Intel's Economic Impacts on the US Economy, 2008-2012

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Intel’s Economic Impacts on the US Economy, 2008 - 2012

December 17, 2013

Prepared for Intel Corporation Intel’s Economic Impacts on the US Economy, 2008 – 2012

Contents

Executive Summary 1 I. Introduction 5 II. Industry Classfication 7 III. Intel’s Economic Impact through its Operations, Capital Investments, and Distribution Channels 9 IV. Intel’s Economic Impact by Sector 16 V. Intel’s Products and Services Impacts 18 VI: Case Studies 28 Appendix A: Data Sources and Methodology 58 Appendix B: Intel’s Indirect and Induced Impacts on the US Economy by Sector 61 Appendix C: Literature Review 66 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Intel’s Economic Impacts on the US Economy, 2008 - 2012

Executive Summary

Intel Corporation and its wholly-owned subsidiaries (“Intel”) design and manufacture advanced integrated digital technology platforms. A platform consists of a microprocessor and chipset, and may be enhanced by additional hardware, software, and services. The platforms are used in a wide range of applications, such as PCs, laptops, servers, tablets, smartphones, automobiles, automated factory systems, and medical devices. Intel also develops and sells software and services primarily focused on security and technology integration.

Intel Corporation engaged PwC to assess its economic impacts on the US economy. This report provides PwC’s economic impact estimates for Intel in terms of employment, labor income, and gross domestic product (or GDP) for 2008 - 2012.1 These impacts are further highlighted through a series of case studies on important contributions Intel makes to the US national and local economies.

Key Findings

Intel, the world’s largest semiconductor manufacturer,2 has a widespread economic impact throughout all sectors of the US economy through its operations and investments. Intel not only provides a large number of jobs to US workers,3 but also invests heavily in the United States: since 2009, the company has announced plans to build two new factories in Oregon and Arizona and upgrade its existing manufacturing facilities in those two states and in New Mexico with next-generation technology. Intel is currently ranked first in R&D among US public companies and it is the fifth largest capital investor in the United States.4 In addition, Intel’s products and services directly boost economy-wide productivity.

1 A company’s GDP is also known as its value added, i.e., the additional value created at a particular stage of production. It is equal to the company’s sales less its purchases from other businesses. It can also be measured as the sum of employee compensation, proprietors' income, income to capital owners from property, and indirect business taxes (including excise taxes, property taxes, fees, licenses, and sales taxes paid by businesses). 2 See IBISWorld Industry Report 33441a, “Semiconductor and Circuit Manufacturing in the US,” August 2013, pg. 29. 3 According to Intel’s 2012 Annual Report, approximately 51 percent of its 105,000 worldwide employees are located in the United States, with the majority of the company’s microprocessor manufacturing being done at facilities in Arizona, Oregon and New Mexico. 4 Scott Thurm, “Behind the Big Profits: A Research Tax Break,” The Wall Street Journal, June 14, 2013; Diana G. Carew and Michael Mandel, “U.S. Investment Heroes of 2013: The Companies Betting on America’s Future,” Progressive Policy Institute, September 2013.

1 Intel’s Economic Impacts on the US Economy, 2008 – 2012

A. Quantitative Analysis

In 2012:

 Intel employed 53,200 full- and part-time workers in the United States. Each job at Intel is estimated to support more than 13 other jobs elsewhere in the US economy.  Intel paid out a total of $9.3 billion in wages and salaries and benefits and directly contributed $26.0 billion in GDP in 2012.  Counting economic impacts through operations, investments, and distribution channels, Intel’s total employment impact on the US economy was 774,600 jobs.  Counting economic impacts through operations, investments, and distribution channels, Intel’s total impact on labor income (including wages, salaries, benefits, and proprietors’ income) was $52.2 billion.  Counting economic impacts through operations, investments, and distribution channels, Intel’s total impact on US GDP was $95.8 billion.

Cumulative Economic Impact, 2008-2012:

 Intel’s direct employment in the United States increased from 44,800 in 2008 to 53,200 in 2012.  Intel paid out a total of $39.4 billion in wages and salaries and benefits (in current dollars) over this period and directly contributed a total of $120.7 billion (in current dollars) to GDP.  Intel’s total employment impact on the US economy through operations, investments, and distribution channels rose from 581,600 jobs in 2008 to 774,600 jobs in 2012, or an increase of 33 percent.  Intel’s total impact on labor income through operations, investments, and distribution channels for the period was $214.6 billion (in current dollars).  Intel’s total impact on US GDP through operations, investments, and distribution channels for the period was $408.5 billion (in current dollars).  Between 2007 and 2011, the most recent 5-year period for which relevant data are available, Intel’s products and services are estimated to have contributed $54.8 billion in GDP (in current dollars) to the US economy through its impact on total factor productivity and capital deepening.

Intel’s direct, upstream, and downstream impacts on the US economy for the 2008 – 2012 period are summarized in Table E-1.

2 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table E-1.− Intel’s Impacts on the US Economy, 2008 – 2012

Item 2008 2009 2010 2011 2012

Employment* 581,600 584,500 600,900 708,900 774,600

Directimpact 44,800 44,500 44,100 50,100 53,200 Indirect and induced impacts

Upstream (operations and capital investment) 441,800 444,400 460,100 554,300 606,300 Downstream (distribution channel) 95,000 95,600 96,700 104,500 115,100

LaborIncome($millions)** $37,328 $37,541 $40,032 $47,503 $52,226 Directimpact $6,700 $6,854 $7,743 $8,859 $9,283

Indirect and induced impacts

Upstream (operations and capital investment) $25,090 $25,004 $26,452 $32,328 $35,878 Downstream (distribution channel) $5,538 $5,683 $5,837 $6,316 $7,065

GDP($millions) $74,974 $73,434 $76,196 $88,075 $95,802 Directimpact $23,951 $22,801 $22,939 $25,001 $26,044

Indirect and induced impacts Upstream (operations and capital investment) $41,541 $40,940 $43,293 $52,307 $57,720

Downstream (distribution channel) $9,483 $9,694 $9,964 $10,767 $12,038 Source: Intel data on direct employment and labor income and PwCcalculations using the IMPLAN modeling system. Note: Details may not add to totals due to rounding. * Direct employment isdefined as the number of full-and part-time jobs. Indirect and induced employment includes payroll employment and self-employment. ** Direct labor income is defined as wages and salaries and benefits. Indirect and induced labor income includes wages and salaries, benefits, and proprietors'income.

3 Intel’s Economic Impacts on the US Economy, 2008 – 2012

B. Qualitative Case Studies

In addition to the significant economic impact generated from Intel’s operations and capital investments at locations with large Intel manufacturing facilities in Oregon, Arizona and New Mexico, there are other impacts related to job creation and talent growth, innovation, industry leadership, supplier benefits and clustering impacts. To qualitatively assess Intel’s impacts in these areas, PwC and Intel jointly identified three themes that would be the focus of three field-level case studies of Intel’s operations and investments in the United States.5 PwC developed these case studies through interviews of external stakeholders and industry experts. Quotes from some of these respondents are included in the highlights below.

1. Research and Development (“R&D”) – In 2012 Intel’s global R&D spending was $10.1 billion, with a five-year R&D spend of over $36.5 billion. US-based R&D spending accounted for the majority of the total global spend in 2012. In a 2013 survey conducted by Booz & Co, Intel was the number one R&D spender among publicly traded US companies in all sectors. Interview respondents called Intel’s R&D efforts in the United States “rich with innovation” and “industry- leading,” pointing to years of being on the “leading-edge of development” and “bringing forward technology that matters.”

2. Supply Chain Ecosystem – Intel maintains and interacts with a vast supply chain as both a consumer and a supplier. With $11B in global capital expenditures (about 80% in the US) and $53.3 billion in global sales, the company operates in the middle of a supply chain that is continuously improving the usability and interactivity of technology. Interview respondents described Intel’s impact on its Oregon supply chain as “the most important economic factor in Oregon” and that Intel “makes a difference and is stable in our economy.” Furthermore, industry veterans viewed Intel as a company that “kept the manufacturing and expertise in this country [US]” and noted that “without Intel, the semiconductor industry would be considerably less US-centric and further behind.”

3. Venture Capital – Since its inception in 1991, Intel Capital has invested more than $10.8 billion in over 1,276 companies in 54 countries. Intel Capital’s investment in the US Technology industry has been evident with $6.7 billion, or 62% of its total capital investment going to US-based companies. Furthermore, Intel Capital’s focus on company building has resulted in over 500 acquisitions, mergers, and IPOs. Intel Capital’s contribution to the US economy and business environment goes beyond capital investment. As industry experts and executives of former portfolio companies stated, Intel Capital is “among the best in knowing the industry” and their “stamp of approval is hard to match.” Intel Capital’s advantages are described as “longevity, experience, size, consistency, and financial returns were among the best, if not the best of any unit.” Portfolio

5 For the purposes of the Case Studies, Intel refers to Intel Corporation, excluding McAfee and Wind River subsidiaries.

4 Intel’s Economic Impacts on the US Economy, 2008 – 2012

companies benefit from investments and interactions that “helped us to span out geographically and grow the sales team.”

5 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Intel’s Economic Impacts on the US Economy, 2008 - 2012 I. Introduction

This report estimates the US economic impact of Intel Corporation and its wholly- owned subsidiaries McAfee, Inc. and Wind River Systems, Inc. (“Intel”) in terms of employment, labor income, and gross domestic product (or value added) for 2008 - 2012. These impacts are highlighted through a series of case studies on important contributions Intel makes to the US national and local economies.

The IMPLAN model, an input-output model based on federal government data, was used to quantify the economic impact of Intel on the US economy for each year from 2008 through 2012.6 As described below, three types of economic impacts attributable to Intel – direct, indirect, and induced – were quantified:

 Direct impact measures Intel’s jobs, labor income, and gross domestic product (or GDP).  Indirect impact measures the jobs, labor income, and GDP occurring throughout Intel’s supply chain, including both its upstream purchases from suppliers and the downstream impacts associated with the distribution of Intel’s products through its wholesalers, distributors, and retailers.  Induced impact measures the jobs, labor income, and GDP resulting from household spending of labor and proprietor’s income earned either directly or indirectly from Intel’s spending.

For the indirect and induced impacts, the report considers both operational impacts (due to purchases of intermediate inputs and payments of labor compensation) and capital investment impacts (due to investment in new structures and equipment).

This report also separately estimates the impact of Intel’s products and services on other sectors of the US economy, such as through productivity enhancement.

It should be noted that this report reflects Intel’s gross contribution to US employment, labor income, and gross domestic product (GDP), and does not account for potential redeployment of labor and capital in the absence of Intel’s US operations.

The rest of this report is organized as follows. Section II defines the primary industries in which Intel Corporation and its wholly-owned subsidiaries operate. Section III estimates Intel’s upstream (operations and capital investment) and downstream (distribution channel) impacts on the US economy for 2008 through 2012. Section IV estimates Intel’s economic impact by US industrial sector. Section V discusses the economic impacts of Intel’s products and services. Section VI presents three case studies that build upon the quantitative analyses to further highlight Intel’s economic

6 The IMPLAN input-output economic modeling system is developed by the IMPLAN Group LLC. The IMPLAN model is based on input-output tables that map the flow of value along the supply chain for different industries in the economy.

6 Intel’s Economic Impacts on the US Economy, 2008 – 2012 impacts from a qualitative perspective. A description of the data and methodology used in this report is in Appendix A. Appendix B provides additional detail on Intel’s indirect and induced impacts on the US economy by sector. Appendix C summarizes the economic literature on the Information and Communications Technology (ICT) sector’s impact on productivity and economic growth.

7 Intel’s Economic Impacts on the US Economy, 2008 – 2012

II. Industry Classification

Intel Corporation and its wholly-owned subsidiaries McAfee, Inc. and Wind River Systems, Inc. encompass a number of activities that span separate industry classifications in government economic data. For this report, Intel Corporation’s main economic activities are classified under “semiconductor and other electronic component manufacturing.” McAfee, Inc.’s and Wind River Systems, Inc.’s activities are classified under “software publishers” and “custom computer programming services,” respectively.

Intel Corporation designs and manufactures advanced integrated digital technology platforms. A platform consists of a microprocessor and chipset, and may be enhanced by additional hardware, software, and services. Intel Corporation sells these platforms primarily to original equipment manufacturers, original design manufacturers, and industrial and communications equipment manufacturers in the computing and communications industries. The platforms are used in a wide range of applications, such as PCs, laptops, servers, tablets, smartphones, automobiles, automated factory systems, and medical devices.

McAfee, Inc. develops and sells software and services primarily focused on technology security including integration of anti-malware, anti-spyware, and antivirus software for personal computers, computer networks and other systems around the world. Wind River Systems, Inc. develops embedded and mobile software enabling companies to develop, run, and reliably manage device software.

Intel’s three main business segments fall within the following industrial categories in the North American Industry Classification System (“NAICS”) (see Table 1):

1. NAICS 334413. Semiconductor and related device manufacturing. This subsector comprises establishments primarily engaged in manufacturing semiconductors and related solid state devices. Examples of products made by these establishments are integrated circuits, memory chips, microprocessors, diodes, transistors, solar cells and other optoelectronic devices.

2. NAICS 51121. Software publishers. This subsector comprises establishments primarily engaged in computer software publishing or publishing and reproduction. Establishments in this industry carry out operations necessary for producing and distributing computer software, such as designing, providing documentation, assisting in installation, and providing support services to software purchasers.

3. NAICS 213112. Custom computer programming services. This subsector comprises establishments primarily engaged in writing, modifying, testing, and supporting software to meet the needs of particular customers.

8 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table 1.− Intel by Business Segment Business IMPLAN NAICS Description Segment Sector Intel Semiconductor and related device 334413 243 Corporation manufacturing McAfee, Inc. 51121 345 Software publishers Wind River Custom computer programming 541511 371 Systems, Inc. services

9 Intel’s Economic Impacts on the US Economy, 2008 – 2012

III. Intel’s Economic Impact through its Operations, Capital Investments, and Distribution Channels

Key Findings:

 Intel’s total employment impact on the US economy rose from 581,600 jobs in 2008 to 774,600 jobs in 2012, or an increase of 33.2 percent.  In 2012, Intel employed 53,200 full- and part-time workers in the United States. Each job at Intel supported more than 13 other jobs elsewhere in the US economy.  Intel’s total impact on labor income was $52 billion in 2012 and nearly $215 billion over the 2008-2012 period.  Intel’s total impact on US GDP was $96 billion in 2012 and more than $408 billion over the 2008-2012 period.

This section presents Intel’s economic impact on the US economy through its operations, capital investment, and distribution channel. The results reflect the impact of Intel Corporation, and its wholly-owned subsidiaries, McAfee, Inc. and Wind River Systems, Inc. The total economic impact includes:

1. Direct impact (the jobs, labor income, and GDP within Intel), 2. Indirect impact (the jobs, labor income, and GDP occurring throughout the upstream and downstream supply chain of Intel), and 3. Induced impact (the jobs, labor income, and GDP resulting from household spending of income earned either directly or indirectly from Intel’s spending).

Upstream impacts arise from Intel’s operations (due to both purchases of intermediate inputs and payments of labor compensation) and capital investment (due to its investment in new structures and equipment). Downstream impacts arise from Intel’s distribution channel and include the operational impacts of Intel’s distributors. Intel’s distribution channel includes wholesalers, distributers, and retailers. Each business in Intel’s distribution channel provides jobs and labor income and generates GDP.

The IMPLAN input-output model was used to estimate Intel’s economic impacts on the US economy over the 2008-2012 period.7

7 When comparing this report to other input-output analyses, note that not all input-output analyses necessarily incorporate capital investment and/or distribution channel impacts.

10 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Employment

Intel employed 53,200 US workers in 2012. In addition, Intel indirectly supported 721,400 other full-time and part-time jobs in the US economy: 496,300 from Intel’s operations; 110,000 from Intel’s capital investment; and 115,000 from its distribution channel. Combining the direct, indirect and induced impacts, Intel’s total employment impact on the US economy is estimated to be 774,600 full-time and part-time jobs in 2012, roughly ½ of 1 percent of total US employment.

Intel’s total employment impact on the US economy rose from 581,600 jobs in 2008 to 774,600 jobs in 2012 (see Table 2). The largest component of Intel’s total employment impact is attributable to its operational supply chain.

Table 2.− Intel’s Impact on US Employment, 2008-2012 [Direct impact and indirect/induced impacts due to operations, capital investment, and distribution] 900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 2008 2009 2010 2011 2012

Direct Operational Capital Investment Distribution Channel

Source: Intel data on direct employment and PwC calculations using the IMPLAN modeling system.

11 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Labor Income

According to Intel, it paid $9.3 billion in wages, salaries and fringe benefits to its US employees in 2012. Including the jobs indirectly supported by Intel through its operational spending, capital investment, and distribution channel, the associated total impact on US labor income (including wages and salaries and benefits as well as proprietors’ income) is estimated to be $52.2 billion in 2012.

Intel’s total impact on US labor income grew each year from $37.3 billion in 2008 to $52.2 billion in 2012 (see Table 3).

