in re intel corporation securities litigation 01-cv-20888...

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MILBERG W EISS BERSHAD HYNES & LERACH LLPREED R. KATHREIN (139304)KIMBERLY C. EPSTEIN (169012)SYLVIA W AHBA (197612)100 Pine Street, Suite 2600San Francisco, CA 94111Telephone: 415/288-4545415/288-4534 (fax)

- and -W ILLIAM S. LERACH (68581)401 B Street, Suite 1700San Diego, CA 92101Telephone: 619/231-1058619/231-7423 (fax)

Lead Counsel for Plaintiffs

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re INTEL CORP. SECURITIES LITIGATION

This Document Relates To:

ALL ACTIONS.

))))))))

Master File No. C-01-20888-JF

CLASS ACTION

FIRST AMENDED CONSOLIDATEDCOMPLAINT

DEMAND FOR JURY TRIAL

Case 5:01-cv-20888 Document 62-2 Filed 11/21/2002 of 55

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28 1 In late July/00, Intel's stock was split 2 for 1. Unless otherwise indicated, all per-share amountsare adjusted for this 2-for-1 stock split.

- 1 -FIRST AMENDED CONSOLIDATED COMPLAINT - C-01-20888-JF

SUMMARY AND OVERVIEW

1. This is a class action on behalf of all persons who purchased or otherwise obligated

themselves to purchase the publicly traded securities of Intel Corporation ("Intel" or the "Company")

(including its common stock and options to purchase its common stock) from 7/19/00 through 9/29/00,

inclusive (the "Class Period").

2. During FY00, Intel's stock advanced strongly from $39-3/32 in early Jan/00 to $72-1/41

in late Mar/00, as Intel reported better than expected results and told analysts and investors that it was

overcoming production problems that had left its capacity constrained and unable to meet demand, and that

it was successfully developing a new, faster and more powerful generation of microprocessors (including

Pentium III, Pentium 4, Itanium and Timna – all of which would be released later in FY00), which would

allow Intel to continue to dominate the personal computer ("PC") microprocessor market and report very

strong unit shipment, revenue and earnings per share ("EPS") growth during the balance of FY00. By mid-

July/00, Intel's stock was trading at its all-time high of $72-$73 as investors and analysts anticipated Intel's

release of its 2Q00 results – typically Intel's slowest quarter of the year due to seasonal factors, but which

Intel had recently indicated would be unusually strong that year.

3. On 7/18/00, Intel reported very strong 2Q00 results and stated that demand for its

products was so strong that its 3Q00 was much more "front-end loaded" and "linear" than a 3Q had

been for some time. In fact, Intel told investors it was actually already completely booked up for 3Q00

and thus was exceptionally confident about its 3Q00 results. This was especially important since one of

Intel's most important markets – Europe, which accounts for 25±% of Intel's revenues – is traditionally slow

during the first two months of the 3Q before a stronger September. Intel also told the investment

community that it was very pleased with the validation and pre-production status of its Pentium 4

Processor, which remained on track for introduction and high-volume production in the 2H00, and that Intel

had also made solid progress toward its Timna and Itanium microprocessor roll-outs in 4Q00.

Finally, Intel said it would very shortly be releasing its new and most powerful microprocessor ever – the

Pentium III 1.13 GHz chip.


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28 2 AMD's Athlon was the newest generation AMD processor and a direct rival to Intel's Pentium IIIprocessors.


4. In other communications with analysts on 7/18/00 and 7/19/00, Intel officers continued to

be extraordinarily bullish about Intel's 3Q00 and 2H00 overwhelming worldwide demand. In short, Intel

"guided" the investment community to conclude that its business had never been stronger, its

outlook had never been brighter, and its 3Q00 would be exceptionally strong – with 8%-10%

revenue growth and gross margins of 63%-64%. Securities analysts following Intel were extremely

impressed with this unprecedentedly bullish "guidance" by Intel and raised the revenue and EPS

forecasts for Intel for the 3Q00, 4Q00 and FY00, as well as for FY01 virtually across the board.

Intel published the First Call analysts' estimates on its website during the Class Period, and even currently.

5. In truth, Intel knew that it would face the same seasonal demand issues in Europe as in prior

years. In fact, Intel knew that customers in Central Europe did not want to incur the expense of upgrading

to the Pentium III and were requesting additional Pentium IIs instead. Providing the Pentium IIs as

requested would result in driving down gross margins.

6. Intel also knew that it was misleading to state that it was fully booked for 3Q00, as it was

common practice for its Original Equipment Manufacturers ("OEMs") to overbook for new processor

releases. In fact, through the Corporate Commit Process ("CCP") in early June, Intel knew that its largest

OEM customers were double- and triple-booked, and that these orders would be reduced or cancelled

before shipment, as such customers were permitted to do so as little as 15 days before shipment.

7. On 7/31/00, Intel announced the introduction of its new 1.13 GHz Pentium III

microprocessor, stating that Intel had now introduced "the world's highest performance microprocessor

for PCs," which "reaches a new level of performance with 1.13 GHz, enabling Intel's customers

to ship the world's fastest PC platforms." The financial media and analyst communities trumpeted Intel's

success in introducing this 1.13 GHz microprocessor before its arch-competitor Advanced Micro Devices,

Inc. ("AMD") did so, thus overcoming an apparent competitive edge which AMD had earlier gained in

FY00 by introducing an 850 MHz Athlon2 chip in Feb/00 and a 1 GHz Athlon chip in Mar/00 in front of

Intel's introduction of similar MHz/GHz products.


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8. In reality, the Pentium III 1.13 GHz microprocessor was not capable of running in most

systems, as it generated excessive heat in the computer "box" and would cause a complete failure of the

system. This problem had plagued pre-production testing in systems and was known by Intel no later than

June/00. In fact, Compaq cancelled its orders for the 1.13 GHz Pentium III in Aug/00, when Intel's

suggested adjustments in the box failed to solve the problem. In addition, in Intel's rush to compete with

AMD, shortcuts were taken, and the 1.13 GHz Pentium III failed to perform faster than AMD's Athlon

processor on benchmark tests. Thus, even if it worked, the Pentium III was not the fastest processor in

the world.

9. In late Aug/00, Intel held its annual Developer Forum in San Jose, a highly anticipated event

attended by thousands of financial analysts, technical product analysts and developers. Presentations made

by Intel officials at the Developer Forum and their conversations with analysts who attended the Forum

continued the unprecedentedly bullish presentations that had occurred in connection with the release of

Intel's 2Q00 results in mid-July/00. Intel's Chief Executive Officer ("CEO") assured forum attendees that,

"We're seeing continued strong demand for processors .... We see strong demand.... [W]e're still

seeing demand outstripping supply." Another Intel official stated that the few analysts who were saying

there was a slowdown in demand were wrong: "[A]t Intel we don't see that ... kind of slowdown

happening." Intel told analysts it was still looking for a very strong 3Q00, that any weakness in Europe

would be more than made up for by exceptional strength in Asia and North America, and that very strong

demand for Intel's microprocessors continued. At the Developer Forum, Intel also told attendees that

the new Pentium III microprocessor released a few weeks earlier was achieving success, that Pentium 4,

while slightly delayed, would still ship in the late 3Q00 or early 4Q00 at 1.4 or 1.5 GHz, and that the delay

would have no impact on Intel's results due to the strong demand for and market success of Intel's

Pentium III, which was shipping in increased volumes due to improved manufacturing

efficiencies and productivity. Intel also told analysts that the Itanium microprocessor would ship in the

4Q00, with the Timna chip to follow early in FY01 – in short, Intel's product roadmap was solidly

back on track.

10. In reality, no later than June/00, demand in the Asian markets was declining dramatically

and, by early Aug/00, the Company had already started shipping for 3Q00 based on the reduced demand


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level. In addition, copper migration and excessive heat problems were crippling Intel's ability to achieve

the milestones on its Pentium III roadmap. Intel also knew that the small delay announced for the Pentium

4 would result in sales from its release being pushed into FY01 – missing the Christmas season – as the

Pentium 4 was also missing deadlines required to remain on its roadmap due to a faulty graphic bus

interface with the Tehama chipset. The Timna chip was then on track to lose money at each sale for the

low-end market for which it was designed. As of Aug/00, the Itanium chip was riddled with bugs for which

Intel's engineers continued to be unable to find solutions.

11. As a result of Intel's extraordinarily bullish statements and assurances during July/00-

Aug/00, Intel's stock hit its all-time high of $75-13/16 on 8/28/00.

12. On 8/29/00, Intel suddenly revealed that it had completely stopped selling its recently

introduced Pentium III 1.13 GHz microprocessor and would recall all previously shipped Pentium IIIs at

1.13 GHz because they were defectively designed and did not work properly. Press reports and

analysts' comments indicated that in order to introduce the world's fastest microprocessor in front of its

arch-rival AMD, Intel had rushed the Pentium III into production without performing all required design,

production and performance tests on the product and by taking production shortcuts; as a result, it would

take many weeks to redesign and validate the Pentium III before high-volume production of Pentium III

chips could resume. While some analysts were extremely critical of Intel for this development ("[i]n terms

of the value of their good name and their reputation, this is a very big deal," said Peter

Glaskowsky, a chip analyst and senior editor of the Microprocessor Report), Intel assured the investment

community that the Pentium III recall would not have any adverse impact on Intel because very few of the

chips had been shipped, that the Pentium 4 microprocessor was on track for shipment late in the

3Q00 or early in the 4Q00, and it was the Pentium 4 that would drive Intel's results in the 4Q00 and

onward.

13. In early Sept/00, an analyst who followed the chip industry issued a report stating that he

believed that demand was weaker than Intel had indicated and that Intel's 3Q00 revenue growth would be

lower than forecast. However, two days later, a top Intel officer appeared at a securities conference in

Boston and told analysts that Intel reaffirmed the guidance it had given the investment community

in July/00.


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14. In mid-Sept/00, a second analyst issued a report indicating that he believed that demand

for PCs which used Intel microprocessors had slowed and that Intel had lowered production rates of high-

end processors in order to eliminate product glitches following the recent Pentium III 1.13 GHz recall.

However, when Bloomberg reported this information, an Intel spokesperson said that Intel was still

comfortable with the forecasts it had made in July/00 – Intel's most positive outlook for the 3Q

in more than five years. "We are standing by the third quarter guidance," said the Intel

spokesperson.

15. After the Pentium III recall and indications by analysts that demand was weaker than Intel

stated, Intel's stock fell to $55-1/2 by mid-Sept/00 from its all-time high of $75-13/16 in late Aug/00.

However, due to Intel's reaffirmance of its 3Q00 guidance and other reassuring communications with

analysts, the decline in Intel's stock was halted and it rebounded to $62-15/16 on 9/21/00, continuing to

trade at artificially inflated levels.

16. After the close of trading on 9/21/00, Intel shocked the securities markets by revealing that

its 2H00 revenue growth would be far below its previous forecasts, and that its EPS for the 2H00 and

FY00 as a whole would be lower than earlier forecast, "primarily due to weaker demand in

Europe." Intel's stock, which traded at $62-15/16 on 9/21/00, collapsed to $46-1/2 on 9/22/00 on

record volume of 306 million shares. This 26+% one-day stock collapse was:

• The largest one-day trading volume of any stock in history.

• The largest one-day market capitalization loss – $107 billion – of any stock inhistory.

• A market capitalization loss larger than the combined market capitalization of allother U.S. stocks, save 29, and larger than the market capitalization of Ford andGeneral Motors combined, which are two of the largest capitalized companies inthe world.

17. Intel's disclosure on 9/21/00 was not complete or truthful, however. Weaker demand in

Europe was not the only cause of Intel's EPS shortfall. Intel failed to disclose that demand for products

that worked well at high speeds continued to exist, and that AMD's products were filling that demand as

Intel's highest end products were too late to market and defective when they arrived.

18. Suddenly, on 9/29/00, Intel admitted it was canceling its Timna chip due to technical

development problems and a purported lack of market demand, and told customers it was delaying


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shipment of its Pentium 4 chip due to design and development problems. At the same time, reports began

to surface that Intel was being forced to move swiftly to a replacement for the upcoming Itanium chip,

which was too slow and "flaky." Intel's stock continued to plummet, falling to as low as $35-3/8. Thus,

in just over five weeks, Intel's stock collapsed from its all-time high of $75-13/16 on 8/28/00, to

its lowest price in years – $35-3/8 – a mind-boggling market capitalization loss of $271 billion

– wiping out 50% of Intel's stock value. In early Oct/00, Intel – in what Merrill Lynch called a "clear

shake-up in the commanding control of Intel's core microprocessor business" – removed the long-

time technical head of Intel's microprocessor business from that position and caused the head of

manufacturing to begin reporting directly to Executive Vice President Paul Otellini.

19. As the full extent of the serious problems with Intel's business became clear, analysts

slashed their 3Q00, 4Q00, FY00 and FY01 revenue and EPS forecasts for Intel. Analysts slashed Intel's

FY01 revenue forecast by $3.5 billion and cut the FY01 EPS forecast to $1.65±, meaning that Intel's

FY01 EPS would be "flat" compared with its FY00 EPS. During Nov/00-Dec/00, the serious nature of

problems afflicting Intel's business continued to be highlighted. Intel revealed that it had been hit with "large

order cancellations" and a "world-wide slowdown in demand," especially in the U.S. and Europe.

