Q4 2024 Intel Corp Earnings Call
Thank you for standing by and welcome to Intel Corporation's fourth quarter 2024 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.
Speaker Change: 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.
Speaker Change: Thank you Jonathan and good afternoon to everyone. Joining us today 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 <unk> dot com for those joining us online today. The earnings presentation is also available in our webcast window.
Speaker Change: I'm joined today by our interim co Ceos, Michelle Johnston, Holthaus and David and Peter.
Speaker Change: As you know Michelle is also CEO of Intel products and Dave continues to serve as <unk> CFO.
Speaker Change: And a few moments Michelle will open up with some summary comments before providing more detail on Intel products.
Speaker Change: Dave will then discuss until foundry and the overall financials, including our Q1 guidance.
Speaker Change: Before we begin please note that today's discussion contains forward looking statements based on the environment as we currently see it and as such are subject to various risks and uncertainties.
Speaker Change: It also contains references to non-GAAP financial measures that we believe provide useful information to our investors.
Speaker Change: Our earnings release, most recent annual report on Form 10-K.
Speaker Change: And other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations.
Speaker Change: They also provide additional information on our non-GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures.
Michele: With that let me turn things over to Michele.
Michele: Thank you John and let me add my welcome it's been roughly two months since David and I stepped into our roles as interim co Ceos from day, one we have been working closely together alongside the board to drive better execution of our strategy. There are no quick fixes.
Michele: And we are committed to improving our performance and rebuilding our credibility through a persistent hard work that delivers tangible results.
Michele: As part of this we are driving more focused investments across the business.
Michele: We cannot be all things to all people and we are prioritizing areas, where we can drive differentiated value.
Michele: We are also continuing to simplify our business and become a leaner more efficient company and most of all.
Michele: We are doing a better job of listening to our customers to ensure we meet their needs.
Q4 was a step in the right direction, we delivered revenue gross margin and EPS above our guide.
Michele: Intel products executed to drive revenue in the quarter, even as P. C inventory continued to normalize and Intel foundry drove incremental operating efficiencies, while achieving key grant related milestones, which supported solid upside to gross margin.
Michele: As co Ceos, you can expect us to be very straightforward and direct.
Michele: We only make commitment we are confident we can deliver we firmly believe that what we say is not nearly as important as what we do and everything we do must be in service of our customers.
Michele: Innovating to solve their most pressing challenges is the surest path to creating shareholder value.
Michele: This is the mindset I have brought to my position as the CEO of Intel products.
Michele: This is a great business with great people partners and IP to design World class products from edge to cloud I take nothing for granted.
Michele: I firmly believe that the core X 86 architecture and the ecosystem that we have built and invested in over the decade create a solid foundation for success are.
Michele: Our customers share this view, but they need us to improve our execution and hit our commitments.
Michele: I am setting clear priorities and direction in each business to drive better outcomes.
Michele: I think about Intel products in three buckets first client edge second traditional data center and third the AI data center let.
Michele: Let me spend a few moments on each.
Michele: And client Intel CPU power roughly seven out of every 10 P C.
Michele: This is a strong position that gives us advantages in the market.
Michele: That said the market is becoming more competitive, especially as we see new entrants trying to participate in the a P C category.
Michele: Personally I thrive on competition it drives a healthy paranoia across everything we do.
Michele: And we're using it as motivation to up our game even more.
Michele: Success of core Altra across media like Arrow Lake and Lunar Lake has established Intel as the market leader and a P. C. Cpus and we remain on track to ship more than 100 million cumulative systems by the end of 2025, we are innovating at scale. Unlike any of our competitors.
Michele: This was on display earlier this month at CES, where we launched the enterprise versions of our AI Cpus with compelling new features to Intel V Pro.
Michele: This is a testament to the strong ecosystem, we adult with I T Department around Manageability Security Trust and brand and we expect these investments to position us well as corporations begin their migration to windows 11.
Michele: Alongside our investments in enterprise, our ecosystem reach also positions us well in a I P C consumer market.
Michele: We are working with more than 200 Isps across more than 400 features to optimize their software on our silicon.
Michele: I'm excited about the new applications I'm seeing in the pipeline that will begin to proliferate over the coming months.
Michele: Our goal is to innovate partner and fortify our position as the preferred CPU of choice.
Michele: Looking ahead to the rest of the year, we will strengthen our client roadmap with the launch of Panther like our lead product on Intel 18, a in the second half of 2025 as the first volume customer of Intel 18, a I see the progress that Intel foundry is making on performance and yield and I look forward to being in <unk>.
Michele: <unk> in the second half as we demonstrate the benefits of our world class design and process technology capabilities.
Michele: 2026 is even more exciting from a client perspective as Panther like achieves a meaningful volumes and we introduced our next generation client family code named Novo Lake.
Michele: Both will provide strong performance across the entire P. C stack with significantly better costs and margins for us enhancing our competitive position and reinforcing our value proposition to our partners and customers. Let me now turn to our traditional data center business.
Michele: The team has made good progress towards strengthening our offerings and driving better more predictable execution.
Michele: This year is all about improving <unk> competitive position as we fight harder to close the gap to competition the ramp of granite Rapids has been a good first step.
Michele: We are also making good progress unclear water forest, our first until 18 any server product that we plan to launch in the first half of next year.
Michele: All of this provides a strong foundation on which to build as we execute the world's datacenter workloads still primarily run on Intel Silicon and we have a strong ecosystem, especially within enterprise, we are going to leverage these strengths as we work to stabilize our market share in 2025.
Michele: One of the ways. We will do this is by re engaging the X 86 ecosystem.
Michele: We have seen a positive response from the X 86 ecosystem Advisory group, we formed last fall and we are encouraged by the enthusiasm for building both semi custom and custom products. This is a big area of opportunity for the business and we look forward to talking more about this as we have news to share turning to the AI.
Michele: The center I will start by saying that this is an attractive market for us over time, but I am not happy with where we are today on the one hand, we have a leading position as the host CPU for AI servers.
Michele: And we continue to see a significant opportunity for CPU based inference on Prem and at the edge and AI infused applications proliferate on.