Table 3.− Intel’s Impact on US Labor Income, 2008 – 2012 (In billions of dollars) [Direct impact and indirect/induced impacts due to operations, capital investment, and distribution] $60

$50

$40

$30

$20

$10

$0 2008 2009 2010 2011 2012

Direct Operational Capital Investment Distribution Channel

Source: Intel data on direct labor income and PwC calculations using the IMPLAN modeling system.

12 Intel’s Economic Impacts on the US Economy, 2008 – 2012

GDP

PwC estimates that Intel’s operations directly generated $26.0 billion of GDP to the US economy in 2012. Intel’s operations indirectly generated an additional $48.4 billion to the US economy in 2012, while its capital investment and distribution channel impact added another $9.8 billion and $12.0 billion of GDP, respectively. Combining the operational, capital investment, and distribution channel impacts, Intel’s total GDP impact on the US economy was $95.8 billion, accounting for 6/10 of 1 percent of US GDP in 2012.

Intel’s GDP contribution to the US economy grew from $75.0 billion in 2008 to $95.8 billion in 2012 despite a slight reduction in 2009 to $73.4 billion during a period of US economic contraction (see Table 4).

Table 4.− Intel’s US GDP Impact, 2008 – 2012 (In billions of dollars) [Direct impact and indirect/induced impacts due to operations, capital investment, and distribution] $120

$100

$80

$60

$40

$20

$0 2008 2009 2010 2011 2012

Direct Operational Capital Investment Distribution Channel

Source: PwC calculations using the IMPLAN modeling system.

13 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Case Study: Intel’s Fabrication Site in Hillsboro, Oregon

Intel provides the Oregon region with approximately 16,400 direct jobs, making it the state’s largest private employer. For perspective, Intel represents approximately 20% of tech employment in Oregon which has more than 5,300 tech companies employing a total of 81,632 tech industry professionals. Intel also compares favorably with respect to employee salaries and Oregon’s standard of living. The average annual salary of tech sector employees in Oregon was $94,200 in 2012, or 123 percent higher than other private sector employment within Oregon. “Intel’s average wage is approximately $125,000 here in the Portland metro area, while average per capita income is $41,000.” - President and CEO of the largest business advocacy organization in Oregon Intel is the largest taxpayer in Washington County, contributing $20.8 million in taxes to the County in 2012. Oregon does not have a sales tax; therefore, its excise tax (i.e., the tax for the privilege of doing business in the state) is the primary revenue source for the state along with property and employment taxes. Tax revenues serve to fund, for example, public safety employees, public school employees, government officials and staff, and state economic development initiatives. As a result, tax contributions provide an employment impact beyond Intel’s direct workers. “[As] the largest [employer] in the state...Intel has a huge impact from a state-wide perspective.” - President of a local Oregon Chamber of Commerce Intel’s total capital investment in the state has exceeded $25 billion since the company acquired its first piece of property in Oregon in 1974. A senior member of the Oregon Building Trades and Portland Development Commission recently remarked that the construction jobs that Intel provides have a ripple effect on the economy in numerous areas including, for example, construction workers paying mortgages, going out to dinner, and making other purchases. “All of the construction jobs related to Intel’s new fabrication sites put the construction industry back to work in the state [Oregon].” - President and CEO of the largest business advocacy organization in Oregon “Through some of our darkest times during the technology bust in 1999-2000, Intel had cranes in the air doing construction. Intel makes a difference and is stable in our economy.” - President of a local Oregon Chamber of Commerce

“Intel is the single most important economic factor in Oregon today...they bring workers from world-wide over to here.”

“No one is as big and as comprehensive as Intel.”

“If you took Intel out of Oregon, we would be in trouble.”

- President and CEO of the largest business advocacy organization in Oregon

14 Intel’s Economic Impacts on the US Economy, 2008 – 2012

The results for each year are summarized in Table 5. The total economic impact of Intel in terms of jobs and labor income (including wages and salaries and benefits as well as proprietors’ income) grew steadily throughout the period. The total economic impact in terms of GDP in nominal terms grew at an average rate of 6 percent per year from 2008 through 2012 despite a contraction in 2009.

Table 5.− Intel’s Direct, Operational, Capital Investment, and Distribution Channel Impacts on the US Economy, 2008-2012 (Dollar amounts in millions of current dollars) Indirect and Induced Impacts Downstream Upstream Impacts Direct Impact Total Item Impacts Operational Capital Distribution Impacts Impacts Investment Channel Impacts Impacts 2008 Employment1 44,800 408,900 32,900 95,000 581,600 Labor Income2 $6,700 $23,142 $1,948 $5,538 $37,328 GDP $23,951 $38,660 $2,881 $9,483 $74,974 2009 Employment 44,500 405,900 38,500 95,600 585,500 Labor Income $6,854 $22,727 $2,277 $5,683 $37,541 GDP $22,801 $37,592 $3,347 $9,694 $73,434 2010 Employment 44,100 415,500 44,600 96,700 600,900 Labor Income $7,743 $23,762 $2,690 $5,837 $40,032 GDP $22,939 $39,333 $3,960 $9,964 $76,196 2011 Employment 50,100 463,600 90,700 104,500 708,900 Labor Income $8,859 $26,925 $5,403 $6,316 $47,503 GDP $25,001 $44,462 $7,846 $10,767 $88,075 2012 Employment 53,200 496,300 110,000 115,100 774,600 Labor Income $9,283 $29,399 $6,478 $7,065 $52,226 GDP $26,044 $48,442 $9,278 $12,038 $95,802 Source: Intel data on direct labor income and PwC calculations using the IMPLAN modeling system. Note: Details may not add to totals due to rounding. 1 Direct employment is defined as the number of full- and part-time jobs. Indirect and induced employment includes payroll employment and self-employment. 2 Direct labor income is defined as wages and salaries and benefits. Indirect and induced labor income includes wages and salaries, benefits, and proprietors’ income.

15 Intel’s Economic Impacts on the US Economy, 2008 – 2012

IV. Intel’s Economic Impact by Sector

Key Findings:

 Intel Corporation and its wholly-owned subsidiaries have a widespread economic impact throughout all sectors of the economy.  In 2012, the service sector accounted for the largest number of indirect and induced jobs attributable to Intel’s spending, followed by wholesale and retail trade, and finance, insurance, real estate, rental and leasing.

Intel purchases intermediate inputs from a variety of other US industries, supporting jobs in these industries and spurring additional rounds of input purchases by these industries. Other economic impacts are generated by the personal spending of Intel employees and out of the additional income earned by employees in the supply chain to Intel. The jobs, labor income (including wages and salaries and benefits as well as proprietors’ income), and GDP supported by this cycle of spending, or multiplier process, are referred to as the indirect and induced economic impacts.

Intel also purchases capital goods from a variety of US suppliers, which has a similar multiplier effect on the rest of the US economy.

Table 6 shows Intel’s indirect and induced economic impacts by receiving sectors. PwC estimates that at the national level, each direct job at Intel supported more than 13 jobs elsewhere in the US economy in 2012. That is, in addition to the 53,200 jobs directly provided by Intel, 721,400 additional jobs were supported in the US economy through the indirect and induced impacts of Intel. Intel’s purchase of intermediate inputs from other US suppliers supported 496,300 indirect and induced jobs in other industries across the country in 2012. Intel’s capital investment supported 110,000 additional indirect and induced jobs across the US economy and Intel’s distribution channel supported another 115,100 jobs. Combined, Intel directly or indirectly supported 774,600 jobs in the US economy in 2012. The service sector, being the largest sector in the US economy, accounted for the largest number of indirect and induced jobs attributable to Intel’s spending (324,400) in 2012, followed by Wholesale and Retail Trade (135,700), Finance, Insurance, Real Estate, Rental and Leasing (65,000), Manufacturing (61,000), and Construction (45,300).

PwC estimates that in 2012 the $9.3 billion in employee compensation directly paid out by Intel led to an additional $42.9 billion in labor income in the US economy – a multiplier effect of 4.6. In addition, Intel’s direct GDP contribution of $26.0 billion in 2012 resulted in an additional $69.8 billion of GDP to the US economy – a multiplier effect of 2.7. Detailed impact results by sector for the 2008-2012 period are presented in Appendix B.

16 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table 6.− Intel’s Indirect and Induced Impacts on the US Economy, by Receiving Industry, 2012

Employment* LaborIncome($million)** GDP($million) Sector Description Indirect Induced Indirect Induced Indirect Induced Agriculture 1,200 6,900 $37 $214 $55 $327 Mining 3,100 1,700 $232 $130 $682 $386 Utilities 1,900 1,300 $248 $169 $899 $613 Construction 41,500 3,800 $2,319 $216 $2,480 $248 Manufacturing 45,600 15,400 $3,820 $1,065 $7,454 $2,171 Wholesaleandretailtrade 71,300 64,400 $5,327 $2,544 $9,212 $4,158 Transportationandwarehousing 20,600 9,600 $1,109 $531 $1,494 $722 Information 8,900 6,000 $999 $557 $1,668 $1,161 Finance,insurance,realestate,rentalandleasing 19,200 45,800 $1,151 $2,187 $3,325 $8,270 Services 160,300 164,100 $10,258 $7,543 $12,661 $9,176 Other 17,700 11,100 $1,408 $880 $1,600 $995

TotalIndirectandInducedImpacts 391,300 330,100 $26,906 $16,037 $41,531 $28,227

Source: PwC calculations using the IMPLAN modeling system. * Employment is defined as the number of full- and part-time jobs, including self-employment. ** Labor income is defined as wages and salaries and benefits and proprietors' income.

17 Intel’s Economic Impacts on the US Economy, 2008 – 2012

V. Intel’s Products and Services Impacts

Key Findings:

 Users of Intel's products and services benefit from productivity enhancements and cost reductions.  Intel’s products and services contribute to the growth of productivity and GDP through two channels: total factor productivity and capital deepening.  Through these two channels, Intel’s products and services contributed $54.8 billion in GDP to the US economy over the 2007-2011 period.

This section first reviews the economic literature on the impact of the Information and Communications Technology (“ICT”) sector on US economic growth and then estimates Intel’s share of the overall contribution of the ICT sector.

Contribution of the ICT Sector to US Economic Growth – Literature Review

The ICT sector’s economic impacts include improved labor productivity, lower prices, and faster economic growth. Moore’s Law, named after Intel co-founder Gordon Moore, states that the number of transistors on integrated circuits doubles approximately every two years. The capabilities of computers and other semiconductor-dependent devices are strongly linked to Moore’s Law. Computing power, processing speeds, and memory capacity have all increased exponentially. From the early 1970s to 2000, the power of microprocessors increased by a factor of 7,000 while the cost of storing one megabit of data fell from more than $5,000 to just 17 cents.8 A large body of economics research finds that the ICT sector has fueled technological change and productivity growth across all sectors of the economy.

In general, companies increase productivity through three channels:

1. Capital deepening: Increased investment in capital equipment (including computers and other information technology) allows workers to be more efficient and more productive.

2. Improved labor quality: Investments in “human capital” through training and investments in education increase worker productivity.

3. Total factor productivity: Increases in productivity achieved through technological progress and innovations in business systems or organizational structure.

8 Rauch, Jonathan, “The New Old Economy: Oil, Computers, and the Reinvention of the Earth,” The Atlantic Monthly, January 2001.

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Case Study: Selected Intel R&D Facilities

Intel’s Arizona operations are spread across two large sites in the City of Chandler. Roughly half of Intel’s 11,000 employee base in the state works at the 700-acre Ocotillo campus which is dedicated to manufacturing the company’s latest silicon technology. The remaining employees are located at Intel’s 150-acre Chandler campus where a substantial portion of employees are dedicated to research and development. In fact, Intel has invested more than $300 million to build a new research and development facility at this site. The facility, which is nearing completion, will be used to expand Intel’s packaging operations. The innovation that will occur in this facility is aimed at influencing technology trends for years to come. This investment is creating several hundred Intel R&D-related jobs and nearly a thousand construction jobs. Intel’s Arizona employees, on average, earn over $130,000 per year (including total compensation, benefits and bonuses). Intel’s Massachusetts Design Center in Hudson, Massachusetts is home to more than 825 engineers engaged in microprocessor design, testing and validation for the development of next generation multi-core Itanium® and Xeon® microprocessors for high-end servers. Lab facilities, technical staff, and engineers work directly with product design teams on first silicon readiness to support the introduction of new high performance products before they are released for high volume manufacturing. Labs are staffed by a cross-functional team of content developers, debug engineers, software engineers, technicians and inventory control specialists, working closely with design and validation engineering working on first silicon to volume validation to deliver production ready quality products. In Intel’s New Hampshire R&D and production facility, a group of 60 Intel research and development employees researches methods to make it easier to perform parallel programming on Intel processing cores while maximizing application performance. Parallel programming by definition is aimed at compartmentalizing complex problems into smaller, more manageable problems and computing solutions simultaneously. The site manager of the New Hampshire Intel facility described the importance of the work being performed as, “enabling the technology created by Intel, meaning, without them, the development community would not be able to “unlock” the potential and performance of the newer multi-core processors developed at Intel.” The programming language, prototypes and tools developed here allow end-users of Intel’s silicon to better understand and utilize the capabilities of the products. Intel’s R&D at this facility is aimed at faster computing, higher efficiency, and ease of technology use for more applications. In the Columbia, South Carolina facility, approximately 310 Intel engineers test Intel’s products to verify the already- designed product’s features work as advertised and meet stated specifications. It is considered the “last step” before the completed piece of research and development becomes commercialized. The site manager of the South Carolina design center stated, “All of our validation activities have successfully yielded commercialized products in the XeonTM and CoreTM product lines; for example, XeonTM E5 is a recent product predominantly supporting Cloud and Data Center programs validated at the South Carolina facility and the highly successful 4th Generation CoreTM graphics system was also validated here.” When asked about the effects of the research and development site on the local economy, the site manager responded, “Salaries for this site are notably higher than the comparative geography and our employees enjoy a generally higher standard of living…The South Carolina Commerce Secretary’s office tells us our gross salary of $26 million has a compounded effect of nearly three times [$76 million] on the local economy.” In Intel’s Eau Claire, Wisconsin lab, a group of 60 Intel employees are defining, designing, validating, and testing components into which fabric connects. Fabric is high-speed interface that connects elements of a computing system and a key technology for supercomputing. Fiber cables act like the network connection on a computer, allowing the user to send and receive data. Data transfers through fiber 25 billion times per second, allowing for faster sending and receiving of information than ever before. Fiber cables play a key role in high performance computing, which improves our economy, safety, and fundamental knowledge. This technology helps oil companies reduce wasted effort by accurately identifying and locating oil reserves, improves the accuracy of weather predictions allowing for accelerated warning systems, and allows for intricate simulations of real-world catastrophes to predict impact and provide planning tools for disaster relief efforts. The Wisconsin team has grown by 20 percent in the past year and is expected to continue to grow. In Fort Collins, Colorado, approximately 425 Intel employees design data center applications and solutions including the XeonTM and ItaniumTM architectures. The Fort Collins R&D center is responsible for the architecture, design, and development of high-performance server microprocessors for server and workstation applications. The site collaborates with universities by participating in programs to grow awareness of and support professorships in Science, Technology, Engineering and Mathematics (“STEM”) careers. In addition, the site participates on external boards and conference committees to support women and minorities in STEM. The design center also impacts its community through environmental initiatives such as recycling (68,000 lbs in 2011), reducing onsite energy and gas consumption (by an amount that is equivalent to the annual energy and gas onsumption by 250 average American households), and improving eco-friendly options for worker transportation by implementing and incentivizing a “bike to work” program. This group also is noteworthy because it is the largest per employee donor to the United Way in the country with an average gift size per donor at $3,500.

19 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Capital deepening. According to the US Bureau of Economic Analysis, nominal business investment in information processing equipment and software grew at an average annual rate of 8.8 percent between 1970 and 2012, 1.7 percentage points faster than the overall rate of growth of investment in all nonresidential capital equipment and software. Due to technological advancements and declining real costs of information processing equipment and software relative to other types of equipment, real investment in information processing equipment and software grew more than twice as fast as investment in other nonresidential capital equipment. By 2012, information processing equipment and software accounted for 55.4 percent of investment in nonresidential equipment and software and 31.0 percent of the total net stock of nonresidential equipment and software in the United States (Table 7).

Table 7. -- Average Share of Information Processing Equipment and Software in Total Nonresidential Investment in Equipment and Software 60%

50.4% 50.3% 50% 45.4%

40% 38.8%

30% 25.3%

20%

10%

0% 1970-79 1980-89 1990-99 2000-09 2010-12

Note: Annual investment measured in nominal dollars. Source: US Bureau of Economic Analysis, Fixed Asset Accounts, Table 2.7.

Total factor productivity (“TFP”). TFP (also known as multifactor productivity) accounts for changes in productivity not directly attributable to capital or labor. TFP generally results from technological improvements as well as changes in business organizational structures or processes that allow companies to better utilize new or existing technologies. Intel and the larger ICT industry have been a significant source of TFP in the United States. The contribution of computers and electronics manufacturing to overall US total factor productivity increased significantly in the 1990s before leveling off in recent years (see Table 8). According to data from the US Bureau of Labor

20 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Statistics, computers and electronics manufacturing accounted for 0.46 percentage points of the 0.92 percentage point increase in annual private nonfarm business TFP over the 1987 to 2011 period. In other words, computers and electronics manufacturing accounted for approximately half of the TFP growth in the private nonfarm business sector over this 25-year period.

