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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | | | | | | | |
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended | July 2, 2022 |
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) |
(408) 765-8080
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.001 par value | INTC | Nasdaq Global Select Market |
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 ☑ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large Accelerated Filer | | Accelerated filer | | Non-accelerated filer | | Smaller reporting company | Emerging growth company |
☑
| | ¨ | | ¨ | | ☐ | ☐ |
| | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of July 2, 2022, the registrant had outstanding 4,106 million shares of common stock.
Table of Contents
The Organization of Our Quarterly Report on Form 10-Q
The order and presentation of content in our Form 10-Q differs from the traditional SEC Form 10-Q format. Our format is designed to improve readability and better present how we organize and manage our business. See "Form 10-Q Cross-Reference Index" within Other Key Information for a cross-reference index to the traditional SEC Form 10-Q format.
We have defined certain terms and abbreviations used throughout our Form 10-Q in "Key Terms" within Consolidated Condensed Financial Statements and Supplemental Details.
The preparation of our Consolidated Condensed Financial Statements is in conformity with U.S. GAAP. Our Form 10-Q includes key metrics that we use to measure our business, some of which are non-GAAP measures. See "Non-GAAP Financial Measures" within MD&A for an explanation of these measures and why management uses them and believes they provide investors with useful supplemental information.
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Forward-Looking Statements | |
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A Quarter in Review | |
Consolidated Condensed Financial Statements and Supplemental Details | |
| Consolidated Condensed Statements of Income | |
| Consolidated Condensed Statements of Comprehensive Income | |
| Consolidated Condensed Balance Sheets | |
| Consolidated Condensed Statements of Cash Flows | |
| Consolidated Condensed Statements of Stockholders' Equity | |
| Notes to Consolidated Condensed Financial Statements | |
| Key Terms | |
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Management's Discussion and Analysis | |
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| Segment Trends and Results | |
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| Consolidated Results of Operations | |
| Liquidity and Capital Resources | |
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| Non-GAAP Financial Measures | |
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Other Key Information | |
| Quantitative and Qualitative Disclosures about Market Risk | |
| Risk Factors | |
| Controls and Procedures | |
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| Issuer Purchases of Equity Securities | |
| Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934 | |
| Exhibits | |
| Form 10-Q Cross-Reference Index | |
Forward-Looking Statements
This Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "accelerate," "adjust," "allow," "anticipate," "believe," "committed," "continue," "could," "deliver," "estimate," "expect," "focus," "goals," "grow," "guidance," "improve," "increase," "intend," "likely," "manage," "may," "might," "on track," "opportunity," "plans," "position," "potentially," "roadmap," "seeks," "should," "targets," "to be," "will," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to Intel’s strategy and its anticipated benefits, including our February 2022 Investor Day financial model, Smart Capital strategy, and updates to our reporting structure; Intel's process and packaging technology, roadmap, and schedules, including future node performance and other metrics; manufacturing expansion and financing plans; investment plans, and impacts of investment plans, including in the U.S. and abroad; future responses to and effects of COVID-19, including manufacturing, transportation, and operational restrictions or disruptions, such as the recent port shutdowns in China; future economic conditions; projections of our future financial performance; future business, social, and environmental performance, goals, measures and strategies; our anticipated growth and trends in our businesses and operations; projected growth and trends in markets relevant to our businesses; business plans; future products, services and technology, and the expected regulation, availability, production, and benefits of such products, services and technology; projected costs and yield trends; product and manufacturing plans, goals, timelines, ramps, progress and future product and process leadership and performance; geopolitical conditions, including the impacts of Russia's war on Ukraine and the suspension of our operations; expected timing and impact of acquisitions, divestitures, and other significant transactions, including statements relating to the pending acquisition of Tower Semiconductor Ltd., the sale of our NAND memory business, the proposed initial public offering of Mobileye, and the wind-down of our Intel® Optane™ memory business; expected completion of restructuring activities; availability, uses, sufficiency, and cost of capital and of capital resources, including expected returns to stockholders such as dividends and share repurchases, and the expected timing of future repurchases; our valuation; future production capacity and product supply; supply expectations, including regarding constraints, limitations, pricing, and industry shortages; the future purchase, use, and availability of products, components and services supplied by third parties, including third-party IP and manufacturing services; tax- and accounting-related expectations; LIBOR-related expectations; uncertain events or assumptions, including statements relating to TAM, product or customer demand or market opportunity; and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management's expectations as of the date of this filing, unless an earlier date is specified, and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report, our 2021 Form 10-K, and our Form 10-Q for the quarter ended April 2, 2022, particularly in "Risk Factors" within Other Key Information, including changes in demand for our products, changes in product mix, the complexity of our manufacturing operations, competition, investments in R&D and our business, products, and technologies, vulnerability to product and manufacturing-related risks, the effects of the COVID-19 pandemic, supply chain risks, cybersecurity and privacy risks, investment and transaction risk, evolving regulatory and legal requirements, and the risks of our global operations, among others. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Unless specifically indicated otherwise, the forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that have not been completed as of the date of this filing. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, unless an earlier date is specified, including expectations based on third-party information and projections that management believes to be reputable, and Intel does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.
