The paragraph is an introduction to Intel Corporation's Third Quarter 2024 Earnings Conference Call. The Operator announces the call and introduces John Pitzer, Corporate Vice President of Investor Relations, who informs participants about the availability of the Q3 earnings release and presentation on Intel's website. He introduces the company's CEO, Pat Gelsinger, and CFO, David Zinsner, who will make brief comments before a Q&A session. John notes that the discussion will include forward-looking statements and non-GAAP financial measures, with more details available in Intel's filings with the SEC. Pat Gelsinger then begins by stating that the company exceeded its Q3 revenue guidance midpoint and progressed on its cost reduction plan.

In Q3, Intel's profitability was affected by costs discussed in the previous quarter, but operational results surpassed expectations due to key milestones in Intel Foundry and Products. The company is focusing on cost reduction, efficiency, and market competitiveness, with a modestly positive outlook for Q4. Intel has completed most of a planned 15% workforce reduction and cut capital expenditures by over 20%, which has streamlined operations and positioned the company to quickly respond to market demand. The transition to EUV and upcoming Intel 18A launch, alongside improved fab productivity, signal progress, while efforts to simplify and streamline the portfolio continue.

The company is narrowing its focus to maximize the value of its x86 franchise across various markets by restructuring its product portfolio. This includes integrating the Edge business into CCG, refocusing the NEX portfolio on networking and telco, and incorporating its software business into core units for more comprehensive solutions. Significant restructuring charges in Q3 were part of necessary cost reductions, including over $10 billion in spending cuts by 2025 due to excess investments during the COVID era. The company also plans to revise its segment reporting by Q1 2025 to reflect these changes. Financial goals for 2025 include reducing non-product costs, lowering operational expenses, and managing capital expenditures, with an aim for positive adjusted free cash flow and improved financial leverage.

The paragraph discusses Intel's strategic efforts to enhance the value of its x86 architecture, aimed at meeting future computing demands through increased customization, compatibility, and scalability. This includes collaboration with AMD and the formation of the x86 Ecosystem Advisory Group, involving major industry players, to streamline software development and ensure interoperability. Additionally, Intel's new Core Ultra 200V series processors, known for efficient AI performance, were launched to lead the AI PC category. Intel is also fostering a strong AI PC ecosystem with numerous partners and applications, targeting to ship over 100 million AI PCs by the end of 2025.

The paragraph outlines Intel's recent advancements in both desktop and enterprise computing. Arrow Lake, launched earlier this month, introduces AI capabilities to desktop and entry workstation platforms. Intel is preparing to launch Panther Lake in 2025, which will be its first CPU using the Intel 18A process, enhancing profitability. In the enterprise market, Intel is focusing on AI systems that optimize performance, flexibility, and cost-effectiveness, with the recent launch of Xeon 6 (Granite Rapids) doubling previous generation performance. Additionally, Intel launched the Gaudi 3 AI accelerator, enhancing efficiency for large language models. The company aims to maintain and strengthen its market leadership, particularly with Xeon CPUs in AI-rich server environments.

The paragraph discusses the challenges and future plans for the Gaudi product line and Intel's business segments. The adoption of Gaudi 3 has been slower than expected, impacting their revenue targets for 2024. Despite this, they see long-term opportunities, particularly for open standard solutions with superior total cost of ownership (TCO). In their networking and telecommunications business (NEX), Intel is simplifying its portfolio, focusing on specific markets, and integrating its Edge business into the Client Computing Group (CCG) to leverage AI on the edge. In networking, they continue to develop Open Source Ethernet solutions. Regarding Intel Foundry, the focus is on regaining process leadership, with Intel 18A showing promising progress and strong early milestones. There is also increased activity and engagement in their foundry services.

The paragraph discusses Intel's recent business developments and successes. Intel is confident in its market position with ongoing partnerships and expanding pipeline of potential wafer designs. It highlights a significant partnership with AWS for new custom chips and mentions two additional design wins from compute-centric companies. Intel also received $3 billion in funding from the Secure Enclave program to produce semiconductors for the US government. The company is restructuring its Foundry Services as an independent subsidiary to improve flexibility and funding opportunities. Additionally, Intel is focusing on unlocking shareholder value, with Altera showing revenue growth and new product introductions aimed at diverse market segments. Overall, Intel aims to improve its competitive position and financial performance.