Table 8. -- Contribution of Computers and Electronics Manufacturing to Private Nonfarm Business Total Factor Productivity Growth, 1987-2011 [Percentage points] 1.6 Computers and Electronics 1.40 1.4 Private Nonfarm Business TFP 1.34

1.2

1.0 0.92 0.85 0.8

0.6 0.480.51 0.48 0.44 0.46 0.4 0.36 0.30 0.22 0.2

0.0 1987-90 1990-95 1995-00 2000-07 2007-11 1987-11

Source: US Bureau of Labor Statistics, Contributions of Manufacturing Industries to Private Nonfarm Business Multifactor Productivity, June 19, 2013.

The benefits of productivity growth take many forms. The most immediate benefit is that labor can produce more output for a given hour of work. Firms that utilize new forms of technology are able to produce the same number of goods or services of equivalent quality at lower costs given the same number of inputs. Productivity gains are shared by consumers, workers, and shareholders in the form of lower prices, higher wages, and higher returns on investment. Longer-term effects include higher levels of ICT investment and the development of a labor force with the skills required to utilize ICT in the workplace.

Although the impact of technological progress on productivity gains is difficult to assess, the general consensus among economists has centered around the following observations and trends (see Appendix C):

21 Intel’s Economic Impacts on the US Economy, 2008 – 2012

1. The decline in prices of ICT hardware, 2. Growth of employment in ICT-intensive businesses compared to growth in employment in non-ICT intensity businesses, 3. The ICT industry’s positive contribution to economic growth since the early 1990s, and 4. Positive "spillover" effects in relation to firms' proximity and access to ICT investment.

Prices

Data provided by the Bureau of Labor Statistics indicates that prices for information technology hardware and software fell by more than 67 percent during the 1990s.9 Between 1994 and 2001, the price of semiconductors dropped by 47.1 percent compared to a decline of 18.6 percent between 1988 and 1994 (Aizcorbe, Oliner and Sichel, 2006).10 In 1998 alone, the end-use price for computers fell by 40.3 percent with the decline in semiconductors prices accounting for 40 to 60 percent of the decline (Aizcorbe, Flamm and Khurshid, 2001).11

Technological change in the semiconductor manufacturing industry was the main driver of the observed decline in ICT prices (Mann, 2003). The manufacture of dynamic random access memory (DRAMs) and personal computers (PC) both experienced significant price declines during the 1990s. Cheaper semiconductors explained about half of the decline in PC prices (Mann, 2003). Microprocessor unit (MPU) chips also followed an overall trend in price decline, accelerating in the mid-90s and slowing after 2001. During this period Intel was the dominant producer of MPU chips (Aizcorbe, Oliner and Sichel, 2006).

While technological progress in the ICT-producing industry was the main driver of the decline in ICT prices during the 1990s, globalized production contributed to addition price declines, which allowed for the diffusion of ICT hardware throughout the economy. Globalized production and international trade accounted for 10 to 30 percent tradeoff of the decline in ICT hardware prices over this period (Mann, 2003). For example, regression analysis has found that an increase in net imports of PCs is associated with a reduction in PC prices. As the global capacity to produce dynamic random access memory (DRAMs) hardware increased relative to actual production, the decline in prices accelerated (Mann, 2003). As a result of the lower prices, ICT hardware was more easily diffused throughout the economy. This diffusion was the result of two related effects. First, technological advances in semiconductors resulted in continuing price declines for a given level of performance. These price reductions increased demand for intermediate inputs in industries that use semiconductors, such as computer and communications equipment manufacturing. Second, the price of output in semiconductor-using industries was lower, increasing the quantity demanded

9 PwC calculation using the consumer price index for all urban consumers for information technology hardware and services. 10 The decline in semiconductor prices slowed between 2001 and 2004, declining by 28.2 percent. 11 The largest end users of semiconductor chips in 1999 were computer manufacturers, making up half of the value of worldwide shipments; the next largest end users were communications equipment (21 percent) and consumer electronics (14 percent) manufacturers (Aizcorbe, Flamm and Khurshid, 2001).

22 Intel’s Economic Impacts on the US Economy, 2008 – 2012 by other industries for products like computers and telecommunications equipment (Jorgenson, Ho and Stiroh, 2002).

Firms that purchased and incorporated ICT inputs into their production processes provided indirect contributions to economic growth. Declines in the price of ICT inputs helped slow price inflation across the economy and allowed policymakers to maintain lower interest rates over a longer timeframe (Mann 2003). From the standpoint of the final consumer, technological improvements that reduced the cost of microprocessors and PCs result in direct gains in the form of increased consumer surplus. For other businesses, these technological improvements mean cheaper inputs and changes in production processes that provide further indirect benefits to the economy in the form of lower output prices form non-ICT products to the final consumer. This indirect contribution is known as “social surplus.” From 2000 to 2007, the social surplus associated with the declining prices of ICT hardware and software was about 4 percent of real GDP or about $500 billion. This increase in GDP was the result of declining prices of ICT, which resulted in new business startups and the diffusion of new business processes and practices (Mann 2012).12

Employment

During the 1990s, wholesale trade, securities and commodity brokers, depository institutions, and telecommunications all had relatively higher levels of information technology. These sectors also experienced higher contributions to GDP growth relative to other sectors in the economy (Mann, 2003). While the intensity of ICT technology increased by an average of 150 percent during the 2000s, the diffusion of ICT technology was not equally distributed across all industries. In fact, there was a widening dispersion in ICT-intensity among sectors within the US economy (Mann, 2012).

The difference in relative ICT-intensity among industries had varying impacts on employment. ICT producers, which made up about 3 percent of total employment, continued to add jobs over the 2001-2009 period. Employment in ICT-intensive service establishments grew by 5 percent during this period, adding about 1 million jobs to the US economy. In contrast, non-ICT intensive services, which accounted for about two thirds of total employment, only grew by 1.5 percent over the same period (Mann, 2012). ICT-intensive manufacturing establishments expanded and contracted with the business cycle relatively more closely than non-ICT intensive manufacturing. Over the 2001- 2009 period, employment in ICT-intensive manufacturing establishments declined by 34 percent compared to a decline of 17 percent in non-ICT intensive manufacturing establishments (Mann, 2012). Although small ICT-intensive services made up just 5 to 6 percent of overall employment in the United States, these establishments accounted for a much higher share of overall net job creation, ranging from 13 percent in 2003 to 68 percent in 2008 (Mann, 2012).

12 ICT hardware price declines contributed the most to social surplus. Although software prices did not decline as quickly, their rate-of-return was greater than hardware. Expenditures on software and ICT services are also much greater than expenditures on hardware (Mann, 2012).

23 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Case Study: Intel’s Education Collaboration

Intel supports technology education of Texas students in a number of ways so that they can be better prepared for the ICT workforce of tomorrow. Since 2000, 28,500 Texas teachers have completed the Intel Teach Program, which is designed as a worldwide professional development program, aimed at giving teachers the tools to integrate technology into their teaching curriculum. In addition, Intel has sponsored 100 paid interns from the University of Texas. These interns are integrated into the Texas research and development site and can further study and generate interest in research and development in the community and at universities. Intel interacts with the education community through various outreach programs, direct donations, and volunteer hours. A Director from the University of Texas explained, “…the tech sector is a busy place right now with a lot going on. From a student perspective it helps to attract interest.” Intel has invested in a variety of University programs to foster the kind of experience they can leverage to continue with their education and in employment with sophisticated technology firms such as Intel. The company has also been a long-time funder of diversity programs and has “changed the conversation at a local and national level.” “Intel’s commitment has made it possible to grow programs and grow staff. We have gone from 4 to 42 programs, 60 to 1000 girls, and our 8-week program has expanded from 250 girls to more than 500 girls.” - Executive Director of an Austin non-profit organization Intel provides direct capital dollars, access to resources, and numerous volunteers. The Executive Director of a local non-profit said, “Intel shows up when they say they will show up. It’s not just lip service.” Intel received high marks from a Senior Director at a local education organization, “I would give Intel high marks in volunteering…they are doing a good job recently on community involvement…and they are very consistent, not doing things as one-offs, but having conversations about the whole year and looking for opportunities to invest and grow.” “I can easily say that Intel has had the most strategic view and execution of their core university partnerships of any company with which I’ve worked.” - Senior Director of Research Relations at a large university in Texas

Structure of Labor Force

ICT-intensive firms require a workforce adept at implementing and operating new technologies. Growth in ICT investment at the end of the 20th century was coupled with a more educated workforce. The structure of the US labor force has increasingly seen a shift toward college-educated workers, who are often identified as “knowledge workers” that “make use of information technology equipment and software.” Between 1977 and 2007, the college-educated labor force grew at an average annual rate of 3.8 percent compared to 1.3 percent for the non-college educated labor input (Jorgenson, Ho and Stiroh, 2002). The college-educated workforce had a higher contribution to the GDP growth than non-college educated labor. Overall, labor inputs accounted for 1.19 percentage points of the 3.08 percent average annual GDP growth between 1977 and 2000. The contribution of college-educated workers during the same period was 0.72 percentage points compared to 0.48 percentage points for non-college educated workers (Jorgenson, Ho and Stiroh, 2002).

Economic Growth

The ICT sector's most significant economic impact is a result of the rapid expansion in the production of microprocessors, computers, and other electronic devices that began in the 1990s. The contribution of ICT production to output almost doubled during the early 1990s and accounted for 28.9 percent of growth in output between 1990 and 1995. By the latter half of the decade, ICT capital services made up half of the capital input

24 Intel’s Economic Impacts on the US Economy, 2008 – 2012 contribution (Jorgenson, 2001). ICT equipment and software played an important role in the acceleration of productivity growth over the 1995 to 2003 period (Corrado, Hulton, and Sichel, 2009). Output per hour in the private nonfarm business sector grew at an average annual rate of 2.95 percent between 1995 and 2003 compared to 1.47 percent between 1973 and 1995, an increase of 1.48 percentage points. Corrado, Hulton and Sichel found that 0.53 percentage points (or 36 percent) of this increase was due to capital deepening in the form of ICT equipment and software. Another 0.85 percentage points was accounted for by growth in total factor productivity, with the remainder accounted for by changes in the composition of labor.13 As discussed below, the computer and electronics manufacturing sector plays an important role in the TFP growth. In fact, between 1995 and 2000, this industry accounted for more than 60% of the TFP growth in the private nonfarm business sector.14

Beginning in the 1990s, ICT hardware laid the groundwork for increased economic productivity and economic growth. According to the Bureau of Labor Statistics, between 1987 and 2011 the computer and electronics manufacturing industry contributed 50 percent of private nonfarm business TFP growth (0.46 percentage points out of the 0.92 percentage point average annual TFP growth). Over the same period, output per hour for all private non-farm businesses grew at an average annual rate of 2.2 percent. In other words, computer and electronics manufacturing accounted for approximately 21 percent of the increase in output per worker over this period.15

Productivity gains related to a rapid price decline of ICT hardware resulted in approximately $230 billion of additional GDP growth between 1995 and 2002 (Mann, 2003). The direct and indirect gains in economic growth related to lower ICT prices and increased ICT-intensity amounted to an economic gain between $810 billion and $935 billion from the 2002-2007 period. After including ICT-services (such as computer design), the overall gain is closer to $1 trillion given the broad use of ICT hardware, software, and services across all industries in the US economy (Mann, 2012). Lower ICT prices supported additional investment in ICT capital which translated into productivity growth and higher growth in GDP (Mann, 2003).

Spillover Effects

Geographical proximity to pools of ICT investment results in positive "spillover" effects. Recent research looked at 4-digit SIC level industries within the Northern California region (a highly ICT-intensive region) compared to other regions. Firms with easy access to ICT capital had more flexibility in production. The increased specialization of technology firms within close proximity of each other allows non-ICT establishments to take advantage of their resources to ramp up or slow down production with more ease. For example, the output elasticity of ICT investment (i.e., the change in production with respect to a change in ICT investment) for non-durable goods manufactured in

13 See Table 6 in Corrado, Hulton and Sichel, 2009. 14 US Bureau of Labor Statistics, “Contributions of Manufacturing Industries to Private Nonfarm Business Multifactor Productivity,” June 19, 2013. 15 PwC calculations based on data from US Bureau of Labor Statistics, “Contributions of Manufacturing Industries to Private Nonfarm Business Multifactor Productivity,” June 19, 2013 and “Multifactor Productivity Trends – 2011,” April 9, 2013.

25 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Northern California was 5 percent higher than firms in the same industry outside the region (Tambe and Hitt, 2010). Firms with relatively more access to outside sources of ICT investment were better equipped to utilize new production methods and practices. The relatively higher elasticity in supply also suggests that firms with access to other highly ICT-intensive firms are more flexible in response to market changes.

Conclusion

The ICT sector boosts productivity through various channels. The rapid decline in ICT hardware prices between 1995 and 2002 contributed to $230 billion in GDP growth. The combination of ICT hardware and services contributed to an additional $1 trillion in GDP growth between 2002 and 2007. The total contribution of the ICT industry to overall economic growth over the 1995-2007 period was approximately $1.3 trillion (Mann, 2003 and Mann, 2012). Investment in ICT capital was coupled with a highly- educated workforce. As a result of the change in the structure of labor force, the real growth rate in labor productivity during the 2000s was 10 to 20 percent higher relative to its baseline from 1995 to 2003 (Corrado, Hulten and Sichel, 2009). Spillover effects related to the proximity of other ICT-intensive firms are associated with higher output per given amount of capital input.

Intel’s Contribution to US Economic Growth

Intel operates in the larger ICT sector by designing and manufacturing microprocessors, motherboard chipsets, integrated circuits, and other similar products. Microprocessors represent the largest segment of Intel’s business, accounting for an estimated 76 percent of the company’s revenue in 2012. Intel is the world’s largest supplier of semiconductors in terms of sales, with a global market share of approximately 15.7 percent.16 The microprocessors that Intel produces are components of computers and many other commonly used electronic devices. As electronic devices become more efficient (e.g., increased computing power, higher-resolution graphics, etc.), so does the productivity of the households and firms that use them.

As with the ICT sector as a whole, Intel’s products and services contribute to economic growth both through their impact on total factor productivity and through their contribution to capital deepening.

Total factor productivity. According to the US Bureau of Labor Statistics, the growth in total factor productivity (also called “multifactor productivity”) accounted for 0.4 percentage points of the 1.9 percent annual average increase in the private nonfarm business sector’s real output over the most recent five-year period for which data are available (2007 to 2011). The remaining 1.5 percentage points are due to the combined contribution of capital and labor.17 BLS data show that the Computer and

16 IHS iSuppli Research, December 2012. 17 BLS, Multifactor Productivity Trends - 2011, Table B (http://www.bls.gov/mfp/mprdload.htm). Weighting is necessary in order for the individual factor growth rates to sum to the overall growth of private nonfarm business sector output.

26 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Electronics Manufacturing sector (NAICS 334) accounted for half of the TFP growth in the private nonfarm business sector between 2007 and 2011.18 Given that Intel’s output accounted for approximately 8.5 percent of output in the Computer and Electronics Manufacturing sector during this period, we estimate that Intel’s contribution to nonfarm private business TFP growth averaged 4.2 percent (8.5 percent of 50 percent). Thus, through the TFP impact, Intel’s products and services contributed 0.02 percentage points to the private nonfarm business sector’s real GDP growth over the 2007 to 2011 period (4.2 percent of 0.4 percent). This amounts to $9.0 billion of real GDP between 2007 and 2011 (measured in 2005 dollars), or $10.2 billion nominal GDP (measured in current dollars). In other words, Intel’s products and services contributed an average of $2.o billion of nominal GDP per year in this 5-year period due to its impact on total factor productivity.

Capital deepening. Intel also contributes to GDP growth through increased investment in information processing capital by other sectors of the economy (i.e., capital deepening). Capital services contributed 1.1 percentage points out of the 1.9 percentage increase in the private nonfarm business sector’s real GDP between 2007 and 2011. Using data from the US Bureau of Labor Statistics, we estimate that computers and related equipment accounted for approximately one-half of one percentage point of the increase in the private nonfarm business sector’s real GDP between 2007 and 2011 (or $51.4 billion).19 Intel's global market share of microprocessors was 80 percent in 2011.20 Assuming that roughly 80 percent of computers in the United States use an Intel microprocessor, we estimate that Intel's contribution to real GDP growth through capital deepening was $41.1 billion over the 2007 and 2011 period (measured in 2005 dollars), or $44.6 billion in nominal GDP (measured in current dollars).21 In other words, Intel’s products and services contributed to an average of $8.9 billion of nominal GDP per year through capital deepening in this 5-year period.

