Intel Corporation (INTC) Earnings Call Transcript & Summary

Statements in this presentation that refer to future plans or expectations are forward-looking statements. These statements are based on current expectations and involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. For more information on the factors that could cause actual results to differ materially, see our most recent earnings release and SEC filings at www.intc.com. [Presentation]

Please welcome Michelle Johnston Holthaus.

Good afternoon, everyone, and welcome to the Intel Client Open House. I am so excited to be here with all of you today. It's been a while since Intel has been on the stage at CES, and I have to say it feels really good to be back. And CES is a time for all of us across the industry to come together, to learn, to connect and engage with what's new, but more importantly, what's next. And for the year ahead, I see really three key priorities for Intel and our ecosystem partners. First, we're reimagining how we deliver key experiences that will benefit end users, including the introduction that we'll talk about today of some new form factors. Second, we are investing in driving forward the age of the AI PC, starting with the launch of Intel Core Ultra last month. And third, we are locking arms with the operating systems, the ISVs and IHV partners to deliver PC innovation across both hardware and software. During our time today, we'll talk about each of these priorities in a lot more detail. And the thread that ties all of this together is, of course, the PC. We at Intel continue to see the PC remain as essential as ever. With expected market growth and refresh opportunities, we are kicking off 2024 with a bang. And just today, we rounded out our full lineup of Intel Core 14th generation processors across both our mobile and our desktop segments. This was really led by the new mobile launch of our flagship Core i9-HX product, which delivers the best experience for enthusiast gamers and creators. With 14th generation, we continue to extend our product offerings for those performance-hungry segments. But now let's transition to the era of AI compute and the main reason that we're all here today, AI is everywhere. It is fundamentally transforming, reshaping, and reimagining the PC experience. And the age of the AI PC is powered by Intel technology. Just last month, we launched Intel Core Ultra, the industry's first AI PC platform at scale. Core Ultra places Intel in a leadership position in four of the most important metrics of a modern processor. First, it is our most efficient -- power-efficient client processor ever. With this family, we've radically changed and transformed energy efficiency. When compared to competition, we're up to 79% better. In fact, all of you, all of us watched an estimated 30 billion hours of Netflix from our PCs just last year. So if you stream all those hours in 2024 on an Intel Core Ultra laptop instead of a previous generation, we can power the electricity for 1,600 U.S. homes. That's quite remarkable. The new built-in ARC GPU delivers gaming and graphics performance up to 2x as fast as our previous generation. And third, our new CPU core built on Intel 4 process node delivers great performance with improved efficiency that is up to 11% better than the competition. And finally, we introduced our first-ever integrated NPU or neural processing unit. And the NPU as an engine specifically for running AI workloads at that low power, things like video conferencing and office assistance. Power, performance, graphics and AI, and we have it all. And we're proud of this chip and what the team has done to bring Core Ultra to market. But we're also incredibly grateful to our partners, many of whom are in the room today or online for helping us bring Core Ultra to life. In summary, Core Ultra will usher us into the age of the AI PC by enabling new AI-powered capabilities in more than 100 million systems by 2025. Now I'd like to show you a few of these systems coming to market. The performance of Core Ultra is allowing Intel and our partners to explore new form factors and new opportunities. So one great example that I have here is the new MSI Claw that is powered by Intel Core Ultra. It's the first handheld device which we worked in very close collaboration with MSI to bring to life. And this is obviously a form factor that demands nothing less than excellence in performance per watt, and Core Ultra's power efficiency and graphics performance is the perfect match. And I know I have two boys at home that are hoping this goes home in my backpack. On top of that, Core Ultra is also enabling thin, sleek and beautiful designs like the new Intel Galaxy Samsung Book4. Look at this beauty. All right. So this device has Dolby Atmos, an amazing AMOLED X2 screen and incredible battery life improvements. In fact, this machine has 40% better battery life than the previous generation Galaxy Book3. That's collaboration between Intel and Samsung. It's absolutely gorgeous. All right. So we're also extending this process -- processor, excuse me, family to all of the platforms that you would expect, Intel Evo and Intel vPro. Intel Evo with Core Ultra will deliver the best overall laptop experience. Through deep co-engineering and verification, Intel Evo sets the bar for PC quality, performance and reliability. You know you're getting the best of the best. And we're also bringing AI capabilities to our commercial offerings, and we're going to share a lot more about that in the next coming weeks. All right. So to my right and to my left, you will see just a sliver of the newest Core Ultra systems that are coming to market this year. This year, you can expect more than 750 designs across both Intel Core and Intel Core Ultra families from our top global OEM partners like Acer, Asus, Dell, HP, LG, MSI, Microsoft Surface, Samsung and so many more. Many of these devices are already available online or you can buy them at your favorite retail store, which is really important because we're giving people choice and flexibility for their everyday gaming, creating, and productivity needs. One size does not fit all. And for those of you who are here today, after we wrap this up, you can join us in the tech showcase to my right, and you'll be able to see and engage all of these in person. The response to Intel Core Ultra and Intel Core have been very exciting, both for me and for the thousands of people across Intel who worked to bring this product to market. AI is a big, big part of that. And it's so important to really understand the why. So we see AI as a generational shift in how computers and processors are designed. The motivation for us is very clear. AI has the potential to impact every aspect of our lives from health care, to productivity, to the environment and so much more. We're all in on the AI that benefits humanity, AI for good. And Intel wants to lead the ecosystem in the industry in this enablement, working with hundreds of hardware and software vendors to deliver an unmatched selection of AI experiences. And there won't be just 1 killer app out there. You need a variety, you need choice because AI needs to be personalized to each of your individual needs. But AI is more than background blur or noise suppression for your barking dog or your loud leaf blower, generative AI is going to transform the PC, enabling richer, more contextual experiences. And AI PCs will be your complete personal assistant, optimizing everything from productivity, to your calendar, to your e-mail, whatever is important to you. And that adds up to saving millions and millions of hours. So imagine, what are you going to do with that extra time in your day? Ultimately, the arrival of the AI PC represents an inflection point in the PC industry for all of us. In fact, Canalys forecasts that 19% of PCs shipped in 2024 will be AI-capable, 19% this year. This signals that AI PC, it's not just a category, this is a transition, AI truly will be everywhere. It will be a personal computer with AI capabilities spread across the CPU, the GPU, and the NPU, all specifically designed to process workloads directly on your device. And we at Intel are delivering the hardware road map and the software tools starting with Intel Core Ultra and our NPU to really bring these experiences to life at scale. But I believe that the true power of AI comes in seeing it in action. We can talk about it all day long. So please help me in welcoming Jim Johnson to the stage to talk more about the work that Intel specifically is doing with our IHV and ISV partners to bring AI everywhere. Welcome, Jim.

