Letter to our stockholders

In 2001, the majority of our capital investment went to build manufacturing capacity to ramp our new generation of products, built with our new 0.13-micron process technology. Significantly, we were able to ramp this next-generation manufacturing process into production months ahead of its original schedule, with multiple factories producing 0.13-micron processors by the end of the year. The new process shrinks transistor feature sizes so that each chip has more, smaller and faster transistors; this yields higher performance chips that cost less and require less power.

We also began using a manufacturing process that fabricates chips on new 300mm (12-inch) diameter wafers, instead of the smaller 200mm (8-inch) wafers we have been using since the early 1990s. We expect to ramp the 300mm wafer process into produc-tion in 2002. Moving from 200mm to 300mm wafer processing is expected to cut our chip fabrication costs by 30%. This adds to the cost benefits gained from the smaller chip sizes on 0.13-micron technology and helps us maintain our industry leadership in semi-conductor manufacturing.

Finally, we know that regardless of the economy, our ultimate success depends on the quality of our internal execution. In 2001, we continued our operational excellence program that began in 2000. We are proud of our employees, who dedicated themselves to improving their operational productivity across the company. This disciplined focus allowed us to do more with less.

Operational excellence helped us accelerate new product intro-ductions and manufacturing ramps, while also improving our cost containment. For example, we were able to launch the Intel 845 chipset months ahead of schedule, and ramp it into production volumes faster than any other chipset. This helped support the rapid acceptance of the Pentium 4 processor in the mainstream PC market segment. We managed this while emphasizing cost control across the company. For instance, through attrition and focused local redeployment, we worked to bring our headcount into line with our business level, without having to resort to major layoffs. We ended the year with 83,400 permanent employees, down 8% from our peak earlier in the year.

We also increasingly implemented our e-Business techniques throughout the company, which was a significant factor in contain- ing costs. We have built our internal infrastructure and practices around our own products and technologies; we handle everything from order processing to materials management to accounts payable online. More than 70% of our materials transactions and 85% of our customer orders are processed electronically.

As a result of all of these efforts, we ended the year with a leaner, more efficient operation; industry-leading manufacturing capabilities; and a strong product position across a broad range of market segments. Our task for 2002 will be to build on these efforts and continue to increase market segment share for all of our products.

As we look to the future, our strategies are based on the funda-mental belief that we have seen only the early stages of deploy-ment of digital technologies. In this report, we examine examples of technology revolutions from the past. Many technological innovations experienced an early period of feverish adoption and
investment, which ended with financial turbulence. The downturn was then followed by an extended period of real growth toward full deployment of the technology.

We think the current technology-led recession represents such a turbulent period in the information revolution. We believe a long period of continued, pervasive worldwide deployment of digital technologies is ahead of us.

We are fortunate to have technological expertise, innovative product architectures, stable and deep management ranks, a dedicated and competent group of employees, and the financial wherewithal to pursue these worldwide opportunities.

We are pleased to welcome a new member to the executive office. On January 16, 2002, our board of directors elected 27-year Intel veteran Paul S. Otellini as Intel’s president and chief operating officer. For the last four years, Paul has been executive vice presi-dent and general manager of the Intel Architecture Group, which contributes about 80% of Intel's revenues. With this promotion, we recognize his excellent record of service and leadership.

Our aim coming into 2001 was to emerge from the year stronger than we entered it, and we believe we have achieved that goal. We are optimistic that 2002 will be another year of building strength and delivering on our ultimate mission to be the preeminent building block supplier to the worldwide Internet economy.

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