18 Bureau of Labor Statistics, Multifactor Productivity Trends in Manufacturing, 2011. The contribution of the computers and electronics manufacturing sector to TFP was 0.22 during the period of 2007-2011. The contribution of private nonfarm business to TFP was 0.44 for the same period. The computers and electronics manufacturing sector therefore contributed half of private nonfarm business TFP growth. 19 BLS, Multifactor Productivity Trends- 2011, Table 5. Various asset shares can be found in the MFP comprehensive tables, "Capital and Information Capital Measure by Asset Type," http://bls.gov/mfp/mprdload.htm 20 Statista, Microprocessor Market Share Worldwide 2009-2011. 21 This analysis implicitly assigns all of the value of a personal computer with an Intel chip to Intel and excludes the value of Intel’s chips used in other types of communications and electronic equipment.

27 Intel’s Economic Impacts on the US Economy, 2008 – 2012

As shown in Table 9,22 the contribution to GDP of Intel's products and services through total factor productivity growth and capital deepening over the 2007-2011 period was estimated to be $54.8 billion in nominal terms, or approximately $11.0 billion per year.

Table 9 – Contribution of Intel's Products and Services to US Economic Growth, 2007-2011

$10.2 billion

Contribution to TFP

Contribution due to Capital Deepening

$44.6 billion

Total Contribution = $54.8 billion

Source: PwC calculations based on data from IMPLAN and the Bureau of Labor Statistics.

22 BLS, Multifactor Productivity Trends – 2011, Statista, and PwC Calculations. GDP price deflators converting real to nominal growth are from Appendix B of the 2013 Economic Report of the President.

28 Intel’s Economic Impacts on the US Economy, 2008 – 2012

VI: Case Studies

In addition to the significant economic impact generated from operations and capital investments at locations with large Intel manufacturing facilities in Oregon, Arizona and New Mexico, there are other impacts related to job creation and talent growth, innovation, industry leadership, supplier benefits and clustering impacts. To qualitatively assess Intel’s impacts on the US national and local economies, PwC and Intel jointly identified three themes that would be the focus of three field-level case studies of Intel’s operations and investments in the United States.23

In creating the case studies PwC utilized the following approach:

 First, PwC created a strategy and plan to assess Intel’s impact. We incorporated existing known information supplemented with research and a structured stakeholder analysis that leveraged input and guidance from internal Intel sources, suppliers, consumers, laborers, colleges, community programs, and governmental policy makers.

 Next, PwC focused its efforts on conducting face-to-face interviews with key stakeholders as they were identified within both the direct value chain and indirect channels using structured interviews. While the interviewing team followed scripted questions, in order to obtain rich qualitative insights from the respondents, the team pursued additional lines of questioning and themes when interesting issues arose as part of the conversation.

 Finally, upon completion of research, interviews, and analysis, the PwC team developed a comprehensive economic overview which is outlined herein.

Quotes from some of these respondents are included in the highlights below.

23 For the purposes of the Case Studies, Intel refers to Intel Corporation, excluding McAfee and Wind River subsidiaries.

29 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Intel’s effects on its Oregon supply chain as “the most important economic factor in Oregon” and that Intel “makes a difference and is stable in our economy.” Furthermore industry veterans touted Intel as a company that “kept the manufacturing and expertise in this country [US]” and noted that “without Intel, the semiconductor industry would be considerably less US-centric and further behind.”

The following pages describe the results of the individual Case Studies.

30 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Case Study 1: Research and Development Innovations and Technology Advancements with Local, State, National and Global Implications

Globally, Intel spent $10.1 billion on research and development (“R&D”) in 2012, the majority of which is staffed and occurs within the United States. Intel’s R&D initiatives are constantly expanding the technology market and creating opportunity for improvements in efficiency, data analysis, and user-experience. Major research and development hubs for Intel are spread across the United States including: Oregon, Texas, Pennsylvania, Wisconsin, South Carolina, New Hampshire, Washington, California, and Colorado. Each of these sites is designed to stay closely connected to its technology ecosystem and each site contributes to the research and development capabilities of Intel nationally.

Exhibit 1.1: Intel’s Worldwide Research and Development Spend (2008- 2012)

R&D Spend by Year

10.1 11 10 8.4 9 s

n 8 6.6 o i l l

i 7 5.7 5.7 B 6 n i

D 5 S

U 4 3 2 1 0 2008 2009 2010 2011 2012

Intel’s R&D initiatives have delivered a number of major technology advancements including, to name a few: low-power architectures; virtualization technologies; and, teraflops research processors. Intel is consistently an early adopter of innovative technology, which can be seen through Intel’s equipment purchasing. An internal Intel manufacturing equipment buyer stated, “We see a 1 to 3 year gap between the first small wave of equipment buyers, mainly Intel, and the second large wave of equipment buyers…the gap is mainly a function of Intel’s technology growing faster than the competition.”

31 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Below are two examples of Intel’s R&D contributions, impact and leadership.

Intel recently built a development fabrication facility in Oregon that opened in 2013 and is building a leading-edge technology, large-scale fabrication facility in Arizona. R&D spending increased in 2012 by 22 percent over 2011, driven by increasing investments in smartphones, tablets, Ultrabook systems, and data centers. Furthermore, R&D spending increased with annual wage increases, higher process development costs for Intel’s next-generation 14 nano-meter process technology, and higher costs related to developing the 450 millimeter wafer technology. Examples of Intel Impacts by Particular R&D Center Geographic Locations

Intel’s Massachusetts Design Center in Hudson, Massachusetts is home to more than 825 engineers engaged in microprocessor design, testing and validation for the development of next generation multi-core Itanium® and Xeon® microprocessors for high-end servers. Lab facilities, technical staff, and engineers work directly with product design teams on first silicon readiness to support the introduction of new high performance products before they are released for high volume manufacturing. Labs are staffed by a cross-functional team of content developers, debug engineers, software engineers, technicians and inventory control specialists, working closely with design and validation engineering working on first silicon to volume validation to deliver production ready quality products.

In Intel’s New Hampshire R&D and production facility, a group of 60 Intel research and development employees researches methods to make it easier to perform parallel programming on Intel processing cores while maximizing application performance. Parallel programming by definition is aimed at compartmentalizing complex problems into smaller, more manageable problems and computing solutions simultaneously. The site manager of the New Hampshire Intel facility described the importance of the work being performed as, “enabling the technology created by Intel, meaning, without them, the development community would not be able to “unlock” the potential and performance of the newer multi-core processors developed at Intel.” The programming

32 Intel’s Economic Impacts on the US Economy, 2008 – 2012 language, prototypes and tools developed here allow end-users of Intel’s silicon to better understand and utilize the capabilities of the products. Intel’s R&D in New Hampshire focuses on faster computing, higher efficiency, and ease of technology use for more applications.

In Intel’s Columbia, South Carolina facility, approximately 310 Intel engineers test Intel’s products to verify the already-designed product’s features work as advertised and meet stated specifications. It is considered the “last step” before the completed piece of research and development becomes commercialized. The site manager of the South Carolina design center stated, “All of our validation activities have successfully yielded commercialized products in the XeonTM and CoreTM product lines; for example, XeonTM E5 is a recent product predominantly supporting Cloud and Data Center programs validated at the South Carolina facility and the highly successful 4th Generation CoreTM graphics system was also validated here.” When asked about the effects of the research and development site on the local economy, the site manager responded, “Salaries for this site are notably higher than the comparative geography and our employees enjoy a generally higher standard of living…The South Carolina Commerce Secretary’s office tells us our gross salary of $26 million has a compounded effect of nearly three times [$76 million] on the local economy.”

In Intel’s Eau Claire, Wisconsin lab, a group of 60 Intel employees are defining, designing, validating, and testing components into which fabric connects. Fabric is high-speed interface that connects elements of a computing system and a key technology for supercomputing. Fiber cables act like the network connection on a computer, allowing the user to send and receive data. Data transfers through fiber 25 billion times per second, allowing for faster sending and receiving of information than ever before. Fiber cables play a key role in high performance computing, which improves our economy, safety, and fundamental knowledge. This technology helps oil companies reduce wasted effort by accurately identifying and locating oil reserves, improves the accuracy of weather predictions allowing for accelerated warning systems, and allows for intricate simulations of real-world catastrophes to predict impact and provide planning tools for disaster relief efforts. The Wisconsin team has grown by 20 percent in the past year and is expected to continue on its growth trajectory.

In Fort Collins, Colorado, approximately 425 Intel employees design data center applications and solutions including the XeonTM and ItaniumTM architectures. The Fort Collins R&D center is responsible for the architecture, design, and development of high- performance server microprocessor for server and workstation applications. The site collaborates with universities by participating in programs to grow awareness of and support professorships in Science, Technology, Engineering and Mathematics (“STEM”) careers. In addition, the site participates on external boards and conference committees to support women and minorities in STEM. The design center also impacts its community through environmental initiatives such as recycling (68,000 lbs. in 2011), reducing onsite energy and gas consumption (by an amount that is equivalent to the annual energy and gas consumption by 250 average American households), and improving the eco-friendly options for worker transportation by implementing and incentivizing a “bike to work” program. This group also is noteworthy because it

33 Intel’s Economic Impacts on the US Economy, 2008 – 2012 benefits its community through direct community giving. Intel Fort Collins is Intel’s number one United Way contributor in the nation by average gift size per donor at $3,500. Intel R&D: Case Study Interview Results

Intel’s research and development efforts contribute to the US economy in significant ways:

 Job Creation – The research and development arm of Intel Corporation is home to high-paying and innovative employment opportunities. These jobs and positions not only provide internal job growth, but also external job growth through individual start-up companies, service and support positions for the improved technology, and local small businesses through employee dollars spent.  Innovation – Intel’s research and development and further commercialization into viable products enables large technology companies to improve upon current performance, increase user experience, and deliver value to the economy. Intel research plays a critical role in setting the path for the technology market.  Industry Leadership – Intel is leading current technological innovations. According to semiconductor industry experts, “Without Intel’s contributions, the US semiconductor industry and the US technology industry in parallel would not be the leader it is today.”  Education Collaboration – Intel works with numerous education programs from grade-school all the way to post-graduate and Doctoral programs. These programs help to highlight the positive aspects of STEM careers and build the pipeline for a healthy middle-upper class of graduates.  Community Impact – Intel’s volunteerism, community engagement, and continuously giving nature impact the local communities in which it operates. These programs coupled with the small business support by the employees of Intel, are the building blocks for a strong local community.

Each of these topics is covered in greater detail below. Intel selected its Austin, Texas design center to measure the individualized effects of an Intel research and development site on the local community and economy. Job Creation

Many industry experts maintain that Austin, Texas is in many ways considered a “miniature-Silicon Valley” often referred to as “Silicon Hills,” with presence from many large technology companies including, Dell, IBM, National Instruments, and Samsung. Intel is a significant employer in Austin with approximately 1,300 high-paying jobs in its R&D Center.

34 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Texas is the second largest state by population at over 26 million in 2012.24 Texas maintains 29,380 tech establishments, employing 485,636 individuals in 2012. Tech employees in Texas average $92,200 in annual salaries, 85 percent higher than the average private sector wages of $49,800.25

“I can say with absolute certainty that Intel has made it possible for us to expand our impact and hire more people to expand our programs.” - Executive Director of an Austin non-profit organization

Intel is a crucial contributor to bringing high-paying tech jobs to the Austin area. According to an executive member of the Austin Chamber of Commerce, “For the last 10 years our chamber has worked to revitalize the economy. A lot of effort has been about bringing in a diverse set of jobs…” In the past 18 months, Intel has bought property, consolidated operations, and had a successful round of hiring. These diverse jobs can serve to improve the economy by raising standards of living, keeping the job market viable for high-talent graduates coming out of universities like the University of Texas – Austin and Texas State, and drawing additional talent to the region.

“They [Intel] hire a bunch of people and their kids get to go to good schools…providing that quality of life and quality of job creates Intel’s ripple effect… [that] can be seen in southwest Austin” - Executive Director of an Austin non-profit organization

“Intel is a significant provider of jobs to the region.” - Senior Director of an Austin workforce development program Innovation

Intel works with its end-customers to collaboratively develop projects, software, and solutions that will create and enable the technology of tomorrow. Intel is involved on an everyday basis with representatives from some of the largest technology manufacturers to define the technology roadmap in a collaborative and open environment. This collaboration and innovation between component and product manufacturers increases benefit and value to joint customers. The relationship between Intel and its customers is described by Intel as “…one of the most multifaceted relationships in the industry. We collaborate on products as well as software and solutions.”

“Our company and Intel have been partners for over 30 years. One of the things that really pulled us together was the rich DNA of innovation running through both of our companies. We have a similar set of values: Try to do our very best for our customers every day by bringing forward technology that matters.” - VP and GM of US Commercial Sales for a significant Intel client

24 http://www.dshs.state.tx.us/chs/popdat/st2012.shtm 25 CyberStates Report 2012.

35 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Intel is responsible for unlocking the potential power, performance and other capabilities in the industry-leading technology that is being developed in Intel labs around the country. This means developing programming language, testing capabilities, and creating innovative software to interact with the technological advancements that are driving the industry forward. A design center site manager at Intel said that “our compilers and tools…unlock the potential of our newer, multi-core processors.”

“Intel is great at executing on new technology…they lead the industry in introducing new technology and also independently go and coordinate the technology development and the architectural development so that they can deliver a new architecture and technology every year.” - 35-year semiconductor sector veteran

Intel is responsible for some of the most useful technological research and development advances. Intel has pioneered research on technological power consumption, computing ability, and size of application, to name a few. Intel’s Austin, Texas research and development center is working on a number of innovative products including, perhaps most significantly, AtomTM processors. The AtomTM processor is a new disruptive technology enabling a wide spectrum of products including netbooks, entry- level desktops, tablets, smartphones, consumer electronics devices, and other companion devices. Atom processors are ultra-low-power and are improving the uptime of the useful technology that individual users interact with on a daily basis. In a recent comparison, a Windows 8 tablet with Intel AtomTM processor showed the lowest 2-year cost of ownership and the highest battery-life when compared to the Apple iPad, Android tablet and Windows RT tablet.26 Industry Leadership

Intel is described as having a position of “…leadership, ahead of all their competition…” by a 35-year semiconductor veteran. Intel has been a leader and driver in the market since its inception. Intel is responsible for continuous improvements in efficiency, speed, computing power, and user experience. Intel communicates its strategic vision to the technology community, and strives to grow the base of future employees through educational support programs such as the Semiconductor Research Corporation and other educational collaboration described below.

“Intel’s strategic view and coordinated actions have helped keep the United States at the leading edge of development. Intel has helped guide the long-term direction of research down to the University level so that it and other companies can leverage those fundamentals 10-15 years in the future.” - 35-year semiconductor sector veteran

Intel is driving the market forward both at the national level and in local jurisdictions like Austin. With programs aimed at solving complex problems and performing, innovative research at collaborative institutes including Stampede at the University of

26 http://www.principledtechnologies.com/Intel/Atom_tablet_TCO_0313.pdf

36 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Texas, Intel continues to lead the industry from an R&D strategic perspective. Intel’s R&D initiatives are continually assessing the strategic computing and technology roadmap to address everyday problems and engineer productive solutions. As the Senior VP for Research and Reports at a nationwide technology advocacy group commented, “Intel has been very active in education and encouraging STEM fields. These are long-term views that allow Intel to create industry clusters to support their goals.”

“Without Intel, the semiconductor industry would be considerably less US-centric and further behind. If it weren’t for Intel, the US wouldn’t have nearly the influence and presence it has in the semiconductor industry today. When companies were moving overseas in the 1980s and 1990s, Intel kept the manufacturing and expertise in this country and we are still the leaders worldwide.” - 35-year semiconductor sector veteran Education Collaboration

Intel understands that without acceptable candidates to fill positions, technology businesses cannot grow, innovate, and sustain themselves. The research and development of tomorrow will be performed and formulated by the young men and women of today. Since 2000, 28,500 Texas teachers have completed the Intel Teach Program. To facilitate the development of the next generation of technology professionals, Intel developed the Intel Teach Program which is designed as a worldwide professional development program, aimed at giving teachers the tools to integrate technology into their teaching curriculum. In addition, Intel currently staffs 100 paid interns from the University of Texas. These interns are integrated into the Texas research and development site and can further study and generate interest in research and development in the community and at the universities.

Intel is dedicated to the education community through various outreach programs, direct donations, and volunteer hours. A Director from the University of Texas explained, “…the tech sector is a busy place right now with a lot going on. From a student perspective it helps to attract interest.” Intel has invested in a variety of university programs to foster the kind of experience students can leverage to continue their education and find employment with sophisticated technology firms such as Intel. The company has also been a long-time funder of diversity programs and has “changed the conversation at a local and national level.”

“Intel’s commitment has made it possible to grow programs and grow staff. We have gone from 4 to 42 programs, 60 to 1000 girls, and our 8 week program has expanded from 250 girls to more than 500 girls.” - Executive Director of an Austin non-profit organization

Intel provides direct capital dollars, access to resources, and numerous volunteers to assist in these educational efforts. The Executive Director of a local non-profit said, “Intel shows up when they say they will show up. It’s not just lip service.” Intel received

37 Intel’s Economic Impacts on the US Economy, 2008 – 2012 high marks from a Senior Director at a local education organization, “I would give Intel high marks in volunteering…they are doing a good job recently on community involvement…and they are very consistent, not doing things as one-offs, but having conversations about the whole year and looking for opportunities to invest and grow.” TACC & STAMPEDE

The Texas Advanced Computing Center (“TACC”) supports cutting-edge research in nearly every field of science. TACC’s mission is to enable discoveries that improve science and society through the application of advanced computing technologies. TACC is comprised of 110 staff and students and operates some of the most powerful supercomputers and visualization systems in the world. Supercomputing is a critical and relatively new element of scientific discovery, allowing scientists to explore and hypothesize around “phenomenon that are too big, small, fast, or dangerous to investigate in the laboratory.”27 Scientists use the computing resources at TACC to create forecasts, run complex scenario analyses, develop innovative solutions to age-old questions, and perform other critical research.

