Intel Corporation (NASDAQ:INTC) Q1 2024 Earnings Call Transcript

Intel Corporation (NASDAQ:INTC) Q1 2024 Earnings Call Transcript April 25, 2024

Intel Corporation beats earnings expectations. Reported EPS is $0.18, expectations were $0.13. Intel Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by and welcome to the Intel Corporation’s First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] 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.

John Pitzer: Thank you, Jonathan. By now, you should have received a copy of the Q1 earnings release and earnings presentation, both of which are available on our Investor Relations website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I am joined today by our CEO, Pat Gelsinger; and our CFO, David Zinsner. In a moment, we will 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, and as such, are subject to various risks and uncertainties. It also contains references to non-GAAP financial measures that we believe provide useful information to our investors.

Our earnings release, most recent annual report on Form 10-Q and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures, including reconciliations where appropriate to corresponding GAAP financial measures. With that, let me turn things over to Pat.

Patrick Gelsinger: Thanks, John, and welcome, everyone. We reported solid Q1 results, delivering revenue in-line and EPS above our guidance as we continue to focus on operating leverage and expense management. Our results reflect our disciplined approach on reducing costs as well as the steady progress we are making against our long-term priorities. While first-half trends are modestly weaker than we originally anticipated, they are consistent with what others have said and also reflect some of our own near-term supply constraints. We continue to see Q1 as the bottom and we expect sequential revenue growth to strengthen throughout the year and into 2025, underpinned by, one, the beginnings of an enterprise refresh cycle and growing momentum for AIPCs. Two, a data center recovery with a return to more normal CPU buying patterns and ramping of our accelerator offerings.

And three, cyclical recoveries in NEX, Mobileye and Altera. We had an extremely productive Q1 and achieved several important milestones along our journey to reposition the company for improved execution, competitiveness and perhaps most importantly, financial results. We hosted our first-ever Intel Foundry Direct Connect, which drew nearly 300 partners, customers and potential customers to hear about the momentum we are building with our foundry offerings. We were pleased to announce Microsoft as our fifth Intel 18A customer. We also updated our lifetime deal value to greater than 15 billion and extended our roadmap with Intel 14A, the first process node in the industry to use High NA EUV technology. Shortly following Direct Connect, we were thrilled to join with President Biden and Commerce Secretary, Raimondo to announce our position as the national semiconductor champion, along with the single largest award from the CHIPS and Science Act of more than 45 billion of proposed grants, tax incentives and loans.

During the second week of April, we brought together more than 1,000 of our top customers and partners at Intel Vision 2024, where we introduced our next-generation Gaudi 3 accelerator. We were joined by NAVER, Dell, Bosch, Supermicro and Roche, among many others who shared how they are benefiting from Intel solutions. Vision led straight into Open Source Summit, where we led the launch of the Open Platform for Enterprise AI project. This industry initiative aims to accelerate GenAI deployments in what will be the largest market for AI applications starting with retrieval augmented generation or RAG. Our Xeon plus Gaudi use cases along with our established enterprise ecosystem have a big role to play here. Lastly, we hosted the industry’s first sustainability summit, underscoring our deep commitment to building a more geographically diverse, resilient, trusted and of course, sustainable supply-chain for semiconductors.

We are proud of our leadership position in chemical conservation, renewable energy and water reclamation. Our accomplishments year-to-date build on all the work we have done to executing the strategy I laid out when I rejoined the company three years ago. Job number one was to accelerate our efforts to close the technology gap that was created by over a decade of underinvestment. The heart of Phase 1 was five nodes in four years. The rallying cry was torrid. It combined accelerating our node transitions with improving our product execution and cadence to regain customer trust. We have rebuilt our Grovian culture and execution engine and are on track to completing our five nodes four year goal, which many of our stakeholders thought impossible at inception.

In so doing, we are in a unique position with at-scale EUV technology, Western base capacity, and at the very least, a level playing field with the market leader. Intel 20A, which helps pave the way for Intel 18A, begins production ramp in the second-half of this year with Arrow Lake. We expect to release the 1.0 PDK for Intel 18A this quarter. Furthermore, our lead products, Clearwater Forest and Panther Lake are already in fab and we expect to begin production ramp of the Intel 18A in these products in the first-half of ’25 for product release in the middle of next year. Given this progress, now is the time to turn our focus to matching technology leadership with a competitive cost structure. Establishing a foundry relationship between our products group and our manufacturing group was a critical step to achieve better structural cost.

