Intel Corporation ($INTC)

All right. Good afternoon, and thank you for attending the second day of JPMorgan's 54th Annual Technology Media and Communications Conference. My name is Harlan Sur. I'm the U.S. semiconductor or semiconductor capital equipment analyst for the firm. It is my pleasure to welcome Lip-Bu Tan, Chief Executive Officer of Intel. Lip-Bu, one of the semiconductor industry's most accomplished leaders, right, bringing decades of experience spanning venture capital, EDA and advanced chip design. As founder of Alden International and former CEO of Cadence Design Systems, he built a track record of dissipate. Lip-Bu received the Robert Noise Award in 2022, which is the semiconductor industry's highest honor, right? Since taking the helm at Intel in March of Lip-Bu has fundamentally reshaped the company, flattening its management structure, strengthening its balance sheet and retaining and attracting great talent. So Lip-Bu, thank you very much for joining us today.

Thank you, for inviting me.

Yes, absolutely. I'm going to read the safe harbor statement very quickly. 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 on Form 10-K and other filings with the SEC for more information on the risk factors that could cause actual results to differ materially. And additional information on Intel's non-GAAP financial measures, including reconciliations were appropriate to the course to GAAP and financial measures.

So with that, Lip-Bu, again, thank you for joining us today. It's been around 14 months since you've taken over as CEO. The team has certainly executed extremely well under your short tenor. I remember the first earnings call in front of investors in April of last year, right? And just -- this is my guidepost to monitoring the execution of the team. But you came out last April, and you summarized your goals very clearly. Number 1 is best products always win Intel needs to focus on designing best-in-class products, redefine the portfolio for emerging AI workloads. Number two, approach the portfolio with full stack systems focus number three, build a world-class foundry franchise, and that means building trust with customers; and four, strengthening the balance sheet, right? So 14 months later, give us your view on the team's progress on these goals and more importantly, your confidence on executing to your strategy mid- to longer term.

