Intel Corporation (INTC) Earnings Call Transcript & Summary

Hi. This is Patrick Moorhead with Moor Insights & Strategy.

And I'm Daniel Newman with Futurum Research.

And we are here for The Six Five Summit 2021. Daniel, we are here. It's the second year. I am so excited.

We are here to present the next roaring 20s. This is going to be a fantastic event, Pat. We are so excited to be here. We have 50 sessions and different speakers from 30 of the world's leading tech companies in a cohort of some of the most experienced and exciting CEOs, CXOs and top executives, and they're going to be sharing their knowledge with all of you.

We're just so appreciative of the feedback that we got from last year's Six Five Summit. You said, "Hey, give us more days." We went from 2 days to 5 days. "Give us some live elements." We have a live Q&A at the end of each of the 5 days.

Yes, we are going to bring an absolutely wonderful event to all of you, all of the things you're thinking about: big technology, the future, innovation, topics from innovation and 5G to semiconductors, devices. If you're interested in technology, this event is going to cover those interests.

And with that, I am super excited to introduce our opening keynote speaker, Intel's CEO, Pat Gelsinger. Pat started his career at Intel, and he spent 30 years. Now he's back home at Intel. Thank you so much, Pat.

Well, thank you, Patrick, and Daniel. And it's great to be able to join you here for The Six Five Summit and really give you some of the pleasure, excitement of being back in the semiconductor industry and back in this chair at Intel. It really is an exciting time.

And so Pat, you hit your 100-day mark as CEO at the end of May, and you've made some big changes coming back to the company now as CEO. Can you tell us a little bit about what you've been up to since rejoining Intel back in February?

Well, thanks, Patrick. And it has been what I've described as a torrid 100 days and coming back to the company. And first, this is the dream job that I had thought about, dreamed about many, many years ago, then I took an 11-year vacation, right? Got a few things done, painted the porch and now back leading this iconic company. And with it, some of the things we've been working on, one is just rebuilding that execution engine: execute, execute, execute. And some of our stumbles were really led by -- we just didn't do what we said we needed to do for our customers. So getting the road map healthy, getting our process technology teams executing and rebuilding that culture, that Grovian culture, and have everybody focused on delivering the best products in every category that we're in. But the big thing was our announcement around IDM 2.0. And we said, not only are we redoubling our focus on manufacturing and building factories. We announced 2 new fabs in Arizona, a new packaging facility in New Mexico, building our next locations in U.S. and in Europe, an aggressive build-out of our manufacturing capabilities in the face of a semiconductor shortage. But we also said we're opening wide the doors of Intel fabrication, manufacturing and packaging with the Intel Foundry Services. And that combination of major manufacturing expansion, commitment to IDM and becoming a major foundry, I think the world was sort of like taken back with how quickly we're moving the company forward to the next phase of this great brand.

Absolutely. And Pat, I have to say, you talked about getting a few things done. One of my favorite things I've heard you say from the very beginning, and I've listened to a lot of your interviews from the early ones with Jon Fortt on CNBC to your recent appearance on 60 Minutes, and I still remember, first time you talked to us as analysts, you talked about the say-do ratio. So in all serious, I think that was one of those things that just really stuck with me as I evaluate and as we, Patrick and I, evaluate the market. As you know, not only is what you're going to say in this role as CEO but what you're going to do. And one of the things I've really just heard in all of your messages is you see so much potential in Intel but potential in technology, potential in the future.

And another thing you talk about, Pat, that really catches my attention are the 4 superpowers. So I'd love to talk about that with you as well. What are the requirements to fully enable the superpowers for technology overall?

