The paragraph is an introduction to Intel Corporation's Fourth Quarter 2024 Earnings Conference Call. It is facilitated by the operator, who informs participants that they will be in listen-only mode and that the program is being recorded. John Pitzer, Corporate Vice President of Investor Relations, introduces the call, noting the availability of the Q4 earnings release and presentation on Intel's website. The call features interim co-CEOs Michelle Johnston Holthaus and Dave Zinsner, who will discuss Intel Products and Intel Foundry, respectively, along with financials and Q1 guidance. The discussion includes forward-looking statements subject to risks and uncertainties and uses non-GAAP financial measures, with more details available in the company's filings.

Michelle Johnston Holthaus reflects on her first two months as interim co-CEO alongside Dave, emphasizing the focus on improving strategy execution and rebuilding credibility through hard work. They are prioritizing targeted investments, simplifying operations, and actively listening to customers to ensure their needs are met. Holthaus highlights positive Q4 results, with revenue, gross margin, and EPS exceeding expectations, underscoring the importance of delivering on commitments and driving innovation to enhance shareholder value. She expresses confidence in Intel's foundation and the continued strength of the x86 architecture and ecosystem.

The paragraph outlines Intel's strategic focus on enhancing execution and prioritizing its business segments to improve outcomes. It emphasizes Intel's strong position in the client edge market, powering the majority of PCs, but acknowledges increasing competition, particularly in AI PC CPUs. The company is motivated by competition to innovate and maintain its market leadership, with plans to ship over 100 million AI PC systems by 2025. Intel's recent showcase at CES demonstrated advancements in enterprise AI CPUs, highlighting their robust ecosystem and partnerships with IT departments and ISVs. Intel aims to strengthen its position as the preferred CPU choice, encouraging migration to Windows 11 and expanding in AI PC consumer markets.

The paragraph outlines the company's strategic plans for strengthening their client and data center offerings. They plan to launch their lead product, Panther Lake, on Intel 18A in late 2025, aiming for strong market performance and better cost margins. In 2026, they'll introduce a new client family, Nova Lake, to enhance competitiveness. For their data center business, they've made progress with the Xeon lineup and plan to launch Clearwater Forest, their first Intel 18A server product, in the first half of next year. They aim to stabilize market share by leveraging their strong ecosystem and reengaging the x86 ecosystem with semi-custom and custom products.

The speaker discusses Intel's position in the AI data center market, noting that while they lead in hosting CPUs for AI servers, they are not yet significantly involved in the cloud-based AI data center market. They are focusing on simplifying their strategy by developing internal test chips like Falcon Shores and concentrating resources on solutions like Jaguar Shores for system-level solutions. The speaker emphasizes the importance of addressing customer needs to lower costs and improve compute efficiency, explaining that AI requires diversified approaches across data center and edge computing. Finally, as Intel Foundry's largest wafer customer, the speaker emphasizes the importance of combining superior products with process technology and insists that Intel Foundry must continuously earn their business.

The paragraph discusses Intel's strategy and progress with its Intel Foundry, emphasizing confidence in the team's ability to support both current and future product plans. David Zinsner highlights Intel 18A's progress and its competitiveness for external customers, noting that trust is crucial for securing foundry contracts. He acknowledges the industry trend of starting with smaller volumes before increasing them as trust builds. Zinsner urges the team to enhance ease-of-porting, IP availability, and foundry methods to accelerate customer engagement.

The paragraph highlights the collaborative efforts between Intel and its suppliers, emphasizing the importance of gaining customer trust as a key priority. Intel 18A design wins validate their strategy, with a healthy pipeline of potential customers. Intel plans to be selective in their deals, focusing on areas where they can significantly contribute to customer success. The paragraph also discusses Intel's momentum in advanced packaging and collaborations with Tower Semiconductor and UMC, which aim to maximize asset utilization for better returns. Financial challenges are acknowledged, with goals to improve financial performance, reduce costs, and achieve break-even operating income for Intel Foundry by the end of 2027. The shift to Intel 18A and more efficient fab operations are expected to drive financial improvements. Long-term, the goal is to generate cash flow that supports capital needs and delivers strong returns. Overall, there's optimism about Intel Foundry's future opportunities.

