Kevin Sellers - IR Paul Otellini - CEO Andy Bryant - CAO Stacy Smith - CFO

John Pitzer - Credit Suisse Chris Danely – JP Morgan Sumit Dhanda - Banc of AmericaSecurities Uche Orji - UBS New York Srini Pajjuri - Merrill Lynch Glen Yeung - Citigroup Tim Luke - Lehman Brothers Ross Seymore - Deutsche Bank Hans Mosesmann - Raymond James Gurinder Kalra - Bear Stearns Joanne Feeney - FTN Midwest

Welcome to the Intel third quarter earnings conference call.(Operator Instructions) I will now handthe call over to Mr. Kevin Sellers, Intel’s Director of Investor Relations.Please proceed, sir.

Thank you and welcome, everyone to Intel's Q3 2007 earningsconference call. Joining me on today's call are Paul Otellini, our ChiefExecutive Officer; Andy Bryant, our Chief Financial Officer; and Stacy Smith,our Assistant Chief Financial Officer. In a moment we'll hear some brief prepared remarks from Pauland Andy. Paul will talk about the highlights of the quarter and add somecommentary bout the progress we are making to our strategic objectives. Andywill then provide more details on our financial performance in Q3 as well asthe business outlook for the fourth quarter. Following Andy's comments, we'llbe happy to take questions. As we begin our call, let me point out a few important itemsabout our earnings release today. First, we've posted our earnings release andupdated financial statements to our investor website, INTC.com for anyone whostill needs access to that information. Also, if during this call we use any non-GAAP financialmeasures or references we will post the appropriate GAAP financialreconciliations to that website as well. Lastly, a replay of today's call will be posted on ourinvestor website at around 5:00Pacific time and will remain there for approximately two months. Also, let me remind everyone that today's discussioncontains forward-looking statements based on the environment as we currentlysee it, and as such, does include risks and uncertainties. Please refer to ourpress release for more information on the specific risk factors that couldcause actual results to differ materially. With that, now let me turn the call over to Paul. Paul Otellini: Thanks, Kevin. Thank you all for joining us today. In thethird quarter Intel turned in very strong financial performance as we enjoyedrobust demand for our leading edge processors and chipsets. Not only was demandstrong overall, but it strengthened as the quarter progressed. The marketstrength was broad based, cutting across all geographies and business segments.Additionally, our strong product lineup allowed us to hold microprocessor ASPsflat sequentially. A little over a year ago we laid out a three prong strategyto regain product leadership, leverage our world-class process technology andmanufacturing and restructure the company to become lean and efficient. We arepleased that our third quarter performance showed such strong gains inyear-over-year revenue and operating income, as this demonstrates thesignificant progress we've made in all three of our strategic objectives. Ourfocus going forward is to continue to improve on these pillars. Now let me take a minute and review each of our majorbusiness units. First I want to comment on quad-core. We launched our first quad-coreprocessor in November of last year, and by the second quarter had shipped ourfirst million units. With demand for our quad-core products accelerating, weshipped over 2 million units in the third quarter alone. We now offer over 20unique quad-core processor designs. In servers, we shipped a record number of units in the thirdquarter and enjoyed double-digit revenue gains over a year ago. We alsolaunched our first quad-core product designed for high end, multi processorservers which delivers twice the performance and three times the performanceper watt of our previous generation MP product. This introduction now completesIntel's transition to the core microarchitecture across all our product lines. In mobile, we continue to see a shift to mobility withrevenues in this segment growing greater than 30% year over year, and 20%sequentially during the quarter. We are pleased with the acceptance of ourSanta Rosa platform and our Centrino brand continues to be widely accepted asthe brand of choice for notebook PCs. In the desktop, both our consumer and corporate desktopproducts had very good performance this quarter with increases in units, ASPs,and revenues quarter over quarter and year over year. vPro, our brandedplatform offering for corporate desktops, is ramping extremely well and offerstruly unique and compelling value for IT managers. In chipsets we had a record unit and revenue quarter. As thequarter progressed, we saw chipset orders strengthen and we enter Q4 withconfidence of a strong demand environment. Our flash results improved sequentially. The NAND businesssaw an increase in revenue driven by increased densities, offset by lower unitvolumes. Our NOR business saw higher volumes, but lower ASPs. Moving on to technology, I want to highlight a couple ofthings. First, we continue to be very pleased with the execution of ourmanufacturing network and its ability to respond rapidly to the demand upsidewe have seen. Our network of factories remains a strong source of competitivedifferentiation for us. Second, we have announced that on November 12 we will belaunching a new family of products based upon our break through High-k metalgate 45-nanometer process technology. We are excited about the advances we'rebringing to the market with this new process and believe this will extend evenfurther our technology leadership. In addition, we've demonstrated working silicon of our nextgeneration Nehalem microarchitecture which is booting multiple operatingsystems and is scheduled for production in the second half of 2008. I would like to close with a mention about the unique valueof our platform strategy and what it brings to our customers. vPro is our PCplatform designed for corporate environments. We recently launched our secondgeneration platform called Weybridge for this segment and we are very pleasedwith its ramp and acceptance. The vPro platform is a terrific example of thebenefits we bring by offering our customers higher levels of integration. Bycombining processor, chipset and LAN we now have the ability to truly solvebusiness problems for the user; in this case, the IT manager. Security, manageability, and virtualization are most robustwhen implemented through an integrated platform. We are delighted with theprogress of our platform strategy as it continues to create incremental revenueopportunities for us and deliver increased benefits to end users. Let me now turn the call over to Andy for a detailed look atour financial performance as well as our business outlook for the fourthquarter. Andy Bryant: Thanks, Paul. Higher revenue and improving productivitycombined in the third quarter to produce exceptional growth and profits. Therewas a marked acceleration of year to year growth in revenue and unusually highseasonal growth. Gross margin was higher both in absolute dollars and as apercent of revenue. Spending continued its downward trend as a percent ofrevenue and operating profits were up more than 60% from both the secondquarter of 2007 and the third quarter of 2006. Earnings per share for the sameperiods grew by 41%. We are expecting sequential revenue growth again in thefourth quarter and also double-digit year-to-year growth. With lower unit costs, a successful ramp of the 45-nanometermanufacturing process and good demand for our products, gross margin in thefourth quarter should be nearly 5 points higher than the third quarter and wehave raised our forecast for the full year. Revenue