INTEL CORP - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 29, 2019



	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 000-06217

INTEL CORPORATION

(Exact name of registrant as specified in its charter)



	Delaware		94-1672743
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
2200 Mission College Boulevard,	Santa Clara,	California	95054-1549
(Address of principal executive offices)			(Zip Code)

(408) 765-8080

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	INTC	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company
☑	¨	¨	☐	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of June 29, 2019, the registrant had outstanding 4,430 million shares of common stock.

TABLE OF CONTENTS

THE ORGANIZATION OF OUR QUARTERLY REPORT ON FORM 10-Q

The order and presentation of content in our Quarterly Report on Form 10-Q (Form 10-Q) differs from the traditional U.S. Securities and Exchange Commission (SEC) Form 10-Q format. We believe that our format improves readability and better presents how we organize and manage our business. See "Form 10-Q Cross-Reference Index" within Other Key Information for a cross-reference index to the traditional SEC Form 10-Q format.

The preparation of consolidated financial statements is in conformity with U.S. generally accepted accounting principles (GAAP). We have included key metrics that we use to measure our business, some of which are non-GAAP measures. See these "Non-GAAP Financial Measures" within Other Key Information.



		Page
FORWARD-LOOKING STATEMENTS		1
A QUARTER IN REVIEW		2
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND SUPPLEMENTAL DETAILS
	Consolidated Condensed Statements of Income	3
	Consolidated Condensed Statements of Comprehensive Income	4
	Consolidated Condensed Balance Sheets	5
	Consolidated Condensed Statements of Cash Flows	6
	Consolidated Condensed Statements of Stockholders' Equity	7
	Notes to Consolidated Condensed Financial Statements	8

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
	Overview	21
	Revenue, Gross Margin, and Operating Expenses	22
	Business Unit Trends and Results	25
	Other Consolidated Results of Operations	31
	Liquidity and Capital Resources	32
	Quantitative and Qualitative Disclosures about Market Risk	33

OTHER KEY INFORMATION
	Risk Factors	34
	Controls and Procedures	35
	Non-GAAP Financial Measures	35
	Issuer Purchases of Equity Securities	36
	Exhibits	37
	Form 10-Q Cross-Reference Index	38

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," "would," "should," "could," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, projected growth of markets relevant to our businesses, future products and technology and the expected availability and benefits of such products and technology, expected timing and impact of acquisitions, divestitures, and other significant transactions, expected completion of restructuring activities, uncertain events or assumptions, 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 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 our Annual Report on Form 10-K for the year ended December 29, 2018, particularly the "Risk Factors" sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the date of this filing. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, including expectations based on third-party information and projections that management believes to be reputable, and Intel does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.

INTEL UNIQUE TERMS

We use specific terms throughout this document to describe our business and results. Below are key terms and how we define them:



PLATFORM PRODUCTS		A microprocessor (processor or central processing unit (CPU)) and chipset, a stand-alone System-on-Chip (SoC), or a multichip package, based on Intel^® architecture. Platform products, or platforms, are primarily used in solutions sold through the Client Computing Group (CCG), Data Center Group (DCG), and Internet of Things Group (IOTG) segments.

ADJACENT PRODUCTS		All of our non-platform products for CCG, DCG, and IOTG, such as modem, Ethernet and silicon photonics, as well as Mobileye, Non-Volatile Memory Solutions Group (NSG), and Programmable Solutions Group (PSG) products. Combined with our platform products, adjacent products form comprehensive platform solutions to meet customer needs.

PC-CENTRIC BUSINESS		Our CCG business, including both platform and adjacent products.

DATA-CENTRIC BUSINESSES		Our DCG, Internet of Things (IOTG and Mobileye), NSG, PSG, and all other businesses.

Intel, the Intel logo, Intel Optane, Thunderbolt, Xeon, 3D NAND and 3D XPoint are trademarks of Intel Corporation or its subsidiaries in the U.S. and/or other countries.

* Other names and brands may be claimed as the property of others.



		1

Table of Contents

A QUARTER IN REVIEW

Total revenue of $16.5 billion declined year over year as our data-centric businesses were down 7%; this was partially offset by 1% growth in our PC-centric business. Data-centric revenue was down compared to a year ago as cloud customers absorbed capacity, data center total addressable market (TAM) for the quarter contracted in the enterprise and government market segment, China demand weakened, and NAND pricing remained under pressure. Our PC-centric business was up driven by average selling price (ASP) strength with richer commercial segment mix and modem growth. PC client volume declined on small core supply constraint partially offset by sales pull-ins by customers in anticipation of tariff impacts. Lower platform unit sales and further margin compression on memory products resulted in lower gross margins and operating income, which was partially offset by executing the quarter with continued operating margin leverage. In the first six months we generated $12.5 billion of cash flow from operations and returned $8.4 billion to stockholders, including $2.8 billion in dividends and $5.6 billion in buybacks.



REVENUE	OPERATING INCOME	DILUTED EPS
■ PC-CENTRIC $B ■ DATA-CENTRIC $B	■ GAAP $B ■ NON-GAAP $B	■ GAAP ■ NON-GAAP




$16.5B	$4.6B	$5.1B	$0.92	$1.06
GAAP	GAAP	non-GAAP¹	GAAP	non-GAAP¹
down $457M or 3% from Q2 2018	down $656M or 12% from Q2 2018	down $460M or 8% from Q2 2018	down $0.13 or 12% from Q2 2018	up $0.02 or 2% from Q2 2018

Declines in data-centric businesses generally, partially offset by growth in PC-centric business and Internet of Things	Lower gross margin from decrease in platform unit sales and NAND pricing degradation, partially offset by CPU ASP strength		Impact from lower platform volume, and NAND pricing pressure, partially offset by the receipt of McAfee, Inc. dividend, as well as lower shares outstanding

BUSINESS SUMMARY

•

We have maintained an intense, company-wide focus on improving execution while accelerating innovation. We began shipping our 10 nanometer (nm)-based 10th generation Intel^® Core™ processors, code-named Ice Lake. These processors feature a new core architecture and are expected to deliver increased graphics performance and artificial intelligence and new levels of integrated connectivity for thin-and-light laptops and 2-in-1s. We also shared more details about our Project Athena platform innovation program to help the PC ecosystem create advanced laptops that meet ambitious key experience indicators in performance, responsiveness, battery life, form factor, and artificial intelligence.


•	At our 2019 Investor Meeting, we shared details on our 7nm process technology and the expected performance gains resulting from a combination of technical innovations across six pillars — process and packaging, architecture, memory, interconnect, security, and software — giving insight into the design and engineering model steering our product development.


•	DCG experienced challenges as cloud customers absorbed capacity and the enterprise and government TAM declined. NSG declined as industry-wide pricing pressure for NAND intensified. However, demand for edge compute drove double digit revenue growth for Mobileye and IOTG.


•	PC-centric growth was driven by strength in our commercial market segment, as well as adjacencies led by modem. Platform volumes declined in the first half of 2019 compared to first half of 2018 as we experienced small core supply constraints. We continued to invest in capacity expansion for 14nm production, improving our supply in the second half of 2019.

•

In July, we signed an agreement to divest the majority of our smartphone modem business, including certain employees, intellectual property, equipment and leases. The transaction enables us to increase the focus of our 5G efforts on the broader opportunity to modernize network and edge infrastructure, and is expected to close in the fourth quarter of 2019. We also acquired Barefoot Networks, an emerging leader in Ethernet switch silicon and software for use in data center.

¹See "Non-GAAP Financial Measures" within Other Key Information.



A QUARTER IN REVIEW		2

Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF INCOME



	Three Months Ended						Six Months Ended
(In Millions, Except Per Share Amounts; Unaudited)	Jun 29, 2019			Jun 30, 2018			Jun 29, 2019			Jun 30, 2018
Net revenue	$	16,505		$	16,962		$	32,566		$	33,028
Cost of sales	6,627			6,543			13,599			12,878
Gross margin	9,878			10,419			18,967			20,150
Research and development	3,438			3,371			6,770			6,682
Marketing, general and administrative	1,589			1,725			3,122			3,625
Restructuring and other charges	184			—			184			—
Amortization of acquisition-related intangibles	50			50			100			100
Operating expenses	5,261			5,146			10,176			10,407
Operating income	4,617			5,273			8,791			9,743
Gains (losses) on equity investments, net	170			(203		)	604			440
Interest and other, net	(63		)	459			(124		)	357
Income before taxes	4,724			5,529			9,271			10,540
Provision for taxes	545			523			1,118			1,080
Net income	$	4,179		$	5,006		$	8,153		$	9,460
Earnings per share – basic	$	0.94		$	1.08		$	1.82		$	2.03
Earnings per share – diluted	$	0.92		$	1.05		$	1.79		$	1.98
Weighted average shares of common stock outstanding:
Basic	4,466			4,649			4,479			4,661
Diluted	4,523			4,747			4,543			4,768

See accompanying notes.



FINANCIAL STATEMENTS	Consolidated Condensed Statements of Income	3

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended					Six Months Ended
(In Millions; Unaudited)	Jun 29, 2019		Jun 30, 2018			Jun 29, 2019		Jun 30, 2018
Net income	$	4,179	$	5,006		$	8,153	$	9,460
Changes in other comprehensive income, net of tax:
Net unrealized holding gains (losses) on derivatives	151		(293		)	253		(174		)
Actuarial valuation and other pension benefits (expenses), net	8		(122		)	17		26
Translation adjustments and other	32		9			82		(13		)
Other comprehensive income (loss)	191		(406		)	352		(161		)
Total comprehensive income	$	4,370	$	4,600		$	8,505	$	9,299

See accompanying notes.



FINANCIAL STATEMENTS	Consolidated Condensed Statements of Comprehensive Income	4

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CONSOLIDATED CONDENSED BALANCE SHEETS



(In Millions)	Jun 29, 2019			Dec 29, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,867		$	3,019
Short-term investments	2,414			2,788
Trading assets	6,663			5,843
Accounts receivable	6,233			6,722
Inventories	8,696			7,253
Other current assets	2,366			3,162
Total current assets	29,239			28,787
Property, plant and equipment, net of accumulated depreciation of $69,227 ($65,342 as of December 29, 2018)	51,377			48,976
Equity investments	4,629			6,042
Other long-term investments	3,577			3,388
Goodwill	24,583			24,513
Identified intangible assets, net	11,249			11,836
Other long-term assets	6,105			4,421
Total assets	$	130,759		$	127,963

Liabilities, temporary equity, and stockholders’ equity
Current liabilities:
Short-term debt	$	3,726		$	1,261
Accounts payable	4,682			3,824
Accrued compensation and benefits	2,554			3,622
Other accrued liabilities	8,743			7,919
Total current liabilities	19,705			16,626
Debt	25,089			25,098
Contract liabilities	1,558			2,049
Income taxes payable, non-current	4,847			4,897
Deferred income taxes	1,783			1,665
Other long-term liabilities	2,583			2,646
Contingencies (Note 12)
Temporary equity	247			419
Stockholders’ equity:
Preferred stock	—			—
Common stock and capital in excess of par value, 4,430 issued and outstanding (4,516 issued and outstanding as of December 29, 2018)	25,140			25,365
Accumulated other comprehensive income (loss)	(622		)	(974		)
Retained earnings	50,429			50,172
Total stockholders’ equity	74,947			74,563
Total liabilities, temporary equity, and stockholders’ equity	$	130,759		$	127,963

See accompanying notes.



