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1 – Intel Corporation

a) Describe the type of business in which Intel operates

Intel is a company that designs and manufactures microprocessor and chips sets for sale to original
equipment manufacturers (OEMs), original design manufacturers (ODMs), and industrial and
communications equipment manufacturers. They also develop and sell computer software and
services.
b) Read the letters from the CEO and the chairman and discuss any information learned from this
letter thank might be useful to an analyst
Both letters discussed the excellent financial results at year end for 2013, with high levels of profits,
strong cash generation, and a healthy balance sheet as well as generating increased earnings per share
for shareholders. The letters also included details on how much each part of the business generated
for the year, highlighting client and computing products and datacenter business as the top 2 revenue
generators. Intel had a new CEO begin in 2013 and the company introduced a new
business/marketing strategy. The letters also mentioned Intel’s commitment to its corporate
responsibility.
The company has faced life-threatening challenges in the past and has had to adapt through
regeneration and look for new opportunities in the market. In 2013 they are taking aggressive steps to
move into new market segments where results have not been as high as anticipated. An example of
this is the tablet market where they have not been as focused on trends in what customers want and
need in the ever evolving market – the goal is to expand this business vertical. Finally, the company
also launched other new products and services (eg, for Internet of Things (IoT) and future wearable
devices.
c) What type of audit opinion was given for the financial statements and the internal financial
controls of Intel? Explain the key items discussed in the audit report. (less than 1 paragraph)
The audit opinion expressed was unqualified and the audit report discussed the following key items:
1) these financial statements and schedule are the responsibility of the company's management & the
auditors' responsibility is to express an opinion based on audits; 2) Intel Corporation's management is
responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting & the auditors' responsibility is to
express an opinion based on audit; 3) the audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States); 4) what is the internal control over financial
reporting; and 5) the Disclaimer.
d) Read the Management Discussion and Analysis (MD&A). Discuss whether the items that should
be addressed in the MD&A are included. Support your answer with examples from the Intel
MD&A.

The MD&A contained all of the key items that should be included:

The internal and external sources of liquidity

The section on Liquidity described that cash generated by operations is the company’s primary source
of liquidity. The 2 main sources were operating activities (approximately 90%) and sales of shares
through the employee equity incentive plan (approximately 6%). The increase in cash by operating
actives was a result of changes in working capital.
Material deficiencies in liquidity and how they will be remedied

The section on Liquidity states that Intel believes they have enough cash flow to support their
business operations for the next 12 months. They will do by “including capital expenditures for
worldwide manufacturing and assembly and test; working capital requirements; and potential
dividends, common stock repurchases, acquisitions, and strategic investments.”
Commitments for capital expenditures, the purpose of such commitments, and expected sources of
funding

The commitments for capital expenditures was found in the Long-Lived Assets section. Intel did not
include any specific capital expenditures for 2014 in the 10-K form when discussing Property, Plant
and Equipment, Goodwill, and Identified Intangibles. As stated above, Intel believes they have
enough cash flow to cover their business operations for the next 12 months.
Anticipated changes in the mix and cost of financing resources
As mentioned in the Overview section Intel expects “revenue and gross margin to remain flat … we
will also streamline our overall investment position in order to hold spending flat for the year.” For
2014 Intel will adjust their resources to focus on key products (eg, tablets) and anticipates that their
products and architectures will result in future grown in the PC market through innovation.
Unusual or infrequent transactions that affect income from continuing operations
This item was mentioned in the Gains(Losses) on Equity Investments and Other section. As a result
of the current business environment Intel planned various restructuring initiatives, including
“align[ing] resources, [and] management approved several restricting actions including targeted
workforce reductions as well as the exit of certain businesses and facilities which resulted in
restricting and asset impairment charges of $240M for 2013.” Other measures taken included the
sales of interest in Clearwire Communications, LLC (Clearwire LLC), issuance of senior unsecured
notes and an insurance claim related to the floods in Thailand.
Breakdown of sales increases into price and volume components
The breakdown of sales increases was found in the Results of Operations. Intel’s net revenue
decreased by $633M (1%) compared to 2012, the gross margin dollars decreased by $1.6B (5%), and
PCCG and DCG platform units sales decreased by 3%. Additionally, lower netbook platform and
feature and entry phone component unit sales contributed to the decrease. These decreases were
partially offset by higher PCCG and DCG platform average selling prices, which were up 2%, as well
as higher ISG platform average selling prices. 

e) After reading the MD&A, discuss the future prospects of Intel. Do you have any concerns? If so,
describe those concerns

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The traditional PC market has been declining/stabilizing over the past 3 years (2011-13), each year
resulting in slightly lower revenue. Intel needs to expand into other business verticals while cutting
operational costs to offset R&D for new products. They need to study consumer trends and respond
faster to develop new products. Intel has had to regenerate and adapt to changing environmental
conditions in the past so it is likely that they can handle the transition in their business plan and
continue in business.