intc-20201226
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 26, 2020.
or
For the transition period from to .
Commission File Number 000-06217
INTEL CORPORATION
(Exact name of registrant as specified in its charter)
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 Trading symbol Name of each exchange on which registered
Common stock, $0.001 par value INTC 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☑ 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☑
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.
☑ ☐ ☐ ☐ ☐
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 26, 2020, based upon the closing price of the common stock as reported by the Nasdaq Global Select Market on such date, was $244.5 billion. 4,063 million shares of common stock were outstanding as of January 15, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement related to its 2021 Annual Stockholders' Meeting to be filed subsequently are incorporated by reference into Part III of this Form 10-K. Except as expressly incorporated by reference, the registrant's proxy statement shall not be deemed to be part of this report.
Table of Contents
Organization of Our Form 10-K
The order and presentation of content in our Form 10-K differs from the traditional SEC Form 10-K format. Our format is designed to improve readability and better present how we organize and manage our business. See "Form 10-K Cross-Reference Index" within the Financial Statements and Supplemental Details for a cross-reference index to the traditional SEC Form 10-K format. To reflect our focus on transforming from a PC-centric1 company to a data-centric company, we have presented our data-centric businesses1 first in the "Segment Trends and Results" within MD&A.
We have defined certain terms and abbreviations used throughout our Form 10-K in "Key Terms" within the Financial Statements and Supplemental Details.
The preparation of our Consolidated Financial Statements is in conformity with U.S. GAAP. Our Form 10-K 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.
Fundamentals of Our Business Page
Introduction to Our Business 2
A Year in Review 4
Our Strategy 6
Our Capital 8
Management's Discussion and Analysis
Our Products 17
How We Organize Our Business 18
Segment Trends and Results 20
Consolidated Results of Operations 37
Liquidity and Capital Resources 42
Contractual Obligations 45
Quantitative and Qualitative Disclosures About Market Risk 46
Non-GAAP Financial Measures 48
Other Key Information
Selected Financial Data 50
Sales and Marketing 51
Intellectual Property Rights and Licensing 52
Critical Accounting Estimates 52
Risk Factors 53
Properties 65
Market for Our Common Stock 66
Information About Our Executive Officers 68
Availability of Company Information 69
Financial Statements and Supplemental Details
Auditor's Reports 71
Consolidated Financial Statements 74
Notes to the Consolidated Financial Statements 79
Financial Information by Quarter 112
Controls and Procedures 113
Form 10-K Cross-Reference Index 119
1 Intel's definition is included in "Key Terms" within the Financial Statements and Supplemental Details.
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Forward-Looking Statements
This Form 10-K contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expect," "intend," "strive," "goals," "plans," "ambitions," "opportunity," "future," "to be," "achieve," "grow," "committed," "believes," "seeks," "targets," "estimated," "continues," "likely," "possible," "may," "might," "potentially," "will," "would," "should," "could," "on track," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to future responses to and effects of COVID-19; projections of our future financial performance; future business, social, and environmental performance, goals, and measures; our anticipated growth and trends in our businesses and operations; projected growth and trends in markets relevant to our businesses; business and investment plans; future products and technology, and the expected regulation, availability and benefits of such products and technology; projected cost and yield trends; expected timing and impact of acquisitions, divestitures, and other significant transactions, including statements relating to the pending divestiture of our NAND memory business to SK hynix Inc. (SK hynix); expected completion of restructuring activities; availability, uses, sufficiency, and cost of capital 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; 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 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 and particularly in "Risk Factors" within Other Key Information. 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-K 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-K 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-K 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.
Note Regarding Third-Party Information
This Form 10-K includes market data and certain other statistical information and estimates that are based on reports and other publications from industry analysts, market research firms, and other independent sources, as well as management's own good faith estimates and analyses. Intel believes these third-party reports to be reputable, but has not independently verified the underlying data sources, methodologies, or assumptions. The reports and other publications referenced are generally available to the public and were not commissioned by Intel. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information.
* Other names and brands may be claimed as the property of others.
The Bluetooth® word mark and logos are registered trademarks owned by Bluetooth SIG, Inc. and any use of such marks by Intel Corporation is under license.
Intel, 3D XPoint, Arria, Celeron, Intel Agilex, Intel Atom, Intel Core, eASIC, Intel Evo, Intel Inside, the Intel logo, the Intel Inside logo, Intel Optane, Iris, Itanium, Movidius, Myriad, OpenVINO, OpenVino logo, Pentium, Quark, Stratix, Thunderbolt, Tofino, Intel vPro, and Xeon are trademarks of Intel Corporation or its subsidiaries.
Table of Contents
A Year in Review
Revenue Operating Income Diluted EPS Cash Flows
,
GAAP GAAP non-GAAP1 GAAP non-GAAP1 GAAP non-GAAP1
Progress Progress Progress Progress
1 See "Non-GAAP Financial Measures" within MD&A.
2 See "Our Products" within MD&A.
3 2019-2021 goals were announced during the May 2019 Investor Meeting.
Fundamentals of Our Business 4
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Ice Lake server processors
Moovit acquisition
Planned divestiture of NAND memory business
xPU era with oneAPI and discrete GPUs
7nm-based CPU products
2030 RISE Strategy and Corporate Responsibility Goals
Fundamentals of Our Business 5
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Our Strategy
Our strategy is to play a larger role in our customers' success by delivering a predictable cadence of leadership products.
The world is changing and driving the need for exponentially more computing. First we experienced the PC era, followed by the mobile and cloud era. We are now entering the era of distributed intelligence, where computing is pervasive and so many things in our lives—our homes, our cars, our hospitals, and our cities—now function like computers. In this world of distributed intelligence, our three fastest growing opportunities are AI, 5G network transformation, and the intelligent and autonomous edge.
We have a history of transforming to capitalize on market shifts, and we are in the midst of another significant transformation to position ourselves and our customers for growth. With our focus on execution and re-energized culture as a force multiplier, we are transforming from a CPU to a multi-architecture xPU company, from silicon to platforms, and from a traditional IDM to a new, modern IDM. Our priorities are to strengthen our core, extend our reach, and redefine our position in the industry. Our capital provides a foundation to invest in our growth and to supplement and strengthen our capabilities. We are thoughtfully deploying capital and focusing our investment in differentiated technologies where we can play a bigger role in the success of our customers and deliver attractive returns to our stockholders.
Our Priorities
Improve Execution to Strengthen Our Core
We have made changes that help position us to sharpen our operational excellence and process technology. We have streamlined our product roadmaps, evolved our technical organization to drive greater transparency and accountability, and exited businesses to enable focus on our core strategy.
Technical talent. Our leadership team has deep technical, engineering, and business expertise and is focused on our opportunities. We are re-energizing our culture to drive better business outcomes for our customers by instilling a growth mindset, increasing accountability around shared company goals, implementing new operational protocols, and renewing a sense of purpose and value to create an environment for innovation and growth.
Continuous innovation. To deliver leadership products, we continue to innovate across all of the areas that are key to product leadership: process and packaging, architecture, memory, interconnect, security, and software. With these six areas, we are creating innovative xPU platforms that uniquely serve diverse new workload opportunities, and transforming from silicon to platforms to solve customers' problems through complete solutions offerings.
Predictable cadence. We have made an architectural shift to die disaggregation that, when combined with our differentiated advanced packaging, creates flexibility to use the process that best serves our customers and supports our ability to deliver on a predictable cadence. Disaggregated design allows us to manufacture different components of a chip on different processes: some components can benefit from the greater performance of the latest process node, while others can leverage lower-cost nodes where differentiated performance is not needed. Through disaggregated design, we mix and match architectures, IP, process nodes, and silicon from our own manufacturing facilities or from external foundries.
Fundamentals of Our Business 6
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New, modern IDM. We are investing to transform our traditional IDM model to adapt to an evolving industry. This means creating greater flexibility to use internal or external foundry processes. It requires that we continue to lead advances in silicon technology by leaning into our expertise and manufacturing scale, while evolving to engage with the ecosystem in new and different ways. It also requires that we leverage our disaggregated design capabilities and continue to manufacture new products with significant cost advantage. We will also continue to invest in process technology development to bring to market the future process nodes and advanced packaging capabilities that create product differentiation and customization, while also enabling manufacturing optionality.
Evolving our engagement with the broader silicon manufacturing and design ecosystem involves working as a strategic partner with equipment vendors, EDA providers, and third-party foundries to help enhance the performance of our manufacturing tools, optimize design software for our processes, simplify design, improve efficiency, and standardize components. This also involves increasing the strategic use of third-party IP for standardized components to allow us to focus on differentiating technology, and updating our design methodologies to support movement of our designs to and from external foundries.
Extend Our Reach to Accelerate Our Growth
Diverse product portfolio to capitalize on the fastest growing opportunities. The proliferation of data analytics, edge computing, and AI is driving a diverse and expanding range of computing applications from edge to cloud. In response, we are innovating to deliver products including a mix of scalar, vector, matrix, and spatial architectures deployed in CPUs, GPUs, accelerators, and FPGAs—unified by an open, industry-standard programming model, oneAPI, to simplify application development.
AI helps our customers make sense of data to unleash its potential. We offer a combination of hardware and software technologies that deliver broad capabilities to support computing, storage, transmission, and tuning in AI. We have taken a multi-architecture approach to AI hardware. Intel Xeon processors provide a foundation for analytics and AI, and software like the OpenVINOTM toolkit significantly simplifies the deployment of solutions. Intel® FPGAs allow customers to access leading AI inferencing performance for their models. Similarly, Intel® MovidiusTM MyriadTM VPUs are purpose-built for AI and support diverse approaches for innovation in a wide range of applications, from healthcare to autonomous driving to facial recognition. Habana's Gaudi* AI training Processor and Goya* AI Inference Processor offer an easy-to-program development environment to help customers deploy and differentiate their solutions as AI workloads continue to evolve with growing demands on computing, memory, and connectivity.
