Intel Second Quarter Earnings Rise 18%

Quarterly Net Income Exceeds $1 Billion for First Time

The second quarter of 1996 was a milestone for Intel, as quarterly net income exceeded $1 billion for the first time in the company’s history.

Revenue of $4.62 billion for the quarter ended June 29, 1996 increased 19 percent from $3.89 billion for the second quarter of 1995 and was about flat with $4.64 billion for the first quarter of 1996.

"In what was clearly a tough quarter for the industry, we were pleased to set new records for unit shipments of both microprocessors and related chipsets. This record suggests that demand for high performance personal computers is fundamentally healthy.

"It was also an unusually productive quarter for our programs focused on the 'connected PC.' We announced new products, new ventures and new technologies in support of turning the personal computer into the universal information device," said Dr. Andrew S. Grove, president and chief executive officer.

Net income rose to $1.04 billion in the second quarter, up from $879 million for the comparable period a year ago and from $894 million in the first quarter of 1996. Earnings per share rose 18 percent from $0.99 for the second quarter of 1995 and 15 percent from $1.02 in this year's first quarter.

For the first six months of 1996, revenue increased to $9.26 billion from $7.45 billion a year ago, and net income grew to $1.94 billion from $1.77 billion. Earnings per share increased 9 percent to $2.19 from $2.01.

In the second quarter, the company repurchased a total of 2 million shares of common stock at a cost of $135 million under an ongoing program. The company has repurchased 74.2 million shares at a total cost of $2.5 billion since the program began in 1990.

During the quarter the company announced an increase in its regular quarterly cash dividend to $0.05 per share, up from $0.04 per share previously. The dividend is payable on September 1, 1996 to stockholders of record on August 1, 1996.

Due to the company’s strong performance, Intel’s approximately 44,000 employees worldwide earned bonuses for the first six months of 1996 totaling 10.2 days pay under the formula for Intel’s employee cash bonus program. Total payout will be approximately $77 million.

BUSINESS OUTLOOK

** Intel expects revenue for the third quarter of 1996 to be approximately equal with second quarter revenue of $4.62 billion. Customers are expected to continue to place orders for immediate delivery ("turns"), consistent with experience in the first and second quarter. In a "turns" environment, customer order patterns and business levels are inherently difficult to predict.

** Third quarter results are often affected by slowness in Europe; July and August are typically slow months, which means that third quarter results are disproportionately dependent on billings strength in the month of September.

** The company expects gross margin percentage in the third quarter to be at the upper end of the model of 50 percent plus or minus a couple of points. Gross margin percentage is affected by various factors including product mix fluctuations in motherboard versus processor shipments, efficiencies in manufacturing, processor speed mix and shipments of other semiconductors.

** Expenses (R&D plus MG&A) are expected to be up about 3 to 4 percent in the third quarter of 1996 from $956 million in the second quarter of 1996. Expense projections in the third quarter of 1996 are subject to changes based on utilization of co-marketing programs and additions of new college hires.

** The company continues to expect the tax rate to be 35.0 percent in 1996.

** The company expects interest and other income to be in the $85 to $90 million range for the third quarter of 1996, assuming no significant change in prevailing interest rates, cash balances, and no unusual items of other income.

** The company currently expects capital expenditures for 1996 to be about $3.6 billion, lower than the previous estimate of about $4 billion due to delays in beginning the new Israel facility, improvements in the rate of equipment re-utilization, early conversion and high yields on the 0.35 micron manufacturing process. Depreciation is expected to be about $1.9 billion in 1996.

