Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Intel Corp (INTC, Financial) is accelerating actions to improve profitability and capital efficiency by more than $10 billion in 2025.
- The company is targeting a headcount reduction of greater than 15% by the end of 2025, which will significantly reduce operating expenses.
- Intel Corp (INTC) has introduced a cost-reduction plan that will lower OpEx to approximately $20 billion in 2024 and $17.5 billion in 2025.
- The launch of Panther Lake in the second half of 2025 is expected to improve overall profitability with a more performant and cost-competitive process.
- Intel Corp (INTC) has achieved several important milestones, including the ramp of Intel 4 and Intel 3, and the readiness of Intel 20A for production next quarter.
Negative Points
- Q2 profitability was below expectations, partly due to the decision to quickly ramp Core Ultra AI CPUs.
- The company is suspending its dividend at the beginning of the fourth quarter to prioritize liquidity for strategic investments.
- Intel Corp (INTC) expects gross margins to be moderately weaker sequentially in Q3 due to the ramp of new manufacturing nodes.
- The company is facing headwinds in its more cyclical businesses, including NEX, Altera, and Mobileye, which are trending below original forecasts.
- Weaker-than-expected gross margin in Q2 was due to an accelerated ramp of AI PC products and higher-than-typical period charges related to non-core businesses.
Q & A Highlights
Q: Pat, big picture, are the challenges product issues, market issues, strategic issues, or execution issues? What is the plan if cost cuts don't suffice?
A: This first phase of recovery is well underway. With 18A, PDK 1.0, Panther Lake, and Clearwater Forest powered-on, we are now focusing on building a financially sustainable model. We believe in the IDM 2.0 strategy and are building two world-class companies. The clean sheet exercise has identified many opportunities for financial savings, and we are taking aggressive steps to improve efficiency and profitability.
Q: What impact do the restructuring actions have on your R&D roadmap, long-term external foundry opportunity, and CHIPS Act funding?
A: Our strategy remains intact despite the restructuring. The CHIPS grants are milestone-based, and we are confident in meeting those milestones. The foundry business is seeing momentum, especially in advanced packaging. We are scrutinizing capital investments more carefully and aligning them with market signals. The restructuring actions will not impact our long-term growth targets.
Q: Are there any structural changes to your competitiveness, company structure, or long-term financial targets due to the spending adjustments?
A: We have conducted a clean sheet analysis to benchmark ourselves against world-class foundries and fabless companies. This has uncovered inefficiencies and areas for improvement. We are making structural changes to optimize our business model and improve financial performance. While we are tempering our near-term growth expectations, our long-term targets remain achievable.
Q: How do you feel about your competitive positioning in CCG and DCAI for 2025?
A: We feel very good about our AI PC position and the performance of Lunar Lake. We are making early inroads in AI data centers, and our traditional CPU market is expected to recover. NEX is starting to recover, and Altera is showing optimism for next year. While gross margins will be tempered next year due to Lunar Lake, we expect significant improvements in subsequent years.
Q: Can you explain how June gross margin was worse than expected and the impact of moving from Oregon to Ireland fab?
A: The largest impact was the accelerated ramp of AI PC products and the decision to shift production from Oregon to Ireland. This resulted in higher wafer costs in the near term but will save capital and improve gross margins long term. Other factors included write-offs related to legacy businesses and lower utilization.
Q: How do you execute on the foundry strategy with the lower CapEx?
A: The foundry strategy remains unchanged. We are aligning capital investments with market signals and focusing on capital efficiency. Early success in advanced packaging requires less capital than wafer capacity. We are also aligning foundry capacity with Intel product requirements, bringing tiles home in 2026.
Q: Can you clarify the gross margin headwind from moving production to Ireland and its ongoing impact?
A: The move to Ireland is a significant headwind in the near term, contributing to a 400 basis point impact on gross margins. However, as the Ireland factory ramps, it will become a tailwind, with lower cost per wafer start than the Oregon facility. The challenge next year will be the ramp of Lunar Lake, which has higher external sourcing costs.
Q: Given the cuts, could the foundry business break even sooner than 2027?
A: Our objective is to accelerate profitability, but we still have significant work to do. The steps taken today are significant for operational efficiency. While 2027 remains a good target, we are focused on accelerating the path to profitability.
Q: How do you view the client market and inventory levels for Q3 and Q4?
A: We feel very good about our client position and the momentum in AI PC. We are focused on sell-in and sell-through in the channel and expect above seasonal inventory sell-through in Q4. Our position in the commercial market is strong, and we are entering a corporate refresh cycle.
Q: How are the foundry customers progressing with 18A and 14A programs?
A: The $15 billion in lifetime deal value is committed business. We have seen a flurry of activity with the release of the 1.0 PDK for 18A, and customers are moving from test chips to production chips. We remain confident in our earlier comments and expect meaningful acceleration in advanced packaging.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
