Intel Corporation (INTC) Earnings Call Transcript & Summary

Good afternoon, and thank you for attending JPMorgan's 20th Annual Technology Investor Virtual Forum here at the Consumer Electronics Show. My name is Harlan Sur, semiconductor and semiconductor capital equipment analyst for the firm. Very pleased to have Gregory Bryant, Executive Vice President and General Manager for Intel's Client Compute Group (sic) [ Client Computing Group ], oversees 50% of Intel's revenues. I've asked Gregory to start us off with a snapshot of what Intel announced yesterday at their press event, and then we can go ahead and kick off the Q&A.

Great. Hey, thanks, Harlan, for having me. It's always good to join you at CES. I think this is our third time. So great to be here. Thanks for having us. Yes, we had our press event yesterday right here from Las Vegas. I'm actually still physically here. We made some -- it was a special day for us. We've made a lot of progress across the company, as you, no doubt, noticed. And I'd say I -- we really outlined progress around 3 areas. But the -- maybe just before I do that, I think you all know we've talked quite a bit about the digitization of everything, driving demand in semiconductors. We believe we're -- we've got a decade-long kind of cycle of demand as that continues. That -- those -- these trends in the digitization of everything started before the pandemic. They'll continue well into the future. So that's kind of the backdrop that's driving demand across our business. And then we talked about these technology superpowers. I won't go into them in great detail today. But the way that we want to harness cloud edge infrastructure, pervasive connectivity, AI, ubiquitous computing, things becoming more and more computational, these forces are really what's shaping the industry and the demand. And then we made our announcements across 3 businesses, my business in Client Computing and the PC. We announced several announcements, but largely around the expansion of our 12th generation core line of products, which are special in the new architecture performance they bring. We made announcements in our graphics business that we're now shipping our first Intel discrete graphics to our customers. Lisa Pearce is on stage with me, which is a momentous occasion for us, as you can imagine. We're very pleased with that. And then finally, Amnon Shashua, Professor Amnon Shashua, who is the CEO of our Mobileye business, he's done CES for a few years now, Harlan, running. But I really wanted to have him integrated in the overall keynote. He talked about our progress with Mobileye, over 100 million EyeQ ships sold. He talked about the next-generation EyeQ Ultra platform. And then we talked about our expanded partnerships with Volkswagen, Ford and Zeekr in areas of autonomous driving and safety and mapping. So it was a big day. It was a lot of fun. I was very happy to do it. And hopefully, if you had a takeaway, it would be that with Pat here and at the helm that our execution is improving, that we're back and we're focused on growth.

Yes, that's perfect. And that's a nice segue into my first question, which is with Pat joining the team last year, one of his biggest priorities has been to improve the team's execution, right? Because one of the biggest hurdles at Intel has not been with the technology, architecture or road maps or strategy, right? The challenge has been simply executing to the road maps, right, whether it's manufacturing road maps, product road maps or even your prior foundry strategy. So what is it that you and the client team are doing differently within your business? And how has your team responded to these changes and challenges?

Yes. Well, maybe 2 things I'd love to say about Pat maybe to start it in that, I think, are just culturally very relevant. One, if I did the word association with Pat as a leader of the company, it would be clarity. It would be the first word that jumps into my head because I think he's really driven the clarity of vision and the strategy in a company in a way that results in better execution. And I'd say that like -- and then I'll just do just briefly, hey, strategy the company. We're an IDM. We've talked about IDM 2.0, about investing in our manufacturing leadership and our -- and improving our execution. Dr. Ann Kelleher is running TD. We're making great progress. We can talk more about that. We're using now not just our own manufacturing but leveraging the third-party ecosystem. Number two, we're -- we've got -- we're focused on the XPU strategy, which is CPU, GPU, VPU. The -- we need that set of architectures that our customers count on. And then the third area was moving just from not just chips, but into platforms and solutions. All the -- so that clarity of strategy is critical. And I'd say for me, in CCG, the Client Computing business, to your question, we play a role in every one of those. So my -- how it's played out in my business has been -- hey, the Client Computing Group, I'd like to say internally, we've reclaimed our rightful place driving the node transitions in the company. And you see that with Alder Lake or 12th generation core on Intel 7. And you'll see us play that role that we historically played in, ramping new factories and ramping new product technologies. Our parts tend to be smaller. They drive to scale faster. We're the right person to drive the transitions. And then I would say to the XPU strategy, you see us -- we announced the GPUs yesterday, but we're integrating VPUs. We've -- and we've improved our CPU execution. And then on the platform strategy, and I know we can talk more about it, but as we work with the ecosystem to try to curate the experience, I'm doing things like Intel vPro, Intel Evo, but you see that across -- Intel is reengaging with developers. I mean you saw our developer event, where we were back in a big way like we did in the days of IDF. We called it Intel On. We were back out engaging with developers in the ecosystem in a way we haven't done for years in order to drive those -- the innovation on top of the platform and the solution. So big difference with Pat on board. It's -- the clarity is there. And then it's really matched with what he likes to say is torrid pace. So I just think that clarity has enabled a faster pace of execution, and hopefully, you're -- you all are seeing that in how we're starting to deliver the results.

