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3,300 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | revenue was up slightly sequentially off a better-than-expected Q3, as demand for traditional servers remained stable. Revenue for NEX was up 7.5% sequentially and is now up more than 20% from Q2 lows, as customers are returning to more normal buying patterns especially in our edge business. Operating profit for Intel Products was $3.6 billion, 28% of revenue, and up $300 million quarter-over-quarter on higher revenue and reduced operating expenses. Intel Foundry delivered revenue of $4.5 billion, up 3% sequentially, on increased EUV wafer mix and higher equipment sales by IMS. EUV wafer revenue grew from 1% of total revenue in 2023 to greater than 5% in 2024. Intel Foundry operating loss in Q4 of $2.3 billion improved meaningfully sequentially as Q3 was impacted by $3.1 billion of impairments. Excluding impairments, operating loss would have been roughly flat quarter-on-quarter. Turning to All Other. Mobileye reported revenue of $490 million, up 1% sequentially, with operating profit of $103 million, and earlier today guided for full year 2025 increases to both revenue and operating income. Altera delivered revenue of $429 million, up 4% sequentially. Operating margin was 21% versus 2% in Q3 on better gross margins and operating leverage. For Q1, we expect Altera revenue to be down sequentially less than overall Intel consolidated. We continue to make good progress on the stake sale of Altera and see a path for an IPO in the coming years. Now turning to guidance. Q1 has historically been our seasonally weakest quarter of the year, down high single to low double digits percentage sequentially on average. In addition, we see added pressure coming from macro uncertainty especially around tariffs, balancing of PC inventory and increasing competition. These mitigating factors support a more-tempered revenue outlook as we come into the new year. As a result, we are forecasting a revenue range of $11.7 billion to $12.7 billion in the first quarter of 2025, down between 11% to 18% sequentially. Within Intel Products, |
3,301 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | of $11.7 billion to $12.7 billion in the first quarter of 2025, down between 11% to 18% sequentially. Within Intel Products, we expect revenue to decline across all three of our segments at roughly similar rates. We expect Intel Foundry revenue roughly flat to down modestly quarter-over-quarter helped by continued mix shift to EUV wafers, Intel 18A samples and advanced packaging. At the midpoint of $12.2 billion, we expect gross margin of approximately 36%, with a tax rate of 12% and break-even EPS, all on a non-GAAP basis. Let me take a few moments to provide some commentary that may be helpful for your full-year 2025 modeling. At the consolidated level, we expect gross margin to improve from Q1. Intel Products gross margin was 51% in 2024 and is expected to decline this year due to product mix in both CCG and DCAI. Intel Foundry gross margin will improve on EUV mix shift and growth in advanced packaging despite expected depreciation growth in 2025 of roughly 10%. We continue to target 2025 OpEx of $17.5 billion with further reductions in 2026. We expect non-controlled income, or NCI, to net to roughly zero in Q1 and be in a range $500 million to $700 million impact this year, on a GAAP basis. NCI is expected to grow in fiscal year 2026 to a range of $1.2 billion to $1.4 billion, on a GAAP basis, and increase further in future years, as we increase wafer outs at our fabs where we have agreements with SCIP partners. We anticipate that our 2025 gross capital investments will be approximately $20 billion and at the low end of our previous guide of $20 billion to $23 billion, reflecting further capacity adjustments to Ohio and Ireland, as well as better utilization of what we call our construction-in-progress. Specifically, we invested ahead of demand over the past few years and these capital investments will enable us to meet expected demand at a lower level of spending, as we drive to more efficiently deploy our capital. We expect 2025 net CapEx of $8 billion to $11 billion with roughly half of the offsets |
3,302 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | to more efficiently deploy our capital. We expect 2025 net CapEx of $8 billion to $11 billion with roughly half of the offsets expected to come from government incentives and tax credits and half from partner contributions. De-levering in 2025 remains a top priority for us on lower CapEx, increased cash from operations and value unlock across our non-core assets. Finally, I’ll remind you that we will provide new segment reporting in conjunction with our Q1 earnings. We expect to make further changes to our segments, including moving the edge portion of NEX into CCG, and our auto business from All Other into CCG. In addition, we expect to move the networking portion of NEX, which includes Xeon sales, into DCAI, and the IMS equipment business out of Intel Foundry into All Other. I’ll wrap up by saying that Q4 was a solid quarter to close out a challenging year. With that said, our profitability is below where it needs to be, and we must enhance our competitive position in the market. Michelle and I will continue taking actions to improve the operational and financial trajectory of the business. We will remain focused on building a stronger Intel Products business and becoming a more efficient Intel Foundry. And by driving continued progress in these areas, we are confident in our ability to unlock value for all our stakeholders. Before we open the line to questions, it’s worth mentioning that the board remains intensely focused on the search for a permanent CEO. The search is progressing, but we have nothing new to report and won’t be able to add additional information on this topic today. With that, I'll turn it over to John to start the Q&A. |
3,303 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Thank you, Dave. We will now transition to the Q&A portion of our call. As a reminder, we would ask each of you to ask one question and a brief follow-up question where applicable. With that, Jonathan, can we take the first question please?
Operator: Certainly, and our first question for today comes from the line of Ross Seymore from Deutsche Bank. Your question please.
Ross Seymore : Hi guys, thanks for letting me ask a question. I guess the first one would be for MJ. You talked about no quick fixes, but a lot of things to improve the road map. Specifically on the DCAI side of things. Can you talk about how much you think Granite is closing the gap. It sounds like Clearwater Forest is not mentioned nearly as much as far as a 2025 event neither from a launch or from a revenue perspective. So if there is any updates on that? And then just overall, what it's going to take? And when do you think we will be able to externally see that gap close versus competitors? |
3,304 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Michelle Johnston Holthaus : Sure. Thanks for the question, Ross. I look at it this way. So when I talk about no quick fixes, I think it's going to be one years to two years of consistent execution and continuing to see better products each year, really to bring our customers back to the table and be excited about Intel's road map. Granite Rapids is a good first step in doing that. It does close the gap. Our customers are excited about it, and we are starting to see the competitiveness of that product, materialize in volume. But I'm also very clear about where we stand. And so we've just got to see that continued throughout '26 when we get to Diamond Rapids, et cetera. So you also asked me about Clearwater Forest. So I really look at the data center market in kind of two buckets. We have our P-core products, which you know is Granite Rapids and then we have our E-core products which equates to Clearwater Forest. And what we've seen is that's more of a niche market, and we haven't seen volume materialize there, as fast as we expected. But as we look at Clearwater Forest, we expect that to come to market in the first half of 2026. 18A is doing just fine on its performance and yield for Granite Rapids, but it does have some complicated packaging expectations that move it to 2026. But we expect that to be a good product and continue to close the gap as well. But this is going to be a journey. It's not a destination. Ross,
John Pitzer : Ross, do you have a follow-up question?
Ross Seymore : Yes, switching over to Dave on the profitability side. Can you just walk us through some of the puts and takes on the gross margin sequentially in the first quarter? Obviously, revenues are down, but anything else? And then you mentioned that it would be the low point of the year gross margin in the first quarter. But what would be the headwinds and tailwinds as you think through 2025 as a whole on that metric? Thank you. |
3,305 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : Yes. Thanks, Ross. Okay. So for the first quarter, the biggest obvious contributor to gross margins sequentially is the revenue decline. At the midpoint, we are declining a little over $2 billion. And so that obviously on a mostly fixed cost business, that does affect it. We also did have a couple of bluebirds in Q4. One was the revenue beat, and so that actually elevated the revenue a bit. But the other was when we signed the CHIPS agreement, we were able to take some of the grant and accrue it, as kind of a benefit to cost of sales because it offset period expenses we had spent before. So we weren't sure we were going to sign it in the fourth quarter, which is why I didn't guide that in the guidance from last quarter, but obviously materializing that pushed the gross margins up for the fourth quarter. In the first quarter, I think what -- and we've kind of telegraphed this now for several quarters. Intel Products gross margins are going to be under pressure this year. Some of the parts have a higher cost, in particular Lunar Lake has a higher cost, as you know, because it is got the memory and package. And so we are basically buying that memory and turning around and selling it at the same price. So that's really weighing the margins down on Lunar Lake. So margins for products are going to be under pressure pretty much throughout this year. Then as Panther Lake comes in volume next year, more materially and in addition, the products beyond that, we will start to see some improvement in margins on Intel products. Now that was always to be offset in a lot of ways by the margins of Intel Foundry. We see more of a mix of EUV wafers. They have better pricing with a better cost. And so we will see a mix improvement throughout the year. We are also reducing our spending there in period expenses as part of our kind of overall $10 billion plus cost spending reduction. But it doesn't really show up in the first quarter. It's not until we get into the second and third quarter that we start to see that |
3,306 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | doesn't really show up in the first quarter. It's not until we get into the second and third quarter that we start to see that improvement show up. So those are really the bigger drivers of margins on the first quarter. It is a low point, as we talked about. The benefits are going to be really around margins improving on Intel Foundry. As the mix of EU wafers increases throughout the year, in particular, as we get Panther Lake in there in the back half of the year, and we are selling 18A wafers at a higher margin. And then next year, we have Panther Lake with more volume and all those wafers start to come back, and that becomes a really big benefit to Intel overall. |
3,307 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Thank you, Ross. Jonathan, can we have the next question, please?
Operator: And our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question please.
Stacy Rasgon : Hi guys. Thanks for taking my question. First question just on the segment guide for next quarter. Why are all three product segments down equally when it sounds like you've gotten more headwinds just on the surface of PC's inventory digestion and maybe the roll-off of some of that tariff pull forward. What's going on in the data center and the NEX businesses that makes them as bad as a client into Q1?
David Zinsner : Well, broadly across all markets, and we didn't necessarily telegraph every market in terms of where we think. But I'd say broadly, we are a little bit cautious on the macro and that affects all markets. In addition, seasonality does play in most of the markets, and that does impact the first quarter as well. So I’d say, a combination of just macro uncertainty combined with kind of typical seasonality across all the businesses.
John Pitzer : Stacy, do you have a follow-up question?
Stacy Rasgon: Yes, I do. Thank you. So you also talked about increased competitiveness weighing on margins at least into Q1. So again, I presume that's a question on pricing. I guess is that right? Do you expect that to persist through the year? And how do you think about that competitiveness, potentially weighing on pricing across client and especially in the data center?
David Zinsner: Yes, okay. So our -- the co-CEOs are trying to figure out who should answer Okay, go ahead, Michelle. I think whoever wants to take it. |
3,308 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Michelle Johnston Holthaus : Yeah. The way I look at that is we do have increased competition as we see new market entrants particularly come in to CCG. We've got a very good product in Lunar Lake there, but as Dave talked about, the margins on that product are more pressured based on the cost of the product. But we are going to stem the market segment share decline in client, and we're going to go after winning every socket. That mirrors itself when you think about the data center market as well. As I said, Granite Rapids is a very positive step in a competitive direction, but we have to stem the tide of share loss in data center. And so we will be fighting for every socket in that business. And the way I look at it is we need to be aggressive. We need to win share, and we need to show our customers that they can win with us.
John Pitzer: Thank you, Stacy. Jonathan, can we have the next question please?
Operator: Certainly. And our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Your question please.
C.J. Muse: Yeah, good afternoon. Thank you for taking the question. I guess first question under your new co-leadership. I would be curious to hear how your strategy has potentially evolved specifically for IFS. |
3,309 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : I mean I think -- and we've talked about this over the last couple of quarters. For one, we are not looking to spend ahead of success. And so you saw our CapEx guide come down from the [$20 billon to $23 billion] (ph) range down to [$20 billion] (ph), that's in support of that strategy. We want to absolutely wow the customers. But to do that, we've got to be very careful around what we're promising them as well. So I think what you'll see a lot of is a little bit more conservatism around how we deploy capital, how we engage with customers. We want to be doing more than what we promised to every turn -- to every stakeholder, including investors, including customers, including suppliers, so what have you. That's pretty much the strategy. The main goal of building a world-class foundry, that is still in place. We feel that there absolutely is a need for another player in the leading-edge semiconductor manufacturing space. In particular, in the U.S., it aligns with the government -- the U.S. government's interest as well. So we are absolutely committed to that. It's now about being very cautious and careful around generating the best ROIC for the shareholders.
John Pitzer : C.J., do you have a follow-up question?
C.J. Muse: I do. Thanks. I guess, Dave, another question for you. I believe that three months ago, the stated goal for 2025 was to be free cash flow positive, I guess given kind of the weakness we are seeing in Q1 and uncertainty, can you kind of walk through how you are thinking about the path to turning free cash flow positive? |
3,310 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : Yes. So we are not obviously guiding beyond the first quarter. But I would just say, we did a very good job in a challenging situation in '24 around cash flow from operations by driving strong working capital improvements, and we adjusted CapEx accordingly, and that helped stem the tide. So while we were negative in '24, we were closer to zero than we should have been based on the top-line results. I'd say it is more about the same in '25. We're going to be acutely focused on cash flow from operations, really managing working capital effectively. We adjusted the CapEx down, as I talked about in relationship to a different outlook. We do expect some pretty significant offsets as well more than $10 billion of offsets, which will also help. I won't throw out a number yet for adjusted free cash flow for the year, but I would just say that it is a focus that -- where we want to improve. I would say in addition to that, we have these non-core businesses, and we see opportunity to monetize there. That will help us delever because that's a focus of us -- focus of ours in 2025. We are far along on the process of Altera. I suspect that by the time we get to earnings next quarter, we will have something to say there that will help generate some cash that we can use to delever.
John Pitzer: Thanks C.J. Jonathan, can we have the next question please?
Operator: Certainly. And our next question comes from the line of Joe Moore from Morgan Stanley. Your question please.
Joseph Moore : Great. Thank you. In the prepared remarks, you made reference to the sort of tempering of expectations of Falcon Shores. Can you talk about what was behind that? And kind of what does it take for you to get competitive in that space? |
3,311 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Michelle Johnston Holthaus : Yes, of course, I can, Joe. I think it really comes down to taking the time over the last six weeks to actively engage with the teams, look at our road maps, look at where we are from a competitive perspective and from an execution perspective, and that really resulted in that decision. A lot of conversations with my customers, as well in regards to what they see is needed to be competitive and to deliver the right product. And so when I looked at that, obviously, we have our Gaudi product, we are learning a lot from that. But one of the things that we've learned from Gaudi is it's not enough to just deliver the silicon. We need to be able to deliver a complete rack scale solution, and that's what we are going to be able to do with Falcon -- excuse me, with Jaguar Shores. Falcon Shores will help us in that process of working on the system, networking memory all the component functions of that, but what customers really want is that full sale rack solution. And so we are able to get to that with Jaguar Shores. I think we've also seen a lot this week with DeepSeek and a lot of the excitement around not one-size fits all. And so I'm also trying to look at the road map to say there is a lot of IP and assets that we have at Intel Product co that we can leverage to address this market. We've got great CPUs, GPUs, ASICs, FPGAs, and we need to figure out how we harness those because if we've seen anything this week, when there are constraints put on customers, they figure out different ways to deploy technology. And so that's also a great opportunity and something that I'm looking at and looking at if there is ways that we can be disrupted there.
