Q1 2022 Intel Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome Zhengzhou corporations first quarter 2022.
<unk> 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. The Star then the one key on your Touchtone telephone.
Please be advised that today's conference is being recorded I would now like to turn the conference over to your Speaker host Tony Veilleux, Vice President of Investor Relations. Please go ahead.
Thank you operator, welcome to Intel's first quarter earnings Conference call.
By now you should have received a copy of our earnings release and earnings presentation.
Not received both documents they're available on our industrial website <unk> 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 CFO , Dave since Theyre in a moment.
Well 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 it does include risks and uncertainties. Please.
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'll be speaking to the non-GAAP financial measures when describing our consolidated results.
The earnings presentation and earnings release available on <unk> Dot Com include both the full GAAP and non-GAAP reconciliations with that let me hand, it over to Pat.
Thank you Tony and thank you for joining US today Q1 was another solid quarter, where we beat on the top line exceeded our guidance on gross margin and EPS band, where we continued to execute on our long term growth strategy to unlock a trillion dollar market opportunity as we laid out at a recent investor day, our strategy is built around.
Four key pillars, we will deliver leadership products anchored on open and secure platforms powered by at scale manufacturing and supercharged by our people in Q1, we made great progress on all of these areas and we are continuing to hold our full year revenue outlook.
In our data center and AI group, we began shipping initial skus of Sapphire Rapids to select customers as planned. We also unveiled our expanded dual track xeon roadmap that strengthens our position in both per core performance performance per watt for cloud and enterprise workloads, we launched our arc a series Gpus for laptops.
Taking your first steps to give the graphics industry a much needed New addition.
<unk> demonstrated this level four self driving system in Jerusalem, a major milestone in preparation for its upcoming Robo taxi services, we continue to add to our talent with strong industry leaders like Christophe show, who recently joined us from HP as our Chief commercial officer, and finally, we took another major step in creating it.
Violence semiconductor supply chain with the announcement of our plans for new investments in Europe . We also held the Grand opening of our latest leading edge factory in Oregon, including a new name for the campus, but Gordon Moore Park at longer acres, which recognizes our founder and the sites you need contribution to driving Moore's law.
Q1 also marked a special moment for Intel as we announced our plans to further reduce our greenhouse gas emissions and develop more sustainable technology solutions, including using 100% renewable energy across our global operations by 2030, and achieving net zero greenhouse gas emissions in our global operations.
<unk> by 2040.
Overall Q1 was a great start to the year as we continued to execute on the path to our long term growth story, we still have a lot of work to do but we are executing at a torrid pace and I remain confident in our path forward.
Before I get into specific updates for each of our business units, let me start with some observations on what we're seeing in the industry.
I continue to believe we are just at the beginning of a long term growth cycle across semiconductors, we continue to see some match set limitations in areas like Ethernet some softening in low end consumer PC and some inventory adjustments as we discussed on our last call, but overall the demand signals from customers continued to be robust in areas like <unk>.
<unk> cloud AI graphics and networking.
Semi conductors part the fuel of innovation and transformation across a wide range of industries.
And the supply chain Lockdowns in Shanghai, and the war in Ukraine have demonstrated more than ever that the world needs more resilient to more geographically balanced semiconductor manufacturing the chip shortage costs. The U S economy 240 billion last year, and we expect the industry will continue to see challenges until at least 2024.
In areas like foundry capacity and tool availability.
That's an IDM. We believe we are in a good position in the industry to manage through these constraints in fact, Intel is rising to meet this challenge following our announcements in Arizona, New Mexico, and Ohio, We recently announced a series of investments in Europe spanning our existing operations as well as our new investments in France and Germany.
The Silicon junction.
These investments position Intel to meet the future growth and represent a significant step toward our moonshot goal of having half the world semiconductor manufacturing located in the U S and Europe .
The pace at which we can reach this goal is dependent upon the actions of the U S and other governments America showed leadership when Congress passed the chipset, but the global situation has grown even more serious since then the EU has been very aggressive in moving legislation forward to meet this challenge and I recently testified before the Senate Tayo.
The critical need for the U S to fund the chips Act I continue to encourage Congress to fund this critical legislation and enable us to move faster towards making a balanced semiconductor supply chain a reality.
Turning now to Intel we continue to make great progress on our plans to deliver five process smoothed in four years until seven is ramping extremely well with all due like Intel for Meteor Lake has now successfully booted windows chrome in Linux.
The speed at which the team was able to achieve this milestone is a significant sign of the health of both Meteor Lake and our Intel for process technology.
We plan to deliver several additional milestones in 2022, demonstrating our process technology development remains on track. This includes early Sierra Forest preproduction wafers on until three.
I P test wafers on until 'twenty, a foundry customer test chips and initial IP shovels Unintelligent Tonight.
Simply put we remain on and in some places are ahead of schedule to deliver five nodes in four years.
Our manufacturing network continues to perform well in a challenging environment for the first time in years until Fabs and our substrate supply are close to meeting our customers' demand using.
Using our IDM advantage the team was able to remix almost 3 million units within lead time to meet changing demand signals. For example, we were able to partner with meta to improve there was are you on supply and meet their needs. Finally, our supply chain resilience showed as our teams worked tirelessly to mitigate any significant disruptions to our fac.
<unk> operations from the war in Ukraine supplier shutdowns and Covid Lockdowns in China.
Turning to our business groups at our Investor day, we laid out our long term growth strategy centered around six distinct but highly complementary business units a structure that provides investment flexibility increased market resilience and enhanced transparency for investors and in fact, we will report our results in this structure.
For the first time today.