According to Intel's Chief Financial Officer ("CFO"), "[i]t's every place in the world and it's nearly

every product we sell." Intel's 4Q00 revenues actually declined from its 3Q00 revenues, leading to EPS

far below those forecast by and for Intel during the Class Period. Analysts began to forecast FY01 EPS

of only $0.50 for Intel.

20. Analysts and investors were furious at being blindsided by Intel's 9/21/00 revelations – and

apparent deception – during the Class Period, as the following statements indicate:

• "Intel has maintained up until now that everything was fine for the quarter, and... all is not right," said Richard Whittington, an analyst of BancAmerica.

• "It appears that Intel's significant shortfall in Europe is company-specific ....Intel's problems are likely company-specific ...," said Charles Boucher, an analyst.

• "Deeper questions persist as Intel's earnings warning ... took everyone by surprise,to say the least ...," said Erika Klauer, an analyst.

• "One thing we are sure about is it does not appear to be an industry-wide problembut has bad implications for Intel near term, whatever the true reasons are," saidDavid Wu, an analyst.


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• "We find it implausible that demand could shift rapidly enough in a single regionto impact Intel's results to this extent," concluded a Merrill Lynch analyst.

• Another researcher, from Chase H&Q, wrote, "Our analysis is inconsistent withIntel's argument of a weaker Europe."

• "Intel's announcement is considerably less optimistic than the outlook it gave inJuly, when it reported second-quarter revenue of $8.3 billion and said it was soldout through the third quarter. Its remarks at the time prompted some analysts toboost their estimates for the third period," wrote The Wall Street Journal.

• "Intel admit[ted] it has had execution issues this year that should never havehappened," reported The Wall Street Journal. Other executives admitted that Intel cutcorners and bypassed traditional methods to push its new products out the door to beatarch-rival AMD.

21. The huge artificial inflation of Intel's stock, Intel's false statements during the Class Period,

and the later collapse of Intel's stock when the true facts about the failure of Pentium III to achieve

commercial success were revealed, resulted in the delay of Pentium 4 and Itanium and the cancellation of

Timna, as well as Intel's diminished prospects for future growth, as is graphically displayed below:


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JURISDICTION AND VENUE

22. The claims asserted herein arise under §§10(b) and 20(a) of the Securities Exchange Act

of 1934 ("1934 Act") and Rule 10b-5. Jurisdiction is conferred by §27 of the 1934 Act.

23. (a) Venue is proper pursuant to §27 of the 1934 Act.

(b) Assignment of this action to the San Jose Division is appropriate as a substantial

part of the acts or omissions identified herein occurred in Santa Clara County.

THE PARTIES

24. (a) Lead Plaintiff Hawaii Reinforcing Iron Workers Pension Trust Fund purchased

publicly traded shares of Intel stock during the Class Period as shown in the certification previously

submitted to the Court and was damaged thereby.

(b) Plaintiff Henry Sawyer purchased publicly traded shares of Intel stock during the

Class Period as shown in the certification previously submitted to the Court and was damaged thereby.

25. Defendant Intel maintains its headquarters at Santa Clara, California. Intel's common stock

traded in an efficient market. Intel controls all of its officers and employees, and is liable under §20(a) as

a controlling person for their actions or violations of the 1934 Act.

BACKGROUND INFORMATION

26. Intel is a semiconductor chip maker. Intel's chips, boards, systems, and software are the

ingredients of computers, servers, and networking and communications products. Intel uses a tiered

product approach: the Celeron processor for the value segment, Pentium III processors for home and

business applications and entry level servers and workstations, and the Xeon processors for mid-range and

high-range servers and workstations.

27. Intel is organized into five operating segments according to product lines: the Intel

Architecture Business Group ("IABG"), the Wireless Communications and Computing Group, the Network

Communications Group, the Communications Products Group, and the New Business Group. Each group

has a vice president who reports directly to Craig Barrett, the CEO of Intel. IABG is by far Intel's largest,

most-profitable and most important unit – while it generates over 87% of Intel's revenues and profits, no

other operating segment represents 10% or more of revenue or operating profit of the Company. IABG


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products include the Pentium III, Pentium 4, Timna and Itanium. Since 1998, Otellini has served as the

Executive Vice President and General Manager of IABG.

28. A microprocessor is the central processing unit of a computer system. It processes system

data and controls other devices in the system, acting as the brain of the computer. The rate at which a

microprocessor's internal logic operates, called its clock speed, is measured in units of hertz or cycles

processed per second. One megahertz (MHz) equals one million cycles processed per second, and one

gigahertz (GHz) equals one billion cycles processed per second.

29. Code-named Willamette, Pentium 4 was to be Intel's microprocessor that would succeed

the Pentium III family of microprocessors. Pentium 4 was to offer enhanced 3-D geometry, parallel

capabilities, and Rambus memory support, with speeds of 1.4 GHz-1.5 GHz in late FY00, with 1.6 GHz-

1.7 GHz versions to follow in FY01, ultimately intended to reach 2 GHz.

30. Timna was supposedly Intel's first "smart integration" microprocessor. It incorporated a

central processing unit core, memory controller, and graphics into one chip for value PCs. Timna was to

augment Intel's current Celeron processor line.

31. Code-named Merced, Itanium was to be the first model of Intel's next-generation IA-64

CPU architecture. Itanium was expected to run at 800 MHz and beyond.

32. Over the past several years, Intel has been engaged in fierce competition with AMD, as

each company constantly tried to beat the other to the market with the fastest or most powerful

microprocessor. Being first to market with the newest, fastest microprocessor is very important. Not only

does this enhance the winner's image for technological, engineering and production expertise, these newest,

most powerful microprocessors command premium prices in the marketplace, thus boosting the winner's

average selling prices, profit margins and EPS – and, of course, its executives' bonuses, while helping to

drive the company's stock higher, thus benefitting the executives' stock holdings and options. For many

years Intel had held a clear and competitive edge over AMD, especially at the "high-end" of the

microprocessor market. However, during the later 1990s, AMD was gaining ground on Intel and actually

beat Intel to market with its 850 MHz and 1.0 GHz Athlon chips in Feb/00 and Mar/00, respectively.


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MOTIVE ALLEGATIONS

33. Because Intel is locked in a fierce competitive fight with AMD, it constantly struggles to

keep AMD from getting its customers, while trying to get AMD's customers to switch to Intel. In order

for Intel to do this successfully, two items are absolutely critical – first, Intel must appear to be developing

and introducing the most advanced, most powerful new microprocessors, and second, Intel must appear

to be capable of producing large quantities of high-quality defect-free powerful microprocessors. Thus,

in order to maintain its competitive position vis-à-vis AMD, Intel was highly motivated to mislead the

markets about the actual state of development of important new products – and to conceal design defects

or pre-production problems that would delay introduction of the products – to keep customers from

migrating to AMD, and to prematurely ship new high-power microprocessors to beat AMD to market with

new products, hoping that defects in the shipped products would not be discovered, or at least not

discovered for a sufficient period of time to permit it to capture AMD customers, or that the defects caused

by its products' underdevelopment would somehow be overcome and the products introduced near their

forecast release dates.

34. Gross margins are an extraordinarily important measure of the health and profitability of

a business like Intel's. Analysts following Intel were constantly focused on Intel's gross margins because

an increase in Intel's gross margins translated almost directly to an increase in Intel's EPS. So important

and so sensitive are Intel's gross margins that its gross margins were measured in terms of 100 basis points,

i.e., in 100ths of 1%. One extremely important factor in Intel's gross margins is the average selling price

of its products. Because microprocessor prices are constantly declining due to the development of new,

improved and faster products, it was absolutely indispensable to Intel maintaining healthy gross margins that

the Company consistently and successfully develop and introduce new, more high powered and faster

microprocessors which carried high prices upon introduction, as this would benefit Intel's product mix, the

average selling prices of its products, and therefore its gross margins and its EPS.

35. As a result of the foregoing, Intel's assurances that its Pentium III, Pentium 4, Timna and

Itanium microprocessors were being successfully developed for introduction and volume shipment late in

the 3Q00 or early in the 4Q00, and that Intel's gross margins would increase, were extraordinarily

important to the market, and when made resulted in analysts sharply boosting the forecast 3Q00, 4Q00


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and FY00 EPS for Intel – forecasts which drove Intel's stock to its all-time high of $75-13/16 in late

Aug/00.

MANAGEMENT'S KNOWLEDGE OF IMPORTANT EVENTS

36. The top executives of Intel were very focused on the important issues facing Intel's business

– particularly those affecting IABG, as it generated over 87% of Intel's revenues and all of its profits.

Demand for its microprocessors, cancellations of orders, and average selling prices of its microprocessor

products were discussed at weekly meetings held on Monday mornings, as well as the design, testing, and

development of its newest microprocessor products and its manufacturing effectiveness and efficiencies,

especially its yields of its highest performance – and therefore highest priced and most profitable – PC

microprocessors.

37. The confidential witnesses (herein referred to as "CW") corroborated that Intel

management knew in detail the level of demand for its chips and the status of design and manufacture of

each microprocessor. Each of the confidential witnesses referred to in this Complaint was an employee

of either Intel or one of Intel's customers or business partners during the Class Period. Attached as Exhibit

A ("Ex.") to the Appendix of Exhibits to the First Amended Consolidated Complaint ("Appendix") to this

Complaint is a partial summary of the facts provided by each witness, describing the witness with as much

particularity as possible without disclosing their identity. Plaintiffs are informed and believe that disclosing

any of the confidential witnesses' identities to the public and/or to Intel would likely result in serious injury

to the witnesses or their careers. Intel, as one of the only two powerhouse microprocessor companies in

the United States, has the power to impact such careers.

38. Reporting Structure: Intel maintained during the Class Period a complex reporting

structure designed to keep management apprised of key aspects of Intel's business, including, demand,

yield, and progress in development. The Vice President responsible for the operating segment involved

in this case, IABG, was Paul Otellini, who reported directly to CEO Craig Barrett. The CFO, Andy

Bryant also reported directly to Barrett, as did Shawn Maloney, the Vice President of Sales and Marketing.

(a) Operations meetings were held daily to discuss product yields. Reports of the chip

yields were available to upper management (CW1), and were provided to them weekly (CW4). Upper

management also received, in particular, yield reports for the Pentium III and 4 (CW3). Between June/00


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and Sept/00, upper management instructed the factory ("Fab") that the yields for Pentium III and 4 were

too low and must be improved (CW3).

(b) If there was a problem with yields, the Vice President of Fabs, Bob Baker,

attended the operations meetings. He reported to Executive Vice President of Operations, Mike Splinter,

who reported to Barrett (CW1).

(c) Serious problems raised in operations meetings were then discussed in Special

Summary Meetings, in which the Vice President of Fabs was always presents (CW1).

(d) Intel's bug reports, called "Daily Status Reports" chronicled the high failure rate for

Itanium (CW2). A summary of these reports was sent to upper management weekly (CW4).

(e) "Bin-Out Reports" chronicled chip failures and the reasons. These were provided

to upper management weekly (CW6). During the Class Period,"Bin Out Reports" were provided to upper

management because of the high percentage of manufacturing error with the Pentium III (CW6).

(f) Customers with large cancellations were discussed at Monthly Business Review

meetings. Large order cancellations of top-ten customers were termed "Red Zone" Accounts and were

then raised at the Business Update Meeting ("BUM meeting") attended by an account executive for each

business group (CW14). The attendees of the BUM meeting defined the dollar impact the cancellations

had on the forecast. All of this information was presented to Vice President of Sales and Marketing,

Shawn Maloney, who then presented the data from the BUM meetings to Craig Barrett and the Board of

Directors at the Executive Review Meeting (CW14).

39. Demand/Cancellations: In addition to other facts pled herein, Intel's upper management

exhibited at least organizational indifference, if not actual knowledge, that demand was, in fact, weakening

throughout the Class Period and that Intel's OEM customers were cancelling large orders.

(a) Demand for Intel's products in Asian markets declined dramatically beginning

June/00, with Korea being the first to see the decline. Upper management, including Executive Vice

President and General Manager of IABG, Paul Otellini, received this information (CW7).

(b) OEMs were permitted to cancel orders as little as 15 days prior to the shipping

date (CW11). Double and triple orderings were a normal occurrence with the large OEMs, because of


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Intel's historical inability to produce sufficient quantities of Pentium III chips, and customers' knowledge that

they could cancel orders at the last minute (CW8, CW11).

(i) Throughout FY00, Micron, for example, routinely ordered up to double

its anticipated demand in hopes of getting the volume actually needed, and cancelled orders as little as 15

days before shipping (CW13).

(ii) Dell also had an agreement with Intel whereby Dell would over-order

product at Intel's quarter end, and in exchange, Intel would allow Dell, and other OEMs, a shorter

cancellation window at Dell's quarter end and would even occasionally allow inventory to be returned

(CW11).

