Q4 2020 Intel Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020, Intel Corporation earnings Conference.
At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.
After the presentation, there will be a question and answer session to ask a question. During this session you will need to press Star then one.
Please be advised that today's conference maybe recorded.
I'd now like to hand, the conference over to your host today, Mr. Trey Campbell, Vice President and director of Investor Relations. Please go ahead.
Thank you operator, and welcome everyone to Intel's fourth quarter earnings Conference call by now you Should've received a copy of our earnings release and the earnings presentation. If you've not received both documents they're available on our Investor website I N T. C. Dot com. The earnings presentation is also available in the webcast window for those joining us online.
Joined today by our chairman of the Board Omar is shock our incoming CEO Pat Gelsinger, our current CEO, Bob Swan and our CFO George Davis in a moment, you'll hear brief remarks, followed by Q&A before we begin let me remind everyone that 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.
A brief reminder, that this quarter, we have provided both GAAP and non-GAAP financial measures today, we will be speaking to the non-GAAP financial measures when describing our consolidated results.
The earnings presentation and earnings release available on I N T. C. Dot com include the full GAAP and non-GAAP reconciliations given our CEO transition I want to clarify two points ahead of remarks, and Q&A. One we will be providing Q1 'twenty one guidance on this call, but we will provide full year guidance for 'twenty and 'twenty one at a later date.
No later than our next earnings call in April.
We'll be providing more commentary on our progress on seven nanometer with specifics on our manufacturing plans for our 'twenty 'twenty three products to follow after Pat joins us in mid February with that let me hand, it over to Omar.
Thank you Trey.
And good afternoon, everyone. Thank you for joining us.
As you've heard Intel has been in the midst of a major transformation to strengthen our CPU franchise, while evolving into a multi architecture Xb you company.
The business is well positioned to capitalize on key technology inflections and extend our reach into fast growing markets.
Under Bob's leadership, Intel has made significant progress on the strategy and once again delivered record results in the posture, which Bob and George will detail shortly.
But before that I'd like to say a few words about the CEO transition, we announced last week.
This decision came after very careful consideration and planning by the board and in partnership with Bob.
Pat Gelsinger will rejoin Intel on February the 15th as our new CEO and a member of our board.
Bob will remain in his role until then Andrew.
Work with Pat to ensure a seamless transition.
On behalf of the entire Intel team and board of directors I'd like to thank Bob for his leadership and significant contributions through this period of transformation for Intel.
The company faced challenging issues when Bob took over.
And he has been a fantastic leader.
Bob clarified Intel its growth strategy re energized its culture and made significant progress in improving execution.
He leaves Intel in the strong strategic and financial position and we deeply appreciate his ongoing guidance during this transition.
Last week, Bob and I introduced Pat to Intel employees around the World, who gave them a very warm welcome.
We believe this is the right time to make this change and we are confident Bart as the right person to lead Intel forward.
In addition to deep technology expertise and unique insights and Intel's technology evolution based on 30 years as a leader here Bob brings a distinguished record of driving growth and performance and shareholder returns.
He lives by our values based culture leadership approach.
And has a hyper focus on talent development and operational execution.
In sum the board is confident that Pat.
Together with the rest of the leadership team and our incredible dedicated 110000 employees around the world.
We will ensure strong execution of Intel strategy.
Building on its record of product leadership and capitalize on the significant opportunities ahead to create long term shareholder value.
While he does not step into the role for another few weeks. He has kindly agreed to join US today. So you will get to hear some of his initial observations with more to come after he officially takes over in February the 15th.
With that I'd like to turn it over to Pat for a few words.
Thanks, Omar for the kind introduction, it's a pleasure to be here with you all today I am thrilled and humbled to be coming home to my Dream job is Intel CEO I was only 18 when I first joined Intel and I'm proud to say I spent the following 30 years learning from such industry Giants is grove more noise.
My experience at Intel has shaped my entire career and I'm forever grateful for the opportunity to now lead this great company I have tremendous regard for Intel's rich history of innovation in the world changing technologies invented here that now power the world's digital Foundation I can't wait to help lead this great technology innovator.
During a critical time of change and disruption.
I know, you're all very anxious to hear more from me on our long term plans and I'll be sharing my detailed perspectives. After I assumed my new role mid February that said I do want to provide my views specifically on seven nanometer progress I've had the opportunity to personally examine progress on Intel seven nanometer technology over the last week based on <unk>.
Shall reviews I am pleased with the progress made on the health and recovery of the seven nanometer program I am confident that the majority of our 'twenty 'twenty three products will be manufactured internally at the same time, given the breadth of our portfolio. It's likely that we will expand our use of external foundries for certain technologies and products we provide.
More details on this in our 'twenty twenty-three roadmap, what's I fully assessed the analysis that has been done and the best path forward.
Bob and George will walk you through the financials and provide guidance for the first quarter. Shortly we are holding off on providing guidance for the full year until I joined but we will do so in a timely fashion no later than on our next earnings call. In April looking ahead. The world is becoming more digitally connected expanding the market in front of us.
Intel is the only semiconductor company in the World that has the depth of intelligence Silicon platform vision design and manufacturing capabilities and scale that our customers need to fuel their next generation innovations.