This quarter, we officially transitioned to our new operating model and introduced Intel Products and Intel Foundry. Today, for the first time, we are reporting our results to reflect the new way in which we are running the company. Separating the internal financial reporting between Intel Foundry and Intel products was a critical step needed to provide transparency, accountability and the proper incentives to allow both groups to make better decisions to optimize their own cost structures. This change also provided the added benefit of giving more transparency to our outside owners. We knew that the day one P&L for Intel Foundry was going to spark debate, but we also knew it was important to establish a baseline and provide a target model based on reasonable to conservative revenue and cost assumptions that we have a high degree of confidence we will achieve.

I’m going to reiterate that point, so it is heard and understood. Our target model is reasonable, conservative and reflects a high degree of confidence in our ability to deliver. And you can rest assured that we will be working hard to beat these targets. If we can move faster and do better, we will and our new operating model is already catalyzing change and driving efficiencies across the organization. Let me highlight three important aspects of our business and our strategy that is underscored by the new model. First, with Intel Products, we have exposed a solid, fabless franchise with established powerful and hard to displace installed-base and ecosystem across enterprise, consumer and edge that provide meaningful benefits to our customers and partners.

Intel Products is a solidly profitable business today, despite just recently emerging from a semiconductor downturn and still competing with legacy process technology. That is changing rapidly as we ramp Intel 3 in 2024 and Intel 18A in 2025. Within client, we are defining and leading the AI PC category. IDC indicates the overall PC market is now expanding. And as stated earlier, as standards emerge and applications begin to take advantage of new AI-embedded capabilities, we see demand signals improving, especially in second half of the year helped by a likely corporate refresh. Our core ultra-ramp led by Meteor Lake continues to accelerate beyond our original expectation with units expected to double sequentially in Q2, limited only by our supply of wafer level assembly.

Improving second half Meteor Lake supply and the addition of Lunar Lake and Arrow Lake later this year will allow us to ship in excess of our original 40 million AI PC CPU target in 2024. Next year with Panther Lake, we will extend our lead with Intel 18A and further product enhancements. Our share position is strong and continues to strengthen as we execute on our product roadmap. Within DCAI, as committed, we have achieved product release on our first Intel 3 server product, the first generation E-Core Xeon 6 codename Sierra Forest. The next-generation P-Core Xeon 6 product, Granite Rapids will be released in Q3. At Vision, we demonstrated the 70 billion parameter model running natively on Xeon 6 with good performance. We continue to expect share trends to stabilize this year before improving in 2025.

While budgets are still being prioritized to generative AI build-out where we have a strong position in the head node, customer conversations continue to show improving signs for traditional CPU refresh starting in late Q2 and into the second-half. Our first Intel 18A product, Clearwater Forest is slated to launch next year and will allow us to accelerate share gains. Our Gaudi 3 launch gave us a strong offering to improve our position in accelerated computing for the data-center and cloud. We now expect over 500 million in accelerated revenue in second half of 2024 with increasing momentum into 2025 based on Gaudi 3’s vastly superior TCO as well as our own expanding supply. In addition, we are finding good traction with the Intel Developer Cloud with customers onboarding with this platform, including Dell and Seekr, our largest IDC win to date.

We are encouraged by our progress, but far from satisfied. Lastly, within NEX, the business has stabilized and beat our Q1 targets with channel inventories approaching normal levels and business acceleration expected through the year as a result. We also recently announced our plans for scale-up and scale-out Ethernet-based AI networking delivered as a discrete NIC and chiplets for AI foundry customers with numerous key providers in the industry and market standardization through the Ultra Ethernet consortium. So that is Intel products, good momentum and a lot for us to build on. Let me turn to Intel Foundry. We are executing on our strategy to drive meaningful improvement in profitability over-time. We are obviously not there yet given the large upfront investment we needed to build-out this business, but we always said this was going to be a multi-year plan and we are right on track with where we expect it to be right now.

