The operator introduces the Intel Corporation's Fourth Quarter 2023 Earnings Conference Call and the host, John Pitzer, before he introduces the CEO, Pat Gelsinger, and CFO, David Zinsner. The discussion will contain forward-looking statements and references to non-GAAP financial measures. Pat Gelsinger highlights the company's progress towards their IDM 2.0 transformation and their plans for process leadership, capacity and foundry expansion, improved product execution, and bringing AI into all product segments.

In the fourth quarter, the company exceeded expectations and delivered solid results, with revenue at the higher end of guidance and strong EPS. They are committed to driving operating leverage and managing expenses, and intend to continue this success in the next year. While there are some challenges impacting revenue in the first quarter, the company expects growth in both revenue and EPS for each quarter of fiscal year '24. They are proud of their execution in 2023, becoming the world's first high-volume manufacturer of logic devices using EUV. They are also excited about their process technology roadmap and the launch of new products, including Intel 3 and Intel 20A and 18A.

Intel is the first in the industry to incorporate both gate-all-around and backside power delivery in a single process node, and they are expected to achieve manufacturing readiness for their Intel 18A vehicle in the second half of 2024. They have also begun installing the industry's first high NA EUV tool to address challenges beyond 18A. Intel remains focused on being good stewards of Moore's Law and ensuring a continuous node migration path. They have made progress towards their goal of becoming the second largest external foundry by 2030 and have over 40 strategic agreements in place. The rapid adoption of AI is a significant tailwind for their foundry business.

In Q4, Intel expanded its RAMP-C program and signed a major foundry contract with the US government. They also partnered with UMC to develop a 12-nanometer process platform and taped out over 75 ecosystem and customer test chips. During CES, Valens Semiconductor announced they would use Intel's advanced technology for their chipsets. Intel also won a design win with a high-performance computing customer and has seen momentum in their advanced packaging business.

Intel has seen significant growth in advanced packaging design wins, with three new wins in the last quarter and a total of five in 2023. The company has opened a new facility in New Mexico to support the demand for advanced packaging. Intel's global manufacturing footprint puts them in a strong position to meet the increasing demand for AI chips. The company will be hosting its first Foundry Day to showcase its ecosystem and discuss its process roadmap for the future. Intel sees AI as a key driver of the semiconductor industry's projected $1 trillion TAM by 2030 and believes they are uniquely positioned to benefit from this growth.

Intel is the only company with a complete product portfolio that enables customers to seamlessly integrate and run AI in all their applications, from the cloud to the edge. They offer a range of AI accelerators and tools for developers, and their expansive footprint in the market allows them to bring AI to where the data is being generated and used. Their server business has seen solid growth, driven in part by demand for AI. With the launch of their 5th Gen Xeon, they are seeing increased performance and have partnerships with major cloud service providers and OEMs.

Intel's improved execution is leading to a stronger product portfolio, with their Gaudi 2 AI accelerators showing the best performance per dollar compared to popular GPUs. They are also working on Gaudi 3, which is expected to have even better performance and is currently in the lab. Their accelerator pipeline for 2024 is growing and they have increased supply to meet customer demand. They are now operating PSG as a standalone business and plan to bring in private capital for an eventual IPO. Despite a financial correction in the FPGA market, PSG has executed a successful roadmap and has strong operational momentum. Sandra Rivera has been appointed as the new CEO of PSG, and Justin Hotard has joined as Executive Vice President and General Manager of DCAI.

Justin, who previously worked at Hewlett Packard Enterprise, has joined us as the Executive Vice President and General Manager of High Performance Computing AI and Labs. He will help customers accelerate their businesses with our Xeon processor family and increase our GPU and accelerator footprint. In the client division, CCG had a strong performance in Q4 with double-digit sequential growth. The launch of Intel Core Ultra marks a significant architectural shift and the processor is capable of running popular AI models and enhancing performance on applications like Zoom, Adobe, and Microsoft. We expect to ship 40 million AI PCs in 2024 and have 230 designs from various partners this year.

NEX's Core Ultra platform currently offers top AI performance and will triple it with the launch of Lunar Lake and Arrow Lake later this year. In 2025, Panther Lake will provide an additional 2x AI performance. NEX is well-positioned to benefit from the increasing use of AI at the edge, and their OpenVINO software is seeing strong adoption. They are also driving the shift towards open Ethernet-based AI networking in the cloud. NEX's Q4 results exceeded expectations and they are expected to see solid growth in 2024, particularly in the second half. In the automotive market, Mobileye is experiencing a temporary inventory correction, but their forecast for 2024 is improving and they have recently secured major design wins. NEX is also expanding their presence in the auto market through partnerships and acquisitions.