Yes. I think with the products that you announced and the -- and some of the forward-looking products that you sort of touched on at a high level, I think that's a very good reflection of a lot of the points that you just mentioned. As we think about PC demand, client demand, we're just looking at Gartner and IDC PC shipment forecast, up low double digits in calendar '21, despite the component shortages, and it's the second consecutive year of strong growth. Looking into this year, these guys are forecasting slight flattish to slight growth, so 350 million. Intel is looking for a slightly strong market as well, right? Pat said recently that he anticipates 350 million being the new base and a positive growth bias on that going forward. So my question to you is, what are some of the drivers of the PC strength into this year after 2 strong years? And why is 350 million the new base?

No, that's great. That's a great question. It's funny. I'd love to -- let me just take a moment and relish the fact that we've advanced the conversation to -- I'm not -- we're not having the conversation that was around maybe 6, 9 months ago, which is somehow this is all a bubble of refresh acceleration, we're going to revert to the mean of 2019, which -- so I'll take the check on. We've made some progress. We still have work to do. To answer your question, I think very strong -- there are some very, very clear drivers. And as you said, despite some of the supply component challenges, a lot of which are not on leading nodes or these are smaller components on lagging nodes, as you know, Harlan. We've grown the business again in -- the TAM has grown again in 2021. We expect it to grow again in 2022. And I would say, drivers -- probably the most misunderstood driver is what I refer -- I say it's density and -- versus an accelerated refresh. And what I mean by that is if you look at household penetration of PCs, the number of devices per household has gone up. So the density is going up. That's important. And because that density then will result in refresh down the road as well. And a 1% change in household density is 9 million units a year, just to kind of give you the macro level. It's a massive -- density is a massive lever on the TAM. And we're not going to be ripping systems out of households or schools in the near future, right? I mean I think these -- that's why we believe this persists. If you look at education, the United States, if you -- it varies a lot by country. United States actually, if you look at 100 students, you've got pretty significant penetration of devices in the United States per 100 students. But if you zoom out to the world, we're still in the high single digits. We're still less than 10 devices per 100 students in the world. So a lot of room to run in education. Commercial, what we've seen lately, and we said this on our prior earnings call, I'm in the quiet period so I have to be careful what I say. But in the prior period, we said, hey, commercial was coming back. Desktop is coming back. We expect GDP growth to be decent as we go forward, as you know, and there's some correlation to PC sales. So -- and then you look at the installed base, where we've got 400 million devices on Windows 10 that are over 4 years old, that really weren't built for the kind of workloads and the kind of usage models that were experienced today. So I think you add that all up, it's a reason to be optimistic that 350 million is a sustainable level. It's 1 million units a day. And our job is to obviously drive it above that even despite constraints. The biggest wildcard, and I always like to just -- nobody is perfect. If we're perfect, life would be easy. The biggest wildcard in my mind is consumer discretionary spending. We've seen a huge shift from services to goods, and I don't think anyone really knows how that plays out. We certainly see it impacting the low end of consumer today. But I think if you take the tailwinds and the headwinds, you put them together, that's -- I think that's why we feel comfortable with our forecast and how we've talked about the market.

That makes a lot of sense. So if the PC market is up slightly this year and sustaining that type of 350 million plus type of base, how should we think about your client business growth relative to the market? And does it contribute to the 10% to 12% growth CAGR that Pat is targeting for the entire business sort of mid- to longer term?

