Q2 2019 Earnings Call

Good day, ladies and gentlemen, and welcome to the second quarter 2019, Intel Corporation earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time, if anyone should require assistance. During the program. Please press Star then zero on your Touchtone telephone as a reminder, todays program is being recorded and now I'd like to introduce your host for today's program Mark Henninger head of Investor Relations. Please go ahead Sir.

Operator: Good day, ladies and gentlemen, and welcome to the Q2 2019 Intel Corporation earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the program, please press star then zero on your touch-tone telephone. As a reminder, today's program is being recorded. Now, I'd like to introduce your host for today's program, Mark Henninger, Head of Investor Relations. Please go ahead, sir.

Thank you operator, welcome everyone to Intel's second quarter earnings Conference call.

Mark Henninger: Thank you, Operator, and welcome everyone to Intel's second quarter earnings conference call. By now, you should have 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, intc.com. The earnings presentation is also available in the webcast window for those joining us online. I'm joined today by our CEO, Bob Swan, and our CFO, George Davis. In a moment, we'll hear brief remarks from both of them, 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.

Mark Henninger: Thank you, Operator, and welcome everyone to Intel's second quarter earnings conference call. By now, you should have 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, intc.com. The earnings presentation is also available in the webcast window for those joining us online. I'm joined today by our CEO, Bob Swan, and our CFO, George Davis. In a moment, we'll hear brief remarks from both of them, 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.

By now you should have received a copy of our earnings release and earnings presentation.

If you've got received both documents they're available on our Investor website, I am Tc dotcom.

The earnings presentation is also available in the webcast window for those joining us online.

I'm joined today by our CEO Bob Swan.

And our CFO George Davis.

In a moment, we'll hear brief remarks from both of them followed by <unk>.

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.

Mark Henninger: 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 intc.com, include the full GAAP and non-GAAP reconciliations. With that, let me hand it over to Bob.

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 intc.com, include the full GAAP and non-GAAP reconciliations. With that, let me hand it over to Bob.

Today, we will be speaking to the non-GAAP financial measures when describing our consolidated results.

The earnings presentation and earnings release available on T.C. Dot com.

Include the full GAAP and non-GAAP reconciliations.

With that let me hand, it over to Bob.

Bob Swan: Thanks, Mark. The second quarter was significantly stronger than we forecasted in April, and our results demonstrated our customers' preference for the performance of Intel XPUs as workloads grow, diversify, and become increasingly complex. That need for performance manifested in strong mix in ASPs across the business. Our Q2 results are proof points for the mega trends that underpin our strategy. The world's insatiable appetite for data is driving demand for solutions to process, store, and move it faster and better. Customers want to work with partners who can deliver performance and platforms to address their most important technology challenges. Our data-centric businesses overall performed roughly in line with our April expectations. Data center and IoTG customers chose our highest-performing products, leading to strong mix in ASPs.

Bob Swan: Thanks, Mark. The second quarter was significantly stronger than we forecasted in April, and our results demonstrated our customers' preference for the performance of Intel XPUs as workloads grow, diversify, and become increasingly complex. That need for performance manifested in strong mix in ASPs across the business. Our Q2 results are proof points for the mega trends that underpin our strategy. The world's insatiable appetite for data is driving demand for solutions to process, store, and move it faster and better. Customers want to work with partners who can deliver performance and platforms to address their most important technology challenges. Our data-centric businesses overall performed roughly in line with our April expectations. Data center and IoTG customers chose our highest-performing products, leading to strong mix in ASPs.

Thanks Mark.

The second quarter was significantly stronger than we forecasted in April and our results demonstrated our customers' preference for the performance of Intel X P is as workloads grow.

Diversified and become increasingly complex.

That need for performance manifested in strong mix in S.P.'s across the business.

Our Q2 results are proof points for the Mega trends that underpin our strategy.

The world's insatiable appetite for data is driving demand for solutions to process door and move it.

Faster and better.

Customers want to work with partners, who can deliver performance and platforms to address their most important technology challenges.

Our data centric businesses overall performed roughly in line with our April expectations.

Data center, an Io TG customers chose our highest performing products leading to strong mix in ASP is.

Well, our cloud customers absorb capacity they put in place over the last year, we continue to expect cloud demand to improve in the second half.

Bob Swan: While our cloud customers absorbed capacity they put in place over the last year, we continue to expect cloud demand to improve in the second half. Enterprise and government spending remains weak, however, particularly in China. PC demand continued to improve, particularly in the commercial segment. We now expect the PC TAM to be up slightly for the full year. Strong demand for our highest-performing products and the productivity, and TCO gains they deliver continued. Mix was stronger than we anticipated. While small core supply improved, we were not able to fully satisfy customer demand for these SKUs in the second quarter. Tariff and trade uncertainties created anxiety across our customers' supply chains and drove a pull-in of client CPU orders into the second quarter. We also halted shipments to certain customers in response to the US government's revised Entity List.

While our cloud customers absorbed capacity they put in place over the last year, we continue to expect cloud demand to improve in the second half. Enterprise and government spending remains weak, however, particularly in China. PC demand continued to improve, particularly in the commercial segment. We now expect the PC TAM to be up slightly for the full year. Strong demand for our highest-performing products and the productivity, and TCO gains they deliver continued. Mix was stronger than we anticipated. While small core supply improved, we were not able to fully satisfy customer demand for these SKUs in the second quarter. Tariff and trade uncertainties created anxiety across our customers' supply chains and drove a pull-in of client CPU orders into the second quarter. We also halted shipments to certain customers in response to the US government's revised Entity List.

Enterprise and government spending remains weak however, particularly in China.

PC demand continue to improve particularly in the commercial segment.

We now expect the PC Tam to be up slightly for the full year.

Strong demand for our highest performing products.

And the productivity and Tcl gains they deliver continued.

Mix was stronger than we anticipated.

Well small core supply improved we were not able to fully satisfy customer demand for these skews in the second quarter.

Tariffs and trade uncertainties created anxiety across our customer supply chains and drove a pull in of client GPU orders into the second quarter.

We also halted shipments to certain customers in response to the U.S. government to revise entities.

After a thorough review we were able to resume shipments of some products in compliance with regulations and the net impact on the second quarter was limited.

Bob Swan: After a thorough review, we were able to resume shipments of some products in compliance with regulations, and the net impact on Q2 was limited. While we hope and expect trade issues to be resolved, further tightening of export restrictions would come with revenue risks to our business. As a result, we entered H2 a little more cautious than we were 90 days ago. We met with many of you in May at our investor meeting, where we outlined three major thrusts of our game plan to transform our company and grow. First, we're pursuing the largest opportunity in our company's history, a nearly $300 billion TAM, comprised not just of CPUs for PCs and servers, but of XPUs and adjacent technologies for an incredibly wide range of workloads and devices. Second, we're strengthening our product leadership by accelerating the rate of innovation.

After a thorough review, we were able to resume shipments of some products in compliance with regulations, and the net impact on Q2 was limited. While we hope and expect trade issues to be resolved, further tightening of export restrictions would come with revenue risks to our business. As a result, we entered H2 a little more cautious than we were 90 days ago. We met with many of you in May at our investor meeting, where we outlined three major thrusts of our game plan to transform our company and grow. First, we're pursuing the largest opportunity in our company's history, a nearly $300 billion TAM, comprised not just of CPUs for PCs and servers, but of XPUs and adjacent technologies for an incredibly wide range of workloads and devices. Second, we're strengthening our product leadership by accelerating the rate of innovation.

Well, we hope and expect trade issues to be resolved further tightening of export restrictions would come with revenue risk to our business.

As a result, we entered the second half of the year, a little more cautious than we were 90 days ago.

We met with many of you in May at our Investor meeting, where we outlined three major thrust of our game plan to transform our company and grow.

First we're pursuing the largest opportunity in our company's history.

They nearly 300 billion dollar Tam.

Comprise not just the Cps for Pcs and servers.

But at the XP EWS and adjacent technologies for an incredibly wide range of workloads and devices.

Second we're strengthening our product leadership by accelerating the rate of innovation.

And third we're evolving our culture in improving our execution. So that we can play an even greater role in our customers growth and success.

Bob Swan: And third, we're evolving our culture and improving our execution so that we can play an even greater role in our customers' growth and success. I'll take a few minutes to share some of the progress we're making. I'll start with expanding our opportunity and expanding our TAM. Over the last few years, we have dramatically expanded our served market while the PC market was declining. Our served market now is more than five times larger and growing faster, and we have reallocated spending to expand our capabilities in higher growth areas. We are evolving Intel inside from a CPU inside a PC to XPUs inside everything that processes, stores, and moves data. Big bets in 5G, AI, and autonomous systems are an important part of this transformation. In May, I outlined a discipline framework for investing in and evaluating big bets as we expand into new markets.

And third, we're evolving our culture and improving our execution so that we can play an even greater role in our customers' growth and success. I'll take a few minutes to share some of the progress we're making. I'll start with expanding our opportunity and expanding our TAM. Over the last few years, we have dramatically expanded our served market while the PC market was declining. Our served market now is more than five times larger and growing faster, and we have reallocated spending to expand our capabilities in higher growth areas. We are evolving Intel inside from a CPU inside a PC to XPUs inside everything that processes, stores, and moves data. Big bets in 5G, AI, and autonomous systems are an important part of this transformation. In May, I outlined a discipline framework for investing in and evaluating big bets as we expand into new markets.

I'll take a few minutes to share some of the progress we're making.

I'll start with expanding our opportunity and expanding our Tam.

Over the last few years, we have dramatically expanded our served market while the PC market was declining.

Our served market now has more than five times larger and growing faster.

And we have reallocated spending to expand our capabilities in higher growth areas.

We are evolving Intel inside from a CPQ inside a PC.

Two X P use inside everything that processes stores and moves data.

Big bets in Fiveg, Hey, Ahi and autonomous systems are an important part of this transformation.

In May I outlined a disciplined framework for investing in and evaluating big bets as we expand into new markets.

First we'll invest where we have an opportunity to lead major technology inflections.

Bob Swan: First, we'll invest where we have an opportunity to lead major technology inflections. Second, our investments should allow us to play a larger role in our customers' success. Finally, they must show a clear path to profitability and attractive returns. Network infrastructure, which is transforming as the industry transitions to 5G, is one of our most important areas of investment, and we are laser-focused on this opportunity. This business has grown at a 40% CAGR since 2014, from just over $1 billion in revenue to more than $4 billion last year. The network clarification that comes with 5G expands our opportunity in the core network and at the edge as more data moves closer to where it is created. We expect to be in production on Snow Ridge, Intel's 10-nanometer system-on-chip technology for 5G base stations early next year.

First, we'll invest where we have an opportunity to lead major technology inflections. Second, our investments should allow us to play a larger role in our customers' success. Finally, they must show a clear path to profitability and attractive returns. Network infrastructure, which is transforming as the industry transitions to 5G, is one of our most important areas of investment, and we are laser-focused on this opportunity. This business has grown at a 40% CAGR since 2014, from just over $1 billion in revenue to more than $4 billion last year. The network clarification that comes with 5G expands our opportunity in the core network and at the edge as more data moves closer to where it is created. We expect to be in production on Snow Ridge, Intel's 10-nanometer system-on-chip technology for 5G base stations early next year.

Second our investments should allow us to play a larger role in our customers' success.

And finally, they must show a clear path to profitability and attractive returns.

Network infrastructure, which is transforming as the industry transitions to Fiveg is one of our most important areas of investment and we are laser focused on this opportunity.

This business has grown at a 40% CAGR since 2014.

From just over a billion dollars in revenue to more than $4 billion last year.

The network Cloudification that comes with Fiveg expands our opportunity in the core network and at the edge as more data moves closer to where it is created.

We expect to be in production on Snow Ridge, Intel's 10 nanometer system on chip technology for Fiveg base stations early next year.

We've already announced the two large telecom equipment manufacturers have committed to this architecture.

Bob Swan: We've already announced that two large telecom equipment manufacturers have committed to this architecture, and we're on track to 40% share in this market segment by 2022. While the 5G network opportunity meets each of our investment criteria, the 5G smartphone opportunity does not. This is why we decided to exit the 5G smartphone modem business and conduct an analysis of our options for the remaining parts of that portfolio. Today, we announced the sale of the majority of our 5G smartphone modem business to Apple. This deal preserves Intel's access to critical IP we have developed and enables us to focus on the more profitable 5G network opportunity where we are growing and winning share. Another growth market we're gaining share is the Internet of Things.

We've already announced that two large telecom equipment manufacturers have committed to this architecture, and we're on track to 40% share in this market segment by 2022. While the 5G network opportunity meets each of our investment criteria, the 5G smartphone opportunity does not. This is why we decided to exit the 5G smartphone modem business and conduct an analysis of our options for the remaining parts of that portfolio. Today, we announced the sale of the majority of our 5G smartphone modem business to Apple. This deal preserves Intel's access to critical IP we have developed and enables us to focus on the more profitable 5G network opportunity where we are growing and winning share. Another growth market we're gaining share is the Internet of Things.

And we're on track to 40% share in this market segment by 2022.

Well the Fiveg network opportunity meets each of our investment criteria.

The fiveg smartphone opportunity does not.

This is why we decided to exit the fiveg smartphone modem business and conduct an analysis of our options for the remaining parts of that portfolio.

Today, we announced the sale of the majority of our Fiveg smartphone modem business to Apple.

