UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 27, 2014.
 
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                    .
Commission File Number 000-06217
 
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
94-1672743
State or other jurisdiction of
incorporation or organization
 
(I.R.S. Employer
Identification No.)
 
 
 
2200 Mission College Boulevard, Santa Clara, California
 
95054-1549
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (408) 765-8080
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock, $0.001 par value
 
The NASDAQ Global Select Market*
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x  No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ¨  No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x  No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
 
 

 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ¨  No x
Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 27, 2014, based upon the closing price of the common stock as reported by The NASDAQ Global Select Market on such date, was
$153.0 billion
4,736 million shares of common stock outstanding as of February 6, 2015
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement related to its 2015 Annual Stockholders’ Meeting to be filed subsequently are incorporated by reference into Part III of this Annual Report on Form 10-K. Except as expressly incorporated by reference, the registrant’s proxy statement shall not be deemed to be part of this report.



INTEL CORPORATION
 
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 27, 2014
INDEX
 
  
Page
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
Item 15.


Table of Contents

PART I



ITEM 1.
BUSINESS
Company Overview
We design and manufacture advanced integrated digital technology platforms. A platform consists of a microprocessor and chipset, and may be enhanced by additional hardware, software, and services. We sell these platforms primarily to original equipment manufacturers (OEMs), original design manufacturers (ODMs), and industrial and communications equipment manufacturers in the computing and communications industries. Our platforms are used to deliver a wide range of computing experiences in notebooks (including Ultrabook devices), 2 in 1 systems, desktops, servers, tablets, smartphones, and the Internet of Things (including wearables, transportation systems, and retail devices). We also develop and sell software and services primarily focused on security and technology integration. We were incorporated in California in 1968 and reincorporated in Delaware in 1989.
Company Strategy
Our vision is if it is smart and connected, it is best with Intel. As a result, we offer complete and connected computing solutions, both hardware and software, and continue to drive "Moore’s Law." Over time, the number of devices connected to the Internet and to one another has grown from hundreds of millions to billions. This number continues to grow and the variety of devices also continues to increase. The combination of embedding computing into devices and connecting them to the Internet, known as the Internet of Things, as well as a build-out of the cloud infrastructure supporting these devices, is driving fundamental changes in the computing industry. As a result, we are transforming our primary focus from the design and manufacture of semiconductor chips for personal computers (PCs) and servers to the delivery of more complete platform solutions consisting of hardware and software platforms and supporting services. These solutions span the compute continuum, from high-performance computing systems running trillions of operations per second to embedded applications consuming milliwatts of power. Additionally, computing is becoming an increasingly mobile, personal, and ubiquitous experience. End users value smart devices that connect seamlessly and securely to the Internet and to each other. We enable this experience by innovating around energy-efficient performance, connectivity, and security.
To succeed in this changing computing environment, we have the following key objectives:
relentless pursuit of Moore's Law to maximize and extend our manufacturing technology leadership;
strive to ensure that Intel® technology is the best choice across the compute continuum, including PCs, data centers, ultra-mobile devices, and the Internet of Things;
expand platforms into adjacent market segments to bring compelling new System-on-Chip (SoC) solutions and user experiences to ultra-mobile form factors including tablets and smartphones, as well as PC platforms (including Ultrabook devices, 2 in 1 systems, and all-in-ones), data center applications, and the Internet of Things (including wearables, transportation systems, and retail devices);
increase the utilization of our investments in intellectual property and research and development (R&D) across all market segments;
be the platform of choice for any operating system;
expand data center, security, and big data analytics;
scale our manufacturing capabilities into foundry; and
strive to reduce the environmental footprint of our products and operations as well as be an asset to the communities we work in.


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We use our core assets to meet these objectives. We believe that applying our core assets to our key objectives provides us with the scale, capacity, and global reach to establish new technologies and respond to customers’ needs quickly. Our core assets and key objectives include the following:
Silicon and Manufacturing Technology Leadership. We have long been a leader in silicon process technology and manufacturing, and we aim to continue our lead through investment and innovation in this critical area. Moore's Law predicted that transistor density on integrated circuits would double about every two years. We continue executing to Moore’s Law by enabling new devices with higher functionality and complexity while controlling power, cost, and size. In keeping with Moore's Law, we drive a regular and predictable upgrade cycle—introducing a new microarchitecture approximately every two to three years and ramping the next generation of silicon process technology in the intervening periods. We refer to this as our "tick-tock" technology development cadence. Through this cycle, we continue to push progress by designing and putting transistor innovations into high-volume production. We aim to have the best process technology, and unlike many semiconductor companies, we primarily manufacture our products in our own facilities. This in-house manufacturing capability enables us to optimize performance, shorten our time to market, and scale new products more rapidly. We believe this competitive advantage will be extended in the future as the costs to build leading-edge fabrication facilities increase, and as fewer semiconductor companies will be able to combine platform design and manufacturing.
Architecture and Platforms. We are developing a wide range of solutions for devices that span the compute continuum and allow for computing experiences in notebooks, desktops, servers, tablets, smartphones, and the Internet of Things. We believe that users want consistent computing experiences and interoperable devices and that users and developers value consistency of architecture. This provides a common framework that results in shortened time-to-market, increased innovation, and the ability to leverage technologies across multiple form factors. We believe that we can meet the needs of users and developers to offer complete solutions across the compute continuum through our partnership with the industry on open, standards-based platform innovation around Intel® architecture. We continue to invest in improving Intel architecture to deliver increased value to our customers and expand the capabilities of the architecture in adjacent market segments. For example, we focus on delivering improved energy-efficient performance, which involves balancing higher performance with the lowest power. In addition, we are focusing on perceptual computing, which brings exciting experiences through devices that sense, perceive, and interact with the user’s actions.
Software and Services. We offer software and services that provide solutions through a combination of hardware and software for consumer and corporate environments. Additionally, we seek to enable and advance the computing ecosystem by providing development tools and support to help software developers create software applications that take advantage of our platforms. We seek to expedite growth in various market segments, such as the embedded market segment and big data analytics, through our software offerings. We continue to collaborate with companies to develop software platforms that are optimized for Intel® processors, support multiple hardware architectures, and operating systems.
Security. Through our expertise in hardware and software, we are able to embed security into many facets of computing and offer proactive solutions and services to help secure the world’s most critical systems and networks. We protect consumers and businesses of all sizes, and bring unique hardware, software, and end-to-end security solutions to the market to help enable increased protection against ever-evolving security risks.
Customer Orientation. We focus on providing compelling user experiences by developing our next generation of products based on customer needs and expectations. In turn, our products help enable the design and development of new user experiences, form factors, and usage models for businesses and consumers. For example, we enhance the customer computing experience by providing Intel® RealSense technology, wireless charging, and password elimination. We offer platforms that incorporate various components and capabilities designed and configured to work together to provide an optimized solution that customers can easily integrate into their end products. Additionally, we promote industry standards that we believe will yield innovation and improved technologies for users.

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Strategic Investments. We make investments in companies around the world that we believe will further our vision, mission, and strategic objectives: support our key business initiatives: and generate financial returns. Our investments—including those made through Intel Capital—generally focus on companies and initiatives that we believe will stimulate growth in the digital economy, create new business opportunities for Intel, and expand global markets for our products. In 2014, we completed an investment in Cloudera, Inc. (Cloudera) to bring big data analytics into the mainstream through the joining of Cloudera's software platform and our data center architecture based on Intel® Xeon® processors. Additionally, we plan to continue to purchase and license intellectual property to support our current and expanding business.
Corporate Stewardship. We are committed to developing energy-efficient technology solutions that can be used to address major global problems while reducing our environmental impact. We have led the industry in the journey to produce products that are free of conflict minerals, and have made our learnings from this journey open to others in the industry. We also believe that creating a fully diverse and inclusive workplace is fundamental to how we deliver business results. To this end in January 2015, our Chief Executive Officer, Brian Krzanich, announced the Diversity in Technology initiative and a goal to achieve full representation of women and under-represented minorities at Intel by 2020. We are also committed to empowering people and expanding economic opportunity through education and technology, driven by our corporate and Intel Foundation programs, policy leadership, and collaborative engagements. In addition, we strive to cultivate a work environment in which engaged, energized employees can thrive in their jobs and in their communities.
Our continued investment in developing our assets and execution in key objectives are intended to help strengthen our competitive position as we enter and expand into adjacent market segments, such as tablets, smartphones, and the Internet of Things. These market segments change rapidly, and we need to adapt to new environments. A key characteristic of these adjacent market segments is low-power consumption based on SoC products. We are making significant investments in this area with the accelerated development of our SoC solutions based on the 64-bit Intel® Atommicroarchitecture and Intel® Quarktechnology. We are also optimizing our server products for energy-efficient performance, as we believe that increased Internet traffic and the use of ultra-mobile devices, the Internet of Things, and data center applications have created the need for improved data center infrastructure and energy efficiency.

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Business Organization
In Q1 2014, we made certain changes to our organizational structure to align with our critical objectives. As of December 27, 2014, we managed our business through the following operating segments:
For a description of our operating segments, see "Note 26: Operating Segments and Geographic Information" in Part II, Item 8 of this Form 10-K.
Products
Platforms
We offer platforms that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multichip package. A platform may be enhanced by additional hardware, software, and services.
A microprocessor—the central processing unit (CPU) of a computer system—processes system data and controls other devices in the system. We offer microprocessors with one or multiple processor cores. Multi-core microprocessors can enable improved multitasking and energy-efficient performance by distributing computing tasks across two or more cores. In addition, our Intel® Core processor families integrate graphics functionality onto the processor die.
A chipset sends data between the microprocessor and input, display, and storage devices, such as the keyboard, mouse, monitor, hard drive or solid-state drive, and optical disc drives. Chipsets extend the audio, video, and other capabilities of many systems and perform essential logic functions, such as balancing the performance of the system and removing bottlenecks.
We offer and continue to develop SoC products that integrate our CPUs with other system components, such as graphics, audio, imaging, communication and connectivity, and video, onto a single chip. SoC products are designed to reduce total cost of ownership, provide improved performance due to higher integration and the lowest power, and enable ultra-mobile form factors such as tablets, smartphones, Ultrabook devices, and 2 in 1 systems, as well as notebooks, desktops, data center products, and the Internet of Things.

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We offer a multichip package that integrates the chipset on one die with the CPU and graphics on another die, connected via a lower-power, on-package interface. Similar to an SoC, the multichip package can provide improved performance due to higher integration coupled with the lowest power consumption, which enables smaller form factors. In 2014, we introduced our 5th generation Intel Core processor, code-named "Broadwell."
We also offer features designed to improve our platform capabilities. For example, Intel® vPro technology is a solution for manageability, security, and business user experiences in the notebook, desktop, and 2 in 1 systems market segments. Intel vPro technology is designed to provide businesses with increased manageability, upgradeability, energy-efficient performance, and security while lowering the total cost of ownership. We also offer Intel® Iris technology, which provides enhanced integrated graphics for our 4th and 5th generation Intel Core processors. In 2014, we announced Intel RealSense technology, which includes software and depth cameras that enable more natural and intuitive interaction with personal computing devices.
We offer a range of platforms based upon the following microprocessors:

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McAfee, Inc.
McAfee, Inc. (McAfee) offers software and hardware products that provide security solutions designed to protect systems in consumer, mobile, and corporate environments from malicious virus attacks and loss of data. McAfee’s products include software solutions for end-point security, network and content security, risk and compliance, and consumer and mobile security and privacy.
Communication and Connectivity
Our communication and connectivity offerings for tablets, smartphones, and other connected devices include baseband processors, radio frequency transceivers, and power management integrated circuits. We also offer comprehensive smartphone, tablet, and Internet of Things solutions, which include multimode Long Term Evolution (LTE*) modems, Bluetooth® and Global Positioning System (GPS) receivers, software solutions, customization, and essential interoperability tests.
Non-Volatile Memory Solutions
We offer NAND flash memory products primarily used in solid-state drives. Our NAND flash memory products are manufactured by IM Flash Technologies, LLC (IMFT) and Micron Technology, Inc. (Micron).
Intel Custom Foundry
We offer manufacturing technologies and design services for our customers. Our foundry offerings include full custom silicon, packaging, and manufacturing test services. We also provide semi-custom services to tailor Intel architecture-based solutions with customers' intellectual property blocks. To enable our customers to use our custom foundry services, we offer industry-standard design kits, intellectual property blocks, and design services.
Products and Product Strategy by Operating Segment
Our PC Client Group operating segment offers products that are incorporated in notebook (including Ultrabook devices), 2 in 1 systems, and desktop computers for consumers and businesses. In 2014, we introduced the 5th generation Intel Core processor family for use in 2 in 1 systems, and we will soon release the 5th generation Intel Core processors for other notebooks. These processors use 14-nanometer (nm) transistors and our Tri-Gate transistor technology. Our Tri-Gate transistor technology extends Moore’s Law by providing improved performance and energy efficiency. In combination, these enhancements can provide significant power savings and performance gains when compared to previous-generation technologies.
Notebook
Our strategy for the notebook computing market segment is to offer notebook technologies designed to bring exciting new user experiences to life and improve performance, battery life, wireless connectivity, manageability, and security. In addition, we are designing for innovative smaller, lighter, and thinner form factors. We believe that our 5th generation Intel Core processors will continue to deliver increasing levels of performance, graphics, and energy efficiency, and will provide our customers and end users with multiple choices in operating system compatibility, processor cores, graphic performance, and battery life.
We have worked to help our customers develop a new class of personal computing devices that includes Ultrabook devices and 2 in 1 systems. These computers combine the energy-efficient performance and capabilities of today’s notebooks and tablets with enhanced graphics and improved user interfaces such as touch and voice in a thin, light form factor that is highly responsive and secure, and that can seamlessly connect to the Internet. In 2014, we introduced the Intel® Core M processor, our first commercially available 14nm processor designed to enable responsive performance and improved battery life for new tablet-thin, fanless devices. We believe the renewed innovation in the PC industry that we fostered with Ultrabook devices and expanded to 2 in 1 systems will continue.
Desktop
Our strategy for the desktop computing market segment is to offer exciting new user experiences and products that provide increased manageability, security, and energy-efficient performance. We are also focused on lowering the total cost of ownership for businesses. The desktop computing market segment includes all-in-one desktop products, which combine traditionally separate desktop components into one form factor. Additionally, all-in-one computers have transformed into portable and flexible form factors that offer users increased portability and new multi-user applications and uses. For desktop consumers, we also focus on the design of products for high-end enthusiast PCs and mainstream PCs with rapidly increasing audio and media capabilities.

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Our Data Center Group operating segment offers products designed to provide leading energy-efficient performance for all server, network, and storage platforms. In addition, the Data Center Group (DCG) focuses on lowering the total cost of ownership and on other specific optimizations for the enterprise, cloud, communications infrastructure, and technical computing segments. In 2014, we launched our next-generation Intel Xeon processor E5 family platform for our 22nm process technology. The 22nm Intel Xeon processors provide improved performance and better power consumption across server, network, and storage platforms. We also launched our next-generation Intel Xeon processor E7 family. These products are targeted at platforms requiring four or more CPUs and industry leading reliability, availability, and serviceability. DCG is continuing to ramp the Intel® Xeon Phi coprocessor with 60 or more high-performance, low-power Intel processor cores. The Intel Xeon Phi coprocessors are positioned to boost the power of the world’s most advanced supercomputers, enabling trillions of calculations per second. 
Our Internet of Things Group operating segment offers platforms for customers to design products for the retail, transportation, industrial, and buildings and home market segments. In addition, the Internet of Things Group (IOTG) focuses on establishing an end-to-end secure and manageable architecture that captures actionable information for consumers. In 2014, we shipped our first Intel Quark SoC 32-bit microprocessor. We also launched the Intel® Edison development platform, which is designed to empower the next generation of wearables, robotics, and other small devices connecting, creating, and consuming data.
Our Mobile and Communications Group operating segment offers products that incorporate hardware, software, and connectivity for tablets, smartphones, and other mobile devices. In addition, our Mobile and Communications Group (MCG) focuses on a broad range of wireless connectivity options by combining Intel® WiFi technology with our 2G and 3G technologies, and creating a path to accelerate industry adoption of 4G LTE. In 2014, we began selling our second-generation LTE solution, featuring CAT6 and carrier aggregation. In addition, MCG developed the first Intel Atom SoC application processor integrated with leading global 3G modem, code-named "SoFIA." SoFIA is designed for the entry and value mobile devices market segment.
Our software and services operating segments seek to create differentiated user experiences on Intel®-based platforms. We differentiate by combining Intel platform features and enhanced software and services. Our three primary initiatives are:
enabling platforms that can be used across multiple operating systems, applications, and services across all Intel products;
optimizing features and performance by enabling the software ecosystem to quickly take advantage of new platform features and capabilities; and
enable a more secure online experience by using software, services, and hardware to deliver comprehensive solutions, such as our McAfee LiveSafe* service, which provides a comprehensive security suite that offers consumer protection across a range of devices such as PCs, tablets, and smartphones.

