Intel Corporation (INTC) Earnings Call Transcript & Summary

Before we begin, please note that today's discussion contains forward-looking statements on the environment as we currently see it. As such, it does involve risks and uncertainties. Our filings with the SEC, including our most recent earnings press release does provide more information on the specific risk factors that could cause actual results to differ materially. Welcome to our first investor webinar. My name is John Pitzer, Corporate VP and Head of Investor Relations. I'd like to thank everyone for joining us today to kick off the first of a series of investor webinars. The webinars are aimed at providing you with the opportunity to spend extended time with our leadership team and to focus on specific topics that are critical to better understand our strategy and, ultimately, the value that we're striving to create for all of our stakeholders. The webinars are purposely designed to get away from the near-term business trends and to really focus on longer-term dynamics that play a critical role to inform our strategic capital allocation priorities, which by their very nature, are multiyear decisions that transcend the volatility of an economic cycle or even the overall semi cycle. As such, for our first webinar, we have chosen to address our longer-term view on the PC TAM. As we have been saying over the last few quarters, it's clear that, the near term, the overall market is in a period of post-COVID normalization, and macro uncertainty does remain high. And at several investor conferences in Q4, we noted that we expect Q1 total revenue to be at best, in line with 5- to 10-year seasonal patterns. That said, while COVID clearly acted to pull forward some PC demand, the usage data would suggest that it also served to increase structurally the fundamental utility of the category, which is really the foundation of our view that beyond this period of adjustment, in the longer term, we see the PC TAM post COVID as structurally larger than the pre-COVID TAM. Joining me to drive today's discussion is Christoph Schell, Chief Commercial Officer and Head of Sales and Marketing; and Michelle Johnston, Executive Vice President and General Manager of the Client Computing Group. Christoph's presentation will focus on the PC TAM and how we see the market evolving in coming years. MJ will then provide some insights into our company-specific strategies and investments we're making to drive innovation and capture value within the market. As far as an agenda, we have about 30 to 40 minutes of prepared comments, after which we will take your questions. As we do move into Q&A, I would ask to please keep your questions germane to the materials, which Christoph and MJ are going to present today. We will not be answering questions on Q4 results or our 2023 outlook until we report earnings later this month on January 26. But we would be more than happy to address any questions or concerns regarding our long-term PC outlook, which we'll share with you today. With that as an introduction, let me turn things over to Christoph.

