Intel Corporation (INTC) Earnings Call Transcript & Summary

Well, good afternoon. Thank you for joining. My name is C.J. Muse with Evercore ISI. We are here on Day 3 of our inaugural TMT Conference. I'm very pleased to have Intel Corporation. And with us is Greg Bryant, Executive Vice President, Client Computing Group; and also Ben Thom, Senior Director of Investor Relations. Great to have you guys here, gentlemen.

Hey, great to be here. Thanks for having us, C.J.

Excellent. So Greg, I know you have a few minutes of prepared remarks, so I'll turn it to you, and then we can move to Q&A.

Yes, sure. Thanks. Let me just -- just a few words. I won't go too long. First, I would just say, at Intel, we're -- it's kind of -- we like to say Intel is back. We're excited to be back. There's significant energy and excitement inside the company. And if you back up and you look at the industry, we really do believe we're at the beginning of kind of a decade-long cycle of demand in semiconductors. And as we like to say, that's driven by the digitization of everything. If you look across every industry, it's becoming more and more digital. That trend had started before COVID, obviously, but it's been accelerated by COVID fairly significantly. And we think that, that trend is lasting. And obviously, the more and more -- whether that's health care or automotive, industrial, the PC business, as industries transform, we believe it just drives the demand for semiconductors in the world, and we're excited about it. So when we think about the future and the TAM and the opportunity in front of us, that's the largest it's ever been certainly in my history and the history of the company. I think what I wanted to start out with today may be a place that we wouldn't normally start or you wouldn't expect me to start, C.J., was just to say, I think when you think about our people, and with Pat coming onboard as our new CEO and the leader of Intel, it's really just been an energizing event for the company. And that's really because, a, he's an engineer's engineer. So you think about the technical talent in the company in engineering and manufacturing and TD or technology development for manufacturing, we've really been energized with Pat coming back, investing in the business, investing in talent. As you know, you saw, we've gotten much clearer about our strategy going forward for product leadership for what we call, I'm sure we'll talk a little bit, but what we call IDM 2.0. We've eliminated some of the confusion that existed and gotten to clarity, and that's been energizing for employees who -- we're largely a technical company. We have incredibly talented technical people in the company, who wanted to see a clear link between what they do everyday and how we go impact the world and change the world with our technology. And that's there now. And so I would just say, as an employee myself and a leader in the company, it's been really energizing. Pat did his Intel Unleashed event back in March. And I think Unleashed was the -- probably not to be too corny, but that was the appropriate word because it really feels like the gloves are off and we're investing for the future and to grow the business and to compete and win. And that's been a very energizing and aligning activity of the company. So I won't go too much more than I'll just say, hey, we're back, I'm excited to be here. And for my business, CCG, it just feels like I'm being enabled -- I've been enabled with the team to go out, compete and win. I'm staring at an incredible market opportunity in client computing. And as I look at my road map and now how our technologists and our manufacturing talent, our engineering talent is rallying around the road map as we go forward, I feel better about it than I've ever felt. So maybe just stop there, C.J.

Yes. No, that's great. I guess maybe to follow on, those [ stocks ] at a high level, with the new CEO, Pat, at the helm, how have your priorities and the priorities of CCG have changed, if at all?

