Ladies and gentlemen, please welcome Chairman of the Board of Directors, Andy Bryant, and VP and Corporate Secretary, Suzan Miller.
You're done.
Good morning. As the voice said, I'm Andy Bryant, Chairman of the Board of Intel. I would like to take this moment, it's my pleasure to welcome you to the Intel 2015 Annual Meeting. With me is Suzanne Miller. Inside the company, we call her Sam, so I'm not forgetting her name when I say, "Sam will do such and such." It is her name as we know her. The meeting will be live in the auditorium in Santa Clara and will be webcast as well at the investor relation site, intc.com. We have eight proposals today. We will elect directors for the coming year. We will vote on the selection of Intel's auditors. We will hold an advisory vote to approve executive compensation. We have an amendment and extension to the 2006 Equity Incentive Plan, and we have an extension of the 2006 Stock Purchase Plan.
We will have three stockholder proposals to consider, I would like to note that all proposals must be presented properly to be considered. The polls are now open for those who have not already voted and wish to, and will remain open until 9:00 A.M. Pacific Daylight Time. We will have our CEO, Brian Krzanich, report on the state of the company. We will have a question and answer session, in the question and answer session, we will take questions both from here and from the internet live. Refer to the printed program for the agenda and the rules of the meeting. With that, I'd like to introduce Sam, Corporate Secretary, who will take you through the formalities of the meeting.
Thanks, Andy. On April 2nd, we began to distribute our meeting notice and the proxy statement. March 23rd was our record date for the voting of approximately 5 billion shares outstanding at that time. Approximately 85% of those shares are present in person or by proxy at this meeting. This is a majority of the shares outstanding, which is a necessary quorum for the meeting. If you have already voted, as Andy said, you don't need to do anything further. If you want to change your vote or have not yet voted, you can do so with a representative of our voting tabulator firm, who's in the back of the room. Jim Alden from American Election Services will be serving today as our Inspector of Elections. The polls close at 9:00 A.M., All voting must occur before then.
Now is the part that I know is the reason all of you came. It may not be exciting to you, but it is my inaugural reading of forward-looking statements. Finally, some of today's presentations, including Brian Krzanich's business update, contain forward-looking statements. All statements made during the annual meeting that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially. Please refer to our recent Q1 earnings release, our Form 10-K, and most recent Form 10-Q for more information on the risk factors that could cause actual results to differ. If we use any non-GAAP financial measures during the presentations, you will find on our website, intc.com, the required reconciliations to the most directly comparable GAAP financial measures. Thank you.
A remarkable reading it was. I was sure the audience was going to burst into applause when you're finished. On behalf of the board, I would like to thank the stockholders who returned their proxies and are here to vote in person. We have eight items to deal with today. Our first proposal today is election of 11 directors. I would now like to introduce the nominees. I will ask you to stand and remain standing until all have been introduced. Of course, hold your applause till the end. We don't want the meeting interrupted by constant applause. First, Brian Krzanich, CEO of Intel. Next, Charlene Barshefsky, senior international partner at the law firm of WilmerHale. On the phone is Aneel Bhusri, who is the Co-Founder and CEO of Workday. Susan Decker. That was Aneel. Susan Decker, Principal of Deck3 Ventures.
Also attending by phone, John Donahoe, President and CEO of eBay. Jim Plummer, Professor of Electrical Engineering at Stanford University. Dave Pottruck , Chairman and CEO of Red Eagle Ventures, Frank Yeary, Executive Chairman at CamberView Partners, and me, Andy Bryant, the Chairman of the Board. With that, you all may be seated. Notice how I begged and got your applause. The other nominees, Reed Hundt and David Yoffie, were unable to attend the meeting today. There were no other nominations submitted in accord with the bylaw requirements. Nominations are now closed. The second matter today is ratification of the selection of Ernst & Young as our Intel's independent auditors for 2015. I would like to introduce the two partners here. Ask you to stand as well. Jeff Lang and Matt Sapp from Ernst & Young.
Our third item on the agenda will be an advisory vote to approve executive compensation. We are asking stockholders to approve, on an advisory basis, the compensation of Intel's listed officers as described in detail in the proxy statement. We have a long history of strong pay-for-performance alignment, and we believe that our compensation programs operate in the best interest of our stockholders. While this is an advisory vote, the Comp Committee and the board take it seriously. If issues arise through the vote, we will certainly research those issues to directly better understand any concerns of the stockholders and take appropriate action. The next item is the amendment and extension of the 2006 equity plan. This is a plan we use to grant stock options, restricted stock to employees.
Our policy is to present the plan every two years for approval by the stockholders, so that they can actually see how we're using the plan on a fairly frequent basis. The next item will be the extension of the 2006 stock purchase plan. This is the plan we use to give employees the opportunity to acquire stock through periodic payroll deduction applied towards the purchase of Intel common stock at a discount. The primary purpose of this plan is to provide employees with the opportunity to acquire ownership stake in the company. We present this plan for approval every five years so that, again, the stockholders can see how we are using this plan. The final agenda items today are votes on three stockholder proposals. The first stockholder proposal was submitted by Mr. Harrington, and his representative, Father McManus, will be presenting the proposal.
Is Father McManus here?
Yes.
Please step forward to the microphone and we'd like to offer you five minutes to present your proposal.