Yes. Thank you for the questions. So let me address the 4 areas that you asked for. One is the balance sheet when I took over, the balance sheet is pretty horrible. And so I tried to recruit some talent. They say it's almost a bank up company, why should I join you and love you, but not this one. So I really focus on the balance sheet to strengthen that. So first of all, I'm a in our President Trump from Commerce Secretary, and let me have a chance to explain my vision they're delighted. They convert some of the chip program money and then to convert into equity. And so we're delighted to have their support. And also my local friend Jensen for NVIDIA. Besides, we're going a deep collaboration, multi-products, multi years of engagement and very good engagement. And I also want to support you with $5 billion investment. And then also my old time friend, SoftBank, Masa, I used to be on his Board. And, I also like to help you. So I think them helping me. And so far, not onward, I make money for them, and they're quite happy with it. So I think overall, I think, strengthen our balance sheet. I think that's very important. Because of that also, we drive more successful cash flow and operations, we're able to divest this -- bought back this Skipta and so that we can really have less dilution on the EPS. So that's very helpful. So second, from the back, I mentioned about the foundry and I want to be a trusted foundry partner. So this is very important. At the end of the day, foundry is a service business. We really need to build the trust with the customer. Customers had to trust you enough based on their revenue, they provide you the -- we have to produce a wafer of good quality. Otherwise, they're going to pack the impact to the revenue top 4. So I think that something is a lot of responsibility for doing that. And then following the foundry business, first of all, not just to improve your yield, improve your defect density, the cycle time, make sure that you can run time to deliver the customer service. The other part, very important, you need to have all the right IPs. So for example, if you have found compound customer for mobile, you need to have low power IP or if you're working with the big data center or cloud infrastructure, you need to have high-speed connectivity set to serve them. So those IP in some way, you are working the 2 teams of the customer. One team is a supply chain. Whether they can use your foundry. The other team, basically the sign team, they have to make sure that your PDK, your IP is ready, they can really design the chip based on your foundry nodes and foundry capability -- so that's just a lot of faith to do that. So I think overall, we're making great progress. We can talk more about it. We make great progress on and then our Pental depend on that. Now I have a volume in the wafer to support my Penta Lake. We announced in CES and we have 200 design wins. And then we're finally able to get the products volume to support them. The customer is quite happy with that. And then the other part is clearly the 14. And we announced in Q1, we have 0.5 PDKsthat they can do the test chip to look at our yield and see whether they can, over time, to really design their product and fabricate with us. So we are making good progress. The holding rail is 0.9 PTK. Right now, we're looking at October to the outside customer. Internal customer will be earlier so that we make sure that we really kind of clean the pipe, make sure that we're doing right, make sure that we can sell with good quality. So good news, I think we are knock on wood. We have multiple customers engaged with us and to really define what product, what boundary location want to be, what kind of capacity we need. So I think my philosophy, I don't disclose the customer. This customer want to disclose, we will support that. But I think something that's important to work with them and then some of them worry about our competitors know that we are working with us. So we try to keep it highly confidential while we cannot gradually win their heart. So that's on the foundry side. In terms of the products, clearly, I mentioned earlier, the long term, you basically have the best product with -- and so immediately from day 1, I have all the engineering report to me. And it's very important. So they're understanding where we went wrong, what are the mistakes we make and how we can correct that. So from day 1, March 18, 2025, my first day to work and I have my big customer, have dinner with me and they told me that the product are far behind, 25% behind, and your product is so complicated, and you are behind the schedule to deliver and so those are the things I took in, and I addressed that. And then now our weekly call, and we are talking about big area, a big idea to work together. So I think we kind of win the trust of them that we can come up with a better product like PC client with Pantai is a good one. In terms of the data center, we used to have the leader. We have 90-plus percent market share, and we lost it. And so a lot of mistake mix. And then I still remember 1 of the big customers to Malibu. These are the 4 area that you guys scoop. And I take notes on every single one. I said, we are so delighted you are the CEO. You are so humble in the past, we are so proud intel that you don't even listen to us. Actually, you lecture us and we quietly design you out. But now your -- we are so happy you -- we have worked with you at Cadent design. You under-promise over delivering, you work hard, you listen to us. You put together a world-class team to do that. So I think all in all, I think we are making good progress to come out and of course, as you know, some of the product, if you design, you take about 12, 15 months to come out -- that's right. So right now, we're working on it. Hopefully, some of the new product, can come out, can really meet the schedule meet the timetable and the performance. And one thing about timetable. We have -- I have a culture right now, I just implement. I had to be A0 to production. Now A0 is when you take out first time pass. And Intel don't have that culture. So I cannot take that well. First time part is 0, BZ, you keep your job. Anything above that, your fire. So that culture people initially thought that I'm just joking. And now I'm starting to implement, they're starting to say that, okay, Lip-Bu very serious. You really look into the older design or the bugs that we've tried to fix and then all the IP that we use you make sure that we certify and measure we do that before we go to tape out. And so those are kind of the culture we need to have. And then finally, I think most important is to delight the customer. And that's I spend a lot of time, listen to customer and the customer, customer, understand what they want and make sure that we meet their requirements.

No, that's perfect. And as we've talked to some of your customers and as we follow the company over the past 14 months, I would also agree that under your leadership, the team has certainly improved its execution very meaningfully and articulated its strategy very well. So now it's just a matter of continuing to solidly execute on a go-forward basis. And as you put in place these targets and goals. I think one of the most impactful and important decisions when you first joined was to flatten the organization to accelerate decision-making, right? And so can you discuss the response from employees particularly engineers, how -- now that you've been operating under this more streamlined model for a few quarters, can you just discuss some of the early benefits that you see from this change?

