Barclays Global Tech - Intel conference transcription

So with you two at the helm, versus when Pat, let me start Sure.

All right, well, I think there'll be a few differences, and there'll be a few things that don't change, obviously, building world class products and a world class boundary. We're still highly invested in doing that, and those two things together will help differentiate us in the marketplace.
Pat, clearly, Dave and I enjoyed working with Pat, and he left us in a better operational place. But I think Dave and I will both tell you that, as the CEO of Intel products, we're going to invest more in products be focused on making sure that we shore up those road maps, that we're more competitive in a lot of the growth markets than we have been historically, and that will then fill the fabs, right? So great products mean more wafers, which means better capacity in our fabs. As well. As we're laser focused, we've obviously made very large investments in our fab footprint, and we need a much better ROI for the investment that we've made. So we're going to be laser focused on, how do we take advantage of the investments we made? How do we bring customers into those fabs and start to see way first fill them. Yeah. The only other thing I would say is, we've been asked, like, you know, how we're working together, what roles we're taking on for, for most of it, we're co CEO, so we want to be in the room together, doing doing it together. I, you know, obviously Michelle is super experienced in the product side of the business, dealing with customers. So probably makes more sense for her to emphasize that she's out there meeting customers on the product side on a regular basis. For me, you know, I'm more in the operational, financial aspects of the business, and so I'm going to lean a little bit more heavily to that, probably the only exception will be the customers for foundry. Obviously, they want firewalls. They want to protect their IP, their product roadmaps and so forth. So I will deal with that part of foundry, to separate that from the Intel products business. But outside of that, as we deal with the foundry business. We'll do it jointly, together. Super helpful. Why don't we start with Michelle? So the recent earnings call, you talked about more outsourced silicon in 2025 than 2024
in the future. Do you see that trend increasing, or can maybe speak to the next couple of years in your mind? Yeah, the answer is kind of maybe, maybe not. I mean, when we are thinking about Intel products, we're really looking at time to market performance, area, cost a lot of things, when we are thinking about who is the right manufacturing partner for us for products that we're building. And so maybe to take a step back, like when I was running CCG, the way I made those decisions is really looking at, okay, you have a market window that you have to hit in client, right? You have your holiday and you have your SIP or your commercial buying cycle, so your products have to hit those windows. Obviously, we have a very broad set of product portfolios, and you need a variety of price points and a variety of performance price points as well. And so you look at those and you look at what Intel foundry can offer, and you look at what TSMC can offer. And what I found was, at times, picking TSMC was the right decision, because where I could land on their performance price curve made the most sense for the ASP that I could get at the time. And then other times it made sense to use an Intel foundry. Now we are using Intel foundry for Panther Lake, which is our 2025 product, which will land on 18 a and, you know, this is the first time that we're customer zero in a long time on an Intel process. And so, you know, just as you would expect Apple experiences with TSMC, you know, you make progress, you take a few steps back, and then you make progress moving forward. But we're quite happy with the decision to be on 18 a but I'll also say TSMC has been a fantastic partner. They're very easy to work with. And you know, myself being very customer oriented, what I tell everybody the Intel every day is they're the benchmark for what's expected in the industry. And so I feel like working with the Intel foundry, I can continue to push the bar to make us more competitive and set expectations for what it means to be a world class boundary. Super helpful. And I think Pat used to talk about, you know, 18 A being the kind of Keystone for the company, like betting a company on 18 a, I think that, you know, there'll be, you know, milestones coming up that we'll expect to hear from you guys on 18 day. But I guess the question is, how tied to the potential separation of the business is 18 a Can you see an Intel, foundry, CO, and product Co? Maybe this is a question for both of you. Is that something that is possible today and maybe any iteration of that that you'd be willing to kind of go into? Yeah, I think it's a really good question. I mean, we really do already run the businesses fairly independently. Product co makes their decisions, foundry makes their decisions, but for both of those businesses, I think long term, to be very differentiated in the market. Great products with a great process, technology that we have first access to is a differentiator. So pragmatically, do I think it makes sense that they're completely separated and there's no tie? I don't think so, but someone will decide.
