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In 2001, the majority of our capital investment went to build manufacturing capacity. Significantly, we were able to ramp our new 0.13-micron manufacturing process technology into production months ahead of schedule, with multiple factories producing 0.13-micron processors by the end of the year. The new process shrinks transistor feature sizes so that each chip has more, smaller and faster transistors. This yields higher performance chips that cost less to manufacture and require less power to operate than chips made on the earlier process.

We also began using a manufacturing process that fabricates chips on new 300mm (12-inch) diameter wafers, instead of the smaller 200mm (8-inch) wafers we have been using since the early 1990s. We expect to ramp this process into production in 2002. When fully implemented, the 300mm wafer size is expected to cut die manufacturing costs by 30%. This adds to the cost benefits of the smaller chip sizes on 0.13-micron technology and helps us maintain our industry leadership in semiconductor manufacturing.

Finally, we know that our ultimate success depends on the quality of our internal execution. In 2001, we continued our operational excellence program that began in 2000. We are proud of our employees, who dedicated themselves to improving their operational productivity across the company.

This disciplined focus allowed us to do more with less. Operational excellence helped us accelerate new product introductions and manufacturing ramps, while also improving our cost containment. For example, we were able to launch the Intel® 845 Chipset months ahead of schedule and ramp it into production volumes faster than any other chipset. This helped support the rapid acceptance of the Pentium 4 processor in the mainstream PC market segment. We achieved this goal for the Pentium 4 processor while emphasizing cost control across the company. For instance, through attrition and focused local redeployment, we worked to bring our headcount into line with our business level, without having to resort to major layoffs. We ended the year with 83,400 permanent employees, down 8% from our peak earlier in the year.

We also increasingly implemented our e-Business techniques throughout the company, which was a significant factor in containing costs. We have built our internal infrastructure and practices around our own products and technologies; we handle everything online, from order processing to materials management to accounts payable. More than 60% of our materials transactions and approximately 85% of our customer orders are processed electronically.

As a result of all of these efforts, we ended the year with a leaner, more efficient operation; industry-leading manufacturing capabilities; and a strong product position across a broad range of market segments. Our task for 2002 will be to build on these efforts and continue to increase market segment share for all of our products.

As we look to the future, our strategies are based on the belief that we have seen only the early stages of deployment of digital technologies. In this report, we review examples of past technology revolutions. Many technological innovations experienced an early period of feverish adoption and investment, which ended with financial turbulence. The downturn was then followed by an extended period of real growth toward full deployment of the technology.

We think the current technology-led recession represents a turbulent period in the information revolution. However, we believe that a long period of continued, pervasive worldwide deployment of digital technologies is still ahead of us.

To pursue these future opportunities, we have developed innovative product architectures in new areas beyond the PC. We are also fortunate to have financial resources, a dedicated and competent group of employees, and stable and deep management ranks.

We are pleased to welcome a new member to the executive office. On January 16, 2002, our board of directors elected 27-year Intel veteran Paul S. Otellini as Intel's president and chief operating officer. For the last four years, Paul has been executive vice president and general manager of the Intel Architecture Group, which contributes about 80% of Intel's revenues. With this promotion, we recognize his excellent record of service and leadership.

Our aim coming into 2001 was to emerge from the year stronger than we entered it, and we believe we have achieved that goal. We are optimistic that 2002 will be another year of building strength and delivering on our ultimate mission to be the preeminent building block supplier to the worldwide Internet economy.