Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated condensed financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

• Overview. Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.

• Results of Operations. An analysis of our financial results comparing the three and nine months ended September 29, 2012 to the three and nine months ended October 1, 2011.

• Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.

• Fair Value of Financial Instruments. Discussion of the methodologies used in the valuation of our financial instruments.

This interim MD&A should be read in conjunction with the MD&A in our Annual Report on Form 10-K for the year ended December 31, 2011. The various sections of this MD&A contain a number of forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," "will," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in "Risk Factors" in Part I, Item 1A of our Form 10-K, as updated in our Forms 10-Q. In particular (i) our gross margin percentage could vary significantly from expectations based on a number of factors including capacity utilization, variations in inventory valuation, changes in revenue levels, segment product mix and the timing and execution of the manufacturing ramp and associated costs, (ii) demand could be different from expectations due to factors including changes in business and economic conditions, including supply constraints, customer acceptance of products, changes in customer order patterns and changes in the level of inventory at customers and (iii) our revenue and gross margin percentage are affected by factors such as the timing of our product introductions and the demand for and market acceptance of our products, actions taken by our competitors and our ability to respond quickly to technological developments. Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of October 31, 2012.

Overview

Our results of operations were as follows:



 (Dollars in Millions, Except Per Share Amounts)   Q3 2012       Q2 2012       Q3 2011
 Net revenue                                       $ 13,457      $ 13,501      $ 14,233
 Gross margin                                      $  8,515      $  8,554      $  9,018
 Gross margin percentage                               63.3 %        63.4 %        63.4 %
 Operating income                                  $  3,841      $  3,832      $  4,785
 Net income                                        $  2,972      $  2,827      $  3,468
 Diluted earnings per common share                 $   0.58      $   0.54      $   0.65

Third quarter 2012 revenue of $13.5 billion was flat compared to the second quarter, and down from our initial Business Outlook primarily driven by weakness in the macroeconomic environment, resulting in softness in both the consumer and enterprise market segments. Additionally, we saw a reduction in inventory levels in the PC supply chain due to macroeconomic uncertainty and the anticipated launch of Microsoft Corporation's Windows 8* operating system. For the fourth quarter of 2012, we are forecasting a one percent increase in revenue from the third quarter of 2012, which is below seasonal growth. The fourth quarter revenue forecast reflects the current order patterns we are seeing from our customers as they remain cautious on the global economy, ongoing consumer softness in mature markets, and a slowing enterprise market segment.

Our gross margin percentage in the third quarter of 2012 was flat from the second quarter. Platform unit costs were lower as our manufacturing of 22nm products continued to ramp, but were offset by higher end of life charges as we prepare older sites for our next generation processes and by slightly lower platform average selling prices. Fourth quarter 2012 gross margin percentage is expected to be approximately six percentage points lower when compared to the third quarter. Approximately two thirds of this expected decrease is a result of excess capacity charges of approximately $500 million as we reduce factory loadings to align with the current demand forecast and to reduce our inventory levels. As we bring down the factory loadings in the fourth quarter, it allows us to reuse or redirect equipment and space from older generation technologies to 14-nanometer (nm), resulting in a $1.2 billion reduction in forecasted capital expenditures for fiscal year 2012. Additionally, we expect to reserve our pre-qualification inventory builds of our next generation micro-architecture (code named "Haswell"), which will result in an additional one and a half points of the forecasted decrease in our gross margin percentage.

While the market remains challenging, we have a strong product portfolio and we see innovation taking place across the industry. New Ultrabook™ systems and convertible form factors will be released in the fourth quarter, which include our latest 22nm process technology microprocessors (formerly code named "Ivy Bridge"). Our higher performance and more energy-efficient server platform (formerly code named "Romley") is positioned for continued growth in the cloud computing and Internet data storage environments. New Intel architecture based smartphone designs were launched in the third quarter, including the MegaFon Mint* in Russia and the Motorola RAZR*i available in select European and Latin America markets. Additionally, there are over 20 tablet designs based on our latest Intel® Atom™ processors (code named "Clovertrail"), featuring increased performance and battery life, that are expected to be released in parallel with the touch-enabled Windows 8* operating system in the fourth quarter.