Hello, everyone. My name is Christoph Schell, and I'm Intel's Chief Commercial Officer. I joined Intel in March after spending 25 years at an Intel customer, HP. And so the PC TAM is an area I have actually a lot of experience in, and I'm looking forward to talking about that today with you. Our team at Intel has a strong history of accurately forecasting Intel's PC tech. In fact, over the past 7 years, our forecast have had accuracy within plus/minus 5% with 2 exceptions. 2020 was a COVID year. And 2022, as we all know, was an unprecedented year as no one predicted the war in Ukraine, the significant inflationary pressures, the continued COVID driving weakness, particularly in China, and all of that resulting in a deteriorating macroeconomic environment, leading to the risk of a global recession. In June, we were one of the first companies to highlight an abrupt and pronounced slowdown in demand, which broadened beyond initial expectations and had an industry-wide impact across the electronics supply chain. As a result, we experienced a decline in the PC TAM in '22, and it was characterized by broadening consumer and education weakness that then also started to impact our commercial and enterprise demand. The volatility will continue in the short term as we look at calendar year '23. We will continue to manage this, making sure that we are not only gaining share but that we're also part of the road map discussion within our ecosystem. For the purpose of our conversation today, I really want to show you how we see at Intel leading and how we see the TAM in this category growing long term. Taking a closer look at the evolution of the PC TAM. I think many of you, especially the more bearish, think PCs will return to not just the lower pre-COVID TAM but the trajectory that we all know the industry had between the years 2010 to 2015. From 2011 to 2017, that TAM was declining. Refresh rates were extending, and they were actually really neat, cool, exciting alternatives to the PC in the marketplace. This was a time when many in our industry predicted that the PC is dead. And even here at Intel, there were people that believed that. However, the TAM actually bottomed at 266 million units in 2017. And then it began to grow as smartphone and tablets matured. Windows 7 ended its service and emerging markets really started to grow with an increase in purchasing power. The TAM would have grown faster in 2018 and 2019 had it not been for ourselves. And as I said, I was a customer, and I was suffering from Intel undercalling the market. Of course, in 2020 and '21, usage, TAM and the installed base all skyrocketed as COVID-related dynamics like work-from-home and schooling-from-home had a massive impact on demand. We forecasted a 2023 PC TAM of 270 million to 295 million units. So I want to spend time walking you through our rationale and how we got to that TAM. A simple TAM formula for all of you to remember is installed base divided by refresh rate plus new users. Internally, we split new users in 2 categories: increased density, additional PCs in the home or business; and increases in penetration, i.e., new households. Both variables are impacted by many factors in the near-term environment. These are variables like inflation, GDP, technology developments. And given the importance of the PC TAM to Intel and our business, a lot of work goes into our modeling, and we have a dedicated team working this. You can see from the slide here that our long-term expectation for PC TAM going forward is 300 million units, plus or minus. As we've communicated previously, we anticipate that '23 will be on the minus side as the world works through the macroeconomic headwinds. This guidance reflects the internal math I'll walk through shortly and what we are hearing from our ecosystem. Now that we are in '23, conversations with our partners indicate they are planning for a TAM that is actually at the low end of the 270 million to 295 million range. To discuss I'll break the TAM up between consumer and commercial segments. We've assumed a 6.5-year refresh rate on average in our model. This rate is in line with what we saw during COVID but it's slower than what we observed for the prior 10 years as well as what we've observed this year. We consider this a conservative assumption on refresh rate given recent history but also considering the elevated usage level. A critical component of refresh is the active usage of the installed base. The last time the PC TAM installed base was this large was 2014 to 2015, which was during the age of 'the PC is dead'. The difference then versus now is on the right and validated by our good friends at Microsoft. Today, PC usage remains elevated, whereas 8 years ago, the installed base was made up of netbooks and other such devices for which there was no intention to refresh. Density is also a key COVID-related dynamic. we expect to carry forward in the years to come. In the developed markets, we started to see a shift of one PC per household to nearly one PC per household member. This is a massive change and really supports the high usage that we see. A new PC was placed in the home, and rather than removing the existing PC, it was waterfalled to another family member. Nearly 400 million consumer devices are more than 4 years old. We think this trend continues going forward and eventually spreads to emerging markets as well. On the commercial side, we've observed a steady refresh rate of 5 years, and we didn't see COVID drive a big change in the installed base versus TAM, as we observed for