Kevin Sellers – VP, IR Paul Otellini - President and CEO Stacy Smith - CFO

Glen Yeung - Citigroup David Wong - Wachovia Capital Markets John Pitzer - Credit Suisse Ross Seymore - Deutsche Bank John Barton - Cowen & Co. Jim Covello - Goldman Sachs Hans Mosesmann - Raymond James Uche Orji - UBS Chris Danely - JPMorgan Sumit Dhanda -Banc of America Securities Tim Luke - Barclays Capital John Dryden - Charter Equity Research Kevin Cassidy - Thomas Weisel Partners David Wu - Global Crown Capital Gus Richard - Piper Jaffray Brian Piccioni - BMO Capital Markets

Good day, ladies and gentlemen. Welcome to the Q4 2008 Intel Corporation Earnings Call. At this time, all lines are muted. (Operator Instructions). ':

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Thanks, Kevin. Our fourth quarter results reflect the difficult economic climate. Putting our results into perspective, this is only the second time in 20 years that our fourth quarter revenues were below the third quarter, the last being the year 2000 where revenues declined less than 1%. The pace of the revenue decline in the quarter was dramatic and resulted from reduced demand and inventory contraction across the supply chain. While inventories in total have declined, we are assuming further reduction in Q1. The fourth quarter was a weak ending to a tremendous year of accomplishment for Intel. We launched two groundbreaking architectures with Atom and Nehalem which together strengthened our competitive position in the traditional PC marketplace and offer incremental growth opportunities in new markets in foreign factors. We continued our focus on efficiencies and have built that mindset into our daily operations. We divested a number of non-strategic businesses and spun out others such as our NOR flash operations. We saw the scale-out of our 45-nanometer manufacturing process, and the design completion of our next generation 32-nanometer process technology. WiMAX entered commercial deployment and holds great promise of becoming a ubiquitous mobile broadband technology. In summary, we delivered on our operational goals in nearly all elements under our control. This disciplined execution remains an important strength for us and is the centerpiece of how we plan to manage the business during this economic downturn. Now, let me briefly discuss our priorities for managing during this environment. First, we understand the absolute need for fiscal discipline and have in place several initiatives focused on savings and modulating our investments. We have been undergoing a broad-based restructuring for the past three years and have the efficiency gene strongly ingrained into how we do business. ': We will continue our pace of investment in R&D. In 2009, we have a slate of new products and technologies coming to market that offer superior value for our customers. We remain on track for introducing our 32-nanometer process technology in the second half of this year and we will not slow down this introduction. We believe that the shift to 32-nanometers will increase our performance lead, lower our product costs and usher in a new era of high volume system-on-chip products. Third, we will continue to invest in our growth initiatives. Atom is launched and is being well received. It is a great addition to our product portfolio in this recessionary environment in that it enables new capabilities at affordable price points and good margins. We have made good progress in the consumer electronics space with our Canmore processor. ': We will continue our pace of investment in R&D. In 2009, we have a slate of new products and technologies coming to market that offer superior value for our customers. We remain on track for introducing our 32-nanometer process technology in the second half of this year and we will not slow down this introduction. We believe that the shift to 32-nanometers will increase our performance lead, lower our product costs and usher in a new era of high volume system-on-chip products. Third, we will continue to invest in our growth initiatives. Atom is launched and is being well received. It is a great addition to our product portfolio in this recessionary environment in that it enables new capabilities at affordable price points and good margins. We have made good progress in the consumer electronics space with our Canmore processor. ': We will continue our pace of investment in R&D. In 2009, we have a slate of new products and technologies coming to market that offer superior value for our customers. We remain on track for introducing our 32-nanometer process technology in the second half of this year and we will not slow down this introduction. We believe that the shift to 32-nanometers will increase our performance lead, lower our product costs and usher in a new era of high volume system-on-chip products. Third, we will continue to invest in our growth initiatives. Atom is launched and is being well received. It is a great addition to our product portfolio in this recessionary environment in that it enables new capabilities at affordable price points and good margins. We have made good progress in the consumer electronics space with our Canmore processor. ': We expect a number of significant design win announcements over the course of 2009. In the midst of the difficulties of the global economy, we remain optimistic about where our strategy and execution can take us. One example is our Nehalem dual processor server offering which began shipping for revenue in December. The performance of this product is stunning and will allow our customers to offer businesses unprecedented performance while lowering their operating costs. Lastly, we have great confidence in the cash generation element of our business model and as a consequence my plan is to not reduce or eliminate our dividend. With that, let me turn the show now over to Stacy.

