Intel's CEO Presents at Annual Shareholder Meeting Conference (Transcript)

Seeking Alpha

Intel Corporation (INTC)

Annual Shareholder Meeting Conference Call

May 16, 2013 11:30 am ET

Executives

Andy D. Bryant – Chairman of the Board

Cary I. Klafter, Vice President Director, Corporate Legal and Corporate Secretary

Paul Otellini – President and Chief Executive Officer

Brian M. Krzanich – Chief Executive Officer

Renée James – President

David Yoffie – Professor at Harvard University’s Graduate School of Business Administration

Analyst

Jeff Linroth – Leaving It Better, LLC

Presentation

Operator

Ladies and gentlemen, please welcome Chairman of the Board of Directors, Andy Bryant; and Vice President and Corporate Secretary, Cary Klafter.

Andy D. Bryant

Good morning. I would now like to please hold the meeting to order. I’m Andy Bryant, Chairman of the Board. It’s a pleasure to welcome you to the 2013 Annual Stockholder Meeting. In addition to being in Santa Clara, the meeting is also being conducted by the Internet through our Investor Relations website www.intc.com.

We have five proposals here today. We have to elect Directors for the coming year. Vote for the selection of Intel’s auditors and advisory vote to approve executive compensation and extension of the 2006 equity incentive plan and we have a stockholder proposal.

The polls are now open, for those who have not already voted and wish to, and we’ll remain open until 9:15. We will introduce our new President and our new CEO. We will report on the state of the economy. We will follow that with a Q&A with live audience and taking questions from the Internet. If referred to the framework program you have for the agenda and meeting rules.

With that, let me turn it over to Cary Klafter, Corporate Secretary.

Cary I. Klafter

Thank you, Andy. Thank you. Here we are, okay. Just a couple of housekeeping items; we began to distribute our notice of meeting and proxy on April 3, this year and March 18, this year was our record date for voting. You have your own shares on that date for the purpose of voting. There are approximately 5 billion shares outstanding of which approximately 4 billion are present in person or by proxy at this meeting, so we have 80% of the shares here, which makes up the quorum and we can actually hold the meeting.

As Andy said, if you’ve already voted, you don’t have to do anything further today. If you want to change your vote or if you have not voted yet, you can vote here in the meeting room, you can also vote on the Internet. Jim Raitt from American Election Services is here. He serves as our inspector of elections and he will take your vote. The polls closed at 9:15, so you have to vote by them or not vote at all this year.

And if I can move the foil

Andy D. Bryant

Here we are.

Brian M. Krzanich

Okay. This is the most important part for securities, lawyers, so please bear with me. Some of today’s presentations including our business update contain forward-looking statements. All statements made during the meeting that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. Please refer to our recent Q1 earnings release, our Form 10-K, and our most recent Form 10-Q for more information on the risk factors that could cause actual results to differ from any outlook.

If we used any non-GAAP financial measures during the presentation, you will find on our website, www.intc.com, the required reconciliation to the most directly comparable GAAP financial measures.

And with that let me turn the meeting back to Andy.

Andy D. Bryant

Thank you, Cary. On behalf of the Board, I would like to thank stockholders who returned proxies and those here to vote in person or online. We have five items to deal with today. The first proposal would be the election of nine Directors. Each nominating must receive a majority of the votes cast.

At this point I would like to introduce and some of the directors are smiling and we saw everyone is up there, but anyway, I would like to introduce the Directors. Please stand when your name is called and remain standing until all have been called and please hold any applause until all have been introduced.

Now, first is Charlene Barshefsky, Senior International Partner at WilmerHale; Susan Decker, Principal of Deck3 Ventures; James Plummer, Professor of Electrical Engineering and Dean of the School of Engineering at Stanford University; Frank Yeary, Principal of Darwin Capital Associates; and David Yoffie, Professor at Harvard University’s Graduate School of Business Administration.

Our other nominees John Donahoe, Reed Hundt and David Pottruck, who are unable to attend today’s meeting. There were no other nominations submitted in accord with biologs, so the nominations are closed.

The second matter today is ratification of the selection of independent auditors. There is a selection of Ernst & Young’s independent auditors for 2013, I would like to introduce the audit team present from E&Y, Mark Borsos and Matt Sapp, would you please stand? Thank you.

The third item on the agenda is an advisory vote to prove executive compensation also known as "say on pay". We are asking stockholders to prove on an advisory basis the compensation of Intel’s listed officers as described in detail in the proxy statement.

We have a long history a strong pay-for-performance alignment and we believe our compensation decisions and support of our succession planning process were in the best interest of stockholders. While this is an advisory vote, the Board and the Compensation Committee will carefully assess the voting results, and will consult directly with stockholders to better understand any issues or concerns raised to the stockholder vote.

The fourth item on the agenda is the amendment and extension of the 2006 Equity Incentive Plan. This is the plan we use when we grant stock options and restricted stock to our employees. Our policy is to present the plan for renewal every two years, so stockholders can renew or use the plan on a regular basis.

