Morgan Stanley Conference

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Company Participants

John Pitzer - Corporate Vice President of Investor Relations

Conference Call Participants

Joe Moore - Morgan Stanley

Joe Moore

Welcome back, everybody. I'm Joe Moore, Morgan Stanley Semiconductor Research. Very happy to have with us today, John Pitzer, and I lost you guys want me to read the safe harbor. Here we go.

On behalf of Intel, before we begin, please note that today's discussion may contain forward-looking statements based on the environment we currently see it. As such, we are subject to various risks and uncertainties. It also contains references to non-GAAP financial measures that we believe provide useful information to our investors, 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 vary. They also provide additional information on our non-GAAP financial measures, including reconciliations or appropriate to our corresponding non-GAAP forecasts.

John Pitzer

Appreciate you reading that.

Joe Moore

Yes, I know.

John Pitzer

I would have put glasses on so.

Joe Moore

Yes, I have to put my glasses on it's kind of the squint a little bit. But anyway, thanks for doing this. I really appreciate you being here. And just kind of my question.

Question-and-Answer Session

Q - Joe Moore

So, you went through a CEO transition, lots of transformational stories coming out every day. But it seems like from the way you're talking about on the earnings call and the meetings you've been doing, strategy is still basically the same. And so maybe give us some perspective on what's happening at Intel now from more of a strategic perspective? It seems like you're still aiming towards the same general goals that you had under, Pat?

John Pitzer

Yes. I mean, it's a good question. I think the core of the strategy continues to be standing up a world-class fabless company and a world-class foundry. I think on the margin, as you think about Dave and Michelle in the interim CEO roles, they have been given full agency to go off and prosecute the strategy, I think on the margin. I think from an Intel products perspective, I think there's a strong understanding that without that being healthy first. It's really hard to have a healthy Intel foundry.

So, I do think Michelle has been given a bit more agency to go off and make decisions around what she thinks is best for the product road map and for longer-term market share there. And I think the biggest sort of manifestation of that today is she probably has more agency to use TSMC longer and for more than she might have had six or nine months ago. And to be clear, we have roughly 30% of our wafers outsourced today. That is probably a high watermark for us.

But to the extent that I think a year ago, we were talking about trying to get that to zero as quickly as possible. That's no longer the strategy. We think it's always good to have at least some of our wafers with TSMC. They're a great supplier. It creates a good competition between them and Intel Foundry. Not quite sure what the right sort of level set is. Is it 20? Is it 15? We're working through that. But we will use, I think, external foundry suppliers longer kind of under this new strategy.

On the Intel foundry side, I think you're right, we're on a mission to stand up a world-class Intel foundry. I think the key point that the Board wanted to stress, and I think Dave is clearly on board with this is that we've put a lot of our owners' capital into that strategy. over the last several years with not great financial returns today. And I think incremental returns on incremental capital is going to be a key metric that we look at as we drive that strategy forward.

Joe Moore

Great. That makes sense. So, talking about the Board, the Board is now faced with some pretty important decision making. I know you had some key additions to the board. Is that something that was put into place after Pat left? It seemed like maybe it was underway before he left. But just generally, the status of the board additions as you approach, the CEO transition?

John Pitzer

Yes, I think the announcement of Pat retirement was on the Monday after Thanksgiving and the Board additions were Wednesday. So clearly, that was in process prior to Pat's decision to retire. And I think Pat was instrumental in kind of getting that list together. And I think it reflects the Board really understanding that operational semiconductor expertise is something that they wanted to augment on the Board. I think Eric and Steve were great additions on that front, but that was clearly something that was in flight prior to that decision to retire.

Joe Moore

Okay. Helpful. So industrial policy was a big focus of Pats. And the prior Secretary of Commerce went so far as to call Intel the National Champion. We have a change in administration, new priorities. But generally, there's still a lot of desire to have U.S.-based manufacturing U.S.-based foundry. So, what Intel's role now in this -- and I know that I'm not asking you to predict all the uncertainty that's out there. But how do you manage the uncertainty that's out there? And how do you make sure that the benefits that Intel was getting that you can retain?