The paragraph discusses the growing demand for silicon due to AI advancements, emphasizing the need for multiple players in the industry. TSMC is recognized as a leading supplier, while Intel Foundry is highlighted for its significant role, particularly in the U.S., where they invest in R&D and manufacturing. Intel has secured up to $7.86 billion in grants from the U.S. Department of Commerce, already receiving $1.1 billion in Q4 and January. They're also partnering with the Department of Defense on the Secure Enclave project and engaging with the Trump administration to bolster U.S. tech leadership. Intel plans to establish a separate subsidiary for Intel Foundry to enhance governance and explore funding options. The paragraph also touches on Intel's financial performance, citing a 7% sequential revenue increase to $14.3 billion due to growth in various sectors.

In the fourth quarter, the company achieved a non-GAAP gross margin of 42.1%, surpassing guidance due to higher revenue, improved costs, and initial CHIPs grants, though partially offset by inventory reserves. Earnings per share exceeded expectations, reaching $0.13. Despite positive operating cash flow of $3.2 billion, it decreased sequentially due to restructuring cash outflows. Capital expenditures were $6.3 billion, leading to a negative free cash flow of $1.5 billion. Annual revenue was $53.1 billion, a 2.1% decline, with decreased contributions from Mobileye, Altera, and Foundry Services. The annual gross margin fell to 36%, and full-year EPS was negative $0.13 due to lower revenue and increased charges. The company generated $8.3 billion in operating cash and made $24 billion in gross capital investments, partially offset by $13.4 billion in SCIP contributions and grants.

In the reported quarter, Intel achieved an adjusted free cash flow of $2.2 billion and concluded the year with $22.1 billion in cash and short-term investments. The Intel Products segment saw a 7% sequential increase in revenue to $13 billion, driven by a slowdown in inventory digestion and potential customer hedging against tariffs. The Client Computing Group and Data Center & AI segments also reported sequential growth. Network and Edge revenue rose 7.5% sequentially, reflecting a return to normal buying patterns. Intel Foundry's revenue increased 3% sequentially, with a notable rise in EUV wafer revenue. Although the foundry faced a Q4 operating loss of $2.3 billion, this was a sequential improvement due to Q3 impairments. Mobileye and Altera segments reported growth in revenue and operating profits. The company forecasts sequential revenue decline for Altera in Q1 but continues to progress towards a potential IPO.

The paragraph outlines Intel's financial expectations and challenges for the first quarter of 2025, predicting a revenue drop of 11% to 18% sequentially, affected by seasonal weakness, macroeconomic uncertainties, and competition. It forecasts revenue between $11.7 billion and $12.7 billion, with gross margins at about 36% and a break-even EPS on a non-GAAP basis. The Intel Products segment is expected to see revenue declines, while Intel Foundry revenue should remain stable, aided by an increased focus on EUV wafers and advanced packaging. Gross margins for Intel Products are anticipated to decrease in 2025 due to a mix shift, although Intel Foundry margins are expected to improve. Operating expenses are targeted at $17.5 billion for 2025, with reductions planned for 2026. The paragraph also projects non-controlled income (NCI) to net to approximately zero in Q1 2025, but to rise to between $500 million and $700 million during the year, with further growth expected in 2026 and beyond.

The company expects its 2025 gross capital investments to be around $20 billion, at the lower end of its previous guidance, due to capacity adjustments in Ohio and Ireland and better utilization of construction-in-progress. This strategy aims to efficiently meet demand while reducing spending. The anticipated 2025 net capital expenditures are between $8 billion and $11 billion, with offsets from government incentives, tax credits, and partner contributions. De-leveraging remains a priority with a focus on lower CapEx, increased operational cash flow, and unlocking value from non-core assets. New segment reporting will be introduced with Q1 earnings, including reallocations of business segments. Although Q4 closed a difficult year, the company aims to improve profitability and competitive positioning, with leadership focused on strengthening Intel Products and Intel Foundry. The board is also focused on finding a permanent CEO.

The paragraph is a part of a Q&A session where Ross Seymore from Deutsche Bank asks Michelle Johnston Holthaus about Intel's strategies, specifically regarding their product Granite Rapids and the DCAI (Data Center and AI) segment. Michelle explains that there are no quick fixes and estimates a one-to-two-year period of consistent execution to improve Intel's roadmap and regain customer enthusiasm. Granite Rapids is noted as a positive step towards closing the competitive gap, with customer excitement and increasing volume. However, she acknowledges there's still work to be done, even as they look forward to products like Diamond Rapids by 2026. She also touches briefly on the Clearwater Forest products without providing detailed updates. Michelle categorizes the data center market into two segments as part of her overview.