Yes, it's a very big change in the 14 months. And so first of all, I think it's very important. Over the years, I think they've built so many layer of management. I still remember some areas like 12 layers -- and I said that, wow, this is not good. We need to bring it down to 5 layers. And then the main reason is the more accountability. And then secondly, the speed of the making decision, whether there's so many business review. And then the most important is the med management, meeting. And so I basically cut the crap of the meeting. And then if you have a meeting, you got to be what is the agenda, what are the things that we want to decide and then what are the things that we want to bring me up to speed. If not the meeting is. And so I think that speed of decision-making instead of out sometimes it can be 1 week to decide, sometimes we kid Intelie more than 1 year. And then at the end, the people decide they don't even know what is the problem. And so I think this is something that we just have to eliminate. So right now, I kind of work as a kind of start-up environment. Everybody move fast and then some of the customers really like that. It's a it the speed of light. So we had to make decision quick. It is a mistake. We collect right away, and we're doing to delight customer. In the past, customers complained to us, we are not responding, we are not listening and even lecture them. Now in 24 hours, I want to know what the bad news, what are the customers. If the customer tell me something that you didn't tell me, you're in deep trouble. And so that kind of transparency the people accountable and sometimes things could go up, and I said, who're responsible for it. Everybody pointing finger. Nobody wants to take responsibility. So now I said, wow, I pick all the right people you are responsible for your job. And you came in daily or weekly update. And then you book a problem, you let me know, and then share the problem, bad news for us. Good news, you don't have to tell me later on we can celebrate but bad news, tell me first. If you tell me the bad news is our problem. We fix it together. So that's kind of the culture we change. And then so far, the feedback from customers is really happy to hear that. And then secondly, I think for the engineering leader, used to be kind of third class citizen, nobody listened to them. Now they have direct line with me. I go down to 8, 9 layers now to find the real truth of the information. so that we can really make some decision good for the company. And I said that example is basically do what is best for the company and take away your personal interest and agenda. And let's forget what is best for the company. And in fact, one thing is very similar to Cadence when I took over that same thing I didn't tell -- when I look at the performance review, everybody outstanding outperformed. And I said, what is this, right? So I changed it unless the company performed nobody get outstanding performance, unless it's super sale outstanding and include myself, even I tell my board, I'm just acceptable. And that set the tone for the culture of the company. Let's work together I used to be a basketball player. The only way we business is the team worked together, not the individual score.

Intel brings to market some of the most complex, what we call system on chips or complex compute chips to the market, right? And I believe, historically, Intel operated under a model that perhaps excessively relied on the use of internally developed intellectual property, or IP, right? -- given your background in tenure as CEO at Cadence, for example, how are you looking to shape how the engineering teams potentially integrate third-party IP, third-party design tools to expedite improved productivity of these most complex designs that you're bringing to the market, as you mentioned, minimizing tape-outs while still champion internally developed IP for the superior competitive advantage that you're targeting, right?

Very good question. I think India has a culture -- a lot of talent in Intel. And the problem is each one has a silo. They work on something. And some of them is not differentiating. I met use the industry standard accepted practice on IP or EDA tool. And you were shocked when I came on Board, we have a big team on EDA. So why are you doing that unless you have something differentiation you should just embrace an industry standard -- that's right. We decided to hire Sweeney from Cadence. I promised Kean, I said that no more hiring, except this guy I really need to have, and he's not an EDA guy. He's really the designer. So I have him run the central engineering you will be short. I have 5 different organizations have different EDA effort and budget. And the number is so huge. And then I say to win a minute, why are we doing that? So I say, well, you come over to be central engineering is ASIC central design team. And then all the people we have cut by fourth at least 2/3 of it and of the people gone and then consolidated the design, the budget to focus on EDA and what we really need. And then internally, we still do some but something that is very different than industry don't have. And then so unless that otherwise just use industry standard. Same thing for foundry. We had to really embrace the standard. And that's why in the Intel foundry days, I highlight, I have all 4 EDA and leader CEO on stage with me. We are embracing them. They are an important partner, just like Jensen embrace and that's something that we do the same.

