Intel (INTC) Q1 2025 Earnings Call Transcript

Image source: The Motley Fool. DATEThursday, Apr 24, 2025CALL PARTICIPANTSLip Bu Tan: Chief Executive OfficerDavid Zinsner: Chief Financial OfficerMichelle Johnston Holthaus: CEO of Intel ProductsJohn Pitzer: Corporate Vice President, Investor RelationsRISKSUncertain macroeconomic environment due to shifting trade policies, persistent inflation, and increased regulatory risk could impact customer buying patterns and TAM.Capacity constraints on Intel 7 node expected to persist "for the foreseeable future," potentially limiting ability to meet demand for older-generation products.Competitive pressures in data center, particularly from ARM in AI head nodes, may challenge market share stabilization efforts.Need a quote from one of our analysts? Email [email protected]Q1 Revenue: $12.7 billion, at high end of guidance range, driven by better-than-expected Xeon sales.Q1 Non-GAAP Gross Margin: 39.2%, approximately 3 percentage points above non-GAAP guidance due to stronger Raptor Lake demand and improved Meteor Lake costs.Q1 Non-GAAP EPS: $0.13, exceeding breakeven guidance on higher revenue, stronger gross margin, and lower operating expenses.2026 OpEx Target: Set at $16 billion, reflecting ongoing cost reduction efforts.2025 Gross CapEx: Driven by operational efficiencies and better utilization of assets under construction.Altera Divestiture: 51% stake to be sold to Silver Lake Partners for $4.4 billion in net cash proceeds, with the transaction expected to close in the second half of 2025, valuing Altera at nearly $9 billion.Panther Lake: First SKU planned for launch by the end of CY2025.Intel 18A: Ramped up in February 2025 to support the Panther Lake launch.SUMMARYIntel's new CEO Lip Bu Tan outlined a strategy to streamline operations, reduce organizational complexity, and refocus on core client and server businesses while developing new AI-focused products. The company is aiming to improve product competitiveness and execution.Management is implementing a four-day-per-week return to office policy effective Q3 2025 to boost collaboration and innovation.Intel plans to monetize non-core assets, including the Altera divestiture, expected to close in the second half of 2025, and potential sales from the Intel Capital portfolio.The company is experiencing stronger demand for older-generation products (N-1, N-2) due to economic uncertainty and OEM pricing strategies, as macroeconomic concerns and tariffs influence inventory decisions.Intel's AI strategy will focus on emerging areas like reasoning models, agentic AI, and physical AI, with emphasis on edge and inference applications.INDUSTRY GLOSSARYAT and A (Intel 18A): Intel's advanced process technology node, crucial for upcoming Panther Lake processors.Panther Lake: Intel's next-generation client processor, scheduled for initial release in late 2025.Granite Rapids: Upcoming data center processor expected to drive server market growth.IPU (Infrastructure Processing Unit): Specialized processors for data center infrastructure offload and acceleration.Full Conference Call TranscriptOperator: Thank you for standing by, and welcome to the Intel Corporation First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I would like to introduce your host for today's program, John Pitzer, Corporate Vice President, Investor Relations. Please go ahead, sir.John Pitzer: Thank you, Jonathan, and good afternoon to everyone joining us today. By now, you should have received a copy of the Q1 earnings release and earnings presentation, both of which are available on our Investor Relations website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I am joined today by our CEO, Lip Bu Tan, and our CFO, David Zinsner. Lip Bu will open with comments on our first quarter results as well as some initial observations, priorities, and actions that he is driving. Dave will then discuss our overall financial results, including second quarter guidance. We will then transition to answer your questions. Before we begin, please note that today's discussion contains forward-looking statements based on the environment as we currently see it and as such, are subject to various risks and uncertainties. It also contains references to non-GAAP financial measures that we believe provide useful information to our investors. Our earnings release and most recent annual report on Form 10-Ks and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures. With that, let me turn things over to Lip Bu.Lip Bu Tan: Thank you, John. And let me add my welcome. I joined Intel Corporation five weeks ago. The reason I am here is simple. I love our company. I saw the challenges we were facing and I could not sit on the sidelines knowing I had the opportunity to turn things around and put us back on the path to gain market share and drive sustainable growth. Q1 was a step in the right direction. Driven by Dave and Michelle's leadership, we delivered revenue, gross margins, and EPS above our guidance. I want to thank them both as well as our teams for the good execution, especially with the ongoing macroeconomic uncertainty. Our goal now is to build on this progress. But it will not be easy. There are many areas we need to improve, and there are no quick fixes. We must remain laser-focused on execution. One of my biggest learnings so far is that we need to fundamentally transform our culture and the way in which we operate. Organizational complexity and bureaucracies have been suffocating the innovation and agility we need to win. It takes too long for decisions to get made. New ideas and people who generate them have not been given the room or resources to incubate and grow. The unnecessary silos have led to bad execution. I am here to fix this. I am taking swift actions to simplify the way we do business and drive transparency and accountability across the company. We will empower smaller teams to move faster and make better decisions, and we will significantly reduce the number of layers that get in their way. As a first step, I have flattened the structure of my leadership team. All critical product, manufacturing, and GNA functions, which were spread over two to three layers, are now directly reporting to me. This will allow me to get closer to our product and engineering groups and work directly with them to close the gaps with competition more quickly. I will apply the same streamlining approach across the company with a focus on empowering our engineering talents to create great products and make it easier for our customers to do business with us. To accelerate this simplification, we are taking more cost out of the business. We are lowering our calendar 2025 and calendar 2026 OpEx targets. We now expect OpEx of $17 billion this year and $16 billion next year. In addition, as we continue to identify ways to operate our manufacturing network more efficiently, I have directed our teams to find an additional $2 billion of savings in our gross CapEx, taking our target for this year to $18 billion. We will continue to take a closer look at our existing factory footprint to ensure that we are making the most efficient use of our installed capacity before committing to any additional