John Pitzer : Joe, do you have a follow-up question? |
3,312 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | John Pitzer : Joe, do you have a follow-up question?
Joseph Moore : I do. And thank you for your candor about all of that. I think separately, you mentioned in his prepared remarks about potentially seeing tariffs driving some pull forward. Can you just talk about how pervasive that might be? Is that conservatism that, that might be happening? Are you seeing evidence that's happening? Just some color on where that's coming from.
David Zinsner : Yes. I mean, we obviously have a fairly good sense of what customers need from quarter-to-quarter. And in a couple of instances, customers ordered more than we think they were digesting. And so it was really just the analytics that gave us insight into – they are doing that for a reason, and we know tariffs are big subject of a lot of our customers. It was in the region you might expect in the Asian region that we saw this. It is hard for me to extrapolate this beyond this quarter. A lot not known yet around what might be the plans on tariffs. I just thought it was a little bit of hedging going on by customers that pulled revenue into the fourth quarter and away from the first quarter.
John Pitzer: Thank you, Joe. Jonathan, can we have the next question, please?
Operator: And our next question comes from the line of Timothy Arcuri from UBS. Your question please.
Timothy Arcuri : Thanks a lot. Dave, I also wanted to ask about gross margin. I think the message you were saying is that it's kind of 60% incremental, and that was kind of off of the [39.5%] (ph) that you guided for Q4, but obviously, you came in, you had these one-timers and now we're down to March. So can you just sort of level set us for kind of how to think of the incrementals from here?
David Zinsner : Incrementals from Q -- in other words, into [Q2, Q3 and Q4] (ph). Is that what you're saying?
Timothy Arcuri : Yes. Yes. Just kind of like is it off of [39.5%] (ph), is about [ 36.5%] (ph). |
3,313 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Timothy Arcuri : Yes. Yes. Just kind of like is it off of [39.5%] (ph), is about [ 36.5%] (ph).
David Zinsner : Yes. The rule of thumb has generally been 60% in this period of what I call catch up. Obviously, we think we can do better fall-through, as we get more stabilized. The one dynamic in '25 is this kind of margin pressure around product like Lunar Lake. That probably pulls the range down to probably something more like in the 40% to 60% fall-through is probably the right way to think about it just for that dynamic. Now we get into '26 and you start to see a lot more 18A volume through Panther Lake, I think we are in the 60%-plus range at that level.
John Pitzer : Tim, do you have a follow-up question?
Timothy Arcuri : I do. Yes, Dave, also, so you took the CapEx to the low end, but there's $1.2 billion outflow that's in the financing section of the cash flow statement. What is that? I guess I'm trying to figure out just on an apples-to-apples basis, is like CapEx really coming down this year? And is that a line item in the financing section, is that going to keep getting bigger this year? Thanks. |
3,314 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : Yes. No -- let's see, let me go back on the CapEx. If you look at CapEx for '25, the $20 billion forecast, what's driving that lower is really a function of better utilizing assets under construction. So our philosophy has been to invest kind of ahead of what was required, and we built up a pretty significant balance in assets under construction, I mean, to the tune of greater than $50 billion. So we actually have a lot of capital on the balance sheet that really hasn't been deployed. And so what we pushed the teams to do in an effort to drive better ROA and return on invested capital is to have them digest as much as that as possible and limit the amount of purchases that we make externally. And that's going to allow us to get down to the $20 billion range. I would be – we are not doing any funky financing around this, but I would be in the spirit of transparency, say that CapEx is two things, right? It's what you place in terms of orders on equipment, and it's when you give them the cash. And so for sure, we are working the payment terms of suppliers to improve our -- to improve our CapEx, lower our CapEx, that is pushing spend out even as we are getting the assets in. But quite honestly, by the time we've actually deployed it and it's depreciating, we've actually, in all cases, I think, spent the money because it goes on to assets under construction and probably hangs in there for like nine months before it's ever deployed.
John Pitzer: Thank you, Tim. Jonathan, do we have the next question?
Operator: Certainly. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your question please. |
3,315 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your question please.
Vivek Arya : Thanks for taking my question. First kind of related questions are on the data center server CPU market. M.J. I'm curious, when you look at Intel versus your x86 competitor, do you think these share gains are because of better design or access to better manufacturing? And so what can be fixed and what will take time to fix or if you were to outsource more, right to external foundry does that help you regain share, and I imagine that applies more to cloud. And then on the enterprise side, have you seen any share shifts at all over the last few years? |
3,316 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Michelle Johnston Holthaus : Thanks, Vivek. Well, as you look at data center and the competitiveness, as I said and stated earlier, Granite Rapids did a good job of making a good first step in closing the gap versus competition, but we still have a gap. And so we've got to be laser focused next on delivering Diamond Rapids. And the feedback for both of those products early is very positive. When it comes to external manufacturing, I've been pretty transparent about this in the way I think about it in my philosophy. The way I look at it is you have to have the right product at the right process and you have to deliver that within the right market window. If you look at Intel's overall today, we do about 30% of our manufacturing externally across a variety of partners. That's probably the high for where we are today, but it will never be 0%. What I can tell you is 18A is going well. They earn my business, obviously both for Panther Lake and for Clearwater Forest. But as I think about being more competitive in data center moving forward and I look at future designs, I will ask myself that question every time, as we look at the road map. So I think it would not be unfathomable that I would put a data center product outside. If that meant that I hit the right product, the right market window, as well as the right performance for my customers.
John Pitzer : Vivek, Do you have a follow-up question? |
3,317 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | John Pitzer : Vivek, Do you have a follow-up question?
Vivek Arya : Yes. Thank you, John. So maybe one for Dave on this non-controlling interest. I think David said $500 million to $700 million for this year, so a little bit lower than I think the $700 million you had before. But then it starts to grow to $1.2 billion or $1.4 billion. Is this always going to keep on increasing, right? Like what is the right way for us to model it because the less you outsource -- I guess the more you insource, the more you give to Intel Foundry, the more reversals, right, you have to do on this NCI part, I would imagine. So is it a reasonable way to model how much of a headwind this is to your reported EPS?
David Zinsner : Yes, it is a good question. I mean, just to break it all out, it is more than just the SCIPs. SCIP 1 and 2, are obviously in there, but also Mobileye shows up in noncontrolling interest. And as we sell down stakes in companies like Mobileye and Altera, it actually exacerbates that NCI. So Altera doesn't have any NCI, but as soon as we sell a stake, it is going to have NCI. So there are a number of things that go into it, which makes it a little bit difficult to forecast because you have to kind of know -- you have to know two things with certainty, one, exactly what share of every asset you have? And two, what your production is going to look like in the fabs that you have these SCIPs. So what we felt comfortable was, was guiding '25 and giving you an indication for '26, it's likely to go up in '27. But I think it is probably too soon to actually identify what the exact number will look like.
John Pitzer: Thanks Vivek. Jonathan, can we have the next question please?
Operator: Certainly. Our next question comes from the line of Ben Reitzes from Melius. Your question please. |
3,318 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. Our next question comes from the line of Ben Reitzes from Melius. Your question please.
Ben Reitzes : Hi guys. Thanks a lot for the question. Dave and MJ, I wanted to -- I know in your prepared remarks, you said you look forward to working with the Trump administration. I was wondering if you could just give a little more detail about your initial talks with them. Have they reached out? And who's like leading the discussions from your side? And any color on what you're exactly talking about and what they're particularly interested in? I mean Howard Lutnick, obviously, it sounds like this is very near and dear to him during his confirmation hearings and would love to just kind of get a little bit more color on where you -- what you have done so far and where you think it's going? And then I'll have a follow-up. Thanks so much guys. |
3,319 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : Yes. Okay. Thanks, Ben. Maybe I'll take that as the co-CEO. yes, we have good engagement with them. We've really been engaged since the election, with the team at various levels, obviously, at the CEO level, but also we have a strong government affairs team that engages with them every day. I feel really good about their outlook on bringing semiconductor manufacturing back to the U.S. I think this is a very positive sign, obviously, for us. Quite honestly, we never left the U.S. So we are in a kind of the pull position in that regard. And I think they understand the value of doing R&D in the U.S. for advanced semiconductor manufacturing, which also is positive. They want to see more jobs coming back to the U.S. We pay high wage, high tech jobs. So that's obviously positive for them. But more importantly, this is about security, both in terms of just the supply chain but also in kind of secure manufacturing for the Department of Defense, which we are obviously in a position to do for them. I imagine that as we progress, we will be more engaged with them to make this a reality. And both Michelle and I will be meeting fairly regularly with the Trump administration officials to go make their goals or reality for the U.S.
John Pitzer : Ben, you said you had a follow-up? |
3,320 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | John Pitzer : Ben, you said you had a follow-up?
Ben Reitzes : Yeah, thanks. I wanted to double-click on a prior question on gross margins and ask it a little bit more in caveman terms rather than incremental. You talked about 1Q being the bottom. I'm trying to figure out how high it goes sequentially, as we go throughout the year, given -- it sounds like you're going to be a lot more price aggressive in server CPUs and client CPUs from what I heard. So in addition to -- I'm trying to balance that with the thought of outsourcing more to TSMC for the year, et cetera. So if that's the low point. I guess what I'm trying to say, can you be more prescriptive in light of that pricing comment I made and if it's right, then just give us a little more color on where we go from the 1Q, that would be great. Thank you. |
3,321 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : Yes, I mean, we tend to be competitive in the product space. And also, as I mentioned, the cost structure is under some pressure, in particular because of Lunar Lake. So that absolutely will impact the gross margins on products. There won't be a lot of lift in that business unit through the year. And it is really not until Panther Lake comes that they, I think, start to see some better cost structure and have a part that's very competitive that I think allows us to perhaps even relax some of that pressure in a competitive market. That said, the Foundry business will see improvements. Over the course of the year, more wafers will be coming back. With Panther Lake, it becomes even better in the following year. We are improving the cost structure of the foundry business as part of our overall spending reduction plan. So that will also help. And then just keep in mind, these wafers that we are producing at Intel and 18A have much better cost structure and margin structure relative, I should say, relative to the price structure than their predecessors and that will be beneficial on the Foundry side. So in the caveman macro sense, I think the best thing to do is probably take this like somewhere in the 40% to 60% fall-through and that's probably the right rough order math to get you to where the margins will go in any quarter based on what you're projecting the revenue to be in that quarter.
John Pitzer: Thanks Ben. Jonathan, can we have the next question please?
Operator: Certainly. Our next question comes from the line of Aaron Rakers from Wells Fargo. Your question please. |
3,322 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. Our next question comes from the line of Aaron Rakers from Wells Fargo. Your question please.
Aaron Rakers : Yeah. Thanks for taking the question. I want to build off of that last question a little bit. During the prepared remarks, you had mentioned 1% in 2023 with EUV wafer mix and that progressed to north of 5% this year. Can you give us a framework of how you would define success looking through 2025, maybe exiting the year as far as EUV wafer mix? And remind us again what the delta is in terms of cost structure, the margin dynamics of an EUV wafer.
David Zinsner : Yes. Well, I'll say on the second part, maybe I'll answer that one first. I would say the price on those wafers goes up at 3 times the cost of those -- sorry, maybe said -- the blended ASP and cost goes up 3 times, as you go to 18A versus the cost. So it's a pretty dramatic improvement in gross margins as you move into 18A versus pre-EUV wafers. Probably, it would be tough for me to hazard a guess on exactly how we'll exit the year in terms of our percentage of EUV. It's definitely going to go up. Granite is on Intel3, Panther Lake is on -- Meteor Lake is on Intel3 or 4 – called the 4 three way node; panther Lake is on 18A this year. So we'll see a pretty meaningful jump in the percentage of wafers that will be EUV, as we exit '25.
Ross Seymore : Aaron, do we have a follow-up question?
Aaron Rakers : I do, and it's probably a dumb question, but I'm just going to ask it because I'm just a little confused that the SCIP impact, this $500 million to $700 million going to $1.2 billion. Just remind us again, though we are all clear that when you report EPS on a non-GAAP basis, that's in that EPS number, just so we -- I'm modeling it correctly. I'm sure my peers are already, but I want to make sure I've got that all clear in my head. |
3,323 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : I just want to be clear. It's not just SCIP. I mean that includes the Mobileye income and will include the Altera income to some extent. But yes, all of that in the NCI, we do take it against our non-GAAP number to get our fully diluted non-GAAP EPS number.
John Pitzer : Thank you. Jonathan, we have time for one more question.
Operator: Certainly. And our final question for today comes from the line of Srini Pajjuri from Raymond James. Your question please.
Srini Pajjuri : Thank you. Thanks for squeezing me in. Dave, on the foundry breakeven, I guess target for 2027. Maybe can you talk about what are the assumptions behind that? I mean do you think you can get there with mostly internal wafers? Or do you need external customers as well? If so, what sort of revenue do we need from external customers to, I guess, achieve that breakeven? |
3,324 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : Yes. So we are still aiming to get to breakeven in 2017, as you pointed out. It is really on the back of internal wafers or wafers from Intel products, I should say. And it's obviously, a lot based on EUV wafers, which carry a better margin. And as that mix improves, that significantly improves the margins. But more importantly, I think the original premise by creating this different P&L structure was to drive the foundry business really at that point was just a function of manufacturing to be more focused on efficiency, to squeeze out more from the existing footprint, to be more sensitive to capital and ultimately, just think about ROIC in everything they do, and I think that has worked actually. I mean I hear it all the time, it is amazing the transformation we've seen in staff meetings and Michelle and I that attend that, they are completely pivoted to how to make money in that business. And so I think it is working. I think we'll see significantly more efficiency as we go into work through '25 and into '26. So I feel good about our ability to get to breakeven. Obviously, we want to have external customers. And so we have some very small amount that we've assumed for '27. But if 18A looks like it's something that hunts based on feedback from customers. And I feel like we will probably outperform in that regard in terms of the mix of external customers versus internal customers. So those are all the factors that I think will drive '27 to profitability. And ultimately, obviously, we want to get to push -- to breakeven and ultimately we want to get the business to a profitable level that's consistent with what the Foundry industry gets.
John Pitzer : Srini, do you have a quick follow-on? |
3,325 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | John Pitzer : Srini, do you have a quick follow-on?
Srini Pajjuri : Yes. A quick one. So on the 18A Panther Lake, I think in the past, I think, Dave the comment was that you expect to bring roughly 70% of the die in-house. Is that still the plan? And then is it pretty set in stone that you are bringing it back for sure? Or do you have any flexibility whether to bring back more of the die or less of the die if you need to. So just trying to understand.
David Zinsner : I'm going to let Michelle answer that because it really is her decision on how she builds her products.
