Q4 2021 Intel Corp Earnings Call
Ladies and gentlemen, thank you for standing by and walk them through the Q4 2021 until Corp earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press Star then zero I would now like to turn the conference over to your speaker for today, Tony Veilleux, Vice President of Investor Relations you may begin.
Thank you operator, welcome to Intel's fourth 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 website I N D C dot com.
The earnings presentation is also available in the webcast window for those joining us online.
I'm joined today by our CEO , Pat Gelsinger, and our new CFO , David Visitor also joining us is our prior CFO George Davis.
Well hear brief remarks from Pat and Dave 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 it does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.
A brief reminder, that this quarter, we have provided both GAAP and non-GAAP financial measures.
Today, we will be speaking to the non-GAAP financial measures when describing our consolidated results.
The earnings presentation and earnings release available on I N T. C. Dot com include both the full GAAP and non-GAAP reconciliations.
In today's call, we will be discussing both the Q4 2021 and the full year 2021 results providing forward looking guidance for Q1 'twenty two will.
We will be providing guidance for full year 'twenty two at our Investor day on February 17th.
With that let me hand, it over to Pat.
You Tony and good afternoon, everyone first let me say welcome to Dave who is joining us for his first earnings call.
We have you know Dave well I know his track record of successfully driving shareholder value. We're very excited to have him join our team I also want to take a moment to thank George for his many contributions during a critical period in the company's transformation every one here at Intel wishes him all the best in his future endeavors as he begins his plane.
Tire meant to me.
Q4, what's a tremendous finish to a transformational year, where we beat expectations on both the top and bottom line, we exceeded our guidance for the quarter by over $1 billion on the topline, finishing with our best quarter in our best full year revenue ever we had a record quarter for D. C. G, where we grew 20% year on year.
And where we continue to be the partner of choice for cloud and data center customers. We expect that our xeon shipments in December alone exceeded the total server CPU shipments by any single competitor for all of 2021.
We had a record year for our client business and in Q4, we outperformed our plan and delivered another $10 billion quarter, highlighting again that the PC is more essential than ever.
Our momentum as the market leader in either as an a b solutions mobile I grew more than 40% year on year in 2021, delivering a 14th consecutive year of revenue growth and finally, I O T. G. I had another billion dollar quarter to cap a record year as the need for compute at the edge continues to grow some.
Porting these record results our manufacturing network continued its superb execution throughout the year. That's an idea M. We were able to rapidly adjust to support customers' mix changes often with a normal lead time and manufacture more than 2 million wafers. We broke ground on two new Fabs in Arizona three months ahead of us.
Schedule as part of the largest overall manufacturing expansion in Intel's history.
All while managing a challenging COVID-19 environment and focusing on the safety of our employees suppliers and partners.
We also took several in a series of key steps to shape our business to begin with we recently completed the first close of the sale of our NAND business on time.
Critical step in optimizing our portfolio in line with our new strategy second we began unfolding are playing to find innovative ways to sustainably unlocked shareholder value with the announcement of our intent to take mobilize public in 2022.
Third just last week, we announced our new manufacturing site in Ohio, which will support our future growth and advances our plan to create a more geographically balanced resilient supply chain, while there's a lot left to do we're building momentum and we intend to continue our laser focus on execution innovation.
And growing the business.
Finally, Q4, what's the secret of moment for the entire technology industry as we lead the 50th anniversary celebration of the Intel 4000 and for the chip that changed the world.
Microprocessor technologies sparked by the until 4004 allows us to stay connected during the pandemic. It has opened up new ways to work and learn it has removed geographical boundaries and changed almost every aspect of our lives. We are committed to accelerate this impact for the next 50 years as the insatiable.
You'll need for compute that started with the 4004 continues to drive the value of Moore's law I E. D. M. We outlined our long term path towards more than 10 X density improvement in packaging and the <unk>.
30 to 50 per cent area improvement in transistor scaling as the steward of Moore's law, we remain committed to keeping it alive for the next decade and beyond.
Looking across the industry 2021 was dominated by two recurring themes.
Unprecedented demand and ecosystem supply constraints. The strong demand. We saw throughout 2021 continued in Q4 end markets remained robust across all our businesses. We expect this trend to continue as the digitization of everything driven by the four superpowers of AI pervasive connectivity.
But he ubiquitous compute and cloud to edge infrastructure leads to an era of sustainable growth.
<unk> 2021 marked the best year in a decade for the PC industry with third parties reporting a growth rate of approximately 15% driven by higher P. C density shorter replacement cycles and increased market penetration in Q4. We also saw the strong recovery in the channel as increased supply led to record sell through.
For Intel and we started to see inventories returned to pre pandemic levels.
The data center market was strong across all geographies in Q4 led by the enterprise, where the market continued to recover from Covid lows. We expect the data center network and edge markets to continue to have robust growth as hyperscale or lay out multi year cloud capex investment plans the ongoing need for <unk>.
Data privacy and security drives additional edge and on Prem deployments five G network and edge build outs are scaling and workloads like AI continue to expand.
This unprecedented demand continues to be tempered by supply chain constraints of shortages and substrates components and foundry Silicon has limited our customers' ability to ship finished systems.
