Intel 1998 Annual Report Download - page 65

Page 36
that all other technology used in combination with the Intel product properly exchanges date data with it.
Various of the Company's disclosures and announcements concerning its products and year 2000 programs are intended to constitute "Year
2000 Readiness Disclosures" as de-fined in the recently enacted Year 2000 Information and Readiness Disclosure Act. The Act provides added
protection from liability for certain public and private statements concerning an entity's year 2000 readiness and the year 2000 readiness of its
products and services. The Act also potentially provides added protection from liability for certain types of year 2000 disclosures made after
January 1, 1996 and before the date of enactment of the Act.
The Company's year 2000 efforts have been undertaken largely with its existing personnel. In some instances, consultants have been engaged
to provide specific assessment, remediation or other services. Activities with suppliers and customers have also involved their staffs and
consultants. The Company engaged a third-party firm to assist with planning and taking the inventory of internal systems, and engaged another
firm to perform an assessment of the overall scope and schedule of Intel's year 2000 efforts.
The Company currently expects that the total cost of these programs, including both incremental spending and redeployed resources, will not
exceed $175 million. This estimate is lower than the previous estimate that costs would not exceed $250 million, primarily due to a higher than
expected percentage of manufacturing systems requiring no remediation and lower than expected costs of remediation on the remaining
manufacturing systems. Approximately $42 million has been spent on the programs to date, of which approximately $36 million was incurred
in 1998. Costs include estimated payroll costs for redeployed personnel and the costs of consultants, software and hardware upgrades, and
dedicated program offices. A majority of the total estimated costs are expected to be incurred in assessing and remediating issues with
manufacturing systems and contingency planning for manufacturing systems. As a result, a majority of the costs are expected to be included in
cost of sales and in the calculation of gross margin. Year 2000 costs for manufacturing and non-manufacturing internal systems in 1998
represented less than 10% of the total information technology budget for 1998 and are also expected to be less than 10% of the budget for
1999.
No significant internal systems projects are being deferred due to the year 2000 program efforts. In some instances, the installation schedule of
new software and hardware in the normal course of business is being accelerated to also afford a solution to year 2000 capability issues. The
Company expects that costs related to accelerated systems replacements will be approximately $15 million in addition to the total costs noted
above. In addition, the estimated costs do not include any potential costs related to customer or other claims, or potential amounts related to
executing contingency plans, such as costs incurred as a result of an infrastructure or supplier failure. The Company has adequate general
corporate funds with which to pay for the programs' expected costs. All expected costs are based on the current assessment of the programs and
are subject to change as the programs progress.
Based on currently available information, management does not believe that the year 2000 matters discussed above related to internal systems
or products sold to customers will have a material adverse impact on the Company's financial condition or overall trends in results of
operations; however, it is uncertain to what extent the Company may be affected by such matters. In addition, there can be no assurance that the
failure to ensure year 2000 capability by a supplier, customer or another third party would not have a material adverse effect on the Company's
financial condition or overall trends in results of operations.
In September 1997, the Federal Trade Commission ("FTC") staff notified Intel that the FTC had begun an investigation of the Company's
business practices. In June 1998, the FTC filed an administrative complaint against Intel before an FTC Administrative Law Judge. The
complaint charges that Intel is attempting to further its alleged microprocessor monopoly by improperly withholding its intellectual property, in
the form of confidential product information, from three companies that had filed or threatened to file intellectual property lawsuits against
Intel. Although the outcome of the administrative action cannot be determined at this time, management, including internal counsel, does not
believe that the outcome will have a material adverse effect on the Company's financial position or overall trends in results of operations.
The Company is currently party to various legal proceedings. Although litigation is subject to inherent uncertainties, management, including
internal counsel, does not believe that the ultimate outcome of these legal proceedings will have a material adverse effect on the Company's
financial position or overall trends in results of operations. However, were an unfavorable ruling to occur in any specific period, there exists the
possibility of a material adverse impact on the results of operations of that period. Management believes, given the Company's current liquidity
and cash and investments balances, that even an adverse judgment would not have a material impact on cash and investments or liquidity.
The Company's future results of operations and the other forward-looking statements contained in this outlook--in particular the statements
regarding the number of computers using Intel processors, costs, gross margin, capital spending, depreciation and amortization, research and
development, marketing and general and administrative expenses, the tax rate, the conversion to the Euro, the year 2000 issue, the FTC
investigation and pending legal proceedings--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: changes in end user demand due to usage of the Internet;
changes in customer order patterns, including changes in customer and channel inventory levels and changes due to year 2000