the consumer segment. Economic growth and the business cycle dictate slightly faster or slightly slower refresh as IT budgets are adjusted based on market conditions. One variable that has been rather impactful in '22 is the relative price of a PC due to the strong U.S. dollar and its impact on PC affordability in Europe and Asian markets. We expect market dynamics like operating system support, security and this new normal of hybrid work will continue to support a steady refresh of the commercial PC installed base as nearly 200 million commercial devices are at least 4 years old. A key part of the commercial TAM is the education segment, and we have seen a huge change in the last few years. From 2010 to 2019, the TAM moved at most up or down 3 million units a year. And then COVID hit. The TAM exploded, 62% in 2020 and another 15% in 2021 before dropping this year 29%. We don't anticipate another big jump like we saw in '20 or '21, but the change in educational practices, similar to hybrid work, we think, is here to stay. And this will drive refresh of a now much larger installed base. One aspect I didn't touch on in the consumer space but I will do it now is the continued opportunity for PC penetration outside of mature markets. More than half of the education TAM today is in North America. I will reiterate, we don't expect 62% growth, but this dynamic provides support for a structurally larger education TAM going forward. I lived many years in the Middle East and in Asia, and there is growth potential. There are both macro and micro tailwinds supporting a PC TAM of 300 million units annually going forward. On the macro side, while it's not clear when the economic environment normalizes, we expect the headwinds to slow and eventually turn into tailwinds, particularly for the enterprise and education segments of the TAM. I want to be clear, we do not anticipate a hockey stick-like economic recovery. Our guidance was based on a global economic situation that remains challenging. As shown on the consumer side, an underappreciated aspect of the PC business is actually affordability. In high inflationary environments, particularly ones coinciding with a strong U.S. dollar, PC affordability in many markets, particularly in Europe, is significantly hampered. Inflation typically has a transitory impact as markets adjust. We are seeing the U.S. dollar weaken. So as ForEx effects moderate, we expect this to be a positive for the PC TAM in Europe and in many emerging markets. And then finally, on the macro side, PC penetration still lags in many parts of the world, even after accounting for affordability. You can see the results of a recent analysis we did for countries in the Asia region. As countries continue to develop economically, increased penetration provides a boost to the PC TAM. In closing, on the macro side, despite the challenging near-term economic environment where we think 2023 PC consumption will be on the low end of our previously communicated range, we think that in the long term, they will be well above pre-COVID levels and in line with our range of 300 million units, plus or minus. There are also market-specific drivers which support a sustainably larger PC TAM. We've talked about the larger installed base and how it differs from the last time PC density was at these levels. Assuming a 6.5-year refresh, the 150 million additional devices result in an additional 23 million units per year. Usage is a critical data point to watch to ensure the installed base is not simply an accumulation of inactive devices. This is all about the new users I was talking about before. Fortunately, we and our partners now have a good understanding of usage rates. And so far, data supports our assertion that today is different. Microsoft has announced the timing of the Win 10 end of service. Microsoft ended operating system support in 2019 and 2014 before, and it helped drive a 14% year-on-year increase in PC TAM in 2019 and another 4% in 2014. One big omission from my drivers of PC TAM are the innovation that we see in the category across hardware, software and entertainment. This is purposeful as I don't want to steal Michelle's thunder. Finally, I touched on the success we've seen with our current product offerings to gain market share since our Alder Lake launch. The numbers here are selling data from IDC as opposed to billings or consumption. Quarter-to-quarter, market share reports can be lumpy, as you can see on the left. But viewed over a longer period, the data provides a much clearer picture on customer and end user preferences. There are a few notable events impacting our market share over the horizon, the first being COVID supply availability related x86 share loss and the second being Apple's switch to internal silicon. The former market share has been regained. So as you can see, when given a choice of silicon, our customers prefer to go with Intel. Michelle will get into more of the reasons why this is so important and how we are driving it going forward. As Intel's Chief Commercial Officer, there's one important point I want to leave you all with. I'm completely appreciative that you're here today to understand about our thinking of the PC TAM specifically. However, I'm most excited about the value Intel can bring through connecting categories, operating at scale across device, edge, cloud and foundry. When we talk about the health of the PC TAM, these are all connected, and it's going to drive other businesses that we are in. This is a huge opportunity for us. Michelle, do you agree?

