Intel 2004 Annual Report Download - page 15

Table of Contents
of the customer to pay. See “Schedule II—Valuation and Qualifying Accounts” on page 85 of this Form 10-K for information about our
allowance for doubtful receivables.
Backlog
We do not believe that a backlog as of any particular date is indicative of future results. Our sales are made primarily pursuant to standard
purchase orders for delivery of standard products. We have some agreements that give a customer the right to purchase a specific number of
products during a specified time period. Although these agreements do not generally obligate the customer to purchase any particular number
of such products, some of these agreements do contain billback clauses. Under these clauses, customers who do not purchase the full volume
agreed upon are liable for billback on previous shipments up to the price appropriate for the quantity actually purchased. As a matter of
industry practice, billback clauses are difficult to enforce. The quantities actually purchased by the customer, as well as the shipment schedules,
are frequently revised during the agreement term to reflect changes in the customer’
s needs. In light of industry practice and our experience, we
do not believe that such agreements are meaningful for determining backlog amounts. We believe that only a small portion of our order
backlog is non-cancelable and that the dollar amount associated with the non-cancelable portion is not significant.
Competition
As part of our overall strategy to compete in each relevant market segment, we use our core competencies in the design and manufacture
of integrated circuits and our financial resources, global presence and brand recognition. Also, under our Intel Capital program, we make equity
investments in companies around the world to further our strategic objectives and support our key business initiatives. Our products compete,
to varying degrees, on the basis of performance (which includes features that can enhance the user experience), quality, brand recognition, price
and availability. Our ability to compete also depends on our ability to provide innovative platform solutions and worldwide support for our
customers.
The semiconductor industry is characterized by rapid advances in technology and new product introductions. As unit volumes grow,
production experience is accumulated and costs decrease, further competition develops, and as a result, prices decline. The life cycle of our
products is very short, sometimes less than a year. Our ability to compete depends on our ability to improve our products and processes faster
than our competitors, anticipate changing customer requirements, and develop and launch new products, while reducing our costs. When we
believe it is appropriate, we will take various steps, including introducing new products and platform solutions, discontinuing older products,
reducing prices, and offering rebates and other incentives, to increase acceptance of our latest products and to be competitive within each
relevant market segment. Our products compete with products developed for similar or rival architectures and with products based on the same
or rival technology standards. We cannot predict which competing technology standards will become the prevailing standards in the market
segments in which we compete.
Many companies compete with us in the various computing, networking and communications market segments, and are engaged in the
same basic fields of activity, including research and development. Worldwide, these competitors range in size from large, established,
multinational companies with multiple product lines to smaller companies and new entrants to the marketplace that compete in specialized
market segments. In some cases, our competitors are also our customers and/or suppliers. With the convergence in computing and
communications products, product offerings will continue to cross over into multiple categories, offering us new opportunities but also
resulting in more competition. In markets where our competitors have established products and brand recognition, it may be inherently difficult
for us to compete against them.
Most of our products, including all of our Intel architecture microprocessors and chipsets, as well as our flash memory and embedded
processors within ICG, are built in our own manufacturing facilities. We believe that our network of manufacturing facilities and assembly and
test facilities gives us a competitive advantage. This network enables us to have more direct control over our processes, quality control, product
cost, volume and timing of production, and other factors. These types of facilities are very expensive, and many of our competitors do not own
such facilities because they cannot afford to do so or because their business models involve the use of third-party facilities for manufacturing
and assembly and test. These “fabless semiconductor companies” include Broadcom Corporation, NVIDIA Corporation, QUALCOMM
Incorporated and VIA Technologies, Inc. Some of our competitors own portions of such facilities through investment or joint-venture
arrangements with other companies. There is a group of third-party manufacturing companies (foundries) and assembly and test subcontractors
that offer their services to companies without owned facilities or companies needing additional capacity. These foundries and subcontractors
may also offer to our competitors intellectual property, design services, and other goods and services. Competitors who outsource their
manufacturing and assembly and test operations can significantly reduce their capital expenditures.
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