Intel 1998 Annual Report Download - page 64

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supplier in accordance with Intel's standards and requirements. Contingency plans are being developed to address issues related to suppliers
that are not considered to be making sufficient progress in becoming year 2000 capable.
The Company is also developing contingency plans to address possible changes in customer order patterns due to year 2000 issues. As with
suppliers, the readiness of customers to deal with year 2000 issues may affect their operations and their ability to order and pay for products.
Intel has surveyed its major direct customers about their year 2000 readiness in critical areas of their operations. The results identified certain
key areas to be addressed by the customers. Intel is also communicating information about its own readiness to customers and is conducting
seminars to help communicate the methodologies and processes used in Intel's year 2000 programs.
Intel believes that its most reasonably likely worst-case year 2000 scenarios would relate to problems with the systems of third parties rather
than with the Company's internal systems or its products. Because the Company has less control over assessing and remediating the year 2000
problems of third parties, the Company believes the risks are greatest with infrastructure (e.g., electricity supply and water and sewer service),
telecommunications, transportation supply chains and critical suppliers of materials.
The Company's microprocessor production is conducted in a network of domestic and foreign facilities. Each location relies on local private
and governmental suppliers for electricity, water, sewer and other needed supplies. Failure of an electricity grid or an uneven supply of power,
for example, would be a worst-case scenario that would completely shut down the affected facilities. Electrical failure could also shut down
airports and other transportation facilities.
The Company does not generally maintain facilities that would allow it to generate its own electrical or water supply in lieu of that supplied by
utilities. To the extent possible, the Company is working with the infrastructure suppliers for its manufacturing sites, major subcontractor sites
and relevant transportation hubs to seek to better ensure continuity of infrastructure services. Contingency planning regarding major
infrastructure failure generally emphasizes planned increases in inventory levels of specific products and the shift of production to unaffected
sites. By the end of 1999, Intel expects to have in place a buffer supply of finished goods inventory and is evaluating where to locate inventory
geographically in light of infrastructure concerns. In addition, multiple plants engage in similar tasks in the Intel system, and production can be
expanded at some sites to partially make up for capacity unavailable elsewhere. Although overall capacity would be reduced, it is not expected
that the entire production system would halt due to the unavailability of one or two facilities.
A worst-case scenario involving a critical supplier of materials would be the partial or complete shutdown of the supplier and its resulting
inability to provide critical supplies to the Company on a timely basis. The Company does not maintain the capability to replace most third-
party supplies with internal production. Where efforts to work with critical suppliers to ensure year 2000 capability have not been successful,
contingency planning generally emphasizes the identification of substitute and second-source suppliers, and in certain situations includes a
planned increase in the level of inventory carried. In an industry characterized by rapid technological change, higher levels of raw materials and
finished goods inventories involve increased risk of inventory obsolescence and the potential for write-downs in the value of inventory.
The Company is not in a position to identify or to avoid all possible scenarios; however, the Company is currently assessing scenarios and
taking steps to mitigate the impacts of various scenarios if they were to occur. This contingency planning will continue through 1999 as the
Company learns more about the preparations and vulnerabilities of third parties regarding year 2000 issues. Due to the large number of
variables involved, the Company cannot provide an estimate of the damage it might suffer if any of these scenarios were to occur.
The Company also has a program to assess the capability of its products to handle the year 2000. To assist customers in evaluating their year
2000 issues, the Company has developed a list that indicates the capability of Intel's current products, and certain products no longer being
produced, to handle the year 2000. Products are assigned to one of five categories as defined by the Company: "Year 2000 Capable," "Year
2000 Capable" with update, not "Year 2000 Capable," under evaluation and will not test. The list is located on the Company's Year 2000
support Web site and is periodically updated as analysis on additional products is completed.
All Intel processors are "Year 2000 Capable." All Intel micro-controllers (embedded processors) are also "Year 2000 Capable," with the
exception of two custom microcontroller products sold to a limited number of customers. However, the assessment of whether a complete
system will operate correctly depends on firmware (BIOS) capability and software design and integration, and for many end users this will
include firmware and software provided by companies other than Intel.
As described more fully at the support Web site, Intel offers a "Year 2000 Capable" Limited Warranty on certain of its current products. Except
as specifically provided for in the Limited Warranty, the Company does not believe it is legally responsible for costs incurred by customers
related to ensuring their year 2000 capability. Nevertheless, the Company is incurring various costs to provide customer support and customer
satisfaction services regarding year 2000 issues, and it is anticipated that these expenditures will continue through 1999 and thereafter. An Intel
product, when used in accordance with its associated documentation, is "Year 2000 Capable" when, upon installation, it accurately stores,
displays, processes, provides and/or receives data from, into and between 1999 and 2000, and the 20th and 21st centuries, including leap-year
calculations, provided