Intel, the Intel logo, Intel Core, and Intel Optane are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.
* Other names and brands may be claimed as the property of others.
Total revenue of $15.3 billion was down $4.3 billion year over year or 22%, as CCG revenue decreased 25% and DCAI revenue decreased 16%. Q2 2022 results were impacted by a weakening and uncertain macroeconomic environment impacted by inflation, higher interest rates and the war in Ukraine, and our customers' adjustment to this new environment. We were also impacted by worse than expected reductions in demand following COVID-driven highs as well as supply dislocations in China and other parts of the supply chain, including following the extended shutdown of ports in China. CCG revenue was down on lower notebook and desktop volume. Notebook ASPs were higher due to a resulting change in product mix. DCAI revenue decreased 16% on lower Server volume, while Server ASPs decreased due to a higher mix of hyperscale customer-related revenue within a competitive environment. CCG and DCAI customers tempered purchases to reduce existing inventories and adjust to a lower demand environment. NEX revenue increased 11% primarily due to increased demand for Ethernet and 5G products and higher ASPs, partially offset by decreased demand for Network Xeon.
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Revenue | | Gross Margin | | Diluted EPS | | Cash Flows |
■ GAAP $B ■ Non-GAAP $B | | ■ GAAP ■ Non-GAAP | | ■ GAAP ■ Non-GAAP | | ■ Operating Cash Flow $B ■ Adjusted Free Cash Flow $B |
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$15.3B | | 36.5% | | 44.8% | | $(0.11) | | $0.29 | | $6.7B | | $(0.8)B |
GAAP | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 | | GAAP | | non-GAAP1 |
Revenue down $4.3B or 22% from Q2 2021 | | Gross margin down 20.6 ppts from Q2 2021 | | Gross margin down 15 ppts from Q2 2021 | | Diluted EPS down $1.35 or 109% from Q2 2021 | | Diluted EPS down $1.07 or 79% from Q2 2021 | | Operating cash flow down $7.4B or 53% from YTD 2021 | | Adjusted free cash flow down $7.5B or 112% from YTD 2021 |
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Lower revenue in CCG and DCAI; higher revenue in NEX; lack of NAND revenue compared to Q2 2021. | | Lower gross margin from lower revenue, higher inventory reserves, higher period charges from ramp of Intel 4, higher unit cost, Optane inventory impairment from winding down Intel Optane, and patent settlement charges. | | Lower EPS from lower gross margin, higher operating expenses from additional investment in R&D and higher losses on equity investments, partially offset by a tax benefit on the operating loss. | | Lower operating cash flow driven by lower income after adjusting for non-cash items, including the gain on the sale of McAfee and the pre-tax gain from the divestiture of our NAND business; also affected by unfavorable working capital changes. |
Key Developments
▪We announced the implementation of cost-cutting measures, including a slower pace of hiring, designed to reduce operating expenditures and manage the business towards the long-term financial model set forth at our February Investor Day.
▪We announced that the ramp of Sapphire Rapids is expected to occur later in the year than previously forecasted and upon release, combined with the remainder of our next-gen Intel® Xeon® Scalable processors, it is expected to unleash the data center ecosystem and usher in new progress for AI driven software and security, enabling us to capture new share in fast-growing markets like AI, networking, and cryptography.
▪We launched the 12th Gen Intel® Core™ HX processors – the final products in our Alder Lake family. The 12th Gen Intel Core HX processors utilize desktop-caliber silicon in a mobile package to deliver high levels of performance for professional workflows like CAD, animation and visual effects.
▪We announced a strategic partnership with MediaTek to manufacture chips for a range of smart edge devices using IFS advanced process technologies and global capacity.
