Q4 2023 Intel Corp Earnings Call

January 25, 2024

Okay.

Thank you for standing by and welcome to Intel Corporation's fourth quarter 2023 earnings Conference call. At this time all participants are in 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 one on your telephone if your question has been.

Answered and you'd like to remove yourself from the queue simply press Star one one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Mr. John Pitzer Corporate Vice President of Investor Relations. Please go ahead.

Thank you Jonathan by now you Should've received a copy of the Q4 earnings release and earnings presentation, both of which are available on our Investor Relations website I N T C dot com for those joining us online today. The earnings presentation is also available in our webcast window.

David M. Wong: I am joined today by our CEO, Pat Gelsinger, and our CFO David <unk>.

Jonathan: Moment, we'll hear brief comments from both followed by a Q&A session.

Before we begin please note that today's discussion does contain forward looking statements based on the environment as we currently see it.

David M. Wong: And as such are subject to various risks and uncertainties.

David M. Wong: It also contains references to non-GAAP financial measures that we believe provide useful information to our investors.

David M. Wong: Our earnings release, most recent annual report on Form 10-K, and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations.

Patrick P. Gelsinger: They also provide additional information on non-GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures with that let me turn things over to Pat.

Pat: Thank you John and good afternoon, everyone Q4 was the culmination of a year of tremendous progress towards our I D. M 2.0 transformation, we've consistently executed on our plan to reestablish process leadership further build out our capacity in foundry plans greatly improved product execution.

Pat: <unk> and began to execute on our mission to bring a eye everywhere across our product segments. We delivered solid Q4 results exceeding expectations for the fourth quarter in a row.

Pat: Revenue was at the higher end of our guidance and we had strong EPS upside as a result of our ongoing relentless focus on driving operating leverage and expense management, including comfortably meeting our 3 billion cost savings commitment for fiscal year 'twenty three.

Pat: 2023 was definitely a year when we did what we said we would do and more we intend to make 2020 for another such here and when we look out over the next 12 months. We are confident that we can continue to drive considerable progress on our I B M to Porto journey as.

John: As we look into Q1, our core business, including client server and edge products continues to perform well and is tracking to the lower end of seasonal however, discrete headwinds, including mobile I P. S T and business exits among others are impacting overall revenue leading to a lower Q1 guide.

John: Importantly, we see this as temporary and we expect sequential and year on year growth in both revenue and EPS for each quarter of fiscal year 'twenty for.

John: Momentum and excitement around new products and businesses remained strong as we head into the year and will grow stronger as the year progresses.

John: We could not be prouder of the execution across our process technology roadmap in 2023 we became the world's first high volume manufacturer of logic devices using <unk> in both the U S and Europe as we aggressively ramped core ultra on Intel for in both Oregon and in Ireland.

John: Until three achieved manufacturing readiness in Q4 is committed with solid performance and Youll progression.

John: Our two lead vehicles and until three are on track and we look forward to launching Sierra Forest in first half 'twenty four followed shortly thereafter by Grand Rapids.

John: Sierra Forest is final samples at customers and the production stepping of Grand Rapids is running ahead of schedule well into power on validation and very healthy.

John: We are even more excited about breaking into the angstrom era with Intel 20 year isn't until HMA.

John: We are first in the industry to have incorporated both gate, all around and backside power delivery in a single process node. The ladder unexpected two years ahead of our competition are like our lead until 'twenty a vehicle will launch this year until each unit is expected to achieve manufacturing readiness in second half 'twenty for completing our.

John: Five nodes in four year journey, and bringing us back to process leadership I am pleased to say that Clearwater forests are first Intel 18, a part for servers has already gone into fab and Panther Lake for clients will be heading into fab shortly.

John: As we complete our goal of five nodes in four years, we are not satisfied nor are we finished we have begun the installation of the industry's first high in a UV tool and our most advanced technology development site in Oregon aimed at addressing challenges beyond 18 day.

John: We remain focused on being good stewards of Moore's law, and ensuring a continuous node migration path over the next decade and beyond.

John: Third party engagements with Iff's continued to validate our progress on process technology, we launched Iff's with a long term view with delivering the world's first system foundry that brings together, a secure and sustainable supply chain with the best of Intel and our ecosystem.

John: While our ambitions will not materialize overnight, we've made tremendous progress in both Q4 and fiscal year 'twenty three towards our goal of becoming the second largest external foundry by 2030.

John: The rapid adoption of AI by all industries is proving to be a significant tailwind for I F. S. As high performance compute an area, where we have considerable wafer and packaging know how and IP is now one of the largest and fastest growing segments of the semiconductor market.

John: We made major strides in building our foundry ecosystem in 2023 with now over 40 strategic agreements across E. D. A design services IP cloud and U S military aerospace and government.

Intel: Critical agreements with arm and Synopsys continue to gain momentum we delivered the Intel eight teenage 0.9, PDK and broaden its availability in Q4, we expanded the ramp C program significantly and just this quarter signed a major foundry contract with the United States Government and Department of Defense we are.

Intel: Also very pleased to have completed a major agreement with United Micro electronics or UMC to develop a 12 nanometer process platform targeting high growth markets, including mobile communication infrastructure and networking.

Intel: This expands both Intel and Umc's foundry process portfolios and customer access to a broader and more resilient supply leveraging our Arizona site.

Intel: This agreement builds upon and furthers, our long and deep relationships with a vibrant Taiwan ecosystem.

Intel: This also meaningfully extends the production life of our installed capacity and improves our returns on investments similar to the announcement last quarter of our tower semiconductor partnership at the 65 nanometer node with our new Mexico site, our success with Iff's will be measured by customer commitments and revenue we.

Intel: We have taped out more than 75 ecosystem and customer test chips.

Intel: S already has more than 50 test chips in the pipeline across 'twenty 'twenty, four and 2025, 75% of which are on Intel 18 E D.

Intel: During CES, we welcomed valence semiconductor to the growing list of foundry customers as they announced they would use iff's to fabricate there must be a fee chipsets using our advanced technology. In addition to the three until a Q&A customers. We disclosed in Q3, we want a key design win with a significant high performance compute.

Intel: <unk> customer this customer was particularly motivated by our unique leading edge manufacturing capabilities and U S capacity.

Intel: We came into 2023 committing to $1 18, a foundry customer we executed on four inclusive of a meaningful prepay and our momentum continues to grow.

IFF: Our advanced packaging business is proving to be yet another important advantage for iff's, a faster on ramp to broader foundry relationships during the quarter. We captured three additional advanced packaging design wins, bringing the total to five in 2023 with the majority of revenue starting in 2025.

IFF: To support our growing demand just yesterday, we opened fab nine in new Mexico, marking a milestone for high volume three D advanced packaging manufacturing the momentum advanced packaging is very strong and there's another facet of our foundry strategy, which is clearly benefiting from the surge of interest in AI.

IFF: With leadership technology and available capacity, our opportunity set continues to grow.

IFF: In total across wafer and advanced packaging are lifetime deal value for Iff's is now over 10 billion or more than doubling from the 4 billion. We provided in our last update.

IFF: Supporting our growing momentum in Iff's as our global manufacturing footprint. We are the only semiconductor company with that scale and sustainable manufacturing in every major region of the world providing ourselves in our foundry customers resilient access to the right capacity in the right regions at the right time.

IFF: All of our expansion projects in the U S EU and Asia are progressing on schedule and our chips applications in the U S and EU are progressing well.

IFF: Finally, we are thrilled to be hosting our first foundry day Iff's direct connect on February 21st in San Jose, where we will have the opportunity to showcase the breadth of our ecosystem as well as begin to talk about our process roadmap beyond until 18, a next generation packaging and our full foundry vision, we hope to see.

IFF: Many of you there.

IFF: Intel continues its mission to bring AI everywhere, we see the AI workload is a key driver of the one trillion dollar semiconductor Tam by 2030, and given our foundry and product offerings. We are the only company able to participate in a 100% of the Tam for AI Silicon logic.

Intel: We have already discussed how our 50 year heritage and high performance computing transistors, and our advanced packaging positions iff's to benefit from the accelerating move to AI.

Intel: Within our product portfolio, we are the only company with the products IP and ecosystem reach to empower customers to seamlessly integrate and effectively run AI in all their applications from the cloud through the network into the enterprise client and edge.

Intel: The developer working with multi trillion parameter frontier models in the cloud Goudy and our suite of AI accelerators provides a powerful combination of performance competitive ammo perf benchmarks and leadership T C L.

Intel: As a I proliferates in the world moves towards more AI integrated application Theres, a market shift toward local inferencing and smaller more nimble models.

Intel: It's enough to both the necessity of data privacy, and then answered it's cloud based and printing costs in a round trip latency.

Intel: With AI accelerated xeon for enterprise core ultra ushering in the AIP, Sierra and open vino, enabling developers seamless and versatile support for a range of clients and edge Silicon, we are bringing AI to where the data is being generated and used rather than requiring it in the cloud.

Intel: Our expansive footprint spanning cloud and enterprise servers to volume clients and ubiquitous edge devices positions us well to enable the AI continuum across all our market segments in.

Intel: In Q4, our server business experienced solid sequential growth consistent with market share, which we believe was flat with Q3 levels.

Since launching fourth Gen. Xeon in early 2023, we have shipped more than $2 5 million units with approximately one third of all fourth Gen demand driven by AI with our fifth Gen Z on launch we enable up to 42% higher AI inference performance compared to the industry, leading fourth Gen Z app.

Intel: Fifth Gen. Xeon has reached general availability and Alibaba is entering public and private previews with several csp's and is on track to ship with Oem's next month.

Intel: More importantly, our improved execution is strengthening our product portfolio with Gen. Four and Gen. Five Z on ramping well Sierra Forest and granted Rapids coming soon and Clearwater fourth already going into the fab momentum is building and positioning us well to win back share in the data center.

Intel: Our goudy to AI accelerators continued to demonstrate price performance leadership compared to the most popular Gpus in a recent blog published by data bricks Goudy two was shown to clearly deliver the best training and inference performance per dollar based on public cloud pricing.

Intel: We're building on this momentum with Goudy, three which is on track to launch this year and is expected to deliver performance leadership with Forex the processing power and double the networking bandwidth for greater scale out performance.

Intel: Three is now in the lab powered on and showing great health and performance and Falcon shore is also well underway.

Intel: Our accelerated pipeline for 2024 grew double digits sequentially in Q4, and is now well above 2 billion and growing.

Intel: We recently increased our supply for both Goudy true in Goudy three to support the growing customer demand and we expect meaningful revenue acceleration throughout the year as we announced last quarter. We are now operating PSG as a standalone business beginning on January one hour.

Intel: Our intent is to bring in private capital this year to create an eventual path to real I P O over the coming years.

Intel: As we outlined on our Q3 call P. S. G is in the midst of an industrywide cyclical correction for FPGA, which we expect to last through the first half of 'twenty four.

Intel: Despite the financial correction operational momentum is strong and PSG executed its most ambitious FPGA roadmap delivering 21, new product releases in 2023, and executing supply assurance agreements valued by our customers.

Justin hotter: Finally, even as we congratulate Sandra Rivera, the new CEO of PSG I'm extremely pleased to welcome Justin hotter as executive Vice President and General manager of D. C. H I G.

Justin hotter: Justin joined US from Hewlett Packard Enterprise, where he was executive Vice President and general manager of high performance computing AI and labs.

Justin hotter: He will play a key role in helping customers accelerate their businesses with our xeon processor family delivering on our commitments to customers and partners by increasing our GPU and accelerator footprint and supporting our mission to bring AI everywhere.

Justin hotter: Moving to client CCG performs very well in Q4, posting the third consecutive quarter of double digit sequential growth demand reflected a normalized inventory environment with sustained strength in gaming and commercial with our highest end skus exceeding Q3 records by 20%.

