INTEL runter!

Acquisition-related costs during the quarter consisted of $14 million in one-time charges for purchased in-process research and development, and $229 million in amortization of acquisition-related intangibles, write-off of intangibles and other costs. Intel expects to continue to report earnings excluding acquisition-related costs through the end of the year to provide a consistent basis for financial comparisons.

"In a tough environment, we continued to execute well," said Craig R. Barrett, Intel chief executive officer. "Our investments in technology and manufacturing are delivering processors with clear performance leadership, resulting in market segment share gains across the board. We also saw growth in our communications businesses, led by solid flash memory revenue and share growth.

"Although an overall industry recovery has been slow to materialize, we still expect a modest seasonal increase in demand in the second half," Barrett continued. "In this environment, our strategy remains the same: Focus on execution, take prudent cost cutting measures, and invest to further improve our competitive position and long-term growth prospects."

BUSINESS OUTLOOK

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed after June 29, 2002.

Continuing uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters.

Revenue in the third quarter is expected to be between $6.3 billion and $6.9 billion.
Gross margin percentage in the third quarter is expected to be 51 percent, plus or minus a couple of points. The second-quarter gross margin percentage was 47 percent and would have been 48.7 percent without the $106-million charge related to the online services business. Intel's gross margin percentage varies primarily with revenue levels, product mix and pricing, changes in unit costs, capacity utilization, and timing of factory ramps and associated costs.
Gross margin percentage for 2002 is expected to be 51 percent, plus or minus a few points, lower than the previous expectation of 53 percent, plus or minus a few points, primarily due to second-quarter revenue levels and charges.
Expenses (R&D, excluding in-process R&D, plus MG&A) in the third quarter are expected to be approximately $2.1 billion. In the second half of 2002, the company expects to reduce its workforce by approximately 4,000 employees exclusive of acquisitions, primarily through attrition, voluntary separation programs and some targeted business disinvestments. Expenses, particularly certain marketing- and compensation-related expenses, vary depending on the level of revenue and profits.
R&D spending for 2002, excluding in-process R&D, is expected to be approximately $4.0 billion, lower than the previous expectation of $4.1 billion.
Capital spending for 2002 is expected to be between $5.0 billion and $5.2 billion, lower than the previous expectation of $5.5 billion, primarily due to non-fab-related spending reductions, with no change in the company's current and future microprocessor capacity plans.
Gains or losses from equity investments and interest and other in the third quarter are expected to be a net loss of $25 million due to the expectation of a net loss on equity investments of approximately $75 million, primarily as a result of impairment charges. Gains or losses will vary depending on equity market levels and volatility, gains or losses realized on the sale or exchange of investments, determination of impairment charges, including potential impairment of non-marketable investments, interest rates, cash balances, mark-to-market of derivative instruments, and assuming no unanticipated items.
The tax rate for 2002 is expected to be approximately 28.4 percent, excluding the impact of acquisition-related costs.
Depreciation is expected to be approximately $1.2 billion in the third quarter and approximately $4.7 billion for the year.
Amortization of acquisition-related intangibles and costs is expected to be approximately $100 million in the third quarter and approximately $530 million for the full year.
The statements in this document that refer to plans and expectations for the current quarter and the future are forward-looking statements that involve a number of risks and uncertainties. In addition to the factors discussed above, factors that could cause actual results to differ materially include the following: business and economic conditions and trends in the computing and communications industries in various geographic regions; factors associated with doing business outside the United States, including currency controls and fluctuations, and tariff, import and other related restrictions and regulations; possible disruption in commercial activities related to terrorist activity or armed conflict in the United States, Israel and other locations, such as changes in logistics, security arrangements, communications infrastructure, and reduced end-user purchases relative to expectations; civil or military unrest or political instability in a locale; changes in customer order patterns; changes in the mix of microprocessor types and speeds sold as well as the mix of related chipsets, motherboards, purchased components and other semiconductor and non-semiconductor products; competitive factors, such as competing chip architectures and manufacturing technologies, competing software-compatible microprocessors, and acceptance of new products in specific market segments; pricing pressures; development and timing of introduction of compelling software applications; excess or obsolete inventory and variations in inventory valuation; continued success in technological advances, including development and implementation of new processes and strategic products for specific market segments; execution of the manufacturing ramp including the transition to 0.13-micron process technology; excess manufacturing capacity; the ability to sustain and grow new networking, communications, wireless and other Internet-related businesses and successfully integrate and operate any acquired businesses; unanticipated costs or other adverse effects associated with processors and other products containing errata (deviations from published specifications); litigation involving intellectual property, stockholder and other issues; and other risk factors listed from time to time in the company's SEC reports, including but not limited to the report on Form 10-Q for the quarter ended March 30, 2002 (Part I, Item 2, Outlook section).

Status of Business Outlook and Mid-Quarter Business Update

Intel's corporate representatives will meet privately during the quarter with investors, investment analysts, the media and others, and may reiterate the Business Outlook. Intel intends to publish a Mid-Quarter Business Update on Sept. 5. From the close of business on Aug. 30 until publication of the Update, Intel will observe a "Quiet Period" during which the Outlook and the company's filings with the SEC on Forms 10-K and 10-Q should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. For more information about the Outlook, Update and related Quiet Periods, please refer to the Outlook section of the Web site at www.intc.com.  

                                       acquisition-related costs. Revenue was $6.32 billion, little changed from
                                       the $6.33 billion in the year-ago quarter. Intel did not provide earnings per
                                       share figures excluding the charges for exiting its web hosting business and
                                       for a write-down of assets related to its Xircom acquisition.

                                       Intel, which along with others in high technology has suffered from slowing
                                       economies and PC sales, also forecast that gross margin in the
third-quarter would rise to about 51 percent from 47 percent in the second quarter. Intel forecast third quarter revenue of $6.3
billion to $6.9 billion.

Intel shares fell nearly 4 percent to $18.36 on the Nasdaq before results were released, which came after the close of regular
U.S. trading. As of yesterday's close the stock has declined 39 percent this year, compared with a 42 percent decline in the
shares of its principal competitor in the market for microprocessors, Advanced Micro Devices Inc. (NYSE:AMD - News).

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