During the third quarter of 2012, we entered into a series of agreements with ASML Holding N.V. (ASML). These agreements are intended to accelerate the development of 450-millimeter (mm) wafers and extreme ultra-violet (EUV) lithography. The objective is to shorten the schedule for deploying the lithography equipment supporting these technologies by as much as two years, which we expect to result in significant cost savings and other productivity improvements for semiconductor manufacturers. For further information, see "Note 6: Available-for-Sale Investments" in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.

The cash generation from our business remained strong with cash from operations of $5.1 billion in the third quarter of 2012. From a financial condition perspective, we ended the third quarter of 2012 with an investment portfolio of $10.5 billion, which consisted of cash and cash equivalents, short-term investments, and trading assets. During the third quarter of 2012, we purchased $3.2 billion of equity securities in ASML, purchased $2.9 billion in capital assets, and returned cash to shareholders by both repurchasing $1.2 billion of common stock through our common stock repurchase program and paying $1.1 billion in dividends. In September, the Board of Directors declared a dividend of $0.225 per common share to be paid in December.

Accounting Changes and Recent Accounting Standards

For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated condensed financial statements, see "Note 2: Accounting Changes" and "Note 3: Recent Accounting Standards" in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.

Results of Operations - Third Quarter of 2012 Compared to Third Quarter of 2011

The following table sets forth certain consolidated condensed statements of
income data as a percentage of net revenue for the periods indicated:



                                                           Q3 2012                        Q3 2011
                                                                  % of Net                       % of Net
(Dollars in Millions, Except Per Share Amounts)    Dollars        Revenue         Dollars        Revenue
Net revenue                                       $   13,457          100.0 %    $   14,233          100.0 %
Cost of sales                                          4,942           36.7 %         5,215           36.6 %

Gross margin                                           8,515           63.3 %         9,018           63.4 %
Research and development                               2,605           19.4 %         2,140           15.0 %
Marketing, general and administrative                  1,995           14.9 %         2,017           14.3 %
Amortization of acquisition-related intangibles           74            0.5 %            76            0.5 %

Operating income                                       3,841           28.5 %         4,785           33.6 %
Gains (losses) on equity investments, net                 53            0.4 %            92            0.7 %
Interest and other, net                                   27            0.2 %            15            0.1 %

Income before taxes                                    3,921           29.1 %         4,892           34.4 %
Provision for taxes                                      949            7.0 %         1,424           10.0 %

Net income                                        $    2,972           22.1 %    $    3,468           24.4 %


Diluted earnings per common share                 $     0.58                     $     0.65

The following table sets forth information of net revenue by geographic regions for the periods indicated. The data does not show where end users purchase systems incorporating our products:

                                      Q3 2012                          Q3 2011
                                               % of                             % of
    (Dollars in Millions)    Revenue           Total          Revenue           Total
    Asia-Pacific            $    7,695               57 %    $    8,050               57 %
    Americas                     2,852               21 %         3,017               21 %
    Europe                       1,775               13 %         1,814               13 %
    Japan                        1,135                9 %         1,352                9 %

    Total                   $   13,457              100 %    $   14,233              100 %

Our net revenue for Q3 2012 decreased $776 million, or 5%, compared to Q3 2011. The decrease to revenue was due to PC Client Group and Data Center Group average selling prices and platform unit sales, which were down 2% and 3%, respectively. In Q3 2012, our business was negatively impacted by weakness in the macroeconomic environment, resulting in softness in both the consumer and enterprise market segments. Additionally, we saw a reduction in inventory levels in the PC supply chain due to macroeconomic uncertainty and the anticipated launch of Windows 8* operating system. Lower Intel Mobile Communications (IMC) average selling prices and unit sales also contributed to the decrease. Revenue in the Japan, Americas, Asia-Pacific, and Europe regions decreased by 16%, 5%, 4%, and 2%, respectively, compared to Q3 2011.