Michele: On the other hand, we're not yet participating in the cloud based AI data center market in a meaningful way we have learned a lot as we have ramped goudy and we're applying those learnings going forward.
Michele: One of the immediate actions I have taken is to simplify our roadmap and concentrate our resources.
Michele: Many of you heard me temper expectations on Falcon shores last month based on industry feedback, we plan to leverage Falcon shores as an internal test chip only without bringing it to market. This will support our efforts to develop a system level solution at rack scale with Jaguar shores to address the AI data center more broadly as I think about.
Michele: Our AI opportunity my focus is on the problems our customers are trying to solve most notably the need to lower the cost and increase the efficiency of compute AI is not a market in the traditional sense.
Michele: It's an enabling application that needs to span across the compute continuum from data center to the edge as such a one size fits all approach will not work and I can see clear opportunities to leverage our core assets in new ways to drive the most compelling total cost of ownership across the continuum before I turn the call over to Dave.
Dave: Let me close by speaking as Intel foundries largest wafer customer I have a pretty simple approach.
Dave: When we are able to combine world class product with World class process technology, we win.
Speaker Change: As CEO of Intel products, I will always make process technology decisions based on what is best for my customers and Intel foundry will need to earn my business everyday just as I need to earn the business of my customers.
Speaker Change: Having said that I'm confident in handheld foundries team ability to support my current and future product roadmap and I'm excited to do more business with them as their process technology continues to advance a stronger Intel products combined with a more competitive Intel foundry is a recipe for success for Intel overall, Dave.
Speaker Change: Over to you.
Dave: Thanks, Michelle let me add my welcome I'm going to address three topics today.
Dave: Update on Intel Foundry second Q4, and full year financials and third our Q1 guidance.
Dave: Starting with until foundry I've had an opportunity to meet with a number of our partners and potential customers for Intel foundry over the last couple of months I come away from those meetings encouraged by the opportunity we have in front of us and I've received clear feedback on what our customers need from us to succeed.
Dave: This starts with our execution on until he today.
Dave: This has been an area of good progress.
Dave: Like any new process, there have been puts and takes along the way, but overall, we're confident that we are delivering a competitive process.
Dave: We're excited by the launch of Panther late this year and the internal ramp of Intel 18, a in the second half that will support increased volumes and improved profitability in 2026.
Dave: From the perspective of external customers until 18, eight is a very competitive offering that gives each of them a reason to engage with us. However boundary wins are about more than just technology.
Dave: Trust is also a significant factor.
Dave: Customers must believe you can execute consistently and be willing to invest in IP deported designed to a new foundry. That's why past transitions in the industry have generally started with customers, giving new foundry partners smaller volumes, then gradually increasing as trust grows.
Dave: We've made good progress, but to accelerate this I'm asking the team to redouble their efforts on ease of porting IP availability and best known foundry methods I'm, particularly pleased by the willingness of our suppliers and partners to engage with us augmenting our expertise and hard work with their job.
Dave: Job number one is earning the customers' trust the until 18 eight design wins to date provide good validation of the strategy and we continue to have a healthy RFP pipeline of potential customers.
Dave: But we won't win every deal out of the gate will be selective and focus on areas, where we are confident that we can be a meaningful contributor to the success of our customer and we look forward to updating you as <unk> become wins. In addition, we continue to have good momentum in advanced packaging and and our collaborations with tower semiconductor.
Dave: And UMC.
Dave: All three are critical to utilize our assets longer for higher rates of return.
Dave: This is a good segue into my other two areas of focus for Intel foundry, improving our financials and making sure that we're deploying your capital appropriately.
Dave: Roughly $18 billion in revenue until foundry today is larger than all but one external foundry.
Dave: That's clearly not reflected on our P&L with negative gross margins and a greater than $13 billion operating loss in 2024.
Dave: We're going to systematically attack our costs and remain highly focused on our goal of delivering breakeven operating income for Intel foundry by the end of 2027, and we expect to demonstrate improvements this year.
Dave: The financial benefits of shifting our wafer volume from Intel seven to Intel 18, a along with learning to run our fabs more efficiently and our process nodes longer will be important drivers of improving our financials.
Dave: Beyond 2027, and we need to drive to cash flow from operations that supports our capital spending needs and ultimately generate a great return on your capital.
Dave: I remain very optimistic on our opportunity in at Intel foundry, the pervasive growth of AI is driving accelerating an unprecedented demand for silicon and there continues to be an unmet need for greater choice and overall manufacturing capacity in the industry today.
Dave: TSMC is a valued supplier to Intel products, an important partner to IMS and they've established a very high standard for what it takes to be a world class boundary.
Dave: But the market overall needs multiple players and as we execute until foundry has a very important role to play globally and especially here in the U S, where we continue to invest in leading edge R&D and manufacturing capacity.
Dave: We're also pleased to sign with the U S Department of Commerce, a definitive agreement awarding us up to $786 billion in grants as you know these grants are milestone based and we have already received $1 1 billion in Q4 and have received an additional $1 $1 billion in January of.
Dave: Q1.
Dave: In addition, we continue to make good progress building out our secure enclave in partnership with the department of Defense.
Dave: We look forward to continued engagement with the Trump administration as we advance this work and support their efforts to strengthen U S technology and manufacturing leadership.
Dave: Finally, as you will recall, we announced our intention to establish an independent subsidiary structure for Intel boundary to provide clear governance and operational separation.
Dave: This structure also enables us to seek additional funding options from both strategic and financial partners, which we are now actively beginning to explore.
Dave: Let me now turn to our consolidated financial results and Q1 guidance.
Dave: Yeah.
Dave: Fourth quarter, $14 3 billion up 7% sequentially and at the high end of the range. We provided in October as a result of solid growth in CCG equipment sales that I M. S N the edge business of Mdx.
Dave: non-GAAP gross margin came in at 42, 1% 260 basis points ahead of guidance on higher revenue better costs and the receipt of our first chips grant off.
Dave: Partially by inventory reserves related to goudy.
Dave: We delivered fourth quarter earnings per share of 13 cents.