Yes. With Pat at the helm, I think, as we said, we've gotten much clearer about the priorities in the company and then obviously, the implications for CCG. And I think, at the highest level, we've made it clear we need to have leadership, product leadership in every segment in which we participate. And that really goes across the entire company, whether that's in the data center or the cloud business, mobility business, the networking business, IoT, PSG, Mobileye, CCG, we need to go have product leadership in every segment we compete, and we're committed to go do that and create the technology, the IP, the products that are going to enable us to compete and win in the market, first and foremost. And you see us now not just -- you see us putting our money where our mouth is, investing in TD, investing in manufacturing, investing in the capacity to compete and win. I think the second thing you see is this, we talked about IDM 2.0, and maybe I'll make that a little more specific and related, C.J., to CCG, since you were asking about how it relates to CCG. And I would say, in the past, IDM has been a core part of the company's business model since -- almost since our inception. So having leadership process technology, so us getting back to parity, as we said, and then leadership in process technology, along with leadership products, that combination is what makes us special. It's what enables us to win and then drive leadership margins as well, growth and margins. And I think -- so getting that core engine back and firing on all cylinders, which is what we're doing, is critical. But then more than that, kind of the new, new part around IDM 2.0 is really how we work with the ecosystem and how we leverage our manufacturing scale and our footprint, our packaging technology, the IPs that we have and then the IPs and technology that are available in the ecosystem. This strategy really allows us to bring them together and to build -- for Intel to build products and through Intel Foundry Services, for our customers and partners to build products that are really best-in-breed. And that's very unique. I think it's very exciting. So you can imagine, on the CCG road map, on the client computing road map, you'll see us build products where, yes, I have my core differentiated IPs, whether that's my AI IP, my CPU IP, my graphics IP. But there are other IPs that I'm going to want to leverage the best-in-breed in the industry. And now, because we're using common processes and tools and methods, we can bring those all into a product and create something that's unique. And I can tailor those products increasingly for the segments that they're in, for the capacity and the supply that's needed, for the performance that's needed, for the power that's needed, and that's really exciting. So it is a -- it is really about us committing to deliver product leadership, to compete to win, to gain share. And I would just say, Pat, one of the things -- if you've heard Pat talk, and certainly, what resonates with me, is we are very committed to driving leadership and taking share and winning in the market. And we're going to do that with our partners and our customers.

Excellent. So curious on the Intel Foundry Services part, how, I guess, like things evolve within CCG there. I mean is that a place where you would license your IP to someone or conversely, where there are synergies in terms of you guys building, both leading and lagging it, as part of foundry? Any thoughts around that?

No, that's great, I mean, C.J., like you pick up on this, which I think is under -- maybe perhaps a little bit underappreciated, is one of the things under the covers that relates to the core business with Intel Foundry Services is we're making x86 IP and our other leadership IPs, I mean, but including the core, available through Intel Foundry Services, which is we have never done that before. And I think there's been significant interest as evidenced by the number of companies that were there when Pat did the Unleashed event. And then as he talked about foundry, you saw some of the testimonials and the interests in it, is because there's just this huge breadth of opportunity, as I said in the opening, that exists. No way one company is going to create all those products, design all those products themselves. But we can service that demand. We can enable companies to use our leadership IP to create some of their own custom products. That's very new, very different, very exciting. And we've seen a ton of interest. So yes, in the client space, that's true. And then, yes, certainly, if you think about, over time, we have a foundry offering around 22 nanometer today that existed. You can imagine that as -- and you understand the foundry business and the dynamics. There's legacy or lagging nodes, which are an incredibly important part of that business and the business model and in the past, the client business. In the old days, we would have the CPU at Intel on [ N-generation ] technology. We have the chipset on [ N-1 ]. Now that the architecture is not that simple anymore, as you and I may talk about today, we're going to tile this aggregated approach of architecture. But yes, could some of the -- will some of those tiles, if you will, beyond the [ nock ] on the current node, maybe on [ N-1 or N-2 ] technology, if that's the most appropriate? Yes. And having the foundry capability at Intel enables us to take advantage of that for our own products as well as products for others.

Got you. So I wanted to pivot to the core PC market and obviously, benefited from work-from-home trends to a great deal. So I would argue that I think the strength in PCs, both last year and this year, is probably the key driver of the shortages, at least for front-end manufacturing. But anyways, how are you thinking about the long-term growth CAGR after 2 very strong years? And I think there's different arguments around moving from one PC per home to now one per person and also faster replacement cycles. Can you kind of walk through your thought process and your philosophy for how we should be thinking about the growth just for the PC part of your business?

