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Impact of Taxes on U.S. Semiconductor Company Decisions

Impact of Taxes on U.S. Semiconductor Company Decisions. Paul S. Otellini President and Chief Operating Officer Intel Corporation March 31, 2005. Intel Snapshot. Founded in 1968 World’s Largest Semiconductor Company ~75% of the company’s $34 billion in sales are outside the U.S.

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Impact of Taxes on U.S. Semiconductor Company Decisions

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  1. Impact of Taxes on U.S. Semiconductor Company Decisions Paul S. Otellini President and Chief Operating Officer Intel Corporation March 31, 2005

  2. Intel Snapshot • Founded in 1968 • World’s Largest Semiconductor Company • ~75% of the company’s $34 billion in sales are outside the U.S. • 80,000 employees; 60% in U.S. • 12 of 16 factories in the U.S. • Semiconductor manufacturing is • R&D-intensive + BOTH HAVE TAX • Capital-intensive IMPLICATIONS

  3. U.S. Competitiveness • Research and the location of production facilities critically affect U.S. competitiveness • Especially as the U.S. becomes increasingly a knowledge-based economy

  4. Intel R & D ~ 80% in U.S.

  5. R&D Tax Credit • R&D Tax Credit has never been permanent • R&D planning demands a long-term view • Short-term extensions and lapses dilute the incentive value of this credit • Permanent R&D Tax Credit is long overdue

  6. Intel Capital Expenditures ~ 70% in U.S.

  7. PROBLEM: It costs $1 billion more to build and operate a chip factory in the U.S. than outside…the biggest factor is taxes.

  8. Cost model compares alternatives based on a 10 year NPC Production starting in year 3 Ramp with “current generation” technology products and transition to next gen products after 5 years What factors drive analysis ? Cost differences driven by tax treatment, capital grants, other local factors Other local factors: utilities, labor, logistics Wafer FAB Cost Model: Key Assumptions & Drivers Percentage of 10 year NPC 100% Tax Tax Benefit Capital Grant 80% Op Costs Labor Benefit Op Costs Materials 60% Materials Labor Labor 40% Capital Capital 20% 0% US Int’l Conceptual 300mm FAB 10yr NPC Int’l $5.6B-$6.1B US $6.7B-$6.8B

  9. Comparative Taxes/Incentives

  10. Two thirds of new 300mm Fabs under construction, equipping, or in production are in Asia Source: Strategic Marketing Associates, May 2004

  11. Potential Gap-Closers • Rate Reduction • Full expensing of factory in year one • Investment Tax Credit • Others? Combinations? These solutions could be targeted to selected industries or broad-based

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