R. Kevin Sellers - Vice President, Investor Relations Paul S.

Otellini - President, Chief Executive Officer, Director Stacy J. Smith - Chief Financial Officer, Vice President

Uche Orji - UBS Sumit Dhanda - Banc of America Merrill Lynch Craig Berger - FBR Capital Markets Daniel Berenbaum - Auriga USA John Pitzer - Credit Suisse Glen Yeung - Citigroup Chris Danely - J.P. Morgan Gus Pritchard - Piper Jaffray Doug Freedman - Broadpoint John Barton - Cowen & Company Manish Goyle - C.R.E.F.

Brendan Furlong - Miller Tabak Tristan Gerra - Robert W. Baird Ross Seymore - Deutsche Bank Tim Luke - Barclays Capital James Covello - Goldman Sachs David Wong - Wells Fargo Mark Lipacis - Morgan Stanley Alex Gauna - JMP Securities

Thank you and welcome everyone to Intel's third quarter 2009 earnings conference call. I am joined today by our Chief Executive Officer, Paul Otellini, and Chief Financial Officer Stacy Smith.

Our earnings release and updated financial statements were released today at approximately 1:15 Pacific Daylight time and can be found on our investor website, intc.com. This quarter we introduced a change to our earnings process by posting earlier today to our investor website additional management commentary and context about our quarterly results.

This was done in an effort to create better understanding of the results prior to the call, something we felt would improve the interactive dialog with management during this meeting. We hope this change is helpful and as always would love to hear your feedback so we can continue to try and improve our disclosure practices.

As we begin our call, let me remind everyone that today’s discussion contains forward-looking statements based on the environment as we currently see it and as such does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

If during our call today there are any non-GAAP financial references made, we will post the appropriate GAAP financial reconciliations on our investor website. So with that, let me hand it over to Paul for some comments followed by brief remarks from Stacy.

Paul.

Thanks, Kevin. We are very pleased with the company’s third quarter.

The strong financial performance is a result of having the right products at the right cost at the right time for a recovering global economy. The strength in our business remains primarily consumer driven with broad-based demand across all geographies.

Our mobile business had a particularly strong quarter -- in fact, we saw the sequential unit growth rate of notebook processors and chipsets actually exceed the growth rate of Atom processors and chipsets. While Atom and netbooks are important growth drivers for us, our traditional notebook business remains one of the primary drivers of revenue growth and we expect that to continue in the future.

In the server segment, we are pleased with the acceptance of Nehalem in the enterprise. While overall enterprise spending remains weak, the compelling value proposition of Nehalem is generating growth opportunities even in a down economy and will be a strong profit driver for Intel in the coming quarters.

On a regional basis, China had a particularly strong quarter and continued to show strength during the just completed Golden Week. The U.S.

continued to ride strong consumer sales with the back-to-school cycle exceeding our expectations. Sequentially, Japan showed very healthy growth and Europe growth was slightly above seasonal trends.

I know that many of you listening today are concerned about inventory levels and the state of sell-through around the world. Let me share just a couple of important data points.

First, our channel sales out have shown healthy sequential growth for three quarters in a row, with channel sales out this quarter actually exceeding the activity we saw in Q3 of 2008. Inventory in the channel remains slightly below normal levels, reflecting both good sell-through as well as disciplined inventory management.

At our large OEM customers, component inventories are roughly half the peak level of late last year and have been approximately flat throughout 2009. Much of this is due to our implementation of inventory hubs, where we hold the inventory for our large OEM customers who then pull inventory only as needed.

This helps our customers better manage their inventory levels while giving us increased visibility into real-time system production levels. We watched supply chain inventory very carefully and believe the pipeline has been appropriately rebuilt to support increased end demand and yet remains well below the peak we saw at the end of 2008.

I also want to highlight the excellent performance of our factory network. Our internal inventories continue to run quite lean, with factory throughput improvements providing us with the ability to respond to demand changes far more quickly and effectively than ever before.

Our product cost declines are significant and are a reflection of improved loadings, better equipment re-use, and exceptional yields. All of this leads to better-than-expected costs across our newer technologies, allowing us to expand margins in a difficult economic environment.