That, I think 18 a itself, obviously, is kind of our first big step in getting back to process leadership and bringing our founders back to kind of the historical strengths that we've had. And as you said, you know, there's some good and some good bad that comes every time you develop a new process. But just to give some assurances on Panther Lake, we have our ES zero samples out with customers. We have eight customers that have powered on, which gives you just kind of an idea that the health of the silicon is good and the health of the Foundry is good. But we have a lot of milestones, especially a couple over the next couple weeks, weeks to get to, to be ready and on time for the end of 2025 Yeah. The only other thing I'd add is, you know, we already run the businesses separately, but we are going down the path of creating a subsidiary for Intel foundry as part of the overall Intel company. We're going to have a separate operational board for Intel foundry, which is getting stood up today. We'll have, it will have its own ERP system and so forth. So that's already in flight, that's going to
happen, and this, we're just a matter of time, at this point that we, that we lock in the milestones associated with with creating that, that separation, you know, as as far as, does it ever like fully separate? I think, you know, that's an open question, you know, for for for another day. And I think you guys have talked historically. You know, customer interaction, customer announcements are the best way that, at least people in these seats can track the progress. There is there anything else that you would offer now that you've had two full weeks under the covers here to to talk about milestones in terms of what we could look for, to say, hey, you know, 18 A is on track. Or to give us a little more comfort on that, yeah. I mean, we've, hit milestones. We've talked about hitting milestones in the past on earnings calls. We have a couple of milestones that are coming up here in the not too distant future that we're likely to update investors on at the end of January.
Early indications are, you know, things are going well there from a customer perspective, you know, we, as we talked about in the prior earnings call, we've got a number of RFPs that we're working through our queues, whatever they call, that we're working through over the course of the next few months. And my sense is that, you know, probably provide some update at January, but I think you're going to find us. And this is kind of a characteristic of Michelle and I. We are a little bit more
on a say, do basis, where we're more likely to tell you things as they you know, as we've kind of accomplished big milestones that are meaningful, as opposed to early indications of success. So that's going to that's our philosophy. I think that's why the board actually chose us to run the interim role, because we are so transparent and and and operate in that, in that, in that way. And I think investors can expect us to do that as we go through earnings calls and so forth. Okay, so there's the technology roadmap, and then there's the execution in the near term that helps the profitability as well. And we spent some time last night, Dave talking about profitability actions in the near term. Do you want to talk about Altera and your mobilized stake? Those are two actionable items that you guys have talked about in the past. Can you maybe spend a little time on the health of those businesses first, and then maybe potential plans for those two? Both of those businesses are in kind of a recovery, so that's good, obviously, you know, mobile, I we do want to hold a reasonable stake in the company, although we recognize that, you know, investors need liquidity as well, and and we need, you know, we could use cash so, so, so you will see us probably sell some of our position over time, but we're not,
You know, we're not under the gun to do that. We're going to do that in an appropriate way to drive the right valuation, the right cash inflow, do the right thing for mobilized shareholders and so forth. On Altera, we have kicked off the process. We talked about this at earnings. We kicked off the process to
engage with outside investors to take a stake in Altera. Our thinking is we'll, we'll get another partner in, similar to what we did with the IMS business, get us, get a partner, a financial partner, in with us. We think that there's a lot of opportunity to drive significant value creation in Altera from where we think it is today. So get a stake in clean up the business more, put it in a good position and ultimately take it public.
One of the defining moments of this past year was your initial efforts on costs and the right sizing of the business. Are we done with that endeavor at Intel? Obviously, it's a painful exercise for any company to go through. But do you think there is additional ways that you could write science, profitability standing still today? Yes, you're now. You're talking to the CFO. We are never
done. Look, we i.