spending. I will continue to make the needed investment to reignite innovation even as we reduce our overall expenses by minimizing projects and programs that have been taking attention away from our core client and server business. This will include revitalizing our engineering core and rebuilding our engineering talent pool with urgency by promoting strong leaders internally, bringing back critical lost talent, and recruiting new people. In addition, we are mandating a four-day-per-week return to office policy effective Q3 2025. I know firsthand the power of teamwork, and this action is necessary to reinstill a more collaborative working environment, improving efficiency, and boosting innovation. By eliminating inefficiencies and transforming how we do business, I strongly believe we can reduce our cost while securing our future. Many of you have asked about my longer-term strategic plan. It is an appropriate question. It is a little bit too soon for me to provide all the details, but let me share with you my priorities. First, the best products always win. And it is very important that we refocus our core franchise to start building best-in-class products again. We have a good foundation. Our ecosystem in client and data center is valuable and durable, and we still maintain a large market share in both. My focus will be ensuring that our team builds products that are highly competitive and meet the needs of our customers as we enter a new era of computing defined by AI agents and reasoning models. To achieve this, we are taking a holistic approach to redefine our portfolio to optimize our products for new and emerging AI workloads. We are making necessary adjustments to our product roadmap so that we are positioned to make the best-in-class products while staying laser-focused on execution and ensuring on-time delivery. However, I want to emphasize that this is not a quick fix here. These changes will take time. Our goal is to become the platform of choice for our customers. This requires us to radically evolve our design and engineering mindset and anticipate the needs of our customers well in advance. I have received direct feedback from many of our largest customers, who are also close personal friends. I am taking this feedback to heart and using it to inform and change our approach to product and platform design. Second, we need to refine our AI strategy with a focus on emerging areas of interest. My experience helping successfully fund and incubate many startups in this space provides unique insights that we will leverage in these funds. Our goal will be to take our integrated system and platform view to develop full-stack AI solutions that enable more accuracy, power efficiency, and security for our enterprise customers. Our goal will be to enable the next wave of computing defined by reasoning models, agentic AI, and physical AI. Third, we need to build trust with foundry customers. We have a lot of important building blocks in place, including the ramp of Intel 18A in February to support the launch of our first Panther Lake SKU by year-end, with additional SKUs coming in February. However, I know from my years at Cadence Design that success in the foundry business requires more than process technology manufacturing capabilities alone. It is first and foremost a customer service business built on the foundational principle of trust. And we need to instill a customer service mindset across our foundry business. Success in foundry relies on recognizing that each customer uses different design tools, methodologies, and styles. As a foundry, we need to ensure that our process technologies can be easily used by a variety of customers, each with a unique way of building their products. To do this, we are more rapidly embracing industry-standard EDA tools and best design practices. Here again, there is no quick fix, but we will make the necessary changes to our roadmap to deliver on the commitments we make to our foundry customers. We must learn to delight our customers by building wafers that meet their required power, performance, area, cost, quality, yield, reliability, and on-time schedule. While we are currently focused on delivering Intel 18A, we are also working closely with customers to define the critical KPIs to ensure on-time delivery of Intel 14A. Lastly, we need to strengthen our balance sheet. Our business is capital-intensive, and we have important investments to make at a time when our financial performance is not where it needs to be. This means we need to be prudent with capital. In addition to new targets of OpEx and CapEx, we will also look to further monetize non-core assets. I am very pleased to have Silver Lake as an investor in Altera and welcome on board Raghav Hussein to help drive the business to its potential. In addition, we have made the decision not to spin off Intel Capital but to work with the team to monetize our existing portfolio while being more selective on new investments that support our strategy. We need to get our balance sheet healthy and start the process of deleveraging this year. As we are building the new Intel, you can expect us to stay humble, drive the necessary changes, to delight our customers. My credo has always been to under-promise and over-deliver, and I will not be satisfied until we regain the trust of our customers, putting the company on a sustainable path of gaining shares and growing revenue, and delivering consistent returns for our shareholders. With that, I will turn it over to Dave.David Zinsner: Thank you, Lip Bu. Our Q1 results mostly reflected our view entering the year that our two biggest markets were poised for growth. On the client side, the end of service for Windows 10, the expected growing adoption of AI PCs, and an aging installed base following the COVID era refresh pointed to a PC TAM growing 3% to 5%. Similarly, on the traditional server side, delayed infrastructure upgrades driven by the rapid adoption of AI servers in 2024 supported double-digit CPU core growth this year on a roughly flat unit. More recently, the economic landscape has become increasingly uncertain driven by shifting trade policies, persistent inflation, and increased regulatory risk. While we have yet to see a meaningful change in customer buying patterns, we think it prudent to manage the business with a level of conservatism going into the second half of the year. First quarter revenue was $12.7 billion, coming in at the high end of our guidance range, driven by better-than-expected Xeon sales. Similar to Q4 2024, we believe Q1 revenue benefited from customer purchasing behavior in anticipation of potential tariffs, it is difficult to quantify the magnitude. Non-GAAP gross margin was 39.2%, approximately three percentage points above our guidance on much stronger-than-expected demand for Raptor Lake combined with improved cost for Meteor Lake. While we continue to see the mix of AI PCs growing throughout the year, the rate of growth off a lower-than-expected Q1 will be lower. We delivered first-quarter earnings per share of 13¢ versus our guidance of breakeven EPS driven by higher revenue, stronger gross margin, and lower operating expenses. I was particularly