In closing, let me briefly mention the biggest drive of our product differentiation in the marketplace and that is our process technology leadership. At our IDF event last month in San Francisco, I shared that we had shipped over 200 million 45-nanometer processors to date.

I am very pleased to note that this quarter, we begin volume production of our newest process technology at 32-nanometers. Our 32-nanometer process is stunning technology that incorporates second generation of high [K] metal gate transistors.

As we ramp this new technology, we will be refreshing our entire product line, providing better performance, lower costs, and lower power consumption for all of our platforms. Importantly, 32-nanometer process technology also allows us to accelerate system on-chip implementation to the Intel architecture, providing Intel with new growth opportunities in the coming years.

With that, let me turn it over to Stacy for a few brief remarks.

Thanks, Paul. The combination of strong execution and a strengthening market led to exceptional financial results.

Better-than-expected demand in the microprocessor and chipset businesses led to the largest sequential third quarter revenue growth in over 30 years. Gross margin percent at 58% was up nearly seven points from the second quarter.

Operating profit was up 80% and net income was up 77%, excluding the impact of the $1.45 billion EC fine taken in the second quarter. The PC market segment is recovering nicely, with our microprocessor revenue excluding Atom growing 23% since the market bottomed in the first quarter.

In the same time period, Atom microprocessors and associated chipsets have grown to $450 million in revenue in the third quarter and $1 billion year-to-date. Gross margin benefited from exceptional execution in the third quarter.

We responded to our customers’ up-side request and achieved a significant reduction in costs, resulting in a 58% gross margin, a nearly seven point increase from the third quarter. As a result of capital re-use and achieving efficiencies, our capital forecast of $4.5 billion is now less than the annual depreciation run-rate.

Operating expenses are in tight control. This is most clearly seen in spending as a percent of revenue.

In the third quarter, spending for R&D and MG&A as a percent of revenue improved 2.5 percentage points to 29%. We achieved this result inclusive of the [bi-annual] shifts of process engineers moving from cost of sales to R&D.

The number of employees increased less than 300 people in the third quarter, including the completion of the Wind River acquisition. Our business model is generating both profits and cash.

Third quarter operating profit was $2.6 billion, up 80% from $1.4 billion excluding the EC fine, and as a percent of revenue grew 9.6 points to 27%. Total cash investments comprised of cash, short-term investments, and debt security trading assets, ended the quarter at $12.9 billion, $1.6 billion higher than the second quarter.

Cash flow from operations was approximately $4 billion. During the quarter, we paid the EC fine, purchased Wind River, bought back $1.7 billion in stock, paid nearly $800 million in dividends, and purchased $944 million in capital assets.

Additionally, we issued $2 billion of convertible debt. For the fourth quarter, we are forecasting a seasonal increase in revenue, taking the midpoint of our forecast range to $10.1 billion, a 23% increase from the fourth quarter of 2008.

We are forecasting the midpoint of the gross margin range to increase another 4.5 points to 62%. The third quarter results and the forecast for the fourth quarter show the superior financial results that can be generated by the combination of a recovering market, strong execution, and a leadership product portfolio that serves markets spanning from servers to notebooks to netbooks.

The factories are executing superbly and we are showing good financial discipline. These attributes are leading to the financial results we are seeing today and they serve as a strong foundation from which we can build in the future.

With that, let me turn it back to Kevin.

Okay, thanks, Stacy and Paul. We’ll now be happy to take your questions.

In another slight change to our process, we’d like to limit each questioner to one question only, which will allow for more people that would like to ask a question the opportunity to do so. [Chanel], we’re now ready for our first questioner.

Thank you very much. Let me just ask about inventories -- I mean, there’s been a lot of talk, Paul, about double ordering into China -- let me just ask you, your in-house inventory right now is well below historical levels.

Is this the new normal, given reduced cycle times? Or should we expect to rebuild through the rest of Q4 into first half of 2010?

And related to that, can you just also talk about what you are seeing in terms of corporate spending -- was there any little bit of corporate spending embedded in the Q4 guidance or should we expect more from corporate in 2010?

We’re going to pick the first question, kind of keep it to one question, if we could, so we’ll do the first one.