The transition to 5G and the cloudification1 of the network present a significant opportunity. 5G connectivity will transform industries from all business sectors and it continues to be a strategic priority across Intel. We are collaborating with ecosystem and vertical industry partners to define, prototype, test, and deliver 5G standards and solutions. Our 5G efforts are focused on network infrastructure and other data-centric opportunities, and our team has developed a valuable IP portfolio of products designed to support 5G network infrastructure, including the Intel AtomP5900 processor, a next-generation structured ASIC for 5G network acceleration, the new 2nd Gen Intel Xeon Scalable processors, and the Intel® Ethernet 700 Series Network Adapter.
Moving compute to the edge, where data is generated and consumed, provides new insight and revenue from previously untapped data. Our portfolio of products and capabilities positions us well to play a larger role in our customers' success. We are investing in processors with features made for edge workloads. We announced new enhanced Internet of Things capabilities, including 11th Gen Intel Core processors, Intel Atom x6000E series processors, Pentium® processors, and Celeron® N and J series processors, bringing new AI, security, functional safety, and real-time capabilities to edge customers. This year, we announced Mobileye* SupervisionTM, the EyeQ5*-based solution that incorporates an end-to-end engine control unit, surround-view camera array, processors, driving policy, and high-definition maps—all derived directly from our ongoing autonomous vehicle program.
Redefine Our Position in the Industry
Solve our customers' problems through solutions and platforms. We are expanding beyond the CPU to better solve our customers' problems, and not just deliver parts of the solution. With our xPU portfolio, platform vision, IDM capabilities, and scale, we are able to help our customers tackle their own opportunities. We announced the Intel Evo platform brand powered by 11th Gen Intel Core processors with Intel Iris Xe graphics, representing laptop designs supported by Intel's Project Athena innovation program. In addition, we acquired Moovit to accelerate Mobileye's transformation to a full-stack MaaS provider that can provide hardware, software, sensors, integration, and large-scale services. We are actively evaluating opportunities in software, services, and solutions, in AI, network transformation, and intelligent edge.
1 Intel's definition is included in "Key Terms" within the Financial Statements and Supplemental Details.
Fundamentals of Our Business 7
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Our Capital
We deploy various forms of capital to execute our strategy in a way that seeks to reflect our corporate values, help our customers succeed, and create value for our stakeholders.
Capital Strategy Value
Financial
Intellectual
Manufacturing
Human
Social and Relationship
Natural
2030 RISE Strategy and Corporate Responsibility Goals
Our commitment to corporate responsibility and sustainability leadership is deeply integrated throughout our business. We strive to create an inclusive and positive work environment where every employee has a voice and a sense of belonging, and we are proactive in our efforts to reduce our environmental footprint through efficient and responsible use of natural resources and materials.
We continue to raise the bar for ourselves and leverage our leadership position in the global technology ecosystem to make greater strides in corporate responsibility and apply technology to address social and environmental challenges. Through our new RISE strategy and 2030 goals, we aim to create a more responsible, inclusive, and sustainable world, enabled through our technology and the expertise and passion of our employees. This corporate responsibility strategy is designed to increase the scale of our work through new levels of collaboration with our stakeholders and other organizations; we know that acting alone, we cannot achieve the broad social impact to which we aspire. Details on the results of our 2020 goals and more information on our new 2030 goals are included in our Corporate Responsibility Report1.
1 The contents of our Corporate Responsibility Report are referenced for general information only and are not incorporated by reference in this Form 10-K.
Fundamentals of Our Business Our Capital 8
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Financial Capital
Our financial capital allocation strategy focuses on building stockholder value. We have returned 95% of free cash flow to investors over the past five years.
Cash from Operating Activities $B
■ Capital Investment ■ Free Cash Flow1
Our Financial Capital Allocation Decisions Are Driven by Three Priorities
Invest in the Business Acquire and Integrate Return Cash to Stockholders
Dividends Per Share Diluted Shares Outstanding (In Millions)
R&D and Capital Investments $B Acquisitions Cash to Stockholders $B
■ R&D ■ Logic ■ Memory — # of Acquisitions ■ Total Spent $B ■ Buyback ■ Dividend
1 See "Non-GAAP Financial Measures" within MD&A.
Fundamentals of Our Business Our Capital 9
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Intellectual Capital
Research and Development
R&D investment is critical for enabling us to deliver a predictable cadence of leadership products and extend our reach to accelerate our growth. Successful R&D efforts can lead to new products and technologies or improvements to existing ones, which we seek to protect through our IP rights. We may augment our R&D initiatives by acquiring or investing in companies, entering into R&D agreements, and directly purchasing or licensing technology.
Areas Key to Product Leadership
Every year we make significant investments in R&D and we have intensified our focus on areas key to product leadership. Our objective is to improve user experiences and value through advances in performance, power, cost, connectivity, security, form factor, and other features with each new generation of products. We are also focused on reducing our design complexity, re-using IP, and increasing ecosystem collaboration to improve our efficiency, including a significant reduction of design rules for future process nodes.
▪CPU. We started shipping our 11th Gen Intel Core processors, with our next-generation Willow Cove CPU microarchitecture, which includes redesigned caching hierarchy and security enhancements, among other features. These processors also include the next generation of Intel Iris Xe graphics architecture with upgraded 3D performance and media engine capabilities.
▪GPU. We launched the Intel Iris Xe MAX GPU for laptops and the first discrete Intel Server GPU. We also powered on our next-generation GPU for client, referred to as DG2.
▪Accelerator. Habana Gaudi accelerators are at the forefront of AI solutions for data centers. Amazon Web Services announced that Habana Gaudi will be used to power future Amazon Elastic Compute Cloud instances.
▪FPGA. We announced Intel® Stratix® 10 NX and IntelStratix 10 AX FPGAs, extending our Intel Stratix 10 FPGA family.
Memory.With our Intel® OptaneTM technology, we are developing products to disrupt the memory and storage hierarchy.
▪The Intel Optane DC persistent memory 200 series is available with 3rd Gen Intel Xeon Scalable platforms and will be supported with the Ice Lake server processor. The series is targeted at many workloads, including in-memory AI and analytics, databases, and virtual machine per container density.
Interconnect.We deliver leading technologies that scale across all interconnect layers, spanning on-die, on-package, data center, and long-distance networks.
▪We have a broad portfolio of data center connectivity products, including Intel® Ethernet, Intel® Silicon Photonics Optical Transceivers, and Intel® TofinoTM P4-programmable Ethernet switch ASICs.
▪The new 11th Gen Intel Core processors introduced integrated ThunderboltTM 4 and USB4. Thunderbolt 4, the next-generation universal cable connectivity solution, delivers increased minimum performance, expanded capabilities, and USB4 specification compliance. Thunderbolt 4 enables docks with up to four Thunderbolt ports and universal cables up to 2 meters in length.
1 Intel's definition is included in "Key Terms" within the Financial Statements and Supplemental Details.
Fundamentals of Our Business Our Capital 10
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Security.We continue to deliver innovation to the market across foundational security, workload protection, and software reliability. We are working with customers and partners to build a more trusted foundation in a data-centric world.
▪The new 11th Gen Intel Core processors include both TME and Intel® Control-flow Enforcement Technology (Intel® CET) security capabilities. TME provides the capability to encrypt the entirety of the physical memory of a system, while Intel CET delivers CPU-level security capabilities to help protect against common malware attack methods that have been a challenge to mitigate with software alone.
▪We announced Intel® Trust Domain Extensions (Intel® TDX), which enhance control of data security and IP protection for the cloud tenant while helping maintain the cloud service provider's role of managing resources and cloud-platform integrity.
Software.Software unleashes the potential of our hardware platforms across all workloads, domains, and architectures.
▪We released the oneAPI open industry specification and launched the Gold release of Intel's oneAPI toolkits in support of our xPU roadmap. Our oneAPI toolkits enable developers to build cross-architecture applications using a single-code base across xPUs that take advantage of unique hardware features and lower software and maintenance cost. Developers can choose the best architecture for the problem they are solving without needing to rewrite software for different architectures and platforms.
▪The OpenVINO toolkit brings the full power of our xPU roadmap to the Internet of Things, client, and data center businesses. This complementary production-level toolkit focuses on helping developers deliver high-performance deep learning inference and computer vision across CPU, GPU, and FPGA products.
IP Rights
We own and develop significant IP and related IP rights around the world that support our products, services, R&D, and other activities and assets. Our IP portfolio includes patents, copyrights, trade secrets, trademarks, mask work, and other rights. We actively seek to protect our global IP rights and to deter unauthorized use of our IP and other assets. For a detailed discussion of our IP rights, see "Intellectual Property Rights and Licensing" within Other Key Information.
Manufacturing Capital
We are transforming from a traditional IDM to a modern IDM by investing to lead advances in silicon technology, leaning into our expertise and manufacturing scale, while evolving to engage with the ecosystem and leveraging our disaggregated design capabilities. Unlike many other semiconductor companies, we primarily design and manufacture our products in our own manufacturing facilities and we will continue to integrate engineering and manufacturing to provide new products with significant cost advantage. At the same time, our architectural shift to die disaggregation allows us to mix and match architectures, IP, process nodes, and silicon that creates increasing flexibility for our products.
In developing new generations of manufacturing process technology, we seek to realize the benefits from Moore's Law, a law of economics predicted by our co-founder Gordon Moore more than 50 years ago. Realizing Moore's Law can create economic benefits as we are able to either reduce a chip's cost as we shrink its size, or increase functionality and performance of a chip while maintaining the same cost with higher density. This makes possible the innovation of new products with higher performance while balancing power efficiency, cost, and size to meet customers' needs. Our ability to optimize and apply our manufacturing expertise to deliver more advanced, differentiated products has been foundational to our success and is a continued focus of our investments.
We shipped higher volumes of 10nm products in 2020 than we had anticipated at the beginning of the year. We also launched our 11th Gen Intel Core processors with new 10nm SuperFin Technology.
We announced in July 2020 that our 7nm-based CPU product timing would be delayed and that the primary driver was the yield of our 7nm manufacturing process. We will continue to invest in our future process technology roadmap and advanced packaging technologies to differentiate our products, provide manufacturing optionality and deliver a predictable cadence of leadership products to our customers.