John Pitzer

I think the important point is that our interest in the administration distance are fully aligned. We like to remind people that as the administration drives to bring manufacturing back to the U.S., we never left. In fact, the initial surge of this effort was back in 2016. I'd like to remind people that since 2016, I think we've spent over $100 billion of capital in the U.S. on manufacturing. I think more importantly, we spend over $100 billion of R&D in the U.S. And I think that level of R&D expenditure in the U.S. puts us at a scale that no one else can rival.

And so, I think that our interest are very much aligned with their interest. And we think it's incumbent upon us to execute and provide a process that customers want. But if we do, this is a market that's large enough to have two viable suppliers. And as you know, Joe, kind of our goal is to be the second largest external foundry by 2030. We think we need roughly $15 billion of external foundry revenue to achieve that. And that would still put us at a modest sort of less than 10% market share in that market. So, we think it's a realistic and achievable goal.

Joe Moore

Yes. Great. That's helpful. So maybe where you are in process technology, 18A, clear leadership potential on paper, from what we've seen, the backside power, everyone agrees is a very elegant approach. How manufacturable is it? Are we still on track? I know the server products maybe slipped a little bit from the original schedule but is 18A still basically on track?

John Pitzer

Yes, it is. I mean, I tend to wake up every morning trying to fish through rumors that are coming across on X or on social media about Intel 18A, I want to be very clear. Panther Lake is on track to launch in the second half of this year. That launch date has not changed. We feel really good about the progress that we are making. In fact, if you look at where our yields are on Panther Lake today. They're actually slightly ahead at a similar point in time to Meteor Lake. If you look at the development process for Meteor Lake.

I think a couple of weeks ago, there was a technical paper out that actually looked at our SRAM density on Intel 18A that compared well with TSMC’s N2. Lots of different metrics you can compare technologies on. I think, in general, we think about Intel 18A being an N3 type/N2 sort of comp with the external peers. We're also on track and we've announced this that we're going to tape out our first external design on Intel 18A in the first half of this year. So, we feel good about the progress that we're making there.

Now I'll remind you that we will launch Panther Lake in the second half of this year. In a similar vein, we launched the Meteor Lake in the second half of '23. It wasn't until '24 that it became real volume. We launched Lunar Lake in the second half of last year, and this is the year where it becomes real volume. And as we've said on Panther Lake, we launched in the second half of this year, but it's really not until next year that we get to that volume really starts to help improve the margin profile of the overall company.

Joe Moore

Yes. And the change in some of the schedules are on server, how much of that is just a standard of conservatism of we actually want to be shipping in volume at those times because I feel like if there's one criticism prior was that some of those targets were kind of squishy.

John Pitzer

I think we have like three or four different launch dates for any given product. Yes, I think one of the things we tried to accomplish on the earnings call back in January, was hopefully, help people understand that we're not going to make commitments that we don't have clear line of sight of actually being able to hit. And it was one of the reasons why we delayed the launch of Clearwater Forest from what was supposed to be this year to the first half of next year.

To be very clear, as we talked about on the call, it's not a wafer issue 18A looks good. It really is an advanced packaging issue where we're doing hybrid bonding for the first time. The good news is we fixed that issue already, but it has caused a delay as to when we're going to officially launch the product. But we do expect to ship samples in the second half of the year to customers. So hopefully, your channel checks will start to hear some good things about Clearwater as we shift those samples.

Joe Moore

Great. Okay. Appreciate that. Can we talk about the foundry versus product segmentation your product profits are almost offset by the foundry losses? Can you just remind us of the walk-through to breakeven in foundry? And how much of that is reliant upon external foundry wins?