(c) Management kept close watch on customers' actual needs through the Corporate

Commit Process, whereby OEMs were required to provide Intel with nine-to twelve-month forecasts and

"hard commit" rolling forecasts covering a four-to six-month period (CW13). The "hard commit" demand

forecasts were updated monthly (CW11). When there was a change in the demand forecast of over 2%

of annual forecast, an email was sent to CEO Craig Barrett and Chairman Andy Grove explaining the event

necessitating the change in forecast, and attaching the revised forecast (CW12). Between May and

August 2000, Andy Grove and Craig Barrett received copies of emails informing them that the

forecast was revised because of large cancellations which were between two and ten million

units, far in excess of 2% of the annual forecast (CW12). (d) From July/98

through Oct/00, nearly all of Intels' customers (95%) placed orders electronically through an e-business

application, "Business Link" (CW9). This application was used to create demand forecasts, which were

presented by management at the Board of Director meetings (CW9, CW14). Customers with large

cancellations were tagged as "Red Zone Accounts." "Red Zone Accounts" within the ten largest

OEMs were presented to Craig Barrett (CW14).

40. Itanium: In addition to other facts pled herein, Intel had actual knowledge that the Itanium

chip was suffering from severe manufacturing problems, such that it could not ship and produce revenues

in 4Q00. CEO Craig Barrett physically visited the Itanium assembly line during the summer of 2000 to

"look over" the process, which was producing chip yields of only 50%-70% because of "encapsulation"

problems which caused overheating (CW22). Full production yield target was 97% (CW21). Barrett


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requested numerous updates throughout the summer of 2000 regarding the Itanium production problems

(CW22).

41. Pentium III: In addition to other facts pled herein, Intel acted at least with organizational

indifference in ignoring the fact the Pentium III manufacturing inefficiencies had not been remedied. A large

percentage of chips were experiencing manufacturing errors, which was reported weekly to upper

management in the form of "Bin Reports" (CW6).

42. Timna: In addition to other facts pled herein, Intel had actual knowledge that the Timna

chip would not and could not be released at all because of manufacturing errors that could not be remedied.

The Timna chip was cancelled on or about July 10, 2000, eight days before Intel issued its press

release stating that the Timna was on track for introduction in 4Q00 (CW20).

43. Pentium 4: In addition to other facts pled herein, between June/00 and Aug/00,

management expressed displeasure with the "significantly lower than expected" yields of the Pentium 4

(CW3).

44. Because of these facts, and the fact that knowledge of demand, yield, and progress in

development constitute core information necessary for running Intel's business (as evidenced by Intel's

regular discussions of these topics in its earnings and press releases, as well as conference calls and

discussions with analysts throughout the Class Period), plaintiffs are entitled to a strong inference. Intel's

top management who spoke either by name or anonymously to the analysts and the market actually knew

from their own day-to-day management activities, internal corporate documents, conversations with other

corporate managers and employees and their attendance at management meetings, the adverse non-public

information about the continuing production problems with Intel's existing high-speed Pentium III 850 MHz-

1.0 GHz chips, the serious problems in the development of Intel's newest microprocessors (the Pentium

III 1.13 GHz, Pentium 4, Intanium and Timna chips), and Intel's deteriorating revenue and EPS growth

prospects.

ENTANGLEMENT WITH ANALYSTS

45. Intel entangled itself with the analysts who followed Intel and wrote reports on Intel and

used them as conduits to place information about Intel in the market.


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28 3 Intel's 2Q00 EPS of $0.50 included approximately $0.20 in investment gains, i.e., EPS not fromoperations.


46. Intel had regularly scheduled Earnings Release Conference Calls with the analysts, during

which Intel would convey information to the analysts with full knowledge that the information would be

conveyed to the investing public and used by analysts to create financial models and earnings projections.

During the Class Period, these conference calls were usually attended by Craig Barrett, Andy Bryant,

Intel's CFO and Paul Otellini, Intel's Executive Vice President and other Intel senior management, who

spoke to the analysts.

47. Intel, through Andy Bryant and Otellini had ad hoc meetings or telephone calls with

analysts, during which information was given to analysts for purposes of being repeated in analyst reports.

Analysts referred to Barrett, Bryant and Otellini as "management" in these reports.

48. Intel also followed the unusual practice of publishing, on its own website, the consensus

earnings estimates of all the analysts who followed Intel, whose estimates were based on explicit guidance

by Intel or based on information given to them by Intel. This site can be found today at

http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=INTC@script=1600. At this same site, Intel

publishes its "Outlook," which contains its guidance or expectations for the quarter. Appendix, Ex. B

(papers similar to those used in the Class Period).

FALSE AND MISLEADING STATEMENTS

False Statement

49. On 7/18/00, after the close of the market, Intel reported its 2Q00 results – reporting record

revenues, unit shipments and EPS:3

"We are very pleased with our record quarterly results in what is normally aseasonally slow quarter," said Craig R. Barrett, president and chief executive officer."Strong worldwide PC and server demand and better than expected manufacturingperformance helped lead the company to greater than 20 percent revenue growth versusthe second quarter of last year. We saw strong demand in all business groups,especially for microprocessors, flash memory and networking silicon."

50. On 7/18/00, subsequent to the release of Intel's 2Q00 results, Intel held a conference call

for analysts, money and portfolio managers, institutional investors and large Intel shareholders to discuss

Intel's 2Q00 results, its business and its prospects. Intel officials stressed that Intel had had a great 2Q00

that exceeded expectations due to exceptionally strong demand, which was particularly noteworthy as the


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2Q is normally Intel's seasonal low point each year. During the call – and in follow-up conversations with

analysts – Bryant and Otellini also stated:

• Intel was faced with unprecedented demand for its microprocessor products. Demandcontinued to be better than anticipated.

• Intel's more successful and efficient manufacturing performance was improving Intel'sproductivity and product availability.

• Intel's 3Q00 was much more front-end loaded than it had been for some time.

• Intel was actually booked up for the 3Q00.

• Intel was very pleased with the validation and pre-production status of its Pentium 4processor. The product remained on track for introduction and high volume productionand strong profit generation in the 2H00 of FY00. There were no bottlenecks for thePentium 4 production ramp-up.

• Intel had also made solid progress toward its Itanium microprocessor rollout in the 4Q00.

51. On 7/19/00, USA Today reported:

Intel CFO Andy Bryant told analysts during a conference call that Intel alsoanticipates a healthy second half of the year.

52. On 7/19/00, The New York Times reported:

"We saw strong demand in all business groups," said Craig R. Barrett, presidentand chief executive of Intel, which is based in Santa Clara, Calif. "Looking forward, weexpect to see strong demand continue into the second half."

In a conference call with analysts, Intel officials projected that sales would be "up"and then, in case anyone missed the optimism, noted that in the past they had oftenqualified such projections with adjectives like "slightly."

53. After Intel's 2Q00 conference call, Intel officers, including Bryant, had even more detailed

conversations and communications with analysts from Gerard Klauer Mattison, ABN/AMRO, CIBC

World Markets, Bear Stearns, Lehman Brothers, Deutsche Banc Alex. Brown, UBS Warburg, J.P.

Morgan, Morgan Stanley Dean Witter, and Prudential Securities. During these conversations, the Intel

officials stated or confirmed to analysts that:

• Intel saw a very strong 2H00 due to exceptionally strong worldwide demand for itsproducts.

• Due to improvements in manufacturing, Intel was now able to produce more product atlower cost, improving Intel's ability to meet demand – which would improve Intel'sprofitability.

• Intel had a very comfortable feeling about its 3Q00, as there was unusual visibility. Intelwas more confident going into the 3Q00 than it had been in a long time.


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• Intel expected an unusually strong 3Q00, with revenue growth of 8%-10%. Intelexpected stronger 3Q00 EPS and 2H00 EPS than earlier forecast.

• Intel expected its 3Q00 gross margin to improve 200-300 basis points, up to 63%-64% from 60.4% in the 2Q00.

• Intel's new, faster Pentium III 1.13 GHz processor was ready for shipment.

• The Pentium 4 processor would be shipped by late 3Q00 or early 4Q00 and wouldramp into high volume production during the 4Q00.

• The Itanium processor would be released by late 3Q00 or early 4Q00 and wouldproduce revenue for Intel in 4Q00.

• The Timna processor was on schedule for early FY01 shipment.

During these conversations and communications, the Intel officers involved did not make any "safe harbor"

disclaimers or warnings.

54. Thus, as of the release of Intel's 2Q00 results in mid-July/00, Intel presented to the

investment community an image that Intel was facing overwhelming demand for its products all over the

world and that Intel's principal business problem was producing enough product to meet this

unprecedented level of demand; however, Intel indicated that, in fact, it was successfully improving its

manufacturing efficiencies and capabilities to not only meet demand for existing products but to successfully

produce its tremendously important new microprocessor – the 1.13 GHz Pentium III – which had

supposedly been successfully developed and would be introduced very shortly. As a result of this

unprecedented strong demand for and flow of new, higher priced products, Intel was forecasting very

strong revenue growth and increased gross margins, leading to strong EPS growth going forward. In

short, Intel "guided" the investment community to conclude that its business had never been

stronger, its outlook had never been brighter and its 3Q00 would be exceptionally strong.

55. On 7/19/00, CIBC World Markets issued a report on Intel by Quinn Bolton, which was

based on and repeated information provided in the 7/18/00 conference call and in follow-up conversations

with Intel officials on 7/18/00-7/19/00. The report increased the forecast FY00 and FY01 EPS for Intel

to $1.74 and $1.95. It also stated:

We are raising our INTC cash EPS estimates ... following strong 2Q00 results andan uncharacteristically bullish conference call with respect to the company's3Q00 outlook.

* * *


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[M]anagement indicated that the company would be unable to meet any turns [sic]business demand in 3Q00, meaning the quarter is already fully booked ....Additionally, management commented that demand continues to exceed theirexpectations, continuing a trend that began late last year.

For the first time ever, management guided 3Q00 revenues to be "up"likely high single to low double digits sequentially. Gross margin will alsoincrease to a range of 63%-64% .... As a result, we expect 3Q00 revenue to hit $9.2billion and cash EPS to reach $0.83 ($0.41 split adjusted).

Given Intel's ... strength across virtually all product lines, we areincreasingly bullish on the company's prospects ....

56. On 7/19/00, Morgan Stanley, Dean Witter issued a report on Intel by Mark Edelstone,

which was based on and repeated information provided to Edelstone in the 7/18/00 conference call and

in follow-up conversations with Intel officials on 7/18/00-7/19/00. The report increased the forecast

FY00 and FY01 EPS for Intel to $1.75 and $1.95 and forecast the following quarterly FY00 and FY01

EPS for Intel:

FY00 FY01Q1 $ .36A $ .46Q2 $ .50A $ .46Q3 $ .42 $ .50Q4 $ .48 $ .53Year $1.75 $1.95

It also stated:

* Third quarter visibility is unusually high.

Management's 3Q guidance is abnormally bullish and it meets ourexpectations for strong second half 2000 fundamentals.

* * *

We are increasing our earnings estimates ... to reflect strong fundamentaloutlook.

* * *

Based on the ... strong demand patterns [and] solid manufacturingexecution ... we have increased our 2000 and 2001 earnings estimates.

* * *

Gross Margins Will Likely Continue To Surprise on the Upside during the Next Two toThree Quarters

... We currently expect Intel's gross margins to reach record levels in thefourth quarter ....


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New Product Introductions Will be Prevalent During the Next Several Quarters

During the next several quarters, Intel will make a significant number of new MPUproduct introductions, including Pentium 4 and Itanium in the latter part of thethird quarter or the early part of the fourth quarter, and Timna in the first quarterof 2001.

57. On 7/19/00, Sanford C. Bernstein & Co., Inc. issued a report on Intel by V. Zlotnikov,

which was based on and repeated information provided to Zlotnikov in the 7/18/00 conference call and

in follow-up conversations with Bryant or Intel officials. The report increased the forecast FY00 and

FY01 EPS for Intel to $1.75 and $1.90. It also stated:

* Demand and order levels remain robust, with introduction of Pentium 4 ... and toa lesser extent Itanium revenues in Q4, likely to cause significant additional marginexpansion.

* * *

* Expect 8%-9% sequential revenue growth in 3Q despite ... typical summerseasonality.

58. On 7/19/00, Bear Stearns issued a report on Intel by Charles Boucher, which was based

on and repeated information provided to him in the 7/18/00 conference call and in follow-up conversations

on 7/18/00-7/19/00 with Intel officials. The report increased the forecast FY00 and FY01 EPS for Intel

to $1.63 and $1.93 and forecast the following quarterly FY00 and FY01 EPS for Intel:

FY00 FY01Q1 $ .36A $ .46Q2 $ .38A $ .45Q3 $ .42 $ .48Q4 $ .47 $ .53Year $1.63 $1.93

It also stated:

*** ... [T]he outlook for the second half is very bullish, with strong demand formicroprocessors and continued challenges to meet customer demand,although Intel appears to be making some progress to that end.

*** Gross margin was higher than expected, and the overall gross margin target forthe year was raised by about 100 basis points.... [T]his reflects continuedimprovements in manufacturing efficiency as well as improving productmix.

*** In addition to seasonal demand strength, Intel's second half will realize thelaunch of its Pentium 4 (formerly Willamette) ... which should catapultthe company back into the performance lead, which should drive a richermix of microprocessor shipments.


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*** With excellent visibility, outstanding manufacturing execution, and arobust pipeline of new products, we are boosting our 2000 EPS estimatefrom $[1.55] to $[1.63], and our 2001 estimate from $[1.80] to $[1.93].

* * *

Intel raised its overall gross margin target for the year to 63% from 62%, reflectingbetter than expected manufacturing efficiencies and a richening product mix, ascustomers migrate to higher performance Pentium III processors.

