: Doug Lusk, Director of Investor Relations Paul Otellini, Chief Executive Officer Andy Bryant, Chief Financial Officer

: Tim Luke, Lehman Brothers Sumit Dhanda, Banc of America Securities Glen Yeung, Citigroup Investment Research Tom Thornhill, UBS Adam Parker, Sanford Bernstein Ben Lynch, Deutsche Bank David Wong, AG Edwards David Wu, Global Crown Capital Mark Edelstone, Morgan Stanley Rohit Pandey, HSBC Securities Joseph Osha, Merrill Lynch Hans Mosesmann, Moors & Cabot Allan Mishan, CIBC World Markets Jim Covello, Goldman Sachs Michael Masdea, Credit Suisse First Boston

Good day ladies and gentlemen, thank you for standing by and welcome to the Intel Corporation Fourth Quarter 2005 Earnings Conference Call. My name is Carlo and I will be your coordinator for today's presentation. At this time, all of our participants are in a listen-only mode. We will be facilitating a question-and-answer session towards of the end of today’s prepared remarks. At this time, if you’d like to ask a question, you may do so by pressing ‘*’ ‘1’ on your touchtone telephone. If at anytime during this call, you require audio assistance, please press, ‘*’ ‘0’ and a conference coordinator will be happy to assist you. I would now like to turn the presentation over to your host for today's conference, Doug Lusk, Director of Investor Relations. Please proceed, Sir. Doug Lusk, Director of Investor Relations: Okay. Thank you, and welcome to the Intel fourth quarter earnings conference call. Attending from Intel are CEO, Paul Otellini, and CFO, Andy Bryant. Before we begin, please bear with me a while I read our Safe Harbor language. The fourth quarter earnings report and this conference call discusses Intel’s business outlook and contains forward-looking statements. These particular forward-looking statements, and all other statements that may be made on this call that are not historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our press release for more information on the risk factors that could cause actual results to differ. The specific forward-looking statements cover expectations for product mix and demand, revenue, gross margin, expenses, tax rate, interest and other income, capital spending, depreciation, and amortization of acquisition-related intangibles and costs. These statements do not reflect the potential impact of any mergers, acquisitions, divestitures, investments, or other business combinations that may be completed after January 16, 2006. Lastly, during this call we will use non-GAAP financial measure as defined by the SEC and Regulation G. Reconciliations for the most comparable GAAP financial measures are set forth either in our earnings release or on our financials webpage, both of which are on our website intc.com. With that, let me turn it over to Paul. Paul?