I think we're done with, you know, this big reduction in force that we had to take. I think that we're complete with that largely however, we are going to constantly be scrutinizing where we're spending money, making sure that we're getting the appropriate return. We have a number of different initiatives, I would say, you know, part of the way Intel has been run, it has driven a lot of complexity and and I think there are ways we can simplify what we're doing, what we're focused on. Certainly the message from the board last Monday, as they wanted focus and so, and I think that will be beneficial to us, just in terms of operational improvements, but also from a spending perspective. So I think you will see us continue to be highly focused on spending in general. But as far as the 17 and a half billion dollar OPEX number is concerned for next year, we're in good, a good place there. And the what we want to do is kind of bring it down a little bit more the following year. And I think, you know, still early in that process, but competent that will, that will get there. We have done a lot of work on capital spending to bring that number more in line. We're, we're now, at this point, focused on a number, on a gross basis, that's 20 to 23 obviously, we expect offsets, so the net number is a lot lower. And I think, but I think we there are more opportunities to scrutinize spending over capital spending, over time, greater reuse of previously purchased equipment. I think there are opportunities not to get the gold plated tool and and save money in that regard, you know. So we're going to be hyper focused in terms of, in terms of spending on capital. And then lastly, we want to take a billion dollars out of Intel cult at o cost, which is an acronym for other cost of sales, which is essentially period cost in the cost of sales line, there's a big number there. I mean, it's billions of dollars of spend in others cost of sales. And I think, you know, we will certainly be able to take this billion dollars out. We have good line of sight, but I think there's more opportunity there. And quite honestly, with the with Naga coming in to run manufacturing, he thinks there's opportunities even on what we call the P cost, which is, you know, more the
variable cost that we spend for waivers, and so we'll constantly be focusing on this to drive a much better level of profitability, which we understand is the key aspect of driving value creation for shareholders. Only thing I might add for products is we're going to be laser focused on where do we sit versus other competitors from a best known methodology and designing products, but one of the things I know that we can do to drive better efficiency is using IPs from the cloud all the way to the edge today, those are three independent teams. They all design their products independently, and I think we have a large opportunity to really think about the way we can use the IP portfolio across the entirety of our product portfolio. And by the way, that's something customers would like to see as well. So it's a large opportunity, I think for us, I want to go back there, but just one more on Dave's comment. So the offsets are obviously a big deal as well. And having a regime change there's been, I think, vocal is tweeting. So I guess with tweets and conversation about potentially eliminating some of that funding. How would you view spend if you were to see a change in that type of support? Yeah, well, first I would say we signed the chips agreement. It's an agreement we actually, because it took a while, we have hit a lot of the milestones associated with that agreement already, and so we're actually now in the process of, obviously, a lot of documentation that goes towards the submissions to get payments. We're already in that process. So I think we're going to see meaningful inflow in the not too distant future, even before the transition in government.
But it is a key component of our calculus in terms in terms of spending. So obviously, if we think that there's an adjustment happening, you know, we will adjust spending accordingly. I would point out one other thing. If you look at like our offset, clearly, you know, there's there's the skips, which are offsets as well. But if you look at the offsets that are pure, kind of like government offsets,
it's a combination of grant money and the investment tax credit.
And in reality, the investment tax credit is three times the value of the grant, and it gets, tends to get ignored, but it is the more significant part of our offsets over time. Early on, the grants are more but over time, it will be the investment tax rate that really drives a lot of that. That's, you know, tax law. Of course, you know, tax law can change, but, but, you know, I'm assuming that that will not happen. And it's actually relatively straightforward in terms of how you get it. You essentially spend the money. There's a time at which you can, you.
