Intel conference call: Strategic cooperation with NVIDIA will open up markets through NVLink technology, and chip capacity tightness is expected to last until 2026

Intel's revenue exceeded expectations in the third quarter of 2025, but capacity bottlenecks in mature processes are constraining growth. According to a previous report by Wallstreetcn, Intel's revenue in the third quarter reached $13.7 billion, surpassing the upper limit of its guidance range, with a quarter-on-quarter growth of 6%; the non-GAAP earnings per share were $0.23, far exceeding analysts' expectations of $0.01 and the company's own guidance of breakeven, achieving its first net profit since the end of 2023. However, the company's Chief Financial Officer Dave Zinsner pointed out that Intel chips are currently "in short supply," especially the capacity constraints in mature processes like Intel 10 and Intel 7 limit its ability to fully meet the demand for data center and client products, a situation expected to persist until 2026. To address challenges and seize AI opportunities, Intel took a series of measures in the third quarter to strengthen its balance sheet, including securing $5.7 billion in funding from the U.S. government, a $2 billion investment from SoftBank Group, monetizing part of its stake in Altera, and selling shares of Mobileye. NVIDIA's $5 billion investment is expected to be completed in the fourth quarter. These actions provided Intel with approximately $20 billion in cash, significantly enhancing its financial flexibility and confidence in strategic execution. Intel's CEO Lip-Bcu Tan and CFO David Zinsner communicated with analysts during the subsequent earnings call. Zinsner candidly stated in the conference call that capacity constraints "especially on Intel 10 and Intel 7" affected third-quarter performance, and the company is guiding demand towards products that have supply by adjusting pricing and product mix. Lip-Bcu Tan emphasized that building world-class foundries is a long-term endeavor based on trust, and Intel is driving a shift in the entire foundry business mindset. Intel expects that the capacity tightness will still exist before the end of fiscal year 2026. In the face of this challenge, Intel is actively managing its supply chain, prioritizing wafer capacity allocation to server products, and accelerating the transition to Intel 18A and more advanced processes. The company is satisfied with the progress of Intel 18A and is in deep engagement with potential customers regarding the more advanced Intel 14A. The following is a summary of the conference call highlights: AI-Driven Demand and Strategic Cooperation Intel's performance growth is mainly benefited from the acceleration of AI infrastructure construction driving traditional computing. In the client sector, the adoption rate of AI PCs is increasing, with approximately 100 million AI PC units expected to be shipped by the end of this year. In the data center sector, AI servers' head nodes, inference, orchestration layers, and storage are driving demand for server CPUs. CEO Lip-Bcu Tan highlighted the strategic cooperation with NVIDIA during the call. He stated that both parties will connect their architectures through NVIDIA NVLink, combining Intel CPUs with NVIDIA's AI acceleration computing advantages to jointly create multiple generations of new products for the hyperscale cloud, enterprise, and consumer markets He emphasized that this cooperation does not erode the existing market but opens up a whole new incremental market for Intel. In addition, Intel has established a Central Engineering group aimed at unifying horizontal engineering functions and leading the development of new ASIC and design service businesses to provide customized chips for external customers, thereby expanding the influence of its x86 IP. Capacity Constraints and Capital Expenditure Strategy To cope with unprecedented demand, Intel is facing severe capacity challenges. Chief Financial Officer David Zinsner pointed out that capacity tightness is prevalent across the company's business, especially at the Intel 10 and Intel 7 nodes. The company is utilizing inventory and attempting to guide customers to use other available products through "demand shaping." Despite strong demand, Intel's capital expenditure strategy remains prudent. The company reiterated that total investment is expected to be around $18 billion in 2025 but emphasized that future investments will be disciplined, with capacity increases only occurring after obtaining clear commitments from customers. Zinsner stated that the company's existing assets and construction capacity provide considerable flexibility to meet external foundry demand. In terms of advanced processes, Intel 18A is scheduled to be launched this year, and the Fab 52 in Arizona, dedicated to mass manufacturing, is now fully operational. The development of the next-generation Intel 14A has also made positive progress, with performance and yield starting points better than 18A at the same maturity level. Responding to Investor