I fully agree, Christoph. Despite the headwinds you just talked about, we continue to see strong PC usage that demonstrates the resiliency, utility and value of the PC. The data confirms that the PC remains more critical than ever, and we remain committed to advancing client innovation to deliver purposeful computing experiences that meet people's needs. We are delivering on a product leadership road map that is driving industry-leading PC performance forward on an annual cadence. In October of 2021, we introduced our revolutionary performance hybrid architecture, an Intel Thread Director technology as part of our 12th Gen Intel Core processor family, codenamed Alder Lake. We have continued that momentum with our 13th Gen Intel Core processor family, codenamed Raptor Lake, starting with the launch of our 13th Gen Intel Core desktop processors last fall. Intel's 13th gen desktop processors are built on Intel 7 process and continue to utilize Intel's performance hybrid architecture with performance cores and efficient cores, optimizing for gaming, content creation and productivity. They deliver next-generation of breakthrough core performance with up to 24 cores, 8 P-cores and double the amount of E-cores, up to 32 threads, blazing clock speeds up to 5.8 gigahertz for the world's fastest desktop processor. And they deliver up to 15% performance based on single-threaded tasks and up to a 41% performance boost on multi-threaded workloads. Today, I'm excited to share, we've taken the next step on our 13th gen journey with the release of our mobile processor family last week. And it's not just me who's excited about it. We saw fantastic coverage following our announcement at CES last week, and we'll have over 300 designs shipping from OEMs this year. Our mobile processor family delivers unrivaled scalable performance for leadership platforms across all laptop segments, with the highest clock speed available for the laptop market at 5.6 gigahertz turbo frequency, up to 11% faster single-threaded performance and 49% faster multitask performance over the previous generation. To date, the 13th generation has exceeded our double-digit gen-over-gen performance expectations. Later this year, you can expect to see us release our next processor family, codenamed Meteor Lake on Intel 4 process. With Meteor Lake, we will apply those performance gains I just mentioned to AI acceleration and graphics. As we move to our disaggregated architecture built on hybrid, we will bring in a low-power SoC island for low-power workloads like web browsing and video conferencing. In addition, we will bring an AI accelerator that provides AI capability for important features in video conferencing, like silencing dogs barking or lawnmowers. And it will take full advantage of all the Windows 11 capabilities, this further enhancing our process technologies, identifying the right node for the right capability within the right product. Our Intel 4 process is ready for ramp and Meteor Lake is on track as planned. Then following Meteor Lake is Arrow Lake. Arrow Lake will continue the tile-based design by stacking discrete CPU, GPU, SoC and I/O tiles in 3D configurations using Intel's Foveros interconnect technology. These process technologies will enable us to better optimize for performance, power or area, depending on the product needs. Looking further ahead in our road map is Lunar Lake, which will achieve production readiness in 2024. Lunar Lake has a new architecture designed from the ground up for mobility. We are upgrading the CPU, GPU and VPU at a much lower power envelope. And it is architected in close collaboration with our operating system partners to provide all-day battery life without sacrificing performance. Lunar Lake will enable more of our PC ecosystem partners to create innovative, ultra-thin and light systems for the most mobile users that value uncompromised responsiveness and productivity to do their very best work on the go. We are making great progress on this processor and look forward to sharing more at our upcoming earnings announcement. We see where the world is going, the needs for workloads and the way people use compute. We are doubling down on our power and performance, artificial intelligence and graphics capabilities. And over the next 5 years, you'll see us invest in and deepen our leadership and capabilities in those 3 areas. Building on our silicon leadership, we are also committed to delivering experience innovation. With this approach, we are fueling innovation across Intel, ultimately providing an important source of IP and scale. By harnessing the power of an open ecosystem, we can focus on delivering full and enriching capabilities that provide the best PC experiences for the future of computing. In fact, we recently held our annual symposium meeting, which brought together hundreds of companies across OEMs, LOEMs, ODMs, IHVs and ISVs to work on the next generation of innovative experiences. It's this open ecosystem that enables us to deliver an unrivaled choice of form factors, price points, peripherals and more. The Intel Evo platform represents a new class of laptops, built to help people get things done. Intel Evo is designed with real-life use cases in mind based on research, bringing together the needs of the world's mobile go-getters with the key experiences they desire in thin and light devices. Each verified design delivers on the Intel Evo promise, intelligent collaboration to enable better remote work and anywhere learning experiences, consistent responsiveness on battery across 25 common tasks, 9 or more hours of real-world battery life on systems with FHD displays, system wake from sleep in less than 1 second, fast charging with up to 4-hour charge in under 30 minutes on systems with FHD displays. And we're rolling out a new multi-device experience for Evo designs, which I'll talk more about in a moment. Now intelligent collaboration is a good example of how we're advancing innovation with new real-world experiences and features. Leveraging AI, these intelligent collaboration features include noise suppression, background blur, face framing and lighting correction, improving the video call experience. And