1 See "Non-GAAP Financial Measures" within MD&A.
2 See "Key Terms" within Consolidated Condensed Financial Statements and Supplemental Details.
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Consolidated Condensed Statements of Income | |
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| | Three Months Ended | | Six Months Ended |
(In Millions, Except Per Share Amounts; Unaudited) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 |
Net revenue | | $ | 15,321 | | | $ | 19,631 | | | $ | 33,674 | | | $ | 39,304 | |
Cost of sales | | 9,734 | | | 8,425 | | | 18,843 | | | 17,244 | |
Gross margin | | 5,587 | | | 11,206 | | | 14,831 | | | 22,060 | |
Research and development | | 4,400 | | | 3,715 | | | 8,762 | | | 7,338 | |
Marketing, general and administrative | | 1,800 | | | 1,599 | | | 3,552 | | | 2,927 | |
Restructuring and other charges | | 87 | | | 346 | | | (1,124) | | | 2,555 | |
Operating expenses | | 6,287 | | | 5,660 | | | 11,190 | | | 12,820 | |
Operating income (loss) | | (700) | | | 5,546 | | | 3,641 | | | 9,240 | |
Gains (losses) on equity investments, net | | (90) | | | 295 | | | 4,233 | | | 663 | |
Interest and other, net | | (119) | | | (96) | | | 878 | | | (252) | |
Income (loss) before taxes | | (909) | | | 5,745 | | | 8,752 | | | 9,651 | |
Provision for (benefit from) taxes | | (455) | | | 684 | | | 1,093 | | | 1,229 | |
Net income (loss) | | $ | (454) | | | $ | 5,061 | | | $ | 7,659 | | | $ | 8,422 | |
Earnings (loss) per share—basic | | $ | (0.11) | | | $ | 1.25 | | | $ | 1.87 | | | $ | 2.08 | |
Earnings (loss) per share—diluted | | $ | (0.11) | | | $ | 1.24 | | | $ | 1.86 | | | $ | 2.06 | |
| | | | | | | | |
Weighted average shares of common stock outstanding: | | | | | | | | |
Basic | | 4,100 | | | 4,049 | | | 4,095 | | | 4,053 | |
Diluted | | 4,100 | | | 4,084 | | | 4,120 | | | 4,090 | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Income | 3 |
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Consolidated Condensed Statements of Comprehensive Income | |
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| | Three Months Ended | | Six Months Ended |
(In Millions; Unaudited) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 |
Net income (loss) | | $ | (454) | | | $ | 5,061 | | | $ | 7,659 | | | $ | 8,422 | |
Changes in other comprehensive income, net of tax: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net unrealized holding gains (losses) on derivatives | | (627) | | | 6 | | | (742) | | | (344) | |
Actuarial valuation and other pension benefits (expenses), net | | 9 | | | 12 | | | 27 | | | 25 | |
Translation adjustments and other | | (5) | | | (10) | | | (30) | | | (25) | |
Other comprehensive income (loss) | | (623) | | | 8 | | | (745) | | | (344) | |
Total comprehensive income (loss) | | $ | (1,077) | | | $ | 5,069 | | | $ | 6,914 | | | $ | 8,078 | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Comprehensive Income | 4 |
| | | | | |
Consolidated Condensed Balance Sheets | |
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(In Millions; Unaudited) | | Jul 2, 2022 | | Dec 25, 2021 |
| | | | |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 4,390 | | | $ | 4,827 | |
Short-term investments | | 22,654 | | | 24,426 | |
| | | | |
Accounts receivable | | 6,063 | | | 9,457 | |
Inventories | | 12,174 | | | 10,776 | |
Assets held for sale | | 32 | | | 6,942 | |
Other current assets | | 5,275 | | | 2,130 | |
Total current assets | | 50,588 | | | 58,558 | |
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Property, plant and equipment, net of accumulated depreciation of $89,163 ($85,294 as of December 25, 2021) | | 71,660 | | | 63,245 | |
Equity investments | | 5,929 | | | 6,298 | |
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Goodwill | | 27,587 | | | 26,963 | |
Identified intangible assets, net | | 6,427 | | | 7,270 | |
Other long-term assets | | 8,227 | | | 6,072 | |
Total assets | | $ | 170,418 | | | $ | 168,406 | |
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Liabilities and stockholders’ equity | | | | |
Current liabilities: | | | | |
Short-term debt | | $ | 2,882 | | | $ | 4,591 | |
Accounts payable | | 7,945 | | | 5,747 | |
Accrued compensation and benefits | | 2,730 | | | 4,535 | |
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| | | | |
Other accrued liabilities | | 13,661 | | | 12,589 | |
Total current liabilities | | 27,218 | | | 27,462 | |
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Debt | | 32,548 | | | 33,510 | |
| | | | |
Income taxes payable | | 3,684 | | | 4,305 | |
Deferred income taxes | | 572 | | | 2,667 | |
Other long-term liabilities | | 5,178 | | | 5,071 | |
Contingencies (Note 12) | | | | |
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Stockholders’ equity: | | | | |
| | | | |
Common stock and capital in excess of par value, 4,106 issued and outstanding (4,070 issued and outstanding as of December 25, 2021) | | 29,858 | | | 28,006 | |
Accumulated other comprehensive income (loss) | | (1,625) | | | (880) | |
Retained earnings | | 72,985 | | | 68,265 | |
Total stockholders’ equity | | 101,218 | | | 95,391 | |
Total liabilities and stockholders’ equity | | $ | 170,418 | | | $ | 168,406 | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Balance Sheets | 5 |
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Consolidated Condensed Statements of Cash Flows | |
| |