Dave: Versus our guidance of 12 cents higher revenue stronger gross margin and improved operating leverage was offset by lower interest and other income which includes an accrual related to our second skip agreement of roughly $750 million.
Dave: Reflecting an adjustment in our planned capacity ramp in Ireland.
Dave: In Q2, we can began the process of resizing, our expense structure to support more modest long term growth, including adjusting our capacity plans to more conservative levels driving impairments in Q3 and this accrual in Q4.
Dave: Q4, operating cash flow was positive $3 2 billion.
Dave: Down approximately $900 million sequentially due to the cash outlays associated with our Q3 restructuring charges.
Dave: We had gross capex of $6 $3 billion with offsets of $1 6 billion in the quarter, resulting in an adjusted free cash flow of negative $1 5 billion.
Dave: As I mentioned earlier, we also received a portion of the chips grants this quarter.
Dave: For the full year revenue was $53 $1 billion down two 1% year over year modest year over year growth in Intel products was more than offset by lower revenue it mobile ly and alterra as well as the forecasted decline in foundry services due to the end of life on traditional packaging revenue.
Dave: Full year gross margin was 36% and down 760 basis points due to Q3 impairments lower revenue and inventory impacts.
Dave: Full year EPS was minus 13 cents and down $1.18 on lower revenue lower gross margin and higher period charges.
Dave: We generated $8 $3 billion in cash from operations May $24 billion of gross capital investments and generated capital offsets of approximately $13 $4 billion from skip partner contributions and government grants and incentives.
Dave: As a result, adjusted free cash flow with minus $2 $2 billion and we ended the year with $22 1 billion of cash and short term investments.
Dave: Moving to segment results for Q4, Intel products revenue was $13 billion up 7% sequentially.
Dave: CCG revenue was up 9% quarter over quarter as the rate at which our customers digested inventory slowed meaningfully from Q3.
Dave: While difficult to quantify we suspect a portion of Q4 revenue upside was due to customer's hedging against potential terrorists.
Dave: D C. AI revenue was up slightly sequentially off of better than expected Q3 as demand for traditional servers remains stable.
Dave: Revenue for any X was up seven 5% sequentially and is now up more than 20% from Q2 lows. Most customers are returning to more normal buying patterns, especially in our edge business.
Operating profit for Intel products, with $3 6 billion, 28% of revenue and up $300 million quarter over quarter on higher revenue and reduced operating expenses.
Dave: Intel foundry delivered revenue of $4 5 billion up 3% sequentially on increased easy wafer mix and higher equipment sales by IMS.
Dave: UV wafer revenue grew from 1% of total revenue in 2023 to greater than 5% in 2024.
Dave: Intel foundry operating loss in Q4 of $2 $3 billion improved meaningfully sequentially as Q3 was impacted by $3 $1 billion of impairments.
Dave: Excluding impairments operating loss would have been roughly flat quarter on quarter.
Dave: Turning to all other mobile I reported revenue of $490 million up 1% sequentially with operating profit of $103 million and earlier today guided for full year 2025 increases to both revenue and operating income.
Dave: Alterra delivered revenue of $429 million up 4% sequentially.
Dave: Operating margin was 21% versus 2% in Q3 on better gross margins and operating leverage.
Dave: For Q1, we expect alterra revenue to be down sequentially less in overall Intel consolidated.
Dave: We continue to make good progress on the stake sale of Alterra and see a path for an IPO in the coming years.
Dave: Now turning to guidance Q1 has historically been our seasonally weakest quarter of the year down high single to low double digits percentage sequentially on average. In addition, we see added pressure coming from macro uncertainty, especially around tariffs.
Dave: <unk>, a P C inventory and increasing competition.
Dave: These mitigating factors support a more tempered revenue outlook as we come into the new year. As a result, we're forecasting a revenue range of $11 seven to $12 $7 billion in the first quarter of 2025 down between 11% to 18% sequentially.
Dave: Within Intel products, we expect revenue to decline across all three of our segments at roughly similar rates.
Dave: We expect Intel foundry revenue roughly flat to down modestly quarter over quarter helped by continued mix shift to EV wafers, Intel 18, a samples and advanced packaging.
Dave: At the midpoint of $12 $2 billion, we expect gross margin of approximately 36% with a tax rate of 12% and breakeven EPS all on a non-GAAP basis.
Dave: Let me take a few moments to provide some commentary that maybe helpful for your full year 2000 and twenty-five modeling.
Dave: At the consolidated level, we expect gross margin to improve from Q1.
Dave: Intel products gross margin was 51% in 2024 and is expected to decline this year due to product mix in both CCG and D. C AI.
Dave: Intel foundry gross margin will improve on EV mix shift and growth in advanced packaging. Despite expected depreciation growth in 2025 of roughly 10%.
Dave: We continue to target 2025, opex of $17 $5 billion with further reductions in 2026.
Dave: We expect Noncontrolling income or NCI to net to roughly zero in Q1 and be in the range of $500 million to $700 million impact this year on a GAAP basis.
Dave: NCI is expected to grow in fiscal year, 2020 six to a range of one two to $1 $4 billion on a GAAP basis and increased further in future years, as we increase wafer outs at our Fabs, where we have agreements with skip partners.
Dave: We anticipate that our 2025 gross capital investments will be approximately $20 billion at the low end of our previous guide of $20 billion to $23 billion, reflecting further capacity adjustments to Ohio in Ireland as well as better utilization of what we call our construction in progress.
Dave: Specifically, we invested ahead of demand over the past few years and these capital investments will enable us to meet expected demand at a lower level of spending as we drive to more efficiently deploy our capital.
Dave: We expect 2025, net capex of 8% to $11 billion with roughly half of the offsets expected to come from government incentives and tax credits and half from partner contributions.
Dave: De levering in 2025 remains a top priority for us on lower Capex increased cash from operations and value unlock across our noncore assets.
Dave: Finally, I'll remind you that we will provide new segment reporting in conjunction with our Q1 earnings we expect to make further changes to our segments, including moving the edge portion of any acts into CTG and our auto business from all other into CTG. In addition, we expect to move the networking portion of AVX, which include Xeon sales into.