Our overall gross margin dollars for Q3 2012 decreased $503 million, or 6%, compared to Q3 2011. The decrease was primarily due to lower PC Client Group and Data Center Group platform revenue. Lower IMC revenue also contributed to the decrease. These decreases were partially offset by approximately $140 million of lower start-up and ongoing process technology improvement costs as we transitioned to the production of products based on our 22nm technology. The amortization of acquisition-related intangibles resulted in a $141 million reduction to our overall gross margin dollars in Q3 2012, compared to $135 million in Q3 2011, primarily due to the acquisitions of McAfee, Inc. and the Wireless Solutions (WLS) business of Infineon Technologies AG (now IMC).

Our overall gross margin percentage was unchanged from Q3 2012 compared to Q3 2011. We derived a substantial majority of our overall gross margin dollars in Q3 2012 and Q3 2011 from the sale of platforms in our PC Client Group and Data Center Group operating segments.

PC Client Group

The revenue and operating income for the PC Client Group (PCCG) operating
segment for Q3 2012 and Q3 2011 were as follows:



                      (In Millions)       Q3 2012       Q3 2011
                      Net revenue        $   8,633     $   9,417
                      Operating income   $   3,337     $   4,014

Net revenue for the PCCG operating segment decreased by $784 million, or 8%, in Q3 2012 compared to Q3 2011. Platform unit sales and average selling prices each decreased 4%. The decrease in platform average selling prices was primarily due to 8% lower notebook platform average selling prices and the decrease in platform unit sales was primarily due to 6% lower desktop platform unit sales.

Operating income decreased by $677 million in Q3 2012 compared to Q3 2011 as gross margin decreased $476 million and operating expenses increased $201 million. The decrease in gross margin was primarily due to lower notebook platform revenue partially offset by approximately $180 million of lower start-up and ongoing process technology improvement costs as we transitioned to the production of products based on our 22nm process technology.

Data Center Group

The revenue and operating income for the Data Center Group (DCG) operating
segment for Q3 2012 and Q3 2011 were as follows:



                      (In Millions)       Q3 2012       Q3 2011
                      Net revenue        $   2,654     $   2,512
                      Operating income   $   1,212     $   1,221

Net revenue for the DCG operating segment increased by $142 million, or 6%, in Q3 2012 compared to Q3 2011. The increase in revenue was primarily due to a 4% increase in platform unit sales and a 1% increase in platform average selling prices. In a challenging macroeconomic environment, our server business benefitted from the increasing number of devices that compute and connect to the internet, driving the build-out of cloud infrastructure.

Operating income decreased by $9 million in Q3 2012 compared to Q3 2011 as higher operating expenses of $76 million were mostly offset by a gross margin increase of $67 million on higher platform revenue.

Other Intel Architecture Operating Segments

The revenue and operating loss for the other Intel architecture (Other IA)
operating segments, including the Intelligent Systems Group (ISG), the Netbook
Group, IMC, the Tablet Group, the Phone Group, and the Service Provider Group
(SVPG), for Q3 2012 and Q3 2011 were as follows:



                 (In Millions)              Q3 2012        Q3 2011
                 Net revenue               $   1,177      $   1,368
                 Operating income (loss)   $    (235 )    $    (140 )

Net revenue for the Other IA operating segments decreased by $191 million, or 14%, in Q3 2012 compared to Q3 2011. The decrease was primarily due to lower IMC average selling prices and unit sales as well as lower netbook platform unit sales. These decreases were partially offset by higher ISG platform average selling prices.