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| | Six Months Ended |
(In Millions; Unaudited) | | Jul 2, 2022 | | Jun 26, 2021 |
| | | | |
Cash and cash equivalents, beginning of period | | $ | 4,827 | | | $ | 5,865 | |
Cash flows provided by (used for) operating activities: | | | | |
Net income (loss) | | 7,659 | | | 8,422 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation | | 5,528 | | | 4,862 | |
Share-based compensation | | 1,599 | | | 1,044 | |
| | | | |
Restructuring and other charges | | 73 | | | 2,555 | |
Amortization of intangibles | | 968 | | | 897 | |
(Gains) losses on equity investments, net | | (4,230) | | | (555) | |
(Gains) losses on divestitures | | (1,072) | | | — | |
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Changes in assets and liabilities: | | | | |
Accounts receivable | | 3,397 | | | (678) | |
Inventories | | (1,386) | | | (126) | |
Accounts payable | | 117 | | | 425 | |
Accrued compensation and benefits | | (1,985) | | | (836) | |
Prepaid customer supply agreements | | (12) | | | (1,571) | |
Income taxes | | (2,232) | | | 114 | |
Other assets and liabilities | | (1,724) | | | (404) | |
Total adjustments | | (959) | | | 5,727 | |
Net cash provided by operating activities | | 6,700 | | | 14,149 | |
Cash flows provided by (used for) investing activities: | | | | |
Additions to property, plant and equipment | | (11,846) | | | (7,574) | |
Additions to held for sale NAND property, plant and equipment | | (206) | | | (682) | |
| | | | |
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Purchases of short-term investments | | (25,514) | | | (16,637) | |
Maturities and sales of short-term investments | | 25,407 | | | 15,062 | |
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Sales of equity investments | | 4,775 | | | 149 | |
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Proceeds from divestitures | | 6,579 | | | — | |
Other investing | | (1,667) | | | 768 | |
Net cash used for investing activities | | (2,472) | | | (8,914) | |
Cash flows provided by (used for) financing activities: | | | | |
| | | | |
| | | | |
| | | | |
Payments on finance leases | | (299) | | | — | |
| | | | |
Repayment of debt | | (1,688) | | | (500) | |
Proceeds from sales of common stock through employee equity incentive plans | | 589 | | | 589 | |
Repurchase of common stock | | — | | | (2,415) | |
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Payment of dividends to stockholders | | (2,986) | | | (2,821) | |
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Other financing | | (281) | | | (1,207) | |
Net cash used for financing activities | | (4,665) | | | (6,354) | |
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Net increase (decrease) in cash and cash equivalents | | (437) | | | (1,119) | |
Cash and cash equivalents, end of period | | $ | 4,390 | | | $ | 4,746 | |
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Supplemental disclosures: | | | | |
Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities | | $ | 3,286 | | | $ | 2,426 | |
| | | | |
| | | | |
Cash paid during the period for: | | | | |
Interest, net of capitalized interest | | $ | 214 | | | $ | 283 | |
Income taxes, net of refunds | | $ | 3,326 | | | $ | 1,110 | |
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| | | | |
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Cash Flows | 6 |
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Consolidated Condensed Statements of Stockholders' Equity | |
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| | Common Stock and Capital in Excess of Par Value | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings1 | | Total |
(In Millions, Except Per Share Amounts; Unaudited) | | Shares | | Amount | | | |
Three Months Ended | | | | | | | | | | |
| | | | | | | | | | |
Balance as of April 02, 2022 | | 4,089 | | | $ | 29,244 | | | $ | (1,002) | | | $ | 74,894 | | | $ | 103,136 | |
Net income (loss) | | — | | | — | | | — | | | (454) | | | (454) | |
Other comprehensive income (loss) | | — | | | — | | | (623) | | | — | | | (623) | |
Employee equity incentive plans and other | | 22 | | | 12 | | | — | | | — | | | 12 | |
Share-based compensation | | — | | | 892 | | | — | | | — | | | 892 | |
| | | | | | | | | | |
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Restricted stock unit withholdings | | (5) | | | (290) | | | — | | | 44 | | | (246) | |
Cash dividends declared ($0.37 per share) | | — | | | — | | | — | | | (1,499) | | | (1,499) | |
Balance as of July 02, 2022 | | 4,106 | | | $ | 29,858 | | | $ | (1,625) | | | $ | 72,985 | | | $ | 101,218 | |
| | | | | | | | | | |
Balance as of March 27, 2021 | | 4,038 | | | $ | 26,272 | | | $ | (1,103) | | | $ | 54,638 | | | $ | 79,807 | |
| | | | | | | | | | |
| | | | | | | | | | |
Net income (loss) | | — | | | — | | | — | | | 5,061 | | | 5,061 | |
Other comprehensive income (loss) | | — | | | — | | | 8 | | | — | | | 8 | |
Employee equity incentive plans and other | | 24 | | | 23 | | | — | | | — | | | 23 | |
Share-based compensation | | — | | | 619 | | | — | | | — | | | 619 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Restricted stock unit withholdings | | (5) | | | (259) | | | — | | | (52) | | | (311) | |
| | | | | | | | | | |
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Balance as of June 26, 2021 | | 4,057 | | | $ | 26,655 | | | $ | (1,095) | | | $ | 59,647 | | | $ | 85,207 | |