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Revenue by Major Operating Segment
Net revenue for the PC Client Group (PCCG) operating segment, the Data Center Group (DCG) operating segment, the Internet of Things Group (IOTG) operating segment, the Mobile and Communications Group (MCG) operating segment, and the aggregated software and services (SSG) operating segments is presented as a percentage of our consolidated net revenue. SSG includes McAfee and the Software and Services Group operating segment. The "all other" category consists primarily of revenue from the Non-Volatile Memory Solutions Group, the Netbook Group, and the New Devices Group operating segments.
Percentage of Revenue by Major Operating Segment
(Dollars in Millions)

Percentage of Revenue by Principal Product from Reportable Segments*
(Dollars in Millions)
*Note images are not to scale

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Competition
The computing industry continuously evolves with new and enhanced technologies and products from existing and new providers. The marketplace can change quickly in response to the introduction of such technologies and products and other factors such as changes in customer and end-user requirements, expectations, and preferences. As technologies evolve and new market segments emerge, the boundaries between the market segments that we compete in are also subject to change.
Intel faces significant competition in the development and market acceptance of our products in this environment. Our platforms, based on Intel architecture, are positioned to compete across the compute continuum, from the lowest power and ultra-mobile devices to the most powerful data center servers. Our platforms, which have integrated hardware and software, offer customers benefits such as ease of use, savings in total cost of ownership, and the ability to scale systems to accommodate increased usage.
Competitors
We compete against other companies that make and sell platforms, other silicon components, and software to businesses that build and sell computing and communications devices to end users. Our competitors also include companies that sell goods and services to businesses that utilize them for their internal and/or customer-facing processes (e.g., businesses running large data centers). In addition, we face competition from OEMs, ODMs, and other industrial and communications equipment manufacturers that, to some degree, choose to vertically integrate their own proprietary semiconductor and software assets. By doing so, these competitors may be attempting to offer greater differentiation in their products and to increase their share of the profits for each finished product they sell. Continuing changes in industry participants through, for example, acquisitions or business collaborations could also have a significant impact on our competitive position.
We are a leading provider in the PC and data center segments, where we face existing and emerging competition. In the PC market segment, ultra-mobile devices—such as tablets and smartphones offered by numerous vendors— have become significant competitors to PCs for many usages. Most of these small devices currently use applications processors based on the ARM* architecture; feature low-power, long battery-life operation; and are built in SoC formats that integrate numerous functions on one chip.
In the data center segment, our data center platforms face emerging competition from companies using ARM architecture or other technologies. Internet cloud computing and high-performance computing are areas of significant targeted growth for us in the data center segment, and we face strong competition in these market segments.
We are a relatively new entrant to the segments for tablets, smartphones, and similar ultra-mobile devices. We have adjusted our product roadmaps to emphasize the development of low-power SoC chips for such devices, as well the Internet of Things.
In the Internet of Things market segment, we have a long-standing position as a supplier of components and software for embedded products, and this marketplace is significantly expanding with increasing types and numbers of smart and connected devices for industrial, commercial, and consumer uses. In this growing market segment, we face numerous large and small incumbent competitors as well as new entrants that use ARM architecture and other operating systems and software.
McAfee is a major provider of digital security products and services to businesses and consumers. Numerous competitors offer security products and services, and we seek to offer competitive differentiation by integrating hardware and software security features in many of our offerings and to have security offerings in numerous market segments, including mobile and embedded devices and for data centers.
Our products primarily compete based on performance, energy efficiency, integration, innovative design, features, price, quality, reliability, brand recognition, and availability. The importance of these factors will vary by the type of end system for the products. For example, performance might be among the most important factors for our products for data center servers, while price and integration might be among the most important factors for our products for tablets, smartphones, and other mobile devices.

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Competitive Advantages
Our products' ability to operate on multiple operating systems in end-user products and platforms operated or sold by third parties, including OEMs, is a key competitive advantage. We seek to optimize our products for multiple operating systems and invest substantial resources working with third parties to do so, but such investments are risky given that it is not clear which products will succeed in the market.
Another key competitive advantage is our market lead in transitioning to the next-generation process technology and bringing products to market using such technology. We have products in the market manufactured using our 14nm process technology and are currently working on the development of our next-generation 10nm process technology. We believe that these transitions will offer significant improvements in one or more of the following areas: performance, new features, energy efficiency, and cost.
Moreover, the combination of our network of manufacturing and assembly and test facilities with our global architecture design teams is another important competitive advantage. We have made significant capital and R&D investments into this integrated manufacturing network, which enables us to have more direct control over our processes, quality control, product cost, production timing, performance, power consumption, and manufacturing yield. The increased cost of constructing new fabrication facilities supporting smaller transistor geometries and larger wafers has led to a smaller pool of companies that can afford to build and equip leading-edge manufacturing facilities. Most of our competitors rely on third-party foundries and subcontractors such as Taiwan Semiconductor Manufacturing Company, Ltd. and GlobalFoundries Inc. for manufacturing and assembly and test needs. We provide foundry services as an alternative to such foundries.
Manufacturing and Assembly and Test
As of December 27, 2014, 70% of our wafer fabrication, including microprocessors and chipsets, was conducted within the U.S. at our facilities in Arizona, New Mexico, Oregon, and Massachusetts. Our Massachusetts fabrication facility is our last manufacturing facility on 200 millimeter (mm) wafers and is expected to cease production in Q1 2015. The remaining 30% of our wafer fabrication was conducted outside the U.S. at our facilities in Israel and China. Our fabrication facility in Ireland is currently transitioning to our 14nm process technology, with manufacturing expected to ramp in the second half of 2015. Wafer fabrication conducted within and outside the U.S. may be impacted by the timing of a facility’s transition to a newer process technology, as well as a facility’s capacity utilization.
As of December 27, 2014, we manufactured our products in wafer fabrication facilities at the following locations:
Products
 
Wafer Size
 
Process Technology
 
Locations
Microprocessors
 
300mm
 
14nm
 
Arizona, Oregon
Microprocessors
 
300mm
 
22nm
 
Israel, Arizona, Oregon
Microprocessors and chipsets
 
300mm
 
32nm
 
New Mexico
Microprocessors
 
300mm
 
45nm
 
New Mexico
Chipsets
 
300mm
 
65nm
 
China
Chipsets and other products
 
300mm
 
90nm
 
China
Chipsets
 
200mm
 
130nm
 
Massachusetts
As of December 27, 2014, a substantial majority of our microprocessors were manufactured on 300mm wafers using our 14nm, 22nm, and 32nm process technology. As we move to each succeeding generation of manufacturing process technology, we incur significant start-up costs to prepare each factory for manufacturing. However, continuing to advance our process technology provides benefits that we believe justify these costs. The benefits of moving to each succeeding generation of manufacturing process technology can include using less space per transistor, reducing heat output from each transistor, and increasing the number of integrated features on each chip. These advancements can result in new devices with higher functionality and complexity while controlling power, cost, and size. In addition, with each shift to a new process technology, we are able to produce more microprocessors per square foot of our wafer fabrication facilities. The costs to develop our process technology are significantly less than adding capacity by building additional wafer fabrication facilities using older process technology.

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We use third-party foundries to manufacture wafers for certain components, including communication and connectivity products. In 2014, we qualified our first SoC application processor and baseband 3G solution, code-named "SoFIA," which will be fabricated by a third-party foundry. In addition, we primarily use subcontractors to manufacture board-level products and systems. We purchase certain communication and connectivity products from external vendors primarily in the Asia-Pacific region.
Following the manufacturing process, the majority of our components are subject to assembly and test. We perform our components assembly and test at facilities in Malaysia, China, and Vietnam. Our assembly and test facility in Costa Rica ceased production in Q4 2014. To augment capacity, we use subcontractors to perform assembly and test of certain products, primarily chipsets and communication and connectivity products.
Our NAND flash memory products are manufactured by IMFT and Micron using 20nm or 25nm process technology, and assembly and test of these products is performed by Micron and other external subcontractors. For further information, see "Note 5: Cash and Investments" in Part II, Item 8 of this Form 10-K.
Our employment and operating practices are consistent with, and we expect our suppliers and subcontractors to abide by, local country law. Intel expects all suppliers to comply with our Code of Conduct and the Electronic Industry Citizenship Coalition (EICC) Code of Conduct, both of which set standards that address the rights of workers to safe and healthy working conditions, environmental responsibility, compliance with privacy and data security obligations, and compliance with applicable laws.
We have thousands of suppliers, including subcontractors, providing our various materials, equipment, and service needs. We set expectations for supplier performance and reinforce those expectations with periodic assessments and audits. We communicate those expectations to our suppliers regularly and work with them to implement improvements when necessary. Where possible, we seek to have several sources of supply for all of these materials and resources, but 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 reduce the exposure that would result from a disruption in supply. We have entered into long-term contracts with certain suppliers to help ensure a stable supply of silicon and semiconductor manufacturing tools.
Our products are typically manufactured at multiple Intel facilities around the world or by subcontractors. However, some products are manufactured in only one Intel or subcontractor facility, and we seek to implement action plans to reduce the exposure that would result from a disruption at any such facility. See "Risk Factors" in Part I, Item 1A of this Form 10-K.

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Research and Development
We are committed to investing in world-class technology development, particularly in the design and manufacture of integrated circuits. R&D expenditures were $11.5 billion in 2014 ($10.6 billion in 2013 and $10.1 billion in 2012).
Our R&D activities are directed toward the delivery of solutions consisting of hardware and software platforms and supporting services across a wide range of computing devices. We are focused on developing the technology innovations that we believe will deliver our next generation of products, which will in turn enable new form factors and usage models for businesses and consumers. We focus our R&D efforts on advanced computing technologies, developing new microarchitectures, advancing our silicon manufacturing process technology, delivering the next generation of platforms, improving our platform initiatives, developing new solutions in emerging technologies including memory and the Internet of Things, as well as developing software solutions and tools. Our R&D efforts are intended to enable new levels of performance and address areas such as energy efficiency, system-level integration, security, scalability for multi-core architectures, system manageability, and ease of use.
As part of our R&D efforts, we plan to introduce a new Intel Core microarchitecture for desktops, notebooks (including Ultrabook devices and 2 in 1 systems), and Intel Xeon processors approximately every two to three years and ramping the next generation of silicon process technology in the intervening periods. We refer to this as our "tick-tock" technology development cadence, as illustrated below.
Advances in our silicon technology have enabled us to continue making Moore’s Law a reality. In 2014, we began manufacturing our 5th generation Intel Core processor family using our 14nm process technology. We are currently developing our next-generation Intel® microarchitecture, code-named "Skylake," using our 14nm process technology, which we expect to release in the second half of 2015. We are also developing 10nm manufacturing process technology, our next-generation process technology.
We have continued expanding on the advances anticipated by Moore’s Law by bringing new capabilities into silicon and producing new products optimized for a wider variety of applications. We have accelerated the Intel Atom processor-based SoC roadmap for ultra-mobile form factors, including tablets and smartphones, as well as notebooks (including Ultrabook devices and 2 in 1 systems), the Internet of Things, and data center applications, from 32nm through 22nm to 14nm. Our Intel Atom processors for ultra-mobile form factors and the Internet of Things are transitioning to the same process technology as our leading-edge products. We expect that this acceleration will result in a significant reduction in transistor leakage, lower active power, and an increase in transistor density to enable more powerful, feature-rich smartphones and tablets with a longer battery life. The Intel Quark SoC is an ultra-low-power and low-cost architecture designed for the Internet of Things, from industrial machines to wearable devices.
With our continued focus on silicon and manufacturing technology leadership, we entered into a series of agreements with ASML Holding N.V. (ASML) in 2012, certain of which were amended in 2014 to further define the commercial terms between the parties. These amended agreements, in which Intel agreed to provide R&D funding over five years, are intended to accelerate the development of extreme ultraviolet (EUV) lithography projects and deep ultraviolet immersion lithography projects, including generic developments applicable to both 300mm and 450mm.

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Our R&D activities range from designing and developing new products and manufacturing processes to researching future technologies and products. We continue to make significant R&D investments in the development of SoCs to enable growth in ultra-mobile form factors. In addition, we continue to make significant investments in communications and connectivity for tablets, smartphones, and other connected devices, including mutlimode LTE modems. Our investment in Cloudera, completed in 2014, is evidence of our drive to bring big data analytics to the mainstream market through the joining of Cloudera's software platform and our data center architecture based on Intel Xeon processors. We also continue to invest in leading-edge foundry platforms and ecosystem partner development, graphics, high-performance computing, and communication and connectivity.
Our R&D model is based on a global organization that emphasizes a collaborative approach to identifying and developing new technologies, leading standards initiatives, and influencing regulatory policies to accelerate the adoption of new technologies, including joint pathfinding conducted between researchers at Intel Labs and our business groups. We centrally manage key cross-business group product initiatives to align and prioritize our R&D activities across these groups. In addition, we may augment our R&D activities by investing in companies or entering into agreements with companies that have similar R&D focus areas, as well as directly purchasing or licensing technology applicable to our R&D initiatives. To drive innovation and gain efficiencies, we intend to utilize our investments in intellectual property and R&D across our market segments.
Employees
As of December 27, 2014, we had 106,700 employees worldwide, with approximately 51% of those employees located in the U.S.
Sales and Marketing
Customers
We sell our products primarily to OEMs and ODMs. ODMs provide design and manufacturing services to branded and unbranded private-label resellers. In addition, we sell our products to other manufacturers, including makers of a wide range of industrial and communications equipment. Our customers also include those who buy PC components and our other products through distributor, reseller, retail, and OEM channels throughout the world.
Our worldwide reseller sales channel consists of thousands of indirect customers—systems builders that purchase Intel® microprocessors and other products from our distributors. We have a program that allows distributors to sell our microprocessors and other products in small quantities to customers of systems builders; our microprocessors and other products are also available in direct retail outlets.
In 2014, Hewlett-Packard Company (HP) accounted for 18% of our net revenue (17% in 2013 and 18% in 2012), Dell Inc. (Dell) accounted for 16% of our net revenue (15% in 2013 and 14% in 2012), and Lenovo Group Limited (Lenovo) accounted for 12% of our net revenue (12% in 2013 and 11% in 2012). No other customer accounted for more than 10% of our net revenue during such periods. For information about net revenue and operating income by operating segment, and net revenue from unaffiliated customers by country, see "Note 26: Operating Segments and Geographic Information" in Part II, Item 8 of this Form 10-K.
Sales Arrangements
Our products are sold through sales offices throughout the world. Sales of our products are frequently made via purchase order acknowledgments that contain standard terms and conditions covering matters such as pricing, payment terms, and warranties, as well as indemnities for issues specific to our products, such as patent and copyright indemnities. From time to time, we may enter into additional agreements with customers covering, for example, changes from our standard terms and conditions, new product development and marketing, private-label branding, and other matters. Our sales are typically made using electronic and web-based processes that allow the customer to review inventory availability and track the progress of specific goods ordered. Pricing on particular products may vary based on volumes ordered and other factors. We also offer discounts, rebates, and other incentives to customers to increase acceptance of our products and technology.

