Q1 2020 Earnings Call
[music], ladies and gentlemen, thank you for standing by welcome to the first quarter 2020, Intel Corporation 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 to ask a question during the session you'll need to press star one on your telephone.
A reminder, threes program is being recorded.
Now I'd like to introduce your host for todays program Trey Campbell head of Investor Relations. Please go ahead Sir.
Thank you operator, and welcome everyone to Intel's first quarter earnings Conference call.
Now you should have received a copy of our earnings release in the earnings presentation. If you've not received both documents are available on our Investor website Science, you see dot com.
Earnings presentation is also available via webcast window for those joining us online I'm joined today by our CEO, Bob Swanson, Our CFO, Georgia State.
In a moment, we'll hear brief remarks from both of them followed by Q and <unk>.
What was again, let me remind everyone. Today's discussion contains forward looking statements based on the environment as we currently see it and as such does include risks and uncertainties.
Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.
Reminder, that this quarter, we have provided both GAAP and non-GAAP financial measures today will be speaking to the non-GAAP financial measures when describing our consolidated results.
The earnings presentation and earnings release available 90, Si Dot com include the full GAAP and non-GAAP reconciliation with that let me hand, it over to Bob.
Thanks Trey.
Thank you all for joining our call.
We had an outstanding Q1 in the midst of incredibly challenging circumstances.
We generated 19.8 billion in revenue expanded operating margin by 10 point.
And delivered $1.45 cents earnings per share.
We exceeded our guidance by 800 million on the topline and 15 cents on the bottom line.
Our data centric businesses grew 34% and now represents approximately 51% of the company's revenue.
And our PC centric business grew 14%.
We'll talk about business trends later, but first I want to say I can command all the Intel employees.
And supply chain partners, who have helped keep.
This is operating during this unprecedented challenge.
I want to give a special price to those in our factories and labs and other onsite personnel, who have role models the values of our company every day.
Every show.
I am so incredibly proud of your effort fan commitment.
I also want affect the rest of all employees, who are largely working remotely to help support the social distancing requirements of those that need to work from our side.
Ensuring the safety of wellbeing of our global workforce has and will continue to be our number one priority.
That's why we are investing more than $100 million, an additional benefits to aid and support employees, including they special recognition award for employees that have been working on site.
Syntels purpose is to create world changing technologies that enriches the lives of every person on Earth.
Never before has our delivery of that purpose and more central.
In cell technology runs, 95% of the world its Internet communications and government digital infrastructure.
And then a world where many of us are working remotely and socially distancing.
Pcs and networking technologies delivered by Intel at our customers I'll provide a unified fabric, that's bringing us closer together.
Helping those directly struggling with the virus or caring for those who are enabling remote classroom. So that our children can continue to learn and connecting governments and businesses. So they can operate and deliver goods and services.
Around the world Intel platforms that support telemedicine have also take on greater importance since the outbreak of cold in 19.
As hospitals and healthcare workers scale to meet increasing demand for care.
Our products and capabilities are also delivering vital computing power for medical research.
Bottles for assisted patient care and artificial intelligence and data analytics for public health.
We recognized that our local and global community's needs to continue delivering technology to help overcome discovered 19 challenge and we're fully focused on that tough.
A world class safety standards have allowed our factories to continue to operate safely on a relatively normal basis with greater than 90% on time delivery.
We only allow employees in our factories, who are central to the factories operation.
By design, our clean rooms in factories are among the cleanest places in the world.
Most of our construction projects have remained operational we have had to temporarily pause a few projects through the local government restrictions, but a small number of our site.
We will we start those projects in due course that we expect these interruptions who had minimal impact on a ramp.
No impact on our process technology transition timeline.
We also realized solving the enormous challenge of covert 90 requires catalyzing the world innovation in new ways.
Intel is committed to accelerate and access to technology that can combat the current panda and I can enable new technology and scientific discovery, the better prepare society for future Crazy.
To that end, we pledged $50 million, it's been a global pandemic response technology initiative.
Combat the krona virus through improved access to technology at the point of patient care.
<unk> scientific research and to ensure access to online learning for students and teachers.
We're also granting free access to our IP to all coal, but 90 researchers and scientists.
At the same time, we also know that our communities need help right now.
Between Intel and our foundation, we are providing $10 billion towards Corona virus relief in the communities, where we have significant present.
This will aid community organizations focus on food security.
Melter medical equipment and small business support.
We also want to assist our community is critically important healthcare workers in any way possible. So we have committed more than 1 million items of personal protective equipment.
We have already started delivering math blobs say shield and other gear.
That we've sourced from our supply chain and inventory on hand to local health authorities, who are best positioned to determine the areas of greatest need.
The odd Intel's donations, our employees inspiring everyday with in many ways they are applying their skills.
