Intel Corporation (INTC) Earnings Call Transcript & Summary

Sur Harlan from the semiconductor and semiconductor capital equipment analyst with the firm. Very pleased to have Chris Walker, Corporate Vice President and General Manager of Intel's Mobile Client Platforms Group, notebooks, thin-and-light, PC segment, particularly relevant given the strong demand for notebook PCs during the COVID-19 pandemic and focus on work from home and remote learning. I've asked Chris to start us off with a brief description of his role and responsibilities at Intel and provide us with an overview of what the team is showcasing at CES. I know that the client group did a big press event yesterday. And then we can go ahead and kick off the Q&A. We also have Ben Thom, part of the Investor Relations team at Intel here with us as well. So gentlemen, thank you for joining us today. And Chris, let me go ahead and turn it over to you.

Great. Thanks, Harlan, and thanks for everyone for joining today with us. So I'm Chris Walker, Lifetime Intel veteran, but last 4 years, in particular, been leading our mobile group, Mobile Client Platforms, and that's everything from mobile SoCs from laptops to the wired and wireless connectivity that goes across all of our PCs. For us at Intel, even going back 4 years ago, we really focused in our PC category across commercial usages, education especially with Chrome, modernizing a thin-and-light notebook and gaming. And those are the very areas that have seen us grow over several years in the PC category. And it became just vital to us in this COVID era as largely home, work from home, play and connect from home, all happened in unprecedented levels on the PC. And what we announced yesterday in our CES press conference, 4 new product families addressing those various segments. So we're able to extend our Evo platform with more and more partners, delivering the best and the light experience. We then have brought that to our commercial plan with Evo in vPro technology built off our 11th Generation Core to deliver new levels of productivity, conferencing collaboration and hardware-based security for our commercial customers, expanded our education segment, brought our 10-nanometer in a new efficient core architecture to the education segment and then launched 2 new platform families for gaming. 11th Generation new architecture, core product line for desktop and then expanded our Tiger Lake 11th Gen using our SuperFin technology for mobile, everything from ultra thin-and-light to really high-end enthusiast in mobile workstations. So a full portfolio of Intel new products introduced to really capture where the growth and where the technology advancement has been in the category.

Great. No, that was a great introduction. I appreciate that. So if I step back and take a look at 2021. Well, let's look at 2020 first. I mean the Client Compute Group at Intel targeted to grow mid-single digits, right? Calendar year '20. Within that, we estimate that your mobile client or notebook business is up mid to high teens year-over-year. Obviously, strong growth from work from home, remote learning, high-end gaming. Looking into 2021, our tech team is forecasting continued growth with notebook shipment volumes up in the mid-single digits range. I know that Gregory Bryant, GB, Head of Client Compute at Intel at the recent industry analyst summit back in the second half of last year also talked about 2021 being another year of growth for the PC industry and potentially for the Client Compute Group at Intel. So my first question is, how are you and the team seeing the demand dynamics in mobile client compute and the prospects for yet another year of growth in CCG in 2021?

Yes. Clearly, as we rounded out 2020, we continue to see very strong growth for computing overall in mobile, in particular. All the things that you highlighted as there's a shift from work and learn from home. But what we found was even more than accelerating adoption is a lot of people got reacquainted to, in some cases, to the PC, and saw that the need for more than PC per household and that trend towards a PC per person. Incredible growth, both the U.S., mature markets and in other emerging markets of education, trying to improve the quality of education with more PCs per student. We think that those aren't just won and done or pull into demand. We see continued opportunity for the PC for us to replace the aging installed base in Windows 10 over 100 million units over 4 years old. When you look at the dramatic difference between an 11th Gen Core processor based system in something from 4 years old, it's just night and day. Education. There's about 6 PCs per 100 students worldwide. Tremendous opportunity to improve that footprint to help students learn and grow, whether from home or in the classroom. And then household density, we're not even back to where we were in the peak of 2013, 2014 PCs per household. So those are all sustained opportunities that we think enable us for growth, both short and long term.