pleased to see our spending down $400 million sequentially and $700 million year over year as we continue to focus on optimizing our cost structure. Q1 operating cash flow was $800 million. We had gross CapEx of $6.2 billion with offsets of $1.7 billion in the quarter, resulting in an adjusted free cash flow of negative $3.7 billion. We ended the quarter with a cash balance of $21 billion and received $1.1 billion from CHIPS grants, and $1.9 billion for the final close of our NAND business sale to SK Inox. Moving to segment results for Q1. As previewed on our Q4 2024 earnings, we updated our segment reporting for Q1 2025. Details can be found in the appendix to our earnings deck and in our Q1 2025 10-Q. The following commentary reflects the updated segmentation and accompanying recasted 2024 financials. Intel products revenue was $11.8 billion, down 10% sequentially but above our expectations. CCG revenue was down 13% quarter over quarter below typical seasonality and in line with our expectation with higher-than-expected volumes, offset by product mix and competitive pressure. DCAI revenue was down 5% sequentially and above expectations driven by hyperscaler demand for host CPUs for AI servers, and storage compute. Operating profit for Intel products was $2.9 billion, 25% of revenue, and down $632 million quarter over quarter on lower revenue, partially offset by reduced operating expenses. Intel Foundry delivered revenue of $4.7 billion, up 8% sequentially on pull-ins of Intel seven wafers and increased advanced packaging services. Intel foundry operating loss in Q1 was $2.3 billion, roughly flat quarter over quarter and in line with expectations. Structural cost improvements were offset by startup costs associated with the ramp of products on Intel 18A. Turning to all other, revenue came in at $943 million, and was down 15% sequentially, slightly above expectations. The three primary components of all other are Mobileye, Altera, and IMS. Collectively, the category delivered $103 million of operating profit. As Lip Bu stated, we announced on April 14 our intention to sell 51% of Altera to Silver Lake Partners for an almost $9 billion valuation, with Intel receiving net cash proceeds of $4.4 billion. We believe the value of our remaining 49% stake in Altera will grow over time through our partnership with Silver Lake, and with the addition of Raghav Hussein as the CEO. We expect this deal to close in the second half of 2025, at which point we expect to deconsolidate Altera from our financial results. Now turning to guidance. Historically, average sequential growth in Q2 has been roughly flat with Q1. However, the very fluid trade policies in the US and beyond as well as regulatory risks have increased the chance of an economic slowdown with the probability of a recession growing. This makes it more difficult to forecast how we will perform for the quarter and for the year even as the underlying fundamentals supporting growth I discussed earlier remain intact. While we have offsets including a global highly diversified manufacturing footprint to help mitigate tariffs, we will certainly see costs increase, and we feel it prudent to anticipate a TAM contraction. The biggest risk we see is the impact of a potential pullback in investment and spending as businesses and consumers react to higher costs and the uncertain economic backdrop. As a result, we are forecasting a wider-than-normal Q2 revenue range of $11.2 to $12.4 billion, down 2% to 12% sequentially. Within Intel products, we expect DCAI to decline at a faster rate than CCG. We expect Intel foundry revenue down quarter over quarter due to pull-ins to Q1, lower wafer and advanced packaging volume, and capacity constraints in Intel seven, which we expect to persist for the foreseeable future. For all other, expect revenue for the sum of those parts to be roughly flat sequentially. At the midpoint of $11.8 billion, we expect a gross margin of approximately 36.5% on lower revenue and mix to our outsourced and lower margin client products with a tax rate of 12% and breakeven EPS all on a non-GAAP basis. As you think about the full year, we recommend you start by using the last ten-year seasonality to model sequential changes in revenue. But be mindful of the significant uncertainty in the market today, especially due to the potential for meaningful tariffs and tight supply on our older nodes. We expect non-controlled income or NCI to net to zero in Q2, and for the full year to be approximately $500 million on a GAAP basis. NCI is still expected to grow in fiscal year 2026, to an updated range of $1.3 to $15 billion on a GAAP basis and meaningfully increase further in future years. As Lip Bu discussed earlier, we are simplifying our organizational structure and the way we work across Intel Corporation so that we innovate faster and adapt more quickly where needed to better serve our customers. As a result, we now expect 2025 OpEx of $17 billion, $500 million lower than prior expectations with a 2026 OpEx target of $16 billion. We are likely to have restructuring charges associated with these actions, some of which may be included in our non-GAAP results. Since we have not yet estimated these charges, they are not included in our guidance. These spending reductions will be driven by numerous broad-based transformation activities. Key 2025 focus areas will be refocusing our portfolio, eliminating organizational complexity, transforming our engineering functions, and continuing to drive to leading SG&A efficiency. As Lip Bu stated, we anticipate our 2025 gross capital investment will now be approximately $18 billion, which is below our previous guide of $20 billion, reflecting further operational efficiencies, and better utilization of our construction in progress. While gross CapEx is down, we maintain our range for 2025 net CapEx to be approximately $8 to $11 billion due to uncertainty regarding the timing of the US government fulfilling their obligations in our CHIPS agreement. Beginning the process of deleveraging our balance sheet in 2025 remains a top priority for us, as evidenced by our lower OpEx and CapEx targets and the value unlock across our non-core assets. I will wrap up by saying that Q1 was a solid quarter to start even as the rest of the year is more uncertain. We will closely manage what is in our control and react quickly as the environment evolves. I am encouraged by Lip Bu's leadership and on enhancing our competitive position, improving our balance sheet, setting us on a path to deliver consistent returns to our shareholders. With that, let me turn the call back over to John to begin the Q&A.John Pitzer: Thank you, Dave. We will now transition to the Q&A portion of our call. Michelle Johnston Holthaus, CEO of Intel products, will be joining Lip Bu and Dave during the Q&A session. As a reminder, we would ask that each of you ask one question and a brief question where applicable. With that, Jonathan, can we take the first question, please?Operator: Certainly. And our first question comes from the line of Ross Seymore from Deutsche Bank. Your question, please.Ross Seymore: Hi, guys. Thanks for letting me ask the question. Lip Bu, welcome to Intel. Lip