Justin hotter: The 2023 consumption Tam was roughly 270 million units consistent with our views entering the year and we expect the PC Tam up low single digits year on year in 2024 in line with third party estimates our share position is strong and our product portfolio for 2024 and beyond.

Justin: Ecosystem work will continue to drive industry, leading performance and experiences.

Intel: In Q4, we offered in the age of the AI P. C with the launch of Intel core ultra representing our largest architectural shift in decades. The core altra is the most AI capable and power efficient client processor with dedicated acceleration capabilities across the <unk>.

Intel: CPU, GPU and neural processing unit or N P U.

Intel: Ultra is the centerpiece of the a I P. C systems that are capable of natively running popular 10 billion parameter models and drive superior performance on key AI enhanced applications like zoom Adobe and Microsoft.

Intel: We expect to ship approximately 40 million AI P. CS in 'twenty 'twenty four alone with more than 230 designs from ultrathin Pcs to handheld gaming. These devices to be delivered this year from OEM partners ASER, a sushi Dell HP Lenovo LG MSI Samsung.

Intel: Onyx and others.

Intel: The core ultra platform delivers leadership AI performance today with our next generation platforms. Launching later this year lunar Lake in Aero Lake Tripling, our AI performance in 2025 with Panther Lake, We will grow AI performance up to an additional two acts.

Intel: <unk> is well positioned to benefit from the proliferation of AI workloads on the edge, where our market leading hardware and software assets provides improved latency reliability and cost.

Intel: <unk> adoption grew by 60% sequentially in Q4, and today is a core software layer for AI inferencing on the edge on the PC and in the data center.

Intel: And he asks is also driving the shift of AI networking and the cloud from proprietary technologies to open Ethernet based approaches in partnership with the broader industry ecosystem.

Intel: Any ex Q4 results beat our internal forecast and the division is poised for solid growth in 2024 across edge network and ethnic products more skewed to the second half.

Intel: Yet another growing market opportunity for us is automotive.

Intel: While mobilize experiencing a sharp inventory correction in Q1, we are encouraged by their improving forecast throughout 2024 and more importantly, the recent announcement at CES that they were awarded a series of production design wins by a major western automaker across the company's three key platforms suite.

Intel: <unk> chauffeur drive in.

Intel: In addition to mobilize strengths and Avi at CES, we announced the launch of AI enhanced software defined vehicle associates with Julie's seeker brand as our first OEM partner and our agreement to acquire Silicon mobility, a fabless silicon and software company specializing in power management associates for.

Julie: Just on Evs. These.

Julie: These announcements build on shared IP across clients and data center and our existing Intel SLC footprint of more than 50 million vehicles worldwide.

Julie: Our strategy will continue to broaden our exposure to the growing auto market on both the product and the foundry sides of our business.

Julie: Finally, underpinning our across the board progress in 2023 is our operational and financial discipline.

Julie: As our new internal foundry model, which is designed to drive greater transparency accountability and focus on cost begins to take route we expect to unlock further cost savings and efficiencies in 2024 and beyond we have officially transitioned to this new operating model in January 1st and we will report the news.

Julie: <unk> core Matt as part of our Q1 earnings we see incremental efficiencies as we drive to our long term model of 60% gross and 40% operating margins.

Matthew D. Ramsay: As I reflect on our progress in 2023, I am incredibly proud of our employees, whose commitment and perseverance were instrumental to the execution of our ambitious strategy together, we exited the year accomplishing exactly what we set out to do we improved our execution engine.

Matthew D. Ramsay: Consistently being on track or ahead on our process and product roadmap and as I said at the beginning of my remarks, we are confident in our performance from financial trajectory for the year ahead. We know we have much work in front of us as we work to regain and build on our leadership position in every category in which we participate.

Dave: We will maintain our relentless focus on our mission and commitment to driving long term value for our shareholders with that let me turn things over to Dave.

Thank you Pat and good afternoon, everyone. We delivered strong financial results in the quarter on top of continued execution of our products and process roadmap commitments, we again beat our guidance across revenue gross margin and EPS.

Dave Smith: We've taken proactive steps to prioritize our investments aggressively managed near term expenses and made meaningful progress on reducing our structural cost gaps.

Dave Smith: We exit 2023 are healthier and leaner company, but there's much more work to do in 2024 and beyond to deliver on our long term financial objectives, and the potential of IBM to point out.

Dave Smith: Fourth quarter revenue was $15 $4 billion up 9% sequentially, 10% year over year and $300 million above the midpoint of our guidance with solid execution across reported segments.

Dave Smith: Gross margin was 48, 8% 230 basis points better than our guidance driven by favorable product mix and Asps improved unit costs and higher revenue.

Dave Smith: EPS for the quarter was 54 cents, beating guidance by 10 cents on improved gross margins stronger revenue and disciplined Opex management.

Q4, operating cash flow was $4 $6 billion.

Dave Smith: Net inventory was down more than $300 million and nine days in the quarter and DSO remains under 20.

Dave Smith: Net capex was $5 9 billion, resulting in an adjusted free cash flow of negative $1 $3 billion, and we paid dividends of a half million dollars in the quarter.

Dave Smith: Moving to the fourth quarter business unit results.

Dave Smith: C C. G delivered revenue of $8 $8 billion up 12% sequentially, 33% year over year and ahead of internal expectations for the fourth consecutive quarter.

Dave Smith: We saw sustained strength in gaming and commercial segments, along with record performance notebook shipments in the quarter.

Dave Smith: Customer inventory levels have normalized in 2023 PC consumption was in line with our 270 million unit forecast.

Dave Smith: Operating profit was $2 $9 billion up more than $800 million sequentially, and nearly $2 $4 billion year over year, unimproved, Tam and market share and sell through of reserved inventory.

Dave Smith: Dci revenue was $4 billion up 4% sequentially.

Dave Smith: The server business delivered double digit growth sequentially, partially offset by the FPGA inventory correction.

Dave Smith: Revenue was driven by improved unit Tam stable share and rising average core density contributing to record Xeon asps.

Dave Smith: Operating profit was $78 million roughly flat sequentially as advanced node development costs continue to weigh on profitability.

Dave Smith: <unk> revenue was $1 $5 billion up 1% sequentially and ahead of internal expectations on strength from network and Ethernet segments.

Dave Smith: The business saw an operating loss of $12 million down modestly quarter over quarter.

Intel Foundry services contributed revenue of $291 million down modestly on a sequential basis and up 63% year over year on increased traditional packaging revenue.

<unk> operating loss was $113 million driven by continued investment to develop and grow our world class systems foundry.

Dave Smith: Mobile I delivered record revenue of $637 million up 20% sequentially and 13% year over year, along with record operating profit of $242 million up 42% sequentially and 15% year over year.

Dave Smith: Recently disclosed design wins are expected to contribute more than $7 billion of future revenue or more than three five times mobilized record FY2023 revenue.

Dave Smith: As Pat summarized the company made significant progress towards our IDM to point out strategy, including strong execution against our 2023 financial commitments despite macro headwinds throughout the year.

As committed at our Q1 'twenty three earnings call, we delivered revenue gross margin operating margin and EPS growth each quarter.

Pat: Despite significant investments in future growth and continued progression through five notes in four years, we achieved our 2023 commitment of $3 billion of spending reductions.

Dave Smith: Through a strong focus on cash and cost controls, we achieved excellent DSO and <unk> in the second half of 2023 and delivered net inventory reductions of nearly $2 billion and 35 days from our peak in Q1 'twenty three.

Dave Smith: Working capital initiatives yielded roughly $2 billion of cash in 2023, helping us to meet our commitments for roughly breakeven adjusted free cash flow in the second half of the year.

Dave Smith: We remain committed to our smart capital framework with growing contributions from our skip agreement with Brookfield and progress toward government incentives in the U S Europe and Israel.

Dave Smith: In Q4, we also recognized $845 million of advanced manufacturing investment credits or amick as defined in the chips Act. While our continued IDM 2.0 capital investments will result in increased gross capex in 'twenty four as compared to 23, we're on track to our aggregate 2023 through 2024.

Dave Smith: Our guidance of net Capex spending in the mid thirties as a percent of revenue with offsets towards the high end of the 20% to 30% range.

Dave Smith: Now turning to Q1 guidance, we expect Q1 revenue of $12 two to $13 $2 billion.

Dave Smith: At the Q1 revenue midpoint of $12 $7 billion, we expect gross margin of approximately 44, 5% with a tax rate of 13% and EPS of <unk> 13.

Dave Smith: While we expect a slightly sub seasonal first quarter from our core product businesses, we see material inventory corrections in mobile I N P. S. G. Additionally.

Dave Smith: Additionally, we expect a significant drop in iff's revenue after seeing accelerated purchasing and our traditional packaging business and cyclical weakness in wafer equipment buying in the first half of the year impacting the IMS business.

Dave Smith: When combined with businesses, we exited in 2023, we expect a roughly $1 billion sequential revenue impact from businesses outside of our core products.

Dave Smith: With market signals remaining positive for PC demand and usage rates, we expect Tam to grow in the low single digits in 2024, consistent with third party views. Our recent results show the PC remains essential and we remain confident in our longer term Tam forecast as the age of the ITC.

Dave Smith: Further enhances the value of device refresh.

Dave Smith: We expect Q1 data center revenue to decline double digit percent sequentially before improving through the year.

Dave Smith: While the data center has seen some wallet share shifts between CPU and accelerators over the last several quarters, we expect growth in CPU compute cores to return to more normal historical rates and our discrete accelerator portfolio with well over $2 billion in pipeline to gain traction as we move through two.

Dave Smith: 24.

Dave Smith: Within next telco markets are likely to remain weak through the year, though we expect solid growth from our network ethnic and edge products.

Dave Smith: These signals give us confidence that consolidated revenue will grow beyond typical seasonality after a soft Q1.

Dave Smith: And that we can deliver sequential and year over year growth in both revenue and EPS each quarter of 2024.

Dave Smith: We're confident we can grow earnings faster than revenue this year and maintain roughly breakeven adjusted free cash flow, though I'll remind you that the rapid pace of delivering five nodes in four years and capacity expansion in support of external foundry commitments remain headwinds on the pace of our margin expansion.

Dave Smith: We expect depreciation to grow by approximately $2 billion in 2024. In addition to a significant increase in variable factory startup costs.

Dave Smith: 60% gross margin flow through as a percent of revenue growth remains a rule of thumb in aggregate in the intermediate term, though we may see volatility in our quarterly gross margin results.

Dave Smith: We're excited to Mark the first month fully operating under our new internal foundry reporting structure with improved accountability transparency around cost and value drivers and increased focus on driving higher rates of return for our owners capital.

Dave Smith: We intend to provide you with a recast historical financials this quarter in the form of an 8-K.

Dave Smith: We will unpack the details at that time, but you will see not only the first view of our manufacturing P&L, but a view of our products group more in line with external peers.

Dave Smith: While it will come as no surprise, our manufacturing P&L is under significant pressure as we get back to process leadership and build the infrastructure to meet both internal and external demand, we see abundant opportunity to drive improvement.

Dave Smith: Finally, standing up a separate legal entity for manufacturing technology development, and if that is important to our foundry customers.

Dave Smith: We expect to have that structure in place in the second half of 2024.

Dave Smith: As we look back at 2023, we have a lot to be proud of we entered the year with a challenging macro backdrop I am pleased with our team's efforts controlling spending ramping new products managing share executing product and process roadmaps and delivering for our customers. We continue to focus on.

Dave Smith: Portfolio by exiting five businesses in 2023 for a total of 10 since past return while also identifying profitable adjacent markets. We can serve with our existing IP as we have done with Intel auto.