Intel is a member of TACC’s Science and Technology Affiliates for Research (“STAR”) program. The mission of this program is to promote a mutually beneficial exchange between industry and academia in advanced computing techniques and technologies, and at the same time foster a framework for technology innovation and support economic development in the state of Texas and across the nation. Furthermore, Intel collaborated with Dell and TACC to develop Stampede, one of the most advanced scientific research instruments in the world. With more than 500,000 Intel Xeon PhiTM coprocessors, Stampede was listed as the 7th most powerful advanced computing system on the planet and the most powerful in the United States dedicated to academic research.28 It took TACC approximately a year to design, build, and deploy the Stampede supercomputer working closely with Intel and Dell engineers and university researchers. The project was awarded $50 million in funding by the National Science Foundation over a four year period with the option to renew in 2017, enabling four more years of open science research.

“Stampede is an important part of NSF’s portfolio for advanced computing infrastructure enabling cutting-edge foundational research for computational and data-intensive science and engineering. Society’s ability to address today’s global challenges depends on advancing cyberinfrastructure.” - Farnam Jahanian, Head of NSF’s Directorate for Computer and Information Science and Engineering29

Supercomputers like Stampede are important for a number of reasons: they allow scientists to conduct research that would otherwise be impossible to observe; they increase the speed and efficiency of research and development, allowing questions to be

27 http://www.tacc.utexas.edu/about/ 28 http://www.top500.org/blog/lists/2012/11/press-release/ 29 http://www.tacc.utexas.edu/stampede/

38 Intel’s Economic Impacts on the US Economy, 2008 – 2012 answered faster than with previous technology; and, they allow for simulation, visualization, and intelligent data storage to grow knowledge stores and improve understandings of everyday and complex events. Over the course of Stampede’s lifetime, it is estimated that it will provide the equivalent of more than 400,000 years of computing to tens of thousands of scientists.30 Intel’s contribution to the project goes beyond the Xeon PhiTM coprocessors. Intel works with scientists in various fields to adapt simulation packages to run efficiently on the coprocessors, enabling faster and more complex research to be performed.

Stampede is an example of Intel technology leading the industry and improving on the computing capabilities of the United States and local economies. This leadership drives job growth, economic development, talent clustering, and national research comparative advantages. Community Impact

Intel understands the importance of being involved in the local community and invests in the community in a number of ways including through direct employee volunteers both in the community and at local science and technology festivals, and providing resources for local events and initiatives.

Intel assists the community in developing a skilled workforce through support of local organizations that train the adult workforce. One Texas program, which Intel directly supports through volunteering and direct donations, trains 400 people every 6-8 weeks for a skilled trade and 500 people per year on computer programming, technology, and maintenance. Intel is involved heavily in the local Austin Science and Engineering Festival, contributing $25,000 annually and encompassing 10,000 students and volunteers. “The festival is focused on training the workforce of tomorrow,” said a long- time executive-director of the festival. “Intel is definitely the most involved of the tech firms.”

“Intel attracts more companies to the region. Their design center attracts others.” - Senior Director of an Austin workforce development program

30 http://www.tacc.utexas.edu/news/feature-stories/2013/texas-unleashes-stampede

39 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Case Study 2: Supply Chain Ecosystem Fostering High Quality US-Based Supply through Domestic Operations

Intel is the world’s largest semiconductor-chip maker by revenue and requires a vast supply chain of upstream suppliers to fill its specialized requirements from raw materials and other fabrication inputs, to manufacturing equipment, to construction equipment and services, to fabrication-site labor. Its presence in the United States has continued to provide the country with a global-leader position in PC microprocessors. Intel also serves a key supply chain role looking downstream as a supplier not only to its direct customers but also for its impact on other related parties, enterprise and consumer, who use or integrate Intel’s products. Consideration of Intel’s entire supply chain – both upstream and downstream – shows that the company has a substantial impact on the US economy. Upstream Impacts

For example, Intel’s advancements in technology, position in the market, and quality brand name draw suppliers close to its US fabrication sites and can pave the way for additional foreign direct investments into the United States. In fact, many of Intel’s global suppliers have set up distribution, sales, and supply companies in the United States in order to be closer to Intel and better integrate into Intel’s supply chain.

“We see suppliers opening applications labs and supply bases within a mile or two of our campus. Japan-based companies and European-based companies have opened sites near our Oregon and Arizona campuses to get in front of our people and to work closely with Intel.” - Intel Executive who works directly with suppliers

Downstream Impacts

Intel’s role in the US economy does not stop with a high-quality technology supply base. Intel plays an integral part in supplying and enabling the original equipment manufacturers (“OEMs”), such as Hewlett-Packard (“HP”), Dell, and Lenovo, to change the ways end-users interact with and apply technology to their everyday lives. Intel supplies its customers with quality products, a brand-name relationship, and strategic guidance that can help to expand its customers’ client bases.

“We worked together with Intel on a very large, global target that was not currently our account. In our partnership we convinced the account to move to our company across desktops, notebooks, and workstations. The client relationship was successful and renewed with another three-year contract, and one of the main reasons the account cited for wanting to do business with us was because of the collaborative relationship we had with Intel.” - VP and GM of US Commercial Sales for a significant Intel client

40 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Impact in the United States

Intel is the fifth largest capital investor in the United States and number one among manufacturers.31 From an expense standpoint and its impact on the supply chain, Intel spent $11.0 billion on capital expenditures worldwide in 2012.32 This amount is largely driven by Intel’s manufacturing and new expansion, approximately 75 percent of which is housed in the United States. In addition, 42 percent of global supply chain spending is sourced from companies located in the United States. In 2012, Intel had operational expenditures of almost $2 billion in support of the Oregon site, approximately 90 percent coming from more than 2,000 US-based suppliers from 46 different states.33

Although more than three-fourths of Intel’s $53.3 billion in 2012 sales revenue was generated outside the United States, the majority of the company’s microprocessor manufacturing occurs in the United States at the Arizona, Oregon, New Mexico, and other sites.

Exhibit 1.2: Intel Supply Chain

Upstream Downstream

Raw Material Suppliers Original Equip. Manufacturer Manufacturing Equip. Suppliers Intel Fab Original Design Manufacturer Const. Equip. and Site Service Suppliers Other End-Users

Direct Fabrication Labor

Secondary Supply Chain Entertainment Rental Cars Philanthropies Hotels Airport Business Education Restaurants Infrastructure Public Programs

From a standpoint of resources employed in the United States, in 2012, Intel Corporation had 49,721 employees within the United States, 5.7 times more than any other country in which Intel operates. This number understates Intel Corporation’s

31 Diana G. Carew and Michael Mandel, “U.S. Investment Heroes of 2013: The Companies Betting on America’s Future,” Progressive Policy Institute, September 2013. 32 Intel 2012 Annual Report – Intel Corporation only (i.e., excludes McAfee and Wind River subsidiaries). 33 Intel Personnel.

41 Intel’s Economic Impacts on the US Economy, 2008 – 2012 total employment since it does not take into account contract employees, interns, and employees of subsidiaries. Intel Corporation’s five largest US sites by 2012 headcount were: Oregon (16,381); Arizona (11,913); Folsom, California (6,209); Santa Clara, California (5,876); and, New Mexico (3,335).34

Intel is a recognized leader in the technology supply chain winning multiple awards and ranking highly among the largest companies in the world. For example, Intel ranked seventh on Gartner’s 2012 Supply Chain Top 25 list for excellence in supply chain management. This is also demonstrated in its supplier assistance initiatives, supplier collaborations, and efforts around environmental sustainability and “conflict material” avoidance. Supplier Assistance Initiatives

Intel provides its suppliers with a number of beneficial initiatives. These programs not only have a positive impact on the suppliers that they directly affect, but they also contribute to a quality and sustainable US semiconductor and technology supplier ecosystem. Suppliers receive tangible and intangible benefits from working with Intel including: direct sales; access to Intel equipment, engineers and any shared product roadmaps and technology plans; and the market perception of being a quality leader given Intel’s selection of the company as a supplier.

Intel holds “Supplier Days” in which suppliers come together to discuss, learn, and participate in working sessions. In addition, Intel assists its suppliers with health and safety training. Suppliers often reach out to Intel and Intel proactively seeks out opportunities to assist their suppliers. Intel performs a Supplier Quality Health Assessment in which Intel performs a 3-4 day intensive program to assess 20 key performance indicators. Intel provides the supplier with a report outlining the findings of the assessment and strategically consults with the supplier on ways to improve weaknesses. Recently, after Japan’s major 2011 earthquake and tsunami, some of Intel’s Japanese suppliers noted that they were better prepared for that event because of Intel’s vision and focus on risk management and supply chain resiliency.

34 Intel CSR Report 2012.

42 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Exhibit 1.3: Intel Supplier Imperatives

Designed to award and publicly recognize Intel suppliers for meeting cost, quality, availability, delivery, technology and environmental, social and governance goals, the Supplier Continuous Quality Improvement Program (“SCQI”) is another example of Intel’s commitment to assist its suppliers, achieve performance, quality, and design excellence. Annually, all of Intel’s suppliers are graded on a balanced scorecard measuring key performance indicators. The balanced scorecard focuses on a number of key areas including safety, quality, cost, technology, environmental and social governance, and output. To recognize the efforts and the achievements of the suppliers that meet the established goals, Intel publicly announces the winners of the SCQI award raising the winning suppliers’ visibility and international recognition. An internal Intel executive who works directly with suppliers stated, “We publicly recognize the suppliers...acknowledging they are Intel suppliers, and in the top tier in terms of capabilities.” Supplier Collaborations

Intel hosts between 20-25 supplier collaborations per year within the equipment and automation group alone. These collaborative relationships allow for mutually beneficial innovation. Engineers from both the suppliers and Intel design and develop new products, capital equipment, and new technologies. Engineers from the collaborating suppliers have access to capital equipment, ideas, silicon wafers, pattern test structures, and metrology capabilities that Intel maintains. Some of the associated capital equipment Intel provides has a cost between $15 million and $50 million. As Intel’s technology and equipment roadmap has expanded relative to competitors, its suppliers receive access to equipment and technology otherwise unobtainable in the marketplace. The suppliers benefit by avoiding steep capital expenditures, gaining access to Intel

43 Intel’s Economic Impacts on the US Economy, 2008 – 2012 engineers and experience, and joining Intel with innovating around leading-edge of technologies. Environmental Consciousness and Sustainability

Intel is focused on achieving a more environmentally sustainable business model. For example, water is one of the biggest consumption items for Intel, using approximately 9 million gallons daily. About 22 percent of Intel’s daily water consumption occurs in its Chandler, Arizona chip manufacturing plant. In a desert community that receives only 9 inches of average annual rainfall, water recycling is of paramount importance. Currently, the Intel site recycles approximately 60 percent of its water, with plans to increase that amount to 90 percent in the future. Intel and the city of Chandler, Arizona are working together to solve the water problems. According to an article recently published in BusinessWeek, “‘Intel and the city inked another agreement ahead of this expansion in which the company would help secure and pay for added water rights,’ said Doug Toy, Chandler’s Water Regulatory Affairs manager. It is also paying for upgrades to the city’s wastewater-treatment plant. Intel has “been a very good partner,” Toy said. ‘They are part of the solution, not part of the problem.’”35 Social Consciousness and “Conflict Material” Avoidance

Intel is a pioneer in working to put systems and processes in place to reduce the possibility that the minerals it is purchasing and that its suppliers are providing are “conflict minerals.” Conflict minerals are broadly defined as metals such as tantalum, tin, tungsten or gold where the ores are mined and sold by militant groups to finance violent activities. Intel was the first electronics company to publish goals around manufacturing “conflict-free” products and has worked to achieve their goals in the following ways, to name a few:36

1. Achieved its 2012 goal to be conflict-free for the metal tantalum. All tantalum smelters identified in Intel’s microprocessor supply-chain have been validated to be conflict-free via the Electronic Industry Citizenship Coalition and Global e- Sustainability Initiative. 2. Mapped greater than 90 percent of its supply-chain, identifying over 140 unique smelters. 3. Conducted an on-the-ground review of the extractives and minerals trade in the Democratic Republic of the Congo. 4. Initiated an industry-sponsored funding program called the “CFS Early Adopters Fund” to accelerate smelter participation in validating conflict-free supply lines.

35 http://www.businessweek.com/news/2013-09-15/intel-refilling-aquifer-reflects-water-concern- climate-and-carbon#p2 36 http://www.intel.com/content/dam/doc/policy/policy-conflict-minerals.pdf

44 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Supply Chain Impacts as Seen Through the Hillsboro, OR Fabrication Site

Intel’s supply chain impacts the United States and local economies in many and varying ways. Among Intel’s significant centers of operation, this review will focus on Intel’s site in Hillsboro, Oregon to elucidate the individualized effects of an Intel fabrication site on a local community and economy. The main impacts of Intel in Oregon are listed below:

 Direct Economic Benefits – Intel’s supply chain is integrated into the US economy. Interacting with coast-to-coast suppliers, Intel builds the workforce through capital expenditures, improving its suppliers through consultative support, and direct hiring.  Supplier Benefits – Intel provides a number of benefits to its suppliers and those companies to which Intel supplies. From access to capital equipment to health and safety training programs, Intel builds mutually beneficial relationships and helps to create the top-tier suppliers in the semiconductor and broader technology industry.  Clustering Impacts – Intel is a gravitational force in the technology industry. Foreign and domestic companies feel a strong need to be close to that industry leadership and Intel’s geographic locales, bolstering local economies and creating technology ecosystems in metropolitan areas.  Community Involvement – Intel is one of the most philanthropic and community oriented companies as described by interview respondents. Its interaction with the local economies through education development, fundraising, volunteering, and small-business-building activities strengthens the locales in which it operates and by extension the broader US economy.  Industry Leadership – Intel’s supply chain has evolved over the years to be one of the best in the world. Improving the supply chain allows the business to run more efficiently. Acting as the middle of the computing supply chain, Intel plays a critical role in growing the capabilities of suppliers and OEMs.

Each of these topics will be covered in greater detail below. Direct Economic Benefits

Intel provides the Oregon region with approximately 16,400 direct jobs, making it the state’s largest private employer. For perspective, Intel represents roughly 20% of tech employment in Oregon which has more than 5,300 tech companies employing a total of 81,632 tech industry professionals.

Intel also compares favorably with respect to employee salaries and Oregon’s standard of living. The average annual salary of tech sector employees in Oregon was $94,200 in 2012, or 123 percent higher than other private sector employment within Oregon.37

37 CyberStates Report.

45 Intel’s Economic Impacts on the US Economy, 2008 – 2012

“Intel’s average wage is approximately $125,000 here in the Portland metro area, while average per capita income is $41,000.” - President and CEO of the largest business advocacy organization in Oregon

Intel is the largest taxpayer in Washington County, contributing $20.8 million in taxes to the County in 2012.38 Oregon does not have a sales tax; therefore, its excise tax (i.e., the tax for the privilege of doing business in the state) is the primary revenue source for the state along with property and employment taxes. Tax revenues serve to fund, for example, public safety employees, public school employees, government officials and staff, and state economic development initiatives – tax contributions therefore provide an employment impact beyond Intel’s direct workers.

“[As] the largest [employer] in the state...Intel has a huge impact from a state-wide perspective.” - President of a local Oregon Chamber of Commerce

Intel also impacts job creation through consistent and substantial capital spending. Intel’s capital spending on its Washington County campuses in Oregon provides one example. The company’s capital investments in the state exceed $25 billion since it acquired its first piece of property in Oregon in 1974. A senior member of the Oregon Building Trades and Portland Development Commission recently remarked that the construction jobs that Intel provides have a ripple effect on the economy in numerous areas including, for example, construction workers paying mortgages, going out to dinner, and making other purchases.

“All of the construction jobs related to Intel’s new fabrication sites put the construction industry back to work in the state [Oregon].” - President and CEO of the largest business advocacy organization in Oregon

“Through some of our darkest times during the technology bust in 1999-2000, Intel had cranes in the air doing construction. Intel makes a difference and is stable in our economy.” - President of a local Oregon Chamber of Commerce Supplier Benefits

Intel’s suppliers in Oregon have access to Intel’s talented workforce and strategic consulting, as well as materials, equipment, and ideas not available elsewhere in the technology market. Intel’s Oregon-based suppliers are strategically located to reduce logistics-related expenses and take part in the cluster’s exchange of capital, workforce, and innovation. Becoming an Intel supplier brings with it the perception of being at the leading-edge of technology innovation. This market perception can help local suppliers to expand their knowledge-base, improve their functions, and win additional work.