Our client group continues to deliver world class platforms positioning us to win share grow ISP and win share of market. There was broad ecosystem agreement. That's a long term PC market is sustainably larger going forward driven by PC density refresh rates and increased penetration as the P. C remains the essential.
Tool for work learn and play we.
We are seeing particular strength in gaming and in commercial Pcs, but it is somewhat tempered by slower consumer inflationary pressure and customer inventory management, which Dave will talk more to later.
Our 12 Gen Alder Lake family continues to ramp in Q1, and we have already shipped more than 15 million units. This family now has more than 250 designs playing this year from Acer Soustelle H P. Lenovo LG, Samsung and others. It doesn't include the world's fastest.
Desktop processor, the core I nine 1200 chaos.
All the lakeville scale across every segment, including for businesses of all sizes with the launch of our latest V Pro platform.
The pro offers industry, leading manageability and security for business, including the first and only hardware based ransomware detector within health threat detection.
The strength of our client roadmap continues with Raptor like where we are shipping both desktop and mobile samples to our customers today and we plan to follow that with media Lake in 2023.
In data center, Dci had strong year on year growth as customers continue to choose Intel and as we continue to deliver increasing value and innovation. We are seeing strength in both hyperscale and enterprise, we expect the market to grow double digits going forward driven by workloads like AI and security here too we are.
Seeing ecosystem supply constraints, particularly in Ethernet that have limited and system shipments, which we expect to be a headwind through the year.
Our third generation Intel scalable process for ice Lake has now shipped almost 4 million units in the Amazon Web services recently announced general availability of its easy to buy for instance, designed for storage and Io intensive workloads. This is the 48 AWS instance, powered by ice Lake.
I am also pleased to say that as committed we began shipping initial skus of our fourth Gen. Intel Xeon scalable processor Sapphire rapids to select customers in Q1.
These are the first of many skus for Sapphire Rapids with more due to ramp throughout the remainder of the year.
We also unveiled our expanded dual track xeon roadmap using performance any fishing course, deliberate and a common platform maximizing customer investments and on the cadence they prefer our.
Our first generation <unk> Xeon will be CR forest, which is designed to maximize performance per watt, providing high density ultra efficient compute for the cloud.
For workloads that benefit from high performance per core and low latency like AI, we have our redefined granite rapid on Intel three with a new and improved P core.
The strength of Intel agile ex some strikes 10 FPGA has generated record revenue as we continue to win designs and ramp into key markets. Intel FPGA based ipu's are deployed in volume at five of the top six cloud service providers and we continue to win designs with comms service providers utilizing Intel.
<unk> latest generation F. P G H E six.
Our launch of the Habana Goudy based AWS easy to deal. One instance has shown end customers how they can reduce training costs by as much as 40% versus GPU based instances one of the early customers mobile Ly is now using deal one for training their object detection models.
Goudy two is already sampling the customers and demonstrating leadership performance versus competitive Gpus on multiple workloads.
Finally, we continue to build our extensive data center software capabilities, and recently announced the acquisition of Granulate granulate as a SaaS service that improves performance and cloud costs with its autonomous dynamic optimization service to unmodified customer workflows.
The network and edge market continues to be strong with the transformation from proprietary fixed function devices to fully programmable software defined infrastructure.
Our network and edge group is uniquely positioned to capitalize on this transition and had record revenue in Q1.
At mobile World Congress any ex launched our newest Xeon D processor built specifically for software defined infrastructure across the network and edge. Our latest Xeon D has more than 70, leading companies working on designs, including Cisco Juniper networks and rack within Symphony.
We believe that then the network Oran and B brands have reached the tipping point is the preferred model of all future network deployments nearly all commercial deployments running today are using xeon and our flex ran software we have more than 10 engagements with major global operators that we expect to be in high volume commercial deployment within the next.
Two years.
We also launched a new version of our open Vino software toolkit, what's downloads growing 70% year over year built on the foundation of one API open Vino has enabled hundreds of thousands of developers to dramatically accelerate performance on rapidly growing AI workloads at the edge, including Z block computational.
Who is using open vito to deliver their AI micro cloud solution to cities everywhere.
Going forward the scale out of five Chi the explosion of AI inferencing and the growth of low latency workloads will further drive the need for compute at the edge. They will eventually begin to shift compute from the cloud, making me edge. The next wave of semiconductor growth with a broad portfolio of hardware software and deep ecosystem partnership.
Any ex remains positioned to lead the transformation across the network and to win the edge.
Moving to our emerging businesses, our accelerated computing systems and graphics group builds on our installed base of Cpus, IP and software and Leverages, a thriving open ecosystem to disrupt a large and growing market in Q1, <unk> had strong growth and celebrated a major milestone with the official launch of the Intel.
Mark a series portfolio for laptops ALCHEMIST. The first of these products has been shipping to customers. Since early Q1 with designs from Acer Seuss Dell HP, Lenovo, Samsung and others. The H series enables up to a two times performance improvement and graphics versus integrated graphics and.
<unk> Intel deep link technology, which utilizes Intel integrated graphics to increase application performance by up to 30%.
The first laptops within tall arc three Gpus are available now this will be followed by even more powerful designs with Intel arc, five and Intel arc seven along with desktop and workstation offerings later this year.
And the data center, our flagship pump to Vecchio GPU for high performance computing and AI is sampling to customers pumped a vacuum along with Sapphire Rapids with high bandwidth memory will power the two extra flop or a supercomputer at Argonne National Laboratory. In addition, Arctic sound or general purpose data center.
<unk> designed for industry, leading media graphics, and AI inference capabilities will be available in the second half of the year. Finally in Q1, we announced our intent to contribute to the development of blockchain technologies until will help advance this technology in a responsible and sustainable way by developing energy efficient.