Yes. I mean sure, it does, number one. Sure, it does. And I would say even -- you know this because you and I have worked together closely for a while. And I really -- I love talking to you because you understand my business. But the -- we've grown CCG inside of Intel 5 years running. And God willing, we hit our plan here, we're in the quiet period, it will be our sixth. So -- and now -- so that's prepandemic. So yes, I need to -- we're going to contribute to Intel's growth, period, full stop. Now what I would tell you in the kind of the backdrop is I intend to gain share versus my competitor. I know you probably want to drill into that with me a little more. But the -- kind of the perverse or kind of the opportunity is, we were constrained in our business, as you know, Harlan, in the 2019 going into 2020 time period. So we had constrained ourselves in our ability to compete, right, with AMD and with others in the market. And I lost some share in that period as a result of being constrained. Was some of it because my competitors have better products? Sure. But I would say the majority of the loss had been our constraint, which now, Pat, new era we're investing, we're not going to let that happen again. But what the opportunity is -- for me, is to win back a lot of the share that I had lost to AMD because we had been constrained and on the back of these new products that are obviously way more competitive. We're in a great leadership position. You heard about that yesterday. So I feel like, hey, yes, the TAM, it's going to be up a little bit year-on-year. I think we can do well by regaining share versus AMD, and we're poised to do that. And if you look at some of the consumption sales sell-in from IDC, which is the -- and we can dig into this a little more, if you'd like, Harlan, is we gained share last quarter selling to real consumers, and I plan to do it again this quarter. We'll see how that -- we'll see how the numbers play out.

Great. So on the product -- I appreciate that. On the product and on the execution front, I mean, obviously, you've hit the ground running. You're the first out the gate with Alder Lake that utilizes Intel 7, enhanced SuperFin transistor technology. Can you just give us an update on 7-nanometer yields and performance? And more importantly, how do we think about the cadence of your next-generation client products with respect to your manufacturing cadence, right, Intel 4, Intel 3, 20A, 18A, et cetera? And so for example, you talked about ramping next-gen Raptor Lake this year. The team recently taped out and got back silicon tiles for your Meteor Lake client platform that utilizes Intel 4. So walk us through the cadence on the timing here for your products?

Yes, that's great. Yes. And as I said, we're kind of reclaiming our natural place as the leader of these technologies. And my plan -- and so first, I'll just say, as we said -- I think it was back in June or July when Pat did the last update at Intel On and publicly at earnings, hey, our Intel 7, we're in production, massive ramp plan, fastest ever. Intel 4, Intel 3, Intel 20A, 18A, that road map of products on or ahead of schedule, hasn't changed from what we said last time, which is great. Dr. Ann Kelleher, her team doing a great job in TD. The manufacturing operations with Keyvan really doing a fantastic job. So I would say nothing has changed there. The way to think about it in terms of my business is we're going to progress through -- if you think about the broader basket of all the segments of the client business, including Graphics at Intel, we're going to go through 5 nodes in like 4 years. It's incredible. And we're on track to -- we're saying we're on track to do that. So you're right, Harlan. And instead of just talking about it on a PowerPoint or abstractly, we've got Intel 7 ramping today on the 12th generation core we just launched. I said this publicly yesterday that Raptor Lake, our next-generation CPU and platform, is on track for this holiday, has already been -- already got silicon back and booting Windows. Meteor Lake, as you pointed out, which is on Intel 4, right, already have first silicon back there. It came up in 30 minutes. Performance was right on target. So -- and obviously, on the more advanced nodes, we're at a different place, but we track the data every week. So I feel very good about where we are. So you'll see the client -- my client group, and you've always asked me about -- I'm sure you'll do this at some point because you always ask me about architecture and disaggregation and packaging. Through the use of some of those capabilities that we have, we can progress through those nodes at a very rapid pace, which is going to be important for the company.

Yes. And I guess on that same note, I mean, you are utilizing advanced packaging architectures to enable -- to unlock the performance, right, with your heterogeneous client architecture like Alder Lake, right, Foveros 3D packaging, EMIB, die-to-die connectivity. We often only talk about wafer complexity and wafer yields impacting costs. But how much do these advanced packaging capabilities and yields on the packaging impact total product cost for your client products relative to when you were doing monolithic die implementations?