The final agenda item today is a stockholder proposal submitted by Mr. John Chevedden. I believe Mr. Chevedden has a representative here today, Mr. Richard Robinson. Would you please step to the microphone and make your presentation. We’d like you to limit to five minutes if possible.

Richard Robinson

Sure. Thank you. This is a stockholder proposal for executive to retain significant stock presented by Mr. John Chevedden of Redondo Beach, California resolved. Shareholders urge that our executive pay committee adopt a policy requiring senior executives to retain a significant percentage of shares acquired through equity pay programs until reaching normal retirement age and to report to shareholders regarding the policy before our Company’s next annual meeting.

For the purpose of this policy, normal retirement age shall be defined by the Company’s qualified retirement plan that has the largest number of plan participants. The shareholders recommend that the committee adopt a share retention percentage requirement of at least 25% of net after-tax shares.

The policy should prohibit hedging transactions for shares subject to this policy which are not sales but reduce the risk of loss for the executives. This policy shall supplement any other shareholder ownership requirements that have been established for senior executives, and should be implemented so not to violate our company’s existing contractual obligations or the terms of any compensation or benefit plan currently in effect.

Requiring senior executives to hold a significant portion of stock obtained through executive pay plans would focus our executives on our company’s long-term successes and long-term processes. A Conference Board Task Force report on executives pay stated that hold-to-retirement requirements give executives an ever-growing incentive to focus on long-term stock price performance.

Please vote to protect shareholder value proposal five, executives to retain significant stock. Thank you.

Andy D. Bryant

Thank you, Mr. Robinson. The Board agrees with the critical importance of creating a strong link between the interest of our executives and the interest of our stockholders.

However, for more than 10 years, we’ve had stock ownership guidelines for directors and corporate officers. We believe that these share amounts are appropriately set to align the interests of Intel’s corporate officers with those of our stockholders, while taking into account the company’s equity compensation program and the personal, financial, and tax situations of our corporate officers.

We believe that aspects of our company’s current compensation program also already accomplish the proposal’s stated goal of ensuring that executive office focus on the company’s long-term success. As discussed in the Compensation Discussion and Analysis, the Board believes that our executive compensation programs for both cash and equity are designed to align executive officers interest with a long-term interest of our stockholders. The compensation committee has adopted a portfolio approach to compensation using multiple equity vehicles to executive office to take a balanced approach to long-term shareholder value creation. For these reasons, we recommend shareholders vote against the proposal.

Before we proceed, I would like to – with other introductions, I would like to take a few minutes to say thank you and good bye to Intel’s retiring CEO Paul Otellini. Paul has invested in – his entire career in Intel, played a key role on the front lines of the most important changes in the company and in the computing industry.

I’ve known Paul for over 30 years, from when I started Intel in Finance and he worked in Finance, and I worked closely with him for almost 20 years for when I first became CFO. I have admired his contributions to Intel throughout his career.

Paul joined Intel in 1974, six years after the company was founded. Although silicon was an emerging technology, Paul saw his potential. With the goals of fine work in the semiconductor industry, he receives offers not only from Intel, but also from AMD and from Fairchild Semiconductor. The other two premises offering higher compensation, but he chose Intel because of the people and the environment he saw went through every process.

After several years in finance, he moved on to manage several Intel businesses, including the company’s PC and server microprocessor division, and the global sales and marketing organization. Paul was named President and Chief Operating officer and elected to Intel’s Board of Directors in 2002, and became President and CEO in 2005.

During Paul’s tenure as CEO, Intel made significant strides in financial performance. The company generated cash from operations of $117 billion, made $26 million in dividend payments, increased the quarterly dividend 181% from $0.08 to $0.225, grew annual revenue to exceed $50 billion. Intel also achieved notable business success under Paul’s leadership. The company transformed operations and the cost structure for long-term success.

We achieved breakthrough innovations including High-k and Metal Gate and now 3-D Tri-Gate transistors, dramatic improvement in energy efficiencies or processors. We then entered the PC with ultrabook devices. We expanded our partnership with customers. He made strategic decisions that basically strengthened Intel’s presence and security, software, lower communications, deliver the first smartphones and tablets for sale at Intel Inside, and he grew the vast network of cloud-based computing base on Intel products.

With Paul’s leadership, Intel’s vision has been that this decade we will create and extend computing technology to connect and enrich lives of every person on earth. Paul joins Intel because of the people and he already remembered the technology exist to serve the people.

Paul has been a strong leader, he’s the first CEO in the company’s 45-year history and the one who has managed the company through challenging times and market transitions. The Board is grateful for his new role – a new role contributions.

With that, I would like to invite Paul on stage. We have a small gift of appreciation. So as a token of appreciation, we have for you 300 millimeter Intel wafer signed by every member of the board and your management team. It’s possible the next time you retire as CEO, he sees a flat like this, it will be a 450 millimeter wafer, possible, because it depends on the investments you make and you authorize, but this is one example of the many aspects of your potential legacy. We wish you the best in all your future endeavors and thank you for all you’ve done for us.