Dave Smith: We executed within our smart capital framework and are beginning to see meaningful capital offsets.

Dave Smith: We unlocked value for our shareholders through mobile Ly, and IMS and announced our intention to pursue external investments in PSG.

I'd like to thank the entire Intel team for the hard work and execution, which drove our improved 2023 results.

Dave Smith: While we arent, yet where we want to be from a financial perspective, we're participating in a large and growing semiconductor Tam our foundry in AI assets are showing great momentum in the market and with the strong foundation of financial discipline. We set in 2023, we're confident and committed to our long term financial objectives with that.

John: Let me turn the call back over to John.

John: We will now transition to the Q&A portion of our call.

John: As a reminder, we ask each of you to ask one question and a brief follow up where applicable with that Jonathan can we please take the first question.

Jonathan: Certainly one moment for our first question.

Jonathan: And our first question comes from the line of Ross Seymore from Deutsche Bank. Your question. Please.

Ross Seymore: Hi, guys. Thanks for let me ask a question near term one and then for my follow up it'll be a longer term one the near term one is on the demand picture. Dave you were helpful in breaking out kind of a noncore impacts in the first quarter versus the core but the low end of seasonality is a little bit of a surprise given the cyclical pressures seem to have been abating.

Ross Seymore: And some of the market share trends should have been going in your favor at least also not worsening. So can you just talk a little bit about why you are at the low end of seasonality in the first quarter for your core businesses and what gives you confidence in super seasonality thereafter.

Ross Seymore: Hey, Thanks, Ross I'll start and then ask Dave to follow up.

Dave Smith: First what seasonality Q4 to Q1, there's a wide range of perspectives anywhere from 3% to 20% historically, so I'll just say, it's a wide statement of what that looks like obviously as we come into the year, it's coming off a very strong Q4 of our product lines are strong we feel our inventory positions are healthy or we're gaining.

Ross Seymore: Momentum across it and obviously, we built the forecast consistent with our customers and channel partners that we believe is merited, obviously, Dave talked about some of the discrete events, which we added them up we're a little bit larger than we forecast, but the core business, we see as healthy.

Dave Smith: We see no areas for market share loss and the products are getting stronger so let's say it really reflects is we view the market, but we've also said hey, we're improving every quarter as we go through the year right improving our revenue topline improving on the <unk>.

Dave Smith: Profitability as we go through the year and we've quite so scrutinize that outlook for the year and obviously as the year improved new product lines emerging teo wins in areas like AI P. C. Goudy ramping for accelerators overall, a lot of things that just keep improving as we go through the year combined with good cost discipline, we feel quite comfortable that we're <unk>.

Dave Smith: <unk> strong and we're gonna have a improving year as the year progresses and what's the long term question Brock.

Dave Smith: You just the confidence in.

Ross Seymore: Long term question is one yes, sorry, the long term questions one on the manufacturing nodes.

Ross Seymore: <unk> thousand four years is going well, but.

Ross Seymore: One of your biggest foundry customers and competitors is.

Ross Seymore: Is doubling down on their ability to keep the leadership positioning.

Ross Seymore: So what gives you confidence that <unk> will in fact have the leadership note and how do we reconcile the fact that you seem to be using that customer.

Ross Seymore: As a foundry partner for some of your heterogeneous products, whether it be Aero Lake or lunar late going forward. If you have the leadership why wouldn't you be doing that internally.

Ross Seymore: Thank you all I'll do that and last thing for Taiwan, both of those a little bit.

Ross Seymore: With respect to the manufacturing I'll, just say hey, we get we look at this every single day and we are scrutinizing carefully our progress on <unk> and obviously the great news that we just described those Clearwater forest taping out that gives us a lot of confidence that 18, a as healthy that's a major product for us Panther.

Ross Seymore: Following that shortly we've also had our fourth customer this quarter. Some of the IP providers are giving us very strong affirmation on the competitiveness of the process technology, and particularly where it is way ahead on backside power.

Ross Seymore: And that's not even you know everybody in the industry is recognizing that in many of the customers who are looking at it are seeing substantial gains not just in power performance, but an area of savings as well. So overall, we feel very confident that our roadmap is strong and the process technology side, what we do.

Ross Seymore: Use external foundries and obviously that grew as we were dealing with some of our own challenges for process competitiveness.

Ross Seymore: As we create more and more focus in the business more wafers will come the internal to the Intel our factory network, but long term, we're going to continue to use external foundries to complement manage our capital requirements and to make sure that our teams always are building the best products.

Ross Seymore: In the industry and using the best technologies to accomplish that so overall, we feel super good with our strategy Youll see more use of our own factory network, even as we leverage external foundries where appropriate.

Ross Seymore: The only other thing I'd add is just the use of external foundries is part of our smart capital strategy. It's one of the five pillars. So as Pat said that will continue to be part of our strategy. Obviously, you know we're going to maximize how much we can do internally, but we're always going to be using external foundries based on smart capital.

Ross Seymore: Thanks, Ross I think the next question please.

Ross Seymore: Certainly one moment for our next question.

Ross Seymore: And our next question.

Ross Seymore: From the line of Timothy Arcuri from UBS. Your question. Please.

Dave Smith: Thanks, a lot Dave I had a question about gross margin. It was obviously much much better in December and the March guidance was actually pretty good. So does this include the sale of any previously written down inventory and maybe help us get a clean margin number is this is this march number pretty claim that we can carry that.

Dave Smith: Incremental forward through the year.

Dave Smith: Yeah, I mean, what what I said in the prepared remarks, I think is that we think that's a 60% fall through is probably the best rule of thumb.

Dave Smith: That said as you know quarter to quarter things can move that number up and down in.

Ross Seymore: In Q4, we saw a better fall through.

Ross Seymore: Largely it was related to a better sell through of previously reserved.

Ross Seymore: Our product we also actually did better on the factory side in terms of spending and yield and so that also benefited us to some extent.

Ross Seymore: And then in Q1, you know I think we're going to a little worse, we're going to see that fall through to be a little harder on us.

And largely that's some of that stuff going away a little bit, but I think if you look at it on a year over year basis, you had kind of a 23% to 24 24 to 25, we largely expect it to be the 60% fall through we're going to have this quarter.

Ross Seymore: Quarter to quarter moves.

Ross Seymore: Movements, there that kind of violate that.

Ross Seymore: Because I was just you know one off things, but I think in general Youll see Youll see 60% fall through would be the right the right measure.

Ross Seymore: Longer term, we're obviously going to want to see that number go up.

Ross Seymore: Because it's going to drive us to do.

Ross Seymore: The 60% gross margins, we ultimately wanted to attain but in the near term, we're kind of dealing with a lot of the costs associated with five notes in four years and I was just a lot of start up costs back, we'll probably hit our peak startup cost in 2024. So that's a huge headwind we will have to deal with so that's kind of I think kind of keep us in that 60% fall through range for the next.

Ross Seymore: Couple of years, Tim do you have a follow up question.

Tim: I do I do Dave Yeah, just on the how you get to that 60% so.

Dave Smith: It seems like there could be persistent headwind in terms of capacity utilization.

Dave Smith: I mean, I think a lot of us see that Theres. This plan to cut over to internal starting with Panther Lake, but that doesn't really ramp into high volume until probably 2026. So are you managing to some sort of like utilization rate for your internal capacity.

Dave Smith: Capacity to sort of get to that 60%.

Dave Smith: Yeah, well, maybe maybe step back a little bit on the 60%.

Ross Seymore: It will be driven by a number of factors one of which is just revenue revenue growing on a largely fixed cost business is going to help.

Ross Seymore: Gross margins, obviously, we have.

Dave Smith: Optimism around how we can drive the growth of the business.

Ross Seymore: The second as you point out is loadings, and we are managing our capital spend in our investment.

Ross Seymore: With the with an eye on loadings to make sure that we keep those.

Ross Seymore: And a good place obviously last year, we were we had some under loadings to deal with but as we kind of break out of that and start to move into the next year I think we'll start to see some.

Ross Seymore: Some improvements there.

Ross Seymore: Third as we get as Pat was talking about you know to leadership in terms of nodes and products.

Pat: Ultimately across the entire product portfolio, that's going to help out on margins, it's going to help out from a cost structure perspective, but also a better performing products, which is going to yield.

Pat: Better pricing and so forth that are better profitability.

Pat: And then lastly, we've got.

Ross Seymore: This internal foundry model that at par.

Ross Seymore: That mentioned.

Ross Seymore: And I mentioned in the prepared remarks that we think is going to deliver a ton of savings for.

Ross Seymore: For the company.

Ross Seymore: I think every week that patent I spend on this.

Ross Seymore: Somebody brings up another big rock that they found.

Ross Seymore: Savings they can identify.

Because they were looking at the business in an entirely different way than they used to looking at it.

Ross Seymore: The product groups are now hyper focused on test times, and you know how many what's sort of like hot lots, they do and how much sample activity they use.

Ross Seymore: The factories now very as you point out very very hyper focused on loadings, and making sure theyre properly thinking about their capital investment associated with the loadings, we're way more focused in terms of stepping in and so forth. So I think we will get like I said in our call a couple of quarters ago $4 billion to $5 billion of savings from this.

Ross Seymore: Internal foundry model ultimately and so that's another big step function that I think gets us to the 60% gross margin I'd also add things like we just announced with UMC right hip were taking older factories.

Ross Seymore: Tim as you might have heard me say in the past right a bug in the Intel business model right just want a factory got very good and depreciated or you can move to the next node will now we're starting to fill that with long term foundry business as well. So all of these are improving the discipline of running the business as well as how we utilize our factory networks are long term and we really do think that the 60.

Ross Seymore: 40 is what Dave and I are driving the business to and we're going to get there.

Ross Seymore: Jonathan can we have the next question. Please certainly one moment for our next question.

Jonathan: And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question. Please.

Jonathan: Great. Thank you I Wonder if you could talk about the datacenter decline in Q1.

Jonathan: How much of that is a function of the weakness in FPGA as ive talked to you.

Jonathan: And then just any sense of what the cloud and server environment is like in the first quarter.

Jonathan: Yes. So overall when you fact, obviously, we spoke and separately about the FPGA business. So, let's just move that to the side overall, what I'll say, it's fairly seasonal quarter to quarter and what we expect that said we're seeing strength.

From our server customers for instance, more of the OEM responses are strong with regard to the momentum they're seeing in the enterprise server business and obviously our product line is improving there we do expect year on year growth here, we see our market share stabilizing.

Ross Seymore: And obviously as we're ramping gen.

Dave Smith: Gen four Gen five Grand Rapids here far the momentum is building for us overall and as we indicated we think more of the AI surge is going to result in AI inferencing on Prem, which we're well positioned to be a beneficiary of.

Ross Seymore: I would just cite that here we are in year 'twenty of the public cloud.

Ross Seymore: And you have 60% plus of compute in the cloud, but 80 plus percent of data remains on prem customers want to realize the value of that on Prem data with AI and that's an enterprise strength for Intel. So we do see all of these trends, giving us a very favorable outlook for the year and there's nothing surprising about the.

Dave Smith: The Q1 guide here and we're going to be very focused on beating those numbers and building on the momentum of our improving our product line.

Joe: Joe do you have a follow up question.

Joe L. Moore: Yes, along the same lines can you talk about CRE for us in Grand Rapids, and I guess.

Joe L. Moore: How do you see the long term mix between knows what kind of appetite you see for that.

Joe L. Moore: Sure for Us got higher core count designs.

Joe L. Moore: Thank you and I would love to talk for hours about here for us in Grand Rapids, I'm Super excited about those products both of them on Intel three and Oh, if I build on the last question from Tim about factory Loadings, Hey, we are driving hard to accelerate those products into the marketplace and they are really the driver.