Concerns About Gross Margin and Execution Investors are closely watching Intel's profitability under capacity constraints and massive investments. The non-GAAP gross margin for the third quarter was 40%, exceeding guidance by 4 percentage points, mainly due to higher revenue, a better product mix, and lower inventory reserves. However, the gross margin for the fourth quarter is expected to drop to about 36.5%, partly due to the higher initial ramp-up costs of the new product Core Ultra 3 (Panther Lake) and the impact of the Altera spin-off. When asked about the long-term improvement path for gross margin, Zinsner pointed out that the key lies in product competitiveness and cost structure. He acknowledged that Intel still has work to do in terms of product cost and competitiveness in the data center space, which is central to improving gross margins. At the same time, as the product mix shifts towards more advanced Intel 3, 4, 18A, and 14A nodes, and as the startup costs of new processes gradually decline, gross margins will see structural improvement. Regarding the yield of Intel 18A, Zinsner stated that it is currently at a level "sufficient to meet supply demand," but has not yet reached the height required to drive ideal profit margins, which is expected to improve to an ideal state by the end of 2025. New Collaborations and Financial Impact Strategic collaborations with NVIDIA, SoftBank, and government funding have greatly enhanced Intel's cash position and liquidity. As of the third quarter, the company had $30.9 billion in cash and short-term investments. These collaborations not only provide financial support but also bring strategic business opportunities. For example, the partnership with SoftBank stems from its significant investment in AI infrastructure, which will translate into demand for wafer foundry capacity. Chen Liwu, when asked about confidence in the foundry business, stated that in addition to the capital injection, the company has made solid technological progress, yield improvements, and milestone collaborations with customers in the 18A and 14A processes It is the main source of its confidence. Below is the full transcript of the conference call minutes: CEO Chen Liwu: We achieved solid performance in the third quarter, with revenue, gross margin, and earnings per share exceeding guidance. This marks our fourth consecutive quarter of improved execution, thanks to potential growth in core markets and steady progress in rebuilding the company. Although the road ahead remains long, we are taking the right steps to create sustainable shareholder value. We significantly improved our cash position and liquidity in the third quarter, which has been a key focus since I took over as CEO in March. We made tangible progress in improving execution this quarter. We not only expect to complete the optimization of the company's scale by the end of the year but are also continuously adjusting our talent structure, re-establishing an engineering-first mindset, and optimizing the execution and management hierarchy across the organization. Let me delve into our fundamental business trends. Throughout my career, I have had the privilege of participating in disruptive innovation in various ways. But I have never been as excited about the future of computing and the opportunities before us as I am now. We are still in the early stages of the AI revolution, and I believe Intel can and must play a more significant role in the company's transformation. This begins with our core x86 business, which continues to play a critical role at the AI edge. AI is clearly accelerating the demand for new computing architectures, hardware, models, and algorithms. At the same time, it is also driving renewed growth in traditional computing, as the foundational data and insights it generates still heavily rely on our existing products from cloud to edge. AI has brought recent upward momentum to our business and serves as a solid foundation for sustainable long-term growth in our execution process. Furthermore, with the unparalleled compatibility, security, and flexibility brought by being the largest general-purpose computing installation base, x86 is fully capable of powering the hybrid computing environments required for AI workloads, particularly for inference and edge workloads and systems. This is an excellent starting point for rebuilding our market position, revitalizing the x86 ISA, and positioning it for the new era of computing through outstanding products and partnerships. Our collaboration with NVIDIA is a prime example. We are working together to create new products and experiences across multiple generations to accelerate the adoption of AI in hyperscale cloud, enterprise, and consumer markets. By connecting our architectures through NVLink, we combine Intel's CPU and x86 leadership with NVIDIA's unparalleled AI and accelerated computing advantages, unlocking innovative solutions that provide better customer experiences and secure Intel a place in the leading AI platforms of the future. We need to continue