FINANCIAL STATEMENTS	Consolidated Condensed Balance Sheets	5

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS



	Six Months Ended
(In Millions; Unaudited)	Jun 29, 2019			Jun 30, 2018
Cash and cash equivalents, beginning of period	$	3,019		$	3,433
Cash flows provided by (used for) operating activities:
Net income	8,153			9,460
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,379			3,536
Share-based compensation	859			820
Amortization of intangibles	800			782
(Gains) losses on equity investments, net	(100		)	(401		)
Changes in assets and liabilities:
Accounts receivable	490			369
Inventories	(1,443		)	(303		)
Accounts payable	431			274
Accrued compensation and benefits	(1,012		)	(884		)
Customer deposits and prepaid supply agreements	(444		)	1,580
Income taxes	(15		)	(1,133		)
Other assets and liabilities	448			(403		)
Total adjustments	4,393			4,237
Net cash provided by operating activities	12,546			13,697
Cash flows provided by (used for) investing activities:
Additions to property, plant and equipment	(6,875		)	(7,440		)
Purchases of available-for-sale debt investments	(1,721		)	(1,578		)
Maturities of available-for-sale debt investments	1,903			1,720
Purchases of trading assets	(4,498		)	(6,501		)
Maturities and sales of trading assets	3,808			7,691
Sales of equity investments	1,331			215
Other investing	42			(91		)
Net cash used for investing activities	(6,010		)	(5,984		)
Cash flows provided by (used for) financing activities:
Increase (decrease) in short-term debt, net	996			1,991
Issuance of long-term debt, net of issuance costs	601			—
Repayment of debt and debt conversion	(1,033		)	(1,169		)
Proceeds from sales of common stock through employee equity incentive plans	305			320
Repurchase of common stock	(5,579		)	(5,807		)
Payment of dividends to stockholders	(2,828		)	(2,800		)
Other financing	850			(1,067		)
Net cash provided by (used for) financing activities	(6,688		)	(8,532		)
Net increase (decrease) in cash and cash equivalents	(152		)	(819		)
Cash and cash equivalents, end of period	$	2,867		$	2,614

Supplemental disclosures of noncash investing activities and cash flow information:
Acquisition of property, plant, and equipment included in accounts payable and accrued liabilities	$	2,678		$	2,789
Cash paid during the period for:
Interest, net of capitalized interest	$	243		$	209
Income taxes, net of refunds	$	1,112		$	2,196

See accompanying notes.



FINANCIAL STATEMENTS	Consolidated Condensed Statements of Cash Flows	6

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CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY



	Common Stock and Capital in Excess of Par Value					Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
(In Millions, Except Per Share Amounts)	Shares		Amount			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Three Months Ended

Balance as of March 30, 2019	4,477		$	25,346		$	(813	)	$	49,128		$	73,661
Net income	—		—			—			4,179			4,179
Other comprehensive income (loss)	—		—			191			—			191
Employee equity incentive plans and other	28		31			—			—			31
Share-based compensation	—		471			—			—			471
Temporary equity reduction	—		28			—			—			28
Convertible debt	—		(120		)	—			—			(120		)
Repurchase of common stock	(67	)	(381		)	—			(2,764		)	(3,145		)
Restricted stock unit withholdings	(7	)	(235		)	—			(114		)	(349		)
Balance as of June 29, 2019	4,430		$	25,140		$	(622	)	$	50,429		$	74,947

Balance as of March 31, 2018	4,660		$	26,430		$	(683	)	$	44,418		$	70,165
Net income	—		—			—			5,006			5,006
Other comprehensive income (loss)	—		—			(406		)	—			(406		)
Employee equity incentive plans and other¹	31		110			—			—			110
Share-based compensation	—		372			—			—			372
Temporary equity reduction	—		147			—			—			147
Convertible debt	—		(563		)	—			—			(563		)
Non-controlling interest	—		(375		)	—			—			(375		)
Repurchase of common stock	(76	)	(424		)	—			(3,589		)	(4,013		)
Restricted stock unit withholdings	(8	)	(227		)	—			(169		)	(396		)
Balance as of June 30, 2018	4,607		$	25,470		$	(1,089	)	$	45,666		$	70,047

Six Months Ended

Balance as of December 29, 2018	4,516		$	25,365		$	(974	)	$	50,172		$	74,563
Net income	—		—			—			8,153			8,153
Other comprehensive income (loss)	—		—			352			—			352
Employee equity incentive plans and other	39		403			—			—			403
Share-based compensation	—		860			—			—			860
Temporary equity reduction	—		173			—			—			173
Convertible debt	—		(712		)	—			—			(712		)
Repurchase of common stock	(117	)	(659		)	—			(4,936		)	(5,595		)
Restricted stock unit withholdings	(8	)	(290		)	—			(131		)	(421		)
Cash dividends declared ($0.63 per share)	—		—			—			(2,829		)	(2,829		)
Balance as of June 29, 2019	4,430		$	25,140		$	(622	)	$	50,429		$	74,947

Balance as of December 30, 2017	4,687		$	26,074		$	862		$	42,083		$	69,019
Adjustment for change in accounting principle	—		—			(1,790		)	2,424			634
Opening balance as of December 31, 2017	4,687		26,074			(928		)	44,507			69,653
Net income	—		—			—			9,460			9,460
Other comprehensive income (loss)	—		—			(161		)	—			(161		)
Employee equity incentive plans and other¹	46		433			—			—			433
Share-based compensation	—		825			—			—			825
Temporary equity reduction	—		212			—			—			212
Convertible debt	—		(770		)	—			—			(770		)
Non-controlling interest	—		(375		)	—			—			(375		)
Repurchase of common stock	(117	)	(649		)	—			(5,319		)	(5,968		)
Restricted stock unit withholdings	(9	)	(280		)	—			(181		)	(461		)
Cash dividends declared ($0.60 per share)	—		—			—			(2,801		)	(2,801		)
Balance as of June 30, 2018	4,607		$	25,470		$	(1,089	)	$	45,666		$	70,047


¹	Includes approximately $375 million of non-controlling interest activity due to our acquisition of Mobileye in 2017, which was eliminated in 2018 due to the purchase of remaining shares.

See accompanying notes.



FINANCIAL STATEMENTS	Consolidated Condensed Statements of Stockholders' Equity	7

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



NOTE 1 :	BASIS OF PRESENTATION

We prepared our interim consolidated condensed financial statements that accompany these notes in conformity with GAAP, consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (2018 Form 10-K), except for changes associated with leases as detailed in "Note 2: Recent Accounting Standards and Accounting Policies." We have reclassified certain prior period amounts to conform to current period presentation.

We have made estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. The interim financial information is unaudited, and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with the consolidated financial statements in our 2018 Form 10-K.



NOTE 2 :	RECENT ACCOUNTING STANDARDS AND ACCOUNTING POLICIES

We assess the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on our financial statements and below describe impacts from newly adopted standards, as well as material updates to our previous assessments, if any, from our 2018 Form 10-K.

ACCOUNTING STANDARDS ADOPTED

Leases

Standard/Description: This new lease accounting standard requires that we recognize leased assets and corresponding liabilities on the balance sheet and provide enhanced disclosure of lease activity.

Effective Date and Adoption Considerations: Effective in the first quarter of 2019. The standard was adopted applying the modified retrospective approach at the beginning of the period of adoption. Our leased assets and corresponding liabilities exclude non-lease components.

Effect on Financial Statements or Other Significant Matters: Within the opening balances for the fiscal year beginning December 30, 2018, we recognized leased assets and corresponding liabilities in other long-term assets of $706 million, which includes $81 million of previously recognized prepaid land use rights, as well as corresponding accrued liabilities of $180 million and other long-term liabilities of $445 million.

Accounting Policy Updates and Disclosures: We determine if an arrangement is a lease at inception, and classify it as finance or operating. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, and the non-lease components are accounted for separately and not included in our leased assets and corresponding liabilities. Leases primarily consist of real property, and, to a lesser extent, certain machinery and equipment.

We recognized leased assets in other long-term assets of $684 million and corresponding accrued liabilities of $178 million, and other long-term liabilities of $426 million as of June 29, 2019. Our leases have remaining lease terms of 1 to 9 years, some of which may include options to extend the leases for up to 39 years. The weighted average remaining lease term was 5.0 years, and the weighted average discount rate was 3.6% as of June 29, 2019.

For the six months ended June 29, 2019, lease expense was $94 million. In accordance with the new leases standard, discounted and undiscounted lease payments under non-cancelable leases as of June 29, 2019, excluding non-lease components, are as follows:



(In Millions)	Remainder of 2019		2020		2021		2022		2023		2024 and Thereafter		Total
Lease payments	$	93	$	173	$	122	$	96	$	70	$	107	$	661
Present value of lease payments													$	604



FINANCIAL STATEMENTS	Notes to Financial Statements	8

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Lease expense was $231 million in 2018 ($264 million in 2017). Prior to our adoption of the new leases standard, future minimum lease payments as of December 29, 2018, which were undiscounted and included lease and non-lease components, were as follows:



(In Millions)	2019		2020		2021		2022		2023		2024 and Thereafter		Total
Minimum rental commitments under all non-cancelable leases	$	229	$	181	$	133	$	101	$	70	$	121	$	835



NOTE 3 :	OPERATING SEGMENTS

We manage our business through the following operating segments:


•	Client Computing Group (CCG)


•	Data Center Group (DCG)


•	Internet of Things Group (IOTG)


•	Mobileye


•	Non-Volatile Memory Solutions Group (NSG)


•	Programmable Solutions Group (PSG)


•	All Other

We offer platform products that incorporate various components and technologies, including a microprocessor and chipset, a stand-alone SoC, or a multichip package. A platform product may be enhanced by additional hardware, software, and services offered by Intel. Platform products are used in various form factors across our CCG, DCG, and IOTG operating segments. We derive a substantial majority of our revenue from platform products, which are our principal products and considered as one class of product.