Yes, that's great. Thanks for asking the question. And I think it is something that we're trying to tease apart. Obviously, you go through something as fundamentally disruptive in what I see as an accelerator, which was COVID. It changes the models, right? It changes the behavior. And I think so as you tease it apart and we think about the future, a lot of times I get asked the question, hey, is this just an acceleration of refresh, was it just a bubble. And I don't think so. I think some of this change is structural and it's lasting. And maybe just a few points to eliminate that a little bit. As you said, I think one of the factors that's been a little bit underappreciated has been the change in density. And so this hasn't just been a refresh -- a change in refresh, it's actually been a change in density. And as you said, PC penetration in household is nowhere near one per person. It is over one per household, but we need to drive towards one per person. And a very small move in PC density and like in the consumer case, in household, has a massive tens of millions of units implication in the TAM. Then you think about education, where, in the United States, the number of devices per hundred students has been increasing. But if you look at the world, the number of devices per 100 students is still less than 10. So we have a long way to go until we're at a one device per student or in the consumer case, one device per person. We have a long way to go. And I think, increasingly, the PC is such a critical device in competitiveness, I think it's important for us to get more devices in the hands of kids going through school that are productive, that are capable and position them for the future or the jobs of the future, the opportunities that exist. Hey, it's incumbent on us to go work, to go drive and make that happen in the world. The third thing I would just say is as business comes back and we see people going to kind of a hybrid mode of work, a majority of folks are going to hybrid work mode, I think commercial comes back. And there are more than 400 million PCs today that are over 4 years old, that are in need of a refresh. And I think we can give -- we've given folks a great reason for refresh. And not new news, I think Microsoft has been public with their comments that they're investing again in Windows in a meaningful way, and they're going to drive innovation in Windows and the ecosystem with us. And I think those 400 million units are ripe for a refresh in consumer. So I think that's another kind of tailwind as we go forward. And then maybe lastly, is there has been a change as people go to this hybrid mode of work, hybrid mode of learning. You've seen the mix shift from desktop to notebook. Net -- notebooks inherently have a shorter refresh rate. So again, I think that's structural. I mean we won't -- desktop business is coming back as commercial comes back, but it won't go all the way back to the way it was before. Some of the shift to notebook is structural, it's lasting, and that inherently drives the fast refresh rate. So I'm not going to sit here and say, oh, yes, I'm this great forecaster and prognosticator, and oh, I can call the TAM in 2023, 2024 perfectly. I would be foolish to do that. But I am bullish about the future of the PC business. I do think some of the change is lasting. And we see a pretty strong demand in 2021. Some of that is being unfulfilled due to customer constraints or industry constraints. And I think 2022 will remain a strong TAM, a strong environment for the PC. And we're very convicted about it, just full stop period. We're convicted, we're investing, and we're going to support that demand.

Excellent. So that's a great segue into the supply chain challenges. I guess a clear issue for everyone in the industry. Is it just substrates? Or are there other issues, factors to consider? And how long will it take to ramp up expansion of substrate capacity? And I do think you guys have talked about figuring out ways to tweak maybe the design to drive volumes. I would love to hear more on that as well.

Yes. Well, yes, first, I would say it's more than just substrates. I mean that's super clear. And if you just back up and you look across the industry, the demand for semiconductors is just -- has been incredible. The auto industry is well documented, well journaled. But appliances across industry, you see constraints. And a lot of that is on lagging nodes. It's not -- I think that's the kind of the perception, it's, oh, it's leading node constraint. It's not. These lagging [ N-2, N-3 ], even [ N-4 nodes ], are fully loaded and at capacity. As you know, it takes time. It takes time to build more space and to invest in the equipment and the capacity to improve supply. So you can see that across power ICs. You see it in panels and display controllers. You see it better. So I just think, in general, in the industry, and Pat said this, I've said this in other forms, we think maybe a couple of years before things really fully come into equilibrium, in general, across the industry in terms of supply and demand. Now kind of back to your point about Intel, the fact that we are an IDM, the fact that we do have our own factories or manufacturing does help us work more closely with our customers in order to navigate the challenges that we have and to help work with our customers so that we can pair up the match sets of components they have with our CPUs, with substrates, to maximize the number of units to go out, which is what we're doing. And you hit on one example of that and -- which you hit on, C.J., is in the case of substrates, we were using our assembly test factories in the world to actually help cross-process and build substrates using some of our equipment and our capacity to help those suppliers, those substrate suppliers, to get us more substrates, so we could get more product out the door. That's something that's unique about Intel, uniquely we can do, because we have our own manufacturing. And then we're also obviously out working with partners, talking about how we see the market, helping them build the confidence that they need to invest in the factories, in the capacity, even on these nonleading nodes. It's like, no, you need to put more capacity in place. It's a lasting dynamic. This demand is persistent. And we've been doing that with some success. But it will take time, C.J.