Bu, the first question is for you. You talked a lot about increasing the flexibility and speed at Intel and, you know, unfortunately, having to shrink the headcount to do so. How do we balance fixing the roadmap with also filling the foundry and making sure you have the unit volumes there? It seems like the flexibility and speed goals would be more quickly adopted and capitalized by going to foundry. But you have the need to fill your own Intel. So balancing the internal product roadmap versus the Foundry side of things is basically the question.Lip Bu Tan: Yeah. Ross, thank you so much for the questions. So a couple of things. One is clearly the approach is basically to flatten the organization, to the number of layers, and so that we can really focus on the right products and then deliver the customer the solution. And then in some of the product and the roadmap, I think it clearly we like to focus on what is the killing product that we want to have. And a laser focus on making sure that we deliver on time on the performance and then the, you know, the power so that make sure that we meet the customer requirement. And then in terms of the foundry, clearly, you know, AT and A is very important for us. For Panther Lake. And, you know, secondly, I think we clearly one by one, improving the yield, the reliability, and so that our internal customer can use of that. I think from the product side, they have to do the best they can now depend on whether it is inside or outside. And then drive the performance of the products.John Pitzer: Ross, do you have a follow-up question?Ross Seymore: Yeah, I did have one for Dave. Dave, the gross margin side of things, you talked a little bit about the slope for the rest of the year. But especially given the strategic changes that Lip Bu is putting into place, the cost-cutting and the OpEx side of things, and the lower CapEx that you talked about. Can you just talk about some of the puts and takes on gross margin if you think about 2025 as a whole and maybe even 2026? What are some of the goals that you have?David Zinsner: Yeah. Sure, Ross. And I will qualify this by saying, you know, it is a relatively dynamic industry out there right now given the tariffs and the implications on what that might look like from our TAM and from the macro. So I am saying this with, you know, some murkiness as it relates to the full-year picture. I would just say that when we look out through the year, we do expect to see our mix on the client side move more to, you know, the Lunar Lake and so forth. And as you know, Lunar Lake's margins are more under pressure given the memories and package, and so that makes, you know, the accounting look make it look a little funky. So that will be a headwind to our margins on a go-forward basis. And in addition, when we look at 18A, we are going to be ramping that through the year. There are startup costs associated with that bringing that up in Arizona. So that is always going to put some pressure on gross margins through the year as well. I think as you get into '26, things start to go the other direction, you know, Panther Lake will be ramping more in volume next year. It is a better margin product than Lunar Lake just on the, you know, on an apples-to-apples basis, but on top of that, you know, as you know, we have 18A, on Panther Lake, so it brings the wafers back into the fabs, and we get the margin stacking benefit of that on a kind of consolidated basis. So we, you know, we would expect next year to look better. Of course, all of that is, you know, subject ultimately a lot of what is reflected in the margins is how we do on the top line side, and so, you know, we have to sort through, you know, how tariffs impact us. You know, I think from a tariff perspective, you know, this year could be choppy depending on what ultimately is settled across the US and abroad. But we do have a global supply chain. So we do have the ability to flex to mitigate a lot of the headwinds we face. It is just we cannot, obviously, turn this stuff on a dime. It is going to take us time to, you know, optimize the network to what the rules are, you know, in terms of tariffs.John Pitzer: Thank you. Thanks, Ross. Can we have the next question, please?Operator: Certainly. And our next question comes from the line of Timothy Arcuri from UBS. Your question, please.Timothy Arcuri: Thanks a lot. Dave, can you help us just also on gross margin? Can you help us with sort of what a clean number is for March? You guided 36%, but that was supposed to have some COGS headwinds from the way you accounted for the grants, but it came in at 39. So sort of what is the clean number for March? And then also, you said that the Q1 number would be the trough. So you know, I know you are guiding Q2 to thirty-six five, but it, like, is could it go lower than what you are guiding?David Zinsner: Yeah. Yeah. I mean, obviously, we thought Q1 would be a trough, and it turned out to be better. So that, you know, that put some pressure on 2Q now on a relative basis. And like I said, you know, the tariff dynamics do kind of change the outlook through the year, so that is an additional pressure point for gross margins through the year. In terms of the margins for Q1, you know, cleaning that out, clearly, the biggest benefit to the gross margins was the beat on the top line. We, you know, kind of handedly beat the top line. That helped out a lot. In addition, we did better or we had more of our volume come from Raptor Lake versus Lunar Lake. And so that was mix beneficial to gross margins. And, you know, and then we did, I think, a little bit better job in terms of just managing spending. And so forth that that helped out. But the two bigger components were the higher revenue in Raptor Lake. I think if you strip those two things out, we would have been much closer to the guide.John Pitzer: Tim, do you have a follow-up?Timothy Arcuri: I do. Yeah. So, Lip Bu, I know the prior policy had been to not announce new, you know, third-party foundry customers. How do you think about that? And how can you update us on sort of what you are tracking? Is there anything to help believe that maybe you can add a tier-one customer and maybe this year, you know, if not sooner, I know that they want, you know, want some power improvements on AT and A. But can you kind of talk about that? Thank you.Lip Bu Tan: Sure. Thanks, Tim. I think the priority one for us is for Intel Foundry is ramping our internal customer, like the Panther Lake I mentioned earlier. And then the next step is basically building the trust with our foundry customer and, you know, the PDK, the schedule, you know, to really make sure that we are really robust on that. And then in terms of the process technology, the priority is really focused on yield reliability, and also I think it is very important to understand this is a customer service mindset so that, you know, customers have different design tools, methodology styles, want to make sure that we really do the pattern matching so that we really optimize for their solution they want to drive. So I think it is kind of one, two steps, and then we would really continue to drive the efficiency and then so that we