CCG and DCG are our reportable operating segments. IOTG, Mobileye, NSG, and PSG do not meet the quantitative thresholds to qualify as reportable operating segments; however, we have elected to disclose the results of these non-reportable operating segments. Our Internet of Things portfolio, presented as Internet of Things, is comprised of IOTG and Mobileye operating segments.

The “all other” category includes revenue, expenses, and charges such as:


•	results of operations from non-reportable segments not otherwise presented;


•	historical results of operations from divested businesses;


•	results of operations of start-up businesses that support our initiatives, including our foundry business;


•	amounts included within restructuring and other charges;


•	a portion of employee benefits, compensation, and other expenses not allocated to the operating segments; and


•	acquisition-related costs, including amortization and any impairment of acquisition-related intangibles and goodwill.

The Chief Operating Decision Maker (CODM), which is our Chief Executive Officer (CEO), does not evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. Except for these differences, the accounting policies for segment reporting are the same as for Intel as a whole.



FINANCIAL STATEMENTS	Notes to Financial Statements	9

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Net revenue and operating income (loss) for each period were as follows:



	Three Months Ended						Six Months Ended
(In Millions)	Jun 29, 2019			Jun 30, 2018			Jun 29, 2019			Jun 30, 2018
Net revenue:
Client Computing Group
Platform	$	7,925		$	8,065		$	15,749		$	15,680
Adjacent	916			663			1,678			1,268
	8,841			8,728			17,427			16,948
Data Center Group
Platform	4,553			5,100			9,035			9,924
Adjacent	430			449			850			859
	4,983			5,549			9,885			10,783
Internet of Things
IOTG	986			880			1,896			1,720
Mobileye	201			173			410			324
	1,187			1,053			2,306			2,044

Non-Volatile Memory Solutions Group	940			1,079			1,855			2,119
Programmable Solutions Group	489			517			975			1,015
All other	65			36			118			119
Total net revenue	$	16,505		$	16,962		$	32,566		$	33,028

Operating income (loss):
Client Computing Group	$	3,737		$	3,234		$	6,809		$	6,025
Data Center Group	1,800			2,737			3,641			5,339

Internet of Things
IOTG	294			243			545			470
Mobileye	53			44			121			54
	347			287			666			524

Non-Volatile Memory Solutions Group	(284		)	(65		)	(581		)	(146		)
Programmable Solutions Group	52			101			141			198
All other	(1,035		)	(1,021		)	(1,885		)	(2,197		)
Total operating income	$	4,617		$	5,273		$	8,791		$	9,743



FINANCIAL STATEMENTS	Notes to Financial Statements	10

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Disaggregated net revenue for each period was as follows:



	Three Months Ended				Six Months Ended
(In Millions)	Jun 29, 2019		Jun 30, 2018		Jun 29, 2019		Jun 30, 2018
Platform revenue
Desktop platform	$	2,767	$	2,954	$	5,653	$	5,861
Notebook platform	5,136		5,086		10,063		9,775
DCG platform	4,553		5,100		9,035		9,924
IOTG platform	891		745		1,716		1,464
Other platform¹	22		25		33		44
	13,369		13,910		26,500		27,068

Adjacent revenue²	3,136		3,052		6,066		5,960
Total revenue	$	16,505	$	16,962	$	32,566	$	33,028


¹	Includes our tablet and service provider revenue.


²	Includes all of our non-platform products for CCG, DCG, and IOTG such as modem, Ethernet, and silicon photonics, as well as Mobileye, NSG, and PSG products.

Planned divestiture of smartphone modem business

On July 25, 2019, we signed a definitive agreement to sell the majority of our smartphone modem business. We will continue to meet current customer commitments for our existing 4G smartphone modem product line. We expect to close the transaction, which will include certain employees, intellectual property, equipment and leases, in the fourth quarter of 2019. We expect to record a gain on divestiture of approximately $500 million, net of tax.



NOTE 4 :	EARNINGS PER SHARE

We computed basic earnings per share of common stock based on the weighted average number of shares of common stock outstanding during the period. We computed diluted earnings per share of common stock based on the weighted average number of shares of common stock outstanding plus potentially dilutive shares of common stock outstanding during the period.



	Three Months Ended				Six Months Ended
(In Millions, Except Per Share Amounts)	Jun 29, 2019		Jun 30, 2018		Jun 29, 2019		Jun 30, 2018
Net income available to common stockholders	$	4,179	$	5,006	$	8,153	$	9,460
Weighted average shares of common stock outstanding – basic	4,466		4,649		4,479		4,661
Dilutive effect of employee equity incentive plans	40		52		46		59
Dilutive effect of convertible debt	17		46		18		48
Weighted average shares of common stock outstanding – diluted	4,523		4,747		4,543		4,768
Earnings per share – basic	$	0.94	$	1.08	$	1.82	$	2.03
Earnings per share – diluted	$	0.92	$	1.05	$	1.79	$	1.98

Potentially dilutive shares of common stock from employee equity incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, the assumed vesting of outstanding restricted stock units (RSUs), and the assumed issuance of common stock under the stock purchase plan. Our convertible debentures due 2039 (2009 debentures) require settlement of the principal amount of the debt in cash upon conversion. Since the conversion premium is paid in cash or stock at our option, we determined the potentially dilutive shares of common stock by applying the treasury stock method.

In all periods presented, securities which would have been anti-dilutive are insignificant and are excluded from the computation of diluted earnings per share. In all periods presented, we included our 2009 debentures in the calculation of diluted earnings per share of common stock because the average market price was above the conversion price. We could potentially exclude the 2009 debentures in the future if the average market price is below the conversion price.



FINANCIAL STATEMENTS	Notes to Financial Statements	11

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NOTE 5 :	CONTRACT LIABILITIES



(In Millions)	Jun 29, 2019		Dec 29, 2018
Prepaid supply agreements	$	2,143	$	2,587
Other	162		122
Total contract liabilities	$	2,305	$	2,709

Contract liabilities are primarily related to partial prepayments received from customers on long-term supply agreements towards future NSG product delivery. As new prepaid supply agreements are entered into and performance obligations are negotiated, this component of the contract liability balance will increase, and as customers purchase product and utilize their prepaid balances, the balance will decrease. The short-term portion of prepayments from supply agreements is reported on the consolidated condensed balance sheets within other accrued liabilities.

The following table shows the changes in contract liability balances relating to prepaid supply agreements during the first six months of 2019:



(In Millions)
Prepaid supply agreements balance as of December 29, 2018	$	2,587
Prepaids utilized	(444		)
Prepaid supply agreements balance as of June 29, 2019	$	2,143



NOTE 6 :	OTHER FINANCIAL STATEMENT DETAILS

INVENTORIES



(In Millions)	Jun 29, 2019		Dec 29, 2018
Raw materials	$	808	$	813
Work in process	5,612		4,511
Finished goods	2,276		1,929
Total inventories	$	8,696	$	7,253

INTEREST AND OTHER, NET

The components of interest and other, net for each period were as follows:



	Three Months Ended						Six Months Ended
(In Millions)	Jun 29, 2019			Jun 30, 2018			Jun 29, 2019			Jun 30, 2018
Interest income	$	125		$	108		$	260		$	199
Interest expense	(135		)	(116		)	(273		)	(228		)
Other, net	(53		)	467			(111		)	386
Total interest and other, net	$	(63	)	$	459		$	(124	)	$	357

Interest expense in the preceding table is net of $120 million of interest capitalized in the second quarter of 2019 and $245 million in the first six months of 2019 ($126 million in the second quarter of 2018 and $239 million in the first six months of 2018). In the second quarter of 2018, we completed the divestiture of Wind River, and recognized a pre-tax gain of $494 million.



NOTE 7 :	RESTRUCTURING AND OTHER CHARGES

A restructuring program was approved in the second quarter of 2019 to align our workforce with the planned exit of the smartphone modem business. We expect these actions to be substantially complete by end of 2019.



FINANCIAL STATEMENTS	Notes to Financial Statements	12

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Restructuring and other charges by type for the 2019 Restructuring Program for the period were as follows:



	Three Months Ended				Six Months Ended
(In Millions)	Jun 29, 2019		Jun 30, 2018		Jun 29, 2019		Jun 30, 2018
Employee severance and benefit arrangements	$	168	$	—	$	168	$	—
Asset impairment and other charges	16		—		16		—
Total restructuring and other charges	$	184	$	—	$	184	$	—



NOTE 8 :	INVESTMENTS

DEBT INVESTMENTS

Trading Assets

Net gains related to trading assets still held at the reporting date were $99 million in the second quarter of 2019 and $117 million in the first six months of 2019 ($326 million of net losses in the second quarter of 2018 and $214 million in the first six months of 2018). Net losses on the related derivatives were $102 million in the second quarter of 2019 and $104 million in the first six months of 2019 (net gains of $316 million in the second quarter of 2018 and $221 million in the first six months of 2018).

Available-for-Sale Debt Investments



	June 29, 2019									December 29, 2018
(In Millions)	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt	$	3,160	$	45	$	(4	)	$	3,201	$	3,068	$	2	$	(28	)	$	3,042
Financial institution instruments	3,034		18		(1		)	3,051		3,076		3		(11		)	3,068
Government debt	903		6		—			909		1,069		1		(9		)	1,061
Total available-for-sale debt investments	$	7,097	$	69	$	(5	)	$	7,161	$	7,213	$	6	$	(48	)	$	7,171

Government debt includes instruments such as non-U.S. government bonds and U.S. agency securities. Financial institution instruments include instruments issued or managed by financial institutions in various forms such as commercial paper, fixed and floating rate bonds, money market fund deposits, and time deposits. Substantially all time deposits were issued by institutions outside the U.S. as of June 29, 2019 and December 29, 2018.

The fair value of available-for-sale debt investments, by contractual maturity, as of June 29, 2019, was as follows:



(In Millions)	Fair Value
Due in 1 year or less	$	3,174
Due in 1–2 years	733
Due in 2–5 years	2,722
Due after 5 years	122
Instruments not due at a single maturity date	410
Total	$	7,161

EQUITY INVESTMENTS



(In Millions)	Jun 29, 2019		Dec 29, 2018
Marketable equity securities	$	197	$	1,440
Non-marketable equity securities	3,134		2,978
Equity method investments	1,298		1,624
Total	$	4,629	$	6,042



FINANCIAL STATEMENTS	Notes to Financial Statements	13

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The components of gains (losses) on equity investments, net for each period were as follows:



	Three Months Ended						Six Months Ended
(In Millions)	Jun 29, 2019			Jun 30, 2018			Jun 29, 2019			Jun 30, 2018
Ongoing mark-to-market adjustments on marketable equity securities	$	(179	)	$	(235	)	$	74		$	371
Observable price adjustments on non-marketable equity securities	8			24			16			148
Impairments	(39		)	(26		)	(62		)	(43		)
Sale of equity investments and other¹	380			34			576			(36		)
Total gains (losses) on equity investments, net	$	170		$	(203	)	$	604		$	440

¹ Sale of equity investments and other includes realized gains (losses) on sales of non-marketable equity investments, our share of equity method investee gains (losses) and distributions, and initial fair value adjustments recorded upon a security becoming marketable.