I had to try.

I got it -- we love your effort.

It was a run-on sentence approach to one question, I got it. Let me take -- the internal inventory question, let me take it and I am sure Paul will get other questions on channel inventory as well as we go forward here.

From an internal inventory standpoint, we’re lower than I like right now. We want to get some inventory in place in Q4.

Part of that is we’re just running a little leaner. We were surprised by some of the unit upsides we saw over the course of the third quarter and we want to replenish and we are also, as we are on the cusp of the transition to 32-nanometer, if you look historically at the time where we put a little bit more inventory in place to just buffer both sides of the demand/supply equation, so I plan to grow inventories a bit in the fourth quarter.

Thank you.

Stacy, a question for you on the fourth quarter gross margin outlook -- obviously very strong. My only question was you have indicated in your transcript that there’s a point from higher CPU volumes in terms of a benefit.

I guess my question was is mix assumed flat, and then along the same lines, given that your excess capacity charges are dropping off and your fab loadings are increasing as you build inventory, why not a higher bump just from volumes into Q4?

On the first question of mix, we’ll likely see a slightly richer mix of CPU shipments in the fourth quarter than we do in the third quarter. Remember the way the supply chain works and we think the supply chain is looking pretty normal right now, if they put some chipset inventory in place in the third quarter and then they couple it with a CPU in the fourth quarter, so probably a little richer mix to CPUs in the fourth.

That, coupled with just an increase in volume, is about a point of the gross margin. To your excess capacity question, the answer is we’ll be out of excess capacity charges by the end of the fourth quarter so we’ve kind of took some significant charges in -- end of Q4, Q1.

We saw some improvement in Q2 and Q3 with the further improvement that we are forecasting for Q4. You know, those will be zero, in essence, as we leave the quarter.

Congratulations on the strong results and kudos on the conference call process improvement. I guess on the gross margin, can you help us understand where capacity utilizations are at and what kind of capacity you have for 2010 growth?

And then also as part of that, if you look at the last time your revenues were about at this level --

Craig? I think we lost Craig.

Chanel, are you still there?

-- why that’s happened?

We lost you, Craig. We got the first part of your question but you went out for a minute and you’ll have to restate that.

So utilizations and then the last time you guys were at $10.1 billion in Q308, your gross margins were about three to four points lower. Can you talk about some of the structural improvements that have happened over the last year?

To your utilization question, I showed a chart at the investor meeting that showed my expectations for the year. We are a little ahead of that so in Q4 from a factory utilization standpoint, we are right in what I would call the optimal range.

We’ve articulated we’re kind of between 80% and 90%, gives us the ability to achieve really good cost and also have some capability to deal with upsides on specific products, so that’s where we are at. And then to your gross margin question, it’s really the work we’ve been doing over the last three years.

We’re in a situation where we are able to re-use a significant amount of capacity from 45 to 32 -- that’s going to be helpful to us. You can see that in our CapEx line.

You can see our costs coming down, our throughput times are coming down, our output per piece of equipment is going up, our yields are going up, so it’s just a variety of work there that’s leading to really good performance from the factory network that is helping us on the gross margin line.

I think the other part of Craig’s question was 2010 capacities, and let me just try that -- the significant increase in our capacity going into next year, Craig, is to continue to ramp the 32-nanometer factories. We’ve got two factories sort of ramping now against a planned four.

That remains on track. That technology will provide the significant new product portfolio and capacity expansion we think we need for the 2010 environment.

Thank you so much.

You guys have done a great job managing OpEx and maybe along the lines of the last question, when you look at the last time, if you look at Q4 guidance the midpoint last time you were at that revenue level, you were around the same OpEx level as you guided to and that’s with the shift of start-up costs into the R&D line. So as you look forward into 2010, assuming you continue to see some of the strength, do you need to add anything back to the R&D or SG&A lines, or do the cuts continue as we roll into 2010?

Is there more money to take out of those lines?

I am not going to provide a point forecast for 2010. Let me though answer a couple of things we’ve told you before I want to just reinforce -- first off, we do believe that through our work on efficiency, we can continue to improve spending as a percent of revenue.