Across the industry. This was most acutely felt in the client market, particularly in notebooks, but constraints have widely impacted other markets, including automotive internet of things and the data center.
As we predicted these ecosystem constraints are expected to persist through 2022 and into 2023 with incremental improvements over this period. The industry will continue to see challenges in a variety of areas, including specialty and overall foundry shortages substrates as well as third party silicon while constrain.
We will remain our I D. M 2.0 strategy affords us a superior position to navigate this environment with control over our manufacturing network and supply chain, we are able to react to rapid changes in demand and help solve challenges for our customers suppliers and partners equally important as an IDM we remain.
More resilient to foundry price increases is only a minority of our volume is produced by third parties.
Turning from the ecosystem the Intel we made incredible progress over the last year, improving our execution and technology development manufacturing and product leadership with unprecedented transparency, we laid out an ambitious path to deliver five process nodes in four years and regain process performance parity by 'twenty.
24, and unquestioned leadership by 2025, we are shipping until seven in volume today.
I was able to say last quarter and can reaffirm today, we remain on or ahead of schedule for until four three 'twenty, a an 18 day against the timelines we laid out in July .
Our manufacturing execution continue to improve and in Q4 as we shipped a record number of servers and we have more than a 30% year on year reduction in 10 nanometer wafer costs, we had record quarterly increase in our substrate capacity with our vendors and we accelerated our pace of innovation with a record number of P. D K.
Releases of new product introductions in our factories.
Finally, as part of our strategy to use both internal and external manufacturing, we signed multiple long term supply agreements raging from foundry partners to substrates to equipment suppliers that will support the growth of our business for years to come in particular, we announced the deepening of our ASML partnership and our leadership.
<unk> with the second generation of U V I N a.
And client we had another $10 billion quarter in 2021 was our sixth straight year of revenue growth, we feel great about our position within the sustainably larger client market and we had an all time record shipments with customers like though we have a great product lineup, starting with Tiger Lake, which has now shipped over one.
100 million units, making it the fastest ramping notebook in our history.
We are extending our leadership position further with products like our 12th generation Alder Lake the fastest client processor ever which is now shipping to over 140 customers in 30 countries around the world as our first performance hybrid product that features the highest performance CPU core until has ever built as well as sufficient.
<unk> optimized for power.
It leads the industry transitional DDR, five and pcie five to enhance gaming and create or experiences. The older Lake family will scale across every P. C segment from ultra thin and light laptops to enthusiast desktops, where we've now set new Overclocked records to mobile gaming where the core.
912, 900, H K, the world's best mobile gaming processor, it's up to 40% faster than the prior generation.
Following the successful Baldor Lake we will continue to build momentum later this year when we expect to introduce wrap their lake, which was already buda than our labs.
In addition to leadership products. We are also driving platform innovations and at CES, We unveiled our third Gen. Evo platform. This new generation includes features like intelligent collaboration to optimize remote work and learning experiences as well as Thunderbolt, four and Wifi succeed with no legs.
See Wifi interference Wifi succeed will enable incredible performance with low latency the biggest Wi Fi advancement in 20 years.
We are further reinvigorating the PC ecosystem with technologies like screen of eight which provides a seamless multi device and screen sharing experience, which will begin rolling out in select until Evo platforms. Starting later this year.
Driven by the strong product and platform lineup, we feel confident in our ability to compete and drive growth going forward.
Our data Center group had its best quarter ever as customers continued rebuilding their confidence in choosing Intel.
Enabled by our IDM advantage isolate server shipped more than 1 million units equal to the amount we had shipped in the prior three quarters combined all of our Oems are currently shipping systems in all of our major cloud customers have announced instances, including our third instance, with Amazon Web services.
Going forward, our roadmap only gets better and we expect to ship initial skus of Sapphire Rapids to select customers in Q1.
Fire Rapids will offer significant performance improvements across a range of workloads, including AI, where we are targeting up to 30 acts total gain for Xeon. This demonstrates that a general purpose CPU with built in AI acceleration consult even more customer use cases that once necessitated GPU.
<unk>.
Customers remain excited about Sapphire Rapids, and it has been chosen along with H P E to power the new Kestrel supercomputer built for the U S Department of Energy's National Renewable Energy Laboratory Castro will accelerate discovery of renewable power once completed in 2023.
We'll have more than five times greater capability than N. R. E. LS existing system was approximately 44 petaflops of peak performance.
Beyond the core data center, we continue to build on our leadership position from the network to the edge with our comprehensive portfolio of hardware and software solutions. We are leading the transformation of the network, where xeon and flex ran software our Houston almost all be ran commercial deployments.
We are driving AI inferencing adoption at the edge with our open Vino software on partners like BMW group and Samsung in the factory and medical environments, and we are extending the IP ecosystem and accelerating the creation of fully programmable network by collaborating our new FPGA based IP solutions within spur.
Rucci networks and silicon.
And our discrete and accelerated graphics business, we are starting the year very quickly alkermes. The first product in our Intel arc discrete graphics lineup is now shipping to customers with more than 50, new mobile and desktop designs, including with Acer, our Seuss Dell HP, Lenovo, Samsung and others.
Our family of products will scale for mainstream up to the performance graphics segment and will be available in the market later this quarter.