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Our products are typically shipped under terms that transfer title to the customer, even in arrangements for which the recognition of revenue and related cost of sales is deferred. Our standard terms and conditions of sale typically provide that payment is due at a later date, generally 30 days after shipment or delivery. We assess credit risk through quantitative and qualitative analysis. From this analysis, we establish shipping and credit limits, and determine whether we will seek to use one or more credit support devices, such as obtaining a parent guarantee, standby letter of credit, or credit insurance. Credit losses may still be incurred due to bankruptcy, fraud, or other failure of the customer to pay. For information about our allowance for doubtful receivables, see "Schedule II—Valuation and Qualifying Accounts" in Part IV of this Form 10-K.
Our sales to distributors are typically made under agreements allowing for price protection on unsold merchandise and a right of return on stipulated quantities of unsold merchandise. Under the price protection program, we give distributors credits for the difference between the original price paid and the current price that we offer. Our products typically have no contractual limit on the amount of price protection, nor is there a limit on the time horizon under which price protection is granted. The right of return granted generally consists of a stock rotation program in which distributors are able to exchange certain products based on the number of qualified purchases made by the distributor. We have the option to grant credit for, repair, or replace defective products, and there is no contractual limit on the amount of credit that may be granted to a distributor for defective products.
Distribution
Distributors typically handle a wide variety of products, including those that compete with our products, and fill orders for many customers. Customers may place orders directly with us or through distributors. We have several distribution warehouses that are located in proximity to key customers.
Backlog
Over time, our larger customers have generally moved to lean-inventory or just-in-time operations rather than maintaining larger inventories of our products. As our customers continue to lower their inventories, our processes to fulfill their orders have evolved to meet their needs. As a result, our manufacturing production is based on estimates and advance non-binding commitments from customers as to future purchases. Our order backlog as of any particular date is a mix of these commitments and specific firm orders that are primarily made pursuant to standard purchase orders for delivery of products. Only a small portion of our orders are non-cancelable, and the dollar amount associated with the non-cancelable portion is not significant.
Seasonal Trends
Historically, our net revenue has typically been higher in the second half of the year than in the first half of the year, accelerating in the third quarter and peaking in the fourth quarter.
Marketing
Our global marketing objectives are to build a strong, well-known Intel corporate brand that connects with businesses and consumers, and to offer a limited number of meaningful and valuable brands in our portfolio to aid businesses and consumers in making informed choices about technology purchases. The Intel Core processor family and the Intel Quark, Intel Atom, Intel® Celeron®, Intel® Pentium®, Intel Xeon, Intel Xeon Phi, and Intel® Itanium® trademarks make up our processor brands.
We promote brand awareness and preference, and generate demand through our own direct marketing as well as through co-marketing programs. Our direct marketing activities primarily include advertising through digital and social media and television, as well as consumer and trade events, industry and consumer communications, and press relations. We market to consumer and business audiences, and focus on building awareness and generating demand for new form factors such as tablets, Ultrabook devices, and 2 in 1 systems powered by Intel. Our key messaging focuses on increased performance, improved energy efficiency, and other capabilities such as connectivity, communications, and security.

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Purchases by customers often allow them to participate in cooperative advertising and marketing programs such as the Intel Inside® Program. This program broadens the reach of our brands beyond the scope of our own direct marketing. Through the Intel Inside Program, certain customers are licensed to place Intel logos on computing devices containing our microprocessors and processor technologies, and to use our brands in their marketing activities. The program includes a market development component that accrues funds based on purchases and partially reimburses customers for marketing activities for products featuring Intel brands, subject to customers meeting defined criteria. These marketing activities primarily include advertising through digital and social media and television, as well as press relations. We have also entered into joint marketing arrangements with certain customers.
Intellectual Property Rights and Licensing
Intel owns significant intellectual property (IP) and related IP rights around the world that relate to our products, services, R&D, and other activities and assets. Our IP portfolio includes patents, copyrights, trade secrets, trademarks, trade dress rights, and maskwork rights. We actively seek to protect our global IP rights and to deter unauthorized use of our IP and other assets. Such efforts can be difficult, however, particularly in countries that provide less protection to IP rights and in the absence of harmonized international IP standards. While our IP rights are important to our success, our business as a whole is not significantly dependent on any single patent, copyright, or other IP right. See "Risk Factors" in Part I, Item 1A, and "Note 25: Contingencies" in Part II, Item 8 of this Form 10-K.
We have obtained patents in the U.S. and other countries. Because of the fast pace of innovation and product development, and the comparative pace of governments’ patenting processes, our products are often obsolete before the patents related to them expire; in some cases, our products may be obsolete before the patents related to them are granted. As we expand our products into new industries, we also seek to extend our patent development efforts to patent such products. In addition to developing patents based on our own R&D efforts, we purchase patents from third parties to supplement our patent portfolio. Established competitors in existing and new industries, as well as companies that purchase and enforce patents and other IP, may already have patents covering similar products. There is no assurance that we will be able to obtain patents covering our own products, or that we will be able to obtain licenses from other companies on favorable terms or at all.
The software that we distribute, including software embedded in our component-level and platform products, is entitled to copyright and other IP protection. To distinguish our products from our competitors’ products, we have obtained trademarks and trade names for our products, and we maintain cooperative advertising programs with customers to promote our brands and to identify products containing genuine Intel components. We also protect details about our processes, products, and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage.
Compliance with Environmental, Health, and Safety Regulations
Our compliance efforts focus on monitoring regulatory and resource trends and setting company-wide performance targets for key resources and emissions. These targets address several parameters, including product design; chemical, energy, and water use; waste recycling; the source of certain minerals used in our products; climate change; and emissions.
As a company, we focus on reducing natural resource use, the solid and chemical waste by-products of our manufacturing processes, and the environmental impact of our products. We currently use a variety of materials in our manufacturing process that have the potential to adversely impact the environment and are subject to a variety of environmental, health, and safety (EHS) laws and regulations. Over the past several years, we have significantly reduced the use of lead and halogenated flame retardants in our products and manufacturing processes.
We work with the U.S. Environmental Protection Agency (EPA), non-governmental organizations (NGOs), OEMs, and retailers to help manage e-waste (including electronic products nearing the end of their useful lives) and to promote recycling. The European Union requires producers of certain electrical and electronic equipment to develop programs that let consumers return products for recycling. Many U.S. states and countries in Latin America and Asia also have or are developing similar e-waste take-back laws. Although these laws are typically targeted at the end electronic product and not the component products that we manufacture, the inconsistency of many e-waste take-back laws and the lack of local e-waste management options in many areas pose a challenge for our compliance efforts.

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We are an industry leader in our efforts to build ethical sourcing of minerals for our products, including "conflict minerals" from the Democratic Republic of the Congo (DRC) and adjoining countries. In 2013, we accomplished our goal to manufacture microprocessors that are DRC conflict-free for tantalum, tin, tungsten, and gold. We continue our work to establish DRC conflict-free supply chains for our company and our industry, and have set a new goal that all products currently on our roadmap for 2016 and beyond will be DRC conflict-free for these four minerals.
We seek to reduce our global greenhouse gas emissions by investing in energy conservation projects in our factories and working with suppliers to improve energy efficiency. We take a holistic approach to power management, addressing the challenge at the silicon, package, circuit, microarchitecture, macroarchitecture, platform, and software levels. We recognize that climate change may cause general economic risk. For further information on the risks of climate change, see "Risk Factors" in Part I, Item 1A of this Form 10-K. We see a potential for higher energy costs driven by climate change regulations. This could include items applied to utility companies that are passed along to customers, such as carbon taxes or costs associated with obtaining permits for our manufacturing operations, emission cap and trade programs, or renewable portfolio standards.
We are committed to sustainability and take a leadership position in promoting voluntary environmental initiatives and working proactively with governments, environmental groups, and industry to promote global environmental sustainability. We believe that technology will be fundamental to finding solutions to the world’s environmental challenges, and we are joining forces with industry, business, and governments to find and promote ways that technology can be used as a tool to combat climate change.
We have been purchasing renewable energy at some of our major sites for several years. We purchase renewable energy certificates under a multi-year contract. This purchase has placed Intel at the top of the EPA’s Green Power Partnership for the past seven years and is intended to help stimulate the market for green power, leading to additional generating capacity and, ultimately, lower costs.
Distribution of Company Information
Our Internet address is www.intel.com. We publish voluntary reports on our website that outline our performance with respect to corporate responsibility, including EHS compliance.
We use our Investor Relations website, www.intc.com, as a routine channel for distribution of important information, including news releases, analyst presentations, and financial information. We post filings on our website the same day they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC), including our annual and quarterly reports on Forms 10-K and 10-Q and current reports on Form 8-K; our proxy statements; and any amendments to those reports or statements. We post our quarterly and annual earnings results on our Investor Relations website, www.intc.com/results.cfm, and do not distribute our financial results via a news wire service. All such postings and filings are available on our Investor Relations website free of charge. In addition, our Investor Relations website allows interested persons to sign up to automatically receive e-mail alerts when we post news releases and financial information. The SEC’s website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Form 10-K is not incorporated by reference in this Form 10-K unless expressly noted.

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Executive Officers of the Registrant
The following sets forth certain information with regard to our executive officers as of February 13, 2015 (ages are as of December 27, 2014):
Andy D. Bryant, age 64
 
Brian M. Krzanich, age 54
 2012 – present,
 
Chairman of the Board
 
 2013 – present,
 
Chief Executive Officer
 2011 – 2012,
 
Vice Chairman of the Board, Executive VP, Technology, Manufacturing and Enterprise Services, Chief Administrative Officer
 
 2012 – 2013,
 
Executive VP, Chief Operating Officer
 
 
 
 2010 – 2012,
 
Senior VP, GM, Manufacturing and Supply Chain
 
 
 
 
 
 2009 – 2011,
 
Executive VP, Technology, Manufacturing, and Enterprise Services, Chief Administrative Officer
 
 2006 – 2010,
 
VP, GM, Assembly and Test
 
 
 
 Joined Intel in 1982
 
 
 
 
 2007 – 2009,
 
Executive VP, Finance and Enterprise Services, Chief Administrative Officer
 
Gregory R. Pearson, age 54
 
 
 
 2014 - present,
 
Senior VP, GM, Sales and Marketing Group
 2001 – 2007,
 
Executive VP, Chief Financial and Enterprise Services Officer
 
 
 
 
 
 
2008 - 2013,
 
GM, Worldwide Sales and Operations Group
 Member of Intel Corporation Board of Directors
 
 
 
 Member of Columbia Sportswear Company Board of Directors
 
 Joined Intel in 1983
 
 
 Member of McKesson Corporation Board of Directors
 
Stacy J. Smith, age 52
 Joined Intel in 1981
 
 2012 – present,
 
Executive VP, Chief Financial Officer
 
 
 2010 – 2012,
 
Senior VP, Chief Financial Officer
William M. Holt, age 62
 
 2007 – 2010,
 
VP, Chief Financial Officer
 2013 – present,
 
Executive VP, GM, Technology and Manufacturing Group
 
 2006 – 2007,
 
VP, Assistant Chief Financial Officer
 
 
 
 2004 – 2006,
 
VP, Finance and Enterprise Services, Chief Information Officer
 2006 – 2013,
 
Senior VP, GM, Technology and Manufacturing Group
 
 
 
 
 
 
 Member of Autodesk, Inc. Board of Directors
 2005 – 2006,
 
VP, Co-GM, Technology and Manufacturing Group
 
 Member of Gevo, Inc. Board of Directors
 
 
 
 Member of Virgin America, Inc. Board of Directors
 Joined Intel in 1974
 
 Joined Intel in 1988
 
 
 
Renee J. James, age 50
 
 
 2013 – present,
 
President
 
 
 2012 – 2013,
 
Executive VP, GM, Software and Services Group
 
 
 
 
 
 
 2005 – 2012,
 
Senior VP, GM, Software and Services Group
 
 
 
 
 
 
 2002 – 2005,
 
VP, Developer Programs
 
 
 Member of Vodafone Group plc Board of Directors
 
 
 Joined Intel in 1988
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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ITEM 1A.
RISK FACTORS
The following risks could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. You should also refer to the other information set forth in this Annual Report, including "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes.
Changes in product demand can harm our results of operation and financial condition.
Demand for our products is variable and hard to predict.
Changes in the demand for our products may reduce our revenue, increase our costs, lower our gross margin percentage, or require us to write down the value of our assets. Important factors that could lead to variation in the demand for our products include changes in:
business conditions, including downturns in the computing industry, or in the global or regional economies;
consumer confidence or income levels caused by changes in market conditions, including changes in government borrowing, taxation, or spending policies; the credit market; or expected inflation, employment, and energy or other commodity prices;
the level of our customers’ inventories;
competitive and pricing pressures, including actions taken by competitors;
customer product needs;
market acceptance of our products and maturing product cycles; and
the technology supply chain, including supply constraints caused by natural disasters or other events.
We face significant competition.
The industry in which we operate is highly competitive and subject to rapid technological and market developments, changes in industry standards, changes in customer needs, and frequent product introductions and improvements. If we do not anticipate and respond to these developments, our competitive position may weaken, and our products or technologies might be uncompetitive or obsolete. Over recent years, our business focus has expanded and now includes the design and production of platforms for tablets, smartphones, and other devices across the compute continuum, including products for the Internet of Things, and related services. As a result, we face new sources of competition, including, in certain of these market segments, from incumbent competitors with established customer bases and greater brand recognition. To be successful, we need to cultivate new industry relationships with customers and partners in these market segments. In addition, we must continually improve the cost, integration, and energy efficiency of our products as well as expand our software capabilities to provide customers with comprehensive computing solutions. Despite our ongoing efforts, there is no guarantee that we will achieve or maintain consumer and market acceptance for our products and services in these various market segments.
To compete successfully, we must maintain a successful R&D effort, develop new products and production processes, and improve our existing products and processes ahead of competitors. For example, we invest substantially in our network of manufacturing and assembly and test facilities, including the construction of new fabrication facilities to support smaller transistor geometries and larger wafers. Our R&D efforts are critical to our success and are aimed at solving complex problems, and we do not expect all of our projects to be successful. We may be unable to develop and market new products successfully, and the products we invest in and develop may not be well-received by customers. Our R&D investments may not generate significant operating income or contribute to our future operating results for several years, and such contributions may not meet our expectations or even cover the costs of such investments. Additionally, the products and technologies offered by others may affect demand for, or pricing of, our products.
If we are not able to compete effectively, our financial results will be adversely affected, including increased costs and reduced revenue and gross margin, and we may be required to accelerate the write-down of the value of certain assets.

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Changes in the mix of products sold may harm our financial results.
Prices differ widely among the platforms we offer in our various market segments due to differences in features offered or manufacturing costs. For example, product offerings range from lower-priced and entry-level platforms such as those based on Intel Quark or Intel Atom processors to higher-end platforms based on Intel Xeon and Intel Itanium processors. If there is a shift in demand from our higher-priced to lower-priced platforms in any of our market segments, our gross margin and revenue would decrease. In addition, when products are initially introduced, they tend to have higher costs because of initial development costs and lower production volumes relative to the previous product generation, which can impact gross margin.
We operate globally and are subject to significant risks in many jurisdictions.
Global or regional conditions may harm our financial results.
We have manufacturing, assembly and test, R&D, sales, and other operations in many countries, and some of our business activities may be concentrated in one or more geographic areas. Moreover, sales outside the U.S. accounted for approximately 82% of our revenue for the fiscal year ended December 27, 2014. As a result, our operations and our financial results, including our ability to manufacture, assemble and test, design, develop, or sell products, may be adversely affected by a number of factors outside of our control, including:
global and local economic conditions;
geopolitical and security issues, such as armed conflict and civil or military unrest, crime, political instability, and terrorist activity;
natural disasters, public health issues, and other catastrophic events;
inefficient infrastructure and other disruptions, such as supply chain interruptions and large-scale outages or unreliable provision of services from utilities, transportation, data hosting, or telecommunications providers;
government restrictions on, or nationalization of our operations in any country, or restrictions on our ability to repatriate earnings from a particular country;
differing employment practices and labor issues;
formal or informal imposition of new or revised export and/or import and doing-business regulations, which could be changed without notice;
ineffective legal protection of our IP rights in certain countries; and
local business and cultural factors that differ from our normal standards and practices. We are subject to laws and regulations worldwide affecting our operations in areas including, but not limited to, IP ownership and infringement, tax, import and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, employment, environment, health, and safety. Compliance with these laws and regulations may be onerous and expensive and such requirements may differ among jurisdictions.
Although we have policies, controls, and procedures designed to ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, and/or agents will not violate such laws or our policies. Violations of these laws and regulations could result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation.
We may be affected by fluctuations in currency exchange rates.
We are potentially exposed to adverse as well as beneficial movements in currency exchange rates. Although most of our sales occur in U.S. dollars, expenses may be paid in local currencies. An increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside the U.S. where we sell in dollars, and a weakened dollar could increase the cost of expenses such as payroll, utilities, tax, and marketing expenses, as well as overseas capital expenditures. We also conduct certain investing and financing activities in local currencies. Our hedging programs reduce, but do not eliminate, the impact of currency exchange rate movements; therefore, changes in exchange rates could harm our results of operations and financial condition.