This deal preserves Intel's access to critical IP, we have developed it enables us to focus on the more profitable Fiveg network opportunity, where we are growing and winning share.

Another growth market, we're gaining share is the internet of things.

Bob Swan: We are using our architecture, accelerators, and software assets combined with unmatched scale and partners to develop one of the industry's fastest-growing IoT portfolios. Taken together, the IoTG and Mobileye businesses grew at 22% over last year after adjusting for the sale of Wind River. More intelligence is moving to the edge, and more industries want to harness the power of data to create business value, innovate, and grow. Devices and systems are becoming more autonomous. This is a trend IoTG is shaping and capitalizing on. Our team's work is producing outstanding results. In Q2, we grew at roughly 3x the market rate and are positioned to significantly outgrow the market over time. Here again, we saw demand for performance and strength across all verticals we serve, with computer vision being an especially critical workload. Mobileye is positioned to lead another huge opportunity: autonomous driving.

We are using our architecture, accelerators, and software assets combined with unmatched scale and partners to develop one of the industry's fastest-growing IoT portfolios. Taken together, the IoTG and Mobileye businesses grew at 22% over last year after adjusting for the sale of Wind River. More intelligence is moving to the edge, and more industries want to harness the power of data to create business value, innovate, and grow. Devices and systems are becoming more autonomous. This is a trend IoTG is shaping and capitalizing on. Our team's work is producing outstanding results. In Q2, we grew at roughly 3x the market rate and are positioned to significantly outgrow the market over time. Here again, we saw demand for performance and strength across all verticals we serve, with computer vision being an especially critical workload. Mobileye is positioned to lead another huge opportunity: autonomous driving.

We are using our architecture accelerators in software assets combined with unmatched scale and partners to develop one of the industry's fastest growing I O T portfolios.

Taken together, the Io TG and Mobileye businesses grew at 22% over last year after adjusting for the sale of wind River.

More intelligence is moving to the edge and more industries want to harness the power of data to create business value innovate and grow.

Devices and systems are becoming more autonomous.

This is a trend Io TG is shaping and capitalizing on.

Our teams work is producing outstanding results.

In the second quarter, we grew at roughly three ex the market rate and are positioned to significantly outgrow the market over time.

Here again, we saw demand for performance and strength across all verticals, we serve with computer vision, Beone and especially critical workload.

Mobilize position to lead another huge opportunity autonomous driving.

This business has grown at more than 30% CAGR since we acquired them in 2017.

Bob Swan: This business has grown at more than 30% CAGR since we acquired them in 2017. Our market leadership continues to build momentum with 20 new design wins this year, representing 11 million lifetime units. Nissan's ProPilot 2.0 and NIO Pilot vehicles have begun production featuring Mobileye-based L2+ system for hands-free assisted driving technology. I visited the Mobileye team in Israel last month and was treated to an autonomous ride through the streets of Jerusalem. The progress we are making in level four and level five autonomy is extraordinary. Our Mobility as a Service JV with VW for deploying a commercial robo-taxi service in Tel Aviv by 2022 is on track. Global coverage of REM, or Road Experience Management, Mobileye's real-time crowd-sourced mapping capability is expanding rapidly. Several major auto OEMs, most recently Ford, are adopting this breakthrough data-centric capability.

This business has grown at more than 30% CAGR since we acquired them in 2017. Our market leadership continues to build momentum with 20 new design wins this year, representing 11 million lifetime units. Nissan's ProPilot 2.0 and NIO Pilot vehicles have begun production featuring Mobileye-based L2+ system for hands-free assisted driving technology. I visited the Mobileye team in Israel last month and was treated to an autonomous ride through the streets of Jerusalem. The progress we are making in level four and level five autonomy is extraordinary. Our Mobility as a Service JV with VW for deploying a commercial robo-taxi service in Tel Aviv by 2022 is on track. Global coverage of REM, or Road Experience Management, Mobileye's real-time crowd-sourced mapping capability is expanding rapidly. Several major auto OEMs, most recently Ford, are adopting this breakthrough data-centric capability.

Our market leadership continues to build momentum with 20, new design wins this year.

Representing $11 million lifetime units.

Nissan's Pro pilot to Dato Antonio's pilot vehicles have begun production featuring Mobileye base L. Two plus system for hands free assisted driving technology.

I visited the mobilized team in Israel last month, it was treated to an autonomous ride through the streets of Jerusalem.

The progress we are making in level four level five autonomy is extra ordinary.

Our mobility as a service JV with VW for deploying a commercial robo taxi service in Tel Aviv by 2022 is on track.

Global coverage of around four road experience management mobilize real time crowd sourced mapping capabilities expanding rapidly.

Several major auto Oems most recent before are adopting this breakthrough data center capability.

Bob Swan: To understand the power of this data, consider this: 1.5 million km are sent to the cloud daily from BMW production vehicles. With the data collected from just the last four weeks, Mobileye was able to automatically map 94% of the German Autobahn and motorway network. The commercial opportunity for REM extends beyond real-time maps for vehicles. Since announcing the agreement earlier this year, Mobileye and Ordnance Survey have jointly launched a service that delivers high-precision road network location data to companies across multiple sectors. Artificial intelligence is a $10 billion data center silicon opportunity by 2023, and today, it's fueling cloud customer demand for solutions that accelerate demanding AI workloads. This is evidenced by the fact that key cloud customers, most recently Baidu, are collaborating on our Nervana Neural Network Processor for training, or NNP-T.

To understand the power of this data, consider this: 1.5 million km are sent to the cloud daily from BMW production vehicles. With the data collected from just the last four weeks, Mobileye was able to automatically map 94% of the German Autobahn and motorway network. The commercial opportunity for REM extends beyond real-time maps for vehicles. Since announcing the agreement earlier this year, Mobileye and Ordnance Survey have jointly launched a service that delivers high-precision road network location data to companies across multiple sectors. Artificial intelligence is a $10 billion data center silicon opportunity by 2023, and today, it's fueling cloud customer demand for solutions that accelerate demanding AI workloads. This is evidenced by the fact that key cloud customers, most recently Baidu, are collaborating on our Nervana Neural Network Processor for training, or NNP-T.

To understand the power of this data consider this.

1.5 million kilometers is sent to the cloud daily from BMW production vehicles.

With the data collected from just the last four weeks Mobileye was able to automatically map, 94% of the German Autobahn and motorway network.

And the commercial opportunity for rent extends beyond real time maps for vehicles.

Since announcing the agreement earlier this year Mobileye and Ordnance survey that you wouldn't be launched a service that delivers high precision road network location data to companies across multiple sectors.

Artificial intelligence is a $10 billion data center silicon opportunity by 2023 and today, it's fueling cloud customer demand for solutions that accelerate demanding workloads.

This is evidenced by the fact that key cloud customers. Most recently baidu are collaborating on our Nirvana neural network processor for training for and NPT.

And then P.T. will sample to customers later this year, expanding our already diverse portfolio, which spans multiple architectures, including a six like NPR Gpus Gpus and SPG Ace all unified by single programming model one epi.

Bob Swan: NNP-T will sample to customers later this year, expanding our already diverse AI portfolio, which spans multiple architectures, including ASICs like NNP-I, CPUs, GPUs, and FPGAs, all unified by a single programming model, One API. The second major element of our game plan is extending product leadership by accelerating the rate of innovation. The future of computing will require a solution-oriented mindset building on six pillars of innovation. Over the last 50 years, Intel has delivered breakthrough after breakthrough in computing performance that has propelled technology and society forward. We are far from finished, as our product and customer announcements over the last quarter demonstrate. Our data center group just announced a very important strategic partnership with SAP to optimize Intel's platforms, including Xeon Scalable processors and Optane DC persistent memory for SAP's end-to-end enterprise software applications, including SAP S/4HANA.

NNP-T will sample to customers later this year, expanding our already diverse AI portfolio, which spans multiple architectures, including ASICs like NNP-I, CPUs, GPUs, and FPGAs, all unified by a single programming model, One API. The second major element of our game plan is extending product leadership by accelerating the rate of innovation. The future of computing will require a solution-oriented mindset building on six pillars of innovation. Over the last 50 years, Intel has delivered breakthrough after breakthrough in computing performance that has propelled technology and society forward. We are far from finished, as our product and customer announcements over the last quarter demonstrate. Our data center group just announced a very important strategic partnership with SAP to optimize Intel's platforms, including Xeon Scalable processors and Optane DC persistent memory for SAP's end-to-end enterprise software applications, including SAP S/4HANA.

The second major element of our game plan is extending product leadership by accelerating the rate of innovation.

The future of computing will require a solution oriented mindset building on six pillars of innovation.

Over the last 50 years Intel has delivered breakthrough after breakthrough in computing performance that has propelled technology and society forward.

We are far from finished as our product and customer announcements over the last quarter demonstrate.

Our data Center group, just announced a very important strategic partnership with S&P to optimize intel's platforms, including Xeon scalable processors and obtain DC persistent memory.

For Us say peas end to end enterprise software applications, including let's say P. S. Four Hannah.

For over a decade, we have worked closely with S&P and developing differentiated breakthrough technologies that make organizations run more efficiently.

Bob Swan: For over a decade, we have worked closely with SAP on developing differentiated breakthrough technologies that make organizations run more efficiently. The broadening of our strategic partnership with SAP will allow our mutual customers to accelerate their organization's digital transformation by deploying SAP business applications optimized for Intel-based infrastructure in the cloud, on-premises, and in hybrid environments. Our ecosystem partners have already received Ice Lake Server samples. We are making good progress on Ice Lake Server and are now planning to start production wafers in H1 2020 with the volume ramp in H2 2020. Both yield and defect density are ahead of schedule for our 10-nanometer data center parts. Cascade Lake, which is ramping now, is on track to be one of our fastest-ramping products ever.

For over a decade, we have worked closely with SAP on developing differentiated breakthrough technologies that make organizations run more efficiently. The broadening of our strategic partnership with SAP will allow our mutual customers to accelerate their organization's digital transformation by deploying SAP business applications optimized for Intel-based infrastructure in the cloud, on-premises, and in hybrid environments. Our ecosystem partners have already received Ice Lake Server samples. We are making good progress on Ice Lake Server and are now planning to start production wafers in H1 2020 with the volume ramp in H2 2020. Both yield and defect density are ahead of schedule for our 10-nanometer data center parts. Cascade Lake, which is ramping now, is on track to be one of our fastest-ramping products ever.

The broadening of our strategic partnership with S&P will allow our mutual customers to accelerate their organizations digital transformation.

By deploying Sep business applications optimize for Intel based infrastructure in the cloud.

On premises and in hybrid environments.

Our ecosystem partners have already received ice Lake server samples.

We are making good progress on ice like server and are now planning to start production wafers in the first half of 2020 with the volume ramp in the second half of the year.

Both yield and defect density are ahead of schedule for our 10 nanometer data center parts.

Cascade Lake, which is ramping now is on track to be one of our fastest ramping products ever.

Bob Swan: We have a great solution for our customers in H1 2020 with Cooper Lake in the same platform as Ice Lake. We're working more deeply with our customers to understand their needs and become the partner that they rely on to innovate and grow their businesses. They challenge us. It's producing results, and it's making us better. For example, in Q2, we announced a strategic partnership with Google to collaborate on Anthos, a new reference design based on the second-generation Xeon Scalable processor, and an optimized Kubernetes software stack that will deliver increased workload portability to customers who want to take advantage of hybrid cloud environments. These deep customer engagements are, frankly, one of my favorite parts of the role.

We have a great solution for our customers in H1 2020 with Cooper Lake in the same platform as Ice Lake. We're working more deeply with our customers to understand their needs and become the partner that they rely on to innovate and grow their businesses. They challenge us. It's producing results, and it's making us better. For example, in Q2, we announced a strategic partnership with Google to collaborate on Anthos, a new reference design based on the second-generation Xeon Scalable processor, and an optimized Kubernetes software stack that will deliver increased workload portability to customers who want to take advantage of hybrid cloud environments. These deep customer engagements are, frankly, one of my favorite parts of the role.

And we have a great solution for our customers in the first half of 2020 with Cooper Lake in the same platform concisely.

We're working more deeply with our customers to understand their needs and become the partner that they rely on to innovate and grow their businesses.

They challenge us that's producing results and it's making us better.

For example, in the second quarter, we announced a strategic partnership with Google to collaborate on anthem has a new reference design based on the second generation Xeon scalable processor.

And an optimized kubernetes software stack that will deliver increased workload portability to customers, who want to take advantage of hybrid cloud environments.

These deep customer engagements are frankly, one of my favorite part of the role.

We're constantly thinking about how we can help our data center customers harness the potential data by processing storing and moving it more efficiently.

Bob Swan: We are constantly thinking about how we can help our data center customers harness the potential of data by processing, storing, and moving it more efficiently. An essential part of the equation is interconnect technology, which is why we recently announced our intention to acquire Barefoot Networks. Barefoot Networks is an emerging leader in Ethernet switch silicon software with the programmability and flexibility necessary to meet the performance needs of the hyperscale cloud. We closed the transaction this week, and we are excited to have the Barefoot team as part of the Intel family. Our client computing customers can look forward to exciting new Intel products this year. In Q2, we launched a special edition of the world's best gaming processor, the Core i9-9900KS. We also launched our new 10th Gen Core product family, code-named Ice Lake, which integrates Wi-Fi 6, Gen 11 graphics, and AI acceleration.