John Pitzer

Yes. To answer the last part of your question first, not very much. I mean we talked about sort of a target of giving Intel foundry to op profit breakeven by the end of 2027 that's mostly on the back of Intel products and actually mostly on the transition from moving our mix from Intel 7 wafers to Intel 18A. As we've talked about in the past, as we make that transition you will see ASP per wafer go up 3x faster than cost per wafer. And it's really what's driving us to a breakeven profit point as we exit 2027.

Joe Moore

But implicit in that the CPU business gets the benefit, paying more for those wafers is still gives them the same profitability?

John Pitzer

Well, listen, it's a great -- it's an interesting dynamic that you brought up. I think it's an important point. As ASP per wafer at Intel foundry goes up, it is an incremental cost that Intel products needs to go out and figure out. Now they would have that problem if they were sourcing wafer externally because as you know, leading-edge wafers, whether you're getting them internally or externally are just costing more.

And so, it is absolutely good for Intel foundry profitability as we transition to Intel 18A, which makes it good for Intel corporate. It does create some gross margin, I think, challenges for Intel products that they're working through, but has been fully encompassed in sort of some of the targets that we've given out there.

Joe Moore

Okay. And then your capital spending, it was a slight downtick from where it was prior, but basically very similar. You and I have talked about in the past, you have this large amount of construction in progress, which is assets not yet being productively deployed. How do you think that plays out? This incremental spending is that filling out empty fab shells that are still construction in progress? Or just what's the dynamic that you need to spend this money, but you still have a lot of assets not yet...

John Pitzer

Yes, it's an area that really didn't get a lot of attention until Naga joined the Company back at last year. And as you pointed out, back at the Q1 earnings call, we did take our CapEx guidance from this year from what was $20 billion to $23 billion down to $20 billion on a gross basis. You are right, we've got north of $50 billion in what we call construction in progress or assets under construction.

I think it's important to point out that includes both equipment and brick-and-mortar. So, we haven't really given you the split of each. But if you look at over the last several years, that asset under construction has grown almost every year, which is really an indication that perhaps we were buying ahead a little bit too much.

Joe Moore

We had a shelf first trade...

John Pitzer

But it was also on the equipment side. It wasn't just brick-and-mortar that was growing. It was also equipment that was growing. And we now have sort of an initiative to try to bring that number down. And so, the way I like to think about it is we give you a gross CapEx number and a net CapEx number, it's also important to think about deployed CapEx in any year, which is really the gross CapEx minus the changes in assets under construction.

Joe Moore

Enough, just give me on CapEx.

John Pitzer

But if you look at that, our deployed CapEx has been below our growth CapEx for the last several years. This year, actually, our deployed CapEx will be up year-over-year and greater than that $20 billion as Naga and his team work to take on that assets under construction.

Joe Moore

Okay. Okay. Maybe talk about product a little bit, and I like what the Board did with Michelle. And I've always had this contrast of when Lisa Su got to AMD, she just focused on product for years and years and years. And I think about how many different things you guys have had to think about in addition to that and how much of the energy went into industrial policy process technology that a TSMC customer doesn't have to worry about it at all. So that focus on product seems to be really important. Like how deep does that go now? And how much is it? I just feel like having better CPUs, not that they're not good but having -- being competitive is just such a huge deal in terms of getting a stable foundation to invest in these other things.

John Pitzer

Yes. It's a great question. I mean I think it's important to point that while Dave and Michelle remain co-interim CEO of overall Intel Corporate. Michelle has given the permanent promotion to be CEO of Intel products. And there was reason behind that. I think the Board understands that, again, unless you have healthy Intel products, it's hard to have healthy Intel foundries. And so, I hate the term first among equals, but in a sense, the Intel products is a little bit of a first among equals because we know we have to get that right.

We've got to be able to maintain the strong share we have in client, and we have to be able to claw back share in the server market, if we're going to have a longer-term healthy Intel foundry business, and MJ has been given the autonomy to go off and do that. And you've seen her already make some pretty important road map changes. We talked about Clearwater for us. We haven't talked about Falcon Shores becoming just a test chip and moving all of our effort on the accelerator side to Jaguar Shores, which is really going to be moving from a silicon solution to a rack scale system solution.

