Intel 2002 Annual Report Download - page 11

We perform a substantial majority of our components assembly and test, including assembly and test for microprocessors, at facilities in
Malaysia, the Philippines and Costa Rica. We also perform components assembly and test for chipsets and flash memory at a facility in China. In
the third quarter of 2002, we announced an additional investment in our facilities in China with plans to add microprocessor assembly and test
capabilities in 2003. We plan to continue to invest in new assembly and test technologies and facilities to keep pace with our microprocessor,
chipset and flash technology improvements.
We also manufacture microprocessor- and networking-related board-level products in Malaysia and California. During the first half of
2002, for cost-competitive reasons, we phased out our systems manufacturing operations in Washington that produced microprocessor- and
networking-related system-level products.
To augment capacity in the United States as well as internationally, we use subcontractors to perform assembly of certain products,
primarily flash memory, chipsets, and networking and communications products, as well as third-party manufacturing services (foundries) to
manufacture wafers for certain components, including networking and communications products. We also use subcontractors to manufacture
some board-level products and systems, and we purchase certain communications networking products from external vendors, primarily in the
Asia-Pacific region.
We have thousands of suppliers, including subcontractors, providing our various materials and service needs. We seek, where possible, to
have several sources of supply for all of these materials and resources, but on limited occasions we may rely on a single or limited number of
suppliers, or upon suppliers in a single country. In those cases, we develop and implement plans and actions to minimize the exposure that would
result from a disruption at that supplier. We also typically have multiple factories at multiple sites around the world producing our products.
However, some products are produced in only one factory, and again we seek, through other actions and plans, to minimize the exposure that
would result from a disruption at that factory.
Manufacturing of integrated circuits is a complex process. Normal manufacturing risks include errors and interruptions in the production
process, defects in raw materials and disruptions at suppliers, as well as other risks, all of which can affect yields. A substantial decrease in
yields would result in higher manufacturing costs and the possibility of not being able to produce sufficient volume to meet specific product
demand.
We operate globally—with sales offices; research and development; and manufacturing, assembly and test in many countries—and so we
are subject to risks and factors associated with doing business outside the United States. Global operations involve inherent risks that include
currency controls and fluctuations; tariff, import and other related restrictions and regulations. If terrorist activity, armed conflict, civil or
military unrest or political instability occurs in the United States, Israel or other locations, such events may disrupt manufacturing, assembly and
test, logistics, security and communications, and could also result in reduced demand for Intel's products. We could also be affected if labor
issues disrupt our transportation arrangements or those of our
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customers or suppliers. On a worldwide basis, we regularly review our key infrastructure, systems, services and suppliers both internally and
externally, to seek to identify significant vulnerabilities as well as areas of potential business impact if a disruptive event were to occur. Once
identified, we assess the risks, and as we consider it to be appropriate, we initiate actions intended to minimize the risks and their potential
impact. However, there can be no assurance that we have identified all significant risks or that we can mitigate all identified risks with
reasonable effort.
We maintain a program of insurance coverage for various types of property, casualty and other risks. We place our insurance coverage with
various carriers in numerous jurisdictions. The policies are subject to deductibles and exclusions that result in our retention of a level of risk on a
self-insurance basis. The types and amounts of insurance obtained vary from time to time depending upon availability, cost and our decisions
with respect to risk retention. The deletion of insurance coverage for terrorist acts following the attacks on the World Trade Center in New York
City served as the impetus for the recently enacted Terrorism Risk Insurance Act of 2002 requiring insurers to offer terrorism coverage within
the United States. As with any new legislation, there are limitations and restrictions that are not yet fully understood, and pricing of such
coverage may be prohibitive. We will continue to evaluate the purchase of terrorism coverage should pricing and terms become more favorable.
For information regarding environmental proceedings related to certain facilities, see the information under the heading "Legal
Proceedings" in Part I, Item 3 of this Form 10-K.
Employees
In July 2002, we announced that we expected to reduce our workforce by approximately 4,000 employees over the remainder of 2002,
primarily through attrition, voluntary separation programs and some targeted business disinvestments. We had exceeded this goal by the end of
2002. As of December 28, 2002, we employed approximately 78,700 people worldwide, with a little over 35% of these employees located
outside the United States.
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