Paul Otellini

Thank you, Andy.

Andy D. Bryant

We were going to make and carry the thing also, we decided not to. Normally, at this time, what I would do is introduce corporate officers. In this particular meeting, what I want to do is call attention to the fact, we have a number of corporate officers here. After the meeting, feel free to interact with them, but I’m going to say the introductions for the fact, we have a new President and new CEO, and I’m going to spend my time there.

So first, Renée James, the Board of Directors had elected Renée James to be President of Intel. During Renée’s 25 years with Intel, she has previously headed the company’s strategic expansion into providing software and services for applications and security, cloud-based computing and smartphones. Renée has a broad knowledge of the computing industry, expanding hardware, security software and services, which she developed to the leadership positions at Intel and as Chairman of Intel Software business subsidiaries Havoc, McAfee and Wind River.

Renée will join the CEO in Intel’s executive office, which she will bring a deep understanding of the future computing architecture and broad experience running product R&D and one of the world’s largest software organizations. Renée please stand and join the Board in welcoming her to the President decision of President.

Now, it’s my great pleasure to introduce our new CEO Brian Krzanich. The Paul retirement, Brian today’s becomes the sixth CEO of Intel. I have worked with Brian closely for the last five years. He has impressed me with his ability to listen to learn and to grow. Brian is a strong leader, has a deep understanding of the business. Brian’s track record of execution and strategic leadership combined with his open-minded approach to problem solving has earned [him] the respect of employees, customers, and partners worldwide.

In his most recent role as Chief Operating Officer, Brian led an organization of more than 50,000 people. This included Intel’s technology and manufacturing group, its foundry and memory businesses, its human resources and information technology groups, and its China strategy.

The Board believes, he has the right combination of knowledge, depth, and experience to lead the company during a period of rapid change. Please join the board in welcoming Brian to his new position. Okay, okay. You’ll need to say, and now I’m going to invite Brian to the stage to do a brief review of the company’s current position. Brian?

Brian M. Krzanich

I’m deeply honored to be Intel’s sixth CEO and really to be given the opportunity to lead what I think is the best company on the planet. And so, as shareholders, I also want to thank you for showing up this morning and having interest in again what I believe is the best company on the planet.

I thought I would start off our conversation this morning talking about three main topics. First, I thought I give just a brief update on our business conditions, just a quick financial look at the company, and really what it returns to shareholders.

The next topic I thought I would talk about are what is really the mega trends that are driving our industry and technology. And that really will lead into the final section, I’ll try and talk about, which is, what are our imperatives for growth as a company and what’s the response from these mega trends? So hopefully today, you’ll get a picture of a great foundation, how we see the trends driving where we’re headed, and what it takes for us to grow moving forward.

Let’s start with just where are we as a business. And as you probably saw in our earnings announcement and as we’ve been watching the company over the last couple of years, we really had a solid foundation. We had net income of over $53 billion, excuse me, net revenue of over $53 billion, 62% margin, and an operating profit of over almost $15 billion. That puts us in the top 15 of the S&P 500 for net income.

The PC and the Datacenter group generate almost over $1 billion a month in operating profit. And it delivers about greater than $4.5 billion of cash from operations per quarter, so solid financial foundation from which to grow from moving forward.

We try to take that great operation and return to the shareholders as well. And if you take a look at over the last decade, we’ve returned to shareholders through dividends and stock buybacks over $85 billion. And we believe this is important and this brings a real value not only to our company and our employees, but the shareholders that are key to driving Intel’s growth as well. So this foundation, this financial picture is what we will use now to move forward and really drive additional growth. And so I’d like to transition now to what are these mega trends? Where is the industry headed? And as a result, how does that drive our imperatives for growth moving forward?

I don’t think we can start a discussion like that without first, having a quick discussion about one of the key real trends that have occurred over the last couple of years. And that’s really this ultra-mobile and move to tablets and phones that has occurred in our industry. We see that we’ve been a bit slow to move into that space, but what I want to show you today is that, we see the movement, we’re well positioned already and the base of assets that we have will allow us to really grow in this area at a much faster rate moving forward.

So let’s start with mega trend number one, which is just that, it’s about ultra-mobile. We see the is becoming more and more a connected computing environment. The people want their computing next to them. They want to carry it with them. And that really means you have to have connectivity, you have to have more power, you have to have integration, and you have to be in these new markets and new devices that are moving towards more and more connectivity, we see it. We believe we are well positioned. We have 15 phones in 22 countries already, excuse me, 12 phones in 22 countries, 15 tablets both Android and Windows, and so we’ve got a good base. We see this trend, and I’ll show you in a little bit with our imperatives, we’re well positioned to move forward.

The next one is one that I think is really driving great growth and is a great opportunity, in some place we’ve really established well, is really that the Datacenter is continuing to grow at phenomenal rates. It’s growing because of the move to cloud and tied to that connective computing environment, people want to keep more and more and have more and more access to the cloud.