And so that’s an area where Paul and I continue to be very focused. We believe that there’s potential benefit there as revenue grows where we can bank some of those efficiencies.

It’s different from a are we going to be smaller next year -- I would say we are through the cutting phase of our efficiency effort and now we are hopefully in the growth phase of that efficiency effort. And I think that was it -- yeah.

That’s great, thanks.

Good afternoon, guys. Congratulations.

Paul, in your opening comments you talked about Nehalem being a profit driver over the next couple of quarters. You know, there’s been a lot of conversations about the PC upgrade cycle in the corporate market.

Can you help me understand how you guys are looking at sort of the potential for server replacement cycle? And I guess with the EX coming out, help me understand to what extent that helps you grow market share and/or go after some of the proprietary solutions that X86 has not addressed and what could happen to TAM there as you do that?

Okay. Well, the Nehalem product line, you’re right, John, it is now ramping through the bulk of our products.

We’ve launched the high-end desktop, mid-range desktop, and you’ll start seeing -- and notebook and now you’ll start seeing more volume start shipping this quarter in addition to the -- in anticipation of a January launch, so we’ll have a full fledged client portfolio and the MP servers all shipping by year-end around Nehalem. In terms of a server upgrade cycle, what we are seeing on the Nehalem DP is that it’s not so much an upgrade cycle that is driving the volume right now -- it’s economics of the data center.

People are looking at swapping out eight to nine older generation servers for a single Nehalem server on a ratio basis, as it has the same performance -- same or better performance, much better power consumption so it lowers their electricity bill and gives them a little bit more flexibility in their data center footprint. I think that’s just going to accelerate as NP starts shipping because you have those same dynamics applying in there against an older generation of machines.

I do think that -- if there is opportunity with the NP machines to start encroaching on what has traditionally been the risk portion of the market or even some of the low-end of the mainframe portion of the market with this product line, as you look at some of the very high-end machines our customers are working on that are well above [eight-way] machines. The bad news about that is that that part of the market is very small in units, so when I look at the overall TAM expansion, there’s good margin there, there’s good numbers but it’s not anywhere near what we would get by say replacing the existing Xeon machines, both NP and DP, in the existing data frame, good data center configurations.

Great, thanks, guys.

Paul, maybe just your insight here -- to the extent that Intel is growing above the industry growth rate, to what extent do you think that’s attributable to one, share gain; two, market creation from Atom; and three, any pent-up demand that you may be seeing for Nehalem?

Which industry are you referring to?

Well, PCs.

I don’t think that we can grow much above the PC growth rate at the end of the day. I mean, there is -- there has been some share gain over the course of this year.

We’ll see what this quarter maps out to but I would think that trend could continue this quarter. But at the end of the day, we need the volume.

The PC market has to grow. Our current view of the PC market, as I said at IDF, is that the volume year-on-year, ’09 versus ’08, will be flat to up slightly, which is a significant change from the industry’s views six months ago.

And I think you are seeing inside of that Intel do well because of the shift to notebooks where we enjoy a higher market segment share than we do in desktops.

Okay, thanks.

You said you wanted to grow your inventory a little bit in Q4 -- can you give us a sense of if there was any sort of target you have in mind? And then what would be the thoughts on Q1, assuming some sort of normal seasonal quarter?

Would you look to take inventory up, down, or keep it flat in Q1?

I am not going to put a forecast out there for Q1. I’d like to grow inventory modestly this quarter, and keep in mind we are also going to have the phenomenon that you can see into the gross margin line where we will, as we qualify the first products on 32-nanometer for sale, we will value that inventory so that was stuff that was written off in the third quarter and then we’ll value the material in line in the fourth quarter.

So that’s a piece of it. But I’d expect to put modest amount of inventory in place in the fourth quarter, just to build the inventory level back up and to make sure I have the right mix of products as I go through the product transitions.

Thanks for taking my question. A real short one -- what is -- what was the sale of Atom related products and that was it.

In the quarter, so Atom and the associated chipsets were a bit above $400 million -- I think it was $415 million is the exact number. And year-to-date, we’ve sold over -- or right at $1 billion worth of Atom and associated chipsets.