Good morning, Mr. Chairman, and all here. I rise to move the resolution on the Holy Land Principles. The Holy Land Principles are pro-Jewish, pro-Palestinian, and pro-company. The principles do not call for quotas, reverse discrimination, divestment, disinvestment, or boycotts. The principles do not take any position on solutions to the Israeli-Palestinian issue. The principles do not try to tell the Palestinians or the Israelis what to do. The Holy Land Principles only call for fair employment by American companies in Palestine, Israel. Who could even begin to argue against that? Irrespective of what Americans think about the Palestinian-Israeli issue, one thing is certain. All Americans expect American companies in the Holy Land to practice fair employment. Our resolution calls on Intel to set the standard by signing and implementing the Holy Land Principles, which are based on the very effective MacBride Principles for Northern Ireland.
Initially, American companies doing business in Northern Ireland resisted signing the MacBride Principles. Now 116 American companies doing business in Northern Ireland eventually saw the light and signed the principles. Intel tried to get the SEC to exclude this resolution. Naughty, naughty. The SEC, in its great wisdom and profound knowledge, ruled against Intel and in favor of the little Holy Land Principles. That tells everyone the world over that the Holy Land Principles, therefore, are intrinsically valid, inherently fair and reasonable, and in the best American tradition. This is a historic moment in that it is the third time ever that an American company is voting for the Holy Land Principles. Intel should sign the Holy Land Principles. It is the American way. God bless America. Thank you.
Thank you, Father McManus.
I have a comment.
Um-
Can I comment on this proposal?
Yes.
It's not a Q&A.
Actually, go ahead.
It's a comment.
Please make it short.
It will be. So-called progressives have really been in action for the 2015 proxy season.
433 right-thinking shareholder proposals were submitted dealing with environment, political activity, and human rights. Proxy Preview, a group who tracks this stuff, calls Father McManus's proposal a human rights proposal. It is not. The proposal is a polemic and not a serious attempt to cure any evils on the part of Intel management. We know this right off because the authors choose to call the land in which Intel operates Palestine-Israel. The Romans, in defeating the Jews in 70 AD, renamed the land Palaestinia. When I was a boy, I made donations, $0.05 at a time, to the Jews of Palestine. In 1948, the nation of Israel came into being. This proposal attempts to change the name of Israel back to Roman times, as if the Queen of England decided to bring the name of the state of Maine back to its 18th century name, Massachusetts.
It'll never happen. If you read this proposal carefully and related items on the web, you will see the proposal for what it is, an antisemitic screed against the Jews of Israel and an argument against their continued survival. Shame on you, Father McManus.
Yes, good morning.
Good morning.
I'm Eli Taub. I live in this county. Welcome, Father McManus. I will speak against the proposal. I invested in Intel Corporation because of its activities in Israel. I was so impressed by that. Intel Israel, it's good for the corporation, it's good for Israel, it's good for the world. Intel has an exemplary human rights policy for which I commend the leadership of this corporation in its development. I looked at the HLP, the Holy Land Principles, in detail. I read the pamphlet over and over. I was shocked by the omissions in the principles. Yes, it's a good thing to say there should be no discrimination on basis of national, religious, ethnic origins, but there's nothing about gender. There's nothing about sexual orientation. There's nothing about disability in these eight principles.
In other words, one, if I were being snippy, I might ask, does that mean that the HLP thinks it's okay to discriminate against people in Israel or anywhere else on the basis of gender, for being a woman, for being LGBT, for being disabled, for being pregnant? If you read those proposals, that would be a logical conclusion. I don't understand why those are omitted. Intel's principles at governance operation in Israel are 10 times better than the HLP, I'm sorry to say. I understand, by reading carefully the language, that the HLP is anything but neutral and unbiased. Reading the language, the wink-wink language, you understand that. I'm going to ask that we reject these on the basis that it's a shockingly inadequate set of principles that allow discrimination that Intel would never allow on its own. Thank you.
Thank you for your comments. Thank you, Father McManus, for describing the proposal. Intel recognizes, and the board recognizes, the importance of equal employment opportunity for all applicants and employees. I'm proud to say that Intel's policy and practice in Israel and around the world meet the tenets of the Holy Land Principles. We believe that adding staff and a compliance process for principles to which we already comply would be redundant and unnecessary cost as well. For that reason, we recommend against the stockholder proposal as well. The next item is the stockholder proposal submitted by Mr. Chevedden. Is Mr. Chevedden or a representative here today? Please step to the microphone. We would like to offer you five minutes to introduce your proposal as well, and can you please state your name for us?
Yes. Good morning. My name is Barbara Flaherty, and I stand on behalf of John Chevedden to move proposal number seven, independent board chairman. Shareholders request that our board of directors adopt the policy that the chairman of our board of directors shall be an independent director who is not a current or former employee of the company, and whose only non-trivial professional, familial, or financial connection to the company or its CEO is the directorship. The policy should be implemented so as not to violate existing agreements and should allow for departure under extraordinary circumstances, such as the unexpected resignation of the chair. Shareholders are best served by any independent board chair who can provide a balance of power between the CEO and the board, empowering strong board leadership. The primary duty of a board of directors is to oversee the management of a company on behalf of shareholders.
A combined CEO chair creates a potential conflict of interest, resulting in excessive management influence on the board and weaker oversight of the management. Many companies already have an independent chairman. An independent chairman is a prevailing practice in the United Kingdom and many international markets. This proposal topic won 50%-plus support at five major U.S. companies in 2013, including 73% support at Netflix. Please vote to enhance shareholder value. Vote for independent board chairman, proposal number seven. Thank you.