And then you’re also seeing a move in the Datacenter around big data, that as all of these connective devices continue to grow, it provides a relative information that companies can now use to offer better services and better understanding of what consumers want, and that’s really what big data is about. It’s about providing answers as you increase the data rate that’s available to you. We see that, again, we believe our products and our services are well positioned for this, and we’ll talk a little bit about that in our imperatives moving forward.

And the third trend is really around the foundation of Intel. It’s around integration and innovation, and I believe this is really what Intel does best. When you look at our name and where we came from, Intel is Integrated Electronics, that’s what the name stands for and this is what we’ve always done best. This allows us to combine our silicon technology, our architecture, our software and services to really drive the SOC or the System-On-A-Chip environment to levels that nobody has seen before we believe moving forward.

It means really going out and bringing in new innovations, new technologies, new communication capabilities, bringing those into silicon and using that more as long leading edge technology to allow us to drive these in a way faster than anybody else on the planet can. So those are the three big mega trends that we see driving technology and the industry moving forward.

And what I’m going to show you now is that, we have the assets that we can apply towards these mega trends and then how those drive the imperatives for the company moving forward. Let’s first take a look at the assets. And I believe this is an asset base that any company in the world would be end user.

We have our manufacturing assets, something that’s been near and dear to my heart over the years, 4 million square feet of manufacturing clean room. We have leading edge technology. We have 22-nanometers in production, the world’s only Tri-Gate FinFET technology is our third generation of High-k Metal Gate. We’re in the final stages of development prior to production or 14-nanometers, our second generation of Tri-Gate transistors, our fourth generation of High-k Metal Gate, that’s an asset that everybody on the planet would love to have at – to apply towards those mega trends that we just talked about.

We have our architecture, which really ranges from the Xeon architecture for data center and servers all the way down to the ADAM Architecture, which allows us into microservers, but into that connected computing, and what you will see is a move more and more as we go forward to continue to drive that continuum of computing capability into more and more markets. That’s really an asset, again, very few companies if any have.

And the last is to tie it all together, software and services, we’ve talked – you’ve seen our acquisition of McAfee and Wind River, we’ve built a services business. What this allows us to do is take all of those assets and apply into each one of those markets that I talked about in the mega trend. And what it allows us to do is provide more than just silicon. It allows us to provide a platform and a user experience that nobody else can, and that’s a secure and user-friendly experience that allows us to provide everything to the OEM, who wants to bring a product to market.

All of those are surrounded by the 105,000 employees that are always Intel’s greatest asset. The ability of these employees is to have, when we apply them towards these markets and these imperatives that you will see in a second here, is by far the greatest asset Intel has and we will continue to be moving forward. So I’ve shown you our base, I’ve shown you the mega trends, I’ve shown you what I believe is the greatest assets of the world to apply to those, and so let’s talk about what the imperatives are then moving forward.

The first one is to drive PC innovation. We’ve talked a bit about this. It’s the foundation of that financial picture that I showed you at the beginning. With Haswell coming out this year, it’s launching actually right now and throughout the year as the Haswell products come out, with ultrabooks, we have the greatest level of innovation in the PC in its history. You’re going to see ultrabooks, you see two in ones, which are convertibles, which are bringing that tablet and a PC together.

And with Haswell, you see the largest improvement in battery life and continuing capability that Intel has ever brought to production. So we believe that we are well positioned for what will be truly the PCs greatest time of innovation that we’ve all seen in our life.

The next imperative is that aggressively move into this ultra-mobile space. As I said at the beginning, we’re well positioned. We’re already shipping 12 phones in 22 countries. We have 15 tablets out there both windows and Android. We’ve got products that are specifically designed for this ultra-mobile space that have been in the works for a couple of years, now you saw the Silvermont announcement earlier this week.

You are going to see, you see the Bay Trail will come out in the fourth quarter, which is really a product targeted towards tablets and low-power CRAM cells and convertible devices. You can see Merrifield, which is our next generation phone device. And just as important is our LTE technology, which is critical for that second part of connecting computing, which is the communication. We have data-based LTE coming out this summer, and we have multi-mode LTE, which allows voice, data, and voice over data at the end of this year, and that really opens up all the rest to the markets to our phones and our connected devices.

So we believe we’re well positioned. We’ve made the move, but we believe also that our architecture and the moves we’ve made allow us to move even quicker into this market down moving forward.

The third one again tied to the trends I showed you at the beginning is to accelerate growth in the Datacenter. We have a great position in the Datacenter already. We believe that real trends like big data, movement to the cloud, software to find networks, all of those things allow for phenomenal growth in this space, and we believe our product line is well positioned to let us lead there.

We have the Haswell, which I talked about, our second generation of 22-nanometer architecture, we’ll be shipping Xeon level or server level class product in mid-2013. We have Avoton, which is Atom from microservers. We’ll be the first to this microserver trend. You hear a lot about it. You hear a lot of people talking about it. You should know that Intel was first to this space. We didn’t wait for it to be created. We’re going to go move that space.