There is enormous opportunity ahead for Intel but to be able to seize these opportunities we have to deliver the best products and stay ahead of our customers' needs, we need to become more agile and a very competitive market, we need to execute flawlessly and deliver on our commitments, we need to passionately innovate with boldness and speed.
Intel culture, and values must be healthy and vibrant assuring our ability to attract and retain the best engineering talent in the world I look forward to working with the incredibly talented global Intel team and industry partners to continue delivering the best technologies for our customers around the world I also look forward to.
<unk> with you our shareholders in the coming months to hear your perspectives and discuss our vision and strategy for Intel We will position this company for sustained growth and leadership for our industry our country in an increasingly digital world.
I also want to extend my deepest respect and appreciation to Bob for his leadership and significant contributions to Intel through this critical period I'm, just starting to dive into the business, but already I'm confident that the strong foundation and progress achieved under his leadership put us on the right track to build on Intel's great history and.
Value for our customers and shareholders in the years to come.
Thanks again, Bob over to you, Thanks, Pat and welcome back to Intel.
It has been an honor to lead this incredible company and a talented team at <unk>.
As my great confidence and Intel's future, knowing that I'll be passing the baton to Pat whose technology expertise industry knowledge execution track record and commitment to our company is indisputable.
Over the last two years, we've made significant progress on our strategy to transform Intel into a multi architecture X P. You company.
To move from Silicon to solutions and to Contemporize, our IDM model.
I am proud of what we were able to achieve together as an Intel team in a relatively short period of time and Echo on Mars words that Intel is in a strong strategic and financial position as we make this transition.
As demonstrated by the results, we announced today demand for Intel's innovative technologies remains very strong and our investments to capitalize on future growth opportunities are paying off.
Our Q4 results significantly exceeded our expectations capping off our fifth consecutive year of record revenue.
We generated $20 billion in revenue and $1.52 and EPS exceeding our guidance by $2.6 billion.42, respectively.
For the full year, we delivered $77.9 billion in revenue up, 8% and $5.30 and EPS up 9%.
The client data center memory, and mobile I businesses, each set all time revenue records.
In Q4, we continued to advance our three strategic priorities.
Improving our execution to strengthen our core business.
Extending our reach to accelerate growth and redefine our position in the industry.
And continuing to thoughtfully deploy capital to create value for our shareholders.
Let me briefly discuss some of the highlights.
Starting with improving our execution to strengthen our core business, let me start with an update on process technology and our product roadmap.
Over the last few years, we've been evolving the IDM model to ensure we can deliver a predictable cadence of leadership products.
Preserve our IDM advantage.
<unk> to invest in process technology leadership.
And generate attractive returns on capital.
This evolution includes a disaggregated design strategy adoption of standard industry processes, and common tools flows and methods and deeper engagement with the industry ecosystem.
In July we highlighted a challenge with our seven nanometer technology and started a process to improve it all evaluating the best approach for our 2023 product lineup.
Since that time, we have made tremendous progress on our seven nanometer technology.
When seven nanometer was originally defined the flow contained a particular sequence of steps that contributed to the defect issue we discussed in July.
By re Architected the steps, we've been able to resolve the defects.
As part of this work over the last six months, we also streamlined and simplified our seven nanometer process architecture to better ensure we'll be able to deliver on our 2023 product roadmap.
The in line data, we have been collecting and our pipeline of proven yield development projects gives us confidence in our ability to deliver on our commitments going forward.
At the same time as Pat mentioned, we will continue to leverage the relationships. We've developed over the years with our external foundry partners and believe they can play a larger role in our product roadmap given our disaggregated designs.
Once Pat has had a chance to join hill further assess our analysis and drive the final manufacturing decision for our 2023 CPU products.
Therefore, we will communicate that decision soon after he takes over but not today.
Turning to products, we've qualified several new products in the fourth quarter and we have an incredibly exciting lineup of Cpus for 'twenty, one and 'twenty two.
Just a couple of weeks ago at CES, we introduced more than 50 processors, resulting in more than 500, new designs for laptops and desktops coming to market in 2021.
We are also seeing tremendous market response for Pcs based on our new 11th Gen. Intel core Tiger Lake processors.
Our PC customers now have more than 150 Tiger Lake based systems in the market well ahead of expectations.
We believe we gained market share as PC CPU units grew an impressive 33% in the quarter.
In a market where our competitors are seeing supply challenges. This is a powerful example of the incredible value and scale of our factory network as we continue to deliver greater performance and cost efficiencies for our customers.
Moving to data center, we are now shipping our first 10 nanometer based xeon scalable CPU ice lake and will be ramping volume through the first quarter.
Customers are going to see significant value in isolation cross cloud network and edge workloads with excellent performance improvement and innovations such as PCI Express Gen. Four next generation Intel octane persistent memory and security enhancements such as S. G X.
As we look ahead, we are excited about the capabilities, we are bringing to customers with all their lake for mobile and desktop Pcs and Sapphire Rapids for the data center.
These products take advantage of our enhanced superfan process technology and numerous architectural improvements and both are broadly sampling to customers.
We will qualify all the lake desktop and notebook for production and begin our volume ramp in the second half of 'twenty one.
And we expect production qualification of Sapphire Rapids at the end of 2021.
And the expanded market opportunity in front of us Cpus are critical but multiple architectures or excuse will be required to help customers optimize for specific workloads.