The paragraph outlines the company's strategic focus on selling a stake in Altera to pave the way for its IPO, with discussions aimed to conclude by early 2025. Mobileye, a leader in advanced driver assistance systems, is being given more autonomy to capitalize on growth opportunities, with recent initiatives focusing on camera-centric AI systems for autonomous driving. The company's Q3 results show a dedication to cost management and profitability improvement, while making tough decisions to optimize business operations. The quarter also demonstrated significant but unsatisfactory progress, indicating a continuous effort for better performance in Q4. The paragraph concludes with David Zinsner noting the third quarter revenue of $13.3 billion, which is an increase from the previous quarter.

The paragraph discusses financial adjustments and impacts on Intel's non-GAAP gross margin, which decreased to 18% due to $3 billion in non-cash impairment and depreciation charges primarily related to Intel 7. These charges reduced earnings per share (EPS) by $0.61. Additional charges amounting to $15.6 billion were excluded from non-GAAP results, including a nearly $10 billion impairment of a deferred tax asset due to cumulative GAAP losses, a $2.6 billion goodwill impairment for Mobileye, and $2.2 billion for employee severance. The severance charge is the only one with a cash impact. Q3 operating cash flow was $4.1 billion, with growth capital expenditures of $6.5 billion, leading to an adjusted free cash flow of negative $2.7 billion. The cash impact of restructuring charges is expected in Q4 2024. Full details will be available in the 10-Q report.

In the quarter, Intel held $24.1 billion in cash and short-term investments while reducing its debt by $2.8 billion and focusing on further debt reduction next year. Intel Products saw sequential revenue growth, with $12.2 billion, despite a slight decline in CCG revenue as customers managed inventory. Meanwhile, DCAI and NEX revenues improved due to increased demand and business recovery. The operating profit for Intel Products reached $3.3 billion, though it faced a $300 million inventory write-down. Intel Foundry's revenue slightly increased to $4.4 billion, but it recorded a significant operating loss of $5.8 billion due to impairment charges. Future expectations include improved operating losses as cost structures and restructuring savings are realized. Mobileye reported $485 million in revenue, with annual guidance unchanged, despite a significant drop in shipments to China. Overall cash generation remained strong, surpassing operating income.

Altera reported a 14% sequential revenue increase to $412 million, driven by improved lead times and better operating margins. For Q4, they anticipate high-single-digit sequential revenue growth and are preparing for a transition to independent warehouse operations. Despite decreased inventory levels for customers, they predict continued inventory normalization into next year. They expect Q4 revenue to range from $13.3 to $14.3 billion, with a midpoint gross margin of 39.5%, a tax rate of 13%, and EPS of $0.12 on a non-GAAP basis. GAAP results will include restructuring charges as part of ongoing cost management, aiming for a 3%-5% annual trend line growth, scalable to 7%-9%. Capital investments for 2024 are projected at $25 billion gross and $11 billion net, with negative adjusted free cash flow due to restructuring and uncertain capital offsets.

The paragraph discusses financial projections and strategic plans for 2025 and beyond for a technology company, likely Intel. It anticipates positive adjusted free cash flow with specific operating and capital expenditures. Market adoption of AI PCs and product positioning are expected to improve, despite potential muted gross margin expansion as product lines increase. The company's strategy focuses on cost structure improvements, returning production to underutilized facilities, and growing noncontrolled income from various divisions. The overall aim is to improve business efficiency and deliver strong shareholder returns, indicating a positive outlook despite acknowledging current profitability challenges. The paragraph concludes with the transition to a Q&A session.

In the paragraph, Ross Seymore from Deutsche Bank asks Intel's CEO, Patrick Gelsinger, about the 18A transition and how external metrics will support confidence in its development. Patrick responds by mentioning progress, including new customer acquisitions such as Amazon and others, while stating that next year won't show significant financial gains from the transition as they are only ramping up late in the year. He emphasizes the qualitative updates on lifetime deal values they’ll provide throughout the year and the impact expected in 2026 as they improve their margin structure. Additionally, John Pitzer prompts Ross Seymore for a follow-up question related to gross margins.

In the third quarter, the company experienced a higher-than-expected gross margin of 41% due to better sell-through of previously reserved inventory. However, this won't recur in the fourth quarter, and additional start-up costs from 18A will also pressure margins, resulting in a projected decline to a 39.5% gross margin. Looking ahead to 2025, while no specific guidance is provided, the company is focusing on AI PCs and its next-generation product, Lunar Lake, which could further affect gross margins due to its integrated memory affecting product costs.