Gains and losses for our marketable and non-marketable equity securities during the period were as follows:



	Three Months Ended						Six Months Ended
(In Millions)	Jun 29, 2019			Jun 30, 2018			Jun 29, 2019			Jun 30, 2018
Net gains (losses) recognized during the period on equity securities	$	(178	)	$	(133	)	$	84		$	592
Less: Net (gains) losses recognized during the period on equity securities sold during the period	(33		)	(11		)	(258		)	(49		)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	(211	)	$	(144	)	$	(174	)	$	543

IM Flash Technologies, LLC

IM Flash Technologies, LLC (IMFT) was formed in 2006 by Micron Technology, Inc. (Micron) and Intel to jointly develop NAND flash memory and 3D XPoint™ technology products. IMFT is an unconsolidated variable interest entity and all costs of IMFT are passed on to Micron and Intel through sale of products or services in proportional share of ownership. As of June 29, 2019, we own a 49% interest in IMFT. Our portion of IMFT costs was approximately $224 million in the second quarter of 2019 and approximately $356 million in the first six months of 2019 (approximately $144 million in the second quarter of 2018 and $227 million in the first six months of 2018).

IMFT depends on Micron and Intel for any additional cash needs to be provided in the form of cash calls or member debt financing (MDF). Extensions of MDF may be converted to a capital contribution at the lender's request, or may be repaid upon availability of funds. During the first six months of 2019, IMFT repaid $316 million of MDF to Intel. The carrying balance of our equity method investment in IMFT as of June 29, 2019 is $1.3 billion.

In January 2019, Micron exercised its right to call our interest in IMFT. The sale of our non-controlling interest in IMFT to Micron is expected to close on October 31, 2019. We will continue to purchase product manufactured at the IMFT facility for a period of up to one year following the close date.

ASML Holding N.V.

As of December 29, 2018, Intel owned $1.1 billion in ASML Holding N.V. (ASML). We have fully sold our equity investment in ASML.



NOTE 9 :	BORROWINGS

During the first six months of 2019, we received proceeds of $601 million in aggregate from the sale of bonds issued by the Industrial Development Authority of the City of Chandler, Arizona (the Arizona bonds) and the State of Oregon Business Development Commission (the Oregon bonds). The bonds are our unsecured general obligations in accordance with loan agreements we entered into with the Industrial Development Authority of the City of Chandler, Arizona and the State of Oregon Business Development Commission. The bonds mature in 2049 and carry an interest rate of 5.0%. The Arizona bonds and the Oregon bonds are subject to mandatory tender in June 2024 and March 2022, respectively, at which time we can re-market the bonds as either fixed-rate bonds for a specified period or as variable-rate bonds until another fixed-rate period is selected or until their final maturity date.



FINANCIAL STATEMENTS	Notes to Financial Statements	14

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NOTE 10 :	FAIR VALUE

For information about our fair value policies, and methods and assumptions used in estimating the fair value of our financial assets and liabilities, see "Note 2: Accounting Policies" and "Note 16: Fair Value" in our 2018 Form 10-K.

ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS



	June 29, 2019								December 29, 2018
	Fair Value Measured and Recorded at Reporting Date Using								Fair Value Measured and Recorded at Reporting Date Using
(In Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Corporate debt	$	—	$	417	$	—	$	417	$	—	$	262	$	—	$	262
Financial institution instruments¹	410		343		—		753		550		183		—		733
Reverse repurchase agreements	—		1,300		—		1,300		—		1,850		—		1,850
Short-term investments:
Corporate debt	—		810		—		810		—		937		—		937
Financial institution instruments¹	—		1,324		—		1,324		—		1,423		—		1,423
Government debt²	—		280		—		280		—		428		—		428
Trading assets:
Corporate debt	—		2,755		—		2,755		—		2,635		—		2,635
Financial institution instruments¹	54		1,470		—		1,524		67		1,273		—		1,340
Government debt²	—		2,384		—		2,384		—		1,868		—		1,868
Other current assets:
Derivative assets	29		225		—		254		—		180		—		180
Loans receivable³	—		57		—		57		—		354		—		354
Marketable equity securities	197		—		—		197		1,440		—		—		1,440
Other long-term investments:
Corporate debt	—		1,974		—		1,974		—		1,843		—		1,843
Financial institution instruments¹	—		974		—		974		—		912		—		912
Government debt²	—		629		—		629		—		633		—		633
Other long-term assets:
Derivative assets	—		689		—		689		—		100		—		100
Loans receivable³	—		507		—		507		—		229		—		229
Total assets measured and recorded at fair value	690		16,138		—		16,828		2,057		15,110		—		17,167
Liabilities
Other accrued liabilities:
Derivative liabilities	—		303		—		303		—		412		—		412
Other long-term liabilities:
Derivative liabilities	—		15		18		33		—		415		68		483
Total liabilities measured and recorded at fair value	$	—	$	318	$	18	$	336	$	—	$	827	$	68	$	895


¹	Level 1 investments consist of money market funds. Level 2 investments consist primarily of commercial paper, certificates of deposit, time deposits, and notes and bonds issued by financial institutions.


²	Level 2 investments consist primarily of U.S. agency notes and non-U.S. government debt.


³	The fair value of our loans receivable for which we elected the fair value option did not significantly differ from the contractual principal balance based on the contractual currency.



FINANCIAL STATEMENTS	Notes to Financial Statements	15

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ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

Our non-marketable equity securities, equity method investments, and certain non-financial assets, such as intangible assets and property, plant and equipment, are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period. If an observable price adjustment or impairment is recognized on our non-marketable equity securities during the period, we classify these assets as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.

FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS

Financial instruments not recorded at fair value on a recurring basis include non-marketable equity securities (that have not been re-measured or impaired in the current period), equity method investments, grants receivable, loans receivable, reverse repurchase agreements, and our short-term and long-term debt.

As of June 29, 2019, the aggregate carrying value of grants receivable, loans receivable, and reverse repurchase agreements was $1.1 billion (the aggregate carrying amount as of December 29, 2018 was $833 million). The estimated fair value of these financial instruments approximates their carrying value and is categorized as Level 2 within the fair value hierarchy based on the nature of the fair value inputs.

As of June 29, 2019, the fair value of short and long-term debt (excluding drafts payable) was $30.0 billion (the fair value as of December 29, 2018 was $27.1 billion). These liabilities are classified as Level 2 within the fair value hierarchy based on the nature of the fair value inputs.



NOTE 11 :	DERIVATIVE FINANCIAL INSTRUMENTS

For further information on our derivative policies, see "Note 2: Accounting Policies" in our 2018 Form 10-K.

VOLUME OF DERIVATIVE ACTIVITY

Total gross notional amounts for outstanding derivatives (recorded at fair value) at the end of each period were as follows:



(In Millions)	Jun 29, 2019		Dec 29, 2018
Foreign currency contracts	$	23,293	$	19,223
Interest rate contracts	22,292		22,447
Other	1,633		1,356
Total	$	47,218	$	43,026

FAIR VALUE OF DERIVATIVE INSTRUMENTS



	June 29, 2019				December 29, 2018
(In Millions)	Assets¹		Liabilities²		Assets¹		Liabilities²
Derivatives designated as hedging instruments:
Foreign currency contracts³	$	106	$	90	$	44	$	244
Interest rate contracts	669		20		84		474
Total derivatives designated as hedging instruments	775		110		128		718
Derivatives not designated as hedging instruments:
Foreign currency contracts³	134		170		132		155
Interest rate contracts	5		52		20		22
Equity Contracts	29		4		—		—
Total derivatives not designated as hedging instruments	168		226		152		177
Total derivatives	$	943	$	336	$	280	$	895


¹	Derivative assets are recorded as other assets, current and non-current.


²	Derivative liabilities are recorded as other liabilities, current and non-current.


³	The majority of these instruments mature within 12 months.



FINANCIAL STATEMENTS	Notes to Financial Statements	16

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AMOUNTS OFFSET IN THE CONSOLIDATED CONDENSED BALANCE SHEETS

The gross amounts of our derivative instruments and reverse repurchase agreements subject to master netting arrangements with various counterparties, and cash and non-cash collateral posted under such agreements at the end of each period were as follows:



	June 29, 2019
							Gross Amounts Not Offset in the Balance Sheet
(In Millions)	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments			Cash and Non-Cash Collateral Received or Pledged			Net Amount
Assets:
Derivative assets subject to master netting arrangements	$	937	$	—	$	937	$	(258	)	$	(679	)	$	—
Reverse repurchase agreements	1,650		—		1,650		—			(1,650		)	—
Total assets	2,587		—		2,587		(258		)	(2,329		)	—
Liabilities:
Derivative liabilities subject to master netting arrangements	325		—		325		(258		)	(62		)	5
Total liabilities	$	325	$	—	$	325	$	(258	)	$	(62	)	$	5



	December 29, 2018
							Gross Amounts Not Offset in the Balance Sheet
(In Millions)	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments			Cash and Non-Cash Collateral Received or Pledged			Net Amount
Assets:
Derivative assets subject to master netting arrangements	$	292	$	—	$	292	$	(220	)	$	(72	)	$	—
Reverse repurchase agreements	2,099		—		2,099		—			(1,999		)	100
Total assets	2,391		—		2,391		(220		)	(2,071		)	100
Liabilities:
Derivative liabilities subject to master netting arrangements	890		—		890		(220		)	(576		)	94
Total liabilities	$	890	$	—	$	890	$	(220	)	$	(576	)	$	94

We obtain and secure available collateral from counterparties against obligations, including securities lending transactions and reverse repurchase agreements, when we deem it appropriate.

DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS

The before-tax net gains or losses attributed to the effective portion of cash flow hedges, recognized in other comprehensive income (loss), were $122 million net gains in the second quarter of 2019 and $151 million net gains in the first six months of 2019 ($339 million net losses in the second quarter of 2018 and $134 million net losses in the first six months of 2018). Substantially all of our cash flow hedges were foreign currency contracts for all periods presented.

During the first six months of 2019 and 2018, the amounts excluded from effectiveness testing were insignificant.