We are constantly thinking about how we can help our data center customers harness the potential of data by processing, storing, and moving it more efficiently. An essential part of the equation is interconnect technology, which is why we recently announced our intention to acquire Barefoot Networks. Barefoot Networks is an emerging leader in Ethernet switch silicon software with the programmability and flexibility necessary to meet the performance needs of the hyperscale cloud. We closed the transaction this week, and we are excited to have the Barefoot team as part of the Intel family. Our client computing customers can look forward to exciting new Intel products this year. In Q2, we launched a special edition of the world's best gaming processor, the Core i9-9900KS. We also launched our new 10th Gen Core product family, code-named Ice Lake, which integrates Wi-Fi 6, Gen 11 graphics, and AI acceleration.

In the central part of the equation interconnect technology, which is why we recently announced our intention to acquire barefoot networks.

Barefoot networks is an emerging leader in Ethernet switch silicon software with the program ability and flexibility necessary to meet the performance needs of the Hyperscale cloud.

We closed the transaction this week and we are excited to have the bare foot team is part of the Intel family.

Our client computing customers can look forward to exciting new Intel products this year.

In the second quarter, we launched a special edition of the world's best gaming processor. The core I 990, 900 Ks.

We also launched our new 10th Gen. Four product family code named Ice Lake, which integrates why five six.

Gentlemen, graphics and AI acceleration.

Well, we are delivering on the present, we're also creating the future.

Bob Swan: While we are delivering on the present, we are also creating the future. Intel Labs is researching completely new architectures like quantum and neuromorphic computing that promise incredible leaps in performance and power efficiency. Neuromorphic computing strives to emulate the neural structure and operation of the human brain, which could deliver big advancements in artificial intelligence by allowing computers to sense, learn, and behave more naturally and efficiently. Just this month, we announced an eight million neuron neuromorphic system comprising 64 Intel Loihi research chips is now available to the broader research community. Finally, we are evolving our culture and improving execution because our customers are counting on us. Our process technology roadmap continues to improve, and we're making excellent progress on 10-nanometer.

While we are delivering on the present, we are also creating the future. Intel Labs is researching completely new architectures like quantum and neuromorphic computing that promise incredible leaps in performance and power efficiency. Neuromorphic computing strives to emulate the neural structure and operation of the human brain, which could deliver big advancements in artificial intelligence by allowing computers to sense, learn, and behave more naturally and efficiently. Just this month, we announced an eight million neuron neuromorphic system comprising 64 Intel Loihi research chips is now available to the broader research community. Finally, we are evolving our culture and improving execution because our customers are counting on us. Our process technology roadmap continues to improve, and we're making excellent progress on 10-nanometer.

Syntel labs is researching completely new architectures like quantum and neuro more for computing that promise incredible leaps and performance and power efficiency.

No more for computing strives to emulate the neural structure and operation of the human brain, which could deliver big advancements in artificial intelligence by allowing computers to sense.

Learn and behave more naturally and efficiently.

Just this month, we announced an 8 million neuron neural morphic system, comprising 64, Intel low. He research chips is now available to the broader research community.

Finally, we are evolving our culture and improving execution, because our customers are counting on us.

Our process technology roadmap continues to improve and we're making excellent progress on 10 nanometer.

Bob Swan: We began shipping Ice Lake Client in Q2, supporting systems on the shelves for the holiday selling season, and expect to ship Agilex, our first 10-nanometer FPGA, later this year. We now have two factories in full production on 10-nanometer. We are also on track to launch 7-nanometer in 2021. With a roughly 2x improvement in density over 10-nanometer, our 7-nanometer process, which will be comparable to competitors' 5-nanometer nodes, will put us on pace with a historical Moore's Law scaling. We're also making steady progress increasing CPU supply. Through our investments, focused execution, and tighter customer collaboration, we expect our PC CPU supply will be up mid-single digits this year, while we expect the PC TAM to grow slightly. We'll continue to work with our customers to meet their required product mix and ramp additional capacity to ensure we are not a constraint on their growth.

We began shipping Ice Lake Client in Q2, supporting systems on the shelves for the holiday selling season, and expect to ship Agilex, our first 10-nanometer FPGA, later this year. We now have two factories in full production on 10-nanometer. We are also on track to launch 7-nanometer in 2021. With a roughly 2x improvement in density over 10-nanometer, our 7-nanometer process, which will be comparable to competitors' 5-nanometer nodes, will put us on pace with a historical Moore's Law scaling. We're also making steady progress increasing CPU supply. Through our investments, focused execution, and tighter customer collaboration, we expect our PC CPU supply will be up mid-single digits this year, while we expect the PC TAM to grow slightly. We'll continue to work with our customers to meet their required product mix and ramp additional capacity to ensure we are not a constraint on their growth.

We began shipping islay client in the second quarter supporting systems on the shelves for the holiday selling season and expect to ship page Alaix. Our first 10 nanometer SPG a later this year.

We now have two factories in full production on 10 nanometer.

We're also on track to launch seven nanometer in 2021.

With a roughly two X improvement in density over 10 nanometer, our seven nanometer process, which will be comparable to competitors five nanometer nodes, Tim will put us on pace with the historical Moore's law scaling.

We're also making steady progress increasing CPQ supply.

Through our investments focused execution and tighter customer collaborations we expect RPC CPQ supply will be up mid single digits. This year.

While we expect the PC Tam to grow slightly.

We'll continue to work with our customers to meet their required product mix and ramp additional capacity to ensure we are not a constraint on their growth.

Bob Swan: A final point of pride in Q2 that speaks to Intel's values is the release of our annual corporate responsibility report, which highlights the progress made over the last year toward our 2020 goals around environmental sustainability, supply chain responsibility, diversity and inclusion, and social impact. We achieved a number of our 2020 goals ahead of schedule: energy conservation, non-hazardous waste recycling, workforce diversity, and technology empowerment. Being responsible stewards of the communities in which we operate is central to our culture, and it is helping us transform and deliver the results you expect of us. I'm proud of what our team has accomplished over the last quarter and look forward to sharing more proof points of our progress with you in the coming months. With that, I'll hand off to George, who will take you through the financial details. Thanks, Bob, and good afternoon, everyone.

A final point of pride in Q2 that speaks to Intel's values is the release of our annual corporate responsibility report, which highlights the progress made over the last year toward our 2020 goals around environmental sustainability, supply chain responsibility, diversity and inclusion, and social impact. We achieved a number of our 2020 goals ahead of schedule: energy conservation, non-hazardous waste recycling, workforce diversity, and technology empowerment. Being responsible stewards of the communities in which we operate is central to our culture, and it is helping us transform and deliver the results you expect of us. I'm proud of what our team has accomplished over the last quarter and look forward to sharing more proof points of our progress with you in the coming months. With that, I'll hand off to George, who will take you through the financial details.

A final point of pride in the second quarter that speaks to Intel's values is the release of our annual corporate responsibility report.

Which highlights the progress made over the last year toward our 2020 goals around environmental sustainability supply chain responsibility diversity and inclusion and social impact.

We achieved a number of our 2020 goals ahead of schedule.

Energy conservation Nonhazardous waste recycling workforce diversity and technology empowerment.

Being responsible stewards of the communities in which we operate is central to our culture and it is helping us transform and deliver the results you expect of us.

I'm proud of what our team has accomplished over the last quarter and look forward to sharing more proof points of our progress with you in the coming months.

With that I'll hand off to George who will take you through the financial details.

George Davis: Thanks, Bob, and good afternoon, everyone. We had a solid Q2 with revenue coming in at $16.5 billion, down 3% year on year, and higher by $900 million compared to our guide. Data-centric revenue was $7.7 billion, down 7%, and PC-centric revenue was $8.8 billion, up 1% year on year. Our Q2 operating margin was 31%, down 2 points, as client ASP strength was more than offset by platform volume declines and continued NAND pricing degradation. Q2 earnings per share came in at $1.06, up 2% year on year, and $0.17 over our guide for the quarter. Year to date, we have generated $5.7 billion of free cash flow, returned $8.4 billion to shareholders, paid dividends of $2.8 billion, and repurchased approximately 117 million shares.

Thanks, Bob and good afternoon, everyone.

Bob Swan: We had a solid Q2 with revenue coming in at $16.5 billion, down 3% year on year, and higher by $900 million compared to our guide. Data-centric revenue was $7.7 billion, down 7%, and PC-centric revenue was $8.8 billion, up 1% year on year. Our Q2 operating margin was 31%, down 2 points, as client ASP strength was more than offset by platform volume declines and continued NAND pricing degradation. Q2 earnings per share came in at $1.06, up 2% year on year, and $0.17 over our guide for the quarter. Year to date, we have generated $5.7 billion of free cash flow, returned $8.4 billion to shareholders, paid dividends of $2.8 billion, and repurchased approximately 117 million shares.

We had a solid Q2 with revenue coming in at $16.5 billion down 3% year on year and higher by $900 million compared to our guide.

Data centric revenue was $7.7 billion down, 7% and PC centric revenue was $8.8 billion up 1% year on year.

Our Q2 operating margin was 31% down two points as client VSP strength.

It was more than offset by platform volume declines and continued NAND pricing degradation.

Q2 earnings per share came in at one dollar and six cents.

Up 2% year on year.

17 cents over our guide for the quarter.

Year to date, we have generated $5.7 billion of free cash flow.

Returned $8.4 billion to shareholders.

Pay dividends of $2.8 billion and repurchased approximately 117 million shares.

Bob Swan: As mentioned last quarter, we anticipated a more challenging year in 2019, coming off a large build-out of capacity in 2018 by DCG customers, as well as the pricing dynamics in memory, which is largely playing out as expected. In light of these factors, I'm pleased with our results and operating performance for the quarter. Non-GAAP EPS was up 2% year over year, driven by strength in our platform ASPs, lower 10-nanometer startup costs, lower operating expenses, as well as lower shares outstanding and a McAfee dividend. Offsetting factors were data-centric demand softness, continued NAND pricing pressure, and PC supply constraints impacting our ability to fulfill low-end PC demand. Our non-GAAP tax rate came in at around 12%, in line with last year. Let's now turn to segment performance.

As mentioned last quarter, we anticipated a more challenging year in 2019, coming off a large build-out of capacity in 2018 by DCG customers, as well as the pricing dynamics in memory, which is largely playing out as expected. In light of these factors, I'm pleased with our results and operating performance for the quarter. Non-GAAP EPS was up 2% year over year, driven by strength in our platform ASPs, lower 10-nanometer startup costs, lower operating expenses, as well as lower shares outstanding and a McAfee dividend. Offsetting factors were data-centric demand softness, continued NAND pricing pressure, and PC supply constraints impacting our ability to fulfill low-end PC demand. Our non-GAAP tax rate came in at around 12%, in line with last year. Let's now turn to segment performance.

As mentioned last quarter, we anticipated a more challenging year in 2019 coming off of a large build out of capacity in 2018 by DCG customers.

As well as the pricing dynamics in memory.

Which is largely playing out as expected.

In light of these factors I'm pleased with our results and operating performance for the quarter.

non-GAAP EPS was up 2% year over year, driven by strength in our platform the Sps.

Lower 10 nanometer startup costs.

Lower operating expenses as well as lower shares outstanding.

And Mcafee dividend.

Offsetting factors were data centric demand softness.

Continued Dan pricing pressure.

And PC supply constraints impacting our ability to fulfill low end PC demand.

Our non-GAAP tax rate came in at around 12% in line with last year.

Let's now turn to segment performance.

Bob Swan: Our data center group ended the quarter with revenue at $5 billion, down 10% from the prior year and up 2% sequentially. This was slightly ahead of our expectations, with platform ASPs up 2% year on year. Xeon ASPs were up double digits year on year on mix, as our customers continued to select high-performance products. Against the tough year-over-year compare, platform units were down 12%. Cloud revenue was down 1% year over year, as cloud service providers absorbed capacity after growing demand 40% in 2018. Enterprise and government revenue declined by 31%, with particular weakness in China, while communications service providers' revenue increased 3% year over year. We see comms service provider demand still in the early phase of a meaningful 5G-related build-out.

Our data center group ended the quarter with revenue at $5 billion, down 10% from the prior year and up 2% sequentially. This was slightly ahead of our expectations, with platform ASPs up 2% year on year. Xeon ASPs were up double digits year on year on mix, as our customers continued to select high-performance products. Against the tough year-over-year compare, platform units were down 12%. Cloud revenue was down 1% year over year, as cloud service providers absorbed capacity after growing demand 40% in 2018. Enterprise and government revenue declined by 31%, with particular weakness in China, while communications service providers' revenue increased 3% year over year. We see comms service provider demand still in the early phase of a meaningful 5G-related build-out.

Our datacenter group ended the quarter with revenue at $5 billion down 10% from the prior year and up 2% sequentially. This was slightly ahead of our expectations with platform ASP is up 2% year on year.

Xeon Asps were up double digits year on year on mix as our customers continue to select high performance products.

Against the tough year over year compare platform units were down 12%.

Cloud revenue was down 1% year over year as cloud service providers absorb capacity after growing demand 40% in 2018.

Enterprise and government revenue declined by 31% with particular weakness in China.

While communications service providers revenue increased 3% year over year.

We see comps service provider demand still in the early phase of the meaningful fiveg related buildouts.

