Intel Corporation (INTC) Earnings Call Transcript & Summary

All right. Thank you, everybody. And yes, full room, no surprise. I don't know maybe we're deficient on chairs or something. But anyway, welcome to the next session in the semiconductor track of the TD Cowen TMT Conference. I think I know most of you in the audience, but my name is Matt Ramsay from the semiconductor research team. This is our 50-odd TMT conference. I should know the number, it's either 51st or 52nd, somebody is going to yell at me that I didn't know that number. But it's the first that we've done since we've been part of the TD Bank and TD Cowen family. So it's exciting times here. But we really do appreciate all of you guys coming out and participating. Thrill for me to welcome David Zinsner from Intel. And lots and lots of topics to get to today. But first, I'm going to do the most important one, which is to try to read this safe harbor statement off my iPad. So give me a second. Before we begin, please note that today's discussion may contain forward-looking statements that are subject to various risks and uncertainties and may reference non-GAAP financial measures. Please refer to Intel's most recent earnings release and annual report in Form 10-K and other SEC filings for more info on risks that could cause actual results to differ materially and additional information on non-GAAP financial reporting measures, including reconciliations where appropriate to GAAP financial reporting measures are on intc.com. All right. We got through that. Thanks for coming, Dave.

Yes. Thanks for having me, Matt.

I don't know if you wanted to start out with any opening salvo. There's a lot going on.

No, go ahead.

One of the questions that I wanted to start with, and we had a little bit of this conversation last evening is since the NVIDIA results last week, I think I've gotten 500 versions of the same question, which I've kind of jokingly said is does the video kill the radio star kind of question, which is given the significant uptick in demand for accelerated computing and GPU computing around AI and now generative AI, there is an investor concern out there as to what happens to the organic growth of the CPU market. So we're going to talk during this conversation about Intel's participation in AI directly as you guys have a ton of assets to bear, both manufacturing-wise and product-wise. But just big picture, how are you guys thinking about the health of the CPU market as a percentage of data center wallet going forward?

Okay. Good question, Matt. So maybe I'll kind of talk about it in the short term and then talk a little bit about it for the longer term. So in the real short term, so as we look at our quarter because some may have a concern as to whether this somehow is impacting how the first quarter or second quarter is shaping up. And we don't see it. In fact, actually, when you look at how things are trending, linearity has been great this quarter for us, which is obviously good in terms of how that will play out in terms of the revenue side but also good in terms of kind of cash collection. We're shipping out a lot earlier in the quarter and that helps in the fact that we generally get the cash off the receivables within the same quarter. And we think, as we kind of look at how things are playing out for the quarter, that we will end up in the upper half of the range that we gave. So we gave a range of kind of $12 billion plus or minus $500 million. And we think we're going to track at $12 billion to $12.5 billion as we close out the second quarter. So just put that to bed, we're not seeing any like near-term weakness associated with any sort of upside from GPUs. As we look at it now into the back half of the year, one thing that was happening in our data center business is, we were seeing a pretty meaningful inventory built -- bleed. Now that was happening more, I would say, on the enterprise side than on the cloud side. But we do think that, that will kind of run its course through this quarter and likely the next quarter. And then we'll start to see some recovery there. That's also playing out as expected. When you look at AI specifically for us in the back half of the year, Sapphire Rapids is a CPU that's well suited for AI. So we think there's good momentum from that product. And of course, we'll have Emerald Rapids in the back half of the year as well. We also have Gaudi, our accelerator offering and the performance of Gaudi is quite good relative to competitive offerings, not only in accelerators but also in the GPU space. We've seen pretty good pickup on our Gaudi line. In fact, I think when you look at our pipeline, just in the last 90 days, it's gone up by like 2.5x. Now still a smaller base that we're talking about but we are seeing momentum even in our business associated with AI on the accelerator front. And we think that this is a pretty good kind of launching off platform into next year. We'd expect Gaudi to do quite well next year based on the traction we're getting in the marketplace. And then if you step back and look at this now over a longer period for us, I think there's plenty of opportunity for us to actually see good momentum from AI. Gaudi, of course, initially. We'll have our GPU product, Falcon Shores, which integrates our accelerator and GPU offering into 1 product. That will be out in '25. We have our high-performance compute product, Ponte Vecchio, already in the marketplace. That's doing quite well. But we see as things progress in AI, yes, at the beginning, probably a lot of investment in what Pat likes to call these hero systems, the big systems that require a lot of compute [indiscernible] Cost probably is the bigger factor there. But as things proliferate into the network, into the enterprise data center, into the PC space into the edge compute, a lot of that will be handled more off of CPUs. In fact, actually, we just launched -- just announced at the COMPUTEX last week, our Meteor Lake product actually has a VPU within it that actually allows us to be able to -- allows customers to be able to drive AI from the PC space. So we think as we look at it, AI becomes this opportunity to unlock or unleash a lot of compute. Some of that, obviously, will be these GPU products, but it will transcend that. It will cover products in the CPU space. We have IPU products that we're also shipping our Mount Evans product, which also drives AI in the network space. So just -- we just see a lot of opportunity in AI that we'll be able to get the tailwind from as we progress over the next few years.

No, thank you for that. As you know, it's a topical question.