Fundamentals of Our Business Our Capital 11
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Network and Supply Chain
Our global supply chain supports internal partners across architecture, product design, technology development, manufacturing and operations, sales and marketing, and business units, with the goal of enabling product and process leadership, industry-leading total cost of ownership, and uninterrupted supply for our customers. Our supply chain ecosystem comprises thousands of suppliers globally. Our worldwide site expansion projects remained on track despite disruptions from the COVID-19 pandemic. In addition to our own manufacturing capacity, we continue to use third-party foundries to expand the ways in which we can support our customers. These third-party solutions complement our manufacturing and provide additional flexibility. Our world-class safety standards and supply chain operations, including our robust risk management and crisis response model, have to date allowed our worldwide factory and supply chain network to continue to operate safely and with mostly on-time deliveries despite the pandemic.
The majority of our logic wafer manufacturing is conducted in the U.S. We have 10 manufacturing sites—six are wafer fabrication, three are assembly/test facilities, and our Costa Rica site added in 2020 is a test-only site. The following map shows our present factory sites and the countries where we have a significant R&D and/or sales presence. In response to COVID-19, we quickly made operational changes and adopted measures to enable a continued safe environment for our employees and operation of our manufacturing sites.
Our manufacturing facilities are primarily used for silicon wafer manufacturing, assembling, and testing of our platform and memory products. We operate in a network of manufacturing facilities integrated as one factory to provide the most flexible supply capacity, allowing us to better analyze our production costs and adapt to changes in capacity needs. Our new process technologies are transferred identically from a central development fab to each manufacturing facility. After transfer, the network of factories and the development fab collaborate to continue driving operational improvements. This enables fast ramp of the operation, fast learning, and better quality control.
Our NAND memory fabrication facility in Dalian, China is included in the transaction entered into with SK hynix to divest our NAND memory business, and is part of the NAND assets held for sale as of December 26, 2020. Our Intel Optane memory business is expressly excluded from this transaction. The next generations of Intel Optane technology and SSDs are being developed in New Mexico following the sale of our non-controlling interest in IMFT to Micron Technology, Inc. (Micron) in 2019. We will continue to purchase product manufactured by Micron under our supply agreement, which includes the next generation of Intel® 3D XPointTM technology.
Fundamentals of Our Business Our Capital 12
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Human Capital
Culture is critically important to Intel's success. We are re-energizing our culture to deliver on our corporate purpose and to attract, develop, and retain top talent needed to build transformative products and services that help our customers succeed in an increasingly data-driven world. We invest in our highly-skilled global workforce of 110,600 people by seeking to create a diverse, inclusive, and safe work environment where our employees can learn, innovate, and deliver their workplace best every day.
Our values—fearless, inclusion, customer-obsessed, one Intel, truth and transparency, and quality—guide how we make decisions, treat each other, and serve our customers. All employees are responsible for upholding these values, the Intel Code of Conduct, and Intel's Global Human Rights Principles, which form the foundation of our policies and practices and ethical business culture.
Inclusion
Compensation and Benefits
We strive to provide pay, benefits, and services that help meet the varying needs of our employees. Our total rewards package includes market-competitive pay, broad-based stock grants and bonuses, an employee stock purchase plan, healthcare and retirement benefits, paid time off and family leave, parent reintegration, fertility assistance, flexible work schedules, sabbaticals, and on-site services. Since 2019, we have achieved gender pay equity globally and we continued to maintain race/ethnicity pay equity in the U.S. We achieve pay equity by closing the gap in average pay between employees of different genders or race/ethnicity in the same or similar roles after accounting for legitimate business factors that can explain differences, such as location, time at grade level, and tenure. We also advanced transparency in our pay and representation data by publicly releasing our EEO-1 survey pay data in 2019. Although the U.S. Equal Employment Opportunity Commission did not require employers to file EEO-1 survey pay data in 2020 due to COVID-19, we felt it was important to continue collecting the data and to disclose it publicly in 2020. We believe that our holistic approach toward pay equity, representation, and creating an inclusive culture enables us to cultivate a workplace that helps employees develop and progress in their careers at all levels.
To aid and support employees during COVID-19, we are investing more than $100 million in additional benefits, including special recognition for employees working on site. We also put in place a telecommuting reimbursement program to help employees required to work from home improve their workspaces, and increased flexibility in our leave programs to support employees caring for children and others.
1 Senior leadership refers to salary grades 10+ and equivalent grades. While we present male and female, we acknowledge this is not fully encompassing of all gender identities.
2 The term underrepresented minority (URM) is used to describe diverse populations, including African American, Hispanic, and Native American employees in the U.S.
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Growth and Development
We invest significant resources to develop the talent needed to remain at the forefront of innovation and make Intel an employer of choice. We offer extensive training programs and provide rotational assignment opportunities. We implemented a new performance management system to support our culture evolution and to increase focus on continuous learning and development. Through our regular Employee Experience Surveys, employees can voice their perceptions of the company and their work experience, including learning and development opportunities. Our undesired turnover rate was 4% in 2020.
Health, Safety, and Wellness
Our commitment in Intel's Environmental, Health, and Safety Policy is to provide a safe and injury-free workplace. We continually invest in programs designed to improve physical, mental, and social well-being. We provide access to a variety of innovative, flexible, and convenient health and wellness programs, including on-site health centers, which were increasingly critical this year for our essential workers who have worked on site since the start of the COVID-19 pandemic. Throughout our response to COVID-19, our priority has remained protecting the health and safety of our employees. Intel's Pandemic Leadership Team—which has been in place for 15 years—regularly reviews and adapts our policies based on evolving research and guidance related to the virus. In support of our 2030 goals, we will continue to build our strong safety culture and drive global expansion of our corporate wellness program through continued employee education and engagement activities.
Social and Relationship Capital
We are committed to engaging in corporate responsibility and sustainability initiatives that support our communities and help us develop trusted relationships with our stakeholders. Proactive engagement with our stakeholders and investments in social impact initiatives, including those aligned with the United Nations Sustainable Development Goals, advance our position as a leading corporate citizen and create shared value for Intel, our global supply chain, and our communities.
Economic and social. The health of our business and local economies depends on continued investments in innovation. We provide high-skill, high-paying jobs around the world. Many of these are manufacturing and R&D jobs located in our own domestic and international factories. We also benefit economies through our R&D ecosystem spending, sourcing activities, consumer spending by our employees, and tax payments. We make sizable capital investments and provide leadership in public-private partnerships to spur economic growth and innovation.
We stand at the forefront of new technologies that are increasingly being used to empower individuals, companies, and governments around the world to solve major societal challenges. We also aim to empower people through education and advance social initiatives to create career pathways into the technology industry. This has included our global Intel AI for Youth program, scaled in partnership with governments and institutions to empower youth with digital readiness and AI skills, as well as our multi-year partnerships with historically black colleges and universities in the U.S. aimed at increasing the number of African Americans who pursue electrical engineering, computer engineering, and computer science fields. Our employees and retirees actively share their expertise through volunteer initiatives in the communities where we operate. These efforts contributed more than 10 million hours of service over the past decade, and our new goals include a commitment to volunteer an additional 10 million hours by 2030. In 2020, we volunteered 910 thousand hours. COVID-19 presented challenges for in-person volunteering, resulting in lower reported volunteer hours compared to prior years. However, we saw an outpouring of support from employees for virtual volunteering, donations, and innovative technology projects to support our communities. In April, we announced the Pandemic Response Technology Initiative, a commitment of $50 million to combat COVID-19. Our focus is to leverage our technology, expertise, resources, and our global ecosystem, to accelerate access to technology that can combat the current pandemic and get ahead of future pandemics through scientific discovery, enable remote learning for students, and aid in economic recovery. To date, we have partnered with many organizations on numerous projects across sectors, including technology, healthcare, education, industrial, retail, transportation, and academia.
Human rights commitment. We are committed to maintaining and improving processes to avoid human rights violations related to our operations, supply chain, and products. We have established an integrated approach to managing human rights across our business, including board-level oversight and the involvement of senior-level Management Review Committees. We also meet throughout the year with external stakeholders and experts on human rights to continue to inform and evolve our human rights policies and oversight processes. While we do not always know nor can we control what products our customers create or the applications end users may develop, we do not tolerate our products being used to violate human rights. Where we become aware of a concern that Intel products are being used by a business partner in connection with abuses of human rights, we restrict or cease business with the third party until we have high confidence that Intel's products are not being used to violate human rights. As a result, in 2020 we restricted certain sales based on our Human Rights Principles that would have otherwise been considered lawful.
Supply Chain Responsibility
We actively manage our supply chain to help reduce risk, improve product quality, achieve environmental and social goals, and improve overall performance and value creation for Intel, our customers, and our suppliers. To drive responsible and sustainable practices throughout our supply chain, we have robust programs to educate and engage suppliers that support our global manufacturing operations. We actively collaborate with other companies and lead industry initiatives on key issues such as improving transparency around climate and water impacts in the global electronics supply chain and, as part of our RISE strategy, we will advance collaboration across our industry on responsible minerals sourcing.
Fundamentals of Our Business Our Capital 14
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Over the past decade, we have directly engaged with our suppliers to verify compliance and build capacity to address risks of forced and bonded labor and other human rights issues. We perform supplier audits and identify critical direct suppliers to engage through capability-building programs, which help suppliers build sustainability acumen and verify compliance with the Responsible Business Alliance and our Code of Conduct. The suppliers covered by these audits represent 78% of cash payments made to managed suppliers. We also engage with indirect suppliers through our programs on forced and bonded labor, responsible minerals, and supplier diversity. Although COVID-19 presented travel and safety challenges in 2020 that impacted our ability to complete as many in-person supplier audits as in the previous year, we continued to engage with our suppliers and communicate our expectations and requirements. To achieve our 2030 goals, we will significantly expand the number of suppliers covered by our engagement activities to deepen accountability for human rights.
Our commitment to diversity and inclusion also extends to our suppliers. We believe a diverse supply chain supports greater innovation and value for our business. We achieved our 2020 goal to reach $1 billion in annual spending with diverse-owned suppliers and our new 2030 goals include doubling this figure over the next decade. Beginning in 2021, we will not retain or use outside law firms in the U.S. that are average or below average on diversity for their equity partners. We are applying a similar rule to firms used by our tax department, including non-legal firms.