Claim it on your tax return, and then you get a refund in the subsequent year when you file your taxes. Okay, on the product side, what I wanted to touch on was the aipc. So a lot of debate as to what is an aipc, you guys have talked about it from a product line perspective. So when you sell a certain type of product that is an aipc, can you talk about 2025? Is this an inflection year, and what you guys define as aipc? Would you define aipc differently? And is that something that helps Intel in terms of unit volume, or is this an ASP uplift? Or is this net net just a redefinition of the existing market? Yeah, it's a good question. So aipc obviously started in 2024, and we've openly stated we'll sell about 40 million units this year, but I would I'm also pragmatist, like most of those are being used in very the same way, or you're all using your notebooks today. We've done a large investment in working with the software ecosystem to bring over 400 ISVs to the marketplace, because you need to start seeing those usage models that really drive why you would buy hardware. And so when I look at 2025 between all the work that we're doing, the work that you've seen Microsoft doing, I do think you're going to start to see more demand for I need an aipc. There's a lot of versions of what an aipc is at the end of the day, I think the one thing the entire industry aligns on is you need a neural processing unit to do the low latency work in the background that allows you to have battery life, but to be doing those AI workloads all day long. So we're all aligned on that. So when I think about 2025 I think it's volume, you'll certainly see ASP uplift that comes with aipcs as well. And you're going to start to see a lot of the CIOs making investments for future proofing. So they may not know exactly how they want to use an aipc today, but they know that the longevity of that purchase is over, you know, a three to five year horizon. And so we're already seeing CIOs coming to us saying, hey, what do I need? What is future proofing? How do I need to be thinking about those purchases, which I think is a very good indicator that, you know, a lot of times, either software proceeds or hardware proceeds. And in this case, much like when you all got Wi Fi on your machines, there, you had to put, you know, the capability in the machine, and then you had to deploy all the hot spots. And so in this case, now we have the hardware in the machines, and we really need that software ecosystem to really start the innovation engine and to show people what they never knew they wanted to do on their PC is now, now possible. So there's two threats, I think, to the PC market that I think I'd just like to hear your opinion on is, obviously there's the arm ecosystem. So you had Qualcomm talking about by 2030, 50% of the market moving to arm PC, which is aggressive number, I think, by many people standards. But anyway, still something to notice. And then two, obviously, you've been on the road for last two weeks, probably talking to customers, and your competitive dynamic with AMD, where you know, if you hear about a leadership change, the instant reaction from some customers, what's the roadmap? Where are we going here? So if you talk about those two threats and how that may impact the next couple of years, absolutely. So when we think about arm, obviously the apple machines are all based on arm, and they've been eight to 9% pretty relatively stable from a growth perspective. And Qualcomm makes up about less than 1% of the PC market today. And if you look at the investment in arm, you look at the work that Microsoft's done, I mean, there's been a very large push to make arm ubiquitous in the PC. And there's some real challenges to arm being ubiquitous in the PC, you will never hear me say that it will not happen, because competition makes us better, and as long as you're constantly worried about who's knocking on your door, you're going to constantly be innovating and making sure that you don't have blind spots. But we do see that there's still a lot of incompatibilities. I mean, if you look at the return rate for ARM PCs, you go talk to any retailer, their number one concern is, I get a large percentage of these back because you go to set them up and the things that we just expect don't work, right. And Apple did a lot of that heavy lift for arm to make that ubiquitous with their iOS and their whole walled garden stack. So I'm not going to say arm will get more sure than it gets today. But there are certainly, I think, some real barriers to getting there. And I think another barrier is
we took too long at Intel to become performance and power oriented, and we made a massive leap with our lunar Lake product last year. We are, are as performant on performance and battery life as most ARM devices out there, and so for our customers, a lot of them are saying, Okay, you're finally in the ballpark of being focused on all these right things. Therefore, I believe I can bet on an x86 architecture. When it comes to AMD, we both kind of have the same bet, right? When we think about the work that Lisa is doing and the work that we're doing, we believe that x86 is the best overall basic architecture, and we'll continue to build upon that. I've spent a lot of time with customers in the last two weeks, as you can imagine, probably the thing that is the most exciting about the last two weeks, despite a lot of very, very difficult conversations, is customers want us to be successful. Our customers have decades of relationships within.
Tell them, those don't go away overnight. I've seen customers lean in. I've seen customers change their roadmap. I've seen customers say, Michelle, I need you to look me in the eye and tell me that your say do ratio is going to continue as it has for the last three years, and that you're going to tell me if something changes. And so there's a lot of trust built up there. We have a lot more trust to continue to build. And I'm not saying it's not going to be bumpy, and I'm not saying that others won't take advantage of certainly, the few potholes that we've had in the last couple weeks, but I feel good about where we are, particularly on the client side. But you know, I'm my say do ratio for my customers. I want it to be perfect. Like I ran sales for a long time. Nobody likes to send a dear customer letter ever. The worst thing you can do to your customers, because they bet on you. They bet their business on you, with a lot of work to do on the data center side, which I'm sure you'll ask me about, but with a lot of work to do there. But on the client side, our say, do ratio for the last four years has been very good. We've met our schedules, we met our performance. So you can expect that to continue. But everybody is really excited about the PC market, as you said, so we have more competitors than we've ever had. You will see more competitors enter the marketplace in 2025 and we're gonna have to be on our toes and making sure that we're winning. Maybe one thing I just want to add, I'll brag for Michelle, since she probably won't drive herself. So keep in mind a couple of things, you know, because, because the start of this question was around, you know, the change in leadership.