Makes sense. Well, do you have a sense of what pent-up demand might look like? And also, how do you think about potential for demand disruption if supply does not come at the right time?

Yes. It's so interesting. So far, what we've seen because as we work through -- as we work with our partners and constraints and our customers, right, and I'm out everyday talking to our biggest customers about their backlog, the orders that they have on their books, how they're trying to manage the demand, so far, that demand has been persistent and it's lasted. And demand remains strong and -- which is great, which is obviously exciting for us. So, so far, despite the constraints, despite some of the limitations, the demands remain strong. We see it remaining strong, which is why, obviously, we're committed to work with them to go maximize our output and drive this business. So it's not to say that some demand [ is imperishable ], but I think a lot of this demand has been lasting and demands remain strong, which is why we're bullish about 2021, 2022 and why we see these things being persistent. Yes.

Makes sense. Yes. So maybe we could pivot over to your product road map. Can you talk to us about Rocket Lake timing in terms of ramp? And is that kind of what gets you excited today or what else in terms of [ you being ]...

No, no. Yes. I can hardly wait to answer the question. So yes, I mean, I get really excited about the product road map. And one of the things that I wanted to emphasize is, really, it comes down to execution. We've got a fantastic road map. We're investing in the future. We're -- like the shackles are off. We are 100% playing to win. And now, it's down to, okay, great -- strategy is right, road map looks good, can you execute it. And we've been executing this business. And I'll say it started with Tiger Lake. I called that on the record for holiday. Last year, we delivered Tiger Lake, 150 designs. We're going to 400 designs this year. We just launched our Tiger Lake-H, our high-performance Tiger Lake for notebooks, incredible desktop performance in a notebook, much, much better performance versus AMD. We've taken share from AMD, in fact, the last couple of quarters now, Q4 and Q1. So if you look at Mercury, so I'm kind of like, okay, I feel good about that execution. We launched Rocket Lake on the desktop. And now, as you said, we've said for some time, we would have Alder Lake in production from us in the second half of the year. We're on track to do that. It's a special product because without getting into too much detail, it's our first hybrid architecture product that uses 2 different types, of course, for high performance and high efficiency, in order to create the best product. This is something that we're uniquely positioned to do, I think, will give us a real advantage in the marketplace. So we're excited about Alder Lake coming to market in the second half of the year. And then as Pat, I think, said on the record the other day, we've talked about, hey, we lean back into 7 nanometers, we figured it out, we are fully embracing EUV and leveraging EUV more fully in our road map and as we go forward. And Meteor Lake is the 2023 client product. We've actually taped in the 7-nanometer compute tile on that next-generation product after Alder Lake. So we're excited about that. So I would just say, for us, it's all about execution. We've got a leadership road map. And we're -- I think the engine is really coming together. We're getting back to that disciplined machine that we've been in the past. Pat's been big about getting that kind of tick-tock predictability that our customers demand and that we need to drive leadership back into Intel, and in the client group, I want to be a shining example of that in the company and the industry.

Got you. Curious around advanced packaging. I think one of the areas that is underappreciated about Intel is your leadership there. I'm curious, how does it fit into your road map? I guess, in my mind, I kind of think intuitively more [ will fill around a data center ] AI, less so PCs, but I'm probably wrong. So if you could kind of talk through how you're thinking about using advanced packaging to differentiate your solutions at.