Natural Capital
Driving to the lowest environmental footprint possible helps create efficiencies, lower costs, and respond to the needs of our stakeholders. We invest in conservation projects and set company-wide environmental targets to drive reductions in greenhouse gas emissions, energy use, water use, and waste generation. We build energy efficiency into our products to help our customers lower their own emissions and energy costs, and we collaborate with policymakers and other stakeholders to use technology to address environmental challenges. We achieved our 2020 greenhouse gas goal, reducing our emissions 39% on a per unit basis from 2010 levels. Through our 2030 goals we will continue to drive to higher levels of operational efficiency, including a further 10% reduction in our carbon emissions on an absolute basis even as we continue to grow. Our 2030 strategy and goals also focus on improving product energy efficiency and increasing our "handprint"—the ways in which Intel technologies can help others reduce their footprints, including Internet of Things solutions that enable intelligence in machines, buildings, supply chains, and factories, and make electrical grids smarter, safer, and more efficient.
Climate and Energy
We focus on reducing our own climate impact, and over the past two decades have reduced our direct emissions and indirect emissions associated with energy consumption. We achieved our 2020 energy goal, saving more than 4.5 billion kWh since 2012 by investing in energy conservation projects in our global operations. In 2020, we conserved more than 155 million kWh of energy in support of our new 2030 goal to conserve an additional 4 billion kWh of energy over the next 10 years. In addition to conserving energy, we invest in green power and on-site alternative energy projects that provide power directly to our buildings. We continue to link a portion of our executive and employee compensation to corporate responsibility metrics. In 2020, these included a climate-related metric to use 75% renewable energy globally during the year, which supports our 2030 goal to achieve 100% renewable energy use across our global manufacturing operations. In 2020, we signed on to RE100, a global coalition of businesses committed to 100% renewable electricity use.
We are committed to transparency around our carbon footprint and climate risk and use the framework developed by the TCFD to inform our disclosure on climate governance, strategy, risk management, and metrics and targets. For governance and strategy, we follow an integrated approach to address climate change, with multiple teams responsible for managing climate-related activities, initiatives, and policies. Strategies and progress toward goals are reviewed with senior executives and the Intel Board of Directors' Corporate Governance and Nominating Committee. We describe our overall risk management processes in our Proxy Statement, and describe our climate-related risks and opportunities in our annual Corporate Responsibility Report, the Intel Climate Change Policy, and "Risk Factors" within this Form 10-K. In addition to what is included within this Form 10-K, results of our 2020 goals and information on our 2030 goals, are included in our Corporate Responsibility Report. Our Corporate Responsibility Report includes a mapping of our disclosure to the TCFD, the Sustainability Accounting Standards Board framework, and our CDP Climate Change Survey, all available on our website.1
Water Stewardship
Water is essential to the semiconductor manufacturing process. We use ultrapure water to remove impurities from our silicon wafers, and we use fresh and reclaimed water to run our manufacturing facility systems. Over the past decade, our sustainable water management efforts and partnerships have enabled us to conserve billions of gallons of water, and through our 2030 goals we have committed to conserve an additional 60 billion gallons in this decade. As part of this commitment, we plan to achieve net positive water use globally. In 2020, we linked a portion of our executive and employee compensation to our target to conserve more than 5 billion gallons of water in our operations and fund new water restoration projects in collaboration with environmental and community partners that restore more than 1 billion gallons of water during the year to local watersheds.
1 The contents of our website and our Corporate Responsibility Report, Climate Change Policy, and CDP Climate Change Survey are referenced for general information only and are not incorporated by reference in this Form 10-K.
Fundamentals of Our Business Our Capital 15
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Circular Economy and Waste Management
We have long been committed to waste management, recycling, and circular economy strategiesthat enable the recovery and productive re-use of waste streams. We achieved our 2020 waste management goals, reaching a 93% recycle rate for our non-hazardous waste and sending zero hazardous waste to landfills.1 Our 2030 goals include a target of zero total waste to landfill, as well as implementation of circular economy strategies for 60% of our manufacturing waste streams in partnership with our suppliers. This can include reuse of waste streams directly in our own operations or enabling reuse of our waste streams by other industries.
Value We Create
Each of our six forms of capital plays a critical role in our long-term value creation. We consider numerous indicators in determining the success of our capital deployment in creating value. Highlights of value created in 2020 are as follows:
1 We define zero hazardous waste to landfill as 1% or less.
2 See "Non-GAAP Financial Measures" within MD&A.
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Management's Discussion and Analysis
Our Products
We are at the forefront of developing new technologies and products as building blocks for an increasingly smart and connected world. These technologies and products are used as integrated solutions for a broad spectrum of markets.
We Have an End-to-End Product Portfolio
From processing to moving and storing data, our end-to-end product portfolio offers innovative solutions that scale from edge computing to the network, the cloud, and the emerging fields of AI and autonomous driving. Our products, such as our gaming CPUs, may be sold directly to end consumers, or they may be further integrated by our customers into end products such as notebooks and storage servers. Combining some of these products—for example, integrating FPGAs and memory with Intel Xeon processors in a data-center solution—enables incremental synergistic value and performance. We introduced new products in 2020 such as 10nm-based 11th Gen Intel Coreprocessors, 3rd Gen Intel Xeon Scalable processors (previously referred to as Cooper Lake), Intel AtomP5900 processors for wireless base stations, a next-generation structured ASIC for 5G network acceleration, Intel Stratix 10 NX FPGAs, and the Intel OptaneDC persistent memory 200 series. We are now shipping our 10nm-based 3rd Gen Intel Xeon Scalable processors (previously referred to as Ice Lake).
Platform Products: Our platform products can be a CPU and chipset, an SoC, or a multichip package, based on Intel® architecture that processes data and controls other devices in a system. These products are primarily used in solutions sold through CCG, DCG, and IOTG.
Adjacent Products:Our non-platform, or adjacent, products can be combined with platform products to form comprehensive platform solutions to meet customer needs. These products are used in solutions sold through each of our businesses and include the following:
▪Accelerators - Silicon products that can operate alone or accompany our processors in a system, such as FPGAs for PSG, VPUs for IOTG, and Mobileye EyeQ* SoCs
▪Boards and Systems - Server boards and small form factor systems such as Intel® NUCs for CCG
▪Connectivity Products - Ethernet controllers and silicon photonics for DCG; and cellular modems, Wi-Fi, and Bluetooth® for CCG
▪Memory and Storage Products - SSD, persistent memory, and memory components sold through NSG and DCG
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% Intel Revenue Key Markets and Products
Highlights Opportunities Challenges
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% Intel Revenue Key Markets and Products
Highlights Opportunities Challenges
1 Source: Intel calculated 2025 TAM derived from industry analyst reports.
Overview
Highlights and Segment Imperatives
5-year Trends
■ Revenue $B ■ Op Income $B
1 Our Data Platforms Group includes our DCG segment. See "Information About Our Executive Officers" within Other Key Information for more details.
2 Source: Intel calculated 2025 TAM derived from industry analyst reports.
3 DCG 2025 TAM includes Optane SSDs.
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Market and Business Overview
Market Trends and Strategy
Data is a significant force in society, and is being generated at an unprecedented pace. The future of technology is being shaped by the rise of several technology inflections:
▪The levels of efficiency and scale that cloud architectures brought to the data center are now being extended to the network and edge. Workloads are no longer static between enterprises and public clouds; they are distributed to a mix of hybrid and multi-cloud.
▪5G will enable rich new experiences and services, fundamentally changing the way we think of compute and requiring most networks to transform.
▪AI is fundamental and becoming pervasive in all applications, and is enabling customers to leverage the power of data.
▪The edge is demanding more and more compute closer to where data is being created and consumed, driving a new wave of multifunction, compute-hungry devices.
Data centers—whether in the cloud, the network, or at the edge—will go through a massive architectural transformation in the coming years, leveraging heterogeneous computing with different types of processor architectures optimized for different workloads. With unmatched scale, portfolio breadth, and ecosystem support, we are uniquely positioned to unlock the value of data for people, business, and society on a global scale.
Cloud revenue grew in 2020, driven by rapidly expanding hyperscaler demand for capacity, peaking in the first half with inventory digestion throughout the remainder of the year. The on-premises enterprise business experienced cyclical declines due to sustained COVID-19 workplace trends and macroeconomic uncertainty; enterprise customers continue to embrace cloud as an alternative to traditional legacy architectures. The communications service providers segment continued to grow, accelerating the global transformation of the network and edge through 5G-enabled solutions.
Products and Competitiveness
We are now shipping our 10nm-based 3rd Gen Intel XeonScalable processors (previously referred to as Ice Lake). In 2020, we introduced our 3rd Gen Intel Xeon Scalable processors (previously referred to as Cooper Lake) accompanied by the IntelOptane DC persistent memory 200 series. As the industry's only mainstream data center CPUs with built-in AI acceleration, Intel Xeon processors are helping customers solve problems and gain insight for future opportunities. We also collaborated with 5G leaders to design the world's first standard, high-volume silicon for radio access networks, the Intel Atom P5900 processor, designed from the ground up for 5G wireless base stations. Since acquiring Habana Labs in December 2019, we aligned our specialized AI accelerator investments around the Habana Gaudi training processor and we began shipping Goya inference processors this year, which contributed to advancing our AI strategy. Amazon Web Services announced that Habana Gaudi will be used to power future Amazon Elastic Compute Cloud instances. In the connectivity space, we brought together Barefoot Networks' programmable Ethernet switch technology and our silicon photonics technology in a successful demonstration of the industry's first co-packaged optics Ethernet switch.
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Financial Performance
DCG Revenue $B DCG Operating Income $B
■ Platform ■ Adjacent
▪Higher platform volume driven by strength in cloud service providers (up 20%) and continued growth in communications service providers (up 17%), partially offset by decline in enterprise and government (down 8%) (compared to cloud service providers up 13%, communications service providers up 6%, and enterprise and government down 14% from 2019 to 2018). Cloud service providers grew over the first three quarters as they added capacity to serve demand before entering a capacity digestion cycle in the fourth quarter. The enterprise and government segment declined in the second half of the year on COVID-related macroeconomic weakness.
▪Adjacent growth driven by 5G networking deployment.