Overall, our other data centric businesses were down 1% year over year or up 2%, excluding wind river on strength in our internet of things businesses.

Bob Swan: Overall, our other data-centric businesses were down 1% year over year, or up 2% excluding Wind River on strength in our Internet of Things businesses, partially offset by ASP weakness in our memory business. Our Internet of Things businesses, which include IoTG and Mobileye, continued to show growth and delivered record revenue, up 22% excluding Wind River. IoTG showed strength across all segments, with revenue growth of 23% year over year excluding Wind River, and operating income growth of 21% on strong demand for higher performance products in the quarter. We believe a portion of the revenue outperformance in IoTG is from tariff-related pull-ins. Our Mobileye revenue and operating margin were up year over year 16%, and 20% respectively on continued ADAS penetration. Our memory business revenue was down 13%, as the industry supply surplus continued to feed a deteriorating NAND pricing environment.

Overall, our other data-centric businesses were down 1% year over year, or up 2% excluding Wind River on strength in our Internet of Things businesses, partially offset by ASP weakness in our memory business. Our Internet of Things businesses, which include IoTG and Mobileye, continued to show growth and delivered record revenue, up 22% excluding Wind River. IoTG showed strength across all segments, with revenue growth of 23% year over year excluding Wind River, and operating income growth of 21% on strong demand for higher performance products in the quarter. We believe a portion of the revenue outperformance in IoTG is from tariff-related pull-ins. Our Mobileye revenue and operating margin were up year over year 16%, and 20% respectively on continued ADAS penetration. Our memory business revenue was down 13%, as the industry supply surplus continued to feed a deteriorating NAND pricing environment.

Partially offset by SP weakness in our memory business.

Our internet of things businesses, which include idled PG and mobilized continued to show growth and delivered record revenue of 22% excluding wind River.

Io TG showed strength across all segments with revenue growth of 23% year over year, excluding wind River.

And operating income growth of 21% on strong demand for higher performance products in the quarter.

We believe a portion of the revenue outperformance in Io TG is from Timberland Poland's.

Our mobile revenue and operating margin were up year over year, 16% and 20% respectively Fund continued Adas penetration.

Our memory business revenue was down 13%.

As the industry supply surplus continued to feed the deteriorating NAND pricing environment.

Bob Swan: NSG operating income weakened by approximately $220 million year over year. CSG revenue declined 5% year over year, as softness in cloud and enterprise demand more than offset growth in 5G wireless. Advanced products, which includes those manufactured on 28-nanometer through 14-nanometer process nodes, grew 15% year over year. CSG operating margin was down 49% year over year on lower revenue, product mix, and 10-nanometer roadmap investments. The client computing group demonstrated strong execution this quarter, with revenue up 1% year over year on mix-driven ASP strength, strong demand in commercial PCs and modems, and $200 to $300 million in revenue from order pull-ins due to trade and tariff concerns. We believe the PC TAM grew slightly in Q2, led by our commercial PC demand. Our PC units were down 5%, as our small core supply was constrained, and we could not fulfill all of our customer demand.

NSG operating income weakened by approximately $220 million year over year. CSG revenue declined 5% year over year, as softness in cloud and enterprise demand more than offset growth in 5G wireless. Advanced products, which includes those manufactured on 28-nanometer through 14-nanometer process nodes, grew 15% year over year. CSG operating margin was down 49% year over year on lower revenue, product mix, and 10-nanometer roadmap investments. The client computing group demonstrated strong execution this quarter, with revenue up 1% year over year on mix-driven ASP strength, strong demand in commercial PCs and modems, and $200 to $300 million in revenue from order pull-ins due to trade and tariff concerns. We believe the PC TAM grew slightly in Q2, led by our commercial PC demand. Our PC units were down 5%, as our small core supply was constrained, and we could not fulfill all of our customer demand.

And as chief operating income weakened by approximately $220 million year over year.

CSG revenue declined 5% year over year as softness in cloud and enterprise demand more than offset growth in fiveg wireless.

Advanced products, which includes those manufactured on 28 nanometer through 14 nanometer process nodes.

Grew 15% year on year.

TSG operating margin was down 49% year over year on lower revenue product mix and 10 nanometer roadmap investments.

The client computing group demonstrated strong execution this quarter with revenue up 1% year over year on mixed driven ASP strength.

Strong demand in commercial Pcs, and modems and $200 million to $300 million in revenue from order pull ins due to trade and tariff concerns.

We believe the PC 10 grew slightly in Q2 led by our commercial PC demand.

Our PC units were down 5% as our small for supply was constrained and we could not fulfill all of our customer demand.

Bob Swan: We have made significant progress against our supply challenges, and we expect supply and demand to return to balance in H2. That said, demand has been stronger than expected, and product mix will continue to be a challenge in Q3, as our teams work to align available supply with demand. We saw strong ASPs in the quarter, with notebook ASPs up 3% year over year and desktop ASPs up 5%. Operating margin for our client group was 42%, up 5 points year on year on strong revenue and mix, and lower cost of sales post-qualification of our 10-nanometer Ice Lake client product. For H1, we generated $12.5 billion in operating cash flow, and we invested $6.9 billion in capital to ramp 10-nanometer capacity and for 7-nanometer product development. We also spent $5.6 billion to repurchase 117 million shares to date.

We have made significant progress against our supply challenges, and we expect supply and demand to return to balance in H2. That said, demand has been stronger than expected, and product mix will continue to be a challenge in Q3, as our teams work to align available supply with demand. We saw strong ASPs in the quarter, with notebook ASPs up 3% year over year and desktop ASPs up 5%. Operating margin for our client group was 42%, up 5 points year on year on strong revenue and mix, and lower cost of sales post-qualification of our 10-nanometer Ice Lake client product. For H1, we generated $12.5 billion in operating cash flow, and we invested $6.9 billion in capital to ramp 10-nanometer capacity and for 7-nanometer product development. We also spent $5.6 billion to repurchase 117 million shares to date.

We have made significant progress against our supply challenges and we expect supply and demand to return to balance in the second half.

That said demand has been stronger than expected and product mix will continue to be a challenge in the third quarter.

As our teams work to align available supply with demand.

We saw strong asps in the quarter with notebook ASP is up 3% year over year and desktop Asps up 5%.

Operating margin for our client group was 42% up five points year on year on strong revenue and mix and lower cost of sales post qualification of our 10 nanometer isely client product.

For the first two quarters, we generated $12.5 billion in operating cash flow.

And we invested $6.9 billion in capital Brent ramp 10 nanometer capacity and for seven nanometer product development. We also spent $5.6 billion to repurchase 117 million shares to date.

Bob Swan: Buyback was accelerated in the second quarter, where our average purchase price was $46.78 per share. We have $11.7 billion remaining on our board authorization. Now let's talk about the full-year outlook. For the full year, the market dynamics reflected in our April guide remain largely in place, although memory has continued to weaken relative to our expectations. Although we have seen a weaker first half in our data center business, we expect a better second half as demand from cloud and comms service providers improves, and our second-gen Xeon Scalable continues to ramp. We are increasing our revenue outlook for the full year by $500 million to $69.5 billion to reflect the outperformance in the second quarter, somewhat offset by the effect of trade-related pull-ins and a weaker memory environment. We continue to expect revenue from our data-centric businesses to be down low single digits for the full year.

Buyback was accelerated in the second quarter, where our average purchase price was $46.78 per share. We have $11.7 billion remaining on our board authorization. Now let's talk about the full-year outlook. For the full year, the market dynamics reflected in our April guide remain largely in place, although memory has continued to weaken relative to our expectations. Although we have seen a weaker first half in our data center business, we expect a better second half as demand from cloud and comms service providers improves, and our second-gen Xeon Scalable continues to ramp. We are increasing our revenue outlook for the full year by $500 million to $69.5 billion to reflect the outperformance in the second quarter, somewhat offset by the effect of trade-related pull-ins and a weaker memory environment. We continue to expect revenue from our data-centric businesses to be down low single digits for the full year.

Well I bet was accelerated in the second quarter, where our average purchase price was 40 678 per share.

We have $11.7 billion remaining on our board authorization now, let's talk about the full year outlook.

For the full year the market dynamics reflected in our April guide remain largely in place. Although memory has continued to weaken relative to our expectations.

Although we have seen a weaker first half in our data center business, we expect a better second half as demand from cloud and Tom service providers.

Improves and our second Gen Xeon scalable continues to ramp.

We are increasing our revenue outlook for the full year by $500 million to $69.5 billion to reflect the outperformance in the second quarter somewhat offset by the effect of trade related pull ins and a weaker memory environment.

We continue to expect revenue from our data centric businesses to be down low single digits for the full year.

Bob Swan: Our guidance for full-year PC-centric business growth remains a low single-digit decline for the year, reflecting share loss in small core applications where we have been short supply longer than expected and demand has remained healthy. We expect to have additional small core supply in the second half, which should allow us to regain some of that lost share. Operating margin for the year is expected to be 32%, flat to our previous guide. Full-year expectations for gross margin are unchanged at approximately 60%. We expect Q3 gross margins to be roughly in line with Q2 on strong flow through of higher revenue, offset by increased 10-nanometer cost as we ramp production. The cost increase in Q3 will be tempered as we will be selling through some of the previously reserved 10-nanometer in the quarter, and we see the benefit of a grant related to our NAND factory in China.

Our guidance for full-year PC-centric business growth remains a low single-digit decline for the year, reflecting share loss in small core applications where we have been short supply longer than expected and demand has remained healthy. We expect to have additional small core supply in the second half, which should allow us to regain some of that lost share. Operating margin for the year is expected to be 32%, flat to our previous guide. Full-year expectations for gross margin are unchanged at approximately 60%. We expect Q3 gross margins to be roughly in line with Q2 on strong flow through of higher revenue, offset by increased 10-nanometer cost as we ramp production.

Our guidance for full year PC centric business growth remains a low single digit decline for the year, reflecting share loss in small core applications, where we have been short supply longer than expected and demand has remained healthy.

We expect to have additional small poor supply in the second half, which should allow us to regain some of that loss share.

Operating margin for the year is expected to be 32%.

Flat to our previous guide.

Full year expectations for gross margin are unchanged at approximately 60%.

We expect Q3 gross margins to be roughly in line with Q2.

On strong flow through of higher revenue offset by increased 10 nanometer cost as we ramp production.

The cost increase in Q3 will be tempered as we will be selling through some of the previously reserved 10-nanometer in the quarter, and we see the benefit of a grant related to our NAND factory in China.

The cost increase in Q3 will be tempered as we will be selling through some of the previously reserved 10 nanometer in a quarter.

And we see the benefit of a grant related to our NAND factory in China.

Bob Swan: We expect Q4 gross margin to be down 3 to 3.5 points sequentially, as we continue to ramp 10-nanometer and will have sold through the previously reserved inventory, and will also not see the benefit of the NAND grant. We are making great progress on 10-nanometer and expect to see continued yield improvement as we move into 2020 and work through the cost curve. Full-year spending is expected to be down almost $1 billion year on year, in line with our prior outlook, adjusted for costs related to our acquisition of Barefoot Networks. We are now expecting 2019 savings from our modem exit to rise to approximately $400 to $500 million from our earlier estimate of $200 to $300 million. The increased savings are being offset by higher spending on 10-nanometer and 7-nanometer processes and product R&D.

We expect Q4 gross margin to be down 3 to 3.5 points sequentially, as we continue to ramp 10-nanometer and will have sold through the previously reserved inventory, and will also not see the benefit of the NAND grant. We are making great progress on 10-nanometer and expect to see continued yield improvement as we move into 2020 and work through the cost curve. Full-year spending is expected to be down almost $1 billion year on year, in line with our prior outlook, adjusted for costs related to our acquisition of Barefoot Networks. We are now expecting 2019 savings from our modem exit to rise to approximately $400 to $500 million from our earlier estimate of $200 to $300 million. The increased savings are being offset by higher spending on 10-nanometer and 7-nanometer processes and product R&D.

We expect Q4 gross margin to be down three to three and a half point sequentially. As we continued to ramp 10 nanometer and will have sold through the previously reserved inventory and will also not see the benefit of the NAND Grant.

We are making great progress on 10 nanometer and expect to see continued yield improvement as we move into 2020 and work through the cost curve.

Full year spending is expected to be down almost $1 billion year on year in line with our prior outlook adjusted for costs related to our acquisition of Barefoot networks.

We're now expecting 2019 savings from our modem exit.

To rise to approximately $400 million to $500 million.

From our earlier estimates of $200 million to $300 million.

The increased savings are being offset by higher spending on 10 nanometer and seven nanometer processes and product R&D.

Earnings per share for the year is now expected to be $4.40.

Bob Swan: Earnings per share for the year is now expected to be $4.40, up $0.05 from our April guide, reflecting higher Q2 earnings, offset somewhat by the impact of tariff pull-ins on the second half, weaker memory, and a slightly higher full-year tax rate. We now expect the non-GAAP tax rate for Q3 and Q4 to be approximately 13%, up slightly from our April guide, as we anticipate a higher mix of our pre-tax income in the second half in higher tax demands. Turning to Q3 outlook, we expect revenue of $18 billion, up 9% sequentially, which is within our normal seasonal range after adjusting for trade-related pull-ins in Q2. Our data-centric and PC-centric businesses will be down mid-single digits year over year in Q3 against very challenging compares.