<unk> technologies at scale block scale, our first blockchain accelerator is sampling today and will ship in production later this year <unk> remains on track to deliver over $1 billion in revenue this year.
Our Intel foundry services hit a $1 billion run rate for the first time as we continue to make progress towards being the trusted provider of foundry services.
Our overall customer pipeline remains robust and we now have more than 10 qualified opportunities in advanced stages of engagement across our process and package offerings that collectively represent a deal value of greater than 5 billion.
We have over 30 test chips committed to Intel 16, this year and we expect the first Intel three and until 18, a customer test chips to tape out in the second half of 2022.
Our work with our five target anchor customers is progressing well we expect additional updates later this year. Finally, we have seen tremendous enthusiasm from customers for our acquisition of tower tower shareholders recently approved the proposed acquisition. We have completed regulatory review in two jurisdictions outside the U.
And hope to close the transaction as soon as possible.
Building on its market leadership in Adas, and Avi solutions mobile Ly advanced system launches have continued including the next generation BMW seven series with the leading edge combination of IQ five and eight megapixel camera as well as B M. W Highway assistant which enables hands free driving on.
Separate of roadways up to 80 miles per hour.
We also added in Miami in Stuttgart to our global EV testing program, bringing the total number of places where we have tested a b to 10 cities in six countries across three continents.
Additionally, we recently showcased mobilized level four self driving system in action for the first time with a robo taxi navigating the streets of Jerusalem mobile I expects to launch its commercial robo taxi services in Munich, and Tel Aviv by the end of 2022.
Finally, we remain committed to unlocking shareholder value and are working on our plans to take mobile I public in 2022.
March we announced that we confidentially submitted a draft registration statement with the SEC the.
IPO is proceeding smoothly and we continue to make good progress as we work with the FCC to refine our form S. One.
Before turning it over to Dave I want to close with a few thoughts first I look forward to hosting our customers partners and analysts at our Intel vision events in Dallas on May 10th and 11th this will be our second Intel on serious event dedicated to the future of business and technology.
Next as I said at our Investor Day, We believe we have a tremendous growth story over the next several years, we're investing in innovation and embracing an open approach to compute platforms of manufacturing, we continue to add to our incredible pool of technical talent and of course, we remain intensely focused on rebuilding our execute.
Machine finally, we'll continue to highlight our progress in key operational milestones as we manage within the financial framework, we laid out in February .
I know I speak for over 120000 until employees when I say that while we have work to do our best days are ahead with that let me turn it over to Dave Thanks, Pat and good afternoon, everyone.
Q1 was a solid quarter exceeding revenue gross margin percentage and EPS guidance. Despite continued ecosystem supply chain constraints inflationary pressures and macroeconomic uncertainty.
Three of our six newly formed business segments any ex mobile ly in Iff's achieved record quarterly revenue.
Revenue was $18 $4 billion slightly exceeding our guidance led primarily by broad based strength in our <unk> business.
Gross margin for the quarter was 53% exceeding our guidance by 100 basis points on improved manufacturing yields and lower factory costs.
EPS was <unk> 87 seven.
Seven cents above our guide on higher gross profit and slightly lower operating expenses.
Operational cash flow for the quarter was $5 $9 billion and we received an additional $4 6 billion from the Mcafee equity sale.
Total cash and investments increased by $9 $7 billion in the quarter to $39 billion, driven by the NAND divestiture and Mcafee sale.
Capex for the quarter was $4 $6 billion.
Now turning to our newly formed business unit results.
CCG revenue was $9 3 billion down 13% year over year on ramp down of the Apple CPU and modem business. The expected OEM inventory burn we cited in our Q4 call as well as lower consumer and education demand.
CPU asps were up greater than 25% year over year on richer mix and strong demand for our high end mobile and desktop products across both our commercial and consumer segments.
Operating profit was down 34% year over year on lower revenue.
Kris 10 nanometer and Intel seven mix and increased spending to further strengthen our product and platform roadmap.
D C. AI revenue was $6 billion up 22% year over year on strong demand from both our Hyperscale and enterprise customers.
D C. A I operating profit was flat year over year as increased revenue was offset by increased 10 nanometer next factory startup charges and increased investment in our technology and product roadmap.
And he asks achieved all time record quarterly revenue of $2 $2 billion up 23% year over year on broad based strength across our cloud networking and edge product lines operating profit was $366 million up 51% year over year on higher revenue offset by increased.
And.
Mobile Ly achieved all time record quarterly revenue of $394 million up 11% sequentially and 5% in comparison to Q1, 'twenty, one which saw exceptionally strong auto production and pipeline rebuilding due to COVID-19 related recovery last year.
Operating profit was $148 million down 13% year over year on increased investment in next generation products.
<unk> revenue was $219 million up 21% year over year on the ramp of its supercomputer and alchemists discrete GPU products.
Operating loss was $390 million versus an operating loss of $176 million in Q1, 'twenty one with the increase driven by new product qualification reserves on our ALCHEMIST and Arctic sound products production ramp charges and increased investment.
Iff's revenue was $283 million up 175% year over year on increased IMS tool shipments increased automotive demand and initial revenue from Amazon and Cisco.
Operating loss was $31 million roughly flat year over year as revenue and gross margin increases were offset by increased investment to build out the custom foundry business.
Moving to our full year and Q2 guidance.
As Pat mentioned earlier, we continue to see strong end user demand for our products across each of our business units and we reaffirm our revenue guidance of $76 billion is lower than previously expected PC revenue is offset by any ex growth and D. C AI hyperscale customer strength.
