Intel Corporation (NASDAQ:INTC) Q3 2023 Earnings Call Transcript

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Aaron Rakers: Yes, I do, and thanks for the detail there. As a quick follow-up, just kind of thinking about the gross margin line. I’m curious, Dave, I know last quarter, I think it was, I want to say it was $220-or-so million factory underload impact in gross margin. It sounds like you had a reversal of inventory reserve and gross margin this quarter. Are we done with the factory underload or what was that number? And how are you thinking about that embedded in the gross margin guide?

David Zinsner: Yes. I mean, it was a meaningful benefit, the underload improvement in the quarter. That said, there was still a reasonable amount of underload charges in the quarter. That does improve a bit in the fourth quarter. But we’ll be kind of dealing with this underload hangover, I’d call it, probably all through next year as we kind of progress, largely in part because while we will improve the loadings and probably get beyond underload charges on a quarterly basis, we’ll still have all of that underload kind of tied up in the cost of the wafers in inventory, and that still has to get flushed through before we’re completely done. So meaningful improvement. I’d say we have — we’re largely out of the woods but still some wood to chop through next year to where we’re completely clean in underload.

Aaron Rakers: Thank you.

John Pitzer: Thanks, Aron. Jonathan, I think we have time for one last caller.

Operator: Certainly, one moment for our final question. And our final question for today comes from the line of Matt Ramsay from TD Cowen. Your question please.

Matt Ramsay: Thank you very much. Good afternoon guys. Before I start, I just wanted to say a bit, Pat, Dave and all the Intel folks, we’re thinking about all your folks in Israel. And so maybe you’ll take this question that I need to ask it, I guess, do reference to that. Unlike a lot of your competitors and peers, you guys actually have operations and fabs in Israel. Maybe you could give us a little bit of an update there of how these are going operationally, just given the atrocities that have gone on, what the size of the wafer output of those fabs are, what nodes they’re on? Any kind of detail there would be really helpful.

Pat Gelsinger: Yes. And hey, as one of the earliest companies in Israel now, almost 50 years that we’re in country, I appreciate deeply. These are the Intel team. This is people that I consider friends personally as well. That said, the resilience of the Intel team is remarkable. And despite all of these challenges, we’ll say they’re not missing a single commitment. They’re performing extremely well. We continue to deliver the products that they’re working on and continuing to drive the factory operations and our factory expansions that we have there. That said, one of the benefits of Intel’s multi-geo supply chain that we uniquely have in the industry is resilient. And Intel 7 is running a factory there in Israel. We also have two other locations that we run Intel 7.

We’re making sure that we have the resilience of our supply chain for all of those products so that we can be very assured, even as we’re highly confident in the capabilities of our Intel Israel team to continue to perform despite the atrocities, we’re also confident that we have a resilience in our core business model that gives us flexibility to assure supply and continued operation across the globe regardless of what issue you may have in Asia, Americas, Europe, Middle East, we are well positioned to deliver that for our customers across all of our operations.

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

Matt Ramsay: Yes, I do. As my follow-up, one of the things that I keep getting asked about a ton is the CapEx swing that’s happened towards gen AI infrastructure. And I guess the way that I’ve been kind of phrasing the question is the video killed the radio star question, right? Is this the death of CPU growth in the data center? And I don’t think it is, to be clear, but there’s some out there to do. So Pat, you made some comments in your script and then some other answers about return to normalcy on data center CPU from a growth perspective. Maybe you can give a few day points or antidotes that might support that.

Pat Gelsinger: Yes. And I do think there’s clearly been the surge of interest in gen AI, which has, over a couple of quarters, driven a bias on the part of the cloud guys, in particular, to where do they put their floor space? Where do they put their power budgets, right? And that’s been driving largely a race for the largest system environments that they can put in place. That said, training of these large models is interesting, but the deployment of those models, the inferencing use of those models is what we believe is truly spectacular for the future. And that will — some of that will run on the accelerators, but a huge amount of that is going to run, right, on Xeons as we bring AI into those applications or AI-ification of existing applications.

And given the leadership performance that we have on our Gen 4 for AI applications, that gets better with Gen 5. And when we deliver Granite Rapids, it gets 2 times to 3 times better, as I said in the comments. It gets even better as we go further out into the road map. So the ability for us to do inferencing at scale on our Xeon product line, we think, is very profound as we go forward. The road map is very healthy. The combination of Gaudi and our Xeons, that is exactly what you heard Dell announce in their road map. And we’re just seeing, I’ll say, the normalcy of that in the buying behavior. We saw a very good uptick for our OEMs this quarter as they’re seeing their Xeon businesses. We’re also seeing more ecosystem embrace our DevCloud.

Lots of customers coming on it for both AI use cases on Xeon and on Gaudi. Key announcements like we had from Deloitte as they’re partnering with us across application optimization as well as AI development on Xeon platform. So overall, we feel pretty comfortable that we’re in a cycle that there will be growth in CPUs led by Xeon, as well as accelerators. And Intel is going to be participating in both of those capacities in meaningful ways. And this is part of what we said is AI everywhere. AI at the edge, AI at the client, AI in the data center and AI in the cloud, but inferencing will be the discussion topic for the industry as we go into ‘24. That will be done at scale and much of that is going to be done on Xeons. So with that, let’s just thank you for joining us.

Again, I want to reiterate our thoughts for our resilient Intel team in Israel and for all of those in the region that are affected by recent events. I also want to thank you for joining us on the call again today and your interest in Intel. We appreciate the opportunity to update you, answer your questions, respond to that. Most important, we are excited by the momentum we’re seeing. As I said, the financial results were great. The operational results were truly outstanding this quarter. And it’s a confirmation of our foundry strategy, of our five nodes everywhere, of our AI everywhere strategy. And we do hope that you’re able to join us for our launch of Emerald Rapids Gen 5, Meteor Lake, Core Ultra in New York in December. And I do also hope to see you all at our Q1 Intel Foundry Day.

Thank you. Good afternoon, good night wherever in the world you’d be. Take care and be safe.

Operator: 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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