Earnings per share for the year is now expected to be $4.40, up $0.05 from our April guide, reflecting higher Q2 earnings, offset somewhat by the impact of tariff pull-ins on the second half, weaker memory, and a slightly higher full-year tax rate. We now expect the non-GAAP tax rate for Q3 and Q4 to be approximately 13%, up slightly from our April guide, as we anticipate a higher mix of our pre-tax income in the second half in higher tax demands. Turning to Q3 outlook, we expect revenue of $18 billion, up 9% sequentially, which is within our normal seasonal range after adjusting for trade-related pull-ins in Q2. Our data-centric and PC-centric businesses will be down mid-single digits year over year in Q3 against very challenging compares.

Up five cents from our April guide, reflecting higher Q2 earnings.

Offset somewhat by the impact of pair of Poland's on the second half weaker memory and a slightly higher full year tax rate.

We now expect the non-GAAP tax rate for Q3, and Q4 to be approximately 13% up slightly from our April guide as we anticipate a higher mix of our pretax income in the second half and higher tax demands.

Turning to Q3 outlook.

We expect revenue of $18 billion up 9% sequentially, which is within our normal seasonal range after adjusting for trade related pull ins in Q2.

Our data centric and PC centric businesses will be down mid single digits year over year in Q3 against very challenging compares.

Bob Swan: We expect Q3 operating margin of 35% and non-GAAP EPS of $1.24 on higher sequential revenue, particularly in PC, data center, and IoT. I will conclude here and turn the call back to Mark. All right. 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 and introduce our first caller. Certainly. Our first question comes from the line of Chris Danely from Citigroup. Your question, please. Hey, thanks, guys. Just a question on server expectations. I know on the analyst day you expected the competitive environment to get a little more, I guess, a little more competitive, although it doesn't seem to happen in Q2.

We expect Q3 operating margin of 35% and non-GAAP EPS of $1.24 on higher sequential revenue, particularly in PC, data center, and IoT. I will conclude here and turn the call back to Mark.

We expect Q3 operating margin of 35%.

And non-GAAP EPS of one dollar and 24 cents on higher sequential revenue, particularly in PC data center and Aiotv.

I will conclude here and turn the call back to Mark.

Mark Henninger: All right. 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 and introduce our first caller.

All right. Thank you George moving on now to the acuity as is our normal practice, we would ask each participant to ask just one question.

Operator, please go and introduce our first caller.

Operator: Certainly. Our first question comes from the line of Chris Danely from Citigroup. Your question, please.

Certainly our first question comes from the line of Chris Danely from Citigroup. Your question. Please.

Christopher Danely: Hey, thanks, guys. Just a question on server expectations. I know on the analyst day you expected the competitive environment to get a little more, I guess, a little more competitive, although it doesn't seem to happen in Q2. Maybe talk about how you expect your share to trend over the next four to six quarters in light of the competitor coming out with 7-nanometer and then you guys introducing 10-nanometer later on. Do you think you'll maybe lose share over the next three to four quarters and then gain it back? Or how should we think of how things are going to play out?

Hey, Thanks, guys just a question on.

Share expectations I know in the analyst day, you expected the competitive environment to get a little more.

Oh, I guess, a little more competitive although it doesn't seem to happen in Q2, maybe talk about how you expect your share to trend.

Bob Swan: Maybe talk about how you expect your share to trend over the next four to six quarters in light of the competitor coming out with 7-nanometer and then you guys introducing 10-nanometer later on. Do you think you'll maybe lose share over the next three to four quarters and then gain it back? Or how should we think of how things are going to play out? Hey, Chris, it's Bob. First, I would say that during the course of this year, as George mentioned in his prepared comments, we lost a little bit of share in Q2, particularly in CSG at the lower-end small core, primarily due to supply constraints. Our expectation is that we'll begin to work our way back in the H2 of the year, given the capacity we've put in place to have more supply and meet our customers' demands.

Over the next four to six quarters in light of the competitor coming out with seven nanometer and then you guys.

Introducing 10 nanometer later on do you think you'll maybe lose share over the next three to four quarters, and then gain it back or how should we think about things are going to play out.

Bob Swan: Hey, Chris, it's Bob. First, I would say that during the course of this year, as George mentioned in his prepared comments, we lost a little bit of share in Q2, particularly in CSG at the lower-end small core, primarily due to supply constraints. Our expectation is that we'll begin to work our way back in the H2 of the year, given the capacity we've put in place to have more supply and meet our customers' demands.

Hey, Chris its Bob.

First I would say that.

During the course of this year as George mentioned in his prepared comments, we lost a little bit of share in the second quarter, particularly in CSG.

At the lower end small core primarily due to supply constraints, so and our expectation is that we'll begin to work our way back in the second half of the year given the capacity we put in place to have to have more supply and meet our customers demand.

Bob Swan: But stepping back and just looking at the macro environment over the next several years, and particularly in the second half of the year on the data center side, what we've indicated is it'll be a much more competitive environment. Our intentions are with not a 90% share position, but more like a 23% share position that we have significant prospects for growth across multiple aspects of our business. Our intentions are over that time frame to continue to grow our data-centric collection of businesses at or above market rates of growth. That's consistent with what we said back in January. We reiterated again at our May investor day, and nothing's really changed from that standpoint. Thanks, Chris. Thank you. Our next question comes in the line of Ross Seymore from Deutsche Bank. Your question, please. Hey, guys. I said a two-part question on the data center group.

But stepping back and just looking at the macro environment over the next several years, and particularly in the second half of the year on the data center side, what we've indicated is it'll be a much more competitive environment. Our intentions are with not a 90% share position, but more like a 23% share position that we have significant prospects for growth across multiple aspects of our business. Our intentions are over that time frame to continue to grow our data-centric collection of businesses at or above market rates of growth. That's consistent with what we said back in January. We reiterated again at our May investor day, and nothing's really changed from that standpoint. Thanks, Chris.

But stepping back and just looking at the macro macro environment over the next several years and particularly in the second half of the year on the datacenter side. What we've indicated is it'll be a much more competitive environment.

Our intentions are with a.

Not a 90% share position, but more like a 23% share position that we have significant prospects for growth across multiple aspects of our business and our intentions are over the no over that timeframe to continue to grow our data centric collection of businesses at or above market rates of growth and that's consistent with what we said back in January we it or reiterate again at our May Investor day, and nothing's really changed from that that from that standpoint.

Thanks, Chris.

Operator: Thank you. Our next question comes in the line of Ross Seymore from Deutsche Bank. Your question, please.

Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your question. Please.

Ross Seymore: Hey, guys. I said a two-part question on the data center group. I guess, first and foremost, could you just discuss a little bit about the differences between the subsegments? The cloud side was impressively strong in the quarter, and it sounds like you think that's going to continue. But the enterprise and government side, I know you said that was China-specific, but that was exceedingly weak. Any more color on what's going on on that enterprise side in the current quarter? And probably of equal, if not greater importance, the second half looks like you still expect a really big ramp and potentially better than seasonals at all. What gives you the confidence in the second half ramp in DCG?

Hi, guys I got a two part question on the data Center group I guess first and foremost could you just discuss a little bit about the differences between the sub segments. The Cogs side was impressively strong in the quarter and it sounds like you think that's going to continue and the enterprise and government side. I know you said that was China specific.

Bob Swan: I guess, first and foremost, could you just discuss a little bit about the differences between the subsegments? The cloud side was impressively strong in the quarter, and it sounds like you think that's going to continue. But the enterprise and government side, I know you said that was China-specific, but that was exceedingly weak. Any more color on what's going on on that enterprise side in the current quarter? And probably of equal, if not greater importance, the second half looks like you still expect a really big ramp and potentially better than seasonals at all. What gives you the confidence in the second half ramp in DCG? Yeah. Hey, Ross. It's Bob. And then I'll comment, and then George will pile on. First, on growth overall, we had cloud.

Is exceedingly weak any more color on what's going on on the enterprise side in the current quarter, and probably an equal or greater importance. The second half looks like you still expect a really big ramp and potentially better than seasonal what gives you the confidence in the second half ramp in DCG.

Bob Swan: Yeah. Hey, Ross. It's Bob. And then I'll comment, and then George will pile on. First, on growth overall, we had cloud.

Yes, Hey, Ross, It's Bob and then I'll comment and then George or Georgia pile on.

First on.

Growth overall, we had cloud I'd still put it in the relatively soft category through the first half of the year as the cloud players continue to digest and our expectation.

Bob Swan: I'd still put it in the relatively soft category through the first half of the year as the cloud players continue to digest. Our expectations have been and still are that cloud will get a little bit stronger as we go into the second half. As George mentioned, comms has been low single digit as our customers begin to build up for the transition to 5G. We expect that growth to probably materialize more as we go into the latter part of this year, but I think more 2020. Enterprise and government has been brutal through the first six months of the year. Q1 was really soft. Q2 was even softer. While we don't like it, it's been pretty much in line with how we expected the first half and even the second half of the year to kind of play out. A couple of dynamics.

I'd still put it in the relatively soft category through the first half of the year as the cloud players continue to digest. Our expectations have been and still are that cloud will get a little bit stronger as we go into the second half. As George mentioned, comms has been low single digit as our customers begin to build up for the transition to 5G. We expect that growth to probably materialize more as we go into the latter part of this year, but I think more 2020. Enterprise and government has been brutal through the first six months of the year. Q1 was really soft. Q2 was even softer. While we don't like it, it's been pretty much in line with how we expected the first half and even the second half of the year to kind of play out.

We have been and still are that cloud will get a little bit stronger as we go into the second half.

And as George mentioned comps has been you know low single digit.

As the our customers began to build up for the transition to Fiveg. So we expect that growth to probably materialize more as we go into the latter part of this year, but I think more 2020.

Enterprise and government has been brutal through the first six months or the year Q1 was really soft Q2 was even softer.

And while we don't like it it's been pretty much in line with how we expected.

The first half and even a second half for the year to kind of play out a couple of dynamics, you'll remember last year was.

A couple of dynamics, you'll remember last year was really strong for enterprise and government. Growth was much stronger than we expected. Our belief at the time is that that was largely a function of increased digital transformation by CIOs, a favorable tax reform environment that gave them a little more capacity to spend. We benefited from that tremendously last year. So the first half of this year and even the second half, comms are much tougher. I would say our sense is that CIOs, broadly speaking, are a little more cautious as they go into the second half of the year. Then when you just take that, that's a broad-based comment. Then when you take China into account, China is even worse than that.

Bob Swan: You'll remember last year was really strong for enterprise and government. Growth was much stronger than we expected. Our belief at the time is that that was largely a function of increased digital transformation by CIOs, a favorable tax reform environment that gave them a little more capacity to spend. We benefited from that tremendously last year. So the first half of this year and even the second half, comms are much tougher. I would say our sense is that CIOs, broadly speaking, are a little more cautious as they go into the second half of the year. Then when you just take that, that's a broad-based comment. Then when you take China into account, China is even worse than that.

Really strong for enterprise and government.

Growth was.

Much stronger than we expected.

Our belief at the time that that was largely a function of.

Increased digital transformation by CIO is a favorable tax reform environment that gave them a little more capacity to spend and we benefited from that tremendously last year.

So the first half of this year and even a second half comps her comps are much tougher and I would say the our sense is that.

CIO is broadly speaking are a little more cautious.

As they go into the second half of the year.

And then when you just take that that's a broad based comment and then when you take China into account kind is even worse than that so our plan our thoughts through the first half of the year and even going into the second half of the year as the CNG environment walk it dramatically better.

Bob Swan: So our thoughts through the first half of the year and even going into the second half of the year is the ENG environment won't get dramatically better. Cloud will get a little bit stronger, and comms will get a little bit stronger in the context of our overall full-year guide. Yeah. No, I would just add that, again, we saw enterprise and government down 31% year over year. I would say maybe a little bit weaker than even we were forecasting, which was for a pretty weak performance in that group. But in general, I wouldn't add anything more to what Bob said. Thanks, Ross. Thank you. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please. Hi, guys. Thanks for taking my question. So we have gross margins coming down into Q4. You're probably in the low to mid-58%.

So our thoughts through the first half of the year and even going into the second half of the year is the ENG environment won't get dramatically better. Cloud will get a little bit stronger, and comms will get a little bit stronger in the context of our overall full-year guide.

Cloud will get a little bit stronger in comps will get a little bit stronger in the context of our overall full year guide.

George Davis: Yeah. No, I would just add that, again, we saw enterprise and government down 31% year over year. I would say maybe a little bit weaker than even we were forecasting, which was for a pretty weak performance in that group. But in general, I wouldn't add anything more to what Bob said.

Yeah.

I would I would just add that we again, we saw enterprise and government down 31% year over year I would say.

Maybe a little bit weaker than even we were forecasting which was for a pretty weak performance in that group, but in general.

I wouldn't add anything more to above them.

Bob Swan: Thanks, Ross.

Thanks Ross.

Operator: Thank you. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please.

Thank you. Our next question comes in line of Stacy Rasgon from Bernstein Research. Your question. Please.

Stacy Rasgon: Hi, guys. Thanks for taking my question. So we have gross margins coming down into Q4. You're probably in the low to mid-58%.And I know at the analyst day, you'd sort of given an indication for gross margins in the 2021 time frame to be around 57% on a $77 billion number. I guess, how do we think about the trajectory from where we're exiting this year to the gross margin profile in 2021? Does that imply that 2020 gross margins should be down from, obviously, 2019, and 2021 should be down from 2020? And then what happens if you actually don't hit your revenue guide into 77 billion in 2021 because the margin impact is mostly fixed? Does that imply margins come down even more in that case?