Yes, the punch line is net-net, it will actually help us lower cost, kind of iso everything else. If you isolate everything else and you just think about packaging and product leadership, it's actually a benefit. And maybe to walk you through that a little bit because you'd say -- most people say, "Well, wait a minute, you've got this interconnect. There's got to be overhead. There's got to be cost in it. How could it possibly be better?" And the answer is because we can put the right IPs on the right nodes, and not all of the IPs in an SoC need to be on end generation technology. Not all IPs on the SoC need to change on that annual cadence leadership products that we deliver. So if I can take legacy IPs or more stable IPs, put them on older nodes or more cost to optimize nodes and then save the family, the crown jewels, CPU, graphics, yes, they go on and generation nodes, they're getting full power performance, that's where you spend your money. It actually, at an SoC and then a system level, lets you optimize the cost more effectively. And it more than makes up for the -- a little bit of overhead that you have in the packaging. And that's why we've been at packaging for a decade, packaging leadership. You talked about EMIB, you talked about Foveros. So having developed those technologies and already manufacture them with scale is a real advantage for us and something that you'll see me and the rest of the company leveraging heavily in our product lines as we go forward.

Back on Alder Lake, you guys obviously back at Intel Innovation Day back in October, formally launched Alder Lake, Core i9, i7, i5 desktop products. You talked about -- you introduced your mobile lineup yesterday. And the bottom line is that the review show overwhelming performance leadership versus your prior generation platform as well as performance leadership over your competitors' latest generation Zen 3-based products. You announced that you would be launching 60 different SKUs for desktop and mobile. I didn't keep track yet, but -- so help us understand the launch cadence of the remaining Alder Lake SKUs as we move forward here.

I love it. You're right. It was a lot. And I think this just gets back to the, hey, it's not a one-size-fits-all business. And scale matters in our business, not just from a manufacturing point of view, but from a product portfolio point of view. So yes, I mean, just if you want to -- maybe just to -- we led with the desktop this time. We moved desktop to Intel 7. We moved it to hybrid architecture. We went for absolute performance leadership. Gaming, content creation, performance leadership, and we got it. So what I did -- so what we did is then we progressed down into the enthusiast notebook, which is -- makes total sense to start there. And then we're pushing down and now in a more power-optimized envelopes with the P-series, new family of products for thinner and lighter laptops, but still have that kind of workstation-class performance. And then the other thing that I announced was us also doing our classic U-series and then our Evo and vPro platforms as well. So we've now built through -- all the way through mainstream. Notebook has been launched, announced. And then what you can expect to see from us is we'll push down even from there into our entry segments as we go forward from here. So still a little bit more to come, but overwhelming majority, including the mainstream segments, have all launched. We're expecting -- we're already, as I said, yesterday, if you kind of add up all the families, we're at like 350 designs on 12th generation core, all using hybrid. And Harlan, I -- sorry, if I'm taking too much time, but this move to hybrid architecture, biggest change to x86 in a decade. We've done a ton of technical enabling work with our software partners to -- with Intel Thread Director to make sure the right workloads are on the right process or -- I mean, this is a big deal. And I think it's being pretty well recognized in the press, but to have that kind of massive architectural change happen and happen well was not trivial. And it's -- it really shows off the software capability that lives inside the company as well because there was a lot of software work to make that happen.

Well, in addition to the massive architectural shift, I mean, you guys had another significant announcement yesterday, which is that you're in production with your first discrete GPU product, right, your Arc GPU. I mean this is a pretty significant opportunity for the team. This is an $18 billion market where Intel has 0 share today. So first, can you give us a bit more details on the Arc Discrete GPU that's shipping now? Is it comparable to your competitors' mainstream portfolio like RTX 3050 or 3060? Or is it more high end, like 3070, 3080? And then as you enter into the discrete graphics, obviously, there are already 2 competitors in the graphics space today, what's going to set Intel apart? And why do you think that the team is going to win?