We’re going to go define that microserver space, and we have Rangeley, which is product for network in comps infrastructure, which really allows us to move into the other sides of the Datacenter, where communications and that networking infrastructure occur. So those products combined, we believe we are well positioned to accelerate this growth into the Datacenter.

And then lastly, is to continue our silicon leadership, talked early on about 22-nanometers, the first technology to bring out the target transistor, but more importantly as we have a roadmap of Morris Law that continues, that we see us growing further in along the Morris Law transitions. We have 14-nanometer in its final stages of development, ready for production at the end of this year and moving into next year.

We understand what is beyond 14-nanometers for Morris Law. That silicon leadership allows us to drive the innovation in every one of these other areas and really bring it together in tri-sector of cost, battery, and performance that allows us to bring products to anyone of these markets that’s required.

So to bring this to closure, as my – this is my first presentation as CEO I guess. I’ve shown you that we have a great basis from which to grow on, but financially the company is sound in a very strong position. I’ve shown you that, we understand the mega trends and then we understand exactly how the market is moving into these data center areas, the connected computing and ultra-mobility, and I try to show you we have laid out the imperatives and assets to really allow these as to move into these new areas.

And so with that, I would just like to bring this to closure to show you that, I believe we’re well positioned. I believe that we have the best position in Intel’s history and a long last while to grow into these areas, and we really look forward to the coming years.

And with that, I would like to call back up Andy and Renée for Q&A.

Question-and-Answer Session

Andy D. Bryant

So we will – this is a Q&A session. We will be taking questions from the room and the web. If we do not get to your question from the web, we will try to answer your question and post the answers on the web.

In the room we have two mikes one at each aisle, please state your name and your question. Please limit speaking time to two minutes. We’ll try to limit each topic to six minutes.

So with that, I’m going to take the first question from the web if I could. Question one, it has been two years since we purchased McAfee. How has McAfee contributed to the bottom line? What is the long-term plan with this company? Renée, why don’t you take down? You might?

Renée James

I am.

Andy D. Bryant

Okay.

Renée James

I think it turn on. When McAfee and the acquisition of McAfee is hot of a broader strategy that we’ve had to increase the overall security not only of our products, but as we move into cloud-based computing, and into ultra-mobility that Brian talked about. We believe that one of the opportunities faces for Intel is to provide a more secure solution, more secure platforms around your data, around the devices that we build, and around your own personal identity and privacy.

So McAfee is one of many assets that we have acquired, they have been doing a very good job, and you may have read that we’ve added two McAfee over the course of the last two years. We’ve recently announced a week ago that we made an additional acquisition, which was always part of our strategy to grow what McAfee offered around the network and the cloud, and we continued to evolve their product line and this week we made an announcement around a personal identity and data security products for consumers that is bundled with our new platforms. So we’re very happy with them. It is part of a much broader strategy that’s consistent with what Brian just talked about, and we should look for more in that area.

Andy D. Bryant

Thank you. Next question.

Unidentified Analyst

Turning necessarily a shareholder and thank you for the presentation. A month ago I saw a 70 - year old woman in the library and she was working on the resume with a community volunteer – the community volunteer asked her why she was looking forward. She said some other investments didn’t pay off. Her main investment was Intel. She had advised that this was a good start. It didn’t work out.

Now, she is looking for work as a baker, and with all our Intel REO, our high-tech at Intel, our domination in the market, it didn’t translate into financial benefit for her, and I can relate to her, because over the last decade, our stock has been flat. It’s more or less tracked Microsoft has underperformed S&P 500 compared to QUALCOMM. QUALCOMM is up 300%; Apple, up 6,000%. QUALCOMM, for example, is now worth as much as Intel. Apple and QUALCOMM focus on communication products and mobile products, whereas we mostly use the market.

What’s worse is that we have the huge manufacturing capability that you talked about, maybe 3.5-year lead on competitors. So if weren’t just now coming out with Haswell, sophomore products et cetera, our design side of the house must be behind by 3.5 years or so, and that’s not good, because now we’re in catchup mode, and that’s risky. And this isn’t the first time in the last dozen years I missed the industry trend. So I’m very concerned about the product design side of the house. This company has been very focused on manufacturing from pub noise aren’t down, the microprocessor, the 4004 was afterthought.

The products mattered to this company. So I’m wondering if you think that the Board, the top management and the comp packages focus on product development well enough and if you’ve seen any improvements in last few years to improve the effectiveness of product design likely to be true?

Andy D. Bryant

Sure. So I started my presentation with an acknowledgment that we were slow to the mobile market. And I wanted to do that purposely to let the shareholders know we saw, but they were moving much more aggressively now moving forward, and we believe we have the right products. What we have to do is really make some decisions around; you see we bought assets to allow us to get into the LTE space. We’ve made transitions in what we design for Atom, and we’ve looked at how do we design our silicon technologies to allow integration of those, because COMs and the CPU are a little bit different in the silicon technologies they require.