We had a big X P. You leap in the fourth quarter as we entered the discrete graphics market with Intel Iris XC Max graphics, Intel's first XC based discrete GPU.
We are now shipping discrete graphics, and a thin and light notebooks from Acer Asus and Dell and.
And we introduced our first discrete GPU for the data center, which is already delivering great cloud gaming experiences for customers such as Tencent.
We also announced the gold release of one API, our cross industry open standards based unified programming model that delivers a common developer experience across architectures.
Second we've made strong progress extending our reach to accelerate our growth.
Over the past several years, we have been making investments that have positioned us to lead key technology inflections, such as AI five G network transformation and the intelligent autonomous edge.
We infuse AI capabilities into everything we make from the cloud to P. CS and we see tremendous growth prospects as we build our position in data center training to complement the strength of our Intel Xeon for entrants.
We made a significant step in AI this quarter.
When Amazon announced E. C. Two instances that will leverage up two eight of our Habana Goudy AI training accelerators and deliver up to 40% better price performance than current GPU based E. C. Two instances for machine learning workloads.
We've also invested to drive networking workload convergence on Intel Silicon and.
In 2020, we expanded our footprint into the radio access network delivering Xeon S. O sees F. P. G A's and custom solutions for five G base station designs and reaching our goal of 40% share two years ahead of our original target.
Today, we are the leading network silicon provider, winning in wireless enterprise and cloud networks and delivering $6 billion in revenue this year up approximately 20% versus 2019.
Finally, we had enviable assets to lead the explosive growth of intelligent and autonomous edge computing.
Our I O T G and mobile I businesses have a combined annual revenue of $4 billion.
Mobilised delivered a record fourth quarter and had an explosive start to 2021 with a number of exciting CES announcements.
Third we've maintained our discipline and thoughtfully allocating our shareholders capital.
Since 2015, we have grown revenue by more than $22 billion and more than doubled E. P. S.
We've driven spending from 36% of revenue to 25% of revenue, while investing in manufacturing capacity expansion, adding more than $1 billion of R&D targeted to higher growth initiatives and focusing our product portfolio.
As a result, we anticipate approximately $12 billion in proceeds from our NAND and Mcafee exits over time.
At the same time, we've been delivering substantial capital returns to shareholders, including $19.8 billion in 2020 alone through dividends and share buybacks. The latter of which included a $10 billion accelerated share repurchase announced in August.
Building on this today, we announced that we are increasing our annual dividend by seven cents or 5% from $1 32 to $1 39 per share.
Before I pass it to George for more details on our fourth quarter results I want to reiterate that I couldnt be more proud of the team at Intel and I cherish the time I've spent here.
I look forward to watching Pat and the team's continued progress as they build on Intel purpose to deliver breakthrough technology that enriches the lives of everyone on the planet.
I also thank our investors and analysts on the line today for their continued support of Intel and for our valued engagements over the years.
Thanks, Bob and good afternoon, everyone.
Q4 marked a much stronger than expected finish to a record year Bob.
Mobile I and our PC centric segment achieved record quarters.
Q4 revenue was $20 billion exceeding our guidance by $2 $6 billion.
The revenue beat was broad based led by stronger than expected notebook in cloud demand along with contributions from desktop and enterprise and government.
Data center related demand also led to stronger revenues in NAND.
Gross margin for the quarter was 58.4% exceeding guide by three points due to flow through on higher revenue and the benefit of isolate server achieving production qualification prior to year end.
Q4, EPS was $1.52 42 cents above our guide due to strong operational performance and further boosted by gains from our eye care portfolio.
Excluding a onetime tax adjustment about two thirds of our EPS beat was operational and one third was below the line.
For full year 'twenty 'twenty, we achieved record revenue of $77.9 billion $4.4 billion higher than our January guide, which reflects a one year acceleration relative to our 2019 Investor day target.
EPS was $5.30 up 43 cents year over year, and 30 cents higher than our January guidance.
We generated $21 $1 billion of free cash flow up 25% year on year and returned 94% of free cash flow to shareholders.
In total we have repurchased approximately $17 6 billion of shares as part of our planned $20 billion share repurchases announced in October 2019.
We intend to complete the remaining $2 4 billion dollar balance in Q1 'twenty one.
Moving briefly to signal performance.
Our data center group generated record revenue in 'twenty 'twenty.
Up 11% year over year.
Q4 D. C. G delivered revenue of $6 $1 billion down 16% year over year, driven by enterprise and government weakness in cloud digestion.
Be it lower than expected.
As a reminder, Q4 19 was a tough compare with an all time record for revenue with strength across all segments.
D C. G operating margin in Q4 was down 1.4 billion year on year on lower revenue and increased investment.
Our other data centric businesses were up 1% year over year in 'twenty 'twenty.
In Q4, these businesses were down 5% year over year.
Driven largely by Covid related demand impacts, partially offset by mobile growth.
I O T. G revenue was down 16% year over year due to COVID-19 effects on demand.
We expect recovery in I O T G. In 'twenty 'twenty, one and saw sequential growth of $100 million in the quarter on stabilizing industrial and video segments.
Mobile AD revenue was up 39% year over year in the quarter and operating margin was $110 million both records as IQ S. O C demand continues to be strong.