DEMAND STRONG AND GETTING STRONGER

* * *

Despite the stronger than usual demand in the first half of 2000, thedemand outlook for the second half appears to be very strong as well. We believethe company has an unusually strong backlog entering Q3, and a very linearshipment pattern is expected....

BIG SECOND HALF IN STORE

Intel has a lot of new developments scheduled for the second half in addition toseasonally stronger demand. The company is on track to start shipping its Pentium4 microprocessor architecture (formerly known as Willamette) later this quarterto stock the retail and commercial channels for Q4. We view this as a highlysignificant event .... The launch of Pentium 4 should propel Intel back into theperformance lead in the microprocessor market, which confers preferential pricingpower as well as richer blended ASP and margins.

* * *

Intel is entering the traditionally strong second half of the year with a lot[of] momentum and visibility. The company is experiencing very strong demandfor its products, and despite very good manufacturing execution ... the companyis likely to continue to trail customer demand for the duration of the year. Weexpect Intel to ship record microprocessor units in both Q3 and Q4, and weanticipate blended ASP to improve slightly in each quarter as the mix shiftstoward higher performance processors and the new Pentium 4 .... This shoulddrive revenue and earnings growth, and opens the possibility of further upsideearnings surprises.

59. On 7/19/00, Lehman Brothers issued a report on Intel by Daniel Niles, which was based

on and repeated information provided to him in the 7/18/00 conference call and in follow-up conversations

on 7/18/00-7/19/00 with Intel officials. The report increased the forecast FY00 and FY01 EPS for Intel

to $1.70 and $1.85, respectively, and forecast the following quarterly FY00 and FY01 EPS for Intel:

FY00 FY01Q1 $ .35A $ .43Q2 $ .50A $ .44Q3 $ .40 $ .46Q4 $ .45 $ .51Year $1.70 $1.85


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It also stated:

* Intel's guidance for Q3 revenue is the best in several years.... Grossmargins were also guided higher to above 63% for FY00 versus 61%before....

* ... Q3 [is] completely booked already. We believe more EPS upside islikely.

* * *

Itanium (formerly codenamed Merced) is now expected to ship for revenuesin Q4 which is delayed from Q3....

There is no major issue other than the usual surrounding a major productlaunch. Willamette (Pentium 4) is expected to ship in Q3 ....

* * *

Demand continues to be better than expected going forward. We nowbelieve demand will exceed supply through Q3 with stable processor pricing.

60. On 7/19/00, Deutsche Banc Alex. Brown issued a report on Intel by Ross Seymore and

Erika Klauer, which was based on and repeated information provided to them in the 7/18/00 conference

call and in follow-up conversations on 7/18/00-7/19/00 with Intel officials. The report increased the

forecast FY00 and FY01 EPS for Intel to $1.72 and $1.95 and forecast the following quarterly FY00 and

FY01 EPS for Intel:

FY00 FY01Q1 $ .35A $ .44Q2 $ .50A $ .45Q3 $ .41 $ .49Q4 $ .46 $ .55Year $1.72 $1.95

It also stated:

* The company raised its gross margin forecast for the year to 63% whichreflects management's outlook for robust demand in the second half ....

* To reflect this stronger outlook, we have raised our earnings per shareforecasts again. For 2000, we have increased our EPS estimate to $[1.72]from $[1.70].

* * *

The outlook for Intel is very strong. Management was very positive in theconference call and indicated that they feel very comfortable about the secondhalf of 2000, both in terms of the market and Intel's ability to meet the demand.One of Intel's biggest problems has been manufacturing and therefore meeting marketdemand....


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With the manufacturing challenges largely behind Intel, the question then regardsthe future of demand. Intel saw demand stay very strong throughout 2000 and theoutlook for the second half of 2000 is excellent. Inventories are very low acrossthe board and we see minimal risk for inventory overhang for the next twoquarters.... In short, the demand picture looks strong and Intel's pricing poweris good.

Not only should demand stay strong but the profitability outlook is alsoencouraging. The company raised its gross margin forecast for the year to 63%which reflects management's outlook for robust demand in the second half ....

61. On 7/19/00, J.P. Morgan issued a report on Intel by Terry Ragsdale, which was based on

and repeated information provided to Ragsdale in the 7/18/00 conference call and in follow-up

conversations with Intel officials on 7/18/00-7/19/00. The report increased the forecast FY00 and FY01

EPS for Intel to $1.74 and $1.92. It also stated:

* Solid guidance: Revenues to be "up" sequentially in 3Q/00, not"slightly," and gross margin for the year now expected at 63% +/- a fewpoints, up from prior 61% +/-, as promised per-unit manufacturing costcuts kick in.

* * *

The 2Q/00 results were better than the seasonal norm and a bit above publishedexpectations, and 3Q/00 revenue and gross margin guidance is bullish ....

* * *

[M]anagement is quite bullish on 2H/00 prospects. Management did not put aspecific revenue goal on the table but suggested "up" revenues sequentially and then saidthat it's significant that the modifier "slightly" was not used in front of "up."... Managementseems very comfortable with 3Q/00 based on the quarter's revenues beingessentially 100% in backlog entering the quarter, suggesting a more linear-than-usual, even front-end loaded 3Q/00.

62. On 7/19/00, Prudential Securities issued a report on Intel by Traci Tsuchiguchi and Hans

Mosesmann, which was based on and repeated information provided to them in the 7/18/00 conference

call and in follow-up conversations with Intel officials on 7/18/00-7/19/00. The report increased the

forecast FY00 and FY01 EPS for Intel to $1.74 and $1.93 and forecast the following quarterly FY00 and

FY01 EPS for Intel:

FY00 FY01Q1 $ .35A $ .45Q2 $ .50A $ .44Q3 $ .42 $ .49Q4 $ .47 $ .55Year $1.74 $1.93


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It also stated:

– Second half prospects look quite strong across the board.

* * *

– We are raising our estimates ....

Solid execution and improving business conditions in the second half bode wellfor Intel. While Intel will likely continue to be challenged keeping up with demand in themid-term, the situation is improving.... Margins are going up over the next two quartersto the 63%-64% levels and this has traditionally been a good leading indicator for thestock.

* * *

Strong Demand For Flash and Networking/Communications Products

Intel continues to see strong demand for flash memory, as unit shipments were arecord high and ASPs rose in the June quarter....

Push-Out of Itanium – Not A Big Deal

We view the push-out of Itanium for the fourth from the third quarter asa non-issue ....

* * *

We are revising our revenue estimates for 2000 and 2001 to $35.7 billion from$35.2 billion and to $43.8 billion from $43.2 billion, respectively. Our EPS estimates (ona pre-split basis) go to $3.48 in 2000 and $3.86 in 2001 from $3.10 and $3.50,respectively.

63. On 7/19/00, ABN/AMRO issued a report on Intel by David Wu, which was based on and

repeated information provided to him in the 7/18/00 conference call and in follow-up conversations with

Intel officials on 7/18/00-7/19/00. The report increased the forecast FY00 and FY01 EPS for Intel to

$1.75 and $1.90. It also stated:

3QCY2000 production has already been booked .... We are confident ofdouble-digit Q/Q increases in 2HCY2000 because of both strong global PCdemand and Intel's manufacturing organization's ability to deliver.

64. On 7/19/00, Gerard Klauer Mattison issued a report on Intel by John Geraghty, which was

based on and repeated information provided to him in the 7/18/00 conference call and in follow-up

conversations with Intel officials on 7/18/00-7/19/00. The report increased the forecast FY00 and FY01

EPS for Intel to $1.74 and $2.00 It also stated:


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* The gross profit margin was 60.4%, including a $200 million charge formotherboard replacements.... We expect a sequential increase in GPM to 64% in 3Q.

* * *

In 3Q, Intel is scheduled to introduce the Pentium IV processor for theperformance market and the Timna processor for the value market.

65. During the Class Period, Intel published on its website the names of brokerage firms

following the Company on First Call, as well as the First Call earnings estimates by quarter.

Reasons False and Misleading/Scienter

66. The positive statements about the strong demand for Intel's products, Intel's improved

manufacturing processes and efficiencies, the successful development and introduction of its Pentium III

microprocessor, the successful development of the Pentium 4, Itanium and Timna chips and the outlook

for Intel's 3Q00 results issued on 7/18/00-7/19/00 were materially false and misleading when issued. Intel

failed to disclose the adverse facts identified in ¶¶36-44 and the following adverse facts, which were then

known only to Intel and its top insiders, the disclosure of which was required to be made to make the

statements made not misleading:

(a) European Demand: Intel was encountering very weak, in fact shrinking,

demand for its Pentium III processors in Europe, far worse than the normal summer seasonal slowdown

there. Demand was weak for Pentium III processors and strong for the cheaper Pentium II processors,

which Intel was failing to supply to Europe in adequate quantities. Intel knew this would have a very

adverse impact on Intel's revenue and gross margin growth during 2H00, as its European revenues were

forecast to decline by 10%-15% in 2H00.

(i) According to CW15, a former Intel Geographic Business Manager for

Central Europe during the Class Period, upper management knew that European sales would be weak

because in June/00 the forecast demand report sent to upper management showed extremely low demand

for Pentium III for the 2H00. Most customers in CW15's market wanted Pentium IIs, as customers in the

developing nations did not want to pay Pentium III prices and did not want to go through an expensive

retooling of their factories for the new processor. CW15 was instructed to have the salespeople attempt

to do "conversions of backlog" ( i.e., convince customers to change their orders from Pentium IIs to Pentium


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IIIs). Supply did not exceed demand, as Intel could not (or refused) to supply enough Pentium IIs in

Central Europe.

(ii) Intel admitted on 9/21/00 that weak revenue in Europe accounted for some

of its shortfall in 3Q00. See supra ¶16. Molly Williams of The Wall Street Journal reported on 10/18/00

that Andy Bryant, Intel's CFO, admitted that their "expectations [for Europe] were way out of line." In fact,

Intel attempted to blame all of its shortfall on European weakness until investors and analysts cried foul.

(b) Asian and North American Demand: Intel was encountering weak demand in

other important geographies as well, including Asia and North America, such that demand in those other

geographies could not offset the very weak and shrinking demand in Europe and, as a result, Intel could

not achieve the kind of revenue growth in the 2H00 it was forecasting. According to CW7, a former

executive for Intel Korea during the Class Period, demand for Intel's products in Asian markets declined

dramatically beginning in June/00. Korea was first to see the decline. This information was given to the

upper management and executives at Intel, including Executive Vice President Paul Otellini.

(c) Bookings: Intel's statements of being fully booked for the 3Q00 were misleading.

Due to the very tight microprocessor supply situation that existed earlier in FY00, Intel knew that many of

its customers had double- or triple-ordered microprocessors in an effort to assure themselves of an

adequate supply of chips, but by July/00, customers in several geographies, including Europe, were

canceling chip orders due to weakening demand, which Intel knew would very adversely impact its

revenue and gross margin growth in the 2H00.

(i) According to CW8, a former Intel territory account manager for sales in

a large region of the United States during the Class Period, Intel routinely had a large backlog of orders

by customers that were just waiting for Intel to fill the orders. Thus, when Intel introduced a new

microprocessor, there were millions of processors on back order. Quarterly spreadsheet reports called

"Bookings Reports" showed the amounts shipped versus amounts ordered by product. CW8 disclosed

that double and triple bookings are a normal occurrence with the large OEMs, and it generates a huge gray

market for Intel products. Whatever the OEM has in excess of demand is sold into the channel. Intel

watched this practice closely, as it has the effect of driving down the margins. OEMs have the ability to

sell the products back into a distribution channel because they buy millions of microprocessors at a time


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and get a price break compared to a company that is buying only a couple of hundred thousand. This is

what makes some of the smaller operations more competitive – their connection to a bigger company that

has excess supply. To keep from flooding the market and driving down margins, Intel salespeople would

conduct quarterly "commit" meetings with each of the large OEMs (including Compaq, Hewlett Packard

and Gateway). Because Intel historically was the only manufacturer of state-of-the-art microprocessors,

it was in a position to dictate how much product a particular customer received. During this period,

however, AMD had come out with competitive products, and Intel's power to dictate had diminished to

some extent. Intel knew that AMD was now a serious competitor and knew that getting firm commitments

was more important than ever. The commit meetings for 3Q00 occurred in the last two weeks of June/00

and first week of July/00 and were closely monitored by upper management.

(ii) According to CW12, a former Intel senior analyst working with Intel

forecast group, between May and Aug/00, OEMs cancelled orders (of Pentium III) greater than 2% of

the annual forecast. CW12 estimated that these orders involved between two and ten million devices and

more than one of the five large customers (Compaq, Dell, Hewlett Packard,Gateway or IBM). Notification

of these cancellations were emailed to Barrett and Grove between May/00 and Aug/00.

(d) Front-end Loaded: Intel's 3Q00 was not more "front-end loaded" than ever

before, nor was it unusually "linear." As set forth above, Intel knew that customers were double- and

triple-ordering to get chips on back order, and could cancel these bookings with as little as two weeks'

notice.

(e) Pentium III, 850 MHz-1.0GHz: Intel was having persistent problems with

production of its existing high-powered Pentium III microprocessors, i.e., 850 MHz-1.0 GHz, due to

persistent mask-set problems, because mask-sets were put into production too quickly.