Yes, thank you for asking. Yes, it's actually very important to our business and to the data center business and to our foundry business. But in my business, in particular, we've been in production on both types -- and I won't get -- I won't nerd out. [ I need to ] -- it's easy for me to nerd out on a [ 8080 ], for God's sake. So I'll try not to nerd out too much. But both our 3D packaging, which we call the Foveros, and our 2D packaging called EMIB, and there's a couple of flavors of EMIB that we do that are in this advanced packaging technology, we've got a road map of innovation going forward, we've been in production on both of those technologies already. Whereas some of our competitors talk about advanced packaging, we're in production, high-volume production on these technologies. And on the client road map, I am a huge proponent and consumer of those technologies, both EMIB and Foveros. And what I can say, and I don't want to give away too many details, C.J., on the future road map, but what it enables us to do increasingly, and you'll see it as we go from Alder Lake to future generations on our road map, we've talked about in our architectural forms this notion of being able to disaggregate and leverage the right IP on the right process technology with the right cost structure, the right performance and power structure and put them all together now into what we would call System-on-Package versus what might have traditionally been called System on a Chip. And I'm going to leverage that very, very heavily. So you could imagine us having a compute tile, a high-performance compute tile on a node optimized for that, like Intel 7 nanometer or future technologies. You can imagine us having a different graphics tile, which now instead of kind of like traditional integrated graphics in the CPU complex could be a very beefy graphics compute tile, right, optimized for density and performance and power, that now gets stitched together inside the package. So I think this is going to give us the flexibility with kind of a base, think of it as one common architecture that we can then scale through these different tiles in our advanced packaging to service different segments. And I think that's really going to be an advantage for us because this business, it's not -- the PC business, and I know you're close enough to it to know, it's not one-size-fits-all. I mean part of the strength of Intel is the choice, the platform optimization that we do, to meet customers' needs. We've got the broadest portfolio in the market. This is going to help us even be more tailored to those segment needs, and I think it's going to be a real competitive advantage for us versus what our competitors can do. And you'll see it show up in our Evo platforms, our leadership consumer platforms; you'll see it in our VPro commercial platforms, where we're bringing together CPU, graphics, leadership connectivity, 5G modem, security engine, manageability engine, all together into a package that our customers can then really scale up and down their offerings.

Excellent. So it's a good segue into PC market segmentation and the competitive landscape. Like you said, not one-size-fits-all, right? So how are you thinking about market share in the markets [ that you want to be in ]? And I guess, the perspective that I would love to hear your thoughts on would be ARM starting to make some headway into the compute market. And is that going to be more kind of an educated, low-end type of world? Or what are your big picture thoughts?

Well, I mean, it's like, I would say, hey, it's an intensely competitive environment, and we made it clear, we intend to win and gain share. And an ARM in the PC ecosystem is not new. It's existed for some time. And I think we've proven now the strength of the x86 architecture, the strength of our platform engineering capability. We're much more, as you know, than just a chip supplier or even an x86 architecture supplier. We bring the whole -- we enable the whole platform out with our customers with deep co-engineering, where you look at the software and OS optimization work we do, the compatibility we have, the choice that we drive. We've been able to compete very, very well versus ARM. And I think even in an area where I think some folks would think like Chrome, you would think, oh, Chrome, lower-end Chromebooks, gosh, must be all ARM. It's like, no, we're like -- we're -- we have -- we were -- we have a great position in the Chrome ecosystem. We're very competitive across a wide variety of price points. And it's because we do this optimization work and we do this deep co-engineering with our customers. That said, I take it very seriously. I don't want that to come across as being arrogant or -- we take that competition very, very seriously. But I feel very good about our leadership road map. We have leadership performance. We've got great compatibility. We've got great choice. We've got great gaming products, great productivity products. We've got better security manageability. And we're investing to win. So -- and I think we're just laser-focused on it. And then, as I said, in terms of AMD, the product's competitor, we've gained share in the last couple of quarters, and I want to keep that momentum going as we go forward and we step on the gas on our road map and accelerate into Alder Lake and beyond. And that's past expectation. And it's my expectation, too.

[ Yes. Competitively in this, too ].

Yes. Yes, yes. Well, yes, I'm a competitive person.

Yes. Okay. How are you thinking about M1, M2 chip on the Apple and their seamless kind of integration of hardware, software, which is a little, I think, different than most other kind of competitors for you? So I guess, how are you looking to kind of keep the share that Apple has to a minimum, to your offering vis-à-vis new generations.