Dave: D C AI and the IMS equipment business out of Intel foundry into all other.
Dave: Wrap up by saying that Q4 was a solid quarter to close out a challenging year with that said our profitability is below where it needs to be and we must enhance our competitive position in the market.
Speaker Change: Michelle and I will continue taking actions to improve the operational and financial trajectory of the business. We will remain focused on building a stronger until products business and becoming a more efficient Intel foundry and.
Speaker Change: And by driving continued progress in these areas, we're confident in our ability to unlock value for our stakeholders before you open the line to questions. It's worth mentioning that the board remains intensely focused on the search for a permanent CEO.
Speaker Change: The search is progressing but we have nothing new to report and won't be able to add additional information on this topic today.
Speaker Change: With that I'll turn it over to John to start the Q&A.
John Pitzer: Thank you, Dave we will now transition to the Q&A portion of our call.
John Pitzer: As a reminder, we would ask each of you to ask one question and a brief follow up question where applicable.
John Pitzer: With that Jonathan can we take the first question. Please certainly and our first question for today comes from the line of Ross Seymore from Deutsche Bank. Your question. Please.
Ross Seymore: Hi, guys. Thanks for let me ask a question I guess the first one would be for MJ you talked about no quick fixes.
Ross Seymore: But a lot of things to improve the roadmap specifically in the Dci side of things can you talk about how much you think granted is closing the gap it sounds like Clearwater for US is not mentioned nearly as much as far as the 2025 event neither from a launch or.
Ross Seymore: Or from a revenue perspective, so if theres any updates on that and then just overall, what it's going to take.
Ross Seymore: And when do you think we will be able to externally see that gap close versus competitors.
Ross Seymore: Sure. Thanks for the question Ross.
Ross Seymore: Look at it this way so when I talk about no quick fixes I think it's going to be one to two years of consistent execution and continuing to see better products each year really to bring our customers back to the table and be excited about Intel's roadmap granite Rapids. It's a good first step in doing that it does close the gap our customers are excited about it and we.
Ross Seymore: We're starting to see the competitiveness that product materialize in volume, but I'm also very clear eyed about where we stand and so we've just got to see that continued throughout 2006, when we get to Diamond Rapids et cetera.
Ross Seymore: Also asked me about Clearwater Forest, So I really look at the data center market and kind of two buckets, we have our T core products, which you know was granted Rapids and then we have our core products, which equates to Clearwater, Florida and what we've seen is that's more of a niche market and we haven't seen volume materialize there as fast as we expected, but as we look at Clearwater for.
Ross Seymore: We expect that to come to market in the first half of 2026 18, a is doing just fine on its performance for any yield who are Brian at rapid but it does have some complicated patchy packaging expectations.
Ross Seymore: Expectations that move it to 2026.
Ross Seymore: We expect that to be a good product and continue to close the gap as well but.
Ross Seymore: This is going to be a journey, it's not a destination.
Ross Seymore: Where else do you have a follow up question.
Dave: Switching over to Dave on the profitability side can you just walk us through some of the puts and takes in the gross margin sequentially in the first quarter, obviously revenues are down but anything else and then you mentioned that it would be the low point of the year. The gross margin in the first quarter, but what would be the headwinds and tailwind as you think through 2025 as a whole on that metric. Thank you.
Dave: Yes, Thanks Ross.
Dave: So for the first quarter the biggest obvious contributor to gross margins sequentially is the revenue decline at.
Dave: At the midpoint, we're declining a little over $2 billion and so that obviously.
Dave: Mostly fixed cost business that does affect it. We also did have a couple of Bluebird in Q4, one was the revenue beat and so that actually elevated the revenue a bit but the other was when we signed the chips agreement.
Dave: We were able to take some of the grant and accrue it as you know.
Dave: The benefit to cost of sales because it can offset period expenses, we had spent.
Dave: Before so.
Dave: We weren't sure we were going to sign it in the fourth quarter, which is why I didn't guide that in the in the guidance from last quarter, but obviously materialize that pushed the gross margins up for the fourth quarter.
In the first quarter I think what we've kind of telegraphed. This now for several quarters Intel products gross margins are going to be under pressure this year.
Dave: Some of the parts have a higher cost in particular lunar Lake has a higher cost.
Dave: As you know because it's got the memory and package and so we're basically buying that memory and turning around and selling it at the same price that's really weighing the margins down on lunar like so.
Margins for products is going to be under pressure pretty much throughout this year. Then is painfully comes in volume next year more materially in <unk>.
Dave: In addition, the products beyond that we'll start to see some improvement in margins on Intel products.
Dave: Now that was always to offs be offset in a lot of ways by the margins of Intel foundry.
Dave: We see more of a mix of <unk> wafers, they have better pricing with a better cost and so we will see a mix improvement throughout the year. We're also reducing our spending there in period expenses as part of our kind of overall $10 billion plus cost spending reduction, but it doesn't really show up in the first quarter, it's not until we get.
Dave: Into the second and third quarter that we start to see.
Dave: That improvement show up so those are really the bigger drivers of margins on the on the first quarter.
Dave: It is a low point as we talked about the benefits are going to be really around margins improving on Intel foundry.
Dave: The mix of EU wafers increases throughout the year in particular as we get Panther Lake in there in the back half of the year and we're selling ETE wafers at a higher margin.
Dave: And then next year, we have Panther like with more volume and all of those wafers start to come back and that becomes a really big benefit to us.
Dave: Intel overall.
Speaker Change: Thank you Ross Jonathan can we have the next question. Please.
Speaker Change: Certainly and our next question comes from the line of Stacy Raskin from Bernstein Research. Your question. Please.
Stacy Raskin: Hey, guys. Thanks for taking my question.
Stacy Raskin: First question just on the segment guide for next quarter, where all three product segments down equally when it sounds like you've got more headwinds just on the surface of Tcs inventory digestion and maybe the rollout from some of that tariff pull forward, what's going on in the in the data center and the <unk> businesses that makes them as bad as a client into Q1.
Stacy Raskin: Well broadly across all markets, we didn't necessarily telegraph every market in terms of where we think but I'd say broadly, we're a little bit cautious on the macro and that affects all markets.
