Intel 1994 Annual Report Download - page 32

Ten years ended December 31, 1994
PAGE 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
of financial condition and results of operations
RESULTS OF OPERATIONS
Intel's net revenues reached a new high in 1994, rising by 31% from 1993 to 1994 and by 50% from 1992 to 1993, driven by a robust PC
market and an ongoing shift in demand toward more powerful microprocessors. Higher volumes of increasingly faster, more advanced
microprocessors, partially offset by lower average selling prices, were responsible for most of the growth in revenues from 1992 through 1994.
The Pentium(R) processor, introduced in 1993, ramped into high volume in 1994 and was the major factor in Intel's overall revenue growth
from 1993 to 1994. Increased sales of newer members of the Intel486(TM) microprocessor family, such as the IntelDX2(TM) processor, drove
the revenue growth from 1992 to 1993.
Higher volumes of motherboard and chipset products also contributed significantly to the increase in revenues from 1993 to 1994 and helped
enable the successful Pentium processor ramp. Flash memory revenues increased throughout the 1992-1994 period, although not at rates
previously expected. Sales of system platforms, networking and communications products, and embedded control products also grew,
especially from 1992 to 1993. Growing demand and production for the Intel486 microprocessor family resulted in a sharp decline in sales of
the mature Intel386(TM) CPU family from 1992 to 1993 (graph omitted).
Gross margin for the fourth quarter of 1994 included the impact of a $475 million charge, primarily to cost of sales, to cover replacement costs,
replacement material and inventory writedown related to a divide problem in the floating point unit of the Pentium processor. Cost of sales
increased by 71% from 1993 to 1994 and by 27% from 1992 to 1993. Cost of sales grew at a faster rate than revenues during 1993 and 1994,
although gross margin dollar contribution generally continued to rise. In addition to the one-time charge for the Pentium processor floating
point problem, growth in cost of sales was driven by higher unit volumes, shifts in product mix and costs associated with initiating production
at new factories. As a result of these factors and the revenue trends described above, gross margin percentage declined to 52% in 1994 (37% in
the fourth quarter of 1994), compared to 63% in 1993.
Sales of the Intel486 microprocessor family comprised a majority of the Company's revenues and a substantial majority of its gross margin
during 1992, 1993 and 1994. While Intel reached its goal of shipping 6-7 million Pentium processors later than anticipated, a significant and
growing portion of the Company's revenues and margins were derived from sales of the Pentium processor family in 1994. The Pentium
processor family comprised 23% of Intel's microprocessor unit shipments to the desktop computer market segment in the fourth quarter of
1994. If current trends continue, quarterly volumes of the Pentium processor family could surpass those of the Intel486 microprocessor family
during 1995.
Research and development spending grew by 15% from 1993 to 1994, as the Company continued to invest in internal programs, particularly
for microprocessor technology development. Increased spending for strategic marketing programs, including media merchandising and the
Company's Intel Inside(R) cooperative advertising program, drove the 24% increase in marketing, general and administrative expenses from
1993 to 1994. Spending in the fourth quarter of 1994 included the greater part of an $80 million Pentium processor merchandising program
Net investment Long-term Stock property,
in property, Total debt & put holders plant
(In millions) plant & equip. assets warrants equity equipment
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1994 $ 5,367 $13,816 $ 1,136 $ 9,267 $ 2,441
1993 $ 3,996 $11,344 $ 1,114 $ 7,500 $ 1,933
1992 $ 2,816 $ 8,089 $ 622 $ 5,445 $ 1,228
1991 $ 2,163 $ 6,292 $ 503 $ 4,418 $ 948
1990 $ 1,658 $ 5,376 $ 345 $ 3,592 $ 680
1989 $ 1,284 $ 3,994 $ 412 $ 2,549 $ 422
1988 $ 1,122 $ 3,550 $ 479 $ 2,080 $ 477
1987 $ 891 $ 2,499 $ 298 $ 1,276 $ 302
1986 $ 779 $ 1,977 $ 287 $ 1,245 $ 155
1985 $ 848 $ 2,153 $ 271 $ 1,421 $ 236
Cost Operating Net Earnings Dividends
Net of Research & income income (loss) declared
revenues sales development (loss) (loss) per share per share
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(In millions-- except per share amounts
1994 $11,521 $ 5,576 $ 1,111 $ 3,387 $ 2,288 $ 5.24 $ 0.23
1993 $ 8,782 $ 3,252 $ 970 $ 3,392 $ 2,295 $ 5.20 $ 0.20
1992 $ 5,844 $ 2,557 $ 780 $ 1,490 $ 1,067 $ 2.49 $ 0.10
1991 $ 4,779 $ 2,316 $ 618 $ 1,080 $ 819 $ 1.96 --
1990 $ 3,921 $ 1,930 $ 517 $ 858 $ 650 $ 1.60 --
1989 $ 3,127 $ 1,721 $ 365 $ 557 $ 391 $ 1.04 --
1988 $ 2,875 $ 1,506 $ 318 $ 594 $ 453 $ 1.26 --
1987 $ 1,907 $ 1,044 $ 260 $ 246 $ 248 $ 0.69 --
1986 $ 1,265 $ 861 $ 228 $ (195) $ (203) $ (0.58) --
1985 $ 1,365 $ 943 $ 195 $ (60) $ 2 $ 0.00 --