(i) According to a report by Charlie Glavin of Credit Suisse First Boston on

10/2/00 (which report is based on information received from Intel sources and Intel customers), due to

these problems, Intel was not getting sufficient yields of its existing high-speed Pentium III processors, i.e.,

850 MHz-1.0 GHz. The problem stemmed from mask-sets that were put into production too quickly.

Intel makes its own mask-sets internally. The problem was how the mask-sets were made. Typically, the

basic physical design is laid out, and essentially fit to a grid. This way, the machines can work in a more


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precise manner. Software checks the layout to make sure that when the layout is set, the grid has not

caused the lines to be too close together. If they are too close, this causes a short, which will render the

chip useless, thus lowering yields. Erring on having lines too wide results in a reduction in speed, but not

an outright failure. In its efforts to accelerate its product "roadmap," Intel did not fully simulate and test the

new mask-sets for its high-end Pentium III microprocessors before they went into production, thus resulting

in slower than expected "bin-outs." A "bin-out" is essentially a range of speeds that a set of processors can

pass. For example, one wafer may have half of its processors pass speed tests for 733 MHz, 30% for 866

MHz, but just 10% for 1.0 GHz. You can sell a faster speed chip as a slower speed one (called down-

binning), but you cannot do the reverse (sell a chip that only passed a lower speed as a higher speed). As

a result of these problems during the Class Period, Intel was not achieving its desired level of production

of its 850 MHz or 1.0 GHz microprocessor, was losing market share and competitive position to AMD

and had to redo its mask-sets, with full production not achieved until Jan/01. This problem prevented Intel

from accelerating its microprocessor product roadmap to desired levels during the Class Period and

resulted in loss of market share to AMD – hurting Intel's competitive position vis-à-vis AMD. Mr. Glavin

further stated:

• "Finally, it appears that lower output of 1-GHz and other faster Pentium-3 chips was dueto hastily implemented internal mask-sets ... that caused slower-than-expected outputs.A catch-up plan should occur by January."

(ii) According to CW4, a former Intel engineering manager during the Class

Period, summary yield reports were provided to upper management that contained the overall yield

numbers for a given time frame for a particular Fab and other yield reports showing the yield number by

product for a particular Fab with the Fab on the x-axis and the products in different colors on the y-axis.

CW4 disclosed that the Pentium III suffered from copper migration that caused the chips to fail and resulted

in a significant number of wafers landing in Bin No. 9.

(iii) According to CW16, a former Intel engineering technician who performed

product validation on the Timna and Pentium III processors during the Class Period, in moving from the

standard aluminum compound to copper for the 1.13GHz Pentium III, fabrication became much more

difficult and required additional processing steps, as copper tends to delaminate or peel off.


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(iv) CW17, a former thermal engineer of Intel and, during the Class Period for

Dell, a major OEM customer of Intel's stated Intel's Pentium III 1.0 GHz microprocessor generated too

much heat. Compaq and other computer manufacturers complained to Intel that their systems simply shut

down when the chip excessively heated the other components in the "box." CW17 explained that although

the 1.0 GHz chip was "announced" in Mar/00, the first sample chips weren't available until Sept/00. In

May/00, Intel informed CW17 at Dell that the Pentium III 1.0 GHz chips were "running hot."

(v) CW17 disclosed that complaints about the 1.0 GHz Pentium III heat

problem were made to Intel starting with its pre-production release to the system in July/00. Intel

recommended certain adjustments within the box to attempt to minimize heat damage risk. These

adjustments did not solve the problem for many OEMs, including Compaq.

(vi) CW21, a former Intel functional area manufacturing engineer during the

Class Period explained that in Jun/00, copper contamination was a problem which greatly slowed down

the manufacturing process of the Pentium III 1.0GHz. CW21 was responsible for new product

introduction, and maintaining capacity and productivity for the entire Pentium III line of processors. Starting

Jun/00, the Pentium III 1.0 GHz yields dropped to between 50%-70%, while full production yield target

was 97%. Thus, Intel had not improved its manufacturing process and efficiencies as it had stated.

(vii) Notwithstanding Intel's statements concerning its ability to produce

adequate microprocessors to meet demand, Molly Williams reported on 10/18/00 in The Wall Street

Journal that Intel was "just now [in October] starting to make enough chips for its customers. Now,

analysts said, the problem is that demand is slowing and rival Advanced Micro Devices Inc. has been

taking market share." Thus, in June/00 (Aug/00 or even through Sept/00), Intel had not yet fixed its supply

problem.

(f) Pentium III 1.13 GHz: To beat AMD to market with a 1.13 GHz microprocessor

chip, Intel had taken design validation and pre-production testing shortcuts with its Pentium III chip,

knowing that the chip was very likely to not perform properly under certain circumstances.

(i) Intel sent out its Pentium III 1.13 GHz Production CPU to several industry

press members, such as Tom's Hardware CPU Guide and Hard/OCP, in mid-Jul/00 for testing and

review. These analysts ran simple standard industry tests which Intel surely would have run. Nevertheless,


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as early as 7/31/00 - the same date as the press release announcing the introduction of the Pentium III 1.13

GHz, one of the analysts published his results which would have been seen by Intel. Both Tom's

Hardware CPU Guide (as early as the release date on 7/31/00) and Hard/OCP (later on 8/28/00)

reported that the chips were unstable and crashed running a variety of benchmark tests, including Prime95,

Quake3, SysMark2000 and Linux Kernal Compilation. Attached as Exhibit C are the Tom's Hardware

articles dated 7/31/00 and 8/01/00 showing that Intel was informed of these defects revealed by standard

industry tests.

(ii) On 8/28/00, Intel finally relented to industry pressure and recalled the

Pentium III 1.13 GHz microprocessor admitting that the "chips have a flaw." On 8/29/00, Henry Norr of

the San Francisco Chronicle reported:

In the latest in a series of embarrassing technical glitches, Intel pulled its fastest PCprocessor off the market yesterday after finding "marginalities" that caused it to crash undercertain circumstances.

* * *

The symptoms, however, are among several problems with the chip first identifiedJuly 31 on Tom's Hardware CPU Guide .... After his initial testing, the site's Germanfounder, Thomas Pabst, described the chip as "the most unreliable and unstableCPU Intel has ever released."

In past years, Intel rarely announced new processors or speeds until PC-makershad a substantial supply of the chips in hand. But recently, the company has announcedseveral new chips that were available in extremely limited volume, if at all.

(iii) Intel knew that AMD was attempting to develop and introduce its own

1.13 GHz Athlon microprocessor, as that information had been published on 2/14/00 in ZDNet News, and

Intel was determined to beat AMD to market even if that meant putting out a 1.13 GHz microprocessor

chip that had not been properly designed or adequately tested. This was the conclusion of numerous

independent expert observers, such as Tom's Hardware CPU Guide (7/31/00) (Appendix, Ex. C), The

Boston Globe (8/30/00), and the San Francisco Chronicle (8/30/00) since Intel was forced to completely

halt production of the Pentium III 1.13 GHz chip and recall all previously shipped chips less than one month

after the product was introduced in order to redesign and revalidate the product. For instance, on 8/29/00,

the San Francisco Chronicle stated:

"Clearly, the competition from Athlon is driving Intel to announce products tooearly," said Linley Gwennap, principal analyst at the Linley Group in Mountain View.


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"Intel lost the 1-GHz race to AMD even though they launched the product beforethey could ship it in volume. To compensate, they tried to beat AMD to 1.1 GHz,but now it looks like they jumped the gun."

On 8/30/00, the Washington Post stated:

Linley Gwennap, president of the Linley Group, a consulting firm focused on themicroprocessor industry, said he believes Intel rushed its testing in its eagerness tobeat competitors to market.... "They have been under increasing pressure to pushproducts out the door," Gwennap said, "and whenever you try to move too fast, it'smore likely you'll stumble."

On 9/23/00, the Boston Globe reported:

Roger Kay, research manager at International Data Corp., said Intel has been investing ina massive effort to increase chip output.... "They've admitted to having executionproblems," said Kay, "which is rare for them."

(iv) According to a Sept/00 monthly hardware news overview, published by

X-Bit Labs:

Intel was in such a hurry trying to announce its 1.13 GHz Pentium III as soon as possiblethat they didn't care to check its operation properly. Most testers and OEMs stated that1.13 GHz Pentium III CPUs kept overheating and freezing, which was most probablycaused by the imperfect manufacturing technology. Although Intel laid itself out trying toconceal this fact at first, they still had to give in.

(g) Itanium Chips: Intel was encountering very serious and persistent design,

validation and pre-production problems with its Itanium chip. According to a Tom's Hardware CPU

Guide article dated 2/25/02, Intel designed the Itanium processor to include the MTH circuit, which

permits use of the less expensive SDRAM. The MTH circuits were designed to translate SDRAM into

code that resembled the six-times-more-expensive RDRAM.

(i) According to CW5, a former Intel test technician during the Class Period,

the Itanium chip suffered from multiple problems of which management was well aware from no later than

July/00 through Itanium's final release. The problems in July/00 included that (1) the speed marked on the

chip was not the speed at which the processor tested – it tested lower; and (2) there were problems with

excessive heat. From July/00 through Sept/00, CW5 worked overtime and on weekends to solve

problems related to Itanium. At the time, five out of six systems being built would not work.

(ii) CW22, a former Intel manufacturing shift manager of the Itanium assembly

line revealed that the Company was having severe problems with the Itanium chip since early 2000 when

CW22 was assigned to the Itanium assembly line. CW22 explained that the Itanium chip was having


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"encapsulation" issues, causing the chip to overheat and even explode. CW22 explained that a large

percentage of Itanium chips had to be scrapped during the summer of 2000. CW22 stated that Barrett

personally visited the lab to "look over" the assembly line because he was concerned about the problem

with Itanium. According to CW22, Barrett repeatedly requested updates on the Itanium process

performance throughout the summer of 2000 through CW22's direct supervisor. CW22's direct supervisor

informed CW22 on many occasions that the updates were at Barrett's request.

(iii) According to CW18, a former Intel Itanium processor validation engineer

during the Class Period, throughout June, July, Aug/00 and Sept/00, there were over 100 bugs in the

Itanium processor. Some of the bugs were so severe that two features of the processor were either

canceled or disabled in the final design.

(iv) According to CW19, a former Intel service technician for Itanium and

Pentium 4 during the Class Period, there were many bugs in the Itanium systems throughout the 2H00. The

processors were at version A3 to C0. The bugs were in the firmware (versions 60-81) that controlled the

behavior of the Itanium processors. The problems were so numerous that a support team was relocated

to Microsoft. In some cases when the bugs were so difficult to find, teams of Intel engineers would travel

to Microsoft and stay there until the Software Development Vehicles ("SDV") were operational. Microsoft

ran stress tests that completely destroyed the programmable logic devices, causing the replacement of many

Itanium processors and I/O boards.

(v) Tom's Hardware CPU Guide reported on 2/19/02 that Intel's new and

very important Itanium microprocessor chip – its first 64-bit product intended for computer servers –

suffered from a very similar MTH-related defect of the Timna. While this product had a much larger

market window than the Timna product, its MTH-related defect was so serious that Intel knew that it could

not possibly get this product to market until FY01 – not late FY00, as represented.

67. Pentium 4: Intel's new Pentium 4 microprocessor – the PC chip that was to be Intel's next

flagship product – also suffered from serious bugs and development difficulties far beyond those normally

encountered with a new chip. According to an 8/14/00 article in the Electronic Buyer's News, and a

10/9/00 article in ZDNet eWeek, the main design and performance problem with the Pentium 4 chip was

that it malfunctioned because the Tehama chipset was having problems interacting with graphics.


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According to a 10/2/00 report by Charlie Glavin of Credit Suisse First Boston, this was due to a faulty

graphic bus interface with the Tehama chipset, especially at high speeds when it frequently failed. As a

result of this problem, Intel knew that the Pentium 4 would not be ready to ship in volume in 4Q00 and that,

in fact, Intel would be lucky to ship it at all in FY00 and would, under any circumstance, miss the important

FY00 Christmas season.

(a) Timna Chip: Intel was encountering very serious and persistent design, validation

and pre-production problems with its Timna chip, due to Intel's continuing inability to design or produce

an effectively functioning MTH to permit Intel to use cheaper standard memory, according to a 12/20/00

article for CNETNews.com by Michael Kanellos.

(i) By 6/5/00, according to the Associated Press Newswire, Intel knew its

Timna microprocessor (which was intended for the under $600 PC market), had a very serious design flaw.

Intel knew it was a serious flaw that was almost certain to delay the completion of the product. On 6/5/00,

the Associated Press Newswire explained that the Timna chip was encountering an MTH problem similar

to the MTH defect which had resulted in Intel having to recall or replace over one million computer

motherboards earlier in FY00 and also suffered from other persistent defects which Intel could not fix. On

9/30/00, the Orange County Register reported Intel's spokesperson Michael Sullivan's admission that the

Timna chip had a very limited market window and the delays in completing the design of the product due

to the MTH problem meant that the product "would have arrived outside the launch window."