Yes. So first, I would say huge, huge milestone to be shipping to our customers. And I think what will happen is as you see our customers ship their systems with our graphics, they'll get put through all the paces and you'll see the benchmarks. And I think we'll be very -- and we'll be very competitive, which is great. So I think proof's in the pudding, and you'll see that, and that will be positive. I think if you back up, I would say, "Hey, we're -- you're right, Harlan. This is a huge business. We're an upstart. We're the challenger. We're not the incumbent, so there's a certain amount of humility that's required. And we know that. It's going to be a journey. But we feel like we're taking a very real, very, very solid first step." The demand, and I can say this, Lisa Pearce, Raja have worked very hard on the graphics business. Obviously, a lot of those designs go in PCs. I'm out with customers. The demand was significant. We talked about the 50 designs across notebooks and desktops that we had out of the chute. Very strong demand for customers, for choice. They want to see Intel. And I think what's going to set us apart is really the optimization we can do at a platform level. And by that, we talked about Intel Deep Link. So if you took one thing away, I would say it's like this Deep Link, it's using software, machine learning to optimize and do power sharing between the CPU and the GPU at a platform level. That's powerful. It's powerful. And to do that real time, to unlock performance, I think that's going to be a real advantage for us. And you know that because we are the incumbent CPU in a lot of those designs today, we're not the GPU. So having that work better together, and not -- it's not a PowerPoint statement. This is a very real, very technical power sharing framework and intelligence we've built in. I think that will wind up being meaningful. And then doing some leadership, innovation and features, we talked about our Xe Super Sampling. We showed partnerships with various ISVs and for gaming and creation using Super Sampling. So having these kind of advanced features that are -- that I think highly demanded by our ISV partners as well as end customers and OEMs, those are the 2 things that I think will set us apart and be a real advantage for us as we try to make progress as the challenger in that business.

From a competitive perspective, the team has been losing share to its competitors over the last 3 to 4 years, although we did start to see an inflection, right, in the second half of last year. And so the question is, given the product road maps, the manufacturing road maps, how are you thinking about the share dynamics going forward with your fiercest competitor? And number two, what about the potential for bringing Apple back to Intel as a customer?

Well, let me start with the first one, which -- thanks for asking it. Number one, I'll just say, hey, we are going to win back share. It's all about product leadership. I mean it sounds so simple, but if you have leadership products, what we proved as we started to launch 12th generation core, as we started shipping it last quarter is, hey, my ASPs can actually go up and we can win share. And probably the -- if I was going to clarify anything on this call, it would be people are watching my billing unit share number, and they're like, "Oh, my gosh, your billing share is down." And it's like it's because people have all sorts of inventory distortions they're working through with components that they've carried forever. Pay attention to the -- and so that billings number tends to oscillate a lot. If you look at the smooth IDC sell-in number, which is actually systems going out into customers, I gained 1.5 share last quarter. So -- and I intend to gain again this quarter. So -- and our ASP was up because it's on the back of better performing products. So Harlan, that's the ballgame for us as we head into next year. It's like I need to gain share, and we need to get more 12th generation core systems out to drive our ASPs. That's the game plan. And then to your comments on Apple. I view Apple as our -- certainly, for my business, our single biggest competitor. It's an architectural and ecosystem battle. So I'm not confused. I just view them as a competitor. And so when you see us focusing on things like Intel Evo and the experience we deliver, partnering with Microsoft, partnering with Google Chrome, bringing Android applications into the Windows ecosystem, trying to curate more of the experience, it's really all about the ecosystem competition that exists because it's not just about my silicon. We've got to be able to compete at an ecosystem level.

Well, before we end the session, Gregory, is there anything that you want to discuss that I didn't bring up or any messages that you want to convey to investors?

No. Listen, thank you for having me again. It is always a pleasure. And the fact that you understand our business so well is great. I would just say, hey, hopefully, you saw yesterday, more proof positive that the company's focused, that our execution is improving and we're back. We're driving real results. You're seeing the product leadership start to reexpand, which is great. And I would just say we're going to have our Investor Day in February now on the 17th. So obviously, you'll hear a lot more that I can't necessarily dive into in the quiet period today, but there will be a lot more at Investor Day. And then our Intel Innovation -- our next Intel Innovation is scheduled for May. I think it's the 10th and the 11th. So hopefully, you'll see the steady drumbeat of progress from us. I know it's kind of a -- we've been in the penalty box. It's a little bit of show me. So hopefully, we're starting to do some of the show me. And I'll keep working on that as we go forward. So thank you for having me.

Yes. No, absolutely. I hope you and the team keep up the great execution, and we'll continue to monitor the progress of the team and look forward to seeing you at Analyst Day in February.

Sounds good.

All right. Thanks, Gregory.

Thank you. Thanks, everybody.