the new Intel connectivity performance suite helps prioritize workloads to assure that whatever go-getters are doing, they stay in the flow, even while videoconferencing. As a part of our platform approach, we are also advancing adjacent technologies from connectivity to graphics and everything in between. Examples of this include Thunderbolt 4 and WiFi 6E, which exceed industry standards for the best wired and wireless experience. We have worked with more than 150 ecosystem partners to create these premium mobile computing experiences. To date, we've delivered hundreds of Intel Evo verified designs to the market for more than 15 partners worldwide, such as Acer, ASUS, Dell, HP, Lenovo, Microsoft and Samsung. We have dedicated resources that start working with our OEMs on new designs up to 2 years before they hit the shelves. And each Intel-verified design goes through rigorous testing and verification to ensure they meet the key experience and technology specification expectations. As a result, in recent Net Promoter scores, which measure customer experience and predicts business growth, our Intel Evo designs have nearly double the scores compared to similarly priced non-Intel Evo laptops. That means customers are more likely to recommend Evo designs to friends and family compared to non-Evo designs because they are satisfied with their experience. And because we work and innovate in an open ecosystem, we are able to deliver these consistent quality experiences across OEM systems throughout the market. As I've mentioned, we are continuing to innovate and expand our technologies to meet the needs of end users. In 2021, Intel announced the acquisition of Screenovate, an Israeli company focused on addressing the cross ecosystem multi-device challenge. We paired the technology and talent from Screenovate with our expertise in wireless and platform engineering at scale to deliver Intel Unison. Intel Unison delivers on our vision of an open ecosystem by enabling a seamless multi-device and screen sharing experience with full flexibility across operating systems, silicon and form factors without compromising quality, performance or experience. The end result, everything just works, even across phone OS interactions between iOS and Android devices. Following a simple pairing process, users can save valuable time when it comes to everything from transferring photos between a PC and an Android or iOS devices to making voice calls and managing phone notifications directly from their PC. Intel Unison is now available on a handful of select Intel Evo-verified laptops from Acer and HP and will scale to even more designs this year. Now the consumer experiences we're enabling with Intel Evo are just one part of our platform story. For enterprise, we have Intel vPro, the commercial platform leader that was built for business. For nearly 2 decades, we have been laser-focused on advancing innovation to deliver the best business PCs and experiences with our Intel vPro platform. Intel vPro delivers a complete platform portfolio to meet the technology demands and computing options to empower businesses of all sizes. With manageability, security and productivity, Intel vPro is the mainstay for over 80% of enterprises around the globe. In fact, a recent survey of businesses that have deployed Intel vPro, they report up to 198% return on investment, and they have experienced 28% fewer material breaches and were able to recover faster, saving millions of dollars annually. Last year, we launched our 12th generation Intel Core vPro processors. And you can expect to see the next iteration of vPro in the coming months. The vPro platform is grounded in years of insights and feedback from our global customers. We will continue to work hand-in-hand with customers and businesses around the world to address their rapidly changing needs. One example of a customer we work closely with is CrowdStrike, a cybersecurity company based here in the United States. Intel and CrowdStrike are collaborating to bring a unique combination of world-class technologies and expertise to deliver advanced threat detection and response capabilities to help protect against the most common cyberattacks. Together, we have co-engineered 2 hardware-enabled security capabilities for Intel platforms: hardware-enabled exploit detection, which uses hardware capabilities to detect complex attack techniques that are notoriously hard for software alone to detect and prevent; and accelerated memory scanning that increases visibility and detects in-memory threats, adding another layer of protection against fileless or malware-free attacks. With Intel's vPro out-of-the-box hardware technologies, organizations have access to capabilities like seamless firmware updates to help them manage and fix systems and remote and hybrid work environments. It's collaborations like this one with CrowdStrike and the work we're doing with VMware to enable commercial cloud services that help us deliver new innovative experiences to businesses around the globe. Looking ahead, with the world continuing to shift more toward hybrid work models, we also intend to move vPro capabilities to our more cloud-based models to continue providing end users with the best experience possible. Our Intel Evo and Intel vPro platforms are premier examples of platform innovation that are delivering experiences to meet people's needs both personally and professionally. For new performance processor technologies to multi-device and AI-enabled experiences to business PCs built to handle modern day needs, we are focused on delivering new, innovative experiences for people around the globe. As you've heard us talk about today, the PC remains more critical than ever, and our market opportunity is strong for 3 key reasons. First, as Christoph discussed, once the macroeconomic environment stabilizes, we expect the PC TAM to be significantly above pre-pandemic levels and growing. Second, our leadership silicon and platform road map positions us for MSS and share-of-wallet gains. And third, we are working with our partners in a vibrant open ecosystem to drive innovation and deliver the best PC experiences. Back to you, John.