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Catastrophic events or geopolitical conditions could have a material adverse effect on our operations and financial results.
Our operations or systems could be disrupted by natural disasters; geopolitical conditions; terrorist activity; public health issues; cybersecurity incidents; interruptions of service from utilities, transportation or telecommunications providers; or other catastrophic events. Such events could make it difficult or impossible to manufacture or deliver products to our customers, receive production materials from our suppliers, or perform critical functions, which could adversely affect our revenue and require significant recovery time and expenditures to resume operations. While we maintain business recovery plans that are intended to allow us to recover from natural disasters or other events that can be disruptive to our business, some of our systems are not fully redundant and we cannot be sure that our plans will fully protect us from all such disruptions.
We maintain a program of insurance coverage for a variety of property, casualty, and other risks. We place our insurance coverage with multiple carriers in numerous jurisdictions. However, one or more of our insurance providers may be unable or unwilling to pay a claim. The types and amounts of insurance we obtain vary depending on availability, cost, and decisions with respect to risk retention. The policies have deductibles and exclusions that result in us retaining a level of self-insurance. Losses not covered by insurance may be large, which could harm our results of operations and financial condition.
We operate our own fabrication facilities and, as a result, are vulnerable to manufacturing-related risks.
Due to the variability in demand for our products, we may be unable to timely respond to reduce costs when demand declines or to increase production when demand increases.
Our operations have high costs that are either fixed or difficult to reduce in the short term, including our costs related to manufacturing, such as facility construction and equipment, R&D, and the employment and training of a highly skilled workforce. If product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record excess capacity charges, which would lower our gross margin. Our manufacturing or assembly and test capacity could be underutilized, and we may be required to write down our long-lived assets, which would increase our expenses. Factory-planning decisions may shorten the useful lives of facilities and equipment and cause us to accelerate depreciation.
Conversely, if product demand increases, we may be unable to add capacity fast enough to meet market demand. Our revenue and gross margin can also be affected by the timing of our product introductions and related expenses, including marketing expenses.
We are subject to risks associated with the development and implementation of new manufacturing process technology.
We may not be successful or efficient in developing or implementing new production processes. Production of integrated circuits is a complex process. We are continually engaged in the transition from our existing process to the next-generation process technology. This consistent innovation involves significant expense and carries inherent risks, including difficulties in designing and developing next-generation process technologies, development and production timing delays, lower than anticipated manufacturing yields, and product defects and errata. Disruptions in the production process can also result from errors, defects in materials, interruption in our supply of materials or resources, and disruptions at our fabrication and assembly and test facilities due to accidents, maintenance issues, or unsafe working conditions—all of which could affect the timing of production ramps and yields. Production issues can lead to increased costs and may affect our ability to meet product demand, which could adversely impact our business and the results from operations.
We face supply chain risks.
We have thousands of suppliers providing materials that we use in production and other aspects of our business. Where possible, we seek to have several sources of supply for all of those materials. However, for certain materials, we may rely on a single or a limited number of suppliers, or upon suppliers in a single location. In addition, consolidation among suppliers could impact the nature, quality, availability, and pricing of the products and services available to us. The inability of suppliers to deliver adequate supplies of production materials or other supplies could disrupt our production processes or make it more difficult for us to implement our business strategy. Production could be disrupted by the unavailability of resources used in production, such as water, silicon, electricity, gases, and other materials. The unavailability or reduced availability of materials or resources may require us to reduce production or incur additional costs, which could harm our business and results of operations.

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We also rely on third-party providers to manufacture, assemble and test certain components or products, particularly for our networking, mobile and communications, and NAND flash memory businesses. If any of these third parties are unable to perform these services on a timely basis, we may encounter supply delays or disruptions that could adversely affect our financial results.
In addition, there are regulatory and other requirements, restrictions, and requests from various constituencies regarding sourcing practices and supplier conduct, with a trend toward expanding the scope of materials and locations where materials originate, regulating supplier behaviors, and increasing the required disclosures regarding such matters by public companies. Increased regulation and public pressure in this area would cause our compliance costs to increase and could negatively affect our reputation given that we use many materials in the manufacturing of our products and rely on many suppliers to provide these materials, but do not directly control their procurement or employment practices.
We are subject to the risks of product defects and errata.
Product defects and errata (deviations from published specifications) may result from problems in our product design or our manufacturing and assembly and test processes. Costs from defects and errata could include:
writing off some or all of the value of inventory;
recalling products that have been shipped;
providing product replacements or modifications; and
defending against resulting litigation.
These costs could be large and may increase expenses and lower gross margin, and result in delay or loss of revenue. Our reputation with customers or end users could be damaged as a result of product defects and errata, and product demand could be reduced. The announcement of product defects and errata could cause customers to purchase products from competitors as a result of possible shortages of our components or for other reasons. Any of these occurrences could harm our business and financial results.
We are subject to risks associated with environmental laws and regulations.
The manufacturing and assembly and test of our products require the use of hazardous materials that are subject to a broad array of EHS laws and regulations. Our failure to comply with these laws or regulations could result in:
regulatory penalties, fines, and legal liabilities;
suspension of production;
alteration of our fabrication and assembly and test processes;
reputational challenges; and
restrictions on our operations or sales.
Our failure to manage the use, transportation, emissions, discharge, storage, recycling, or disposal of hazardous materials could lead to increased costs or future liabilities. Our ability to grow or modify our manufacturing capability in the future may be impeded by environmental regulations, such as air quality and wastewater requirements. Environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify product designs, or incur other expenses. Many new materials that we are evaluating for use in our operations may be subject to regulation under environmental laws and regulations. These restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter manufacturing and assembly and test processes.
Climate change may also pose regulatory and environmental risks that could harm our results of operations and affect the way we conduct business. For example, climate change regulation could result in increased manufacturing costs associated with air pollution control requirements, and increased or new monitoring, recordkeeping, and reporting of greenhouse gas emissions. We also see the potential for higher energy costs driven by climate change regulations if, for example, utility companies pass on their costs to their customers. Furthermore, many of our operations are located in semi-arid regions that may become increasingly vulnerable to prolonged droughts due to climate change. Our fabrication facilities have significant water use and, while we recycle and reuse a portion of the water used, we may have difficulties obtaining sufficient water to fulfill our operational needs due the lack of available infrastructure. 

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We are subject to IP risks and risks associated with litigation and regulatory proceedings.
We may be unable to enforce or protect our IP rights.
We regard our patents, copyrights, trade secrets, and other IP rights as important to the success of our business. We rely on IP law as well as confidentiality and licensing agreements with our customers, employees, technology development partners, and others to protect our IP rights. Our ability to enforce these rights is subject to general litigation risks, as well as uncertainty as to the enforceability of our IP rights in various countries. When we seek to enforce our rights, we may be subject to claims that the IP rights are invalid, not enforceable, or licensed to the opposing party. Our assertion of IP rights may result in the other party seeking to assert claims against us, which could harm our business. Governments may adopt regulations—and governments or courts may render decisions—requiring compulsory licensing of IP rights, or governments may require products to meet standards that serve to favor local companies. Our inability to enforce our IP rights under any of these circumstances may harm our competitive position and business. In addition, the theft or unauthorized use or publication of our trade secrets and other confidential business information could harm our competitive position and reduce acceptance of our products; as a result, the value of our investment in R&D, product development, and marketing could be reduced.
Our licenses with other companies and participation in industry initiatives may allow competitors to use our patent rights.
Companies in our industry often bilaterally license patents between each other to settle disputes or as part of business agreements. Our competitors may have licenses to our patents, and under current case law, some of the licenses may exhaust our patent rights as to licensed product sales under some circumstances. Our participation in industry standards organizations or with other industry initiatives may require us to license our patents to companies that adopt industry-standard specifications. Depending on the rules of the organization, we might have to grant these licenses to our patents for little or no cost, and as a result, we may be unable to enforce certain patents against others, our costs of enforcing our licenses or protecting our patents may increase, and the value of our IP rights may be impaired.
Third parties may assert claims based on IP rights against us or our products, which could harm our business.
We may face claims based on IP rights from individuals and companies, including those who have acquired patent portfolios to assert claims against other companies. We are normally engaged in a number of litigation matters involving IP rights. Claims that our products or processes infringe the IP rights of others, whether or not meritorious, could cause us to incur large costs to respond to, defend, and resolve the claims, and they may divert the efforts and attention of management and technical personnel. In addition, we may face claims based on the theft or unauthorized use or disclosure of third-party trade secrets and other confidential business information or end-user data that we obtain in conducting our business. Any such incidents and claims could severely disrupt our business, and we could suffer losses, including the cost of product recalls and returns, and reputational harm. Furthermore, we have agreed to indemnify customers for certain IP rights claims against them. As a result of IP rights claims, we could:
pay monetary damages, including payments to satisfy indemnification obligations;
stop manufacturing, using, selling, offering to sell, or importing products or technology subject to claims;    
develop other products or technology not subject to claims, which could be time-consuming or costly; and/or
enter into settlement and license agreements, which agreements may not be available on commercially reasonable terms.
These IP rights claims could harm our competitive position, result in expenses, or require us to impair our assets. If we alter or stop production of affected items, our revenue could be harmed.
We rely on access to third-party IP, which may not be available to us on commercially reasonable terms or at all.
Many of our products include third-party IP and/or implement industry standards, which may require licenses from third parties. Based on past experience and industry practice, we believe such licenses generally can be obtained on commercially reasonable terms. However, there is no assurance that the necessary licenses can be obtained on acceptable terms or at all. Failure to obtain the right to use third-party IP, or to use such IP on commercially reasonable terms, could preclude us from selling certain products or otherwise have a material adverse impact on our financial condition and operating results.

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We are subject to the risks associated with litigation and regulatory proceedings.
We may face legal claims or regulatory matters involving stockholder, consumer, competition, and other issues on a global basis. As described in "Note 25: Contingencies" in Part II, Item 8 of this Form 10-K, we are engaged in a number of litigation and regulatory matters. Litigation and regulatory proceedings are inherently uncertain, and adverse rulings could occur, including monetary damages, or an injunction stopping us from manufacturing or selling certain products, engaging in certain business practices, or requiring other remedies, such as compulsory licensing of patents. An unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, and overall trends. In addition, regardless of the outcome, litigation can be costly, time-consuming, disruptive to our operations, and distracting to management.
We must attract, retain, and motivate key employees.
To be competitive, we must attract, retain, and motivate executives and other key employees. Hiring and retaining qualified executives, scientists, engineers, technical staff, and sales representatives are critical to our business, and competition for experienced employees can be intense. To help attract, retain, and motivate qualified employees, we use share-based and other performance-based incentive awards such as restricted stock units and cash bonuses. If our share-based or other compensation programs cease to be viewed as competitive and valuable benefits, our ability to attract, retain, and motivate employees could be weakened, which could harm our results of operations.
We are subject to cybersecurity and privacy risks.
Third parties might attempt to gain unauthorized access to our network or seek to compromise our products and services.
We regularly face attempts by others to gain unauthorized access through the Internet or to introduce malicious software to our information technology (IT) systems. Additionally, malicious hackers may attempt to gain unauthorized access and corrupt the processes of hardware and software products that we manufacture and services we provide. Due to the widespread use of our products and due to the high profile of our McAfee subsidiary, we or our products and services are a frequent target of computer hackers and organizations that intend to sabotage, take control of, or otherwise corrupt our manufacturing or other processes, products, and services. We are also a target of malicious attackers who attempt to gain access to our network or data centers or those of our customers or end users; steal proprietary information related to our business, products, employees, and customers; or interrupt our systems and services or those of our customers or others. We believe such attempts are increasing in number and in technical sophistication. From time to time we encounter intrusions or attempts at gaining unauthorized access to our products, services, and network. To date, none have resulted in any material adverse impact to our business or operations. In some instances, we, our customers, and the users of our products and services might be unaware of an incident or its magnitude and effects. While we seek to detect and investigate all unauthorized attempts and attacks against our network, products, and services, and to prevent their recurrence where practicable through changes to our internal processes and tools and/or changes or patches to our products and services, we remain potentially vulnerable to additional known or unknown threats. Such incidents, whether successful or unsuccessful, could result in our incurring significant costs related to, for example, rebuilding internal systems, reduced inventory value, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties. In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures. Publicity about vulnerabilities and attempted or successful incursions could damage our reputation with customers or users, and reduce demand for our products and services.
We may be subject to theft, loss, or misuse of personal data about our employees, customers, or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings.
The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business could result in significantly increased security costs or costs related to defending legal claims. Global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex compliance regulatory environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. In addition, our even inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others.

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We are subject to risks associated with strategic transactions.
We invest in companies for strategic reasons and may not realize a return on our investments.
We make investments in public and private companies around the world to further our strategic objectives and support key business initiatives. Many of the securities in which we invest are non-marketable at the time of our initial investment. Companies in which we invest range from early-stage companies still defining their strategic direction to mature companies with established revenue streams and business models. The success of our investment in any company is typically dependent on the availability to the company of additional funding on favorable terms, or a liquidity event, such as a public offering or acquisition. If any of the companies in which we invest fail, we could lose all or part of our investment. If we determine that an other-than-temporary decline in the fair value exists for an investment, we write down the investment to its fair value and recognize a loss.
Our acquisitions, divestitures, and other transactions could fail to achieve strategic objectives, disrupt our ongoing business and harm our results of operations.
In pursuing our business strategy, we routinely conduct discussions, evaluate opportunities, and enter into agreements for possible acquisitions, divestitures, and other transactions, such as joint ventures. Given that our resources are limited, our decision to complete an acquisition has opportunity costs and we may need to forego the prospect of acquiring other companies or technologies that could help us achieve our strategic objectives. In addition to opportunity costs, these transactions involve large challenges and risks, including risks that:
the transaction may not advance our business strategy;
we may be unable to identify opportunities on terms acceptable to us;
we may not realize a satisfactory return;
we may experience disruption of our ongoing operations;
we may be unable to retain key personnel;
we may experience difficulty in integrating new employees, business systems, and technology;
acquired businesses may not have adequate controls, processes, and procedures to ensure compliance with laws and regulations, and our due diligence process may not identify compliance issues or other liabilities;
we may have difficulty entering new market segments;
we may be unable to retain the customers and partners of acquired businesses; and/or
there may be unknown, underestimated, and/or undisclosed commitments or liabilities.
When we decide to sell assets or a business, we may have difficulty selling on acceptable terms in a timely manner, and the agreed-upon terms and financing arrangements could be renegotiated due to changes in business or market conditions. These circumstances could delay the achievement of our strategic objectives or cause us to incur additional expense, or we may sell a business at a price or on terms that are less favorable than we had anticipated, resulting in a loss on the transaction.
If we do enter into agreements with respect to acquisitions, divestitures, or other transactions, we may fail to complete them due to factors such as:
failure to obtain regulatory or other approvals;    
IP disputes or other litigation; or
difficulties obtaining financing for the transaction.
We are subject to sales-related risks.
We face risks related to sales through distributors and other third parties.
We sell a significant portion of our products through third parties such as distributors, value-added resellers, OEMs, Internet service providers, and channel partners (collectively referred to as distributors). Using third parties for distribution exposes us to many risks, including competitive pressure, concentration, credit risk, and compliance risks. Distributors may sell products that compete with our products, and we may need to provide financial and other incentives to focus distributors on the sale of our products. We may rely on one or more key distributors for a product, and the loss of these distributors could reduce our revenue. Distributors may face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable and financial results. Violations of the Foreign Corrupt Practices Act (FCPA) or similar laws by distributors or other third-party intermediaries could have a material impact on our business. Failure to manage risks related to our use of distributors may reduce sales, increase expenses, and weaken our competitive position.

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We face risks related to business transactions with U.S. government entities.
We receive proceeds from services and products we provide to the U.S. government. U.S. government demand and payment may be affected by public sector budgetary cycles and funding authorizations. U.S. government contracts are subject to oversight, including special rules on accounting, IP rights, expenses, reviews, information handling, and security. Failure to comply with these rules could result in civil and criminal penalties and sanctions, including termination of contracts, fines, and suspensions, or debarment from future U.S. government business.
Our results of operations could vary as a result of the methods, estimates, and judgments that we use in applying accounting policies.
The methods, estimates, and judgments that we use in applying accounting policies have a large impact on our results of operations. For more information, see "Critical Accounting Estimates" in Part II, Item 7 of this Form 10-K. These methods, estimates, and judgments are subject to large risks, uncertainties, and assumptions, and changes could affect our results of operations.
Changes in our effective tax rate may reduce our net income.
A number of factors may increase our effective tax rates, which could reduce our net income, including:    
the jurisdictions in which profits are determined to be earned and taxed;
the resolution of issues arising from tax audits;
changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances;
adjustments to income taxes upon finalization of tax returns;
increases in expenses not deductible for tax purposes, including impairments of goodwill;
changes in available tax credits;
changes in tax laws or their interpretation, including changes in the U.S. to the taxation of manufacturing enterprises and of non-U.S. income and expenses;
changes in U.S. generally accepted accounting principles; and
our decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes.
We may have fluctuations in the amount and frequency of our stock repurchases.
The amount, timing, and other execution of our stock repurchase program may fluctuate based on our priorities for the use of cash for other purposes, such as investing in our business, including operational spending, capital spending, and acquisitions, and returning cash to our stockholders as dividend payments, and because of changes in cash flows and changes in tax laws.
Workforce restructuring actions may be disruptive to our operations and adversely affect our financial results.
In response to the business environment and to accomplish our strategic objectives, from time to time we may restructure our operations or make other adjustments to our workforce. Such workforce changes can result in restructuring charges in addition to those described in "Note 13: Restructuring and Asset Impairment Charges" in Part II, Item 8 of this Form 10-K. Such workforce changes can also temporarily reduce workforce productivity, which could be disruptive to our business and adversely affect our results of operations. In addition, we may not achieve or sustain the expected cost savings or other benefits of our restructuring plans, or do so within the expected time frame.
There are inherent limitations on the effectiveness of our controls.
We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that resource constraints exist, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate due to changes in conditions or deterioration in the degree of compliance with policies or procedures. If our controls become inadequate, we could fail to meet our financial reporting obligations, our reputation may be adversely affected, our business and operating results could be harmed, and the market price of our stock could decline.