Paul Otellini, Chief Executive Officer: Andy Bryant, Chief Financial Officer: Thanks, Paul. 2005 was a great year punctuated by a difficult December. As Paul discussed unexpected issues with the timing of chipset supply demand in the desktop segment and practicing of logic products resulted in less growth than we usually see in the final weeks of the year. For all of 2005, revenue, gross margin dollars, operating income, and net income each achieved year to year growth rates in the double-digits. Stock repurchases and cash dividends returned over $12 billion to stockholders. Quarterly average shares outstanding were down nearly 5% from a year ago and 11% from the peak in 1998. We delivered not only our third consecutive year of double-digit growth in revenues, which Paul mentioned; but also our fourth year is the fourth consecutive year of progress in gross profit margin. And our tenth year in a row with cash from operations in excess of $8 billion. Our outlook for 2006 anticipates another year of growth but at a slower rate than the last three years in line with industry forecasts and the overall economy. To prepare for silicon demand in the years beyond 2006 we are substantially increasing research and development and capital spending. Revenue for the fourth quarter was $10.2 billion at the low-end of the range we forecast in the October earnings release, and below the range in the December update. Although revenue grew a little over 2% from the third quarter this is lower than is typical for this period. Compared to the fourth quarter a year ago revenue grew approximately 6%. Revenue for the second half was up 8% over the first half within the range of the last five and ten years and approximately 12% over the second half of 2004. On a geographic basis the sequential growth in revenue came from the greater Europe region. Asia Pacific was flat with the third quarter at the low-end of historical range, primarily due to some softness in the desktop segment. In the Americas revenue was down almost 4% with most of the decline concentrated in the United States, offset somewhat by growth in Latin America. Year to year growth for the fourth quarter was led by Asia Pacific at 16% and Japan at 11% driven by demand for mobile computing, chipsets, and flash memory. Europe was flat with the fourth quarter a year ago. The year to year decline of 10% for the Americas region is primarily a function of continuing movement of sales from manufacturing to Asia Pacific. For the year overall, Asia Pacific was nearly half the total revenue followed by Europe with 21% of revenue. Gross margin dollars of 6.3 billion were up 6% from the third quarter when results included a charge $140 million related to a legal settlement and up 17% from a year ago. Gross margin percentage of 61.8% improved 2-points from the third quarter and is up substantially from a year ago. The result was just below the range of the forecast in December due to a lower inventory, lower revenue and inventory evaluations. 61.8% compares to 59.7% in the third quarter which included 1.4 points for the legal charge. As we anticipated in October, gross margin benefited from the qualification of new dual core products as we ramp 65-nanometer. This accounted for the largest part of the improvement from the third quarter. The gains in gross profit were offset somewhat by reducing valuations of logic products due to lower unit costs. In the year to year comparison gross margin percentage is nearly 6-points higher than the fourth quarter of 2004. Higher revenues, higher factory utilization, and lower unit costs contributed to better gross profit margins than a year ago. Spending, R&D and MG&A was $3 billion, consistent with our previous forecasts and up 5% from the third quarter. For the year, spending was 28% of revenue approximately the same level as in 2004. The number of employees rose during the quarter to 100,000 at the end of December, up from 85,000 a year ago. Before looking at non-operating income I will highlight results for Intel's largest operating segment. A little less than two-thirds of the total revenue came from digital enterprise group which was flat with the third quarter and down 5% from a year ago. Operating profit for the digital enterprise group was up 13% sequentially and flat from a year ago. Revenue at Intel's mobility group accounted for nearly one fourth of total revenue. Revenue from mobile microprocessors was up 3% from the third quarter and 40% from a year ago. With the success of mobile platforms, revenue from mobile chipsets and other products was up 66% year to year. The mobility group also made progress in operating profit, up 8% from the third quarter and 63% from a year ago. Our flash memory business revenue was up 5% from the third quarter although flat from 2004 overall. For the entire year flash revenue was flat with 2004. With the formation of IM flash technologies, a joint venture with Micron, we will report flash memory revenue and operating profit as part of a new operating segment. Now to non-operating items. The effective tax rate in the fourth quarter was 29.1%. Intel's third quarter tax rate of 38.5% included accrual of tax expense of approximately $250 million related to the repatriation of accumulated income earned abroad. Fully diluted earnings per share were $0.40. This is well above $0.32 in the third quarter which included a charge related to the legal settlement and a charge related to repatriation of foreign earnings which together lowered earnings per share by approximately $0.06. On the balance sheet inventories of $3.1 billion were up over $300 million from the third quarter. As anticipated in October, we built inventories with the production of more 65-nanometer processors. Total cash investments comprised of cash, short-term investments, and fixed income trading assets ended the quarter at $12.4 billion, a decrease of 1.2 billion from the third quarter after stock repurchases of $3.1 billion, capital spending of 1.4 billion, and dividend payments of nearly 500 million. Long-term debt grew to $2.1 billion, up from 432 million, following the issuance of $1.6 billion in convertible securities. As we turn now to the outlook for the first quarter please keep in mind that the forecast data do not include the effects of any new acquisitions, divestitures, or similar transactions that may completed after January 16. I will use a mid point of forecast ranges when making comparisons to specific periods. We are planning for revenue in the first quarter to be between 9.1 and $9.7 billion. The midpoint of this range would mean a sequential decline of 8%, although this is within a wide historical range for the period, it is less than the typical seasonal growth. This is flat compared to the first quarter of 2005 which included 14 weeks instead of 13. It also incorporates what we believe will be the impact of an inventory build at our customers in the fourth quarter. Our expectation for gross margin percentage in the first quarter is 59% plus or minus a couple of points. This includes share-based compensation expenses, a non-cash charge which we will begin recognizing in the first quarter. Without share-based compensation of approximately 1 point of margin, the forecast for gross margin percentage is 60% plus or minus a couple of points. This is down two points from the fourth quarter due primarily to start up costs for IM Flash technologies, the NAND memory joint venture, lower revenues, and inventory valuations. Spending, R&D plus MG&A should be approximately $3.3 billion, higher than the fourth quarter due to the impact of share-based compensation expense. The forecast includes approximately $300 million of share-based compensation, a non-cash expense. Without the impact of these charges spending should be about $3 billion, flat with the fourth quarter. Depreciation should be $1.1 billion plus or minus $100 million. We expect amortization of acquisition related intangibles for the first quarter to be approximately $20 million. Our estimate for gains and losses from equity investments and interest and other income is a net gain of $140 million. Looking ahead to the full year we are planning for revenue growth of 6 to 9% led by mobile computing and emerging markets. The pace of year to year growth and our plan is slower than in recent years tempered somewhat by the outlook for the worldwide economy. We expect gross margin percentage to be 57% plus or minus a few points. Without share-based compensation of approximately 1 point of margin the forecast is 58% plus or miles a few points. This is down more than 1 point from gross margin in 2005. Lower start up costs for logic products will help lift margin from 2005 levels, but this will be more than offset by slightly higher unit costs and slightly lower average selling prices for microprocessors and start up costs for the NAND memory joint venture. At the same time we are ramping the 65-nanometer process technology, we are also moving ahead with a transition to even smaller geometries and increasing our investments in manufacturing technology and capacity. We are targeting overall capital spending at $6.9 billion plus or minus 200 million, an increase of 19% over 5.8 billion in 2005. Most of the projected increase will be spent on construction and long lead purchases to support 45-nanometer capacity requirements. With plan to invest in a construction of two 300 millimeter, 45-nanometer factories in Arizona and Israel both announced last year. We believe the capacity will help maintain Intel leadership in providing silicon to a growing, global market and the technology will be an advantage that enables us to deliver better products at competitive unit costs. For research and development in 2006, we plan to spend approximately $6.5 billion, an increase from the $5.1 billion we spent in 2005. The forecast includes share-based compensation of approximately $500 million, a non-cash expense. R&D spending excluding share-based expenses would grow to $6 billion. Most of the increase in the budget will be directed to product development and validation for platform products. As is the case almost every year this is the highest level of R&D spending in Intel's history. Total spending for the year including not only R&D but marketing and G&A is forecast at 13.1 billion. This includes the impact of share-based compensation of $1.1 billion. Excluding this impact total spending is forecast at 12 billion which is $1.2 billion or 11% higher than 2005. This spending growth exceeds projected revenue growth for the year and deviates from what remains our long-term goal of keeping one in line with the other. Excluding projected spending in IM flash the year to year growth will be 9%. The largest dollar and percentage increase is in R&D for resources to deliver new platforms for new markets. Depreciation for the year is forecast at $4.7 billion plus or minus $100 million, up from $4.3 billion in 2005. The estimated tax rate for 2006 is 32%. In summary, 2005 was a good year and the Company is in excellent financial condition. We are planning for another year of growth and are optimistic that our competitive position will improve as we see the fruits of investments in new products and new manufacturing capabilities. In any year while the economy may fluctuate we can be certain that the pace of technical innovation will not stop. Our investments are a statement of confidence in the future of innovation. With that let me turn it over to Doug for Q&A. Doug Lusk, Director, Investor Relations: Thanks, Andy. We will now open the call for Q&A. We will attempt to take questions from as many participants as possible. To help in this process we ask that you please limit yourselves to only one question and no more than one brief follow-up. Thank you. Operator?