Generous spirit and technical innovation to help people and communities across the globe persevere through this crisis.
George will give more detail on what we're seeing an unexpected the business, but first I want to reiterate our strategy and priorities.
Even as cold at 19 drive significant disruptions across the globe, our long term strategy to deliver the world's best semiconductors foreign increasingly data centric world is unchanged.
The environment is uncertain, but our priorities our unwavering.
We are focused on accelerating the growth of the company.
Proving our execution and continuing to thoughtfully deployed your capital.
Over the last several years, we've transformed the company and are now positioned to grow our share in the largest market opportunity in our history.
We live in a world, where everything increasingly looks like a computer.
Included in our homes, our cars, our cities, our hospitals and our factories.
Additionally, we have redefined Intel inside to include much more down to see Pugh as we've expanded our silicon offerings to include Eightsix SPG age Gpus and obtain among other capabilities.
Our opportunity sets is more and more Intel silicon.
Side more and more computers.
So that we can have a larger impact on our customer success.
And our quarterly results demonstrate the benefits of that diversity.
Nowhere as growth accelerating more than in our cloud and networking businesses, where we are helping our customers transform the way they move store and process data.
Through this crisis, the world's cloud and network infrastructure has delivered massive scaling to support vital workloads for businesses and consumers.
Cloud delivered applications seed is convenience is a quarter ago, such as online shopping and video collaboration have now become indispensible.
We scaled our cloud and communication service provider businesses, but 53% and 33% year over year, respectively to help our customers meet these growing needs.
These two segments now drives 70% of our data center segment revenue.
New usages and market needs are also pushing compute resources closer to the data source for point of service delivery, giving rise to an increasingly intelligent edge.
Our edge business delivers a wide range of platforms, including some innovative solutions that are helping the medical community Apple covert 19.
One example is medical informatics sick pay platform.
Powered by Intel technology, the solutions can turn says into virtual I see you beds in minutes.
Helping protect critical healthcare workers, while expanding their care capacity significantly.
You said Methodist hospital supports sick pay for its virtual ice to you and was able to leverage it within one day to support remote monitoring of its covert 19 patients without risking exposure to care providers.
We are also partnering closely with Medtronic and Dyson has they use Intel technologies to deliver much needed ventilators.
We also continue to demonstrate significant progress in Adas and autonomous driving.
Auto vehicle production is largely solved mobilized delivered another proof point demonstrated its leadership position with a landmark first ever design win with a major Asian Oems.
Finally, we see AI as a significant growth opportunity and I'm betting a capability to do everything we make.
Hey, I has the power to Reimagine, how we solve problems across industries, including cutting edge health care diagnostic.
For example, in China, Intel teamed with Lenovo and BTI genomics to accelerate the analysis of genomic characteristics of cold in 19.
Our combined work will further advance the capabilities the BG sequencing tools to help sciences investigate transmission patterns of the virus and create better diagnostic methods.
And in India, we're working with government labs, academia and industry to achieve faster and cheaper testing.
Accelerate drug discovery through virus genome sequencing and help architect pandemic response platform.
We acquired Obama in the fourth quarter of last year to strengthen our portfolio and accelerate our efforts.
Nascent fast growing silicon markets that we expect will grow to $25 billion by 2024. This quarter, we have largely completed the integration we consolidated product roadmap aligned software resources and are executing to argue thesis.
Were also now sampling have on his first deep learning training process or two large CSP.
I'll now take a few minutes to discuss how we're executing to our supply and road map objective.
Shortly after our January call, we started to see the impacts of covert 19 in China forced many of our OEM partners to extend Chinese new year factory shutdowns.
Podium partners has now returned to work and production is increasing every week.
As I mentioned earlier, our factories remain operational and in Q1, we're able to mitigate most of the cold hit 90 related supply chain disruptions.
Can fulfill all of our customers committed clients CP orders as expected.
We remain on track to had sufficient wafer capacity. This year, so that we meet market demand and restore our PC unit inventory to more normal levels.
Near term PC demand has increase to the work from home and online learning.
The second half demand picture is more uncertain.
We continue to assess how covert 19th impacts to the economy will offset the immediate catalyst for more remote work that will balance wafer start plans accordingly.
We have made strong progress on a wave of 10 nanometer based product introductions this year.
This quarter, we announced the new Intel Atom P. 5900, So see no ridge paid 10 nanometer paced New addition to our portfolio of Fiveg capability.
We are a leading silicon provider in fiveg infrastructure in snow, which expands our reach to the fourth edges of the network.
With major design wins that Ericsson Nokia Ndtv, we expect to be the base station market segment leader by 2021.
A year earlier than previously committed.
In the middle of this year will debut our next generation mobile processor Tiger late.
Using our second generation 10 nanometer process.
