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 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 the Notes to Consolidated Financial Statements for information about our lease obligations, which include supply agreements structured as leases, "Note 8: Income Taxes" within the Notes to Consolidated Financial Statements for information about our tax obligations including impacts from Tax Reform enacted in 2017 for the one-time transition tax on previously untaxed foreign earnings, and "Note 13: Borrowings" within the Notes to Consolidated Financial Statements for information about our 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. 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 31, 2022","","Dec 25, 2021"],["Cash and cash equivalents","","$","11,144","","","$","4,827"],["Short-term investments","","17,194","","","24,426"],["Loans receivable and other","","463","","","240"],["Total cash and investments1","","$","28,801","","","$","29,493"],["Total debt","","$","42,051","","","$","38,101"]] [[/GREPCENT_TABLE]] 1 See "Non-GAAP Financial Measures" within MD&A 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. [[GREPCENT_TABLE]] [["","MD&A","45"]] [[/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, other securities, and non-recourse factoring arrangements with third-party financial institutions. Under our commercial paper program, we have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion and, as of December 31, 2022, we had $3.9 billion of commercial paper obligations outstanding. During 2022, we issued a total of $6.0 billion aggregate principal amount of senior notes, including our inaugural green bond issuance of $1.3 billion principal amount. We are using the proceeds from the green bond offering to fund projects that support our investments in sustainable operations. We intend to use the proceeds from the remainder of the offering for general corporate purposes, including, but not limited to, refinancing our outstanding debt and funding for working capital and capital expenditures. We received proceeds of $600 million in the aggregate from the sale of bonds issued by the Industrial Development Authority of the City of Chandler, Arizona (CIDA). We amended our $5.0 billion variable-rate revolving credit facility, extending that maturity date by one year to March 2027 and transitioning the interest terms from LIBOR to term SOFR. In November 2022, we entered into a $5.0 billion, 364-day variable rate revolving credit facility. We repaid $1.6 billion of our senior notes that matured in May 2022; $1.0 billion due July 2022; $1.9 billion due December 2022; and $400 million due November 2023. We settled $138 million bonds issued by the Oregon Business Development Commission in March 2022. As of December 31, 2022, we had no borrowings outstanding on the revolving credit facilities. Our sources of liquidity in 2022 also included total net proceeds of $1.0 billion from the completion of Mobileye's IPO in the fourth quarter of 2022, after which we retained 94% of Mobileye’s capital stock. Our cash and investments and related cash flows may be affected by certain discretionary actions we may take with customers and suppliers to accelerate or delay certain cash receipts or payments to manage liquidity for our strategic business requirements. In the second half of 2022 these actions included, among others, negotiating with suppliers to optimize our payment terms and conditions, adjusting the timing of cash flows associated with customer sales programs and collections, managing inventory levels and purchasing practices, and selling certain of our accounts receivable on a non-recourse basis to third-party financial institutions. While such actions have benefited, and may further benefit, cash flow in the near term, we may experience a corresponding detriment to cash flow in future periods as these actions cease or as the impact of these actions reverse or normalize. Our cash flows for each period were as follows: [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 31, 2022","","Dec 25, 2021","","Dec 26, 2020"],["Net cash provided by operating activities","","$","15,433","","","$","29,456","","","$","35,864"],["Net cash used for investing activities","","(10,477)","","","(24,449)","","","(21,524)"],["Net cash provided by (used for) financing activities","","1,361","","","(6,045)","","","(12,669)"],["Net increase (decrease) in cash and cash equivalents","","$","6,317","","","$","(1,038)","","","$","1,671"]] [[/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 2022 compared to 2021, the $14.0 billion decrease in cash provided by operating activities was primarily driven by lower 2022 net income after adjusting for non-cash items, including the gain on the sale of McAfee and the pre-tax gain from the divestiture of our NAND business; partially offset by 2022 cash-favorable working capital changes compared to 2021. For 2021 compared to 2020, the $6.4 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. Investing Activities Investing cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; cash used for acquisitions; and proceeds from divestitures. Our capital expenditures were $24.8 billion in 2022 ($18.7 billion in 2021 and $14.3 billion in 2020). The decrease in cash used for investing activities in 2022 compared to 2021 was primarily due to increased maturities and sales of short-term investments, proceeds from the divestiture of our NAND business, and proceeds from the sale of our remaining share of McAfee, partially offset by an increase in capital expenditures. 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 lower 2021 purchases of short-term investments, net of maturities and sales. 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. [[GREPCENT_TABLE]] [["","MD&A","46"]] [[/GREPCENT_TABLE]] Table of Contents Cash provided by financing activities in 2022 compared to cash used for financing activities in 2021 primarily due to higher commercial paper and debt issuances, our 2022 curtailment of common stock repurchases, proceeds from the Mobileye IPO, and partner contributions for joint investments; partially offset by higher 2022 debt repayments. Our total dividend payments were $6.0 billion in 2022 compared to $5.6 billion in 2021. We have paid a cash dividend in each of the past 121 quarters. 