▪Platform ASP decline driven by SoC volume growth, competitive pricing environment, and customer mix, partially offset by Xeon product mix.
(In Millions) % Growth $ Impact % Growth $ Impact
Total change in revenue $ 2,622 $ 490
Operating Income Summary
Operating income increased 3% year over year, and operating margin was 40% in 2020.
(In Millions)
1,325 Higher gross margin from platform revenue
(425) Higher operating expenses
(375) Lower DCG adjacent product margin
(295) Higher platform unit cost
(125) Primarily driven by higher logistic expenses due to COVID-19
4 Other
(805) Higher period charges, primarily associated with the initial ramp of 10nm
(510) Higher operating expenses primarily related to R&D
(140) Lower DCG adjacent product margin
(80) Higher platform unit cost
370 Higher gross margin from platform revenue
More industries are harnessing the power of data to create business value, innovate, and grow. This requires that intelligence move closer to the edge, allowing data to be acted on where it is created. Working with our partners, we are using our architecture, accelerators, and software to develop and scale a growing Internet of Things portfolio and ecosystem. Our Internet of Things portfolio is comprised of our IOTG and Mobileye businesses.
Internet of Things Group
Overview
Highlights and Segment Imperatives
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5-Year Trends
■ Revenue $B ■ Op Income $B
Market and Business Overview
Market Trends and Strategy
The Internet of Things market is at the center of a global digital transformation. Through a broad portfolio of technology, solutions, and tools, we are transforming the way businesses create products, deliver services, and conduct operations—from schools and hospitals, to retailers and smart factories. Solving customer challenges in a highly fragmented global market requires a strong ecosystem in each vertical industry with horizontal technologies that can scale quickly and efficiently. Our customer verticals include the following:
Products and Competitiveness
We meet the specific requirements of each vertical industry by utilizing platform and adjacent products and technology from Intel's entire portfolio, while making additional investments needed to further enhance Internet of Things and edge products. We offer end-to-end solutions with our wide spectrum of products, including IntelAtom, Intel Core, and Intel Xeon processor-based computing, wireless connectivity, FPGAs, Movidius VPUs, and developer tools, such as the IntelDevCloud for the Edge, the OpenVINO ecosystem, and the Intel® Edge Software Hub. IOTG product development focuses on addressing the key challenges businesses face when implementing Internet of Things solutions, including interoperability, connectivity, safety, security, industrial use conditions, and long-life support.
For more than 30 years, we have been a supplier of technology and software for embedded products and edge computing. Our strategy is to continue to serve this market to unlock business opportunities for our partners and customers. This marketplace continues to expand significantly, with increasing types and numbers of smart and connected devices for retail, industrial, and healthcare uses. As this marketplace evolves, we face numerous large and small incumbent processor competitors, as well as new entrants that use the ARM architecture and other operating systems and software. The Internet of Things requires a broad range of connectivity solutions and we face competition from semiconductor companies providing traditional wireless solutions such as cellular, Wi-Fi, and Bluetooth, as well as several new entrants who are taking advantage of new focused communications protocols.
As businesses continue to create a deluge of data from more and more smart and connected devices across industries, the demand for high-performance compute at the edge has expanded exponentially. The Internet of Things market is fragmented and complex, requiring interoperability, standard-based approaches, software, developer tools, and the ecosystem working together to accelerate time to value with commercial solutions at scale.
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Mobileye
Overview
Highlights and Segment Imperatives
4-Year Trends2
■ Revenue $B ■ Op Income $B
Market and Business Overview
Market Trends and Strategy
The COVID-19 pandemic negatively impacted the global vehicle industry, resulting in a year over year decline in overall production of approximately 17%3, and delayed deployment of certain OEMs' advanced features and other projects. We expect ADAS volume to recover from the effects of COVID-19 faster than overall global vehicle production, and we expect long-term growth of ADAS to remain unaffected as consumers increasingly consider ADAS a differentiating factor in their automotive purchasing decisions.
The continued growth of ADAS is dependent on various factors, including regulation, market demand, and consumers' recognition of its value. Mobileye's ADAS solutions also serve as a qualification space for our autonomous technology, using vast experience and proliferation to validate and constantly improve AV technology. This year, we introduced Mobileye Supervision, the EyeQ5-based solution that incorporates an end-to-end engine control unit, surround-view camera array, processors, driving policy, and high-definition maps—all derived directly from our ongoing autonomous vehicle program. AV technologies such as Mobileye Supervision will make their way into premium ADAS solutions, broadening monetization opportunities and value proposition.
1 This refers to the total number of production programs with active project managers. Intel's definition of program is included in "Key Terms" within the Financial Statements and Supplemental Details.
2Mobileye was acquired in Q3 2017; 2017 results do not represent the full year.
3Source: IHS Markit
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Despite the COVID-19-related impact on vehicle production, OEMs are still looking to enhance current L2+ solutions by improving system fidelity, availability, and performance. High-definition maps with constant updates, global coverage, and various semantic features are prerequisites for L2+ applications and the future deployment of robotaxi and passenger car autonomy (Consumer AV). Canonical mapping methods rely on extensive manual labor and dedicated mapping vehicles. Mobileye's disruptive REM crowdsource mapping technology provides automatic map creation and updates. REM mapping capabilities are also being leveraged to extend the value of static and dynamic data to businesses in new market segments such as smart cities and infrastructure surveys.
We believe the future of autonomous driving will unfold in two phases: commercial robotaxi and series-production passenger car consumer AVs. We expect consumer AVs to materialize only after the robotaxi industry deploys and matures. The main inhibitors of a mass market product offering of consumer AV are the cost of AV technology, ability to scale at a low cost, regulatory framework, and public acceptance. Thus, we see the robotaxi phase as a necessary corridor to consumer AV. Mobileye is well-positioned to play a significant role in the broader MaaS market with the commercialization of robotaxi and the future consumer AV market. Our full-stack self-driving system—geared with our camera-centric backbone and vast experience in productizing cutting-edge technology in the automotive industry—is the foundation for developing an economically competitive AV solution. Proliferation of data-collection vehicles alongside REM technology will allow for low-cost geographic expansion and coverage. Together with Moovit's complementary assets in the service layers, Mobileye is building itself as an end-to-end service provider at scale.
Until the UNECE, EU, and U.S. provide regulation for self-driving vehicles without safety drivers for commercial ride sharing and public transportation, several countries are pushing to enact laws and regulation by 2021 to enable regular deployment and operation of MaaS fleets with self-driving vehicles starting in 2022.
Products and Competitiveness
Our offering for ADAS and AV is propelled by our computer vision and AI expertise and software assets, deployed on our EyeQ SoC family. The tight co-design of hardware and software gives the EyeQ SoC the ability to support complex and computationally intense tasks and sets it apart from competition because it is purpose-fit for high-compute, low-power, automotive-compliant mission profiles. Our 5th Gen EyeQ5 SoC is designed to act as the central computer for fully autonomous driving vehicles. We have been able to achieve power, performance, and cost targets by employing proprietary computational cores that are optimized for a wide variety of computer vision, signal processing, and machine learning tasks, including deep neural networks. Starting with EyeQ5, we are supporting an automotive-grade standard operating system and providing a complete software development kit to allow customers to differentiate their solutions by deploying their algorithms on EyeQ5. The EyeQ5 SoC is expected to be in commercial vehicles starting in 2021 and is already operational in our autonomous test vehicles.
EyeQ5 serves as the computational foundation for our scalable camera-only surround sensing system. The system consists of multiple independent computer vision engines and deep networks for algorithmic redundancy. The result is a robust and comprehensive model of the environment that allows end-to-end autonomous driving. The surround computer vision system is the backbone of Mobileye's AV architecture and the flagship offering for next-generation ADAS.
The next significant building block in our complete offering is REM mapping technology, which compiles crowdsourced mapping data from EyeQSoC-equipped vehicles. We are focused on our crowd-sourced mapping efforts and expect a significant increase in harvesting capabilities in 2021. We also expect an expansion of the number of vehicles using our localization capabilities by the end of 2021. The REM RoadbookTM can enhance current ADAS applications through a variety of advanced features, including predictive adaptive cruise control, lane-level localization in all weather and road conditions, hands-free driving application, and real-time alerts.
Leveraging this data, we launched a full suite of vision-based data services for cities, road operators, transportation authorities, and mapping companies. Using vehicles equipped with Mobileye's road mapping technology, we provide highly refreshed geographic information systems data about the road network, infrastructure assets, pavement condition, mobility, and traffic. This information allows our customers to monitor and preserve their infrastructure more efficiently, making roadways and streets safer for all.
The third building block in our full stack offering is our unique formal model for AV safety (RSS). At its core, RSS is a pragmatic method to design and then efficiently validate the safety of an AV, serving as the governing safety layer for the decision-making system. RSS formalizes human decision making for safe driving under two main principles: first, it acknowledges the need to balance safety with useful driving by making plausible worst-case scenario assumptions for other road users; and second, it provides a technology-neutral model and a transparent framework for the regulatory endeavor of building an industry standard for safety. In late 2019, Intel was named to lead the IEEE working group to develop AV decision making standards.
These building blocks are already part of our recently launched Mobileye Supervision, a direct derivative of our autonomous driving program. This solution proves that there is a valuable use case for AV technology in the most advanced driver-assistance systems.
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Financial Performance
Internet of Things Revenue $B Internet of Things Op Income $B
■ IOTG ■ Mobileye
Revenue Summary
2020 vs. 2019
IOTG revenue decreased $814 million, or 21%, primarily driven by the economic impacts of COVID-19 with $470 million in lower ASPs driven by weaker core mix and $265 million driven by weaker demand for IOTG platform products. Revenue was also negatively affected by considerations related to the U.S. government Entity List.
Mobileye revenue was $967 million, up $88 million, driven by higher demand from improved global vehicle production in the second half of 2020, offsetting the decline in production experienced in the first half of the year due to the effects of the COVID-19 pandemic.
2019 vs. 2018
IOTG revenue increased $366 million, or 11%, driven by $283 million in higher ASPs from stronger core mix and $92 million from higher IOTG platform unit sales, partially offset by lower revenue from our divestiture of Wind River in Q2 2018, which negatively impacted the revenue comparison by approximately $153 million in the first half of 2019. After adjusting for Wind River, IOTG revenue grew $519 million, or 16%, year over year.