Hi, Good luck will deliver breakthrough performance and our customers have more than 50 fantastic probably the lake face notebook designs lined up for the holiday season.
Finally in the latter part of 2020, we continue to expect initial production shipments above first 10 nanometer base the on scale product.
Thanks.
Well product development in a work from home environment is extremely challenging we're largely on track for our 2020 product deliverables.
We're always mindful of our role stewards and thoughtful allocators of your capital.
We generated significant cash flow didn't have an excellent balance sheet.
We're committed to our dividend and we repurchased $4.2 billion in shares during the quarter.
In light of the uncertainty we took some actions to dramatically strikes in our liquidity position that we felt were prudent.
We raised $10.3 billion and that to further underpinned an already strong balance sheet and we suspended our share buybacks.
We think that's levels conservativism, that's appropriate at this phase now we intend to reinstate our buyback program as circumstances warrant.
Our focus now is on investment in our products and process technology that ensuring we have the capacity to meet our customer needs.
We also continue to take a disciplined approach to our portfolio of investments.
Including an agreement to divest our home gateway platform business.
We have transformed our company to lead the data driven revolution that fueling our industry.
Our belief is that opportunity.
[music].
Colgate 19 is only reinforce how important is for Intel and our customers to accelerate the power of data to fight the current pandemic and a Burke the next one.
To use Andy Girls words.
Bad companies are destroyed by crises.
Good companies survived them.
Great companies are improved by them.
Guided by our cultural values competitive advantages and financial strength, we will emerge from this situation even stronger.
I'll now hand, the call over to George for more details on our Q1 results.
To to outlook and how we're actively managing the business through this challenge.
Thanks, Bob and good afternoon, everyone.
Q1 marked a strong start to the year amid significant economic uncertainty.
The unexpectedly strong demand for both Pcs and servers.
Work from home and learn from home dynamics played out globally.
Revenue came in at $19.8 billion up 23% year on year and $800 million higher than guys.
Data centric revenue of $10.1 billion sub 34% year on year represented 51% of our total revenue an all time highs.
Strong swimmer demand across segments, and a richer mix largely on devices drove a significant portion of the upside.
Q1, PC centric revenue was $9.8 billion up 14% year on year on strong notebook PC sales and increased supply, resulting from capacity additions over the past few years.
Gross margin for the quarter was 62%, beating expectations due to strong pull through of higher platform revenue.
Upset by reserves associated with our memory business and from the sale of our home Gateway business.
Operating margin of 38% in the quarter was up 10 points versus last year on higher gross margins and disciplined spending controls consistent with the environment.
Q1, EPS was one dollar and 45 cents 15 cents above our guide on strong operational performance.
Partially offset by losses in our high cap and trading asset portfolios.
Long with the effects of a slightly higher tax rate.
The strength of these results showed remarkable talent and commitment of our global workforce in a difficult and rapidly evolving environment.
In Q1, we generated $6.2 billion, an operating cash flow and invested $3.3 billion in capex with $2.9 billion of free cash flow.
Up 76% year over year.
We returned $5.6 billion to shareholders via dividends and share repurchases.
As Bob mentioned, we announced a pause in our share repurchase program.
As we felt it was prudent to do so in the current economic environment.
This does not change our commitment to returning $20 billion in repurchases as outlined in October last year.
And we plan to resume the program when market dynamics stabilize.
With Q1 buybacks at $4.2 billion, we have already more than offset expected dilution associated with employee stock compensation for this year.
In addition, our dividend policy remains unchanged with $1.4 billion dividends paid in Q1.
Let's move to segment performance in Q1.
Data Center group revenue of $7 billion was up 43% from the prior year coming in higher than expectations with strength across our customer landscape.
Year over year platform volumes and he is piece were up 27% and 13% respectively.
While year over year comparison benefited from a weak Q1 19 revenue in the quarter came in at the second highest level ever for DCG.
Revenue was up 53% and cloud, 34% enterprise and government and 33% for communication service providers.
D.C.G. adjacent sees also delivered solid growth with revenue up 35% year on year on strong adoption of networking solution.
Other data centric businesses were up 19% year over year in Q1, despite more tangible cobot impacts.
I know TG operating income declined 3%, primarily on lower revenue from industrial and retail.
Mobile revenue and operating income were up 22% and 29% respectively.
Within by continued either penetration and new Q program launches.
Offset partially by eroding conditions in the automotive market.
While Q1 marked a record for mobile revenue, we expect 2020 revenue growth will be lower than our prior expectation.
Automobile production and volume ramp or being materially impact is like coded 19.
And as GE revenue grew 46% on strong growth and improved pricing.
Better market conditions versus last year, along with cost reductions on strong factory performance.
Resulted in a lower operating loss of $66 million.
Yes, she revenue grew 7% year on year on cloud and enterprise strength, partially offset by weaker embedded and communications.