Stacy Raskin: In addition seasonality does play in most of the markets and that does impact the.
Stacy Raskin: The first quarter as well so I would say you know combination of just macro uncertainty combined with.
Stacy Raskin: Typical seasonality across all the businesses.
Stacy Raskin: So do you have a follow up question.
Speaker Change: Yeah I do thank you.
Speaker Change: So you also talked about increased competitiveness weighing on margins at least into Q1. So.
Speaker Change: I presume that's a question on pricing I guess is that right do you expect that to persist through the year and how do you think about that competitiveness.
Speaker Change: As you weigh on pricing across client and especially in the in the data center.
Speaker Change: Yeah. Okay. So are the co CEO of trying to figure out who should answer Okay go ahead Michelle.
Speaker Change: Whoever wants to take it.
Speaker Change: Yeah.
Speaker Change: The way I look at that is we do have increased competition as we see new market entrants, particularly come in to CTG.
Speaker Change: We've got a very good product and lunar like there, but as Dave talked about the margins on that product are more pressured based on the cost of the product, but we are going to stand the market segment share decline in client and we're gonna go after winning every socket that mirrors itself. When you think about the datacenter market as well as I said granite Rapids is a very positive step and a compare.
Speaker Change: That direction, but we have to stem the tide of share loss in data center and so we will be fighting for every socket in that business and the way I look at it is we need to be aggressive we need to win share and we need to show our customers that they can win with us. Thanks.
Stacy Raskin: Stacy Jonathan can we have the next question. Please certainly and our next question comes from the line with CJ Muse from Cantor Fitzgerald. Your question. Please.
Yeah, Good afternoon, and thank you for taking the question.
CJ Muse: First question under your new co leadership would be curious to hear how your strategy has potentially evolves specifically for us.
CJ Muse: I mean, I think and we've talked about this over the last couple of quarters.
CJ Muse: One we are not looking to spend ahead of success and so you saw our Capex guide come down from the 20 to 23 range down to 'twenty that's in.
CJ Muse: In.
CJ Muse: In support of that that strategy.
CJ Muse: We want to absolutely.
CJ Muse: While the customers, but to do that we've got to be very careful around what we're promising them as well. So I think what youll see a lot of it is a little bit more conservatism around how we deploy capital how we engage with customers we wouldn't be doing more than what we promise.
CJ Muse: To ever returned to every stakeholder, including investors, including customers, including suppliers. So what have you that's pretty much the.
CJ Muse: The strategy. The main goal of building a world class boundary that's still in place.
CJ Muse: We feel that there absolutely is a need for another player in the leading edge semiconductor manufacturing space in particular in the U S. It aligns with the government the U S government's interest as well. So we're absolutely committed to that it's now about being very cautious and careful around generating the.
CJ Muse: Best of all I see for the shareholders.
CJ Muse: Do you have a follow up question.
CJ Muse: Thanks.
CJ Muse: David Another question for you.
CJ Muse: I believe that three three months ago. The stated goal for 2025 was to be free cash flow positive I guess, given kind of the weakness we're seeing in Q1 and that uncertainty can you kind of walk through how you're thinking about the past turning free cash flow positive.
CJ Muse: Yeah, So we're not obviously guiding.
And the first quarter, but I would just say we.
CJ Muse: Did a very good job in a challenging.
CJ Muse: Situation in 24 around cash flow from operations by driving strong working capital improvements and we adjusted Capex Accordingly, and that helps stem the tide. So while we were negative in 'twenty four.
CJ Muse: We were closer to zero than we should have been based on the top line results I'd say, it's more about the same in 25, we're gonna be acutely focused on cash flow from operations.
CJ Muse: Managing working capital effectively.
CJ Muse: Adjusted the Capex down as I talked about.
CJ Muse: In relationship to a different outlook, we do expect some pretty significant.
CJ Muse: Offsets as well more than $10 billion of offsets, which will also help.
CJ Muse: I won't throw out a number yet for <unk>.
CJ Muse: For adjusted free cash flow for the year, but I would just say that it's a focus that we that we're we want to improve I would say in addition to that we have these noncore businesses and we see opportunity to monetize there that will help us delever because that's a focus of us focus of ours in 2025.
CJ Muse: Our.
CJ Muse: Far along on the process of Alterra.
CJ Muse: I suspect that by the time, we get to earnings next next quarter, we will have something to say there that will help generate some cash that we can use to delever.
CJ Muse: Thanks, Jonathan can we have the next question please.
Speaker Change: Certainly and our next question comes from the line of Joe Moore from Morgan Stanley. Your question. Please.
Joe Moore: Great. Thank you.
Speaker Change: The prepared remarks, you made reference to that sort of tempering of expectations without insurers can you talk about.
Speaker Change: What was behind that and kind of what does it take for you to get competitive in that space.
Speaker Change: Yeah of course, I can Joe I think it really comes down to taking the time over the last six weeks to actively engage with the teams look at our Roadmaps look at where we are from a competitive perspective and from an execution perspective and that really resulted in that decision a lot of conversations with my.
Speaker Change: Customers as well in regards to what do they see is needed to be competitive and to deliver the right product and so when I looked at that obviously you have got the product. We're learning a lot from that one of the things that we've learned from goudy is it's not enough to just deliver the silicon we need to be able to deliver a complete rack scale solution.
Speaker Change: That's what we're going to be able to do without without.
Speaker Change: Give me with Jaguar Schwartz Falcon Schwartz will help us in that process of working on the system networking memory all of the functions of that but what customers really want is that full scale rack solution and so we're able to get to that with Jaguar our shores.
Speaker Change: I think we've also seen a lot this week with deep seek in a lot of the excitement around not one size fits all and so I'm also trying to look at the roadmap to say Theres a lot of IP and assets that we have is Intel product. So that we can leverage to address this market, we've got great Cpus Gpus Asics fpga's.
Speaker Change: And we need to figure out how we harness those because if we've seen anything this week when there are constraints put on customers they figure out different ways to deploy technology and so that's also a great opportunity and something that I'm looking at I'm looking at if there's ways that we can be disruptive there.