Well, yes, the superpowers, as I've described them, and the 4: cloud, AI, connectivity and edge. And I just see these as just these industry-shaping transformations that are occurring, and they reinforce each other. The more cloud you have, the more I can do AI. The more AI I have, the more data I can consume for my connectivity. The more new services I build with my edge, and then the more edge I have, I need to connect it more to the cloud. They're just driving and reinforcing each other. And these superpowers are literally driving the digitization of everything. Every aspect of human existence, our learning, our social experiences, our health experiences, and of course, COVID was just like a big kick in the pants that everything hit a higher gear as a result as everybody began working from home. Every kid became a educate from home. All of these things were just radically accelerated in the context of COVID. And this has just created this extraordinary period of time where all of us are recognizing social norms that might have taken a decade to change, they changed in a matter of weeks as we saw this huge migration of the workforce, as everybody being educated online, health care. Things that could have been dreamed of a decade ago were happening literally in a few short weeks with telemedicine and health. All of these aspects of human existence accelerated. And I think for all of us in the technology industry, I'd just say we have an incredible decade in front of us because the world needs more of what we do, more digitization and under that, more semiconductors. And it really is a thrilling place to be. Some have described, and as you said in 60 Minutes, the new oil, semiconductors, we are hot, and we're in the center of every aspect of human existence. As an example of say-do, I said that we were going to get 7 nanometers healthy, and we're going to prove it by having the Meteor Lake, our first compute tile on 7 nanometers taped in, in Q2. Well, I'm happy to say it's taped in. We are on track. Not only is the process healthy, but we're able to tape out a major compute component into it already. And we are well underway at bringing health, predictability and execution back to Intel.

Yes. Pat, it is incredible that we saw pull-ins of innovation road maps up to 5 years, specifically when it came to certain SaaS properties and different products. It was incredible to see that. And we definitely are, I think, in the theme of the show, we are ready for the next roaring 20s. And I think we're -- we've got a pretty good starting point. But let me ask you, what are your thoughts about what's happening in the semiconductor industry and speaking of friction? I know you've spoken a lot about supply and demand recently.

Well, 2 different aspects, Patrick, just to think about in this context. One is if we build on the last question, we saw this accelerating demand. So COVID, we were already seeing digitization occur across industries. And then COVID just kicked it into a higher gear. It also kicked our supply chains into a lower gear. And that gap became very large. And as I've estimated, I think it's 2 years for the semi industry to catch up. This is a big challenge. And we have to rapidly build new capacity, drive our factories harder, fix the supply chains and things like substrates that most people have no idea what they are. Well, now, everybody needs them. So we're seeing this enormous gap that we have to go catch up and build out capacity. And now we're seeing that factories. I was just in Europe and met with one of the big German car manufacturers. And that day, they shut down their manufacturing lines. A $30,000 car sitting there waiting for a $2 chip, right? This is just creating all sorts of political turmoil across the industry, which then leads to the next critical aspect, which I just have said, we need more balanced global supply chains where we've seen U.S. go from 37% to 12% and Europe go from 44% to less than 9% in the last 30 years. We need to have a broader and more balanced supply chain of semiconductor manufacturing. And we're starting to see the U.S. government and the EU step into this to really create the incentives, the excitement, to see that balancing across the world because COVID also taught us that supply chains have now become very, very critical. It's not about saving the last penny anymore, but it's about building supply chain resilience. And I think as a manufacturer of semiconductors, we're leaning into this at the right time in human history and our factories in the U.S. and our commitment to expand further in Europe. This is the right time for a critical aspect of geopolitical policy, and it simply is the right thing for our industry. Semiconductors are cool. We need R&D. We need research, design and manufacturing in the Western world, and it's an exciting period of time to make that happen.

Yes. It's really interesting, Pat. You mentioned all that. Patrick and I always talk about semiconductors eating -- are going to eat the world. A lot of people say that about software, but we actually realized that at the very foundation of it, it is semiconductors that make all of this possible, all these data centers that are running, all the software that we're using. And I think you hit that nail on the head, Pat, when you talked about just how much COVID and what happened during 2020 just accelerated and made it so much more visible to the world how dependent we are on semiconductors. I really like what you said about making the supply chain more resilient and bringing more manufacturing. I think we'll actually talk about that a little bit more. One of the things I've really admired about your early days with Intel, and by the way, I noticed this when you were at VMware when we were tracking that company as well, was you are very active in getting out there with customers, talking to customers and interacting with customers. So leading the ship from the front, for sure. What are you hearing as you're out there and you're getting feedback from customers today?