Q - Tim Luke: Thank you. Andy, I was wondering if you could frame the extent of the inventory build that you described in the fourth quarter in guiding us somewhat lower than seasonal first quarter off a somewhat lower than expected fourth quarter. Thank you. A - Andy Bryant: Sure, the easiest way to frame that is really to look at the Q1 outlook. The Q1 revenue outlook calls for the midpoint to be down approximately 8%. If that we were having, and I know seasonals a wide range, but if we were having a seasonal first quarter it would have been down approximately 5%. The difference 3 percentage points is roughly equal to what we think the inventory is on hand at our customers that needs to be worked off. Q - Tim Luke: I was also wondering, Andy, if you could just give some more color on the gross margin outlook going forward in terms of suggesting that there were lower start up costs but I think you said offset by the higher unit costs and lower ASPs. If you could give some color on those issues that would be helpful. A - Andy Bryant: Sure. I will do what I can. I can't give you too much detail on that. As we all remember throughout 2005 we had the start up costs on the 65-nanometer and the fact that process was going into several factories which depressed gross margin percentage. We will see positive or an uplift in margin in '06 because we no longer have those expenses. On the other hand we did enter into the IM flash joint venture which will begin NAND memory production in several factories this year. It is not quite as expensive as doing our start up in our logic factories; but it is similar in nature and the way the contract with the joint venture is structured those costs come directly into our P&L. So you can almost think that those two will offset each other. In the meantime, I do expect unit costs to go up slightly. To give you a simple indication, if our revenue growth for the year hits out mid point of 7.5% you can look at my depreciation cost is going to go up more in terms of 8 to 9%. So I am going to take a little cost pressure there. Headcount generally in the factories relate to the capital expense so I will take probably a little bit of cost pressure there. Right now materials going into finished products has been tight for the last year or so, a little bit of cost pressure there. So what you are seeing is no big change other than a little bit of pressure in each cost element. Same thing if you look at average selling prices. Remember I'm talking about a year-over-year, what we saw in the fourth quarter was average selling prices step down a little. If you just take that number and compare it, blow it through that entire next year you are going to see average selling prices a little bit lower year to year. So there are no big, wow, there's a huge change coming type numbers in here, there are a series of small events that are going to tend to put margin pressure down a point on a year to year comparison if you exclude share-based costs. If you don't it will be down 2-points. Q - Tim Luke: Thanks.

And, sir, our next question is from the line of Sumit Dhanda with Banc of America Securities. Q - Sumit Dhanda: Andy, I had a question on, you talked about the fact that demand for low-end desktops was below expectations and that impacted your growth. But your mobile segment growth was also what I would say is subpar given how well that segment has grown in recent quarters. Could you talk about what's happening there and is there a share loss issue, was there a slow down within the notebook market that you didn't allude to earlier in your comments? A - Andy Bryant: Well, we thought the mobile business did pretty well in the fourth quarter as expected so I don't know where you got information. We had certainly record shipments in that space. If you look at what we thought was quote, the shortfall in revenue from the mid quarter update, I'd say maybe a little bit in mobile but it's really not much change. Q - Sumit Dhanda: I guess my point was that you reported 3% growth whereas seasonality would have dictated better growth within your mobile segment? A - Andy Bryant: A little bit. Recognize that some of the growth went into the lower end value stuff which maybe was what contributed a small amount of our pricing stuff. But in reality mobile did fine. I would not be talking about a revenue shortfall if we were dealing in the mobile business exclusively. Q - Sumit Dhanda: The other question I had was, this seems to be the second straight quarter where your OEM base has built some level of inventory, the 100 million the prior quarter and this quarter you are implying roughly 300 million. Could you talk about why, I mean, is that just, first of all, relegated to your OEM customer base and are you seeing a similar build in the channel and if not why not? A - Andy Bryant: Well, it isn't the OEM and the multinationals. If you go, study your balance sheet carefully you can actually figure out what our inventory is in the channel; it was down in the fourth quarter and channel sales out were at a record. The other thing I want to correct is there wasn't a $300 million inventory build in the fourth quarter; there is a total of between, say 250 and $300 million excess inventory in the customers hands today. They would also have billed in the first quarter. So you have got to add the two together to get to the total effect. In general what I would suspect is you are seeing some after effect of the constraints we've been in and the customer is trying to match chipsets and the timing of when chipsets are coming from third party suppliers and our products, it's a fairly complex equation and you certainly wouldn't want to be caught short if you had the chipsets and the motherboards available. I don't think it's anything other than that at this time. Q - Sumit Dhanda: One final question. I mean when can we start to see a better match between the revenue growth and your cost structure? It seems to be a little out of whack right now. A - Andy Bryant: Well, I actually think we improved margins in '05 and that was revenue growth exceeding the cost structure. I do believe it will turn a little bit the other way this year. It really is a factor of if we can drive revenue I can hold cost, I can leverage my fixed cost base pretty well. If revenue can't be driven then I have got to address costs, but certainly not something you do in the short-term and not something you do today facing what should be a high single-digit revenue growth. Q - Sumit Dhanda: Okay. Thank you.