And as G revenue was $1.2 billion down 1% year on year on lower Asp's, partially offset by higher volume growth.
Operating margin was $76 million.
PSG revenue was down 16% year over year due mostly to five G. AC transitions at key accounts in the communications segment.
C C. G delivered a fifth straight year of record revenue up 8% year over year for the quarter revenue was up 9% year over year, driven by record notebook unit volume.
Asps were down 11% due to increased volume in consumer entry and education segments.
Adjacency revenue was down 31% driven by modem ramped down and the divestiture of our home gateway business.
Operating income was $4 $5 billion up $420 million year over year on higher volume, partially offset by the ramp of 10 nanometer products.
Moving to our outlook as Bob and Trey said, we believe it is important to give Pat time to assume his new role and dig into the business before announcing our full year 'twenty 'twenty, one guidance and longer term plans.
Over I will provide our Q1 outlook and then for the year discuss high level headwinds and <unk>, we expect.
As a reminder, our outlook for 'twenty 'twenty, one excludes the NAND business.
We expect Q1 revenue of $17.5 billion.
Down 12% year over year or down 6% excluding NAND.
We see continuing strong demand for notebook Pcs in Q1 up significantly year over year, and expect desktop volumes to be down year over year.
We anticipate further cloud digestion and continued COVID-19 demand impacts on I O T G.
The Q1 revenue estimate also includes approximately $500 million in corporate revenue that is onetime in nature and relates to a prepaid revenue arrangement.
As we look at the remainder of the year, we see solid Tam growth in our core markets in 'twenty 'twenty one.
We expect Pcs demand to be more first half weighted than normal seasonality and expect data centric demand to be more concentrated in the second half as cloud digestion eases and Covid impacted markets, such as enterprise data Center and Iot improve we have.
Strong product roadmaps that have anticipated a more competitive market and the continued mix shift to entry consumer Pcs and our revenue plans this year.
Finally, we will see lower modem revenue this year from our exit of that business.
Gross margin in Q1 is expected to be approximately 58%.
<unk> year over year by approximately four points on mix related asp's from lower Xeon, FCC volume and higher small core PC units.
Partially offset by lower margin impact from divested businesses and some improvements from our D. C. G adjacencies.
Q1 operating margin is expected to be approximately 30%.
We are forecasting EPS of approximately $1.10 per share and a tax rate of 14.5%.
With that let me turn it back over to Trey and get to your questions.
Alright, Thank you George moving on now to the Q&A as is our normal practice, we would ask each participant to ask just one question. Operator. Please go ahead and introduce our first caller.
Our first question comes from the line of C J Muse with Evercore.
Yeah. Good evening. Thank you for taking the question Bob It's been a pleasure working with you and Dan Congrats and best of luck I guess first question.
It's around the track.
Clearly its final decision hasn't been made yet, but it certainly sounds pretty clear that you are pursuing a dual path strategy of manufacturing at the leading edge, both internally and externally. So how should we think about the impact to Capex will you need to make investments with your foundry partner to secured capacity.
And porting certain products to very different foundry design rules, what impact will that have on Opex and is that is what is driving higher opex intensity in Q1. Thank you.
Yeah.
Thanks C. J, maybe I'll start George you can you can finish up.
First yeah, we've been through an exhaustive effort over the course of Lax last six months and as we highlighted we've made tremendous progress on our seven nanometer process technology and that gives us a lot of comfort that the number one priority that we set in the middle of the year, which was a predictable cadence of leader.
Ship products that we would be able to deliver our 22023 roadmap using Ah I seven or our our Nextgen technology. So the progress. The team has made has given us the confidence that that will continue to.
Leverage the IDM advantage and invest in our tech.
Technology development leadership in the future.
At the same time, we also realize that with our disaggregate disaggregated designs that we launched a few years back that we have enhanced flexibility to see if when and what technologies or tiles will make inside which will be the majority of our twenty-three roadmap, but it gives us.
The flexibility to look at things outside and the tradeoffs that we make in doing that our one performance of product in a predictable manner.
Two economics, and three ensuring that we have the capacity and the control of the supply chain. So that we can.
Our customers can count on our deliveries so over the course in time.
Serving the IDM advantage, while being more and more flexible on our architectures and our designs.
And C. J in terms of spending I would say, yes, we're increasing spending on seven nanometer inside the company.
And in preparation for the next generation of tools I wouldn't tie it explicitly in any way to the tradeoff.
Tradeoff between manufacturing internally or externally, that's really going to be decided as Pat.
Looks at.
The product roadmap, our most of our spending increase in the year compared to what we thought is tied to more spending on AI and AR on our xeon roadmap.
Which pretty much.
Was a redirection of the savings that we got from the divestitures.
And if I might a C. J. This is Pat pleasure to join all of the investors on this call. Today, you just want to affirm as I said in my formal statements that I was very pleased to see the great progress on seven nanometers and in the T. D team has really done a great job over the last six months, you know and that gives me the confidence in that.
I said in my formal comments that the majority will be internally, but we will be increasing the use of our foundry capabilities as well and will be being more specific on this after I climbed to dig deeper with the team shortly after joining the company in the middle of next month, but overall I think we're on a very good path now.
Thanks, so much.
Our next question comes from John Pitzer with Credit Suisse.