In 2023, the company saw progress in all areas due to their operational and financial discipline. They implemented a new internal foundry model to drive cost savings and efficiencies, and officially transitioned to this model on January 1. The company is confident in their performance and financial trajectory for the year ahead and will continue to focus on their mission and driving long-term value for shareholders. In the quarter, they beat their guidance and made progress on reducing structural cost gaps. However, they acknowledge that there is still work to be done in 2024 and beyond to achieve their long-term financial objectives and the potential of IDM 2.0.

In the fourth quarter, the company's revenue was $15.4 billion, which was 9% higher than the previous quarter and 10% higher than the same quarter last year. Gross margin was better than expected due to favorable product mix and higher revenue. EPS was $0.54, beating guidance by $0.10. The company saw strong performance in its CCG and DCAI segments, with record notebook shipments and double-digit growth in the server business. The NEX segment also saw growth, driven by network and Ethernet segments. Overall, the company's operating profit was up significantly compared to the previous quarter and the same quarter last year.

In the fourth quarter, the business experienced a small operating loss of $12 million, with Intel Foundry Services contributing $291 million in revenue. Mobileye had a record-breaking quarter with $637 million in revenue and $242 million in operating profit. The company made significant progress towards their IDM 2.0 strategy and met their 2023 financial commitments despite macroeconomic challenges. They achieved their 2023 commitment of $3 billion in spending reductions and saw improvements in cash and cost controls. They also recognized $845 million in advanced manufacturing investment credits.

The company expects increased gross CapEx in 2024 due to continued investments in IDM 2.0, but they are still on track to meet their net CapEx spending target. Q1 revenue is expected to be between $12.2 billion to $13.2 billion, with a gross margin of 44.5% and EPS of $0.13. The company expects a subseasonal first quarter from their core product businesses, but significant inventory corrections in Mobileye and PSG. They also anticipate a decline in data center revenue before improvement later in the year. The company remains confident in their longer-term TAM forecast for the PC market and expects growth in CPU compute cores and their discrete accelerator portfolio to gain traction. Telco markets are expected to remain weak, but there should be solid growth from Network, FNIC, and Edge products.

The company is confident that their revenue will grow beyond typical seasonality and they will see sequential and year-over-year growth in both revenue and EPS each quarter of 2024. They expect to grow earnings faster than revenue and maintain roughly breakeven adjusted free cash flow, but there are headwinds due to capacity expansion and increased depreciation. The company is excited to operate under a new internal foundry reporting structure and will provide recast historical financials this quarter. They see opportunities for improvement in their manufacturing P&L. The company also plans to set up a separate legal entity for manufacturing, technology development, and IFS in the second half of 2024. Despite a challenging macro backdrop, the company had a successful year in 2023.

The speaker expresses satisfaction with the team's efforts in controlling spending, managing share, and delivering for customers. They mention exiting five businesses in 2023 and identifying profitable adjacent markets. The team has executed within their Smart capital framework and unlocked value for shareholders. They thank the team for their hard work and express confidence in their long-term financial objectives. The Q&A portion of the call begins and the first question is about the demand picture.

The speaker addresses a question about the low end of seasonality in the first quarter for their core businesses and explains that it is a wide range historically. They mention that there were some discrete events that were larger than forecasted, but overall the core business is healthy and there is no market share loss. The speaker also mentions that there are improvements expected throughout the year, with new product lines and cost discipline, leading to a strong start and an improving year.

David Zinsner asks Intel CEO Pat Gelsinger about the company's long-term confidence in its manufacturing nodes, particularly in light of a major customer and competitor investing in their own foundry capabilities. Gelsinger responds by saying that Intel is closely monitoring its progress on its 18A process and is confident in its competitiveness, citing recent successes with taping out products and strong feedback from customers. He also mentions that Intel will continue to use external foundries but is working towards bringing more production in-house.

The company plans to continue using external foundries to complement their own factory network and ensure the best products and technologies. Gross margin was better in December and the March guidance is also good, with a 60% fall through expected. The Q4 results were better due to a higher sell-through of previously reserved product and improved factory spending and yield. The Q1 fall through is expected to be harder on the company.

The speaker discusses the expected fall through rate of 60% for the next couple of years, with potential variations due to one-off events. They also mention the goal of increasing this rate in the long term to drive gross margins. However, there are headwinds to consider, such as the costs associated with five nodes in four years and the peak start-up costs in 2024. The speaker also mentions managing capacity utilization and revenue growth to achieve the 60% fall through rate.