The paragraph discusses Intel’s financial strategy and future improvements. Panther Lake and greater use of EUV wafers are expected to enhance gross margins, starting from 2026, with some improvements in the Foundry business in 2025. Intel is aiming to cut spending by over $10 billion, with $1 billion in cost of sales improvements from increased efficiency in the Intel Foundry business. The new management model and focus on product portfolio enhancement are expected to improve margins long-term. CEO Patrick Gelsinger emphasizes that Intel is in a restructuring phase, focusing on sustainable business models, shareholder returns, and financial discipline to stay competitive.

The paragraph involves a conversation about defect density and its impact on production yields in semiconductor manufacturing. Patrick Gelsinger explains to Timothy Arcuri that the current defect density for the 18A process is below 0.4, which is satisfactory for the current phase of process development but not yet suitable for high-volume production. Gelsinger indicates that as development progresses, defect density must decrease further to reach suitable levels for high-volume manufacturing, which is planned for the second half of the following year. He also notes that current Intel 3 processes are achieving expected defect densities and maturity.

The article discusses Intel's progress in process technology and production, highlighting the ramp-up in Arizona for an 18A node coming online in the second half of the next year. It mentions the first wafers from the volume fab in Arizona expected in Q1 of the following year. Timothy Arcuri inquires about the strategy for Panther Lake and Nova Lake products. Patrick Gelsinger responds that most of the Panther Lake production is transitioning back in-house, with over 70% of the silicon area being handled internally. For Nova Lake, while some SKUs may still be externally leveraged, the majority is also moving in-house. Gelsinger emphasizes Intel's commitment to a "bringing wafers home" strategy, while acknowledging TSMC as a valuable partner.

The paragraph discusses Intel's strategic approach to securing leading-edge wafer capacity. It highlights Intel's commitment to the 18A process and emphasizes the flexibility and resilience of their supply chain and product portfolio. The company's partnership with TSMC plays a significant role, and Intel's "shell ahead" strategy provides the ability to scale production according to market demand. This setup not only supports their product lines but also benefits their Foundry customers. Importantly, by bringing wafer production in-house, Intel improves its margin structure significantly, positioning itself well for future growth.

The paragraph discusses Intel's strategic progress and challenges. While making advancements in technology and seeing momentum in its product lines and Foundry customers, Intel is cautious about providing specific guidance for Q1 due to geopolitical and market uncertainties. They anticipate a typical seasonality of 8% to 10% for Q1 but will update after Q4. Patrick Gelsinger emphasizes Intel's adaptability in managing costs and scaling operations amid global uncertainties. Vivek Arya from Bank of America inquires about Intel’s long-term growth expectations, particularly towards 2025, mentioning a growth trend of 3% to 5%.

In the paragraph, David Zinsner discusses managing business investments for a 3% to 5% growth rate, clarifying that the 39.5% gross margin figure from a specific quarter serves as a starting point for estimating the full year of 2025 but will vary each quarter due to unique circumstances. He acknowledges anticipated headwinds in the second half of 2025 due to changes in product volumes, with improvements expected in 2026. Following this, Vivek Arya asks Pat Gelsinger about Intel's future, questioning whether a CPU-centric approach is sustainable without a competitive AI product and the risk of CPUs becoming commoditized.

The paragraph discusses the increasing role of CPUs, specifically Intel Xeon, in AI computing within data centers and enterprise environments. It highlights the CPU's compatibility with tasks like databases, embedding, and refinement, combined with accelerators or Intel's Gaudi technology for enhanced performance. The text mentions the launch of Gaudi 3 and its positive reception, including a notable win with IBM. Intel's strategy also involves rejuvenating the x86 architecture to support a wide range of applications, including AI, and highlights strong industry interest in this architecture. The paragraph ends with Aaron Rakers from Wells Fargo asking about the size and impact of Intel's Foundry business and its anticipated growth, noting a revenue figure of $4.4 billion in the recent quarter, compared to $77 million in the previous one.

The paragraph discusses Intel's strategy and progress in the external Foundry business. Patrick Gelsinger explains that while the external Foundry sector will only make up a modest portion of Intel's business in the coming years, the company aims for $15 billion in external Foundry revenue by the end of the decade. Although Intel Foundry revenues will primarily come from internal products initially, they have seen growth in the external business, including profitable performance in advanced packaging in Q3. The conversation then shifts to Intel's server CPU market strategy, focusing on stabilizing and recapturing market share with upcoming products like Granite Rapids, Clearwater Forest, and Diamond Rapids.