for the third quarter was $10.1 billion, upapproximately 16% from the second quarter of 2007 and 15% from the thirdquarter of 2006. The sequential growth in revenue is more than double theaverage increase for this period in the last ten years, and the highestsequential growth for any quarter in the last ten years. In the last month ofthe quarter we saw particularly strong growth in chipsets and Flash memory. Total microprocessor revenue for the quarter grew at aboutthe same rate as total revenue. The total number of microprocessor units was upfrom the second quarter to a new record, and the average selling prices wereflat. Unit volumes of chipsets and Flash memory products were higher than inthe second quarter and unit volumes in motherboards were lower. Revenue was up approximately 20% from the second quarter forthe mobility group, and up 12% for the digital enterprise group with higherrevenue for microprocessors and chipsets in the desktop, notebook, and servercomputing segments. The Flash memory group achieved sequential growth ofapproximately 12%, primarily due to growth in revenue from higher density NANDmemory products. Gross margin percentage of 52.4% was more than 5 pointshigher in the second quarter. The key components of the change were largely aswe anticipated in July. Higher unit volumes and lower unit costs formicroprocessors and lower startup costs for new manufacturing processorssubstantially improved the gross margin percentage. Offsetting this were the inventory write-offs we took as weramped a new 45 nanometer process and built products that did not qualify forsale in the third quarter and therefore could not be classified as inventory. We had expected overall average selling prices to be down alittle bit in a competitive environment, but these were held flat. Gross marginpercentage was about 0.5 point below the midpoint of the September update. Whileunit demand and overall pricing for microprocessors was better than anticipatedin September, demand for chipsets and Flash memory during the month, andparticularly through the end of the month, also exceeded expectations and grewat a faster rate than microprocessors. The result was a product mix with ahigher than expected proportion of products with margins lower thanmicroprocessors. The impact of the increase in revenue was about the same asthat in the change in mix. In addition, we sold more high end products withindesktop processors and within chipsets, resulting in a higher average cost perunit. R&D and MG&A were approximately $2.9 billion; higherthan the second quarter and higher than our outlook. Most of the sequentialincrease came from R&D on the 32 nanometer manufacturing process, andhigher revenue in profit-dependent expenses. In a separate category from R&D and MG&A,restructuring and asset impairment charges were $125 million, following chargesof $82 million in the second quarter. As a percent of revenue, spending thisquarter is down 1.5 points from the previous quarter and more than 3 pointsfrom the third quarter of 2006. For the year-to-date, spending as a percent ofrevenue is down nearly 6 points from 2006. The number of employees is down by more than 2,000 duringthe quarter to approximately 88,000. The lower headcount is a sequential decreaseof more than 2% and a year-to-year decrease of nearly 12%. Operating income forthe quarter was approximately 22% of revenue, about 7 points higher than boththe previous quarter and the quarter a year ago. Operating income was 33% ofrevenue in the mobility group and 26% of revenue in the digital enterprisegroup. On the balance sheet, total inventories were down from thesecond quarter by approximately $600 million, or 14%. Raw materials, work inprocess, and finished goods were all down, with the biggest change in work inprocess. The level of inventories is lower than I would like given the currentoutlook for demand, capacity utilization and the ramp of the 45 nanometerprocess, my goal is a small increase in inventories in the fourth quarter. Total cash investments comprised of cash, short terminvestments, and fixed income trading assets ended the quarter at $12.5billion, $2.3 billion higher than the second quarter. Higher net cash providedby operating activities accounted for most of the increase. The largest uses ofcash were for capital spending of $1.1 billion, dividend payments of $650 million,and stock repurchases of $750 million. As we turn to the outlook for the fourth quarter, pleasekeep in mind that unless otherwise specified, the forecasts do not include the effectsof any acquisitions, divestitures, or similar transactions that may becompleted after October 15. I will use the midpoint of forecast ranges inmaking comparisons to specific periods. We are planning for revenue to be between $10.5 billion and$11.1 billion. The midpoint of this range represents year-to-year growth of11%. The growth from the third quarter of 7% would be at the low end ofhistorical patterns for this period, following an unusually strong sequentialgrowth in the third quarter. Our outlook for gross margin percentage in the fourthquarter is 57%, plus or minus a couple of points. Most of the increase ofnearly 5 points from the third quarter should come from two major categories. Thefirst is lower unit costs for microprocessors, chipsets, and Flash memory whichwill account for the largest portion of the improvement. The second is productqualification for the new manufacturing process where we expect a higherportion of production spending to result in parts valued as inventory. Spending for R&D and MG&A in the fourth quarter isforecasted to be approximately $2.8 billion to $3.0 billion, flat with thethird quarter. In addition, in the separate category for restructuring andasset impairment charges, we expect expenses of approximately $130 million. Weexpect to continue to incur charges as we restructure to improve financialperformance. These charges are likely to vary quarter to quarter and to declineover time. For the full year, we are raising our outlook for grossmargin to 52% plus or minus 1 point. We have increased the outlook for the fullyear for spending on R&D and MG&A. R&D is now forecast to beapproximately $5.8 billion and MG&A is forecast to be approximately $5.3billion. Plans are to reduce headcount again in the fourth quarter byapproximately 2,000 employees. Total headcount by the end of the year shouldapproach 86,000 down from 94,000 at the end of 2006. The outlook for capital spending remains $4.9 billion, plusor minus $200 million. The outlook for depreciation is also unchanged at $4.6billion, plus or minus $100 million. Our forecast for the effective tax ratefor the fourth quarter is 29%. The results for the year-to-date, combined with our fourthquarter outlook point to a year with revenue that is approximately 9% higherthan 2006, capital spending that is 16% lower, spending that is 5 points loweras a percent of revenue and the operating profit that is nearly 50% higher. Theresults reflect excellent progress and our determination over the lastyear-and-a-half to become more competitive and more productive. While proud of what employees have achieved, we are alsomindful that the business remains competitive, the economy is always uncertain,and we have more work to do in the year ahead to deliver on commitments to ourstockholders. It is imperative that we stay focused on our priorities. Theresults announced today do not mark the end of recovery, but are a milestone ina larger program. We are building a foundation that will enable us to continueto deliver continuing improvement with better products, more innovativetechnology, and leadership in costs. With that let me turn it back to Paul.