In high performance computing, our pumps are vecchio GPU is already sampling to customers with 100 billion transistors pumped at Vecchio has our highest compute density ever and along with Sapphire Rapids will power. The two extra flop of war a supercomputer at Argonne National Laboratory.
There are over 100, H P C applications running on Ponta Vecchio, which enabled by one API provides a unified and open programming model across CPU and GPU.
We are working with numerous partners and customers, including at Toast, Dell HP, Lenovo Quanta and supermicro to deploy our H P C tunes Cpus and Gpus in their latest systems.
Our Iff's business continues to see strong and enthusiastic customer support we have a strong pipeline of potential customers and IP development with the ecosystem is progressing well we.
We are shipping for revenue on our packaging solutions and we continue to expect customer test chips and our factories on our Intel 16 process. This year.
Patients like ribbon fat to empower via are proving to be very attractive features to potential customers in the Intel 18, a design kit has now been released three ramps. He customers. Overall, we are ahead of where I thought we'd be and I'm thrilled with the progress of our Iff's team.
And the mobility mobile line continues to be an industry leader in both a death and a V and we recently hit a significant milestone of shipping our 100 million IQ. So she at CES, we gave a glimpse of the future with the IQ Ultra which will do the work of 10 I.
<unk> five S. So she's in a single package and was designed to deliver the optimum power and performance for our fully self driving vehicle. In Q4. We also introduced our first autonomous on demand service in Paris in collaboration with the R. A T. P group Paris is the latest in a list of locations.
We're mobilized piloting autonomous vehicle test fleets, including New York, Munich, Detroit, Tokyo, Israel in China.
Looking ahead, we still expect to launch commercial robo taxi services in Munich in Tel Aviv in 2020 two.
As we announced in December we are working to take mobile I public to unlock shareholder value, we are making good progress and we'll share more as we go through the year.
You'll hear a lot more about how we are re architected our business for growth as part of our upcoming Investor Day, We will lay out details on how we are leveraging our core strengths to accelerate our plans and how we are uniquely positioned to create value well give me. The proof points you should expect to see in 2022 that show that we are on track.
For our long term plan, all backed up by the transparency and accountability that our new reportable segments will provide.
Let me close by saying again that Q4 was an incredibly strong finish to a great 2021 and I believe that was growing markets. Our strong product road map and are increasingly solid execution 2022 will only be better and.
In fact, just in the past 24 hours, we were pleased to see the ruling from the General Court in Europe and their decision to overturn the 1.1 billion Euro fine.
The semiconductor industry has never been more competitive than it is today and we look forward to continuing to invest and grow in Europe .
At the same time here in the U S. We were very excited to see the progress on the chips Act with the house introducing their version of the Bill yesterday, the President and other members of the administration have been clear on the importance of this transformational investment and it's encouraging to see the strong bipartisan and bicameral support as we continue to.
Work together to address the long term impacts of the semiconductor shortage restore U S leadership in this critical industry and rebalance the global supply chain with that let me turn it over to Dave.
Thanks, Pat and good afternoon, everyone first let me say, how happy I am to be part of Intel. It's a really exciting time and I'm looking forward to the opportunity to support Intel's transformation and plans for growth I think we have a great opportunity to drive compelling returns and shareholder value, which all starts with the plans that we will lay out for you at Investor Day in February .
Q4 was a record quarter delivering a stronger than expected finish to another record year. Both D. C. G. In I O T. G achieved record quarters with CCG I O T G and mobile I delivering full year record revenue.
Q4 revenue was $19 $5 billion exceeding our guidance by $1 $2 billion.
The revenue beat was broad based led by stronger than expected enterprise and government demand in data center desktop P C strength and better than expected notebook demand.
Gross margin for the quarter was 55, 4% exceeding our guidance by 190 basis points due to strong flow through on higher revenue.
Q4, EPS was $1.09.
<unk> 19 cents above our guide due to strong operational performance.
For full year 2021 we achieved record revenue of $74 $7 billion up $1 $2 billion from our previous guidance and up 2% year over year.
2021, gross margin was 57, 7% and EPS was $5 47 up.
Up 37 cents year over year.
We generated $11 $3 billion of free cash flow in 2020 , one approximately $1 billion lower than prior expectations as higher net income was offset by Q4 working capital fluctuations.
Now turning to our business units.
C C. G delivered record annual revenue its sixth straight year of revenue growth up 1% year over year and up 6% when excluding the modem and connected home divestitures.
For the quarter revenue was $10 $1 billion up 5% sequentially on strong commercial demand.
Platform Asps were up 15% year over year on a richer mix driven by strong demand for our highest performing platforms and industry wide constraints, leading our customers to prioritize limited components the higher end systems.
Operating profit was down 3% year over year on increased spending to further strengthen our product and platform roadmap.
The data Center group delivered a record $7 $3 billion in revenue for Q4 up 12% sequentially and up 20% year over year on strong enterprise and government demand.
Full year revenue was down 1% due to a slower than expected recovery earlier in the year as well as competitive pressure, partially offset by stronger enterprise and government and communications service provider demand.
Platform Asps were up 3% sequentially and 4% year over year on improved mix to our highest performing products.
Operating profit in Q4 was down 17% year over year, primarily due to the previously disclosed Intel federal related one time charge and 10 nanometer product ramp.