Joe Moore: Joe do you have a follow up question.
Joe Moore: I do and thank you for your candor about all of that I think separately you mentioned in his prepared remarks about potentially seeing tariffs driving some some pull forward can you just talk about how pervasive that might be is that conservatism that that might be happening are you seeing evidence that that's happening just some color on where that's coming from.
Joe Moore: Yes.
Joe Moore: We obviously have a fairly good sense of what.
Speaker Change: What customers.
Speaker Change: Need from quarter to quarter.
Speaker Change: Couple of instances customers.
Speaker Change: Ordered more than we think they were digesting.
And so it was really just the analytics that gave us insight into it and they're doing that for a reason and we know tariffs are a big.
Speaker Change: Subject of a lot of our customers. It was in the region you might expect in the Asian region that we saw this.
Speaker Change: It's hard for me to extrapolate this beyond this quarter.
Speaker Change: Not known yet around what might be the plans on tariffs I just thought it was a little bit of hedging going on by customers that pulled revenue into the fourth quarter and away from the first quarter.
Speaker Change: Jonathan can we have the next question. Please certainly and our next question comes from the line of Timothy Arcuri from UBS. Your question. Please.
Timothy Arcuri: Thanks, a lot Dave I also wanted to ask about gross margin I think the message you are saying is that it's kind of 60%.
Timothy Arcuri: Incremental and that was kind of off of the 39 five that you've guided for Q4, but obviously you came in you had these one timers and now we're down in March. So can you just sort of level set us for kind of how to think of the incrementals from here.
Timothy Arcuri: Incremental.
Timothy Arcuri: Rentals from Q1.
Timothy Arcuri: In other words into Q2, three and four is that what you're saying yeah. Just yeah, just kind of what it is about the 35 36.
Timothy Arcuri: Yeah, Yeah. The rule of thumb has generally been 60% in this period of what I call catch up obviously, we think we can do better fall through as we get more stabilized.
Timothy Arcuri: The one dynamic in 'twenty five is this kind.
Timothy Arcuri: Margin pressure around products like lunar like that that probably pulls.
Timothy Arcuri: Pulls the range down to probably something more like in the 40% to 60% fall through is probably the right way to think about it.
Timothy Arcuri: Just for for that dynamic that we get into 2006 and you start to see a lot more <unk> volume through Panther like I think we're in the 60% plus range at that level.
Speaker Change: Tim do you have a follow up question.
Tim: I do yes. They are also so you took the capex to the low end, but theres a $1 billion outflow. That's in the financing section of the cash flow statement.
Tim: What is that I guess I'm trying to figure out just on an apples to apples basis is like Capex really coming down this year and is that a line item in the financing section is that can I keep getting bigger this year. Thanks.
Tim: Yes.
Tim: No.
Tim: The let's see let me go back into Capex.
Tim: If you look at Capex for two for 25, the 'twenty to 'twenty 20 billion forecast, what's driving that lower is really a function of.
Tim: You'd better utilizing assets under construction so.
Tim: Our philosophy has been to invest kind of ahead of.
Tim: What was required and we built up a pretty significant balance in assets under construction.
Tim: To the tune of greater than $50 billion. So we actually have a lot of capital on the balance sheet that really hasn't been deployed and so what we've pushed the team to do in an effort to drive better ROI and return on invested capital is to have them digest as much as that is possible and limit the amount of purchase.
Tim: Is that we.
Tim: That we make externally and that that's going to allow us to get down to the to the $20 billion range I would be.
Tim: We're not doing any funky financing around this but I would.
Tim: In the spirit of transparency say that.
Capex is two things right, it's what what your place in terms of orders on equipment and it's when you give them the cash and so for sure. We are working the payment terms of suppliers.
Tim: To improve our.
Tim: To improve our capex lower our capex.
Tim: It is pushing.
Tim: Spend out even as we're getting the assets in but quite honestly by the time, we actually deployed it in its depreciating, we've actually in all cases, I think spent the money.
Tim: Because it goes on to assets under construction, probably hangs in there for like nine months before it ever deployed.
Speaker Change: Thank you Tim Jonathan can we have the next question certainly our next question comes from the line of Vivek Arya from Bank of America Securities. Your question. Please.
Vivek Arya: Thanks for taking my question first kind of related questions are on the datacenter server.
Speaker Change: CPU market.
Speaker Change: And I'm curious when you look at.
Speaker Change: Intel versus your X 86 competitor do you think the share gains are because of better design or access to better manufacturing.
Speaker Change: And so what can be fixed and what would it take time to fix or if you were to outsource more right to external foundry does that help you regain share and I imagine that applies more to cloud.
Speaker Change: And then on the enterprise side have you seen any share shifts at all over the last few years.
Thanks Vivek.
Speaker Change: Well, if you look at data center and the competitiveness.
Speaker Change: As I said our stated earlier.
Speaker Change: Granite rapid has done a good job of making a good first step in closing the gap versus competition.
Speaker Change: We still have a gap and so we've got to be laser focus next on delivering diamond Robbins and the feedback from both of those products. Early is very is very positive when it comes to external manufacturing I've been pretty transparent about this and the way I think about it in my philosophy.
Speaker Change: The way I look at it is you have to have the right product at the right process and you have to deliver that within the REIT market window.
Speaker Change: Do you look at Intel.
Speaker Change: <unk> overall today, we do about 30% of our manufacturing externally across a variety of partners, that's probably the high for where we are today, but it will never be zero percent.
Speaker Change: What I can tell you is 18 EE is going well they earn my business, obviously, both for Panther like them for Clearwater Forest, but as I think about being more competitive in data center moving forward and I look at future designs I will ask myself that question every time as we look at the roadmap. So I think it would not be unfathomable that I would put a data.
Speaker Change: Our product outside if that meant that I had the right product the right market window as well as the right performance for my customers.
Speaker Change: So back to you have a follow up question.
Thank you John So maybe one for Dave on the non controlling interest I think Dave you said $5 million to $700 million.
Speaker Change: This year, so a little bit lower than.
Speaker Change: Then I think the 700 you had before but then it starts to grow to 1.2 of $1 4 billion is this.