| | | | | | | | | | |
Six Months Ended | | | | | | | | | | |
| | | | | | | | | | |
Balance as of December 25, 2021 | | 4,070 | | | $ | 28,006 | | | $ | (880) | | | $ | 68,265 | | | $ | 95,391 | |
Net income (loss) | | — | | | — | | | — | | | 7,659 | | | 7,659 | |
Other comprehensive income (loss) | | — | | | — | | | (745) | | | — | | | (745) | |
Employee equity incentive plans and other | | 42 | | | 601 | | | — | | | — | | | 601 | |
Share-based compensation | | — | | | 1,599 | | | — | | | — | | | 1,599 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Repurchase of common stock | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | |
Restricted stock unit withholdings | | (6) | | | (348) | | | — | | | 47 | | | (301) | |
Cash dividends declared ($0.73 per share) | | — | | | — | | | — | | | (2,986) | | | (2,986) | |
Balance as of July 02, 2022 | | 4,106 | | | $ | 29,858 | | | $ | (1,625) | | | $ | 72,985 | | | $ | 101,218 | |
| | | | | | | | | | |
Balance as of December 26, 2020 | | 4,062 | | | $ | 25,556 | | | $ | (751) | | | $ | 56,268 | | | $ | 81,073 | |
Net income (loss) | | — | | | — | | | — | | | 8,422 | | | 8,422 | |
Other comprehensive income (loss) | | — | | | — | | | (344) | | | — | | | (344) | |
Employee equity incentive plans and other | | 41 | | | 588 | | | — | | | — | | | 588 | |
Share-based compensation | | — | | | 1,044 | | | — | | | — | | | 1,044 | |
| | | | | | | | | | |
| | | | | | | | | | |
Repurchase of common stock | | (40) | | | (249) | | | — | | | (2,166) | | | (2,415) | |
| | | | | | | | | | |
Restricted stock unit withholdings | | (6) | | | (284) | | | — | | | (56) | | | (340) | |
Cash dividends declared ($0.70 per share) | | — | | | — | | | — | | | (2,821) | | | (2,821) | |
Balance as of June 26, 2021 | | 4,057 | | | $ | 26,655 | | | $ | (1,095) | | | $ | 59,647 | | | $ | 85,207 | |
1The retained earnings balance as of December 26, 2020 includes an opening balance adjustment made as a result of the adoption of a new accounting standard in 2021.
See accompanying notes.
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| Financial Statements | Consolidated Condensed Statements of Stockholders' Equity | 7 |
| | | | | |
Notes to Consolidated Condensed Financial Statements | |
| |
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Note 1 : | Basis of Presentation |
We prepared our interim Consolidated Condensed Financial Statements that accompany these notes in conformity with U.S. GAAP, consistent in all material respects with those applied in our 2021 Form 10-K and as updated by our Form 10-Q for the quarter ended April 2, 2022.
We have made estimates and judgments affecting the amounts reported in our Consolidated Condensed Financial Statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with the Consolidated Financial Statements in our 2021 Form 10-K where we include additional information on our critical accounting estimates, policies, and the methods and assumptions used in our estimates.
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Note 2 : | Operating Segments |
We previously announced several organizational changes that would accelerate the execution and innovation of our Company by allowing us to capture growth in both large traditional markets and high-growth emerging markets. This includes reorganization of our business units to capture this growth and to provide increased transparency, focus and accountability. As a result, we modified our segment reporting in the first quarter of 2022 to align to the previously-announced business reorganization. All prior-period segment data has been retrospectively adjusted to reflect the way our CODM internally receives information, and manages and monitors our operating segment performance starting in fiscal year 2022.
We now manage our business through the following operating segments:
▪Client Computing (CCG)
▪Datacenter and AI (DCAI)
▪Network and Edge (NEX)
▪Accelerated Computing Systems and Graphics (AXG)
▪Mobileye
▪Intel Foundry Services (IFS)
We derive a substantial majority of our revenue from our principal products that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multichip package, which is based on Intel® architecture.
CCG, DCAI and NEX are our reportable operating segments. AXG, Mobileye, and IFS do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. AXG revenue includes integrated graphics royalties from our CCG and NEX operating segments and are recorded as if the sales or transfers were to third parties at prices that approximate market-based selling prices. When we enter into federal contracts, they are aligned to the sponsoring operating segment.
We have sales and marketing, manufacturing, engineering, finance, and administration groups. Expenses for these groups are generally allocated to the operating segments.
We have an "all other" category that includes revenue, expenses, and charges such as:
▪historical results of operations from divested businesses;
▪results of operations of start-up businesses that support our initiatives;
▪amounts included within restructuring and other charges;
▪employee benefits, compensation, impairment charges, and other expenses not allocated to the operating segments (beginning the first quarter of 2022, this includes all of our stock-based compensation); and
▪acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.