Great. We're now going to transition to the Q&A portion of our webinar. MJ, Christoph, thanks for the great presentation, a lot of great data out there. Hopefully, it will drive even better Q&A from the investors online today. I'll remind people online today that when you ask a question, we would ask that you ask one question with a brief follow-up where appropriate. And with that, Jonathan, can we poll for the first question?

[Operator Instructions] Our first question comes from the line of Ross Seymore from Deutsche Bank.

Christoph, just had one for you on the PC TAM side of things. You've given a ton of detailed information about the moving parts in there. But how are you capturing the installed base being larger but the replacement rate potentially extending even significantly further than it has in the past? As I get the hybrid work and hybrid education environment is beneficial to your installed base, but I would also imagine that could greatly extend the replacement cycle.

Yes. Look, I think the way we look at -- if you really think about the math of how we calculate TAM in a very simplified way, it's installed base times refresh rate, but then there's 2 more adds on to that. That is penetration of how we're penetrating in the market and then it's density. And I think those 2 are very important to answer your question. So what we've been seeing on density in particular is that units stay longer active. And I've been in this industry for 25 years, I was used to refresh rates in the 4-year cycle. What we've seen over COVID was actually, it bumped up to 6 years, but these units were active. So think about this as pass-me-downs in the family, for example or that you have, as an executive, 2 devices, 3 devices, okay, that you operate and that you use. What is interesting for us is that the usage pattern is actually up. So as we speak with Microsoft, as we speak with Google, we see that the usage is really up, and that is important. That is this big change that we saw in the last 2 years relative to the dynamics we had in the category before. That is on density, on penetration. There is huge upside for us in emerging markets. I have myself lived in Asia for many years, Middle East as well. That's the areas where we see growth, and this is where we expect growth to come. And then maybe if I bring all of this a little bit together, a little bit of a personal anecdote, I'll talk about my daughter, Maya. She's 20 years. She's in college, a junior in college. And she always had access to PCs, given what I'm doing for a job -- for a living, and she never looked at them until COVID hit. And all of a sudden, she understood that consuming education content on a tablet, consuming it on a mobile phone is really not cool. And so she lobbied me not to buy her 1 laptop but 2 because she was really concerned about not being able to dial in. So she wanted to have -- if 1 unit went down, she wanted to have 2. And that, I think, is a customer segment that was not looking at PCs prior to the pandemic and is now a very core part of what we are planning with. So I hope that gives you a bit more color and explains why we are bullish about the growth.

And maybe just to add on, as you think about those hand-me-down PCs, they don't have the experiences and the performance and the use cases that so many people are looking for as they use and engage their PC. Whether it's to create, whether it's to play or whether it's to consume, you need a better PC than you did 3 years ago. We didn't build those machines through these hybrid work cases. And so I do see a demand for people who are saying, "Hey, the PC I have today does not meet the needs of today." And therefore, we are starting to see them go out and buy and upgrade.

Ross, thanks for the first question. Do you have a follow-up?

Yes. A quick one on this. Lots of math behind the 300 million target. Do you expect to get there next year? If so, what would be the biggest tailwinds to get you there? If not, what would be the headwinds?

Look, I think it's, for me, very important that we talk a little bit timeless about this. Definitely not going to make any comments here about the last quarter or the next couple of quarters because we're obviously in an environment of huge volatility from a macro point of view. I think what we're looking at right now is when is demand coming back in certain markets for us, a very important market is, for example, China. So I'm keeping a very close eye on that. And then it's also a question of what trigger points does the ecosystem give us to go into refresh rate. So I talked a little bit about operating systems, for example. That's a really key part. But look at gaming as a segment. Gaming has been growing in the last years in this category. And as new titles come out, there's going to be refresh rates. I see innovation, and Michelle can talk about this in a second. But for example, what I'm really, really hyped up about is 3D displays. They are such a cool experience to have. And in my job, I have the luxury of getting early insights. I'm going to upgrade just because of 3D displays. I mean what else are you working on? You're looking into so many more innovation.