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ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
As of December 27, 2014, our major facilities consisted of:
(Square Feet in Millions)
 
United
States
 
Other
Countries
 
Total
Owned facilities
 
31.0

 
17.0

 
48.0

Leased facilities
 
3.1

 
5.8

 
8.9

Total facilities
 
34.1

 
22.8

 
56.9

1 
Leases on portions of the land used for these facilities expire on varying dates through 2062.
2 
Leases expire on varying dates through 2028 and generally include renewals at our option.
Our principal executive offices are located in the U.S. and a majority of our wafer fabrication activities are also located in the U.S. We completed construction of our new development fabrication facilities in Oregon during 2014 and expect that these new facilities will allow us to widen our process technology lead. We also completed construction of a large-scale fabrication building in Arizona in 2013, which is currently not in use and is not being depreciated. Incremental construction and equipment installation are required to ready the building for its intended use. We have leveraged existing fabrication facilities, reserving this new building for additional capacity and future technologies. Our Massachusetts fabrication facility is our last manufacturing facility on 200mm wafers and is expected to cease production in Q1 2015. Outside the U.S., we have wafer fabrication facilities in Israel, China, and Ireland. Our fabrication facility in Ireland is currently transitioning to our 14nm process technology, with manufacturing expected to ramp in the second half of 2015. Our assembly and test facilities are located in Malaysia, China, and Vietnam. In addition, we have sales and marketing offices worldwide that are generally located near major concentrations of customers.
We believe that the facilities described above are suitable and adequate for our present purposes and that the productive capacity in our facilities is substantially being utilized or we have plans to utilize it.
We do not identify or allocate assets by operating segment. For information on net property, plant and equipment by country, see "Note 26: Operating Segments and Geographic Information" in Part II, Item 8 of this Form 10-K.
ITEM 3.
LEGAL PROCEEDINGS
For a discussion of legal proceedings, see "Note 25: Contingencies" in Part II, Item 8 of this Form 10-K.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

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PART II



ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Information regarding the principal U.S. market in which Intel common stock is traded, including the market price range of Intel common stock and dividend information, can be found in "Financial Information by Quarter (Unaudited)" in Part II, Item 8 of this Form 10-K.
As of February 6, 2015, there were approximately 140,000 registered holders of record of Intel’s common stock. A substantially greater number of holders of Intel common stock are "street name" or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
Issuer Purchases of Equity Securities
We have an ongoing authorization, originally approved by our Board of Directors in 2005, and subsequently amended, to repurchase up to $65 billion in shares of our common stock in open market or negotiated transactions. This amount includes an increase of $20 billion in the authorization limit approved by our Board of Directors in July 2014. As of December 27, 2014, $12.4 billion remained available for repurchase under the existing repurchase authorization limit.
Common stock repurchase activity under our stock repurchase plan during each quarter of 2014 was as follows:
Period
 
Total Number of
Shares Purchased
(In Millions)
 
Average Price
Paid Per Share
 
Dollar Value of
Shares That May
Yet Be Purchased
(In Millions)
December 29, 2013 – March 29, 2014
 
22.1

 
$
24.70

 
$
2,640

March 30, 2014 – June 28, 2014
 
75.8

 
28.34

 
490

June 29, 2014 – September 27, 2014
 
119.5

 
34.28

 
16,393

September 28, 2014 – December 27, 2014
 
115.0

 
34.80

 
$
12,392

Total
 
332.4

 
$
32.47

 
 
Common stock repurchase activity under our stock repurchase plan during the fourth quarter of 2014 was as follows:
Period
 
Total Number of
Shares Purchased
(In Millions)
 
Average Price
Paid Per Share
 
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
(In Millions)
September 28, 2014 – October 25, 2014
 
111.3

 
$
34.78

 
$
12,522

October 26, 2014 – November 22, 2014
 

 

 
12,522

November 23, 2014 – December 27, 2014
 
3.7

 
35.14

 
$
12,392

Total
 
115.0

 
$
34.80

 
 
In the fourth quarter of 2014, we entered into a stock repurchase agreement, a portion of which was executed as a forward contract. We received collateral from the counterparty for the value attributable to the forward portion of this contract and invested the collateral into permitted investments considered restricted from other uses. As of December 27, 2014, $325 million of collateral, which approximates fair value, remains recorded as both a current asset and current liability on the consolidated balance sheet. The $325 million represents the unsettled portion of the contract and was returned to the counterparty on December 29, 2014, the settlement date.

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In our consolidated financial statements, we also treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares are not considered common stock repurchases under our authorized common stock repurchase plan and accordingly are not included in the common stock repurchase totals in the preceding table.
For further discussion, see "Note 19: Common Stock Repurchases" in Part II, Item 8 of this Form 10-K.

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Stock Performance Graph
The line graph that follows compares the cumulative total stockholder return on our common stock with the cumulative total return of the Dow Jones U.S. Technology Index* and the Standard & Poor’s S&P 500* Index for the five years ended December 27, 2014. The graph and table assume that $100 was invested on December 24, 2009 (the last day of trading for the fiscal year ended December 26, 2009) in each of our common stock, the Dow Jones U.S. Technology Index, and the S&P 500 Index, and that all dividends were reinvested. Cumulative total stockholder returns for our common stock, the Dow Jones U.S. Technology Index, and the S&P 500 Index are based on our fiscal year.
Comparison of Five-Year Cumulative Return for Intel,
the Dow Jones U.S. Technology Index*, and the S&P 500* Index
  
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Intel Corporation
 
$
100

 
$
106

 
$
129

 
$
110

 
$
145

 
$
219

Dow Jones U.S. Technology Index
 
$
100

 
$
112

 
$
112

 
$
123

 
$
159

 
$
196

S&P 500 Index
 
$
100

 
$
114

 
$
116

 
$
133

 
$
179

 
$
178



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ITEM 6.
SELECTED FINANCIAL DATA
(Dollars in Millions, Except Per Share Amounts)
 
2014
 
2013
 
2012
 
2011
 
2010
Net revenue
 
$
55,870

 
$
52,708

 
$
53,341

 
$
53,999

 
$
43,623

Gross margin
 
$
35,609

 
$
31,521

 
$
33,151

 
$
33,757

 
$
28,491

Gross margin percentage
 
63.7
%
 
59.8
%
 
62.1
%
 
62.5
%
 
65.3
%
Research and development (R&D)
 
$
11,537

 
$
10,611

 
$
10,148

 
$
8,350

 
$
6,576

Marketing, general and administrative (MG&A)
 
$
8,136

 
$
8,088

 
$
8,057

 
$
7,670

 
$
6,309

R&D and MG&A as percentage of revenue
 
35.2
%
 
35.5
%
 
34.1
%
 
29.7
%
 
29.5
%
Operating income
 
$
15,347

 
$
12,291

 
$
14,638

 
$
17,477

 
$
15,588

Net income
 
$
11,704

 
$
9,620

 
$
11,005

 
$
12,942

 
$
11,464

Earnings per share of common stock
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.39

 
$
1.94

 
$
2.20

 
$
2.46

 
$
2.06

Diluted
 
$
2.31

 
$
1.89

 
$
2.13

 
$
2.39

 
$
2.01

Weighted average diluted shares of common stock outstanding
 
5,056

 
5,097

 
5,160

 
5,411

 
5,696

Dividends per share of common stock
 
 
 
 
 
 
 
 
 
 
Declared
 
$
0.90

 
$
0.90

 
$
0.87

 
$
0.7824

 
$
0.63

Paid
 
$
0.90

 
$
0.90

 
$
0.87

 
$
0.7824

 
$
0.63

Net cash provided by operating activities
 
$
20,418

 
$
20,776

 
$
18,884

 
$
20,963

 
$
16,692

Additions to property, plant and equipment
 
$
10,105

 
$
10,711

 
$
11,027

 
$
10,764

 
$
5,207

Repurchase of common stock
 
$
10,792

 
$
2,440

 
$
5,110

 
$
14,340

 
$
1,736

Payment of dividends to stockholders
 
$
4,409

 
$
4,479

 
$
4,350

 
$
4,127

 
$
3,503

 
 
 
 
 
 
 
 
 
 
 
(Dollars in Millions)
 
Dec. 27, 2014
 
Dec. 28, 2013
 
Dec. 29, 2012
 
Dec. 31, 2011
 
Dec. 25, 2010
Property, plant and equipment, net
 
$
33,238

 
$
31,428

 
$
27,983

 
$
23,627

 
$
17,899

Total assets
 
$
91,956

 
$
92,358

 
$
84,351

 
$
71,119

 
$
63,186

Debt
 
$
13,711

 
$
13,446

 
$
13,448

 
$
7,331

 
$
2,115

Temporary equity
 
$
912

 
$

 
$

 
$

 
$

Stockholders’ equity
 
$
55,865

 
$
58,256

 
$
51,203

 
$
45,911

 
$
49,430

Employees (in thousands)
 
106.7

 
107.6

 
105.0

 
100.1

 
82.5

During Q4 2014, the closing stock price conversion right condition of the 2009 debentures was met and the debentures will be convertible at the option of the holders during Q1 2015. The excess of the amount of cash payable if converted over the carrying amount of the 2009 debentures of $912 million has been classified as temporary equity on our consolidated balance sheet as of December 27, 2014. For further information, see "Note 15: Borrowings" in Part II, Item 8 of this Form 10-K.
During 2013, management approved several restructuring actions, including targeted workforce reductions as well as exit of certain businesses and facilities. For further information, see "Note 13: Restructuring and Asset Impairment Charges" in Part II, Item 8 of this Form 10-K.
During 2011, we acquired McAfee and the Wireless Solutions business of Infineon Technologies AG, which operates as part of the MCG operating segment.



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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
Overview. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.
Critical Accounting Estimates. Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
Results of Operations. Analysis of our financial results comparing 2014 to 2013 and comparing 2013 to 2012.
Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
Fair Value of Financial Instruments. Discussion of the methodologies used in the valuation of our financial instruments.
Contractual Obligations and Off-Balance-Sheet Arrangements. Overview of contractual obligations, contingent liabilities, commitments, and off-balance-sheet arrangements outstanding as of December 27, 2014, including expected payment schedule.
The various sections of this MD&A contain a number of forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," "should," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in "Risk Factors" in Part I, Item 1A of this Form 10-K. Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of February 13, 2015.
Overview
Our results of operations for each period were as follows:
  
 
Three Months Ended
 
Twelve Months Ended
(Dollars in Millions, Except Per Share Amounts)
 
Dec 27,
2014
 
Dec 28,
2013
 
Change
 
Dec 27,
2014
 
Dec 28,
2013
 
Change
Net revenue
 
$
14,721

 
$
13,834

 
$
887

 
$
55,870

 
$
52,708

 
$
3,162

Gross margin
 
$
9,621

 
$
8,571

 
$
1,050

 
$
35,609

 
$
31,521

 
$
4,088

Gross margin percentage
 
65.4
%
 
62.0
%
 
3.4
%
 
63.7
%
 
59.8
%
 
3.9
%
Operating income
 
$
4,453

 
$
3,549

 
$
904

 
$
15,347

 
$
12,291

 
$
3,056

Net income
 
$
3,661

 
$
2,625

 
$
1,036

 
$
11,704

 
$
9,620

 
$
2,084

Diluted earnings per share of common stock
 
$
0.74

 
$
0.51

 
$
0.23

 
$
2.31

 
$
1.89

 
$
0.42

Our results for Q4 2014 were a strong finish to a great year. We achieved record net revenue of $14.7 billion, up 6% from Q4 2013. We achieved increased net revenue and unit sales growth in the PCCG segment, with net revenue up 3% and operating profit up 18% from Q4 2013. DCG achieved 25% net revenue growth and 39% operating income growth from Q4 2013. We saw a moderate increase in net inventory levels from Q3 2014 as we are efficiently managing capacity while ramping our 5th generation Intel Core processor family on 14nm, code-named "Broadwell." The worldwide PC supply chain appears to be healthy, with inventory levels appropriate as we enter Q1 2015.
Gross margin improved by approximately three and a half percentage points from Q4 2013. The increase from Q4 2013 was primarily due to lower factory start-up costs, lower PCCG and DCG platform (Platform) unit costs, higher Platform average selling prices, and higher Platform unit sales. These items were partially offset by the impact of higher cash consideration associated with our tablet platform and higher production costs on our 14nm products treated as period charges.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