Is that what you needed, Gus?

Can I ask another one?

Sure, a follow-up, go ahead.

Just real quick, on Win 7, I mean, it’s obviously a significant product launch for Microsoft. Has that had any perturbation at all in the supply chain and how are you guys seeing that?

Not that we’ve seen. I think there’s a lot of excitement about Win 7 but again, the trend we saw for the bulk of this year, including the current quarter, third quarter, was driven by consumer sales, particularly in notebooks and netbooks.

If you go into retail now, you are seeing that OEMs and retail channels are offering coupons for machines -- for an upgrade, a free upgrade to Win 7 when it comes out, which has been done by Microsoft in prior generations, so that tends to reduce any wait for the launch kind of anticipation for people that really want it and get the upgrade that way in a seamless no-cost basis. The corporate side is a bit different.

Corporate needs to do a qualification in their environment and that process has begun on a worldwide basis. We see a lot of interest in corporations around Win 7 and the new Nehalem based SKUs, which are sort of made for each other in terms of the performance and power management and security characteristics of the products that go together there.

I would expect that that evaluation process will happen over the rest of this year and we’ll start seeing corporate purchases on a refresh basis begin in 2010.

Great. Thank you.

Thanks, guys, for taking my question. Paul, you’ve been spending a lot of effort on growing sort of non-core revenues.

You’ve got a whole bunch of pieces you’ve assembled now -- is there any sort of guidance you’d like to offer us on how much impact that could have to incremental revs in 2010?

In 2010? No, I won't give you a lot of guidance.

I can't give you a lot of guidance there and -- well, except to point out the trends that we did in the analyst meeting, Doug, which is that of those four businesses that we’ve really aimed at with the Atom system on chip products, the one that is shipping in high volume today is the embedded business and that’s converting to Atom and growing around that and that is a business which is well north of $1 billion and on a very nice growth rate. So that’s the one you’ll see the revenue appear first in in terms of measurable amounts.

The consumer electronics and ultra mobile activities are proceeding nicely in terms of design wins and product development but the volume there is really out in time a bit.

If I can add to that, if you just look at the clip we’re on with Atom where we are seeing nice growth, Atom in netbooks, you know, exiting this year that’s in a clip that it should be a pretty significant growth driver for us next year.

Even next year, yeah.

Thank you.

Thank you very much. Paul, could you provide us an update on how you are thinking about the NAND Flash business?

It’s been a little while since we’ve really focused on that because prices have stabilized headed the right direction -- what are you thinking about the importance of Intel? Are solid states drives something that is going to drive processor growth and you want to be there to enable it?

Those types of thoughts, please.

You’re right -- the job one for the NAND group is to drive themselves towards profitability and they’ve done a very good job this year in albeit a rising market for NAND in doing that but the losses continue to get reduced substantially and they are on a path towards I think a sustainable business here. At the end of the day, that’s the ultimate test for this business.

We love the fact that it has a strategic nature but it must make profits for us. We are increasing the amount of our NAND that goes into solid state drives, both at the enterprise and client level, and we think that is important for our platforms and we think we have pretty good value there in terms of the technology, both the quality of the parts and the algorithms that we use around the drives.

So that allows us to get a slightly better than commodity margin on most of the NAND business. And we’ve got a couple of other platform ideas that you will see unfolding from us over the next couple of years using this technology.

Thank you.

Thank you. I was wondering if you can give some view on PC unit growth for 2010 in light of the corporate refresh -- potential for corporate refresh and do you think consumer is likely to stay as strong in 2010?

Well, we certainly have a set of numbers we are looking at inside for capacity planning, Manish, but we are not prepared to share them with you. I think if you look at what’s happened with the third party forecasts for 2010, they are now all inching above 10% unit growth and we wouldn’t argue with that and some of them may be more bullish than that as the year gets closer, so let me just leave it there.

The other part of your question was?

Consumer related and actually Paul, where I was heading with that is if we do get an enterprise led recovery next year, do you think your ASPs could be more stable?

