We make, market, and sell advanced integrated digital technology products, primarily integrated circuits, for industries such as computing and communications. Integrated circuits are semiconductor chips etched with interconnected electronic switches. Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy. Our products include chips, boards, and other semiconductor products that are the building blocks integral to computers, servers, consumer electronics and handheld devices, and networking and communications products. Our primary component-level products include microprocessors, chipsets, and flash memory. We offer products at various levels of integration, allowing our customers the flexibility to create advanced computing and communications systems and products.

The life cycle of our products is very short, sometimes less than a year. Our ability to compete depends on our ability to improve our products and processes faster than our competitors, anticipate changing customer requirements, and develop and launch new products and platforms. Our failure to respond quickly to technological developments and incorporate new features into our products could harm our ability to compete. Maintaining scale is key to our strategy of ramping new manufacturing technologies and platforms quickly, delivering high-performance products, and lowering unit costs.

As of December 29, 2007, our operating segments included the Digital Enterprise Group, Mobility Group, NAND Products Group, Flash Memory Group, Digital Home Group, Digital Health Group, and Software Solutions Group.

Net revenue, gross margin, and operating income for 2007 and 2006 were as follows:

(In Millions)		2007			2006
Net revenue		$	38,334		$	35,382
Gross margin		$	19,904		$	18,218
Operating income		$	8,216		$	5,652

Overall microprocessor revenue continues to grow, and we continue to see a shift in our sales mix from desktop microprocessors to mobile microprocessors. Microprocessor revenue within the Mobility Group operating segment increased by 16% in 2007 compared to 2006. The growth in mobile microprocessors has outpaced the growth in desktop microprocessors, and we believe this trend will continue, with a crossover occurring as early as 2009. As demand for mobile microprocessors continues to grow in the PC market segment, system price points have expanded to include new lower prices. We expect continuing erosion in average selling prices for mobile microprocessors due to this expansion in lower price points and a continued competitive market segment. However, mobile microprocessor average selling prices remain higher than desktop microprocessor average selling prices, and therefore the shift in our mix to mobile microprocessors has a positive effect on our results. Due to the price differences among mobile, desktop, and server microprocessors, the mix and types of performance capabilities of microprocessors sold affect the average selling price of our products and have a substantial impact on our revenue.

The gross margin percentage was relatively flat in 2007 compared to 2006. During 2007, gross margin benefited from lower microprocessor unit costs as well as a mix shift toward higher margin businesses. The decline in unit costs has been possible as we continued to gain production experience on our 65nm process technology. In addition, we are running our factories at high volumes. However, during 2007 our gross margin was negatively impacted by declining average selling prices as well as higher start-up costs related to our 45nm process technology.

Our operating income grew faster than revenue during 2007 as we continued to implement our restructuring program and focused on our commitment to efficiency and on spending controls. As a result, R&D and marketing, general and administrative expenses as a percentage of revenue decreased from 34% in 2006 to 29% in 2007, and the number of employees decreased by 8% compared to the end of 2006. Results for 2007 included restructuring and asset impairment charges of $516 million, and to date we have incurred $1.1 billion in charges related to the program, which began in the third quarter of 2006. We expect to continue the program in 2008, and expect charges to decline in the second half of the year. As part of the restructuring program, we divested some of our lower margin businesses, and we expect to divest our NOR flash memory assets in the first quarter of 2008. As a result of these divestitures, we expect a negative impact on revenue and a benefit to our gross margin percentage in 2008. Our efficiency efforts have also contributed to faster factory throughput, higher yields, and improved equipment utilization. Improvements in our equipment utilization helped enable us to reduce our capital spending from $5.9 billion in 2006 to $5.0 billion in 2007.

The combination of our technological innovation and our renewed commitment to customer orientation has differentiated our products and technology from our competition and has contributed to our revenue growth, which occurred in nearly all product lines and across all geographies. We are setting the pace for innovation within the industry by executing on our plan to introduce a new microarchitecture approximately every two years and to ramp the next generation of silicon process technology in the intervening years. In 2007, we completed our transition to the Intel Core microarchitecture, initially launched in 2006, in all market segments. We also started manufacturing microprocessors using our industry-leading 45nm Hi-k metal gate silicon technology, which enables higher and more energy-efficient processor performance. Our next-generation microarchitecture is scheduled for production in the second half of 2008; and we are also developing our next-generation 32nm process technology and expect to begin manufacturing products using that technology in 2009.

From a financial condition perspective, we ended 2007 with an investment portfolio valued at $19.3 billion, consisting of cash and cash equivalents, fixed-income debt instruments included in trading assets, and short- and long-term investments. During 2007, we repurchased $2.75 billion of stock through our stock repurchase program and paid $2.6 billion to stockholders as dividends.

We exited 2007 with what we believe is the strongest combination of products, manufacturing, and silicon technology leadership in our history as we continue to ramp our 45nm process technology and plan to introduce our next-generation microarchitecture in 2008. Also in 2008, we plan to introduce products geared to future growth markets. Specifically, we plan to introduce new microprocessors, code-named "Silverthorne," that are designed for notebooks, low-power and low-cost products, MIDs, and consumer electronics devices. In addition to our microprocessor and chipset development, we expect to make significant investments in R&D in 2008 in growth areas such as system-on-a-chip, MIDs, embedded applications, consumer electronics, and graphics. Although there is uncertainty in the global economy, we are planning for another year of growth in which profits grow faster than revenue and our investments in products, manufacturing, and silicon technology continue to generate competitive advantages.