More specifically in our PC business, we continue to see strong commercial demand offset by low end consumer and education softness and the impact of no longer shipping to customers in Russia and Belarus.
Further component supply constraints continue to be a challenge with the most recent COVID-19 lockdowns in Shanghai further increasing supply chain risk and contributing to inflationary pressures that are having a negative impact on PC Tam for the year.
As a result.
We're seeing Oems continued to lower inventory levels to better match demand and aligned with other system components.
We expect elements of this inventory burn to continue in Q2 subsiding in the second half of the year.
Although these headwinds have reduced our CCG revenue forecast, we expect CCG revenue to increase in the second half of the year as a return to normal seasonality boost demand OEM inventory burn subsides and the ramp of our leadership Alder Lake and Raptor late products position us to compete for share.
For D. C. AI, we also expect to see a stronger second half of the year at Hyperscale customer demand remains robust component supply improves and the ramp of ice Lake in Sapphire Rapids increased competitiveness.
For <unk>, we expect the strength we saw in Q1 to continue with growth throughout the year fueled by improving components supply continued five G ramp and transformation at the edge.
[noise] breaks Jeep, we continue to expect full year revenue greater than $1 billion, driven by the launch and ramp of the ALCHEMIST Arctic sound and Ponta Vecchio and block scale products.
Finally, we expect to see second half growth in each of our two remaining businesses mobile ly and I F S. As they ramp new products and secure new customers.
For gross margin, we're guiding 52% in line with the 51% to 53% range previously communicated.
Note that the inflationary environment creates a headwind that we are continuing to monitor but we remain confident in our ability to mitigate the impact through continued cost reduction programs as well as increased pricing in certain segments of the business.
For EPS, we're guiding $3 60.
10 cents higher than prior guide on the Q1 beat and a slightly improved tax rate of 12%.
Finally, net capex guidance of $27 billion and moderately negative adjusted free cash flow for the year remain unchanged.
We have made significant progress on our smart capital initiatives and will continue to manage within the framework communicated at Investor day.
Moving to Q2 guidance for revenue, we're guiding $18 billion down 2% sequentially on the short term headwinds detailed earlier and the impact of an additional 14th week in Q1.
For the Lockdowns in Shanghai, we're estimating the impact to be relatively contained under the assumption that these restrictions are nearing an end.
Even under a short locked down we anticipate it will take some time for that supply chain to normalize and if the lockdowns persist or spread beyond Shanghai, we could see more material impacts to our outlook.
For gross margin, we're guiding 51% down approximately 200 basis points sequentially on increased 10 nanometer and Intel seven mix and Raptor Lake Prequalification reserves.
We had always expected Q2 gross margin to be at the low end of our range and with our full year guide of 52%. We expect gross margin to inflect upwards in the second half of the year as revenue increases and inventory reserve fell through.
Finally, we're guiding a tax rate of 12% and EPS of <unk> 70 cents down 17 cents sequentially on lower gross profit and higher opex.
With that let me turn it back over to Tony and 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 just one question.
Operator, Please go ahead and introduce our first caller.
Okay.
Thank you.
<unk> coming from the line of Ross.
With Deutsche Bank. Your line is open.
Hi, guys. Thanks for letting me ask a question Pat I, just wanted to get a little bit more color on the inventory dynamic you're talking about your inventories up internally, but you are talking about some of the inability to ship with match sets et cetera going forward. So can you guys just give a little more color on where the specific Intel inventory is versus a more.
Generic inventory in shortage problem, specifically in the PC side of your business it seems.
Yeah. Thank you Ross and you know I'll just start out by saying again, you know I really pleased with the execution of our team and you know what had plenty of turbulence in Q1.
And to meet our meet and beat in Q1 was really spectacular now on the inventory piece. We did talk about that we are building 10 nanometer inventory, we have new products that we're ramping into the market place and we do see some of those will be reversals as we go into the latter part of the year is that.
Inventory will start flowing through the product area. So we would say this is very typical management of new product ramps and specifically around Sapphire Rapids Alder Lake will start seeing wrap their late because well. So those are those will be the key areas that you'll see that inventory shift occurring.
Also you know as we've indicated we did see our customers inventory burn down in Q1, we expect some of that to be in Q2 as well, but by the second half we expect those adjustments and obviously the strength of second half outlook. We do expect much of that inventory burn to have finished in the first half and a strong set.
It happens we're ramping our new products that will have a much better performance feature some of that with higher costs, but also coming with higher asp's.
Thank you.
Thanks Ross.
Yes.
And our next question coming from the line of.
J Muse with Evercore ISI your line is open.
Yeah.
Yeah.
Operator lets you go to the next call or we can just come back to C. J later.
Our next question coming from the line of Stacy.
I'm with Bernstein Research your line is open.
Hi, guys. Thanks for taking my question I know you held the full year, but I mean, the first half is kind of coming in lower.
So it does kind of imply that you are taking the second half probably up <unk>.
First is the prior expectations, but in that light obviously, we've got Pcs that maybe look like they're at risk you talked about China shutdowns that if they last longer that could bring risk you talked about some issues I guess with server builds at your customers that you said would persist.
I guess, what gives you the confidence that things actually will be inflicting and it looks like youre looking for kind of a hockey stick across all of your businesses in the second half the first like how do investors get confidence.
That's actually the way things are going to be playing out in that you've built enough conservatism in the guide.
Yeah, I guess luxury centers you want why hold the annual guide in the wake of all of that yeah.
Thank you Stacey and clearly you know we over achieved in Q1 Q2, we were you know, it's a little bit lighter right given some of those we've taken it down a bit given some of those are factors, but not substantially. So this is very in line with what we expected we were always forecasting a stronger second half.