The paragraph discusses the expected market entry and challenges of Intel's P-core and E-core products, Granite Rapids and Clearwater Forest, respectively. Clearwater Forest is projected to launch in the first half of 2026, while Granite Rapids faces delays due to complex packaging but is still expected to perform well. The discussion shifts to financial aspects, where David Zinsner addresses a drop in gross margins for the first quarter, primarily due to a revenue decline of over $2 billion. Unexpected factors that improved fourth-quarter margins were a revenue beat and the signing of a CHIPS agreement, allowing Intel to accrue grant benefits against costs.

In the first quarter, Intel's product gross margins are under pressure, particularly due to the higher costs associated with Lunar Lake, mainly due to memory and packaging. Intel is selling memory at the same price it's purchased, affecting margins negatively. The situation is expected to remain challenging throughout the year. Improvement is anticipated next year with Panther Lake's volume production and other products, leading to better margins. Intel Foundry's margins are also expected to improve as the mix of EUV wafers, which have better pricing and costs, increases. Additionally, Intel is implementing a $10 billion cost reduction strategy, but this won't impact the first quarter. Margins are expected to improve in the latter half of the year with the introduction of Panther Lake and the sale of higher margin 18A wafers. The benefits will become more significant with next year's increased volume. The paragraph concludes with John Pitzer and the operator preparing for the next question from Stacy Rasgon of Bernstein Research.

The paragraph discusses the company's financial outlook for the upcoming quarter, noting that all three product segments are expected to decline equally due to macroeconomic caution and typical seasonality. The discussion highlights increased competition, particularly in the client and data center markets, which is affecting margins and pricing. The company plans to address market share declines by focusing on their new product, Lunar Lake, despite it having pressured margins due to production costs. There's an emphasis on actively competing in both the client and data center segments to maintain or regain market positions.

The paragraph discusses a strategy update under new co-leadership, with an emphasis on being more conservative with capital expenditure in line with not spending ahead of success. The company plans to reduce its CapEx guidance and aims to exceed expectations for customers, investors, and stakeholders. Despite this cautious approach, the commitment to building a world-class foundry remains, focusing on becoming a key player in leading-edge semiconductor manufacturing, particularly within the U.S. The strategy aligns with U.S. government interests and seeks to optimize returns for shareholders.

In the paragraph, Dave discusses the company's strategy to become free cash flow positive by 2025, despite current uncertainties and weaknesses in Q1. In 2024, the company managed to approach zero in free cash flow deficit by focusing on improving cash flow from operations and adjusting capital expenditures. For 2025, the company plans to continue prioritizing cash flow from operations, manage working capital effectively, and leverage over $10 billion in anticipated offsets. Additionally, they aim to monetize non-core businesses, which should aid in reducing leverage. They are making progress with Altera, expecting to share updates next quarter that could generate cash for deleveraging. The conversation then transitions, with Joseph Moore from Morgan Stanley asking about the tempered expectations for Falcon Shores.

Michelle Johnston Holthaus discusses the steps taken to become competitive in the market, emphasizing the need to engage with teams and customers to understand market demands. She mentions the Gaudi product and the lessons learned from it, highlighting the importance of delivering complete rack-scale solutions. Holthaus introduces Jaguar Shores as a means to achieve this goal, with support from Falcon Shores for system integration. She also notes that customers value tailored solutions and plans to leverage Intel's diverse range of products, like CPUs, GPUs, ASICs, and FPGAs, to meet market needs and explore opportunities for innovation. Joseph Moore is invited to follow up with additional questions.

In the paragraph, David Zinsner discusses the impact of tariffs on customer behavior, noting that some customers have ordered more than needed, likely due to tariffs causing a pull-forward of revenue from the first quarter to the fourth quarter. He specifically mentions this behavior in the Asian region but finds it difficult to predict beyond the current quarter due to uncertainties about future tariff plans. Additionally, Timothy Arcuri asks about gross margins, and Zinsner clarifies that the company's incremental margin improvement target is around 60% during this period of adjusting to one-time events, suggesting that improvements could be better once conditions stabilize.

The paragraph discusses the financial dynamics and strategies for 2025 and 2026, focusing on margin pressures related to the product Lunar Lake and anticipated shifts in volume with Panther Lake. In 2025, expected margins are adjusted to 40-60%, with improvement anticipated in 2026 to over 60%. Tim Arcuri questions the CapEx adjustments, and David Zinsner explains that CapEx reductions to $20 billion in 2025 are due to better asset utilization rather than external purchases. This approach aims to improve return on assets and invested capital, using existing balance sheet capital rather than engaging in complex financing. CapEx is described as including both equipment orders and cash disbursement timing.