38 Intel.

46 Intel’s Economic Impacts on the US Economy, 2008 – 2012

“We look for equipment suppliers that can meet our technological needs and provide the lowest possible total cost of ownership including capital cost, consumption of spare parts, uptime, and automation. We also look for companies that have an environmental and social governance process and policy in place.” - Intel manufacturing equipment buyer who works directly with suppliers

“Suppliers that work with Intel have to meet exacting standards and by doing so demonstrate their ability to be world-class. It gets out to the industry who Intel works with.” - Intel manufacturing equipment buyer who works directly with suppliers

When considering the rigorous senior management review process that a supplier must pass in order to become an Intel supplier, one can understand the perception of quality and performance that an Intel supplier conveys. Intel assists suppliers that have not fully matured in their understanding of their supply chain. Intel suppliers in Oregon have access to the same programs and consultations as those available to all suppliers. The Supplier Quality Health Assessment and the Supplier Continuous Quality Improvement programs described earlier improve the suppliers’ business model and can provide suppliers with an honest strengths, weaknesses, opportunities, and threats (“SWOT”) analysis of where their operations stand relative to top-tier industry benchmarks. Suppliers have commented that, “We could pay a lot of money to have someone come in and do this, but Intel does it for free.” Some Intel suppliers comment that the assessments are “balanced, fair, and analytical...they helps us see where we can improve and be more efficient.”

“Our key message to our suppliers is not to meet the requirements just for Intel, but to do it for themselves, to create a better, more high-performance supply chain.” - Intel supply chain quality and integration manager Clustering Impacts

Intel’s fabrication site in Oregon is among the largest and most technologically advanced site in the Intel ecosystem. The talent and innovative spirit that surrounds the site fosters growth opportunities for suppliers, start-ups, and economic value. Intel’s presence in Oregon paves the way for other companies and worldwide individuals to gravitate towards Intel’s critical mass. Intel’s presence helps to grow a highly talented workforce through internal trainings, external involvement with colleges and universities, and funding and support of Science, Technology, Engineering, and Math (“STEM”) programs for students.

“Intel grows the local Oregon cluster through the labor pool that has learned crucial technical skills and businesses that pop up to serve Intel.” - Senior Vice President Research and Reports for a leading technology advocacy group in the United States.

Intel’s supply partners generally make every effort to be close to large Intel sites and gain access to Intel technologies. By responding to Intel’s supply requirements, local

47 Intel’s Economic Impacts on the US Economy, 2008 – 2012 vendors grow their capabilities and create further self-sustaining opportunities for growth. The gravitational pull of Intel creates supply-chain clusters in each of their manufacturing locations. As the President of a local Oregon Chamber of Commerce described, “As a native Oregonian, I have seen the ecosystem and watched it grow. Their supply chain wants to be located close to Intel which then draws other companies.” Intel’s cluster extends to suppliers, local consumers, laborers, and businesses, colleges, other manufacturers, governments and policy makers, and throughout the local communities in tax dollars and philanthropy.

Exhibit 1.4: Intel Cluster

Colleges, Other Manufacturers, Governments /Policy Makers “Intel is the single most important economic factor Consumers, Laborers, in Oregon today...they Local Businesses bring workers from worldwide over to here.” Suppliers, Logistics “No one is as big and as comprehensive as Intel.”

“If you took Intel out of Oregon, we would be in trouble.”

- President and CEO of the largest business advocacy organization in Oregon

Community Involvement

Intel is one of the largest companies both nationally, and in Oregon. Intel impacts the local communities in which it operates in a number of beneficial ways including: philanthropy, education collaboration, donations, volunteering, and small-business support. Intel is consistently involved in the community and helps to support economic growth. Intel’s Oregon campus, being one the largest and most technologically advanced among its sites, often hosts international training events and conferences. These conferences inject international funds into the local community and bolster small businesses through intermittent spending.

“The people that Intel brings to the region have a huge impact on the Washington County hotels, restaurants, car rental services, etc...When Intel pays a bonus car dealers in Washington County sell more cars.” - President and CEO of the largest business advocacy organization in Oregon

48 Intel’s Economic Impacts on the US Economy, 2008 – 2012

When it comes to philanthropy on a national scale, Intel provides a strong corporate example. Intel was named the “Most Philanthropic Company” in Oregon four years in a row. Intel not only works in the community, but it works with the community, bringing the technical expertise, creativity, and energy of its employees to volunteering and community action. US employees donate hundreds of thousands of hours each year to education, environmental programs, and other community needs. In Oregon, Intel has won numerous awards from United Way including: Largest Total Employee Giving Campaign, Largest Corporate Gift, and Campaign Chair Award, recognizing the tangible benefits of Intel’s community involvement.

“Intel is an active participant in the community...It is smart, strategic, and targeted with its philanthropy...with most of the tech industry being insular, Intel is more outward-focused.” - President and CEO of the largest business advocacy organization in Oregon

“Intel’s community involvement and philanthropy helps employees, helps its supply chain customer base, helps the broader community...and builds goodwill.” - Senior Vice President Research and Reports for a leading technology advocacy group in the United States.

Many companies not integrated into Intel’s direct supply chain for semiconductor fabrication in Oregon also benefit from Intel’s presence in the local community. Intel interacts with these companies through the “Vantage Club” which is a collaborative effort between Intel and the local Chamber of Commerce to match Intel employees with local small-businesses for acquiring other goods and services by facilitating interactions and making the connection easier and more efficient.

“Lots of businesses want access to Intel and Intel’s employees. [Vantage Club] is a process by which we can collaboratively organize and coordinate that access...it also takes those dollars paid to the 16,000+ Intel employees, some of whom do not live in Hillsboro, and puts them into the local economy.” - President of a local Oregon Chamber of Commerce Industry Leadership

Intel’s Oregon operations illustrate Intel’s industry leadership. In 2012, Intel was named the “Most Admired Technology Company” in Oregon for the eighth consecutive year, based on a survey of more than 2,500 CEOs and top-level managers throughout Oregon.

Intel’s supply chain is ranked seventh among Gartner’s 2012 Supply Chain Top 25. Gartner applies the following criteria when assessing companies for the Supply Chain Top 25 list: an outside-in focus; innovation within the supply chain and in connection with new product introductions; strong partnership relationships with upstream and downstream parties; and, commitment to operational excellence and continuous improvement in people, processes, and supporting technology. Intel has reduced cycle times by approximately 40 percent in recent years, reduced costs, and demonstrated

49 Intel’s Economic Impacts on the US Economy, 2008 – 2012 leadership in social responsibility. As one of the largest fabrication sites, Intel’s Oregon location is a significant contributor to Intel’s global supply chain excellence.

“Intel is involved in helping us to define our roadmap focused on mobility in a collaborative and open environment. This open and collaborative relationship provides maximum benefit and value to our joint customers. We have collaborated to build out exciting new solution sets for our customers.” - VP and GM of US Commercial Sales for a significant Intel client

Intel maintains a vast yet high-quality supplier base across the globe. However, the United States is Intel’s primary manufacturing geography and is home to many of Intel’s largest and most technologically advanced campuses, including its Hillsboro, Oregon campus. Many of Intel’s large suppliers have substantial presence within Oregon and some suppliers are based and headquartered in Oregon. Having the Intel and supplier presence has put Oregon on the map in terms of technology leadership and has brought like-minded companies and individuals to the area. Intel has helped to put the United States and Oregon at the leading edge of technology innovation and supply-chain leadership.

“[In Oregon] there are businesses specializing in second tier supply chain that locate near the Intel site. Specializations that these businesses have can feed into Intel's supply chain and reinforce Intel’s decision to stay there…companies learn from one another and grow with each other.” - Senior Vice President Research and Reports for a leading technology advocacy group in the United States

50 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Case Study 3: Intel Capital Impact on the Corporate Venture Capital Industry and Economic Growth

Intel Capital Background

Intel Capital was established in 1991 and has continuously been recognized as a market leader in the corporate venture capital market ever since. An editor of a well-known venture capital publication commented, “Intel Capital is the benchmark for corporate venturing.” With a significant past and a breadth of investments and experience, Intel Capital was also described by an editor of a corporate venture capital journal as “…a model for other corporate venture capital firms…” Intel Capital brings not only years of experience and direct capital to companies, but global reach, market validation, and expert industry insights. Intel Capital strategically focuses on building technology ecosystems through investments in mobility, software & services, consumer internet, digital media & entertainment, enterprise, and manufacturing and labs.

Intel Capital’s mission is to spur innovation and inspire the entrepreneurial spirit in support of Intel’s vision of creating and extending computing technology to connect and enrich the lives of every person on Earth.

Intel Capital acts and invests on a stage-agnostic basis, meaning that its focus does not trend toward early-stage start-ups, late-stage established businesses, or any stage in between. This strategy allows for a diversified approach to investing in which no potential investment is rejected based on stage, and rather all investments are assessed on a merit-based approach. Intel Capital bases its decision to invest on a number of factors including: potential market size; leadership team; and, strategic fit to Intel. Intel Capital is funded from Intel Corporation’s available cash and typically invests between $300 and $500 million per year. In FY2012 Intel Capital invested $352 million, preceded by $526 million in FY2011.

Intel Capital operates in an industry where there are many large venture capital and corporate venture capital players. While there is a noted cluster of Intel Capital portfolio investments in and around Santa Clara, California where Intel Capital is headquartered, there are more clusters of investment spread across the country in states like Massachusetts, Florida, Washington, Texas, and North Carolina. Corporate venturing specifically tends to be focused on the goals, strategy, and culture of the parent. Intel Capital is consistent with setting the criteria for investment and has talented individuals that understand the industry and its direction. An investment manager that works for Intel Capital was described by a former CEO of an Intel Capital investment company as, “…thoughtful…he understood our options from all perspectives.”

Intel Capital has invested in success stories consistently over the years. Among Intel Capital’s notable investments are those listed in the table below.

51 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table 10: Intel Capital –Notable Investments

Company HQ Location Founded 2012 Revenue Headcount (millions) 2003 in LOGMEIN Boston, MA $140 575 Hungary PEREGRINE San Diego, CA 1990 $204 402 VOCERA San Jose, CA 2000 $101 130 MOTRICITY Bellevue, WA 2001 $90 152 (Voltari)

Intel Capital Economic Impacts as Seen from the Santa Clara, California Headquarters

Intel Capital contributes to the US and local economy in a number of ways:

 Job Creation – Direct capital gives investment companies the opportunity to expand workforce and market, providing access to high-paying, fast-growing jobs.  Industry Leadership – Intel Capital promotes technology advancement by strategic investments. A number of industry veterans indicated that other venture capital firms watch how Intel Capital operates and in what area and company it chooses to invest.  Intel Capital Advantages – Intel Capital utilizes its extensive network, technological expertise, breadth of experience, and understanding of the market to help investments grow and thrive.  Talent Growth – The company not only grows talent externally, through jobs created, promotion of Science, Technology, Engineering, and Math (“STEM”) programs, and talent matching, but also grows talent internally, allowing for technology spinoffs and start-up firms from Intel’s internal pipeline.  Clustering Effects – The presence of a large capital investor and the talent of one of the largest technology companies worldwide, attracts like-minded individuals and talent to the regions because of access to suppliers, capital, and growing talent from universities.  Local Community Impact – Technology sector jobs are high-paying and Intel and Intel Capital have a commitment to community involvement. The dollars from payrolls are disbursed through purchasing and the community benefits from volunteer hours and dollars from Intel Capital and Corporate.  Networking and Match-making – One of the most difficult things for start- up companies is legitimizing their business and selling to the enterprise. Intel Capital helps start-up companies to make important business development connections, grow their businesses, and increase their contributions to the economy via tax dollars, job creation, and introducing these companies to its vast internal and external network to help them to succeed.

52 Intel’s Economic Impacts on the US Economy, 2008 – 2012

From a local perspective, it should be noted that Intel Corporation also is headquartered in Santa Clara. While the impacts below focus on Intel Capital, incremental effects may also be attributed to the parent company.

Each of the above topics will be covered in greater detail below. Job creation

Intel Capital spurs the technology industry through direct capital investment, indirect industry leadership and bringing additional investors to the table, and through a consistent, measured process of matching portfolio companies with potential customers and partners. Intel Capital has been operating within the corporate venturing space as a leader for more than 20 years. Venture capital provides companies with much-needed start-up funding for pioneering ideas and allows these companies to hire additional talent, expand their market reach, further innovate, and transform their ideas into tangible products. The US venture capital ecosystem fosters an attractive environment for the world’s top talent and draws companies and individuals into the region. The editor of a venture capital publication stated, “…getting jobs into a high-paying market is certainly made easier with a VC firm.” Furthermore, direct job growth can be seen in many cases. The CEO of a former portfolio company commented, “The investment helped us to span out geographically and grow the sales team from 6 to 30 in less than a year…”

Venture-backed jobs made up for 11 percent of US private sector employment in 2010. For the same year, venture-backed revenue accounted for 10 percent of total US sales. In addition, venture-backed jobs accounted for significant portions of major employment industries within the US economy including: 90 percent of software jobs, 74 percent of biotechnology jobs, 72 percent of semiconductors/electronics jobs, 54 percent of computer jobs, and 48 percent of telecommunications jobs.39

“Intel has been very smart about a lot of the things they’ve done – particularly in VC. They use their venture arm to influence the marketplace and to encourage certain businesses to start or R&D processes to start...” - Senior Vice President Research and Reports for a leading technology advocacy group in the United States. Industry Leadership

Intel Capital demonstrates industry leadership in a number of different ways. Whether leading an investment round, investing in a new and innovative technology as an early adopter, or filling out rounds by bringing their global investment syndicate of more than 30 co-investors, Intel Capital delivers value to the economy through growing the companies of tomorrow. The president of a local chamber of commerce responded, “Intel is one of our largest employers and they have trickled down in our economy by helping many of the small businesses throughout the valley.”

39 NVCA Venture Impact Edition 6.0. 53 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Intel Capital is consistently on the “most active” list of venture capital firms and often wins objective investment awards from trade publications including: Corporate Venture Unit of the Year (2013)40; Top Technology VC of 201241; and, #1 for quantity of IPO pipeline companies in portfolio42.

“[Intel Capital] is the biggest corporate VC firm around the world, so we spend as much time as we can trying to understand what they do and why.” - Founder and Editor-In-Chief for a prominent corporate venturing magazine

Intel Capital Advantages

Intel Capital has many strategic advantages which add value to its investments. These value-add benefits include: recognized brand; technology expertise; and, networking capabilities. A former CEO of an investment company described the benefits of Intel Capital’s involvement as follows: “We were able to use the brand name in making connections… Intel Capital really knew the domain…[Intel Capital Technology Days] focused on making good matches between buyers and sellers. They were some of the best to work with.”

“The partner we worked with was knowledgeable about the business, knew the industry well, and had his ear to the ground. Of the investors we worked with, he was among the best in knowing the industry.” - Former CEO of a well-known software company venture-backed by Intel Capital

Intel Capital is a stage-agnostic investor which allows them to invest at any stage in the life-cycle of the business.

Intel Capital also has a size, longevity, market presence, and leadership position that make an investment more than just capital and ideas, but also a market perception that the company being invested in has the appropriate direction, leadership, and is viable. A CEO of a former investment company said, “When we thought about raising more funds, we featured Intel quite prominently. We received more interest from VCs with the Intel connection. The Intel connection helps other investors get over the initial doubts/questions and puts stock in the claims you are making. The team, position in the market, and strategy are legitimized.”

Intel Capital’s presence as an investor also helps with financing considerations. “Intel Capital really helped to ensure the banks that we knew what we were doing and were fully backed. They communicated to the banks that they did not have to worry about [the company’s] legitimacy and long-term business proposition,” responded the CEO of a former portfolio company. In some instances, Intel Capital’s investments put companies on the map; in other investments, they legitimize companies that have been on the map for some time.

40 Global Corporate Venturing Magazine. 41 PrivCo. 42 CBInsights. 54 Intel’s Economic Impacts on the US Economy, 2008 – 2012

“Having Intel Capital as an investor lends legitimacy when talking to key customers’ executives or other investors. Intel Capital as an investor is a stamp of approval that is hard to match.” - CEO of a former Intel Capital -financed semiconductor equipment manufacturer

“Intel Capital’s longevity, experience, size, consistency, and financial returns were among the best, if not the best of any unit.” - Founder and Editor-In-Chief for a prominent corporate venturing magazine

Intel Capital can also open doors for further financing and banking relationships. As described above, Intel Capital has a syndicate of over 30 co-investors and Intel Capital never goes into an investment alone. This allows companies additional access to capital and Intel Capital the ability to invest in numerous companies to diversify their presence and grow the industry. Economically, opening the investment and financing opportunities for an investment company opens the doors for market growth, industry growth, and job creation.

Talent Growth

Intel Capital’s investments and direct assistance outside of capital foster an environment of talent growth and innovative ideas. Furthermore, Intel Capital and Intel Corporation combine to develop new talent both through education initiatives in the Science, Technology, Engineering, and Mathematics (STEM) fields and through internal training and talent growth which advances the skills and capabilities of their own employees. These employees and those individuals touched by Intel’s efforts to grow the STEM careers and capabilities in the United States can form companies and start-ups of their own, improving the technology ecosystem and further expanding the US economy.