Of the year and that's what gives us confidence we had built into our year Guide you know some room for things to happen. We don't like any good company would rebuild some expectations that I know that not everything goes right.
And that's why we're very confident in reaffirming our overall yearly revenue guidance now lets piece apart some of the factors that give us that confidence first we'd say hey, we see strong growth in our Dci business, we see strong growth in our <unk> business, particularly those areas. Those are long lead time businesses with our customers.
We have strong views of the business our expectations that we have we do see strength in the enterprise and government business first half to second half Youll always see the normal cyclicality of the client business and particularly in the second half we're going into a much stronger product line with Algar Lake and Raptor Lake and the reversal of inventories.
For wrap their lake and Sapphire Rapids, starting to hit so there as well, which will be very nice to improve both operating what your gross margins as well as the revenue outlook and then we have an extraordinary set of products that were coming in the second half of the year. When you think about X gene we have all of the discrete products ramping in <unk>.
And to the mobile ones that will be launched in Q1, we have our new GPU products with Arctic sound, we have parts of Vecchio ramping we also have our blockchain products ramping we have the new Z odds and <unk> ramping Iff's is ramping we see strength in our mobile I business. So all of these give us confidence that the second half and this is very consistent with the out.
Look that we gave in our Investor day, we were always expecting this to be the characteristic of first half and second half and obviously a small beats in Q1.
A little bit of weakness in Q2 that we've accounted for these disruptions and strength in second half. We are on track to do exactly what we said at the Investor Day, and we're building momentum to accomplish exactly that with the great execution that we saw in the first quarter around products around manufacturing around dealing with supply chain challenges. This machine is building momentum.
We're confident in our second half outlook.
Okay guys.
Thanks.
Thank you next question.
Our next question coming from the line of C. J Muse with Evercore. Your line is open.
Hey, apologies.
So the confusion earlier.
Thank you for taking the question.
I guess given given the change in segments.
We'd love to try to set the stage here for what expectations should look like for the big three CTG Dci and any ex into Q2, and then for all of 2022, if there's any way you can kind of help.
Plus or minus sort of relative growth rates that you're guiding to for both June and the full year.
Yeah. Thanks C J.
But overall you can listen to the first quarter were giving you know clear updates against the six business units. You know clearly that means you know things like D. C. A I feel we're pulling out the <unk> business.
From what might've been counted for before as part of data Center, and we're giving clear clear abuse of how those businesses are performing respectively. Overall, what we said in the client business, we'll see the seasonality plus a bit and the client business because of the strength of the product line in D. C. A I we see.
Through the second half of the year and we had strong year on year growth in the data center and AI business in Q1, and any X. We expect that we're growing faster than the market. This is a good business for us, we're uniquely well positioned and we see the strength of the network and edge being an area.
Particular growth you know and we were well over 20% growth rate in that business in Q1, So well I don't think we'll see those kind of growth rates for the rest of the year, but a very strong growth businesses, but I'd also highlight that we are seeing the growth businesses Iff's ask T mobile ly being very strong growers for us so they'll start contributing.
More meaningfully as we go into the second half of the year, which is a little bit of the answer to these questions before you'll solid growth across all of the business areas of the company and we're starting to start seeing these new areas contribute in meaningful ways. So overall affirming the second half of the year seeing a strength in all of the business.
Areas the product the execution all of them are getting stronger.
Thank you.
Our next question coming from the line of.
With New Street Research your line is open.
Hi, Thanks for taking my question.
I'd like to focus on the on the 10 nanometer node and you can fill them.
And maybe for you Dave.
You mentioned 100 basis points.
Driven by improved U like Oh.
Really music to my ears, as you can imagine and I'd love to hear a bit more.
And he just came out as a separate.
So what's happening to you Dan.
Could we hope so and I continue to improve.
You don't on engaging them.
Some 85 on that.
On the gross margin.
I assume you get these hazards.
You got it even room to improve.
And then maybe soft spots on the sand beach and gave him in.
I don't think you should read.
Mixed reality, but then again it just noise in the market.
He got products ramping slowly and you see the cadence that's huge to have rapidly ramping each season did slow a bit dislocation.
My question all Kenmare.
Do you use an age 10 nanometer and in game seven makes it difficult to get these.
These products is that slowdowns in patients each in.
In Canada, you can accuse them, beginning <unk> roadmap and should we expect things to go much much faster.
New students and for anything to date.
So I'll start and then I'll ask Dave to jump in so overall you know as we set our five nodes in four years, we're performing well he'll Intel seven is ramping more rapidly than we would've expected until four we updated that we have a meteor lake now powered on which was our first product on until four.
Until three will see the test wafers on that with our leadership products with share of forest. In fact, just today, we taped out our first Grand Rapids compute die.
Well, we will have the test wafers on 'twenty, a an 18 day, which we expect to be a big foundry node as well. So I'd say overall the technology pipeline is doing tremendously well and really proud of our teams there until 10, it's ramping very well, we're seeing good yields on that.
Dave reflected which overall gives us a good momentum in terms of product for Alder late because it's been a star and its ramping comfortably ahead of our expectations there.
Reaffirmed the health of Intel seven Sapphire Rapids that you've called out was our first peer accused this quarter and many of the additional skus peer Q in Q2 in the second half of the year and that's why you might be getting some of that views of the more muted ramp there, but we delivered on exactly what we said first quarter appear.
Accused of Sapphire Rapids, and we'll see strength in that as we go through the rest of the year, you'll also isolate because ramped very nicely now well 10 nanometer server part so overall the technology and the manufacturing machine are performing quite well and are really bode well for our outlook for this year and the years to come so.