Michelle Johnston Holthaus : Yes. So we did move Panther Lake inside of 18A design win. But as I stated before, we look at each generation of products based on what's the right product, what's the right process, what's the right market window and what allows our customers to win. So for Panther Lake, that was 18A. And as I said, we are very happy with where we are from a performance and yield perspective at this point in the process. So that will stay on 18A. Then as you look forward, to our next-generation product for client after that, Nova Lake will actually have die both inside and outside for that process. So you'll actually see compute tiles inside and outside. Again, it's about optimizing to what allows us to win in the market, what allows us to win with our customers and optimizing the overall product portfolio because at the end of the day, if our customers are successful, we win, that drives more wafers and Intel Foundry and that allows us to win. But I'll continue to have a balance. And as I said, we will be doing the same look across our data center portfolio as well. |
3,326 | INTC | 4 | 2,024 | 2025-01-30 17:00:00 | Intel Corporation | 21,127 | David Zinsner : Great. Thanks, Michelle. So with that, let me wrap up by saying thank you, as always for joining the call. MJ and I appreciate the opportunity to discuss our progress and the actions we've taken. Q4 was a good step forward, obviously but we have a lot of hard work ahead of us, and we are looking forward to updating you as we go along. We hope to see many of you in person at the investors conferences we'll be attending in Q1. And I would also like to highlight that the Intel Foundry team will be hosting their second annual Direct Connect User event on April 29 in San Jose, and we hope many of you will join that in person. So thank you, and good night.
Michelle Johnston Holthaus : Thank you.
Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. |
3,327 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Operator: Thank you for standing by and welcome to Intel Corporation's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. John Pitzer, Corporate Vice President, Investor Relations. Please go ahead, sir.
John Pitzer: Thank you, Jonathan. By now you should have received a copy of the Q3 earnings release and earnings presentation, both of which are available on our Investor Relations website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I am joined today by our CEO, Pat Gelsinger; and our CFO, David Zinsner. In a moment, we will hear brief comments from both followed by a Q&A session. Before we begin, please note that today's discussion does contains forward-looking statements based on the environment as we currently see it and as such are subject to various risks and uncertainties. It also contains reference to non-GAAP and segment financial measures that we believe provide useful information to our investors. Our earnings release, most recent Annual Report on Form 10-K and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP and segment financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures. With that let me turn things over to Pat. |
3,328 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Thank you, John, and good afternoon, everyone. I appreciate you joining us today. We delivered Q3 revenue above the midpoint of our guidance and we made significant progress on our cost reduction plan. That said, Q3 profitability was negatively impacted by the charges we referenced on our Q2 call. This reflects the aggressive actions we are taking to lower our cost, improve our efficiency, and enhance our market competitiveness. Dave will go into these charges in detail shortly. Operationally, Q3 results exceeded our expectations as we achieved key milestones across Intel Foundry and Intel Products. Underlying trends in the business are improving at a measured pace, and our outlook for Q4 is modestly above current consensus. Overall, our stepped up focus on efficiency and execution across business is having a positive impact. We have a lot more ahead and we are acting with urgency to deliver on our priorities. We need to fight for every inch and execute better than ever before and our teams are embracing this mindset as we build a leaner, more profitable Intel. Now, let me provide more details starting with an update on our cost reduction plan that we announced three months ago. First, we completed the vast majority of our headcount actions during Q3 and we are on track to our greater than 15% workforce reduction before the end of the year. These were hard but necessary changes that are reducing complexity and making us a leaner, faster and more agile company. Second, we have reduced our capital expenditures by over 20% relative to the plan we had entering the year. We are now well positioned with our shell ahead strategy to react quickly to market demand. With our transition to EUV now complete and the launch of Intel 18A on the horizon, we have a more normal cadence of node development at Intel 14A and beyond. In addition, our teams are maniacally focused on improving fab productivity, allowing us to produce more with less over time. Third, we have begun to simplify and streamline parts of |
3,329 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | fab productivity, allowing us to produce more with less over time. Third, we have begun to simplify and streamline parts of our portfolio to unlock efficiencies and create value. We are re-establishing product portfolio leadership by narrowing our focus on fewer projects with the top priority being to maximize the value of our x86 franchise across the client, edge and data center markets. As part of our portfolio simplification, we will move our Edge business into CCG and refocus our NEX portfolio on networking and telco. We will also integrate our software business into our core business units to foster more integrated solutions that address our customers' most difficult challenges. We are evaluating other portfolio actions which we will communicate when appropriate and we plan to provide new segment reporting that reflects these portfolio shifts in Q1 of 2025. Related to our cost and efficiency actions, the restructuring charges we took in Q3 were significant and necessary to right-size the company as we reduced spending by over $10 billion in 2025. There was also a sizable impairment mostly related to Intel 7 equipment and space reflecting excess COVID era spending that we have concluded cannot migrate to more advanced nodes now that we have fully transitioned to EUV processing. From a broader financial perspective, the actions we took in Q3 go a long way towards delivering the 2025 financial commitments we outlined last quarter. Specifically, we plan to reduce non-product cost of sales by $1 billion lower OpEx to $17.5 billion and drive gross and net CapEx to between $20 billion to $23 billion and $12 billion to $14 billion respectively. We expect adjusted free cash flow to be positive next year and we will focus on decreasing leverage and improving liquidity. Let me go into greater detail on the business starting with Intel Products. We continue to focus on our core x86 franchise and the ecosystems we have developed over 40 plus years of investing. They are a tangible source of value and differentiation for |
3,330 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | the ecosystems we have developed over 40 plus years of investing. They are a tangible source of value and differentiation for Intel, our partners and our collective customers, and help to cement the x86 architecture as uniquely positioned to meet customer demands going forward. We are taking steps to supercharge and further unlock the value of our x86 franchise. We intend to drive new levels of customization, compatibility and scalability needed to meet current and future demands of next-generation computing and we see this unlocking a range of meaningful opportunities across all our businesses. I am particularly excited about our recent announcement with AMD to create the x86 Ecosystem Advisory Group. We are bringing together leaders from across the ecosystem to help shape the future of x86 with a focus on simplifying software development, ensuring interoperability and interface consistency across vendors and equipment developers with standardized architectural tools and guidelines. Broadcom, Dell, Google, HPE, HP Inc., Lenovo, Meta, Microsoft, Oracle, Red Hat have signed on as founding members as have industry luminaries, Linus Torvalds and Tim Sweeney. Turning to our product segments, in CCG, we continue to lead the AI PC category. In September at IFA, we launched our Intel Core Ultra 200V series processors formerly named Lunar Lake. This is the most efficient family of x86 processors ever created, setting a new standard for mobile AI performance and significantly out performing competitor platforms. Lunar Lake's combination of superior performance at comparable and competitive battery life positions us well to continue to define and lead the AI PC category. We also continue to nurture the most robust AI PC ecosystem in the industry with more than 100 ISVs, 300 applications and 500 AI models powered by Core Ultra and we remain on track to ship more than a 100 million AI PCs accumulative by the end of 2025. Next up is Arrow Lake, which launched earlier this month and brings the power of the AI PC to the |
3,331 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | by the end of 2025. Next up is Arrow Lake, which launched earlier this month and brings the power of the AI PC to the desktop, delivering a huge leap in performance per watt and bringing an NPU to enthusiast desktop and entry workstation platforms for the first time. All of this is paving the way toward the launch of Panther Lake in the second half of 2025. Panther Lake will be our first client CPU on Intel 18A, a more performant and cost competitive process that will allow us to bring more wafers home and improve overall profitability. Overall, we are making good progress in CCG. Our share position is strong with a product roadmap and ecosystem that is increasingly setting us apart from our competition, especially in the enterprise market as customers continue to see increasing value from our vPro solutions. Turning to DCAI, our focus is squarely on delivering powerful AI systems that provide enterprise customers with greater choice and flexibility, optimal performance per watt, and lower total cost of ownership and this quarter's launches significantly enhance our market competitiveness even as we recognize we have more work to do. We launched our latest Xeon 6 product code-named Granite Rapids, which doubles the performance of the prior gen with increased core counts, memory bandwidth and embedded AI acceleration. The new Xeon 6 is tailor-made to handle compute intensive workloads with exceptional efficiency from edge to data center and cloud environments. This solidifies our position as the head node of choice in AI servers. Greater than 70% of [Technical Difficulty] servers are already using Intel Xeon as the host CPU and we have a significant opportunity to build on this as we continue re-establishing Xeon's competitive strength and market leadership. This quarter, we also launched our Gaudi 3 AI accelerator, which delivers twice the networking bandwidth and 1.5x the memory bandwidth of its predecessor for large language model efficiency. While the Gaudi 3 benchmarks have been impressive and we are pleased |
3,332 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | of its predecessor for large language model efficiency. While the Gaudi 3 benchmarks have been impressive and we are pleased by our recent collaboration with IBM to deploy Gaudi 3 as a service on IBM Cloud. The overall uptake of Gaudi has been slower than we anticipated as adoption rates were impacted by the product transition from Gaudi 2 to Gaudi 3 and software ease of use. As a result, we will not achieve our target of 500 million in revenue for Gaudi in 2024. That said, taking a longer term view, we remain encouraged by the market available to us. There is clear need for solutions with superior TCO based on open standards and we are continuing to enhance the Gaudi value proposition. In NEX, we announced last month that we will be focusing the business on networking and telco as part of our efforts to simplify our portfolio, drive productivity, and enhance our market position. We will move our Edge business into CCG, which creates a meaningful opportunity to more efficiently leverage our core client business and extend our leadership to a wide range of vertical edge solutions, especially as AI on the edge accelerates. As a simpler, more focused NEX, we are better positioned to gain profitable share in the most attractive markets. In Networking, we continue to further Open Source Ethernet solutions for connectivity through our Ultra Accelerator Link and Ultra Ethernet Consortium. Let me now turn to Intel Foundry. A key part of our strategy is returning to process leadership through disciplined execution of our roadmap. Intel 18A, our fifth node in four years is healthy and continues to progress well at this stage in the development process. Our lead vehicles for Intel 18A, Panther Lake, and Clearwater Forest have met early 18A milestones ahead of next year's launches. In addition, we have seen good traction with the release of our 1.0 PDK last quarter and the material increase in the engagements and the number of RFQs we are actively quoting. While we will not win them all, we are confident in our head-to-head |
3,333 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | and the number of RFQs we are actively quoting. While we will not win them all, we are confident in our head-to-head position based on feedback from potential customers. Most recently, as announced, we are finalizing a multiyear, multibillion dollar commitment by AWS to expand our existing partnership to include a new custom Xeon 6 chip on Intel 3 and the new AI fabric chip on Intel 18A. Beyond AWS, we added two additional 18A wafer design wins this quarter from compute centric companies and our pipeline of potential wafer designs has grown nicely over the quarter. Given our leadership and advanced packaging capabilities, we also added multiple backend design wins this quarter. We were also awarded an additional 3 billion in direct funding under the Secure Enclave program to produce leading-edge semiconductors for the US government. We are proud to be the US government's Partner of Choice to fortify the domestic semiconductor supply chain and ensure the US maintains its leadership in advanced manufacturing microelectronic systems and process technology. Moving forward, as we shared last month, we are creating clearer separation for Intel Foundry by establishing the business as an independent subsidiary. This is important to our external foundry customers and will give us future flexibility to evaluate independent sources of funding and optimize the capital structure of Intel Foundry and Intel Products. We are in the process of forming a fiduciary board for the new foundry subsidiary, which will include independent directors with deep semiconductor experience. In our all other category, our number one priority is to unlock shareholder value. For Altera, revenue increased 14% sequentially and operating profit turned positive in Q3. We also announced the introduction of our new mid-range and small form factor products, Agilex 5 and Agilex 3 to serve broad market customers and segments. With an increasingly competitive roadmap, the business is well-positioned to show continued top and bottom line improvements. |
3,334 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | With an increasingly competitive roadmap, the business is well-positioned to show continued top and bottom line improvements. Consistent with what we have said previously, we remain focused on selling a stake in Altera on a path to its IPO in the coming years. To that end, we have begun discussions with potential investors and expect to conclude in early 2025. For Mobileye, the company continues to be a leader in the development and deployment of advanced driver assistance systems and by providing Mobileye with separation and autonomy, we have enhanced its ability to capitalize on growth opportunities and accelerate its path to creating even greater value. The company recently hosted an AI event laying out a comprehensive strategy for camera-centric compound AI systems providing a full range of autonomous driving solutions. Wrapping up, our Q3 results reflect heightened focus, discipline and execution you can expect moving forward. We are rigorously managing our costs and improving our profitability to create long-term shareholder value. We are carefully managing our cash to strengthen our balance sheet and improve our liquidity and we are staying closely connected with customers and partners as we innovate to meet their most challenging needs. Q3 also reflected some very difficult decisions we made to right-size the business and I want to recognize the hard work of our employees. We put some points on the board over the past few months, but we are far from satisfied. We view every quarter as a new opportunity to up our game and continue to execute well and that is our mindset entering Q4. With that, I will now turn it over to Dave. |
3,335 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Thank you, Pat, and good afternoon, everyone. Third quarter revenue was $13.3 billion up 4% sequentially and in the upper half of the range we provided in August. Intel Products and Intel Foundry both delivered sequential revenue growth, even as we navigated an inventory drawdown in client. Turning to non-GAAP gross margin, as you know, last quarter, we guided gross margins of 38%, but indicated that we expected incremental costs associated with our spending reduction plan and some of those costs would likely impact non-GAAP gross margin. We recognized approximately $3 billion of non-cash impairment and accelerated depreciation charges, primarily for Intel 7, which are above and beyond our quarter-to-quarter asset adjustments, driving our non-GAAP gross margin down to 18% and EPS to a loss of $0.46. This $3 billion charge reduced non-GAAP gross margin by approximately 2,300 basis points and EPS by approximately $0.61 per share. Beyond those impairment charges, we also were impacted by $15.6 billion of charges that are excluded from our non-GAAP results. These charges have three main components. First, we impaired our deferred tax asset balance by nearly $10 billion which was triggered by cumulative GAAP based losses over the last three years. Second, a $2.6 billion goodwill impairment related to Mobileye, which shows up in our consolidated earnings. And lastly is $2.2 billion associated with the severance of approximately 15% of our employees, aligned with our plan to reduce operating expenses to $17.5 billion and take out $1 billion of other cost of sales next year. This last charge is the only charge with a cash impact. The tax asset impairment charge will not affect cash taxes going forward and full details are in the 10-Q, which will be available tomorrow. Q3 operating cash flow was $4.1 billion up approximately $1.8 billion sequentially on better working capital. We had growth CapEx of $6.5 billion in the quarter, resulting in adjusted free cash flow of negative $2.7 billion. We expect the |