So on the -- I appreciate the view on the forward view, and demand is certainly strong. We just -- actually, we just had the NVIDIA team present earlier and they were telling us that their notebook GPU segment was one of the fastest-growing segments and represents like 30% of their overall business. And it obviously hinges upon partners like Intel, right, to bring very high-performance thin-and-light SKUs to the market. So clearly, there's a lot of growth there. Some of -- kind of more near term, some of your customers are still discussing shortages, including CPUs, but increasingly there are broader supply chain constraints within the industry. So first, how does this play into your expectations on seasonality? And second, if you do have them, when do you expect supply constraints related to your own CPU production to ease?

Yes. Over the course of 2020, we increased our capacity by about 25%. And as -- especially when we were in the second half of the year, ramping our 3 10-nanometer factories enabled us to meet an increasing Level 1 forecasted demand, even on our Tiger Lake or 11th Gen technology using our SuperFin 10-nanometer technology, we're able to meet increased demand from our customers. So from that standpoint, I feel good about the work that our manufacturing -- Intel manufacturing did. Remember, all this unprecedented demand is in the midst of a pandemic, where people are coming into the factories under enormous stress, logistics supply chains are stressed. So really proud of -- one of our advantages with our manufacturing team is the ability to respond and raise to the level of new demand. Now as we go forward, I think there's -- largely, we've gotten over the hump on some of the supply constraints. But as demand continues to increase in excess of with some of the third parties, remember, in the broader industry. Many people rely on third-party forecasts that have been kind of lagging and trailing, we're going to continue to work across the whole supply chain, a whole ecosystem to continue to drive towards higher and higher demand levels.

So in talking with investors, the recent concern regarding Intel and your strong market position in mobile is, of course, you're a long time competitor, AMD, with its rise in 4000 series. And then more recently, Apple has brought to market its M1 ARM-based processor, for its notebook lineup. If we look 2 to 3 years out, looking at your platforms, looking at your road map, what gives you confidence that Intel and the x86 architecture will sustain market leadership and that plans made by Apple to in-source will end up potentially be more of an outlier versus the mainstream.

I think -- and for me, I've been in and around PCs and semiconductor from Intel been part of many different competitive environments at Intel. And obviously, when you see the level of success that segment and the category has had, there's a lot of competition, and we thrive on that. And for me, what I'm excited about is our basis of competition isn't grounded in just an instruction set or legacy, right? It's about the transition we've made to XPUs. We compete at a CPU level, at a graphics level, at an AI level, at a connectivity level. We then couple that with platform engineering and high-touch designs, the most innovative designs in the industry, Apple included, come through our work in our PC partners, right? This is in form factor. This is in gaming performance where you can do 4K gaming something 16 millimeters thin. That's work that we do with partners like NVIDIA as well. So I mean software work, software optimization. So things like Adobe sends an AI, you're doing performance across multiple engines that we deliver that allow us to outperform AMD and outperform M1 in things like premier for video editing and things like that in the real world. And so a lot of people get caught up in synthetic benchmarks and benchmarks have a role, but it's not reflecting how people are actually using their system in real life. And what we've done is architecting will continue to architect towards that end-to-end experience. Towards how people are using it, and it's not enough just to do one thing. We have to do from how you get content into your machine, to how you process it, to how that looks and feels and that responsiveness, to how you get it back out and share it to the world. We're executing on all those, and we'll continue to do that at a faster and faster pace. So in the span of a year, we've gone to September of last year, introducing our 11th Gen Core process using our SuperFin technology. Here yesterday, we expanded that into commercial and gaming segments through the first half. And then in the second half of this year, we'll introduce 2 new, 1 efficient architectures coupled together in the new design hybrid architecture with Alder Lake. And so by no means are we standing still either. So we are rising to the challenge, so to speak, in innovating at an unprecedented level throughout the platform.