Matt, one other thing. It's just popped in my head. The other opportunity here is in the foundry space. When you look at -- okay, so we feel like we can participate in a lot of ways on the product side. But also, we are very good on the high-performance compute side. That's where we think we can leverage the best of our product offerings in foundry. And so we think that we will be able to ride the wave of AI not only on the product side, but also on the foundry side by providing wafers to those customers that have products that address the AI market.

I think -- one of the things I wanted to follow up there is just there's obviously this new TAM that's being built from generative AI. One of the hyperscale companies got kind of out ahead of a few of the other ones and now there's a mad scramble drill of investment to try to catch up and build competitive offerings across the space. And so there's a view that, that spend has sort of suck the air out of the room for a short period of time. But Intel's view big picture is that TAM additive to the CPU TAM sort of on top and there's sort of a new competitive environment, NVDIA's position, where they are and yourselves and other competitors are going to go at them. But the core compute TAM across -- if you look at your NEX business and DCAI sort of put together, the data center opportunity for your company is really unchanged and that's a new TAM on top. Is that fair assessment? Or what kind of cannibalization do you guys view there for the 2 TAMs? It's -- we're so early days. I was mentioning in another session that we were doing some meetings with [ Jensen ] 6 months ago, and no one even asked about generative AI. So like it's that new. So just a big picture view of Intel additive or cannibalistic to the CPUs...?

Yes. I mean I think if you view this as a market where there's not a lot of new applications that are coming, you might come to the conclusion that it's not additive. But our view is that this will drive a whole number of different applications, most of which we probably haven't even come up with and figured out what they are, but they will drive meaningful ROI to ultimately the end customer in a way that we think drives a significant amount of investment in this cycle on AI. Case in point, we engaged with Boston Consulting on a project. They had a bunch of data that they had accumulated over decades and it was a big effort for them to go back into any of that kind of data to look back and see, okay, have we ever had this similar issue that our current client is having and what were the learnings that we got from that. That took probably interns and whatever else to go rummage through all the old PowerPoint presentation to see if they could find something. So we worked with them in a matter of like 12 weeks. We helped them on the large language model using Sapphire and Gaudi. And it's a product that for them the big important aspect of this was to make sure it was within their enterprise. It was completely secure. So nobody else could access the data. It's not like these like large language models that crawl through the entire Internet. And we built it pretty quickly. And so this massively improves their ability to go out and attack the data, come up with information that's relevant to their client and go back. And so it saves countless man hours, actually delivers ultimately a better product. So that's incremental ROI. Customers are willing to make those investments because they see a benefit from that, that comes less in terms of labor and so forth that would drive that. So that's how we view the market longer term that this -- all of this stuff is additive because at the end of the day creates an ROI for the end customer.

Got it. One of the -- maybe getting off of the elephant in the room AI topic and talking more about some of the core businesses. I wanted to start in server. I think you guys have talked about the ramp of Sapphire Rapids, maybe you could remind folks what that ramp is going like right now. And then the competitive position in -- and how it's different across the enterprise market versus the cloud market versus the telco edge markets of the road map as it stands now and where you see that competitive position changing as new products in the E-core program rollout as we go from Sapphire Rapids to Granite and future designs. Where you feel like the portfolio is right now versus what you see on the comp?

Yes. So Sapphire took some time, obviously, to get out. But it has done quite well through the early parts of the year. And we think that we will ramp to 1 million units midway through the year. So the level of engagement with customers has been high. The traction has been really good. From a performance perspective, in certain workloads like AI, it performs exceptionally well. In others, it's not as competitive. So it was a good first step to get us back to a better place. And I think that -- the fact that we were able to kind of eke out actually a little -- even a share gain in Q1 does show that we're starting to turn the corner. Now I don't think that for the year that will be the story. There'll still be some share erosion this year. But the fact that the product is doing well in the marketplace, I think it's a good proof point that we are starting to turn the corner in the data center space. Emerald Rapids will be out in the back half of the year. And then we start to get into some products that are really competitive with others in the marketplace. We'll have Sierra Forest out in the first half of '24. I think when we said we were going to get it out in '24, I think most people believe that was going to be December 31 or I think Pat even said December [ 32 ]. And actually, it will be out in the first half of the year, which I think is a good sign that we're starting to get the design engine the company back into a better place. And then Granite Rapids will be out shortly after that. And so now we'll have as you point out a performance core that is going to be very competitive and an E-core that will be highly efficient, drive better battery usage or power usage and so forth. So those products, I think, will put us in a good place in '24 and then the follow-on product should actually -- we actually should show even some performance advantage in the marketplace. And relative to the markets, I think we've held our own on the data center space despite probably not having the most robust product portfolio in the enterprise space because of our relationships with those players. We even kind of see more erosion in the cloud space because TCO was so important, and we weren't able to deliver that. But I think as we start to bring out these products in '24, we'll start to see a real change in our market position in the cloud space and that should strengthen the overall data center business.

So I wanted to ask just really quickly on this. You guys are from a share position much better positioned in China and then also in enterprise. And those 2 end markets have been soft. So we just -- how -- from a visibility standpoint, green shoots of recovery, are you seeing any yet? Are you still cautious? Any update there?