“Intel Capital helped with introductions to people and building our executive staff. The CEO Summit was good from a number of perspectives including imparting knowledge on building and fielding a team, as well as gaining knowledge through workshops and networking.” - CEO of a former Intel Capital-financed semiconductor equipment manufacturer

“They are very engaged with the issues we are concerned about here...affordable housing, transportation, education and making all those things better so that Intel and other high-tech firms can draw the best and brightest workers and drive the local economy.” - President of a local Chamber of Commerce in which Intel Capital operates Clustering Benefits

Intel Capital’s headquarters is in Santa Clara, California. Silicon Valley occupies approximately the same area as Santa Clara and is home to a plethora of start-up and early stage companies. For a start-up company, ease of access to capital is a contributing factor to business location decisions. Intel Capital’s presence in Silicon

55 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Valley has attracted companies to locate in the local community so that the companies can be close to their source of funding. Companies want to be able to quickly, easily, and cheaply communicate face-to-face with Intel Capital, and as such, have often chosen to locate in Santa Clara, California.

“Early on [in the 1990s] that really had an effect around Santa Clara where Intel [and Intel Capital] is based. Many start-ups went there because of its proximity to Intel Corporation…” - Lead Editor of a widely-publicized venture capital journal. Local Community Impact

Santa Clara County, California (a significant portion of what is commonly referred to as Silicon Valley) is home to a multitude of venture capital firms, including Intel Capital, and approximately $165 billion venture capital dollars have been spent since 1970. The local median single family home price is $569,00043, compared with $212,300 nationally, showing the impact of high-salaried positions and the effects of the high-tech industry on the local economy. The high local standard of living can be seen in Santa Clara County’s $89,064 in median household income, which compares with $61,632 for California44 and $50,502 nationally (i.e., 76% above the national median). Santa Clara County maintains a budget of $4.2 billion45. These incomes and tax revenues help to build significant ecosystems and inject major dollars into small businesses, communities, public safety, capital projects, parks and recreation, and public works. An editor of a local industry journal described how a few well-known start-ups made their headquarters in economically depressed areas and quickly turned the micro-economies from negative to positive.

“The company is paying significant taxes in the community that goes towards street maintenance, emergency responders, locally-owned utilities, etc. From there it trickles down in terms of hotel rooms, restaurants, meeting locations, and convention center popularity. From an educational standpoint, they are engaged with and foster STEM (Science, Technology, Engineering, and Math) education in its local school districts and throughout the valley.” - President of a local Chamber of Commerce

Intel Capital is continuously providing the region with capital investment, business leadership, customer introductions, technology expertise, and merger and acquisition consulting. These acts drive new business growth and economic improvement.

43 Community Economic Profile – City of Santa Clara, California. 44 http://quickfacts.census.gov/qfd/states/06/06085.html 45 http://www.mercurynews.com/elections/ci_21741987/santa-clara-county-tries-again-sales-tax 56 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Intel Capital Technology Days & Intel Capital Global Summit

Intel Capital hosts the Intel Capital Global Summit which is an annual 1000 person conference bringing together entrepreneurs from its portfolio companies and Global 1000 corporate decision makers to help each find partnership, collaboration or even sales opportunities.46 Portfolio companies benefit from increases in sales, networking with key customer contacts, and gaining an understanding of what customers are looking for in the marketplace. Any company can choose to participate or not participate in meetings with specific decision makers and at times companies may not fit with the program; however, according to a former CEO of a portfolio company “access to the Intel network is a business development tool that not many companies refuse.”

Intel Capital Technology Days has a similar goal as the Intel Capital Global Summit and connects corporate decision makers with Intel Capital portfolio companies. As portfolio companies grow their sales, additional workers are needed to add capacity, sales support, delivery, etc. These events indirectly create jobs by creating orders, collaborative projects, and connections. Companies from Intel’s extensive network gain access to Intel Capital’s portfolio and can often improve business and drive additional top-line and bottom-line growth, further trickling down to national tax revenues which are then used to fund jobs in the public safety, governmental, education and infrastructure sectors.

“The greatest interaction we received from Intel Capital was in sales and marketing for exposure and customer access. They were by far the best at that.” - Former CEO of a well-known software company venture-backed by Intel Capital

Intel Capital also hosts an annual Intel Capital Global Summit, bringing together innovators, key executives, thought leaders, governmental officials, and professional service providers. It is held in Southern California and is strategically designed to immerse attendees in a world of networking. Activities available at the summit include one-on-one introductions and targeted match-making sessions, panel discussions and social events. All events are aimed at establishing relationships with Global 1000 companies, offering new sales opportunities to portfolio companies, and providing key decision makers in the Intel network access to the ideas, innovations, and innovators that can stimulate growth.

In 2012, Intel Capital generated more than 3,500 engagements between portfolio companies and customers; hosted more than 1,800 Global Summit Connect meetings; and, hosted 76 Intel Capital Technology Days resulting in more than 1,700 introductions. The growth created by these events directly affects the US and local economy through, among other things, job creation, additional tax revenues, research & development, and higher donations from excess funds. The graphic below depicts how these events drive economic benefit.

46 Top 1000 companies by revenue as determined by Forbes. 57 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Exhibit 1.5: Intel Capital Technology Days and Intel Capital Global Summit Web

58 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Appendix A: Data Sources and Methodology

This Appendix describes the methodology used to derive the results for the study. It first discusses the IMPLAN model which was used to estimate many of the impacts in this report. It also discusses the data sources PwC utilized to develop estimates of Intel’s direct employment, labor income, and GDP impacts and capital investment impacts. It then describes PwC’s use and adjustment of the IMPLAN model to capture a more complete estimate of Intel’s overall impact on the US economy. These adjustments capture capital investment impacts and distribution channel impacts which are not necessarily incorporated into other economic impact analyses.

The IMPLAN model, an input-output (I-O) model based on Federal government data, was used to estimate Intel’s overall economic impact. I-O modeling is typically employed to analyze how a change in economic activity in one sector of the economy affects activities in other sectors of the economy. In a so-called “marginal” impact analysis, I-O model results can be viewed as showing the impact of small changes in activity in one sector (e.g., semiconductor manufacturing) on the rest of the economy before any price adjustments and before businesses, workers, and consumers adjust their activities. The ultimate economic impact of a change in activity will be less pronounced than shown by I-O results, particularly if induced price changes are large.

I-O models can also be used in an economic contribution analysis, as done in this study. By simulating a “complete shutdown” of an existing sector, an economic contribution study attempts to quantify the portion of an economy that can be attributed to such an existing sector. It uses the I-O model to identify all backward (i.e., upstream) linkages in the study area. An economic contribution analysis, when compared with the entire study area economy, offers insights into the relative extent and magnitude of a company or an industry in the study area. However, this is not to say that a complete shutdown of Intel would result in the permanent loss of the jobs and output attributable to the company through this exercise. In this unlikely event, the resources currently allocated to semiconductor manufacturing may find employment in other industries, which would compensate in part for the loss of the jobs and output from the semiconductor sector.

The latest version of the IMPLAN model, which is used for this study, incorporates the input-output relationships for 2011. It does not reflect the 2013 comprehensive revision of the industry economic accounts by the Commerce Department, which has not yet been released. The 2013 comprehensive revision will record research and development expenditures as capital investment instead of an item of cost.47 An IMPLAN model that incorporates this revision may estimate greater impacts of the activities of research and development intensive industries, such as the semiconductor industry.

47 For further information on the revision see “Preview of the 2013 Comprehensive Revision of the National Income and Products Accounts,” Survey of Current Business, March 2013. 59 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Estimating the Direct Jobs, Direct Labor Income and Direct GDP

This report uses data on direct employment, employee compensation, and capital expenditures provided by Intel. Intel provided data for Intel Corporation and for its two largest wholly-owned subsidiaries -- McAfee, Inc. and Wind River Systems, Inc. The employment data include both full-time and part-time workers. Employee compensation includes wages, salaries and fringe benefits.

Intel’s contribution to GDP was estimated based Intel’s employment and the semiconductor industry’s average GDP to employment ratio from the IMPLAN model.

Estimating the Indirect and Induced Economic Impacts

Estimates of the indirect and induced economic impacts of Intel were derived based on the IMPLAN model for the United States. The IMPLAN model is built around an “input-output” table that relates the purchases that each industry has made from other industries to the value of the output of each industry. To meet the demand for goods and services from an industry, purchases are made in other industries according to the patterns recorded in the input-output table. These purchases in turn spark still more purchases by the industry’s suppliers, and so on. Additionally, employees and business owners make personal purchases out of the additional income that is generated by this process, sending more new demands rippling through the economy.

Multipliers describe these iterations. The Type I multiplier measures the direct and indirect effects of a change in economic activity. It captures the inter-industry effects only, i.e., industries buying from local industries. The Type II (Social Accounting Matrix or SAM) multiplier captures the direct and indirect effects and, in addition, it also reflects induced effects (i.e., changes in spending from households as income increases or decreases due to the changes in production). The indirect and induced impacts by Intel on other sectors of the economy in terms of employment, labor income (including wages and salaries and benefits as well as proprietors’ income), and GDP were calculated through the multiplier process built into the model.48

The magnitude of the multipliers within the IMPLAN model varies from year to year. This variability is reflected in the estimates of Intel’s impacts on the US economy. For example, in Table 5, the ratio of Intel’s indirect and induced GDP impacts to direct GDP impact was lower in 2009 (2.2) during a period of economic contraction compared to the ratio in 2012 (2.7) during 2012 when the economy was expanding.

48 Because the IMPLAN models are used for total impact analysis (as opposed to marginal impact analysis) in this study, necessary adjustments are made to the initial indirect and induced impact estimates to prevent double-counting. For instance, the indirect and induced effects from the estimates that are mapped to the semiconductor industry are adjusted downward to reflect Intel’s share. 60 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Estimating Capital Investment Impact

To quantify Intel’s capital investment impact, PwC used capital expenditure data for 2008 through 2012 that Intel provided to the Census Bureau as part of the Annual Capital Expenditures Survey. For the impact analysis, capital spending was then translated into purchases of capital assets by type through the use of the so-called “capital flow matrix” from the US Department of Commerce.

Estimating Distribution Channel Impacts

PwC estimated Intel’s share of the semiconductor industry’s distribution margin available from the IMPLAN model to capture impacts associated with the distribution of Intel’s products. Based on these margins, we estimated the related impact on employment, labor income, and GDP.

61 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Appendix B: Intel’s Indirect and Induced Impact on the US Economy by Sector

Table B-1.− Results for 2008

Employment* LaborIncome($million)** GDP($million) Sector Description Indirect Induced Indirect Induced Indirect Induced OperationalImpact 213,900 195,000 $14,180 $8,962 $22,799 $15,861 Agriculture 800 4,100 $28 $135 $42 $205 Mining 2,200 1,000 $214 $102 $622 $296 Utilities 1,500 800 $194 $100 $702 $362 Construction 6,600 2,200 $368 $124 $416 $140 Manufacturing 30,600 9,100 $2,503 $621 $5,536 $1,285 Wholesaleandretailtrade 18,500 38,100 $1,287 $1,456 $2,231 $2,379 Transportationandwarehousing 11,200 5,700 $594 $303 $798 $412 Information 6,200 3,500 $642 $310 $1,069 $663 Finance,insurance,realestate,rentalandleasing 12,200 27,300 $729 $1,227 $2,021 $4,578 Services 111,100 96,000 $6,678 $4,058 $8,285 $4,942 Other 13,000 7,200 $944 $525 $1,076 $599 CapitalInvestmentImpact 19,200 13,700 $1,348 $600 $1,823 $1,058 Agriculture 0 300 $1 $8 $2 $12 Mining 100 100 $5 $4 $18 $13 Utilities 0 100 $5 $6 $20 $23 Construction 4,600 200 $245 $9 $258 $11 Manufacturing 4,200 600 $423 $41 $589 $84 Wholesaleandretailtrade 1,800 2,600 $125 $98 $208 $159 Transportationandwarehousing 700 400 $36 $20 $48 $27 Information 400 200 $41 $22 $85 $45 Finance,insurance,realestate,rentalandleasing 900 1,800 $40 $83 $118 $313 Services 6,400 7,200 $419 $298 $473 $360 Other 100 200 $7 $11 $6 $10 DistributionChannelImpact 57,000 38,000 $3,786 $1,752 $6,381 $3,102 Agriculture 100 800 $2 $26 $3 $40 Mining 200 200 $21 $20 $61 $58 Utilities 100 100 $8 $19 $28 $71 Construction 300 400 $17 $24 $20 $27 Manufacturing 900 1,800 $65 $122 $149 $253 Wholesaleandretailtrade 37,400 7,400 $2,699 $284 $4,692 $464 Transportationandwarehousing 5,000 1,100 $248 $59 $336 $80 Information 500 700 $53 $61 $94 $130 Finance,insurance,realestate,rentalandleasing 1,700 5,300 $94 $240 $283 $896 Services 9,200 18,800 $461 $793 $581 $966 Other 1,600 1,400 $119 $102 $135 $117

TotalIndirectandInducedImpacts 290,100 246,700 $19,314 $11,313 $31,003 $20,020

Source: PwC calculations using the IMPLAN modeling system. * Employment isdefined as the number of full-and part-time jobs, including self-employment. ** Labor income is defined as wages and salaries and benefits and proprietors'income. 62 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table B-2.− Results for 2009 Employment* LaborIncome($million)** GDP($million) Sector Description Indirect Induced Indirect Induced Indirect Induced OperationalImpact 210,900 195,000 $13,783 $8,943 $21,871 $15,721 Agriculture 800 4,100 $24 $117 $36 $178 Mining 2,100 1,000 $137 $66 $398 $192 Utilities 1,400 800 $180 $94 $652 $341 Construction 6,500 2,200 $358 $123 $405 $139 Manufacturing 30,100 9,100 $2,340 $599 $5,049 $1,190 Wholesaleandretailtrade 18,300 38,100 $1,328 $1,482 $2,302 $2,422 Transportationandwarehousing 11,100 5,700 $571 $294 $767 $399 Information 6,100 3,500 $641 $312 $1,061 $663 Finance,insurance,realestate,rentalandleasing 12,000 27,300 $711 $1,212 $1,989 $4,581 Services 109,700 96,000 $6,561 $4,120 $8,148 $5,017 Other 12,800 7,200 $933 $525 $1,064 $599 CapitalInvestmentImpact 22,700 15,800 $1,577 $701 $2,111 $1,236 Agriculture 0 300 $1 $9 $2 $14 Mining 100 100 $6 $4 $21 $15 Utilities 0 100 $6 $7 $23 $27 Construction 6,500 200 $350 $11 $369 $13 Manufacturing 4,600 700 $470 $47 $658 $98 Wholesaleandretailtrade 2,000 3,000 $134 $114 $222 $185 Transportationandwarehousing 800 500 $41 $24 $54 $32 Information 400 300 $46 $26 $94 $52 Finance,insurance,realestate,rentalandleasing 1,000 2,100 $45 $97 $133 $366 Services 7,200 8,300 $468 $348 $529 $421 Other 100 200 $8 $13 $7 $12 DistributionChannelImpact 57,300 38,300 $3,922 $1,761 $6,597 $3,096 Agriculture 100 800 $2 $23 $3 $35 Mining 200 200 $14 $13 $40 $38 Utilities 100 100 $7 $18 $26 $67 Construction 300 400 $17 $24 $20 $27 Manufacturing 900 1,800 $62 $118 $131 $236 Wholesaleandretailtrade 37,600 7,500 $2,847 $291 $4,949 $476 Transportationandwarehousing 5,000 1,100 $242 $58 $329 $78 Information 500 700 $54 $61 $94 $130 Finance,insurance,realestate,rentalandleasing 1,700 5,400 $94 $239 $285 $903 Services 9,300 18,900 $464 $811 $585 $988 Other 1,600 1,400 $119 $103 $136 $118

TotalIndirectandInducedImpacts 290,900 249,100 $19,282 $11,405 $30,580 $20,053

Source: PwC calculations using the IMPLAN modeling system. * Employment is defined as the number of full-and part-time jobs, including self-employment. ** Labor income is defined as wages and salaries and benefits and proprietors'income.