Operating income was up 9% on higher revenue.
DCG revenue was $9.8 billion in Q1, 14% year over year, driven by notebook market strength and higher modem.
PC unit volumes were up 13% year over year on higher notebook demand and increased supply.
Nope demand strength is expected to continue into Q2 with more people working and learning from home due to cope with 19 related shelter in place orders.
Operating margin was 43% of seven points year on year.
Higher revenue and lower spending driven by the Fiveg smartphone modem exit.
Partially offset by higher unit cost associated with the ramp of 10 nanometer products.
Let's move to our second quarter outlook.
Given the environment in the global economy, the range of potential outcome has a wider distribution than normal.
Based on demand signals from our customers, we expect the strength in cloud and comms infrastructure to continue in Q2.
I O T G and mobile I will see lower demand driven by co. Good night.
As a result, we expect total revenue of 18 them half billion dollars with PC centric approximately flat to slightly up year over year and data centric up approximately 25% year over year.
Operating margin is expected to be approximately 30% down one point year on year on lower gross margin largely offset by lower spending on higher revenue.
Gross margins are expected to be approximately 56%.
Six points sequentially due primarily to three reasons.
Prequalification reserves associated with the ramp of our next 10 nanometer client product Codenamed Tiger Lake.
Lower sequential revenue at an accelerated ramp of 10 nanometer products, including Isely client CPQ and Fiveg associates.
The Tiger Lake reserves are not expected to impact full year gross margin as we expect to sell through the reserved inventory in the second half of the year.
As a result, Q2 EPS is expected to be approximately $1.10 cents per share.
Me too the full year.
With limited visibility due to the uncertainty driven by cope with my team, we're not guiding the full year.
However, I do want to spend a few minutes discussing expected headwinds and Tailwinds, we are monitoring and our response to the market dynamics.
Tailwinds are most evident in the first half of the year on strong demand for mobile compute.
And related infrastructure on the dynamics of sheltering in place.
In particular mobile Pcs.
Cloud and network infrastructure for Fiveg remain above seasonal trends.
Headwinds include the impact of a global recession, I O T G and market, particularly industrial and retail.
Lower automotive production impacting mobilized and flowing enterprise and government data center demand.
We also expect the PC Tim to weaken in the second half as GDP effects outweigh the initial demand Bob from coal.
Also given the volatility in the markets in Q1.
Losses in our ice Cabot trading asset portfolios were negatively impacted EPS by three cents.
Given the uncertain environment. This remains a watch item for the remainder of the year.
In response to these market dynamics, we acted swiftly and strengthen liquidity.
In addition to spending repurchases, we issued $10.3 billion in debt in the quarter.
Our total cash investment balance at quarter end.
$20.8 billion.
Our liquidity action study are expected to impact full year EPS performance by approximately 12 cents.
The company has an exceptional balance sheet and strong cash flow to handle a very wide range of scenarios.
In a position the company to support investment in technology transitions, our new products and our customers' requirements across these scenarios.
As you would expect we're very focused on cash flow management and believe our free cash flow generation. This year will be resilient.
As impacts from Covis are tempered.
First half demand strength.
Opex savings initiatives.
Capital actions and tight working capital oversight.
To conclude I'd like to join Bob and thanking our employees worldwide.
We're working diligently and these challenging times to provide products.
Central to the world.
I'll hand, it back to tray and we'll get to your question.
Alright, Thank you George moving on now the QNX as is our normal practice, we would ask each participant to ask just one question. Operator. Please go ahead and introduce our first caller.
Certainly our first question comes from the line, though John Pitzer from Credit Suisse. Your question. Please.
Yes. Good afternoon, guys. Congratulations on the told resulting I'm just wondering if you could give us a little bit more detail on the gross margin decline heading into the calendar second quarter, George you kind of broken up into three different categories I'd be interested.
On the magnitude of Tiger Lake versus just lower volumes and then other today I mean departure and I guess more importantly.
How do we think about kind of normalized sort of gross margins as you get pass some of the startup cost for a faster 10 nanometer ramp.
Thanks, John So.
The margin picture is really.
Unchanged from what we've talked about in the past in terms of how we think.
Product road map is going to move.
Products that we expect to introduce and their margin structure.
And what your see in Q2 is largely a timing issue and about half of the.
Impacts that you're seeing in gross margin in the quarter is from the Tiger Lake.
PR acute reserves.
Obviously, the fact that.
And that's both sequentially and year over year.
And.
So I think.
The way we would look at it is.
Pretty much.
We're not seeing anything.
As you take cobot out of the year, we're really not seeing anything different in our basic view of.
Gross margin dynamics with exception of we're seeing stronger pull in of demand for some of our 10 nanometer products I mean, I think well they are very strong demand for Tiger Lake.