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. Critical Accounting Estimates The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain. We consider an accounting policy to be a critical estimate if: (1) we must make assumptions that were uncertain when the judgment was made, and (2) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on our financial position and the results that we report in our Consolidated Financial Statements. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. Refer to "Note 2: Accounting Policies" within the Notes to Consolidated Financial Statements for further information on our critical accounting estimates, which are as follows, as well as our significant accounting policies: ▪Inventories—the transition of manufacturing costs to inventory, net of factory excess capacity costs. Inventory reflected at the lower of cost or net realizable value considering forecasted future demand and market conditions; ▪Long-lived assets—the valuation methods and assumptions used in assessing the impairment and evaluation of useful lives of property, plant and equipment, identified intangibles, and impairment of 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. These non-GAAP financial measures are used in our performance-based RSUs and our cash bonus plans. Starting in the first quarter of 2022, we incrementally exclude from our non-GAAP results share-based compensation and all gains and losses on equity investments. The adjustment for all gains and losses on equity investments includes the ongoing mark-to-market adjustments previously excluded from our non-GAAP results. 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, as applicable. 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","We completed the first closing of the divestiture of our NAND memory business to SK hynix on December 29, 2021 and fully deconsolidated 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, we deconsolidated this business in Q1 2022 and management does not view the historical results of the business as a part of our core operations. We believe these adjustments provide investors with a useful view, through the eyes of management, of our core business model and how management currently evaluates core operational performance. In making these adjustments, we have not made any changes to our methods for measuring and calculating revenue or other financial statement amounts."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","47"]] [[/GREPCENT_TABLE]] Table of Contents [[GREPCENT_TABLE]] [["Non-GAAP adjustment or measure","Definition","Usefulness to management and investors"],["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."],["Share-based compensation","Share-based compensation consists of charges related to our employee equity incentive plans.","We exclude charges related to share-based compensation for purposes of calculating certain non-GAAP measures because we believe these adjustments provide better comparability to peer company results and because these charges are not viewed by management as part of our core operating performance. We believe these adjustments provide investors with a useful view, through the eyes of management, of our core business model, how management currently evaluates core operational performance, and additional means to evaluate expense trends, including in comparison to other peer companies."],["Patent settlement","A portion of the charge from our IP settlements represents a catch-up of cumulative amortization that would have been incurred for the right to use the related patents in prior periods. This charge related to prior periods is excluded from our non-GAAP results; amortization related to the right to use the patents in the current and ongoing periods is included.","We exclude the catch-up charge related to prior periods for purposes of calculating certain non-GAAP measures because this adjustment facilitates comparison to past operating results and provides a useful evaluation of our current operating performance."],["Optane inventory impairment","Beginning in 2022, we initiated the wind-down of our Intel Optane memory business.","We exclude these impairments for purposes of calculating certain non-GAAP measures because these charges do not reflect our current operating performance. This adjustment facilitates a useful evaluation of our current operating performance and comparisons to past operating results."],["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 benefit in Q1 2022 related to the annulled EC fine, a charge in Q1 2021 related to the VLSI litigation, periodic goodwill and asset impairments, certain 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 on equity investments, net","(Gains) losses on equity investments, net consists of ongoing mark-to-market adjustments on marketable equity securities, observable price adjustments on non-marketable equity securities, related impairment charges, and the sale of equity investments and other.","We exclude these non-operating gains and losses for purposes of calculating certain non-GAAP measures because it provides better comparability between periods. The exclusion reflects how management evaluates the core operations of the business."],["Gains (losses) from divestiture","Gains (losses) are recognized at the close of a divestiture, or over a specified deferral period when deferred consideration is received at the time of closing. Based on our ongoing obligation under the NAND wafer manufacturing and sale agreement entered into in connection with the first closing of the sale of our NAND memory business on December 29, 2021, a portion of the initial closing consideration was deferred and will be recognized between first and second closing.","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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","48"]] [[/GREPCENT_TABLE]] Table of Contents [[GREPCENT_TABLE]] [["Non-GAAP adjustment or measure","Definition","Usefulness to management and investors"],["Tax Reform","Adjustments for Tax Reform reflect the impact of a change in tax law from 2017 Tax Reform related to the capitalization of R&D costs.","We exclude the impacts of this 2022 change in US tax treatment of R&D costs for purposes of calculating certain non-GAAP measures as we believe these adjustments facilitate a better evaluation of our current operating performance and comparison to past operating results."],["Adjusted free cash flow","We reference a non-GAAP financial measure of adjusted free cash flow, which is used by management when assessing our sources of liquidity, capital resources, and quality of earnings. Adjusted free cash flow is operating cash flow adjusted for (1) additions to property, plant and equipment, net of proceeds from capital grants and partner contributions, (2) payments on finance leases, and (3) proceeds from the McAfee equity sale.","This non-GAAP financial measure is helpful in understanding our capital requirements and sources of liquidity by providing an additional means to evaluate the cash flow trends of our business. Since the 2017 divestiture, McAfee equity distributions and sales have contributed to operating and free cash flow, and while the McAfee equity sale in Q1 2022 would typically be excluded from adjusted free cash flow as an equity sale, we believe including the sale proceeds in adjusted free cash flow facilitate a better, more consistent comparison to past presentations of liquidity."],["Total cash and investments","Total cash and investments is used by management when assessing our sources of liquidity, which include cash and cash equivalents, short-term investments, and loans receivable and other.","This non-GAAP measure is helpful in understanding our capital resources and liquidity position."]] [[/GREPCENT_TABLE]] 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 31, 2022","","Dec 25, 2021","","Dec 26, 2020"],["Net revenue","","$","63,054","","","$","79,024","","","$","77,867"],["NAND memory business","","\u2014","","","(4,306)","","","(4,967)"],["Non-GAAP net revenue","","$","63,054","","","$","74,718","","","$","72,900"],["Gross margin percentage","","42.6","%","","55.4","%","","56.0","%"],["Acquisition-related adjustments","","2.1","%","","1.6","%","","1.6","%"],["Share-based compensation","","1.0","%","","0.4","%","","0.4","%"],["Patent settlement","","0.3","%","","\u2014","%","","\u2014","%"],["Optane inventory impairment","","1.1","%","","\u2014","%","","\u2014","%"],["NAND memory business","","\u2014","%","","0.6","%","","1.8","%"],["Non-GAAP gross margin percentage","","47.3","%","","58.1","%","","59.8","%"],["Earnings per share\u2014diluted1","","$","1.94","","","$","4.86","","","$","4.94"],["Acquisition-related adjustments","","0.37","","","0.36","","","0.33"],["Share-based compensation","","0.76","","","0.50","","","0.44"],["Patent settlement","","0.05","","","\u2014","","","\u2014"],["Optane inventory impairment","","0.18","","","\u2014","","","\u2014"],["Restructuring and other charges","","\u2014","","","0.64","","","0.05"],["(Gains) losses on equity investments, net","","(1.04)","","","(0.67)","","","(0.45)"],["(Gains) losses from divestiture","","(0.28)","","","\u2014","","","\u2014"],["NAND memory business","","\u2014","","","(0.33)","","","(0.22)"],["Tax Reform","","(0.20)","","","\u2014","","","\u2014"],["Income tax effects","","0.06","","","(0.06)","","","(0.03)"],["Non-GAAP earnings per share\u2014diluted","","$","1.84","","","$","5.30","","","$","5.06"]] [[/GREPCENT_TABLE]] 1 For the year ended December 31, 2022, the impact of non-controlling interest to our non-GAAP adjustments is insignificant and thus is not included in our reconciliation of non-GAAP measures. [[GREPCENT_TABLE]] [["","MD&A","49"]] [[/GREPCENT_TABLE]] Table of Contents [[GREPCENT_TABLE]] [["Years Ended (In Millions)","","Dec 31, 2022","","Dec 25, 2021","","Dec 26, 2020","","Dec 28, 2019","","Dec 29, 2018"],["Net cash provided by operating activities","","$","15,433","","","$","29,456","","","$","35,864","","","$","32,618","","","$","29,757"],["Net additions to property, plant, and equipment","","(23,724)","","","(18,567)","","","(14,086)","","","(15,948)","","","(14,649)"],["Payments on finance leases","","(345)","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Sale of equity investment","","4,561","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Adjusted free cash flow","","$","(4,075)","","","$","10,889","","","$","21,778","","","$","16,670","","","$","15,108"],["Net cash used for investing activities","","$","(10,477)","","","$","(24,449)","","","$","(21,524)","","","$","(13,579)","","","$","(11,638)"],["Net cash provided by (used for) financing activities","","$","1,361","","","$","(6,045)","","","$","(12,669)","","","$","(17,864)","","","$","(18,533)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","MD&A","50"]] [[/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 Notes to 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. Certain of 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 customers 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, the revenue for combined performance obligations and standalone 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. In 2022, we had a flatter trend than we historically observe as we experienced the uncertainty and impacts, including demand volatility and supply chain disruption, of current macroeconomic conditions, the potential for a recession, and the risk for continued COVID-related disruptions or shutdowns. 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®, Intel® Movidius™, and Intel Xeon trademarks make up our key CPU brands. This year, we introduced the Intel® Max Series product family with two leading-edge products for high-performance computing (AI): the Intel Xeon CPU Max Series (also known as Sapphire Rapids HBM) and Intel Data Center GPU Max Series (also known as Ponte Vecchio). [[GREPCENT_TABLE]] [["","MD&A","51"]] [[/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.