If I had to use two words to describe our partners and the hardware and software companies in our ecosystem, it would be ambitious and committed to bring drastically new experiences to the PC, harnessing the power of Core Ultra. Last month, we launched an AI acceleration program to bring the tools, frameworks and resources to help us accelerate these experiences. Let us hear from a few of our companies that we're working with. [Presentation]

I've met with dozens of these companies and I would say this reflects our attitude and their commitment. Now let's shift to a deep, deep partner of ours, Microsoft. And together, we're going to show some first-ever demonstrations of Copilot running on Core Ultra. And the way I would -- the way my colleagues at Microsoft explain Copilot is their goal is this becomes our everyday AI companion for work and life, so let's show how this could happen. Last week, Microsoft ushered in a hardware key for Copilot for Windows machines. We have our first two Core Ultras with this key and you can literally hit the Copilot key and launch the interface. And so as I move to this machine, you'll see the interface active, and I just gave it an assignment to draw a skyline of Las Vegas with an artistic flair, and it is now harnessing the power of cloud-based Gen AI to accomplish this assignment. As that's calculating, another important aspect of Copilot as your companion is you can now control your personal computer. You can grab that screenshot to attach it to a mail by asking it to do it for you. You can mute your system so you can take that call. You can ask it to go to dark mode, if any of you have hunted for those settings, or you could create a focused session where you won't be interrupted and you're not clicking through or dropping down settings menus to accomplish this. It's also for developers. So I've asked it to do an objective to create some code for me and gave it that assignment. It is now accessing Gen AI. It's telling me how it's going to create that code and starts running the string for my first generation. So in summary, Microsoft bringing Copilot to Windows, and with Microsoft, we're bringing Copilot with Windows 11 to Core Ultra. Thanks, guys. Let's shift gears. We use or most of us use the PC as our primary communications device or one of them. But some have been left behind. And so a company within Intel, OmniBridge, has been developing technology so the deaf can communicate with someone like me without the use of an interpreter. So I'm going to invite Adam Munder into the conversation. He's the co-Founder and General Manager and his team has created a technology to enable this. Let's show it in action. Hello, Adam. How are you? I'm doing really well. Thank you. Intel OmniBridge software is an example of how we're working together to make it easier for people like us to communicate day-to-day. I couldn't agree more. Now we're having a conversation with Core Ultra systems, your AI software without an interpreter. I believe you are running this on this Core Ultra laptop, correct? Okay. So what we just demonstrated is Adam's team has taken sign language and turned it into an American Sign Language model of glass. And then they developed in the cloud, they ran it through a large language model so it could be turned into English so we could have this conversation, cloud and now done locally. I hope this provides just a glimpse of the drastically new ways we can use our machine and unlock all of our potential. Back to you, Michelle.