We've got a lot of wood to chop, and it's going to take us time to get there. But I think we're -- have a more, I think, definable product road map that we can go off and attack. I think underneath the covers, I think MJ and her team are doing a lot to try to rationalize SKUs across our product families and to really drive cost down in the product side of the portfolio, which I think is going to create significant tailwinds to profitability in the years to come.

Joe Moore

Okay. That's very helpful. Maybe if we go through some of the products, client CPU, you had a quarter where you sort of signaled that there was some tariff pull forward. You've also talked about potential share gains around Lunar Lake over the course of this year. Is your view still consistent with that? And that idea of pull forward, I mean, it seems like the total CPU number was a lot faster growth than the PC market. So, I think that's -- there's some indication it's less yours than AMDs maybe, but the totality of it does seem like there was some of that. Just how do you feel about that PC market, both from a share perspective and a unit volume perspective?

John Pitzer

Yes. So, a lot wrapped up in that question. Let me touch a little bit on sort of some of the tariff stuff that you talk to because we did mention in our Q4 earnings that it's not an exact science because we don't have clear visibility. But just some of the anecdotal conversations we were having with customers suggested that perhaps some of those customers might be protecting themselves against the potential of tariffs.

And it's one of the reasons why when you look at our Q1 guide, we guided well below normal seasonality sequentially in Q1. And to try to capture some of the uncertainties that we're seeing out there in the marketplace, and that's inclusive of tariffs, it's inclusive of geopolitical tensions. And just some of the uncertainty that I think the broader stock market has been grappling with over the last several days. I think we were one of the first to discuss this, and we got a little bit of flack that we were discussing it when we did.

I think it's -- in hindsight has been prudent that we kind of looked at our guidance and try to incorporate all of this on a [indiscernible]. Broadly speaking, relative to how we feel about the PC portfolio great. Roughly speaking, we're seven out of every 10 PCs that ship in the world today from a market share perspective, that is very strong market share. And it's really up to us to execute to maintain that strong share across all markets. We only guided one quarter out.

I will say that as we think about the full year, our view of PC unit growth this year is probably not much different than third parties. And they're kind of all sort of centered around that 3% to 5% type unit growth number. I would highlight that, that would be the best unit growth we've seen post COVID. And we do think that at the second half of the year and some of our OEM partners are talking about the potential of a stronger enterprise refresh. We haven't talked about that yet. But if that does happen, I think we're well positioned to actually benefit given our ecosystem in the enterprise market.

Joe Moore

In the share.

John Pitzer

Again, I think being seven out of every 10 PCs is a good share position to be in. And our job is to bring product out that allows us to maintain that. I will say that we've been pretty front-footed to remind you now that Microsoft is off exclusivity with their one ARM partner that we would actually expect to see other ARM players come into this market. We like that because I think it confirms our view that this is actually a good market to be in.

And clearly, whenever you have new competition coming into the market, they're going to have channel sell-in even without sell-through. And so that will put some pressure on headline share, but we think that we've got an extremely strong product portfolio with Arrow Lake and especially Lunar Lake. And I think as we turn the page into next year, and we get Panther Lake out the second half of this year and then Nova Lake the next year that we're in a very strong position in that market.

Joe Moore

Okay. Okay. That's helpful. And then server kind of the same conversation about unit volume and share. And I guess, your share is longer in some parts of the market than others. So, a lot of that is going to be mix dependent. But generally, your view on the server market?

John Pitzer

Yes, I'm glad you characterized the mix dependent because everyone likes to talk about the server market as being this analytic creature. And it really comes down to customer by customer, socket by socket, application to application. And to your point, there's areas that were stronger and there's areas that we have some work to do. I think what we feel good about is now that we've launched Granite, it helps to close the gap with the competition.

There's still a gap. But it does help to close the gap when you have characterized this year from a market share perspective as a year that will continue to stabilize share. And I think we would try to highlight on our Q4 earnings call that as we think about this year, both across server and client we're going to optimize for share over margin, and we might be a little bit more price aggressive where we think we need to be in order to do that because we think it's important to defend the share.

