Intel Posts Record Second-Quarter Revenue of $9.2 Billion; Earnings Per Share 33 Cents


-- In June 2005, the U.S. Internal Revenue Service proposed certain adjustments related to the amounts reflected as a tax benefit for export sales in Intel's 2001 and 2002 tax returns. The company does not agree with these adjustments and is in the process of appealing similar adjustments with respect to Intel's 1999 and 2000 tax returns (see Intel's SEC filing on Form 10-Q for the quarter ended April 2, 2005). If the IRS were to prevail with respect to the 2001 and 2002 proposed adjustments, Intel's federal income tax due for these years would increase by approximately $400 million, plus interest.

Key Product Trends (Sequential)

-- Total microprocessor units were at record levels. The average selling price was slightly lower primarily due to an increase in Xbox* processor shipments along with slightly lower computing processor prices.

-- Chipset units were higher.

-- Motherboard units were lower.

-- Flash memory units were higher and at record levels, with lower average selling prices.

-- Wireless connectivity units set a record.

-- Wired connectivity units were lower.

Digital Enterprise

For business PCs, the company introduced the first Intel(R) Professional Business Platform, which is based on the recently introduced Intel(R) Pentium(R) 4 processor with Hyper-Threading Technology 600 sequence, the new Intel(R) 945G Express Chipset, and the Intel(R) PRO/1000 PM network connection. The new platform brings the company's advanced security, management and collaboration technologies to mainstream business PCs. Enhancements include the introduction of Intel(R) Active Management Technology (AMT), designed to help IT managers monitor and manage all Intel AMT-enabled PCs on their networks.

The company introduced five new Intel(R) Celeron(R) D processors with 64-bit computing capability for the value PC segment. Intel now has 64-bit capability available throughout its desktop and server microprocessor product lines.

For servers, Intel introduced an entry-level server platform based on the dual-core Intel Pentium D processor and the Intel(R) E7230 chipset. The first of Intel's dual-core platforms for servers, it supports DDR2 memory, PCI Express* I/O and software RAID.

The company also introduced two Intel(R) Itanium(R) 2 processors with a 667 MHz front side bus. Itanium-based server bandwidth can be increased by 65 percent using the new bus architecture, which also supports Intel's forthcoming dual-core Itanium processor, codenamed Montecito. A test system based on Montecito set a new 4-way performance record of 45 gigaflops on the LINPACK floating-point performance benchmark during the quarter, exceeding the previous record of 27.5 gigaflops held by a RISC-based system.(1)

According to the latest TOP500* ranking, Intel processors are used in two-thirds of the world's fastest supercomputers. The Top500 list now includes 254 systems based on Intel(R) Xeon(TM) and 64-bit Intel Xeon processors and 79 systems based on Intel Itanium processors.

In telecommunications infrastructure, Intel announced its second generation of AdvancedTCA* (Advanced Telecom Computing Architecture) products. The company added three new communication server blades and related technologies that help manufacturers and service providers more easily design and build standards-based IP Multimedia Subsystem (IMS) equipment and services. In addition, Intel and Alcatel announced plans to bring AdvancedTCA platforms to mobile service providers, with Alcatel planning to deliver single-board solutions based on the Intel(R) Pentium(R) M processor in early 2006.

Mobility

Intel's latest notebook PC platform based on Intel(R) Centrino(TM) Mobile Technology has become the company's fastest-ramping mobile platform ever, accounting for over 50 percent of performance mobile shipments in the first full quarter after launch. Formerly codenamed Sonoma, the platform offers greater performance and new capabilities for consumer and business applications while maintaining long battery life. Intel's notebook platforms continue to see strong year-over-year growth, with double-digit increases in mobile chipsets with integrated graphics as well as WiFi, where Intel has become the No. 1 silicon supplier according to ABI Research.