Mobileye revenue was $879 million, up $181 million, due to increasing adoption of ADAS.
Operating Income Summary
2020 vs. 2019
IOTG operating income decreased $600 million, primarily due to lower platform revenue.
Mobileye operating income was $241 million, down $4 million, due to higher spending primarily driven by the Moovit acquisition, partially offset by growth in revenue.
2019 vs. 2018
IOTG operating income increased $117 million, due to higher platform revenue from stronger core mix offset by higher period charges related to reserves taken on legacy products.
Mobileye operating income was $245 million, up $102 million, driven by growth in revenue partially offset by higher spending.
Overview
Highlights and Segment Imperatives
5-Year Trends
■ Revenue $B ■ Op Income $B
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Market and Business Overview
Market Trends and Strategy
The combination of ever-exploding growth in data and the desire to analyze data for actionable insights requires our customers to balance performance, real-time access, and cost. Our technology innovations enable various tiers of memory and storage to ensure that critical, or "hot," data is close to the CPU for rapid access to larger data sets with IntelOptane-based products and efficient cost-effective capacity storage with Intel3D NAND TLC and QLC Technology.
In October 2020, we signed an agreement with SK hynix to divest our NAND memory business. This transaction will allow us to further prioritize our investments in differentiated technology where we can play a bigger role in the success of our customers and deliver attractive returns to our stockholders. Our Intel Optane business is expressly excluded from the sale. The transaction will occur over two closings. In connection with the first closing, the parties will enter into a NAND wafer manufacturing and sale agreement, pursuant to which we will continue to manufacture NAND wafers at our Dalian, China memory fabrication facility. We will sell these wafers to SK hynix until final closing.
Products and Competitiveness
We compete against other providers of NAND products. We offer 96-layer and 64-layer TLC NAND high-capacity SSDs, and 144-layer QLC NAND high-capacity SSDs. We also provide unparalleled low latency and high performance with Intel Optane technology. We focus our efforts primarily on incorporating NAND into solution products and on our innovative Intel Optane technology, which offers a unique combination of performance, density, power, non-volatility, and cost advantages that redefine the memory storage hierarchy between conventional DRAM memory and NAND. We believe that our memory offerings, including our IntelOptane technology, complement our product offerings in our other segments.
The acceleration in data growth across our customer base requires significant innovation in storage and memory technology. Our storage and memory roadmap led the way in re-imagining usages and architecting innovative solutions that have disrupted the industry with 96-layer and 144-layer 3D NAND TLC and QLC solutions. We launched six new products to keep up with the evolving business needs of our customers. We have seen increased volume in the Intel Optane technology business.
We launched the second generation of Intel Optane persistent memory products, available for 3rd Gen Intel Xeon processor platforms for data center usages. This technology redefines the memory storage hierarchy and offers the performance of memory with the large capacities and persistence characteristics of storage. We offer the industry's only drive to combine Intel Optane memory and Intel® QLC 3D NAND Technology. This new technology will enable innovative new form factors and higher capacity drives.
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Financial Performance
NSG Revenue $B NSG Operating Income $B
Revenue Summary
2020 vs. 2019
Revenue increased $996 million, driven by $716 million higher ASP from improved NAND pricing and $280 million from improved overall demand.
2019 vs. 2018
Revenue increased $55 million, driven by a $3.9 billion increase in unit sales due to an increase in demand for NAND products, offset by a $3.8 billion impact from lower ASP due to lower NAND market pricing.
Operating Income Summary
2020 vs. 2019
NSG had an operating profit of $361 million, up from an operating loss of $1.2 billion in 2019. The operating profit was driven by $716 million higher ASPs from market pricing recovery and $741 million due to continued improvements in unit cost.
2019 vs. 2018
NSG had an operating loss of $1.2 billion, down from an operating loss of $5 million in 2018. The operating loss was driven by $3.8 billion lower ASPs, partially offset by $1.6 billion of improved unit cost and $1.1 billion higher unit sales. While the ramp at Fab 68 in 2019 drove cost improvements, the decline in ASP and the absence of $160 million in government grants recognized in Q3 2018 more than offset improved unit cost, resulting in lower gross margin.
Overview
Highlights and Segment Imperatives
5-Year Trends1
■ Revenue $B ■ Op Income $B
1PSG was acquired in Q1 2016.
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Market and Business Overview
Market Trends and Strategy
With the rise of pervasive connectivity and autonomous transactions, vast networks of devices and systems are linked from the edge through infrastructure to the cloud. Our FPGA and structured ASIC technologies enhance Intel's ability to meet the needs of customers across these technology inflections by delivering flexible and high-performance acceleration to extend platform capabilities, intercepting evolving requirements when standards are still changing, and enabling customers to validate next-generation technology proof points early in the market transition. The Intel FPGA portfolio enables this transformation with discrete FPGAs and software-defined, hardware-based, multi-function acceleration cards that allow faster development times, high performance, and power efficiency with lower overall total cost of ownership.
We enable a broad range of solutions targeting applications across our embedded, communications, and cloud and enterprise market segments. The configurability and efficiency of FPGAs provide advantages to enable transformative applications such as 5G wireless, network function virtualization acceleration, and edge acceleration for video analytics and Industry 4.0. At the edge, where systems ingest large amounts of data, Intel FPGAs are ideal for pre-processing data to accelerate Intel processors. In the network, where data traffic is increasing and network functions are being virtualized to improve transport efficiency, Intel FPGAs are built to deliver high-bandwidth aggregation and processing. In the cloud, where workloads shift dynamically and algorithms change, Intel FPGAs are the ideal solution for adapting to new demands through reconfigurability.
Products and Competitiveness
We deliver solutions in the PLD market, primarily FPGAs and structured ASICs, to accelerate applications that help secure, power, and connect billions of devices and the infrastructure of the smart, connected, data-centric world. We face competition from other programmable logic companies, as well as companies that make other types of semiconductor products, such as ASICs, application-specific standard products, GPUs, digital signal processors, and CPUs. Targeted growth areas for our programmable solutions include 5G, AI, intelligent edge, and cloud applications. The FPGA life cycle generally takes three or more years from the time that a design win is secured before a customer starts volume production and we receive the associated revenue.
We also announced the Intel® Open FPGA Stack (Intel® OFS), the first source-accessible FPGA hardware and software acceleration infrastructure, which will enable solution and board providers to build their own differentiated FPGA platforms for servers with Intel Xeon CPUs.
We continue to execute to our developer-first strategy with the release of oneAPI in production, with support for several Intel FPGA families and the Intel® FPGA Programmable Acceleration Card (Intel® FPGA PAC). OneAPI allows users to save significant development time and enhance productivity while using a single, unified language for CPUs, GPUs, and FPGAs.
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Financial Performance
PSG Revenue $B PSG Operating Income $B
Revenue Summary
2020 vs. 2019
Revenue decreased$134 million, driven by a decline in our communications market segment due to customer transition to 5G ASICs which benefited DCG adjacencies, and decline in our embedded market segment. The decline was partially offset by strength in the cloud and enterprise market segment.
2019 vs. 2018
Revenue decreased $136 million, driven by a decline in our cloud and enterprise market segment, offset by strength in wireless and advanced products.
Operating Income Summary
2020 vs. 2019
Operating income decreased $58 million, driven by lower revenue in our embedded and communications market segments, partially offset by strength in the cloud and enterprise market segment.
2019 vs. 2018
Operating income decreased$148 million, driven by lower revenue in our cloud and enterprise market segment, offset by strength in wireless and advanced products.
Overview
Highlights and Segment Imperatives
5-Year Trends
■ Revenue $B ■ Op Income $B
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Market and Business Overview
Market Trends and Strategy
Time spent on PCs has increased dramatically across all major usage categories, as well as the number of PCs per household, reinforcing the importance of bringing innovative platforms and form factors to market that support and enhance user experiences. The COVID-19 pandemic has also driven a shift to notebooks that enables increased user mobility and connectivity to enable working and learning from home.
Currently, we estimate there are approximately 150 million1 enterprise and government PCs that are more than four years old. The experience and capabilities that new PCs deliver are dramatically better today, reinforcing the opportunity to drive a refresh cycle among enterprise customers. This brings a significant opportunity in the commercial market segment.
Overall, market conditions across consumer and commercial market segments continue to improve in an increasingly competitive environment. We will optimize our strategy to stay focused on these competitive market segments and exit businesses that are not delivering growth—most recently seen by our exit in our Home Gateway Platform division.
Products and Competitiveness
We are accelerating the pace of innovation and delivering a predictable cadence of leadership products, including for modern notebooks and high-end enthusiast PCs. We deliver value to our customers by leveraging our engineering capabilities and working with our partners to deliver technology across every major vector of the computing experience, including performance, battery life, connectivity, memory, graphics, and form factors to create the most advanced PC platforms.
We launched our 11th Gen Intel Core processors with Intel Iris Xe graphics. This latest generation of processors, powered by our new 10nm SuperFin transistors, combines new industry technologies like Wi-Fi 6 (Gig+), Thunderbolt 4, AV1 media decode, CPU-attached PCIe Gen 4 interface, and hardware-hardened security features. There were more than 100 designs based on 11th Gen Intel Core processors by the end of 2020 from partners including Acer, Asus, Dell, HP, Lenovo, LG, Razer, Samsung, and others, and approximately 50 additional designs are expected in 2021.
We announced the Intel Evo platform brand powered by 11th Gen Intel Core processors with Intel Iris Xe graphics, representing laptop designs made possible by Intel's Project Athena innovation program. Laptop designs built on the Intel Evo platform will feature the Intel Evo badge, signaling that they are tested and verified in Intel labs to ensure they deliver new experience targets or key experience indicators defined by real-world usage models and innovation across areas like responsiveness, battery life, instant wake, and connectivity.