Full year operating profit was down due to lower revenue with an increased mix of 10 nanometer products.
Intel for startup charges and increased investment in our product roadmap.
I O T. G achieved record Q4, and full year revenue Q4 revenue was $1 $1 billion up 36% year over year on broad based strength led by the industrial and retail segments.
Full year revenue was $4 billion up 33% year over year as the business saw a strong recovery from COVID-19 related impacts.
Operating profit for the year was $1 billion up 110% year over year.
P. S. G delivered $484 million in Q4 revenue up 15% year over year and up slightly quarter over quarter and industry wide supply constraints continued to severely limit revenue growth.
Full year revenue was $1 $9 billion up 4% year over year.
Operating profit was $51 million up 19% year over year.
If not for the external supply constraints, we believe the PSG business would have delivered over $500 million in additional revenue in 2021.
Mobile I reported Q4 revenue of $356 million and $1 $4 billion for full year up 43% year over year.
Full year operating profit was $460 million up 91% year over year.
Before moving onto Q1 guidance I want to briefly discuss changes to our non-GAAP reporting beginning in 2022 that we touched on in our Q3 earnings.
First in an effort to more closely align with our semiconductor peers and allow for more consistent comparability between periods, we'll be removing stock based compensation and all gains and losses related to our ikat portfolio from our non-GAAP results.
Despite this change will continue to closely evaluate stock based compensation to ensure we're in line with industry benchmarks and optimize I cap investments to advance our strategy and maximize ROI.
Second we're modifying our segment reporting to align with our revised organizational structure and business strategy.
Moving forward, we will report results under the following business units.
Client computing, which includes our historical CCG business plus workstation revenue.
Datacenter and artificial intelligence, which includes our data center CPU products, plus our PSG business.
Networking and edge, which includes our I O T G business plus our networking focused products previously included in D. C. G.
Accelerated computing and graphics, which includes all discrete graphics products.
Mobile Ly, which is unchanged from our prior segmentation.
And Intel Foundry services, which includes revenue from our wafer and packaging offerings.
This new reporting structure enables transparent accountability relative to how well we are managing and executing against the six business units that will be further communicated at Investor day in February .
Moving to our Q1 outlook, we continue to see strong demand across all our businesses and note that Q1 includes the impact of an additional 14th week.
We expect results to be tempered by continued industry wide component constraints normal seasonality and PC notebook inventory burn as Oems work through inventory imbalances created by ecosystem constraints that have limited their ability to ship systems in certain segments.
We expect Q1 revenue of $18 $3 billion down 1% year over year, but up 2% when adjusting for an approximately $600 million onetime corporate revenue item recognized in Q1 'twenty one.
As we signaled in our Q3 call gross margin will be impacted by our 10 nanometer product ramp and increased process technology investment.
The aforementioned one time corporate revenue item in Q1, 'twenty, one will also impact the year on year compare.
We are forecasting gross margin at 52%.
EPS of approximately 80 cents.
And a tax rate of approximately 15%.
Note that we will provide full year 2022 guidance in more details on our long term financial model as part of our Investor Day on February 17th.
We hope to see you there in person for a full day of presentations and Q&A sessions with our most senior leaders.
Finally, I want to thank George for three years at Intel delivering outstanding results and making many of the changes necessary to begin our transition to a growth company.
And now let me hand, it off to George to say a few words.
Thanks, Dave.
I want to close my final earnings call with sincere thanks to our Intel employees.
Who amaze me every day and for the privilege to have served as our CFO .
And I could not be more delighted that Dave is taking over knowing all of the incredible strengths he brings to the role.
Thanks Al.
Thanks, George with that let me turn the call back over to Tony to get to your questions.
Alright, Thank you Dave moving on now to the Q&A as is our normal practice, we would ask that each participant ask only one question.
Operator, Please go ahead and introduce our first caller.
Thank you.
Ladies and gentlemen to ask a question. Please press Star then one on your telephone.
Withdraw your question press the pound key.
Again, Thats star one to ask the question.
Our first question comes from the line of John Pitzer with Credit Suisse. Your line is open.
Yeah. Good afternoon, guys. Congratulations on the results and thanks for letting me ask the question, it's great to see our second quarter of year over year growth in D. C. G. An acceleration over the calendar third quarter, but if you look underneath the covers there's sort of two stories at play enterprises coming back extremely strong, but if you look at.
The cloud part of the business I think this is the fifth consecutive quarter of year over year declines in so I guess, there's two parts to my question one.
When do you see a return to year over year growth in cloud and two to the extent that the investment community has a bias that everything eventually ends up in the cloud what is your kind of your long term view of the sustainability of this enterprise demand.
Yeah, Hey, Thanks, John and thanks for the comments on a great finish to a great.
Great year, so as we look at the D. C. G business you know, we just say we started out behind early in the year, you know digestion and we've sort of been catching up and building momentum in the cloud piece of that business all year long and we do see that momentum carrying into next year. So that created some of the year on year quarter quarterly comparisons.
Describe you know E. N G. You know really a tremendous second half in a really strong Q4 for that business, where we have higher market share and have seen a just a great environment. You know what we're hearing from our customers is that the momentum in E. N. G. You know continues into next year with very strong backlog positions.