Well, thanks. And as you started that, software runs on something. I haven't been a software executive for the last 8 years. That software stack runs somewhere, and that's what we do and building platforms and silicon. It really is exciting. And customers, it really is -- there's an explosion in innovation that's happening with customers. And this is part of why we've opened the foundry. This is part of why we're seeing the cloud scale saying, "Boy, I'm such -- at such enormous scale now. How can I co-optimize with you? How can I innovate together with you?" We've also seen an extraordinary demand environment. We're now 1 million PCs a day. We haven't seen that level of energy in the PC industry for over a decade. Servers are just reaching to the edge and the excitement around the 5G build-out but also things like private 5G and the smart edge environment emerging. And then, of course, the most important workload is AI and software writing software, just a powerful notion when you think about that ability to create self-optimizing systems and predictive systems. And it's still at a nascent level. I joked that 30 years ago when I was designing the 486 -- almost 40 years ago now, we added features for AI to the 486, right? It's a 30-year overnight success. But now it is just flourishing in every aspect of software and innovation. And when we put all of these together, our customers are saying, "Boy, we can do anything together." It really is autonomous vehicles, smart environments, being able to create new industrial applications. 5G that I have high bandwidth, secure, high connectivity, low latency anywhere I want it. This is industry shaping. So it really is a thrilling time, I'll say, overall, and we're seeing more and more of that across every industry. Whether it's health care, whether it's automotive, whether it's supply chain, retail, every one of those is being able to embrace technology in ways never before possible. This is the coolest time in history to be in technology.

Yes, Pat. So Daniel and I talk to many of your largest customers, and we're hearing a very similar tone. And that is this insatiable need for more compute, varying levels of compute and also the technology to move that data and to store that data effectively. Just when you think you have too much performance, developers find a way to use that. So let me ask you this. What role do you see Intel playing in this fully digitized world? How are you addressing what the customer needs as we discussed before?

Yes, the first thing, Patrick, that we just need to do is just deliver to our expectations and the commitments that we have to our customers. They are struggling to keep up with demand right now. So first order of business is satisfy the products that they're asking for, and they are just needing us to deliver against that. But then they're also saying, "Boy, Intel, we need you to be building these platforms, driving the new standards, creating that foundational infrastructure that we can build our businesses on. We rely on you for the innovation that we are undertaking for our exploding customer demands as well." And I remember back to the early days when we did USB and WiFi and PCI. Well, now DDR6 and PCI Gen 5 and CXL, new memory bus interfaces, it's all old, and it's all new, and it is exciting again as we're seeing many of these things recreating the platforms. 5G is cool. Private 5G is going to be better. And 6G is getting underway. Many of these foundational technologies are just going to enable all of these use cases across industries. And then looking to Intel to step into that role, to be the geeks of the industry again, gathering together. I'm looking forward to our innovation conference in the fall, sort of IDF 2.0, right, our Intel Developer Forum, as geeks are going to huddle, and we're going to predict what the future is like together. And that's what they're looking for Intel to be is that center of geekness, right, as we rally the industry to the future things that we can do together.

Yes. I think that brings a lot of your thoughts together, Pat. And I think a lot of people are wondering, now that you've been here for a little while, though, you came out with a bang. I mean let's just -- you mentioned IDF 2.0, and I'm thinking IDM 2.0, and I'm thinking you're -- we're great at acronyms. It's probably one of the biggest strengths and weaknesses of the tech industry. You can be in it for 50 years and still not know all the acronyms, even the ones that are around you every single day. But this year, so 2020 was a really interesting time for everybody. We talked about the acceleration. You came over right at the beginning of 2021. And now we mentioned earlier in this conversation, 100 days in. This year's feeling a little bit the same, but we're starting to feel different. And this era is going to be, I don't know, can we call it the Gelsinger era at Intel? What is going to be different, especially within Intel, but then, more broadly speaking, in this industry during this tenure, during this leadership time that you are going to have here at Intel?