Thank you, Ms. Flaherty. The board's general policy, based on experience, is that the positions of chairman and the chief executive officer should be held by separate persons, and as an aid to the board's oversight of management. If the chairman is not an independent director, the board appoints a lead director to serve as the independent lead director. The independent directors are a significant majority of the board, currently nine of 11 directors, and the board's policy allows the independent directors to implement the board leadership structure that they believe is best suited for the board at any particular time. The board believes that its existing policies empower the independent directors to act independently of management and better serve our stockholders than the inflexible rule requested in this proposal. For these reasons, we recommend stockholders vote against the proposal.
The last agenda item today, a stockholder proposal submitted by Mr. Rame and Ms. Gary. They have appointed Ms. Flaherty as their representative, standing in front of the mic at the moment, so I don't need to ask if she's here. Please take five minutes to describe this proposal.
Thank you. I stand on behalf of Investor Voice of Seattle to move proposal number eight, which calls for simple majority voting. Currently, a number of corporations, like Intel, choose to use two different voting formulas when tallying votes at their annual meetings. This simple majority proposal seeks to remove abstentions from the formula and to harmonize how our company counts and reports votes results to the SEC, its stockholders, and the press. Intel already uses a simple majority formula for director elections, so it should be neither cumbersome nor difficult to adopt simple majority as a uniform standard across the board. A recent white paper studied the impact of counting abstentions. It examined voting in the S&P 500 and Russell 3000 over 11 years, and evaluated more than 20,000 individual votes.
The Wall Street Journal published an exclusive on this research. Corporate Secretary Magazine named the simple majority issue a must-read for executives. One key finding among many, rather than having a neutral effect, counting abstentions creates 7.6 times greater negative impact on shareholder proposals than on management terms. The study's findings correlate to make it clear that when Intel pushes abstentions into its formula, the result is not neutral, and all items are not treated equally. Intel shareholders deserve a harmonized, fair, and consistent voting system, not a two-count system that creates multiple outcomes, advantages board's elections, skews other votes, and disproportionately harms shareholders. Three points in closing. Number one, from data provided by Intel, 61% of the company's own peer group already use a simple majority standard, and 48% of the S&P 500 and Russell 1000 do as well, which makes this a reasonable and mainstream request.
Number two, a third of companies receiving this proposal have adopted simple majority to enhance their governance. All these are from S&P 500, and half are Delaware-chartered like Intel. Number three, simple math shows that counting abstention skews votes, and research now provides conclusive evidence that it also inordinately harms shareholders. Shareholders deserve accurate, equitable, and consistent vote counting, and Intel should match the governance standard set by 61% of its peers. Please vote for proposal number eight. Thank you very much.
Thank you. The board certainly recognizes the importance of good governance. We have evaluated this topic and have not found any indication that the vote-counting standard requested in this proposal is viewed as a corporate governance best practice or otherwise as an emerging trend. We view the proposed change as unnecessary and contrary to the best interests of our stockholders. The vote-counting standard Intel currently applies to both company and stockholder proposals, other than the election of directors or as required by law, acknowledges and gives effect to the stockholder's affirmative action to abstain on a specific matter and is the standard applied by most large public companies incorporated in Delaware. For these reasons, we recommend against the proposal. The next order of business will be the CEO report. Before we get to that, I would like to take a moment to thank Kerry Klatzker. Kerry, please stand.
Kerry recently stepped down as Corporate Secretary, plans to retire from Intel later this summer. He has presided over 18 annual meetings. We thank him for his service. With that, let me turn it over to Brian. Take it away.
Thank you, Andy. Good morning, everybody. It's good to see everybody here this morning. I thought I would just start with a summary of 2014 and give you a picture of how I saw the company's performance. Then we'll spend a little bit of time on 2015 as well, just talk about what our objectives and what do we see as our imperatives. Let's start with just a quick look at 2014. We really look at 2014 as a strong year where we really performed well. Our technologies really came into its full maturity. For 2014, there was a total shareholder return. This is including stock appreciation plus dividends, and so on, of 44%. If you take a look over the last decade, we've returned about $94 billion over the past decade.
The cumulative investment in our business over that period of time has been $149.6 billion or roughly $150 billion. Investment in the business and shareholder return has certainly been a focus. I think 2014 really represents the results of that. $55.9 billion in revenue was a record year. Gross margins of almost 64% at 63.7%, generating operating income of $15 billion, net income of $11.7 billion. A dividend per share increase to $0.90. For us, that really represented quite nicely our performance and how the technology demonstrated over the year. I'd like to take that 2014 perspective and turn that into what is our vision, mission, and strategy for growing this company moving forward. Our mission is pretty simple. That is utilize the power of Moore's Law.
By the way, this is the 50th anniversary of Moore's Law this year, to bring smart connected devices to every person on Earth. The real objective here is that it's smart and connected, and we believe, and you've seen our investments in our communications technology, that almost everything that you build moving forward will have some form of connection, whether it's Wi-Fi, Bluetooth, LTE, things are going to need to be connected. Whether you go from the data center down to the smallest of the wearables or Internet of Things, all of those things have to have this connectivity. That feeds into some more of our strategy, which I'll talk about in a bit. Our vision is, if it's smart and connected, it's best with Intel. We're really trying to use Moore's Law and our architectures to really drive that best in performance.
Best in performance sometimes is in form factor, small and light, low power, or sometimes it's in just pure, raw performance, in MIPS or instructions or however you want to measure performance, graphics capability. Our growth strategy is really driven off the combination of these two, and that is we believe our highest shareholder return, our highest shareholder value, will come from a strategy that uses our core assets to move into profitable complementary markets. A good example of that is how we've started with the PC, and what I'll call client computing, and moved that in both direction. We've taken those technologies and moved into the data center and have built data center products now that are built off those same cores, those same silicon technology. We've moved down into the Internet of Things.