63 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table B-3.− Results for 2010

Employment* LaborIncome($million)** GDP($million)*** Sector Description Indirect Induced Indirect Induced Indirect Induced OperationalImpact 213,700 201,800 $14,328 $9,434 $22,734 $16,599 Agriculture 800 4,200 $26 $130 $39 $198 Mining 2,200 1,100 $158 $78 $460 $227 Utilities 1,500 800 $187 $100 $677 $362 Construction 6,600 2,300 $363 $127 $410 $144 Manufacturing 30,400 9,400 $2,416 $639 $5,223 $1,298 Wholesaleandretailtrade 18,500 39,400 $1,352 $1,518 $2,344 $2,483 Transportationandwarehousing 11,200 5,900 $590 $314 $793 $427 Information 6,200 3,600 $665 $326 $1,085 $686 Finance,insurance,realestate,rentalandleasing 12,200 28,200 $735 $1,289 $2,072 $4,836 Services 111,100 99,400 $6,865 $4,355 $8,522 $5,302 Other 13,000 7,500 $971 $559 $1,108 $637 CapitalInvestmentImpact 26,500 18,100 $1,862 $828 $2,501 $1,460 Agriculture 100 300 $2 $11 $2 $17 Mining 100 100 $7 $5 $25 $18 Utilities 100 100 $7 $9 $27 $32 Construction 7,200 200 $387 $13 $408 $16 Manufacturing 5,500 800 $572 $56 $800 $115 Wholesaleandretailtrade 2,300 3,500 $158 $135 $262 $219 Transportationandwarehousing 900 500 $49 $28 $64 $38 Information 500 300 $55 $30 $113 $62 Finance,insurance,realestate,rentalandleasing 1,200 2,400 $54 $115 $159 $432 Services 8,500 9,700 $561 $412 $633 $497 Other 100 200 $10 $16 $9 $14 DistributionChannelImpact 58,000 38,700 $4,022 $1,815 $6,770 $3,194 Agriculture 100 800 $2 $25 $3 $38 Mining 200 200 $16 $15 $46 $44 Utilities 100 200 $7 $19 $27 $69 Construction 300 400 $17 $24 $20 $28 Manufacturing 900 1,800 $65 $123 $143 $251 Wholesaleandretailtrade 38,000 7,600 $2,904 $292 $5,049 $477 Transportationandwarehousing 5,100 1,100 $251 $60 $341 $82 Information 500 700 $56 $63 $96 $132 Finance,insurance,realestate,rentalandleasing 1,700 5,400 $98 $248 $296 $931 Services 9,400 19,100 $482 $838 $608 $1,020 Other 1,7 00 1,400 $124 $107 $142 $122

TotalIndirectandInducedImpacts 298,200 258,600 $20,212 $12,077 $32,004 $21,253

Source: PwC calculations using the IMPLAN modeling system. * Employment is defined asthe number of full-and part-time jobs, including self-employment. ** Labor income is defined as wages and salaries and benefits and proprietors'income. 64 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table B-4.− Results for 2011

Employment* LaborIncome($million)** GDP($million) Sector Description Indirect Induced Indirect Induced Indirect Induced OperationalImpact 237,400 226,200 $16,122 $10,803 $25,456 $19,006 Agriculture 900 4,800 $28 $147 $43 $224 Mining 2,300 1,200 $177 $90 $514 $262 Utilities 1,600 900 $206 $114 $747 $414 Construction 7,200 2,600 $400 $144 $452 $163 Manufacturing 32,800 10,500 $2,605 $723 $5,583 $1,470 Wholesaleandretailtrade 20,000 44,200 $1,478 $1,723 $2,562 $2,818 Transportationandwarehousing 12,300 6,600 $658 $358 $885 $487 Information 7,000 4,100 $760 $373 $1,237 $782 Finance,insurance,realestate,rentalandleasing 13,800 31,600 $841 $1,473 $2,401 $5,549 Services 125,000 111,300 $7,850 $5,014 $9,752 $6,104 Other 14,500 8,400 $1,121 $644 $1,278 $734 CapitalInvestmentImpact 54,700 36,000 $3,742 $1,662 $4,916 $2,930 Agriculture 100 700 $3 $22 $4 $33 Mining 200 100 $15 $11 $50 $36 Utilities 100 100 $14 $18 $50 $64 Construction 21,200 400 $1,167 $25 $1,229 $31 Manufacturing 9,500 1,700 $980 $112 $1,384 $231 Wholesaleandretailtrade 3,900 7,000 $274 $271 $455 $440 Transportationandwarehousing 1,600 1,000 $86 $56 $113 $76 Information 900 700 $97 $61 $200 $124 Finance,insurance,realestate,rentalandleasing 2,200 4,700 $101 $230 $294 $868 Services 14,800 19,100 $987 $826 $1,122 $998 Other 200 500 $18 $31 $15 $29 DistributionChannelImpact 63,100 41,400 $4,339 $1,977 $7,287 $3,480 Agriculture 100 900 $2 $27 $3 $41 Mining 200 200 $17 $16 $50 $48 Utilities 100 200 $8 $21 $30 $76 Construction 300 500 $19 $26 $22 $30 Manufacturing 1,000 1,900 $70 $133 $154 $271 Wholesaleandretailtrade 41,700 8,100 $3,120 $315 $5,407 $515 Transportationandwarehousing 5,400 1,200 $271 $66 $368 $89 Information 600 700 $61 $68 $105 $143 Finance,insurance,realestate,rentalandleasing 1,900 5,800 $107 $270 $328 $1,016 Services 10,000 20,400 $528 $918 $666 $1,117 Other 1,800 1,500 $136 $118 $155 $134

TotalIndirectandInducedImpacts 355,200 303,600 $24,203 $14,441 $37,658 $25,416

Source: PwC calculations using the IMPLAN modeling system. * Employment is defined as the number of full-and part-time jobs, including self-employment. ** Labor income is defined as wages and salaries and benefits and proprietors'income.

65 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Table B-5.− Results for 2012

Employment* LaborIncome($million)** GDP($million) Sector Description Indirect Induced Indirect Induced Indirect Induced OperationalImpact 254,100 242,200 $17,578 $11,821 $27,645 $20,798 Agriculture 1,000 5,100 $31 $158 $47 $242 Mining 2,500 1,300 $194 $99 $564 $289 Utilities 1,700 900 $224 $125 $812 $452 Construction 7,700 2,800 $432 $156 $489 $177 Manufacturing 34,900 11,300 $2,770 $783 $5,891 $1,592 Wholesaleandretailtrade 21,400 47,300 $1,588 $1,869 $2,754 $3,056 Transportationandwarehousing 13,100 7,100 $716 $390 $964 $531 Information 7,400 4,400 $831 $407 $1,347 $852 Finance,insurance,realestate,rentalandleasing 14,800 33,900 $917 $1,609 $2,633 $6,084 Services 134,000 119,200 $8,640 $5,516 $10,737 $6,715 Other 15,600 8,900 $1,235 $709 $1,409 $809 CapitalInvestmentImpact 67,600 42,400 $4,489 $1,989 $5,766 $3,512 Agriculture 100 800 $4 $26 $4 $40 Mining 300 200 $19 $13 $61 $43 Utilities 100 200 $15 $21 $53 $76 Construction 33,400 500 $1,866 $30 $1,968 $38 Manufacturing 9,600 2,000 $972 $134 $1,391 $277 Wholesaleandretailtrade 3,800 8,200 $274 $324 $457 $527 Transportationandwarehousing 1,600 1,200 $89 $67 $118 $91 Information 900 800 $99 $73 $205 $149 Finance,insurance,realestate,rentalandleasing 2,300 5,500 $113 $275 $322 $1,040 Services 15,300 22,500 $1,019 $989 $1,170 $1,196 Other 200 500 $18 $37 $16 $35 DistributionChannelImpact 69,600 45,500 $4,839 $2,226 $8,120 $3,918 Agriculture 100 1,000 $2 $30 $4 $45 Mining 300 200 $19 $19 $57 $54 Utilities 100 200 $9 $23 $34 $85 Construction 400 500 $21 $29 $24 $33 Manufacturing 1,100 2,100 $78 $148 $171 $302 Wholesaleandretailtrade 46,100 8,900 $3,464 $351 $6,001 $575 Transportationandwarehousing 5,900 1,300 $303 $73 $413 $100 Information 600 800 $69 $77 $117 $160 Finance,insurance,realestate,rentalandleasing 2,100 6,400 $121 $303 $370 $1,147 Services 11,000 22,400 $598 $1,039 $754 $1,265 Other 1,900 1,7 00 $154 $133 $17 5 $152

TotalIndirectandInducedImpacts 391,300 330,100 $26,906 $16,037 $41,531 $28,227

Source: PwC calculations using the IMPLAN modeling system. * Employment is defined asthe number of full-and part-time jobs, including self-employment. ** Labor income is defined as wages and salaries and benefits and proprietors'income.

66 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Appendix C: Literature Review

Table C-1 - Summary of Findings

Author / Geography / Date Title Topic / Focus / Question Sectors Covered Time Period Findings

Aizcorbe, “Shifting Trends in  Price decline (rapid in Semiconductor 1990s-Early  Intel is the dominant producer of MPU chips. Oliner, and Semiconductor Prices and 90s, slowed 2001-2006) manufacturing 2000s Sichel the Pace of Technological  Intel actively invests in other companies and nascent industries with the aim to spur Progress”  Price swings reflect demand for its products. September changes in price-cost markups and trends  Faster price declines for DRAM and MPU chips in mid-90s were followed by slower price 2006 declines after 2001.  Shift to faster cost declines correspond to  Swings in price-cost markups account for considerable part of price dynamics. speed-up in pace of  After controlling for markups, implied cost trends point to notably smaller swings in pace advance in of technical progress. semiconductor technology  Implied cost trends may be affected by factors that are largely unrelated to pace of technical progress.  Slower cost declines since 2001 not mirrored by deceleration in pace of advance in semiconductor technology

Aizcorbe, "The Role of Determines change in price  Worldwide and 1992-1999  Communications equipment prices do not fall as fast compared to computer prices from Flamm, and Semiconductor Inputs in of semiconductors and their US the 1992-1999 period. Khurshid IT Hardware Price corresponding contribution  Semiconductor  End-use price decline of computers was 40.3% in 1998. Decline: Computers vs. to price declines in manufacturing November Communications.” computers and  Computer,  Semiconductors' price decline contributed 16.1%-23.8% of the price decline in 1998. 2001 communications equipment communications, and consumer electronics manufacturing

67 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Author / Geography / Date Title Topic / Focus / Question Sectors Covered Time Period Findings

Bosworth and “What’s New About the  Measures contribution of All sectors 1973-1999  Services of ICT capital provide all of the acceleration in growth of capital services in late Triplett New Economy? ICT, ICT on output growth for 1990s. (Brookings Economic Growth and US Nonfarm Business Institution) Productivity” and Private Domestic  ICT will continue to impact labor productivity. The source of multifactor productivity will Economy continue to be tied to gains in the production of ICT and demand for ICT capital. Spring 2001  Discusses link between ICT and multifactor productivity

 Measures role of capital accumulation and amount of economic growth not explained by growth in productive inputs

 Examines the impact on labor productivity and MFP

Crafts "Social Savings as a Measures direct, indirect,  Western 1985-2002  Change in Social Savings of ICT as percentage of GDP was 4.1% from the 1992-1999 period Measure of The and social welfare economies and 5.6% from the 1985-2001 period. July 2004 Contribution of a New contributions of new  All sectors Technology to Economic technologies  IT Sector has a 16.7 annual percentage consumer price decline during the 1996-2000 Growth" period.

Corrado, “Intangible Capital and  Examines treatment of ICT impact on US 1973-2003  Including intangible capital in growth measures results in increases in rate of change of Hulten and US Economic Growth” intangible investment in economy output per worker. Sichel measures of GDP  The effects of the "ICT revolution" have not been fully encapsulated in growth figures.  Creates new sources-of- September  The role of MFP is correspondingly diminished after accounting for intangible capital. 2009 growth (SOG) estimates to account for growth in  Labor’s income share of growth has decreased significantly over time. output due to omission of intangibles  Including intangible investment in real output increases estimates of the growth rate of output per hour by 10-20% relative to baseline.

68 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Author / Geography / Date Title Topic / Focus / Question Sectors Covered Time Period Findings

Gordon “Revisiting US Long-run growth rates of LP US economy 1954-2007  Almost all of capital-deepening effect is contributed to ICT capital for the 1995-2000 (NBER) Productivity Growth Over and MFP period. the Past Century with a March 2010 View of the Future”  ICT contribution to overall productivity fell from 74% in 1995-2000 to 43% during the 2000-2007 period.

Jorgenson “Information Technology  Development of ICT is a Computers, 1949 – 1999  There was a sharp acceleration in the level of economic activity from 1995 through 1999. and the US Economy” series of positive but communications March 2001 temporary shocks equipment, and  ICT capital services made up half of capital input contribution from 1995 through 1999. (1990s) software  Contribution of ICT production almost doubled, relative to the 1990-1995 period and accounted for only 28.9% of increased growth in output. There has been a sharp response  Competing perspective is to ICT price declines since 1995. ICT has produced fundamental/permanent change to US economy Jorgenson and “Econometric Modeling  Provides a new approach Measures rate and 1960-2005  Biases of technical change are substantial in magnitude, comparable to response in price Jin of Technical Change” to modeling substitution bias of technical changes. and technical change in change for each 2010 growth measurement sector in US  The biases of technological change appear in measures of capital accumulation and energy. economy  Represents rate and  Latent bias of technical change varies across industries. For example, the impact for biases of technical capital input is overestimated for coal mining and underestimated for petroleum refining. change by unobservable/latent variables

Jorgenson and “Information Technology  Examines the impact of  World economy, 1989-2004  Input growth predominates overall output growth. Vu and the World Growth ICT investment on seven regions, Resurgence” resurgent world 14 major  Differences in per capita output levels are explained by differences in per capita input, 2007 economic growth economies instead of variations in productivity.

 Allocates growth of world  Section focuses  US investment in ICT equipment and software was most important source of growth, while output between input on developing non-ICT predominated, followed by labor input (outweighing labor quality). growth and productivity Asia

69 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Author / Geography / Date Title Topic / Focus / Question Sectors Covered Time Period Findings

Jorgenson, Ho “Information Technology  Adapts previous growth ICT hardware, 1960-2007  Production of ICT equipment and software appeared highly volatile – boom 1995-2000, and Samuels and US Productivity analysis into NAICS, software and bust, recovery 2000-07. Growth: Evidence from a providing greater detail services November Prototype Industry on service industries  The period of 1995-2000 was predominated by innovation and production of 2010 Production Account” semiconductors and semiconductor-intensive computers.  Compare growth of ICT- service-producing  The period of 2000-07 broader spectrum of ICT-using industries. industries relative to hardware manufacturing  The replication of established technologies contributed to growth of capital and labor inputs – specifically ICT hardware and software.

Jorgenson, Ho “Growth of US Industries  Outlines sources of ICT equipment and 1977-2000  Growth during this period was dominated by ICT investment and higher education. and Stiroh and Investments in growth for US economy software Information Technology  A jump in ICT investment, gains in employment of college-educated workers, and revival  Incorporates ICT of productivity growth account for resurgence of US economy since 1995. October 2002 and Higher Education” industry involved with production of equipment  The spread of ICT equipment and software interacting with an educated workforce lead to and software increased gains in output.

Mann “Information Technology  References employment All sectors 2001-2009  ICT-using sectors with above-average in ICT-intensity begin 3-times more ICT-intensive Intensity, Diffusion, and dynamics of and end up more than 4-times ICT-intensive as below-average sectors. March 2012 Job Creation” establishments (different sizes)  There is a widening dispersion of ICT-intensity across various sectors.

 Examines intensity of  ICT producers make up a small part of economy, with about 3% of employment. ICT hardware, software,  ICT-software and service establishments have added jobs on net. ICT remains a hot-bed of & services entrepreneurship.

 Determines direct,  Small establishments that use ICT intensively account for 5% of overall employment. globalization, and social surplus gains from ICT  Small ICT-intensive establishments accounted for 13-68% of economy-wide net job service change.

 ICT-intensive establishments in manufacturing and service sectors expand and contract employment relatively more over the business cycle than non-ICT-intensive establishments in the same industry.

 The direct and indirect gains of the US economy of lower ICT prices and increased ICT- intensity is between $810 and $935 billion for the 2002-2007 period.

 The direct and indirect gains total is approximately $1T trillion in the US economy. There is a broad-based use of information technology hardware, software and ICT-services.

70 Intel’s Economic Impacts on the US Economy, 2008 – 2012

Author / Geography / Date Title Topic / Focus / Question Sectors Covered Time Period Findings

Mann “Globalization of ICT  Determines the impact of  All sectors 1998-2003  Globalized production and international trade made up 10-30% of the price decline in IT Services and White Collar investment in hardware. December Jobs: The Next Wave of information technology  Measures ICT 2003 Productivity Growth” on prices, GDP, intensity by  Lower prices led to higher productivity growth and accumulated $230 billion in GDP employment in US sector (1995-2002). economy (ICTEQ/FTE rank)  ICT services and software made up 58% to 69% of ICT spending in 1993 and 2001,  Diffusion of ICT respectively. throughout US economy  Compares durable  Through the economic boom of 1990s, jobs that demanded ICT skills (not just ICT-  Measures impact of ICT manufacturing producing firms) increased by 22%. “package” (hardware, to construction software and business- and health service applications) sectors for capital  Examines globalization expenditure per of software and ICT employee services

Tambe and “Job Hopping,  Examines regional  California 2006-2007  Firms with access to an external ICT pool that is one standard deviation larger than the Hitt Information Technology differences in returns to counties mean is associated with a substantial increase in output elasticity of own ICT investment. Spillovers, and ICT investments Firms with relatively more access to ICT investments result in positive "spillover" effects.  4-digit SIC level November Productivity Growth”  Measures ICT spillovers industries  The output elasticity of ICT investment for non-durable goods manufacturing goods in 2010 generated by ICT workers Northern California (a highly ICT intensive region) is 5% higher than firms in these  Determines industries outside that region. Network/spatial proximity effects of ICT

71 Intel’s Economic Impacts on the US Economy, 2008 – 2012

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