For full year 2014, we achieved record net revenue of $55.9 billion, up 6% from 2013, operating income of $15.3 billion, up 25% from 2013, and diluted earnings per share of $2.31, up 22% from 2013. Both our PCCG and DCG businesses outperformed our expectations for the year. PCCG net revenue was up 4%, with PCCG platform unit sales up 8% primarily on higher notebook platform unit sales. We saw robust growth in DCG, with net revenue up 18% and platform average selling prices and unit sales up 10% and 8%, respectively. Gross margin of approximately 64% was up approximately four points from 2013 driven by lower Platform unit costs, lower start-up costs, and higher Platform volumes. These increases were partially offset by higher cost of sales associated with higher tablet platform unit sales and cash consideration provided to our customers associated with integrating our tablet platform.
In 2014, we started growing again across a broad range of products and markets by introducing many new product technologies across all of our businesses. We began shipping the world's first processor on 14nm process technology. Additionally, we launched a new family of processors, Intel Core M. Intel Core M processor is enabling new designs and form factors with its full core performance in both compute and graphics. We recently launched Intel RealSense technology, which includes software and depth cameras that enable more natural and intuitive interaction with personal computing devices. In the wireless business, we qualified our first SoC application processor and baseband 3G solution, code-named "SoFIA." We also exceeded our goal of 40 million tablet platform unit sales in 2014.
The cash generation from our business remained strong, with cash from operations of $20.4 billion in 2014. We ended the year with an investment portfolio of $14.1 billion, down approximately $6.0 billion from a year ago. Our investment portfolio consisted of cash and cash equivalents, short-term investments, and trading assets. We purchased $10.1 billion in capital assets, down from our prior outlook of $11.0 billion as we found efficiencies, optimized our manufacturing network, and increased our factory utilization. In addition, we returned $4.4 billion to stockholders through dividends and repurchased $10.8 billion of common stock through our common stock repurchase program. Our Board of Directors authorized an increase of $20 billion to the common stock repurchase program. Effective in Q1 2015, our annual dividend increased to $0.96 per share and our Board of Directors declared a cash dividend of $0.24 per share of common stock.
Looking ahead to 2015, we are forecasting revenue to grow in the mid-single digits and the midpoint of our gross margin range to be at 62% plus or minus a couple of points. Additionally, we are forecasting R&D and MG&A spending to be approximately $20.0 billion plus or minus $400 million and forecasting capital spending of $10.0 billion plus or minus $500 million. For Q1 2015, we are forecasting the midpoint of the revenue range to be $13.7 billion plus or minus $500 million, down approximately 7% from Q4 2014. This forecast is in line with the average seasonal decline for the first quarter. We are forecasting the midpoint of the gross margin range for the first quarter to be 60% plus or minus a couple of points.
Our Business Outlook for Q1 2015 and full year 2015 includes, where applicable, our current expectations for revenue, gross margin percentage, spending (R&D plus MG&A), and capital expenditures. We publish our Business Outlook in our quarterly earnings release.
Our Business Outlook and any updates thereto are publicly available on our Investor Relations website, www.intc.com. This Business Outlook is not incorporated by reference in this Form 10-K. We expect that our corporate representatives will, from time to time, meet publicly or privately with investors and others, and may reiterate the forward-looking statements contained in the Business Outlook or in this Form 10-K. The statements in the Business Outlook and forward-looking statements in this Form 10-K are subject to revision during the course of the year in our quarterly earnings releases and SEC filings and at other times. The forward-looking statements in the Business Outlook will be effective through the close of business on March 13, 2015, unless updated earlier. From the close of business on March 13, 2015, until our quarterly earnings release is published, currently scheduled for April 14, 2015, we will observe a "quiet period." During the quiet period, the Business Outlook and other forward-looking statements first published in our Form 8-K filed on January 15, 2015, and other forward-looking statements disclosed in the company's news releases and filings with the SEC, as reiterated or updated as applicable in this Form 10-K, should be considered historical, speaking as of prior to the quiet period only and not subject to update. During the quiet period, our representatives will not comment on our Business Outlook or our financial results or expectations. The exact timing and duration of the routine quiet period, and any others that we utilize from time to time, may vary at our discretion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Estimates
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include:
the valuation of non-marketable equity investments and the determination of other-than-temporary impairments, which impact gains (losses) on equity investments, net when we record impairments;
the assessment of recoverability of long-lived assets (property, plant and equipment; goodwill; and identified intangibles), which impacts gross margin or operating expenses when we record asset impairments or accelerate their depreciation or amortization;
the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes;
the valuation of inventory, which impacts gross margin; and
the recognition and measurement of loss contingencies, which impact gross margin or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.
In the following section, we discuss these policies further, as well as the estimates and judgments involved.
Non-Marketable Equity Investments
We regularly invest in non-marketable equity instruments of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies with established revenue streams and business models. The carrying value of our non-marketable equity investment portfolio, excluding equity derivatives, totaled $3.2 billion as of December 27, 2014 ($2.3 billion as of December 28, 2013).
Our non-marketable equity investments are recorded using the cost method or the equity method of accounting, depending on the facts and circumstances of each investment. Our non-marketable equity investments are classified within other long-term assets on the consolidated balance sheets.
Non-marketable equity investments are inherently risky, and their success depends on product development, market acceptance, operational efficiency, and other key business factors. The companies could fail or not be able to raise additional funds when needed, or they may receive lower valuations with less favorable investment terms than previous financings. These events could cause our investments to become impaired. In addition, financial market volatility could negatively affect our ability to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales. For further information about our investment portfolio risks, see "Risk Factors" in Part I, Item 1A of this Form 10-K.
We determine the fair value of our non-marketable equity investments portfolio quarterly for impairment and disclosure purposes; however, the investments are recorded at fair value only if an impairment is recognized. The measurement of fair value requires significant judgment and includes a qualitative and quantitative analysis of events or circumstances that impact the fair value of the investment. Qualitative analysis of our investments involves understanding our investee’s revenue and earnings trends relative to pre-defined milestones and overall business prospects, the technological feasibility of our investee’s products and technologies, the general market conditions in the investee’s industry or geographic area including adverse regulatory or economic changes, and the management and governance structure of the investee. Quantitative assessments of the fair value of our investments are developed using the market and income approaches. The market approach includes the use of financial metrics and ratios of comparable public companies, such as revenue, earnings, comparable performance multiples, recent financing rounds, the terms of the investees’ issued interests, and the level of marketability of the investments. The selection of comparable companies requires management judgment and is based on a number of factors, including comparable companies’ sizes, growth rates, industries, and development stages. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding the investees' revenue, costs, and discount rates based on the risk profile of comparable companies. Estimates of revenue and costs are developed using available market, historical, and forecast data.
If the fair value of an investment is below our carrying value, we determine whether the investment is other-than-temporarily impaired based on our quantitative and qualitative analysis, which includes assessing the severity and duration of the impairment and the likelihood of recovery before disposal. If the investment is considered to be other-than-temporarily impaired, we record the investment at fair value by recognizing an impairment. Impairments of non-marketable equity investments were $140 million in 2014 ($112 million in 2013 and $104 million in 2012).

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Long-Lived Assets
Property, Plant and Equipment
We assess property, plant and equipment for impairment when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. We measure the recoverability of assets that we will continue to use in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows. If an asset grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired. We measure the impairment by comparing the difference between the asset grouping’s carrying value and its fair value. Property, plant and equipment is considered a non-financial asset and is recorded at fair value only if an impairment charge is recognized.
Impairments are determined for groups of assets related to the lowest level of identifiable independent cash flows. Due to our asset usage model and the interchangeable nature of our semiconductor manufacturing capacity, we must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, as we make manufacturing process conversions and other factory planning decisions, we must make subjective judgments regarding the remaining useful lives of assets, primarily process-specific semiconductor manufacturing tools and building improvements. When we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful lives. Based on our analysis, impairments and accelerated depreciation of our property, plant and equipment was $115 million in 2014 ($172 million in 2013 and $73 million in 2012).
Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired. Goodwill is allocated to our reporting units based on the relative expected fair value provided by the acquisition. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. Our reporting units are consistent with the operating segments identified in "Note 26: Operating Segments and Geographic Information" in Part II, Item 8 of this Form 10-K.
We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. For reporting units in which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is not considered impaired and we are not required to perform the two-step goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value. For reporting units in which the impairment assessment concludes that it is more likely than not that the fair value is less than its carrying value, we perform the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not considered impaired and we are not required to perform additional analysis. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill. If we determine during the second step that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, we record an impairment loss equal to the difference.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Our goodwill impairment test uses a weighting of the income method and the market method to estimate a reporting unit’s fair value. The income method is based on a discounted future cash flow approach that uses the following assumptions and inputs: revenue, based on assumed market segment growth rates and our assumed market segment share; estimated costs; and appropriate discount rates based on a reporting unit's weighted average cost of capital as determined by considering the observable weighted average cost of capital of comparable companies. Our estimates of market segment growth, our market segment share, and costs are based on historical data, various internal estimates, and a variety of external sources. These estimates are developed as part of our routine long-range planning process. The same estimates are also used in planning for our long-term manufacturing and assembly and test capacity needs as part of our capital budgeting process, and for long-term and short-term business planning and forecasting. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data. The market method is based on financial multiples of comparable companies and applies a control premium. A reporting unit’s carrying value represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments, and debt.
For the annual impairment assessment in 2014, we determined that for each of our reporting units, it was more likely than not that the fair value of the reporting units exceeded the carrying value. As a result, we concluded that performing the first step of the goodwill impairment test was not necessary for any reporting unit. During the fourth quarter of each of the prior three fiscal years, we have completed our annual impairment assessments and concluded that goodwill was not impaired in any of these years.
Identified Intangibles
We make judgments about the recoverability of purchased finite-lived intangible assets whenever events or changes in circumstances indicate that an impairment may exist. Recoverability of finite-lived intangible assets is measured by comparing the carrying amount of the asset to the future undiscounted cash flows that the asset is expected to generate. We perform an annual impairment assessment in the fourth quarter of each year for indefinite-lived intangible assets, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the carrying value of the assets may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to the future discounted cash flows that the asset is expected to generate. If we determine that an individual asset is impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the asset.
The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines. Based on our impairment assessment, we recognized impairment charges of $36 million in 2014 ($17 million in 2013 and $21 million in 2012).
Income Taxes
We must make estimates and judgments in determining the provision for taxes for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to our tax provision in a subsequent period.
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more likely than not, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover the deferred tax assets recorded on our consolidated balance sheets. However, should a change occur in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery is not more likely than not. Recovery of a portion of our deferred tax assets is impacted by management’s plans with respect to holding or disposing of certain investments; therefore, changes in management’s plans with respect to holding or disposing of investments could affect our future provision for taxes.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that a tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately forecast actual outcomes. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
We have not recognized U.S. deferred income taxes on certain undistributed non-U.S. earnings because we plan to indefinitely reinvest such earnings outside the U.S. Remittances of non-U.S. earnings are based on estimates and judgments of projected cash flow needs as well as the working capital and investment requirements of our non-U.S. and U.S. operations. Material changes in our estimates of cash, working capital, and investment needs in the various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
Inventory
Intel has a product development lifecycle that corresponds with substantive engineering milestones. These engineering milestones are regularly and consistently applied in assessing the point at which our activities, and associated costs, change in nature from R&D to cost of sales. In order for a product to be manufactured in high volumes and sold to our customers under our standard warranty, it must meet our rigorous technical quality specifications. This milestone is known as product release qualification (PRQ). We have identified PRQ as the point at which the costs incurred to manufacture our products are included in the valuation of inventory.
To determine which costs can be included in the valuation of inventory, we must determine normal capacity at our manufacturing and assembly and test facilities, based on historical loadings compared to total available capacity. If the factory loadings are below the established normal capacity level, a portion of our manufacturing overhead costs would not be included in the cost of inventory; therefore, it would be recognized as cost of sales in that period, which would negatively impact our gross margin. We refer to these costs as excess capacity charges. Excess capacity charges were zero in 2014 ($319 million in 2013 and $540 million in 2012).
Inventory is valued at the lower of cost or market based upon assumptions about future demand and market conditions. Product-specific facts and circumstances reviewed in the inventory valuation process include a review of our customer base, the stage of the product life cycle of our products, consumer confidence, customer acceptance of our products, and an assessment of selling price in relation to product cost. If the estimated market value of the inventory is less than the carrying value, we write down the inventory and record the difference as a charge to cost of sales. Inventory reserves increased by approximately $290 million in 2014 compared to 2013. This increase was driven primarily by higher production costs on 14nm treated as period charges and pre-qualification product costs. These increases were partially offset by the sell-through of written-down inventory and previously non-qualified units.
The valuation of inventory also requires us to estimate obsolete and excess inventory as well as inventory that is not of saleable quality. The demand forecast is utilized in the development of our short-term manufacturing plans to enable consistency between inventory valuation and build decisions. The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of obsolete or excess inventory. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to write off inventory, which would negatively impact our gross margin.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Loss Contingencies
We are subject to loss contingencies, including various legal and regulatory proceedings and asserted and potential claims, accruals related to repair or replacement of parts in connection with product errata, as well as product warranties and potential asset impairments that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is required if there is at least a reasonable possibility that a material loss has been incurred. The outcomes of legal and administrative proceedings and claims, and the estimation of product warranties and asset impairments, are subject to significant uncertainty. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. At least quarterly, we review the status of each significant matter, and we may revise our estimates. These revisions could have a material impact on our results of operations and financial position.

Results of Operations
Certain consolidated statements of income data as a percentage of net revenue for each period were as follows:
  
 
2014
 
2013
 
2012
(Dollars in Millions, Except Per Share Amounts)
 
Dollars
 
% of Net
Revenue
 
Dollars
 
% of Net
Revenue
 
Dollars
 
% of Net
Revenue
Net revenue
 
$
55,870

 
100.0
%
 
$
52,708

 
100.0
 %
 
$
53,341

 
100.0
%
Cost of sales
 
20,261

 
36.3
%
 
21,187

 
40.2
 %
 
20,190

 
37.9
%
Gross margin
 
35,609

 
63.7
%
 
31,521

 
59.8
 %
 
33,151

 
62.1
%
Research and development
 
11,537

 
20.6
%
 
10,611

 
20.1
 %
 
10,148

 
19.0
%
Marketing, general and administrative
 
8,136

 
14.6
%
 
8,088

 
15.3
 %
 
8,057

 
15.1
%
Restructuring and asset impairment charges
 
295

 
0.5
%
 
240

 
0.5
 %
 

 
%
Amortization of acquisition-related intangibles
 
294

 
0.5
%
 
291

 
0.6
 %
 
308

 
0.6
%
Operating income
 
15,347

 
27.5
%
 
12,291

 
23.3
 %
 
14,638

 
27.4
%
Gains (losses) on equity investments, net
 
411

 
0.7
%
 
471

 
0.9
 %
 
141

 
0.3
%
Interest and other, net
 
43

 
0.1
%
 
(151
)
 
(0.3
)%
 
94

 
0.2
%
Income before taxes
 
15,801

 
28.3
%
 
12,611

 
23.9
 %
 
14,873

 
27.9
%
Provision for taxes
 
4,097

 
7.4
%
 
2,991

 
5.6
 %
 
3,868

 
7.3
%
Net income
 
$
11,704

 
20.9
%
 
$
9,620

 
18.3
 %
 
$
11,005

 
20.6
%
Diluted earnings per share of common stock
 
$
2.31

 
 
 
$
1.89

 
 
 
$
2.13

 
 
Our net revenue for 2014 increased by $3.2 billion, or 6%, compared to 2013. PCCG and DCG platform unit sales increased by 8%, driven by strength in the traditional PC business and the data center market segments. To a lesser extent, higher Non-Volatile Memory Solutions Group revenue and higher IOTG platform unit sales contributed to the increase. These increases were partially offset by higher cash consideration to our customers associated with integrating our tablet platform and lower MCG phone component unit sales.
Our overall gross margin dollars for 2014 increased by $4.1 billion, or 13%, compared to 2013. This increase was due primarily to higher PCCG and DCG platform revenue. To a lesser extent, approximately $1.5 billion of lower PCCG and DCG platform unit costs and approximately $860 million of lower factory start-up costs, primarily driven by our next-generation 14nm process technology, also contributed to the increase. These increases were partially offset by approximately $660 million of higher cash consideration provided to customers associated with integrating our tablet platform and higher cost of sales associated with higher tablet platform unit sales.
Our overall gross margin percentage increased to 63.7% in 2014 from 59.8% in 2013. The increase in gross margin percentage was primarily due to the gross margin increase in PCCG and DCG. We derived most of our overall gross margin dollars for 2014 and 2013 from the sale of platforms in the PCCG and DCG operating segments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Our net revenue for 2013 decreased by $633 million, or 1%, compared to 2012. PCCG and DCG platform unit sales decreased by 3%. Additionally, lower MCG phone component revenue and netbook platform revenue contributed to the decrease. These decreases were partially offset by higher PCCG and DCG platform average selling prices, which were up 3%. To a lesser extent, higher IOTG platform average selling prices and higher Non-Volatile Memory Solutions Group revenue offset the decrease in revenue.
Our overall gross margin dollars for 2013 decreased by $1.6 billion, or 5%, compared to 2012. The decrease was due in large part to $1.8 billion of higher factory start-up costs, primarily for our next-generation 14nm process technology. To a lesser extent, lower MCG phone components revenue and lower netbook platform revenue contributed to the decrease. These decreases were partially offset by approximately $320 million of lower PCCG and DCG platform unit costs and $220 million of lower excess capacity charges.
Our overall gross margin percentage decreased to 59.8% in 2013 from 62.1% in 2012. The decrease in the gross margin percentage was primarily due to the gross margin percentage decrease in PCCG. We derived most of our overall gross margin dollars in 2013 and 2012 from the sale of platforms in the PCCG and DCG operating segments.
PC Client Group
The revenue and operating income for the PCCG operating segment for each period were as follows:
(In Millions)
 
2014
 
2013
 
2012
Net revenue
 
$
34,669

 
$
33,270

 
$
34,688

Operating income
 
$
14,635

 
$
11,751

 
$
13,008

Net revenue for the PCCG operating segment increased by $1.4 billion, or 4%, in 2014 compared to 2013. PCCG platform unit sales were up 8%, primarily on strength in the traditional PC business, while PCCG platform average selling prices were down 4%. The increase in revenue was driven by higher notebook platform unit sales of 11%. To a lesser extent, higher desktop platform unit sales of 3% and higher desktop platform average selling prices of 2% also contributed to the increase. These increases were partially offset by lower notebook platform average selling prices of 7%.
Operating income increased by $2.9 billion, or 25%, in 2014 compared to 2013, driven by $2.8 billion of higher gross margin and $109 million of lower operating expenses. The increase in gross margin was driven by approximately $1.2 billion of lower PCCG platform unit costs, approximately $930 million of lower factory start-up costs primarily driven by our next-generation 14nm process technology, and higher PCCG platform revenue.
Net revenue for the PCCG operating segment decreased by $1.4 billion, or 4%, in 2013 compared to 2012. PCCG platform unit sales were down 3%, primarily on softness in the traditional PC business during the first nine months of the year. The decrease in revenue was driven by lower notebook and desktop platform unit sales, which were down 4% and 2%, respectively. PCCG platform average selling prices were flat, with 6% higher desktop platform average selling prices offset by 4% lower notebook platform average selling prices.
Operating income decreased by $1.3 billion, or 10%, in 2013 compared to 2012, driven by $1.5 billion of lower gross margin, partially offset by $234 million of lower operating expenses. The decrease in gross margin was driven by $1.5 billion of higher factory start-up costs, primarily on our next-generation 14nm process technology, as well as lower PCCG platform revenue. These decreases were partially offset by approximately $520 million of lower PCCG platform unit costs, $260 million of lower excess capacity charges, and higher sell-through of previously non-qualified units.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Data Center Group
The revenue and operating income for the DCG operating segment for each period were as follows:
(In Millions)
 