Dave if he might add.
Yeah, so yeah.
We had a good quarter in the first quarter in terms of yields.
We are going to see a little bit of pressure on 10 nanometer in the second quarter.
The reason, where we're seeing margins down to the low end of our of our stated range of 51%, but we do expect and nanometer to become a tailwind for us as cost improved through the back half of the year and you know.
Although Intel seven as you know behind that we're expecting the same from until seven.
Thank you next question.
Next question is coming from the line of Joseph Moore with Morgan Stanley . Your line is open.
Great. Thank you for letting me ask a question.
Dave I think I heard you say CPU asps and client were up 25% year over year.
Pretty big number is that how much of that is if I heard that right how much of that is mix shift.
Away from things like Chromebooks, how much of that is success with new products like all other like can you just give us a little bit more color on the delta there.
Lot of it is obviously mix either shifting away from consumer education.
Newer product ramps.
I said in the prepared remarks.
Given the inflationary environment, we are looking for targeted price increases in certain segments.
So that really hasn't shown up that much yet, but will be part of the story.
Going forward through the year.
Yeah, and I'll, just say overall you know the the product line is healthy.
We're seeing you know the mix shifts as we move through Alder Lake Raptor Lake being very strong ice lake as well will start to see Sapphire Rapids factor into that in the second half of the year. So overall, we're coming into a stronger product cycle, Joe right, which just gives us more opportunity to right.
Deliver higher value to customers remixed the products the higher price points, but overall just have a more competitive product line as we go compete for market share as well.
Your next question coming from the line of Harlan sur with Jpmorgan. Your line is open.
Hi, good afternoon. Thanks for taking my question on accelerated computing and graphics.
Client discrete GPU market is a pretty big market opportunity for <unk> 12 $13 billion per year.
So it looks like you guys started ramping of our GPU into notebooks and Oh, Yes first Gen products, we've used look quite constructive.
Team still on track to rollout a desktop version of this quarter and still on track to ship 4 million plus discrete Gpus. This year, and then any feedback from customers or <unk>.
Gaming developers there would be helpful as well.
Yeah. Thank you Harlan and overall <unk> is on track and we launched the mobile Skus will have the desktop skus coming in Q2, and we'll have more skus as we go through the year as well, we'll be filling out the product line.
A lot of work right and qualifying games and if Youre a.
Our game or you know that there's just a lot of individual optimization work on some of the key titles. So that work is underway. We are working with our Oems to populate their portfolios of products as well, so I'll say youre going to see more and more of that hitting the market and we will be filling out we have the you know the three versions will have the <unk>.
<unk> seven to nine versions of the products coming out since we go build up that portfolio. This year and also as a allude to <unk> just has a boatload of products. So that's coming out across different segments of high performance computing products, our GPU products for data center or block chain of products. So in addition to.
The discrete graphics products, we have just a lot of products coming out of it. So overall it's on track.
For the volume goals as well as for hitting the $1 billion revenue goal that we set at our Investor day as we go build as we said over the five year horizon to a 10 plus billion dollar business. We see this as a great opportunity for us and we have some unfair advantages with technologies like deep link, where we really get to build on these <unk>.
Drawn robust installed.
Installed base that we have the.
Many years of software work that we've built into the foundations of the PC platform. So these are reasons that so we do think that we have a great opportunity to build a major new business for us and one that we're coming from a very small place into a very large market a great growth opportunity for Intel that we're executing.
Moving on aggressively.
Yeah.
Our next question coming from the line of <unk> with Bank of America. Your line is open.
Thanks for taking my question. So Q1 Capex was about four.
$4 6 billion suggest a very big ramp in the back half to get to your 27 billion net capex that target we.
We are hitting us on noticed constraints on equipment supply I was hoping Pat or Dave If you could give us some color on the availability of tools and if there are any implications on your full year sales outlook.
Those are the availability of thank.
Yeah, I'll start that without that one and then Dave you can add overall capex is lumpy as we go through the year and as such we think overall that will still be on track to the overall capex target that we laid out we are working very aggressively with the equipment companies and we have deep strong long term relief.
For ships there.
Clearly some of the 23 and 'twenty four.
Equipment goals are ones that we're working on aggressively right now, but we do feel comfortable that we have the supply chain lined up to meet our equipment objectives, and really importantly to meet the cat.
Factory ramp cycles that we've laid out for the marketplace as we're opening up the new factories like we just announced our Oregon Fab coming online we have the next we're starting to take equipment now into our Ireland.
Shouldn't be doing that for our Israel fab ramp will be you know a groundbreaking on Ohio later this year, we'll be talking more about the German fab. So one by one we're just executing on an aggressive build out of our capital in network and really quite pleased with the relationship that we have with the equipment companies to make that.
Possible.
Yes, there definitely is some pressure on the equipment supply chain. We're also working closely with the equipment vendors many of them use Intel FPGA. So we're working closely to make sure that we prioritize that piece of the demand to support them in that requirement, Dave anything else you'd add.
Yeah, I would just add that we.
We did expect this quarter to be a bit lower than that.
The quarterly average for the year to get to the 27 billion. So it's not complete surprise, although it was.
Lumpy as you said and did come in a little bit lighter, but we feel good I would say the other thing.
Is that when you look at it I think we feel confident about the 28 billion gross capex.
The 27 billion net Capex, obviously assumes a $1 billion of capital offsets.
I'd say the early read and of course, we're still early in the year, but it looks quite good so.
So we could actually do a bit better on that on the offset side. So that the net capex could potentially even be a little bit.
Yeah.