3,336 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | had growth CapEx of $6.5 billion in the quarter, resulting in adjusted free cash flow of negative $2.7 billion. We expect the principal cash cost associated with the restructuring charges to land in Q4 2024. We have $24.1 billion of cash and short-term investments, paid down $2.8 billion of debt in the quarter and remain focused on delevering next year as cash from operations continues to improve. Moving to segment results, Intel Products revenue was $12.2 billion up 3% sequentially. CCG revenue was down 1% quarter-over-quarter as customers worked down their inventory as expected. DCAI revenue was up 10% sequentially, as demand for traditional servers improved. Revenue for NEX was up double-digit sequentially, as elements of this business start to recover off a cyclical bottom. Q3 operating profit for Intel Products was $3.3 billion, 27% of revenue and up $400 million quarter-over-quarter on higher revenue and reduced operating expenses. Operating income was negatively impacted by a $300 million write-down of accelerator inventory due to reduced revenue expectations. Intel Foundry delivered revenue of $4.4 billion up slightly sequentially, driven by increased wafer mix of Intel 4, 3. Foundry operating loss of $5.8 billion was down sequentially materially driven by the $3 billion impairment charges I discussed earlier. We expect losses to continue at approximately the same rate in Q4, minus this impairment charge. Next year, as we move to nodes with a better cost structure and realize the savings associated with the restructuring actions, we expect operating losses to improve significantly. Additionally, we are intensely focused on driving improved returns on our roughly $80 billion of tangible book value, most of which is associated with Intel Foundry. Mobileye reported revenue of $485 million and maintained full year guidance for revenue and adjusted operating income. Q3 revenue was down 8% year-over-year, primarily driven by a more than 50% reduction in shipments to China, where comparisons will become easier |
3,337 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | 8% year-over-year, primarily driven by a more than 50% reduction in shipments to China, where comparisons will become easier as the exposure is now significantly smaller. Cash generation was quite strong, as operating cash flow was well above operating income. Altera delivered revenue of $412 million up 14% sequentially, consistent with guidance to support improved lead times by our distribution partners. Operating margins increased sequentially by 900 basis points on better gross margins and spending discipline. For Q4, we expect high-single-digit sequential revenue growth, as we work with our distribution partners to prepare for the cutover to Altera independent warehouse operations. Overall, billings remain below consumption, as end customers continue to work down inventory tied to previous supply constraints. We anticipate inventory normalization will continue through the first half of next year. Now turning to our Q4 guidance. We successfully worked down client customer inventory levels in Q3, in line with our expectations and despite continued client customer inventory reductions in Q4, CCG should grow towards the higher end of seasonal, often abnormal Q3. Revenue is expected to be flat sequentially across DCAI and NEX businesses in aggregate. Based on these factors, we expect revenue of $13.3 million to $14.3 billion in the fourth quarter. At the midpoint of $13.8 billion, we expect gross margin of approximately 39.5% with a tax rate of 13% and EPS of $0.12, all on a non-GAAP basis. On a GAAP basis, as we continue to execute on our cost actions and portfolio decisions, we expect additional restructuring charges in Q4. We continue to size the business to support trend line revenue growth of 3% to 5% annually with the ability to scale up to 7% to 9% as demand dictates. We anticipate that our 2024 gross and net capital investments will be approximately $25 billion and $11 billion respectively. Our expectation is for adjusted free cash flow to be negative in 2024 due to the restructuring charges disclosed |
3,338 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | respectively. Our expectation is for adjusted free cash flow to be negative in 2024 due to the restructuring charges disclosed today and the uncertainty around the timing of capital offsets as we approach year-end. In 2025, with OpEx of approximately $17.5 billion and gross and net CapEx of $20 billion to $23 billion and $12 billion to $14 billion, respectively, we expect to achieve positive adjusted free cash flow. Before I close, let me take a moment to remind you of a couple of items as you model 2025 and that today's restructuring and impairment charges are in service to achieve this financial model. First, we are positive on the growing market adoption of the AI PC and our strong product positioning. As our mix of outsourced products and CCG grows in calendar year 2025 and we ramp Intel 18A to support Panther Lake, gross margin expansion could be muted, particularly in the second half. We expect gross margin fall-through to significantly improve in 2026 driven by the vastly improved cost structure of Intel 18A, the return of tiles to a meaningfully underutilized Intel Foundry and operational efficiencies. Second, the estimated $700 million on a GAAP basis of noncontrolled income from Mobileye, Altera, IMS and the portion of the SCIPs earned by our partners is expected to be heavily weighted to the second half of 2025 and will continue to grow in future years with the ramping of wafer outs at our SCIP fabs in Arizona and Ireland. In closing, our profitability remains well below the standards we've set and recognize there's much more work to be done to improve the efficiency of the business. We're encouraged by the progress we made this quarter to rightsize the spending, and our process and product execution, combined with a strong external customer traction in the quarter, give us confidence our strategy will deliver compelling shareholder returns. I'll now turn it back over to John to start the Q&A. |
3,339 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | A - John Pitzer: Thank you, Dave. We will now transition to the Q&A portion of our call. [Operator Instructions] With that, Jonathan, can we take the first question, please?
Operator: Certainly. And our first question for today comes from the line of Ross Seymore from Deutsche Bank. Your question, please.
Ross Seymore: Hi, guys. Thanks for letting me ask a question and congrats on solid results. Pat, I want to talk about the 18A transition. Can you just talk about what are the metrics we're going to be able to see externally on this to give people confidence and the ability to ramp it? You've said it's healthy. You've talked about new design wins. But when are some of the true metrics going to come either internally or perhaps even more importantly, externally as your Intel Foundry revenue from an external customer base grows?
Patrick Gelsinger: Yes. Thanks, Ross. And obviously this was a good quarter on the progress that we had, three new customers, Amazon, which we were public on a few weeks ago, Panther Lake and Clearwater Forest internally, two new external customers added to that. So solid progress on it. Clearly, next year, there's not a lot of financial benefit from it because we're only ramping late in the year. Thus, we'll be giving more qualitative metrics on progress as we go through the year, Ross. We'll continue to update, give LDV updates, lifetime deal value for foundry updates as we go through the year. Clearly, as we get more customers, we'll be updating on that progress. It has much larger impacts on '26 financials as we ramp and bring wafers home as well as move into the better margin structure that we'll have on Panther Lake with 18A and across the product line. So we'll be giving clarity in that way, but it will be hard to tie it to specific financials next year, but this is super important for us. For our foundry business, for the industry. So we'll be giving plenty of color as we proceed.
John Pitzer: Ross, do you have a follow-up question, please? |
3,340 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Ross, do you have a follow-up question, please?
Ross Seymore: Yes, I do. One for Dave on the gross margin side of things. Just somewhat chronologically, ex the charges, it looks like you're about a 41% gross margin in the second or excuse me the third quarter. I know that's not where you want to be overall, but that's much better than you guided. So what was the cause of the upside there? Why is it going down in the fourth quarter? And what are the big picture puts and takes that you're alluding to about the gross margin leverage or lack thereof, especially as we get into the second half of next year? |
3,341 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes. Good question. Okay. So I would say the third quarter surprise was really associated with better sell-through of previously reserved inventory. I think that was the thing that upsided us the most in the third quarter. As we look into the fourth quarter, we'll have that better sell-through won't repeat itself. So that will be a fundamental driver of why the gross margins kind of slipped down absent the impairment charge. And additionally, we're going to have more start-up costs in the fourth quarter associated with 18A than we did in the third quarter. So that's going to put a little pressure on the gross margins. But I do think the 39.5% guide at the midpoint for the fourth quarter is a pretty clean guide. It has less kind of noise around it than some of the previous quarters. So I think it's a good kind of metric to kind of start to inform how '25 will look in terms of gross margins. We're not going to provide guidance yet on '25. It's still early. I would say the puts and takes of it are, for sure, as Pat indicated, we're all in on AI PC and in particular, we're all in on Lunar Lake, which is our next-generation product. As you know, Lunar Lake has the memory in the package, that affects the gross margins, and I think it's going to weigh down the gross margins on the product side of the business for us in '25. Now as you know, Panther Lake is the next one, the margins get better just at the product level, but they also include more mix of wafers internally, which also helps the foundry business. So as we get more volume ramping in '26 and Panther Lake, that's going to be helpful for gross margins. On the Foundry side, we will see improvement next year. You won't see it because we don't report it at that level, but we will see gross margin improvement on the Foundry side as we step into '25, partly because of the reductions we talked about. As we talked about, we're going to reduce our spending by more than $10 billion, $1 billion of it is directly in cost of sales associated with the Intel |
3,342 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | going to reduce our spending by more than $10 billion, $1 billion of it is directly in cost of sales associated with the Intel Foundry business getting more efficient in terms of their spend. Additionally, we're just going to be mixing more to EUV wafers. EUV wafers have a better pricing dynamic, they have a better cost structure on a relative basis. So we see improvement there. And I've been pleased with just the new model of managing the Foundry business with a P&L. I've seen all kinds of better decision-making going on, both at Foundry and at the Product side just to optimize their cost structure in a better way, and that should help as well. Longer term, I just think as we continually improve our product portfolio, both in Foundry and Products, that usually commands a better margin profile and also longer term be a tailwind. But not yet, I think, something that shows up meaningfully in '25. |
3,343 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: And I would just add that, as we indicated on our last quarter's earnings call, as we go through this restructuring phase, we're in the next phase of our transformation. With that, we're much more focused on the sustainable business model results, shareholder return, financial disciplines. The first phase is very much about getting back in the game. Getting process in place, getting shell ahead in place, getting our products competitive. So I think overall, Ross, we're going to be much more focused on it. Those are the tough actions we've taken this quarter on getting our cost base where we need to be. And overall, the operating margin, the gross margins of the company, overall cost base, CapEx investment, they're just getting a lot more attention from us as we go forward.
Ross Seymore: Thank you.
John Pitzer: Thank you, Ross. Jonathan, can we have the next question, please?
Operator: Certainly. And our next question comes from the line of Timothy Arcuri from UBS. Your question, please.
Timothy Arcuri: Pat, I think you mentioned at a conference maybe in September that defect density on 18A is you said sub 0.4, I think. Can you just talk about how that translates to yields? Is that sort of a good enough number to translate into high volume? And what sort of number for, say, defect density does a customer want to see when they're looking at your foundry? |
3,344 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. Defect density, it's a complex conversation, Tim, because that big die sizes have lower percent yields, right, even at the same defect density. So it's very variable depending on the particular die size of the product. So when we said the D0 of less than 0.4, that was a healthy yield number at this phase of the process development, that's not yet a high-volume production yield level. But we're not at that phase of the process development yet for 18A. So it's a number that says we are at where we'd want to be at this point in the process development life cycle. Clearly, as you bring it to high-volume production, which we'll be doing in the second half of next year, we have to be markedly lower than that in terms of defect density. But we believe that we see all the signs, the signals, and we're managing this very carefully to accomplish that as we get to next year. Similarly, as we look at today's Intel 3, we're accomplishing the defect densities with the maturity levels that we'd expect on that. But again, yield in the process technology is something you're never done with, right? You hit key milestones on quality yield and then you go into high-volume production and you continue to work on that going forward. I'd also emphasize that the Arizona ramp is important for us as we move to 18A. And that comes online in volume in the second half of next year and that's all on track as well as we have tool move-ins, EUV tools and qualification now, first wafers coming out of the volume fab in Arizona in Q1 of next year. So overall, we're progressing well, and we'll be giving you updates as we proceed.
John Pitzer: Tim, do you have a follow-up question? |
3,345 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Tim, do you have a follow-up question?
Timothy Arcuri: I do. Yes. I have a question on Panther Lake, Pat. So I know that it's coming back in-house, but we do still hear that most tiles are still being outsourced. Can you speak to that? Is that a change or was that always the plan? And I guess when you look at Nova Lake on the desktop side, is it still being dual track, meaning that there is still an option that it could be outsourced or is it guaranteed to be brought back in-house? Thanks.
Patrick Gelsinger: Yes. Thank you. Panther Lake, some tiles would be external, but the majority of the millimeter square in the package are back internal. It's more 70% plus of the silicon area is back in-house. So the majority of Panther Lake wafer capacity by a good margin is coming back inside for Intel. Nova Lake, we definitely have some SKUs that we're looking at continuing to leverage externally, but the large majority of Nova Lake and more of the additional tiles have come back in-house as well. So we still have some flexibility in the Nova Lake product, but the large majority of that is committed to the Intel Product or Intel Foundry. So overall, we are absolutely executing on the bringing wafer's home strategy that we've laid out. That said, TSMC has been a great partner. Clearly, Lunar Lake has demonstrated the strength of the partnership and one that we'll use selectively in our product lines for the future. But a large percentage of wafers coming home that meaningfully fills our factories that also meaningfully improves the margin structure of Intel and Intel Products.
John Pitzer: Thanks, Tim. Jonathan, can we have the next question, please?
Operator: Certainly. Our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Your question, please. |
3,346 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. Our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Your question, please.
C.J. Muse: Good afternoon. Thanks for taking the question. I wanted to follow on that last question. In terms of the optionality in terms of securing leading-edge capacity, obviously, you're all in on 18A. But if that were to get delayed, what do you have in terms of negotiated capabilities in terms of securing capacity in '26, '27. And on the other hand, if 18A proves to be more successful, how are you thinking about timeframe being more aggressive in terms of adding capacity in Arizona?
Patrick Gelsinger: Yes. Thank you, C.J. I'll say we have optionality in the product portfolio that way. We have more resilience in our supply chain than competition does as a result. So we feel quite good about that. We continue to really value the relationship, right, with TSMC and our product portfolio is set up very nicely with respect to 18A capacity. Given our shell ahead strategy and the investments that we've made over the last several years, we have a lot of flexibility to scale up if market conditions require for our products, but also if market conditions require for our Foundry customers as well. And given the margin stacking nature that we uniquely are able to benefit from every wafer we bring home adds to the margin structure of Intel in a meaningful way. So we really are setting ourselves up very nicely for the future. And as we make progress on 18A,18AP, 14A, an aggressive road map, advanced packaging, which is uniquely based on Intel technologies and finding more momentum in our product line, but also in our Foundry customers, we really are starting to see the benefits of the long-term strategy that we've put in place with Intel Products with Intel Foundry.
John Pitzer: C.J., do you have a follow-up question?
C.J. Muse: I do. Following the better the consensus guide for Q4, could you give us an early read on how you're thinking about seasonality into Q1? |
3,347 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes. So we're not going to provide, C.J., guidance for Q1. Let's work on Q4, and we can update you in January. But the average seasonality for Q1 is in the 8% to 10% range and we'll give you more color as we get into next quarter's earnings, whether we are going to be seasonal or see things differently than that.
Patrick Gelsinger: Yes. And I'd say, overall, it's hard to say. We have geopolitical factors and other things that the world is looking at and I don't think we have any wisdom beyond that at this point. We're clearly trying to manage the business to a cost structure that we're very comfortable with. But as we indicated by the last question, C.J., we have a lot of flexibility to scale up if necessary or we have the opportunity to do that as well. And overall, there's quite a bit of uncertainty, I think, in the marketplace, so our strategy positions us well to deal with those overall uncertainties that we don't control, but we're very committed to control what we can directly do.
John Pitzer: Thank you, C.J. Jonathan, can we have the next question, please?
Operator: Certainly. And our next question comes from the line of Vivek Arya from Bank of America. Your question, please.