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| Financial Statements | Notes to Financial Statements | 8 |
The CODM, who is our CEO, allocates resources to and assesses the performance of each operating segment using information about the operating segment's revenue and operating income (loss). The CODM does not evaluate operating segments using discrete asset information and we do not identify or allocate assets by operating segments. Based on the interchangeable nature of our manufacturing and assembly and test assets, most of the related depreciation expense is not directly identifiable within our operating segments, as it is included in overhead cost pools and subsequently absorbed into inventory as each product passes through our manufacturing process. Because our products are then sold across multiple operating segments, it is impracticable to determine the total depreciation expense included as a component of each operating segment's operating income (loss) results. We do not allocate gains and losses from equity investments, interest and other income, share-based compensation, or taxes to our operating segments. Although the CODM uses operating income (loss) to evaluate the segments, operating costs included in one segment may benefit other segments. The accounting policies for segment reporting are the same as for Intel as a whole. There have been no changes to our segment accounting policies disclosed in our 2021 Form 10-K except for the organizational changes and the change in allocation of stock-based compensation expense described above.
Net revenue and operating income (loss) for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(In Millions) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 |
Operating segment revenue: | | | | | | | | |
Client Computing | | | | | | | | |
Desktop | | $ | 2,289 | | | $ | 2,792 | | | $ | 4,930 | | | $ | 5,562 | |
Notebook | | 4,751 | | | 6,734 | | | 10,710 | | | 13,690 | |
Other | | 625 | | | 727 | | | 1,319 | | | 1,724 | |
| | 7,665 | | | 10,253 | | | 16,959 | | | 20,976 | |
| | | | | | | | |
Datacenter and AI | | 4,649 | | | 5,547 | | | 10,683 | | | 10,487 | |
Network and Edge | | 2,333 | | | 2,105 | | | 4,546 | | | 3,904 | |
Accelerated Computing Systems and Graphics | | 186 | | | 177 | | | 405 | | | 358 | |
Mobileye | | 460 | | | 327 | | | 854 | | | 704 | |
Intel Foundry Services | | 122 | | | 264 | | | 405 | | | 367 | |
All other | | 32 | | | 1,129 | | | 99 | | | 2,853 | |
Total operating segment revenue | | $ | 15,447 | | | $ | 19,802 | | | $ | 33,951 | | | $ | 39,649 | |
| | | | | | | | |
Operating income (loss): | | | | | | | | |
Client Computing | | $ | 1,085 | | | $ | 4,029 | | | $ | 3,912 | | | 8,317 | |
Datacenter and AI | | 214 | | | 2,090 | | | 1,900 | | | 3,796 | |
Network and Edge | | 241 | | | 605 | | | 607 | | | 848 | |
Accelerated Computing Systems and Graphics | | (507) | | | (168) | | | (897) | | | (344) | |
Mobileye | | 190 | | | 133 | | | 338 | | | 304 | |
Intel Foundry Services | | (155) | | | 52 | | | (186) | | | 18 | |
All other | | (1,768) | | | (1,195) | | | (2,033) | | | (3,699) | |
Total operating income (loss) | | $ | (700) | | | $ | 5,546 | | | $ | 3,641 | | | $ | 9,240 | |
The following table presents intersegment revenue before eliminations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating segment revenue | | $ | 15,447 | | | $ | 19,802 | | | $ | 33,951 | | | $ | 39,649 | |
| | | | | | | | |
Less: Accelerated Computing Systems and Graphics intersegment revenue | | (126) | | | (171) | | | (277) | | | (345) | |
Total net revenue | | $ | 15,321 | | | $ | 19,631 | | | $ | 33,674 | | | $ | 39,304 | |
In the second quarter of 2022, we initiated the wind-down of our Intel Optane memory business, which is part of our DCAI operating segment. While Intel Optane is a leading technology, it was not aligned to our strategic priorities. Separately, we continue to embrace the CXL standard. As a result, we recognized an inventory impairment of $559 million in Cost of sales on the Consolidated Condensed Statements of Income in the second quarter of 2022. The impairment charge is recognized as a Corporate charge in the "all other" category presented above. As we wind down the Intel Optane business, we expect to continue to meet existing customer commitments.
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| Financial Statements | Notes to Financial Statements | 9 |
| | | | | |
Note 3 : | Earnings Per Share |
We computed basic earnings per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings per share of common stock based on the weighted average number of shares of common stock outstanding plus potentially dilutive shares of common stock outstanding during the period.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(In Millions, Except Per Share Amounts) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 |
Net income (loss) available to common stockholders | | $ | (454) | | | $ | 5,061 | | | $ | 7,659 | | | $ | 8,422 | |
Weighted average shares of common stock outstanding—basic | | 4,100 | | | 4,049 | | | 4,095 | | | 4,053 | |
Dilutive effect of employee equity incentive plans | | — | | | 35 | | | 25 | | | 37 | |
| | | | | | | | |
Weighted average shares of common stock outstanding—diluted | | 4,100 | | | 4,084 | | | 4,120 | | | 4,090 | |
Earnings (loss) per share—basic
| | $ | (0.11) | | | $ | 1.25 | | | $ | 1.87 | | | $ | 2.08 | |
Earnings (loss) per share—diluted
| | $ | (0.11) | | | $ | 1.24 | | | $ | 1.86 | | | $ | 2.06 | |
Potentially dilutive shares of common stock from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, and the assumed issuance of common stock under the stock purchase plan. Due to our net loss in the second quarter of 2022, the assumed exercise of outstanding stock options, the assumed vesting of outstanding RSUs, and the assumed issuance of common stock under the stock purchase plan had an antidilutive effect on diluted earnings per share. If we had recognized net income during the second quarter, the dilutive effect of employee equity incentive plans would have been 22 million shares.
Securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share in all periods presented.
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Note 4 : | Other Financial Statement Details |
Inventories
| | | | | | | | | | | | | | |
(In Millions) | | Jul 2, 2022 | | Dec 25, 2021 |
Raw materials | | $ | 1,587 | | | $ | 1,441 | |
Work in process | | 6,164 | | | 6,656 | |
Finished goods | | 4,423 | | | 2,679 | |
Total inventories | | $ | 12,174 | | | $ | 10,776 | |
Interest and Other, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(In Millions) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 |
Interest income | | $ | 98 | | | $ | 37 | | | $ | 145 | | | $ | 74 | |
Interest expense | | (109) | | | (129) | | | (233) | | | (319) | |
Other, net | | (108) | | | (4) | | | 966 | | | (7) | |
Total interest and other, net | | $ | (119) | | | $ | (96) | | | $ | 878 | | | $ | (252) | |
Interest expense is net of $154 million of interest capitalized in the second quarter of 2022 and $296 million in the first six months of 2022 ($96 million in the second quarter of 2021 and $193 million in the first six months of 2021). Other, net in the first six months of 2022 includes a gain of $1.0 billion resulting from the divestiture of our NAND memory business as more fully described in "Note 7: Acquisitions and Divestitures" within Notes to Consolidated Condensed Financial Statements.
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| Financial Statements | Notes to Financial Statements | 10 |
| | | | | |
Note 5 : | Restructuring and Other Charges |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(In Millions) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 |
Employee severance and benefit arrangements | | $ | 38 | | | $ | 15 | | | $ | 43 | | | $ | 22 | |
| | | | | | | | |
Litigation charges and other | | 13 | | | 49 | | | (1,203) | | | 2,251 | |
Asset impairment charges | | 36 | | | 282 | | | 36 | | | 282 | |
Total restructuring and other charges | | $ | 87 | | | $ | 346 | | | $ | (1,124) | | | $ | 2,555 | |
Litigation charges and other includes $1.2 billion in the first quarter of 2022 from the annulled penalty related to an EC fine that was recorded and paid in 2009, and a charge of $2.2 billion in the first quarter of 2021 related to the VLSI litigation. These were recorded as a Corporate benefit and charge, respectively, in the "all other" category presented in "Note 2: Operating Segments" within Notes to Consolidated Condensed Financial Statements. Refer to "Note 12: Contingencies" within Notes to Consolidated Condensed Financial Statements for further information on legal proceedings related to the EC fine and the VLSI litigation.
Asset impairment charges includes $237 million of goodwill and other impairments related to the shutdown in the second quarter of 2021 of two of our non-strategic businesses, the results of which are included in the “all other” category presented in “Note 2: Operating Segments” within Notes to Consolidated Condensed Financial Statements.
Short-term Investments
Short-term investments include marketable debt investments in corporate debt, government debt, and financial institution instruments. Government debt includes instruments such as non-U.S. government bonds and U.S. agency securities. Financial institution instruments include instruments issued or managed by financial institutions in various forms, such as commercial paper, fixed- and floating-rate bonds, money market fund deposits, and time deposits. As of July 2, 2022 and December 25, 2021, substantially all time deposits were issued by institutions outside the U.S.
For certain of our marketable debt investments, we economically hedge market risks at inception with a related derivative instrument or the marketable debt investment itself is used to economically hedge currency exchange rate risk from remeasurement. These hedged investments are reported at fair value with gains or losses from the investments and the related derivative instruments recorded in interest and other, net. The fair value of our hedged investments was $19.1 billion as of July 2, 2022 and $21.5 billion as of December 25, 2021. For hedged investments still held at the reporting date, we recorded net losses of $1.0 billion in the second quarter of 2022 and net losses of $1.3 billion in the first six months of 2022 ($2 million of net gains in the second quarter of 2021 and $226 million of net losses in the first six months of 2021). We recorded net gains on the related derivatives of $868 million in the second quarter of 2022 and net gains of $1.2 billion in the first six months of 2022 ($23 million of net gains in the second quarter of 2021 and $245 million of net gains in the first six months of 2021).
Our remaining unhedged marketable debt investments are reported at fair value, with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss). The adjusted cost of these investments was $5.4 billion as of July 2, 2022 and $5.0 billion as of December 25, 2021, which approximated the fair value for these periods.