So.
You know when you when you look at the impact that is the Tiger Lake reserves are having on the quarter. It's about the same level of impact that we had.
On ice like in Q1 of 19.
And yet.
We have.
About double the number of units.
In the.
Being reserved and I think that gives you an indication of just how much our performance is improving.
So John you know I would you say relative to where we were 90 days ago.
Gross margins are stronger.
The first quarter.
They are in line with our expectations through the second quarter.
And to Georges point.
Despite the timing dynamics of.
Pre PR Q reserves that we take in the second quarter and recruit recoup and the second half the only other changes just that we feel confident accelerating the ramp for 10.
So from our vantage point at or better than kind of how we started the year and we feel very good about gross margin performance. We're very excited about the tiger like product ramping going into the second half and the Fiveg.
No rich product that we announced so all in all gross margin dynamics pretty strong.
On the second part of your question I'd go back to the commentary that George provided back it.
Socket.
Our analyst day in the spring, which is.
Yeah, obviously, we transitioned from a mature node to a new node margins tend to come down.
We indicated that we plan to get back on a two to two and a half year cadence, which means in 2021 will be ramping 10, NAND pretty even more.
While we're investing in seven nanometer that we anticipate having in the fourth quarter 2021, So those dynamics.
From a mature node to a new nodes impacts the.
Gross margins of the business, but we feel like it's you know we're well on track from the plans, we laid out feel pretty good about.
Dynamite first quarter kind of outlook for the second quarter inline or better than what we expected.
Thank you. Our next question comes from lineup Blayne Curtis from Barclays. Your question. Please.
Hey, guys. Thanks for taking my question, we're going as far as John with the gross margin I know, you're not guiding full year anymore, but.
When you look out at that trajectory that that you had given us. So wondering if you can you just kind of step us through with the acceleration.
It actually maybe looking back to last year.
If you look at the improvement you saw that low quarter, I'm, just kind of any kind of directional guidance and whether it's Chris Martin can go from here.
Yeah, I mean first off I think you're going to see Blaine that.
Gross margins going to improve all things being equal just from the fact that starting the third quarter, we'll start to see the.
The.
Ships that have been reserve this quarter coming out on a zero cost basis.
Into the into gross margin.
And again.
It's really hard to think about the second half in terms of.
How demands gonna look compared to what we ultimately thought when we first gave guidance which is.
Because of the all the obvious issues related to Kobin.
I just go back to you know is we look at what we guided only back in May of 19.
The.
If anything we're ramping 10 nanometer a little faster we're seeing clear evidence of include improved performance on 10 nanometer.
And so we feel we feel good about the overall gross gross margin dynamics you can see how our other cost initiatives are helping you know five points out of the six points impact is being offset by.
Effectively the the Opex.
Percentage so overall.
I would go back and say no real no real change to our fundamental outlook, but when you overlay cobot. It's you know, we'll just have to see how that plays out.
Thank you. Our next question comes from the line. If it back are you from Bank of America. Your question. Please.
Thanks for taking my question I appreciate the color in these uncertain times.
Curious how you are directionally feeling about the capex guidance for the yet I think you had about a 17 billion billion number.
Before I understand the need to be responsive to the macro dynamics on in preserving.
The balance sheet, but.
But.
Upsided first half by quite a bit and you're also accelerating the move to 10 nanometers.
Does that create some upward bias would at least at least protect that kind of capital spending plans that you had for the year any any puts and takes would be very helpful. Thank you.
Yes, the Vac I'll start and then George George will fill in.
You know first both are.
R&D in our capital spend for this year are directed towards.
The multiyear plan that we shared with you back last year. So.
Both the product road map over the next several years.
Capital required to support the growth that we anticipate over the medium to long term horizon, while adding capacity for the ramp up 10, as well so coming into the or we're very bullish about the.
The medium and long term outlook, and we're putting our capital to work to support that medium and long term outlook.
And that's not that's not going to change.
That being said in the near term.
As we try to get a better read on what the demand signals will be for the second half.
Whether we're dealing with.
You know being very disciplined on our spending levels.
Ensuring that you know wafer starts are in line with you know true demand signals and.
Being very disciplined on the capital, but isn't directly related to more capacity.
Indoor technology development, we are going to be very disciplined through this near her near term horizon, but.
But I just go back to the first point, which is we're very bullish about the multiyear view, we had the largest.
I'm in the company's history, we got a great set of products that we're building in developing and we're going to one that to position ourselves well to capitalize on.
The current disruptions that work that we're wrestling with.
Yeah, what I would add is you know there's there's some natural things.
In addition to the discipline that will help us lower capex a little bit it's part of why we said we think.
Our free cash flow is going to be.
Pretty resilient in the year.