Vivek Arya: Thanks for taking my question. For the first one, I wanted to go back to 2025 and how we should kind of conceptually look at it. I think at one point, in the trend line of 3% to 5% growth top line. Is that how we should think about sales? And then on the gross margin side, Dave, you said that muted expansion, right. And if I look at your Q4 of 39.5%, is that sort of what you imply for 2025? And I asked that because I think at some other point, you also mentioned headwinds in the second half of '25. So that got me confused as to whether it could dip below these levels. So just I know you're not giving '25 outlook, but you did give a trend line number and you did kind of give us the 39.5% metric. So any color would be very useful. |
3,348 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes. So on revenue growth, again, we're not going to, for 2025, I'd say just that we are managing the business in terms of how we're investing in the business to a 3% to 5% growth rate next year, but over time, in our minds. And things turn out to be better, then that's good fall through to us from a profitability perspective. I wasn't suggesting that you take the 39.5%, you move it every quarter. Clearly, every quarter is going to have some unique aspects to it. Only that 39.5% was a quarter in which it was clean and it was a good proxy to start the calculation for the full year of '25. You're right, yes, we do see more headwind in the second half versus the first half given Lunar Lake becoming a more meaningful part of the volume over time for 2025. Again, that starts to improve in the following year as Panther Lake becomes more and more meaningful part of the volume for the client business in 2026.
John Pitzer: Vivek, do you have a follow-up question, please?
Vivek Arya: Yes. Thank you, John. So maybe one for Pat. Pat, what does the future look like for Intel's data center if there is no competitive AI product. Is just being CPU-centric good enough? At what point does the CPU get commoditized like custom chips or replaced with ARM-based products. What is Intel's AI strategy right now? |
3,349 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. Thank you, Vivek. Maybe three different perspectives just to highlight. Number one is the CPU plays an increasing role in data center AI compute. Even in cloud-based environments today, head nodes are an area of strength for Intel Xeon already, as I reflected in my comments. As you go into enterprise AI, we expect to place a more prominent role, databases, embedding, refinement or much more attuned to CPU workloads. And our strategy there is CPU plus accelerator or CPU plus Gaudi. So we see the enterprise use cases having a very long life associated with them going forward. Second, as I said, Gaudi 3, good product and seeing good early interest from customers. We mentioned the IBM win, but a good pipeline of activities there. So Xeon plus accelerator in that regard. And as we launched this quarter, we also have the x86 Ecosystem Advisory. We are breathing life into the x86 architecture and we're seeing extraordinary interest from the industry, from luminaries and how we build on that momentum. So we definitely want to be very front footed with x86 for a full range of use cases, but also the AI use cases as well and the industry is quite interested in joining us participating and expanding the world's greatest architecture of all time. The most industry influence, the broadest number of ISVs and applications and continuing that momentum forward.
John Pitzer: Thank you, Vivek. Jonathan, can we have the next question, please?
Operator: Certainly. And our next question comes from the line of Aaron Rakers from Wells Fargo. Your question, please. |
3,350 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. And our next question comes from the line of Aaron Rakers from Wells Fargo. Your question, please.
Aaron Rakers: Yes. Thanks for taking the question. I appreciate it. Two questions, if I can as well. So first on the Foundry business as you guys ramp that we start to focus on the ramp of 18A looking forward. Given the pipeline of the design wins that you guys have talked about. I'm curious, how large is your external piece of that, call it, $4.4 billion revenue in this most recent quarter. I think it was about $77 million last quarter. And how do we think about the pace of that kind of inflecting higher as we look out into '25, '26? And I'm just curious how you would define success in that external business?
Patrick Gelsinger: Yes. So overall the external Foundry business will be a modest portion, right, of the Foundry business for the next couple of years. The Foundry revenues will be dominated by the internal products as we've been building that portfolio for many years. So we'll ramp as we go through the rest of the decade. We said our financial objectives by the end of the decade are $15 billion plus of external Foundry revenue. We'll be giving periodic updates on LDV, lifetime deal value of external Foundry customers as we go forward. And indicators like we did this quarter of new design wins, new customers coming online. But the reported numbers for Intel Foundry will be substantially dominated by the Intel Products for the next couple of years. That said, we saw a nice growth, right, quarter-on-quarter in the external Foundry business and we did break profitable for the advanced packaging portion of that business in Q3. So we are seeing nice growth characteristics, nice business characteristics, and we'll be giving more updates as we go forward. Dave, anything to add on that?
David Zinsner: No, I mean, other than it was up a bit this quarter, but still dominated by internal business within the Intel Foundry business.
John Pitzer: Aaron, do you have a follow-up question? |
3,351 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Aaron, do you have a follow-up question?
Aaron Rakers: Yes, I do. Thanks. Real quickly on the server side of the business kind of off the prior question. I guess there's a continual discussion or debate of like Intel's positioning as far as stabilizing or recapturing its share position in x86 service. I'm curious as we think about Granite Rapids, we think about Clearwater Forest and Diamond Rapids. How do you characterize your ability to kind of your views of recapturing share in that server CPU market? Thank you. |
3,352 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. Thank you, Aaron. And I'd say our goal is stabilize our position and grow from that position. And this was a solid quarter for our execution. Clearly, Xeon 6, Granite Rapids and Sierra Forest now fully shipping and available are important milestones. Obviously, the AWS deal was a very nice deal because it reinforces Xeon, but also our expanding role of customization. So I'll say the first order of business is hold share and then regain share. The strength that we've seen for Xeon is this AI head nodes, these AI use cases. We have very good performance on Granite Rapids for AI use cases. And as we look to the future, getting just more competitive on basic power performance per core and fighting for share there is clearly the initiatives that we have underway. Clearwater Forest powered on, right, showing health of 18A, Diamond Rapids will shortly go into fab. So the roadmap is in good solid shape as well. So I'd say, overall, we feel that is a good pathway. And if I add to the last question as well for AI, I'd also emphasize that all of the energy has been in training. And all of us all of that associated with cloud-based training. But training is creating the weather model, not using it. And increasingly, I think, every analyst is putting more and more attention to how do we use those models? How do we inferencing against them? How do we retrain for our localized data? How do we complement that with RAG and database embeddings and all of those are areas that are much more CPU-centric. So the strength of our CPU and its unique power in some of these AI use cases as well as something we see the market coming more toward us and the strength that we've traditionally had.
John Pitzer: Thank you. Jonathan, can we have the next question, please?
Operator: Certainly. And our next question comes from the line of Srini Pajjuri from Raymond James. Your question, please. |
3,353 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. And our next question comes from the line of Srini Pajjuri from Raymond James. Your question, please.
Srini Pajjuri: Thank you. Pat, I have a question on the Foundry side, in particular, the packaging business you have. I know even though there's a lot of skepticism about 18A, but I think you guys have pretty good packaging technology, and it's proven, I believe, if I look at EMIB and Foveros, et cetera. So my question is, given the tightness in the packaging industry right now, I would have thought we would see more interest in your packaging services. So I'm just curious as to why we are not seeing that. Is it because it's, I guess, there must be some nuances of using your packaging with TSM wafers. I'm just curious as to why we are not seeing more interest. |
3,354 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Well, I'd say we do see significant interest in this area and moving your supply chains, though, is complicated and takes qualification time and many of these designs were first designed on CoWAS, and now they're looking at Foveros, and then they're looking at the unique technologies that we have like EMIB as well. So we actually see very good momentum in that area. Now those aren't as revenue-producing as wafer design, so they're not nearly, right, as large in size, but the pipeline of activities is very strong. And the quarter-on-quarter improvements we saw were largely driven by advanced packaging. Most of the external revenue that we'll see, which will be nicely up year-on-year as we go into '25 in the external Foundry will be advanced packaging and we also see healthy margins for that technology as well. So moving supply chain is always hard and slow, but the progress that we've seen already the design wins that we already include in our LDV and then the pipeline of additional designs that we are engaging in, all of us give us great optimism that this becomes a foundational piece of our Foundry business for the long-term. And as I noted in an earlier comment, we did see our advanced packaging now as a profitable business, a standalone by itself as well.
John Pitzer: Srini, do you have a follow-up question?
Srini Pajjuri: Yes, I do. Thank you. I guess a question on the gross margin side, Dave. I guess there are two issues impacting your PC gross margins. One, the wafer outsourcing and the other, you said packaging of the memory. I'm just curious how much of an impact that memory packaging is having on your gross margin? I suppose that helps your ASPs, but I guess it hurts your gross margin percent. So just curious to know how much of an impact that's having. And then maybe for Pat, architecturally, why do we need to, I guess, combine memory in one package? And is this something that's going to be ongoing or is it just a one-off with, I guess, Lunar and Meteor Lake? Thank you. |
3,355 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes. And just to be clear, it's exclusive to Lunar Lake, but not Meteor Lake. And it's having a pretty meaningful impact, a significant impact on Lunar Lake's gross margins, and originally we were like a third of the volume in terms of our expectations next year on Lunar Lake when we recognized how important the AI PC market would be and how good this part was competitively. We pushed the volume significantly up. And so that has put some reasonable pressure on the gross margins for the total company. |
3,356 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. And maybe architecturally, the second half of that question, Lunar Lake was initially designed to be a niche product that we wanted to achieve highest performance and great battery life, capability, and then AI PC occurred. And with AI PC, it went from being a niche product to a pretty high-volume product. Now relatively speaking, we're not talking about 50 million, 100 million units, but a meaningful portion of our total mix from a relatively small piece of it as well. So as that shift occurred, obviously, this became a bigger margin implication both for Lunar Lake and for the company overall. But we were very pleased to have the option to scale Lunar Lake and higher volume because of the momentum energy around the AI PC category. That's at a volume product and a volume industry like the PC industry, you don't want to have volume memory going through that channel. It's not a good way to run the business. So it really is, for us, a one-off with Lunar Lake. That will not be the case with Panther Lake, Nova Lake and its successors as well. We'll build it in a more traditional way with memory off package in the CPU, GPU, NPU and I/O capabilities in the package. But volume memory will be off package in the roadmap going forward. And we won't have this kind of impact that we're dealing with for '25 in the margin structure specifically around Lunar Lake. But again it's a great product. And we're happy that we have it in the portfolio and we've scaled it commensurate with the enthusiasm of the AI PC category.
John Pitzer: Thanks, Srini. Jonathan, can we have the next question, please?
Operator: Certainly. Our next question comes from the line of Chris Caso from Wolfe Research. Your question please. |
3,357 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. Our next question comes from the line of Chris Caso from Wolfe Research. Your question please.
Chris Caso: Yes, thank you. Good evening. I guess the first question is on both CapEx and OpEx as you go through next year. And I think you were a bit clear about what the plans are and what the resulting free cash flow is. I guess, Dave, the question is how much flex maybe in those numbers, I guess, as you go through '25 and '26 as well given the fact that you do have to invest in new technology nodes, how much flex is there for changes in market conditions. Also recognize that you don't have very much revenue growth in the plan for that as well. |
3,358 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes. I think on the $17.5 billion for OpEx, that's a pretty firm plan. I mean, obviously, we can make some adjustments here or there, if necessary. But we think we've rightsized the investments to invest in the most important areas that Pat and the team want to pursue. And so that, I would say, is relatively firm. Maybe there's just a little bit of variability there that we can make adjustments as we kind of progress through the year. The CapEx, there are three components to CapEx. There is what we're going to invest for the process, advancing the process. There's investment associated with this shell ahead and there's investments associated with capacity. We're always going to make those investments to advance the process. That will always be the case. Shell ahead, we will, but we have largely caught up, I think. And so now we're going to be more measured, I think, as we look to increasing our shell capacity. And then capacity itself then becomes the flex, the tooling out of shells, and we're kind of modulating that based on what we see in terms of demand and, of course, managing it relative to cash flow. So there obviously is flexibility there as we progress through the year and into the following year. And our goal is to generate free cash flow to generate adjusted free cash flow next year and there and onwards. So we'll be managing net CapEx accordingly. I guess the one other variable to the net CapEx would be any of the offsets. And of course we're aggressively pursuing offsets, some of which we know will already show up next year. SCIP will be a component of our offsets next year. We're also going to start to see some more meaningful impact from the investment tax credit next year, which we have already baked into the forecast. |
3,359 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Chris, the thing I would, just to add a little bit to that, Chris, would be that now that we've gotten an EUV fleet, right, into our CapEx base, we have a lot more flexibility across that fleet. Largely, the CapEx used for Intel 3, 18A and 14A highly leveraged across it. So we're much more building to overall capacity requirements and not this very rapid 5 nodes, 4 years, get back to a modern fleet of capability. Obviously, the other point to add to that is now that we have finished this 5 nodes, 4 years, we're progressing to a more normal cadence of new technologies as opposed to this racing through capital. So that will also give us additional flexibility. And I'll say largely with the singular exception of high NA, EUV, the equipment bases are almost entirely the same across the 14A node as well. And even at high NA, we've built flexibility into the TD development that we have optionality to include or not include that as a central part of it. So we've built a lot of capacity. Now we're going to leverage that capacity in much more efficient ways for both a overall high-volume manufacturing and a TD leverage going forward.
John Pitzer: Chris, do you have a quick follow-on?
Chris Caso: I do. And I mean it's a good segue in the next question, Pat, and it's I guess a question about your comments on Better Together. And if you could kind of explain the rationale of why you think that's the case, obviously, there's various opinions on that. And if Intel would be willing or has looked at anything strategic beyond what the current plan is right now? |
3,360 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. And I'll just say, we're very comfortable that moving to the subsidiary model as we outlined in the last earnings call, it gives us, I'll say, three things that we're aiming for greater operational rate integrity, right, as we create that clear separation, the opportunity to be able to communicate that more clearly and definitively to our external customers and then the potential to fund and manage the capital requirements of Foundry. That said, the vast majority of volumes through the decade come from Intel Products. The synergies of that co-development and customer zero aspect is very substantial as we see it. And the benefits that we get from the overall cash flows and managing the balance sheet of the company as we go forward are highly beneficial as well. So for all those reasons, our simple view is distinct but Better Together.
John Pitzer: Thanks, Chris. Jonathan, we've got time for one last question, please.
Operator: Certainly. And our final question for today comes from the line of Joe Moore from Morgan Stanley. Your question, please.
Joseph Moore: Great. Thank you. In your opening remarks, you talked about narrowing the product focus and prioritizing x86. Can you talk about, practically speaking, what happens there? Does that mean, are there other areas that you're investing less in to focus more on x86? Is that a mindset shift, organizational shift? Just what do you mean by that? |
3,361 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. And there's a lot of details behind it, Joe, but I'll just maybe give a couple of quick examples. We, for instance, create complexity in the server product line E-Cores, P-Cores across different socket types that complexity was maybe appropriate when the business was substantially larger and growing. At its current size, it puts too much complexity on our development as well as our customers and OEM, how many SKUs they're developing. So we've taken steps to simplify the product line, have fewer SKUs to cover the marketplace, and we're focused on the efficiencies associated with that. Similarly, in the client product area, simplifying the roadmap, fewer SKUs to cover it. How are we handling graphics and how that is increasingly becoming a large integrated graphics capabilities. So less need for discrete graphics in the market going forward. So simplifying the roadmap in those areas. And then the steps we took around our CCG and Edge business to be able to bring that together for better reach to the market, leveraging our core investments. So a variety of those, but many others behind that as we get ourselves, I'll say, in fighting shape that allows us to leverage our investments, hit our $17.5 billion OpEx that Dave spoke about and still have a very solid growth in a more profitable way for the future.