Your next question comes from the line of Matt Ramsey with Cowen Your line is open.
Thank you very much good afternoon guys.
I wanted to ask a couple questions on the Dci segment.
Our revenue I guess went from $5 6 billion.
From from last year, and you have operating margin down I guess seven points.
I guess, there's no surprise that some of the disclosures that we had last year, but maybe you could tease that apart a little bit mixed.
Mix between enterprise and cloud, where there are big changes there and I guess the real question Pat is.
What gets that margin moving in the right direction is it the move to Sapphire, where you have.
Multi die products that might yield better is it.
<unk> growth I'm, just trying to understand the drivers to turn around the operating margin in that segment as we go forward. Thank you.
Thanks, and I'll start on that one.
Overall, you know the D C AI performed a little bit better than we expected for Q1. So I'd say overall this is what we expected.
The biggest factor on margins was the.
Ramp up 10 nanometer product line and the cost associated with that so that was the biggest factor associated with it you know as we're looking at that you know there were also was I'll say relative strength in the cloud piece of that business the hyperscale.
And the enterprise.
The business was a little bit more constrained by a matched set so we did see a little bit of that effect in Q1 as we go through the rest of the year. We we do see a good outlook on both the hyper scaler as well as on the enterprise and government side, we're working aggressively to solve the matched set problems. So we are hopeful that.
We'll be able to do a bit better in that area. If we are able to address some of the shortages that we've seen in areas like our Ethernet obviously as we go into the second half of the year. The product line gets stronger as we see Sapphire rapids ramp will be launching products like Sapphire Rapids, H B M. In the H P. C segment will be ramping ice.
Like more aggressively with higher volumes as we go into the second half of the year. So all of those start moving the product line in the right direction and margins commensurately with it. We also have gotten great response for the longer term view of our segment and our roadmap and as we've laid out we will have both the efficient.
Cores as well as the performance of course, which better satisfy the market requirements and I believe that will be a factor of better pricing is better as well as better margins over time, because you're not trying to stretch one product across really two distinct segments of the marketplace and really having highly optimized products for both the hyperscale or as well as the broad.
Enterprise requirements. So overall, we think that the strategy that we've laid out we've gotten great response from our customers for it and as I already indicated we are executing as we sat Sapphire rapids.
First the PR Qs this quarter many more as we go through the rest of the year and we'll be ramping that aggressively and seeing a good response from the customers and I would also say particular Sapphire Rapids every hyperscale or every OEM has many skus lined up for this this product will be extremely well rich.
<unk> accepted broadly deployed in the marketplace this year.
Dave anything else anybody else.
I would just add we set out a goal in the Investor day for the company to have gross margins of 54% to 58% and call. It roughly 30% operating margin and I think when we start to see.
The fruits of it.
Investments, we're making both in terms of.
Process technology.
Weighing down on the Cogs and the investments, we're making in operating expense could build out the product portfolio and get to leadership.
Those things will start to show strong scale on the topline side and so I would I would.
This business is accretive.
Our overall corporate average.
Thank you next question next question coming from the line of Timothy Arcuri with UBS. Your line is open.
Hi, Thanks, I had two I guess.
The first question is.
TSMC is kind of pushing out the timing of the high volume three nanometer EV and I guess my first question is sort of how that impacts your GPU and CPU roadmap.
And then I had a.
Follow up we're really Dave I wanted to ask you on how you're going to account for subsidies are you going to account for those kind of in a contra account so that as depreciation ramps you can offset some of that with that contract count coming from subsidies. Thanks.
Yeah and on the first part of it you know clearly the implications of foundry timing is something we have to work very carefully and are there. It's not just the question of the timing of a note. It's also the capacity of notes.
With some of those changes that had been reported in the industry. We're just working through that with our product teams to make sure that were aligning well to the availability of the foundry technologies, but I would say that our IDM model just gives us fundamental Li an advantage business model here, where given the majority of our volumes are.
<unk>, we're able to balance between what we use externally for wafers from what we use internally for wafers and thus we're able to do a much better job satisfying our customers and having a more competitive product line I'd also again add Tim that.
Our execution of our five nodes in four years on or ahead of schedule across this.
It just reinforces the competitiveness that we've described where we do see yourself coming back to a position of unquestioned process technology leadership, and we're building out the manufacturing capacity at scale to deliver that to our customers. So IBM to point out while leveraging the foundries, but even more importantly building leadership.
Technologies with that scale manufacturing to deliver the most robust product line in the industry. So Dave.
Yes, sure so it somewhat depends on the which catalogs that you're talking about the grand.
Our usually aligned with a certain set of assets and so they are contra and they get depreciated over the lifecycle of the asset.
Things like that.
Yes that we talked about is a bit more of a financing arrangement. So it doesn't necessarily have an impact on the P&L, but it will be.
On the cash flow statement as a catheter lock that.
Like a partner contribution but will reduce our cash.
Cash flow burn.
Prepays are handled more or less like this.
So up as an asset on the balance sheet and as you ship product.
You reduce that debt.
That account so it's somewhat dependent on which one we're talking about but the one I think if you are talking about the government tenants and yes, you're right there.
They are our entre counts that are in the country.
Our next question coming from the line of Jason Gere.
Your line is open.
Hi, good afternoon, how should we look at.
Discrete GPU platform in terms of expanding that beyond just consumer and if you could talk about the <unk>.
Ecosystem that you might be building allowed it to to encourage adoption.
Yeah, Thank you and.
The answer is yes, we're going to be delivering the GPU products real first for mobile as we said you know next for desktop Hill will be game.