building on this momentum by leveraging our position through improved engineering and design execution. This includes recruiting and promoting top architectural talent and reimagining our core roadmap to ensure it has best-in-class capabilities. To accelerate this effort, we recently established a central engineering group that will unify our horizontal engineering functions to drive synergies between foundational IP development, test chip design, EDA tools, and design platforms. This new structure will eliminate redundancies, improve decision-making time, and enhance consistency across all product development In addition, it is equally important that the team will lead the creation of a new ASIC and design services business to provide customized chips for a wide range of external customers. This will not only expand the coverage of our core x86 IP but also leverage our design advantages to offer a range of solutions from general computing to fixed-function computing. In the client segment, we expect to launch our first SKU by the end of the year and more SKUs in the first half of next year. This will help us solidify our strong position in the consumer and enterprise laptop markets with a full-stack cost-optimized product lineup ranging from entry-level products to the mainstream Core family and up to the highest performance Core Ultra family. In the high-end desktop segment, competition remains fierce, but we are making steady progress. Arrow Lake shipments have continued to grow this year, and our next-generation Nova Lake products will bring new architecture and software upgrades to further enhance our product offerings, particularly in the PC gaming space. With this product line, we believe we will have the strongest PC product portfolio in years. In the traditional server space, AI workloads are driving updates to installed bases and capacity expansion, thanks to the rapid growth of tokenization, increased data storage and processing demands, and the need to address power and space constraints. Xeon remains the preferred choice for AI head nodes, with strong demand for Granite Rapids, including instances from all major hyperscale cloud providers. We are listening to our customers' needs, and strong performance per watt and total cost of ownership (TCO) are their top concerns. As I shared with you last quarter, key areas include improving our multithreading capabilities to close existing gaps and work to regain market share. Finally, regarding our AI accelerator strategy, I still believe we can play a significant role in developing computing platforms for emerging inference workloads driven by AI and physical AI. This will be a market much larger than AI training workloads. We will work to position Intel as the preferred computing platform for AI inference and look forward to collaborating with a range of existing companies and emerging firms that define this new computing paradigm. This is a multi-year plan, and we will establish partnerships when we can deliver truly differentiated and market-leading products. In the short term, we will continue to deliver AI capabilities through Xeon, AI PCs, ARC GPUs, and our open software stack. Looking ahead, we plan to launch several generations of inference-optimized GPUs on an annual cadence, which will feature enhanced memory and bandwidth to meet enterprise demands. Turning to Intel Foundry Services (IFS), our momentum continues. We are making steady progress on Intel 18A. We expect to bring it to market this year. The assembly units (AUs) for Intel 18A are progressing at a predictable pace, and the Arizona Fab 52 dedicated to large-scale manufacturing is now fully operational. Additionally, we are advancing our work on Intel 18AP and will continue to meet our PDK milestones Our Intel 18A family is the foundation for at least three generations of client and server products in the future. We are working with the U.S. government and other committed customers. This is a critical juncture that will drive wafer output through the next decade and provide healthy returns on our investments. Regarding Intel 14A, the team continues to focus on technology definition, transistor architecture, process flow, design enablement, and foundational IP. We are actively engaging with potential external customers and are encouraged by early feedback that helps us drive and inform our decisions. Finally, our advanced packaging activities continue to progress well, especially in areas where we have true differentiation, such as EMIB and Foveros. Like our Intel products, my belief in the potential of Intel's foundry services market is growing. The rapid expansion of critical AI infrastructure is driving unprecedented demand for wafer capacity and advanced packaging services, creating substantial opportunities that require multiple suppliers. Intel's foundry services have a unique advantage in capitalizing on this unprecedented demand as we execute. As I mentioned last quarter, our investments in foundry will be disciplined, and we will focus on capability and