It would have been even stronger had it not been for other supply constraints and match sets that we see.
And as you May have heard me talk about before we don't see everything going to the cloud you know we see this balance of on Prem and cloud based delivery and cloud continues to grow faster than on Prem, but workloads continue to grow on Prem also we expect to see an acceleration of edge based and.
I spoke about this at our innovation conference, where the Big story as we get out to two or three years from now is going to be accelerating edge growth and that's an area that Intel has a very strong position in the edge very high market share leadership platforms, and five G and ER infringed and AI. So overall, we expect to see a very.
Balance across our portfolio, we do see strength to see growth in our cloud business next year continued sustainability of E N G, but the real story over the next couple of years, we see as explosive edge growth.
Thank you.
Thank you.
Our next question comes from the lineup Ross Seymore with Deutsche Bank. Your line is open.
Hi, guys. Thanks, So I asked the question and congrats on the strong end of the year and thank you to George and congrats to Dave.
So with all that out of the way.
I don't want to talk about the PC market I know you've been one of the more optimistic folks on that and in the fourth quarter results showed a little bit of evidence as to why you're optimistic but you also talked about some interesting inventory dynamics in there where channel inventory was rising can you talk a little bit about your expectations for this year again, not front running the analyst day too much but but.
The expectations for growth for the year in a little bit more on how you reconcile inventory rising with shortages still persisting.
Yeah. Thank you and Oh 2021 was a really good it's not great year for the P. C. I think most forecasts now are coming in estimating about 15% growth last year.
We're seeing I D C Canal us Europe modest growth in the market next year. So as you've heard me and I think this matches exactly what Satya said yesterday, you all will just say a structurally larger market for us for next year and a couple of percent growth on that so we see that we will be able to have continued growth in our core.
Client business, and obviously with a stronger and stronger product line, we see yourself in a very good position for our client market share now you know the inventory position is one where you know we have just been at historically low inventories for an extended period of time just racing to catch up.
With demand and so we would say that some of this is just getting inventory levels that are even approaching what we consider normal for a business of this size and one that's managing these still significant supply constraints are different areas you know power controllers.
Splay lid controllers other aspects of substrates in different component pieces. So a lot of these challenges you'll have a really led to you I'll just say supply chain so supply issues throughout the customer base. So as we go into next year, we hope to see some of those starting to moderate and turn.
To a more normal behavior in the industry you know in particular the channel inventory levels. You know the ones that were essentially zero right for almost all of the year and now we're starting to see just a little bit of build back in that area, which particularly for our channel of distribution partner, so sort of for the first time, giving them something to sell you know for the.
Whole year. So a lot of response positively there you know and overall you know we still see that the P. C is now becoming a central part and an increasingly work from home learn from home environment Windows 11, a strong upgrade cycle being introduced by that so a lot of good tailwind.
And a great product line, it's gonna be a great year for us in the client space.
Thanks, Matt.
Thank you.
Question comes from the line of Joe Moore with Morgan Stanley .
Great. Thank you.
I Wonder if you could talk about the.
Capital spending a little bit and again I don't want to bet on mature youre going to cover at the analyst day, but you know the the footprint in Ohio.
Various comments that you've made about not being able to foresee having too much capacity in the next couple of years as you think about that how much of that is you know.
Your existing X 86 business versus foundry and other opportunities and any sense for the capital spending you talked to you. This year, how much of that is gonna be buildings versus equipment.
Yeah, Thanks, Joe and you know I'll kick that off and ask Dave to our comments as well. So overall, yeah. We would just say that's oh supply constraints. You know, we just have a lot of catching up to do and are building out so the capital footprint and some of that is catching up some of that is building for the new.
<unk> technologies are five nodes in four years, but it also is leveraging the smart cap.
Our strategy that we've laid out where you Oh boy I I lust for having a free shell today that we could be ramping into we simply have to build some more shell capacity and then we'll be determining where is the best use and how to fill that as we start to build out those shelves everything that we've described are.
Arizona build out our Ohio build out yeah, we do expect that that will be satisfying both our internal products as well as creating capacity core doors for our foundry business as well at our analyst day will be shaping that with more clarity and David will be giving updates on a number.
The capital aspects at the foundry for foundry as well as for internal capacity there. So Dave what else might you add yeah first of all thanks, Pat and I just didn't want to say thanks for.
Or for joining the call and I'm really happy to be part of Intel we have an exciting opportunity in front of us and I couldn't be more excited to be a part of IBM to point out I think there's a lot of opportunity to create a lot of shareholder value. In fact, one of the areas. We're doing a we're doing that right now is increasing the dividend 5%. So it's.
To my first quarter dividend.
The dividend raise I can't go into that data on.
On the Capex on the Capex front Joe.
As Pat mentioned, we will give you a lot more granularity in terms of 'twenty, two and beyond in terms of Capex, but if you look back at the 2021 capex split it was roughly 60% equipment, 40% space build out so that's at least the ratio last year of course, you know it might.
A ball over time, but you know it gives you a kind of a rough magnitude of the numbers.
Thank you.
Thank you.
Our next question comes from the line of Stacy <unk> with Bernstein Research. Your line is open.