Hi, guys. Thanks for taking my question.

So we have gross margins coming down into Q4, you're probably in the low to mid 50, a ton I know working analyst day, you'd sort of given an indication for gross margins in like the 2021 time for him to be around 57% on a $77 billion number.

Bob Swan: And I know at the analyst day, you'd sort of given an indication for gross margins in the 2021 time frame to be around 57% on a $77 billion number. I guess, how do we think about the trajectory from where we're exiting this year to the gross margin profile in 2021? Does that imply that 2020 gross margins should be down from, obviously, 2019, and 2021 should be down from 2020? And then what happens if you actually don't hit your revenue guide into 77 billion in 2021 because the margin impact is mostly fixed? Does that imply margins come down even more in that case? I think, hey, Stacy, it's George. We did say that we think we'll bottom out at 57% in 2021. We didn't guide specifically for 2020, but implied it would be closer to the 60% range.

I guess, how do we think about.

The trajectory from where we're exiting this year.

To go to gross margin profile in 2021 does that imply that 2020 gross margins should be down from August 2019, 2021 should be down from 2020, and then what happens if you actually don't hit your revenue guidance or 77 billion 2021, because the margin impact was mostly fixes that imply margins come down even more in that case.

George Davis: I think, hey, Stacy, it's George. We did say that we think we'll bottom out at 57% in 2021. We didn't guide specifically for 2020, but implied it would be closer to the 60% range.

I think.

He's Stacy is towards we we did say that we think will bottom out at 57% and 21, we didn't guide specifically.

For 20, but implied it would be closer to the 60% range.

Bob Swan: I would say one of the things that's going to help us, two things that are probably going to help us as we think about 2019 to 2020: one is we're going to see more of the benefit of moving up the yield curve in 10nm, which is pretty painful now. You're seeing that really in the Q4 gross margin. I would also say, though, you're seeing a really pure impact of memory in the Q4 as well because we have a grant in the Q3. So you're going to see a sequential step down just because of the absence of the grant. It just tells you how much the impact on gross margin overall for the data-centric group has been because of memory.

I would say one of the things that's going to help us, two things that are probably going to help us as we think about 2019 to 2020: one is we're going to see more of the benefit of moving up the yield curve in 10nm, which is pretty painful now. You're seeing that really in the Q4 gross margin. I would also say, though, you're seeing a really pure impact of memory in the Q4 as well because we have a grant in the Q3. So you're going to see a sequential step down just because of the absence of the grant. It just tells you how much the impact on gross margin overall for the data-centric group has been because of memory.

And I would say you know is one of the things that's going to help us to things that are probably going to help us as we think about.

2019 to 2021 is we're going to see.

More of the.

Benefit of moving up the yield curve in 10 nanometer.

Which is pretty painful now and you're seeing that really.

In the fourth quarter gross margin I would also say, though you're seeing a really pure impact of memory in the fourth quarter as well because the.

We've a grant in the third quarter, so you're going to see a six with a sequential step down just because of the absence of the grant and it just tells you how much the impact on gross margin overall.

Oh for the DC centric DC.

Century group has been because of memory I think memory.

Bob Swan: I think memory, if we can start to see improvement on that in 2020, and there's some evidence of firming of ASPs, but probably too early to call that, I think that could also be a factor. But you're also seeing growth in our adjacent businesses, which have attractive margins. They'll continue to grow into 2020. And like I said, I think largely it's going to be 10-nanometer yield curve benefits, maybe a little bit of improving memory, and then improving adjacent businesses should be a little more positive than what we're seeing purely in Q4. Thank you. Our next question comes in the line of Timothy Arcuri from UBS. Your question, please. Hi, thanks. I had a question for George. So George, I'm just trying to figure out the incremental accretion from the sale of the modem business.

I think memory, if we can start to see improvement on that in 2020, and there's some evidence of firming of ASPs, but probably too early to call that, I think that could also be a factor. But you're also seeing growth in our adjacent businesses, which have attractive margins. They'll continue to grow into 2020. And like I said, I think largely it's going to be 10-nanometer yield curve benefits, maybe a little bit of improving memory, and then improving adjacent businesses should be a little more positive than what we're seeing purely in Q4.

If we can start to see improvement on that in 2020 and there you know there is some evidence of firming of the ASP, but probably too early to call that I think that could also be a factor, but you're also seeing growth in our adjacent businesses, which have attractive margins they'll continue to grow into 2020.

And like I said, I think largely it's going to be 10 nanometer.

Yield a yield curve benefits, maybe a little bit improving memory, and then improving adjacent businesses.

Should be a little more positive than what we're seeing purely in a in Q4.

Operator: Thank you. Our next question comes in the line of Timothy Arcuri from UBS. Your question, please.

[noise].

Thank you. Our next question comes from the line of Timothy Arcuri from you be asked your question. Please.

Timothy Arcuri: Hi, thanks. I had a question for George. So George, I'm just trying to figure out the incremental accretion from the sale of the modem business. It doesn't seem like a lot of it's dropping through to op margin because you're investing more in 7- to 10-nanometer. So I'm just wondering why that would be the case if yields are on track? Thanks, George.

Hi, Thanks, I had a question for George So George I just.

Trying to figure out the incremental accretion from the sale of the modem business. It doesn't seem like a lot of it's dropping through to our margin because you're investing more in seven to 10 nanometer. So I'm just wondering why that would be the case if yields are on track. Thanks George.

Bob Swan: It doesn't seem like a lot of it's dropping through to op margin because you're investing more in 7- to 10-nanometer. So I'm just wondering why that would be the case if yields are on track. Thanks, George. Well, one of the things that we talked about, Tim, was trying to pull in as much as possible, both the 10-nanometer and 7-nanometer roadmap because we think the economics of that is more than worth the investment. And really, the investments we're making now are all focused on executing to that. We're going to see more accretion from this deal coming in the following year when we would expect a significant increase in the reduction in sort of the run rate OpEx for the piece that's going out at the end of the year.

George Davis: Well, one of the things that we talked about, Tim, was trying to pull in as much as possible, both the 10-nanometer and 7-nanometer roadmap because we think the economics of that is more than worth the investment. And really, the investments we're making now are all focused on executing to that. We're going to see more accretion from this deal coming in the following year when we would expect a significant increase in the reduction in sort of the run rate OpEx for the piece that's going out at the end of the year.

Well one of the things that we talked about Tim was trying to pull in as much as possible. Both the 10 nanometer and seven nanometer roadmap.

As we think the economics of a of that is Ah.

More than worth the investment and and really the investments. We're making now are all focused on on executing to that we're going to see more accretion from this deal coming in the following year when we would expect.

A significant increase in the reduction in and sort of the run rate Opex.

For the piece, that's going out at the end of the year. So maybe four to 500 million. This year, but you can probably double that number for next year, which we think will help on the total spending.

Bob Swan: So maybe $400 to 500 million this year, but you can probably double that number for next year, which we think will help on the total spending. And the question is, will we need to retain this higher-level run rate that we're seeing today for acceleration fully into next year? I think there might be some opportunity there as well. But we're going to invest first in those things that we think drive yield improvement in 10 and product performance improvement in 10 and 7. Thank you. Our next question comes from the line of Harlan Sur from J.P. Morgan. Your question, please. Good afternoon. Thanks for taking my question. Maybe just, again, to kind of step back on the data-centric businesses. On the revised full-year outlook, you're still guiding data-centric to be down low single digits year over year.

So maybe $400 to 500 million this year, but you can probably double that number for next year, which we think will help on the total spending. And the question is, will we need to retain this higher-level run rate that we're seeing today for acceleration fully into next year? I think there might be some opportunity there as well. But we're going to invest first in those things that we think drive yield improvement in 10 and product performance improvement in 10 and 7.

And the question is will we need to retain this higher level run rate that we're seeing today for acceleration fully into next year I think there might be some opportunity there as well, but we're going to we're going to.

Invest first in those things that we think a drive yield improvement in 10, and and you know product performance improvement in 10 and seven.

Operator: Thank you. Our next question comes from the line of Harlan Sur from J.P. Morgan. Your question, please.

Thank you. Our next question comes from the line of Harlan sur from JP Morgan Your question. Please.

Harlan Sur: Good afternoon. Thanks for taking my question. Maybe just, again, to kind of step back on the data-centric businesses. On the revised full-year outlook, you're still guiding data-centric to be down low single digits year over year. Previously, within data-centric, you guys were looking for DCG specifically to be down mid-single digits year over year, which implies about 20% growth in DCG second half versus first half. Is that still how the team sees DCG for the full year?

Good afternoon. Thanks for taking my question, maybe just again to kind of step back on the data centric businesses on the revised full year outlook, you're still guiding data centric to be down low single digits year over year previously within data centric you guys were looking for D.C.G., specifically to be down mid single digits year over year, which implies about 20% growth in D.C.G. second half versus first half is that still how the team sees D.C.G. for the full year.

Bob Swan: Previously, within data-centric, you guys were looking for DCG specifically to be down mid-single digits year over year, which implies about 20% growth in DCG second half versus first half. Is that still how the team sees DCG for the full year? I would say we're still roughly in that ballpark. We haven't really changed our view of the full year. There may be a little bit that slipped into the first half relative to our original second half expectations on the pull-ins, even though it was more of an impact on the PC side. We saw a little bit of that in DCG. But now we're looking to a strong second half for DCG. Great. Thank you. Thank you. Our next question comes on the line of Vivek Arya from Bank of America Merrill Lynch. Your question, please. Thanks for taking my question.

George Davis: I would say we're still roughly in that ballpark. We haven't really changed our view of the full year. There may be a little bit that slipped into the first half relative to our original second half expectations on the pull-ins, even though it was more of an impact on the PC side. We saw a little bit of that in DCG. But now we're looking to a strong second half for DCG.

Yeah, I would say, we're still roughly in that ballpark that we haven't really changed our view of the full year and maybe a little bit that slipped into the through the first half relative to original second half expectations on the pull ins.

Even though it was more of an impact on on the PC side, we saw a little bit of that.

DCG, but now were looking to a strong second half for DCG.

Harlan Sur: Great. Thank you.

Great. Thank you.

Operator: Thank you. Our next question comes on the line of Vivek Arya from Bank of America Merrill Lynch. Your question, please.

Thank you. Our next question comes from the line of Vivek Arya from Bank of America Merrill Lynch. Your question. Please.

Vivek Arya: Thanks for taking my question. On inventory, they were up about 12% sequentially in terms of dollars. Now, when I look at your second half sales, you're forecasting them to grow 13% to 14% half over half. So it kind of makes sense. But just inventory in terms of historical levels is still quite elevated given the macro conditions. So is this all 10-nanometer related inventory? Just what's driving this? How do you see it trending in the second half? And will there be any impact on gross margins from any utilization changes that might be needed?

Well thanks for taking my question on inventory a they were up about 5% sequentially and down. The dollar is now when I look at your second half the seats are your forecasting them to grow according to 14% half of our house that kind of makes sense, but just inventory in terms of historical levels its quite innovated.

Bob Swan: On inventory, they were up about 12% sequentially in terms of dollars. Now, when I look at your second half sales, you're forecasting them to grow 13% to 14% half over half. So it kind of makes sense. But just inventory in terms of historical levels is still quite elevated given the macro conditions. So is this all 10-nanometer related inventory? Just what's driving this? How do you see it trending in the second half? And will there be any impact on gross margins from any utilization changes that might be needed? Sure. No, great question. And we're watching inventory very closely ourselves. The big bounce this quarter, as you suspected, was really about 10-nanometer WIP and finished goods coming onto the balance sheet.

Given the macro conditions. So it's just about 10 nanometer related inventory gets what's driving this how do you see it trending in the second half and will there be any impact on the gross margin from any utilization changes that might be needed.

George Davis: Sure. No, great question. And we're watching inventory very closely ourselves. The big bounce this quarter, as you suspected, was really about 10-nanometer WIP and finished goods coming onto the balance sheet. So there is actually some gross margin benefit, which we began to see this quarter, and we'll see a little bit next quarter of previously reserved inventory then flowing into the marketplace. So some gross margin benefit from that. And you've seen that in the CCG margins. Yes. Normally, we'd be up going into the seasonally strong Q3 and Q4 in this quarter. I would say overall that we think the adds this quarter, which are all related to 10-nanometer, make sense. I think we feel still that our inventory is higher than we would like in memory.

No great question and Oh, you know, we're we're watching him and her very closely ourselves the big bounce this quarter as you suspected it was really about 10 nanometer.

Wip and finished goods coming onto the balance sheet and so there is actually some gross margin benefit which we.

Bob Swan: So there is actually some gross margin benefit, which we began to see this quarter, and we'll see a little bit next quarter of previously reserved inventory then flowing into the marketplace. So some gross margin benefit from that. And you've seen that in the CCG margins. Yes. Normally, we'd be up going into the seasonally strong Q3 and Q4 in this quarter. I would say overall that we think the adds this quarter, which are all related to 10-nanometer, make sense. I think we feel still that our inventory is higher than we would like in memory. And we'll look to bring that down over time. It's a very tough market to bring it down in and feel good about yourself. So we'll continue to watch that.