Centric as we are bringing them out of the marketplace, but we're also going to have a full lineup and we see actually some very unique advantages as we think about our media some of the professional developers wherever already demonstrating you know radically advantage that positions like on some of the advanced graphics.
And media artist product line. So these would be areas of strength, particularly when we bring our Arctic sound product into the marketplace. Later this year this will be well optimized for GPU environments, and particularly will be strong in areas like encoding and media processing as well that you know if you think about <unk>.
You can certainly think about AI and training workloads, but many clouds are actually spending far more time on transcoding of media operation. So that would be an area of unique strength of our Arctic sound product line. So.
So you think about that taken together will be competing in the integrated graphics, the discrete graphics, the GPU business. The high performance computing business will really be leveraging that technology across the entire space of the market and that's part of the reason that we're very encouraged by our ability to.
Our ramp this into a very significant business for Intel and one where we have a lot of advantages to build upon.
Okay.
Last question.
And our next question coming from the line of <unk>.
<unk> Your line is open.
Thank you and thanks for squeezing me in Pat I wanted to go back to the Sapphire Rapids ramp can you talk about how the ecosystem is coming together given that this is a new platform, especially in DDR, five and PCI E O et cetera.
My question Real question is I, just want to understand what's your expectation for the ramp is versus the previous generations. Do you think this is going to be a faster ramp horses. Isolate goes this is going to be a slow ramp and also when do you expect we'll see a public cloud instance, based on Saturday Roberts. Thank you.
Yeah, Great question training and you know clearly you know one of the things that Intel is the market leader right. The volume leader. It is this ability to ramp key new technologies and with the Sapphire platform comes DDR five.
If we were here we were talking 90 days ago, we were fighting through some challenges on DDR five with the memory suppliers and really working on debugging.
[noise] interfaces, we now feel very confident that multiple suppliers are now qualified we're seeing good momentum from the memory partners in this area, they're ramping up their supply chains for the Sapphire platform right. It's really that one that brings a major new memory technology into the marketplace and really reinforces.
<unk> is the leader in data center and server market overall, we're modeling very carefully your exact question about looking at this versus the ice Lake ramp and our objective is to ramp this platform meaningfully faster than we did the isolate platform. We're doing a lot of work for the software stack.
The validation of that making sure that we've really worked through all of the early sightings that customers would have driving down the defect rates and the platform that our customers can ramp this at volume and as I already indicated we're seeing a tremendous amount of Skus in instance types across all of the Oems as well.
All of the hyper scaler in the marketplace and we're looking forward to those being a broadly available in the second half of the year.
And I think maybe just wrapping up the call today, we are grateful for all of you joining us the opportunity to update you on the business.
Great that we start the year with a beat we are looking at the momentum of the execution machine of Intel seeing solid progress five nodes in four years older Lake Sapphire Rapids arc launch.
The increasing momentum with our customers we remain true to this building out of a geographically balanced the more resilient supply chain and there's just lots of good things in flight that gives us confidence not only in Q2, but to reaffirm our guidance for the year and our leadership team were fired.
And we believe that this is the greatest turnaround story in history, and it's my honor as the CEO of this great.
Company to be able to be part of this leadership team. So thank you all for joining us today.
Alright. Thank you Pat Thank you for joining us today, operator can you please close the call.
Ladies and gentlemen that does conclude.
Thank you for today. Thank you for your participation you may now disconnect.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yes.
[music].
Okay.
Yeah.
[music].
Okay.
[music].
Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Okay.
Yes.
Okay.
Yeah.
Yeah.
Yes.
Okay.
Okay.
Yeah.
Okay.
Yeah.
Okay.
Yeah.
Yes.
Okay.
[music].
Okay.
Yeah.
Yes.
[music].
Okay.
Yes.
Yeah.
Uh huh.
Yeah.
Okay.
Yeah.
Yes.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Okay.
Okay.
Hum.
Okay.
Yeah.
Yes.
Okay.
Yeah.
Yes.
Sure.
Yeah.
Yeah.
Okay.
Okay.
Yeah.
Okay.
Yeah.
Okay.
Yes.
Yes.
Yes.
Yes.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yes.
Yeah.
Okay.
Okay.
Okay.
Yeah.
Okay.
Yes.
Yeah.
Yes.
Yes.
Yes.
Okay.
Okay.
Okay.
Yeah.
Yeah.
[music].
Yes.
Yeah.
Yes.
Yeah.
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Yeah.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Okay.
Uh huh.
Okay.
Okay.
Yeah.
Yeah.
Okay.
Yes.
Yeah.
Okay.
Yes.
Yes.
Yeah.
Okay.
Okay.
Yeah.
[noise].
Yes.
Yes.
Okay.
Right.
Yeah.
Yes.
Yeah.
Yeah.
Yeah.
Okay.
Yes.
Yeah.
Yes.
Yeah.
Yes.
Okay.
Okay.
Okay.
Right.
Yeah.
Yes.
[noise].
Thank you.
Okay.
Okay.
Okay.
Yeah.
Yeah.
Okay.
Yeah.
Okay.
Yes.
Yes.
Okay.
Yeah.
Yeah.
Yeah.
Yes.
Okay.
Okay.
Yes.
Yes.
Yes.
Yes.
Yeah.
Okay.
Right.
Yeah.
Okay.
Okay.
Okay.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
Right.
Okay.
Yes.
Okay.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Yeah.
Yes.
Yeah.
Right.
Okay.
Yes.
Okay.
Yeah.
Yeah.
Yeah.
Yes.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Yes.
Yeah.
Yes.
Okay.
Okay.
Okay.
Yes.
Yes.
Yeah.
Okay.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Yeah.
Hum.
Yeah.