Speaker Change: Always good to keep on increasing like what is the right way for us to model. It because the less you outsource I guess the in source the more you'll get to enter foundry. The more reversals right you have to do on this NCI part.
Speaker Change: Imagine so is it.
Speaker Change: Reasonable way to model, how much of a headwind to our reported EPS.
Speaker Change: Yeah. It's a good question I mean.
Speaker Change: Just.
Speaker Change: To break it all out it's more than just the skips skip one and two are obviously in their booth, but also <unk>.
Speaker Change: <unk> shows up in Noncontrolling interest and as we sell down.
Speaker Change: Stakes in companies like mobile and Alterra, it actually exacerbates that NCI. So altera doesn't have any NCI, but as soon as we sell a stake is going to have NCI. So there are a number of things that go into it which makes it a little bit difficult to forecast because you have to kind of know what you have to know two things with certainty one exactly what share.
Speaker Change: Of every asset you have and to what your production is going to look like in the Fabs that you have to have these skips.
Speaker Change: So what we felt comfortable was was guiding.
Speaker Change: Guiding 25, and giving you an indication for 26, it's likely to go up in 2007.
Speaker Change: But I think it's probably too soon to actually identify what the exact number will look like.
Speaker Change: Thanks for that Jonathan can we have the next question. Please certainly our next question comes from the line of Ben Reitzes from Melius. Your question. Please.
Ben Reitzes: Hey, guys. Thanks, a lot for the question.
Speaker Change: David I wanted to I know in your prepared remarks, you said you look forward to working with the Trump administration.
Speaker Change: I was wondering if you could just give a little more detail about your initial talks with them how.
Have they reached out and who is leading the discussions from your side.
Speaker Change: Any color on what Youre, what youre exactly talking about and what they are particularly interested in I mean, Howard Lutnick, obviously it sounds like this is very near and dear to him.
Speaker Change: During his confirmation hearings and.
Speaker Change: Would love to just kind of get a little bit more color on where you. What you have done so far and where you think it's going.
Speaker Change: And then I'll have a follow up thanks, so much guys.
Speaker Change: Yeah, Okay. Thanks, Ben maybe I'll take that as the co CEO how's that.
Speaker Change: We have good engagement with them, we've really been engaged since the election.
Speaker Change: With the team at.
Speaker Change: At various levels obviously.
Speaker Change: At the CEO level, but also we have a strong government affairs team that engages with them every day.
Speaker Change: I feel really good about.
Speaker Change: Their outlook on February seven.
Speaker Change: Semiconductor manufacturing back to the U S.
Speaker Change: I think this is a very positive sign obviously for us quite honestly, we never left the U S. So we're in that kind of a pole position in that regard.
Speaker Change: And I think they understand the value of doing R&D in the U S for.
Speaker Change: For advanced semiconductor manufacturing, which also is positive.
Speaker Change: Want to see more jobs coming back to the U S. We pay high wage high tech jobs.
Speaker Change: So that's obviously positive for them, but more importantly, this is about security both in terms of just the supply chain, but also in kind of secure manufacturing for the department of defense.
Speaker Change: Which we're obviously in a in a position to do for them.
Speaker Change: I imagine that as we progress.
Speaker Change: We will be more engaged with them.
Speaker Change: To make this a reality.
Speaker Change: And both Michelle and I will be meeting fairly.
Speaker Change: Fairly regularly with with the Trump administration officials to go make their their goals a reality for the U S.
Speaker Change: You said you had a follow up.
Speaker Change: Yes. Thanks.
Speaker Change: A double click on a prior question on gross margins.
And ask it a little bit more caveman terms of rather than incremental.
Speaker Change: You talked about <unk> being the bottom.
Speaker Change: I'm trying to figure out how high it goes sequentially as we go throughout the year given it sounds like you're going to be a lot more price aggressive.
Speaker Change: In the server Cpus in client Cpus from what I heard.
Speaker Change: No.
Speaker Change: In addition to.
Speaker Change: Im trying to balance that with the thought of outsourcing more to TSMC for the year et cetera. So if that's the low point I guess, what I'm trying to say can you be more prescriptive in light of that pricing comment I made.
Speaker Change: If that's right then just give us a little more color on where we go from the <unk> that'd be great. Thanks.
Speaker Change: Yeah I mean.
Speaker Change: We intend to be.
Speaker Change: Competitive.
Speaker Change: In the product space and also as I mentioned the cost structure is.
Speaker Change: Some pressure in particular because of the lunar Lake.
Speaker Change: So that absolutely will impact the gross margins on products, there won't be a lot of lift.
Speaker Change: That business unit.
Speaker Change: Through the year and it's really not until Panther Lake comes that they I think start to see some better cost structure and have a.
Speaker Change: I have a part that's very competitive, but I think allows us to.
Speaker Change: Perhaps even relax some of that debt.
Speaker Change: That pressure in the competitive market that said the foundry business will see improvements.
Speaker Change: Over the course of the year.
Speaker Change: More wafers will will be coming back.
Speaker Change: With Panther Lake it becomes even better in the following year.
Speaker Change: Improving the cost structure of the foundry business as part of our overall spending reduction plan. So that will also help.
Speaker Change: And then just keep in mind you know these these wafers that we're producing at Intel <unk> and <unk> have much better cost structure.
Speaker Change: Margin structure.
Speaker Change: Relative I should say relative to the price structure there.
Speaker Change: Than their predecessors and that will be beneficial on the foundry side. So in the cave men.
Speaker Change: Macro sense I think the best thing to do is probably take this like somewhere in the 40% to 60% fall through and that's probably the right.
Speaker Change: Rough order math to get you to where the margins will go in any quarter based on what you are projecting that revenue to be in that quarter.
Speaker Change: Then Jonathan can we have the next question. Please certainly our next question comes from the line of Aaron Rakers from Wells Fargo. Your question. Please.
Aaron Rakers: Yes, thanks for taking the question I wanted to build off of that last question a little bit.
Aaron Rakers: During the prepared remarks, you had mentioned 1% in 2023 was the wafer mix and Thats progressed in north of 5% this year.