Because we've seen in some of the geography is where we have major construction projects underway, we're actually seeing that being pushed somewhat by regulatory requirements and so.
You know, we the way I would describe it as we probably see six to eight weeks worth of capital pushing out of this year.
But any capital that is is important for our 10 nanometer seven nanometer and even.
The start of five nanometer is is going to be spent in line with the timetables that we we've already laid out.
Thank you. Our next question comes from what I know, Joe Moore from Morgan Stanley. Your question. Please.
Great. Thank you.
If you could talk about some of the changes to the server roadmap and things like if you emphasize could break in are more focused on nicely for trigger that about competence of the in Cana and your costs is that just just kind of describe what led to the that's assuming.
Yes. Thanks, Thanks, Joe Yes. During the course of the year you know we've been our product roadmap for server is very focused on delivering workload optimized platform Foundation that.
Scalable for the real world environments that our customers are operating and so we've we've ramped skylake was the fastest ramp.
The ancestry, followed by Cascade Lake that was a very strong ramp.
Next we have a cascade Lake refresh that is a relatively simple simple upgrade easier upgrade for customers because.
Architecture is very simple to the fastest growing cascade Lake ramp and we're very focused on.
Like in the second half that here.
The fourth quarter as we indicated so we as we step back and look at the market dynamics in the product Road <unk> product Road map, we feel like we got the right products at the right time.
As we ramp and scale the high end of Cascade Lake and refresh while positioning price like.
Okay that makes sense and as you've started to ramp and plus of is it possible to talk about that.
The changes that you see versus and you know as it is it better clock speed better yields there is a better transistor performance implicit in that transition.
I presume you're talking about second Gen for server product Sapphire rapids product or.
Oh for up for clients sorry, yeah, the the quiet the Tiger like product we are.
Extremely excited about we as I think I mentioned in her prepared remarks, we have.
50 design, so we expect to ramp in the and.
Holiday season this year.
Clock speed.
Battery life.
Yeah, Hi, incorporation into the core designed a platform offering that we think is a real differentiator for for a.
For for customers on Yelp instant thin and light.
Format. So this is going to be a great launch we're very excited about it.
And.
Two Georges earlier point.
The demand signals we're seeing.
And our confidence in.
In both the product in the yield.
As has a sort of point, where we expect to accelerate.
The rapid adoption a bit softer than we did come in India.
Thank you. Our next question comes on line of Stacy Rasgon from Bernstein Research. Your question. Please.
Hi, guys. Thanks for taking my questions.
I wanted to ask a first about job.
The 10 nanometer mix exit and you're just given what you're saying you're strong Tiger Lake demand signals and potentially faster can now that you're like what do you think your your product mix by node is gonna be exiting the year do you think you'll be a crossover point and 10 nanometers.
They see the stores Hot stuff I don't think we'll see a crossover point this year.
And and this is again I'm just gonna take cobot out of the equation. So thinking through I do think we're going to see more demand on 10 nanometer this year than we thought going in.
Again I think.
I think demand was was strong it's going to be strong in the first step we're seeing a are.
Five G.S. so sees on 10 nanometer.
This is getting stronger demand as the market there just gets stronger and stronger on the comps.
But tiger Lake is really I think it'd be the driver for us and.
Being above our expectations for all the reasons that Bob just covered and but it won't be enough that won't be enough to cause a crossover.
Thank you. Our next question comes from a line of Ross Seymore from Deutsche Bank. Your question. Please.
Hi, guys. Thanks for let me ask question wanted to go to the data Center group, but you had the color commentary about the enterprise and government being weaker in the second half and I don't think that surprises anybody, but I wanted to see what sort of color you're getting in the other 70% of that segment on the cloud in the Com side, specifically you had worried earlier this year.
We didn't or a digestion period. So I wanted to see if your views have changed on that and then in the comps service provider side, how much of that actually acts like the enterprise and government versus the side that benefits from the fiveg ramp any pluses and minuses there would be helpful. As well. Thank you.
Yes, Thanks, Ross first on the cloud side as you indicated we came into the year.
It's a very strong second half of 2019, and our expectations, where that Q1 would continue that strength, but then the cloud service providers would go through their normal digestion stage, if you will.
That was kind of what we indicated back in January.
First quarter as George flag demand was even stronger for for the CSP.
In our raised outlook for Q2, we expect that demand for the cloud folks to the strong demand to continue.
And possibly even going into the second half a year that said that the TBD, but the trends are relatively encouraging the demand signals are very high the product that being pulled this dx PC products. So ask piece, which is on our results were.
Were very strong so.
Purchasing is extending beyond what we thought a few months ago and that drove Q1 upside. It drove Q2 upside we think it will be relatively strong.
Kind of going into Q3, that's a CPT.
On the Com side you know.
Fantastic growth from the first quarter.
You know our expectations are as we go through the course of the year.