I don't know about you but I think that's pretty cool. And it's very exciting to see the positive impact that AI can have on people's lives. But I think what's so important is Intel can't do this without our vast set of ecosystem partners. So next, I would like to invite and welcome Pat Moorhead to the stage to chat about the role the ecosystem is going to play in moving forward this movement of AI PC. So please join me in welcoming Pat to the stage. Pat, welcome. Happy New Year. Thank you for joining us.

Great to be here.

Yes. We're thrilled to have you. Okay. So we all know that this week, the buzzword is AI. But what makes me so excited about AI PC is it takes it from this abstract idea to something that's tangible that hundreds of millions of people are going to have at their fingertips in their hands with their PCs.

Yes, that's right. And I wholeheartedly agree, and I do believe this is going to kick off a new super-cycle in PCs, like we saw with the Internet, like we saw with things like Wi-Fi, moving to mobility and even getting into lower profile notebooks. But it's not a continuum, here's the great part is there's going to be value today. And I think about every 6 months, we're going to see an incredible amount of innovation coming out really at light speed.

Yes. And we need that technology innovation to move that software ecosystem to show them that more and more is coming. So what you're going to be able to do on an AI PC in 2024 versus 2026 is going to be so radically different, but you got to deliver the hardware now to get that innovation flywheel started.

Well, and there's benefit, too, today for the end user.

100%. Absolutely.

And I'm convinced of it. I'm one of the bigger skeptics of this out there is, quite frankly, as an industry analyst, we need to watch what we call. And I am calling a super-cycle that's going to be in the second half of this year, first half of 2025.

Yes. And I think what allows that is you have to have this open vibrant ecosystem of partners that are willing to really, at times, raise all boats to really make the super-cycle happen. And Intel is 100% committed to making that happen.

That's right. And all -- the water rises, all boats rise and each of the partners have their individual differentiators and then everything works out like that.

100%. With that, I would love to welcome some of my friends in the industry to talk more about this age of the AI PC. So if you'll join me in welcoming Pavan, Luca, Alex, and Sam. Come on up. All right. Welcome, Pavan. Thank you.

Thank you.

Welcome. Thank you Alex. All right. Well, it's not very, very often that you get to see all of these people on stage together, is it? But I think it's a pretty good representation of what we all think of AI PC and the opportunity that it represents and how we're all going to have to come together to really move this opportunity forward.

Yes. I mean, it's funny. I work individually with all of you but it's very rare that I see all of you in the same place, in the same stage and that, quite frankly, is a proof point that you're all in on this.

You want to take a selfie, Pavan?

We'll do that at the end.

So folks, this is going to be really simple here. Two questions each. It's going to be a walk in the park. But I did want to start out, so all of you on the stage represent about 60% of the PC market volumes here. I'm curious, what are you most excited about in the AI PC market? And maybe with this one, I'll start with Luca.

All right. So welcome, everyone, and good afternoon. Maybe I'll introduce myself. My name is Luca Rossi. I run IDG at Lenovo. IDG stands for Intelligent Devices Group so it comprises all of PC, desktop, notebooks, tablets, all the way to our Motorola-branded smartphones. So our vision was and is smarter technology for all, and now we have extended to AI for all, so the mission is to bring this technology to everyone. And as the #1 PC maker in the world, we think, Michelle, you are right, 2024 is definitely an inflection point for the PC industry. And we believe it will change forever the PC industry in the coming quarters and in the coming years. If you think about -- when the users was buying a new machine, in the past, it was always about I'm getting a faster machine, more memory, more storage, bigger screen, more beautiful design. And all these things are staying. But now the change is that AI PC will bring something completely new. It will bring personalized computing. So through the what we call local foundation model or even personal foundation model, you will be able to have the machine, the PC know as much as you know, if not more, about you and your usage model and what you are going to do next. AI PC will enable the user to run local large language model on device, so without the need to be connected to the Internet. That will bring low latency, obviously will bring privacy, security, a lot of things that are -- will be very appreciated by the end user. Productivity, I think productivity will be, in my opinion, the first killer app. And I want to thank here, Intel and Microsoft. You are leading to build the ecosystem to have a lot of ISV and obviously, Copilot is on the driving seat, but there are even more to create this -- to use this new function on the PC to deliver a lot of value for the end user. So at Lenovo, we are getting ready with the broadest AI PC portfolio, hopefully, in the world, and that is not only about CES. You are right, Pat, that this will also be a story for the coming quarters and next year. So we are very excited about that. Maybe a last point is the business implication. We are confident that this will trigger an acceleration of the replacement cycle and expansion, I would say, a moderate expansion of the TAM in units but also in value as these machines will have richer feature, will require richer features, so will overall benefit the entire PC industry. That's my point of view. Thank you.