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. 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-intensiveIMPLICATIONS

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

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

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

Intel Capital Expenditures ~ 70% in U.S.

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

Wafer FAB Cost Model: Key Assumptions & Drivers 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 Percentage of 10 year NPC $6.7B-$6.8BUS $5.6B-$6.1BInt’l Conceptual 300mm FAB 10yr NPC Capital Labor Materials Op Costs Tax Labor Benefit Capital Grant Tax Benefit 0% 20% 40% 60% 80% 100% USInt’l

Comparative Taxes/Incentives U.S. 35% corporate tax rate Various state-level incentives ISRAEL Up to 20% capital grant 10% tax rate – 2-year tax holiday CHINA 5-year tax holiday After holiday, ½ normal rate for next 5 years MALAYSIA 10-year tax holiday IRELAND 12.5% corporate tax rate

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

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