It'll stay relatively strong as we continue to gain gained share in that segment and has we've expanded.
The five G.S.C. expanded our Tam within that sector now with the product that we just we just qualified.
A few a few weeks back so we expect.
Fair game.
The infrastructure and share gains to continue infrastructure in fiveg.
Continue if not go faster and were relatively well positioned in the with the key players Nokia Ericsson and the Ti going into the second half Didier.
So we feel good about the coms comp segments as well.
And as you flagged you know the ones that we're proud that were most anxious about its just.
Enterprise and government and what kind of demand. So we'll see in the second half so the first tour.
As good if not stronger enterprise and government that big.
Did have a unknown for us at this stage.
Thank you aren't next question comes from a line of Pierre Ferragu from New Street Research. Your question. Please.
Thank you for taking my question I'd like to get back to you.
In the first quarter so.
The sent you own yeah.
I was wondering a couple of things the first one is.
She is pretty strong go demand and and that's just about it and how much is too small.
Catching up on capacity and being able to serve the market.
You bet catching up maybe on the on demand you couldn't for me.
In the two or three previous quarters and then what's your.
On market share, how you're starting to regain share in pieces.
Any snowed when do you see that happening this year.
It appears George.
I think what you what we saw is you know clearly some impact relative to our expectations from the worked at home learned at home dynamic.
We but we had expected a strong quarter in our initial forecast, which which really reflected the dynamics you were talking about we had customers who have been short of demand for a number of quarters, who were seeing a chance to finally bill.
Some a little bit of inventory, which gave us a seasonally strong first quarter relative to anything we might see historically.
But you know we saw notebooks volumes up.
You know over 20% in the quarter and I would say that that's.
That's.
More than just the the pent up demand.
And and that's at a time when some of the Oems were really.
Struggling in the early part of the quarter, where their supply chains, which is.
Which is why.
There's there's a some parts and their channel. That's all opened up now so we think that actually.
One of the good signs as though even that opened up.
Phil seeing very strong demand coming in on the PC side.
So.
And we had expected.
Yeah, you know solid PC in the first half, but Ah I would say, it's it's it's a with cobot, it's been even stronger and heavily weighted towards notebooks.
<unk>.
And I do I think I would add is in our our fab network in the supply chain was able to coming out of last year, not only able to deal with the backlog coming into the year, but also meet the higher demand signals that George flags and the latter part.
At the latter part of March.
Yeah, I Should've mentioned that was really heroic work both at the supply chain level, we have a fantastic supply chain group, but also a manufacturing teams keeping the factories up and running delivering 90% on time commit in a quarter like this it's a.
Really remarkable.
Thank you. Our next question comes on line of C.J. Muse from Evercore. Your question. Please.
Yes. Good afternoon. Thank you for taking the question.
Why is that you remove your guidance for the full year.
If I look at your results and your guide for Q2 would suggest a data centric trucking, maybe down 2% Apple announced in the second half than PC down, 14% and just curious is that directionally, how you're seeing things or I guess, given the positive trends in notebooks and and the weakness.
On the enterprise and government, perhaps it's a bit more muted and we'd love to hear your thoughts on that.
Yeah, you know were I'm not going to be able to give you a full year guide by pieces, but I. Appreciate the question I think the and maybe maybe talking a little bit.
She about headwinds or tailwinds.
For two on the call.
Clearly.
Cloud is a tailwind and cloud mobile computer or a tailwind for the first half for sure I think cloud continues to to be.
We will probably be helpful throughout the year.
The but you know at some point, we're going to see the impacts of the recession start to impact demand on Pcs.
So were worse.
Certainly a headwind that that is a reasonable expectation for the for the second half of the year.
We're already seeing the impact of the recession on Io TG, particularly in industrial and retail.
We're seeing in automotive mobile I had a record quarter in Q1, but I think full years going to be certainly weaker than we had a expected coming into the year.
No not nearly as weak as automotive overall, because they continued to grow.
They are in a in a part of the automotive market that is growing substantially.
And they have the leadership position in eight asked and so it'll be more.
Settle have an impact but still.
And then but nonetheless, and then as Bob said on on the datacenter side enterprise and government appear to have been.
A very strong in the first half and so we would expect some digestion, how those things all play up and what percentages.
To get really can't say, but.
Those are the things that we're watching to see how the years can play out.
Thank you. Our next question comes from a line, though so any pets varies from.
MPC Nicole your question please.
Thank you George I want to go back to the gross margins I think you did a great job getting good color about about half of the impact from Tiger Lake I'm. Just wondering the remaining half is that because of reserves, which is going to reverse in the second half or is this something more structural or mix related that's going to persist for the next few quarters, So would love to.
Here are some color on that.