Joe Moore

Yes. And I guess what if on the counter to that, there's a big cloud refresh, particularly from consumer-facing cloud where they're just like we need to start replacing these four- and five-year-old servers. It seems like that's probably a headwind for you guys share-wise.

John Pitzer

I mean it could be. I mean one of the things that we've highlighted and reminded people is that when we think about share in the market, it's not just the x86 market, we try to take into account what's going on with the ARM servers as well. And if you remember, the end of 2023 was a big deployment for ARM-based servers, which set up for difficult comparison '24.

So, if you actually look at our share position in '24, we actually gained share against ARM servers in '24. A lot of that was the difficult compare that they set up in '23, that difficult compare in '23 becomes an easy compare of '24 to '25. And so, we think ARM is likely going to do a little bit better this year against easier compares. And we're really thinking about what our x86 share will look like and the competition with AMD.

Joe Moore

And what about the sort of cloud-native Sierra Forest type products that sort of emulate the higher core counts of ARM. It seems like AMD was saying yesterday that had some success around Bergamo recently. Like do you have optimism around those products?

John Pitzer

We do. We think Sierra Forest is a good product. We're going to be happy when we get Clearwater force launched in the first half of next year. Having said that, I'll remind you that Michelle on the earnings call did talk about the idea that our view of the E-core market versus the P-core, E-core being efficient, P-core being performance. That we actually think the core market is probably a little bit smaller than we originally thought. And if you look at kind of our share position in servers over time, it's really going to be dependent upon how we execute on the P-core or more than the efficient core.

Joe Moore

Okay. That makes a lot of sense. And then Clearwater Forest potentially being a little later. It also wasn't accompanied with some of the hyperbole that we've heard describing that as kind of clear leadership like some of that is a style bias of who's talking. But your confidence in Clearwater Forest as a product that can regain share in those parts of the cloud one?

John Pitzer

It's a solid product. I think you kind of nailed it sort of how we're describing things going forward. I think we're going to probably be to the more conservative side as opposed to the more optimistic side. And really, I think one of the messages we tried to give on earnings is what we say is not nearly as important as what our customers say about us. And we're going to stay less and do more.

Joe Moore

Yes, yes. The Falcon Source decision you referenced sort of not bring that to market. So where does that leave you now with regards to AI? I mean it seems AI accelerator market seems pretty important but also hard to crack. And so just how are you guys thinking about that?

John Pitzer

Yes. I mean, again, from an AI accelerator market, it's absolutely a market that we want to participate in. That's the genesis behind our investments in Jaguar Shores. I think it's also though important to remind people, and I think some of the DeepSeek learnings over the last few weeks has helped here is that the AI is not a market in the traditional sense. It's more of a workload that's got to span across the compute continuum. From the data center into the network, into the enterprise into the client and into the edge.

And right now, rightfully so, a lot of the energy and conversation is around hyperscale AI data centers because that's where all the dollars are being spent. But quite frankly, you can't monetize the dollars being spent there unless AI gets pushed out to the edge. And we do think independent of what's going on with our accelerator strategy, as those workloads get pushed out to the edge, you're intercepting ecosystems where we're extremely strong, and we're poised to benefit with a CPU type solution.

And quite frankly, the AI PC is a great example of that. For any sort of node on the compute continuum, there's going to be an optimum silicon solution that's going to drive the best TCO for customers and what's appropriate in the data center might not be appropriate -- I'm sorry, in the hyperscale data center might not be appropriate in the enterprise, data center and definitely won't be appropriate on the client or the edge of the market.

Joe Moore

Okay. And that’s really interesting point. And I think there was a time when you said 99% of all inference was happening on microprocessors. I feel like that's less true today, but there's -- is there an opportunity to actually drive a refresh business around that, where at a CPU level, we start thinking about CPUs as an inference tool, which maybe helps you in terms of speeding up the reach?