Operating results for the Other IA operating segments decreased by $95 million, primarily due to lower IMC revenue and lower netbook platform revenue. These decreases were partially offset by higher ISG platform revenue.

Software and Services Operating Segments

The revenue and operating income for the Software and Services operating
segments, including McAfee, Wind River Software Group, and Software and Services
Group, for Q3 2012 and Q3 2011 were as follows:



                  (In Millions)              Q3 2012       Q3 2011
                  Net revenue               $     588     $     541
                  Operating income (loss)   $       4     $      18

Net revenue for the Software and Services operating segments increased by $47 million in Q3 2012 compared to Q3 2011. The increase was primarily due to our McAfee operating segment. In Q3 2011, we excluded revenue that would have been reported if McAfee's deferred revenue had not been written down in the acquisition.

Operating income for the Software and Services operating segments decreased by $14 million. The decrease in operating income was primarily due to higher McAfee operating expenses.

Operating Expenses

Operating expenses for Q3 2012 and Q3 2011 were as follows:



      (In Millions)                                      Q3 2012       Q3 2011
      Research and development                          $   2,605     $   2,140
      Marketing, general and administrative             $   1,995     $   2,017
      Amortization of acquisition-related intangibles   $      74     $      76

Research and Development. Research and development (R&D) spending increased by $465 million, or 22%, in Q3 2012 compared to Q3 2011. This increase was driven by higher compensation expenses mainly due to an increase in employees as well as annual salary increases, higher process development costs for R&D of our next-generation 14nm process technology, and higher R&D costs related to the development of 450-mm wafer technology.

Marketing, General and Administrative. Marketing, general and administrative expenses decreased by $22 million, or 1%, in Q3 2012 compared to Q3 2011. This decrease included lower marketing expenses (including cooperative advertising expenses), mostly offset by higher compensation expenses mainly due to annual salary increases and an increase in employees.

R&D, combined with marketing, general and administrative expenses, were 34% of net revenue in Q3 2012 (29% of net revenue in Q3 2011).

Gains (Losses) on Equity Investments and Interest and Other

Gains (losses) on equity investments, net and interest and other, net were as
follows:



         (In Millions)                                Q3 2012       Q3 2011
         Gains (losses) on equity investments, net   $      53     $      92
         Interest and other, net                     $      27     $      15

We recognized lower net gains on equity investments in Q3 2012 compared to Q3 2011. We recognized lower gains on sales of equity investments, which in Q3 2011 included a gain of $150 million on the sale of shares in VMware Inc. This was partially offset by lower impairments and lower equity method losses in Q3 2012 compared to Q3 2011. Our share of equity method investee losses in Q3 2011 were primarily related to Clearwire Communications LLC (Clearwire LLC) ($50 million). Our share of equity method investee losses recognized in 2011 reduced our carrying value in Clearwire LLC to zero. We do not expect to recognize additional equity method losses for Clearwire LLC in the future.

Provision for Taxes

Our provision for taxes and effective tax rate were as follows:



                 (Dollars in Millions)    Q3 2012         Q3 2011
                 Income before taxes     $    3,921      $    4,892
                 Provision for taxes     $      949      $    1,424
                 Effective tax rate            24.2 %          29.1 %

During Q3 2012, we reduced our overall 2012 revenue forecasts and are now expecting a lower proportion of our profits to come from higher tax jurisdictions. As a result, our provision for taxes in Q3 2012 was reduced to reflect the impact of previously recognizing a provision at a higher effective tax rate during the first six months of 2012.