Many of the cores that we use, many of the products that we develop for the Internet of Things, are simply products that we've scaled down or made small alterations to bring them to the Internet of Things. Those are two good examples that demonstrate that strategy in action. I thought I'd take a look then at what we said last year. This is my third shareholder meeting, and I think that one of the things Intel prides itself is being held accountable and showing performance. We went back, and we pulled up our foil from 2014, and we thought we would grade ourselves a little bit, and we'll talk about this. We said we would do five things in 2014. That we would continue to lead in Moore's Law. We'll talk a little bit about that.
That we'd build on our ultra-mobile momentum, this is really around tablets and phones, we'll talk about that both in 2014, and we'll talk about that again in 2015. That we'd continue PC innovation, core of the business, where the majority of our revenue and income comes from, we need to continue to innovate there. That we'd deliver double-digit growth in the data center, we'll talk about that. As we said, this really drives off the fundamental technologies and architectures that we've built in the core products. Drive leadership in the Internet of Things and wearables, we'll show you some examples of that this morning as well. Let's take a look at these one at a time and kind of break them down and look at the performance in 2014.
If I take a look at the first one, continue to lead in Moore's Law, I continue to think that this is really one of the core strengths of Intel. Last year, in 2014, we introduced our fifth-generation core products on our 14-nanometer technology. In addition to that, we've introduced products in the memory space that are really leading in both density and cost with 3D NAND. We believe we have a world-class leadership position here with 3D NAND. Just our overall silicon technology, 14 nanometers is our second generation of 3D transistors, or FinFETs, for those who know the real definition of it. It's a true 14-nanometer technology, leading in density and compaction. We continue to see that our Moore's Law leadership continues, and we continue to see Moore's Law beyond what you might read in the press, that Moore's Law is ending.
We see a future of Moore's Law well beyond what is presented often out there. Moore's Law is alive and going. The next thing we said we would do is PC innovation, I really think this has been a great year for this space. We said last year we would accomplish a couple of things. The first was we said we'd establish a footprint in the critical tablet business. If you remember at the beginning of the year, we said we would go out, and we would ship 40 million units of tablets. At the end of the year, we were really proud to announce that we'd actually beaten that by a considerable margin. We shipped 46 million tablets. We actually became the number one merchant provider to the tablet industry.
What's also great is we led with innovation, if those of you who attended 2015 CES, innovative product of the event was a tablet that was built between Dell and Intel, the Venue 8, which is just a phenomenally the world's thinnest tablet, great screen, and it was the first product that introduced RealSense. Since then, we've also, in 2014, introduced a number of form factors and really innovated two-in-ones, all-in-ones. They're becoming thinner, lighter, more mobile. You can see that people are starting to utilize those much more. An entirely new form factor with the Compute Stick, where you can now take a full computer with you in your pocket and plug it into almost any monitor. We really believe this is a form factor that will continue to grow as we look forward, and you'll see even more innovation in this space.
We have products from all price points, we introduced a product last year, SoFIA. SoFIA is a product I'm very proud of. SoFIA was not even on our roadmap as we entered into the fourth and third quarter of 2013. By the end of 2014, not only had we qualified that product for production, but we'd gone into China and built a partnership with Rockchip to produce those parts as well and do their own designs around that architecture. I can tell you that towards the end of Q1 of this year, 2015, they actually qualified their products as well. On both of those products, we've already gotten orders for over 1 million units on each.
A product that was not even on our roadmap in a year and a half has already had orders for over 1 million units each and is shipping in production. We've worked really hard to become OS-agnostic, and we made sure that our products run on every OS out there. We think this is critical for the growing markets and the diversity of the markets that we're into. Really where I see a future of computing is in these experiences and innovations there. You've started to see really just the inkling versus what we see in our labs, and you're starting to see wireless charging. As we go through into the second half of this year, more and more of our products will ship with wireless charging. Then you'll begin to see RealSense.
We have products shipping right now with RealSense, as we go in again through the remainder of this year and into next, RealSense, which is really giving compute eyes, the ability to both see you and see the world and understand it, do something with it. It's going to really change computing as we know it, your interaction with computing, but computing's interaction with the world. All of those things will shift, we believe, with these experiences. We really feel good about the innovation that we've done on the client space in this last year. We have a lot more moving forward in 2015. The data center, I think is we look at it as our next big growth engine for the company. It's a business that's over $14 billion a year now. It grew at 18% last year.
It's being fueled by almost every segment of the data center, from software-defined networking and infrastructure to enterprise computing, high-performance computing, big data applications. You saw our relationship with Cloudera this year and our efforts to really improve big data applications and the speed at which they can be implemented. Then the one that's the big driver is the cloud. Remember we said everything needed to be connected and the importance of that? That's because everything feeds into the cloud now. All your data and all your information tends to move there, and that connectivity provides that ability. Our data center products are really what fuels and powers the cloud as well. That's allowed us to grow at 18% last year. We've committed to grow at 15% through this decade.
As I said, this will be the next real engine for the company for revenue and growth. The next area is really driving some of the next, I'd say, the future of where computing is headed, and that's really the Internet of Things and wearables. You saw us really drive a new energy and a new focus on the Internet of Things. Internet of Things business grew 19% last year, it's over a $2 billion business annually now. This is not a new and emerging business. This is a $2 billion business growing at 19%. We said we can commit to grow through this decade in those mid to high teens as this business continues to expand, people talk about 50 billion devices by 2020 that'll be tied into this Internet of Things, again, that connectivity comes to play there.