So we do believe we are positioned well moving forward. But you are asking a more fundamental question about how do we see market trends and how do we really make sure that we understand how the market is moving. And actually we spent a lot of time with the board over the last several months, partly in just the normal discussions with the board, and partly in this process of selection. And both Renée and I talked about how we’re going to build a much more outward sensing environment for Intel, so that we understand where our architecture needs to move first.

We actually understand that integration is occurring more and more, that it’s important more about integration than almost anything else right now, and that’s really how these new devices are occurring. We have plans to build a structure that allows us to have consultants and people from the outside to help us look at these trends and look at our architectural choices and make sure we’re making the right decisions. And we’re trying to build a much closer relationship with our customers, so that we understand where they want to go. We spent, actually Renée and I over the last week, a lot of time with and they are all showing us here is where the market is moving and here is where we need Intel to move.

We are going to make adjustments in our architecture, and our product choices to align to those much, much closure moving forward. So we do believe, we see what you’re talking about how we made those choices, but we believe we’ve made the right decisions and we have the right process moving forward to make sure, I wish they are aligned.

Andy D. Bryant

I’ll take the next question from the web. What is the company doing to ensure executive compensation this type of performance, for that I want to – I would like turn to David Yoffie, will someone hand over the mike please. He is on the compensation committee of the board.

David Yoffie

So our historical approach towards compensation for executives at Intel has always been very heavily performance based, roughly 10% of the compensation is cash compensation, and 90% is related to performance.

In addition, a year about three, four years ago, we decided that half of the equity compensation would be created around a special new unit to be called outperforming stock units. This actually requires that if executives in the company wanted to receive a bonus they have to able to perform not just well relative to Intel’s history, but they actually have to perform better than the 15 technology peers that we measure ourselves against.

So the actual rewards for Intel employees are the same rewards that go to shareholders. The better we do in terms of delivering stock value for our shareholders, the better the compensation and vice versa, if we underperform our executives actually get less shares vested and therefore less income.

Andy D. Bryant

And we will take the next question from…

Jeff Linroth – Leaving It Better, LLC

Good morning. I’m Jeff Linroth, and I’m President of Leaving It Better, LLC, which is a financial advisory firm and a registered investment advisor. My question is about the Software and Services Group as compared to the PC Client Group. The Software and Services is certainly expected to grow and I’m particularly interested in the gross margin contribution not just today, I’m interested in your vision three to five years from now, how you see the gross margin contribution of the Software Group, comparing and either increasing or decreasing relative to the PCCG Group?

Andy D. Bryant

Renée?

Renée James

The Software and Services Group as you know is a new reportable segment in the last several years for us. Software business, in general, are good opportunities for growth and once that are aligned with the market segments that we’re going to provide products into or provide products into today is a good opportunity for us to enhance our offering to our customers.

In general, we have a very, very good business. Brian talked about the margin profile business we have today. The businesses that we are pursuing in Software and Services are equally good opportunities, and we expect that those businesses will continue to contribute as software companies do in the market and about the same way that they do in the market today.

Jeff Linroth – Leaving It Better, LLC

Okay. Thank you.

Andy D. Bryant

Again, I’ll take the next question from the web, can you comment on your strategy with regards to the dividend? And for that one, I’ll turn this to our Chief Financial Officer, Stacy Smith. We need to get him a microphone.

Stacy J. Smith

Thanks. And let me just add my welcome to all of you for coming. Our priorities in terms of what we do with the cash that we generate are first and foremost invest in our business and then secondly is, our dividend. And we believe that the combination of those two things are the right thing to drive long-term shareholder return.

Specific to the dividend, we have upped the percentage of our free cash flow that we allocate to the dividend. So we’re now targeting 40% of our free cash flow to the dividend program, and we look at external data, and we believe that we have actually one of the best dividend programs in the industry. Our dividend payout on an annualized basis is $0.90, that means that we paid $4.4 billion last year out in dividends. And our dividend yield today, I hadn’t looked at today’s stock price, but we are approaching 4% in terms of our dividend yield. And so we believe the combination of how we allocate cash, how we’ve grown the dividend over time, gives us one of the best dividend programs actually in the world.

Andy D. Bryant

Thank you, Stacy, Next question from the floor.

Unidentified Analyst

(inaudible) shareholder since I was a kid, first of all congratulations on both of your promotions. As Su Decker I can test law we spoke – can I test Warren Buffet believes in investing in companies that are going to project earnings out for the next decade. For the first time as a shareholder of Intel, I’m kind of wondering and curious about and look forward a decade from now, and here is a context to the question.

The CapEx spending has more than doubled in the last two years. R&D has gone up by 53%, you are making a really significant investment in the future that you talked about CEO Brian, okay. And you’ve made a transition over the FinFET, last week as preparation for the meeting, I looked at the ITRS road map and about 2020, it indicates that gate lines would be running around 10-nanometers.

When I look realistically of that, the question I have is one, what device architecture would you be using there more than likely? And number two, isn’t it time for a transition, an inflection point as Andy might have said to either switching photons or quantum computing or something else. So maybe part of the question is directed towards you Brian, and the other part could we possibly hear from your CTO or Head of TD?