Yeah. Good afternoon, guys. Thanks for let me ask a question I'll Echo C. J in thanking Bob for all of his help in welcoming Pat to the team I.
I guess my question, Bob probably just around gross margins you know clearly you significantly upside in the December quarter, I would've thought that going into March given the divestiture of NAND that being gross margin accretive that maybe you'd get some better leverage on gross margin. So maybe you can address that and I guess more importantly from the March quarter.
Bob or George can you talk about how we should think about the puts and takes to the cost sides on gross margins as 10 nanometer begins to ramp.
Yeah, Hey, Hey.
I'll take I'll take it this is George.
You know in Q1, what were really seeing is again, a typical seasonality so.
When you look at the fact that were in a digestion phase.
And we're actually in the third quarter of it.
That has a significant impact on mix that's affecting our asp's, you're also seeing a tremendous demand in Pcs well above our expectations, obviously contributing to the beat in Q4 continuing.
Into Q1, and actually we think that continuing the strongly into the first half.
And that's largely small core type devices. So we have an a S. P. A effect there as well we are seeing we are seeing some some higher seven nanometer costs impacting.
The of our outlook for gross margin and we are getting the benefit from NAND as you talk about and but we're also seeing.
More savings in 10 nanometer costs as we're making more progress there than we've then actually we were even expecting we it's accelerating so we're we're pleased with that as you think about the full year.
I think trying to take a compare off of a Q1 win where.
Impacted on Asp's, both from D C G and from a and from CCG. It makes for a difficult full year extrapolation, we're going to come back to you with our full year outlook and we can go more into it.
But in terms of <unk>.
Headwinds in tailwind that we see as we go into <unk>.
Into the year, obviously, we're going to have higher 10 nanometer volume, which is going to impact.
Gross margins overall.
The client mix is going to continue to be heavily weighted particularly in the first half on small core.
I think on datacenter, we think they'll continue to be.
Competitive.
Pressures on on Asps, but I think D. C. G is really going to be more of a of a cost story with 10 nanometer.
Coming in.
Although we're much further along in the maturity of 10 nanometer. So it won't be as impactful as we saw with CCG last year.
And then of course.
For D C G.
You can expect the inclusion of octane will have a little bit of impact on margin as well so.
The tail winds still look very strong obviously the ramp down on modem, our divestiture of the gateway business the sale of NAND.
And improvements in 10 nanometer all tailwind that should help us in gross margin, but we'll go we'll go into more detail on that when we guided the full year.
Yeah, and I would.
I'd put maybe John just to I think history here.
Is that a reasonably good indicator of that.
The commentary that George provided for 'twenty one.
And if you go back a year you know, we said gross margins would be 59% for 2020.
And we ended up at 57.5%, so down a point and a half and if you look at the fundamental drivers of that point and a half versus what we thought at the beginning of the year first yeah, we generated $4 billion more revenue than we thought so volume was much higher and then when you look at the makeup of that.
That volume.
Was you know in my mind. It was all good things that foreshadow important things for 'twenty, one and beyond first.
The demand for our 10 nanometer products was much was higher greater than we expected and that was yes that was a very positive in terms of income.
But slight degradation in gross margin.
Second yeah, the PC demand that we experienced during the course of the year, which relative to where we were at the beginning of the year was off the charts, including what we believe was share gains in the fourth quarter came predominantly with a consumer.
Consumer consumer entry.
And education, so those two segments.
Tend to be lower margin, but you know real strong demand and that was the gap that we didn't feel when we are capacity constrained last year. So I think in terms of the mix of more 10 nanometer much more PC demand at the at the lower ends those were things that drove down less.
Margin percent, but a lot more income than we expected a year ago and those things as true as George mentioned going into 'twenty, one are going to be you're going to have a much better mix because of the exit of motive in NAND.
Number one number 210 nanometer product cost as George mentioned is going to get much better during the course of the year number 314 nanometer is going to be more fully depreciated equipment. Those three things are very positive as we go into the year at the same time George flagged two issues one are those mixed dynamics.
Of lower PC Tam, we think is going to be relatively strong, but we do believe it's going to be at the lower end education will be a big part of that demand that has lower margin and we renewed our commitment to seven nanometer process technology and that in fact, we'll have a degradation. So in so many ways we.
Generated a lot more income and revenue in 2020 as the adoption of our better of our 10 nanometer products and lower and in consumer we're very positive impacts for earnings and those trends you'll see as we go in the first quarter and throughout 2021.
That's a great explanation thanks, Bob.
Our next question comes from Joe Moore with Morgan Stanley.
Great. Thank you.
I Wonder if we could drill down on the progress on seven nanometer.
If I look back at the comments from July you had talked about having your first client product first half of 'twenty three.
Is that still the right.
Wanna be too granular about timeframe, but it seems like early twenties reverses late 'twenty three would make a big difference are you still kind of on the track that you talked about in July for the first seven nanometer output.
Yes, I think at the time, we said that in effect given the process challenges we are dealing with that the product road map, we expected the shift a couple of quarters into into 'twenty, three and as normal client will likely go first in server will go we'll go after that.
So the expectation is and our focus in improving seven so that we can hit that predictable cadence of leadership products in 'twenty three we have dramatically improved our confidence in our ability to hit that product roadmap schedule that we talked about at the time.