As we discussed during our webinar at the beginning of the month, the transition from pre-EUV wafers to post-EUV wafers is a powerful tailwind for us. We expect our blended average wafer pricing to grow 3x faster than cost over the decade, driving significant margin expansion. In addition, more competitive wafers will allow us to bring home many of the tiles that today are being manufactured at external foundries. Both dynamics are in our control and not dependent on revenue growth and are key elements to drive the business to breakeven, more than doubling our current earnings power at the Intel consolidated level. Of course, more competitive wafers combined with our position as the only company manufacturing with leading-edge wafers outside of Asia is drawing strong interest from potential external customers.

It is important to note that our leadership in advanced packaging creates more value in our wafer technologies and wafer level assembly and base dye opportunities further fill our factories and extend the useful life of our tools for increased financial returns. I am pleased to announce that this quarter, we signed another meaningful customer on Intel 18A, bringing our total to six. A leader in the aerospace and defense industry, this customer chose Intel Foundry based not only on the process technology benefits of Intel 18A, but also because of their desire to have a secure US only supply base. Just this week, we were very pleased to announce that the DoD awarded Intel Foundry Phase 3 of the RAMP-C Program, which we are confident will lead to additional federal aerospace and defense customers.

More broadly, we are seeing growing interest in Intel 18A and we continue to have a strong pipeline of nearly 50 test chips. The near-term interest in Intel Foundry continues to be strongest with advanced packaging, which now includes engagements with nearly every foundry customer in the industry, including five design awards. While we are highly focused on improving the near-term profitability of Intel Foundry, it is also important that we keep sight of the long-term opportunity here. The foundry market is expected to grow from $110 billion today to $240 billion by 2030 with almost 90% of the growth coming from EUV nodes and advanced packaging. Given this backdrop, we have clear line-of-sight to becoming the largest system foundry for the AI era and the second-largest overall by 2030, building on our EUV High NA process technology, leadership in advanced packaging, manufacturing capacity, our systems expertise and the surge in AI demand.

Put it another way, our 15 billion of external revenue embedded in our Intel Foundry target model would represent less than 15% of the leading-edge foundry market. It is not a question of if, but when Intel Foundry achieves escape velocity. And every day, we are proving to the market that Intel Foundry is a resilient, sustainable and trusted alternative to serve a semi-market on a path to top 1 trillion by the end of the decade. Let me wrap up by speaking to our all other category, where our number one priority is to unlock shareholder value. This quarter, we formally rebranded our programmable solutions group, Altera, an Intel company. We look forward to bringing in a private equity partner this year to help prepare the company for an IPO in the coming years.

This puts Altera on a similar path as Mobileye. We are excited about the future of both companies. By providing them with separation and autonomy, we believe we enhance their ability to capitalize on their growth opportunities in their respective market and accelerate their path to create value. Combined with IMS, our mask writing equipment business, we believe these three assets represent more than a quarter of our overall market value today. Along with a solid Intel products franchise and an Intel Foundry business rapidly approaching 100 billion in net tangible assets, we see the opportunity to unlock significant value for our shareholders as we meet our financial commitments, stand-up Intel Foundry and drive it to profitability and further leverage our opportunity in AI.

So overall, I’ll say that there is a lot for us to build on coming out of Q1. We are systematically executing to our strategy and we are making steady progress. We are maniacally focused on executional excellence and fiscal discipline and we are relentless in our drive to regain process leadership and bring next-generation solutions to solve our customers’ hardest problems. All of this gives me confidence in where we are headed. Yes, we have a lot of hard work in front of us, but we know what we need to do and the payoff will be significant in the end. Semiconductors are the currency that will drive the global economy for decades to come. We are one of two, maybe three companies in the world, that can continue to enable next-generation chip technologies and the only one that has Western capacity in R&D.

And we will participate in the entire AI market. Quarter-by-quarter, we are positioning ourselves well to capitalize on the immense opportunities ahead. With that, let me turn things over to Dave.