Brian M. Krzanich

I’ll start. It was a pretty long question, so I’m going to see if I can get most of your points. Your first point was CapEx has gone up, we’re spending a lot more on technology and is there a time for a transition in that technology, and I would tell you that we are the – we typically have about a 10-year view of Morris Law and we’ve always had a 10-year view. If you went back 10 years ago, we had a 10-year view. If you went back five years ago, we have a 10-year view, that’s about as far out as you can see, and we believe that we have the right architectures to continue to grow Morris Law in a silicon environment for at least that period of time.

That’s not to say we don’t have efforts in photonics, we actually have efforts in photonics and we’re going to bring products to markets in photonics, more about switching in the datacenter, but the fundamental silicon technology and our ability to continue to drive it beyond 10 nanometers, to be honest with you, we plan to be on 10 nanometers much earlier than 2020, I can tell you that, is we believe sound and fundamental and it’s why we made investments you saw us make an investment in ASML last year for almost $4 billion in total. That was really to drive EV technology for lithography to allow to keep pushing well below 10 nanometers from the Morris Law standpoint. So we think we are pretty well positioned to keep moving at least for the next decade in the current technologies. I don’t know if Bill…

Andy D. Bryant

Bill, do you have anything that you want to add?

Brian M. Krzanich

Bill, do you want to add have anything to my – Bill is…

Andy D. Bryant

Go ahead, it’s on.

Unidentified Analyst

No, Brian did a good job, but if you look over the last…

Andy D. Bryant

Go ahead, go ahead, go ahead…

Brian M. Krzanich

But if you look back at the last three or four generation each one has come with a substantial innovation or change, there is no simple scaling in our business anymore. And that will continue, and so each time we plan to advance the technology, we have to make changes relative to photonics and our quantum computing. We do have – Brian said, have efforts in those, but those are clearly not something that are anytime in the near horizon. There is lots of interesting work going on there, but none of it really is practical to turn into a real computing devices.

Unidentified Analyst

Brief follow-on, I’m curious what kind of ROI are you expecting for your R&D and CapEx, any thoughts on that? How do you think about it?

Andy D. Bryant

Do you want to answer or do you want me to answer it?

Brian M. Krzanich

You take it.

Andy D. Bryant

We look at ROI from a, we very carefully look at it, I mean, we about every three or four years go back and look at Morris Law and the ROI around Morris Law, and it’s pretty compelling. I mean, remember you not only get that performance and power reduction, but you get a scaling factor of roughly two-thirds and so, you get almost a doubling of the number of transistors in the same space and so even though that same space costs X percent more, the fact that you are almost doubling the number of transistors in that space allows you to make choices around performance or cost at any point.

And so with Morris Law, we can drive down cost of devices or we can hold if we believe, we can get paid for the performance, hold the price and drive the performance instead. When you look at that full spectrum of products and the ROI that Morris Law provides, which is most of our R&D spending, we see a very good return on investments around that.

Unidentified Analyst

Thank you.

Andy D. Bryant

I’ll take then next question from the web, how do you expect the foundry market to impact margins short and long-term? I’ll pass to you, Brian.

Brian M. Krzanich

Okay. So I think Stacy has talked in some of the earnings calls that we currently see margins to be in the range looking forward to 55% to, I believe, 65% was the range she gave. Those were inclusive of our foundry business. So I would tell you that we’ve already built the foundry growth into our current projections for margin, and we actually believe we are being selective, we’re not going into the general foundry business, we’re not opening up to anybody. We’re really looking for partners that can utilize and make it take advantage of our leading edge silicon and that’s why we are able to stay in that range we believe moving forward.

Andy D. Bryant

Next question will also be from the web, what is Intel doing to increase the diversity of its board? You want to take or you want me to? Okay, I’ll take that one. Intel has a strong reason having a diverse board. If you look at our history, we call people from different professions, from different use of life, we have currently two females on the board, which puts us about normal with what corporate America would be, but the Governance Committee run by David Yoffie and Susan Decker, run a rigorous process of looking at what the board needs, what skills are we missing. What capabilities, what different viewpoints, what different ways to look at markets, even at that assessment and we have a chance to add someone in the board, we test, we can set criteria. And we’re always looking to try to bring different views into the board room. Next question here.

Unidentified Analyst

My name Collin, [Collin Schumer] a Private Investor, first off, congratulations on a board making a good decision from within, I think that’s a good decision to make. And also understand I agree with the President’s vision of future is the customer interface and have LTE and good processing that all make sense. I would rather usher with these executions. If you look at the mobile world right now the ARMs Holding, they have 95% of the market share. I understand Intel has 1,000, I think 1,000 researchers I think they are doing purely basic research.

And how come interference see this mobile way coming and that the ARM Holdings taking maybe 5% market share. On top of that, Microsoft going to RT, it’s high this Windows RT, which are ARM Holding and HP just announced a new tablet with NVIDIA tablet processor, also based on ARM. So everybody is trying to take the CPU share away from you. And I understand Intel is having this Haswell should coming out in June, some questions, are you confident this Haswell can hold ARMs Holding back?