We've got products like SoFIA, Edison, the Galileo boards. You saw us introduce at CES of this year, Curie, which is a full computer that can fit in a button on your jacket. The products that are being innovated and will come out on all of these devices over the next few years are amazing. In wearables, you saw we have the Basis Peak watches, which are really, if you look at fitness tracking and fitness monitoring, one of the best products out there. You saw us introduce the MICA bracelet with Opening Ceremony, which is really a full cellphone on your wrist from a data standpoint. A variety of partnerships with leading companies like Fossil, SMS, Oakley, and Luxottica.
All of these companies are working with us now to build products over the next couple of years in this wearable space, using these innovative technologies like Edison and Curie and products beyond those that we haven't even introduced yet. Those were our key imperatives for 2014. We feel very good about our progress there. I thought I would then take a look so you could measure us again next year at this same meeting at what our imperatives are for 2015. First is to continue to innovate in the core business. Client computing, PCs, desktop, mobile, and tablets will continue to be the core of this business. We need to continue to innovate there. We think this year we'll ship somewhere between 10 and 15 million phones into the market.
The ASUS ZenFone 2, which launched earlier this week in the U.S., is just one example of products now coming to the U.S. with Intel inside. We're making progress in all areas of mobile in this segment. Profitably grow our mobile business. We committed to reduce our losses in this space by $800 million this year, and we're on target to do that. Stacy and I report at every quarterly meeting our progress, and we're on target there. Deliver double-digit growth in the data center, and as I said, we've committed to 15% through this decade, and we'll continue to grow that, this rate. You saw our results in Q1 continue to meet or beat those numbers. Grow our next new big businesses, which we really look at is the IoT space and that memory space.
3D NAND, we believe, gives us a very competitive cost and density advantage that will let us continue to grow what's over a $2 billion business in memory already. We talked about the IoT, which again, is an over $2 billion business, which grew at 19% last year and will continue to grow in those teens for this year as well. Lastly is continue to lead in Moore's Law. The fundamental driver of this company will always be Moore's Law and the silicon underneath it, and we need to continue to be seen as the leader and to actually deliver those leadership products. Moore's Law is critical to how we drive the growth. The last thing I want to talk about is that a company needs to do all of that while taking care of the community and planet we all live in.
We call that doing the right things the right way, which is really delivering those results in a way that has a corporate responsibility and a community responsibility. Today, we released our 14th annual Corporate Responsibility Report, and we invite you to go visit our website to download and learn more about the responsible businesses and practices that we follow all around the world. I'm very proud of that as a company. I've been a part of this company for over 30 years, and that's always been an area that I personally have engaged in. I can tell you with high confidence, it's an area that we as shareholders should be proud of. I really invite you to go look at that report.
As you drive out today, if you look up on the roof of our main building, you'll see, I think there's about 15 microturbines, and there'll be over 60. We'll have one of the largest microturbine installations in California at least, as we continue to generate power in alternative ways as a site. With that, I'd like to invite Andy and Renée on stage. Andy back on stage. Let me introduce Renée James, President of Intel, and I'm going to hand the clicker over to Andy, and we're going to take questions. We're not going to sit down because we're trying to keep this meeting a little more informal. Andy, you now have control.
He has his own.
He has his own.
I have my own.
That one's more powerful. I'm sure that one outrules mine.
I have no clicker.
We'll take questions from this audience. We also will take questions from the web. If you have questions, we have two mics set up, so please get to one of the mics. In fairness to all who wish to speak, we ask each speaker to limit their time to two minutes. Any specific topic will be limited to six minutes. With that, we'll take the first question. Actually, if we have one in the room, I'll go ahead and take one in the room here. Please state your name and your question.
My name is Peter Fante, I came all the way from New Mexico, I appreciate-- Thanks for the presentation. I appreciate that corporate responsibility because particularly I wanted to address that or bring that up as, also the diversity in the workplace that it's been in the press that Brian's been a champion. Because what I do right now, I have a company in New Mexico, I work with your New Mexico operation for outreach to Native Americans. Particularly, we have a STEM scholarship program that Intel's now been involved with, they've been working with us, we've been looking at students that we're getting out of our program and getting into internships with Intel. It's a particular challenge just because with this particular ethnicity, it's not only working with the students, but it's getting back into the communities.
Your guys out there, Sean Savitz in the Rio Rancho facility, is doing a great job working with us, getting into the communities, getting that message back to grade schools. It really ties to the corporate responsibility that Brian's mentioning, I just wanted to let you know I really appreciated that look for continued support in the future. Thank you.
Welcome.
In all transparency, I should say Peter's a good friend of mine. It just shows you that just people who are raised up in similar ways end up in similar type of jobs and with similar value sets. His effort on social responsibility with his company has been equally as good as well.
Let me take the next question from the web. Question is: What mechanism does the board use to evaluate the performance of directors? For that one, I'd like to turn it over to our Lead Independent Director, Susan Decker, who's here in the front. Do we have a mic for Sue?
Yes, we have been evaluating director performance for over 15 years. We have an annual process that we go through as a team. We take into account individual performance, we take into account committee efficiency and effectiveness, and we take into account how the board works as a whole. This last year, we decided to add to that a deep interview system of all of the directors, and that will be overseen by the Lead Independent Director, but conducted by an independent third party. We plan to start that in January of 2015 and do that annually to coincide with the performance evaluations of employees. Thanks.
Thank you, Sue. Next question in the room.
My name is Shelton Ehrlich. I'm a very small shareholder. How can we get business from Apple? That's my question.
Get business from-
Apple.
Apple.
From Apple.