Aaron Rakers: Can you give us a framework of how you would define success.
Aaron Rakers: Looking through 2025, maybe exiting the year as far as <unk> wafer mix and remind us again, what the what the Delta is in terms of cost structure or the margin dynamics of an EUA UV wafer.
Aaron Rakers: Yes, well I'll say.
Aaron Rakers: On the second part maybe I'll I'll answer that one first I would say the price on those wafers goes up at <unk> the cost of those of those wafer or sorry, maybe you said it right the blended asps and cost goes up.
Aaron Rakers: Three X.
Aaron Rakers: As you go to 18 a versus the.
Aaron Rakers: The cost so it's a pretty dramatic improvement in gross margins.
Aaron Rakers: You move into a Q&A versus pre wave.
Aaron Rakers: Wafers.
Aaron Rakers:
Aaron Rakers: Yes, probably.
Aaron Rakers: <unk> be tough for me to hazard, a guess on exactly how we'll exit the year in terms of our percentage of <unk>, it's definitely going to go up.
Aaron Rakers:
Aaron Rakers: Branded as an Intel three.
Aaron Rakers: Panther Lake is on your leg is until three or four.
Aaron Rakers: The four three wave node.
Aaron Rakers: Panther Lake is on <unk>. This year, so we'll see a pretty meaningful jump in the percentage of wafers that will be as we exit 'twenty five.
John Pitzer: Yes, John we have a follow up question.
John Pitzer: I do and it is probably a dumb question, but I'm just going to ask it because I'm just a little confused that.
John Pitzer: Skip impact this 5% to $700 million go into $1 2 billion, just just remind us again. So we're all clear that when you report EPS on a non-GAAP basis.
John Pitzer: That EPS number just so I'm modeling it correctly I'm sure my peers are already but I want to make sure I've got that all clear in my head.
John Pitzer: I just want to make be clear, it's not just skip I mean that includes the mobile ly income.
John Pitzer: And will include the altera income to some extent, but yes all of that in the NCI, we do take it against our non-GAAP number to get our fully built.
John Pitzer: Diluted non-GAAP EPS number.
Speaker Change: Erin. Thank you Jonathan we have time for one more question certainly and our final question for today comes from the line of <unk> <unk> from Raymond James Your question. Please.
Speaker Change: Thank you thanks for squeezing me in a.
Speaker Change: Dave on the foundry breakeven.
Speaker Change: Target for 2027, maybe can you talk about what are the assumptions behind that I mean do you think you can get there with.
Speaker Change: Mostly internal wafers or do you need external customers as well if so what sort of revenue do we need from external customers to I guess achieve that breakeven.
Speaker Change: Yes, so we're still aiming to get to breakeven in 2007 as you pointed out it's really on the back of internal wafer start wafers from Intel products I should say.
Speaker Change: And.
Speaker Change: It's.
Speaker Change: Obviously, a lot based on <unk>.
Speaker Change: <unk> wafers, which carry a better margin and as that mix improves that significantly improves.
Speaker Change: The margins, but more importantly, I think.
Speaker Change: The original premise by creating this different P&L structure was to drive that.
Speaker Change: Foundry business really at that point was just a function manufacturing to be more focused on efficiency to squeeze out more from the existing footprint to be more sensitive to capital and ultimately you just think about ROIC and everything they do and I think that has worked to actually I mean I hear it all the time, it's amazing the transformation we see.
Speaker Change: In staff meetings and Michelle.
Speaker Change: That attend that know how there.
Speaker Change: Completely pivoted to how to make money.
Speaker Change: In that business and so I think it's working.
Speaker Change: We will see significantly more efficiency as we go into.
Speaker Change: Work through 'twenty, five and into 26, so I feel good about our ability to get to breakeven obviously.
Want to have external customers and so we have some very small amount that we've assumed for 2007.
Speaker Change: But if it <unk> it looks like it's something that hunts based on feedback from customers and I feel like we will probably outperform in that regard.
Speaker Change: In terms of the mix of external customers versus internal customers. So those are all the factors that I think will drive 27 to profitability and ultimately obviously you want to get to our toothbrush is there a breakeven and ultimately want to get the business to a profitable level, that's consistent with what the foundry industry gets treated do you have a quick follow on.
Speaker Change: Yes, a quick one so on the 18 day Panther Lake I think in the past I think Dave the comment was that.
Speaker Change: You expect to bring roughly 70% of the die in house is that still the plan and then is it pretty set in stone that youre, bringing it back for sure do you have any flexibility whether to bring back more of the die are less of the day, if you need to so just trying to understand.
Speaker Change: Yes, I'm going to let Michelle answer that because it really is her decision on how she built her product yes. So we did move Panther Lake.
Speaker Change: Inside of this May 18, a design win and as I stated before.
Speaker Change: Look at each generation of product based on.
Speaker Change: What's the right product, what's the right process, what's the right market window on what allows our customers to win so for Panther Lake that was a today and as I said, we're very happy with where we are from a performance and yield perspective at this point in the process. So that will stay on <unk>. Then as you look forward to our next generation product for client after that Novo Lake.
Speaker Change: Well actually have sky both inside.
Speaker Change: And outside for that process, so you'll actually see compute tiles inside and outside again, it's about optimizing what allows us to win in the market what allows us to win with our customers and optimizing the overall product portfolio because at the end of the day, if our customers are successful we win that drives more wafers.
Speaker Change: Intel foundry and that allows us to win but I'll continue to have a balance and as I said, we'll be doing the same look across our data center portfolio as well.
Speaker Change: Alright, Thanks, Michele so with that let me wrap up by saying Thank you as always for joining the call and Jay and I appreciate the opportunity to discuss our progress and the actions we've taken.
Speaker Change: Q4 was a good step forward, obviously, but we have a lot of hard work ahead of us and we're looking forward to updating you as we go along we hope to see many of you in person at the investor's conferences, we'll be attending in Q1 and I'd also like to highlight that the Intel foundry team will be hosting their second annual direct connect user event on <unk>.
Speaker Change: 2019 in San Jose and we hope many of you will join that in person. So thank you and good night.
Yeah.
Speaker Change: 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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