John Pitzer: Joe, do you have a quick follow-on?
Joseph Moore: Yes, I do. To the extent that you are kind of prioritizing the x86 leadership that you have. Does anything shift in the IDM 2.0 model? Is it -- they referenced that the arm's length relationship with IFS is still going really well. Like is that still a focus? Is there a benefit to if the focus is more on internal Foundry versus excess to marrying those business more tightly? Just how do you think about that relationship? |
3,362 | INTC | 3 | 2,024 | 2024-10-31 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. And clearly external Foundry, right, requires a different view of how you run and manage that business, but the wafers, the cash flows come from the internal business. So this subsidiary model is a key piece of how we're going to drive that cultural transformation, but still bring the success of an at-scale leading-edge, western-centered Foundry model. That is an extraordinary asset for us, for the industry and for the world. So we're very focused on making that successful. This has been an extraordinary journey to accomplish 5 nodes in 4 years and bring us from years behind to a leadership position in technology. And wow, it's just stunning to see what our TD teams have been able to accomplish there, but we're not done. We have a lot of work in front of us yet. We're well on our way to completing what will be one of the most seminal restructuring in the history, the steps that we took in our financial restructuring this quarter was very critical to be able to bring us to a point that we can say we have the capacity to and driving to long-term shareholder return. So maybe just as we wrap up, thank you, as always for joining the call. We appreciate the opportunity to discuss our progress, the actions we've taken. Q3 was a good step. Now we need to finish the year strong and prepare for 2025. We're determined to get it right and I look forward to the updates along the way. Thank you and look forward to speaking to you all again soon.
Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. |
3,363 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Operator: Thank you for standing by, and welcome to Intel Corporation's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Mr. John Pitzer, Corporate Vice President of Investor Relations.
John Pitzer: Thank you, Jonathan. By now you should have received a copy of the Q2 earnings release and earnings presentation, both of which are available on our Investor Relations website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I am joined today by our CEO, Pat Gelsinger, and our CFO, David Zinsner. In a moment, we will hear brief comments from both followed by a Q&A session. Before we begin, please note that today's discussion contains forward-looking statements based on the environment as we currently see it and as such are subject to various risks and uncertainties. It also contains reference to non-GAAP financial measures that we believe provide useful information to our investors. Our earnings release, most recent Annual Report on Form 10-K, and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on non-GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures. With that, let me turn things over to Pat. |
3,364 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Thank you, John, and good afternoon, everyone. Q2 profitability was disappointing despite continued progress on product and process roadmaps. With our new operating model firmly in place, we are accelerating actions to improve profitability and capital efficiency by more than $10 billion in 2025, which I will discuss shortly. For the quarter, we delivered sequential revenue growth in line with our forecast despite the unexpected timing of new export control restrictions announced in May. Q2 profitability was below our expectations due in part by our decision to more quickly ramp core Ultra AI CPUs as well as other selective actions we took to better position ourselves for future quarters, which Dave will address fully in his comments. We previously signaled that our investments to define and drive the AI PC category would pressure margins in the near term. We believe the trade-offs are worth it. The AI PC will grow from less than 10% of the market today to greater than 50% in 2026. We know today's investments will accelerate and extend our leadership and drive significant benefits in the years to come. Our efforts will culminate with the introduction of Panther Lake in second half of 2025. Panther Lake is our first client CPU on Intel 18A, a much more performant and cost-competitive process, which will additionally allow us to bring more of our tiles in-house, meaningfully improving our overall profitability. Another important driver of improved financial performance is the cost-reduction plan we announced today. This plan represents structural improvements enabled by our new operating model, which we are pulling forward to adjust to current business trends. Having separate financial reporting for Intel Products and Intel Foundry clarifies and focuses roles and responsibilities across the company. It also enables us to eliminate complexity and maximize the impact of our resources, taking a clean sheet view of the business is allowing us to take swift and broad-based actions beginning this |
3,365 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | of our resources, taking a clean sheet view of the business is allowing us to take swift and broad-based actions beginning this quarter. As a result, we expect to drive a meaningful reduction in our spending and headcount beginning in the second half of this year. We are targeting a headcount reduction of greater than 15% by the end of 2025 with the majority of this action completed by the end of this year. We do not take this lightly and we have carefully considered the impact this will have on the Intel family. These are hard, but necessary decisions. Our actions will reduce OpEx to approximately $20 billion in 2024 and we see a bigger impact next year with 2025 OpEx targeted at $17.5 billion, more than 20% below prior estimates. We expect further benefits in 2026 with OpEx to decline in absolute dollars yet again. Even as we lower overall spending, we will continue to fund the investments needed to deliver our strategy. Our new operating model is also driving benefits to our capital requirements, giving us the transparency to more rigorously scrutinize every project and every dollar of capital. As a result, we now expect gross CapEx in 2024 to be between $25 billion and $27 billion. That is a reduction of over 20% from our plan entering the year and additionally reflects expectations for softer second half demand. Combined with strong execution of our smart capital strategy, including our second SCIP with Apollo, we expect net capital spending in 2024 of between $11 billion and $13 billion. These benefits will carry forward to next year as well. For 2025, gross capital spending is targeted between $20 billion and $23 billion and net capital spending between $12 billion to $14 billion. Increased capital efficiency has a positive impact to gross margins over time, but we will also accelerate improvements by generating roughly $1 billion of savings in non-variable cost of sales in 2025. Once again, these reductions do not impact our ability to execute our plan. We designed our smart capital strategy to enable us |
3,366 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Once again, these reductions do not impact our ability to execute our plan. We designed our smart capital strategy to enable us to conservatively manage the day-to-day business to trend line growth, while maintaining the operational flexibility to quickly and cost-effectively capture upside when it comes. We are taking the added step of suspending the dividend at the beginning of the fourth quarter, recognizing the importance of prioritizing liquidity to support the investments needed to execute our strategy. We reiterate our long-term commitment to a competitive dividend as cash flows improve to sustainably higher levels. Reductions across OpEx, CapEx, and cost of sales total well over $10 billion in direct savings in 2025 and provides clear line of sight to a sustainable model with the ongoing financial resources and liquidity needed to support our long-term strategy. We remain confident that we have and will continue to make the investments needed to drive long-term shareholder value and we view cost discipline as the compass that drives effective execution, helping teams stay on track to both prioritize and achieve measurable results. The operational and capital improvements we are driving will be especially important as we manage the business through the near term. While we expect to deliver sequential revenue growth through the rest of the year, the pace of the recovery will be slower than expected, which is reflected in our Q3 outlook. Specifically, Q3 will be impacted by a modest inventory digestion in CCG with DCAI and our more cyclical businesses of NEX, Altera, and Mobileye trending below our original forecast. Our outlook reflects industry-wide conditions without any meaningful change in our market share expectations. As we look into Q4, normal seasonal revenue growth has historically been in a range of flat to up 5% quarter-on-quarter. With improved client inventory levels exiting Q3, we see Q4 revenue at the high end of that range. Let me now provide more details by our key business units, starting |
3,367 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Q3, we see Q4 revenue at the high end of that range. Let me now provide more details by our key business units, starting with Intel Foundry. A key part of our strategy is returning to process leadership with our aggressive five-nodes-in-four-years march and the finish line is officially within sight. We are well into the ramp of Intel 4, Intel 3, and Intel 20A is been ready for production next quarter. On Intel 18A, we released the 1.0 PDK last month and are on track to be manufacturing-ready by the end of this year with production wafer start volumes in first half of 2025. Panther Lake for client is now running Windows and looking very healthy. This is the first microprocessor to use RibbonFet, PowerVia, and advanced packaging, achieving a significant milestone. Clearwater Forest for server, which also includes Foveros Direct and other key advanced packaging capabilities is booted and likewise looking very healthy. These are the first of many Intel 18A products on track to bring Intel 18A to the mass market. Importantly, the launch of 18A will be our fifth node in four years, completing an historic pace of design and process innovation and returning Intel to process leadership. Our team is resolute and determined to finish what we started and once we do, it will unlock further growth and value creation across our Foundry and Product businesses. Our investments in a global footprint of leading-edge capacity continues to weigh on near-term profitability, but long term, they position us to profitably participate in the largest and fastest-growing parts of the semiconductor market. We continue to expect the investments we're driving through this year to put us on a course for meaningful financial traction with operating profits for Intel Foundry troughing in 2024 and then driving to breakeven. To help accelerate [Technical Difficulty] our Foundry Services business, Kevin has led large foundry and fabless businesses outside Intel and is a great addition to our leadership team. He has hit the ground running |
3,368 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | foundry and fabless businesses outside Intel and is a great addition to our leadership team. He has hit the ground running [Technical Difficulty] considerable time with current and future Foundry customers as we ramp our process packaging and chipset capabilities for the AI era. We are also pleased to welcome Naga Chandrasekaran from Micron later this month to lead our Foundry Manufacturing and supply chain organization. He brings more than 20 years of leadership in deep technical R&D and manufacturing expertise that will help advance our priorities. Overall, our Foundry team is driving excellent collaboration with our design ecosystem partners. In Q2, Ansys, Cadence, Siemens, and Synopsys all announced the availability of reference flows for Intel's embedded multi-die interconnect bridge advanced packaging technology. EMIB makes it possible to cost-effectively scale to a larger silicon area by connecting multiple die in a single package, which simplifies the design process and offers design flexibility. These same partners also declared readiness for Intel 18A designs, and we will be collaborating closely with the ecosystem in the second half to prepare for next year's 18A launches. Beyond Intel 18A, we are well underway on Intel 14A and Intel 10A development. Even as we continue to extend leadership and innovation on our process roadmap, we are transitioning to a more normal cadence of node development. The normalized cadence will have positive implications for both pace and magnitude of ongoing R&D and capital spending requirements. Let's now turn to Intel Products. In our largest and most profitable business, CCG, we continue to strengthen our position and execute well against our roadmap. The AI PC category is transforming every aspect of the compute experience and Intel is at the forefront of this category creating moment. Intel Core Ultra volume more than doubled sequentially in Q2 and is already powering AI capabilities across more than 300 applications and 500 AI models. This is an ongoing testament to |
3,369 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Q2 and is already powering AI capabilities across more than 300 applications and 500 AI models. This is an ongoing testament to the strong ecosystem we have nurtured through 40 years of consistent investments. We have now shipped more than 15 million Windows AI PCs since our December launch, multiples more than all of our competitors combined, and we remain on track to ship more than 40 million AI PCs by year end, and over 100 million accumulative by the end of 2025. Lunar Lake, our next-generation AI PC, which achieved production release ahead of schedule in July, will be the next industry-wide catalyst for device refresh. Lunar Lake delivers superior performance at half the power with 50% better graphics performance and 40% more power efficiency versus the prior generation. Lunar Lake delivers 3 times more tops Gen-on-Gen with our enhanced NPU and will be the ultimate AI CPU on the shelf for the holiday cycle. Microsoft has qualified Lunar Lake to power more than 80 new Copilot+ PCs across more than 20 OEMs, which will begin to ship this quarter. Lunar Lake will quickly be joined by Arrow Lake, which will scale AI to the desktop category next quarter. And as mentioned earlier, we are already gearing up to launch Panther Lake next year to further extend our leadership position. So very good progress in CCG and a super strong roadmap over the next 18 months. Let me now turn to DCAI. This is one of the most important areas of focus as we work to improve our performance and market position. We have a strong foundation of which to build, including the more than 130 million Xeon powering data centers around the world today, and our roadmap is designed to build upon this vast installed base to deliver greater performance and efficiency, enable AI solutions that are open, flexible, and scalable and reduce total cost of ownership for customers. We took some important steps forward this quarter, starting with the launch of Xeon 6 with E-core processors, formerly codenamed Sierra Forest. This is our first Intel 3 product |
3,370 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | starting with the launch of Xeon 6 with E-core processors, formerly codenamed Sierra Forest. This is our first Intel 3 product and is particularly well suited for high-density to scale our workloads. It drives performance up, power down, and dramatic rack consolidation. Early adopters are already seeing 25% better performance per watt versus competitive solutions. This will be followed by Xeon 6 with P-Core, codenamed Granite Rapids, which delivers greater performance for the most demanding workloads and will begin shipping this quarter. Looking to the future, we are excited about the launch of Clearwater Forest, our first Intel 18A server product featuring our industry-leading hybrid bonding. Clearwater Forest has achieved power-on and is on track to launch in 2025. As we've reestablished Xeon's competitive position, we are strongly positioned as the head node of choice in AI servers. We are also focused on improving our accelerator roadmap. We're delivering a combination of performance, flexibility, and value that is very compelling to customers, particularly cloud and enterprises seeking scalable, cost-effective Gen AI solutions. Our focus on open models, open developer frameworks, and reference designs combining Xeon with accelerators through OPEA or Open Platform for Enterprise AI, are gaining considerable market traction. Launching in Q3, Gaudi 3 will take our accelerator performance to the next level, at just two-thirds the cost of competitive offerings. To put it into perspective, we expect Gaudi 3 to deliver roughly 2 times performance per dollar in both inference and training versus H100. Gaudi 3 has strong ecosystem support, including Dell Technologies, Hewert-Packard Enterprise, Lenovo, Supermicro, Foxconn, Gigabyte, Inventec, Quanta Cloud Technology, and Wistron. Turning to NEX, we continue to see stability in Q2, while introducing new products that will expand our leadership in edge and networking into the future. As a founding member of the Ultra Ethernet Consortium, we announced an array of AI |
3,371 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | in edge and networking into the future. As a founding member of the Ultra Ethernet Consortium, we announced an array of AI optimized scale-out Ethernet solutions, including the Intel AI Network Interface Card and Foundry Chiplets, which we'll launch next year. Our recent IPU adapter for the enterprise supported by Dell Technologies and Red Hat broadens access to the solution co-developed with Google Cloud. We expect the IPU to be accretive to growth and profitability as it becomes an increasingly important part of acceleration in the AI data center. We also announced the creation of Ultra Accelerator Link, a new industry standard dedicated to advancing high-speed, low latency communication for scale up AI systems, communication, and data centers. Combined with the growing number of use cases of AI on the edge, NEX is well-positioned to be an accretive growth driver in 2025 and beyond. Lastly, as Altera reaches full operational separation by year end, we are actively working toward capitalizing the business to generate proceeds for Intel on a path to an IPO in the coming years. We are excited to provide Altera with the mandate focus and resources to realize their growth opportunities and execute their strategy. We expect their increased autonomy will help to drive value for our shareholders, similar to the decisions we made with Mobileye two years ago and IMS last year. Before I turn to Dave, let me sum up by saying, it has been a hard fought first half of the year. We have achieved several important milestones and we are taking clear and decisive actions to improve our sustainable financial performance. We have entered Q3 with a very clear focus and renewed intensity to up our gain and are motivated by the progress we are seeing as we execute our strategy and realize our vision. That is the mindset driving us forward as we continue to build a stronger Intel. With that, I'll pass it over to Dave. |