(ii) In fact, according to CW20, a former Intel product planning analyst, during

the Class Period, on or about 7/10/00, Intel cancelled the Timna project because "the MTH wouldn't

technically work with Timna." CW20 was approached by a former member of the Timna team, who had

just come out of a Timna project status meeting. The former member of the Timna team informed CW20

that Timna had been cancelled and why. CW20 worked on the 5/00 recall of the motherboards with the

MTH problems. As a product planning analyst, CW20 was responsible for gathering and completing the

financial data necessary to recall chips and cancel projects. CW20 explained that it is very unusual to

cancel a project at this stage of development because millions of dollars already had been spent and sample

parts produced. This type of late-term chip cancellation information was brought to the attention of upper

management.


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False Statement

68. On 7/31/00, Intel announced it was introducing its new 1.13 GHz Pentium III

microprocessor – its fastest, highest powered microprocessor ever – via a release stating:

Intel Corp. today introduced the Intel® Pentium® III processor at 1.13 GHz (gigahertz),the world's highest performance microprocessor for PCs.

"Intel's Pentium III processor reaches a new level of performance with 1.13GHz, enabling Intel's customers to ship the world's fastest PC platforms," said BillSiu, vice president, Intel Architecture Group, and general manager, Desktop PlatformsGroup.

By introducing a 1.13 GHz microprocessor before AMD did so with its Athlon chip, Intel regained the

"fastest chip" title and garnered very favorable publicity as media reports show:

• On 7/31/00, the Wall Street Journal reported:

Intel ... will release a faster Pentium III microprocessor that runs at 1.13gigahertz, beating out rival Advanced Micro Devices Inc. for the personal-computer speed crown. The new chip runs 13% faster than Intel's current top-of-the-linechip, a one-gigahertz Pentium III announced by the company in March. Then, however,Intel ran second to AMD, which had released a one-gigahertz version of its Athlonmicroprocessor two days earlier.

• On 7/31/00, the Los Angeles Times reported:

Intel Corp.... has unveiled faster Pentium III computer chips, regaining braggingrights to the speediest processor from rival Advanced Micro Devices Inc.

Santa Clara, Calif.-based Intel released a 1.13-gigahertz Pentium III that sells for$990 each in quantities of 1,000. Its previous fastest Pentium III ran at 1GHz.

Intel has played catch-up since Sunnyvale, Calif.-based AMD introducedan 850-megahertz chip in February and won at the 1GHz mark a month later.

• On 8/1/00, The Boston Globe reported:

INTEL REGAINS POLE POSITION IN CHIP WAR

In the ongoing game of one-upmanship between chip makers Intel Corp. andAdvanced Micro Devices Corp., Intel has once more hopped into the lead. Thecompany yesterday announced a new Pentium III processor that, at least in theory, isfaster than any of rival AMD's Athlon chips.

* * *

Earlier this year, AMD became the first of the two chip makers to create a 1-gigahertz chip. The achievement suggested that AMD, long a maker of lower-qualityPentium-compatible chips, had at last achieved technological parity with Intel, the world'sbiggest chip maker. But within days, Intel responded with its own 1-gigahertzPentium III chip, and now the company has moved into the lead once again.


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69. Intel's statements about its Pentium III chips, including the new 1.13 GHz screen for

Pentium III, were false or misleading. In addition to facts set forth in ¶¶36-44 and 66-67, above, Intel's

statements were false when made for the following reasons:

(a) Simultaneous with Intel's 7/31/00 announcement of the 1.13 GHz Pentium III

processor, an independent tester, Tom's Hardware, revealed in a paper followed by the industry, not the

market, that this new chip had substantial problems.

(b) With respect to the new Pentium III 1.13 GHz chip, Intel knew this new chip

malfunctioned when running certain test programs or when operating computer software under certain

benchmark tests – which were indispensable functions to the proper operation of the new Pentium III 1.13

GHz chip. According to Tom's Hardware CPU Guide on 7/31/00, this malfunctioning was due to

inadequate temperature tolerance as the new Pentium III 1.13 GHz microprocessor generated excessive

heat. Despite this defect, which was so readily apparent to independent testers at the time of the

introduction, Intel released the new Pentium III 1.13 GHz chip on 7/31/00 – amid much fanfare. By doing

so, Intel beat its arch-rival and most important competitor, AMD, to market with a 1.13 GHz PC

microprocessor and regained the position of having introduced the fastest PC chip first.

(c) On 8/28/00 Intel recalled the 1.13 GHz Pentium III, finally admitting that the "chips

have a flaw." Later, after the Class Period, Intel admitted that it had been reckless in announcing the chip.

In an 11/00 Businessweek article, Barrett admitted that in the past, Intel had practiced "prudent and

intelligent risk rating," but this year it tried to move too fast and without proper controls.

False Statement

70. On 8/17/00, Credit Suisse First Boston issued a report on Intel by Charlie Glavin, written

after discussions with Bryant or other Intel officials which was based on and repeated information provided

by them. The report increased the forecast FY00 and FY01 EPS for Intel to $1.77 and $2.04, while

forecasting the following FY00 and FY01 quarterly results for Intel:


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EPS/00 EPS/01QTR1st $ .35A $ .482nd $ .49A $ .483rd $ .43 $ .514th $ .50 $ .57

$1.77 $2.04

It also stated:

Intel bookings continue to be strong in 3Q00 as servers, laptops, and Asiabusiness all make up for a normal European summer lull that began in July. Weare raising revenue growth to a 12% sequential increase, but additional upsidein September exists.

* * *

Developer Forum a Time for Intel Optimism

Intel's Developer Forum (IDF) begins next Monday in San Jose, and we expectIntel to be both upbeat about current business and its roadmap.

Bookings have been picking up since early June, and despite a normalsummer lull in Europe, we believe Intel will experience solid double-digital [sic]growth for both 3Q2000 and 4Q2000....

Willamette – now known as Pentium-4 – and Itanium are still expected to bereleased by the end of the year, with Willamette expected to go out in October ....

* * *

Based on strong bookings for both 3Q and 4Q, we are increasing ourrevenue forecasts; and due to the higher volumes, our margin assumptions havealso increased slightly, especially for within this quarter. As a result we areraising our 2000 EPS....

* * *

Quickly recapping some of the key drivers:

* * *

Demand from emerging countries continues to rebound.... The product miximproves: for laptops, Xeons, and Pentium-3s. New products are on track for 2H00:Willamette (Pentium-4) and Itanium.

71. On 8/21/00, Lehman Brothers issued a report on Intel by D.T. Niles, written after

discussions with Bryant or other Intel officers which was based on and repeated information provided by

them. The report increased the forecast FY00 and FY01 EPS for Intel to $1.74 and $1.90 and forecast

the following quarterly results for Intel:


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EPS/00 EPS/01QTR1st $ .35A $ .442nd $ .50A $ .453rd $ .42 $ .484th $ .47 $ .53Year $1.74 $1.90

The report stated:

Intel CorpCompany UpdateRaising EPS driven by better units and margins

* * *

We are raising our FY00 EPS from $1.70 to $1.74 and FY01 from $1.85 to$1.90. We believe that Intel is seeing the most front-end loaded Q3 in many yearsand is completely booked out for the quarter. We are raising total revenues for FY00from $35.4B to $36.0B and FY01 from $41.7B to $42.7B.

* * *

Strong demand from Asia is offsetting relative weakness from Europe. Webelieve that given Dell's less than expected revenue results, that many investors areconfused as to how Intel [could] be seeing such strong demand. The answer is oneword: Asia.

* * *

The Intel Developer Forum from August 22-24 should be very upbeat. Webelieve that it will be hard for Intel top executives to hide their enthusiasm forcurrent business trends at IDF this week.... We believe that we are likely to seemany upbeat reports during IDF from the financial community includingpotentially other increases in earnings estimates.

72. On 8/22/00-8/24/00, the Intel Developer Forum was held. During the Forum, Intel

executives made presentations, answered questions and were interviewed by the media. On 8/22/00,

Bloomberg reported:

Intel Corp. Chief Executive Craig Barrett comments on concern that demand for chips isslowing, capital spending at the No. 1 computer-chip maker and on challenges ahead.

Barrett made his remarks in an interview during the Intel Developer's Forum in SanJose, California.

On concern about demand for chips:

"We're seeing continued strong demand for processors related to worldwideinterest in the Internet. On the embedded controller side, we see strong demand.If you look at wireless, flash (memory chips), we see strong demand for flash....[W]e're still seeing demand outstripping supply."


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73. Michael Fister, general manager of Intel's enterprise platforms group, said during a news

conference at the Intel Developer Forum that most Itaniums are expected to ship at lower speeds. "Intel

will start selling the chip in the fourth quarter of 2000," said Intel spokesperson Christine Chartier.

74. On 8/23/00, Gary Forni, software manager for Intel Flash products, was interviewed by

Radio Wall Street, and when asked about analysts who were saying demand was not strong stated:

Question: For the few analysts that predict a future decline in flash demand ... whatis Intel's position on this belief?

Forni: Well, I think there's a minority of analysts out there that arestating a slowdown in the market. But at Intel we don't see that ...we don't see that kind of slowdown happening.

75. During the Intel Developer Forum, Intel officials met with analysts from Salomon Smith

Barney, ABN/AMRO, Merrill Lynch and Bear Stearns to update them on Intel's success with its recently

introduced Pentium III products, its Pentium 4, Itanium and Timna chips and, most importantly, Intel's

progress during the 3Q00.

76. On 8/23/00, Salomon Smith Barney issued a report on Intel, which was based on and

reported information provided to its analyst Jonathan Joseph by Intel officials at the Developer Forum. The

report forecast 3Q00 EPS of $0.43 for Intel and stated:

* As expected, the tone of the Forum is upbeat .... Offline, management islooking for a very strong Q3, with solid prospects for Q4, and growingvisibility into early 2001.

* * *

* The microprocessor market continues to look strong.... The company isgeared up to report one of the strongest, if not the strongest, Q3 ever. We areforecasting 36.4 million units shipped this quarter, up 8% from Q2; actualshipments may well come in at double digit growth rates. In addition, Q4 will alsoprobably be strong, though the sequential unit growth may not exceed Q3. Weare currently forecasting 26% unit growth for 2000, which may prove low. Evenso, that number outperforms most market researcher forecasts by a wide margin.Why? Because growth in Asia, particularly China and Japan, is runningwell ahead of plan.

* The product roadmap is coming together. Following well-publicized snafuslike the 820 chipset and delays in Timna and Itanium, Intel seems confident itsprocessor product roadmap is solidly back on track.

* * *


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PENTIUM 4 SOON TO SHIP IN SMALL VOLUMES

It is our understanding that P4 (formerly known as Willamette) will not ship inproduction volumes until Q4 ....

77. On 8/23/00, Bear Stearns issued a report on Intel which was based on and repeated

information provided to its analysts Charles Boucher and Brian Wu by Intel officials at the Developer

Forum. It stated:

BUSINESS IS STRONG – REITERATE BUY

[W]e believe Intel's business outlook is positive and the company has a very strongtechnology roadmap to drive future growth. The PC seasonal ramp is in its early stagesand early indications regarding PC demand for the second half of 2000 arepositive. We believe Intel is also benefitting from the very positive semiconductormarket conditions that have lead [sic] to strong demand for microprocessors, flashmemory, and communications components amid tightening availability.Bookings have been strong, and prices are well behaved relative to historic trends,which should drive somewhat better than expected revenue growth and marginsand hence earnings growth. The slight slip in the launch of Pentium 4, and the slip in thelaunch of Itanium should have no financial impact in our view, because revenue andearnings will be driven by strong demand for the Pentium III processor, which isshipping in increased volumes due to Intel's success in scaling its manufacturingoutput.

78. On 8/24/00, ABN/AMRO issued a report on Intel by David Wu and Nikolay Tishchenko,

which was based on and repeated information provided to Wu by Intel officials at the Intel Developer

Forum. The report forecast FY00 and FY01 EPS of $1.75 and $1.90 and forecast 3Q and 4Q00 EPS

of $0.41 and $0.49, respectively. The report also stated:

– Intel is introducing 3 microprocessor families simultaneously: the Pentium 4 (IA32),Itanium (IA64), and a new, highly scalable enhanced StrongARM microarchitecture(XScale). The first two will be shipped in 4QCY00 ....

* * *

– Intel's Bumper Crop of Microprocessors Are Emerging

Calendar 2000 will go down in history as a vintage year for newmicroprocessors from Intel.

First, there is the Pentium 4 ... that will ship in 4Q2000 at 1.4GHz or1.5GHz....

Second, there is the much-awaited IA64 Itanium that is scheduled forshipment at 800MHz by 4Q2000.

79. On 8/25/00, Merrill Lynch issued a report on Intel that was based on and reported

information given to its analyst Joseph Osha by Intel officials at the Intel Developer Forum:


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Itanium – all systems go

Throughout IDF, we've been hearing good news about the several productreleases, particularly the Itanium. Intel has made it clear that its first 64-bit processor isready to explode onto the high-end server market in mid-2001 ....

* * *

We expect to see samples in 4Q00 & volume shipments in mid-2001.

* * *

Intel has also confirmed that P-IV will start to ship later this year at1.4GHz & ramp to 1.5GHz by 2Q01.