David Zinsner: Thank you, Pat, and good afternoon, everyone. We delivered solid results in the quarter with revenue finishing in-line and gross margin and EPS again beating guidance. Forward-looking demand signals in our core markets improved at a measured pace through the first-quarter and we expect to deliver full-year revenue and EPS growth in 2024 with the pace of revenue growth accelerating in the second-half. First-quarter revenue was $12.7 billion, up 9% year-over-year and just above the midpoint of our guidance with product segments performing in-line with expectations. Intel Products delivered 17% year-over-year growth, offset by inventory headwinds impacting Mobileye, Altera, and our 5G customers as well as the sunsetting of several non-core lines of business, including the traditional packaging business within Intel Foundry.

These non-core revenue headwinds drove a sequential decline of just over $1 billion, in-line with our Q1 guidance. Gross margin was 45.1%, 60 basis points above guidance and EPS of $0.18 beat guidance by $0.05 on operating spending discipline and strong sell-through of previously reserved inventory. Q1 operating cash flow was negative $1.2 billion. Net CapEx was $5 billion, resulting in an adjusted free cash flow of negative $6.2 billion and we paid dividends of $0.5 billion in the quarter. We expect Q1 to be the low-point for adjusted free-cash flow, driven by seasonal factors, including timing of annual bonus payments along with upsides from larger capital offsets expected in the second-half. As Pat mentioned, this is our first quarter reporting in the new operating segments.

The revised structure creates a foundry relationship between manufacturing and our products groups with Intel Products purchasing wafers and services from Intel Foundry at fair market prices. This quarter represents another important step in our transformation with increased transparency and accountability across all layers of the organization, which is already having a positive impact on decision-making, efficiencies and financial discipline. As I talk about our results, I’ll categorize them between Intel Products, Intel Foundry and all other, with the all other category including the results of Mobileye and Altera. Additional detail can be found in our earnings release and SEC filings. Intel Products revenue was $11.9 billion, up 17% year-over-year.

The client business grew by more than 30% year-over-year with a strong product portfolio and share position and significantly improved customer inventory levels. The data center and AI business contributed 5% year-over-year growth, driven by higher Xeon ASPs and improved enterprise demand. NEX revenue declined 8% year-over-year. As discussed last quarter, we saw significant declines in the 5G market, partially offset by approximately 10% year-over-year growth in our network and edge markets, which we expect to continue to recover through the year. Intel Products operating profit expanded by more than $2.1 billion year-over-year, driven by higher revenue, better sell-through of reserved inventory and operating spending discipline, resulting in an operating margin of approximately 28% in the quarter.

Intel Foundry revenue was $4.4 billion, down 10% year-over-year on lower back-end services and sample revenue along with lower IMS tool sales. In addition, wafer volume was modestly higher in the quarter with ASPs modestly down driven by pricing for mature nodes. Operating profit declined by approximately $100 million year-over-year with lower revenue being partially offset by improved factory utilization. OP margin declined significantly quarter-over-quarter, driven by higher start-up costs and the conclusion of the traditional packaging business impacting revenue. The foundry P&L will remain challenged through the year and we expect operating margins to trough in 2024 as start-up costs associated with five nodes in four years peak and the P&L absorbs an expected increase of roughly $2 billion in depreciation.

Beyond 2024, as volume begins to shift toward leadership manufacturing nodes with a competitive cost structure, scale improves, including the return of compute tiles to internal process nodes and our efficiency actions begin to flow-through the P&L, we expect to see rapid profitability improvement. Mobileye revenue of $239 million and an operating loss of $68 million were both down meaningfully year-over-year due to a well-publicized drawdown of IQ customer inventory. Mobileye reiterated full-year guidance on their earnings call this morning. With the inventory digestion process on-track, financial results are expected to recover quickly. Altera revenue was $342 million, down significantly year-over-year with results impacted by the industry-wide inventory digestion following supply constraints in 2022 and ’23.