Thanks, Andy. Just one more thing I'd like to cover beforeturning it to questions. Today we are announcing that Stacy Smith is beingpromoted to Chief Financial Officer. Stacy has been our Assistant CFO and hasbeen at Intel for 19 years with a career spanning finance, sales and marketing,and information technology. At the same time, Andy Bryant is being appointedChief Administrative Officer with Stacy reporting to him. These moves are part of our long-term management successionplanning. Andy has been our CFO since 1994 and has been our longest-serving CFOever. We want to thank him for his outstanding results and look forward to manyfurther contributions in his new role.

Thanks, Paul. Operator, we'll now open up the line forquestions and answers.

Your first question comes from John Pitzer - Credit Suisse. John Pitzer - Credit Suisse: Paul, when you saw ASPs flat sequentially in the quarter,was that a change in the competitive environment, a change in the product mix,or a little bit of both? What is your outlook for pricing as we move into thecalendar fourth quarter? Paul Otellini: I thinkit's a reflection of the product portfolio more than anything else. You sawrecord numbers in servers, you saw record numbers in mobile, the two hottestparts in the marketplace; and you saw, if you derive the numbers, anincrease in average selling price in desktop, which really reflects thestrength of the core brand on the dual and quad-core processors. One of the things that Andy talked about in his margincomments was that our mix in desktop processors towards quad-core over thecourse of the quarter actually improved, which drove costs up a bit, but alsodrove revenue up. John Pitzer - Credit Suisse: If you look at the suite of products that are coming downthe pipeline, the sweet spot that you're going to hit with Penryn and Nehalem.If the pricing environment improves, oftentimes you guys have seen grossmargins well above 60%. Is that something we can look forward to as we gothrough the balance of calendar year '08? Paul Otellini: I don't think we're in a position to forecast '08 margins.We'll do that three months from today.