can really scale the business.John Pitzer: Thank you, Tim. Jonathan, can we have the next question, please?Operator: Certainly. And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question, please.Joseph Moore: Great. Thank you. So a number of elements in your letter and in your comments about kind of improving product execution. Guess five weeks into it, can you give us your assessment of Panther Lake and Clearwater Forest in the 1880? Alright. Portfolio and give us a sense of, you know, are those leadership products? Do you still have work to do to get to the leadership position that you want to have?Lip Bu Tan: Yeah. Let me start. I think Michelle will chip in. First of all, I think clearly our laser focus on execution. And in terms of delivering on time, a performance that we can meet the customer and industry trends. And the workload. So that is the number one priority for us. In terms of Panther Lake, you know, clearly on the 18A is very important. We have the first SKU by the end of this year, then we have additional SKU the next year. So I think so far we are very focused on that. Michelle?Michelle Johnston Holthaus: Yeah. Maybe just to add, Joe, I think I talked about this a little bit in our Q4 earnings. Panther Lake really matches what you see in both Meteor Lake and Lunar the way that we are going to ramp, bringing our first most performant product out first with customers and then the additional SKUs in Q1, which really allows us to line up with the commercial marketplace. That product looks quite good competitively, and we get a lot of customer interest, so I think we continue to track well there. You also asked about Clearwater Forest, and I talked a bit about that and the prioritization between Panther Lake and Clearwater Forest in Q4 as well. And so for Clearwater Forest, it has some very unique packaging that comes to market with it, and therefore, we decided to prioritize getting Panther Lake out first. And then the first half of 2026, you will see Clearwater Forest. I would just remind you that Clearwater Forest is an ECORE based product, so it is a derivative. Right, of Granite Rapids. And so it will be, you know, a more of a purpose-built product than your kind of leading performance part. In the marketplace, but both are on track for delivery.John Pitzer: Joe, do you have a follow-up question?Joseph Moore: I do. Thank you for that. The comment that you guys made about seven nanometer being constrained for the foreseeable future. Can you elaborate on why that is and what impact that might have?David Zinsner: Yeah. Pretty simply, you know, we are doing better on Raptor Lake and Raptor Lake is an Intel seven part. And so, you know, we obviously plan out our network to be, you know, just to the edge in terms of, you know, capacity and, you know, when things shift meaningfully like they did, you know, we are going to be hand them out. That said, you know, that is usually a good thing for the factory. When they are constrained, they, you know, leverage, the network to try to, you know, produce more wafers, and every wafer becomes less expensive as a result. So, you know, we do like that. Ultimately, though, we do want to see these AIPC products gain more traction in the market, and we are optimistic that happens in the year.Michelle Johnston Holthaus: Yeah. Maybe just to add on both seven and ten nanometer. Obviously, with the macroeconomic concerns that we see and just with the overall economy, we are particularly seeing consumer a stronger n minus one and n minus two demand in the market as those system price points tend to stay rather fixed. And so we have been doing our best to respond to that shift while at the same time in the commercial segment, we are seeing that Windows 10 refresh and a strong demand for AIPC. Think there is both good and bad news in that in that as you see n minus one, n minus two, as Dave talked about, you see a lot of that gross margin flow to the bottom line. It is also, you know, as the AIPC ramp slows, that is also good for gross margins. But I do want you to walk away with the fact that we continue to invest in the AIPC. We do view this as the long-term growth segment. We have our AI symposium with all the software vendors this week, and we see a ton of excitement from our customers around Lunar Lake, and so we will be balancing our portfolio and our mix across our foundries.John Pitzer: Thanks, Joe. Jonathan, can we have the next question, please?Operator: Certainly. And our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Your question, please.C.J. Muse: Yes, good afternoon. Thank you for taking the question. I guess first question for Lip Bu. You touched on your AI strategy. Focusing on new and emerging workloads like reasoning models, the gen pick AI, and physical AI. Is the plan here to reinvent x86 to succeed in the AI world or perhaps a broader portfolio, including ARM? And then should we be interpreting your focus more on edge AI?Lip Bu Tan: Thank you. Yeah. Good question, CJ. I think first of all, as I articulate and not on the AI strategy, it is very important to understand the workload. And then, you know, make sure that we can really deliver. And then clearly, we are going to look for partnership with the industry leader to build a purpose-built silicon and the software to optimize for that platform. So we like to be the compute platform for doing that. And clearly, I think one of the big areas would be the kind of edge and inference area. And that will be important to have the architecture that is low power and drive efficiency. And so those kinds of things that we are exploring some of this new architecture and some of this disruptive platform that we try to build. So stay tuned. Over time, we are going to start to articulate the strategy for that.John Pitzer: CJ, do you have a follow-up question?C.J. Muse: I do, John. Thanks. Dave, to follow-up on the OpEx guide for 'twenty-five and 'twenty-six, do those numbers fully contemplate the headcount reductions that you are planning? Or, you know, over time, could we see additional savings?David Zinsner: I would say, you know, Lip Bu has driven us to think about the company in a leaner, more efficient, faster-to-execution kind of way. And that has been kind of the underpinning of what we are doing from an OpEx perspective. So it is all of that, you know, elimination of the bureaucracy, taking out the layers and support, that drive us to a number that is kind of in this $17 billion range for 25 and $16 billion range for 26. We are still in the process of, you know, working through the details of how we lay into that number. But I feel confident based on his direction, we will land in that ZIP code for those numbers. We have not yet identified what that means from a headcount perspective. You know, there are obviously other categories of spend in operating expenses in addition to labor, and, you know, those will also be looked at and we will scrutinize and make sure that they are spent in a highly efficient manner, and we will have more details around how we will land the $16 billion number for '26 when we end the second quarter and do the earnings in July, I think we will have a good sense of, you know, what