Altera’s $39 million operating loss is a result of lower revenue and spending associated with standing up Altera as a standalone company. We continue to expect Altera to exit 2024 at a $2 billion revenue run-rate as inventory positions normalize. I want to acknowledge the hard work and focused execution across the company to transition our systems and processes to our new reporting structure. We’re already seeing the results of the increased transparency catalyzing change and driving efficiencies across the company. Now turning to our Q2 guidance. We expect revenue of $12.5 billion to $13.5 billion in the second-quarter, with the midpoint aligned to typical seasonal growth. At the midpoint of $13 billion, we expect gross margin of approximately 43.5% with a tax-rate of 13% and EPS of $0.10, all on a non-GAAP basis.

We see the client and data-center business roughly flat to Q1 results at the low-end of seasonal. Q2 client revenue is constrained by wafer-level assembly supply, which is impacting our ability to meet demand for our core ultra-based AI PCs. We do expect sequential growth from Mobileye, NEX and Foundry Services. As we look beyond Q2 guidance, we expect growth across all segments in the second half of the year, led by improved demand for general purpose servers from both cloud and enterprise customers and increased core ultra-assembly capacity to support a growing PC TAM driven by enterprise refresh and the AI PC. We should also see accelerating growth from our network and edge businesses, a return to growth for Altera and a meaningful Gaudi ramp in the second-half.

Despite 2024 representing the peak for five node in four year driven factory start-up costs, we expect roughly 200 basis points of FY’24 gross margin improvement compared to FY’23. Our net capital intensity forecast of mid-30s as a percent of revenue across 2023 and 2024 in aggregate remains unchanged. With significant capital offsets expected to land in the second-half of the year, we continue to expect approximately neutral 2024 adjusted free cash flow. While first-half demand signals have been a bit weaker, Q1 played out largely in line with our expectations. We achieved several important milestones towards our IDM 2.0 vision and we’re participating in a large and growing TAM with encouraging market signals for the second-half of the year and into 2025.

By capturing margin at both the foundry level and the fabless product level, we have margin stacking advantage unique in the industry. We are three years into our transformation and 2024 represents the steepest part of the climb with five node in four year start-up costs peaking and the majority of our volume on pre-EUV process nodes with uncompetitive economics. However, as we the crest the hill and look toward the next few years, we have strong wins at our back and a clear path to achieving the mid and long-term financial targets we laid out earlier this month. With that, let me turn the call back over to John.

John Pitzer: Thank you, Dave. We will now transition to the Q&A portion of our call. As a reminder, we request that each of you ask one question and a brief follow up where applicable, so that we can get to as many of your questions as possible. With that, Jonathan, can we take the first question?

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Q&A Session

Operator: Certainly. And our first question comes from the line of Ross Seymore from Deutsche Bank. Your question please.

Ross Seymore: Hi, guys. Thanks for letting me ask the question. I guess for my first question, I wanted to dive into the demand side of the equation. What was weaker in the near-term than you had expected? And much more importantly, it seems like the back-half, you’re going to have double-digit sequential growth in largely both quarters, so that’s significantly above seasonal. I know you went through some of the reasons at a high-level, but can you dive a little bit deeper into what gives you that level of confidence in the second-half ramp?

Patrick Gelsinger: Yeah. Starting out, Ross, thanks for the question. I’ll just say the market was weaker. And you’ve seen that in number of others that have commented as well. So I’ll say somewhat across the board a bit. We’ve seen that cloud customers, enterprise across geo. So I’ll just say a bit weaker demand, right? And we’ll just say at the low end of seasonality Q1 to Q2 that we saw. And as we go into the second half of the year, we’re engaging deeply with our customers today, our OEM partners and we just see strength across the board, right. Part of that is driven by our unique product position, some of it driven by the market characteristics and client. AI PC and a second half Windows upgrade cycle, we believe underway.

And Core Ultra is hot. And as we said, even in Q2, we’re racing. We’re meeting all of our commitments, but not all of the upside requests that we’re seeing from customers. So we see a very strong AI PC outlook. In the data center, as we bring in our new products, we’re seeing ASPs increase very healthy on our data center products. And with products like Sierra Forest that we just went to production with this week on Intel 3, we’re seeing improved product position as well for competitiveness. We have the $0.5 billion of Gaudi, right, and most of that’s second-half loaded. And the all other businesses coming out of inventory positions in Altera and Mobileye and NEX, all of those improve first half to second half as well. And then incremental, I’ll just say, Intel Foundry, let’s say, every quarter from here till the decade ends, we’re seeing improvement in the Intel foundry.