We also introduced three additions to our 10th Gen Intel Coreprocessor family, extending our leadership in gaming and business. The IntelCore H-series mobile processors include a new H-series processor that delivers desktop-caliber performance that gamers and creators can take anywhere; the IntelCore S-series desktop processors include Intel's flagship Core i9-10900K processor, featuring up to 10 cores, 20 threads and DDR4-2933 memory speeds; and our new 10th Gen Intel Core vPro processors are designed for enterprise needs and deliver increased productivity improvements, connectivity, security features, and remote manageability.
We expanded the Intel NUC small form factor product lines for commercial, gaming, and channel laptops, and launched the IntelNUC Elements modular product. At the end of 2020, these product lines started the transition to 11th Gen Intel Core processors. We continue to enhance our platform products with new adjacent technologies. We launched the Intel® Wi-Fi 6 (Gig+) 802.11ax connectivity solution, the first Wi-Fi 6 solution in the PC market, featuring faster speeds, increased throughput, and better experiences for activities such as video conferencing. We are driving new industry standards for USB-C connector-based products with the introduction of Thunderbolt 4, Intel's universal cable connectivity solution. Strong adoption of ThunderboltTM 3 continues, and it serves as the underlying architecture of USB4.
We continue to focus on an advanced pace of innovation and a predictable cadence of leadership products. We operate in a particularly competitive market with strong competition from AMD; vendors who use applications processors based on ARM architecture, such as Qualcomm Inc. (Qualcomm); and customers who internally develop their own semiconductors, which now include Apple Inc. (Apple). We expect this competitive environment to intensify in 2021.
1 Source: Intel calculated the volume of devices over four years old from industry analyst reports and internal data.
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Financial Performance
CCG Revenue $B CCG Operating Income $B
■ Platform ■ Adjacent
Revenue Summary
▪Increased unit sales driven by strength in notebook demand, partially offset by lower desktop demand.
▪Lower notebook ASPs resulting from higher demand for consumer education PCs, partially offset by higher desktop ASPs from increased demand for performance products in the gaming market segment.
▪Weakness in adjacent revenue driven by volume decline in LTE modem and connected home devices, partially offset by strength in Wi-Fi sales.
(In Millions) % $ Impact % $ Impact
Desktop platform volume down (11)% $ (1,316) down (6)% $ (705)
Notebook platform ASP down (6)% (1,646) up 5% 929
Adjacent products and other (83) 691
Total change in revenue $ 2,911 $ 142
Operating Income Summary
Operating income remained flat year over year, and operating margin was 38% in 2020.
(In Millions)
(3,025) Higher platform unit cost primarily from increased mix of 10nm products
(125) Primarily driven by higher logistic expenses due to COVID-19
1,715 Higher gross margin from platform revenue
640 Lower operating expenses
300 Higher CCG adjacent product margin
2 Other
725 Lower operating expenses primarily driven by lower investment in modem
(1,170) Higher platform unit cost
(145) Lower gross margin from platform revenue
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Consolidated Results of Operations
We achieved record revenue in 2020 amid a volatile environment. Data-centric and PC-centric revenue were both up, driven by growth in DCG, CCG, and NSG. Our gross margin was impacted by a higher mix of 10nm products, but we reduced spending to 25.3% of revenue while increasing our investment in R&D.
Amount % of NetRevenue Amount % of NetRevenue Amount % of NetRevenue
Earnings per share—diluted $ 4.94 $ 4.71 $ 4.48
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Revenue
Our total revenue grew from $59.4 billion in 2016 to $77.9 billion in 2020, representing 7% CAGR. Data-centric businesses collectively grew faster than Intel at 9% CAGR over the last five years and are approaching 50% of our revenue.
PC to Data-centric Transformation Over the Last 5 years
■ PC-centric $B ■ Data-centric $B — Data-centric as a % of total Intel revenue
Segment Revenue Walk $B
2020 vs. 2019
In 2020, revenue was $77.9 billion, up $5.9 billion, or 8%, from 2019. Our data-centric businesses collectively grew 9% due to increased platform volume as cloud service providers increased capacity to serve customer demand. We also saw continued growth in DCG communications service providers, partially offset by enterprise and government decline. We saw growth in DCG adjacencies driven by 5G networking deployment and improved NAND pricing and higher demand in NAND,partially offset by weaker core mix and demand in IOTG platform products due to COVID-19.Our PC-centric business was up8% year over year driven by strength in notebook and Wi-Fi sales. That growth was slightly offset by lower desktop volume and lower notebook ASPs resulting from higher demand for consumer and education PCs, and volume decline in LTE modem and connected home following the exit of those businesses.
2019 vs. 2018
In 2019, revenue was $72.0 billion, up $1.1 billion, or 2%, from 2018. Our data-centric businesses collectively grew 3% year over year and made up nearly half of our total revenue in 2019. Platform ASPs increased due to stronger core mix offset by a decline in NSG ASPs due to lower NAND market pricing and a decrease in DCG platform unit sales as the enterprise and government market segment contracted. Our PC-centric business was flat year over year as ASP strength from richer commercial segment mix and modem growth were offset by declines in platform volume.
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Gross Margin
We derived most of our overall gross margin dollars from the sale of platform products in the DCG and CCG operating segments. Our overall gross margin dollars in 2020 increased by $1.5 billion, or approximately 3%, compared to 2019, and in 2019 decreased by $1.6 billion, or 4%, compared to 2018. Our gross margin percentage was down as the increase in platform revenue was offset by higher platform unit cost and a higher portion of our revenue from lower margin adjacent businesses.
Gross Margin $B
(Percentages in chart indicate gross margin as a percentage of total revenue)
(In Millions)
2,360 Higher gross margin from platform revenue
630 Lower factory start-up costs associated with our 10nm process technology
155 Lower period charges
(3,285) Higher platform unit cost primarily from increased mix of 10nm products
(255) Primarily driven by higher logistic expenses due to COVID-19
580 Higher gross margin from platform revenue
(7) Other
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Operating Expenses
Total R&D and MG&A expenses for 2020 were $19.7 billion, flat compared to 2019. These expenses represented 25.3% of revenue for 2020 and 27.4% of revenue for 2019.
We continue to invest in R&D to accelerate our growth and profitability, while driving operational efficiencies to reduce our MG&A spending.
Research and Development $B Marketing, General, and Administrative $B
(Percentages indicate expenses as a percentage of total revenue)
Research and Development
R&D spending increased by $194 million, or 1%, driven by the following:
+ Investments in our process technology
+ Investments in our PC and data-centric businesses
- Ramp down of 5G smartphone modem business
- Incentive-based cash compensation
R&D spending decreased by $181 million, or 1%, driven by the following:
- Ramp down of 5G smartphone modem business and other projects
- Incentive-based cash compensation
- Corporate spending efficiencies
+ Investments in our data-centric businesses
+ Investments in our process technology
Marketing, General and Administrative
MG&A spending decreased by $170 million, or 3%, driven by the following:
- Corporate spending efficiencies
- Incentive-based cash compensation
MG&A spending decreased by $600 million, or 9%, driven by the following:
- Corporate spending efficiencies
- Reduction in marketing programs
- Incentive-based cash compensation
- Lower expenses due to the Wind River divestiture in Q2 2018
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Gains (Losses) on Equity Investments and Interest and Other, Net
Observable price adjustments on non-marketable equity securities 176 293 202
Gains (losses) on equity investments, net $ 1,904 $ 1,539 $ (125)
Gains (Losses) on Equity Investments, Net
Ongoing mark-to-market net gains and losses reported during 2020 were primarily driven by Montage Technology, Co. Ltd. (Montage); 2019 and 2018 net gains and losses were primarily driven by ASML Holding N.V. (ASML) and Cloudera. In 2019, we sold our equity investment in ASML.
During 2020, we recognized higher than historically experienced impairment charges on our non-marketable portfolio based on our assessment of the impact of recent public and private market volatility and tightening of liquidity. We recognized impairments of $290 million on non-marketable equity securities ($122 million in 2019 and $132 million in 2018). In 2018, we recognized an impairment charge of $290 million in our equity method investment in IMFT.
In sale of equity investments and other, we recognized $1.1 billion on the initial fair value adjustment from a Montage holding becoming marketable and $606 million related to four other equity investments that went public in 2020. We recognized McAfee dividends of $126 million in 2020 and $632 million in 2019, and in 2019 we recognized $107 million from our sale of our non-controlling interest in IMFT.
Interest and Other, Net
We recognized a net loss in interest and other in 2020 compared to a net gain in 2019, primarily due to lower divestiture gains in 2020 compared to 2019.
We recognized a higher net gain in interest and other in 2019 compared to 2018, primarily due to lower loss on debt conversions and larger divestiture gains in 2019 compared to 2018.
Provision for Taxes
Our effective tax rate increased in 2020 compared to 2019, primarily driven by a change in our permanent reinvestment assertion with respect to undistributed earnings in China, as a result of our planned divestiture of the NAND memory business. It also increased due to the reduction in our foreign derived intangible income benefit in 2020.
Our effective tax rate increased in 2019 compared to 2018, primarily driven by one-time benefits that occurred in 2018.
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Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
Other long-term investments $ 2,192 $ 3,276
Loans receivable and other $ 947 $ 1,239
Temporary equity $ — $ 155
Cash generated by operations is our primary source of liquidity. When assessing our sources of liquidity, we include cash and investments as shown in the preceding table. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. Substantially all of our investments in debt instruments and financing receivables are in investment-grade securities.
Other potential sources of liquidity include our commercial paper program and our automatic shelf registration statement on file with the SEC, pursuant to which we may offer an unspecified amount of debt, equity, and other securities. Under our commercial paper program, we have an ongoing authorization from our Board of Directors to borrow up to $10.0 billion. As of December 26, 2020, we had no commercial paper outstanding. During 2020, we issued a total of $10.3 billion aggregate principal amount of senior notes and repaid $1.0 billion of our 1.85% senior notes that matured in May 2020 and $1.8 billion of our 2.45% senior notes that matured in July 2020. We also repaid $700 million in floating-rate senior notes that matured in May 2020. Additionally, we paid $1.1 billion to satisfy conversion obligations for the remaining $372 million of our $2.0 billion 2009 Debentures.