Thank you, Paul. The slowing of the worldwide economy resulted in a weak fourth quarter. Revenue for the fourth quarter declined 19% from the third quarter to $8.2 billion, as downstream inventory corrections attempted to keep pace with the decline in demand that occurred over the course of the quarter. Revenue of microprocessors, excluding Atom, was significantly below seasonal patterns but average selling prices were up. Fourth quarter revenue for Atom-based microprocessors and associated chipsets was $300 million, up 50% from the third quarter. Including Atom microprocessor revenue, overall microprocessor average selling prices were flat to the third quarter. Revenue in the Digital Enterprise Group and the Mobility Group was down due to a decline in microprocessor and chipset unit shipments. Revenue in all geographies declined sequentially and year-over-year. Gross margin of 53.1% was down 6 points from the third quarter and down 5 points from the fourth quarter of 2007. As we responded to reductions in demand, we reduced factory loadings, which resulted in about $250 million in underutilization charges, or about a 3-point decline in gross margin from the third quarter. An additional 3-point decline came from inventory write-offs on computing-related products which were primarily demand related. Spending on R&D and MG&A was $2.6 billion, $300 million lower than the third quarter, due to lower revenue and profit related expenses and targeted spending reductions. In the separate category for restructuring and asset impairment charges, expenses were approximately $250 million, with about $200 million related to the shutdown of 200-millimeter NAND manufacturing facilities and the Intel/Micron joint venture. We ended the year with approximately 84,000 employees, down 3% from a year ago, and down 16% from the end of 2005. ': Total cash investments comprised of cash, short-term investments and fixed income trading assets ended the quarter at $11.5 billion, approximately $250 million lower than the third quarter. The credit quality of our fixed income investment portfolio remains high with other than temporary losses during this tough credit environment minor, at approximately $10 million in the fourth quarter. Cash flow from operations was approximately $2.6 billion. Capital spending was $1.8 billion. We paid nearly $800 million in dividends and did not repurchase stock in the quarter. For the year, we generated approximately $11 billion in cash flow from operations, spent $5.2 billion in capital, paid over $3 billion in dividends and repurchased over $7 billion of Intel stock. As we turn now to the outlook for the first quarter and the full year, please keep in mind that unless otherwise specified the forecasts do not include the effect of any new acquisitions, divestitures or similar transactions that may be completed after January 14. I will use the midpoint of the forecast ranges when making comparisons to specific periods. The worldwide economic situation is creating a high degree of uncertainty around demand. Therefore, we believe there is a broader than normal range of possible outcomes for the first quarter and the full year. In light of the uncertainty in the current environment, rather than provide precise ranges for typical outlook items we will provide business drivers for some items and wider than typical ranges for others. Intel is not providing a revenue outlook at this time. For internal purposes we are currently planning our business for first quarter revenue to be in the vicinity of $7 billion. Our expectation for gross margin is that it will decline significantly in the first quarter. As we continue responding to demand signals with cuts to factory loading levels, we expect that underutilization charges will lead to an additional 8-point decline in gross margin. In addition, as we begin the ramp of 32-nanometer process technology we expect another couple of points decline in gross margin in the first quarter. Based on our current view of the market, we expect gross margin for the first quarter will decline into the low 40s. As the quarter unfolds, changes in demand levels and pricing of products could impact inventory write-offs, mix and unit costs, and potentially create an additional several points of margin variability. Spending for R&D and MG&A in the first quarter should be approximately $2.5 billion, down slightly from the fourth quarter. Additionally, in the separate category for restructuring and asset impairment charges, we expect expenses of approximately $160 million as we continue to improve our costs and overall efficiency. Our estimate for gains and losses from equity investments and interest and other income is a net loss of $130 million. Looking ahead to the full year, R&D and MG&A is expected to be between $10.4 billion and $10.6 billion. This is down 6% from 2008 due to targeted spending reductions, lower spending for revenue and profit-dependent items, and the standard shift between R&D and cost of sales spending as we ramp our new 32-nanometer process technology. With the efficiencies that we have generated over the last three years and the spending reduction already achieved in the fourth quarter, we are confident that we can achieve this spending level. For Research and Development, we plan to spend approximately $5.4 billion to develop innovative leadership products and advanced manufacturing process technology. Our expectation for capital spending is to be flat to slightly down from 2008. Our capital spending for 2009 is expected to primarily consist of investments in 32-nanometer process technology. Depreciation for the year is forecasted to be $4.8 billion, plus or minus $100 million, up from $4.4 billion in 2008. The estimated tax rate for 2009 is 27%. Despite the unprecedented drop in demand we experienced in the fourth quarter, we entered this downturn well positioned both competitively and financially. Our cash flow generation, strong balance sheet and the focus we have had on improving efficiency over the past three years will allow us to weather this downturn. Our restructuring and efficiency program has already resulted in run rate savings of greater than $3 billion, CapEx avoidance in excess of $1 billion, and a reduction of 20,000 employees from our peak in 2006. While we are making selective investments to further our competitive position, like investments in R&D and 32-nanometer process technology, we are also focused on responding to the weak demand environment. We plan to take another $700 million out of spending next year. In the factories, we are aggressively reducing build plans in order to avoid putting unnecessary cost into inventory and while that will have a significant impact on our financials in the first quarter, it is the prudent response to the current environment and will benefit us when demand stabilizes. With that, let me turn it back to Kevin for Q&A.