And one by one, we’re seeing all of those business improvements, both on revenue and margin improvements over-time. So we feel very comfortable that the second-half outlook is quite strong for the business, first-half a bit weaker, but we think it’s very understandable, very explainable and the second-half outlook that will be very comfortable for every business across Intel growing and a lot of momentum as we go into ’25.

John Pitzer: Ross, do you have a quick follow-up?

Ross Seymore: I do. Maybe for Dave on the gross margin side, a nice upside in the first-quarter, but the drop in the second-quarter is a little bit puzzling with revenues going up. So could you just talk a little bit about that second quarter drop and then the confidence in the rebound in the second half? Is that just revenue-driven in the second half or what’s the key metrics there, please?

David Zinsner: Yeah, good. Thanks, Ross. Maybe start with Q1 because it somewhat explains Q2, we had better sell-through of product, Pat even mentioned Meteor Lake strength, that better sell-through was on previously reserved material and so we just saw some upside in gross margins because of that. We had a little bit more of a flattish plan between Q1 and Q2 in terms of how that would flow-through. And so it kind of pulled some of the benefits of gross margin improvement we would have seen in Q2 and kind of pulled it into Q1. So that was part of it. The second part is, as we talked about, this year was going to be a heavy year for start-up costs for us. And it really shows up more meaningfully in the second quarter versus the first-quarter.

And so that puts a little added pressure on gross margins. As you point out, the upside in the revenue, we will have good fall through in Q3 and Q4, that will help lift the gross margins from where they are today. And then on top of that, we’ll see some areas which have high gross margins helping us like, for example, Mobileye, we get good gross margin for Mobileye and the strength that we’ll see through the year there and products like that will also help drive better gross margins in the back-half of the year. As we look into ’25, I think we’ll have better gross margins in ’25 than we had in ’24. So this should be an ongoing story for us on the gross margin front. And as you know, we’re driving to get to kind of mid 50s gross margins by the midpoint between now and 2030 and ultimately getting to 60%.

Of course, revenue will be part of that, but a lot of that is within our control. It’s things like 18A wafer pricing growing at 3x the cost of 18A that will help drive margins. The pull-in of tiles, as Pat mentioned, internally is going to drive better gross margins for us over-time. All of what we’re doing in terms of re-segmenting the business is to drive better decision-making, that better decision-making will translate into significant cost improvements for us, which should also be a meaningful driver for gross margins over-time as well. And, of course, as Pat mentioned, we were happy to get the CHIPS announcement out. And, of course, that coupled with what we expect from the EU and the investment tax credit will also be major tailwinds on gross margins over a long-term basis.

John Pitzer: Thank you, Ross. Jonathan, can we have the next question, please?

Operator: Certainly. And our next question comes from the line of Ben Reitzes from Melius. Your question please.

Ben Reitzes: Hey, guys. Thanks a lot. I appreciate the chance to ask question here. Hey, Pat, can you talk a little bit more about servers in the data-center? There was talk of a bottom there in previous discussion. How do you see that kind of going throughout the year in light of your 2Q guidance? And what’s the catalyst for the pickup there? Thanks a lot.

Patrick Gelsinger: Yeah. Thank you, Ben. And obviously, as we look at our position in the data-center, I’ll just say we’re stabilizing. And with that, we’re improving our competitiveness. We also see, as I mentioned in the comments that the ASPs are going up comfortably as well. So socket fairly stable through the year, but the ASP per socket with increased core count, improves our position. And then new products like Sierra Forest or Xeon, Gen6 product definitely gives us power performance capabilities. So overall, we’re seeing a very healthy growth rate, mid 20s as we go through the year. We’re also seeing increasing interest in the AI capabilities of Xeon and we’re winning head node positions and we’re seeing pretty extraordinary performance.