Well I think the things that are Structurals, we're gonna see more 10 nanometer demand in the year than we had a than we had forecasted at the beginning of the year and that'll that'll have a little bit of Oh.
Dampening on margins, but not materially different from from what we had seen coming into the year.
The.
The temporary impact is really the reserve action, which will reverse it is a it is about half.
Of the year over year effect.
And so you know I would I would say the other impact again is a if you look year over year, we're just seeing.
Much larger uptake of ice like and Fiveg, so sees year over year, but much of that was expected I would say, yes, I would say both islay can and the.
Budget, so seeds are a little bit stronger than we would have thought.
Coming into the year.
And which is consistent with.
Just the demand activity that we're seeing.
And mobility and the infrastructure around that.
Yeah, just you know we came into the year with an outlook.
59% gross margins for the year.
I would just say through the first 90 days.
We're much better.
To the next 90 days were.
Better or in line.
On the dynamics of that.
PR to reserve.
Our no impact on the full year.
Therefore, net net yeah to the first six months to the year, we feel just is good.
About our gross margin performance and even better about our ability to ramp 10 nanometer. So we're we're feeling.
Very good about how.
The first half a year is playing out relative to where we were 90 days ago across demand signals and gross margin performance.
Thank you aren't next question comes from a line of Timothy occurring from you'd be ask your question. Please.
Thanks, a lot I.
I'm just wondering if you can talk about channel.
Inventory, there's a you know customers and a lot of your end markets seem to be a little concerned about supply disruptions and.
And so that you know selling seems to be a little bit above shelf through sell through seems to be weakening a little bit. So can you talk about the potential for some inventory correction later this year and sort of how you track that thanks.
You know, we're obviously, we're very focused on a understanding that I would say the.
Any.
And a dislocation that we're looking at right now.
For a function of just the supply chains challenges at some of the OEM pet.
Particularly in the first half of the first quarter.
But we you know we what we've been watching that pretty closely because we want to make sure that this kind of build up.
At our customer level makes its way through two to the end customer.
And we're seeing we're seeing customers are telling us that there and customer demand.
Continues to be very strong.
And and their order profile reflects that they're going to clear the existing revenue now when.
In a win win that plays out.
I'm.
Not sure to part of what part of why we struggle to understand how that second half its going to play out but.
But we feel good about the demand signals, we're seeing now and we understand.
Ah the movements our products in the system.
From the dynamics that we saw in the first quarter.
Thanks, Tim Operator, I think we have time for one more question then we'll turn the call back over to Bob to wrap things up.
Certainly our final question then comes from Chris Danely from Citi. Your question. Please.
Hey, guys. Thanks for squeezing me in.
Can you just run down the supply demand I'm sort of balance throughout the server or desktop and notebook lines. I guess are you on track for the high single digit a unit increasing output and then did the did the shortages anywhere or get any worse.
During the during Q1 or it sounds like there abating in certain areas just any color there would be great.
Yeah on a as we indicated to begin with year, our intention or what we did add capacity last year and our intension. This year was to add another.
Mid 20.
Percent growth and capacity, which would generate.
Real strong output and we are on track, maybe even a little bit better than than what we said at the time, obviously in the first quarter demand was also also grader I was greater.
Yeah, I'll crops across the board.
Server and notebook in particular, and we were able to keep pace with accelerating demand as the quarter close so we're in.
Yeah, we're in pretty good shape in terms of the promise we've made to our customers and that is that we will not we'll put the capacity in place. So we're not a constraint on their growth. We're you know we're in very good shape. Despite all the challenges.
That being said by you know, we haven't replenished inventory levels. So meeting mix dynamics across the board is yeah, we're still not quite there yet but.
We're we're in line a little bit better than we had hoped we delivered more demand.
And we got continued build inventory levels back. So we can deal with a variation by by SKU mix.
Thank you for Oh, yes, so look.
Thanks, everybody for joining us today, I, just kind of want to wrap with.
To reiterate our purpose and that is to create world changing technology.
Enriches the lives of every person honor.
And that's never been more important than it is during this time.
Our strategy is resolute in our business is built to withstand challenges.
We have a very diversified portfolio of businesses that are highly leveraged to major technology inflections.
Like cloud Fiveg.
Teligent and autonomous edge computing and artificial intelligence.
Generate significant durable free cash flows and.
And our team of 110000 people is operating as one team to enable our customers success.
So guided by our cultural values.
Or competitive advantages and our financial strength, we're confident that we will emerge from this situation even stronger.
Thanks again for joining us we hope you all stay safe as we work together to overcome this global crisis. So we look forward to hopefully did you in person over the near term. Thanks again for joining thanks, Bob and thank you all for joining US today operator could you. Please go ahead and wrap up the call.
Thank you ladies and gentlemen.
They shouldn't today's conference. This does conclude the program you may now disconnect good day.
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