that means. Whether it can be reduced further, I think we will have to see. I think the $16 billion number, we feel very confident we can land. We will update you in July as to, you know, for sure where that number is with a little bit more precision. You know, I think if you asked Lip Bu today, he would probably say there are areas where he would like to invest as well. So to the extent we are freeing up investment, it may go to some other areas that he wants to invest in. So, you know, I think $16 billion would probably be the good working assumption. But we will update you in July, like I said.John Pitzer: Thanks, CJ. Thanks, Jonathan. We have the next question, please, Jonathan?Operator: Certainly. Our next question comes from the line of Vijay Rakesh from Mizuho. Your question, please.Vijay Rakesh: Yeah. Hi. I was just wondering, as you look at the data center site, how you see that playing out through the year? I saw you may you kind of kind of June and you saw DJ apologize. Can you restate that? You broke up a little bit at the beginning of the question. Just wondering how the data center side would play out to the end of the year. As you look at the second half, especially.Michelle Johnston Holthaus: Yeah. Thank you for the question. As we look at, you know, Q1, we saw higher-than-expected growth, really driven by a few hyperscalers. We are optimistic about the rest of the year. If you look at, you know, the product roadmap we have with Granite Rapids coming out and Xeon six, some of the traditional consolidation that drives as well as, you know, being the CPO choice as the AI head node. And we are starting to see some improvement in telco as well. However, as Dave and everyone has talked about, you know, we still do see a large macro concern, and so we need to continue to understand what that means. Much like we talked about before in client, we are seeing strong demand on older gen parts in data center as well, and we are working through that from a supply perspective. As stated in last quarter's earnings, I talked about our main goal being to stabilize market segment share, create margin, and, you know, up ASPs, and so those are things that we are going to be laser-focused on for the remainder of the year. We do have a good product portfolio. We do see, you know, strength both in hyperscalers and enterprise, but the rest of the world is where we really see a market segment share challenge, and so that is where we will be focused.John Pitzer: Vijay, do you have a follow-up question?Vijay Rakesh: Yes. Thanks, John. And, Lip Bu, congratulations on the new assignment. Just looking at CapEx, maybe this is for Dave. Any thoughts on how you would look at CapEx through that time frame, 25-26? Are you looking at rationalizing that given the footprint, fab footprint that you have?David Zinsner: Yeah. Yeah. Oh, go ahead. Sorry. Go ahead, please. Okay. In '25, you know, we think we can operate to an $18 billion number as we talked about. I would just tell you we have $50 billion or so of assets under construction, you know, that are a lot of which is equipment that is still in bubble wrap. So we are, in some ways, you know, taking a more aggressive approach to driving better return on what we have spent already. And that is allowing us to spend less in capital. I think that story probably plays out next year as well, although I think it is too early to talk about guidance for CapEx for next year. You know, we are going to leverage our assets under construction next year as well. You know, longer term, you know, this is a high-intensity model, obviously. You know, we have talked about roughly having 25% capital intensity as we look at this in a full IDM model. And I think that is probably a good working assumption on a long-term basis.John Pitzer: Thank you, Vijay. Jonathan, can we have the next question, please?Operator: Certainly. And our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please.Stacy Rasgon: Hi, guys. Thanks for taking my questions. Wanted to go back to that seven nanometer constraint capacity constraint. Think you are seeing a lot of demand for Raptor Lake. I guess I am just surprised given how good Meteor Lake and Lunar Lake are supposed to be. Like, why are you seeing so much more demand for the older generation parts versus new ones? Or is it, I mean, are you pushing the older gen stuff like you because the margins are better? Like, what is going on there?Michelle Johnston Holthaus: Yeah. Thanks for the question, Stacy. We are not pushing the old parts based on what we are really seeing is much greater demand from our customers for N-one and N-two products, so that they can continue to deliver system price points that consumers are really demanding. As we have all talked about, the macroeconomic concerns and tariffs have everybody kind of hedging their bets in what they need to have from an inventory perspective. And Raptor Lake is a great part. Meteor Lake and Lunar Lake are great as well, but come with a much higher cost structure, not only for us, but at the system, ASP price points for our OEMs as well. And so as you think about an OEM perspective, they have also, you know, ridden those cost curves down from a Raptor Lake perspective, and it allows them to offer that product at a better price point. So I really just think it is, you know, macroeconomics, the overall economy, and how they are hedging their bets.John Pitzer: Stacy, do you have a follow-up?Stacy Rasgon: I do. To follow-up on that then, so what does that imply for the Panther Lake launch, which I guess is going to happen, you said, by year-end. So I guess we will get at least one SKU by December. Most of it comes this year. But if that is happening, like, in the midst of a macro event, tariffs, like, who knows? Like, how do I think about, like, the launch of those new products given, like, demand seems to be pivoting back to the older products and the environment has not even gotten bad yet.Michelle Johnston Holthaus: I think it is a very fair question. The Panther Lake launch matches exactly what we did on both Meteor Lake and Lunar Lake in regards to timing, so it is very aligned with how customers like to take products to market. Panther Lake is a great product both from a performance and price perspective for our customers, so I think you will see a strong uptake of that product, right? We still see very strong commercial demand for AIPC. As they are deploying their fleets, as they are doing their upgrades, they want to future-proof their products and have that AI capability. So I do not think you are going to see that change in commercial. And if you look at our traditional ramp for these types of products, we tend to go faster in Commercial first and then consumers come on board. And so we will have to balance where is the economy at the end of the year, but I feel very bullish about the Panther Lake product. And our customer feedback.John Pitzer: Thanks, Stacy. Jonathan, can we have the next question, please?Operator: Certainly. And our next question comes from the line of Srini Pajjuri from Raymond James.Srini Pajjuri: Thank you. Michelle, I want to go back to the comments you made about the server market, in