Dave Smith: There's a intel three capacity.

Ross Seymore: Between them. Obviously this is our first I'll say volume mainstream offering for a high core count I sort of view. This as the cloud guys just run Vms at scale or just run containers at scale. That's what <unk> is about is sort of that bulk of workload and it doesn't have some of the performance.

Ross Seymore: <unk> capabilities peak capabilities feature capabilities that Grand Rapids has I expect the bulk of the market to stay on Grand Rapids.

Dave Smith: <unk> type products, the <unk> products certainly in 'twenty four 'twenty five, but we do see a pretty steady rise in the use of <unk> and then as we move to Clearwater force in 'twenty five a very compelling product.

Dave Smith: We do see a pretty healthy split between those for the cloud and data center customers I think most of the enterprise customers will stay with the Pea core products.

But they will have and it really is here for us Clearwater forest and successors being sort of that bulk mainstream cloud offering that's very focused on T. CEO. So with that we feel super good about our product portfolio P. Core Z course, really allowing us to stretch the offerings to the highest.

Ross Seymore: Performance with high core count and to the best T C O and with that this is a portfolio that will allow us to regain share in the core data center market.

Ross Seymore: Thanks, Joe Jonathan can we have the next question. Please certainly one moment for our next question.

Ross Seymore: And our next question comes from the line of Ben Reitzes from Melius Research. Your question. Please.

Ben Reitzes: Yeah, Hi, Thanks, I appreciate it.

Ben Reitzes: Wanted to revisit the gross margins and I appreciate the 60% flow through comment.

Dave Smith: You know that we should use as a rule of thumb, but Dave starting at $44 five in the first quarter.

Dave Smith: What do you.

Dave Smith: Are you still looking for the overall reported non-GAAP number.

Dave Smith: Be up.

Dave Smith: Year over year from the 43, six and you've mentioned some volatility there I just want to clarify on the call.

Dave Smith: How the gross margin trajectory is going to look year over year and understanding there is that volatility there. Thanks.

Dave Smith: Yeah to be clear the.

Dave Smith: The way I was looking at gross margins is on a year over year basis on this 60% fall through so you should take the full year gross margins that we had in 'twenty, three which were roughly 43, 5% think about the 60% fall through based on the 43, 6% gross margin.

Dave Smith: I think when you do that.

They start off at a level, that's better on a year over year basis, but obviously down on a quarterly basis quarter to quarter basis. That's how you should expect generally improving dynamics through the year.

Dave Smith: The only the only challenge will be this quarter to quarter always had volatility to it. So you know there could be quarters in which we get less ship through of previously reserved products, sometimes it's more in so kind.

Dave Smith: Kind of avoiding trying to pinpoint every quarter because of the difficulty around pinpointing that but.

Dave Smith: But we feel very confident around the 60% fall through.

Dave Smith: And then do you have a follow up.

Yeah. Thanks, John.

Dave Smith: It.

Dave Smith: Could you talk about a little bit more about the client market there was.

Dave Smith: You mentioned that.

Dave Smith: Corporate you said, some strength and Dell. It said there was some weakness heading.

Dave Smith: Heading into the first quarter.

Dave Smith: Can you talk about the revenues on client and what makes you. So confident that it's really going to pick up thanks.

Dave Smith: Yeah. So as we look at the market year on year, we expect it to be a few points bigger than it was last year. So last year was $2 70. This year a couple of points higher than that I think that's consistent with the various market forecasters that we have our market share position is very stable and we had good execution in market.

Dave Smith: Sure through last year and the product line is better this year, but the number of tailwind like we said so overall, we think it's going to be a very solid year.

Dave Smith: Year for us and our client business, obviously as we start the year everybody is they all say managing through what their Q1 outlook looks like even as they expect to see stronger business as we go through the year I would also comment that some of these tail was really only start to materialize as you go into second quarter and.

Dave Smith: Second half.

Dave Smith: <unk> is just ramping right now the Windows 10, Eos goes into effect and customers are starting to look at the post COVID-19 refreshes. So a lot of those benefits materialize as you go through the year, but our position in gaming commercial very strong for us overall and I'll tell you. We're just seeing a lot of excitement for the AI.

Dave Smith: See I described this the sentry no moment, the most exciting category defining moment since.

Dave Smith: Oh Wi Fi was introduced two plus decades ago. So we do think that it's going to bring a multiyear cycle of growth great Isps, great New use cases, and a product line that is clearly leading the industry established in this category.

Dave Smith: Thanks, Jonathan can we have the next one.

Dave Smith: Question. Please certainly one moment for our next question.

Dave Smith: And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question. Please.

Dave Smith: Thanks for taking my question, but I'm curious now that you're into a degenerative AI deployments.

Vivek Arya: Your view on how cloud customers are thinking about the capex between traditional and <unk> because when you look at the revenue growth across your GPU competitors, they seem to be capturing nearly all of the incremental capex and you know in some cases, even more than just the capex at the public cloud company. So.

Vivek Arya: Does that really leave much room for your GPU business to grow beyond just the seasonal variation. So just how are you looking at the AI market overall and what part of that is that until really able to capture when we just look at how much is being or needing to be dedicated to your GPU competitors.

Vivek Arya: Yeah. Thank you and let's just maybe three different aspects to it. The first one is clearly it would be.

Vivek Arya: The high end cloud guys and what they're doing for maximizing training environments. Clearly that's been an accelerator markets. So far but that even is giving a I'll say a bit of a tailwind in the <unk>.

Vivek Arya: There are lots of head nodes associated with that we do think as we said that the market moves much more from high end training to inferencing of where our product line is more substantive.

Vivek Arya: For it but the enterprise market as we see it for data centers is very much going to be an on premise play taken advantage of inferencing and that data pools that they already have and that's an area of good strength for Intel and we're starting to see that in some of the conversations with our OEM customers and as I finished probably.

Dave Smith: 50 meetings between World Economic Forum in Davos, and CES with customers I'll say, we have absolute unanimous response that theyre going to be deploying a lot of their AI on premise and their data centers and Z ons in our on premise offerings are simply the preferred way for them to be.

Dave Smith: The advantage of those capabilities inside.

Dave Smith: Inside of their data centers inside of the Tcl envelopes power networking management that they have in.

Dave Smith: In place, obviously, we need to be participating more in the accelerator piece of that.

And we're seeing the growing pipeline of opportunities we saw a nice uptick in revenue in Q4 from a small number but a lot of momentum as we come into the year and goudy three is getting a lot of excitement clearly, leaving and <unk>. So we're going to be competing much more for that high end accelerator footprint.

Dave Smith: But I think the message of 2024, there's going to be influencing AI everywhere, that's going to be at the edge, that's going to be the AIP C and it's going to be in the enterprise data center all areas that Intel is a much stronger footprint.

Dave Smith: Do you have a follow up question.

Dave Smith: Yes, Thank you John and thank you, Matt so on the.

Matthew D. Ramsay: Foundry side, I think you mentioned iff's.

Matthew D. Ramsay: Some declines.

Matthew D. Ramsay: In Q1 after the strong Q4 that you had so I was hoping if you could just help us size what is the <unk> in Q1, and then <unk>.

Matthew D. Ramsay: Longer term you mentioned now you have four eight DNA wins, but how do we quantify what they mean for 24 or 25 or 26 and I think on the call you had mentioned something about $10 billion in lifetime when.

Matthew D. Ramsay: I'm, hoping that that's what you meant for 18, eight but when I look at that $10 billion over multiple years.

Matthew D. Ramsay: That is not really that big relative to I think the 130 billion plus annual foundry market. So could you just help us size what.

Dave Smith: Does intel's external foundry business, a meaningful or.

Dave Smith: 2024, or 2025 perspective. Thank you yeah. The two things in the Q4 to Q1 numbers in Iff's. One is the I'll say the natural ending of our traditional packaging.

Dave Smith: So that affects so Q4 as we go into Q1, and obviously our focus there isn't doing I'll say traditional packaging that's best supplied by OS at vendor, but we were in a unique position to help our customers as we went through the Covid cycle all of our packaging focus going forward is advance.

Dave Smith: Packaging, where our technology is differentiated the margins are good and as you saw we just announced the new Mexico facility as the first major advanced manufacturing facility on U S soil a lot of excitement from that from our customers across the world.

Dave Smith: Also we had our foundry equipment business, which was another factor in Q4 to Q1 very consistent with the profile that you might have heard from people like ASML right. If they saw the quarter to quarter implications on the equipment.

Dave Smith: Equipment business. So I'll say Q4 to Q1, all explainable in those contexts. The business, we're winning 18, a foundry customers Intel free packaging, you'll it takes quarters for that to materialize and for wafer customers years. So that's why we said lifetime deal value is probably the best metric.

But we can give you to help you understand the nature of that business as it's growing is that we saw a big uptick.

Dave Smith: From our prior update so this one obviously we need to as your question suggests get through a much bigger number and that's exactly what we're going to do we're now well underway, we're seeing healthy growth in lifetime deal value will be giving you periodic updates on that as a good metric of seeing how rapidly that businesses growing for.

Dave Smith: US and I'd emphasize that number is just external foundry right. Our internal business, that's what's going to be driving the factory build out and that really gives us the scale to then start adding these additional external customers two of those deals as we say there could be a year or two are they could be multiple years.

Ross Seymore: And length there'll be a varying a contra.

Ross Seymore: Contract length associated with them and we just want to give some visibility transparency to the business and a rapidly growing lifetime deal value is a good way for us to give you some characterization of that business outlook.

Ross Seymore: Finally, I want to see you on February 21st we're going to hold a big industry ecosystem event, our iff's direct connect.

The meeting with the ecosystem, our customers, but we're inviting analysts to listen in to the great conversations we're going to have in the disclosures that we will be giving their thanks Vivek Jonathan we have time for one more question. Please.

Ross Seymore: Certainly one moment for our final question for today.

Ross Seymore: And our final question for today comes from the line of C. J Muse from Cantor Fitzgerald. Your question. Please.

Yes, good afternoon, and thank you for squeezing me in.

Ross Seymore: Combined both my questions into one.

Ross Seymore: Typically.

Ross Seymore: Manufacturing transition you take on one maybe maybe to kind of technical challenges.

Ross Seymore: Here at <unk>.

Ross Seymore: Were taken on backside power gate, all around and Hyatt <unk>, So would love to hear kind of maybe some of the struggles you've seen how you've worked through them and what kind of feedback you're getting from customers.

Ross Seymore: And all three of those.

Ross Seymore: And kind of the confidence on delivering the goods and the timeline that you've set out thank you.

Ross Seymore: Very good so let me <unk>.

Ross Seymore: <unk> is a little bit more carefully because we've been trying to carefully manage the risk that we're taking on so first was the move into EV, we began that with Intel for an Intel three on those as we said or high volume manufacturing underway done. So we sort of took the risk of the U V off the table there.

Ross Seymore: Backside power right, we've random internal know something we didn't disclose to external foundry customers, but we ran many many wafers using Intel three with backside power to go Derisk backside power before we put them into Intel 20, Ey and Intel HMA. So we had a major.

Joe: Your step to Derisk backside power and then of course gate all around the transistor. So <unk> brings those two together backside power and the gate all around transistor, but I'll tell you. Joe is we've been going through the development process backside power on <unk> has been elegant beautiful high yield.

Joe: Very clean and its introduction into the process and really the focus has been on the new transistor structure with gate all around as customers are taking advantage of that now as we're starting to look at that they are really seeing great benefits from backside power in some cases almost as much performance.

Joe: Benefit and significant area of benefit from that and gate all around transistor is making good progress our 0.9 PDK that we delivered in Q4, and we'll be having the 1.0 PDK and Q2 on track.