And sir, our next question is from the line of Glen Yeung with Citigroup Investment Research. Q - Glen Yeung: Andy, when we look at your forecast for revenues for 2006 at 6 to 9% growth. Can you give us a sense as to what you think underlying PC growth is when you come up with that number? A - Andy Bryant: Sure. What we are guessing for underlying PC growth is somewhere in the high single digits, low double-digits, so 9, 10, 11%, somewhere in that range. Mostly we've seen that from external forecasts as we've had conversation with customers. We've looked at macro economic data. It's kind of what we have settled on as a good target. Q - Glen Yeung: You made the comment in your prepared remarks that with some of the new products that you are introducing in 2006; I think the words you used were that you could gain share. I just want to get a sense of if that's exactly what you mean, you think you will be up higher market share in 2006 or maybe just slow the rate of loss? A - Paul Otellini: Let me take that one. What I said was I thought we would be able to be in a position to retake share over the course of 2006. Q - Glen Yeung: I'm not quite sure I understand that. So, I'm sorry--. A - Paul Otellini: Net gain. Q - Glen Yeung: Gain. Thank you. Just to be absolutely clear. If I could just ask one more quick question on expenditures. You were seeing a big CapEx number, a big R&D number. I get the sense that there seems to be some acceleration here of hitting the 45-nanometer manufacturing node. I want to get a sense as to whether or not that's an accurate read and whether or not you think that's technologically achievable? A - Andy Bryant: I don't really think acceleration. I think we are still on our two-year cadence. It turns out if you are on a two-year cadence towards the end of this year you need to start spending a fair amount of money to get the equipment in place and get started. Q - Glen Yeung: Okay. Thanks.

And sir, our next question is from the line of Tom Thornhill with UBS. Q - Tom Thornhill: Paul, it feels like you've accelerated several programs and some spending in order to strengthen a competitive position. We'll bear the brunt of that through the first half. When do you really feel that that will pay off and get the Company back into the operating ratios that we've seen over the last year or so? A - Paul Otellini: Well, the acceleration, the spending acceleration really is focused on the deployment plans for 45-nanometers and from our perspective is not an acceleration; it's the deployment that we've been planning for some time as Andy indicated in the two-year cycle. I don't see that as being an acceleration. Spending is a bit higher in R&D and we believe that we need to do that to be able to deploy fully on the platform plans that we have in store for '06 and '07. We launched two new platforms in January and we will be launching another one kind of in mid year for the business client. Those are more complex developments, more comprehensive developments than we've had before. In terms of operating ratios it really all hinges on the revenue. I think that part what have you are hearing from us is that as the fourth quarter ended up being lower than we thought and the first quarter is more than seasonally down as a result of the inventory that Andy discussed, we are starting out in a bit more of a hole for '06 than we first had thought. And we hope to be able to capitalize on any revenue opportunities and a lot of it's going to depend on the product health and the competitiveness of those products in terms of whether we can gain share and how much share we will gain. Q - Tom Thornhill: Would it be your opinion that the ratios that we are going to see here in the near term are a temporary phenomenon? That as the new products come to market and if you get the share gains you anticipate getting that the Company gets back into the operating model that it had in terms of…… A - Paul Otellini: Yes. In terms of spending versus revenue growth absolutely. Andy implied that we are a little bit backwards here as we enter '06 because of momentum we had going out of '05 in terms of hiring and stuff, and we had already built a plan, a conservative spending plan into '06 and now there's a little less revenue around that plan than we at first thought. And so as the revenue picks up you will see us get the spending growth versus revenue growth back in line. You have our commitment to continue to focus on growing revenue faster than spending. Q - Tom Thornhill: Okay, that would apply to gross margin as well? A - Paul Otellini: Well, gross margin is a slightly different question. I mean, that one view there is to grow gross margin dollars and not necessarily focus on the percent as we've talked about before. Q - Tom Thornhill: All right. One last one for Andy. What would you expect the direction in share count to be across the '06 year? A - Andy Bryant: In theory I'm not supposed to answer prospective buyback questions, but it should be lower across the year. Q - Tom Thornhill: Similar to '05? A - Andy Bryant: I can't go that specific. Q - Tom Thornhill: Thank you.