You know, Michelle and I are co interim CEO. So that's a temporary role, somewhat lost in all that is Michelle got promoted to be CEO of products. And that is a permanent role. I mean, she is, she is going to be the CEO of the products business. We've never had that, you know, kind of across the board
leader on that business, which I think is important. It helps frame the roadmap, thinking about all the dynamics between the various businesses, thinking about how the functions work together to be successful. So all of that is under Michelle's purview, and Michelle is very, very good with customers. Very good with customers universally. You know, the feedback, even in this last week and a half from customers, is very positive around Michelle getting that role and they being able to interface with her, not only in the client side of the business, but also in data center and in the networking part of the business. So I actually think we have improved that dynamic with customers, and put us in a better position relative to competition given this new structure.
Thanks for the title. I forgive me for not also saying
but I am remiss to not mention So following up on the PC side, just jumping right back into it the data center side, it seems like you're more comfortable on the PC side than you are on the data center side. Could you talk about the six dynamic in the data center first? And we can move to AI in a little bit. But you know where? You know, where are the differences versus where you are in PC and why does like your your feeling, seem a little bit more skeptical about where you're at today. Yeah. I mean, I don't think it's a surprise to anybody. We've had some big challenges on the data center side, from a market segment share perspective, from the competitiveness perspective, we've talked about those. And as you look at kind of data center market moving forward, there's not a lot of tam growth. It's really about, you know, core count growth in that. And you know, for us 2025, is a year of stabilization. We've been talking about that since q2 about stabilizing that market segment share loss being really laser focused on building the right products to regain share. We have two products coming with clear water, forest and CMR. Now I'm going to blank on what that stands for. DMR, yeah. Diamond rapids. Diamond rapids, thank you. We talk in acronyms all the time, which is our PCOR products moving forward. And so we have a lot of work to do. There a lot of work to do there, and I think as much work to do on the product side as we do on the customer side, and that business has changed a lot. If you look at the CSPs, most of them have custom parts. We obviously have our new x86 consortium where we'll work to give people head known IP so that they can build it based on x86 so there's that piece. But obviously AI has also come in, and the shift from CPU to GPU has been probably the largest shift we've seen in decades in regards to the shift in the way that compute is used. And so I think that has really caused at least me in this job to kind of stop reflect and listen, trying to understand, why did we think we were going to be successful? How do we learn from that, and then how do we put those learnings into what we do moving forward? I feel good about where we are from a Xeon roadmap perspective, but we have a lot of work to do on the AI side. I'm sure you'll ask me a question everybody wants to know about AI obviously, it's this massive market opportunity. So for me, my first couple weeks are just about.