The paragraph discusses a company's strategic goals and recent progress. The company's main objective is to stabilize and grow its market position, with a focus on holding and regaining market share. Notable achievements include the successful shipment and availability of Xeon 6, Granite Rapids, and Sierra Forest, with significant performance in AI applications. Meanwhile, initiatives like Clearwater Forest and Diamond Rapids are making good progress. The emphasis on AI extends beyond training, highlighting the importance of using, inferencing, and retraining AI models, which are more CPU-centric. The company is leveraging its CPU strength in these areas to align with market trends. Following this discussion, the dialogue transitions to a question directed to Pat about the Foundry and packaging business.

The paragraph discusses the interest in Intel's advanced packaging technology, despite skepticism about their 18A technology. Patrick Gelsinger notes that there is significant interest, but shifting supply chains is challenging and time-consuming. Although packaging doesn't generate as much revenue as wafer design, there is strong momentum and a robust pipeline of activities. Gelsinger highlights that improvements in Intel's quarter-on-quarter performance have been largely driven by advanced packaging, and this area is expected to generate increased external revenue and healthy margins by 2025. He also mentions that their advanced packaging has become a profitable standalone business, contributing positively to Intel's Foundry business over the long term. After this, John Pitzer invites Srini Pajjuri to ask a follow-up question, which is directed toward Dave regarding gross margins.

The paragraph discusses two factors affecting PC gross margins: wafer outsourcing and memory packaging, with the latter having a significant impact on Lunar Lake's margins. Initially, Lunar Lake was intended to be a niche product, but the growing importance of the AI PC market led to increased production volume, significantly impacting the company's overall margins. While this shift poses a margin challenge, the company is pleased with the ability to scale Lunar Lake due to the AI PC market's momentum. Meteor Lake is not affected, with the changes being exclusive to Lunar Lake.

The paragraph discusses strategies related to handling volume memory in the PC industry, highlighting a shift away from using volume memory within the package for future products like Panther Lake and Nova Lake. Instead, they'll utilize more traditional methods by keeping volume memory off-package, improving the margin structure that was impacted in 2025 by Lunar Lake. Despite this, Lunar Lake is considered a valuable product for the growing AI PC segment. Chris Caso from Wolfe Research asks about capital expenditures (CapEx) and operating expenses (OpEx) plans for the coming years, specifically the flexibility in these numbers given new technology investments and lack of substantial revenue growth. David Zinsner responds that their $17.5 billion OpEx plan is firm, with minimal flexibility as they aim to focus investments on key areas.

The paragraph discusses the components and strategy of Capital Expenditure (CapEx) for the company. It describes the three main areas of CapEx: process advancement, shell investment, and capacity investment. The company plans to continue investing in process advancements, but will take a more measured approach to shell investment as they have largely caught up in that area. Capacity investment will be flexible and adjusted based on demand and cash flow management, with the goal of generating adjusted free cash flow. The company is pursuing offsets, including SCIP and investment tax credits, that will impact next year’s financials. Additionally, with the inclusion of an EUV fleet, the company gains flexibility in CapEx allocation across different technologies, moving towards a more normal pace of technological advancements after a rapid period of upgrades.

In the paragraph, Patrick Gelsinger discusses Intel's strategy and rationale for moving to a subsidiary model. This approach aims to achieve greater operational integrity by creating clear separation and improving communication with external customers. It also provides opportunities to manage capital requirements more effectively. Despite exploring strategic options, most of Intel's volumes will still come from its own products. The subsidiary model allows for significant synergies and benefits, particularly in terms of co-development and cash flow management, supporting the notion that Intel can operate as distinct entities but is more effective together.

In this paragraph, Joe Moore from Morgan Stanley asks about the implications of prioritizing x86 in product development. Patrick Gelsinger explains that the company is simplifying their product lines by reducing complexity and the number of SKUs to improve efficiency and profitability. This includes streamlining server and client products, focusing more on integrated graphics rather than discrete ones, and reorganizing their CCG and Edge businesses. These efforts are part of a strategic shift to enhance operational efficiency, maintain strong growth, and achieve a target of $17.5 billion in operating expenses. Moore then indicates he has a follow-up question regarding the focus on x86 leadership.

In the paragraph, Patrick Gelsinger discusses the evolution of the IDM 2.0 model, emphasizing the importance of maintaining a balance between the internal Foundry services and the arm's length relationship with IFS. He highlights the success of executing five technology nodes in four years, enabling a shift from lagging behind to a leadership position in technology. The ongoing financial restructuring is critical for achieving long-term shareholder returns. Gelsinger expresses determination to continue this progress and finish the year strong, with preparations for 2025 underway. The conference concludes with a thank you to participants.

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