In next-generation wireless broadband technology, Intel announced plans with Sprint, Huawei Technologies, Nokia and Arraycomm designed to help advance the development, deployment and adoption of WiMAX networks. For example, Intel and Sprint announced a collaboration to advance WiMAX technology for high-capacity wireless broadband coverage and services in metropolitan areas. Intel and Huawei plan to enable carrier-grade networks using WiMAX technology. Intel and ArrayComm announced plans to incorporate additional technologies into the IEEE 802.16 specification to support smart antenna technology that can improve overall WiMAX network range, capacity and coverage quality.

In flash memory, the company continued to see strong design win momentum for its Intel(R) StrataFlash(R) memories in cellular phone designs. The company generated ongoing growth in flash shipments to the embedded market segment which contributed to overall flash unit shipments being at record levels for the quarter.

Intel's application processors for phones and consumer electronics devices saw continued strong demand, with double-digit year-over-year growth. A new cellular phone design based on the Intel(R) PXA800F baseband chipset for GSM/GPRS networks was introduced during the quarter by O2, a major European carrier. Intel's next-generation baseband chipset for GPRS/EDGE/UMTS networks, code-named Hermon, is scheduled to be introduced later in the year.

Digital Home

For home PCs, Intel introduced a desktop platform based on the new dual-core Intel(R) Pentium(R) D processor which is designed to provide consumers with the ability to do more with their digital content simultaneously. The new platform includes the Intel(R) 945 Express Chipset family which supports consumer electronics-like features such as surround-sound audio, high-definition video and enhanced 3-D graphics.

Intel took a number of key steps to help accelerate the availability of premium entertainment content in the digital home. Intel invested in ClickStar, an online service intended to allow consumers to view premium movies in the home. ClickStar was formed by Revelations Entertainment, a partnership between actor Morgan Freeman and producer Lori McCreary.

Intel also announced a collaboration with the Yoshimoto Kogyo talent agency of Japan and invested in Bellrock Media, its digital content production and delivery company in the United States. Intel invested in Mobilians, a Korean company that is developing payment services and technologies for purchasing online content using mobile phones.

Technology and Manufacturing

Intel continued the development of its forthcoming 65nm process technology and began providing customers with samples of microprocessors codenamed Yonah, Presler and Dempsey, the company's first 65nm dual-core microprocessors for notebook, desktop and server platforms, respectively. Intel's industry-leading 65nm process technology will enable cost-effective production of dual-core processors, with platforms ramping into high volume in 2006.

Intel and Corning announced plans to develop photomask substrates for Extreme Ultraviolet (EUV) lithography. The substrates are needed to develop low-defect photomasks for high-volume 32nm production using EUV lithography tools.

EARNINGS WEBCAST

Intel will hold a public webcast at 2:30 p.m. PDT today on its Investor Relations Web site at www.intc.com. A replay of the webcast will be available until Oct. 18.

STATUS OF BUSINESS OUTLOOK AND MID-QUARTER BUSINESS UPDATE

During the quarter, Intel's corporate representatives may reiterate the Business Outlook during private meetings with investors, investment analysts, the media and others. Intel intends to publish a Mid-Quarter Business Update on Sept. 8. From the close of business on Sept. 2 until publication of the Update, Intel will observe a "Quiet Period" during which the Business Outlook disclosed in the company's press releases and filings with the SEC on Forms 10-K and 10-Q should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. For more information about the Business Outlook, Update and related Quiet Periods, please refer to the Business Outlook section of Intel's Web site at www.intc.com.

RISK FACTORS REGARDING FORWARD-LOOKING STATEMENTS

The statements in this document that refer to plans and expectations for the third quarter, the year and the future are forward-looking statements that involve a number of risks and uncertainties. Many factors could affect Intel's actual results, and variances from Intel's current expectations regarding such factors could cause actual results to differ materially from those expressed in these forward-looking statements. Intel presently considers the factors accompanying certain of such statements above and set forth below to be the important factors that could cause actual results to differ materially from Intel's published expectations. A more detailed discussion of these factors, as well as other factors that could affect Intel's results, is contained in Intel's SEC filings, including the report on Form 10-Q for the quarter ended April 2, 2005.

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