Intel 1996 Annual Report Download - page 69

registration statements. The Company believes that it has the financial resources needed to meet business requirements in the foreseeable
future, including capital expenditures for the expansion of worldwide manufacturing capacity, working capital requirements, the potential put
warrant obligation and the dividend program.
Outlook
The outlook section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ
materially.
Intel expects that the total number of personal computers using Intel's Pentium and Pentium Pro microprocessors and other semiconductor
components sold worldwide will continue to grow in 1997. Intel has expanded manufacturing capacity over the last few years and continues to
expand capacity. Intel's financial results are substantially dependent on this market segment. Revenue is also a function of the mix of
microprocessors and related motherboards and the mix of microprocessor types and speed, all of which are difficult to forecast. Because of the
large price difference between types of microprocessors, this mix affects the average price Intel will realize and has a large impact on Intel's
revenues.
Intel's strategy has been, and continues to be, to introduce ever higher performance microprocessors. To implement this strategy, the Company
plans to cultivate new businesses and continue to work with the software industry to develop compelling applications that can take advantage
of this higher performance, thus driving demand toward the newer products. In line with this strategy, the Company has recently announced
higher performance members of the Pentium microprocessor family, including the Pentium processor with MMX(TM) technology. Capacity
has been planned based on the assumed continued success of the Company's strategy. If the market demand does not continue to grow and
move rapidly toward higher performance products, revenues and gross margin may be impacted, the manufacturing capacity installed might be
under-utilized and capital spending may be slowed. The Company may continue to reduce microprocessor prices aggressively and
systematically to bring its technology to market.
The Company's gross margin percentage is a sensitive function of the product mixes sold in any period. Because the percentage of
motherboards that Intel's customers purchase changes with the maturity of the product cycle, and motherboards generally have lower gross
margin percentages than microprocessors, Intel's gross margin percentage varies depending on the mix of microprocessors and related
motherboards within a product family and the mix of types of microprocessors. Various other factors, including unit volumes and costs, and
yield issues associated with production at factories, processor speed mix and mix of shipments of other semiconductors, will also continue to
affect the amount of cost of sales and the variability of gross margin percentages in future quarters. The Company's goal continues to be to
grow gross margin dollars. Intel's current gross margin expectation for 1997 is 60% plus or minus a few points. However, the Company
believes that over the long-term the gross margin percentage will be 50% plus or minus a few points, as the Company introduces higher
performance products and costs continue to increase. In addition, from time to time the Company may forecast a range of gross margin
percentages for the coming quarter. Actual results may differ from these estimates.
To implement its strategy, Intel continues to build capacity to produce high-performance microprocessors and other products. The Company
expects that capital spending will increase to approximately $4.5 billion in 1997 to support significant expansion of worldwide manufacturing
capacity. This spending plan is dependent upon changes in manufacturing efficiencies, delivery times of various machines and construction
schedules for new facilities. Depreciation for 1997 is expected to be approximately $2.5 billion, an increase of approximately $600 million
from 1996. Most of this increased depreciation would be included in cost of sales and research and development spending.
The industry in which Intel operates is characterized by very short product life cycles. Intel considers it imperative to maintain a strong
research and development program to continue to succeed. The Company will also continue spending to promote its products and to increase
the value of its product brands. Based on current forecasts, spending for marketing and general and administrative expenses is expected to
increase in 1997.
The Company currently expects its tax rate to increase to 35.5% for 1997. This estimate is based on current tax law and current estimate of
earnings, and is subject to change.
The Company's future results of operations and the other forward-looking statements contained in this outlook, in particular the statements
regarding growth in the personal computer industry, gross margin, capital spending, depreciation, research and development, and marketing
and general and administrative expenses, involve a number of risks and uncertainties. In addition to the factors discussed above, among the
other factors that could cause actual results to differ materially are the following: business conditions and growth in the computing industry and
in the general economy; changes in customer order patterns, including timing of delivery and changes in seasonal fluctuations in PC buying
patterns; competitive factors, such as rival chip architectures, competing software-
compatible microprocessors, acceptance of new products and
price pressures; risk of inventory obsolescence due to shifts in market demand; variations in inventory valuation; timing of software industry
product introductions; continued success in technological advances and their implementation, including the manufacturing ramp; shortage of
manufacturing capacity; risks associated with foreign operations; changes in product mixes; and litigation involving intellectual property and
consumer issues.
Intel believes that it has the product offerings, facilities, personnel, and competitive and financial resources for continued business success, but
future revenues, costs, margins and profits are all influenced by a number of factors, including those discussed above, all of which are
inherently difficult to forecast.