So that's a good segue because let's focus on the new products and let's focus on the pipeline because in the second half of last year was your big platform launch, 11th Generation Core Tiger Lake mobile processor platform, 10-nanometer SuperFin manufacturing technology. The team had anticipated 100 notebook SKUs in the market by year-end. First of all, did you guys achieve this target? More importantly, the team has been expecting to gain share in mobile client space with Tiger Lake. Should we expect share shift back to Intel playing out, let's say, when all this said and done and we look back on the Q4 market share statistics?

Yes. And I think, when we started out talking about Tiger Lake kind of mid-spring or mid-last year, we said about 50 designs. Then we upped it to 100. And yesterday, we talked about over 120 11th Gen Tiger Lake based designs shipping end market. And what's even more impressive of that is 50 systems Evo certified. And that's just an additional layer where it's not just correct by construction. We test, verify in our labs with our partners experience. That's something nobody else is doing in a comparative way. So from that standpoint, from a design win, what you see in market, the breadth of what we're doing, consumer and commercial, feel really good about the overall 11th Gen ramp in addition to the number of designs, we saw increased demand in Q4 in particular, and our manufacturing team was able to rally to that, and we exceeded our early ship expectations. So we think we're poised and have the ability to gain share. And that's not just in the 11th Gen line. In the education segment, in the entry segment with consumer, institutional bot education, as we've expanded our capacity, that's an area where we pulled back a little bit from customer support to support the higher end segments, very strong ramp in that volume as we closed out the year. And one of the other introductions we did yesterday was a new efficient core 10-nanometer product, specifically for kind of that education in Chrome segment in particular, that we've seen have tremendous market growth. And so that's not just a function of units. It's also we're continuing to design and innovate and apply our latest technology, both in process, but also in architecture across the whole spectrum of the market. And so we think that gives us a lot of opportunity to continue our growth.

And then as it relates to building upon the success what it appears to be strong success with Tiger Lake, I think yesterday, but even before that, I think you guys were targeting to roll out your high-end mobile SKUs, called your H SKUs, which are targeted for things like enthusiast class gaming. And then yesterday, you also introduced, as you mentioned, your vPro commercial line of Tiger Lake SKUs as well. Is all of this on track for a first half of this year kind of ramp?

Right. All those are on track for the first half. So in the case of bringing 11th Gen and vPro platform technologies, you'll see a series of partner announcements coming out. Those will be shipping -- the systems will be shipping in Q1. We announced for ultra thin-and-light. So we're talking about bringing 4K game play to systems 16 to 18 millimeters thin. That's incredibly thin-and-light paired with discrete graphics. That's a level of game play that's just unheard of in those type of things. So we did a special edition, H series processor, high frequency, great IO attached to the CPU, specifically targeted for what mobile game -- the most mobile gamers want, and that's going to be frame rates that are that we think are unmatched. Those are shipping -- we'll be shipping this quarter. And then in the first half of this year, we'll extend the Tiger Lake or the 11th Gen architecture from mobile to 8 cores. Now remember, it's not about the core count, it's about what they can do. 5 gigahertz across multiple cores, but desktop caliber, wide, wide IO that enables really fast storage, the highest capability in graphics attached to the CPU, and those will come out in the first half of the year. So all those execution on track, not just from the CPU standpoint, but from the platform level capabilities that we're bringing in with our partners in some really exciting design points. So we feel really good about what we're doing in the 11th Gen portfolio overall.

And then if we look at your next generation and I think you and GB gave us a little bit of a hint of that yesterday, right, with showing us Alder Lake, right, which is your 12th Generation Core family. I believe this is going to be used in your hybrid architecture, right, tile-based. So you'll have the high-performance core processor tiles, and slower -- maybe slower, but more power efficient Atom-based processor tiles, all integrated using your advanced packaging Forveros technology. I think GB mentioned yesterday, the team is still on track to ramp products in the second half of the year. My question to you is, does that include mobile, number one, in the second half of next year? And then what does the hybrid architecture provide the team and customers in terms of performance and power consumption benefits?

