Intel 2008 Annual Report Download - page 33

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our gross margin toward the end of the year was impacted by approximately $250 million of factory under-utilization charges
as well as inventory write-offs on computing-related products, which were primarily demand-related. The under-utilization
charges were a result of our decision to reduce factory loadings at the end of the fourth quarter in response to the drop-off in
demand. As a result, factory under-utilization charges are expected to increase significantly in the first quarter, impacting our
gross margin. We also expect our gross margin to be negatively impacted as our start-up costs associated with our 32nm
process technology increase and as we transition 32nm design resources from research and development to manufacturing.
Additionally, changes in demand levels and pricing of products could impact inventory write-
offs, mix, and unit costs, creating
additional variability in margin. Despite reducing our factory loadings, we increased our inventory in the fourth quarter of
2008 due to lower than expected demand and inventory reductions in the supply chain. We expect further reduction in the
supply chain inventory levels in the first quarter of 2009 as our customers manage their business through the current economic
uncertainty. Subsequent to the end of 2008, management approved plans to restructure some of our manufacturing and
assembly and test operations, and align our manufacturing and assembly and test capacity to current market conditions. These
actions, which are expected to take place beginning in 2009, include closing two assembly and test facilities in Malaysia, one
facility in the Philippines, and one facility in China; stopping production at a 200mm wafer fabrication facility in Oregon; and
ending production at our 200mm wafer fabrication facility in California.
We continue to focus on our commitment to efficiency and controlling spending. We have reduced our headcount by over
2,000 from the end of 2007 and nearly 20,000 from our highest levels during 2006. During 2008, we had additional
divestitures of non-strategic businesses and divested our NOR flash memory business. Also, in a joint decision with Micron,
we discontinued the supply of NAND flash memory from a 200mm facility within the IMFT manufacturing network, which
resulted in restructuring charges of $215 million.
In the fourth quarter of 2008, we made a $1.0 billion investment in Clearwire LLC, adding to our pre-existing investments.
However, we recorded an impairment of our investments in the new Clearwire Corporation and Clearwire LLC of $938
million, primarily due to the fair value being significantly lower than the cost basis of our investments.
From a financial condition perspective, we ended 2008 with an investment portfolio valued at $14.5 billion, consisting of cash
and cash equivalents and marketable debt instruments included in trading assets and short- and long-term investments. In
addition, we generated $10.9 billion in cash from operations in 2008. The credit quality of our investment portfolio remains
high during this difficult credit environment, with other-than-temporary impairments on our available-for-sale investments in
debt instruments limited to $44 million during 2008. In addition, we continue to be able to invest in high-quality investments.
However, we have seen a reduction in the volume of available commercial paper from certain market segments. As a result,
our investments in short-term government funds have increased, which will reduce our average investment return. Despite the
tightening of the credit markets, we continue to be able to access funds through the credit markets, including through the
issuance of commercial paper. With the exception of a limited amount of investments for which we have recognized other-
than-temporary impairments, we have not seen significant liquidation delays, and for those that have matured we have
received the full par value of our original debt investments. For additional details on our investment portfolio, see “Liquidity
and Capital Resources.”
During 2008, we repurchased $7.1 billion of stock through our stock repurchase program and paid $3.1 billion to stockholders
as dividends. In the fourth quarter of 2008, we did not repurchase additional stock, as we felt that it was better to conserve
cash, given the economic environment. In January 2009, our Board of Directors declared a dividend of $0.14 per common
share for the first quarter of 2009.
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