That's very helpful. Thank you very much and congratulations and thanks for all your help plus years. Thank.
Thank you.
Our next question comes from Vivek Arya with Bank of America.
Thanks for taking my question and congratulations and best wishes to Bob.
But my question is if you were saying Intel will get to seven nanometers by 2023.
Competitive foundry products will still be one node.
TSMC is planning to ramp there.
The three nanometer node next year.
Alright, then we'll probably have a much bigger ramp by 2023. So I'm curious what is intel need to do to kind of match or leapfrog.
Foundry capability because in the two or three years.
Try to get to your seven nanometer.
Competition.
Several with arm based capabilities are still making progress. So I'm just trying to think through what is kind of a conceptual state of competitive.
When we get to 2023, thank you.
Yeah, Vivek to two things and we've talked about this a bit over the last couple of years, but first our bullet our belief on delivering leadership products over time, it's going to be dependent on a multitude of factors.
Process technology is very important.
<unk> technologies becomes increasingly important in our mind.
All pituitous architectures.
C. P U two X P U or including graphics, and AI capabilities memory, and security and last but not least software and you'll remember that we talked about those as the six pillars of technology required to deliver product leadership.
Poor process is very important but it's not the only thing so that's kind of the the strategy. We've been on for the last couple of years, but secondly.
Now we're going to continue to invest in process technology. So yes. Some of the progress we made on seven over the last couple of quarters is important for the next generation of process technology. So as we leverage our six pillars of technology to deliver leadership products, we will.
Also continue to invest in next generation process technology beyond beyond seven nanometer.
Let me just add a couple of points to that this is Pat again, you know as we said we believe the majority will be on our seven nanometers, but we will be increasing the use of foundry capabilities in that time frame as well overall it is about building as Bob said, a competitive product that is leadership in the marketplace and that's what our intent is to do and as we broaden the use.
Of our technologies across packaging software internal and external we're confident that we can deliver a leadership.
<unk> family in the marketplace across all of our major product categories. Additionally, I was also very pleased to see some of the long term innovations coming out of T. D. Right as we work to close any gaps with the external foundries as well as leap ahead and clearly we're not interested in just closing gaps we're interested in resuming that position of the.
Unquestioned leader in process technology, and that's our commitment also with the I D. M model. We believe we have the right combination of being able to deliver supply to meet our customers' requirements by leveraging internal and external capabilities, which our competition doesn't have and between all of these capabilities we.
[noise] believer striking the right balance of internal and external to deliver an unquestioned leadership product in the marketplace that meets our customers' requirements for the long term.
Thank you Bob.
Our next question comes from Enbridge.
No.
Hi, Thank you very much Bob Thanks, Bob really enjoyed my interactions with you.
I had a question for you Pat and I don't believe everything I read in the press, but.
And even if you did look at the opportunity earlier I just wanted to get a feel from you what really appeal to you when.
When you looked at this opportunity versus the very successful stint at Vmware.
And especially in light of the challenges until Ive had with which we could argue Bob inherited from before so can you just help us understand kind of what are the challenges and the opportunities that you saw which got you to this role again and welcome back by the way.
Well. Thank you very much and you know a few general comments would be you'll one is this is a great company.
And one that I have just great history with as I said 30 years as part of this company.
Grove more noise. These are the people that I grew up right at their feet of learning and to me. It really is a privilege and I'm honored to come back to this company as I said in my Dream job and second this is a national asset this company needs to be healthy for the technology industry for technology in America and to me it's a.
Opportunity to help and to unquestionably put Intel in the United States and the technology leadership position. So I'm excited by that opportunity to do that it was also very exciting to see the unity of the board and calling me to the role and with that working.
Flee with the board and their enthusiasm to bring me into the company as well as the alignment on the look forward strategy that we're laying out and those together and say the timing wasn't necessarily you know I was enjoying my time at Vmware, but the opportunity to come back now be part of this great company and.
Intel has gone through cycles before.
Right and clearly you know as I was here economic cycles, you've had periods, where we were ahead in periods of rear behind others are you know personally I was very involved in you know the period, where you're very right Dan.
Finished in the marketplace in late to the multi core and in that period of time in 2005 through 2009, we turned around the company and unquestionably established leadership position. After a period, where many were questioning the ability of the company to be successful yet again, great companies are able to come back from periods of.
Difficult tuning challenge and they come back stronger better and more capable than ever and that I believe is the opportunity at Intel and I'm confident that this.
The company has its best days are in front of it and I'm looking forward to the opportunity to be part of that.
Thanks, Dan.
Our next question comes from Stacy Raskin with Bernstein research.
Hi, guys. Thanks for taking my question.
Pat welcome to Intel, let's see here.
I'm going to address the elephant in the room, a little bit in pet I understand your initial perspective on seven nanometers, you're looking at it for a short period of time.
But at the same time like I got to say the company was telling us for a year that seven nanometers is on track.
Then it looked great and then all of a sudden it wasn't.
To the point of considering potentially massive strategic shifts.
So no I mean, I guess, how can we as investors have confidence that after a brief look at you've given at this point that things really are on.
On track what are you seeing that gives you that confidence and how should we think about.
The current process and I guess, how they feed into the risks potentially to future nodes since it sounds like you're sticking around on.