We began to see this quarter and we'll see a little bit next quarter.

Previously reserved inventory then flowing into the marketplace. So some gross margin benefit from that and.

Are you seeing that in a the CCG margins.

We yes, normally we'd be up going into the seasonally strong third and fourth quarters in this quarter.

I would say overall you know there were we think the the ads this quarter, which are all related to 10 nanometer makes sense I think we feel still that our inventory is higher than we would like in memory.

And we'll look to bring that down over time. It's a very tough market to bring it down in and feel good about yourself. So we'll continue to watch that. But that's been part of the pressure on free cash flow, has been some of these working capital, particularly inventory impacts.

And we will look to bring that down over time, it's a very tough market to bring it down in and feel good about yourself.

So, we'll we'll continue to watch that but Oh, that's been part of the pressure on a free cash flow has been some of these working capital, particularly inventory impacts.

Bob Swan: But that's been part of the pressure on free cash flow, has been some of these working capital, particularly inventory impacts. To George's point, while we're not big fans of growing inventory, we feel great about qualifying the Ice Lake product in the second quarter. And that qualification is the single biggest reason for the step function in inventory from Q1 to Q2. So we knew if we executed on our plans of the Ice Lake client qualification, we'd have a step function in inventory. And we feel good about getting that qualification done and behind us. The implications of that is the higher balance in Q2 versus Q1. Thank you. Our next question comes in the line of John Pitzer from Credit Suisse. Your question, please. Yeah. Good afternoon, guys. Congratulations on the solid results. Maybe if I can go back to the gross margin at the Q4 level.

Bob Swan: To George's point, while we're not big fans of growing inventory, we feel great about qualifying the Ice Lake product in the second quarter. And that qualification is the single biggest reason for the step function in inventory from Q1 to Q2. So we knew if we executed on our plans of the Ice Lake client qualification, we'd have a step function in inventory. And we feel good about getting that qualification done and behind us. The implications of that is the higher balance in Q2 versus Q1.

But you know to Georges point the.

While we're not big fans of growing inventory, we feel great about qualifying the icelleight product than the second quarter and that qualification is the single biggest reason for the step function in inventory from Q1 to Q2, So we knew.

We knew if we executed on our plans of the ice like client qualification, we'd have a step function inventory.

And we feel good about getting that qualification done and behind us the implications of that as the a higher balance in Q2 versus Q1.

Thank you. Our next question comes from the line of John Pitzer from Credit Suisse. Your question. Please.

Operator: Thank you. Our next question comes in the line of John Pitzer from Credit Suisse. Your question, please.

John Pitzer: Yeah. Good afternoon, guys. Congratulations on the solid results. Maybe if I can go back to the gross margin at the Q4 level. I'm just kind of curious, given that CapEx has been running significantly ahead of depreciation. I'm kind of curious if there's anything going on in the depreciation schedule which is impacting the calendar fourth quarter gross margins. George, to the extent that in a previous question, you talked about maybe some tailwinds relative to the fourth quarter run rate next year in 2020, how do we think about the bridge from sort of the Q4 guide of kind of 58.5 to the analyst day guide for 2021 of 57? Is that all just the impact of 7-nanometer coming on in that year, or is there some price consideration? How should we conceptually think about that?

Yeah. Good afternoon, guys congratulations on the solid results.

Maybe if I can go back to the gross margin from.

The Q4 level I'm, just kind of curious given that Capex has been running significantly ahead of depreciation I'm kind of curious if there's anything going on the depreciation schedule, which is impacting the calendar fourth quarter gross margins and George to the extent that in a previous question you talked about maybe some tailwinds relative to the fourth quarter run rate next year in 2020, how do we think about the bridge from from sort of the Q4 guidance kind of 58 and a half to the analyst Day Guide for 2021 of 57 is that all just the impact of seven nanometer coming on in that year or is there some price consideration how should we conceptually think about that.

Bob Swan: I'm just kind of curious, given that CapEx has been running significantly ahead of depreciation. I'm kind of curious if there's anything going on in the depreciation schedule which is impacting the calendar fourth quarter gross margins. George, to the extent that in a previous question, you talked about maybe some tailwinds relative to the fourth quarter run rate next year in 2020, how do we think about the bridge from sort of the Q4 guide of kind of 58.5 to the analyst day guide for 2021 of 57? Is that all just the impact of 7-nanometer coming on in that year, or is there some price consideration? How should we conceptually think about that? Okay, John. That's a great three-part question. There's nothing unusual going on in depreciation in the fourth quarter.

George Davis: Okay, John. That's a great three-part question. There's nothing unusual going on in depreciation in the fourth quarter. As I said, most of the impact is really related to we'll have gotten through all of the previously reserved 10-nanometer products. So you're going to see more pressure on gross margin from the products that are coming into the marketplace while we're still at the low end of the yield curve on 10-nanometer, which is where we are today. In 2020, how I think about 2020, I think, as I said earlier, we think we'll see benefit from moving up the yield curve on 10-nanometer. We're pleased with our process work that's going on there now. And also, we would expect that memory, which has been a significant drag on gross margin this year, will help us a little bit overall. So no real change.

Okay, John that's a great three part question how the.

There is nothing unusual going on in depreciation in the fourth quarter as I said most of the impact is really related to.

Bob Swan: As I said, most of the impact is really related to we'll have gotten through all of the previously reserved 10-nanometer products. So you're going to see more pressure on gross margin from the products that are coming into the marketplace while we're still at the low end of the yield curve on 10-nanometer, which is where we are today. In 2020, how I think about 2020, I think, as I said earlier, we think we'll see benefit from moving up the yield curve on 10-nanometer. We're pleased with our process work that's going on there now. And also, we would expect that memory, which has been a significant drag on gross margin this year, will help us a little bit overall. So no real change.

We'll have gotten through all of the previously reserved.

Nanometer products, so you're going to see more pressure on gross margin from the.

The products that are coming into the marketplace. While we're still at the low end of the yield curve on 10 nanometer which is.

Where we are today.

In 2020.

How I think about 2020 I think.

We as I said earlier, we think we will see.

Benefit from moving up the yield curve on 10 nanometer. We're we're pleased with our process work that's going on there now.

And and also we would expect that memory, which has been a significant drag on gross margin. This year will help us a little bit.

Overall.

So no no real change probably the easiest thing would just go back to say no real change in our outlook that we gave at analyst day in terms of the gross margin trajectory over the next few years.

Bob Swan: Probably the easiest thing would have just to go back to say no real change in our outlook that we gave at Analyst Day in terms of the gross margin trajectory over the next few years. Hey, George, the only thing I would add on the depreciation, while there's nothing kind of out of the norm, there are two fairly big dynamics that happen over the course of the next several months. One is, over time, we have more and more of our 14nm equipment that's fully depreciated. So as you know, that's been our engine for a while. And we'll have more and more fully depreciated assets that are at work. That's obviously favorable. On the flip side, we talked about ramping two fabs. And we've had a lot of assets under construction on our balance sheet that weren't being depreciated.

Probably the easiest thing would have just to go back to say no real change in our outlook that we gave at Analyst Day in terms of the gross margin trajectory over the next few years.

Bob Swan: Hey, George, the only thing I would add on the depreciation, while there's nothing kind of out of the norm, there are two fairly big dynamics that happen over the course of the next several months. One is, over time, we have more and more of our 14nm equipment that's fully depreciated. So as you know, that's been our engine for a while. And we'll have more and more fully depreciated assets that are at work. That's obviously favorable. On the flip side, we talked about ramping two fabs. And we've had a lot of assets under construction on our balance sheet that weren't being depreciated.

George the only thing I would add on that.

Depreciation why there's nothing.

Yeah kind of out of the norm.

There are two fairly big.

Dynamics had happened over the course of the next several months one is.

Over time, we have more and more of our 14 nanometer equipment that fully depreciated.

So as you know that's been that's been our engine for a while and we'll have more and more fully depreciated assets that are better at work.

That's obviously favorable on the flip side, we have you know we talked about you know ramping to fab.

And we've had a lot of.

Yeah assets under construction on our balance sheet that weren't being depreciated. So in one sense you have a drop off.

Bob Swan: So in one sense, you have a drop-off from the life of 14-nanometer equipment. At the same time, you're deploying some of the 10-nanometer equipment that we bought previously. So those two things underneath the cover at the macro level, to George's point, there's not a dramatic change. But underneath the covers is two fairly big dynamics in the makeup of our equipment base and what's fully depreciated versus what's being put into service. Thank you. Our next question comes on the line of Joe Moore from Morgan Stanley. Your question, please. Great. Thank you. You talked about the reasons for feeling a little more conservative about the second half than you felt 90 days ago. But your second half guidance isn't materially different than it was 90 days ago. So I guess, how are you thinking that relative to the forecast?

So in one sense, you have a drop-off from the life of 14-nanometer equipment. At the same time, you're deploying some of the 10-nanometer equipment that we bought previously. So those two things underneath the cover at the macro level, to George's point, there's not a dramatic change. But underneath the covers is two fairly big dynamics in the makeup of our equipment base and what's fully depreciated versus what's being put into service.

From the life of 14 nanometer equipment at the same time, you're deploying some of that 10 nanometer equipment that we bought previously so those.

Those two things underneath the cover at the macro level to charge point, there's not a dramatic change but underneath the covers is two fairly big dynamics and the makeup of our equipment base and whats fully depreciated versus whats being put into service.

Operator: Thank you. Our next question comes on the line of Joe Moore from Morgan Stanley. Your question, please.

Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley . Your question. Please.

Joseph Moore: Great. Thank you. You talked about the reasons for feeling a little more conservative about the second half than you felt 90 days ago. But your second half guidance isn't materially different than it was 90 days ago. So I guess, how are you thinking that relative to the forecast? I guess when you talk about pull-ins, is that I'm surprised that there's pull-ins at the same time as there's shortages. So maybe you can just describe what the behavior is that's pulling revenue into Q2.

Great. Thank you.

You talked about the reasons for.

I'm feeling a little more conservative about the second half than you thought 90 days ago, but your second half guidance isn't materially different. Then then it was 90 days ago. So how are you thinking that relative to the forecast and I guess when you talk about Poland like what is that you know I am surprised that there's pull ins at the same time as their shortages. So maybe you can just describe what the behavior is that's pulling pulling revenue into Q2.

Bob Swan: I guess when you talk about pull-ins, is that I'm surprised that there's pull-ins at the same time as there's shortages. So maybe you can just describe what the behavior is that's pulling revenue into Q2. Yeah. So again, for the second half, really for the full year, we're largely seeing the full year as we talked about it 90 days ago. What I think the biggest difference is just how strong PC demand has been and the pull-ins that came into the second quarter leading to a much stronger second quarter. We are passing, obviously, some of that through with the exception of the pull-ins to the full year. So I don't want to sound like we're going to we'll see the normal seasonal bounce, and it'll be a strong second half of the year for the company.

George Davis: Yeah. So again, for the second half, really for the full year, we're largely seeing the full year as we talked about it 90 days ago. What I think the biggest difference is just how strong PC demand has been and the pull-ins that came into the second quarter leading to a much stronger second quarter. We are passing, obviously, some of that through with the exception of the pull-ins to the full year. So I don't want to sound like we're going to we'll see the normal seasonal bounce, and it'll be a strong second half of the year for the company.

Yeah, So again for the second half really for the full year.

We're <unk> largely seen the full year as we talked about at 90 days ago with what I think the biggest difference is just how strong.

He see demand has been in the pull ins that came into the second quarter.

You know leading to a much stronger second quarter, we are passing obviously some of that through.

With the exception of the pull ins or to the full year. So I don't want to sound like a you know we're going to we'll see the normal seasonal bounce and it will be a strong second half of the year for the company.

And.

Bob Swan: I think we're expecting a strong DCG improvement in the second half as they get through the capacity digestion. We think the PC is going to continue to be quite strong. So relative to our forecast, I guess I'm maybe countering a little bit this idea of a weaker second half. Other than memory, it has been a little bit weaker than we had expected. ASPs are certainly down more. And so we're anticipating some pain from that. And then, of course, some level of demand was pulled into the second quarter. But it's really reflective of a year that is playing out largely as we expected, with some upside on PC TAM. Yeah.

I think we're expecting a strong DCG improvement in the second half as they get through the capacity digestion. We think the PC is going to continue to be quite strong. So relative to our forecast, I guess I'm maybe countering a little bit this idea of a weaker second half. Other than memory, it has been a little bit weaker than we had expected. ASPs are certainly down more. And so we're anticipating some pain from that. And then, of course, some level of demand was pulled into the second quarter. But it's really reflective of a year that is playing out largely as we expected, with some upside on PC TAM.

And I think we will we're expecting a strong DCG improvement in the second half as they get through the capacity digestion.

We think the PC is going to continue to be quite strong so relative to our forecast I'm I guess I'm, maybe a foundry a little bit this idea of a weaker second half other than memory has been a little bit weaker than we had expected asps are certainly down more.

And so were anticipating some pain from that.

And ER and then of course some.

Some level of demand was pulled into the second quarter, but it's really reflective of a year that is playing out largely as we expected with some upside on PC Tam.