Listening like what's working for our customers, what's not working? What are they happy about? What are they not happy about? Then we are going to come back. We're going to huddle, we're going to reevaluate. What are we doing? Is it actually going to win? If it's not, what pivots do we need to make? I don't know what those are yet. If I'm just blunt, and most importantly, who's with us on this journey, we need to find a few key partners that want to win with Intel. There are a lot of advantages to the architecture that we have, and we see that. But up until now, AMD has been doing a better job of servicing those customers. So those are my customers before, when I ran sales. And so I'm going to be laser focused, and how do I switch them back. But it requires not just relationships. It requires great engineering and great products. And so part of the shift in our strategy is, you want my opinion, we weren't making enough investments in products. We just weren't and we weren't moving fast enough, and people really proud enough, and they were being more innovative, and they were more willing to disrupt themselves. And so what you'll see for me is I'm willing to disrupt myself. I'm willing to have a year that isn't so great if the next year is even better. Because at the end of the day, if we build world class products that allow our customers to win, we'll win. And that's, I think, where we really fell short with this products first mindset. And forgive me, it's the question everyone asked as well. You've been more open about outsourcing in your PC business, like, if you get to a point where you feel like for your products to be competitive, you need to move in that direction as well. Is that something that the two of you would feel comfortable moving forward with, or would you wait to have someone move in? I know that's a tough question, but how would you think about that? I would feel very comfortable with it, because at the end of the day, bluntly, I can be attached to my Intel foundry. But if I have a losing product that doesn't really help, I need to be build world class products that my customers are excited about and they want to buy. And if that means landing something on our data center roadmap, on TSMC, I'll do it. Do. I think long term, it will come back to Intel. I do because I do think we have a good roadmap, and I do think we're making positive progress. But in the short term, if that needs to be done, I'll make that decision. It's a very refreshing very refreshing attitude. So next question is on the data center side for AI, so I think that one thing I think there was a lot of debate about the last several years at Intel, but one area where I think that, you know, people pick up the most is the data center product and particularly, you know, the Gaudi product line, and then the GPU first as well. Can you just talk about, do you need a full reset here? You need to pivot in a different direction. Because when you see different iterations of product, all have, you know, struggle, you feel as though, like, maybe we need to start from from scratch. Is that the direction you're going to go in, AI, or are we going to keep kind of going down with that? Well, going back to scratch means I have nothing to learn from and so I look at Gaudi as kind of step one. There's some really good things about Gaudi that we're learning, particularly from the software and the platform level, but Gaudi does not allow me to get to the masses. It's not a GPU that's easily deployed in systems around the globe. And when you think about those that deploy Gaudi, you know, it's from the largest hyper scalers to, you know, smaller customers that are, you know, deploying at the edge. And so we really need to think about how we go from Gaudi to our first generation of Falcon shores, which is a GPU. And I'll tell you right now, is it going to be wonderful? No, but it is a good first step in getting the platform done, learning from it, understanding how all that software is going to work how the ecosystem is going to respond. So then we can very quickly iterate after that, if you just stop everything and you go back to doing like all new product, products take a really long time to come to market. And so, you know, you're two to three years out from having something so I'd rather have something that I can do in smaller volume, learn, iterate and get better so that we can get there. And obviously, AI is not going away. Obviously training is, you know, the focus today, but there's, there's inference opportunities and other places where there will need, there will be different needs from a hardware perspective. And so I'll be focused as well on where, and how can we be competitive, where can we get our first foothold in that market, and then how can we grow from there? But also be very honest with you, we'll be very pragmatic about how we do it. We're not going to throw hundreds of millions and billions of dollars at things that don't get traction, like we need to fail quickly learn and iterate. You talked about holding hands with several partners on this journey, to start on the product side, on the foundry side. Increasingly, we're hearing more announcements from you guys. Could you give us an update on the pipe? Us an update on the pipeline right now and how things are kind of trending over the last several months? Yeah, I think we'll talk. We're not gonna have these frequent, long lifetime deal value updates, because really they don't mean anything. I mean, unless we're getting revenue from customers, it's it's not that important in the greater scheme of things. But obviously getting customers signed up, having them evaluate the process, getting a roadmap with them is important, as I talked about and we talked about on the previous earnings call, we're making progress there in terms of signing up customers. We do have additional customers on 18 a we're working through.
Some like I said, some RFQs with customers on 18 a so I think the progress has been relatively good. You know, what tends to get missed in all of this is we also have the packaging business, that advanced packaging business that we're also trying to drive growth in. We've actually gotten some early wins that are actually starting to show up in terms of revenue that will be a meaningful part of revenue for Intel foundry for next year and so. And we think we've got good, differentiated technology there that customers want. So now it's about, you know, building that customer base, and then eventually, what I'd like to see is a lot of the customers we went on advanced packaging transition them to have 18 a volume with us as well. So, you know, it's, it's going to be a long road. I'm not suggesting that, you know, we got panacea here. We've got to, you know, execute. Obviously the profitability of that business is not where we want it to be. I think we will see some meaningful improvement next year, both in terms of gross margins and operating margins on Intel foundry, and as we kind of start to see these customers roll in, in subsequent years, I think we'll start to see the business get to where our real goal, which was to get to break even midway through now and at the end of the decade. Well, with that, there's time. But I know that everyone in this room is wishing you the best. Thank you both very much for being here. Thanks everybody for coming.