At Vision, we talked about the ability to now run 70 billion parameter models directly on Xeon and these type of capabilities, say, for a lot of enterprise use cases, Xeon is a very strong product. And as we laid out at Vision, the ability for Xeon plus Gaudi to start positioning this open platform for enterprise AI is a very strong position for us. So overall we feel like we’re on a solid trajectory into a market that even though it’s been dominated by the GenAI theme as enterprises, our OEMs and ODMs are communicating, there’s growth here in servers and we now have a much better product position, improving ASPs and a better overall positioning in AI for a lot of these use cases where it’s Xeon, CPU plus GPU and accelerator.

John Pitzer: Ben, do you have a quick follow up?

Ben Reitzes: Yeah, thanks. Can we just double-click also on Gaudi, $500 million in the back-half of the year. I think you previously talked about a couple of billion in the pipeline. What does that say about your yield to revenue on an annualized basis with AI? And is there an update on the pipeline and your confidence there heading into 2025 on the accelerator front?

David Zinsner: Yeah. Thanks, Ben, and obviously, pipeline converting into revenue, revenue is much more meaningful. And as you said, greater than $500 million for the year, and that’s obviously quarter-on-quarter accelerating rapidly, which also gives a great indication for the business in ’25 as well. At our Vision event, we had over 20 customers publicly describing their embrace of Gaudi 2 and Gaudi 3. And I was super pleased to see the breadth of those customers. It was CSPs like NAVER and Ola and IBM Cloud. It was ISVs like Seekr, right, coming on-board. But maybe most importantly, enterprise customers. And ultimately, GenAI training, okay, creating models, but enterprises are going to use models and that’s where our TCO benefits, the ability for us to action customers’ data in their enterprise environment is so powerful and customers like Bosch were coming forward and Roche to be able to demonstrate the true benefits of Gaudi and Xeon plus Gaudi.

The roadmap is in good shape. The Gaudi 3, Falcon Shores in ’25, we’re also seeing that the industry wants open alternatives and we announced our AI networking initiative, Ultra Ethernet consortium standardizing on scale-up and scale-out to Ethernet, increasing work for abstract levels of AI development with PyTorch and the embrace of the open platform for enterprise AI that we rolled out. All of those taken together, the industry is looking for open enterprise alternatives for generative AI deployment and Intel is quite well-positioned and we’re starting to really see that uptake in our accelerator and Xeon pipeline now.

John Pitzer: Thanks, Ben. Jonathan, can we have the next question, please?

Operator: Certainly. And our next question comes from the line of Joe Moore from Morgan Stanley. Your question please.

Joseph Moore: Great. Thank you. I wonder if you could talk to the server roadmap. It sounds like you’re confirming the timeframe for both Sierra Forest and Granite Rapids. Can you talk about — is there demand for the Sierra Forest product as well? Do you expect that to be bifurcated where you see demand for both? And then how quickly we might see those products come to volume?

Patrick Gelsinger: Yeah. So Sierra Forest, our first Xeon 6 product on Intel 3 and super-proud, right. Now we have a leadership process technology back on American soil for the first time in a decade. This is really exciting. In Sierra Forest, high core count, 144, 288 core, product very focused on power, performance, efficiency and we do see a good pipeline of customers and a good pipeline of, I’ll say, socket win backs because the area of power performance has been an area that we’ve been carrying a deficit being on an older node. And now that we’re on leadership nodes, we definitely see share gains for that. Of course, Granite Rapids, which will come in Q3, the Xeon 6 P-core part is much more of the bread-and-butter of the Xeon family.

So we do see that being a stronger element to the portfolio this year as we haven’t been participating in the power performance sockets as aggressively lately. And Sierra Forest gives us that tool. So it really is a one-two punch as we’ve described. And with Granite coming in Q3 and a volume ramp on Intel 3 with that, we feel we have a very good product line. Next year is Clearwater Forest, the second-generation of the E-core part, the leadership position on 18A in the server market, a very strong product for us, unquestioned leadership and power performance. So I believe that’s a great opportunity for us to gain share again in the data center. So the roadmap is healthy, the execution is strong and we’re rebuilding customer trust. They’re looking at us now and saying, oh, Intel is back and we’re quite excited with that.

And then beyond that, building the volume, building the confidence and the momentum for traditional use cases as well as the AI use cases, as I just referred on Ben’s question as well.