Sir, our next question is from the line of Adam Parker with Sanford Bernstein. Q - Adam Parker: Hi. I just want to say thanks for canceling the mid quarter updates. I think that's positive. Now, in terms of the longer term issues you want to talk about, I just want to talk about 2007 if we can for a minute. Can you talk at all about your gross margins as we look out a couple of years in terms of 45-nanometer start ups, depreciation looks like it will rise and how should we think about your operating expenses there as well? And also it doesn't look like you can continue to buy back stock at the current rate for more than a couple of years. So what would your strategy be as you run out of cash there? A - Andy Bryant: It's going to be tough for me to make a gross margin percentage prediction for '07. We do focus on capital efficiency. We do plan to try to do the best we can with that. As Paul said we do try for positive return on invested capital and absolute dollar margins. It really the big factor will turn out to be end demand; if we have decent end demand and full factories costs will be fine. If we don't we will struggle. As far as the cash, you are absolutely right. If you look at this year, we've been pulling about $1 billion a quarter out of cash. We will meet with our Board again in the first quarter and set a cash target with them and then we will use, the way we do the work internally, is we say what projects do we have to fund, what dividend can we sustain for a long period of time, and then we use buybacks to try to get the cash to the level we think it should be. So there's a point at which time the buyback will diminish as we come more in line with the cash targets that we have. Q - Tom Thornhill: Okay. No comments on 45 costs or depreciation, '07 versus '06 yet? A - Andy Bryant: No, it's too early. Even though in reality I wouldn't give you that type of data for a year. I think we will start to see meaningful data in the first half of the year. We will provide your cost of unit forecast in the spring analyst meeting so will you start to get a sense for where we think we are headed. I really think I need to wait on that one. Q - Tom Thornhill: Okay. Just one more short-term question then instead of long-term. I am kind of thick on this one here but I don't understand how your inventory builds internally, whatever it is, 10%, your big OEMs build inventory, yet there's a chipset shortage that lowered your revenue. Can you explain that? And then just, are you comfortable with inventory levels now or should we expect a further build here in Q1 and Q2? A - Andy Bryant: I would expect, let's see, the simple question is I expect to further build in Q1. Let me talk about Q2 as we see what revenue looks like in Q2. But I do expect a further build in Q1. We were building obviously for a higher Q4 and a higher Q1. As a result, pending a three-month throughput time, I'll collect some more inventory. The levels I'm at today don't disturb me in the slightest. I could use more chipset, finished goods inventory. I still need to get a little more inventory in my 65-nanometer processor lines. I still have to make a transition between the 90 and 65. So today's inventory levels I'm very comfortable with. My guess is I will build some in the first quarter. My second guess is I will try to get those down some through the rest of the year. Q - Tom Thornhill: In terms of this explaining about what happened, I mean, the chipset shortage, how do you build so much inventory internally and externally yet not yet have lower, yet not meet demand? Is it all nonprocessor? A - Andy Bryant: The simple answer is we anticipated third party chipsets coming into the marketplace quicker than they did, which meant we could have married up processors to motherboards to chipsets and we all could have had a little less inventory. So the chipset imbalance we think got us hopefully one last time. Q - Tom Thornhill: Do you think that will be okay? Got you. Okay. Thanks.

Sir, our next question is from the line of Ben Lynch with Deutsche Bank. Q - Ben Lynch: Hi, guys, Paul, maybe I will just give you one first. I know you like to be precise. You said you believe Intel will be in a position to retake share during the course of '06. Is this the same thing as saying taking share or just be in a position to take share? A - Andy Bryant: He's saying are you going to actually take it.. A - Paul Otellini: Oh, we plan to. Q - Ben Lynch: You plan to. Is this more sort of second half and do you think that along with--? A - Paul Otellini: If you look at '05 we took share, we gained share in the first half of the year and we lost a little bit in the second half of the year. And I think our product portfolio particularly in mobile and desktop as we shift aggressively to dual core only gets stronger and then we have two server platforms launching in 2006. One is the Bentley platform which will ship this quarter for our customer shipments in Q2 and then we will ship in second generation on 65-nanometers in the second half of next year. So, I believe you will be able to plot the regain of market share or the take back of market share along the dual core ramp of the Company across multiple segments. Q - Ben Lynch: Great. And then maybe one, I guess for Andy. Yes, I just want to point out that the bubble bursting, what you've guided to is the worse 1Q over 4Q following the worst 4Q over 3Q of the past decade and it sort of seems like most of this is coming down to inventory. It's strange that after some inventory build in Q3 there was an even greater magnitude in Q4. Unless you are basically telling us that end demand was a lot worse or else your specific customers were losing share or else they have been building inventory principally of Intel processors. A - Andy Bryant: We don't think end demand was a lot worse. We do believe there was some disconnect between our processors getting connected to chipsets and motherboards which caused a bit of the problem. We do believe end demand and flow in desktop was lower than you seasonally would expect so there is a little bit of demands there. We do believe, we haven't seen the AMD numbers yet but we believe we lost up to 1 point of market share to AMD through these things. So it all triangulates but that, I realize it doesn't leave you with a great feeling of comfort. I understand that. Q - Ben Lynch: Okay. We will see what AMD says. We will see how Q1 goes for you. Thank you.

And sir, our next question is from the line of David Wong with A.G. Edwards. Q - David Wong: Thank you very much. You may have touched on this already. But I don't really understand the pattern of your costs especially depreciation of margin through the year because you are starting 59%, gross margin of 59% in the March quarter but you end presumably even with some seasonality of revenue with a lower gross margin for the full year. So would you expect gross margin to continuously drop through the year? Or what's the shape of the pattern? Similarly your depreciation is 1 billion in the first quarter and you end up with 4.7 billion in the full year, which suggested a ramp of 20 to 30% in depreciation as you cross the quarter. Is there some big event that cuts in a lot of depreciation partway through the year? A - Andy Bryant: Depreciation in the earnings release said 1 billion for this quarter, it's actually 1.1 billion. That's a typo in the earning release. So starting at 1.1 billion, it grows, for the year comes in at 4.7. So you do see some depreciation growth. What you see through the year is some cost growth. You see normal ASP struggles. It says margins actually, I don't want to give a quarter by quarter margins. It's also going to be a factor of how full are the factories in the second and third quarter, and the fourth quarter. There are a lot of working variables here. Let's just leave it at full year, 59% plus or minus and first quarter, 60% plus or minus a couple. Q - David Wong: Right. Thank you.