John Pitzer

I mean, there could. And you've seen us announce some relatively large LLM that we're able to run natively on our new Xeon chips. And so, as the market develops, again, it's incumbent upon us to come up with good TCO solutions, depending upon what application you're running and where you're running it. And there, we do think CPUs hunt.

Joe Moore

Yes. Okay. Great. A couple more questions and then we can open it to the audience. How are you thinking about both Altera and Mobileye at this point? I guess Altera, there's been some movement. But can you just characterize what's happening there? And are those assets central to what Intel is doing?

John Pitzer

Yes. This goes back to Dave and Michelle have a full agency to execute on the strategy, a key part of the strategy was actually to do a stake sale for Altera on track to an IPO in coming years when the markets are ready and when the business is ready. And we continue to execute on that. What we've said is that we expect to have something to say in the Q1 time period. So, stay tuned on that front. But we're making progress there. On Mobileye, I love the asset. It's not core to the business, and I think Dave and MJ will be pragmatic about balancing sort of our source of capital needs with what's right for Mobileye and their shareholders as far as monetizing more of the asset.

Joe Moore

Okay. Very clear. Thank you. We see if we have questions from the audience. Great. So, I guess I'll keep going. I guess coming back to the Board's decision here, there's a very clear value case for Intel, I feel like, which is just fixed the core products, kind of whatever that means fab like have the fabs IDM 1.0, it seems like you're still more ambitious on that. You're still aiming at something that's IBM 2.0 like in structure. Just how do you think about the balances there? I mean there's obviously a very large opportunity here if you execute all of that, but it would be easier to maybe focus and isolate some of that.

John Pitzer

Yes. I mean, listen, it's a good question. I think at the end of the day, we understand that we have two very valuable assets that probably aren't being appropriately valued in the marketplace, in large part because we haven't executed as well as we should have. And that's -- the Intel product is a very valuable asset and Intel foundry as a very valuable asset.

I think that we've set up a structure where we've got optionality about how we go about ultimately monetizing those assets. We've talked about standing up Intel foundry as its own wholly owned subsidiary. We're in the process of doing that. On the earnings call, we talked about taking the next step of actually trying to find incremental investors into Intel foundry and that we're in the early stages of that show.

And so, what I would tell you is this is a board that's very focused on making sure we're creating value for all of our stakeholders especially our investors. And so, we're going to try to look at all the different scenarios and come up with what we think is the best sort of balance of value creation versus time line versus risk.

Joe Moore

Great. And on the foundry side, there's -- obviously, this has been something that we've been talking about for a very long time. How much expertise do you need to run that business? Do you need people running the foundry business to have a background in it? I know there was the tower thing that didn't come to completion. But now, you have a number of partnerships out there to try to resolve that issue. How much expertise do you need to build in addition to process technology? Once you have the process leadership, how much capability do you still need to build in Intel?

John Pitzer

I mean a lot. I mean the service side of the business is the important side. You need a product that people want. And I think importantly, now that we've got the 1.0 PDK out on Intel 18A we have seen increased activity around RFQs. It's -- our SAM is still somewhat limited to the overall TAM, i.e., if you're a high-performance compute customer, 18A looks really interesting to you. If you're a mobile customer, it looks less interesting to you.

But in addition to having that process expertise, you do need the service mentality, and that's one of the reasons why we hired Kevin O'Buckley, to run the external Intel Foundry Group. Remember, Kevin came from Marvell. He got to Marvell because he was CEO of Avera. So, he also has experience at IBM and at GlobalFoundries on foundry side. And we have augmented our human capital internally with a lot of other people that have worked at foundries in the past.

But as you know, the long-term sort of core of building a foundry is building trust with the customers that you're going to support.

Joe Moore

Yes. Yes Okay. Very clear. Yes, I have a question in the front. Sorry. We have a question in front here. The mic. Great. Thank you.