3,372 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Thank you, Pat, and good afternoon, everyone. Second quarter revenue was $12.8 billion, down 1 point year-over-year and up 1% sequentially. Revenue was in line with the range we provided in May after receiving notice of an export license restriction, which negatively impacted our client business in China. Intel Products and Intel Foundry both delivered 4% year-over-year growth, offset by headwinds in our more cyclical businesses. Profitability was significantly more challenged versus our previous expectations with Q2 gross margin of 38.7% and EPS of $0.02. Weaker than expected gross margin was due to three main drivers. The largest impact was caused by an accelerated ramp of our AI PC product. In addition to exceeding expectations on Q2 Core Ultra shipments, we made the decision to accelerate transition of Intel 4 and Intel 3 wafers from our development fab in Oregon to our high-volume facility in Ireland, where wafer costs are higher in the near term. However, this change resulted in approximately $1 billion of capital savings and will improve Intel 4 and Intel 3 gross margin long-term as we scale up the Ireland fab. Margins were also impacted by higher than typical period charges related to non-core businesses and charges associated with unused capacity. Finally, we saw an unfavorable product mix and more competitive pricing than expected. Q2 operating cash flow was $2.3 billion, up approximately $3.5 billion sequentially on better working capital. Gross CapEx of $5.7 billion was more than offset by $11.5 billion in grants and partner contributions, highlighted by Apollo's SCIP investment in our Ireland factory operations, resulting in adjusted free cash flow of $8.2 billion. Intel Products revenue was $11.8 billion, up 4% year-over-year. The client business grew 9% year-over-year as the AI PC ramp contributed to higher volume and ASPs, partially offset by export license restrictions communicated during the quarter. DCAI revenue was roughly flat sequentially and down 3 points year-over-year. We |
3,373 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | restrictions communicated during the quarter. DCAI revenue was roughly flat sequentially and down 3 points year-over-year. We expect sequential growth in the data center through the second half as demand for traditional servers improves modestly. Revenue for the NEX business was approximately flat both sequentially and year-over-year, so excluding the previously discussed inventory digestion impacting the telco market, NEX delivered 10% year-over-year growth in the first half. Q2 operating profit for Intel Products was $2.9 billion, 25% of revenue and up approximately $400 million year-over-year, on higher revenue and reduced inventory reserves. Intel Foundry delivered revenue of $4.3 billion, down 1 point sequentially and up 4% year-over-year, driven by increased wafer volume on Intel 7 and our first EUV nodes, Intel 4 and Intel 3. Foundry Services revenue more than doubled sequentially off a small base, including the start of advanced packaging revenue. Foundry operating loss of $2.8 billion was worse sequentially. We expect operating losses to continue at approximately the same rate in Q3 with more than 85% of wafer volumes still coming from pre-EUV nodes with an uncompetitive cost structure and power performance and area deficits reflected in market-based pricing. The continued ramp of our Intel 4 and Intel 3 Ireland facility and elevated R&D and start-up costs to support the rapid progression of our leading-edge technology development will also weigh on profitability. Mobileye revenue of $440 million improved 84% sequentially due to non-recurrence of the significant inventory drawdown that occurred in Q1. The rapid revenue and margin recovery indicates digestion occurred in an organized, predictable fashion, and we believe it is now complete. However, difficult conditions in China, which are impacting many Western automotive suppliers, led Mobileye to lower their revenue and income guidance for the second half. Altera delivered revenue of $361 million, up 6% sequentially with operating margins improving 4 |
3,374 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | guidance for the second half. Altera delivered revenue of $361 million, up 6% sequentially with operating margins improving 4 points in the quarter. Revenue remains below consumption as inventory positions tied to previous supply constraints are worked down. We expect double-digit sequential revenue growth through the second half as customers return to more normal buying patterns. Now turning to our Q3 guidance. Weaker spending across consumer and enterprise markets, especially in China, and continued focus on AI server investments in the cloud have reduced our TAM expectations for 2024. As a result, customer inventory levels are elevated. We expect customers to reduce inventory over the second half of the year, along with the continued modest negative impact from export controls. These market dynamics should result in below seasonal revenue growth in Q3 with the client business flat to down and modest growth in data center and edge markets. With an expectation of healthier inventory positions exiting the quarter and the continuation of an enterprise refresh cycle, we should see revenue growth at the high end of seasonal in the fourth quarter. We expect gross margins to be moderately weaker sequentially with modest revenue growth and efficiencies offset by a continued ramp of new manufacturing nodes. While we will continue our work to improve near-term profitability, a heavier dependence on external wafers as we ramp AI PC products over the next several quarters will pressure gross margins. As a result of these factors, we expect revenue of $12.5 billion to $13.5 billion in the third quarter. At the midpoint of $13 billion, we expect gross margin of approximately 38% with a tax rate of 13% and EPS of negative $0.03, all on a non-GAAP basis. As Pat discussed earlier, lower than anticipated revenue in the back half of the year is putting pressure on gross margins and earnings. We are taking aggressive actions to significantly reduce spending in response. These actions, while difficult, will help streamline the |
3,375 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | aggressive actions to significantly reduce spending in response. These actions, while difficult, will help streamline the organization to improve productivity and make better decisions more quickly. Please note that we are likely to have charges associated with these actions, some of which may be included in our non-GAAP results. Since we have not yet estimated these charges, they are not included in our guidance. Smart Capital continues to guide the pace and breadth of our global capacity expansion and our new operating model has uncovered opportunities to build and utilize manufacturing capacity more efficiently. Additionally, we've responded to lower revenue by reducing 2024 gross capital investments to a range of $25 billion to $27 billion with a net capital spending of $11 billion to $13 billion, including our SCIP programs. These adjustments ordinarily would bring us back to approximately breakeven adjusted free cash flow, but we now expect adjusted free cash flow to be modestly negative as we make payments related to the restructuring charges necessary to achieve our spending targets. In 2025, with OpEx of approximately $17.5 billion and net CapEx of $12 billion to $14 billion, we expect to achieve positive adjusted free cash flow. The suspension of the dividend, initial Altera capitalization, and positive adjusted free cash flow should significantly improve our liquidity in 2025 and position us to begin the process of meaningfully decreasing our leverage. Before I close, let me take a moment to highlight a couple of items as you model 2025. As previously mentioned, we expect operating expenses to be reduced from Street expectations of $21 billion to approximately $17.5 billion. We will also reduce spending within non-variable cost of sales by approximately $1 billion. While that will obviously have a positive impact on gross margins, we still only expect a roughly 60% fall-through for gross margin next year. The AI PC is a big winner for the company and the early signals on the performance of Lunar Lake |
3,376 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | for gross margin next year. The AI PC is a big winner for the company and the early signals on the performance of Lunar Lake are very positive. We therefore intend to ramp that product significantly next year to meet market demand. While the product is great, it was originally a narrowly targeted product using largely external wafers and not optimized for cost. As a result, our gross margins will likely be up only modestly next year. The good news is the follow-on product, Panther Lake, is internally sourced on 18A and has a much improved cost structure. As the momentum of AI PCs drives Panther Lake demand, together with the improvements from our new operating model and the cost savings from our lower capital spending, we will be in a great position to see meaningful gross margin expansion in subsequent years. Lastly, the non-controlled income from Mobileye, Altera, and IMF and the portion of the SCIPs earned by our partners show up on a line below net income called non-controlling interest. The NCI adjustment has been negligible so far, but we expect it to be a more meaningful driver, reducing our controlled share of income by approximately $700 million on a GAAP basis in 2025 and increasing as wafer production at our SCIP fabs in Arizona and Ireland increases in subsequent years. In closing, the market has not recovered as expected and we're obviously not satisfied with our results. We're responding by aggressively adjusting 2025 spending to achieve profitability and positive adjusted free cash flow that is commensurate with the current market conditions, while continuing to invest in and execute our strategy. In addition to these near-term actions, we're also seeing meaningful opportunities to improve financial results, leveraging our new operating model. We remain optimistic that reduced spending, operating efficiencies, and more competitive products will keep us on track to our target model of 60% gross margin and 40% operating margin by the end of the decade. I'll now turn it back over to John to start the |
3,377 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | model of 60% gross margin and 40% operating margin by the end of the decade. I'll now turn it back over to John to start the Q&A. |
3,378 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Thank you, Dave. We will now transition to the Q&A portion of our call. As a reminder, we would ask each of you to ask one question and a brief follow-up question where appropriate. With that, Jonathan, can we please take the first caller?
Operator: Certainly, our first question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.
Vivek Arya: Thanks for taking my question. Pat, big picture, are the challenges the product issue, market issue, strategic issue, execution issue, I'm just wondering has the core issues been accurately diagnosed, because when we look at your CPU competitor, they appear to be doing much better in this same environment. So I'm curious what is plan B if just cost cuts don't do the job? |
3,379 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes. Thank you, Vivek. I'll start out, would say that this first phase of the recovery, restoration, and rebuilding plan is now well underway. With 18A, PDK 1.0, with Panther Lake, Clearwater Forest powered-on, our geo footprint now starting to take shape, we have more competitive products in every segment of the industry. That said, with that foundation in place, it's time for us to focus on Phase 2, building a more financially sustainable model for the company for the future. Many of the new products are yet to ramp into the marketplace and we're just now getting to competitiveness. But we need to build a more sustainable business model for us that allows us to have the financial wherewithal for the long-term journey. I'd say this rebuilding that we're underway, this is the most significant rebuilding of Intel since the transition from memory to microprocessors four decades ago. We firmly believe in the IDM 2.0 strategy. We're building two world-class companies. The forensics that we've done this year, this clean sheet exercise as we could describe it, is building a world-class Intel Foundry and building a world-class Intel Products Group. These efforts we believe have identified many opportunities for us to have financial savings. We've launched those aggressive steps today, and we believe that with the new products, a better financial position that we've done for a more efficient operation that we see the long-term opportunity for significant value creation for all of our stakeholders.
John Pitzer: Vivek, do you have a follow-up? |
3,380 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Vivek, do you have a follow-up?
Vivek Arya: Yes. Thank you, John. For my follow-up, I'm curious, what impact do the restrictions -- sorry, the restructuring actions have on either your R&D roadmap, your long-term external foundry opportunity, and any CHIPS Act funding? I think in the past you had suggested about $15 billion in long-term value from external foundry, is there any impact on those growth targets because of the restructuring action? Just what changes with these restructuring actions? Thank you. |
3,381 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes, thank you, Vivek. And fundamentally, we believe our strategy will be maintained even as we get these more efficient steps in place. The CHIPS grants -- taking your questions sort of one-by-one, on the CHIP side, these are milestone-based investments. We still believe that we're comfortably able to execute against those milestones across the projects that we've announced. So we believe very comfortably that the CHIPS model that we've put in place, we've worked closely with the CHIPS program office in the U.S. government, we're very comfortable on those plans. Also, the foundry, we are seeing a lot of momentum in areas like the advanced packaging areas where we're actually seeing quite a lot of uptake and expansion of those opportunities. So the $15 billion of LDV that we've talked about and the $15 billion revenue by the end of the decade, we're very confident that those are still very solid guidelines for us to be building to. Obviously, with the capital changes that we've made, we're going to be driving just like a world-class foundry does to be much more efficient with our capital investments and scrutinizing them more carefully. And now that we've paid the capital to catch up, and I'll view -- this catch-up capital, we had no spare capacity, we had no site ahead, show ahead. We had no capacity to catch up. As those investments are now largely completed, we're able to focus much more on capital efficiency for the future and aligning our capital spend to the market signals as we see to the future of our products as well as the foundry commitments that we have in place. Finally, I'll just say, again, we're building this against the market outlook. We're going to flex our investments up and down appropriately, and we've now established a model with our smart capital to have that effectiveness that we can scale up and down to market conditions. So we feel like all of the things that we said for our strategy on track and we're now moving into Phase 2 of the execution of that strategy. |
3,382 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Thanks, Vivek. Jonathan, can we have the next caller, please?
Operator: Certainly. And our next question comes from the line of Ross Seymore from Deutsche Bank. Your question, please.
Ross Seymore: Hi, guys. Thanks for letting me ask the question. Kind of want to follow-up on the first two, and Pat, maybe just ask it a different way. Part of what you're saying, it sounds like you're adjusting your spending across the board to reflect the macro reality, slower growth, et cetera, et cetera, but it seems like that would be difficult to do if it didn't impact any of the structural dynamics as well. So I guess the real question is, are there any changes either to your competitiveness, the structure of the company, the long-term $100 billion target that you just saw weren't happening and therefore felt these cuts were necessary, so do any of the structural changes -- or can you describe any of the structural changes and what the outcome to your financial targets might be? |
3,383 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes, let me point you back to what I said at the start. We started this forensics, this clean sheet analysis concurrent with the rolling out of our new operational model. We said we have to be a world-class foundry. We are going to benchmark ourselves against world-class foundries and that's what Intel Foundry is going to become, and that's uncovered a lot of things, a lot of inefficiencies, a lot of ways that we can drive our capital footprint more effectively, and every aspect of that business is being analyzed and how we do maintenance, how we procure chemicals, how we run and price wafers and shuttle lots and everything like that so clean sheet analysis. Similarly, on the product side, we've done exactly that same analysis. What does a world-class fabulous company look like. And we uncover quite a lot of areas where we don't leverage industry IPs. We're not using our EDA vendors as effectively. We've done too many steppings. We validate versus build-in design quality. So many of these things are steps that we're taking to be a world-class Fabless company, and these are significant structural steps. We also realized that as an IDM 1.0, we were never built for efficiency. We were built for leadership. And now as we add this focus on efficiency, we see a lot of opportunities. I'm having each of the four business areas, client, networking, and data center, look at their own portfolios, even though those are the right product areas for us for the future, and similarly, the portfolio of our Intel Foundry business and that's the work that we've now been undertaking and we're now accelerating based on the less than expected quarterly results, we're accelerating those impacts. We're going to drive that in the second half of this year. We want to get these restructurings done quickly so that we can move forward more aggressively with the product lines next year. In terms of the long-term forecast, we're clearly tempering our view of how fast we can grow in the near-term based on the market |
3,384 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | terms of the long-term forecast, we're clearly tempering our view of how fast we can grow in the near-term based on the market conditions. But our model is built that we will scale up or scale down the capital requirements appropriate to the market conditions we see. We believe the long-term guidance that we've given you, the 60:40, getting to the Foundry business model we've described, the growth areas that we've said, those are larger portions of our business. We believe those are long-term still achievable in that regard and we're on track for many of those things in the models that we're laying out and today's actions will help accelerate us achieving those. |
3,385 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Ross, do you have a quick follow-up?
