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-intensiveIMPLICATIONS

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. 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

9. 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

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