Hi, guys. Thanks for taking my question I wanted to dig into your inventory comments again, so I know you're talking you're saying you're building inventories, but youre. Your P. C volumes were down 18% year over year.
The PC market wasn't down 18% year over year.
Do you feel like you're building inventory if anything it feels like inventories bleeding out so.
Parts of it so how do I, how do we square that circle, what's going on there.
Yeah.
Do you want to address that Dave or George maybe I'll, maybe I'll just comment a little bit on it you.
You know when we do a year over year comparison, obviously.
Q4 of last year was a huge quarter for CCG, particularly.
With the consumer and entry Skus and so what we've seen really starting with the second half in particular for <unk>.
<unk> 2021 is a rotation out of the consumer and entry area into the.
The what we call our big core notebooks, and our desktop which desktop it really dropped off and now we're seeing kind.
Kind of a strong recovery there, so where if we think a little bit about the growth.
C C G a year over year.
We certainly look to be growing lower than the Tam, but if you take into account.
Fact that we that you look at our exit of modem and our exit of home gateway and the impact that that had on a year over year comparisons that's about six six points of growth.
And then the customer's decision to go vertical on.
A large customer decides go vertical that's about another six points. So the overall growth the pattern is a little different because of the mix year over year, but the the growth relative to the Tam.
When you take into account. These changes is much more in line with the overall growth of the industry.
Okay. Thank you.
Thank you. Our next question comes from the line of Harry on Sir with J P. Morgan Your line is open.
Hi, good afternoon. Thanks for taking my question so on.
On Intel Foundry services, you know it appears that the team is off to a good start it looks like a lot of good early engagement, if I'm a potential ISS customer and I start my design today realistically right I'm not expecting like chip design to be ready for manufacturing conservatively for at least two years because that's that's just how long the design cycle times.
For these meeting each edge chips and it seems consistent with your prior commentary on Iff's customer is more focused on your 'twenty, an 18, eight nodes, which is kind of 'twenty 'twenty four 2025 timeframe. So if I think about the real big Capex Capex outlays to support that.
My assumption is that it's probably not until 2024 or maybe even 2025 time frame is that kind of the right way to think about it that most of the capex spend for asbestos.
Probably two to three years to lay in more of the Capex spend over the next two three years is to support growth from the core compute business.
Yeah, you know your your your comments sort of Dimensionalize. It almost right you know the key thing to augment what you said is that set to be able to put the capital in place in 'twenty four 'twenty five you have to be building the shelves in 'twenty two 'twenty three so that's what we've why for instance, the Ohio announcement.
We said Hey, we are building shells, so that we can fill it with our products and with foundry customers as well, but clearly when we get to Intel three as well as until 18, a ramps for foundry customers you know those capital investments most of that being back end loaded right when you're putting equipment in place.
Really ramp up in 'twenty four 'twenty five, but we've got to start building the shell capacity for those 22 and 23. Your other comments, we do expect some of the Intel 16.
Customers that some of those products will start ramping next year.
So we do expect some of those design starts that are already underway today to start giving us some revenues for our foundry offerings on Intel 16, and 23, we would expect until three to start contributing in 'twenty, four and until 18, a and a 25 and beyond so it's sort of that.
Nice ramp, but we've also said hey, we already have a packaging customers and those revenues have already started in Q4 of this year and obviously some of the services you know some of these or pay for services as well. So those will start contributing even before then but overall you know the world wants more capacity the world is looking for leading edge found.
<unk> capabilities, we've seen very strong interest from many different sectors and I'll, just say you know across whether it's a leading edge high performance computing mobile customers industrial customers and clearly automotive customers, a very broad swath of customers who are interested in the Intel foundry services and great momentum.
Some that were seeing.
Okay.
Thank you.
Thank you.
Next question comes from the line of topics.
With bank of America.
But thanks for taking my question and thank you to Georgia and they'll come today.
I actually had a near and longer term question on on the gross margins on Sunday and yet I'm wondering the 52% how does this kind of evolve through the year I know you're not planning to give a specific number right now, but what are the puts and takes in and kind of the key drivers in Florida or ceiling or kind of the average that you should be thinking about.
And then longer term how do we reconcile that your main competitor who is kind of just fabulous, it's pretty much at the same gross margins without having to spend any of the capex.
Our plans to spend you know when can they start using our pricing power.
The markets that you have very large incumbency.
Okay. Let me start and you know Pat can certainly provide us color around pricing. So you're right that we are going to provide a lot more details around the year at the Investor day, and give you actually some perspective over the longer term, but I think I can help you think through a little bit about the trend based on the following commentary.
In our third quarter earnings call that the pet and George where representing until we said that we had to make investments both in terms of newer process.
<unk> technologies and startup costs associated with that and we need to or needed to ramp 10 nanometer and that was going to put pressure on gross margins and they they create they presented a range of somewhere between 51 and 53% was the gross margin level that we would need to operate at while we.
We're getting ourselves.
Caught out but from a from a technology perspective, so we're in that range for their guidance of 52% and we feel very good about 51% to 53% range for the year.
So that's so when you look at this number you know it.
It can bounce around a little bit, but the 51% to 53% range. We've given we feel real competence around for the time being now after that as we get back.