Unidentified Analyst

As investors, what are the, I guess, key milestones that we should be expecting to hear from you as it relates to 18A in the near term? And then, I think you partially answered this in your last answer, but what would you say was, I guess, the main reasons why things are taking longer at foundries than I believe was originally expected, especially as it relates to external customers?

John Pitzer

Yes. So, both good questions. On the 18A front, I would tell you that the key milestones is us launching Panther Lake in the second half of the year, which I said we're absolutely on track to do. I've also talked about taping out an external design in the first half of this year, which I think is another sort of important milestone. And it's going to be additional customer wins that we may or may not talk about depending upon whether or not our customers want us to talk about that.

I will put in a little bit of a commercial. We are going to do an Intel foundry Day on April 29th at the San Jose Convention Center, we called Direct Connect. And it's really our opportunity to bring together the entire ecosystem. We did our first one last year in February, and I think it was fairly impressive to see all of the ecosystem that showed up and talked on our behalf. And so, I would recommend that anyone in the room who wants to learn more about the update to come to that April 29th event.

As far as the second question, why has it taken longer than we have thought. Some of it is expectations. I think we probably didn't do as good a job as we could have with the investment community, setting appropriate expectation. I would remind you, the key milestone to date on the external foundry was really when we got the 1.0 PDK out for Intel 18A. PDK is the process design kit.

It's really what external customers need to be able to see if the process is going to work for the device that they want to plant on top of that. That happened in July of last year. It was a little bit late relative to our commit, but it's out there now. And as we've talked about, once we got that PDK out, we did see a pretty big surge on request for quotes. We're not going to win all of those RFQs. It's incumbent upon us to kind of win enough to make sure you're all comfortable that we're headed in the right direction.

Joe Moore

[indiscernible] did say today, I brought up this idea of you invested in the second foundry. And she said, "Yes, maybe someday or third. So, she did throw that out there. So still hearing the right things from them. But I guess the key thing from them is they need to see that you're building -- they can obviously make it work, but they need to see that you're building a business around it that it's worth them making that investment.

John Pitzer

Yes. And again, this was part of the reason why we said Intel foundry up as a wholly owned subsidiary. There are customers that want to see operational separation. We completely understand that, and we're moving forward in that direction as well.

Joe Moore

Another question.

Unidentified Analyst

Can you elaborate more on your AI strategy, whether it's primarily based on homegrown technology and work that you're doing? And also, along the same lines, what are the future steps that we can look out for in terms of the progress that Intel has on that front.

John Pitzer

And just so I'm clear, when you say AI strategy, are you talking specifically accelerators for the hyperscale market?

Unidentified Analyst

Yes.

John Pitzer

Yes, it's really not much more than I can add. As we talked about on the earnings call, we've taken Falcon Shores off of the commercialization road map that is only going to be a test chip, and we're really putting all of our efforts behind Jaguar Shores. And the important thing there is we're moving from a silicon-only solution to a rack scale solution. We think we've got the assets needed to be able to bring a full system solution to market, especially with some of the IO assets we have in our NEX business, but it's going to take some time. And I want to set the right expectation.

Now the other point that I probably should make because it's an important one is Intel products has an opportunity to capitalize on that part of the market, so does Intel Foundry, both on the advanced packaging side and on the wafer side. And we've been very vocal about how anyone doing anything with AI accelerators today is at least engage with us on the advanced packaging side. And that's promising because that's going back to building trust. It's a little bit easier of a path to build trust on advanced packaging than on wafers because, as you know, Joe, you can sort of dual source advanced packaging suppliers in a way you don't dual-source wafers.

And so, they can dip their toe in with us with a relatively small percentage of their needs we can hopefully under promise and over deliver, build that trust and get more over time. But I do think that both on the advanced packaging side and quite frankly, on the wafer side and whether that's a GPU or an ASIC, those are real opportunities as well that are worth pointing out for Intel Foundry.

Joe Moore

Great. Any other questions? If not, we'll wrap it up there. John, thank you so much.

John Pitzer

Thank you. Appreciate it.