Andy D. Bryant

Right. First, I’d say, in my presentation I talked about the fact that yes, we missed it. We were slow to tablets and some of the mobile computing. We do believe we have a good base right, 12 phones, 20 countries, 15 tablets, Android and Windows 8, it gets important that we’ve looked at both of those, and then we have these products moving forward. I would tell you that it’s more than just Haswell.

Haswell is a key product. It’s going to extend quorum much further on both ends from a high performance Xeon space to the low power space. You are going to see single digit power levels on a core product, which will allow it move into very mobile spaces, but that alone would not go beat ARM or go beat the competition into those spaces you talked about. What you really have to do is extend into that Atom space as well, and that’s where you see products like Clover Trail and Clover Trail+ today, Silvermont and then moving into the rest of this year you see, Bay Trail.

Bay Trail will be one of the biggest advances we made in Atom that allows us to move into the mobile space much stronger. And then thirdly, with the assets we purchased a few years back, which was the Infineon mobile group, which gave us the comp side of this. And I told you that we have comps’ LTE data in the middle of this summer and multimode at the end of this year. We’ll actually be the next meeting person in LTE space and that’s critical to get into those markets. You don’t want to have to dependent on others to provide that comp and then as we move into next year, you’ll see us integrating that, which we believe allow us to move back on to that leading edge. So stitch back to that, do we have a good product roadmap to allow us to go, win share in that space, we believe we do.

Next question is do we have a good ability to view that space moving forward because whatever it is today won’t be what it is five years from now, and that’s what Renée and I are committed to go, put in together because we absolutely believe this connected computing will continue to move down and we’ll continue on the products going forward

Andy D. Bryant

I like to take the next question from the floor.

Chris Mitchell

Yes, Chris Mitchell, I am a stockholder and a former Intel employee, and questions related to the diversity of the board and Intel’s board and the management recent New York Times article indicated they see world is looking at 32 as the threshold age for start up CEOs or senior executives. What’s been the average age of senior management at Intel, has it remained stable, gone up, gone down over the last decade?

Andy D. Bryant

I don’t know the answer to the question, does Richard or Patty? Patty?

Patricia Murray

Senior management…

Andy D. Bryant

Take – give the mic. This is Patty Murray, who is the – our Leadership advisor.

Patricia Murray

Senior management is I would say stable to slightly down. If you are referring to the number of executives on what used to be ECM and is now MCM, it’s kind of, is the people that we’ve added have been younger, the people who stayed now that, so…

Chris Mitchell

What’s been the average then?

Patricia Murray

The average number I actually have…

Chris Mitchell

No, average as of increase or decrease in terms of average age…

Andy D. Bryant

The average age…

Patricia Murray

The average, I’ll say it’s always slightly down or flat based on the two factors that I explained.

Chris Mitchell

Thank you.

Andy D. Bryant

I’ll take one last question from the web. What measures are in place for you to use more renewable energy? You were telling about one of the folks who take it?

Unidentified Analyst

I am Michael.

Andy D. Bryant

It is Michael.

Brian M. Krzanich

So one of Intel’s strategic objectives is to care for our people to plan it and inspire the next generation. So in delivering to that strategic objective, Intel has been committed to reducing our carbon footprint through things like renewables, but also energy efficiency and conservation. But on the renewables front, since 2008, Intel has been the largest purchaser of renewable energy. In 2013, we increased that commitment to cover all of our electricity use in the U.S. We have 18 solar installations on nine sites creating about 10 million kilowatt hours of energy. Every Intel employees variable pay is linked to environmental metrics. So when it comes to something like renewables, I think it’s just in our DNA as a innovation company.

Unidentified Analyst

Thank you.

Andy D. Bryant

With that, I’ll bring the Q&A session to a close. Thank you, Brian and Renée. I would now like to invite Cary Klafter back to the stage to read the preliminary voting results.

Cary I. Klafter

Okay. Thank you, Andy. As I mentioned earlier, we have approximately 4 billion shares present in person or by proxy. For the election of directors, the directors have to be elected individually on what’s called a majority vote system, more yes votes than no votes, and for each of our directors and we’ll post all of the detail later. Each of directors received between 85% and 99% yes votes of the votes voted for them. With respect to the ratification of the selection of Intel’s auditors Ernst & Young, E&Y received approximately 98% yes vote for ratification.

On the advisory vote to approve executive compensation of the proposal received approximately 68% yes votes and so if it was adopted. For the amendment on extension of the 2006 equity incentive plan, approximately 89% yes votes of those who voted on the matter. And with respect to the stockholder proposal from Mr. Chevedden approximately 28% of shares voted in favor, and so that proposal fails. Those are the voting results Andy.

Andy D. Bryant

Thank you. I would like to get into – direct your attention Intel’s Investor website intc.com for final voting results as Cary said and financial updates throughout the year. With the agenda completed to have a motion to adjourn. Do I have a second, we adjourn. Thank you for coming.



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