FINANCIAL STATEMENTS	Notes to Financial Statements	17

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DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS

The effects of derivative instruments designated as fair value hedges, recognized in interest and other, net for each period were as follows:



	Three Months Ended						Six Months Ended
(In Millions)	Jun 29, 2019			Jun 30, 2018			Jun 29, 2019			Jun 30, 2018
Interest rate contracts	$	554		$	(113	)	$	1,039		$	(371	)
Hedged items	(554		)	113			(1,039		)	371
Total	$	—		$	—		$	—		$	—

The amounts recorded on the consolidated condensed balance sheets related to cumulative basis adjustments for fair value hedges for each period were as follows:



Line Item in the Consolidated Condensed Balance Sheet in Which the Hedged Item is Included	Carrying Amount of the Hedged Item Asset/(Liabilities)						Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount Assets/(Liabilities)
Years Ended (In Millions)	Jun 29, 2019			Dec 29, 2018			Jun 29, 2019			Dec 29, 2018
Long-term debt	$	(20,661	)	$	(19,622	)	$	(649	)	$	390

As of June 29, 2019 and December 29, 2018, the total notional amount of pay variable/receive fixed-interest rate swaps was $20.0 billion.

DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS

The effects of derivative instruments not designated as hedging instruments on the consolidated condensed statements of income for each period were as follows:



		Three Months Ended					Six Months Ended
(In Millions)	Location of Gains (Losses) Recognized in Income on Derivatives	Jun 29, 2019			Jun 30, 2018		Jun 29, 2019			Jun 30, 2018
Foreign currency contracts	Interest and other, net	$	(20	)	$	438	$	37		$	268
Interest rate contracts	Interest and other, net	(25		)	6		(39		)	20
Other	Various	35			27		181			(4		)
Total		$	(10	)	$	471	$	179		$	284



NOTE 12 :	CONTINGENCIES

LEGAL PROCEEDINGS

We are a party to various legal proceedings, including those noted in this section. Although management at present believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings and related government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices, or requiring other remedies. An unfavorable outcome may result in a material adverse impact on our business, results of operations, financial position, and overall trends. We might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. Except as specifically described below, we have not concluded that settlement of any of the legal proceedings noted in this section is appropriate at this time.



FINANCIAL STATEMENTS	Notes to Financial Statements	18

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European Commission Competition Matter

In 2001, the European Commission (EC) commenced an investigation regarding claims by Advanced Micro Devices, Inc. (AMD) that we used unfair business practices to persuade customers to buy our microprocessors. We received numerous requests for information and documents from the EC and we responded to each of those requests. The EC issued a Statement of Objections in July 2007 and held a hearing on that Statement in March 2008. The EC issued a Supplemental Statement of Objections in July 2008. In May 2009, the EC issued a decision finding that we had violated Article 82 of the EC Treaty and Article 54 of the European Economic Area Agreement. In general, the EC found that we violated Article 82 (later renumbered as Article 102 by a new treaty) by offering alleged "conditional rebates and payments" that required our customers to purchase all or most of their x86 microprocessors from us. The EC also found that we violated Article 82 by making alleged "payments to prevent sales of specific rival products." The EC imposed a fine in the amount of €1.1 billion ($1.4 billion as of May 2009), which we subsequently paid during the third quarter of 2009, and ordered us to "immediately bring to an end the infringement referred to in" the EC decision.

The EC decision contained no specific direction on whether or how we should modify our business practices. Instead, the decision stated that we should "cease and desist" from further conduct that, in the EC's opinion, would violate applicable law. We took steps, which are subject to the EC's ongoing review, to comply with that decision pending appeal. We had discussions with the EC to better understand the decision and to explain changes to our business practices.

We appealed the EC decision to the Court of First Instance (which has been renamed the General Court) in July 2009. The hearing of our appeal took place in July 2012. In June 2014, the General Court rejected our appeal in its entirety. In August 2014, we filed an appeal with the European Court of Justice. In November 2014, Intervener Association for Competitive Technologies filed comments in support of Intel’s grounds of appeal. The EC and interveners filed briefs in November 2014, we filed a reply in February 2015, and the EC filed a rejoinder in April 2015. The Court of Justice held oral argument in June 2016. In October 2016, Advocate General Wahl, an advisor to the Court of Justice, issued a non-binding advisory opinion that favored Intel on a number of grounds. The Court of Justice issued its decision in September 2017, setting aside the judgment of the General Court and sending the case back to the General Court to examine whether the rebates at issue were capable of restricting competition. The General Court has appointed a panel of five judges to consider our appeal of the EC’s 2009 decision in light of the Court of Justice’s clarifications of the law. In November 2017, the parties filed initial “Observations” about the Court of Justice’s decision and the appeal, and were invited by the General Court to offer supplemental comments to each other’s “Observations,” which the parties submitted in March 2018. Responses to other questions posed by the General Court were filed in May and June 2018. We are now awaiting notice as to whether the General Court will hold a management conference before it conducts oral argument at some future date. Pending the final decision in this matter, the fine paid by Intel has been placed by the EC in commercial bank accounts where it accrues interest.

McAfee, Inc. Shareholder Litigation

On August 19, 2010, we announced that we had agreed to acquire all of the common stock of McAfee, Inc. (McAfee) for $48.00 per share. Four McAfee shareholders filed putative class-action lawsuits in Santa Clara County, California Superior Court challenging the proposed transaction. The cases were ordered consolidated in September 2010. Plaintiffs filed an amended complaint that named former McAfee board members, McAfee, and Intel as defendants, and alleged that the McAfee board members breached their fiduciary duties and that McAfee and Intel aided and abetted those breaches of duty. The complaint requested rescission of the merger agreement, such other equitable relief as the court may deem proper, and an award of damages in an unspecified amount. In June 2012, the plaintiffs’ damages expert asserted that the value of a McAfee share for the purposes of assessing damages should be $62.08.

In January 2012, the court certified the action as a class action, appointed the Central Pension Laborers’ Fund to act as the class representative, and scheduled trial to begin in January 2013. In March 2012, defendants filed a petition with the California Court of Appeal for a writ of mandate to reverse the class certification order; the petition was denied in June 2012. In March 2012, at defendants’ request, the court held that plaintiffs were not entitled to a jury trial and ordered a bench trial. In April 2012, plaintiffs filed a petition with the California Court of Appeal for a writ of mandate to reverse that order, which the court of appeal denied in July 2012. In August 2012, defendants filed a motion for summary judgment. The trial court granted that motion in November 2012, and entered final judgment in the case in February 2013. In April 2013, plaintiffs appealed the final judgment. The California Court of Appeal heard oral argument in October 2017, and in November 2017, affirmed the judgment as to McAfee's nine outside directors, reversed the judgment as to former McAfee director and chief executive officer David DeWalt, Intel, and McAfee, and affirmed the trial court's ruling that the plaintiffs are not entitled to a jury trial. At a June 2018 case management conference following remand, the Superior Court set an October hearing date for any additional summary judgment motions that may be filed, and set trial to begin in December 2018. In July 2018, plaintiffs filed a motion for leave to amend the complaint, which the court denied in September 2018. Also in July 2018, McAfee and Intel filed a motion for summary judgment on the aiding and abetting claims asserted against them; in October 2018, the court granted the motion as to McAfee and denied the motion as to Intel.

The parties agreed in principle to settle the case in late October 2018, and finalized the settlement agreement in March 2019. The settlement agreement calls for an aggregate payment by defendants of $12 million. Intel’s contribution to the settlement will be immaterial to its financial statements. In May 2019, the court granted plaintiffs’ motion for preliminary approval of the settlement and scheduled a final approval hearing for October 2019.



FINANCIAL STATEMENTS	Notes to Financial Statements	19

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Litigation Related to Security Vulnerabilities

In June 2017, a Google research team notified us and other companies that it had identified security vulnerabilities (now commonly referred to as “Spectre” and “Meltdown”) that affect many types of microprocessors, including our products. As is standard when findings like these are presented, we worked together with other companies in the industry to verify the research and develop and validate software and firmware updates for impacted technologies. On January 3, 2018, information on the security vulnerabilities was publicly reported, before software and firmware updates to address the vulnerabilities were made widely available. Numerous lawsuits have been filed against Intel and, in certain cases, our current and former executives and directors, in U.S. federal and state courts and in certain courts in other countries relating to the Spectre and Meltdown security vulnerabilities, as well as another variant of these vulnerabilities (“Foreshadow”) that has since been identified.

As of July 24, 2019, 48 consumer class action lawsuits and three securities class action lawsuits have been filed. The securities class actions, which were consolidated, were dismissed with prejudice in April 2019. The consumer class action plaintiffs, who purport to represent various classes of end users of our products, generally claim to have been harmed by Intel's actions and/or omissions in connection with the security vulnerabilities and assert a variety of common law and statutory claims seeking monetary damages and equitable relief. Of the consumer class action lawsuits, 44 have been filed in the U.S., two of which have been dismissed; two have been filed in Canada; and two have been filed in Israel. In April 2018, the U.S. Judicial Panel on Multidistrict Litigation ordered the U.S. consumer class action lawsuits consolidated for pretrial proceedings in the U.S. District Court for the District of Oregon. Intel filed a motion to dismiss that consolidated action in October 2018, and a hearing on that motion was held in February 2019. In the case pending in the Superior Court of Justice of Ontario, an initial status conference has not yet been scheduled. In the case pending in the Superior Court of Justice of Quebec, the court entered an order in October 2018, staying that case for one year. In Israel, both consumer class action lawsuits were filed in the District Court of Haifa. In the first case, the District Court denied the parties' joint motion to stay filed in January 2019, but to date has deferred Intel’s deadline to respond to the complaint in view of Intel’s pending motion to dismiss in the consolidated class action in the U.S. Intel filed a motion to stay the second case pending resolution of the consolidated class action in the U.S., and a hearing on that motion has been rescheduled for September 2019. In the securities class action litigation, the lead securities class action plaintiffs, who purported to represent classes of acquirers of Intel stock between October 27, 2017 and January 9, 2018, generally alleged that Intel and certain officers violated securities laws by making statements about Intel's products that were revealed to be false or misleading by the disclosure of the security vulnerabilities. The securities class actions were consolidated and were pending in the U.S. District Court for the Northern District of California. Defendants filed a motion to dismiss those actions in August 2018, which the court granted in March 2019. The court's order granted plaintiffs leave to amend their complaint, but the case was dismissed with prejudice in April 2019 after plaintiffs elected not to re-plead. Plaintiffs did not appeal. Additional lawsuits and claims may be asserted on behalf of customers and shareholders seeking monetary damages or other related relief. We dispute the pending claims described above and intend to defend those lawsuits vigorously. Given the procedural posture and the nature of those cases, including that the pending proceedings are in the early stages, that alleged damages have not been specified, that uncertainty exists as to the likelihood of a class or classes being certified or the ultimate size of any class or classes if certified, and that there are significant factual and legal issues to be resolved, we are unable to make a reasonable estimate of the potential loss or range of losses, if any, that might arise from those matters.