Bob Swan: Yeah. I think the only thing that I would add to that is relative to where we were in April looking out in the second half of the year. We still have the threat of tariffs going up for goods coming out of China, and the implications of that. There's still a little bit of a little lack of clarity about the implications of the Entity List and how quickly applications for licenses will be received and processed. So I think really we're kind of $900 million better in the quarter. We took the year up for $500 million. We attributed roughly $400 million to pull-ins. As we go into the second half, we're just. There's still a little bit of unknown about how this China thing is going to play out. And that's a big important market for us.

Yes, I think the only thing that I would say that I would add to that is.

Bob Swan: I think the only thing that I would add to that is relative to where we were in April looking out in the second half of the year. We still have the threat of tariffs going up for goods coming out of China, and the implications of that. There's still a little bit of a little lack of clarity about the implications of the Entity List and how quickly applications for licenses will be received and processed. So I think really we're kind of $900 million better in the quarter. We took the year up for $500 million. We attributed roughly $400 million to pull-ins. As we go into the second half, we're just. There's still a little bit of unknown about how this China thing is going to play out. And that's a big important market for us.

Relative to where we were in April looking out in the second half of the year.

Well you know we still have.

The threat of tariff.

Going up or goods coming out of China, and the implications of that and yeah, there's still a little bit you know.

A little lack of clarity about the implications of that the anti less and how quickly.

Applications for licenses will be.

Oh I received in process. So I think the real you know, we're kind of $900 million better.

In the quarter.

He took the year up for 500 million, we attributed roughly 400 to Poland has if we go into the second half were just that the there's still a little bit unknown about what you know how these China thing is going to play out and that's a big important market for us and that's probably what makes me a little more anxious.

Bob Swan: And that's probably what makes me a little more anxious. Thank you. Our next question comes in the line of Matt Ramsay from Cowen. Your question, please. Yes. Good afternoon. Thank you. George and maybe Bob as well. We had heard and continue to hear rumblings of, and you guys have addressed it at the Analyst Day and in other forums about how you might be price aggressive in certain sectors to try to protect market share. And I wonder if you might comment about how you're thinking about that strategically in your notebook business where you have 10-nanometer product coming online versus in your desktop business where you might be on 14-nanometer for a bit longer. Thank you.

And that's probably what makes me a little more anxious.

Operator: Thank you. Our next question comes in the line of Matt Ramsay from Cowen. Your question, please.

Thank you. Our next question comes from the line of Matt Ramsay from Cowen Your question. Please.

Matthew Ramsay: Yes. Good afternoon. Thank you. George and maybe Bob as well. We had heard and continue to hear rumblings of, and you guys have addressed it at the Analyst Day and in other forums about how you might be price aggressive in certain sectors to try to protect market share. And I wonder if you might comment about how you're thinking about that strategically in your notebook business where you have 10-nanometer product coming online versus in your desktop business where you might be on 14-nanometer for a bit longer. Thank you.

Yes. Good afternoon, Thank you George and maybe Bob as well, we had heard and continue to hear rumblings of and you guys have addressed that at the analyst day and in other forums about how you might be a good price aggressive in certain sectors to try to to protect market share and I Wonder if you might comment about how you're thinking about that strategically in your notebook business, where you have 10 nanometer product coming online versus in your desktop business, where you might be on 14 nanometer for a bit longer. Thank you.

You know at first I'd I'd start with is that the risk of repeating myself, a tam of $300 billion the largest Tam and.

Bob Swan: At first, I'd start with, at the risk of repeating myself, a TAM of $300 billion, the largest TAM in the company's history with a pretty decent wind at our back in terms of the insatiable appetite for data and what it means for the products that we build and design. So we view ourselves as having a relatively low-share position with significant opportunity to grow. But at the same time, we know it's just we're not the only ones that have seen a data-centric world. And it'll be a more intensely competitive environment. And our expectations over time are to protect our market share position while continuing to invest in new prospects for growth. And that hasn't really changed. When you look at that by segment, we're going to be on the PC side, we've been protecting our position for the last couple of years.

Bob Swan: At first, I'd start with, at the risk of repeating myself, a TAM of $300 billion, the largest TAM in the company's history with a pretty decent wind at our back in terms of the insatiable appetite for data and what it means for the products that we build and design. So we view ourselves as having a relatively low-share position with significant opportunity to grow. But at the same time, we know it's just we're not the only ones that have seen a data-centric world. And it'll be a more intensely competitive environment. And our expectations over time are to protect our market share position while continuing to invest in new prospects for growth. And that hasn't really changed. When you look at that by segment, we're going to be on the PC side, we've been protecting our position for the last couple of years.

In the company's history, which is a pretty.

Decent wind at our back in terms of.

This insatiable appetite for data and what it means for the products that we build and design.

So we view ourselves as having a relatively low share position with significant opportunity to grow but at the same time. We know it's just you know we're not the only ones that had seen a data centric world and there will be a more intensely competitive environment and our expectations over time are too you know protect.

To protect our market share position, well continue and invest and new prospects for growth and that hasn't really changed when you look at that by segment. Yeah wall. Yeah, We're gonna be yeah, Weve <unk> on the PC side, we've been protecting our position for the last couple of years. The I'd say the competitive intensity on the PC side started probably in the first part of 2017 and during that time frame, we've tried to protect our position, while moving and customers up to higher performance.

Bob Swan: I'd say the competitive intensity on the PC side started probably in the first part of 2017. During that time frame, we've tried to protect our position while moving end customers up to higher performance product that generate higher ASPs. And with that, have the capacity also to fight back and meet comp in targeted areas where we need to. So that's how we think about it is big opportunity to grow, large market, protect our position while expanding into new vectors. And that transforms all segments. We're a little more protective about some segments versus others in those cases, particularly when we're in a supply-constrained environment. So not a whole lot has really changed on that other than we know it's going to be more competitive.

I'd say the competitive intensity on the PC side started probably in the first part of 2017. During that time frame, we've tried to protect our position while moving end customers up to higher performance product that generate higher ASPs. And with that, have the capacity also to fight back and meet comp in targeted areas where we need to. So that's how we think about it is big opportunity to grow, large market, protect our position while expanding into new vectors. And that transforms all segments. We're a little more protective about some segments versus others in those cases, particularly when we're in a supply-constrained environment. So not a whole lot has really changed on that other than we know it's going to be more competitive. We try to take that into account as we thought about not only our H2 outlook, but our three-year outlook.

Higher performance product that generate higher ASP is.

And would that have the capacity all sort of fight back and made comp in targeted areas, where we need to so that's how we think about it is.

Big opportunity to grow a large market and protect our position while expanding into new factors in that transforms.

All segments, and we're a little more protective about some segments versus others in those cases, particularly when we're in a supply constrained environment. So not a whole lot has really changed on that other than we know it's going to be more competitive and we try to take that into account as we thought about not only our second half outlook, but our three year outlook.

Bob Swan: We try to take that into account as we thought about not only our H2 outlook, but our three-year outlook. Thanks, Matt. Operator, I think we have time for just one more question. Then we'll turn the call back over to Bob to wrap things up. Certainly. Our final question then comes from the line of David Wong from Instinet. Your question, please. Thanks very much. Just a clarification of what you had said with regard to restrictions and shipments to various entities in China. Did you say that the net result was actually small in Q2? And, will there be? Do you expect any meaningful impact on DCG revenues from restrictions and shipments in Q3, or is that going to be small too? Again, it was small in Q2.

George Davis: Thanks, Matt. Operator, I think we have time for just one more question. Then we'll turn the call back over to Bob to wrap things up.

Thanks, Matt and operator, I think we have time for just one more question and then we'll turn the call back over to Bob to wrap things up.

Operator: Certainly. Our final question then comes from the line of David Wong from Instinet. Your question, please.

Certainly our final question then comes from the line of David Wong from Instinet. Your question. Please.

David Wong: Thanks very much. Just a clarification of what you had said with regard to restrictions and shipments to various entities in China. Did you say that the net result was actually small in Q2? And, will there be? Do you expect any meaningful impact on DCG revenues from restrictions and shipments in Q3, or is that going to be small too?

Thanks, very much just a clarification of what you had said with regard to restrictions in shipments to various entities in China did you say that the net result was actually small into second quarter and will there be and do you expect any meaningful impact on DCG revenues from restrictions in shipments in the third quarter roll or is that going to be small too.

George Davis: Again, it was small in Q2. In fact, it was probably a net positive because of pull-in activities. So if you looked at what we were prohibited from shipping versus what was pulled in on things we're allowed to ship where people were concerned that perhaps restrictions would become greater, that was a net positive in the second quarter. We think that dynamic just remains in play in the second half of the year. How much of the demand concerns were met in the second quarter? We'll have to see how that plays out. But our forecast is based on kind of the current state of activity. As Bob said, it doesn't mean that we're not concerned or cautious about what could happen if there's a change in policy between now and the end of the year.

Well again.

So it was more in the second quarter in fact, it was probably a net positive because of Poland.

Bob Swan: In fact, it was probably a net positive because of pull-in activities. So if you looked at what we were prohibited from shipping versus what was pulled in on things we're allowed to ship where people were concerned that perhaps restrictions would become greater, that was a net positive in the second quarter. We think that dynamic just remains in play in the second half of the year. How much of the demand concerns were met in the second quarter? We'll have to see how that plays out. But our forecast is based on kind of the current state of activity. As Bob said, it doesn't mean that we're not concerned or cautious about what could happen if there's a change in policy between now and the end of the year. Thanks, David. We'll hand the call back over to Bob to wrap things up. Yeah. Thanks, Mark.

Activities. So if you looked at what we were prohibited from shipping versus what was pulled in on things. We're allowed to ship where people were concerned that perhaps.

Restrictions would become greater.

That was a net positive in the second quarter, we think that dynamic just remains in play or in the second half of the year how much of the demand concerns were met in the second quarter, we'll have to see how that plays out but.

Our forecast is based on kind of.

The the current state of activity and as Bob said, you know were.

No. It doesn't mean that we're not concerned are cautious about what could happen if there's a change in policy.

Between now and the end to the year.

Mark Henninger: Thanks, David. We'll hand the call back over to Bob to wrap things up.

Thanks, David and we'll hand, the call back over to Bob to wrap things up yeah. Thanks, Mark and thanks, everybody for joining us I I, just kinda close where I started you know we had a you know a corridor played out much stronger than we expected.

Bob Swan: Yeah. Thanks, Mark. Thanks, everybody, for joining us. I just kind of close where I started. We had a quarter that played out much stronger than we expected, revenue better, gross margins better, spending in line, earnings greater. Therefore, from that confidence, we're raising our full-year outlook and kind of feel good about performance six months through the year. Secondly, and just more importantly, we continue to really work the supply chain so we're never in a position to constrain our customers' growth. We've made good progress through the first half. But I think more as we go into the second half, we're just in a better position than we've been in a while. We still have work to do. We're still working with our customers. But we feel pretty good on the supply as we enter the second half.

Bob Swan: Thanks, everybody, for joining us. I just kind of close where I started. We had a quarter that played out much stronger than we expected, revenue better, gross margins better, spending in line, earnings greater. Therefore, from that confidence, we're raising our full-year outlook and kind of feel good about performance six months through the year. Secondly, and just more importantly, we continue to really work the supply chain so we're never in a position to constrain our customers' growth. We've made good progress through the first half. But I think more as we go into the second half, we're just in a better position than we've been in a while. We still have work to do. We're still working with our customers. But we feel pretty good on the supply as we enter the second half.

Revenue better gross margins better spending in line.

Earnings greater and therefore from that confidence, we're raising our full year outlook and kind of feel good about performance six months through the year.

Secondly, and just more importantly, we continue to really work the supply chain. So were never in a position to constrain our customers' growth.

We've made good progress through the first half, but I think more as we go into the second half. We're just in a better position than we've been in a while we still have work to do we're still working with our customers, but we feel pretty good on the on the supply as we enter the second half.

Bob Swan: And then third, our progress on both 10-nanometer and our confidence in migrating from 10 to 7 continues to grow based on execution. So we kind of gave you a three-year outlook. We consider this the second deposit of that 12-deposit three-year outlook. And I'd say we feel pretty good about where we are. And we look forward to giving you another update 90 days from now about continued progress and momentum on our multi-year journey. So thanks for joining us. And we look forward to talking to you again in 90 days. Thanks, Bob. And thank you all for joining us today. Operator, you, please go ahead and wrap up the call. Certainly. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

And then third, our progress on both 10-nanometer and our confidence in migrating from 10 to 7 continues to grow based on execution. So we kind of gave you a three-year outlook. We consider this the second deposit of that 12-deposit three-year outlook. And I'd say we feel pretty good about where we are. And we look forward to giving you another update 90 days from now about continued progress and momentum on our multi-year journey. So thanks for joining us. And we look forward to talking to you again in 90 days.

And then third you know our progress I'm on a both a 10 nanometer and our confidence and migrating from 10 to seven.

<unk> continues to grow based on based on execution. So yeah. We kind of gave you a three year outlook. We consider this the second deposit of that 12 that 12 deposit three year outlook and I'd say, we feel pretty good about the about where we are and we look forward to giving you. Another update 90 days from now about continued progress and momentum on our on our multi year journey. So thanks for thanks for joining us and we look forward to talking to you again in 90 days.

Mark Henninger: Thanks, Bob. And thank you all for joining us today. Operator, you, please go ahead and wrap up the call.

Thanks, Bob and thank you all for joining US today, operator Gill. Please go ahead and wrap up the call.

Operator: Certainly. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Certainly thank you ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.