The fair value of marketable debt investments, by contractual maturity, as of July 2, 2022, was as follows:
| | | | | | | | |
(In Millions) | | Fair Value |
Due in 1 year or less | | $ | 14,673 | |
Due in 1–2 years | | 3,315 | |
Due in 2–5 years | | 5,033 | |
Due after 5 years | | 714 | |
Instruments not due at a single maturity date | | 713 | |
Total | | $ | 24,448 | |
| | | | | | | | | | | |
| Financial Statements | Notes to Financial Statements | 11 |
Equity Investments
| | | | | | | | | | | | | | |
(In Millions) | | Jul 2, 2022 | | Dec 25, 2021 |
Marketable equity securities | | $ | 1,456 | | | $ | 2,171 | |
Non-marketable equity securities | | 4,460 | | | 4,111 | |
Equity method investments | | 13 | | | 16 | |
Total | | $ | 5,929 | | | $ | 6,298 | |
The components of gains (losses) on equity investments, net for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | | | | |
(In Millions) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 | | | | | | | | |
Ongoing mark-to-market adjustments on marketable equity securities | | $ | (209) | | | $ | 138 | | | $ | (639) | | | $ | (153) | | | | | | | | | |
Observable price adjustments on non-marketable equity securities | | 135 | | | 72 | | | 206 | | | 623 | | | | | | | | | |
Impairment charges | | (44) | | | (35) | | | (67) | | | (73) | | | | | | | | | |
Sale of equity investments and other¹ | | 28 | | | 120 | | | 4,733 | | | 266 | | | | | | | | | |
Total gains (losses) on equity investments, net | | $ | (90) | | | $ | 295 | | | $ | 4,233 | | | $ | 663 | | | | | | | | | |
1 Sale of equity investments and other includes realized gains (losses) on sales of non-marketable equity investments, our share of equity method investees' gains (losses) and distributions, and initial fair value adjustments recorded upon a security becoming marketable.
Gains and losses for our marketable and non-marketable equity securities for each period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | | |
(In Millions) | | Jul 2, 2022 | | Jun 26, 2021 | | Jul 2, 2022 | | Jun 26, 2021 | | | | | |
Net gains (losses) recognized during the period on equity securities | | $ | (93) | | | $ | 226 | | | $ | (337) | | | $ | 537 | | | | | | |
Less: Net (gains) losses recognized during the period on equity securities sold during the period | | (19) | | | (26) | | | (11) | | | (125) | | | | | | |
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | (112) | | | $ | 200 | | | $ | (348) | | | $ | 412 | | | | | | |
McAfee Corp.
McAfee Corp. (McAfee) completed its initial public offering in October 2020. Due to our 41% ownership and significant influence as of December 25, 2021, we accounted for it as an equity method investment. We had no accounting carrying value as of December 25, 2021.
In the first quarter of 2022, the sale of McAfee to an investor group was completed and we received $4.6 billion in cash for the sale of the remaining share of McAfee, recognizing $4.6 billion of gains in Sale of equity investments and other.
Beijing Unisoc Technology Ltd.
We account for our interest in Beijing Unisoc Technology Ltd. (Unisoc) as a non-marketable equity security. In the first quarter of 2021, we recognized $471 million in observable price adjustments in our investment in Unisoc. As of July 2, 2022 the net book value of the investment was $1.1 billion ($1.1 billion as of December 25, 2021).
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Note 7 : | Acquisitions and Divestitures |
Acquisitions
Pending acquisition of Tower Semiconductor
During the first quarter of 2022, we entered into a definitive agreement to acquire Tower Semiconductor Ltd. (Tower) in a cash for stock transaction expected to close within twelve months from the date of the agreement. Tower is a leading foundry for analog semiconductor solutions. The acquisition is expected to advance Intel's IDM 2.0 strategy by accelerating our global end-to-end foundry business. Tower will be included in our IFS operating segment. Upon completion of the acquisition, each issued and outstanding ordinary share of Tower will be converted into the right to receive $53.00 per share in cash, representing a total enterprise value of approximately $5.4 billion as of the agreement date. This transaction is subject to certain regulatory approvals and customary closing conditions. If the agreement is terminated under certain circumstances involving the failure to obtain required regulatory approvals, we will be obligated to pay Tower a termination fee of $353 million.
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| Financial Statements | Notes to Financial Statements | 12 |
Divestitures
NAND Memory Business
In October 2020, we signed an agreement with SK hynix Inc. (SK hynix) to divest our NAND memory business for $9.0 billion in cash. The NAND memory business includes our NAND memory fabrication facility in Dalian, China and certain related equipment and tangible assets (the Fab Assets), our NAND SSD business (the NAND SSD Business), and our NAND memory technology and manufacturing business (the NAND OpCo Business). The transaction will be completed in two closings.
The first closing was completed on December 29, 2021. At first closing, SK hynix paid $7.0 billion of consideration, with the remaining $2.0 billion to be received by the second closing of the transaction, expected to be no earlier than March 2025. In connection with the first closing, we recognized a pre-tax gain of $1.0 billion within Interest and other, net, and tax expense of $495 million. Based on our ongoing obligation under the NAND wafer manufacturing and sale agreement, $