2014
 
2013
 
2012
Net revenue
 
$
14,387

 
$
12,161

 
$
11,219

Operating income
 
$
7,279

 
$
5,569

 
$
5,231

Net revenue for the DCG operating segment increased by $2.2 billion, or 18%, in 2014 compared to 2013. DCG platform average selling prices and unit sales were up 10% and 8%, respectively. Our server platform revenue continued to benefit from growth in the Internet cloud computing and high-performance computing market segments with continued strengthening of the enterprise market segment.
Operating income increased by $1.7 billion, or 31%, in 2014 compared to 2013 with $2.4 billion of higher gross margin partially offset by $689 million of higher operating expenses. Gross margin was positively impacted by higher DCG platform revenue. Lower DCG platform unit costs of approximately $220 million also contributed to the increase.
Net revenue for the DCG operating segment increased by $942 million, or 8%, in 2013 compared to 2012. DCG platform average selling prices and unit sales were up 6% and 3%, respectively. Our platform unit sales continued to benefit from growth in the Internet cloud computing and high performance computing market segments.
Operating income increased $338 million, or 6%, in 2013 compared to 2012, with $330 million of higher gross margin and lower operating expenses. Gross margin was positively impacted by higher DCG platform revenue, partially offset by $275 million of higher factory start-up costs for our next-generation 14nm process technology, and approximately $205 million of higher DCG platform unit costs.
Internet of Things Group
The revenue and operating income for the IOTG operating segment for each period were as follows:
(In Millions)
 
2014
 
2013
 
2012
Net revenue
 
$
2,142

 
$
1,801

 
$
1,600

Operating income
 
$
616

 
$
550

 
$
278

Net revenue for the IOTG operating segment increased by $341 million, or 19%, in 2014 compared to 2013. The increase was primarily due to higher IOTG platform unit sales based on strength in the retail and industrial market segments.
Operating income for the IOTG operating segment increased by $66 million, or 12%, in 2014 compared to 2013. The increase was primarily due to higher IOTG platform revenue partially offset by higher IOTG platform operating expenses.
Net revenue for the IOTG operating segment increased by $201 million, or 13%, in 2013 compared to 2012. The increase in revenue was primarily driven by higher IOTG platform average selling prices based on strength in the retail segment.
Operating income increased by $272 million, or 98%, in 2013 compared to 2012. The increase in gross margin was driven by higher IOTG platform revenue.
Mobile and Communications Group
The revenue and operating loss for the MCG operating segment for each period were as follows:
(In Millions)
 
2014
 
2013
 
2012
Net revenue
 
$
202

 
$
1,375

 
$
1,791

Operating income (loss)
 
$
(4,206
)
 
$
(3,148
)
 
$
(1,776
)
Net revenue for the MCG operating segment decreased by $1.2 billion, or 85%, in 2014 compared to 2013. This decrease was primarily due to higher cash consideration to our customers associated with integrating our tablet and phone platforms and lower phone component unit sales. These decreases were partially offset by higher tablet platform unit sales.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating loss for the MCG operating segment increased by $1.1 billion, or 34%, in 2014 compared to 2013, with $1.2 billion of lower gross margin and $179 million of lower operating expenses. The operating loss increased primarily due to higher cash consideration provided to customers, higher cost of sales associated with higher tablet platform unit sales, and lower phone components revenue. These decreases were partially offset by lower tablet unit costs.
Net revenue for the MCG operating segment decreased by $416 million, or 23%, in 2013 compared to 2012. This decrease was primarily due to lower phone component unit sales and average selling prices.
Operating loss increased by $1.4 billion, or 77%, in 2013 compared to 2012, driven by $737 million of lower gross margin and $635 million of higher operating expenses on R&D investments in our smartphone and tablet products as well as higher cost of sales as we ramp our tablet business. Lower phone components revenue also contributed to the increase in operating loss.
Software and Services Operating Segments
The revenue and operating income (loss) for the SSG operating segments, including McAfee and the Software and Services Group, for each period were as follows:
(In Millions)
 
2014
 
2013
 
2012
Net revenue
 
$
2,216

 
$
2,190

 
$
2,072

Operating income (loss)
 
$
55

 
$
24

 
$
12

Net revenue for the SSG operating segments increased by $26 million in 2014 compared to 2013.
The operating results for the SSG operating segments increased by $31 million in 2014 compared to 2013.
Net revenue for the SSG operating segments increased by $118 million in 2013 compared to 2012. The increase was primarily driven by higher McAfee revenue.
The operating results for the SSG operating segments increased by $12 million in 2013 compared to 2012. The increase was primarily driven by higher McAfee revenue, partially offset by higher McAfee operating expenses.
Operating Expenses
Operating expenses for each period were as follows:
(Dollars In Millions)
 
2014
 
2013
 
2012
Research and development (R&D)
 
$
11,537

 
$
10,611

 
$
10,148

Marketing, general and administrative (MG&A)
 
$
8,136

 
$
8,088

 
$
8,057

R&D and MG&A as percentage of net revenue
 
35
%
 
35
%
 
34
%
Restructuring and asset impairment charges
 
$
295

 
$
240

 
$

Amortization of acquisition-related intangibles
 
$
294

 
$
291

 
$
308

Research and Development. R&D spending increased by $926 million, or 9%, in 2014 compared to 2013. The increase was due to higher process development costs for our 10nm process technology, higher compensation expenses for both profit-dependent compensation and annual salary increases, as well as higher investments in our products, primarily server and new devices. This increase was partially offset by lower product investments in our smartphone, tablet, and Intel Media businesses.
R&D spending increased by $463 million, or 5%, in 2013 compared to 2012. The increase was driven by higher investments in our products, primarily smartphones and tablets, as well as higher compensation expenses due to annual salary increases. This increase was partially offset by lower process development costs as we transitioned from R&D to manufacturing for our 14nm process technology.
Marketing, General and Administrative. MG&A expenses increased by $48 million, or 1%, in 2014 compared to 2013. MG&A expenses increased by $31 million in 2013 compared to 2012.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Restructuring and Asset Impairment Charges. Beginning in Q3 2013, management approved several restructuring actions, including targeted workforce reductions and the exit of certain businesses and facilities. These actions include the wind down of our 200mm wafer fabrication facility in Massachusetts, which we expect to cease production in Q1 2015, and the closure of our assembly and test facility in Costa Rica, which ceased production in Q4 2014. These targeted reductions will enable the company to better align our resources in areas providing the greatest benefit in the current business environment. We expect these actions to be substantially complete by the end of 2015.
Restructuring and asset impairment charges for each period were as follows:
(In Millions)
 
2014
 
2013
 
2012
Employee severance and benefit arrangements
 
$
265

 
$
201

 
$

Asset impairments and other restructuring charges
 
30

 
39

 

Total restructuring and asset impairment charges
 
$
295

 
$
240

 
$

Restructuring and asset impairment activity for each period was as follows:
(In Millions)
 
Employee Severance and Benefits
 
Asset Impairments and Other
 
Total
Accrued restructuring balance as of December 29, 2012
 
$

 
$

 
$

Additional accruals
 
195

 
39

 
234

Adjustments
 
6

 

 
6

Cash payments
 
(18
)
 

 
(18
)
Non-cash settlements
 

 
(39
)
 
(39
)
Accrued restructuring balance as of December 28, 2013
 
183

 

 
183

Additional accruals
 
252

 
31

 
283

Adjustments
 
13

 
(1
)
 
12

Cash payments
 
(327
)
 
(6
)
 
(333
)
Non-cash settlements
 

 
(13
)
 
(13
)
Accrued restructuring balance as of December 27, 2014
 
$
121

 
$
11

 
$
132

We recorded the additional accruals and adjustments as restructuring and asset impairment charges in the consolidated statements of income and within the "all other" operating segments category. A majority of the accrued restructuring balance as of December 27, 2014 is expected to be paid within the next 12 months and was recorded as a current liability within accrued compensation and benefits on the consolidated balance sheets.
Restructuring actions that were approved in 2014 impacted approximately 3,700 employees. Since Q3 2013, we have incurred a total of $535 million in restructuring and asset impairment charges. These charges included a total of $466 million related to employee severance and benefit arrangements for approximately 7,600 employees, and $69 million in asset impairment charges and other restructuring charges.
We estimate that employee severance and benefit charges to date will result in gross annual savings of approximately $600 million, which will be realized within R&D, cost of sales, and MG&A. We began to realize these savings in Q4 2013 and expect to fully realize these savings beginning in Q2 2015.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Share-Based Compensation
Share-based compensation totaled $1.1 billion in 2014 ($1.1 billion in 2013 and $1.1 billion in 2012). Share-based compensation was included in cost of sales and operating expenses.
As of December 27, 2014, unrecognized share-based compensation costs and the weighted average periods over which the costs are expected to be recognized were as follows:
(Dollars in Millions)
 
Unrecognized
Share-Based
Compensation
Costs
 
Weighted
Average
Period
Restricted stock units
 
$
1,795

 
1.3 years
Stock options
 
$
34

 
11 months
As of December 27, 2014, there was $13 million in unrecognized share-based compensation costs related to rights to acquire shares of common stock under our stock purchase plan. We expect to recognize those costs over a period of approximately one and a half months.
Gains (Losses) on Equity Investments and Interest and Other
Gains (losses) on equity investments, net and interest and other, net for each period were as follows:
(In Millions)
 
2014
 
2013
 
2012
Gains (losses) on equity investments, net
 
$
411

 
$
471

 
$
141

Interest and other, net
 
$
43

 
$
(151
)
 
$
94

We recognized lower net gains on equity investments in 2014 compared to 2013 due to lower gains on sales of equity investments partially offset by higher gains on third-party merger transactions. The majority of gains on sales, net for 2014 resulted from gains on private equity sales.
We recognized higher net gains on equity investments in 2013 compared to 2012 due to higher gains on sales of equity investments, partially offset by lower gains on third-party merger transactions. Net gains on equity investments for 2013 included gains of $439 million on the sales of our interest in Clearwire Communications, LLC (Clearwire LLC) and our shares in Clearwire Corporation in Q3 2013. For further information on these transactions, see "Note 5: Cash and Investments" in Part II, Item 8 of this Form 10-K.
We recognized an interest and other net gain in 2014 compared to a net loss in 2013 due to a gain recognized on the divestiture of our Intel Media assets in 2014. For further information, see "Note 9: Divestitures" in Part II, Item 8 of this Form 10-K.
We recognized an interest and other net loss in 2013 compared to a net gain in 2012. We recognized a net loss in 2013 due to an increase in interest expense related to the issuance of our $6.2 billion aggregate principal amount of senior unsecured notes in Q4 2012. Additionally, in Q2 2012 we received proceeds from an insurance claim related to the floods in Thailand.
Provision for Taxes
Our provision for taxes and effective tax rate for each period were as follows:
(Dollars in Millions)
 
2014
 
2013
 
2012
Income before taxes
 
$
15,801

 
$
12,611

 
$
14,873

Provision for taxes
 
$
4,097

 
$
2,991

 
$
3,868

Effective tax rate
 
25.9
%
 
23.7
%
 
26.0
%
The U.S. R&D tax credit was reenacted in Q4 2014 retroactive for the full year. It was also reenacted in Q1 2013 retroactive to the beginning of 2012. A substantial majority of the increase in our effective tax rate between 2014 and 2013 was driven by the reenacted U.S. R&D tax credit in 2013 containing two years' worth of R&D tax credits.
The majority of the decrease in our effective tax rate between 2013 and 2012 was driven by the recognition of the 2012 U.S. R&D tax credit in Q1 2013. This was partially offset by a lower percentage of our profits generated in lower tax jurisdictions in 2013 compared to 2012.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources
(Dollars in Millions)
 
Dec 27,
2014
 
Dec 28,
2013
Cash and cash equivalents, short-term investments, and trading assets
 
$
14,054

 
$
20,087

Other long-term investments
 
$
2,023

 
$
1,473

Loans receivable and other
 
$
1,285

 
$
1,226

Reverse repurchase agreements with original maturities greater than approximately three months
 
$
450

 
$
400

Short-term and long-term debt
 
$
13,711

 
$
13,446

Temporary equity
 
$
912

 
$

Debt as percentage of permanent stockholders’ equity
 
24.5
%
 
23.1
%
Sources and Uses of Cash
(In Millions)
In summary, our cash flows for each period were as follows:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(In Millions)
 
2014
 
2013
 
2012
Net cash provided by operating activities
 
$
20,418

 
$
20,776

 
$
18,884

Net cash used for investing activities
 
(9,905
)
 
(18,073
)
 
(14,060
)
Net cash used for financing activities
 
(13,611
)
 
(5,498
)
 
(1,408
)
Effect of exchange rate fluctuations on cash and cash equivalents
 
(15
)
 
(9
)
 
(3
)
Net increase (decrease) in cash and cash equivalents
 
$
(3,113
)
 
$
(2,804
)
 