In addition to these lawsuits, Intel stockholders have filed seven shareholder derivative lawsuits since January 2018 against certain current and former members of our Board of Directors and certain current and former officers, alleging that the defendants breached their duties to Intel in connection with the disclosure of the security vulnerabilities and the failure to take action in relation to alleged insider trading. The complaints seek to recover damages from the defendants on behalf of Intel. Three of the derivative actions were filed in the U.S. District Court for the Northern District of California and were consolidated, and the other four were filed in the Superior Court of the State of California in San Mateo County and were consolidated. In August 2018, the federal court granted defendants' motion to dismiss the consolidated complaint on the ground that plaintiffs failed to plead facts sufficient to show they were excused from making a pre-lawsuit demand on the Board. The federal court granted plaintiffs leave to amend their complaint, but in September 2018, plaintiffs instead requested that the action be dismissed. The federal court ordered the case dismissed without prejudice in January 2019. In August 2018, the California Superior Court granted defendants' motion to dismiss the consolidated complaint in the action on the ground that plaintiffs failed to plead facts sufficient to show they were excused from making a pre-lawsuit demand on the Board. Plaintiffs filed an amended complaint in April 2019, which defendants moved to dismiss on the same grounds. A hearing on the motion is scheduled for July 2019.



FINANCIAL STATEMENTS	Notes to Financial Statements	20

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MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)



	Three Months Ended										Six Months Ended
	Q2 2019					Q2 2018					YTD 2019					YTD 2018
(Dollars in Millions, Except Per Share Amounts)	Amount			% of Net Revenue		Amount			% of Net Revenue		Amount			% of Net Revenue		Amount		% of Net Revenue
Net revenue	$	16,505		100.0	%	$	16,962		100.0	%	$	32,566		100.0	%	$	33,028	100.0	%
Cost of sales	6,627			40.2	%	6,543			38.6	%	13,599			41.8	%	12,878		39.0	%
Gross margin	9,878			59.8	%	10,419			61.4	%	18,967			58.2	%	20,150		61.0	%
Research and development	3,438			20.8	%	3,371			19.9	%	6,770			20.8	%	6,682		20.2	%
Marketing, general and administrative	1,589			9.6	%	1,725			10.2	%	3,122			9.6	%	3,625		11.0	%
Restructuring and other charges	184			1.1	%	—			—	%	184			0.6	%	—		—	%
Amortization of acquisition-related intangibles	50			0.3	%	50			0.3	%	100			0.3	%	100		0.3	%
Operating income	4,617			28.0	%	5,273			31.1	%	8,791			27.0	%	9,743		29.5	%
Gains (losses) on equity investments, net	170			1.0	%	(203		)	(1.2	)%	604			1.9	%	440		1.3	%
Interest and other, net	(63		)	(0.4	)%	459			2.7	%	(124		)	(0.4	)%	357		1.1	%
Income before taxes	4,724			28.6	%	5,529			32.6	%	9,271			28.5	%	10,540		31.9	%
Provision for taxes	545			3.3	%	523			3.1	%	1,118			3.4	%	1,080		3.3	%
Net income	$	4,179		25.3	%	$	5,006		29.5	%	$	8,153		25.0	%	$	9,460	28.6	%

Earnings per share – diluted	$	0.92				$	1.05				$	1.79				$	1.98



MD&A	Consolidated Results & Analysis	21

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REVENUE



	SEGMENT REVENUE WALKS $B
	Q2 2019 vs. Q2 2018		YTD 2019 vs. YTD 2018

Q2 2019 vs. Q2 2018

Our Q2 2019 revenue was $16.5 billion, down 3% from Q2 2018. The decrease in revenue was driven by our data-centric businesses, which were collectively down 7% as demand from enterprise and government data center customers weakened and NSG ASPs declined due to lower NAND market pricing. Revenue for our PC-centric business grew by 1% year over year, primarily driven by ASP strength in our commercial market segment, despite a decline in unit sales.

YTD 2019 vs. YTD 2018

Our YTD 2019 revenue was $32.6 billion, down $462 million, or 1% from YTD 2018. Our data-centric businesses were collectively down 6% as demand from enterprise and government data center customers weakened and NSG ASPs declined due to lower NAND market pricing. Revenue for our PC-centric business was up 3% in the first half of 2019 compared to the first half of 2018.



MD&A	Consolidated Results & Analysis	22

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GROSS MARGIN

We derived most of our overall gross margin dollars from the sale of platform products in the CCG and DCG operating segments. Our overall gross margin dollars in Q2 2019 decreased by $541 million, or 5.2% compared to Q2 2018.

GROSS MARGIN $B

(Percentages in chart indicate gross margin as a percentage of total revenue)



(In Millions)
$	9,878		Q2 2019 Gross Margin
(370		)	Lower gross margin from platform revenue
(310		)	Lower gross margin from adjacent businesses primarily due to lower margins on NAND, modem, and PSG
145			Lower period charges primarily due to lower factory start-up costs associated with our 10nm products
(6		)	Other
$	10,419		Q2 2018 Gross Margin

$	18,967		YTD 2019 Gross Margin
(385		)	Higher period charges primarily due to reserved non-qualified 10nm platform product in Q1 2019, offset by lower factory start-up costs associated with our 10nm products
(355		)	Lower gross margin from adjacent businesses due to lower NAND margins
(230		)	Lower gross margin from platform revenue
(195		)	Higher platform unit cost primarily from increased mix of performance products
(18		)	Other
$	20,150		YTD 2018 Gross Margin



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OPERATING EXPENSES

Total research and development (R&D) and marketing, general and administrative (MG&A) expenses for Q2 2019 were $5.0 billion, down 1% from Q2 2018, and were $9.9 billion for YTD 2019, down 4% from YTD 2018. These expenses represent 30.5% of revenue for Q2 2019 and 30.0% of revenue for Q2 2018, and 30.4% of revenue in the first six months of 2019 and 31.2% of revenue in the first six months of 2018.



	RESEARCH AND DEVELOPMENT $B		MARKETING, GENERAL AND ADMINISTRATIVE $B

(Percentages indicate expenses as a percentage of total revenue)

RESEARCH AND DEVELOPMENT

Q2 2019 – Q2 2018

R&D increased by $67 million, or 2.0%, driven by the following:

+ Investments in data-centric businesses

+ Investments in process technology

- Profit dependent compensation due to a decrease in net income

- Ramp down of 5G smartphone modem business

YTD 2019 – YTD 2018

R&D increased by $88 million, or 1.3%, driven by the following:

+ Investments in data-centric businesses

+ Investments in process technology

- Corporate spending efficiencies

- Profit dependent compensation due to a decrease in net income

- Ramp down of 5G smartphone modem business

MARKETING, GENERAL AND ADMINISTRATIVE

Q2 2019 – Q2 2018

MG&A decreased by $136 million, or 7.9%, driven by the following:

- Corporate spending efficiencies

- Profit dependent compensation due to a decrease in net income

- Lack of expenses due to the Wind River Systems, Inc. (Wind River) divestiture in Q2 2018

YTD 2019 – YTD 2018

MG&A decreased by $503 million, or 13.9%, driven by the following:

- Corporate spending efficiencies

- Profit dependent compensation due to a decrease in net income

- Lack of expenses due to the Wind River divestiture in Q2 2018



MD&A	Consolidated Results & Analysis	24

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CLIENT COMPUTING GROUP (CCG)

CCG is our largest business unit. The PC market remains a critical facet of our business, providing an important source of IP, scale, and cash flow. CCG is dedicated to delivering client computing end-user solutions, focusing on higher growth segments of 2-in-1, thin-and-light, commercial, and gaming, as well as growing adjacencies such as WiFi and Thunderbolt™ technology. CCG is the human edge in a data-centric world. We deploy platforms that connect people to data and analytics, allowing each person to focus, create, and connect in ways that unlock their individual potential.

We will be exiting the 5G smartphone modem business, while continuing to meet current customer commitments for our existing 4G smartphone modem product lines. We are assessing opportunities for 4G and 5G modems in PCs, as well as Internet of Things and other data-centric devices.



	CCG REVENUE $B		CCG OPERATING INCOME $B



	■ Platform	■ Adjacent

REVENUE SUMMARY

Our revenue in Q2 2019 was up 1% compared to Q2 2018, and YTD 2019 up 3% compared to YTD 2018. Revenue increased year over year and year to date driven by ASP strength with richer commercial segment mix, modem growth, and tariff pull-ins, offset by platform volume decline as we experienced small core supply constraints.



	Q2 2019 vs. Q2 2018					YTD 2019 vs. YTD 2018
(Dollars in Millions)	%		$ Impact			%		$ Impact

Desktop platform volume	down	(11)%	$	(308	)	down	(9)%	$	(525	)
Desktop platform ASP	up	5%	121			up	6%	317
Notebook platform volume	down	(2)%	(109		)	down	(4)%	(432		)
Notebook platform ASP	up	3%	160			up	8%	720
Adjacent products and other			249					399

Total change in revenue			$	113				$	479

OPERATING INCOME SUMMARY

Operating income in Q2 2019 increased 16% from Q2 2018, with an operating margin of 42%. Operating income YTD 2019 increased 13% from YTD 2018, with an operating margin of 39%.



MD&A	Segment Results & Analysis	25

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(In Millions)
$	3,737		Q2 2019 CCG Operating Income
400			Lower period charges primarily due to lower factory start-up costs associated with our 10nm process technology
120			Lower operating expenses partially driven by lower investment in modem
(17		)	Other
$	3,234		Q2 2018 CCG Operating Income

$	6,809		YTD 2019 CCG Operating Income
300			Higher gross margin from platform revenue
285			Lower operating expenses partially driven by lower investment in modem
130			Lower period charges from factory start-up costs, offset by reserved non-qualified platform product associated with our 10nm process technology taken in Q1 2019
110			Higher gross margin from adjacent businesses, primarily due to lack of initial production costs of modem products
(41		)	Other
$	6,025		YTD 2018 CCG Operating Income

DATA CENTER GROUP (DCG)

DCG develops workload-optimized platforms for compute, storage, and network functions. Customers include cloud service providers, enterprise and government, and communications service providers. DCG is fueled by demand in key workloads like artificial intelligence and network function virtualization across key market segments.



	DCG REVENUE $B		DCG OPERATING INCOME $B



	■ Platform	■ Adjacent

REVENUE SUMMARY

Revenue decreased in Q2 2019 and in YTD 2019 due to a decline in platform volume. Cloud customers absorbed capacity, China demand weakened, and TAM contracted in the enterprise and government market segment. In Q2 2019, revenue in the enterprise and government segment was down 31%, cloud service providers segment was down 1%, and the communication service providers segment was up 3% year over year.



