Analyst Conference Summary

conference date: July 15, 2008 @ 2:30 PM Pacific Time
for quarter ending: June 30, 2008 (2nd quarter 2008)

Forward-looking statements

Overview: Better than usual seasonality. Good earnings growth from year-earlier.

Basic data [GAAP] :

Revenue was $9.47 billion, down 2% sequentially from $9.7 billion, but up 9% from $8.68 billion year-earlier.

Net Income was $1.60 billion, up 11% sequentially from $1.4 billion and up 25% from $1.28 billion year-earlier.

EPS (earnings per share) were $0.28, up 12% sequentially from $0.25 and up 27% from $0.22 year-earlier.

Guidance:

Q3 revenue seasonally up to between $10.0 and $10.6 billion with 58% gross margin and 33% tax rate. Unit costs should decline on 45nm products.

Full-year 2008 gross margin of 57%. Capital spending of $5.2 billion. $4.4 billion of depreciation. 33% tax rate.

Conference Highlights:

Revenue was a record. Global demand was strong, towards the high end of the seasonal norm. Lowered costs have provided operating leverage. $2.5 billion of stock bought back in quarter. 45nm process performing superbly, with better than expected yields and throughput. Average microprocessor prices were lower.

Record channel shipments in servers. Mobile processors had strong unit growth and were higher than desktop unit shipments. Atom processor demand is robust and unit shipments expected to grow sharply in second half. Centrino 2 launched yesterday. New server products to launch in Q3.

Aware of global economic issues, but inventories are healthy and global demand is healthy for Intel products.

$3.8 billion in mobility group revenue.

Revenues were improved in all geographic regions.

NOR flash memory revenue was significantly lower. There was a restructuring and asset impairment charge of $96 million, much less than was expected. Mobile processor unit record. Chipset unit record. Microprocessor units up sequentially and better than usual seasonality.

55.4% gross margin slightly disappointing due to a higher percentage of lower-margin, low-priced notebook computers sold.

Cost of sales was $4.22 billion. Gross operating margin $5.25 billion. R&D expense $1.47 billion. MG&A $1.43 billion. Restructuring and asset impairments $96 million. Total operating expenses $2.99 billion. Operating income $2.55 billion. Losses from equity investments $109 million. Interest and other income $167 million. Tax provision $712 million.

2700 less employees than in Q1, down more than 20,000 from 2 years ago.

Inventories flat at $3.3 billion. Total cash was $11.5 billion, down $1.7 billion. $2.5 billion cash flow from operations. $800 million in dividend payments.

Q&A:

Gross margins for Q2 Atom driven? Atom launched in Q2, but not many units shipped. Lower gross margin was due to low price points in traditional notebook computer market.

Buy back plans? Our cash balance was higher in Q1 than we were targeting, is now more in target range. So no buy back forecast for Q3.

Desktop market in Q3? Demand is holding up across all segments, but notebook is the growth source. Server demand is typically weak in Q2.

How do you get to 58% gross margin? Improving costs and seasonally we expect more units.

Is confidence in Q3 due to market share gains? Notebook market is accelerating around the globe, with Atom notebooks coming. Montevina shortfall was replaced with Santa Rosa, so did not slow shipments, but Montevina is now ramping well.

Servers? Strong Q1, mix driven lower in Q2 as MP was down. Q4 is normally the big server quarter. We are cautious due to overall economic environment.

ESO stock compensation expense? Stock option expense goes up with volatility, even though it should go down with number of employees decreasing.

Dreamworks win? Based on our roadmap versus Dreamworks roadmap going forward, which is largely based on software optimization plans. So is a multiyear win, reflects our competitiveness in workstations as well as servers.

Atom production constraints? We've been increasing our production plans every 40 days as demand keeps rolling up, but no production constraints in rest of 2008. We also have to build chipsets for the Atom processors. Gross margins on Atom are encompassed in 58% predicted gross margin. With CPU + chipset will be about 10% lower margin than mainstream CPUs.

Will Atom replace low end Celerons? Do not see it as a Celeron replacement, but for "netbook" market. Atom has less than one-third of the performance of the Centrino. It is a first-time buyer sort of thing, aimed largely at global market.

Montevina slip? About a 30 day slip due to graphics and wireless chip problems. Did not effect back to school shipments because we ship the chips closer to manufacturing time than we used to.

Sense of demand in China? Quarter had an early interruption with earthquake.

Our chipset strategy is to provide as high of a percentage of chipsets for our processors as possible. Many low end suppliers have dropped out of this market.

Visibility for Q3? We are very comfortable with the guidance we gave. Normal seasonality is up 9% for Q3. Chipsets are purchased before microprocessors, and we had strong chipset shipments at end of Q2. Except for NOR business we were flat in Q2, which was better than normal down seasonality.

NAND flash impact on gross margin? NAND had a negative impact on gross margin, but about the same as Q1. But although prices are weak our costs are coming down to compensate.

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