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(Operator Instructions). Our first question comes from the line of Glen Yeung. Go ahead. Glen Yeung - Citigroup: ':

': On the notebook side, I think what you see is that it takes longer to slow it down. Much of our desktop business is through the channel, which is a configure-to-order model. And so the channel adapts very rapidly. They have little inventories to begin with, but adapts very rapidly to demand changes, and in fact if anything our channel inventories in desktop products are a little light right now as channel sales stabilized in the second half of December. Notebooks for the most part are assembled in China and Taiwan and then shipped, most recently in the last six months or so, on boats. So the supply line actually lengthened as people fought to save money on shipping as the air transit prices went up with the gas going up. So that all started to contract. ': On the notebook side, I think what you see is that it takes longer to slow it down. Much of our desktop business is through the channel, which is a configure-to-order model. And so the channel adapts very rapidly. They have little inventories to begin with, but adapts very rapidly to demand changes, and in fact if anything our channel inventories in desktop products are a little light right now as channel sales stabilized in the second half of December. Notebooks for the most part are assembled in China and Taiwan and then shipped, most recently in the last six months or so, on boats. So the supply line actually lengthened as people fought to save money on shipping as the air transit prices went up with the gas going up. So that all started to contract. ': Glen Yeung - Citigroup: ': ': ': ':

': ': ': ': ': ': ': ': Glen Yeung - Citigroup: ':

Thanks, Glen. Melanie, next question.

Our next question comes from David Wong. Go ahead. David Wong - Wachovia Capital Markets: Thank you very much. A bit further on that question with regard to notebooks and desktops, the Digital Enterprise microprocessor sales were down by just about 10% sequentially, if I calculate correctly. Was there some strength in servers that helped prop up this number?

Yes, the DEG was impacted positively because the new technology we brought in helped us from a pricing standpoint and servers so you saw a little bit of an ASP increase there. ': ': David Wong - Wachovia Capital Markets: Great, thanks. The other thing is can you give us some idea of the pattern of 32-nanometer start-up charges in each of the next few quarters?

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Thanks, David. Melanie, next question.

Our next question comes from John Pitzer. Go ahead. John Pitzer - Credit Suisse: Yes, thanks, guys. Stacy, maybe just as a follow-on to that with a little more detail. You said about taking your inventory down in Q1, would you care to give us a sense of how much you think on a dollar basis you think you could bring down inventory given where factory loading is if you hit that kind of $7 billion internal plan for top line?

': ': ': ': John Pitzer - Credit Suisse: ': ': ':

': ': ': ': ': ': ': ': ': ': ': John Pitzer - Credit Suisse: Great. Thanks, guys.