Got it. And going back to the partnerships that you talked about in terms of your discussion on shoring up the balance sheet, right? You've signed important partnerships with industry leaders and industry innovators NVIDIA SoftBank, Google, SambaNova, Ericsson. Obviously, the U.S. government as it relates to U.S. supply chain assurance and resiliency, tariff fab is another good example of that. And you've also strengthened your partnership, as you mentioned, with the value chain, companies like Cadence and Synopsys, right? And it's a great endorsement and reflection of the importance of Intel in the technology value chain, right? And so you highlighted the financial benefits from some of these partners. But how has Intel been able to sort of leverage these partnerships in driving towards your product excellence, foundry leadership aspirations. How have these partnerships helped along those lines?

Yes, good question. I think 1 of them is basically -- I'm a long-term guy. I like to build in the company 5 years, 10 years from now. And then you have to look at from long term, where you want to go and then take steps to get there. And for example, a full stack -- and rather than just work on the silicon network, we have to build the software, you have to build the memory, you need to really drive the platform so that you can provide the chassis to the customer. And so I think all this along the way, you can't do it alone. So you need partners to help and also need partner to support you in the ecosystem support. So those is very important to have but you have to be very selective, which are the right partners. So like Jensen is a good example. A friend of mine, he's done such a great job into building up the platform I said remember many years ago, he asked me to support Cuda and then he's normal semiconductor. He's a platform company, giving credit, he deliver. And so I think in some way, I'm so happy from day 1 asking him what can I help you?" -- and he turned around, he said, "You're not helping me. I'm going to help you as a friend. So I'm delighted to have that collaboration with him. And then likewise, for example, Google, we have a big announcement.They are the important the player. And then the Jamani and 4 are really stand out. And then we want to embrace. And also some of the silicon that are working with us and then we are a deep partnership with them. So something that we like to have the kind of win-win for both successful and we will be successful together -- and so you're going to see more and more of this partnership, and I strongly believe in partnership. And one thing could bring into the table to Intel, one is my network of contacts. And secondly, I'm very strong with the partnership with the customer. They built trusting relationship with me for a long time. So I think with that on the foundry, customer side, from the product side and even some of the customer customers tell me what the product should be, then I help my customer to really deliver that together with them -- and so I think all in all, I think it's created a win-win partnership. I think that's the best thing so that we can create value and rather than compete with eachother.

Absolutely. Let's focus over to the topic of AI and accelerated compute. And again, I'm going to rewind back to the April 2025 earnings call where it -- when you first joined and I believe as a part of your opening commentary in terms of defining your goals, you also mentioned the opportunity of Agentic AI. It's coming and it's going to create a lot of opportunity for Intel and for the semiconductor industry. And interestingly enough, by the second half of '25 we saw that inferencing inflection, right, moving past training workloads. And because, obviously, your customers' customers move from training to monetization, right, 1 shot 1 shot to Agentic-based workloads. So we saw that complexity increase. We saw the inflection of inferencing over training exactly as you predicted, back in April. The market is now seeing the reemergence of CPU, right, as the key contributor to the AI computing fabric with the ratio of server CPUs, potentially reaching parity with the number of accelerators in the data center segment of the market. Can you just unpack for investors like the type of conversations you're having with customers on this front? How you see CPU intensity progressing over the next few years and puts and takes based on sort of various types of Agentec applications.