Yes. I mean there are so many technologies coming. I mean, 3D displays are a few years out, a few that are available now, but I think for prime time and all the software to support them. But even just all the OLED screens that we saw last week at CES, a side-by-side comparison, like I wanted to go out and buy a new PC. I, too, have a college student. I was showing him pictures of all these things, and he was saying, "I need a new PC, that's way better." I just think that innovation continues to spur things that we don't even know that are coming. And I think that's where it's so important is in this open ecosystem, that innovation wheel, that flywheel just continues. And we have to fuel that flywheel. And then I believe that, that brings consumers and enterprises back to the market.

I agree.

Great. Thanks, Ross, for the question. John, can we have the next question, please?

Our next question comes from the line of Timothy Arcuri from UBS.

Can you talk about the CPU market relative to this PC TAM? I guess given what your and AMD's numbers would say in terms of units, we're shipping in something in the low 200 million range, maybe 225 million, 230 million CPUs per year. So it's still quite a bit below even this $270 million -- sorry, unit low end of your TAM this year. So clearly, there's been a lot of burn in terms of inventory. But can you talk through how long that sort of plays out and when the CPU TAM more closely approximates what this PC TAM that you're laying out would be?

Yes. I think you're making a very interesting and important differentiation. It's the difference between selling in and what we call billings as well at Intel and then actually the sellout. So our TAM comments are all around sellout, okay, because they basically take all the inventory that you might find in the value chain out and really talk about what ends up in an end user's hand for consumption, okay? That's really the interesting number. If you look at much of the third-party reporting, it's mostly around sell-in or billings, okay? So right now, what we see obviously with the certain macro headwinds that we experienced in fiscal year '22, some of the inventory in the value chain has been building up. And I think it's logical for sell-out to be ahead of sell-in because this is just good business management. And for us, we're spending a lot of time on this, how do we make sure that we move the products through the system, how do we also create capacity for new launches. And it's not just in the PC area. We announced this week, Sapphire Rapids on the DCI side of the business, that product obviously needs capacity in the channel to ramp. So that's part of what I do. That's part of what my team and I do. So it's a very good observation. It comes back to when do we believe the recovery will take effect, when do we believe that it will hit rock bottom. That's not what we're going to talk about today, okay, those timings. But you're having the right understanding and I think the right dynamics that are playing out in the category right now. I would confirm that.

Tim, do you have a follow-up question?

I do, John. I think a lot of investors probably are a little surprised at the 300 million unit long-term TAM number. How do you assess how much demand got pulled forward during COVID and thus now kind of sits behind this 6.5-year upgrade cycle?

So look, I, for one, don't believe that demand was pulled forward as much as category dynamics have changed. I really believe that the case in point to support that is my daughter, Maya, okay? I'll make that point again. So it's really -- I mean, she's a proxy for me for there's a new customer segment that was not really looking at PCs before. But then the other thing that is really unique and stands out and is different than in past declines is usage. Usage is up. There are more units in the installed base, older units in the installed base. That gives the whole category a new dynamic. And this is why I firmly believe that there is growth in this category. And I'm now not even talking about acceleration in penetration in emerging markets, for example. That could come on top. I'm not talking about OS changes that will drive a refresh cycle. I'm not talking about some of the innovation things that we've talked about. We haven't talked about metaverse, for example, how important this category is going to be as an on-ramp into the metaverse. So look, we can argue that. I think we can argue 300 plus/minus. All I want to get across is our point of view and have a debate with you on this, but it's really about we believe we're in a growth business, and we're in a growth category.

Tim, I might add, if it had not been for the waterfalling of PCs lower during COVID, what you would have saw was refresh rates that didn't stretch out but an installed base that didn't grow. So in an odd sort of way, the installed base growing is something that is a better backlog for future demand going forward.