To a leadership position in terms of technology and in terms of products of course, there's absolutely opportunity to improve upon that and we will you know I think.
It provides us good evidence of that at the Investor day in February so that should give you some incentive to come.
And a couple of comments on the longer term margin picture Heroes. We said you know leadership products when we get through process leadership right and the nice cadence for those process technologies those will become nicely Oh accelerants. When we said that we will see our margins recover in the latter part of the five.
Five year window that we gave guidance on my last earnings call. So we do see those as contributors and will see our margins rise overtime. As a result. Additionally, we do expect our long term margins to be a composite of our foundry business, which will be on the lower end of the margin range that we'll operate the company in <unk>.
And combining that with the higher end of our leadership products as those occur so we'll be giving a better characterization of that at the at our Investor meeting as well you know further we'd say you know overtime. We think we have a structurally superior margin model for our business, where I think everybody is seeing oh.
Cute.
Inflation in foundry costs and others in the industry, where our factory network will give us a lot more opportunities to you know creates a more balanced cost structure that others in the industry will not be able to accomplish so overall, we see great margin outlook, great cash flow and free cash flow opportunities over the horizon.
Ryzen and will characterize those are much more carefully as part of our investor meeting, but we see the advantages of our business model over anybody else in the industry to be quite substantial for supply for margin creation for cash flow generation and all of these will come together in a very powerful way.
Thank you.
You.
Our next question comes from the line of Chris Danley with Citi. Your line is open.
Hey, Thanks, guys.
So you're are you sending out mobile ly to maximize shareholder value, which I think everybody likes have you given any thought or is there any possibility of spinning out altera maximize shareholder value as well.
Yeah. Thanks for the question you know the mobile Ly spin out you know things are progressing smoothly, we'll give updates on that as appropriate as we go out over time.
But you know and.
And as we said it'll be a partial spin so we still see continuing and substantive value creation for our mobile ly, having a high relationship with Intel So we'll be updating on that as things progress. There you go.
Let's say that's the last one that we'll consider for such moves we see this as a formula for value creation that may have other areas that could benefit from such approaches from the Intel family as we look to the future and we said this is a model for value creation that we think is a powerful one and one that will be X.
Sizing in the industry, but we have no other specifics to talk about at this time, but keeps showing up we're gonna have lots of good things to talk about.
Thanks.
Thank you.
Next question comes from the line of Timothy Arcuri with UBS. Your line is open.
Thanks, a lot Pat I had a question about how you think about D. C. G. In your server share and you know obviously Sapphire Rapids is gonna be a lot more competitive but you know Janet was also going to be ramping kind of right on top of it.
Is there kind of a line in the sand that you think of that you won't let share go below X percentage can you just talk big picture about how you think about market share in server is there a is there a threshold over which you'd use price to get more competitive. Thanks.
Yeah. Thank you and you know overall you know we we do see that so you know the product line is getting more competitive Sapphire rapids will be a stronger product, but we're already seeing that the product line is getting more competitive with ice Lake and our Q4 numbers on ice Lake were very good and we see be Oh Q4.
Four equaled all of the shipments of the first three quarters of the year. So ice Lake is an improvement a sapphire rapids gets better we do expect that theres going to be a bit of to and fro with the competitive alternatives, where they'll deliver a product will deliver the next product you know.
And as you've heard me say, we are on a path to sustained unquestioned leadership and in this area, it's going to take US a few generations until we're unquestionably in a leadership position, but we believe our product teams our packaging teams and our process technologies our factory capacity.
All of these give us the tools to create leadership products and then we combine that with our platform leadership and our software technologies, we have a path to unquestioned leadership overtime. Obviously, we believe we're gonna have a superior cost structure, if you've already touched on you know given that many of our server products come from our factories. So we're good.
To be in a better margin and cost position and capacity. So we think we have a lot of tools to address a market share over time, and we're going to dimensionalize the business a bit more as part of our analyst day coming up.
Thank you Pat.
Thank you. Our next question comes from the line of Matt Ramsey with Cowen Your line is open.
Thank you very much good afternoon guys.
Just following up on the data Center group.
Revenue very strong, but the operating margin I think was down 10 points year over year, and I wanted to dig into that a little bit.
The slides and in the release.
<unk> mentioned, an Intel federal charge, if you guys could quantify that but the bigger part of the question.
It is now with the with your IC.
Ramp.
Theres a lot more volume in D. C. G. That's going on to the 10 nanometer node and my question is do we need to evolve the product set to where we get to granite Rapids, and we get off of 10 nanometer before we see margin improvement in D. C. G or is there going to Sapphire Rapids, and a child approach with smaller tiles milestone on time.
Is that enough for the margins to recover thanks.
You will start to Dave I'll start, Okay, obviously and I'll pile on yeah. So I mean, just in the strict walk of.
Of the the operating margins of the DCT business. So it's some of the things I talked about in terms of the aggregate story around gross margins you know theres the ramp of 10 nanometer for for.
For the data center space, there's higher startup costs associated with new process technologies. So that's certainly driving it. We also had a one time charge.
In our E N G business.
For for a federal charge that also negatively impacted the operating margins and then lastly, you know as we as we talked about we are continuing to ramp up our investment in terms of product product technology in R&D and so we had some increased opex investment that also drove it but all of this is you know kind of executing to the plan.