Sir, our next question is from the line of David Wu with Global Crown Capital. Q - David Wu: Yes, two quick questions, please. The first thing is on capital spending. Is that the joint venture on NAND, is your portion of the joint venture's capital spending included in that $6.7 billion guidance for calendar '06? A - Andy Bryant: The midpoint of the guidance was 6.9 billion and it does not include the memory joint venture. The consolidated company of that joint venture is Micron and they will report their capital spending. Q - David Wu: Oh! I see. Okay, so it's basically all logic and I assume more equipment than buildings? A - Andy Bryant: Actually there's a pretty heavy construction load in this one with the two fabs we are getting started and some office buildings that we started around the world. Q - David Wu: Okay. The other thing is, help me one more time on this fourth quarter thing, because you said there was some low-end market slowing particularly in the Asia Pacific. Where did the demand go to? Did it go to notebooks or did it go to competition? Or basically disappeared to things like PDAs or iPods, things of that like? A - Andy Bryant: In reality we don't believe it quote, went any place except the consumers kept more money in their pockets. The ones who were in Asia would buy the lower end desktop PCs. Maybe went to a PDA and we are able to finally track the data. Mobile laptops seemed to sell kind of normally. Servers seemed to sell kind of normally. What we really believe is in Asia and the low-end of the desktop there were just less computers bought by people who wanted to use them. Q - David Wu: I see. Okay. Thank you.

Sir, our next question is from the line of Mark Edelstone with Morgan Stanley. Q - Mark Edelstone: Thanks, guys. A couple of clarifications. One, in the press release, Andy, you talked about average selling prices down slightly. Can we define that as 2 or 3% in the processor business? A - Andy Bryant: I can't define it for you but 2, 3% is a slight number. Q - Mark Edelstone: And then on the chipset business, are the constraints still in force today or have those eased up now? A - Andy Bryant: We believe the supply metric demand today in total, we still believe there is a little bit of time it will take for everything to get rematched, resorted, and returned to what I would call normal operations. But there is enough supply today. Q - Mark Edelstone: That is a change from what you were seeing midway through the fourth quarter, correct? A - Andy Bryant: Yes Q - Mark Edelstone: Then, just lastly, from an accounting point of view on IMFT, I guess, I was surprised by your last comments that the 1.2 billion of capital spending that Intel is going to contribute to the joint venture does not show up in your CapEx numbers. Is my understanding correct that you are consolidating the revenues and expenses? If that's true, how come the capital expenses and other items there, do not get included in your CapEx numbers? A - Andy Bryant: We are not the consolidating company. Micron is the Company that consolidates the JV. So what we do is we take our portion of the JV into the other income line, they report the capital as a result. The reason that hits my start-up costs this year is, there is an agreement between us that are start up costs for the JV are charged directly back to the two parents as opposed to kept inside the JV. So what you will see is that Micron is the consolidating company. They will report their revenues and the cost inside their P&L. They will report the capital expense. What we will take is a capital charge, not a capital expense as we contribute cash or assets into the JV. Q - Mark Edelstone: But the revenues from that JV will not flow to your revenue line? A - Andy Bryant: I am going to give you a sense. But, we will purchase product from the manufacturing joint venture, IM flash technologies. What we then resell will be revenue for us. So my costs will come across as well with that and I will have a normal margin. The business itself will be consolidated at Micron. So each company will have its own revenues for the product itself. Each company will have the appropriate cost of sales. If there's profit or loss left in the JV, it will be in Micron's income statement at the operating line. It will be at ours in the other income line. Q - Mark Edelstone: Okay. Understood. Thank you.

And sir, our next question is from the line of Rohit Pandey with HSBC Securities. Q - Rohit Pandey: Thank you. A quick one on the ASPs. A quick look at the ABC data shows that the desktops are about 25% more expensive in the mature markets compared to the emerging markets and servers about 10%. Whereas notebooks are 15% more expensive in the emerging markets. So do you think as the notebook penetration increases, your ASP this year would actually go down more than slightly as the product might shift to more of the value product there? A - Paul Otellini: No, actually I don't, not in mobile. I think that a lot of that difference in markets that you are seeing, market pricing you are seeing is that notebooks principally are sold by branded multinational firms or very large firms and a third of the desktops in the world are sold by white boxes and in the emerging markets many of those are shipped without software. And that accounts for the bulk of that difference, differential pricing you talked about. Q - Rohit Pandey: Okay. And then I have a quick one on the new positioning of the Company. Intel Inside was very clear to the consumer as to where the Company is positioned. What are you trying to position with Leap Ahead? And then I have a follow-up, or a quick one for Andy. A - Paul Otellini: Well, Leap Ahead won't be part of our branding program or merchandising program at the ingredient brand level. That's the tag line much like the Nike, just go do it tag line, it's much more of a corporate identifier. The Intel Inside program will take advantage of the existing nomenclature. The logo has changed because we felt that the word inside, inside a swirl was redundant. Since it's already been ingrained in 1 billion peoples psyche and this is a little bit more elegant cosmetic treatment of that. But the program in its essence is still at the computer point-of-sale level an ingredient sale. Q - Rohit Pandey: And for Andy could you clarify in the die bank inventory is valued differently for the tax and the GAAP purposes? A - Andy Bryant: Which inventory? Q - Rohit Pandey: The die bank. A - Andy Bryant: No, the die bank, first of all, all inventory is valued, I'm sorry, you are going to get into a level of detail that normal people never want to get to. The value of the inventory is the same in both cases. In income statement GAAP books if you have a reserve that would lower the expected tax that you are going to pay because you have, you don't, you take a write off for that cost. In your tax books reserves don't count, so the difference between tax and GAAP isn't in terms of the value of the inventory it is in terms of how the reserve is treated between the two different sets of books. Q - Rohit Pandey: Okay. Got it. Thank you.