John Pitzer: Joe, do you have a quick follow up?

Joseph Moore: Yeah, I do. Thank you. On the foundry webinar, you had sort of talked about Intel 3 volume being kind of more of an inflection next year. Does that mean that within server that these Intel 3 products are sort of get to volume crossover kind of some point next year or could we see, obviously, the leadership you just talked about is important, what’s kind of keeping you from getting those products ramping in the second-half?

Patrick Gelsinger: Yeah, Joe, thank you. And servers always just take a while to ramp. Customers bring them in, right, they qualify them, they test them, because they’re generally putting these things at-scale. So there’s just an adoption cycle for server products. And the numbers that I’m holding my team accountable for are some of the most aggressive volume ramps that we’ve ever achieved on server products. So we’re driving them very hard. That said, in terms of the total wafer volume this year, right, it’s dominated by Intel 7. And the Intel 4 and 3 wafer volumes become much more prominent next year and that’s what I was communicating on the webinar. But as we go through the year, you’re going to start to see the wafer ASPs pick-up as a result of Intel 4, 3 ramping at much better ASP points, better margins associated with those and they’ll become much more prominent in the foundry P&L next year.

But those — these are production ramps that are already underway on Intel 3. The Intel 4 ramp already underway. We began that second-half of last year. So these wafer ramps are underway with volume productions, volume products that we’re bringing to the marketplace, very confident in our ability. And then, of course, 18A as we deliver the PDK for that in Q2, the 1.0 PDK and we’ll begin the volume ramps on Clearwater Forest and Panther Lake in the first half of next year for those products coming out. So we feel very comfortable with that overall picture that we’ve laid out. So thank you, Joe.

John Pitzer: Jonathan, can we have the next question, please?

Operator: Certainly. And our next question comes from the line of Vijay Rakesh from Mizuho Securities. Your question, please.

Vijay Rakesh: Yeah. Hey, Pat. Just a quick question on the Granite Rapids. Any thoughts on the timing? And do you expect to regain some computing share server share there with those ramps?

Patrick Gelsinger: Yeah. Thanks, Vijay. And building a little bit on the last question, Granite Rapids will come in Q3 of this year when we’ll have the production release of that product. Same as — it just takes some time for customers to get comfortable, qualify, bring those products to marketplace. But Sierra Forest, Granite Rapids, these are much more competitive power performance products on Intel 3. So, we see them stabilizing and then giving us opportunity to regain share. And as we go into next year, we expect that we’re regaining share as we end this year and go into next year. These are great products and we’re going to be ramping them very aggressively with our customers.

John Pitzer: Vijay, do you have a follow up?

Vijay Rakesh: Yeah, thanks. Just on the GPU side, on the AI side, any thoughts on Falcon Shores or any preliminary takes on that? How do you see that building out into ’25? Thanks.

Patrick Gelsinger: Yeah. And Gaudi 3 announcement this quarter extremely well-received. And as I mentioned already, 20-plus customers for Gaudi 2, 3, so we’re seeing that build. Obviously, Falcon Shores will build on that momentum. We’ll be bringing that late next year when Falcon Shores, when we combine the great systolic performance of Gaudi 3 with a fully programmable architecture and all of that comes together with Falcon Shores. And then we have a rich, a very aggressive cadence of Falcon Shores products following that. We also added the Gaudi 3 PC IE card to it, this use case of Xeon plus an accelerator or Gaudi accelerator is getting very good response from customers as well. So we’ll be bringing that out later this year.

But the real story is delivering the TCO value, delivering the enterprise use cases. On Falcon Shores, we’ll just build on the momentum that we’re establishing with Gaudi 2 and 3. We also described customers coming on the Intel Developer Cloud, where we’re getting these products very early in their life available for developers and enterprise customers and customers like Seekr, now our biggest Intel developer cloud win to date was seeing the benefits. But the bigger story is how do we unleash the data assets of our enterprise customers and that’s things like the open platform for enterprise AI that we launched at Open Summit. So overall, a lot of good things happening to unleash the GenAI cycle for Intel. And, of course, right, as we’re doing this, AI is a hot market.