In the upcoming year, improvements are expected in terms of margins and profitability due to strong leadership, better performing products, and the implementation of an internal foundry model that will result in significant cost savings. The company is also partnering with UMC to utilize older factories for long-term foundry business. This change in approach has led to the identification of new cost-saving opportunities and a focus on efficiency throughout the company. Overall, these efforts are expected to lead to a 60% gross margin.

The speaker discusses the decline in data center revenue in the first quarter, attributing some of it to weakness in the FPGA business. However, they also note that the overall market is fairly seasonal and they expect year-on-year growth. The company is seeing strength from server customers and expects to benefit from the trend of on-prem AI inferencing. They believe that their strong position in the enterprise market will continue to drive growth in the coming year.

In this paragraph, the speaker discusses their focus on improving their product line and beating their numbers. They mention two specific products, Sierra Forest and Granite Rapids, which are both on Intel 3 and are driving the capacity of the company. They expect a healthy split between these products for cloud and data center customers, with enterprise customers likely sticking with P-core products. They are confident in their product portfolio and its ability to offer both high performance and cost efficiency.

The speaker discusses the company's portfolio and its potential to regain share in the core data center market. They then answer a question about gross margins and clarify that the 60% fall-through should be used as a rule of thumb for year-over-year comparisons. They mention the volatility in gross margins and expect them to improve throughout the year. The speaker then addresses a question about the client market and mentions that corporate is showing strength while Dell reported weakness.

The speaker, Pat Gelsinger, is confident about the revenues in the first quarter for the client business. They expect the market to be a few points bigger than last year and their market share is stable. They have had good execution and their product line has tailwinds. However, some of the benefits will only materialize in the second quarter and second half of the year. The speaker also mentions the excitement for the AIPC, which they believe will bring multi-year growth and establish their product line as a leader in the industry. The next question is from Vivek Arora from Bank of America Security.

The speaker discusses the impact of generative AI deployments on cloud customers and the competition between GPU and CPU companies for CapEx. They mention the high demand for training environments in the cloud, but believe the market will shift towards inferencing, where Intel's products will be more relevant. The enterprise market is expected to rely on on-premise AI solutions, with Xeons and Intel's offerings being the preferred choice for data centers. The speaker cites positive feedback from customers regarding the use of AI in their data centers.

Pat Gelsinger, CEO of Intel, discussed the company's plans for the future, particularly in the areas of power, networking management, and accelerator technology. He mentioned a growing pipeline of opportunities and a strong focus on inferencing and AI. In terms of the foundry business, Gelsinger mentioned a decline in Q1 but stated that Intel has secured four 18A wins. He also addressed the company's role in traditional packaging and its unique position to help customers during the COVID pandemic. When asked about the impact of Intel's external foundry business, Gelsinger mentioned a $10 billion lifetime win, but acknowledged that this is relatively small compared to the overall foundry market.

The company's focus on advanced packaging with differentiated technology and good margins has led to the recent announcement of a new manufacturing facility in New Mexico. The foundry equipment business has also been consistent, with growth expected in the future due to deals with 18A foundry customers and Intel 3 packaging. The company will provide updates on the rapidly growing lifetime deal value as a metric for the business's growth. The internal business will drive factory build out and allow for additional external customers to be added. The contract lengths for these deals vary, and the company aims to provide transparency and visibility through updates on lifetime deal value. The CEO invites readers to attend the upcoming conference on February 21.

The company is preparing for a big industry event where they will discuss their IFS direct connect and meeting with the ecosystem and customers. They will also invite analysts to listen in on the conversations and disclosures. During the manufacturing transition, the company has taken on the challenges of EUV, backside power, and gate all around transistors. They have carefully managed the risks and have already completed high volume manufacturing for Intel 4 and Intel 3. They have also run internal nodes to de-risk backside power before implementing it in Intel 20A and 18A. The upcoming Intel 18A will combine backside power and gate all around transistors, but the company has worked to de-risk these challenges during the development process.

In paragraph 29, the speaker discusses the success of backside power on 18A, which has been well-received by customers and has shown significant performance and area benefits. The focus has been on the new gate all around transistor structure, which has made good progress and will have a 1.0 PDK in Q2. The first product using this technology, Clearwater Forest, is now in production on 18A. The next generation of EUV, High-NA, will not be part of 18A but will be discussed at the Intel Foundry Day. The speaker is confident in the audacious goal of five nodes in four years and is proud of the team's execution and progress in rebuilding Western supply chains. The call ends with a thank you and a summary of a strong Q4 and successful year in 2023.

The speaker expresses excitement about the positive momentum in their business and financial execution, as well as their manufacturing technology and foundry design wins. They mention their high success rate in following through with their plans and invite listeners to attend an upcoming event for more updates. The conference call then concludes.

This summary was generated with AI and may contain some inaccuracies.