Your next question comes from Chris Danely – JP Morgan. Chris Danely - JP Morgan: Congratulations on a very good quarter. Paul, there's been a lot of talk out thereabout softening demand in Q4 out of Taiwan and double ordering and tripleordering, and who knows, maybe even quadruple ordering. Can you just give usyour sense on the overall demand environment right now and are you concernedabout any sort of component stocking out there? Paul Otellini: I have read those reports, but we sure haven't seen it inthe marketplace or in the requests from our customers. One of the things thatwe were particularly pleased to see was the strengthening in the chipsetbusiness over the quarter, particularly the second half of September. Chipsets,as you know, tend to lead microprocessors in terms of purchases because theyget put onto a motherboard before the processor does and the lead time tends tobe four to ten weeks, depending on the customer and the transit type that he'spicked. So my view is that people would not have continued to buyand demand chipsets for our microprocessors at that rate if we'd seen aslowdown coming or people were trying to do panic buying. So no, we've seen nosigns of this. We saw strength in Europe. We saw recordin Asia Pacific. Good solid results in Japanand the United States;so it's pretty broad based with no sign of abatement. Chris Danely - JP Morgan: Now that the cash position is rebuilding, can you talk aboutuses of cash and can we expect to see a little bit more aggressive buybackhere? Andy Bryant: As a matter of policy we don't comment on the future levelof buybacks. We do have a $16 billion program that's been authorized that we'reoperating under. If you look at the third quarter, what you saw is that we didincrease the buyback to $750 million. In addition, we paid a dividend of about $650million, and on top of that we grew the cash level by $2.3 billion. I won'tcomment specifically on Q4, but our strategy is unchanged of distributing cashto the shareholders via a combination of both buybacks and dividends and that'swhat you saw us do in Q3.

Your next question comes from Sumit Dhanda - Banc of AmericaSecurities. Sumit Dhanda - Banc of America Securities: The first question I had was back to Q3 gross margins. Iunderstand your point about a big jump in growth in chipsets and Flash whichare lower margin products. I am still trying to reconcile a little bit versusthe original guidance, your revenues actually came in $700 million higherversus the midpoint of the original guidance. Is all of that upside in revenuesoffset by a more diluted mix or is there more of an explanation to this thanyou offered up earlier? Andy Bryant: It will be a pretty simple explanation. If you look at therevenue growth from Q2 to Q3, it came almost in normal mix, the same mix as wehad in Q2. But as a result, even though I have shipped 500 million moremicroprocessors and I got higher revenue for those, I also shipped 300 millionmore of the lower margin products and the margin percentage hasn't changed; absolutemargins does. On $1.4 billion of revenue increase, you pick up $1.2 billion ingross margin improvement. As you've seen in the past in these periods, when revenuespikes it only spikes in processors which tends to give you a mix benefit. Soall we saw this quarter was basically an even distribution of growth in all thepipelines. We saw the good news we expected in lower startup costs and we saw alittle bit of bad news offsetting that with the write-offs on the 45-nanometerproducts that aren't yet qualified for shipment. Sumit Dhanda - Banc of America Securities: On that last point, was that drag as anticipated? I thinkyou had said it was 1 to 2 points of a drag. Andy Bryant: At the end of thequarter we said 1 to 2 points there. It was almost in the very middle of the 1 to2 point range so no change at all. In fact, if we look at our midpoint of 57%in the fourth quarter, that's 3 to 4 points of lower unit costs and 1 to 2points of improvement for the evaluation on the 45-nanometer products. We are seeing the full factories, but the full factoriescosts are coming down much better than I anticipated even three or four monthsago, and that is driving 3 to 4 points of margin improvement in the fourthquarter. Sumit Dhanda - Banc of America Securities: The improvement that you talk about on gross margins, thebulk of it you attributed to lower unit costs, is that also being aided bybetter fab loading? Is that engrained in that reduction in unit costs? Andy Bryant: In the fourth quarterthat's a big part of it, because we typically carry around 90 days ofinventory. You can almost say what you build in Q3 is what you're going to shipin Q4. We know what we're building now is full factories; full factories aredriving costs lower. We are also getting some efficiency out of the program welaunched, so the manufacturing folks are doing a wonderful job of getting moreoutput per person, more output per machine. The combination of those thingsabsolutely is giving us a wonderful cost per unit surprise in the fourthquarter. Sumit Dhanda - Banc of America Securities: A question on ASPs.You talked about the strength in mobile servers, higher ASP products, and thenhigh-end desktops. Why was there not an actual sequential improvement in ASPs?Is the strategy here to try to get as much volume while keeping the ASPs flat? Paul Otellini: As I talked about last time, we're trying to be smart andselective about the business we take and we executed that, I think, very wellover the course of this quarter. If you do the math, desktop ASPs are up anddesktop is where much of the ASP erosion in the last year, year-and-a-half hadoccurred. So the fact that our mix there was generating better pricing I thinkwas really something we liked. At the same time that happened, we walked from a lot of lowend business on the desktop and the notebook at prices that we just didn'tthink made sense to us. So you'll see us continue to take, I think, a veryselective approach to this. Sumit Dhanda - Banc of America Securities: I understand the comment that you repurchased $750 millionworth of stock, but it didn't seem to offset the dilution in the quarter. Isthe plan to be perhaps a little more aggressive going forward given thebuilding cash balance? Paul Otellini: Again, I'm not going to give you a forecast for Q4. We didbring up the buyback in Q3 and our strategy is to return cash to shareholdersvia both buybacks and dividends. You're going to see us continue to do that.