The above statements contained in this outlook are forward-looking statements that involve a number of risks and uncertainties. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: business conditions and growth in the personal computer industry and general economy; changes in customer order patterns, including timing of delivery and changes in seasonal fluctuations in PC buying patterns; competitive factors, such as rival chip architectures, competing software-compatible microprocessors, acceptance of new products and price pressures; risk of nonpayment of customer receivables; risk of inventory obsolescence due to shifts in market demand; variations in inventory valuation; timing of software industry product introductions; continued success in technological advances, including the manufacturing ramp; excess or shortage of manufacturing capacity; risks associated with foreign operations; changes in the mix of microprocessor speeds and related motherboards; costs and yield issues associated with initiating production at new factories; litigation involving intellectual property and consumer issues; and other risk factors listed from time to time in the company's SEC reports, including but not limited to the report on Form 10-Q for the quarter ended March 30, 1996 (Part I, Item 2, Outlook section).

JUNE 1996 QUARTER BUSINESS REVIEW

* The company's book-to-bill ratio exceeded 1.0 for the second quarter.

* Intel’s revenue breakdown by major geographic regions is summarized below:

Percent of Revenue by Geographic Area

	Q2 95	Q1 96	Q2 96
Americas	50	42	40
Europe	27	30	30
Asia-Pacific	13	14	18
Japan	10	14	12

* The Asia-Pacific region experienced growth in revenue from the first quarter; Europe was flat relative to the first quarter; The Americas and Japan were down in revenue from Q1.

Processor Products

** The Pentium® Pro microprocessor continued its ramp during the second quarter. Many Pentium Pro-based servers were introduced in the quarter, as well as several desktop personal computers, most listed below $3000. For business users, the Pentium Pro processor is emerging as an excellent choice, offering "cost of ownership" advantages and outstanding performance on today’s advanced operating environments such as Windows NT* and Windows 95*.

** Several products complementary to the Pentium Pro processor were also introduced this quarter. They included the 440FX PCIset chipset, as well as desktop management software and a new series of motherboards. The 440FX PCIset enables system manufacturers to deliver new levels of price/performance for PentiumPro processor-based PCs. Shipments of Intel chipsets set a new record during the quarter as demand remained strong for these products.

** With broad industry support, Intel announced the Accelerated Graphics Port (AGP) initiative, offering an open specification designed to deliver new graphics capabilities to Intel based PCs. AGP is expected to bring high-quality, real-time 3D graphics to high-performance PCs in 1997.

** Shipments of Pentium Processors to the mobile marketplace set a new record. This was complemented by substantial shipments of the 82430MX mobile chipset. All major manufacturers introduced desktop equivalent notebooks based on Intel's 133-MHz Pentium processor during the quarter. Notebooks based on the 100-MHz Pentium processor moved solidly below the $1999 price point as demand in this value segment began to move up from the 75-MHz Pentium Processor.

** Intel introduced a 200-MHz Pentium processor that is expected to power premium desktop systems in the second half of this year. The processor's introduction creates a trio of high-performance choices -- 200-MHz, 166-MHz and 150-MHz -- that have been introduced in the first half of 1996 for high-end to mainstream PCs.

Communications & Network Products

Video

** As many as 24 people can now participate simultaneously in a video conference from their individual desktop PCs, thanks to the latest release of Intel’s ProShare™ Conferencing Video System 200. This is the first PC-based multipoint video, audio and data conferencing solution that is fully compliant with international telecommunications standards.

** Intel’s new Video Phone enables home PC users to enhance a standard telephone call by adding video to see who they are calling. All that’s needed is a 133-MHz Pentium processor-based PC equipped with a low cost camera and software. The video quality improves with higher speed processors. No special phone lines are required. Compaq was the first OEM to announce that it would include the Video Phone with consumer PCs.

Networks

** Intel’s new Adaptive Technology is also designed to lower total cost of ownership. It does so by making it possible to upgrade certain Intel network adapters via low cost software updates rather than expensive hardware upgrades.

** Five new products broaden Intel's Fast Ethernet solutions for customers. Two new adapters, a new hub and a 10-to-100-megabit-per-second bridge enable customers to install Fast Ethernet (100 megabits per second) technology in a variety of older-technology environments. Another new software product, LANDesk® Network Manager, provides for easy, cost-effective management of Intel's workgroup hubs and switches.