The paragraph discusses a question from Vivek Arya about Intel's position in the data center server CPU market compared to its x86 competitors. He inquires whether Intel's recent performance gains are due to design improvements or manufacturing advantages and whether outsourcing more production to external foundries could help regain market share, particularly in the cloud sector. Michelle Johnston Holthaus responds by acknowledging that while Intel's Granite Rapids has made progress in closing the competitive gap, there is still work to be done, particularly with the upcoming Diamond Rapids. She emphasizes the importance of having the right product and process timely and mentions that Intel currently conducts about 30% of its manufacturing externally with various partners.

The paragraph discusses the complexity and challenges of modeling non-controlling interest (NCI) in financial forecasts. Vivek Arya questions how Intel's decisions, such as outsourcing or insourcing manufacturing processes and managing stakes in companies like Mobileye and Altera, impact NCI. Dave Zinsner explains that this impact depends on various factors, such as specific asset shares and production levels in SCIPs (Strategic Capacity Investment Programs). These variables make it difficult to predict NCI accurately, as selling stakes in certain companies can exacerbate NCI due to changes in share ownership and production dynamics.

In the paragraph, Ben Reitzes from Melius asks about David Zinsner and his team's interactions with the Trump administration regarding semiconductor manufacturing. David Zinsner, the co-CEO, explains that they have been actively engaged with the administration since the election. Their discussions focus on the administration's positive outlook towards revitalizing U.S. semiconductor manufacturing. Zinsner mentions their ongoing R&D efforts in the U.S., which aligns with the administration's goals of creating high-wage, high-tech jobs in the country.

The paragraph discusses the importance of secure manufacturing for the Department of Defense and the company's ongoing engagement with the Trump administration to achieve U.S. goals. It then shifts to a financial discussion where Ben Reitzes inquires about the company's gross margins, particularly in the context of aggressive pricing for server and client CPUs, and reliance on outsourcing to TSMC. David Zinsner responds, noting competitive pressures on product costs, particularly due to Lunar Lake, with limited improvement expected until the arrival of Panther Lake, which is anticipated to enhance cost structure and competitiveness. Meanwhile, the Foundry business is expected to improve over the year, especially with Panther Lake's introduction.

The paragraph discusses improvements in the cost and margin structures of Intel's foundry business, particularly with the transition to 18A technology and EUV wafer production. The speaker suggests that these advancements will enhance margins, estimating a 40% to 60% fall-through based on projected revenue. Aaron Rakers from Wells Fargo inquires about the EUV wafer mix, noting progress since 2023 and seeking a framework for success through 2025. David Zinsner responds, indicating that the transition to EUV wafers significantly improves gross margins due to the threefold increase in ASP and cost, though he hesitates to predict the exact EUV percentage by the year's end.

The paragraph discusses Intel's progress and financial considerations involving its foundry operations and the use of new technologies like EUV (extreme ultraviolet) lithography. It mentions different product lines, such as Granite Panther Lake and Meteor Lake, and the expected increase in EUV wafer production by 2025. There are questions from analysts regarding financial impacts, including SCIP and contributions from Mobileye and Altera, considering these factors in non-GAAP EPS calculations. David Zinsner addresses questions about achieving foundry breakeven by 2027, emphasizing that internal wafer production, particularly EUV wafers, is crucial for reaching this goal due to their higher margins.

The paragraph discusses the strategic shift in a company’s P&L structure to enhance efficiency and focus on return on invested capital (ROIC) for its foundry business. This shift has led to a noticeable transformation in meetings and business operations, aiming to achieve profitability by 2027. The company plans to leverage both internal and some external customers, with optimism about outperforming in attracting external clients if their 18A technology proves successful. Additionally, a discussion occurs about the plan to bring 70% of die production in-house, leaving some flexibility in decision-making regarding production levels based on needs. Michelle Johnston Holthaus is highlighted as the decision-maker for product development strategies.

The paragraph discusses Intel's strategic approach to product development and market positioning. The company decided to use the 18A process for its Panther Lake product, as it aligns with their performance and yield objectives. For their next-generation product, Nova Lake, they plan to use a mix of processes to optimize their market success. The focus is on ensuring customer success, which in turn benefits Intel by increasing wafer production and Intel Foundry use. The company emphasizes balancing its product portfolio for both client and data center segments. Additionally, Intel executives express gratitude to call participants and announce upcoming investor conferences and an Intel Foundry user event.

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