Your next question comes from Uche Orji - UBS. Uche Orji - UBS: You mentioned inventory being at a level below where you arecomfortable with now. What is a normal level of inventory you want to get to? Thereason I ask this question is if I look back at 2005 when you said to rebuildinventory, so this time around the first question is, what is a normal levelfor you and how do you prevent overshooting on the upside? Andy Bryant: I wish there were a simple answer to normal. What inventoryneeds to be varies depending on prior transitions and varies depending on thequarters you are coming into. Right now we have a product transition. We told youat the analyst meeting earlier this year we hoped to build a little extrainventory which you always do in case your products don't qualify. So I wouldliked to have had a little cushion for that. At the same time, we know that thefourth quarter is typically our high revenue quarter. I would have liked tohave had extra inventory for that. The simple answer is I'd like more in the back half of theyear, a little less during the first half of the year and I'd like to get throughmy product transition comfortably from one generation to the next with a littlebit of cushion. In terms of how do we ensure we don't overshoot, I can'tguarantee you that. I said a few minutes ago our blueprint time in ourfactories, it's not 90 days. We reduced it a fair amount, but it's still afairly lengthy process. Given you're making revenue forecast for six months out,particularly in the strong demand environment you have to err a little bit onthe upside. So I can almost assure you that if the market softens, wewill end up with extra inventory and then we will patiently and systematicallywork it down to a level we're comfortable with. It's better in this business touse your fixed assets and have a little extra inventory than to go short toyour customers. Uche Orji - UBS: Just on a different topic, if I look at digital enterprise,the operating margins in digital enterprise were very strong this quarter and Iknow you've talked about quad-core and many other factors driving that. If youhad to break it down between units, mix, and maybe market share gain, where doyou think the biggest upside to operating margins in digital enterprise camefrom? Stacy Smith: This is Stacy. Thetop line for the digital enterprise group it was very strong. We saw unitsstrong, as Paul mentioned; we saw ASP up a bit. We saw costs come down a bit inthe third quarter so that all added to the operating margin improvement. In addition, we saw their spending drop a bit. Some of thestartup costs associated with 45 nanometer dropped and some of their portion ofthe spending on next generation process technology came down. So you really sawimprovement across the board. Uche Orji - UBS: Are these levels which you think will be sustainable over thenext 12 months? I know it's difficult to say with any amount of exact figuresas to what things will be like, but should we expect this operating marginslevel for digital enterprise to be at least sustainable, all things being equal,for the next 12 months? Andy Bryant: We don't typically forecast operating margin going forward.You can look at the overall improvement in gross margin from Q3 to Q4 where weadd another 5 points of gross margin improvement. I think you can take fromthat that we're expecting pretty broad based general business improvement, butI'm not going to break it out between digital enterprise group and the othersegments.