Joe: Clearwater Forest is.

Joe: The first product.

Joe: And it's now into fab on 18, a huge milestone for us both on the product side as well as on the process side.

Joe: Hi N. A the next generation of <unk> is not part of 18 day right that will be part of the next major node will talk more about that at the Intel Foundry day as he said on February 21, but we're not introducing that as a risk factor into a Q&A.

Joe: E V tools that are in production today that we have already derisked as part of the Intel for an Intel three so we think we've done a very careful management of risk and we look at this all the time as we're rebuilding our momentum and as I said overall, we are confident five nodes in four years. This was audacious.

Joe: It's been superbly executed and we are on track to deliver it and get back to process technology leadership for both our products as well as to establish a major foundry opportunity for the industry rebuilding western supply chains. The momentum we're seeing in our whole fab.

N. A: <unk> network. This is really incredible the progress and I couldn't be proud of our team for getting it done.

N. A: Yeah.

N. A: So with that let me say, thank you for joining us on the call as always we appreciate the opportunity that we have to update you on our strong Q4, beating on top and bottom line, finishing an incredible year in 2023, and we're just excited about the momentum we see across the business for both our products our business and financial execution.

N. A: <unk> the manufacturing technology foundry design wins really across the board or say do ratio has been extremely high and we appreciate the interest and as I said, well, we look forward to the opportunity to give you some more updates as part of foundry direct connect February 21st in San Jose and I hope to see.

Ross Seymore: Any of you there as we lay out an exciting update to the industry.

Ross Seymore: It'll be a great day for us. Thank you so much for joining us.

N. A: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

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N. A: Thank you for standing by and welcome to Intel Corporation's fourth quarter 2023 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone if you.

N. A: <unk> has been answered and you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Mr. John Pitzer Corporate Vice President of Investor Relations. Please go ahead.

N. A: Thank you Jonathan by now you should have received a copy of the Q4 earnings release and earnings presentation, both of which are available on our Investor Relations website I N T C dot com for those joining us online today. The earnings presentation is also available in our webcast window.

Patrick P. Gelsinger: I am joined today by our CEO, Pat <unk>, and our CFO, David <unk> and <unk>.

John William Pitzer: A moment, we'll hear brief comments from both followed by a Q&A session.

David M. Wong: Before we begin please note that today's discussion does contain forward looking statements based on the environment as we currently see it and as such are subject to various risks and uncertainties.

David M. Wong: It also contains references to non-GAAP financial measures that we believe provide useful information to our investors.

Pat: They also provide additional information on non-GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures with that let me turn things over to Pat.

Pat: Thank you John and good afternoon, everyone Q4 was the culmination of a year of tremendous progress towards our IDM 2.0 transformation, we've consistently executed on our plan to reestablish process leadership further build out our capacity in foundry plans greatly improved product execution.

Pat: <unk> and began to execute on our mission to bring AI everywhere across our product segments. We delivered solid Q4 results exceeding expectations for the fourth quarter in a row.

N. A: As we look into Q1, our core business, including client server and edge products continues to perform well and is tracking to the lower end of seasonal however, discrete headwinds, including mobile I P. S T and business exits among others are impacting overall revenue leading to a lower Q1 guide.

N. A: Importantly, we see this as temporary and we expect sequential and year on year growth in both revenue and EPS for each quarter of fiscal year 'twenty four.

N. A: Momentum and excitement around new products and businesses remained strong as we head into the year and will grow stronger as the year progresses.

Ross Seymore: We could not be prouder of the execution across our process technology roadmap in 2023, we became the world's first high volume manufacturer of logic devices using <unk> in both the U S and Europe as we aggressively ramped core ultra on Intel for in both Oregon and Ireland.

Ross Seymore: Sell three achieved manufacturing readiness in Q4 is committed with solid performance and yield progression.

N. A: Our two lead vehicles and until three are on track and we look forward to launching Sierra Forest in first half 'twenty four followed shortly thereafter by Grand Rapids.

N. A: Sierra Forest is final samples at customers and the production stepping of Grand Rapids is running ahead of schedule well into power on validation and very healthy.

N. A: We are even more excited about breaking into the angstrom era with Intel 20, a M until HMA.

N. A: We are first in the industry to have incorporated both gate, all around and backside power delivery in a single process node. The ladder unexpected two years ahead of our competition are like our lead until 'twenty a vehicle will launch this year until <unk> is expected to achieve manufacturing readiness in second half 'twenty for completing our.

N. A: Five nodes in four year journey, and bringing us back to process leadership I am pleased to say that Clearwater Forest. Our first Intel 18, a part for servers has already gone into fab and Panther Lake for clients will be heading into fab shortly.

As we complete our goal of five nodes in four years, we are not satisfied nor are we finished we have begun installation of the industry's first high in a UV tool and our most advanced technology development site in Oregon aimed at addressing challenges beyond <unk>.

N. A: We remain focused on being good stewards of Moore's law, and ensuring a continuous node migration path over the next decade and beyond.

N. A: Third party engagements with Iff's continued to validate our progress on process technology, we launched Iff's with a long term view of delivering the world's first system foundry that brings together, a secure and sustainable supply chain with the best of Intel and our ecosystem.

N. A: While our ambitions will not materialize overnight, we made tremendous progress in both Q4 and fiscal year 'twenty three towards our goal of becoming the second largest external foundry by 2030.

N. A: The rapid adoption of AI by all industries is proving to be a significant tailwind for I F. S. As high performance compute an area, where we have considerable wafer and packaging know how and IP is now one of the largest and fastest growing segments of the semiconductor market.

N. A: We made major strides in building our foundry ecosystem in 2023 with now over 40 strategic agreements across E. D. A design services IP cloud and U S military aerospace and government.

Dave Smith: Critical agreements with arm and Synopsys continue to gain momentum we delivered the Intel <unk> 0.9, PDK and broaden its availability in Q4, we expanded the ramp C program significantly and just this quarter signed a major foundry contract with the United States Government and Department of Defense we are.

N. A: Also very pleased to have completed a major agreement with United Micro electronics or UMC to develop a 12 nanometer process platform targeting high growth markets, including mobile communications infrastructure and networking.

N. A: This expands both Intel and Umc's foundry process portfolios and customer access to a broader and more resilient supply leveraging our Arizona site.

N. A: This agreement builds upon and furthers, our long and deep relationships with the vibrant Taiwan ecosystem.

N. A: This also meaningfully extends the production life of our installed capacity and improves our returns on investments similar to the announcement last quarter of our tower semiconductor partnership at the 65 nanometer node with our new Mexico site, our success with Iff's won't be measured by customer commitments and revenue we.

N. A: We have taped out more than 75 ecosystem and customer test chips.

N. A: <unk> already has more than 50 test chips in the pipeline across 2024 in 2025, 75% of which are on Intel <unk>.

N. A: During CES, we welcomed valence semiconductor to the growing list of foundry customers as they announced they would use iff's to fabricate there must be a fee chipsets using our advanced technology. In addition to the three until a Q&A customers. We disclosed in Q3, we want a key design win with a significant high performance compute.

N. A: <unk> customer this customer was particularly motivated by our unique leading edge manufacturing capabilities and U S capacity.

N. A: We came into 2023 committing to $1 18, a foundry customer we executed on four inclusive of a meaningful prepay and our momentum continues to grow.

N. A: Our advanced packaging business is proving to be yet another important advantage for iff's, a faster on ramp to broader foundry relationships during the quarter. We captured three additional advanced packaging design wins, bringing the total to five in 2023 with the majority of revenue starting in 2025.

N. A: To support our growing demand just yesterday, we opened fab nine in new Mexico, marking a milestone for high volume <unk> advanced packaging manufacturing the momentum advanced packaging is very strong and there's another facet of our foundry strategy, which is clearly benefiting from the surge of interest in AI.

N. A: With leadership technology and available capacity, our opportunity set continues to grow.

In total across wafer and advanced packaging are lifetime deal value for Iff's is now over 10 billion or more than doubling from the 4 billion. We provided in our last update.

N. A: Supporting our growing momentum in Iff's as our global manufacturing footprint. We are the only semiconductor company with that scale and sustainable manufacturing in every major region of the world providing ourselves in our foundry customers resilient access to the right capacity in the right regions at the right time.

N. A: All of our expansion projects in the U S EU and Asia are progressing on schedule and our chips applications in the U S and EU are progressing well.

N. A: Finally, we are thrilled to be hosting our first foundry day Iff's direct connect on February 21st in San Jose, where we will have the opportunity to showcase the breadth of our ecosystem as well as begin to talk about our process roadmap beyond until a TNA next generation packaging and our full foundry vision, we hope to see.

N. A: Many of you there.

N. A: Intel continues its mission to bring AI everywhere, we see the AI workload is a key driver of the one trillion dollars semiconductor Tam by 2030, and given our foundry and product offerings. We are the only company able to participate in a 100% of the Tam for AI Silicon logic.

N. A: We have already discussed how our 50 year heritage and high performance computing transistors, and our advanced packaging positions iff's to benefit from the accelerating move to AI.

N. A: Within our product portfolio, we are the only company with the products IP and ecosystem reach to empower customers to seamlessly integrate and effectively run AI in all their applications from the cloud through the network into the enterprise client and edge.

Speaker Change: For the developer working with multi trillion parameter frontier models in the cloud Goudy and our suite of AI accelerators provides a powerful combination of performance competitive ammo perf benchmarks and leadership Tcl.

Speaker Change: As AI proliferates in the world moves towards more AI integrated application there is a market shift toward local inferencing and smaller more nimble marbles.

Speaker Change: It's enough to both the necessity of data privacy, and then answered it's cloud based and printing costs and round trip latency.

Speaker Change: With AI accelerated xeon for enterprise core ultra ushering in the AIP, Sierra and open vino, enabling developers seamless and versatile support for a range of clients and edge Silicon, we are bringing AI to where the data is being generated and used rather than requiring it in the cloud.

N. A: Our expansive footprint spanning cloud and enterprise servers to volume clients and ubiquitous edge devices positions us well to enable the AI continuum across all our market segments in.

N. A: In Q4, our server business experienced solid sequential growth consistent with market share, which we believe was flat with Q3 levels.

N. A: Since launching fourth Gen. Xeon in early 2023, we have shipped more than $2 5 million units with approximately one third of all fourth Gen demand driven by AI with our fifth Gen Z on launch we enable up to 42% higher AI inference performance compared to the industry, leading fourth Gen Z.

N. A: Fifth Gen. Xeon has reached general availability and Alibaba is entering public and private previews with several csp's and is on track to ship with Oems next month.

N. A: More importantly, our improved execution is strengthening our product portfolio with Gen. Four and Gen. Five Z on ramping well Sierra Forest and granted Rapids coming soon and Clearwater fourth already going into the fab momentum is building and positioning us well to win back share in the data center.

N. A: Our goudy to AI accelerators continue to demonstrate price performance leadership compared to the most popular Gpus in a recent blog published by data bricks Goudy two was shown to clearly deliver the best training and inference performance per dollar based on public cloud pricing.

N. A: We're building on this momentum with Goudy, three which is on track to launch this year and is expected to deliver performance leadership with Forex the processing power and double the networking bandwidth for greater scale out performance.

Dave Smith: <unk> three is now in the lab powered on and showing great health and performance and how <unk> is also well underway.

Dave Smith: Our accelerated pipeline for 2024 grew double digits sequentially in Q4, and is now well above $2 billion and growing.

N. A: We recently increased our supply for both Goudy true in Goudy three to support the growing customer demand and we expect meaningful revenue acceleration throughout the year as we announced last quarter. We are now operating PSG as a standalone business beginning on January one.