Well, in general one of the pressures on our average selling price this year has been the absence of the normal mix of enterprise SKUs which tend to be a higher, richer mix using VPRO and things like that. So if when that market recovers, but their buying characteristics don’t change, that will be some relief on the ASP pressure that we’ve seen through the growth in the consumer side.

Mark, are you there? I think we’ll go to the next question, Chanel.

A quick question on your richer product mix, CPU mix for Q4. Could you address how in general CULV is impacting the CPU mix in terms of ASPs and gross margins, et cetera?

Thank you.

Sure. Well, remember the CULV stands for consumer ultra low voltage, so for every CULV SKU that we have, we have a consumer non-ultra low voltage SKU and from that perspective when we ship a ULV part, we get a premium for that versus the non-ULV part.

So we’ve looked at this as being a premium product taking advantage of the technology since day one. Now, the bulk of the units that have been shipped in that category to date were single core versions of the products.

Late last quarter we introduced a dual-core version of those products. I think you’ll start seeing a number of laptops show up in retail channels with the dual core versions for the holiday season that are more ergonomically designed, thinner, lighter, a little more attractive chassis and those kinds of things, which really starts moving to where the sweet spot of I think the market is moving.

Based on how you asked that question, I want to come back and just clarify one thing to make sure you didn’t misinterpret my words -- I was not predicting a richer mix in the CPU market. What I was articulating is you tend to see more chipsets sold in Q3 and more CPUs sold in Q4, so we’ll see a mix shift towards CPUs.

We’re not anticipating a richer mix inside those CPUs, to Paul’s earlier answer. You know, our best guess is that the enterprise market continues to be relatively weak in Q4 and this continues to be more of a consumer led year.

Thank you very much.

Good afternoon. How do we view Atom strategically in your PC mix next year?

We’ve seen some constraints of Atom in China and also a bit of a slow-down in netbooks in Q3. If you could give us an idea of the growth that you see for Atom and netbooks in 2010.

Well, I don’t know what you mean by a slow-down -- if you mean a slow-down on the rate of growth, given that we started with relatively large -- very large growth rates in the early days, the law of large numbers kicks in. Netbooks continue to grow -- they grew nicely from Q2 to Q3, both on the component level and sales through levels near as we can tell.

And I believe that they will grow again in Q4 and as Stacy points out, even if we just take a simplistic Q4 times four model for 2010, that gives you significant growth over 2009 in netbooks. So we are still bullish on it.

And what we’ve seen this quarter though is that the notebook market is alive and well and that netbooks as we have been believing for quite some time are market additive for Intel and the industry.

Great. Thank you.

Just a question on the gross margin in the beginning of next year, mainly from a fab start-up perspective -- remind us where we stand in the costs for ramping the China fab and then if there’s any impact from the 32-nanometer start-up occurring in the second half of this year rather than the original expectations of the first half of next.

I’ll answer your question directly but I’ll also refer you back to the chart that is still on our website from the investor meeting that shows that. The expectations haven’t changed.

Next year will be a year where start-up costs are reduced over this year. At the big picture level, what you have is this year we had significant start-up costs associated with 32-nanometer and we won't be starting the significant start-up costs for 22-nanometer next year.

We do have a little bit of start-up costs associated with the fab in China, but that was included in the graph I showed you and even with that, we’ll be down and my expectations are roughly unchanged in terms of the shape of this year and the shape of next year.

And what was the quantity of the China one, if you gave a precise number -- you know, a point, half a point, et cetera?

You can eyeball it but it’s -- you know, a little less than a point of gross margin.

Great. Thank you.

Thanks. First a word on your quarter and execution -- just with respect to the gross margin outlook, Stacy, in guiding it up, your variance of three points is a little bit wider than sometimes.

And also in the guidance, you mentioned that there are three points related to qualification of the sale of 32-nanometer products and the sale of previously written-off product. I guess the question is how much of it is the sale of previously written-off product?

And then I guess going forward, if you could give us some color on how you feel about the sustainability of the elevated 52% gross margin and what some of the key variables might be? And I guess in the prior two questions you had some allusion to the first quarter, if you are continuing to build inventory, does that help?

What are some of the key variables, both in this quarter guidance and maybe some of the variables for next year? Thanks.

Now is Kevin going to count that as one question or four?