Pat laid out a quarter or so ago and so this is all part of where we wanted to be at this point to to drive the future of the company.
Yeah, and I'd say over time, you know.
We absolutely expect that we're going to improve the operating margin of this business again, and Oh, we haven't ramped the new node for five years and our data center business and that's something that you know, it's an embarrassing thing to say on the one hand, and obviously you all as a result, we've been in an area that we shouldn't have had operating Mars.
Is that high in this business has just been that we've been running on very mature nodes. You go well past the time that a normal cycle should be and now we're aggressively ramping 10, we're also starting to ramp the costs of seven and for as well. So all of these taken together I think youre seeing a you know a very unusual period and the.
The margin and the gross margins and operating margins of this business. We fully expect that this is a very healthy business for us long term.
Going through the cycle of a new town new process technologies investments in the business. You know nothing here is surprising to us and you can expect that over the long term. This is a great business for Intel as we ramp leadership process technologies with unquestioned leadership products, we're going to do well here.
Thank you.
Our next question comes from the line up for <unk>.
Many.
Jerry with F N B C. Nico your line is open.
Thank you Dave a question on gross margins actually clarification, if I take your I guess, the fourth quarter results, 55% and then add back the federal charge and then your guidance you're guiding to 52% for Q1, that's roughly five to six points of drop. So I'm. Just wondering what are some of the puts and takes does that impact.
Are there any I mean, I see the headwinds that you talked about but I'm wondering if there are any any tailwind sort of mix related impacts as well. Thank you sure. So definitely the you know the federal charge not repeating itself in the first quarter is certainly.
Helpful and there are a couple of mixed benefits that that we're seeing but the charges associated with you know ramping.
10 nanometer, particularly in the data center space and the startup costs on on Intel for our predominantly what.
Driving the.
The reduced gross margins, but again, it's exactly where we thought we would be in the first fiscal quarter. I mean. This this is the number that we were that we were planning to drive the business to and ultimately the ROI on all of the investments, we're making that that drive headwinds in the gross margins for the first quarter will turn around and drive a very good ROI down the road.
Thank you.
Thank you.
Our final question comes from the line with an Bruce so vast OCA would be M. O. Your line is open.
Alright, Thank you Pat I just wanted to check in on the.
The expansion plans that you have.
How much of that is dependent on the chip back and also from other does.
I asked that because I was listening to your presentation.
I guess earlier in the week at.
At the Ohio State and you did make a comment there urging attendees to make sure that they wait wait into the extent that you can do get you back past. So just was wondering how much of that of the expansion plans are dependent on the act here as well as.
Europe , some government incentives.
Well. Thank you for that question, it's what I hoped would be raised in the a and b.
Our call. So thank you for that you know and I'll just say overall I mean, it was just a fabulous day in Ohio, right. You know the enthusiasm we've gotten and as I said at the event. You know were established we help put silicon in the Silicon Valley, we establish the Silicon forest in Oregon, the Silicon Desert in Arizona and now the Silicon Heartland.
And the enthusiasm we've gotten from the leadership there the governor of the hero congressional leaders and you know being able you know for this farm Kid from Pennsylvania to stand on stage in the White House and say now it's my pleasure to introduce the president of the United States of America just surreal.
So you know just a fabulous day for our Intel our nation and our industry, obviously with the chips Act going on the floor of the house, we're highly encouraged and I spoke to speaker Pelosi are at length. On this subject. Just yesterday is there are you expect it will be debated on the.
The floor next week and hopefully following what we expect will be passage in the house a reconciliation process and so I'd say everybody is now more optimistic on this coming across the line in the near future. Now obviously, you know I think we and others have viewed the passage of this says an accelerant.
For our investment plans and you know as I've said, very clearly hey, we're going to build a site in Ohio, it could either be small or it could be big and fast and with the passage of the chips Act, that's going to be a bigger and we're going to build it out faster as a result, and we think that's good for our company even more.
More important that that's good for our nation as we rebuild a resilient globally balanced supply chain and are the events of just just yesterday getting the bill on the house floor. I think is a very very good sign for all of that will get us across the line, but even more so right we see a axa.
In Europe that are gaining momentum as well in the EU chips Act as well and we've been quite involved in that domain and we hope to see our expansion plans accelerate in Europe as well. So overall all of these things will simply benefit the industry, but it certainly will accelerate to our investment plans as it may.
So more competitive globally to be for our products, but even more so for our foundry business as well. So thank you for that question and with that let me again, you know I I do want to say, thank you to Dave joining us for the first time you know George Thank you again for your support for the years that you've contribute in this.
A critical period of the company and you know I do want to remind you of the strategies you know.
We're going to build the team improved the execution as we look back on 2021, we've made tremendous progress across all areas that we've laid out we still do have a lot of work to do but we're focused energized and momentum is building and I look forward to sharing our progress with you as we continue on this amazing journey.
And Investor Day is coming up we're going to lay out the strategy. We got a lot to say and this is a great business. We finished a great year. Thank you all for joining us today.
Thank you Pat Thank you, Dave and George Operator can you please close the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
[music].
Yeah.
[music].
Yeah.
[music].
Uh huh.
Hum.
[music].