Intel

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with unusually high reserves related to inventories of
certain purchased components. Gross margin for the fourth quarter of 1994
included the impact of a $475 million charge, primarily to cost of sales, to
cover replacement costs, replacement material and an inventory record related to
a divide problem in the floating point unit of the Pentium microprocessor. As a
result of the above factors, the gross margin percentage was 52% in 1995 and
1994, compared to 63% in 1993.

Quarterly unit shipments of the Pentium microprocessor family passed those of
the Intel486 microprocessor family during the third quarter of 1995. The Company
helped accelerate this transition by offering chipsets and motherboards to
enable computer manufacturers to bring their products to market faster. Sales of
the Pentium microprocessor family comprised a majority of the Company's revenues
and a substantial majority of its gross margin during 1995. During 1995, the
Intel486 microprocessor family represented a ...

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and swaps to
hedge currency, market and interest rate exposures. Gains and losses on these
instruments are generally offset by those on the underlying hedged transactions;
as a result, there was no material net impact on the Company's financial results
during the 1993-1995 period.

The Company's effective income tax rate increased to 36.8% in 1995 compared to
36.5% and 35.0% in 1994 and 1993, respectively. The increases in rate from 1993
to 1995 resulted from the fact that tax credits have not grown as rapidly as
overall pretax income.

Financial condition

The Company's financial condition remains very strong. As of December 30, 1995,
total cash and short- and long-term investments ...

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