Yes. So Harlan, while we haven't detailed all the how we're achieving that next leap of performance with Alder Lake. What we're doing is bringing 2 new architectures together. So we're going to do another step function in our performance orientated core architecture and another step function in our efficient core architecture to 2 new CPU architectures brought together in a hybrid design point. Those are enabled by a next-generation or next level or SuperFin technology. So we're iterating on the process as well to make those optimal, much like you saw in Tiger Lake or 11th Gen. So what the expectation benefits you can have is you continue to read and continue to have your best single threat of performance allows us to, with a hybrid architecture continue to scale and efficiently in multipart. It's not just about throwing force at it. It's the intelligent balance of performance and efficiency together, where people are going to be able to gain performance, gain scalability, but still maintain efficiency of the overall design. You'll see us continue to enhance connectivity, iOS on the platform. So it allows us an architecture to continue our performance scalability, but also bring in many of the other platform elements. That's going to be both desktop and mobile, and we expect to be in production in the second half of this year on that exciting new architecture.

And Tiger Lake was the first product to integrate your new Xe GPU architecture, right? And the reviews and benchmarks have actually been generally very positive. And so what type of enhancements is Intel planning to bring to market in future CPUs with integrated graphics, like your next generation Alder Lake products, for example. Given the hybrid architecture, I would assume that maybe whatever next-generation Xe GPU is going to be in Alder Lake, that maybe it's its own separate tile. Is that kind of how the architecture is going to work out?

So I want to talk about yet what we're doing in next-generation graphics. But what it was interesting on the Xe architecture for low power is the ability not only to do the levels of 3Ds, right, bringing in high-quality 1080 P, AAA titles into very thin-and-light systems on the integrated graphics. But graphics is more than just a 3D render. So we were able to bring in things like AV1. So YouTube, when you stream on the AV1, you're using less of your WiFi bandwidth. We're able to use deal boost in technologies on that Xe architecture to accelerate AI workloads in things like Adobe. So there's a lot of software work we can continue to do on the Xe architecture in both AI in media to continue to expand the capabilities and then in the broader sense in more detail anymore, but we will be able to extend our Xe architecture into discrete levels of We did performance. We did that first at the end of last year with our Iris Xe MAX, showing how for content creation, it could be very power-efficient and pair that with the integrated graphics and do some cool capability for content creation. We have the ability to scale our Xe architecture into higher levels of both 3D and media performance at what would be considered discrete levels this year as well, and we'll detail more of that later in the year. So we're excited about what the Xe architecture allows us to do across 3D, media and also AI capabilities.

I'm getting a question from an investor. And I think we've got in this from multiple people on the Evo branding. So what does the Evo branding mean as it relates to, first of all, Intel differentiating their products, but also maybe building a stronger ecosystem with some of your customers?

Yes. And so the Evo platform and that brand introduction has been a really important way that we worked both upstream with our ecosystem partners and delivered something that has a unique and identifiable promise to the end user. So it starts with, we work with 150 companies hardware and software through the ecosystem to better tune and enable their components, their capabilities for true mobile performance. The heart of what Evo does is we did a lot of research, and this isn't just survey. We have people who live with people to learn and observe how to use their PC. What we found is for a mobile go-getter, and you've thought in the past a lot of somebody who's on the road, but it equally applies to moving from your desk to your couch to your backyard, what people wanted was they wanted high-performance, highly mobile laptop with great performance and responsiveness. What Evo does is it guarantees your experience. It says you lift the lid, it responds unless it waits less in a second. So you're in and productive. We do a string of key experiences. This is beyond benchmarks. This is real applications in the real world with concurrent usages of web browsing and productivity happening all at once. And we say that responsiveness is there. That performance is whether you're plugged in and also on battery. We see some of our competitors is they do a performance claiming or they do a battery life claim. They don't do the 2 together. And so it's really important for us that, that mobile experience is there whether you're plugged in or on a battery. And that battery life is true all day, 9-plus hours in the real world with brightness at real settings. We're not dimming it down so we can get a 20-hour battery life claim, which we could, right? It's how you actually use a system. It says that every Evo system does fast charging. Every Evo system has premium speakers and mics calibrated and verified in our lab. And that's where it's important that we do a brand promise, too, is all those are certified and verified with our partners, so that people get that experience. And that, we think, is -- uses all of our technologies, all of our client engineering together in really unique ways, also the best in wired and wireless connectivity. So we didn't talk about this in the competitive part, but WiFi, we're all so dependent on our connectivity. Every 11th Gen Core Platform and actually even our newest entry platforms that we launched have Wi-Fi 6 built in. This is gig-plus speeds. We also announced yesterday, WiFi 6E or extended, clean spectrum in the U.S. that we worked with partners and the FCC to get for WiFi. It means you're going to get gig-plus speeds. And when you do things like our killer WiFi experience, you can prioritize your workload in your household, right, for the best experience. So this is levels of capability that Evo promises we do across our 11th Gen family that we think makes a real difference in how people live and experience in especially these critical times.