Well, as I would view it, some of it is -- we're going to be proud of our heritage, Grove, Moore, Noyce, the Grovian culture. But we're also going to be modern, current, innovative. We're not trying to recreate the company of 40 years ago. But, boy, we want to take some of those principles of hard core execution, competitiveness, executing, tough conversations, putting technology at the center of what we do, but then also bringing the best cultural aspects as well, being aggressively diverse, being modern with our CSR objectives and bringing that together into saying a company that people can be proud of that no company in the United States, maybe in the world, has a prouder history of innovation that we have. And we're proud of that. But I'll tell you what, we're not done, right? We're just going to be leaning forward aggressively. And as I'd like to say, Intel's best days are in front of us. And as we look forward into the industry, it really is this period of time where people are saying, "Boy, I need that kind of Intel back, this foundational platform that you build and enable us to innovate on top of, whether it's the standards, whether it's the key software components, whether it's these vertical industries that we're opening up." And those are the things that I really want to mark this era of Intel. Clearly putting some of those stumbles behind us, closing the chapter on some of those aspects, unquestionably putting us back to process leadership, but combining it with packaged leadership that we've always maintained, product leadership, our software leadership at scale, manufacturing where we are building factories at scale to deliver the highest-quality products for the industry. This is the era that's sitting in front of us, and I'm pretty excited that I get to be honored to be the CEO leading this period in the company's history in honor of the founders, in recognition of our role in the industry, the right thing for America and for the world. This is a thrilling time to be the CEO of Intel.

I have to say, Pat, when you drop the Grovian-plus modern elements, my virtual phone was ringing off the hook. And whether it was your investors, your customers and -- or the press asking me, "Hey, what do you think about this?" I think I was even excited, and I'm not even part of Intel. But we've gone from 50,000 foot to 10,000 feet to 500 feet. But let's talk about what's next, Pat. What is next for Intel?

Well, a couple of areas. One, I'll say, we are on a rapid journey with, what I call, 5-3210, right? We are going to rapidly move through the process technology generations because Moore's Law is far from dead. It is alive and well in Intel. And we're going to set that pace for the industry. And later this year, we'll be describing some of those innovations that are going to allow us to keep on the front foot of Moore's Law. We're also seeing at the package level that we're moving the 3D packaging technologies that it really moves from system on a chip to system on a package as we bring multiple tiles together with advanced packaging capabilities. So literally, in a very small component, we're able to combine 100 billion transistors together, right, being able to put teraflops on a chip, right? No, teraflops on a package, right, combining all of these as an integrated delivery. As I mentioned, we're just scratching the surface on AI, right? And the programmatic aspects of AI, software, writing software, I think we're just at the beginning. We've got cool research going on in areas like neuromorphic computing. Some of our quantum efforts that we just released are just starting to show some pretty interesting and compelling applications. And moving into vertical markets. We'll have the first, I'll say, broadly deployed Level 4 vehicles with fully autonomous capabilities. And all of these coming together is a platform that enables new innovation on top of it. And as the saying goes, I can see far because I stand on the shoulders of giants. And just that is what our industry is all about, Patrick and Daniel. It really is we do something that allows us to do something else, and we just keep building this technology platform that we can see far into the future.

Pat, I just want to say all of this probably is a perfect summation of what we were trying to accomplish here at the Six Five Summit as we kind of talked about the next roaring 20s. And there may not be a better technology to set that tone as the underpinning of everything that we are going to be talking about over the next 5 days and everything that you out there, all the listeners, all the people that are attending are here to learn about. So Pat Gelsinger, CEO of Intel, thank you so much for joining us and kicking off the Six Five Summit with us here.

Thank you.