$
3,413


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
For 2014 compared to 2013, the $358 million decrease in cash provided by operating activities was due to changes in working capital, partially offset by higher net income and adjustments for non-cash items. The adjustments for non-cash items were higher due primarily to higher depreciation in 2014 compared to 2013. Income taxes paid, net of refunds, in 2014 compared to 2013 were $1.8 billion higher due to higher income before taxes in 2014 and 2012 income tax overpayments, which reduced income taxes paid in 2013.
Changes in assets and liabilities as of December 27, 2014, compared to December 28, 2013, included an income taxes net receivable resulting from income tax settlement payments in 2014 and higher accounts receivable resulting from a higher portion of sales at the end of Q4 2014.
For 2014, our three largest customers accounted for 46% of our net revenue (44% in 2013 and 43% in 2012), with HP accounting for 18% of our net revenue (17% in 2013 and 18% in 2012), Dell accounting for 16% of our net revenue (15% in 2013 and 14% in 2012), and Lenovo accounting for 12% of our net revenue (12% in 2013 and 11% in 2012). These three customers accounted for 43% of our accounts receivable as of December 27, 2014 (34% as of December 28, 2013).
For 2013 compared to 2012, the $1.9 billion increase in cash provided by operating activities was due to changes in working capital, partially offset by lower net income in 2013.
Investing Activities
Investing cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; as well as proceeds from divestitures and cash used for acquisitions.
The decrease in cash used for investing activities in 2014 compared to 2013 was primarily due to a decrease in purchases of available-for-sale investments and trading assets,higher maturities, and sales of our available-for-sale investments. This activity was partially offset by an increase in investments in non-marketable equity investments and lower maturities and sales of trading assets. Our capital expenditures were $10.1 billion in 2014 ($10.7 billion in 2013 and $11.0 billion in 2012).
Cash used for investing activities increased in 2013 compared to 2012 primarily due to an increase in purchases of available-for-sale investments and a decrease in maturities and sales of trading assets, partially offset by an increase in maturities and sales of available-for-sale investments and a decrease in purchases of licensed technology and patents. Net purchases of available-for-sale investments in 2012 included our purchase of $3.2 billion of equity securities in ASML in Q3 2012.
Financing Activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of long-term debt, and proceeds from the sale of common stock through employee equity incentive plans.
The increase in cash used for financing activities in 2014 compared to 2013 was primarily due to an increase in repurchases of common stock under our authorized stock repurchase program partially offset by the issuance of short-term debt in 2014. We have an ongoing authorization, originally approved by our Board of Directors in 2005, and subsequently amended, to repurchase up to $65 billion in shares of our common stock in the open market or negotiated transactions. This amount includes an increase of $20 billion in the authorization limit approved by our Board of Directors in July 2014. During 2014, we repurchased $10.8 billion of common stock under our authorized common stock repurchase program compared to $2.1 billion in 2013. As of December 27, 2014, $12.4 billion remained available for repurchase under the existing repurchase authorization limit. We base our level of common stock repurchases on internal cash management decisions, and this level may fluctuate. Proceeds from the sale of common stock through employee equity incentive plans totaled $1.7 billion in 2014 compared to $1.6 billion in 2013. Our total dividend payments were $4.4 billion in 2014 compared to $4.5 billion in 2013. We have paid a cash dividend in each of the past 89 quarters. In January 2015, our Board of Directors declared a cash dividend of $0.24 per share of common stock for Q1 2015. The dividend is payable on March 1, 2015 to stockholders of record on February 7, 2015.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The increase in cash used for financing activities in 2013 compared to 2012 was primarily due to the issuance of long-term debt in 2012 and fewer repurchases of common stock under our authorized common stock repurchase program in 2013.
Liquidity
Cash generated by operations is our primary source of liquidity. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. As of December 27, 2014, cash and cash equivalents, short-term investments, and trading assets totaled $14.1 billion ($20.1 billion as of December 28, 2013). In addition to the $14.1 billion, we have $2.0 billion of other long-term investments, $1.3 billion of loans receivable and other, and $450 million of reverse repurchase agreements with original maturities greater than approximately three months that we include when assessing our sources of liquidity. Most of our investments in debt instruments are in A/A2 or better rated issuances, and the majority of the issuances are rated AA-/Aa3 or better.
Another potential source of liquidity is an ongoing authorization from our Board of Directors to borrow up to $3.0 billion. This ongoing authorization includes borrowings under our commercial paper program. Maximum borrowings under our commercial paper program were $2.4 billion during 2014, and $500 million of commercial paper remained outstanding as of December 27, 2014. Our commercial paper was rated A-1+ by Standard & Poor’s and P-1 by Moody’s as of December 27, 2014. We also have an automatic shelf registration statement on file with the SEC, pursuant to which we may offer an unspecified amount of debt, equity, and other securities. In 2012, we utilized this shelf registration statement and issued $6.2 billion aggregate principal amount of senior unsecured notes. The proceeds from the sale of these notes were used for general corporate purposes and to repurchase common stock pursuant to our authorized common stock repurchase program. For further information on the terms of the notes, see "Note 15: Borrowings" in Part II, Item 8 of this Form 10-K.
As of December 27, 2014, $12.0 billion of our cash and cash equivalents, short-term investments, and trading assets was held by our non-U.S. subsidiaries. Of the $12.0 billion held by our non-U.S. subsidiaries, approximately $2.3 billion was available for use in the U.S. without incurring additional U.S. income taxes in excess of the amounts already accrued in our financial statements as of December 27, 2014. The remaining amount of non-U.S. cash and cash equivalents, short-term investments, and trading assets has been indefinitely reinvested and, therefore, no U.S. current or deferred taxes have been accrued and this amount is earmarked for near-term investment in our operations outside the U.S. and future acquisitions of non-U.S. entities. We believe our U.S. sources of cash and liquidity are sufficient to meet our business needs in the U.S., and do not expect that we will need to repatriate the funds we have designated as indefinitely reinvested outside the U.S. Under current tax laws, should our plans change and we were to choose to repatriate some or all of the funds we have designated as indefinitely reinvested outside the U.S., such amounts would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
We believe we have sufficient financial resources to meet our business requirements in the next 12 months, including capital expenditures for worldwide manufacturing and assembly and test, working capital requirements, dividends, common stock repurchases, acquisitions, and strategic investments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Fair Value of Financial Instruments
When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions, such as an obligor’s credit risk, that market participants would use when pricing the asset or liability. For further information, see "Fair Value" in "Note 2: Accounting Policies" and "Note 4: Fair Value" in Part II, Item 8 of this Form 10-K.
Marketable Debt Instruments
As of December 27, 2014, our assets measured and recorded at fair value on a recurring basis included $15.0 billion of marketable debt instruments. Of these instruments, $6.9 billion was classified as Level 1, $8.0 billion as Level 2, and $106 million as Level 3.
Our marketable debt instruments that are measured and recorded at fair value on a recurring basis and classified as Level 1 were classified as such due to the use of observable market prices for identical securities that are traded in active markets. We evaluate security-specific market data when determining whether the market for a debt security is active.
Of the $8.0 billion of marketable debt instruments measured and recorded at fair value on a recurring basis and classified as Level 2, approximately 40% was classified as Level 2 due to the use of a discounted cash flow model performed by us and approximately 60% was classified as such due to the use of non-binding market consensus prices that were corroborated with observable market data.
Our marketable debt instruments that are measured and recorded at fair value on a recurring basis and classified as Level 3 are classified as such because the fair values are generally derived from discounted cash flow models, performed either by us or our pricing providers, using inputs that we are unable to corroborate with observable market data. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
Loans Receivable and Reverse Repurchase Agreements
As of December 27, 2014, our assets measured and recorded at fair value on a recurring basis included $721 million of loans receivable and $268 million of reverse repurchase agreements. All of these investments were classified as Level 2, as the fair value is determined using a discounted cash flow model with all significant inputs derived from or corroborated with observable market data.
Marketable Equity Securities
As of December 27, 2014, our assets measured and recorded at fair value on a recurring basis included $7.1 billion of marketable equity securities. All of these securities were classified as Level 1 because the valuations were based on quoted prices for identical securities in active markets. Our assessment of an active market for our marketable equity securities generally takes into consideration the number of days that each individual equity security trades over a specified period.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Contractual Obligations
Significant contractual obligations as of December 27, 2014 were as follows:
  
 
Payments Due by Period
(In Millions)
 
Total
 
Less Than
1 Year
 
1–3 Years
 
3–5 Years
 
More Than
5 Years
Operating lease obligations
 
$
1,070

 
$
205

 
$
331

 
$
219

 
$
315

Capital purchase obligations
 
3,482

 
3,317

 
165

 

 

Other purchase obligations and commitments
 
2,500

 
1,390

 
1,027

 
83

 

Long-term debt obligations
 
21,942

 
430

 
5,330

 
720

 
15,462

Other long-term liabilities4, 5
 
1,437

 
780

 
416

 
128

 
113

Total
 
$
30,431

 
$
6,122

 
$
7,269

 
$
1,150

 
$
15,890

1 
Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on our consolidated balance sheets as of December 27, 2014, as we had not yet received the related goods or taken title to the property.
2 
Other purchase obligations and commitments include payments due under various types of licenses and agreements to purchase goods or services, as well as payments due under non-contingent funding obligations. Funding obligations include agreements to fund various projects with other companies.
3 
Amounts represent principal and interest cash payments over the life of the debt obligations, including anticipated interest payments that are not recorded on our consolidated balance sheets. Debt obligations are classified based on their stated maturity date, regardless of their classification on the consolidated balance sheets. Any future settlement of convertible debt would impact our cash payments.
4 
We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $262 million of long-term income taxes payable has been excluded from the preceding table. However, long-term income taxes payable, recorded on our consolidated balance sheets, included these uncertain tax positions, reduced by the associated federal deduction for state taxes and U.S. tax credits arising from non-U.S. income taxes.
5 
Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheets, including the short-term portion of these long-term liabilities. Expected required contributions to our U.S. and non-U.S. pension plans and other postretirement benefit plans of $69 million to be made during 2015 are also included; however, funding projections beyond 2015 are not practicable to estimate.
6 
Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities except for the short-term portions of long-term debt obligations and other long-term liabilities.
The expected timing of payments of the obligations in the preceding table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
Contractual obligations for purchases of goods or services, included in other purchase obligations and commitments in the preceding table, include agreements that are enforceable and legally binding on Intel and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts included in the preceding table were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.
We have entered into certain agreements for the purchase of raw materials that specify minimum prices and quantities based on a percentage of the total available market or based on a percentage of our future purchasing requirements. Due to the uncertainty of the future market and our future purchasing requirements, as well as the non-binding nature of these agreements, obligations under these agreements have been excluded from the preceding table. Our purchase orders for other products are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Contractual obligations that are contingent upon the achievement of certain milestones have been excluded from the preceding table. These obligations include milestone-based co-marketing agreements, contingent funding or payment obligations, and milestone-based equity investment funding. These arrangements are not considered contractual obligations until the milestone is met by the third party. As of December 27, 2014, assuming that all future milestones are met, excluding the ASML milestones subsequently mentioned, the additional required payments would be approximately $450 million. During 2012, we entered into a series of agreements with ASML intended to accelerate the development of EUV lithography, certain of which were amended in 2014. Under the amended agreements Intel agreed to provide R&D funding totaling €829 million over five years and committed to advance purchase orders for a specified number of tools from ASML. Our remaining obligation, contingent upon ASML achieving certain milestones, is approximately €562 million, or $689 million, as of December 27, 2014. As our obligation is contingent upon ASML achieving certain milestones, we have excluded this obligation from the preceding table.
For the majority of restricted stock units granted, the number of shares of common stock issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. The obligation to pay the relevant taxing authority is excluded from the preceding table, as the amount is contingent upon continued employment. In addition, the amount of the obligation is unknown, as it is based in part on the market price of our common stock when the awards vest.
During 2014, we entered into a series of agreements with Tsinghua Unigroup Ltd. (Tsinghua Unigroup), an operating subsidiary of Tsinghua Holdings Co. Ltd., to, among other things, jointly develop Intel architecture- and communications-based solutions for smartphones. Subject to regulatory approvals and other closing conditions, we have also agreed to invest up to RMB 9.0 billion (approximately $1.5 billion as of the date of the agreement) for a minority stake of approximately 20% of the holding company under Tsinghua Unigroup, which will own Spreadtrum Communications and RDA Microelectronics. As our obligation is contingent upon regulatory approvals and other closing conditions, it has been excluded from the preceding table.
Off-Balance-Sheet Arrangements
As of December 27, 2014, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange rates, interest rates, and equity prices. All of the following potential changes are based on sensitivity analyses performed on our financial positions as of December 27, 2014, and December 28, 2013. Actual results may differ materially.
Currency Exchange Rates
In general, we economically hedge currency risks of non-U.S.-dollar-denominated investments in debt instruments and loans receivable with currency forward contracts or currency interest rate swaps. Gains and losses on these non-U.S.-currency investments are generally offset by corresponding gains and losses on the related hedging instruments.
Substantially all of our revenue is transacted in U.S. dollars. However, a significant amount of our operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the euro, the Japanese yen, the Chinese yuan, and the Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in the fair value and the volatility of the functional currency equivalent of future cash flows caused by changes in exchange rates. We generally utilize currency forward contracts in these hedging programs. These programs reduce, but do not eliminate, the impact of currency exchange movements. For further information, see "Risk Factors" in Part I, Item 1A of this Form 10-K. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that a weighted average adverse change of 20% in currency exchange rates could be experienced in the near term. Such an adverse change, after taking into account balance sheet hedges only and offsetting recorded monetary asset and liability positions, would have resulted in an adverse impact on income before taxes of less than $50 million as of December 27, 2014 (less than $40 million as of December 28, 2013).
Interest Rates
We generally hedge interest rate risks of fixed-rate debt instruments with interest rate swaps. Gains and losses on these investments are generally offset by corresponding losses and gains on the related hedging instruments.
We are exposed to interest rate risk related to our investment portfolio and indebtedness. Our indebtedness includes our debt issuances and the liability associated with a long-term patent cross-license agreement with NVIDIA Corporation. The primary objective of our investments in debt instruments is to preserve principal while maximizing yields, which generally track the U.S. dollar three-month LIBOR. A hypothetical decrease in interest rates of up to 1.0% would have resulted in an increase in the fair value of our indebtedness of approximately $1.0 billion as of December 27, 2014 (an increase of approximately $1.1 billion as of December 28, 2013). A hypothetical decrease in benchmark interest rates of up to 1.0%, after taking into account investment hedges, would have resulted in an increase in the fair value of our investment portfolio of approximately $10 million as of December 27, 2014 (an increase of approximately $10 million as of December 28, 2013). The fluctuations in fair value of our investment portfolio and indebtedness reflect only the direct impact of the change in interest rates. Other economic variables, such as equity market fluctuations and changes in relative credit risk, could result in a significantly higher decline in the fair value of our net investment position. For further information on how credit risk is factored into the valuation of our investment portfolio and debt issuances, see "Note 4: Fair Value" in Part II, Item 8 of this Form 10-K.
Equity Prices
Our investments include marketable equity securities and equity derivative instruments. We typically do not attempt to reduce or eliminate our equity market exposure through hedging activities at the inception of our investments. Before we enter into hedge arrangements, we evaluate legal, market, and economic factors, as well as the expected timing of disposal, to determine whether hedging is appropriate. Our equity market risk management program may include equity derivatives with or without hedge accounting designation that utilize warrants, equity options, or other equity derivatives.
We also utilize total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains and losses from changes in the fair value of these total return swaps are generally offset by the losses and gains on the related liabilities.

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As of December 27, 2014, the fair value of our marketable equity investments and our equity derivative instruments, including hedging positions, was $7.1 billion ($6.3 billion as of December 28, 2013). Substantially all of our marketable equity investments portfolio as of December 27, 2014 was concentrated in our investment in ASML of $6.9 billion ($5.9 billion as of December 28, 2013). Our marketable equity method investments are excluded from our analysis, as the carrying value does not fluctuate based on market price changes unless an other-than-temporary impairment is deemed necessary. To determine reasonably possible decreases in the market value of our marketable equity investments, we have analyzed the historical market price sensitivity of our marketable equity investment portfolio. Assuming a decline of 30% in market prices, and after reflecting the impact of hedges and offsetting positions, the aggregate value of our marketable equity investments could decrease by approximately $2.1 billion, based on the value as of December 27, 2014 (a decrease in value of approximately $1.6 billion, based on the value as of December 28, 2013 using an assumed decline of 25%).
Many of the same factors that could result in an adverse movement of equity market prices affect our non-marketable equity investments, although we cannot always quantify the impact directly. Financial markets are volatile, which could negatively affect the prospects of the companies we invest in, their ability to raise additional capital, and the likelihood of our ability to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales. These types of investments involve a great deal of risk, and there can be no assurance that any specific company will grow or become successful; consequently, we could lose all or part of our investment. Our non-marketable equity investments, excluding investments accounted for under the equity method, had a carrying amount of $1.8 billion as of December 27, 2014 ($1.3 billion as of December 28, 2013). The carrying amount of our non-marketable equity method investments was $1.4 billion as of December 27, 2014 ($1.0 billion as of December 28, 2013). The majority of our non-marketable equity method investments balance as of December 27, 2014 was concentrated in our IMFT and Cloudera (which was purchased during 2014) investments of $713 million and $280 million, respectively ($646 million for IMFT as of December 28, 2013).
Commodity Price Risk
Although we operate facilities that consume commodities, we are not materially affected by commodity price risk. We have established forecasted transaction risk management programs to protect against fluctuations in the fair value and the volatility of future cash flows caused by changes in commodity prices. In addition, we have sourcing plans in place for our key commodities that mitigate the risk of a potential supplier concentration. For further information on commodity price risk, see "Note 6: Derivative Financial Instruments" in Part II, Item 8 of this Form 10-K.


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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
  
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders of Intel Corporation
We have audited the accompanying consolidated balance sheets of Intel Corporation as of December 27, 2014 and December 28, 2013, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 27, 2014. Our audits also included the financial statement schedule listed in the Index at Part IV, Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Intel Corporation at December 27, 2014 and December 28, 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 27, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Intel Corporation's internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 13, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP

San Jose, California
February 13, 2015

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders of Intel Corporation
We have audited Intel Corporation’s internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Intel Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Intel Corporation maintained, in all material respects, effective internal control over financial reporting as of December 27, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2014 consolidated financial statements of Intel Corporation and our report dated February 13, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

San Jose, California
February 13, 2015

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INTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 
Three Years Ended December 27, 2014
(In Millions, Except Per Share Amounts)
 
2014
 
2013
 
2012
Net revenue
 
$
55,870

 
$
52,708

 
$
53,341

Cost of sales
 
20,261

 
21,187

 
20,190

Gross margin
 
35,609

 
31,521

 
33,151

Research and development
 
11,537

 
10,611

 
10,148

Marketing, general and administrative
 
8,136

 
8,088

 
8,057

Restructuring and asset impairment charges
 
295

 
240

 

Amortization of acquisition-related intangibles
 
294

 
291

 
308

Operating expenses
 
20,262

 
19,230

 
18,513

Operating income
 
15,347

 
12,291

 
14,638

Gains (losses) on equity investments, net
 
411

 
471

 
141

Interest and other, net
 
43

 
(151
)
 
94

Income before taxes
 
15,801

 
12,611

 
14,873

Provision for taxes
 
4,097

 
2,991

 
3,868

Net income
 
$
11,704

 
$
9,620

 
$
11,005

Basic earnings per share of common stock
 
$
2.39

 
$
1.94

 
$
2.20

Diluted earnings per share of common stock
 
$
2.31

 
$
1.89

 
$
2.13

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
Basic
 
4,901

 
4,970

 
4,996

Diluted
 
5,056

 
5,097

 
5,160

See accompanying notes.

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INTEL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  
Three Years Ended December 27, 2014
(In Millions)
 
2014
 
2013
 
2012
Net income
 
$
11,704

 
$
9,620

 
$
11,005

Other comprehensive income, net of tax:
 
 
 
 
 
 
Change in net unrealized holding gains (losses) on available-for-sale investments
 
577

 
1,181

 
470

Change in deferred tax asset valuation allowance
 
(41
)
 
(26
)
 
(11
)
Change in net unrealized holding gains (losses) on derivatives
 
(427
)
 
(89
)
 
85

Change in net prior service costs (credits)
 
(33
)
 
18

 

Change in actuarial valuation
 
(402
)
 
520

 
(172
)
Change in net foreign currency translation adjustment