	Q2 2019 vs. Q2 2018					YTD 2019 vs. YTD 2018
(Dollars in Millions)	%		$ Impact			%		$ Impact

Platform volume	down	(12)%	$	(627	)	down	(10)%	$	(989	)
Platform ASP	up	2%	80			up	1%	100
Adjacent products	down	(4)%	(19		)	down	(1)%	(9		)

Total change in revenue			$	(566	)			$	(898	)



MD&A	Segment Results & Analysis	26

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OPERATING INCOME SUMMARY

Operating income in Q2 2019 decreased 34% from Q2 2018, with an operating margin of 36%. Operating income YTD 2019 decreased 32% from YTD 2018, with an operating margin of 37%.



(In Millions)
$	1,800		Q2 2019 DCG Operating Income
(465		)	Lower gross margin from platform revenue
(240		)	Higher period charges, primarily associated with the initial ramp of 10nm
(205		)	Higher DCG operating expenses
(27		)	Other
$	2,737		Q2 2018 DCG Operating Income

$	3,641		YTD 2019 DCG Operating Income
(760		)	Lower gross margin from platform revenue
(470		)	Higher period charges, primarily associated with the initial ramp of 10nm
(375		)	Higher DCG operating expenses
(93		)	Other
$	5,339		YTD 2018 DCG Operating Income



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INTERNET OF THINGS

As more intelligence is moving to the edge, more industries want to harness the power of data to create business value, innovate, and grow. We are using our architecture, accelerators, and software assets, combined with scale and partners, to develop a growing Internet of Things portfolio. Our Internet of Things portfolio is comprised of our IOTG and Mobileye businesses.

IOTG develops high-performance compute for targeted verticals and embedded markets. Our customers include retailers, manufacturers, health care providers, energy companies, automakers, and governments. We facilitate our customers creating, storing, and processing data generated by connected devices to accelerate business transformations.

Mobileye is the global leader in the development of computer vision and machine learning-based sensing, data analysis, localization, mapping, and driving policy technology for advanced driver assistance systems (ADAS) and autonomous driving. Mobileye’s advanced ADAS products form the building blocks for higher levels of autonomy that are being pursued by the automotive industry. Our customers and strategic partners include major U.S. and global Tier 1 automotive system integrators.



	INTERNET OF THINGS REVENUE $B		INTERNET OF THINGS OPERATING INCOME $B



■ IOTG	■ Mobileye	■ IOTG	■ Mobileye

REVENUE AND OPERATING INCOME SUMMARY

Q2 2019 vs. Q2 2018

IOTG net revenue was $986 million, up $106 million, due to higher platform unit sales and higher ASPs from favorable core mix, partially offset by lower revenue from our divestiture of Wind River in Q2 2018, which negatively impacted the revenue comparison by approximately $80 million. After adjusting for the Wind River divestiture, IOTG revenue grew 23% year over year. Operating income was $294 million, up $51 million, primarily driven by higher platform revenue from core mix.

Mobileye net revenue was $201 million, up $28 million due to increasing adoption of ADAS. Operating income was $53 million, up $9 million.

YTD 2019 vs. YTD 2018

IOTG net revenue was $1.9 billion, up $176 million, due to $94 million higher platform unit sales and $158 million higher ASPs from favorable core mix, partially offset by lower revenue from our divestiture of Wind River in Q2 2018, which negatively impacted the revenue comparison by approximately $153 million year to date. After adjusting for the Wind River divestiture, IOTG revenue grew 21%. Operating income was $545 million, up $75 million, primarily driven by higher platform revenue from core mix.

Mobileye net revenue was $410 million, up $86 million due to increasing adoption of ADAS. Operating income was $121 million, up $67 million.



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NON-VOLATILE MEMORY SOLUTIONS GROUP (NSG)

NSG's core offerings include Intel^® Optane™ and Intel^® 3D NAND Technology, driving innovation in SSDs and next-generation memory and storage products. Our customers include enterprise and cloud-based data centers, and users of business and consumer desktops and laptops. We are ramping 64-layer (64L) triple-level cell (TLC) and quad-level cell (QLC) NAND technologies, and Intel^® Optane™ technology in innovative new form factors and densities to address the challenges our customers face in a rapidly evolving technological landscape.



	NSG REVENUE $B		NSG OPERATING INCOME $B

REVENUE AND OPERATING INCOME SUMMARY

Q2 2019 vs. Q2 2018

Net revenue was $940 million, down $139 million from Q2 2018, driven by a $922 million impact from lower ASP due to lower NAND market pricing, offset by $783 million higher volume due to an increase in demand for component and data center SSD products. NSG had an operating loss of $284 million in Q2 2019, up $219 million from Q2 2018. While we continued to see the ramp at Fab 68 drive cost improvements, the decline in ASP more than offset the improved unit cost, resulting in lower gross margins and higher period charges being taken against certain inventories.

YTD 2019 vs. YTD 2018

Net revenue was $1.9 billion, down $264 million, driven by a $1.6 billion impact from lower ASP due to lower NAND market pricing, offset by $1.3 billion higher volume due to an increase in demand for component and data center SSD products. NSG had an operating loss of $581 million, up $435 million. While we continued to see the ramp at Fab 68 drive cost improvements, the decline in ASP more than offset the improved unit cost, resulting in lower gross margins and higher period charges being taken against certain inventories.



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PROGRAMMABLE SOLUTIONS GROUP (PSG)

PSG offers programmable semiconductors, primarily field-programmable gate array (FPGAs) and related products, for a broad range of market segments, including communications, data center, industrial, and military. PSG collaborates with the other Intel businesses to deliver FPGA acceleration in tandem with Intel microprocessors. This "better together" integration broadens the use of FPGAs and combines the benefits of both technologies to allow more flexibility for systems to operate with increased efficiency and higher performance.



	PSG REVENUE $B		PSG OPERATING INCOME $B

REVENUE AND OPERATING INCOME SUMMARY

Q2 2019 vs. Q2 2018

Revenue was $489 million, down $28 million as softness in cloud and enterprise demand more than offset growth in 5G/wireless. Advanced products (28nm, 20nm, and 14nm process technologies) grew 15% year over year. Operating income was $52 million, down $49 million.

YTD 2019 vs. YTD 2018

Revenue was $975 million, down $40 million, driven by a decline in our cloud and enterprise segment, partially offset by strength in wireless and advanced products (28nm, 20nm, and 14nm process technologies). Operating income was $141 million, down $57 million.



MD&A	Segment Results & Analysis	30

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GAINS (LOSSES) ON EQUITY INVESTMENTS AND INTEREST AND OTHER, NET



(In Millions)	Q2 2019			Q2 2018			YTD 2019			YTD 2018
Gains (losses) on equity investments, net	$	170		$	(203	)	$	604		$	440
Interest and other, net	$	(63	)	$	459		$	(124	)	$	357

Gains (losses) on equity investments, net

We recognized a net gain during Q2 2019 primarily due to a $340 million dividend from McAfee, Inc. (McAfee) but partially offset by ongoing mark-to-market losses of $179 million, primarily related to our investment in Cloudera, Inc. (Cloudera). We recognized a net gain during the first six months of 2019 primarily due to dividends of $494 million from McAfee and ongoing mark-to-market gains from ASML Holdings N.V. (ASML), partially offset by ongoing mark-to-market losses from Cloudera. We have fully sold our equity investment in ASML.

We recognized ongoing mark-to-market net losses on our marketable equity securities of $235 million in Q2 2018, primarily related to our interest in Cloudera, and ongoing mark-to-market net gains of $371 million in the first six months of 2018, primarily related to our interests in ASML.

Interest and other, net

For the six months ended June 29, 2019, we paid $1.0 billion to satisfy conversion obligations for $400 million of our $2.0 billion 3.25% junior subordinated 2039 convertible debentures and recognized a loss of $91 million in interest and other, net and $712 million as a reduction in stockholders' equity related to the conversion feature. For the six months ended June 30, 2018, we paid $1.2 billion to satisfy conversion obligations for $476 million of our $2.0 billion 3.25% junior subordinated 2039 convertible debentures and recognized a loss of $130 million in interest and other, net and $770 million as a reduction in stockholders' equity related to the conversion feature.

We recognized a net gain in Q2 2018 and for the first six months of 2018 primarily due to a $494 million gain on the divestiture of Wind River in Q2 2018.

PROVISION FOR TAXES



(Dollars in Millions)	Q2 2019			Q2 2018			YTD 2019			YTD 2018
Income before taxes	$	4,724		$	5,529		$	9,271		$	10,540
Provision for taxes	$	545		$	523		$	1,118		$	1,080
Effective tax rate	11.5		%	9.5		%	12.1		%	10.2		%

The increase in effective tax rate was primarily driven by one-time benefits that occurred in the first six months of 2018.



MD&A	Consolidated Results & Analysis	31

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LIQUIDITY AND CAPITAL RESOURCES

We consider the following when assessing our liquidity and capital resources:



(Dollars in Millions)	Jun 29, 2019			Dec 29, 2018
Cash and cash equivalents, short-term investments, and trading assets	$	11,944		$	11,650
Other long-term investments	$	3,577		$	3,388
Loans receivable and other	$	1,691		$	1,550
Reverse repurchase agreements with original maturities greater than three months	$	350		$	250
Total debt	$	28,815		$	26,359
Temporary equity	$	247		$	419
Debt as percentage of permanent stockholders’ equity	38.4		%	35.4		%

Cash generated by operations is our primary source of liquidity. We maintain a diverse investment portfolio that we continually analyze based on issuer, industry, and country. When assessing our sources of liquidity, we include investments as shown in the preceding table. 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 June 29, 2019, $1.5 billion of commercial paper remained outstanding.

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.



CASH FROM OPERATIONS $B	CAPITAL EXPENDITURES $B	CASH TO STOCKHOLDERS $B



				■ Dividends ■ Buybacks



	Six Months Ended
(In Millions)	Jun 29, 2019			Jun 30, 2018
Net cash provided by operating activities	$	12,546		$	13,697
Net cash used for investing activities	(6,010		)	(5,984		)
Net cash provided by (used for) financing activities	(6,688		)	(8,532		)
Net increase (decrease) in cash and cash equivalents	$	(152	)	$	(819	)

Operating Activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.



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For the first six months of 2019 compared to the first six months of 2018, the $1.2 billion decrease in cash provided by operations was primarily attributable to changes in working capital and lower net income. Cash flow related to working capital was down as customers utilized supply agreement prepayments, and as we continued to build inventory. These working capital changes were partially offset by changes in income tax and other assets and liabilities balances.

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.

Cash used for investing activities was flat for the first six months of 2019 compared to the first six months of 2018. Trading asset activity was offset by increased sales of equity investments (substantially all from ASML sales) and reduced capital expenditures.

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.

Cash used for financing activities was lower in the first six months of 2019 compared to the first six months of 2018 due to collateral received for our fair value hedges associated with our senior notes and cash received from issuance of debt partially offset by repayment of commercial paper.