Your next question comes from Srini Pajjuri - Merrill Lynch. Srini Pajjuri - Merrill Lynch: Andy, just a clarification. On the mobility group, revenueswent up quite a bit yet the operating margin declined. I'm just wondering ifthis is all pricing or if there is something else there? Andy Bryant: Why don't we letStacy take that one? He's in the digital enterprise and knew this one wascoming. Stacy Smith: Two sides of the samecoin. Let me explain the other side of what's happening in the segments. Andy,you will have to bear with me. The mobility group story is a little bit morecomplicated than the digital enterprise story. The first effect that you see is that we've shifted ouradvertising from core 2 based advertising to Centrino advertising, so they'renow picking up a fairly large bill associated with the advertising costs. You can see in our results that the chipset volume wasexceptionally strong in the mobility segment, so you see a little bit of a mixeffect because those chipsets carry an overall gross margin percent. The third thing that's happening in the mobility group isthe offset to what's happening in the digital enterprise group. As mobilitygrows as a larger percent of our total business, they now are attracting alarger amount of spending for next generation process technology, for example,and those kinds of things. The fourth effect, and the least effect frankly in thatgroup, is that the ASPs were down a little bit quarter on quarter. So you havethose four things that all hit the mobility group in the third quarter. Srini Pajjuri - Merrill Lynch: Just a follow-up tothat, given the ramps at Santa Rosaand the strong demand, I would have expected ASPs in the mobility to be morestable than down. I'm just curious as to what's going on there? Andy Bryant: I think this is coming back to the point that Paul made.While our product strength is leading to a very good overall result of flatASPs, there are still segments of the market that are very, very competitiveand I would say the low end segment of the notebook market is one of those. Srini Pajjuri - Merrill Lynch: Paul, clearly this year is unusual compared to your historicseasonal trends and my question is, is there something structurally changingabout the business that we are going to see this pull in from Q4 into Q3 goingforward? Or any insight that you can call out as to why we are seeing such astrong Q3 this year versus previous years? Paul Otellini: No. We don't see thatat all and I don't think there's a pull-in. I would not at all categorize it asthat. We saw demand building over the course of the quarter, that's theopposite of a pull-in. I think the overarching thing we're seeing is thatnotebooks as a generic product type have really ignited in markets around theworld. That was the principal reason we think we saw such strength in Europe. One of the things you're going to see that is inevitable isthat as notebook volumes grow, notebook prices will come down, particularly inthe consumer segments. In the grand scheme of things that's good for us,because while they're still coming down from where they were, they're a heck ofa lot better than where the desktop is. Having a secular long-term growth innotebooks I think is the best thing for our industry right now. Srini Pajjuri - Merrill Lynch: Well, if that trendis going to continue then why wouldn't you see a normal Q4, is my question? Paul Otellini: Well, we're forecastinga Q4 which is at the low end of seasonal norms and it's inside the normal rangeby definition. The low end tends to happen in those years when we see a betterthan average Q3. So it's very identical to prior patterns. Srini Pajjuri - Merrill Lynch: Andy, you said yourheadcount is going to come down again in Q4. Does that mean your OpEx will comedown as well beyond Q4? I'm just looking for modeling purposes. Andy Bryant: What we said for thefourth quarter was OpEx was flat as we saved some money through the efficiencyprogram, through resources, at the same time we expect higher revenue andhigher profit-dependent expenses. The real answer is what we've said is wewould like to see spending probably trail revenue, trend towards flat to up alittle bit next year. That's what we would look at right now. Our plan is not done yet. We need to get that done. That'sour bias going in. We'll see what projects come forward and if we want tochange that, we'll let you know.

Your next question comes from Glen Yeung - Citigroup. Glen Yeung - Citigroup: It looks like you've got headcount down to 88,000 going to86,000 employees. When you originally announced the headcount, I think thetarget was closer to the low 90s. Are you actually expecting more headcountreduction than you originally had planned? The follow-on to that is you talked about $1 billion insavings for '08. Is that number going to be a higher number as a result?

We would expect headcount to be a little bit lower than we originallyplanned. Note when we began this program -- actually, I probably should letStacy take this -- when we began this program we were on a two to three-year program.We only gave you a headcount number for about halfway through. So we did expectto continue to drive it lower. It was included in this expected $1 billionsavings for '08. We think we're essentially on -- maybe a little ahead -- interms of headcount reduction. Stacy Smith: I would just add overall in terms of the restructuringnumbers we gave you at the beginning, we had said $2 billion of savings andefficiencies for 2007 and another $1 billion for 2008. The headcount trend ispretty much right on, maybe a little bit ahead, and in general we're on trackfor that level of savings by the end of next year. Glen Yeung - Citigroup: One other statement that you made, I think at the springanalyst day, was talking about unit costs for 2008 looking flattish. I thinkyou gave us a chart, not numbers, so it was kind of hard to tell; buteyeballing it, it looked flat to slightly up in 2008 versus 2007. Now thatyou've seen the '07 back half of your unit costs look a little bit better, isthere any change to that unit cost outlook for '08? Andy Bryant: There may be butthat's a tough one to get to right now. What I would tell you is in Q4, becauseof the loadings in the factories, I think it's a little lower than what we hadsaid. What we had said in the analyst meetings in the first quarter it wouldspike up a little bit because the cost of 45 nanometer wafers in the beginningof the ramp would be higher and then they would go back down in the back halfof next year. I think we'll see the same pattern. If the factories stayfull, we'll just see it off of a lower starting point. So Q4 would be a littlelower than we expected. You'd still see a little bit of round up in the firsthalf and right back down in the second half. Glen Yeung - Citigroup: No change in the relative magnitude, in other words, right? Lowerstarting point but the magnitude of increase in the first quarter is largelythe same? Andy Bryant: Well, really I haven't modeled those, so I don't want tostart making up numbers here on the call. I will say the same direction. Idon't want to speak to magnitude. Glen Yeung - Citigroup: When you look in your fourth quarter, Andy, you suggestedthat inventories would be slightly up. Do you think you will be back at levelsat which you're comfortable at that point, or do you think they actually needto move higher still? Andy Bryant: Assuming we meet themidpoint of our revenue range we will be below our comfort level. Glen Yeung - Citigroup: After Q4, below the comfort level of inventories? Andy Bryant: Yes. Glen Yeung - Citigroup: Thanks. Congratulations, by the way, on all the promotions.