Uninsured on manufacturing, especially just given what we've seen at both seven nanometer, but also Ken in 14 Golan. Several notable we'd had problems like how do we get our confidence.
Well I would also say that Bob and the team had been working on this for the last six months diligently. So even though my investigation was really just a few days I'm looking at data that's been thoroughly analyzed trends over the last six months that clearly is bringing them to a point of greater confidence.
Four I looked at the data I came to the same decisions that they were at the same time.
We're pausing right to say that everything is resolved to give me a little bit more time with the team to understand the roadmap and to dig deeper into those decisions and like we said, we will be giving more clarity on that in the near future. After I've had time to analyze it more carefully also the team has been making adjustments of leadership and has been.
Doing a great job as we've moved her into that role you'll see we're making adjustments in the leadership of our product development teams as well where talent is going to come into the company and we're excited about the roadmap that were on you might've seen we just announced a new fellow coming back one of my absolute favorite slide was here and Glenn Hinton coming back to the company and you'll be.
Any other announcements of key leaders coming back and so I think the team has been doing a great job getting us to this point I expect with the leadership the roadmap and a few more weeks of analysis will be making very solid decisions that allow us to put the company on a path that is merited to the great Foundation that Intel has had in the past.
Good luck.
Thank you.
Our next question comes from Harlan sur with J P. Morgan.
Yeah.
Good afternoon, one O will come back to the team and Bob. Thank you for all the contributions and support over the past few years.
Underlying the strong performance of the data Center group last year was the continued penetration of Xeon eight shakes and networking connectivity solutions into your large five G service provider customers.
As they continue to Virtualized core and radio access parts of their networks I think this helped to drive the 50% growth in datacenter Adjacencies last year. Your networking compute segment was <unk> 6 billion and up 20% as you mentioned so just given the continued build out of <unk>. This year does the team.
Continued to see double digit type of growth profile for the networking compute segment. This year and compute networking has been a segment, where Intel I think still owns a 100% sure into X 86 server CPU market are you guys starting to see competition stepping it up in this fast growing segment.
Thanks for the thanks for the question you gave most of my answer.
Our acquisition.
First as we've been saying for last couple of years that.
You know, we view five G and network transformation as a significant opportunity for us to expand the role we play as more and more compute moves.
Moves from the data center to the cloud to the network in those.
<unk> pipes becomes smarter and smarter pipes. So this has been a pretty large thrust for us for last several years, we've made tremendous progress in migrating a customer oriented environment to general purpose compute and that has been a big source of growth from you know a.
A billion dollar business, probably five or six years ago to $5 billion last year that came primarily by leveraging the core GPU in the network environment.
But a couple of years ago to your question, we expanded the role that we thought we could play as more and more compute happened at the network and that included.
Moving into the radio access space with more.
With with general purpose compute, but also custom architectures, including FPGA and ASIC and that allowed us to play a much bigger role in our customers' success and a key emerging technology that we've been focused on for a while so I think that maybe the one other piece.
Point to that would make that.
We've gone we targeted about 20% share in that radio access access space by 2022, and we hit that 40% share in 2020. So we're well ahead of where we expected the role we play it five G. In the network is much bigger we've.
Developed partnerships along the way in this space, including with including with Vmware. So I can only imagine those partnerships and complementary capabilities will allow us to play a bigger and bigger role as more and more compute moves to the network into the edge and if I might pile onto this one as Bob had said.
Bob and I had struck a partnership when I was at my Vmware role when I've been driving the AR five G. A strategy at Vmware. So this is one of them actually quite intimate with and the opportunity of five G. As it becomes a horizontal versus a vertically controlled industry is absolutely enormous, but it's even more important than that.
That because five cheese going to represent a platform.
That is redefining edge computing it will open up smart cities smart factories that will displace Wi Fi. This is a powerful technology will also be deployed in private five G environments as well so not only use Intel establishing a beachhead in a very important market that was never a major source of red.
For it in the past, but it is a redefining all aspects of distributed computing in the future. So this leadership position that is established today is one that will be harvesting for the next decade, and our five T isn't just faster LTE is a new network with increased security connectivity bandwidth better than wired Cape.
Abilities and truly will open up markets since we've never seen before this one is exciting and the leadership position. That's already been established here will be harvested for many many years to come.
Thank you for the insight.
Our next question comes from Matt Ramsey with Cowen.
Yes, thank you very much.
Afternoon, and thanks, Bob for everything at welcome home.
I guess my my question.
A bigger picture, one and Pat you had mentioned a little bit about this in one of your previous answers and I guess the question is to <unk>.
Omar yourself.
Hey, Bob.
No no secret Intel success is.
Hugely critical to U S competitiveness in the long term on several pillars of technology.
Wonder.
Pat your decision to come back Omar your decision and the board's decision to take make the CEO change.
How much that influenced that and what's the interactions with governments. The U S government, the Israeli government et cetera, what those conversations have been like in support of Enzo.
Well, let me take that one first of all the you know the board has a.
His succession planning process, which we are looking at and we felt that this was the right time to make the move in partnership with Bob and there was no real government influence or anything like that in this.
Susan So this was a part of our regular process and we're just delighted to have Pat join US at this time and we're confident we can take this company to the next level as he's been saying and thanks to Bob for what he's done.
So there was no other motive other than the regular succession planning process. The board does have.
And then on the on the specific.