Thanks, John. Melanie, next question.

Our next question comes from the line of Ross Seymore. Go ahead. Ross Seymore - Deutsche Bank: Hey, Stacy, looking at that the gross margin line, if I go back to when the dot-com bubble burst the gross margin stayed no better than 51% for the better part of two years. Can you just walk us through what would be the same or different in this downturn versus that one? And what it would mean for gross margin?

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': ': Ross Seymore - Deutsche Bank: You mentioned about inventory coming down. Internally, you think by a healthy amount do you think the channel inventory falls by a similar healthy amount like the fourth quarter, more or less?

':

Thanks, Ross, appreciate it. Melanie, next question.

Our next question comes from John Barton. Go ahead. John Barton - Cowen: ':

The Tam for netbooks or the Tam-Tam? John Barton - Cowen: The Tam for your portion of it, the Atom processor and the chipset.

For the PC industry? John Barton - Cowen: ':

': ': ': ': ': ': ': ': John Barton - Cowen: ': ':

': ': ': ': John Barton - Cowen: Fair enough. I mean, as a follow-up, how do you envision competition materializing at the processor level for the netbook application as you look out over the next few years?

At CES you saw a lot of buzz around netbooks and you saw a lot of commentary from non-traditional competitors and traditional competitors about the desirability of entering that segment. Which to me validates our view that it had a high potential for growth and it was an exciting segment and that it would be attractive, in particular in this kind of economic environment. And so, A, we have a very good lead since we sort of established this business. Our product, as near as I can tell, is by far the best on the market, not just in our own architecture but in all architectures given the costs, the benefits, the battery life and the software capability we have. So I would expect that we will do very well in the netbook market over the course of the next couple of years. John Barton - Cowen: Thank you.

Yes, thanks, John. Melanie, next question.

Our next question comes from the line of Jim Covello. Go ahead. Jim Covello - Goldman Sachs: ':

': ': ': ': ': ': ': ': ': ': ': ': ': Jim Covello - Goldman Sachs: Thank you very much.

Thanks, Jim. Next question, Melanie.

Our next question comes from the line of Hans Mosesmann. Go ahead. Hans Mosesmann - Raymond James: ': ':

Yes. Hans Mosesmann - Raymond James: And that product would be called Havendale?

': ': Hans Mosesmann - Raymond James: ':

': Hans Mosesmann - Raymond James: ': ':

': ': ': ': ': ': ': ': ': ': ': ': ': ': Hans Mosesmann - Raymond James: Great. Thank you.

Thanks, Hans. Go ahead, Melanie.

Our next question comes from the line of Uche Orji. Go ahead. Uche Orji - UBS: Thank you very much. First question, Stacy, or to Paul, within the mix of your revenues, chipsets seems to have dropped off quite sharply for both desktops and also for mobile. To what extent is this an indicator at all, first of all can you explain what may have happened within that in the context of your revenue and how much was this a function of ramping earlier for Nehalem and then things falling off. Can you please explain that?

Sure. Let me try. It really had nothing to do with Nehalem. If you wind the clock back to our third quarter, one of the things we talked about, was that we had record all-time revenues and units in the chipset business and in fact, we talked about the fact that historically, the chipset business is a leading indicator for demand and that chipsets tend to ship into the PC ecosystem six to eight weeks before processors are mated with them in the system. And so that was one of the indicators that gave us reasonable confidence for the fourth quarter. ': ': ': ': ': ':

': Uche Orji - UBS: ':

': ': ': Uche Orji - UBS: Thank you very much.

Thanks, Uche. Go ahead, Melanie.

Your next question comes from the line of Chris Danely. Go ahead. Chris Danely - JPMorgan: Thanks, guys. If I run through the math real quick, it seems to me like you have to take out, reduce your inventory maybe $700 million, $800 million, $900 million in Q1 to get back to normal levels. Am I in the right ballpark?

': ': ': Chris Danely - JPMorgan: ': ': ':

Well, in that kind of a hypothetical situation, the levers you would see us push is we would slow the ramp rate of 32-nanometer, we would look at our older generation process technology and because we build in the ability to reuse and roll forward that equipment from 45 to 32, you would see us take some of the older generation capacity off-line and roll it forward to 32. ': Chris Danely - JPMorgan: Got it. Thanks a lot.