Our intent is to bring in private capital this year to create an eventual path to an IPO over the coming years.

N. A: As we outlined on our Q3 call PSG is in the midst of an industry wide cyclical correction for FPGA, which we expect to last through the first half of 'twenty four.

N. A: Despite the financial correction operational momentum is strong and PSG executed its most ambitious FPGA roadmap delivering 21, new product releases in 2023, and executing supply assurance agreements valued by our customers.

Justin hotter: Finally, even as we congratulate Sandra Rivera, the new CEO of PSG I'm extremely pleased to welcome Justin hotter as executive Vice President and General manager of D. C. H I G.

Justin joined US from Hewlett Packard Enterprise, where he was executive Vice President and general manager of high performance computing AI and labs.

Justin hotter: Moving to client CCG performed very well in Q4, posting the third consecutive quarter of double digit sequential growth demand reflected a normalized inventory environment with sustained strength in gaming and commercial with our highest in skus exceeding Q3 records by 20%.

Justin: Ecosystem work will continue to drive industry, leading performance and experiences.

In Q4, we offered in the age of the AI P. C with the launch of Intel core ultra representing our largest architectural shift in decades. The core altra is the most AI capable and power efficient client processor with dedicated acceleration capabilities across the <unk>.

Justin: CPU, GPU and neural processing unit or <unk>.

Justin: Ultra is the centerpiece of the AI P. C systems that are capable of natively running popular 10 billion parameter models and drive superior performance on key AI enhanced applications like zoom Adobe and Microsoft.

Justin: We expect to ship approximately 40 million AIP sees in 'twenty 'twenty four alone with more than 230 designs from ultrathin Pcs to handheld gaming devices to be delivered this year from OEM partners ASER, a sushi Dell HP Lenovo LG MSI Samsung.

Justin: <unk> and others.

Justin: The core ultra platform delivers leadership AI performance today with our next generation platforms. Launching later this year lunar Lake in Aero Lake Tripling, our AI performance in 2025 with Panther Lake, We will grow AI performance up to an additional two acts.

Justin: <unk> is well positioned to benefit from the proliferation of AI workloads on the edge, where our market leading hardware and software assets provides improved latency reliability and cost.

N. A: <unk> adoption grew by 60% sequentially in Q4, and today is a core software layer for AI inferencing on the edge on the PC and in the data center.

N. A: <unk> is also driving the shift of AI networking and the cloud from proprietary technologies to open Ethernet based approaches in partnership with the broader industry ecosystem.

N. A: Any ex Q4 results beat our internal forecast and the division is poised for solid growth in 2024 across edge network and ethnic products more skewed to the second half.

N. A: Yet another growing market opportunity for us is automotive.

N. A: While mobilized experiencing a sharp inventory correction in Q1, we are encouraged by their improving forecast throughout 2024 and more importantly, the recent announcement at CES that they were awarded a series of production design wins by a major western automaker across the company's three key platforms suite.

N. A: <unk> chauffeur drive.

N. A: In addition to mobilize strengths and Avi at CES, we announced the launch of AI enhanced software defined vehicle Soc's with Julie's seeker brand as our first OEM partner and our agreement to acquire Silicon mobility, a fabless silicon and software company specializing in power management associates.

Just on Evs.

N. A: These announcements build on shared IP across clients and data center and our existing Intel associate footprint of more than 50 million vehicles worldwide.

N. A: Our strategy will continue to broaden our exposure to the growing auto market on both the product and the foundry sides of our business.

N. A: Finally, underpinning our across the board progress in 2023 is our operational and financial discipline.

N. A: As our new internal foundry model, which is designed to drive greater transparency accountability and focus on cost begins to take route we expect to unlock further cost savings and efficiencies in 2024 and beyond we have officially transitioned to this new operating model in January 1st and we will report the new <unk>.

N. A: <unk> format as part of our Q1 earnings we see incremental efficiencies as we drive to our long term model of 60% gross and 40% operating margins.

N. A: As I reflect on our progress in 2023, I am incredibly proud of our employees, whose commitment and perseverance were instrumental to the execution of our ambitious strategy together, we exited the year accomplishing exactly what we set out to do we improved our execution engine.

N. A: Consistently being on track or ahead on our process and product roadmap and as I said at the beginning of my remarks, we are confident in our performance from financial trajectory for the year ahead. We know we have much work in front of us as we work to regain and build on our leadership position in every category in which we participate.

N. A: We will maintain our relentless focus on our mission and commitment to driving long term value for our shareholders with that let me turn things over to Dave.

Dave Smith: We've taken proactive steps to prioritize our investments aggressively managed near term expenses and made meaningful progress on reducing our structural cost gaps.

Dave Smith: Fourth quarter revenue was $15 $4 billion up 9% sequentially, 10% year over year and $300 million above the midpoint of our guidance with solid execution across reported segments.

Gross margin was 48, 8% 230 basis points better than our guidance driven by favorable product mix and Asps improved unit costs and higher revenue.

EPS for the quarter was 54 cents, beating.

N. A: Beating guidance by 10.

Improved gross margins stronger revenue and disciplined Opex management.

N. A: Q4, operating cash flow was $4 $6 billion net.

N. A: Net inventory was down more than $300 million and nine days in the quarter and DSO remains under 20.

N. A: Net capex was $5 9 billion, resulting in an adjusted free cash flow of negative $1 $3 billion, and we paid dividends of a $5 billion in the quarter.

N. A: Moving to the fourth quarter business unit results.

N. A: C C. G delivered revenue of $8 $8 billion up 12% sequentially, 33% year over year and ahead of internal expectations for the fourth consecutive quarter.

N. A: We saw sustained strength in gaming and commercial segments, along with record performance notebook shipments in the quarter.

N. A: Customer inventory levels have normalized in 2023 PC consumption was in line with our 270 million unit forecast.

N. A: Operating profit was $2 $9 billion up.

N. A: Up more than $800 million sequentially, and nearly $2 $4 billion year over year, unimproved, Tam and market share and sell through of reserved inventory.

N. A: Dci revenue was $4 billion up 4% sequentially.

The server business delivered double digit growth sequentially, partially offset by the FPGA inventory correction.

N. A: Revenue was driven by improved unit Tam stable share and rising average core density contributing to record Xeon asps.

N. A: Operating profit was $78 million roughly flat sequentially as advanced no development cost continue to weigh on profitability.

<unk> revenue was $1 $5 billion up 1% sequentially and ahead of internal expectations on strength from network and Ethernet segments.

N. A: The business saw an operating loss of $12 million down modestly quarter over quarter.

N. A: Intel Foundry services contributed revenue of $291 million down modestly on a sequential basis and up 63% year over year on increased traditional packaging revenue.

Ross Seymore: <unk> operating loss was $113 million driven by continued investment to develop and grow our world class systems foundry.

Speaker Change: Mobile I delivered record revenue of $637 million up 20% sequentially and 13% year over year, along with record operating profit of $242 million up 42% sequentially and 15% year over year.

Speaker Change: Recently disclosed design wins are expected to contribute more than $7 billion of future revenue or more than three five times mobilized record FY2023 revenue.

Speaker Change: As Pat summarized the company made significant progress towards our IDM to point out strategy, including strong execution against our 2023 financial commitments despite macro headwinds throughout the year.

Pat: As committed at our Q1 'twenty three earnings call, we delivered revenue gross margin operating margin and EPS growth each quarter.

Pat: Despite significant investments in future growth and continued progression through five nodes in four years, we achieved our 2023 commitment of $3 billion of spending reductions.

N. A: Through a strong focus on cash and cost controls, we achieved excellent DSO in D. P. O in the second half of 2023 and delivered net inventory reductions of nearly $2 billion and 35 days from our peak in Q1 'twenty three.

N. A: Working capital initiatives yielded roughly $2 billion of cash in 2023, helping us to meet our commitments for roughly breakeven adjusted free cash flow in the second half of the year.

N. A: We remain committed to our smart capital framework with growing contributions from our skip agreement with Brookfield and progress toward government incentives in the U S Europe and Israel.

N. A: In Q4, we also recognized $845 million of advanced manufacturing investment credits or amick as defined in the chips Act. While our continued IDM 2.0 capital investments will result in increased gross capex in 'twenty four as compared to 23, we're on track to our aggregate 2023 through 2024.

N. A: Our guidance of net Capex spending in the mid thirties as a percent of revenue with offsets towards the high end of the 20% to 30% range.

N. A: Now turning to Q1 guidance, we expect Q1 revenue of $12 two to $13 $2 billion.

N. A: At the Q1 revenue midpoint of $12 $7 billion, we expect gross margin of approximately 44, 5% with a tax rate of 13% and EPS of <unk> 13.

N. A: While we expect a slightly sub seasonal first quarter from our core product businesses, we see material inventory corrections in mobile I N. PSG. Additionally, we expect a significant drop in iff's revenue after seeing accelerated purchasing and our traditional packaging business and cyclical weakness in wafer is.

<unk> buying in the first half of the year impacting the IMS business.

N. A: When combined with businesses, we exited in 2023, we expect a roughly $1 billion sequential revenue impact from businesses outside of our core products.

N. A: With market signals remaining positive for PC demand and usage rates, we expect Tam to grow in the low single digits in 2024, consistent with third party views. Our recent results show the PC remains essential and we remain confident in our longer term Tam forecast as the age of the ITC.

N. A: Further enhances the value of device refresh.

N. A: We expect Q1 data center revenue to decline double digit percent sequentially before improving through the year.

N. A: The data center has seen some wallet share shifts between CPU and accelerators over the last several quarters, we expect growth in CPU compute cores to return to more normal historical rates and our discrete accelerator portfolio with well over $2 billion in pipeline to gain traction as we move through 2024.

N. A: Sure.

N. A: Within next telco markets are likely to remain weak through the year, though we expect solid growth from our network ethnic and edge products.

N. A: These signals give us confidence that consolidated revenue will grow beyond typical seasonality after a soft Q1.

N. A: And that we can deliver sequential and year over year growth in both revenue and EPS each quarter of 2024.

N. A: We're confident we can grow earnings faster than revenue this year and maintain roughly breakeven adjusted free cash flow, though I'll remind you that the rapid pace of delivering five nodes in four years and capacity expansion in support of external foundry commitments remain headwinds on the pace of our margin expansion.

N. A: We expect depreciation to grow by approximately $2 billion in 2024. In addition to a significant increase in variable factory startup costs.

N. A: 60% gross margin flow through as a percent of revenue growth remains a rule of thumb in aggregate in the intermediate term, but we may see volatility in our quarterly gross margin results.

N. A: We're excited to Mark the first month fully operating under our new internal foundry reporting structure with improved accountability transparency around cost and value drivers and increased focus on driving higher rates of return for our owners capital.

N. A: We intend to provide you with a recast historical financials this quarter in the form of an 8-K.

N. A: We will unpack the details at that time, but you will see not only the first view of our manufacturing P&L, but a view of our products group more in line with external peers.

Ross Seymore: While it will come as no surprise, our manufacturing P&L is under significant pressure as we get back to process leadership and build the infrastructure to meet both internal and external demand, we see abundant opportunity to drive improvement.

Ross Seymore: Finally, standing up a separate legal entity for manufacturing technology development, and if that is important to our foundry customers.

Ross Seymore: We expect to have that structure in place in the second half of 2024.

Ross Seymore: As we look back at 2023, we have a lot to be proud of we entered the year with a challenging macro backdrop I am pleased with our team's efforts controlling spending ramping new products managing share executing product and process roadmaps and delivering for our customers. We continue to focus our.

Ross Seymore: Leo by exiting five businesses in 2023 for a total of 10 since past return while also identifying profitable adjacent markets. We can serve with our existing IP as we have done with Intel auto.