I've got an investor question coming in here. Is the manufacturing process for a 7-nanometer on track at Intel?

We're going to let Bob talk more about our manufacturing status and process during, I think, Ben, it's Q4 earnings, correct?

Earnings, next week.

So you'll hear more from Bob on that.

Okay. Well, let me try to ask something differently, which is on manufacturing that you're currently using for Tiger Lake because, I mean, I think this is your third-generation 10-nanometer, right, SuperFin, 10-nanometer process high-volume production. Can you just give us a quick update on yields and manufacturability? Is it where you targeted it to be, I mean, in terms of yields and manufacturability?

Yes. I think when we look at -- and I talked a little bit about through -- of course Q4, we're actually able to meet upsides on Tiger Lake and 11th Gen and SuperFin. We've got 3 10-nanometer factories running right now. We feel good about the overall ramp. We just introduced a 10-nanometer entry part into the market with our Jasper Lake platform. And Bob talked about it. We expect in 2021, we would -- at least -- for client, we would cross over with 10-nanometer and in our volume manufacturing. So we feel good about the ramp. We feel good about where we are today on both the product performance delivery and our overall volume on 10-nanometer.

You guys have done a good job moving -- a great job actually moving up the stack. Your ASP for a while kept going up. It seems like you're extending 10 nanometers into the low end, you talked about Chromebook segment of the market. Are those products targeted to come out in the first half of the year?

Correct. Yes. So the latest seller on product set that we announced yesterday, our -- we have PC OEM partners have started their shipments into their channels. So you'll see those in the first half of the year.

And then just to do a check. So you were saying that Alder Lake is going to be using the -- an enhanced version of your 10-nanometer SuperFin technology, right? So more like a Gen 4. Is it like a Gen 4 10-nanometer?

We're not really doing the Gen 4 10-nanometer, better be an enhanced version of the SuperFin technology. And that's one of the advantages that we do in our IDM approaches. There's obviously very strong co optimization, the design team and the technology development team to get the most out of those enhancements. We showed that on the core with Tiger Lake and 11th Gen, would do that again with Alder Lake.

And then one last question because I know we're running out of time. But the team said that in the last earnings call that you guys were actually sampling Alder Lake in Q4, in other words, the December quarter of last year. I think all of this is assumed it was for desktop, but did that, by any chance, also include sampling Alder Lake for mobile as well?

I probably wouldn't go into where the engineering is in. Both desktop and mobile Alder Lake, we expect to be in production and shipping to our customers in the second half of this year.

Perfect. Well, we're just about out of time. Chris and Ben, I want to appreciate you spending the time with us. 2021 is shaping up to be -- looks like a pretty strong year in terms of compute adoption. And so we look forward to continuing to monitor the growth trajectory of the Intel team as well as the execution. Thank you for participating with us today.

Thanks, Harlan, and thanks, everyone. And we look forward to delivering great products for all of you.

Thank you, Harlan. Appreciate it.

Thank you.

Bye all.