scalability, allowing us to ramp up production quickly, and we will only increase capacity when there is committed external demand. Building world-class foundries is a long-term effort based on trust. As a foundry, we need to ensure that our processes can be easily utilized by various customers, each with their unique ways of building products. We must learn to satisfy our customers, as they rely on us to manufacture wafers that meet all their needs for performance, power consumption, yield, cost, and schedule. Only by doing so can they rely on us as a true long-term partner to ensure their success. This requires a shift in mindset, and I am driving this change within Intel's foundry services to position the business for long-term success. Looking ahead, my focus remains firmly on the long-term opportunities presented by every market we serve today and the markets we will enter tomorrow. Our strategy is concretized around our unique strengths and value propositions, supported by the unprecedented demand for computing acceleration in the AI-driven economy. Our leadership continues to strengthen. Our culture is becoming more responsible, collaborative, and execution-oriented. My confidence in the future is growing day by day. I look forward to updating everyone as we advance our journey. I will now turn the time over to Dave to provide a detailed overview of our current business trends and financial status. Chief Financial Officer David Zinsner: In the third quarter, we exceeded revenue guidance for the fourth consecutive quarter, thanks to the continued strong performance in our core markets. While we remain vigilant regarding macroeconomic fluctuations, customer purchasing behavior, and inventory levels, industry supply has materially tightened. Additionally, we are increasingly confident that the rapid adoption of AI is driving growth in traditional computing and reinforcing the momentum across our businesses In the client segment, we have passed five years of pre-pandemic demand and are benefiting from a larger installed base upgrade. Enterprises continue to migrate to Windows 11, and the adoption rate of AI PCs is increasing. In the data center segment, the accelerated construction of AI infrastructure is positively impacting the demand for server CPUs (from head nodes, inference, orchestration layers, and storage). We are cautiously optimistic that, even as we still need to work on improving our competitive position, the CPU TAM (Total Addressable Market) will continue to grow through 2026. Revenue for the third quarter was $13.7 billion, exceeding the upper end of our guidance range, with a quarter-over-quarter growth of 6%. Capacity constraints, particularly on Intel 10 and Intel 7, limited our ability to fully meet the demand for data center and client products in the third quarter. The non-GAAP gross margin was 40%, 4 percentage points higher than our guidance, due to higher revenue, a more favorable product mix, and reduced inventory reserves, partially offset by higher output from Lunar Lake and the early ramp of Intel 18A. Our earnings per share for the third quarter were $0.23, while our guidance was breakeven, thanks to higher revenue, stronger gross margins, and ongoing cost control. Third-quarter operating cash flow was $2.5 billion, with quarterly capital expenditures of $3 billion, resulting in adjusted free cash flow of positive $900 million. One of our top priorities for 2025 is to strengthen our balance sheet. To this end, we executed transactions to secure approximately $20 billion in cash, including three significant strategic partnerships. We held $30.9 billion in cash and short-term investments at the end of the third quarter. During the third quarter, we received $5.7 billion from the U.S. government, $2 billion from SoftBank Group, $4.3 billion from the completion of the Altera transaction, and $900 million from the sale of Mobileye shares. We expect NVIDIA's $5 billion investment to be completed by the end of the fourth quarter. Finally, we repaid $4.3 billion in debt this quarter, and we will continue to prioritize repayment as debt matures in 2026 to reduce leverage. Next is the departmental performance for the third quarter. Intel Products revenue was $12.7 billion, a 7% quarter-over-quarter increase, exceeding our expectations in both the client and server segments. Given the current tight capacity environment, the team executed well to support the quarter's outperformance, and we expect this to continue through 2026. We are working closely with customers to maximize our available output, including adjusting pricing and mix to shift demand toward products where we have supply and they have demand. Client Computing Group (CCG) revenue was $8.5 billion, an 8% quarter-over-quarter increase, exceeding expectations due to a seasonally stronger TAM, Windows 11-driven upgrades, and a stronger pricing mix brought by the ramp of Lunar Lake and Arrow Lake. During this quarter, CCG further advanced its relationship with Microsoft through collaboration with Windows ML and deep integration