particular about the Q2 guidance. I am just curious as to why Q2 is tracking a little bit weaker. And then as we look out to the next few quarters, I know you talked about Granite ramping. Also potentially TAM growing from a, you know, per core basis in double digits. But at the same time, you know, we do have incremental competition from ARM, especially in head nodes where I think you guys have done well. So I am just wondering how to think about, you know, maybe talk about why the guidance is a little softer for Q2 and then how to think about your market share for the next few quarters? Thank you.Michelle Johnston Holthaus: Yes, thank you for the question. As I look at Q1, I mean, we had a few high hyperscalers that were particularly strong in Q1. And so, you know, you could call that, you know, hedging your bets or doing pull-ins or just balancing out their portfolio. But we do not expect to continue to see that into Q2. And so when we look at the overall macro demand, concern around tariffs and restrictions, as well as the stronger demand for older generation parts. There is more demand there than we currently can supply, and so you have to balance that as well. And then as I have continued to say, we are going to do everything we can to stabilize market segment share. But that also creates a lot of margin and ASP pressure that we need to balance throughout the year. And so Granite Rapids is a great product. We are seeing excitement from our customers around that. Particularly in the consolidation, particularly with Edge AI, a lot of excitement from customers about finding ways to be able to offer service revenue there. But at the same time, as you said, there is good competition. And so we are just being, you know, I think very prudent in what the year looks like. We understand there is competition, but we have got a good product portfolio, but as Lip Bu said, we want a very strong Seydou ratio. So we are going to commit to a number that we can beat.John Pitzer: Srini, do you have a quick follow-up?Srini Pajjuri: Yeah. And then on Panther Lake, I know Lip Bu said, you know, it is a priority to ramp AT and A with Panther Lake. I know in the past, your target was to, I guess, bring in 70% of the die in-house, to 18A. Just wondering if that is still the target. And then, as we look forward to NovoLake, has the decision about, you know, internal versus external been made yet? If so, you know, maybe you can give us some color on that as to what percent or, you know, how you think about internal versus external mix for NOLA. Thank you.Michelle Johnston Holthaus: Yeah, both are great questions. When we look at 18A, our goal of bringing everything in-house getting to a 70%, approximately 70% mix, remains steadfast, and there is no change to that POR, and Pantherlight helps us get on that journey. You know, talked about this in Q3. I talked about it in Q4. One of the great strengths we have is the fact that we do have optionality when it comes to where we build our products. We build products with TSMC, Samsung, and Intel. And so when you look at Nova Lake, really, what we have done is we have optimized at the SKU level the process node that we are going to use. And so when you look at Nova Lake, you will see product both at TSMC, and you will see product internal to Intel. But when you look at the aggregate of Nova Lake, we will build more wafers on Intel process than we are on Panther Lake. So that commitment to continue to drive wafer growth with our internal foundry partners remains steadfast, and there is no change to strategy there.David Zinsner: I just add one other thing that just I come over the top of the organization on. Is we are going to continue to balance internal and external manufacturing of wafers. We do that because that is part of our capital strategy to maintain a reasonable capital intensity relative to the business. So just as much as, you know, we are pushing on filling the fab and making sure we are utilizing all of our assets and leveraging the investments we have made on the process side, we also want to make sure that we are not over-investing in capital and are left, ultimately with a bad answer from a return on asset perspective. So that is part of our smart capital strategy is always to keep a certain percentage of our wafer capacity outside.John Pitzer: Thank you, Srini. Jonathan, can we have the next question, please?Operator: Certainly. And our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.Thomas O'Malley: Hey guys, thanks for taking my question. This one is for Dave. Little more shorter term. Just if you look at the first twenty-something days of the quarter here, I was surprised that you saw a little bit of weakness in the client. Obviously, data center down a little bit more. But could you maybe just give us an update on if you are seeing any pull-ins, any changes in dynamics from a geography perspective? Any customer behaviors that are looking any different for the first couple of days of this quarter? Just as it helps as a framework for the entire market and then also for you guys as well.David Zinsner: Yeah. I would just say that, you know, for the first whatever number of days that is off, I did not count it. So I am assuming it is twenty days. We are off to a relatively strong start. But what we are anticipating and what is built into our guidance is that, you know, the macro is going to start to catch up to the implications of the tariffs. And so June is likely to be softer than our strong start to the quarter. But so far, we are off to a strong start. Of course, I cannot completely rule out that it might continue through the whole quarter, in which case we are, you probably looking at the higher end of the guidance. But for now, we have built in the expectation that, you know, tariffs will start to weigh on the macro.John Pitzer: Tom, do you have a follow-up?Thomas O'Malley: Yeah. I do. Michelle, in December when we chatted when you first took over the job, you spoke about products being first. And, specifically, we talked about the data center side of things. And, I think earlier to CJ's questions, you addressed the edge. But if you look at the products that you have had with Gowdy, Falcon Shores inside the data center specifically, could you talk about what the strategy will be going forward? Are you planning on launching a new product think at the time you said, we need to learn with what we have already had, so we are not starting from scratch. But any update to that strategy, particularly inside the data center?Michelle Johnston Holthaus: Yeah. I am glad that you asked. Actually, you know, in the first five weeks, that Lip Bu has been here, he and Sachin have spent a significant amount of time relooking at our whole AI strategy, our portfolio of assets, how we need to come to market to be able to compete in that marketplace. You have heard Lip Bu really talk about the fact that we want a workload-first approach. And so in Q4, I talked about the fact that we were not going to build Falcon Shores. Right? And that we were going to stay with the POR of Jaguar Shores. So we still have a Jaguar product on our roadmap. And Sachin and Lip Bu over the coming months or so. We will start to talk externally about what our AI roadmap looks like, what we will do in between then. And then as we really dive in with our customers on that workload roadmap, what needs to change. But I think you will see us be quite aggressive. We know that that is a segment of the data center market that we are not competing in today. And we need a robust portfolio as all the customers are looking for alternatives.John Pitzer: Thanks, Tom. Jonathan, can we have the next question, please?Operator: Certainly. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.Vivek Arya: Thanks for taking my questions. Lip Bu, for the first one. You said there are no quick fixes. So how much time realistically should investors be prepared for in terms of Intel's turnaround? Is it one year, two years? Three years? And related to that, what are the right metrics to measure that progress? Is it share gains? Is it gross margins? Is it free cash flow? So, basically, what metric are you optimizing for, and what is the timeline in order to achieve that?Lip Bu Tan: Okay. Thanks. Good question. So I think, you know, clearly, there are no quick fixes. And as you described. And as we are working through the roadmap and weekly update with the team, and then defining what is the new workload look like in terms of the, you know, the CPU, GPU, and AI and then driving the some short term and some longer-term products. And then shorter term, we may embrace some of the disruptive technology that is out there and we can partner with them to bring the market faster and then meet the customer requirement. So I think stay tuned. I mean, those are the things that we are working on. In terms of the matrix, clearly, want to have the best products. And that is really, you know, especially at addressing the edge because of your power efficient. And also able to drive the performance that we like. And time to market is critical on schedule. And so those are the things that we look at in terms of matrix to really deliver what the industry wants and customers want and that is something that we are working on.John Pitzer: Vivek, do you have a quick follow-up?Vivek Arya: Yes. Thanks, John. So on the IDM structure, Lip Bu, you know, given your experience in the industry, you know, what we have seen from the outside is that the most successful businesses in semis are either fabless or dedicated foundry. And a few years ago, when Intel started to give out financials, for the manufacturing business, the hope was that that would turn it around. But what we have seen is just consistently negative gross margin. So do you think that just AT and A progress is sufficient, just kind of low single-digit top-line growth is sufficient to make this business viable? So at what point, you know, do you need to rethink whether this IDM structure, regardless of the way, financials are broken out, does it make sense?Lip Bu Tan: Right. I think it is a good question. So I think clearly, we want to have that kind of a balanced approach. One is our, you know, the foundry has got to be able to deliver the product that internal customers need. And also can serve our Intel customers well. So that we make them the simplicity also online schedule to deliver. And then meanwhile, you know, in that respect, we clearly view TSMC as our partner and they have been very good partners to have. And Morris and Cece are very long-time friends of mine. And we also, we now met recently, try to find areas we can collaborate and so that we can create a win-win situation. And then meanwhile, we continue to drive the efficiency, the yield, that AT and A and also look at with the customer what can we do on the 14A and then so that we can really wisely effectively using some of the foundry capacity footprint that we have.John Pitzer: Vivek, thank you. Jonathan, we have got time for one last question, please.Operator: Certainly. And our final question for today comes from the line of Aaron Rakers from Wells Fargo. Your question, please.Aaron Rakers: Yes. Thanks, John, for fitting me in. I guess maybe the first question would be is just as I think about the guidance that you gave and, you know, more importantly, the operating expense structure that you talked about 25-26. Just to be very clear, that is exclusive of the pending divestiture of 51% stake in Altera. I guess that is just a point of clarification.David Zinsner: Yeah. Let me decide what exclusive means. But, essentially, the $17 billion in '25 and the $16 billion in '26 actually assume Altera's OpEx is in that number. Now, you know, obviously, as soon as we deconsolidate it, it will not be. So, you know, the target of the 60 will come down. You know, dollar for dollar for what Altera is spending in terms of OpEx. But given that it has not closed, we do not know the timing of when it closes. It was a little difficult to provide anything. With that built into the forecast, so we just included it.John Pitzer: Aaron, do you have a follow-up?Aaron Rakers: Fair enough. I do. And it is maybe more strategic back to kind of the core data center AI strategy. And I know it is early days, but Lip Bu, I am curious of how you think about, you know, RackScale, you know, networking and the pieces that Intel has internally to really compete in the cloud infrastructure AI build-out. Is it UCIE? Is there other pieces of the building blocks that you think strategically is needed to really drive if it is with Jaguar Shores or, you know, how that strategy plays out around the networking scale upside?Lip Bu Tan: Yeah. It is a good question. So let me start first and then Michelle will add on to it. So clearly, the RackScale approach of the system, I think is very important. That we need to have a full scale in those hardware and software to do it. And then clearly leverage on our XPU in our CPU and GPU approach and then to drive that. And I think, you know, there will be something that we kind of work on and then come up with a killing product that we can really launch the product.Michelle Johnston Holthaus: Yeah. Maybe I would just add that, you know, we are seeing great success with the IPU products that we have built. We will see at least double-digit or, excuse me, doubling of that revenue from 24 to 25. We also see optics as a critical element of that rack scale architecture as well. And I think I would just remind everybody that Intel is the only foundry out there that has an optics-based foundry option for our customers, and so we are very optimistic that those two things add to the overall opportunity to build out that RackScale architecture. Also just our OpenX 86. What we are seeing is that customers do love the x86 ecosystem, the software around it, and if they can build out an AI infrastructure with x86, they are very interested in doing that. We already have one large custom design win, and I would expect more.Lip Bu Tan: With that, thank you for joining us today. We have a clear opportunity to strengthen our business in both products and foundry. We have clear priorities to better serve our customers and create value for our shareholders. I look forward to the work ahead as we build the new Intel. Thank you.Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.