I was going to say, we’ve got Uche with two -- Tim, I don’t know, I lost count. I’ll turn it over to Stacy and see if he can --

I’m not even sure how to start with that one. All right, Tim, let me take a shot.

And I’ll just preface this up-front by saying I am probably going to disappoint you because I am not going to give you a point estimate for next year or a shape of the year but I’ll talk about some of the drivers. Q4, your first question was how much of that three points of qualification for sale of the 32-nanometer product, how much of it is sale of previously written-off product?

Yeah, they are both significant drivers within that three points. I am not going to get more precise than that but they are both multi-point -- more than a point kinds of impact.

In terms of the sustainability of 62%, I have to point out by historical standards, that 62% is pretty rare. I think it really does show the financial performance that we can generate when we have a strengthening market and we are executing well.

I think it really underscores for us that the strategy, how important the strategy is of having a segmented product line, as Paul said in his prepared remarks -- having the right products at the right cost to satisfy the growth in consumer and emerging markets and Internet consumption devices with Atom and then refreshing the high-end of the product line with our 32-nanometer products. That helps a lot.

But I wouldn’t try to argue for you that that’s the new normal. I still believe that over a long period of time, our gross margin, even inclusive of all the growth businesses, is kind of between 50% and 60%, and we are executing well and we are at the high-end now and someday we’ll be at the low.

When I think about 2010, I’ll refer you back to a couple of the things we showed at the investor meeting. I’d expect start-up costs next year to be lower than they are this year for the question we had earlier.

And -- so that will be one of the drivers. And I think that we are likely to see 2010 as we progress through the year, we’ll see the costs coming down on our 32-nanometer products and we showed a graph that showed that by the end of next year, we expect to be lower costs than ending 2009.

I still expect that to be the case as we come up the learning curve on 32-nanometer and bring those costs down. So I think those two things give us a little bit of tailwind.

The three-point spread -- any sense there on -- why the wider range.

Sorry, yeah, I knew I’d forget one of your four -- that one was just matching the top line growth. If we have -- if we end up at the top end of the revenue range, then we’ll be pushing the top end of the gross margin range.

If we end up at the bottom end of the revenue range, we’re at the bottom end of the gross margin range, so it’s really just to make those symmetrical.

Thanks, guys.

This has been sort of kicked around but I want to ask it a little bit of a different way -- the supply chain hasn’t really been able to catch up with end demand this year because we entered the year under-shipping demand by so much, and so much of your growth this year has been a function of that plus the better-than-expected demand relative to six months ago. As we exit this year, do you think you will still be under-shipping demand, shipping in line with demand, or shipping a little bit more than demand on sort of a quarterly basis?

Thanks.

I guess I have to pick a bone with your assertion, Jim. I don’t think the industry under-shipped demand in the first part of this year.

People could buy a computer any day, any place on earth they wanted. I don’t know of any system level shortages that were out there, nor any component level shortages except for some spot stuff here and there but it never really constrained demand.

Well, what I mean is -- maybe if I -- sorry if I wasn’t more clear; I go back to the fourth quarter of last year, PC units were down a couple of percent. Your -- Intel's microprocessor units were down 18, so you were under-shipping demand as the supply chain was liquidating inventory then.

There’s been some of your tremendous growth this year -- you know, obviously great execution and demand has been better than expected earlier in the year but some of it has been a catch-up from that under-shipment towards the latter part of last year and do we think that on a quarterly basis -- what I am really trying to get at is for 2010, do we think Intel's microprocessor unit shipments should equal PC unit shipments?

Over the course of the year, ours plus our competition do, yes. I don’t think that the pipeline will expand -- needs to expand much more to accommodate a -- the growth numbers that are likely to happen in 2010.

Yeah, that’s exactly what I was getting at.

I mean, you can conceive of a corner case that by Q4 of next year at the very upper bound of people’s forecasts that the numbers get to be pretty large but you know, we’ve been here before.

Terrific. Really helpful, thanks so much for everything.

Chanel, we’ll take a couple more questions, if we could.

Thanks very much. Could you tell us what percent of your DP server sales were Nehalem in the September quarter?