Apple.
Do you want me to?
I think that'd be a good one for the CEO.
Other than the Mac.
I was going to say, I was going to start with.
I have three.
That's good. All the Mac line, whether it's an iMac or a Mac Pro or a MacBook Air, all of those products and the innovation that goes inside of are based on Intel architecture. We work together very closely with the Apple team to deliver those products. I think they represent the innovation in the industry quite well. If you take a look at it, that's a growing part of their business, and it's a growing segment, and I want to continue to earn that business. That's what's key with Apple. There's your iPhone. Again, you see us, we've had to point the company to the mobile space, to the phone and the tablet space. We made great inroads in tablets last year. We said we'd be shipping somewhere between 10 and 15 million phones this year.
The way to win Apple is that you have to build the best products for the best price, that'll be when we get into those other Apple products. We have to go win it. We're working on it. We're constantly working on it. It ends up it's always about whether you can build a product that meets their needs at the right price. We're working.
Okay. Next question from the web will be, what does Intel do to align the pay of executives to drive value to stockholders? For that one, I would actually turn to our Compensation Committee Chair, Dave Pottruck.
Good morning, everyone. We work very hard at this. We believe that we have alignment of the way we pay for performance. Our bonus plans have very specific metrics that align pay for performance in terms of annual performance and setting the stage for the future. The vast majority of compensation for our CEO, our President, our senior executives, and even going down into the company, is around incentive comp, and that's our bonus plans and stock options, restricted stock.
A very large portion of our senior executives' equity compensation is tied to the performance of our company, total shareholder return of our company versus a comparable list of 15 other tech companies, and we make sure that we're providing a total shareholder return that meets and exceeds these comparable companies in our industry, and our executives are held accountable for that, and their equity awards go up and down based upon that relative performance. We consider that to be extremely important. We constantly monitor this. We hire consultants to help us. We try to have best practices. We study other companies to make sure that we're at the leading edge of making sure that our employees, our leaders' compensation is fully aligned with the returns to shareholders and the benefits to shareholders. Is there anything else I should add to that? No? That sounds okay?
All right, there you go.
Thank you, Dave. Next question from the room.
My name is Joseph Pruss. Intel has been kind of around the block on content streaming devices. I thought a lot of that was abandoned a couple of years back. Can you explain where you see this relationship with the Chinese company, Rockchip, in your TV dongles or your HDMI TV sticks? Where do you think Intel's going with that relationship and your new product?
Sure. I'll answer that one. Our relationship with Rockchip is around building products like SoFIA. What they provide is a channel. Actually, they provide two things. They are an additional design resource. They actually take our first-generation SoFIA, as an example, and they may do additions or changes so that it's targeted towards the markets and channels that they're targeting. In the case of their 3GR, they did some improvements to graphics, they did some improvements to some of the memory modules, and things like that. What they really are is they're very good at, what I'll call, the Shenzhen and Beijing ecosystem, which is working with roughly 1,000 ODMs, literally 1,000 ODMs, that make sub-$150 tablets for Asia.
That channel is one that for us to go and invest and get into would just take too much effort, too much money, and we're not as good as them at it. Working through them as a partnership, we feel is a better way to enter those markets. That's really the relationship. We will bring products as they see they want to grow into segments. For example, their 3GR, they just qualified for IoT, so they did expanded temperature and environmental specs for that product so that they could take it into IoT applications, and we're helping them write software and applications for that. Things like the Compute Stick are products that they may or may not choose to take over time. You can't really use SoFIA for that product. It just doesn't have the graphics and things like HDMI capability.
We could work with them to develop a product that could do that over time. There is no plan to do that currently with them. Compute Stick is driven more by our, what I'll call, our classical OEMs partners.
I'll take the next question on the web. Can you update us on how your mobile strategy is progressing? What recent successes would you highlight? Again, that one's for Brian.
Sure. I'd say, again, let's just take a look at last year. We came out and said that we were going to first target the tablet space so we'd get to 40 million. I think when we started last year, we put out that 40 million unit target, people kind of questioned our ability to go from roughly 0 to 40 million in a year. As I said, we hit 46 million tablets. Really what's neat to me is the innovation that we were able to bring as well. For 2015, we said we'll grow at what the market grows at for the tablet space. My guess is actually the tablet space may actually shrink a bit this year as two-in-ones and phablets, the bigger phones, kind of eat into that market.
Our focus for this year was to really reduce our losses in mobile, the $800 million target was what Stacy and I put out there for a reduction of that loss, we're well on our way to that. Every shareholder meeting, people have come in and said, "When are we going to see you in a phone?" We've been shipping phones starting in last year to some volume. Again, we think we'll be in roughly 10 million-15 million phones this year, and you can actually start to see them penetrate into U.S., with the ZenFone 2 as the first example of that. We feel like our mobile progress is going well and our strategy of entering these markets using partners like Rockchip and Spreadtrum, now focusing on cost, is the right one to go to.
Thank you. In the room?
I am Shirley Wen of Silicon Valley. I appreciate hearing that the company name a product after Madame Curie, someone who not only won a Nobel Prize, but twice. I have two questions today. First, what were the lessons learned from some instances some years ago? In 2014, they had come home to roost with a fine of $8 billion. The second question is, without seeing any other suitors, being that today is the annual meeting, how much factor does it play in the company resuming the talk with Altera so quickly?
What was the first question?
I didn't understand the first question.
What was the first question again?
$8 billion something?
What I read was in 2014, some instances happened some years ago, has caused the company to be fined for $8 billion.
I don't-
That was in the news I saw.