Sure.

Go ahead, Melanie.

Our next question comes from the line of Sumit Dhanda. Go ahead. Sumit Dhanda -Banc of America Securities: Yes, hi. Couple of questions. Stacy, your comment about the impact in Q1 from 32-nanometer start-up costs being a couple of points, roughly equates to about $150 million in the quarter. ':

': ': ': ': ': ': ': ': Sumit Dhanda -Banc of America Securities: Just to be clear, then, 2 points is about the right number to think about for Q1 in terms of the hit and then the shape of the curve is very similar to what you had indicated last year?

': ': Sumit Dhanda -Banc of America Securities: Okay. My follow-up question is on flash, any sense you can give us of what the flash number looked like, is it lumped under the all other category? It seems like it might have done reasonably well. Was that related to the efforts on the SSD front?

': ': ': ': ': ': Sumit Dhanda -Banc of America Securities: Thank you very much.

Thanks. Go ahead, Melanie.

Our next question comes from the line of Tim Luke. Go ahead. Tim Luke - Barclays Capital: Thanks very much. I just had a question, Paul, with respect to Atom. It looked like off the $300 million of revenue that unit wise it might be around almost 10% of the microprocessor units. ':

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': ': ': ': ': ': ': ': ': Tim Luke - Barclays Capital: Stacy, just with respect to your earlier comment on saying that you thought you would get into a healthy range in the second half of the year on the gross margin side with a trough in the first quarter, is a healthy range back towards that low 50s or how should we think about that?

': ': ': ': Tim Luke - Barclays Capital: Excellent. Thank you, guys.

Thanks, Tim. Go ahead, Melanie.

Our next question comes from the line of John Dryden. Go ahead. John Dryden - Charter Equity Research: Hi, thanks for taking my questions. Was Asia worse than other geographies? Was that due to the change in the shipping method mentioned earlier in the call or a larger reduction in demand?

': ': ': John Dryden - Charter Equity Research: Stacy, as a follow-up, investments in non-marketable securities down $1.1 billion, was that the write-down action specifically with Clearwire or is there a mix associated with the number?

': ': ': ': ': ': John Dryden - Charter Equity Research: Thanks for taking my questions.

Thanks, John. Go ahead, Melanie.

Our next question comes from the line of Kevin Cassidy. Go ahead. Kevin Cassidy - Thomas Weisel Partners: ':

': Kevin Cassidy - Thomas Weisel Partners: Okay. And so the platform, say the Calpella platform, is on schedule for, say, an October introduction?

': Kevin Cassidy - Thomas Weisel Partners: Okay. Thank you.

Thanks, Kevin. Go ahead, Melanie.

Our next question comes from the line of David Wu. Go ahead. David Wu - Global Crown Capital: ':

': ': ': ': ': ': ': David Wu - Global Crown Capital: ':

': ': David Wu - Global Crown Capital: Okay, thank you.

':

Certainly. Our next question comes from Gus Richard. Go ahead. Gus Richard - Piper Jaffray: ':

': ': ': ': ': ': Gus Richard - Piper Jaffray: ': ': ': ':

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': ': ': ': Gus Richard - Piper Jaffray: Got it. That was very helpful. Thank you.

Thanks, Gus. Go ahead, Melanie. This will be our last questioner.

Thank you. Our final question comes from Brian Piccioni. Go ahead. Brian Piccioni - BMO Capital Markets: ': ':

': ': ': ': ': ': Brian Piccioni - BMO Capital Markets: So presumably as cash generation would increase, then the buyback would be reconsidered, I guess?

': ': Brian Piccioni - BMO Capital Markets: ':

': ': ': ': Brian Piccioni - BMO Capital Markets: Thank you.

':

Thanks, Brian. Melanie, just to quickly wrap up here, I want to thank everyone for joining the call and remind those on the call that our quiet period begins, for the first quarter, will begin the close of business on February 27 and that our first quarter earnings conference call is scheduled for April 14, 2009. Thank you all, again, for joining us. Good evening.

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