80. The positive statements about the strong demand for Intel's products, Intel's improved

manufacturing processes and efficiencies, the successful development and introduction of its Pentium III

microprocessor, the successful development of the Pentium 4, Itanium and Timna chips and the outlook

for Intel's 3Q00 results issued from 7/18/00-7/19/00 through the Intel Developer Forum were materially

false and misleading when issued. They also failed to disclose the adverse facts which were then known

only to Intel and its top insiders, disclosure of which was required to be made to make the statements made

not misleading, as described in ¶¶36-44, 66-67, 69. In addition, the following undisclosed facts

undermined Intel's statements:

(a) As Intel struggled to bring its 1.13 GHz Pentium III to market, AMD cashed in on

Intel's delay and secured a large Compaq contract. Intel knew that on 8/28/00, AMD publicly announced

that Compaq was placing orders for the Athlon 1.1 GHz processor, and Intel knew that it had missed the

crucial revenue and sales window.

(b) According to CW2, Compaq cancelled its order for the Pentium III 1.0 GHz and

awarded the contract to AMD in Aug/00.

(c) In addition, according to a 10/2/00 report for Credit Suisse First Boston by Charlie

Glavin, the Pentium 4 Tehama chipset was having problems with the graphics interface failing at higher

speeds.

81. On 8/28/00, Intel suddenly revealed it had stopped selling its recently introduced more

powerful and fastest microprocessor – the Pentium III – and would recall all previously shipped and


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sold Pentium III's because they were defectively designed and did not work properly. Ironically,

the Intel news came on the day that rival AMD announced the release of a 1.1-GHz version of its Pentium

III alternative, the Athlon. According to press reports, redesign of the Pentium III chip and required

production validation meant that bug-free Pentium III chips would not come off the assembly line in

commercial quantities for "months." That same day, Bloomberg reported:

Intel Finds Flaw, Stops Selling Fastest Pentium III

* * *

Intel Corp., the world's biggest computer-chip maker, has stopped shipping its fastestPentium III processors because the chips have a flaw ... spokesman Mike Sullivansaid.

Intel began shipping the 1.13-gigahertz Pentium III on July 31 in limited capacity.The small number of chips sent out so far will be recalled, Sullivan said in an interview....

Some software used to test the performance of computers doesn't run properly ondesktop machines using the Intel processors at certain frequencies at certain temperatures.

* * *

Intel announced the 1.13GHz chip, which sold for $990 each in volume purchases,to regain bragging rights from rival Advanced Micro Devices Inc. The twocompanies have battled for the speediest processor since February, when AdvancedMicro beat Intel by releasing an 850-megahertz device and won at the 1GHz mark amonth later.

* * *

[T]he company is set to begin shipping new Pentium 4 chips running at 1.4GHz later thisyear. It's the powerful Pentium 4 that analysts expect to drive sales going forward.

82. On 8/30/00, The Washington Post reported:

Intel Corp. announced this week that it would recall its newest and most powerfulchip, the latest in a series of missteps the firm has made in the past year as [it] fights tomaintain its dominant position in the microprocessor industry.

The company stopped shipping its 1.13-gigahertz Pentium III chip on Monday,saying the microprocessor could crash computers running certain software or malfunctionin computers operating at what should be tolerable temperature extremes.

* * *

"In terms of the value of their good name and their reputation, this is avery big deal ," said Peter Glaskowsky, a chip analyst and senior editor of theMicroprocessor Report.

Intel and its main competitor, Sunnyvale, Calif.-based Advanced Micro DevicesInc., have been alternately staking claims on the "fastest chip" title for the past year.


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False Statements

83. Despite this negative announcement, Intel assured analysts that the recall would have

minimal impact on Intel's financial results and that Intel's Pentium 4 chip was on schedule to be released

shortly and would drive Intel's growth going forward. Thus, Intel's stock continued to trade at artificially

inflated levels.

84. On 9/5/00, a U.S. Bancorp Piper Jaffray analyst issued a report on Intel stating that due

to "demand weakness," Intel's 3Q00 revenue growth would only be in the mid-single digits and that due

to over production and weak sell-through Intel would have a large inventory overhang going into the 4Q00,

leading to a "malignant" pricing environment.

85. On 9/7/00, Len Rand, Intel's General Manager of Strategic Marketing & Global Alliances,

appeared at the Credit Suisse First Boston Communications Conference and told analysts that Intel

"reaffirm[ed]" the guidance it had given in July/00. On 9/7/00, Credit Suisse First Boston issued a report

on Intel which reiterated what Rand had told analyst Charlie Glavin. The report stated:

While INTC would only reaffirm guidance given during the last quarter'searnings results, it is our belief that INTC feels recent concerns are "much ado about nonew news."

* * *

Thus we stand by our recently upwardly revised forecast, and remind investors tolook out several quarters beyond 3Q00 as INTC's demand momentum extends well into2001.

86. On 9/13/00, Banc of America Securities issued a report stating that demand for PCs had

slowed and that Intel had lowered production rates of high-end processors to eliminate product glitches

following the recent Pentium III recall. Bloomberg reported this and Intel's reaction:

Intel spokesman Mike Sullivan said the world's biggest chipmaker is stillcomfortable with predictions it made in July, when it said sales in the currentperiod would rise from the second quarter's. The forecast was Intel's most positiveoutlook for the third quarter in more than five years.

"We are standing by the third-quarter guidance," he said.

87. On 9/19/00, Bear Stearns issued a report on Intel by Charles Boucher and Brian Wu,

written after discussions with Intel officials and which was based on and repeated information provided by

them. It stated:


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Intel's stock has weakened over concerns about the health of the PC market.

* * *

We think that Intel has experienced solid demand overall in Q3. AlthoughPC demand was somewhat weaker than expected in August, industry sources haveindicated that demand for Intel microprocessors has improved in the first half ofSeptember. We believe this is consistent with a healthy PC market gearing up for a strongDecember quarter. We are comfortable that Intel will at least meet our estimate of8-10% sequential microprocessor unit growth in the September quarter, and thecompany should provide positive guidance for the December quarter.

88. On 9/20/00, Credit Suisse First Boston issued a report on Intel by Charlie Glavin, written

after discussions with Intel officials which was based on and repeated information provided by them. The

report forecast FY00 and FY01 EPS of $1.77 and $2.04 and the following 00/01 quarterly results for

Intel:

EPS/00 EPS/01QTR1st $ .35A $ .482nd $ .49A $ .483rd $ .43 $ .514th $ .50 $ .57

$1.77 $2.04

It stated:

3Q Guidance for Intel Intact ....

* * *

With two weeks to go, it appears that Intel will report revenue at least inthe 8-10% sequential range ....

While the quarter started off very linearly, and was on track for 12-15% growth,a tardy summer revival in Europe and not enough Celeron processors have limited thepotential upside we projected on 8/17/00.

However, demand has started to "lift off" with particular strength fromservers and laptops, and stronger European orders for 4Q.

* * *

Intel Guidance Intact

... 3Q00 actually has been a more linear quarter than usual this year. Normally,3Q is very back-end weighted, with the month of September making up nearly 50% ofIntel shipments. This year started off looking like Intel only needed 35-40% of revenuesfrom the month of September to hit its guidance for 3Q00. Given normal patterns, thismeant that by early August it appeared Intel was on track to hit 12-15% sequentialrevenue growth .... However, no one seemed to have told Europe, which up until ten daysago looked anemic this quarter. Yet, just when it looked like the vultures on Intel


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might be right, corporate and European demand appear to have beenresuscitated....

The bottom line is that Intel looks to be on track to report 8-10%sequential revenue growth this quarter, with 10 days still left.... While Europe issoft but catching up, Asia, N. America, and Japan all appear solid exiting 3Q.

* * *

Manufacturing Fine at Intel

Concerns regarding Intel's production also seem to be misplaced. It doesappear Intel's yields are not as high as it hoped for to date with its 1.13-GHz (andto a lesser degree its 1-GHz) processors. However, this really has no materialimpact to either 3Q or 4Q.

89. As a result of the Pentium III recall and the indication by some analysts that demand was

weaker than Intel had previously revealed, Intel's stock fell to as low as $55-1/2 by mid-Sept/00 from its

all-time high of $75-13/16 in late Aug/00. However, due to Intel's public reaffirmance of its "third quarter

guidance" and other reassuring communications with analysts, the decline in Intel's stock was halted and

the stock rebounded to as high as $62-15/16 on 9/21/00.


90. Intel's statements reaffirming or "standing by" its guidance from 9/2/00 to 9/20/00 were

false when made. The true facts, which Intel concealed, are described at ¶¶36-44, 66-67, 69, 80-82,

above. In addition, Intel knew but failed to disclose the following adverse facts:

(a) According to Lehman Brothers analyst Daniel Miles, who wrote an analyst report

on 9/20/00, (i) Intel never saw a turnaround in Europe to slow sales seen in the prior quarter; (ii) in prior

quarters, Intel had pulled in revenues or made special deals to make the quarter; (iii) demand had slowed

so severely that, at some point in the quarter, Intel quit allocating chips; and (iv) as a result, customers

cancelled or stalled orders in late Aug/00 and early Sept/00.

(b) Similarly, Credit Suisse First Boston analyst Charles Glavin prepared and published

a report on 9/22/02. Plaintiffs have confirmed that this information was obtained from management. In that

report, Mr. Glavin revealed:

• While Intel experienced stronger-than-expected demand during the month of June/00,European shipments dried out late July/00 and never came back.

• Shipments through European distribution never re-engaged after the summer.


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• While Intel had entered the quarter with inventory at "very low levels," now Intel had such"inventory glut" that, unless European demand re-engaged in 4Q, the glut could be largeenough to cause a disruption.

(c) According to CW5, in validation (approximately early Sept/00), it was determined

that there was a design defect on the memory board for the Itanium. The final product was shipped with

a known memory defect/limitation. CW5 stated that upper management was fully aware of the problems

between June/00 and Sept/00, as they were the topic of frequent meetings with managers and lower

employees. During the meetings, it became clear that upper management was schedule driven, and line

managers were frustrated and extremely unhappy that problems were being glossed over and not really

solved.

(d) CW22 confirmed that CEO Barrett was aware of the problems plaguing Itanium

development as early as the summer of 2000, repeatedly requesting process performance updates and even

visiting the Itanium assembly line.

THE REAL FACTS BEGIN TO EMERGE

91. Intel's stock traded as high as $62-15/16 on 9/21/00. After the close of trading on

9/21/00, Intel utterly shocked the securities markets by revealing that its revenue growth would be far

below its previous forecasts, "primarily due to weaker demand in Europe." In a press release dated

9/21/00 Intel revealed:

Intel's third quarter revenue is anticipated to do below the company's previousexpectations, primarily due to weaker demand in Europe, the company said today. Thecompany now expects revenue for the third quarter to be approximately 3 to 5 percenthigher than second quarter revenue at $8.3 billion.

92. According to Quinn Bolton, in his 9/22/00 report on behalf of CIBC World Markets

Corp., this difference of guidance between 3%-5% and 8%-10% equated with a shortfall of $400 and

$500 million on the top line. Intel's stock, which traded as high as $62-15/16 on 9/21/00, collapsed to as

low as $46-1/2 on 9/22/00 on volume of 306 million shares. This 26+% one-day stock collapse was:

• The largest one-day trading volume of any stock in history.

• The largest one-day market capitalization loss – $107 billion – of any stock inhistory.

• A market capitalization loss larger than the entire market capitalization of all otherU.S. stocks, save 29, and larger than the market capitalization of Ford andGeneral Motors combined.


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93. On 9/22/00 Lehman Brothers analyst, Daniel Miles, revealed for the first time information

which was attributed to Intel and could only have come from Intel. This information included the projection

that Intel would probably see another 5%-8% decline in European revenues in 3Q and that Intel had not

"seen a turnaround in Europe." Worse, the report reveals for the first time that:

• On prior quarters Intel pulled in revenues or made special deals to make the quarter; and

• Demand had slowed so severely that at some point in the quarter Intel quit allocating chipscausing customers to cancel or stall orders in late Aug/00 and early Sept/00.

(a) Similarly, Credit Suisse First Boston Analyst Charles Glavin prepared and

published a report on 9/22/02. Plaintiffs have confirmed that this information was obtained from

management. In that report, Mr. Glavin revealed:

• While Intel experienced stronger-than-expected demand during the month of June/00,European shipments dried out late July/00 and never came back.

• Shipments through European distribution never re-engaged after the summer.

• While Intel had entered the quarter with inventory at "very low levels," now Intel had such"inventory glut" that, unless European demand re-engaged in 4Q, the glut could be largeenough to cause a disruption.

94. On 9/29/00, Intel also admitted it was canceling its Timna chip (due to persistent technical

development problems and a lack of market demand) and told customers it was delaying shipment of its

Pentium 4 chip due to design and development problems. At the same time, the press reported that Intel

was forced to accelerate the development of the successor to the Itanium chip (McKinley), as Itanium was

too slow and "flaky" to be used even as a pilot system. See "Intel's McKinley Tapes Out, Itanium is Itanic,"

by Mike Magee, 9/28/00, The Register.

95. Intel's stock continued to plummet, falling to as low as $35-3/8. Thus, in just over five

weeks, Intel's stock collapsed from its all-time high of $75-13/16 on 8/28/00, to its lowest price

in years – $35-3/8 – a mind-boggling market capitalization loss of $271 billion – wiping out 50%

of Intel's stock value. In early Oct/00, Intel – in what Merrill Lynch called a "clear shake-up in the

commanding control of Intel's core microprocessor business" – removed the long-time technical head

of Intel's microprocessor business, Albert Yu, from that position and caused the head of microprocessor

manufacturing to now report directly to Executive Vice President Paul Otellini. According to CW16, the

move of Yu to another position was internally viewed as a demotion.