Ross Seymore: We executed within our smart capital framework and are beginning to see meaningful capital offsets.

N. A: We unlocked value for our shareholders through mobile Ly, and IMF and announced our intention to pursue external investments in PSG.

N. A: I'd like to thank the entire Intel team for the hard work and execution, which drove our improved 2023 results.

N. A: While we arent, yet where we want to be from a financial perspective, we're participating in a large and growing semiconductor Tam our foundry in AI assets are showing great momentum in the market and with the strong foundation of financial discipline. We set in 2023, we're confident and committed to our long term financial objectives with that.

John: Let me turn the call back over to John.

John: We will now transition to the Q&A portion of our call. As a reminder, we ask each of you to ask one question and a brief follow up where applicable with that Jonathan can we please take the first question.

John: Certainly one moment for our first question.

John: Our first question comes from the line of Ross Seymore from Deutsche Bank. Your question. Please.

Ross Seymore: Hi, guys. Thanks for let me ask a question near term one and then for my follow up it would be a longer term one the near term one is on the demand picture. Dave you were helpful in breaking out kind of a noncore impacts in the first quarter versus the core but the low end of seasonality is a little bit of a surprise given the cyclical pressures seem to have been abating.

Dave Smith: And some of the market share trends should have been going in your favor at least also not worsening. So can you just talk a little bit about why you are at the low end of seasonality in the first quarter for your core businesses and what gives you confidence in super seasonality thereafter.

Ross Seymore: Hey, Thanks, Ross I'll start and then ask Dave to follow up and you know first what seasonality Q4 to Q1, there was a wide range of perspectives anywhere from 3% to 20% historically, so I'll just say, it's a wide statement of what that looks like obviously as we come into the year, it's coming off a very strong Q4, our product.

Ross Seymore: Lines are strong we feel our inventory positions are healthy and we're gaining momentum across it and obviously, we've built a forecast consistent with our customers and channel partners that we believe is merited, obviously, Dave talked about some of the discrete events, which we added them up we're a little bit larger than we forecast, but the core business, we see as healthy.

Dave Smith: We see no areas for market share loss and the products are getting stronger. So it was a it really reflects is we view the market, but we've also said hey, we're improving every quarter as we go through the year right improving our revenue topline improving on the <unk>.

Dave Smith: <unk> strong and we're gonna have a improving year as the year progresses and what's the long term question Brock.

N. A: You just the confidence in.

Ross Seymore: Long term question is one yes, sorry, the long term questions one on the manufacturing nodes.

Ross Seymore: <unk> thousand four years is going well, but you know the.

Ross Seymore: One of your biggest foundry customers and competitors is.

Ross Seymore: Is doubling down on their ability to keep the leadership positioning.

N. A: So what gives you confidence that <unk> will in fact have the leadership note and then how do we reconcile the fact that you seem to be using that customer as a foundry partner for some of your heterogeneous products, whether it be aero lake or lunar late going forward. If you have the leadership why wouldn't you be doing that internally.

N. A: Yes, Thank you I'll do that and ask Dave to pile on both of those a little bit.

Dave Smith: But with respect to the manufacturing I'll, just say hey, when we look at this every single day and we are scrutinizing carefully our progress on <unk> and obviously the great news that we just described those Clearwater forest taping out and that gives us a lot of confidence that 18, a as healthy that's a major product for us Panther.

Dave Smith: Lake following that shortly we've also had our fourth customer this quarter. Some of the IP providers are giving us very strong affirmation on the competitiveness of the process technology, and particularly where it is way ahead on backside power.

Dave Smith: And that's not even you know everybody in the industry is recognizing that in many of the customers who are looking at it are seeing substantial gains not just in power performance, but an area of savings as well. So overall, we feel very confident that our roadmap is strong on the process technology side, what we do.

Dave Smith: Use external foundries and obviously that grew as we were dealing with some of our own challenges for process competitiveness and as we create more and more focus in the business more wafers will come the internal to the Intel our factory network, but long term, we're going to continue to use external foundries to complement me.

N. A: Manage our capital requirements and to make sure that our teams always are building the best products in the industry and using the best technologies to accomplish that so overall, we feel super good with our strategy Youll see more use of our own factory network, even as we leverage external foundries where appropriate.

N. A: The only other thing I'd add is just the use of external foundries is part of our smart capital strategy. It's one of the five pillars. So as Pat said that will continue to be part of our strategy. Obviously, you know we're going to maximize how much we can do internally, but we're always going to be using external foundries based on smart capital.

Ross Seymore: Thanks, Ross I think the next question please.

Ross Seymore: Certainly one moment for our next question.

Ross Seymore: And our next question comes from the line of Timothy Arcuri from UBS. Your question. Please.

Timothy Michael Arcuri: Thanks, a lot Dave I had a question about gross margin. It was obviously much much better in December and the March guidance is actually pretty good. So does this include the sale of any previously written down inventory and maybe help us get a clean margin number is this is this march number pretty claim that we can carry that.

Dave Smith: Incremental forward through the year.

Dave Smith: Yeah, I mean, what what I said in the prepared remarks, I think is that we think that's a 60% fall through is probably the best rule of thumb.

Dave Smith: That said as you know quarter to quarter things can move that number up and down.

Dave Smith: In Q4, we saw better fall through.

Dave Smith: Largely it was related to a better sell through of previously reserved.

Dave Smith: Product, we also actually did better on the factory side in terms of spending and yield and so that also benefited us to some extent.

Dave Smith: And then in Q1, you know I think we're going to be a little worse, we're going to see that fall through to be a little harder on us.

Dave Smith: And largely that some of that stuff going away a little bit, but I think if you look at it on a year over year basis, and you know, it's kind of a 23% to 24, 24% 25, we largely expect it to be this 60% fall through we're going to have this quarter.

Dave Smith: Quarter to quarter moves.

Dave Smith: Movements, there that kind of violate that Ah yeah, because I was just you know one off things, but I think in general you'll see you'll see 60% fall through would be the right the right measure.

Longer term, we're obviously going to want to see that number go up.

Dave Smith: Because it's going to drive us to that.

Dave Smith: The 60% gross margins, we ultimately wanted to attain but in the near term, we're kind of dealing with a lot of the costs associated with five nodes in four years and there's just a lot of startup costs back, we'll probably hit our peak startup cost in 2020 for us that's a huge headwind we will have to deal with so that's kind of I think kind of keep us in that 60% fall through range for the next.

Dave Smith: A couple of years, Tim do you have a follow up question.

Tim: I do I do Dave Yeah, just on the how you get to that 60% so.

Dave Smith: It seems like there could be persistent headwinds in terms of capacity utilization.

I mean, I think a lot of us see that Theres. This plan to cut over to internal you know starting with Panther Lake, but that doesn't really ramp into high volume until probably 2026. So are you managing to some sort of like utilization rate for your internal capacity.

Dave Smith: Capacity to sort of get to that 60%.

Dave Smith: Yeah, well, maybe maybe step back a little bit on the 60% I mean, it will be driven by a number of factors one of which is just revenue revenue growing on a largely fixed cost business is going to help our.

N. A: Gross margins, obviously, we have.

Ross Seymore: Optimism around how we can drive the growth of the business.

Ross Seymore: The second as you point out is loadings, and we are managing our capital spend in our investment.

Ross Seymore: With the with an eye on loadings to make sure that we keep those.

And a good place obviously last year. We were you know we had some under loadings to deal with but as we kind of break out of that and start to move into the next year I think we'll start to see some.

Ross Seymore: Some improvements there.

Speaker Change: Third as we get as Pat was talking about you know to leadership in terms of nodes and products.

Speaker Change: Ultimately across the entire product portfolio, that's going to help out on margins, it's going to help out from a cost structure perspective, but also a better performing products, which is going to yield.

Pat: Better pricing and so forth that are better profitability.

Pat: And then lastly, we've got.

Pat: This internal foundry model that that Pat mentioned and I mentioned in the prepared remarks that we think is going to deliver a ton of savings.

Pat: For the company.

Pat: I think every week that patent I spend on this.

Pat: Somebody brings up another big rock that they found savings.

Pat: Savings they can identify on because they were looking at the business in an entirely different way than they used to looking at it.

Pat: The product groups are now hyper focused on test times, and you know how many at what sort of like hot lots, they do and how much sample activity they use.

Pat: The factories now very as you point out very very hyper focused on loadings, and making sure theyre properly thinking about their capital investment associated with the loadings, we're way more focused in terms of stepping in and so forth. So I think we will get like I said in our call a couple of quarters ago $4 billion to $5 billion of savings from this.

Dave Smith: Internal foundry model ultimately and so that's another big step function that I think gets us to the 60% gross margin I'd also add things like we just announced with UMC right head, we're taking older factories.

Dave Smith: Tim as you might have heard me say in the past right a bug in the Intel business model right just want a factory got very good and depreciated right. We move to the next node will now we're starting to fill that with long term foundry business as well. So all of these are improving the discipline of running the business as well as how we utilize our factory networks are long term and we really do think that the.

Dave Smith: 60, 40 is what Dave and I are driving the business to and we're going to get there. Thanks, Jonathan can we have the next question. Please certainly one moment for our next question.

Dave Smith: And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question. Please.

Joseph Moore: Great. Thank you I Wonder if you could talk about the datacenter decline in Q1.

Joseph Moore: How much of that is a function of the weakness in FPGA as ive talked to already and then just any sense of what the cloud server environment is like in the first quarter.

Joseph Moore: Yes. So overall when you factor, obviously, we spoke and separately about the FPGA business. So, let's just move that to the side overall, what I'll say, it's fairly seasonal quarter to quarter and what we expect that said we're seeing strength.

Joseph Moore: From our server customers for instance are more of the OEM responses are strong with regard to the momentum they're seeing in the enterprise server business and obviously our product line is improving there we do expect year on year growth here, we see our market share stabilizing.

Joseph Moore: And obviously as we're ramping gen.

Joseph Moore: Gen. Four Gen five Grand Rapids here Forest the momentum is building for us overall and as we indicated we think more of the AI surge is going to result in AI inferencing on Prem, which we're well positioned to be a beneficiary up.

N. A: I would just cite that here we are in year 'twenty of the public cloud and you have 60% plus of compute in the cloud, but 80 plus percent of data remains on prem customers want to realize the value of that on Prem data with AI and that's an enterprise strength for Intel.

N. A: So we do see all of these trends, giving us a very favorable outlook for the year and there's nothing surprising about the Q1 guide here and we're going to be very focused on beating those numbers and building on the momentum of our improving our product line.

Joe: Joe do you have a follow up question.

Joe: Yes, along the same lines can you talk about CRE for us in Grand Rapids, and I guess how.

Joe: Do you see the long term mix between knows what kind of appetite you see for that you'll see share for us got higher core count designs.

Joe: Thank you and I would love to talk for hours about Seer Forest in Grand Rapids, I'm Super excited about those products both of them on Intel three and Oh, if I build on the last question from Tim about factory Loadings, Hey, we are driving hard to accelerate those products into the marketplace and they are really the driver.

Joe: Up until three capacity, you'll have a mix between them. Obviously this is our first I'll say volume mainstream offering for a high core count I sort of view. This as the cloud guys just run Vms at scale or just run containers at scale. That's what <unk> is about is sort of that.

Joe: Bulk of workload and it doesn't have some of the performance capabilities peak capabilities feature capabilities that Grand Rapids has I expect the bulk of the market to stay on Grand Rapids.

N. A: <unk> type products to peak or our products certainly in 'twenty four 'twenty five, but we do see a pretty steady rise in the use of <unk> and then as we move to Clearwater forests, and twenty-five a very compelling product.