I don't believe we've had any fines assessed for $8 billion. I think I would've noticed that.
Okay.
So-
I was wrong. I thought it was with Intel, and it was some years ago, and it might have been something related to the European Union.
We did pay a fine over $1 billion several years ago.
Okay
based on a European investigation of Intel. That's how many years ago?
Seven.
Three, four?
No. Longer.
Five?
It's got to be closer to five.
It's five or six.
There's been nothing current. There's been no issues that we're aware of.
Oh, I thought they just completed their investigation, and then decided on a fine in 2014. Where are the lessons learned? Even though there were incidents that happened, still, billions of dollars are billions of dollars.
You want to do it, or you want me?
Go ahead.
I think what came out of that was a set of practice changes that we've been combined with the sales group and the legal team to really ensure that all of our sales are independent. In other words, we don't tie them to any kind of market share gains or competitive alternatives. When we go in and sell to somebody, we can't tie our price to if they give us 100% share, or they keep the competition out, or any kind of competitive risks like that. We have a very strong audit process. We also have a very strong audit process to make sure that we're never selling below cost to ensure that our products are out there competing fairly with the competition and not below costs.
There's a very strong audit process that, again, the legal team and the sales team go through on a regular basis, and is inspected by our auditors as well. We have an independent audit process and a set of guidelines now for the sales and legal team to do pricing, how contracts are set up, even how negotiations are done to ensure that the practices are fair and even.
Well, that's good to hear because certainly, those practices are good. Hopefully, Wall Street will follow your kind of practices as well. My second question.
To your second question, we, as a policy, don't comment on rumors and reports in the papers that we are not a part of. I understood what your question was. We will not comment on any negotiations with any companies that may or may not be going on.
Are you saying that Intel has not resumed the talks?
I'm saying that Intel will not comment on rumors that are in the press.
Thank you.
The next question from the bridge, what is Intel's long-term plan as we begin to push up against limitations of smaller transistor geometries? For that one, I turn to Renée.
Thank you. As you heard from Brian, it's the 50th anniversary of Moore's Law, we feel that we're in a normal 10-year horizon of development. In the near in five-year, we're in execution, this year we will take our 14-nanometer process, will cross over to be our predominant high-volume process. The thing that follows 14 is 10 nanometer, the 10 nanometer development is progressing very well. You'll start to see startup costs in the second half of the year on 10 nanometer, we will talk about the timing of that later this year, the early part of next year, about when that will happen. After 10 comes 7 nanometer, we feel very confident that we have line of sight of how to manufacture that node. Overall, we think we're in very good shape.
Thank you. Next question.
Yes, my name is Gwynne van Zanten, I have a couple questions. Number 1 is does Intel have a green energy initiative in the emerging market? Number 2 is does Intel have any initiative to encourage the growth of electrical vehicles in this country?
I can answer both of those questions, especially since I own two electric vehicles.
Perfect.
Absolutely we have an effort to work with electric vehicles. If you take a look, I think we have over 25 electric vehicle charging stations on this campus, and we have them at every one of our campuses. We have actually, if you take a look at the charging stations per employee, we have one of the highest densities or the largest numbers in the valley here. We are a big proponent of supporting those kinds of products. If you just take a look at what do we do across the world from an energy reduction and energy conservation. In the U.S., we are the number one purchaser of green power, and we have been for three plus years, probably four years now. We buy green power projects, offset 100% of our operational costs in the U.S.
We have solar installations at almost every single one of our worldwide large locations. There may be small sales offices that we don't have them at or small locations, or leased locations. But if it's company-owned and it's out there almost anywhere in the world now, we have installed solar energy to pretty much the maximum we can fit on our rooftops now. We are looking at continuing alternatives. We have got Bloom Energy systems, which are LPG-driven systems in Folsom, and we are installing one in India now.
Be the first Bloom Energy system in India, powering our new building that we are building there. You see us experimenting with things like microturbines that you will see on the roof here, that if those work, we will carry them out to other locations as well.
Thank you.
We also have in the audience here, Michael Jacobson, Director of Corporate Responsibility. If you have any of these types of questions you want to grab somebody afterwards, he's a wonderful guy to spend some time with.
Next question from the web. What are your long-term prospects for the PC market? Are you seeing continuing secular decline? Are you seeing a cyclical impact? Brian?
Sure. If you take a look at last year, PC market actually grew. It actually grew in the low single digits. We think that was largely fueled by XP replacement. We continue to see growth from that. As we entered this year, we're going through another transition, Windows 10 upgrades, we're seeing some quarter-to-quarter pushing, we continue to take a view of our long-term forecast. Our long-term forecast is the PC market should be flat to slightly down, mid-single digits over the long term. There are going to be years where it's higher, it's positive, and there's going to be years where it'll be a little bit lower, and it'll certainly have quarter-to-quarter, call it, economic or macro implications. Over that long haul, we think it'll be stable to down mid-single digits.
We've built that into all of our forecasts, and we're offsetting that with growth in the data center and those other businesses, and that's how we grow the company.
Yes.
My name is Steve Young from Hillsboro, Oregon. I'm a shareholder. Got some concern about the Folsom site. The Folsom Lake is the principal water source for Folsom, and last year it was on the verge of dead pool, which is a federal designation where the water level drops below the water intake for clean water. Is there any plan to move Folsom site or any plan for the site at all? Is there going to be any more expansion in Oregon?
There's no plan to move the Folsom site. Remember, the Folsom site is not a manufacturing site. It's mostly.
Right
It's an office building kind of site. It's not a heavy water user.