On March 24, 2020, we suspended the use of our financial resources for stock repurchases. On August 19, 2020, in response to our belief that our stock was trading well below its intrinsic valuation at that time, we entered into ASR agreements to repurchase an aggregate of $10.0 billion of our common stock. In total, we have repurchased approximately $17.6 billion in shares as part of our planned $20.0 billion share repurchases announced in October 2019. We intend to complete the remaining $2.4 billion balance of these planned repurchases in Q1 2021.
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; and potential acquisitions, strategic investments, dividends, and common stock repurchases.
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Sources and Uses of Cash(In Millions)
In summary, our cash flows for each period were as follows:
Net cash provided by (used for) financing activities (12,917) (17,565) (18,607)
Net increase (decrease) in cash and cash equivalents $ 1,671 $ 1,175 $ (414)
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Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
For 2020 compared to 2019, the $2.2 billion increase in cash provided by operating activities was primarily due to changes in working capital. Changes in working capital were driven by accounts receivable, inventory, and income taxes, offset by other assets and liabilities.
For 2019 compared to 2018, the $3.7 billion increase in cash provided by operating activities was primarily due to changes in working capital. Changes in working capital were driven by taxes, other assets and liabilities, and accounts receivable, offset by customer utilization of prepaid supply agreement payments and inventory build.
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment purchases, sales, maturities, and disposals, and proceeds from divestitures and cash used for acquisitions. Our capital expenditures were $14.3 billion in 2020, excluding NAND capital expenditures subsequent to the held for sale date ($16.2 billion in 2019 and $15.2 billion in 2018).
The increase in cash used for investing activities in 2020 compared to 2019 was primarily due to an increase in purchases of available-for-sale debt investments and trading assets, offset by an increase in maturities and sales of available-for-sale debt investments and trading assets, and a decrease in capital expenditures and cash paid for acquisitions.
The increase in cash used for investing activities in 2019 compared to 2018 was primarily due to net trading asset activity, acquisitions, and capital expenditures. The increase was partially offset by net available-for-sale debt investment activity.
Financing Activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
The decrease in cash used for financing activities in 2020 compared to 2019 was primarily due to an increase in cash provided by long-term debt issuances, offset by an increase in repayments of debt and debt conversions and an increase in repurchases of common stock. During 2020, we repurchased $14.2 billion of common stock under our authorized common stock repurchase program, compared to $13.6 billion in 2019. As of December 26, 2020, $9.7 billion remained available for repurchasing common stock under the repurchase authorization limit. Our total dividend payments were $5.6 billion in 2020 compared to $5.6 billion in 2019. We have paid a cash dividend in each of the past 113 quarters.
The decrease in cash used for financing activities in 2019 compared to 2018 was primarily due to increased long-term debt issuance, offset by increased repurchases of common stock.
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Contractual Obligations
Significant contractual obligations as of December 26, 2020 were as follows:
Payments Due by Period
(In Millions) Total Less than1 year 1–3 years 3–5 years More than5 years
1Operating lease obligations represent the undiscounted lease payments under non-cancelable leases, but exclude non-lease components.
2Capital 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 26, 2020, as we had not yet received the related goods nor taken title to the property.
3Other purchase obligations and commitments include payments due under various types of licenses and agreements to purchase goods or services.
4Tax obligations represent the future cash payments related to Tax Reform enacted in 2017 for the one-time transition tax on our previously untaxed foreign earnings. For further information, see "Note 8: Income Taxes" within the Consolidated Financial Statements.
5Amounts represent principal payments for all debt obligations and interest payments for fixed-rate debt obligations. Interest payments on floating-rate debt obligations, as well as the impact of fixed-rate to floating-rate debt swaps, are excluded.
6Amounts 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. Derivative instruments are excluded from the preceding table because they do not represent the amounts that may ultimately be paid.
7Total 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 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.
For the purchase of raw materials, we have entered into certain agreements 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.
Contractual obligations that are contingent upon the achievement of certain milestones have been excluded from the preceding table. Approximately half of our milestone-based contracts are tooling related for the purchase of capital equipment. These arrangements are not considered contractual obligations until the milestone is met by the counterparty.As of December 26, 2020, assuming that all future milestones are met, the additional required payments would be approximately $530 million.
For the majority of RSUs granted, the number of shares of common stock issued on the date the RSUs 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.
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Quantitative and Qualitative Disclosures About Market Risk
We are affected by changes in currency exchange and interest rates, as well as equity and commodity prices. Our risk management programs are designed to reduce, but may not entirely eliminate, the impacts of these risks. All of the following potential changes are based on sensitivity analyses performed on our financial positions as of December 26, 2020 and December 28, 2019. Actual results may differ materially.
Currency Exchange Rates
We are exposed to currency exchange risks of non-U.S.-dollar-denominated investments in debt and equity instruments and loans receivable, and may economically hedge this risk with foreign currency contracts, such as currency forward contracts or currency interest rate swaps. Gains or losses on these non-U.S.-currency investments are generally offset by corresponding losses or gains on the related hedging instruments. We are exposed to currency exchange risks from our non-U.S.-dollar-denominated debt indebtedness and may use foreign currency contracts designated as cash flow hedges to manage this risk.
Substantially all of our revenue is transacted in U.S. dollars. However, a significant portion of our operating expenditures and capital purchases are incurred in other currencies, primarily the euro, the Japanese yen, the Israeli shekel, and the Chinese yuan. We have established currency risk management programs to protect against currency exchange rate risks associated with non-U.S. dollar forecasted future cash flows and existing non-U.S. dollar monetary assets and liabilities. We may also hedge currency risk arising from funding of foreign currency-denominated future investments. We may utilize foreign currency contracts, such as currency forwards or option contracts in these hedging programs. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that a weighted average adverse change of 10% 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 outstanding as of December 26, 2020 and December 28, 2019, would result in an adverse impact on income before taxes of less than $61 million and less than $38 million, respectively.
Interest Rates
We are exposed to interest rate risk related to our fixed-rate investment portfolio and outstanding debt. The primary objective of our investment policy is to preserve principal and the financial flexibility to fund our business while maximizing yields, which generally track the U.S. dollar three-month LIBOR. We generally enter into interest rate contracts to convert the returns on our fixed-rate debt investment with remaining maturities longer than six months into U.S. dollar three-month LIBOR-based returns. We also enter into swaps to convert fixed-rate coupon payments into floating-rate coupon payments for our existing indebtedness. Gains or losses on these instruments are generally offset by corresponding losses or gains on the related hedging instruments.
A hypothetical increase in benchmark interest rates of up to 1%, after taking into account investment hedges, would have resulted in a decrease in the fair value of our investment portfolio of approximately $75 million as of December 26, 2020 (a hypothetical decrease of 1% would have resulted in an increase of approximately $88 million as of December 28, 2019).
Taking into account floating-rate debt and fixed-rate debt that is swapped to floating-rate debt, a hypothetical increase in interest rates of up to 1% would result in an increase in annual interest expense on our indebtedness of approximately $132 million from debt outstanding as of December 26, 2020 (an increase of approximately $139 million from debt outstanding as of December 28, 2019).
Equity Prices
We are exposed to equity market risk through our investments in marketable equity securities, which we typically do not attempt to reduce or eliminate through hedging activities.
As of December 26, 2020, the fair value of our marketable equity securities was $1.8 billion ($450 million as of December 28, 2019). Substantially all of our marketable equity securities portfolio as of December 26, 2020 was concentrated in securities traded on the Chinese Shanghai Stock Exchange Science and Technology Innovation Board. To determine reasonably possible decreases in the market value of our marketable equity securities, we have analyzed the historical market price sensitivity of our portfolio. Assuming a decline of 60% in market prices, the aggregate value of our marketable equity securities could decrease by approximately $1.1 billion, based on the value as of December 26, 2020 (a decrease in value of approximately $180 million, based on the value as of December 28, 2019 using an assumed decline of 40%).
We utilize total return swaps to offset changes in liabilities related to the equity market risks of certain deferred compensation arrangements. Gains or losses from changes in fair value of these total return swaps are generally offset by the losses or gains on the related liabilities.
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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 impacts 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 securities had a carrying amount of $3.3 billion as of December 26, 2020 ($3.5 billion as of December 28, 2019) and included our investment in Beijing Unisoc Technology Ltd. of $658 million ($658 million as of December 28, 2019). The carrying amount of our equity method investments was $18 million as of December 26, 2020 ($37 million as of December 28, 2019).
Commodity Price Risk
Although we operate facilities that consume commodities, we are not directly affected by commodity price risk to a material degree. We have established forecasted transaction risk management programs to protect against fluctuations in commodity prices. We may use commodity derivatives contracts, such as commodity swaps, in these hedging programs. In addition, we have sourcing plans in place that are designed to mitigate the risk of a potential supplier concentration for our key commodities.
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Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with U.S. GAAP, this document contains references to the non-GAAP financial measures below. We believe these non-GAAP financial measures provide investors with useful supplemental information about our operating performance, enable comparison of financial trends and results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.
Our non-GAAP financial measures reflect adjustments based on one or more of the following items, as well as the related income tax effects where applicable. Income tax effects have been calculated using an appropriate tax rate for each adjustment. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated.
Non-GAAP adjustment or measure Definition Usefulness to management and investors
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Following are the reconciliations of our most comparable U.S. GAAP measures to our non-GAAP measures presented:
Restructuring and other charges 198 393 (72)
Acquisition-related adjustments 1.8 % 1.8 % 1.8 %
Restructuring and other charges 0.3 % 0.5 % (0.1) %
Non-GAAP operating margin 32.5 % 33.0 % 34.7 %
Restructuring and other charges 198 393 (72)
(Gains) losses from divestiture (6) (690) (494)
Ongoing mark-to-market on marketable equity securities 133 (277) 129
Tax Reform — — (294)
Earnings per share—diluted $ 4.94 $ 4.71 $ 4.48
Acquisition-related adjustments 0.33 0.29 0.28
Restructuring and other charges 0.05 0.09 (0.02)
(Gains) losses from divestiture — (0.16) (0.11)
Ongoing mark-to-market on marketable equity securities 0.03 (0.06) 0.03
Tax Reform — — (0.06)
Income tax effects (0.05) — (0.02)
Non-GAAP earnings per share—diluted $ 5.30 $ 4.87 $ 4.58
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Other Key Information
Selected Financial Data
Earnings per share2