Yes, it's a very good question. Clearly, this genetic AI, I kind of forecast that you were and turned out to be very accurate and also very helpful -- we thank you for that. And then in some way, that's where the drive the CPU demand, right? And then used to be a training is 1 CPU to 8 GPU. And then now in the Agentic AI with all the agents people I work a lot with the frontier model, some of the start-up by involved. They are telling me Lip-Bu, CPU actually is more useful, even single trading and he said that most important is the reinforced learning, the orchestration of all the different agents and then also the optimizing for some of the workload and CPU is even more important. So I can starting to see not just my wishful thinking, customer is feedback to mailable. It's more like on 1. And now even some of them tell me is 4 to 1 -- so 4 CPU to on GP, so the infant and agent. So I think that part, I think, is very -- sometimes in life, you need some breaks. And this is a good break for me. And so CPU become high demand, and I try to make sure that we can meet the requirement from the customer. And then the other part -- the next frontier is going to be the physical AI -- and that's also coming up. So in a way it's other than human, now you have to look at the compute requirement for managing the agent from the personnel and also to the commercial side -- that's right. And that market is quite big. And so I think there's an opportunity for me to work on the CPU and then drive new architecture to drive the purpose build workload to optimize for a particular workload going to be -- and then same thing with accelerator and then make sure that we have that. So back to the AI, we have 10 years ago, I back to idea because I thought GPU power hungry. So I back this wafer scaling. This is part and our Series A investor. And then the other 1 back is the data flow architects. That's a sample. And that's why we have a deep partnership with SambaNova the 86 CPU and GPU and SambaNova accelerator or LP, you call it, and then that we can go together and then win some of this cloud infrastructure play and then with much lower power requirement. So those are the things that you have to think we're ahead. And right now, we are thinking the next big frontier the specific AI. So recently, I just hired Alex from CalCon, he used that compute and mobile water and basically, as I come over here to help me to build the physical all the way full stack from silicon optimized through all the way to the software to the system platform engineering and drive that solution for robotics or digital workers. So I think those are humongous opportunity to address this whole agenticAI, millions of agents and worker digital worker. I think there's a new era that we can really capture the opportunity.

Yes. And we were talking about it last night, I remember, when it comes to physical AI, a lot of the use cases are in areas like industrial, automotive, edge AI. And we were talking about it last night, but we call these the embedded segments of the market, right? And in Embedded interestingly enough, Intel still holds very, very strong market share. So I think it's a big opportunity from the perspective of there's a lot more intelligence and compute opportunities with physical AI but in this case, Intel is starting from a position of very, very strong leadership. Would you agree with that?

I agree with that. And in fact, not just embedded and also the Yes. And so we spin out the Altera, the CEO is a very good friend of my rouge's very good. I kind of played the role to recruit him to be the CEO and the FPGA together with the embedded and then we can really drive some of the new physical AI and then will be a very exciting opportunity for us.

So I think what we've been hearing from certain shareholders is that they like to focus on the CPU architecture continue to drive the road maps very aggressively. Obviously, we'll be talking about the foundry in a little bit but the market is a little bit concerned that as you continue to focus on building back leadership in these 2 areas that they wonder that does Intel have the additional resources and capabilities to also execute a strong AI accelerator family of products, right, and try to move towards that full stack sort of AI sort of implementation. We know that you have your Goudy based accelerator family of products. You talked about the partnership with SambaNova for inferencing applications. But help us understand the team's strategy around accelerators and your ability to compete with merchant GPU or ASIC XPU that are already out in the marketplace.

Yes, good question. So I think we need to do both. And on the CPU side, we had to do more architecture change to purpose build silicon. And then on the accelerator side, we're going to team up with to do that. And then we also have an internal plan in the AI development. and then so that we can come out kind of lip fracking to some of the area that can drive some performance benefit. In the genetic AI, physically, I think there's a new area that we can recapture -- in some areas, we are behind and no point just to catch up. We do something new. And so I think we try to get into an area that less crowded and something that we can differentiate in terms of performance or power or software that we can do that. So I think that we have to do. And then the other part is the system level and the full stack and then some of the areas I don't have is the IO high-speed connectivity -- even though earlier I invest in Australia Lab and Credo, they pro went public very nicely. And then Ketan, I bought a company called New Semi basically have the high-speed survey. So right now, I think it's moving to optical now. So we need to look at what are the optical area that we can disrupt. And then same thing, just beside CPO, GPU accelerator, -- we also look at the memory. Memory becomes a big shortage and become a bottleneck. And then how do we use CPU and memory to really coupled together to make full optimization of the memory. That's something that we're working with memory player and also we're going to recruit some of the talent we used to have memory business. We sold it to SK Hynix -- so right now, we have to figure out a way to really secure some of the memory requirement to serve our customer. So those are the things that we are focused on.