Your next question comes from Tim Luke - Lehman Brothers. Tim Luke - Lehman Brothers: Nice job on the quarter and congratulations to Stacy andAndy. Just to follow-on with respect to elements that may influence the shapeof the margin expectation in the beginning of the first half of '08, could youjust remind us, Andy, of some of the elements there? Obviously you seem to besuggesting that the cost per unit may be up a bit in the beginning of '08, butcould you just give us a reminder of some of the gross margin framework thatyou'd outlined? Andy Bryant: Let's begin by saying I'm not giving a gross margin forecastfor the first quarter yet, but the thing I want you to be careful about in theassumption you just made, when I showed that cost curve, it says costs per unitproduced will go up in the first quarter. It doesn't mean cost per unit soldwill. We have this 90-day inventory funnel so what you build in one quartergets sold in the next, and I expect Q4 to be a very good cost-producing quarter.It means in the costs of sale line you'll see it rising up more towards thesecond quarter as opposed to the first quarter. The second most important thing for our costs would be whathappens with demand? If our factories stay full it will be a good cost year. Ifit is overheated and if it slows downsome, then it changes. I can actually build a case it can go lots of differentways. We are looking at the sale of our NOR Flash business. If that happens, itwould help margin percentages. We're going to continue to drive product technology,continue to improve our road map. Those things all tend to help. The mostimportant variable though, to keep watching is the worldwide economy. I reallywant to emphasize worldwide. We tend to get focused on the U.S.retail and how did the Christmas season do? In our business now, that's muchless important than how the worldwide economies are performing. Tim Luke - Lehman Brothers: With respect to that, Paul, you talked about the U.S.Do you see any difference between U.S.consumer, U.S.enterprise in terms of the way you've seen demand? Paul Otellini: No, we haven't. In fact, I think there was a lot ofnervousness associated with the credit market crunch and would that impactconsumer spending? We really haven't seen that at all. I don't know if you guyshave seen the San Jose Mercury but there's a wonderful survey they did todaythat people rate for Christmas. They ask for Christmas, what is the number onething you want? PCs trumped happiness and peace. Tim Luke - Lehman Brothers: With respect to theNOR disposal, could you just remind us what the date is for that and how weshould model that in terms of inclusion and exclusion? Stacy Smith: The expectation is that we close it in Q4. In terms of howto model it, again the elements that will change is you'll see the NOR revenuecoming out, the associated cost of sales coming out, spending will get a littlebit better and then we pick up our piece of the gain or loss from the companyas an interest and other charge. The expectation that you should model is once this closesit's 1 to 2 points of gross margin. Right now, the thing we're waiting on isafter we see it, we have to file our response and then we hope to get good newsback. Tim Luke - Lehman Brothers: But the revenue guideincludes a full quarter of NOR? Paul Otellini: Yes. Stacy Smith: What you see in Q4 ismodeling that it's here for the full quarter and we're working like heck to getthe deal done. Tim Luke - Lehman Brothers: Lastly, just on thisgross margin, it is a significant uptick, but does that assume that pricingcontinues to stabilize or are there different elements of the assumption forASPs there? Andy Bryant: As always, we assumea relatively competitive environment out there. We plan to sell our product andcompete in the marketplace.

Your next question comes from Ross Seymore - Deutsche Bank. Ross Seymore - Deutsche Bank: The strength that you're seeing recently Paul, without Andyhaving reported yet, of course, how would you constitute it? A strong generalmarket for PCs versus market share gains, even if it's only in the markets youreally choose to participate in? Paul Otellini: Well, given ourrelative position I have to conclude it's a strong general market. Ross Seymore - Deutsche Bank: Have you seen any change in the competitive dynamic outthere, whether it be in your ability to cherry pick the markets because of yoursuperior products or any strategic shifts out there that you're seeing? Paul Otellini: Well, the biggest shift in the last six months certainly isour ability to participate very aggressively in servers. I mean, the fact thatwe have record server unit numbers is a very good leading indicator of Intelback in its game across the board. Servers have always been a very goodbusiness for us and I think we're outgrowing the industry right now, so this isgood. As we look forward, one of the reasons we are developingfamilies of products like the ones I showed you at the analyst meeting calledSilverthorn and the follow-on products is so that we can address these ultralow price points with very good margin products. Ross Seymore - Deutsche Bank: A slightly related question; there are a lot of worries outin the market similar to some of the other questions that you've alreadyanswered about excess MPU processors being shipped into the market versusoverall PC demand. Clearly, the strength that you've seen now addresses some ofthose, but channel inventory as a whole, have you seen that coming down inaggregate? It appears there wouldn't be a ton of Intel inventory, but ingeneral, what comments do you have on channel inventory? Paul Otellini: You mean finishedunits? Finished systems? Ross Seymore - Deutsche Bank: Correct. Microprocessors,motherboards, whatever stage of the completion you want to talk about. Paul Otellini: All we can look at is our inventory, particularly ourdistributor inventories and they're in very good shape. In fact, I'd like tohave a little bit more inside than outside if we had them. In terms of theinventory at our customers, I think you have to ask them what their positionis. We don't see any backup at all.