And, sir, our next question is from the line of Joseph Osha with Merrill Lynch. Q - Joseph Osha: Thanks. Listen, Andy, just looking at how the JV works, for starters, can I assume that the JV itself, not your reseller margin, but the JV itself is going to be run with an eye towards having it be break even and then the margin is earned on the resale activity by you and Micron, is that the idea? A - Andy Bryant: That is the intent is to have it be a manufacturing JV at approximately break even if it can. Q - Joseph Osha: Second question, then, can you maybe give me a little help in terms of understanding the magnitude of the revenue resale that is built into your target as well as some kind of sense as to what kind of start up costs that you are taking and whether those continue through 2007? A - Andy Bryant: Some but not a lot. In 2006 there is not a lot of revenue to be honest. I won't tell you a specific number but it's a pretty small number. There is some. More importantly is the cost in the spending side. You got a sense for the spending when we said spending growth is 11% without the JV, 9% with the JV . So you can get a sense for how much we are putting into the R&D line for the business. In terms of start up costs, don't want to get too specific but it is notable in the year to year reconciliation. Not quite as big as what we saw for the logic business last year. But in that magnitude, so…. Q - Joseph Osha: Well, let's just put it another way, then, on an apples-to-apples basis without this would gross margins be flat? A - Andy Bryant: Gross margins would be discussed as flat. I don't want to give you a precise rounding to decimal points. But it's enough to cause the round to be different. Q - Joseph Osha: Okay. Last question and then I'll go away. Paul, it seems to me like the repositioning of, let me rephrase the question. It seems to me like you've top Core Duo, which was kind of initially a dual core notebook part and you are aiming it now at the desktop market as well with the Core Duo branding and with the Apple announcement. Is that true or am I off base there? A - Paul Otellini: It's partially true and I think it gets increasingly true over the course of the year, Joe. Our view for sometime has been that performance per watt matters as much in the desktop particularly consumer desktops and in servers as anywhere else. And so you saw the first part of that with the Viiv announcement where the number of the Viiv living room PCs were built around Core Duo, particularly the small stainless ones. You also saw that last week with the iMac. I think that you will continue to see more and more momentum towards low profile, small form factor designs consuming much more, utilizing much more energy-efficient processors. That is particularly true when we get to mid year and start in Q3 start shipping Conro which is the new desktop product that comes off of the same power efficient course. Q - Joseph Osha: Okay. I'm sorry, does this margin target that you've given perhaps incorporate extra special aggressive pricing year in the desktop market as you look at 2006 and what your competitor has done. Do you have maybe a little lower pricing umbrella built in? That's it. Thank you. A - Paul Otellini: Well, it's sufficient for us to be able to do what we suggested which is to regain share. Q - Joseph Osha: Thanks a lot.

Sir, our next question is from the line of Hans Mosesmann with Moors & Cabot. Q - Hans Mosesmann: Thanks. Is there any change to the ramp of 65-nanometer as a result of this inventory situation? A - Andy Bryant: No, no change at all to the ramp to 65-nanometer. We actually are watching wafer starts closely. We haven't changed anything. If we did by the way, it wouldn't be in 65-nanometer. It would be in the clearing out 90-nanometer quicker so you can make the chipset transition more quickly. Q - Hans Mosesmann: So 90-nanometer goes away more quickly, is that--? A - Andy Bryant: No, nothing has changed yet. I said if we saw a weakness that we wanted to respond to that's how we would respond. As of now we have not changed our low returning factories. Q - Hans Mosesmann: Okay. One last question. A - Paul Otellini: Just to be clear, 90-nanometer doesn't go away. We will use that technology to build chipsets and we'll be converting our chipsets from the old 8-inch network to the 12-inch 90-nanometer network over the course of 2006. Q - Hans Mosesmann: Okay. I see. What is the ASP assumption for Q1 for processors? A - Andy Bryant: I don't make ASP forecasts. So I won't give you that one. But you can see essentially we see gross margin percentages down mostly because of the business, somewhat because of IM flash start up costs. Q - Hans Mosesmann: Thank you.

