Results of Operations
Results of Operations
The following table sets forth certain consolidated statements of income data as a percentage of net revenue for the periods indicated:
| 2008 | 2007 | 2006 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in Millions, Except Per Share Amounts) | Dollars | % of Revenue | Dollars | % of Revenue | Dollars | % of Revenue | |||||||||
| Net revenue | $ | 37,586 | 100.0% | $ | 38,334 | 100.0% | $ | 35,382 | 100.0% | ||||||
| Cost of sales | 16,742 | 44.5% | 18,430 | 48.1% | 17,164 | 48.5% | |||||||||
| Gross margin | 20,844 | 55.5% | 19,904 | 51.9% | 18,218 | 51.5% | |||||||||
| Research and development | 5,722 | 15.2% | 5,755 | 15.0% | 5,873 | 16.6% | |||||||||
| Marketing, general and administrative | 5,458 | 14.6% | 5,417 | 14.2% | 6,138 | 17.3% | |||||||||
| Restructuring and asset impairment charges | 710 | 1.9% | 516 | 1.3% | 555 | 1.6% | |||||||||
| Operating income | 8,954 | 23.8% | 8,216 | 21.4% | 5,652 | 16.0% | |||||||||
| Gains (losses) on equity method investments, net | (1,380) | (3.7)% | 3 | —% | 2 | —% | |||||||||
| Gains (losses) on other equity investments, net | (376) | (1.0)% | 154 | 0.4% | 212 | 0.6% | |||||||||
| Interest and other, net | 488 | 1.3% | 793 | 2.1% | 1,202 | 3.4% | |||||||||
| Income before taxes | 7,686 | 20.4% | 9,166 | 23.9% | 7,068 | 20.0% | |||||||||
| Provision for taxes | 2,394 | 6.3% | 2,190 | 5.7% | 2,024 | 5.7% | |||||||||
| Net income | $ | 5,292 | 14.1% | $ | 6,976 | 18.2% | $ | 5,044 | 14.3% | ||||||
| Diluted earnings per share | $ | 0.92 | $ | 1.18 | $ | 0.86 | |||||||||
The following graphs set forth revenue information of geographic regions for the periods indicated:
Geographic Breakdown of Revenue
Our net revenue was $37.6 billion in 2008, a decrease of 2% compared to 2007. Higher revenue from the sale of microprocessors and chipsets was more than offset by the impacts of divestitures and lower revenue from the sale of motherboards. Revenue from the sale of NOR flash memory and cellular baseband products declined approximately $1.7 billion, primarily as a result of divestiture of these businesses. Revenue in the Americas region decreased 4% in 2008 compared to 2007. Revenue in the Asia-Pacific, Europe, and Japan regions remained approximately flat in 2008 compared to 2007.
Although net revenue for 2008 declined only slightly from 2007, net revenue for the fourth quarter of 2008 declined 19% from the third quarter as customers reduced inventory levels to keep pace with the dramatic decline in end-user demand that occurred over the course of the quarter. It is unclear when a turnaround may occur, and there remains a high degree of uncertainty around demand, which may continue to decline.
Our overall gross margin dollars for 2008 were $20.8 billion, an increase of $940 million, or 5%, compared to 2007. Our overall gross margin percentage increased to 55.5% in 2008 from 51.9% in 2007. The increase in gross margin percentage was primarily attributable to the gross margin percentage increase in the Digital Enterprise Group operating segment. In addition, our gross margin percentage increased due to the divestiture of our NOR flash memory business. We derived most of our overall gross margin dollars and operating profit in 2008 and 2007 from the sale of microprocessors in the Digital Enterprise Group and Mobility Group operating segments. See "Business Outlook" for a discussion of gross margin expectations.
Our net revenue was $38.3 billion in 2007, an increase of 8% compared to 2006. Higher microprocessor unit sales were partially offset by lower microprocessor average selling prices. Higher mobile chipset unit sales also contributed to the increase in net revenue. Lower NOR flash memory revenue in 2007 compared to 2006 was mostly offset by the ramp of our NAND flash memory business. The decrease in NOR flash memory revenue was due to a significant decline in average selling prices. Lower royalty revenue was offset by higher unit sales. Revenue in the Asia-Pacific region increased 11% and revenue in the Europe region increased 10% in 2007 compared to 2006, and revenue in the Americas region and Japan increased 3% in 2007 compared to 2006.
Our overall gross margin dollars for 2007 were $19.9 billion, an increase of $1.7 billion, or 9%, compared to 2006. Our overall gross margin percentage was relatively flat at 51.9% in 2007 compared to 51.5% in 2006. The gross margin percentage increase in the Digital Enterprise Group operating segment was mostly offset by a decrease in the gross margin percentage in the Mobility Group operating segment and costs associated with the ramp of our NAND flash memory business. We derived most of our overall gross margin dollars and operating profit in 2007 and 2006 from the sale of microprocessors in the Digital Enterprise Group and Mobility Group operating segments.