Intel 1997 Annual Report Download - page 68

$700 million. The agreement is subject to U.S. government review.
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.
Financial market risks
The Company is exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable equity
security prices. To mitigate these risks, the Company utilizes derivative financial instruments. The Company does not use derivative financial
instruments for speculative or trading purposes.
The primary objective of the Company's investment activities is to preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the returns on a majority of the Company's marketable investments in long-term fixed
rate debt and equity securities are swapped to U.S. dollar LIBOR-based returns. A hypothetical 60 basis point increase in interest rates would
result in an approximate $18 million decrease (less than 0.2%) in the fair value of the Company's available-for-sale securities.
The Company hedges currency risks of investments denominated in foreign currencies with foreign currency borrowings, currency forward
contracts and currency interest rate swaps. Gains and losses on these foreign currency investments would generally be offset by corresponding
losses and gains on the related hedging instruments, resulting in negligible net exposure to the Company.
A substantial majority of the Company's revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, the
Company does enter into these transactions in other currencies, primarily Japanese yen and certain other Asian and European currencies. To
protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, the Company has
established revenue, expense and balance sheet hedging programs. Currency forward contracts and currency options are utilized in these
hedging programs. The Company's hedging programs reduce, but do not always entirely eliminate, the impact of foreign currency exchange
rate movements. An adverse change (defined as 20% in certain Asian currencies and 10% in all other currencies) in exchange rates would
result in a decline in income before taxes of less than $20 million.
The Company is exposed to equity price risks on the marketable portion of equity securities included in its portfolio of investments entered into
for the promotion of business and strategic objectives. These investments are generally in small capitalization stocks in the high-technology
industry sector. The Company typically does not attempt to reduce or eliminate its market exposure on these securities. A 20% adverse change
in equity prices would result in an approximate $75 million decrease in the fair value of the Company's available-for-sale securities.
All of the potential changes noted above are based on sensitivity analyses performed on the Company's financial positions at December 27,
1997. Actual results may differ materially.
Outlook
This outlook section contains a number of forward-
looking statements, all of which are based on current expectations. Actual results may differ
materially. These statements do not reflect the potential impact of any future mergers or acquisitions, except as noted below.
Intel expects that the total number of computers using Intel's Pentium family processors, sixth-generation processors (including Pentium II and
Pentium Pro processors) and other semiconductor components sold worldwide will continue to grow in 1998. The Company's financial results
are substantially dependent on sales of these microprocessors and other semiconductor components. Revenue is also a function of the mix of
microprocessor types and speeds sold, as well as the mix of microprocessors and related purchased components, 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. The Company's expectations regarding growth in the computing industry worldwide are subject to the impact
of economic conditions in various geographic regions, including the Asia-Pacific region, which has recently been undergoing a currency and
economic crisis.
Intel's strategy is to introduce ever higher performance microprocessors tailored for the different segments of the worldwide computing market.
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 each computing
market segment. In line with this strategy, the Company is seeking to develop higher performance microprocessors for each market segment,
including servers, workstations, high-end business PCs, the basic PC and other product lines. The Company may continue to reduce
microprocessor prices at such times as it deems appropriate in order to bring its technology to market within each relevant market segment.
The Company's gross margin varies depending on the mix of types and speeds of processors sold and the mix of microprocessors and related
purchased components within a product family. The Company's most advanced product, the Pentium II processor, is packaged with purchased
components in the SEC cartridge, and the inclusion of purchased components tends to increase absolute dollar margins but