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96. As the full extent of the serious problems with Intel's business became clear, analysts

slashed their 3Q00, 4Q00, FY00 and FY01 revenue, gross margin and EPS forecasts for Intel. Analysts

slashed Intel's FY01 revenue forecast by $3.5 billion and cut the FY01 EPS forecast to $1.65±, meaning

that Intel's FY01 EPS would be "flat" compared with its FY00 EPS. During Nov/00-Dec/00, the serious

nature of the problems afflicting Intel's business continued to be highlighted. Intel had now revealed that

it had been hit with "large order cancellations" and a "world-wide slowdown in demand," especially in the

U.S. and Europe. According to Intel's CFO, "[i]t's every place in the world and it's nearly every product

we sell." Intel's 4Q00 revenues actually declined from its 3Q00 revenues, leading to EPS far below those

forecast by and for Intel during the Class Period.

97. Analysts and investors were blindsided by and furious about Intel's 9/21/00 revelations –

and apparent deception – during the Class Period, as the following statements indicate:

• "Intel has maintained up until now that everything was fine for thequarter, and ... all is not right," said Richard Whittington, an analyst ofBancAmerica.

• On 9/22/00, Bear Stearns issued a report by Charles Boucher, stating, "Ourchecks with other semiconductor companies and channel contacts showno weakness in Europe except for Intel microprocessors.... It appears thatIntel's significant shortfall in Europe is company-specific ... Intel'sproblems are likely company specific."

• On 9/25/00, Deutsche Banc Alex. Brown issued a report by Erika Klauer stating,"We were very surprised by this news given that the company hadindicated only two months ago that it could not meet all the demand it wasseeing .... Deeper questions persist as Intel's earnings warning ... tookeveryone by surprise, to say the least."

• On 9/22/00, ABN/AMRO, issued a report by David Wu stating, "While thecompany blames a weak European market, we suspect the real reason ismarket share loss to the resurgent Advanced Micro Devices .... We havechecked with suppliers, DRAM vendors, PC companies and AMD. Onething we are sure about is it does not appear to be an industry-wideproblem but has bad implications for Intel near term, whatever the truereasons are."

• On 9/22/00, Merrill Lynch issued a report by Joseph Osha stating "We find itimplausible that demand could shift rapidly enough in a single region toimpact Intel's results to this extent."

• On 9/22/00, Chase H&O issued a report by Walter Winnitzki and Tracy Akreshstating, "Our analysis is inconsistent with Intel's argument of a weakerEurope."

98. The press was equally furious stating:


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• "Intel's announcement is considerably less optimistic than the outlook itgave in July, when it reported second-quarter revenue of $8.3 billion andsaid it was sold out through the third quarter. Its remarks at the timeprompted some analysts to boost their estimates for the third period," wroteThe Wall Street Journal.

• "Intel admit[ted] it has had execution issues this year that should neverhave happened," reported The Wall Street Journal. Other executives admittedthat Intel cut corners and bypassed traditional methods to push its new productsout the door to beat arch-rival AMD.

99. On 10/2/00, The Wall Street Journal reported:

Intel admits it has had execution issues this year that should never havehappened. Chief Executive Craig Barrett said Friday that the rising complexity of Intel'sbusiness, which has changed from making one product for one market to making dozensof products for many markets, as well as increasing competition from Advanced MicroDevices Inc., has contributed to the missteps.

100. In Nov/00, BusinessWeek reported:

Intel Corp. has eaten a pile of crow this year. The $34 billion chip giant, knownfor its disciplined management and crisp operations, suffered a nightmarish string ofproduct shortages, delays, and even cancellations that left customers and investorsfuming. Case in point: After agreeing to use Intel's latest Pentium III Xeon processor ina new line of servers – and promising deliveries to customers – Compaq Computer Corp.was shocked when the chipmaker couldn't provide enough parts and buyers wereleft hanging....

Ouch. Could this be the same Intel whose tight execution, relentless growth, andbountiful profits have made it an icon of techdom? For most of this year, it hasn't lookedthat way. First, pesky bugs forced it to delay delivery of crucial chipsets – key productsneeded to connect processors to the rest of a PC. Then it had to recall a million circuitboards because of a bad chip and eventually gave up on fixing the faulty component....And most embarrassing, in August it had to recall the latest version of its flagship PentiumIII because the processor simply didn't work. It had been rushed to market to blunt risingcompetition from archival Advanced Micro Devices Inc....

The bloopers haven't gone unnoticed on Wall Street. Intel took hundreds ofmillions of dollars in write-downs and may have forfeited as much as $1.4 billion in lostrevenues ....

* * *

Barrett is definitely feeling the pain. Intel's problems have spurred him to anuncharacteristic bout of public contrition. He says he is "embarrassed" by Intel'sslipups and admits it took unwise shortcuts. "We dropped the ball," he says. That'sespecially galling for an executive who paved his 24-year path to Intel's top job by helpingturn the company into a manufacturing machine with unmatched quality and 64% grossmargins. Intel always has practiced "prudent and intelligent risk-taking," he says,but this year it tried to move too fast and without proper controls.

The steely CEO vows he won't let that happen anymore. Since the Pentium IIIrecall, Barrett has stepped up an aggressive program to get Intel humming again. Inbiweekly executive staff meetings, he has berated his top lieutenants for sloppiness,


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insisting they adhere to Intel's rigorous planning methods. After all, he says,when things go wrong, "the enemy is usually us."....

How did Intel get into such a mess? Most of its product delays and cancellationsstem from difficulties implementing Rambus' technology – and to Intel's lack of a backupplan in case that didn't pan out.... And the rushed release of the buggy Pentium III– after an engineer neglected to run a crucial test on the part – was undoubtedlyspurred by Intel's competitiveness and paranoia about AMD. The rival "ispushing Intel to do things it wouldn't normally do," chides chip-industry analystLinley Gwennap of The Linley Group. "It's moving too fast and getting careless."

* * *

Just as Intel ran into its chipset problems and capacity crunch, AMD hit paydirt with asizzling Pentium III rival called the Athlon. The cheaper chip has helped AMD winbusiness with nine of the top 10 PC makers and gain five points of market share this year,to 18%. Analysts say much of that gain, worth at least $800 million, might otherwise havelanded on Intel's top line. AMD also managed this year for the first time to grab thechip-speed crown when it delivered the first PC processor to run at 1 gigahertz,or a billion clock ticks per second. Intel rushed out a riposte six months aheadof schedule and soon after shoved the faulty 1.13-GHz Pentium III out the door.

101. On 12/18/00, Fortune magazine reported:

In the past six months alone, Intel has recalled all of its swiftest Pentium III chips, canceleda planned low-end chip called Timna ... and warned that it wouldn't meet Wall Street'sthird-quarter earnings expectations. And in a supreme ego blow, Intel lost the braggingrights for fastest processor to onetime has-been AMD in February .... Revenues, whichspent the '90s growing at a compound annual rate of 25%, are likely to increase only 17%this year, to $34 billion; operating profits, which grew 33% a year, will likely increase only11%, to $11 billion. And at least a few analysts think net profits may actually drop in2001. Not surprisingly, Wall Street has pulverized the stock. Since hitting a 52-week high of $75.81 in August, Intel's stock is down roughly 45%. The S&P 500,by comparison, is down just 9% in the same period.

102. On 10/18/00, Phil Trent, the marketing director for SMI (Surveyors Module International),

and founder of Marketingdirector.org, published:

1. Intel has purposefully misled investors and analysts by saying that weakdemand was the company's main problem rather than a series of disasters. In the last fewyears, Intel has delayed and abandoned multiple projects as well as the infamous 1.13 GHzrecall.

* * *

4. Intel represents what most people hate about large companies: Mistreatingemployees, misleading investors, and using every means at its disposal to brainwash thepublic into buying its inferior products both in terms of quality and performance.

* * *

9. Even a child could predict delays and problems for the P4. Any projectmanagement mix-up prior to a product's release spells a lot of trouble. Even then, Inteldoesn't think that the P4 will be in the mainstream until 2002.


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STATUTORY SAFE HARBOR

103. The statutory safe harbor provided for forward-looking statements ("FLS") does not apply

to the false FLS pled. The FLS pled at ¶¶49-53, 68, 70-79 and 84-85 were not identified as "forward-

looking statements" when made, it was not stated that actual results "could differ materially from those

projected," nor did meaningful cautionary statements identifying important factors that could cause actual

results to differ materially from those in the FLS accompany those FLS. Intel is liable for the false FLS

pled because, at the time each FLS was made, the speaker knew the FLS was false and the FLS was

authorized and/or approved by an executive officer of Intel who knew that the FLS was false. None of

the historic or present-tense statements made by Intel were assumptions underlying or relating to any plan,

projection or statement of future economic performance, as they were not stated to be such assumptions

underlying or relating to any projection or statement of future economic performance when made, nor were

any of the projections or forecasts made by Intel expressly related to or stated to be dependent on those

historic or present-tense statements when made.

CLASS ACTION ALLEGATIONS

104. This is a class action on behalf of all persons who purchased or otherwise obligated

themselves to purchase the publicly traded securities of Intel (including its common stock and options to

purchase its common stock) between 7/19/00-9/29/00, excluding defendant Intel (the "Class"). Class

members are so numerous that joinder of them is impracticable.

105. Common questions of law and fact predominate and include whether Intel: (i) violated the

1934 Act; (ii) omitted and/or misrepresented material facts; (iii) knew or recklessly disregarded that its

statements were false; and (iv) artificially inflated Intel's stock price and the extent of and appropriate

measure of damages.

106. Plaintiffs' claims are typical of those of the Class. Prosecution of individual actions would

create a risk of inconsistent adjudications. Plaintiffs will adequately protect the interests of the Class. A

class action is superior to other available methods for the fair and efficient adjudication of this controversy.

CLAIM FOR RELIEF

107. Defendant violated §§10(b) and 20(a) Rule 10b-5 by:

(a) Employing devices, schemes and artifices to defraud;


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(b) Making untrue statements of material facts and omitting to state material facts

necessary in order to make the statements made, in light of the circumstances under which they were made,

not misleading; and

(c) Engaging in acts, practices and a course of business that operated as a fraud or

deceit upon the Class in connection with their purchases of Intel securities.

108. Class members were damaged. In reliance on the integrity of the market, they paid

artificially inflated prices for Intel stock.

PRAYER

WHEREFORE, plaintiffs pray for judgment as follows: declaring this action to be a proper class

action; awarding damages, including interest; and such equitable/injunctive or other relief as the Court may

deem proper.

JURY DEMAND

Plaintiffs demand a trial by jury.

DATED: November 21, 2002 MILBERG WEISS BERSHAD HYNES & LERACH LLPREED R. KATHREINKIMBERLY C. EPSTEINSYLVIA WAHBA

/s/ Reed R. KathreinREED R. KATHREIN

100 Pine Street, Suite 2600San Francisco, CA 94111Telephone: 415/288-4545415/288-4534 (fax)

MILBERG WEISS BERSHAD HYNES & LERACH LLPWILLIAM S. LERACH401 B Street, Suite 1700San Diego, CA 92101Telephone: 619/231-1058619/231-7423 (fax)

Lead Counsel for Plaintiffs


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G:\CASES\Intel-01\KRH80512.cpt


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FIRST AMENDED CONSOLIDATED COMPLAINT - C-01-20888-JF

DECLARATION OF SERVICE BY FACSIMILEPURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-2(c)(2)

I, the undersigned, declare:

1. That declarant is and was, at all times herein mentioned, a citizen of the United States and

a resident of the County of San Francisco, over the age of 18 years, and not a party to or interest in the

within action; that declarant's business address is 100 Pine Street, 26th Floor, San Francisco, California

94111.

2. That on November 21, 2002, declarant served by facsimile the FIRST AMENDED

CONSOLIDATED COMPLAINT to the parties listed on the attached Service List and this document was

forwarded to the following designated Internet site at:

http://securities.milberg.com

3. That there is a regular communication by facsimile between the place of origin and the

places so addressed.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 21st day

of November, 2002, at San Francisco, California.

/s/ Anna GuerraAnna Guerra


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INTEL-01 (LEAD) Service List - 11/21/02 Page 1

COUNSEL FOR PLAINTIFF(S)

Reed R. Kathrein * Laurence D. King Kimberly C. Epstein KAPLAN FOX &KILSHEIMER LLP Sylvia Wahba 601 MontgomeryStreet, Suite 300 MILBERG WEISS BERSHAD HYNES & San Francisco, CA94111 LERACH LLP 415/772-4700 100 Pine Street, Suite 2600 415/772-4707 (fax)

San Francisco, CA 94111-5238 415/288-4545 415/288-4534 (fax)

William S. Lerach MILBERG WEISS BERSHAD HYNES & LERACH LLP 401 B Street, Suite 1700 San Diego, CA 92101-5050 619/231-1058 619/231-7423 (fax)

COUNSEL FOR DEFENDANTS

Michael Torpey James Lico Margaret Snyder* BROBECK, PHLEGER & HARRISON LLP One Market Plaza Spear Street Tower San Francisco, CA 94105 415/442-0900 415/442-1010 (fax)

* Denotes service via hand delivery to be delivered onNovember 21, 2002.


in re intel corporation securities litigation 01-cv-20888...

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