Your next question comes from Hans Mosesmann - RaymondJames. Hans Mosesmann - Raymond James: At this pace, quad-core is in a mix of desktops. What do youexpect the mix to be a year from now? Right now it's probably in the lowsingle-digits, low double-digits, as a percent of your desktop shipments? Paul Otellini: Well, that's a demandquestion. The supply can be almost anything we want it to be. So it really is afunction of how the demand grows at certain price points and what thecompetitive environment for quad or for things greater than 2 core are. Rightnow we see quad tending to populate the price points for microprocessors thatare sort of 150 and above, and that tends to be a double-digit percent of themarket but not 50% of the market. Hans Mosesmann - Raymond James: So, like a quarter ofyour business or less? Paul Otellini: I'm not going to letyou tie me down that closely; I can't. Because part of this thing iscompetitive modeling, part of it is how the demand shifts over the year. Hans Mosesmann - Raymond James: The timing of chipset sales, strong sales in September, doesthat give us a sense that Q1 visibility is improving in an unusual fashion atthis time of the year? Andy Bryant: I wouldn't go thatfar. The same thing Paul said earlier. When you see strong chipset sales forthe last two weeks of the quarter, it means the motherboard manufacturers arepreparing to meet demand in the fourth quarter. It's certainly a better signthan if they were sitting on the sideline. Paul Otellini: Our chipset attach rate, the percent of our processors thatend up getting an Intel chipset has been going up over the second half of thisyear, driven by the shift in mobility and the success of vPro. That dynamic isinside this as well.

Your next question comes from Gurinder Kalra - Bear Stearns. Gurinder Kalra - Bear Stearns: Do you think mobility is describing a step function increasein PC unit growth, given the strength you have seen in Q3 and Q4? How long isthis going to last, or does the strength in Q3 and Q4 just make you a lot moreapprehensive about Q1? Paul Otellini: Well, I'm notnecessarily apprehensive about Q1. At this point it's too soon to call it, butI would be surprised if it's other than seasonal. I'll give you two datapoints. The first is that most of the third-party analysts are stillforecasting a growth next year, 2008, in the sort of 12% to 14% range. Second of all, wecontinue to track onto a projection that we gave you at the analyst meeting ofIntel mobile unit shipments crossing over desktop unit shipments in 2009. I think that both of those dynamics areworking to our advantage still.

Your final question comes from Joanne Feeney – FTN Midwest. Joanne Feeney - FTN Midwest: Just a question to finalize the discussion of ASPs, and thena quick follow-up. You remarked that ASPs in desktops were up; notebooksslightly down. Can you tell us about the server ASPs? Andy Bryant: We're not going to gothrough all the detail on ASPs. Joanne Feeney - FTN Midwest: Just on capacity and your ability to further ramp production,I'm wondering if the forecast for next quarter of about 7% revenue growth mightreflect some capacity utilization topping out you have right now and yourconcerns about raising inventory back to comfortable levels. Is it just toocostly at this point to try to push capacity a bit further to do better than 7%and raise your inventory back up to comfortable levels? Andy Bryant: No, it's not a costissue at all. The strength of the third quarter was above what we expected. Aswe said we were lower on inventory levels than we would like. We're currentlymeeting our customer commitments for Q4, but if demand is significantly abovethe range that we're expecting we'll be hard pressed to go above it from thestandpoint of exceeding the revenue range. So not a cost issue. We're just moving as fast as we can tokeep up with the market.

As we wrap up thecall, I want to turn the time over to Paul briefly for some closing comments. Paul Otellini: Thanks, Kevin. Inclosing, I want to say that while we've made great progress on our strategy todeliver new and exciting leadership products, to leverage our manufacturing andsilicon processing leadership and to restructure the company, we're notstanding still. We're well along in our development of a robust 32-nanometertechnology and have demonstrated our next generation, Nehalem microarchitecturejust a couple of weeks after we saw First Silicon. These demonstrations are proof that our tick-tock strategycontinues its relentless march, allowing us to push innovation forward in newand exciting ways. I want to thank all of you for joining our call today. Goodevening.