Yes, that's right. I mean -- and that's a different kind of competition as you noted, which I would just comment on. I would say, I think they've go this walled garden. I think it was inevitable that they moved to their own silicon to unify, really wasn't as much as the silicon as it was about the developer ecosystem and unifying this base of developers and applications that they have on the iPhone and the iPad and bring it to the MAX. So I think that was inevitable. So for us, it really becomes more than just a chip battle. It's an ecosystem battle, C.J., as you noted. So a couple of things that I would say there. One, we need product leadership, which we have, and we're going to continue to go drive and invest in silicon product leadership. But then on top of that, we've got to go now, and I think this is why the work that we've done at a system level with Intel Evo, for example, I've got 100 Intel Evo designs of platforms in the market where we're working with our customers now, and not just on silicon, not just on raw performance, but on the whole experience, right? How does the system boot, how does it -- how responsiveness is it, what's the battery life. How seamless is the connectivity. We're now working on areas like collaboration, what's the collaboration experience like, which is just so important to everyone. So us moving up, if you will, and partnering with our customers and doing this deep engineering, I would like to talk about it almost, C.J., like a virtual vertical between ourselves, in the Windows ecosystem between ourselves and Microsoft and our customers, in the Google Chrome ecosystem between ourselves, Google and our OEM customers. It's like how do you then work together and reinvigorate the PC ecosystem and the experience to compete at that level versus the walled garden, yet, at the same time, leverage the strength which is choice and innovation. And it's not one-size-fits-all. And it's -- and you see that show up in the range. The benefit of the horizontal ecosystem, sometimes, it's maybe a little underappreciated as, man, the amount of choice that exists, whether that's screen size or thinness or optimized for gaming or detachable, convertible, touchscreens, all the choice, which is wonderful. So it's how do we preserve that advantage that we have and the choice, the incredible ecosystem that we have, but then kind of start to curate things in a more virtually vertical way with our partners in order to take on the Apple ecosystem because it really is an ecosystem battle and it's one we're deadly serious about competing in and building alternatives for people so that they have more choice. And I think choice is good for consumers. It's good for our customers, good for us. So that's how we're thinking about it.

Very helpful. So we have 2 minutes left. Curious, what have we not discussed that you're excited about? Or any concluding thoughts that you would like to share with the investor audience?

Well, Thanks, C.J. And I really appreciate you having me and Ben on today, and great to talk to everyone. I think we're just -- this is a new chapter in the company's history. It really is. I think this absolute clarity of us becoming, regaining product, process leadership, investing in the future of the company, you see us putting the execution machine back together under Pat's leadership and investing in the people and the technologists to go drive that leadership, as I said, in the opening, I think that's just really exciting. Number two, this IDM 2.0. I wanted to try to clarify that for you all a little bit because it does build on the IDM heritage, but in a new, more exciting way that I think just dramatically widens the aperture of what's possible for us to build products, but also for our customers to build their own products in a way that services this incredible demand that we believe is across industry and it's lasting. It's the next decade. Semiconductor is incredibly important in the world. And then I would just say we're really stepping up to embrace the unique role that we can play in the world. The world needs Intel to be a leading semiconductor manufacturer. The world needs us to step into the scale, the leadership across for global customers at a time when there's uncertainty in a lot of global supply chains. I mean it's incumbent on us to step in, and I think the world needs us to execute. And we're embracing that. And I think in terms of going forward, whether that's a [ crime ] today, we focus on the client business, thank you. But whether that's in the data center business, the client business, Mobileye with autonomous driving, artificial intelligence, graphics, we're investing to win. And we're in a path to organizing the company to win. And I'm excited about our future. I think it's -- obviously, it's the -- I think the future is brighter than it's ever been. It's just we've got to execute and put points on the board so you all can have confidence in us. And we've been humbled. We're a little bit -- we've been humbled. We're a little bit pissed off, but we're also excited about our future. And I think you can count on us to go drive this company forward and execute. And that's all I would say. Thank you, thank you for taking a look at us and having us here. We really appreciate the opportunity.

Thank you, gentlemen. Really appreciate your time. I think we've run out of time. So I guess, that's it. But great to have you both. And hopefully, next time, we can do this live and in person and maybe we can get the [ drum set ]...

Not a virtual background. That's the real thing. You never know. Okay. Hey, thanks, C.J. All right. See you.

Yes.