Ross Seymore: Yes, I do. Dave, you went through with the good details of the cost structure and what would change the puts and takes for next year. I wondered -- I know you're not going to guide to 2025 revenue, but the puts and takes from maybe a competitive positioning point-of-view, how you're feeling in CCG, DCAI, primarily relative to the competition, any sort of tailwind, headwind analysis or description for 2025 would be helpful. |
3,386 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes, sure. On the client side, obviously, we feel very good given our AI PC position, we're leading that new product category. And I think we talked a little bit in the prepared remarks about Lunar Lake, our next product coming in after Meteor Lake and the performance of that, so that looks like a phenomenally good product and position. We're making the early inroads on the AI side of data center and that's only going to grow as we go into next year. The big question is when does the kind of traditional CPU market recover? It has been tempered this year, and of course, affected by other regions of the world like China spending and so forth. That's obviously been a soft space and so we'll have to see how that plays out. And then NEX, obviously also outside of the telco space is starting to recover. And then we have these other businesses, Altera is starting to recover now. So we're optimistic that next year will be a good year for them and we'll have to see how Mobileye plays out ultimately. I think on the margin front, I talked about our kind of tempered view of gross margins next year, given the ramp of Lunar Lake, which with memory and package and almost all of the material getting sourced outside and they're seeing -- we're seeing inflation in that space that is impacting it. But that part is followed by Panther Lake, that comes back into the fab. And I think one of the bigger stories we'll have once we get beyond next year is kind of the resurgence of our internal facilities to start taking on a lot of the capacity that we had to move into the external sources should provide some meaningful improvement in terms of -- in terms of profitability. And then, of course, we've done a lot, as Pat talked about in terms of restructuring the business and those will start to show up next year, but will be even more impactful the following year, including the new operating model. So I think the good news for us is we actually don't need a ton of growth to see our model play out, both in the kind of medium |
3,387 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | So I think the good news for us is we actually don't need a ton of growth to see our model play out, both in the kind of medium term and long term in terms of gross margins and operating margins. And if we do get the growth, it puts us in an even better position. |
3,388 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Thank you, Ross. Jonathan, can we have the next caller, please?
Operator: Certainly. And our next question comes from the line of CJ Muse from Cantor Fitzgerald. Your question, please.
CJ Muse: Yes. Thank you for taking the question. I guess, Dave, a follow-up to that prior question. I was hoping you could perhaps speak to how to think about gross margins beyond 2025. It's obviously very hard to offer the leverage when you're investing in both foundry capacity and at the same time outsourcing meaningful tiles to TSM. So encouraging that you're bringing Panther Lake back in-house. How should we think about incremental margins there? And any of the other kind of moving parts that you've been speaking about on this call, including the unfavorable product mix and the more competitive pricing. Is that just a near-term kind of phenomenon or something else we should be thinking about into 2025, 2026? |
3,389 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes. So as I talked about to Ross, CJ, the good news for 2026 for us is that, that really begins the shift back to the internal manufacturing footprint for a lot of our tiles and so bringing back more wafers to the internal network will meaningfully improve the cost structure. I think the adjustments in CapEx, which are clearly helpful in terms of cash flow in the near term become really beneficial to the cost structure as depreciation becomes kind of less of a headwind for us, so that will also be helpful. And then like I said, we've got all these structural improvements that are coming our way, both from the actions we've taken today, but the new operating model and decisions will get made on a go-forward basis that will just optimize our business model going forward. I think 2026 should be a good year for us in terms of gross margins. We'll save the actual number for a later date when we have more visibility into how things are playing out. I think from a mix perspective, it's probably not going to be a big headwind or tailwind for us, just strict mix other than as we move towards more leading-edge wafers, the margins on those wafers are significantly better than the margins in pre-EUV nodes. So that will -- that will be one factor that will certainly help us. It also -- in that regard, that also helps us on the pricing side because, obviously, from a wafer perspective, we get better pricing on EUV wafers as opposed to pre-EUV wafers. And then ultimately, I think on pricing, it will really come down to when we have a competitive process and we have competitive products running on a competitive process and we're delivering what the customers want, that helps us in terms of the pricing dynamic. And we're getting to the place as Pat talked about where we're starting to deliver on all those fronts. And so I feel good about our opportunity to realize that in the form of pricing as we progress through the next few years. |
3,390 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: And just one thing to add on top of that, just to clarify, with Panther Lake already powered on, right, and showing good health, that is a product that we start ramping in the second half of next year, right? So we'll start to see some of those benefits, but obviously, the huge volume benefits of that really are in 2026, where we'll be very aggressive at bringing both the wafers home on a more competitive process with a more competitive product with Panther Lake, offsetting the volumes of Lunar Lake, which is almost entirely outsourced. So we bring Tiles home with a more competitive product and a more competitive process, and that really is, I'll say, the story that will start to unfold as we talk to you more next year.
John Pitzer: CJ, do you have a quick follow-up?
CJ Muse: Yes. Just a quick one on OpEx. You gave us the $17.5 billion for all of calendar 2025, but could you share with us what you think the exit rate would look like? I'm coming to around $4.25 billion, is that in the ballpark?
David Zinsner: Yes. I'll say, given that some of the actions we're taking will kind of go through at least the early part of next year, we're going to enter at a higher number than we're going to exit, I'll give you that. And we should be down in 2026 relative to 2025. Give me some time as we progress through the year to start to fine-tune the budget for 2026 and I'll give you more clarity around that.
John Pitzer: Thank you, C.J. And Jonathan, can we have the next question, please?
Operator: Certainly. And our next question comes from the line of Joe Moore from Morgan Stanley. Your question, please.
Joseph Moore: Great. Thank you. You talked about the server roadmap with Sierra Forest shipping and Granite Rapids shipping this quarter, can you talk about how that -- where that puts you competitively? Do you think you're kind of have closed the gap or is it leadership product, and obviously, Clearwater for us is the longer-term focus, but where are we in the interim? |
3,391 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes, thank you. And obviously, Sierra Forest, right, E-core product, very efficient, but a new category for us, so we have to go win sockets with it. Early customer feedback, very positive. As we said, greater than 25% TCO value that they're seeing from it, but it's early in its ramp. Granite Rapids is really the peak core, I'll say, the more traditional Xeon for us and we'll start that ramp this quarter. But we'll take as anything in the server market, winning back share, winning back sockets is a longer-term cycle for that. But a lot of encouraging signs for Granite Rapids, even though a lot of the data center energy right now is on the AI build-out, as you know. So in this environment, we're largely facing a period where much of the investment energy is going into the AI footprint. So we're having to fight to win those socket back, but Granite Rapids looks very positive. The early health of Clearwater Forest is really spectacular. This is a really stunning technical achievement with the new design, 8A, this level of health, this are early in a major server product is really spectacular. The new Foveros Direct and should have substantial TCO benefits for next year. And then the next P-Core version of that on 18A is also showing very good -- not in fab yet, but showing a very good design progress. So we feel like the roadmap gets more competitive, and with it, we believe our market share position is fairly, I'll say, static, right? So year-on-year, we do see that overall the arm market share is more modest in the second half this year, so the X86 share, and we're stabilizing our overall position in the marketplace. We believe as we then go to fight to win back. One of the good things that we've seen for our server market is the AI head nodes where we're quite advantaged and we're seeing a lot of interest in Xeon being the head node of choice for anybody's accelerator, including ours. So a lot of things to unpack there, but we do feel like our position is stabilizing and strengthening with our |
3,392 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | including ours. So a lot of things to unpack there, but we do feel like our position is stabilizing and strengthening with our products and the roadmap only improves from here. |
3,393 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Joe, do you have a follow-up?
Joseph Moore: Yes. Just on the notion that AI has kind of stolen some of the focus from server, it seems like we would be looking at a ceiling in overall power budgets in a couple of years that would mean we need to invest in traditional server ecosystems and maybe do a significant refresh. Do you see any indications of that and given that -- I perceive you guys are sort of stronger in enterprise than in cloud right now, like how are you positioned to take advantage of that when it does come?
Patrick Gelsinger: Yes. Thanks, Joe. And we do think that the enterprise market, right, is a more favorable market for us and we do have some early indications of a positive cycle there, but I'll say it's too early to give you any real firm indications, but we are starting to see, I'll say, better buying behavior, better signals from our OEMs in the enterprise market. Similarly, for the cloud market, we do believe there will be a refresh cycle, right, as people get their AI strategies in place. The TCO benefits of a server refresh now as we start talking about 3X, 4X consolidation ratios that they can have on their traditional, right, cloud environments, their container delivery environments, these are quite substantial. So we do believe that as our products get to be more competitive, right, and there is a natural refresh cycle on that, that the markets will be more favorable for the traditional CPU market. But of course, the story is CPU plus GPU, right, and that's the bigger message that we'll be delivering. And obviously, as Gaudi 3 starts shipping the CPU plus GPU use cases like we've described with OPEA, that will also help us for positioning on both sides of the cloud and the enterprise market for both CPU and GPU. That's the strategy that we're building toward.
John Pitzer: Thank you, Joe. Jonathan, can we have the next question, please?
Operator: Certainly. And our next question comes from the line of Timothy Arcuri from UBS. Your question, please. |
3,394 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Operator: Certainly. And our next question comes from the line of Timothy Arcuri from UBS. Your question, please.
Timothy Arcuri: Sure, thanks. Dave, can you again explain how June gross margin was so much worse than you thought just three months ago? I mean, revenue is basically in line. I know you talked about mix, but it seems like it was probably a pretty small part of it mix was and it was really more the decisions around Intel 4 and Intel 3. So can you just explain again, I'm not sure -- I'm not sure I understand why that was such a big. |
3,395 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | David Zinsner: Yes. Okay. That was the biggest one. Let me -- I'll just say that there were a couple of other things that we had to do some write-offs related to legacy businesses that impacted us. Our utilization was a bit lower that did impact us. But the biggest one was the shift. We were originally planning to ramp Meteor Lake, Intel 3, and even run production on Intel 4 -- sorry, Intel 4, and then run production on Intel 3 in Oregon, which is our TD fab, our process technology fab, kind of our development fab. We made the decision to more quickly shift all of that over to Ireland. And it's a good move because it saves capital. We don't have to spend capital twice essentially. And it starts to mature the Intel 4 and Intel 3 processes in Ireland more quickly. The downside of that is the wafers are expensive right now. And so we get this kind of early ramp of the product at a much higher wafer cost that we're pushing through the system and that puts pressure on the margins. That's going to carry into next quarter. I mean, we will do better in next quarter, obviously, but we're going to do more volume and the margins will be below the corporate average because of -- because while we're improving the wafer cost, it's not -- still not to the point where it's above corporate average yet. And so it will weigh down on margins for the third quarter as well. After that, we start -- it gets more and more mature, the cost structure gets better and the situation on Meteor Lake will improve meaningfully.
John Pitzer: Tim, do you have a quick follow-up? |
3,396 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Tim, do you have a quick follow-up?
Timothy Arcuri: Yes. Pat, can you just talk about the foundry strategy given the CapEx cut? I guess my question is how you sort of execute on the plan with this lower CapEx. I mean kind of on one hand, you keep -- we keep talking about bringing all these wafers back in-house to help gross margin in 2026. But I also hear about a lot more outsourcing to TSMC even in real-time so, is the cut more that some of your foundry customers are maybe structurally deciding that they're not as committed? I'm just trying to understand how you can kind of CapEx and still execute on this strategy. Thanks. |
3,397 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | Patrick Gelsinger: Yes, thank you. And at the highest level, the Foundry strategy unchanged. And we've built capacity corridor for Foundry customers. However, until we have committed orders, we're going to be modest on how much equipment we put against the shells and the sites that we have in place. And how much of that corridor we keep available, how much flexibility working with our equipment suppliers that we need for that will be a subject of careful scrutiny as we go forward. We've also made some adjustments in the capital investment that we need to support our current view of market forecast. So all of those are, say, are adjustments. The big thing is now that we're finishing this phase of aggressive build-out, right, and as you think about what we had to catch up, we had no EUV capacity. We had no shell ahead, side ahead capacity. We had no capacity to pull tiles home. As those come into place, we've been making substantial capital investments over the last couple of years, and now we're focused on how do we harvest those investments in 2024, 2025, and 2026. So we're putting much more aggressive view of capital utilization, right? How much capital require ahead of working with the suppliers to be more efficient in our capital dollars, just like a foundry does? And for that, we'll point you back to again, right, we're going to be a world-class fabless company. Intel Products, we're going to be a world-class Foundry with Intel Foundry. The last point I'd make here on this is a lot of the early success that we're having with foundry customers is advanced packaging. And there, the capital requirements are not as significant as required for wafer capacity. So we believe very much that we're seeing a surge of interest there. Customers in advanced packaging are clearly interested in us for capacity, but increasingly for our most advanced packaging technology. So that's an area that we believe we have as, and we've described before, as the on-ramp for Intel Foundry and that's continuing to look very good. The |
3,398 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | believe we have as, and we've described before, as the on-ramp for Intel Foundry and that's continuing to look very good. The final point is the Intel Foundry capacity will be aligned with, right, to the first order, the Intel product requirements. And clearly, there's a lot of tiles externally in 2025, we bring those home in 2026, that's when we'll start to really, as Dave said, see the benefits of the model that we've put in place. Tiles coming home, leadership process technology, leadership products starts in 2025, deliver big-time in 2026 and beyond. |
3,399 | INTC | 2 | 2,024 | 2024-08-01 17:00:00 | Intel Corporation | 21,127 | John Pitzer: Thanks, Tim. Jonathan, do we have the next caller, please?
Operator: Certainly. Our next question comes from the line of Srini Pajjuri from Raymond James. Your question, please.
Srini Pajjuri: Thank you. A couple of follow-ups. Dave, on the move from Oregon to Ireland fab, you talked about that being a gross margin headwind. Can you talk about how much -- can you clarify how much of a headwind that is right now? And also when it's fully-loaded on a like-for-like basis, how much of a headwind do you think that's going to be on an ongoing basis?
David Zinsner: I'm sorry, the second question is how much will the headwind be on...
John Pitzer: On ongoing basis.
David Zinsner: On an ongoing basis is what you're saying?
Srini Pajjuri: Ongoing basis? Yeah.
David Zinsner: Okay. All right. So I think the best way to think about it is, we were -- I don't know, 400 basis points or so off on the gross margin taking into account revenue was part of it. It was a meaningful chunk of that 400 basis points. There was the write-offs related to legacy businesses and the mix and underutilization also affected and it wasn't an insignificant amount, but that was a good portion of that 400 basis points, let's call it that. And that will be the case in the third quarter probably given the increase. I think we're talking about a 50% increase in Meteor Lake quarter-over-quarter in the third quarter. Beyond that, it's going to start to become less and less to the point where it's actually not going to be a headwind.
Patrick Gelsinger: Yes, it becomes a tailwind.
David Zinsner: Yes, exactly.
Patrick Gelsinger: As the Ireland factory ramps, a production factory will have a lower-cost per wafer start than a TV factory like Oregon. So it becomes a headwind as we go into next year. |
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