Maybe one last point. We actually saw the bottoming out of the category not before COVID. That happened, as I said early on, already prior to 2019, prior to 2018. So there was already a bit of a growth, which is, again, coming back to the attractiveness of the category. And that is only further reinforced with the dynamics that we've seen play out during COVID that will stick.

Thanks. Jonathan, can we have the next question, please?

And our next question comes from the line of Vivek Arya from Bank of America.

Thank you for this informational webinar, really appreciate it. So for my first one, I'm trying to look at whether Intel will be making more CPUs even in a 300 million TAM. Because I think you mentioned, Christoph, the 2017 metric. At that time, there was no ARM and AMD had half the share that they have today. So isn't it possible that even if the TAM is larger just because ARM is now almost 12% of the market and growing faster, by the way, than the PC market and your competitor has twice the share that they had before, that Intel could physically be making fewer CPUs than you did back in 2017?

So a couple of comments. Firstly, it's awesome to have competition. That is really keeping us on our toes. I think that's very important in tech to actually drive innovation. So I'm grateful, grateful for the competition. And then the second comment I will make is that the time frame you're referring to that I touched on as well early on is the time frame when Intel actually undercalled the market, we undercalled the volume in the market. And I wasn't at Intel at the time, I was at an OEM. And it was super painful because the TAM back then would have been much bigger. So coming back to my previous answer, that bottoming out of the category and the increase would have been even more material had Intel had more products. I will say that some of our competitors gained market share not because of their value proposition but because Intel was not available to supply. So this is for the history. Looking forward, that's why it's so important for us to lead. That's why it's so important for us to launch Meteor Lake and have a real impact in the market. I'm somebody that operates every day, and my team knows this with a little acronym called PFV, price feature value. That defines my life, and this is all about features. You cannot price a premium, you cannot demand a premium if you don't have feature leadership. When you have feature leadership, you will grow, and you will drive the innovation in the marketplace. So this all comes back to our commitment of 5 nodes in 4 years and delivering market leadership. On the PC category, we have market leadership today, and I'm very confident with the portfolio that we have today and even more confident with the portfolio that we will have in the future.

And I think we've come a long way since that dip when we just think about the Intel product portfolio, right? We started with Tiger Lake, we went to Alder Lake, Raptor Lake, world-class products, lead the industry across both desktop and mobile platforms. And then looking forward, whether it's Meteor Lake, Alder Lake -- excuse me, Arrow Lake or Lunar Lake, all 3 bring great value to the marketplace, delivering things that our customers have been asking for on performance per watt. I'm very confident we can continue that leadership, which will allow us to continue the trend that we've had in growing market segment share, continuing to grow our share of wallet. And we see customers continue to lean into Intel and bring more and more of their platforms back to IA which I think is a very strong sign for not only how we performed but what they see moving forward.

Vivek, thanks for the question. Do you have a follow-up?

Yes. So for my follow-up, I'm curious, how are you thinking about the pricing and the content environment? Intel is adding a lot of capacity. I think later last year, there were some pricing moves that you had to do, right, to -- and that was part of the share change dynamic as well, I imagine. So if you look over the next 3, 4 years, do you think Intel's PC microprocessor pricing will be higher from here, lower from here or neutral from here?

That depends on the market dynamics. I don't know, is my honest answer. I think when I joined Intel, I joined when we were actually exposed to very inflationary prices on our supply chain. And it was just not an option to not have a price increase. I know that the timing was difficult to stomach, but we had to do it, okay? And so I'm very happy that we made the decision and also how we executed very closely working hand-in-hand with our customers, with our OEMs and making sure that it's not too disruptive. I think, forward-looking, it comes back to PFV, price, feature, value. How competitive is our lineup going to be? Can we demand a premium? What could that premium be? It comes back to capacity and how effective we are in our own supply chain, running our business, okay? What's the cost that we ultimately have? And look, I only know one thing. You get this only right once -- or actually twice. It's when demand goes up and then when it comes down again. But all the gray zones in between, that's what is the spice in Michelle's and my job. That's what we have to manage every day.

Absolutely.