If we turn to your manufacturing and your foundry business, can you just give us a progress report on your 18,18AP, next-gen 14A technologies qualitatively, yields, cost, manufacturability, maybe compare that relative to your prior generation nodes, but also maybe importantly, compare it to TSMC's metrics that I'm sure you guys track internally as well.

Yes, good question. So I think the Intel manufacturing used to be our strength. And -- but we lost some of them. And then secondly, we never do the foundry service business. So it's a culture chain. I need to have a separate team that really know how to serve the customer. And that's why I think you'll see that some of the people are higher for Samsung Foundry. Shanhan, know him for 15 years to come over to help me. And then secondly, we're also going to look at how can we improve the yield -- and then from the G&A, the good news is much better than I took over. I can see 7% yield per month some. And then right now, it's ahead of schedule compared to end of the year target. And at 14, we are already engaging with customers with real engagement. And then the IP block and also gradually building it up. So I think overall, still a long way to go. I mean more took them at least 10 years to build what they have that's right -- and so it's not going to be overnight. But good news, 14A, my risk production is 2028 and volume production in 2029 is about the same time as from TS. And then now I'm starting to work at the 10A, 7A, the roof map. People don't go to you just 1 note. They're looking for the road map for the future. So we want to build a long-term business. And then then we can drive the efficiency, the defect density and then we can go to that rule of 45, how to drive the operating efficiency, the profitability, cash generation. So those kind of per year milestone that we are going there.

And you talked about -- you released your 0.5 process development kit for 14A beginning of this year. I know we know of multiple customers that are designing test chips, running them through Intel's fabs right now. But you also have your 18 AP process, which is your current generation process, which you are opening up for foundry opening up for foundry as well. I know you had anticipated early design commitments in the second half of this year, but we are in an overall very, very tight foundry supply situation. Geopolitical dynamics are still pretty volatile. And so I would think that some of your customers want an accelerated time line. But has the Intel team already secured design commitments on 18AP and/or 14A? Or is it still a little bit too early?

Yes. The 18A, when I took over, I decided to give my do. And so in the way I kind of focus on internal me that Pantalake is taking more successful. And now customers here that we are improved. So they're asking about 18A. And then we are engaging with a couple of customers looking for the supply with resilience and robustness rather than depend on one single vendor, foundry. So I think we have opportunity there. And the 14A, we already engaged with multiple customers. And my philosophy, don't announce ourselves. If a customer want to announce, we welcome them to announce. We support them to do it. And so I think we're making good progress. The other part, it's also a very happy surprise for me. We have a very good advanced packaging. And so this is something that a couple of customers come to me, the EIT is so good. We want to use that. And in fact, right now, as you know, some of the subscript material is very shortage. 2 from Taiwan, 2 from Japan, they're all asking us to prepay the subscription commitment. And we ask our customer, if you are serious to use our EM, can you help me on the subscript prepay? They jump on it. So they mean that they show the commitment, they really want our technology. And this is not a few million, it's billions in the next few years. So I think it's exciting with the advanced packaging, with the foundry and now we have all the new CPU architecture come in. And I think we are in a very unique area that we're going to go after some of the ASIC business so that we can really purpose built for some of the customers in a very fast turnaround time and the best performance to optimize all this together. So that's something that's very exciting for me.

Great execution, great opportunities in front of the Intel team. Lu, thank you very much for participating today.

Thank you.