Sir, our next question is from the line of Allan Mishan with CIBC World Markets. Q - Allan Mishan: Hey, guys. A quick question. If I look at your quarterly revenue guidance and your annual revenue guidance, you either have to have a much better than seasonal second quarter or you have to have kind of a huge second half. Can you help handicap those two for me? A - Andy Bryant: Certainly, what we believe is as we get past the first quarter it will get progressively better and stronger. We think the roadmap gets progressively better and stronger. We think the inventory will be worked out. So I don't want to handicap between Q2, Q3, and Q4 but certainly we believe the strength builds through the year. Q - Allan Mishan: Okay. That's helpful. And can you also help us understand the thinking behind the convert? If you are buying back so much stock, I guess, in hopes of reducing dilution and you are such a big company with a great credit rating why wouldn't you just do straight debt? Why would you dilute shareholders in that manner? A - Andy Bryant: We don't believe that when we finish with the convert and the actions as a result of the convert there will be dilution of the shareholders. We did the convert because we think there's a positive return to the Company that's ours; and we are using the funds for basically general purpose to run the Company. Also don't, we are walk around with the assumption that says the reason we buy stock is to offset dilution of our stock options as some have said. We are really doing it as a balancing act to getting cash back to the shareholders. Q - Allan Mishan: Okay. Thanks. That's very helpful. A - Paul Otellini: Operator, we will take two more questions, please.

Yes sir. Our next question is from the line of Jim Covello with Goldman Sachs. Q - Jim Covello: Thanks so much. First, quick question on the Apple Business. How much is that going to help Q1 relative to Q4? A - Andy Bryant: Some, but the customers are pretty sensitive about us providing their cost of sales data to the market so I really don't want to do anything other than say they will by more in Q1 than they bought in Q4. Q - Jim Covello: Second, on the CapEx. Can you help us understand from a wafer-fab equipment perspective, you said overall CapEx is up 18%. Do you think the equipment portion of that is up 10, up 15, up 5, flat? A - Andy Bryant: I will give a better break out at the analyst meeting. Again, there is a heavy increase in construction of this piece. There will still be increases in the equipment business as well. Q - Jim Covello: There may be, I hate to try and pin you down but maybe 5 to 10 is a decent number? A - Andy Bryant: I am not going to let you pin me down today. I will give you a lot better detail in April when we are out there. Q - Jim Covello: Final question probably. Andy, at the Analyst Summit in Oregon, you talked about the risks of underage or overage relative, the capacity relative to demand and you talked about how even a little bit of overage can have a pretty significant impact on gross margins. With the demand doing what it did at the end of the fourth quarter and with you guys already ramping two new fabs given the CapEx from '05. Do you think the risk has been raised for overage a little bit in 2006? A - Andy Bryant: If you asked me I would say ever so slightly it's something I'm watching with a lot more interest than I was a quarter ago. It really comes down to does the worldwide economy hold up? Do we get through an inventory hiccup here? And as Paul says we gain share, the worldwide market grows as we think will be okay. If there's extended softness it will hit margins. Q - Jim Covello: I guess maybe one quick follow-up to that. When you have seen inventory start to build and/or demand start to soften up a little bit. Is it normal, that it would turn around as quickly as a quarter? A - Andy Bryant: It's not abnormal. It depends on the underlying strength of the business. In this case I think it can turn around inside the quarter. We haven't seen information out there that would cause us to say this is going to linger for the first half of the year. It doesn't mean I would build a little more inventory than I would like. So I will have to get my inventories fixed over the next couple of quarters. Q - Jim Covello: Thanks very much.

And sir, we have a question from the line of Michael Masdea with Credit Suisse First Boston. Q - Michael Masdea: Great. Thanks a lot. When you guys talk about gaining share in Q2 through Q4, sometime in that time frame, it sounds like Paul is maybe saying that dual core is the main driver. Paul, is that more from a cost structure perspective, the power side? Or what do you feel like your true advantage is over the competitor, the dual core out there? A - Paul Otellini: Well, we are on a technology generation conversion well ahead of them. That gives us a cost advantage, a performance advantage, a die size advantage, and an overall power envelope advantage. That clearly has clear merits in notebooks, and clear merits in blade servers where people don't have to retool their data centers, and I think that will have clearer merits in consumer PCs over time as a result of the form factor discussion. In addition we are launching our first platform brand for enterprise focused on manageability and that will come out in the second half of the year; at the same time as IT shops will be looking at Vista ready purchases. So I think that overall we have a pretty compelling list of attributes to bring to market in '06. Q - Michael Masdea: Okay. Great. And then, I guess on the memory side. I've seen you kind of take a variety of strategies, you fund other companies that do development, you do JVs now and you also have your NOR piece internally. Longer term is memory a piece that you are going to continue to treat multiple ways? Or is it something you want to get off your own books going forward? Or how do you think about memory longer time? A - Paul Otellini: Putting a lot more on, effectively our books with the NAND joint venture. That's a pretty big bet on NAND and we intend to be a number one, number two player over the course of that entities existence. Q - Michael Masdea: Is that the structure you are going to favor more going forward is JV rather than, just tell me the whole thing. A - Paul Otellini: No, I can't say that. This was a very opportune deal and the partner, the two-parters were melded nicely with the right attributes and time to market capabilities. Q - Michael Masdea: Got it. The last question. You made a comment earlier about spending around platforms. Do we need to think about platform spending as an overall higher spend per desktop server, mobile, et cetera and the hope is that, we do with Centrino, just a much bigger revenue pie from that. Is that how you think about it? A - Paul Otellini: Yes. I think I explained it in the last analyst meeting in terms of the Centrino model, but it's, in theory it generates a higher ASP for us, a higher build of materials presence for us, faster market expansion for us and our customers, and everybody wins. Q - Michael Masdea: Got it. Thanks a lot. Doug Lusk, Director, Investor Relations: We would like to thank everyone for listening to today's call. A recorded playback of this call will be available at approximately 5:00 p.m. Pacific Time tonight. Those interested should dial 1-888-286-8010 and reference passcode 76055708. Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes your presentation and you may now disconnect.