Right
in any way. I agree, California's statewide under a drought condition and if you take a look at this site, for example, and we're expanding it into other sites, we're slowly but surely pulling out all of our lawn. In our central courtyard, we've taken out all the lawn, so we're trying to become more and more water wise, and we'll move that to Folsom as well. There's no published plans for further expansion in Hillsboro, and I can't talk about things that aren't on the public roadmap.
Next question from the web. What is the company doing to increase diversity on the board? I'll take that one. When most people say diversity, they're talking about gender or underrepresented minorities. Let me start there. We did adopt a policy, it's in the proxy statement, that says, as we look at pools of candidate, we will ensure that we have both gender diversity and underrepresented minorities. We currently have, I'll say, a list of potential future candidates we're looking at, and that's included as our policy says it will be. Really, to us, diversity goes well beyond that. If you look at our board, I think you would realize it has been thoughtful. Assuming everybody nominated gets elected today, it's 18% women. We have a strategic professor, we have a technical professor, we have two current sitting CEOs. We have people from Washington, D.C., legal representatives.
If you look at the way we've built this board, we've built it looking at the different skills and capabilities we might need. We've actually looked at international. We've had in the past, a director from outside the United States. Our concept is to find what we think are the missing skills from the board to add, to complement. We do believe strongly that you get a better result if you have diverse skills in the room and hear diverse opinions and voices. I think you were at the mic next, let's go over here.
Yes. Good morning. As one of the older members of the stockholder group, I remember when my first times in business, we were talking about, and we were using germanium as the chip from which we were working. As a member and as working for California Institute of Technology Jet Propulsion Laboratory at the time, we were one of the first to have to move to silicon. The question that I'm asking you is how far can we ride the silicon horse?
What is Intel doing to take care of the limits that the silicon will eventually impose upon us, and what alternative is available to us?
Do you want to or you want me to?
I'll start. You can assist.
Okay.
As I said in my earlier answer, I think we have good line of sight with silicon for many nodes to come. We have an advanced R&D organization that looks at materials and is looking to beyond the 10-year horizon, and experimenting. You want to add some more to that?
No. We put materials on silicon now to enhance silicon.
We do that. That's right.
We deposit germanium, and we can deposit the films that you'd probably look at next for speed and performance, truly just on the silicon itself to build those devices. Beyond that, we are looking at other products, as Renée said.
Yes, synthetic.
Right now, those are out past the 10-year mark. The reason I don't give you, Mr. Fan, a list of them is because, the way we have it always is this funnel, and there's probably 20 of those elements today that we'll narrow down over time.
Okay. Thank you.
Okay. Let me take our one last question here in the room from the web. I mean in the room here.
Hello. My name is Shirley Cantu-Adame. I'm President of the Silicon Valley United Nations Association and an Intel shareholder. I just wanted to applaud you for your corporate responsibility. You live in a world that has many needs. One thing I did not hear was Intel's corporate response to humanitarian needs. We are facing tremendous stresses from refugees and migrants in the world that are affecting us locally as well as worldwide. The United Nations is celebrating its 70th anniversary this year. It was founded in San Francisco, so we have close ties as a region to the principles of the United Nations, which includes human rights as well as humanitarian aid. What is Intel doing specifically in this arena?
We do many things. I'll just start with the Intel philanthropies and foundation. Through our foundation efforts, we work with a variety of multinational organizations, both on direct relief for things like existing disasters, like earthquakes in Nepal, et cetera. We send technical people. We actually have an outreach team that comes in, a mobilizing team, and helps with technology and getting people back connected. When we had the earthquake in Chengdu, we actually used our own facility for clean water and for housing people. We do have a response team as part of our foundation for immediate disaster. Then through NGOs, we have foundation contributions, and our employees are able to do their own donating through our Intel Matching Program to their own charities of choice.
Thank you.
Thank you. With that, I'm going to close the question and answer session. Brian, Renée, thank you.
Thank you.
At this point, I invite Sam back up to give us preliminary results.
Hello. I am one of the electric car drivers also. Mine's not as nice as Brian's, but it's still electric. I will do the preliminary results. The final results are going to be available early next week. Each board nominee received a vote of approximately more than 65% of the shares voted, each nominee has been reelected. On the ratification of the selection of the company's independent auditors, approximately 99% of the shares voted were voted in favor of the proposal, the proposal is approved. On the advisory vote to approve executive compensation, approximately 95% of the shares voted were voted for the proposal, the proposal is approved. On the amendment and extension of the 2006 Equity Incentive Plan, approximately 92% of the shares voted were voted for the proposal, the proposal is approved.
On the extension of the 2006 Stock Purchase Plan, approximately 98% of the shares voted were voted for the proposal, the proposal is approved. On the Holy Land Principles stockholder proposal, approximately 3% of the shares voted were voted for the proposal, the proposal is not approved. On the independent board chairman stockholder proposal, approximately 30% of the shares voted were voted for the proposal, the proposal is not approved. On the simple majority voting stockholder proposal, approximately 80% of the shares voted were voted for the proposal, the proposal is not approved. Final vote tallies, including the ballot submitted today, will be posted on our website at intc.com and on our next filing with the SEC within four business days. Thank you.
Thanks, Sam. As Sam mentioned, we would like to direct your attention to Intel's investor comms website, intc.com. This website contains stock quotes, webcast events such as this meeting, other investor information. On the website, you can also sign up for electronic delivery of documents such as the proxy statement, which reduces some of the paper usage on our part and others. With that, I believe our business is concluded. If I have a motion to adjourn?
Moved.
Second.
Second. Passed. With that, the meeting is done. Thank you.