Internet

** The first commercial implementations of Intel’s Intercast™ technology, which enables Intercast-enabled PCs to receive Internet information embedded in TV signals, were announced in the second quarter. NBC said it plans to include Intercast content in at least 70 hours of its Summer Olympics broadcasts this year. CNN announced that it is now broadcasting Intercast content around the clock. Compaq said it plans to sell an Intercast technology-equipped Presario* home PC through selected locations of CompUSA.

** MCI plans to market an Intel processor-based Internet World Wide Web server called networkMCI* WebMaker, an all-in-one solution for creating and managing World Wide Web sites. Target market for the system is small and medium-sized businesses. This is the first product in the two companies’ alliance to develop and market a range of products and services to help business take better advantage of the capabilities of the Internet for marketing and multimedia applications.

** Intel and CNET, an Internet content provider, announced plans to jointly develop a World Wide Web site. Further details of the site are expected to be disclosed at a later date. Intel bought 4.5% of CNET’s common stock concurrent with that company’s initial public offering in June.

** Intel and Broadband Technologies, Inc. announced a joint effort in support of telephone companies’ plans to deliver Internet access to computer users via high-speed residential fiber-to-the-curb technology. Intel and Broadband plan to develop technology for PC interface cards designed to support two-way Internet access at speeds greater than 1,000 times today’s home PC modems. Products resulting from the joint development efforts are expected to be available from Broadband next year.

Semiconductor Products

** Demand for flash memory continued strong during the quarter, with the market continuing to move towards higher density products. Intel's SmartVoltage continues to gain market acceptance, especially in low power applications. Intel extended its leadership with the introduction of the first version of the SmartVoltage family with 44 percent smaller die size on the world’s most advanced ETOX technology.

** The company introduced its flash memory-based Miniature Card product line and announced Miniature Cards are expected to be shipping in volume to worldwide customers in the third quarter. Leading manufacturers such as Hewlett-Packard Company, Konica Corporation and Dictaphone Corporation have announced support for Miniature Cards and are expected to integrate the low cost, removable memory media into upcoming digital imaging and digital audio recording products for PC-compatible photo and audio storage.

Manufacturing Review

FINANCIAL REVIEW

Q2 1996 net revenue was up 19 percent from Q2 1995, driven by higher revenue from sales of Pentium processors and related board-level products and semiconductor products. Revenue from royalties was higher than normal during the quarter.

Cost of sales increased 19 percent from Q2 1995 as a result of increased sales of microprocessors, other semiconductor products, systems and board-level products. Gross margin was 53 percent versus 48 percent in Q1 1996, primarily due to a lower proportion of revenue from motherboards.

Q2 1996 total expenses increased 25 percent from Q2 1995 due to strategic investments in products and process technology, higher marketing costs, and more employees. Expenses were 20.7 percent of revenues in Q2 1996 versus 19.8 percent in Q1 1996.

Interest and other income was $86 million in the second quarter, higher than the company’s original estimate of $65 - $70 million. Interest income was higher primarily due to higher cash balances during the quarter.

Shares and equivalents used in the calculation of earnings per share are summarized below: (millions of shares)

	Q2 95	Q1 96	Q2 96
Average Outstanding	828	822	824
Equivalents	60	58	64
Total	888	880	888

(Note: Q2 1996 equivalents include 17 million equivalent shares for the 1998 Step-Up Warrants.)

Balance Sheet

Significant components of the changes in cash for Q2 1996 and year-to-date are summarized below:

Increase/(Decrease)
(in millions)	Six Months ended
	Q2 1996	June 29, 1996
Net income	$1,041	$1,935
Depreciation	462	873
Capital spending	(772)	(1,604)
Working capital and other, net	691	1,022
Put warrant proceeds, net	18	36
Stock repurchase program	(135)	(369)
Sales of shares to employees, including tax benefit	99	210
Dividends paid	(33)	(66)
Total change	$1,371	$2,037
Inventories (in millions)	March 30, 1996	June 29, 1996
Raw material	$ 435	$ 382
Work in process	655	693
Finished goods	454	404
Total net inventories	$1,544	$1,479

Capital spending was $772 million and depreciation was $462 million in Q2 1996. Accounts receivable decreased by $201 million in the quarter. The company’s average days-sales-outstanding was 47, a decrease of 4 days from the first quarter.