Results of Operations - First Nine Months of 2012 Compared to First Nine Months of 2011

The following table sets forth certain consolidated condensed statements of income data as a percentage of net revenue for the periods indicated:

                                                          YTD 2012                      YTD 2011
                                                                 % of Net                      % of Net
(Dollars in Millions, Except Per Share Amounts)    Dollars        Revenue        Dollars        Revenue
Net revenue                                       $   39,864        100.0  %    $   40,112        100.0  %
Cost of sales                                         14,530         36.4  %        15,307         38.2  %

Gross margin                                          25,334         63.6  %        24,805         61.8  %
Research and development                               7,519         18.9  %         6,042         15.1  %
Marketing, general and administrative                  6,099         15.3  %         5,697         14.1  %
Amortization of acquisition-related intangibles          233          0.6  %           188          0.5  %

Operating income                                      11,483         28.8  %        12,878         32.1  %
Gains (losses) on equity investments, net                 81          0.2  %            95          0.2  %
Interest and other, net                                  105          0.3  %           221          0.6  %

Income before taxes                                   11,669         29.3  %        13,194         32.9  %
Provision for taxes                                    3,132          7.9  %         3,612          9.0  %

Net income                                        $    8,537         21.4  %    $    9,582         23.9  %


Diluted earnings per common share                 $     1.65                    $     1.75

The following table sets forth information of net revenue by geographic regions for the periods indicated. The data does not show where end users purchase systems incorporating our products:

                                       YTD 2012                     YTD 2011
                                                 % of                         % of
        (Dollars in Millions)    Revenue        Total         Revenue        Total
        Asia-Pacific            $   22,836          57  %    $   22,703          57  %
        Americas                     8,288          21  %         8,641          22  %
        Europe                       5,205          13  %         5,023          12  %
        Japan                        3,535           9  %         3,745           9  %

        Total                   $   39,864         100  %    $   40,112         100  %

Our net revenue for the first nine months of 2012, which included 39 weeks, decreased $248 million, or 1%, compared to the first nine months of 2011, which included 40 weeks. The decrease in revenue was primarily due to lower IMC average selling prices and lower netbook platform unit sales. These decreases were partially offset by our McAfee operating segment, which we acquired in Q1 2011. McAfee contributed $413 million of additional revenue in the first nine months of 2012 compared to the same period in the prior year. The PC Client Group and Data Center Group platform unit sales and average selling prices were up 1% and unchanged, respectively. Compared to the first nine months of 2011, revenue in the Japan and Americas region decreased by 6% and 4% respectively, while revenue in the Europe and Asia-Pacific regions increased 4% and 1% respectively.

Our overall gross margin dollars increased by $529 million, or 2%, compared to the first nine months of 2011. The increase was primarily due to approximately $640 million of lower start-up and ongoing process technology improvement costs as we transition from our 22nm process technology to R&D of our next-generation 14nm process technology. The increase was also driven by $422 million of charges recorded in the first nine months of 2011 to repair and replace materials and systems impacted by a design issue related to our Intel ® 6 Series Express Chipset Family. Additionally, due to our acquisition of McAfee in the first quarter of 2011-versus owning McAfee for nine full months in 2012-McAfee contributed approximately $348 million of additional gross margin dollars in the first nine months of 2012 compared to the first nine months of 2011. These increases were partially offset by lower netbook platform revenue, higher PC Client Group and Data Center Group platform unit costs on the ramp of our 22nm process technology, and lower IMC revenue. The amortization of acquisition-related intangibles resulted in a $420 million reduction to our overall gross margin dollars in the first nine months of 2012, compared to $345 million in the first nine months of 2011, primarily due to the acquisitions of McAfee and the WLS business of Infineon Technologies AG (now IMC).

Our overall gross margin percentage increased to 63.6% in the first nine months of 2012 from 61.8% in the first nine months of 2011. The increase in gross margin percentage was primarily attributable to the gross margin percentage increase in the PC Client Group. We derived a substantial majority of our overall gross margin dollars in the first nine months of 2012 and the first nine months of 2011 from the sale of platforms in the PC Client Group and Data Center Group operating segments.

PC Client Group

The revenue and operating income for the PCCG operating segment for the first
nine months of 2012 and the first nine months of 2011 were as follows:



. . .