N. A: We do see a pretty healthy split between those for the cloud and data center customers I think most of the enterprise customers will stay with the Pea core products.

Ross Seymore: They will have and it really is here forest Clearwater forest successors being sort of that bulk mainstream a cloud offering that is very focused on T. C. O. So with that we feel super good about our product portfolio P. Core Z course, really allowing us to stretch the offerings to the highest.

Ross Seymore: Performance with high core count and to the best T C O and with that this is a portfolio that will allow us to regain share in the core data center market.

Ross Seymore: Thanks, Joe and Jonathan can we have the next question. Please certainly one moment for our next question.

Ross Seymore: And our next question comes from the line of Ben Reitzes from Melius Research. Your question. Please.

Ben Reitzes: Yeah, Hi, Thanks, I appreciate it I wanted to revisit the gross margins and I appreciate the 60% flow through comment.

Ben Reitzes: You know that.

Ben Reitzes: We should use as a rule of thumb, but Dave starting at $44 five in the first quarter, how do you.

Ben Reitzes: Are you still looking for the overall reported non-GAAP number to be.

Ben Reitzes: Yep.

Ben Reitzes: Year over year from the 43, six and you've mentioned some volatility there I just want to clarify on the call.

Ben Reitzes: The gross margin trajectory is going to look.

Ben Reitzes: Year over year and understanding there is that volatility there. Thanks, yeah, yeah to be clear the you know.

Ben Reitzes: The way I was looking at gross margins is on a year over year basis on this 60% fall through so you should take that full year gross margins that we had in 'twenty, three which were roughly 43, 5% think about the 60% fall through based on the 43, 6% gross margin.

N. A: I think when you do that.

N. A:

N. A: Start off at a at a level that's better on a year over year basis, but obviously down on a quarterly basis quarter to quarter basis.

N. A: You should expect generally improving dynamics through the year. The only the only challenge will be this quarter to quarter always has volatility to it. So you know there could be quarters in which we get less ship through of previously reserved products, sometimes it's more in so.

N. A: Avoiding trying to pinpoint every quarter because of the difficulty around and pointing that but but.

But we feel very confident around the 60% fall through <unk>.

N. A: And then do you have a follow up.

John: Yes, Thanks John.

John:

John: Could you talk about a little bit more about the client market there was.

John: You mentioned that.

John: Corporate you said some strength in del it said there was some weakness in heading into the first quarter.

John: Can you talk about the revenues on client and what makes you. So confident that it's that's really going to pick up thanks.

John: Yeah. So as we look at the market year on year, we expect it to be a few points bigger than it was last year. So last year was $2 70. This year a couple of points higher than that I think thats consistent with the various market forecasters that we have our market share position is very stable and we had good execution in market.

John: Sure through last year and the product line is better this year with a number of tailwind like we said. So overall, we think it's going to be a very solid year for us and our client business. Obviously as we start the year everybody is.

Ben Reitzes: Say managing through what their Q1 outlook looks like even as they expect to see stronger business as we go through the year I'd also comment Ben that some of these tail was really only start to materialize as you go into seconds second quarter and second half.

Ben Reitzes: P. C is just ramping right now the Windows 10, Eos goes into effect and customers are starting to look at the post COVID-19 refreshes. So a lot of those benefits materialize as you go through the year, but our position in gaming commercial very strong for us overall and I'll say, we're just seeing a lot of excitement for the AI.

Ben Reitzes: P. C. I described this the <unk> moment.

Dave Smith: Exciting category defining moment since Oh, Wi Fi was introduced two plus decades ago. So we do think that it's going to bring a multiyear cycle of growth great Isps, great New use cases, and a product line that is clearly leading the industry established in this category.

Dave Smith: Jonathan can we have the next question. Please certainly one moment for our next question.

Dave Smith: And.

Dave Smith: Our next question comes from the line of Vivek Arya from Bank of America Securities. Your question. Please.

Thanks for taking my question, but I'm curious now that we're a year into degenerative AI deployments. So what's your view on how our cloud customers are thinking about the capex between traditional and <unk> because when you look at the revenue growth across your GPU competitors they seem to be.

Vivek Arya: Capturing nearly all of the incremental Capex and you know in some cases, even more than just the capex at the public cloud companies.

Vivek Arya: Does that really leave much room for your GPU business to grow beyond just the seasonal variation. So just how are you looking at the AI market overall.

Vivek Arya: And what part of that is really able to capture when we just look at how much is being or needing to be dedicated to your GPU competitors.

Vivek Arya: Thank you and let's just maybe three different aspects to it. The first one is clearly the high end cloud guys and what they're doing for maximizing training environments.

Vivek Arya: Clearly that's been an accelerator markets, so far but that even is giving a I'll say a bit of a tailwind in the <unk>.

Vivek Arya: For it but the enterprise market as we see it for data centers is very much going to be an on premise play taken advantage of inferencing and that data pools that they already have and that's an area of good strength for Intel and we're starting to see that as some of the conversations with our OEM customers and as I finished.

N. A: Probably 50 meetings between the World Economic Forum in Davos, and CES with customers I'll say, we have absolute unanimous response, but theyre going to be deploying a lot of their AI on premise in their data centers and Z ons in our on premise offerings are simply the preferred way for.

N. A: Them to be taken advantage of those capabilities inside.

N. A: Inside of their data centers inside of the Tcl envelopes power networking management that they have in.

N. A: In place, obviously, we need to be participating more in the accelerator piece of that.

N. A: And we're seeing the growing pipeline of opportunities we saw a nice uptick in revenue in Q4 from a small number but a lot of momentum as we come into the year and goudy three is getting a lot of excitement clearly, leaving in TCR. So we're gonna be competing much more for that high end accelerator footprint.

N. A: But I think the message of 'twenty 'twenty four is gonna be influencing AI everywhere, that's going to be at the edge, that's going to be the AIP C and it's going to be in the enterprise data center all areas that Intel is a much stronger footprint.

N. A: Do you have a follow up question.

John: Yes, Thank you John and thank you, Matt So on the foundry side I think you mentioned iff's.

Matt: Some decline in Q1 after the strong Q4 that you had so I was hoping if you could just help us size what is the <unk> in Q1, and then <unk>.

Matt: Longer term you mentioned now you have for a DNA wins, but how do we quantify what they mean for 'twenty four 'twenty five or 26, and I think on the call you had mentioned something about $10 billion in lifetime when I'm, hoping that that's what you meant for 18, eight but when I look at that 10 billion.

There were multiple years.

Matt: That is not really that big relative to I think the 130 billion plus annual foundry market. So could you just help us size, what does Intel's external foundry business I mean for 2024 or 2025 perspective. Thank you yeah.

Two things in the Q4 to Q1 numbers in Iff's. One is the I'll say the natural ending of our traditional packaging volumes. So that affects so Q4 as we go into Q1, and obviously our focus there isn't doing I'll say traditional packaging.

Matt: Supplied by OS at vendor, but we were in a unique position to help our customers as we went through the Covid cycle all of our packaging focus going forward as advanced packaging, where our technology is differentiated the margins are good unless you saw we just announced the new Mexico facility as the first major.

Matt: Advanced manufacturing facility on U S soil, a lot of excitement from that from our customers.

Across the world.

Matt: Also we had our foundry equipment business, which was another factor Q4 to Q1 very consistent with the profile that you might have heard from people like ASML right. If they saw the quarter to quarter implications on the equipment.

Matt: Equipment business. So I'll say Q4 to Q1, all explainable in those contexts. The business, we're winning 18, a foundry customers Intel free packaging, you'll it takes quarters for that to materialize and for wafer customers years. So that's why we said lifetime deal value is probably the best metric.

Matt: But we can give you to help you understand the nature of that business as it's growing is that we saw a big uptick.

From our prior update so this one obviously we need to as your question suggests get through a much bigger number and that's exactly what we're gonna do we are now well underway, we're seeing healthy growth in lifetime deal value will be giving you periodic updates on that as a good metric of seeing how rapidly that businesses are growing.

N. A: US and I'd emphasize that number is just the external foundry right. Our internal business, that's what's going to be driving the factory build out and that really gives us the scale to then start adding these additional external customers to it those are deals as we say they could be you know a year or two or there could be multiple years.

N. A: And length there'll be a varying contract length associated with them and we just want to give some visibility transparency to the business and a rapidly growing lifetime deal value is a good way for us to give you some characterization of that business outlook.

N. A: Finally, I want to see you on February 21, we're going to hold a big industry ecosystem event, our iff's direct connect and meeting with the ecosystem our customers, but we're inviting analysts to listen in to the great conversations we're going to have in the disclosures that will be giving their thanks Vivek Jonathan we have time for one more question. Please.

N. A: Certainly one moment for our final question for today.

N. A: And our final question for today comes from the line of C. J Muse from Cantor Fitzgerald. Your question. Please.

N. A: Yes, good afternoon, and thank you for squeezing me in.

N. A: Combined both my questions into one.

N. A: Typically.

N. A: Manufacturing transition you take on one maybe maybe to kind of technical challenges.

N. A: Here at <unk>.

N. A: Were taken on backside power gate, all around and Hyatt <unk>, So would love to hear kind of maybe some of the struggles you've seen how you've worked through them and what kind of feedback you're getting from customers.

Speaker Change: And all three of those and kind of the confidence on delivering the goods and the timeline that you've set out. Thank you.

Speaker Change: Very good so let me characterize a little bit more carefully because we've been trying to carefully manage the risk that we're taking on so first was the move into E. V. We began that with Intel for an Intel three on those as we said or high volume manufacturing underway done. So we sort of took the risk of the U V off the table there.

Speaker Change: Backside power right, we've random internal know something we didn't disclose to external foundry customers, but we ran them.

Speaker Change: Many many wafers using Intel three with backside power to go Derisk backside power before we put it into Intel 20, Ey and Intel HMA. So we had a major step to Derisk backside power and then of course gate all around the transistor. So 18, a brings those two together backside power.

Speaker Change: And the gate all around transistor, but I'll tell you Joe is we've been going through the development process backside power on HMA has been elegant beautiful high yield very clean and its introduction into the process and really the focus has been on the new transistor.

Joe: <unk> with gate all around as customers are taking advantage of that now as we're starting to look at that they're really seeing great benefits from backside power in some cases almost as much a performance benefit in significant area of benefit from that and gate all around transistor is making good progress our 0.9 P.

Joe: Dk that we delivered in Q4, and we'll be having the 1.0 PDK and Q2 on track as I said.

Joe: Clearwater farce is the first product and it's now in the fab on 18, a huge milestone for us both on the product side as well as on the process side.

Joe: Hi N. A the next generation of EV is not part of 18 eight right that will be part of the next major node will talk more about that at the Intel Foundry day as he said on February 21st, but we're not introducing that as a risk factor into a Q&A.

Joe: E V tools that are in production today that we've already derisked as part of the Intel for an Intel three so we think we've done a very careful management of risk and we look at this all the time as we're rebuilding our momentum and as I said overall, we are confident five nodes in four years. This was audacious.

Patrick P. Gelsinger: It's been superbly executed and we are on track to deliver it and get back to process technology leadership for both of our products as well as to establish a major foundry opportunity for the industry rebuilding western supply chains. The momentum we're seeing in our whole fab.

N. A: <unk> network. So this is really incredible the progress and I couldn't be proud of our team for getting it done.

Yeah.

N. A: The manufacturing technology foundry design wins really across the board or say do ratio has been extremely high and we appreciate the interest and as I said, well, we look forward to the opportunity to give you some more updates as part of foundry direct connect our February 21st in San Jose and I hope to see many of you there.

There as we lay out an exciting update to the industry and it'll be a great day for us. Thank you so much for joining us.

N. A: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Q4 2023 Intel Corp Earnings Call

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