Intel 2012 Annual Report Download - page 39

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Our overall gross margin percentage decreased to 62.5% in 2011 from 65.3% in 2010. The decrease in gross margin
percentage was primarily attributable to the gross margin percentage decrease in the PC Client Group and, to a lesser
extent, the gross margin percentage decrease in the other Intel architecture operating segments. We derived a substantial
majority of our overall gross margin dollars in 2011 and most of our gross margin dollars in 2010 from the sale of
platforms in the PC Client Group and Data Center Group operating segments.
PC Client Group
The revenue and operating income for the PC Client Group for the three years ended December 29, 2012 were as
follows:
(In Millions)
2012
2011
2010
Net revenue...........................................................
$ 34,274
$ 35,406
$ 30,327
Operating income ..................................................
$ 13,053
$ 14,793
$ 12,971
Net revenue for the PCCG operating segment decreased by $1.1 billion, or 3%, in 2012 compared to 2011. PCCG
revenue was negatively impacted by the growth of tablets as these devices compete with PCs for consumer sales.
Platform average selling prices and unit sales decreased 2% and 1%, respectively. The decrease was driven by 6% lower
notebook platform average selling prices and 5% lower desktop platform volume. These decreases were partially offset by
a 4% increase in desktop platform average selling prices and a 2% increase in notebook platform volume.
Operating income decreased by $1.7 billion, or 12%, in 2012 compared to 2011 driven by $649 million of lower gross
margin and $1.1 billion of higher operating expenses. The decrease in gross margin was primarily due to lower platform
revenue. Additionally, approximately $455 million of higher excess capacity charges and higher platform unit costs
contributed to the decrease. These decreases were partially offset by approximately $785 million of lower start-up costs
as we transition from manufacturing start-up costs related to our 22nm process technology to R&D of our next-generation
14nm process technology. Additionally, the first half of 2011 included $422 million of charges recorded to repair and
replace materials and systems impacted by a design issue related to our Intel 6 Series Express Chipset family.
Net revenue for the PCCG operating segment increased by $5.1 billion, or 17%, in 2011 compared to 2010. Platform
average selling prices and unit sales increased 8% and 7%, respectively. The increase in revenue was due to notebook
platform unit sales and notebook platform average selling prices, which both increased 9%. To a lesser extent, an
increase in desktop platform average selling prices of 6% and an increase in desktop platform unit sales of 4% also
contributed to the increase. In addition to the extra work week in 2011, our client business benefited from rising incomes
that increased the affordability of PCs in emerging markets. We also saw an increase in revenue as demand increased in
the enterprise and emerging markets for higher performance and more energy-efficient computing.
Operating income increased by $1.8 billion in 2011 compared to 2010 as the gross margin increase of $2.4 billion was
partially offset by $584 million of higher operating expenses. The increase in gross margin was primarily due to higher
platform revenue partially offset by approximately $960 million of higher start-up costs as we transitioned into production
using our 22nm process technology. Higher platform unit costs and inventory write-offs as compared to 2010 also
contributed to the offset.
Data Center Group
The revenue and operating income for the Data Center Group for the three years ended December 29, 2012 were as
follows:
(In Millions)
2012
2011
2010
Net revenue................................................................
$ 10,741
$ 10,129
$ 8,693
Operating income ........................................................
$ 5,073
$ 5,100
$ 4,388
Net revenue for the DCG operating segment increased by $612 million, or 6%, in 2012 compared to 2011. The increase in
revenue was due to 6% higher platform average selling prices, slightly offset by 1% lower platform volume. Our platform
average selling prices benefited from a richer mix of products sold. In 2012, our server business continued to benefit from
significant growth in the Internet cloud segment offset by weakness in the enterprise server market segment.
Operating income decreased by $27 million in 2012 compared to 2011 as $360 million of higher gross margin was more
than offset by $387 million of higher operating expenses. The increase in gross margin was primarily due to higher
platform revenue.