of Intel vPro manageability with Microsoft Intune, enabling secure cloud-connected fleet management for businesses of all sizes The team has also achieved all key milestones to support the launch of the Core Ultra 3, code-named Panther Lake. We expect the client consumption TAM to approach 290 million units by 2025, marking two consecutive years of growth since the post-pandemic low in 2023. This represents the fastest TAM growth since 2021, and we are cautiously preparing for another strong demand year in 2026 as Core Ultra 3 enters a healthy PC ecosystem. The Data Center and AI Group (DCAI) reported revenue of $4.1 billion, a 5% quarter-over-quarter increase, exceeding expectations, driven by an improved product mix and higher enterprise demand. Although supply constraints limited additional upside, demand for AI server host CPUs and storage computing remained strong this quarter. Our latest Xeon 6 processor, code-named Granite Rapids, offers significant advantages, including up to 68% TCO savings compared to the average server today and up to 80% power reduction. It is becoming increasingly clear that as AI usage expands, especially as the growth rate of inference workloads outpaces training, CPUs play a critical role in today's and future AI data centers. Some data center customers have begun inquiring about long-term strategic supply agreements to support their business objectives, driven by the rapid expansion of AI infrastructure. This dynamic, coupled with underinvestment in traditional infrastructure over the past few years, should enable revenue TAM for server CPUs to grow comfortably in the future. The operating profit of Intel's Product Group was $3.7 billion, accounting for 29% of revenue, an increase of $972 million quarter-over-quarter, due to stronger product margins, reduced operating expenses, and favorable comparisons of expenses during the second quarter. Before discussing Intel Foundry Services, I would like to thank the teams at NVIDIA and Intel for their relentless efforts. We have a lot of work ahead of us, but the collaboration we announced this quarter is the result of nearly a year of hard work with a company that is truly committed to engineering excellence. The x86 architecture has been the foundation driving the digital revolution in the modern world. AI is the next phase of this revolution, and we are committed to ensuring that x86 remains at its core. Collaborations with companies like NVIDIA are crucial to this effort. Turning to Intel Foundry Services (IFS). Intel Foundry Services achieved revenue of $4.2 billion, a 4% quarter-over-quarter decline. In the third quarter, Intel Foundry Services delivered Intel 10 and 7 node output that exceeded expectations, achieved key 18A milestones, and released hardened 18AP PDK to the ecosystem. The foundry services also advanced the development of Intel 14A and continued to make progress in expanding its advanced packaging deal pipeline. Intel Foundry Services reported an operating loss of $2.3 billion in the third quarter, an improvement of $847 million quarter-over-quarter, primarily due to favorable comparisons against approximately $800 million in impairment losses in the second quarter. As mentioned earlier, our confidence in the long-term TAM for foundry services continues to grow, driven by the acceleration of AI deployment and adoption, as well as the increasing demand for wafer and advanced packaging services Forecasts indicate that by 2030, AI capacity (measured in gigawatts) will grow more than tenfold, creating significant opportunities for Intel's foundry services with external customers (whether wafers or our differentiated advanced packaging capabilities, such as EMIB and Foveros). We continue to work to earn the trust of our customers, and our improved balance sheet flexibility will allow us to respond quickly and responsibly when demand arises. Turning to all other businesses. Revenue was $1 billion, with Altera contributing $386 million. Due to the completion of the Altera transaction and its spin-off during the quarter, revenue decreased by 6% quarter-over-quarter. The three main components of all other businesses in the third quarter were Mobileye, Altera, and IMS. This category contributed a total operating profit of $100 million. Now moving to guidance. For the fourth quarter, we forecast revenue in the range of $12.8 billion to $13.8 billion. Based on the midpoint and adjusting for the impact of the Altera spin-off, fourth-quarter revenue is expected to be roughly flat quarter-over-quarter. We anticipate slight growth in the Intel Product Division quarter-over-quarter, but it will be below customer demand due to our continued response to a tight supply environment. Within the Intel Product Division, we expect CCG to decline slightly quarter-over-quarter, while DCAI is expected to grow strongly quarter-over-quarter as we prioritize wafer capacity for server shipments over entry-level client components. We expect Intel's foundry services revenue to grow quarter-over-quarter due to increased Intel 18A