Question about these dynamics in discussion with a with kind of the U S government on or maybe just you know our foundry capabilities.
No I would just we've been talking about this for a couple of years and I think the the.
The implications of.
A couple of years ago increased trade tear of small now more ink.
Increasing trade restrictions at the time, we saw that as a challenge because China is a large market for us, but also as a big opportunity.
And the big opportunity, we're on two fronts in a in the event of an increasingly east versus West World. We saw an opportunity for us to play a bigger role in five G. So we talked about that and I think as a result of the incremental investments. We've made the team has made tremendous progress on our five G space.
At the same time, we also talked about addressing a growing need in a nice first westworld, where supply where their dual supply chains and increased anxiety about having all year.
Technology dependencies more you know more in a in the east.
So for us what that meant was engaging both with the U S government and with commercial players, who just for increasingly anxious about their exposures and.
You know what we've heard from the U S government as you know one we need.
Advanced access to advanced Microelectronics technology and manufacturing here in the U S.
We need a greater industrial manufacturing base here in the U S and we need a safe and secure supply chain increasingly here in the U S and windows with those three things and you know this is both U S government and commercial customers.
We're the we're the only company that can really check all three boxes. So along the way as you know, Matt we told the U S government that we would be in a position to you now for the good of our you know for the good of the industry frankly for the go to the country for the good of Intel we would leverage our competencies or capabilities.
All of these to provide foundry services to the U S government and then been working very closely because foundry services requires scale, how do we make sure that we have the technology that can be both U S. G needs and commercial players needs and that's a dialogue that has been back and forth.
For a while and you know we we think we've played a role both with ourselves and the semiconductor industry Association and trying to shape some of the incentives.
Coming out of Washington that in effect do a more a more effective job in leveling the playing field to invest in foundry services here in the U S.
Thank you very much Bob that was helpful.
Our next question comes from Timothy Arcuri with UBS.
Hi, Thanks, I guess I had a broader question on just captive versus foundry as well and.
Bob You had an interview I think maybe it was a month ago, maybe it was six weeks ago, where you talked about licensing or the possibility to basically license a process from a foundry rather than just strictly out sourcing to a foundry and you said that that but yes that is actually possible that you could do that.
I mean that would be quite a tectonic shift and I guess since packs also on the phone I. Just wanted to ask you is this something that's remotely on the table as you sort of think about this thing.
Well I'll be.
A little more generic I think what what I said is that our focus is on how do you deliver a predictable cadence of leadership products preserve IDM advantages and invest in technology development and along the way how as a company to be much more open and engaging.
With the ecosystem to make sure we understand the inherent technologies that are out there and embraced technology to the extent there they might be better than what we have or not is critical and the determination of product performance differentiation. So that say you know what we've characterized as just engaging with.
The ecosystem in a much more holistic way and broadly speaking that may mean sharing technologies that we have that they could use or leveraging technologies that others have developed that we can use as well. So that's you know I just think it goes back to how do we take this wonderful.
<unk> business model called IDM, where we co optimized design and manufacturing we yeah, we make all the money and we control the supply chain, how do we evolve that very powerful business model in.
Industry in an ecosystem that's made dramatic advancements over the last 10 years, where we think we can be more open minded and engage in leveraging those.
And I would just add to that that this will certainly be a topic that we'll discuss as I go forward with the company also that clearly this ability to work more closely with the equipment suppliers or at the care tool suppliers. Other technology sources in the industry. We're committed to the idea of model we're committed to leadership.
Alex but also innovation that fundamentally has us leading the industry in a consistent basis and sometimes that may happen outside of the company, sometimes it will be inside of the company, but we're committed to leading innovation and delivering the best products for our customers in every category that we participate in.
Thanks, Thanks, a lot to you Bob.
Yeah. Thank you and Pat I'm, just gonna give maybe a few minutes here at the end for you to frame out your priorities as we leave the call and.
Just give you a few seconds to do that great. Thank you Trey and thanks again to Bob and you know it really is incredible to come back home and have my dream job and thank you Bob for being the vehicle to deliver that up to me.
Four areas that I touched on briefly in my formal comments that you'll see me focus on as I come into the company. One is great product right, where we simply will be the leader in every category that we participate you'll see me dive into details, we'll build out the partnerships with our customers, but we're going to deliver leadership.
<unk> and have a development machine that consistently does that then execution, obviously, we have to regain the confidence of our customers that our supply chain is the best that our roadmap is the best that they can rely on us for their products and their strategies for the future innovation, we're going to.
Continue to be a source of fountain, a continual delivery vehicle for the greatest innovations of the industry will be doing that with the idea of model seven nanometers beyond but continuing to find radical areas to innovate because the world is looking for more digital technology as more and more of every.
The aspect of humanity is coming online and coming to the digital foundation that we uniquely build and deliver and finally culture.
I was trained at the feet of growth and we will have the grobian maniacal execution transparent data driven culture and rebuilding that as part of this company and as we look across these areas as I said I'm convinced the best days for this company are in front of US and this is a priority for inter.
Well, our priority for the technology industry, and our nation and it has a sovereign duty responsibility and opportunity for me to be taking on that role. Thank you all for joining us today. Thanks.
Thanks, Pat and thank you all for joining US operator could you. Please go ahead and wrap up the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
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