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. For discussion about market risk and sensitivity analysis related to changes in currency exchange rates, interest rates, equity prices, and commodity prices refer to "Quantitative and Qualitative Disclosures About Market Risk" within "MD&A," in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (2018 Form 10-K).



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OTHER KEY INFORMATION

RISK FACTORS

The risks described in "Risk Factors" within "Other Key Information" in our 2018 Form 10-K could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face—our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. Below, we have updated the risk factor included in our 2018 Form 10-K titled "Global or regional conditions may harm our financial results." The Risk Factors section in our 2018 Form 10-K otherwise remains current in all material respects.

Global or regional conditions may harm our financial results. We have manufacturing, assembly and test, R&D, sales, and other operations in many countries, and some of our business activities may be concentrated in one or more geographic areas. Moreover, sales outside the U.S. accounted for approximately 84% of our revenue for the fiscal year ended December 29, 2018, with revenue from billings to China, including Hong Kong, contributing approximately 27% of our total revenue. As a result, our operations and our financial results, including our ability to manufacture, assemble and test, design, develop, or sell products, and the demand for our products, may be adversely affected by a number of global and regional factors outside of our control.

Adverse changes in global or regional economic conditions, including recession or slowing growth, changes or uncertainty in fiscal or monetary policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses including on IT infrastructure, increases in unemployment, and lower consumer confidence and spending, could significantly harm demand for our products and make it more challenging to forecast our operating results and make business decisions, including regarding prioritization of investments in our business. An economic downturn or increased uncertainty may also lead to increased credit and collectability risks, higher borrowing costs or limits on our access to capital markets, reduced liquidity, adverse impacts on our suppliers, failures of counterparties and other financial institutions, and declines in the value of our financial instruments.

International trade disputes may result in increased tariffs, trade barriers, and other protectionist measures that could increase our manufacturing costs, make our products less competitive, reduce demand for our products, limit our ability to procure components or raw materials, or impede or slow the movement of our goods across borders. Increasing protectionism and economic nationalism may lead to further changes in trade policy, domestic sourcing initiatives, or other formal and informal measures that could make it more difficult to sell our products in, or restrict our access to, some markets.

Escalating trade tensions between the U.S. and China have led to increased tariffs and trade restrictions, including tariffs applicable to some of our products. The U.S. has previously imposed, and continues to impose, restrictions on the export of U.S.-regulated products and technology to certain Chinese technology companies, which have included, and continue to include, certain of our customers. These restrictions have reduced our sales, and continuing or future restrictions could adversely affect our financial results, result in reputational harm to us due to our relationship with such companies, or lead such companies to develop or adopt technologies that compete with our products. It is difficult to predict what further trade-related actions governments may take, which may include additional or increased tariffs and trade restrictions, and we may be unable to quickly and effectively react to such actions.

Trade disputes and protectionist measures could result in declining consumer confidence and slowing economic growth or recession, and could cause our customers to reduce, cancel, or alter the timing of their purchases with us. Sustained trade tensions could lead to long-term changes in global trade and technology supply chains, which could adversely affect our business and growth prospects.

We may be adversely affected by other global and regional factors, including:


•	geopolitical and security issues, such as armed conflict and civil or military unrest, political instability, human rights concerns, and terrorist activity;


•	natural disasters, public health issues, and other catastrophic events;


•	inefficient infrastructure and other disruptions, such as supply chain interruptions and large-scale outages or unreliable provision of services from utilities, transportation, data hosting, or telecommunications providers;


•	formal or informal imposition of new or revised export, import, or doing-business regulations, including trade sanctions, tariffs, and changes in the ability to obtain export licenses, which could be changed without notice;


•	government restrictions on, or nationalization of, our operations in any country, or restrictions on our ability to repatriate earnings from a particular country;


•	differing employment practices and labor issues;


•	ineffective legal protection of our IP rights in certain countries;


•	local business and cultural factors that differ from our current standards and practices;


•	continuing uncertainty regarding social, political, immigration, and tax and trade policies in the U.S. and abroad, including as a result of the United Kingdom's vote to withdraw from the European Union; and


•	fluctuations in the market values of our domestic and international investments, which can be negatively affected by liquidity, credit deterioration or losses, interest rate changes, financial results, political risk, sovereign risk, or other factors.



OTHER KEY INFORMATION		34

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We are subject to laws and regulations worldwide that may differ among jurisdictions, affecting our operations in areas including, but not limited to: IP ownership and infringement; tax; import and export requirements; anti-corruption; foreign exchange controls and cash repatriation restrictions; data privacy requirements; competition; advertising; employment; product regulations; environment, health, and safety requirements; and consumer laws. Compliance with such requirements may be onerous and expensive, and may otherwise impact our business operations negatively. For example, unfavorable developments with evolving laws and regulations worldwide related to 5G or autonomous driving technology may limit global adoption, impede our strategy, and negatively impact our long-term expectations for our investments in these areas. Although we have policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, and/or agents will not violate such laws or our policies. Violations of these laws and regulations could result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 29, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

NON-GAAP FINANCIAL MEASURES

In addition to disclosing financial results in accordance with GAAP, this document contains references to the non-GAAP financial measures included in the table below. We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial 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 operating income and diluted earnings per share reflect adjustments for one or more of the following items, as well as the related income tax effects. 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 GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated.

Amortization of acquisition-related intangible assets

Amortization of acquisition-related intangible assets consists of amortization of intangible assets such as developed technology, brands, and customer relationships acquired in connection with business combinations. We record charges related to the amortization of these intangibles within both cost of sales and operating expenses in our GAAP financial statements. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions, rather than our core operations. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

Restructuring and other charges

Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include asset impairments. We exclude restructuring and other charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures. We believe that these costs do not reflect our current operating performance. Consequently, our non-GAAP adjustments exclude these charges to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.



OTHER KEY INFORMATION		35

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Gains or losses from divestiture

We divested Wind River in Q2 2018 and recognized an associated gain. Our non-GAAP earnings per share figures exclude this impact to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

Ongoing mark-to-market on marketable equity securities

We exclude gains and losses resulting from ongoing mark-to-market adjustments of our marketable equity securities, after the initial mark-to-market adjustment is recorded upon a security becoming marketable, when calculating certain non-GAAP measures, as we do not believe this volatility correlates to our core operational performance. Consequently, our non-GAAP earnings per share figures exclude these impacts to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

Tax Reform adjustment

During Q2 2018, we made an adjustment to our U.S. Tax Cuts and Jobs Act (Tax Reform) provisional tax estimates that we recorded in Q4 2017. We exclude this provisional tax adjustment when calculating certain non-GAAP measures. We believe excluding this adjustment facilitates a better evaluation of our current operating performance and comparisons to past operating performance.

Following are the reconciliations of our most comparable GAAP measures to our non-GAAP measures presented:



	Three Months Ended
(In Millions, Except Per Share Amounts)	Jun 29, 2019		Jun 30, 2018
Operating income	$	4,617	$	5,273
Amortization of acquisition-related intangible assets	337		325
Restructuring and other charges	184		—
Non-GAAP operating income	$	5,138	$	5,598



Earnings per share - diluted	$	0.92		$	1.05
Amortization of acquisition-related intangible assets	0.08			0.07
Restructuring and other charges	0.04			—
(Gains) losses from divestiture	—			(0.10		)
Ongoing mark-to-market on marketable equity securities	0.04			0.05
Tax Reform	—			(0.04		)
Income tax effect	(0.02		)	0.01
Non-GAAP earnings per share - diluted	$	1.06		$	1.04

ISSUER PURCHASES OF EQUITY SECURITIES

We have an ongoing authorization, originally approved by our Board of Directors in 2005 and subsequently amended, to repurchase shares of our common stock in open market or negotiated transactions. As of June 29, 2019, we were authorized to repurchase up to $90.0 billion, of which $11.7 billion remained available.

Common stock repurchase activity under our publicly announced stock repurchase program during the second quarter of 2019 was as follows:



Period	Total Number of Shares Purchased (In Millions)	Average Price Paid Per Share		Dollar Value of Shares That May Yet Be Purchased Under the Program (In Millions)
March 31, 2019 - April 27, 2019	4.7	$	55.82	$	14,621
April 28, 2019 - May 25, 2019	28.3	$	46.27	$	13,311
May 26, 2019 - June 29, 2019	34.2	$	45.95	$	11,739
Total	67.2

We issue RSUs as part of our equity incentive plans. In our consolidated condensed financial statements, we treat shares of common stock withheld for tax purposes on behalf of our employees in connection with the vesting of RSUs as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase program and accordingly are not included in the common stock repurchase totals in the preceding table.



OTHER KEY INFORMATION		36

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EXHIBITS

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

File Number

Exhibit

Filing

Date

Filed or

Furnished

Herewith

3.1

Third Restated Certificate of Incorporation of Intel Corporation, dated May 17, 2006

8-K

000-06217

3.1

5/22/2006

3.2

Intel Corporation Bylaws, as amended and restated on January 16, 2019

8-K

000-06217

3.2

1/17/2019

10.1†

Intel Corporation 2006 Equity Incentive Plan, as amended and restated effective May 16, 2019

10.2†

Offer Letter between Intel Corporation and George S. Davis, dated April 2, 2019

8-K

000-06217

10.1

4/3/2019

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act

31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act

32.1

Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


^†	Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.



OTHER KEY INFORMATION		37

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FORM 10-Q CROSS-REFERENCE INDEX



Item Number	Item
Part I - Financial Information
Item 1.	Financial Statements	Pages 3 - 20
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations:
	Results of operations	Pages 2, 21 - 31
	Liquidity and capital resources	Pages 32 - 33
	Off-balance sheet arrangements	(a)
	Contractual obligations	(b)
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 33
Item 4.	Controls and Procedures	Page 35

Part II - Other Information
Item 1.	Legal Proceedings	Pages 18 - 20
Item 1A.	Risk Factors	Pages 34 - 35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 36
Item 3.	Defaults Upon Senior Securities	Not applicable
Item 4.	Mine Safety Disclosures	Not applicable
Item 5.	Other Information	Not applicable
Item 6.	Exhibits	Page 37

Signatures		Page 39


(a)	As of June 29, 2019, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.


(b)	There were no material changes to our significant contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 29, 2018.



OTHER KEY INFORMATION		38

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		INTEL CORPORATION (Registrant)

Date:	July 25, 2019	By:	/s/ GEORGE S. DAVIS
			George S. Davis
			Executive Vice President, Chief Financial Officer and Principal Financial Officer

Date:	July 25, 2019	By:	/s/ KEVIN T. MCBRIDE
			Kevin T. McBride
			Vice President of Finance, Corporate Controller and Principal Accounting Officer



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