Intel 2008 Annual Report Download - page 44

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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Although net revenue for 2008 declined only slightly from 2007, net revenue for the fourth quarter of 2008 declined 19% from
the third quarter as customers reduced inventory levels to keep pace with the dramatic decline in end-user demand that
occurred over the course of the quarter. It is unclear when a turnaround may occur, and there remains a high degree of
uncertainty around demand, which may continue to decline.
Our overall gross margin dollars for 2008 were $20.8 billion, an increase of $940 million, or 5%, compared to 2007. Our
overall gross margin percentage increased to 55.5% in 2008 from 51.9% in 2007. The increase in gross margin percentage was
primarily attributable to the gross margin percentage increase in the Digital Enterprise Group operating segment. In addition,
our gross margin percentage increased due to the divestiture of our NOR flash memory business. We derived most of our
overall gross margin dollars and operating profit in 2008 and 2007 from the sale of microprocessors in the Digital Enterprise
Group and Mobility Group operating segments. See “Business Outlook” for a discussion of gross margin expectations.
Our net revenue was $38.3 billion in 2007, an increase of 8% compared to 2006. Higher microprocessor unit sales were
partially offset by lower microprocessor average selling prices. Higher mobile chipset unit sales also contributed to the
increase in net revenue. Lower NOR flash memory revenue in 2007 compared to 2006 was mostly offset by the ramp of our
NAND flash memory business. The decrease in NOR flash memory revenue was due to a significant decline in average selling
prices. Lower royalty revenue was offset by higher unit sales. Revenue in the Asia-Pacific region increased 11% and revenue
in the Europe region increased 10% in 2007 compared to 2006, and revenue in the Americas region and Japan increased 3% in
2007 compared to 2006.
Our overall gross margin dollars for 2007 were $19.9 billion, an increase of $1.7 billion, or 9%, compared to 2006. Our overall
gross margin percentage was relatively flat at 51.9% in 2007 compared to 51.5% in 2006. The gross margin percentage
increase in the Digital Enterprise Group operating segment was mostly offset by a decrease in the gross margin percentage in
the Mobility Group operating segment and costs associated with the ramp of our NAND flash memory business. We derived
most of our overall gross margin dollars and operating profit in 2007 and 2006 from the sale of microprocessors in the Digital
Enterprise Group and Mobility Group operating segments.
Digital Enterprise Group
The revenue and operating income for the Digital Enterprise Group (DEG) for the three years ended December 27, 2008 were
as follows:
Net revenue for the DEG operating segment decreased by $672 million, or 3%, in 2008 compared to 2007. Microprocessors
within DEG include those designed for the desktop and enterprise computing market segments as well as embedded
microprocessors. The increase in microprocessor revenue was due to higher enterprise microprocessor average selling prices
and higher embedded microprocessor unit sales, partially offset by lower desktop microprocessor unit sales. The decrease in
chipset, motherboard, and other revenue was primarily due to lower motherboard unit sales and lower revenue from the sale of
communications products. In addition, lower chipset average selling prices were partially offset by higher chipset unit sales.
Operating income increased by $1.2 billion, or 22%, in 2008 compared to 2007. The increase in operating income was
primarily due to lower desktop microprocessor and chipset unit costs. Lower start-up costs of approximately $350 million and
lower operating expenses were partially offset by sales in 2007 of desktop microprocessors that had previously been written
off and higher write-offs of desktop microprocessor inventory in 2008.
39
(In Millions)
2008
2007
2006
Microprocessor revenue
$
16,078
$
15,945
$
15,248
Chipset, motherboard, and other revenue
4,554
5,359
5,437
Net revenue
$
20,632
$
21,304
$
20,685
Operating income
$
6,462
$
5,295
$
3,299