And did the MP server revenues grow sequentially or decline sequentially in September?

It was well over half of the DP sales were Nehalem and I don’t have the MP number relative growth number in my head, I’m sorry.

Great, thanks.

Go ahead, Chanel. Actually we’ll take two more from here.

We have two more that we know of, so go ahead.

Did we get you back, Mark? I think we’ve got a technical problem.

Technical difficulties -- can you hear me?

We got you -- go ahead, Mark.

Okay. From what I can tell, server microprocessor revenues have been an increasing part of your microprocessor revenues over the last five years.

It’s been a pretty steady growth trend as a percentage of your microprocessor revenues. And my question is, is there any reason that that trend should stop or have we reached some kind of saturation point and does Nehalem impact that one way or another?

Thank you.

Well, if you look at a five-year look back, Mark, it wasn’t consistent. There was a period in the ’06, ’07 timeframe when Intel lost some share in servers and now we’ve come roaring back, so it wasn’t always a consistent adder to our numbers over the course of the -- over the five-year period.

If you take say a two- to three-year period, I think that’s a fair assumption.

Did we answer your question, Mark?

Yeah, so is it fair to assume then that server microprocessors as a percent of your total kind of stays steady state over time or it does not grow?

As a percent of the total business, the server business is running about the same as the PC unit growth numbers, to a first order -- there’s some things moving in and out in terms of DP and MP and how many chips per system and those kinds of things. The thing that could change that dramatically if is coming out of this recession, the Internet data centers start deploying and move toward some of the cloud based servers -- that could drive pretty healthy demand for rack-mounted servers and blade servers for a while.

Okay. Thanks very much.

Thanks, Mark. This will be our final question, Chanel.

Thanks for getting me in and let me also say I appreciate the new format. Can I ask you, Paul, you mentioned that right now, [inaudible] you also said this, that enterprise has not been a part of the strength.

With VPRO, how do you look at when that might step in in 2010 and is there any risk to that? You mentioned cloud computing here with virtualization -- do we perhaps not see enterprise come back on the client side but stay more concentrated in the server side and what would that mean to gross margins?

Thank you.

The last part of your question actually gave a clarification I was going to put out up-front, which is that we are seeing pretty good strength in the enterprise relative to server part of the business. It’s the client part, the desktop and notebook part where the lights have been out for quite a while and now we are starting to see some people doing evaluation of our new platforms with Win 7.

I can't give you a curve for that for 2010 -- it really gets down to when CEOs and CFOs set the budgets in the next couple of months for 2010 in terms of CapEx and do they want to open the checkbooks again, the compelling value for a refresh is there. Machines that are four and five years old, which is the average fleet age right now, are costing more to keep than to buy a new machine -- just the maintenance, the out-of-warranty expenses, the security upgrades, et cetera, et cetera, are problematic and you all know the situation with XP support.

So people are going to want to move to Win 7 and it’s just a matter of I think how fast they do that next year. In terms of cloud and virtualization, our focus has been bring it on -- the data center -- the amount of data in the worldwide data centers is growing much faster than people can supply servers or deploy servers.

The only solution to that anytime soon is virtualization. Virtualization typically requires new server configuration so we’ve been benefiting by this and we are not iconoclast in terms of thinking that cloud is not good for us or will not happen.

Well, just real quickly, you mentioned that the evaluations are happening -- are there any encouraging signs that we will get on the client side an enterprise uplift for VPRO or other hooks that go into virtualization or cloud computing, or will we be able to get by with some of these other more elegant ULV or CULV platforms?

Well, the VPRO is a client hook, not a server hook, so they are really apples and oranges in terms of cloud. I’ll just tell you that Intel is evaluating and we are going to be buying a significant number of PCs next year for our employees because we’ve been out of the market for a while and our fleet is ageing.

I suspect a lot of other companies are coming to that same conclusion.

Okay. Thanks very much and congratulations on the powerful results.

Thanks, Alex. Thank you all for joining the call today.

As a reminder, our quiet period for the fourth quarter will begin at the close of business on Wednesday, November 25th. Our fourth quarter earnings conference call is scheduled for Thursday, January 14, 2010.

Thank you again and good night.