During Q2 1996, the company repurchased 2 million shares of common stock at a cost of $135 million under an ongoing program. As of June 29, 1996 the company's potential put warrant obligation was $750 million to buy back 11.7 million shares of common stock. Of the total 110 million shares authorized for repurchase, approximately 74.2 million shares have been repurchased and 24.1 million shares of common stock remain available for repurchase under the stock repurchase program, after reserving shares to cover outstanding put warrants.

Activity during the quarter related to put warrants and stock buybacks is as follows:

Increase/(Decrease)	(Less)
(millions of shares)	Available For Stock Buybacks	Allocated To Put Warrants	Net Available
March 30, 1996	37.8	11.7	26.1
Put warrant sales		3.0	(3.0)
Put warrant expirations	_	(3.0)	3.0
Stock buybacks	(2.0)	_	(2.0)
June 29, 1996	35.8	11.7	24.1

Stockholders' equity increased by $983 million in Q2 1996. Changes in equity for Q2 1996 and year-to-date are summarized as follows:

Increase/(Decrease)
(in millions)	Six Months ended
	Q2 1996	June 29, 1996
Net income	$1,041	$1,935
Put warrant proceeds	18	36
Reclass of put warrant obligation, net	(16)	(133)
Repurchase of stock	(135)	(261)
Dividends declared	(41)	(74)
Sales of shares to employees, plus tax benefit and other	116	241
Total increase	$983	$1,744

For this quarterly earnings release, Intel is publishing prices which would normally be released on August 1, 1996. This exception results from the recently announced change in pricing policy. Intel does not plan to publish pricing in future earnings releases.

Key Microprocessor Prices

Prices quoted are for 3.3v products on a 1000 unit basis. Products ordered in larger quantities may have lower prices. Prices and pricing policy are subject to change.

Copies of this earnings release can be obtained by calling Intel’s transfer agent, Harris Trust and Savings Bank, at 1-800-298-0146 or via the Internet.

Investors who wish to hear a recording of today's conference call have two options. A streaming audio version will be up on the Intel web site, www.intel.com, for one week beginning at 5:00PM PDT July 17. You will need to have Progressive Network's (Free) RealAudio 2.0 player installed. Investors can also call 402-222-9904, beginning at 5:00PM PDT today, July 16, to listen to a recording of the call. The recording will be available through July 19.

Intel, the world's largest chip maker, is also a leading manufacturer of personal computer, networking and communications products.

Contact the Intel Press Relations Manager for this area.

Link to previous Intel Business releases.

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INTEL CORPORATION CONSOLIDATED SUMMARY FINANCIAL STATEMENTS

BALANCE SHEET -

	At Jun. 29, 1996	At Dec. 30, 1995
CURRENT ASSETS
Cash and short-term investments	$ 4,715	$ 2,458
Accounts receivable	2,900	3,116
Inventories	1,479	2,004
Deferred tax assets and other	531	519
Total current assets	9,625	8,097
Property, plant and equipment, net	8,142	7,471
Long-term investments	1,327	1,653
Other assets	206	283
TOTAL ASSETS	$19,300	$17,504
CURRENT LIABILITIES
Short-term debt	$ 241	$ 346
Accounts payable and accrued liabilities	2,151	2,168
Deferred income on shipments to distributors	306	304
ncome taxes payable	815	801
Total current liabilities	3,513	3,619
LONG-TERM DEBT	399	400
DEFERRED TAX LIABILITIES	754	620
PUT WARRANTS	750	725
STOCKHOLDERS' EQUITY
Common Stock and capital in excess of par value	2,747	2,583
Retained earnings	11,137	9,557
Total stockholders' equity	13,884	12,140
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$19,300	$17,504

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