revenue and a rise in external foundry revenue due to the Altera spin-off. For all other businesses (now excluding Altera), we expect revenue to decline in line with guidance, partially offset by quarter-over-quarter growth in IMS. Based on a midpoint of $13.3 billion, we forecast a gross margin of approximately 36.5%, a quarter-over-quarter decline due to product mix, the impact of the first Core Ultra 3 shipments (new products typically have higher costs during the ramp-up phase), and the Altera spin-off. We forecast a tax rate of 12% and earnings per share of $0.08, both on a non-GAAP basis. We expect fourth-quarter non-controlling interests (GAAP basis) to be approximately $350 million to $400 million, and we forecast approximately 5 billion shares outstanding on a fully diluted basis for the fourth quarter. Turning to capital expenditures, we continue to expect total investments to be around $18 billion by 2025, and we anticipate deploying over $27 billion in capital expenditures in 2025, compared to $17 billion deployed in 2024. Finally, I would like to say that we ended the third quarter with a significantly strengthened balance sheet, solid short-term demand, and growing confidence in the long-term opportunities for our core x86 business as well as foundry, ASIC, and accelerators. We also recognize the work that remains to realize our full potential. We continue to bring in external talent and unleash the potential of our workforce to improve our execution in product and process development and manufacturing. We will closely manage the controllable aspects, respond quickly as the environment evolves, and focus on delivering long-term shareholder value At this point, I will hand the time back to John to start the Q&A session. Q&A Session Q1: Ross Seymour (Deutsche Bank): First, regarding foundry. You announced a number of collaborations this quarter, and the balance sheet has significantly strengthened. Your tone in the opening statement sounded more confident about the progress in foundry. Have these collaboration announcements or equity investments increased your confidence? Or have you seen certain technological advantages that have enhanced your optimism about this business? Chen Liwu: I think several announcements we've made are clearly more product-related, and one is with SoftBank, as they are building all the AI infrastructure, which definitely requires more foundry capacity. So I think that's one part of the answer. But at the same time, I want to say that based on what I've learned about 18A and 14A, we have made tremendous good progress. The steady progress of 18A will rely on it. Then obviously, we see yield improving in a more predictable manner. I visited Fab 52, which is fully operational for 18A. Then on 14A, we are clearly engaging with multiple customers for milestone discussions, and we are really driving some improvements in yield and performance reliability, which is even more exciting. In advanced packaging, we are also seeing significant demand from key cloud customers and enterprise customers in the foundry space. So overall, we think establishing this long-term trust with some customers and expanding it is quite exciting. We are also focused on recruiting some top talent to drive improvements in some process technologies. Q2: Joseph Moore (Morgan Stanley): I am very interested in the differences in your foundry approach. You mentioned last quarter and this quarter that you are looking for customer commitments before making investments. Can you talk about how those conversations are progressing? Of course, I can see the trade-offs from the customer perspective, as they are making commitments to you. Are they expecting capacity to be built ahead of time? Is there a bit of a "chicken or egg" issue with these investments? How are you handling those conversations? Chen Liwu: I think in foundry, we are clearly engaging with multiple customers. In the process of building customer trust, you need to really demonstrate improvements in yield, reliability, and you need to have all the specific IPs they require. This is a service industry, and you need to have all the right IPs. That's why I established a central engineering team to acquire all the right IPs to match customer needs. Then, I think the best approach is to really demonstrate performance and yield, and then we can get test chips so they can really start working on them. Then they can start deploying their most critical revenue wafers to rely on us, so we can drive success for them. So I think these are very important. In terms of potential investments and collaborations, I think different customers have different requirements, and we are working with them. But more importantly, it's about gaining their commitment to foundry and support. I think building trust is a more important good thing David Sinna: To add one more point, I want to say that clients understand that it takes time from when you deploy capital to when you have output. So our expectation is that we will finalize these commitments in a timely manner to deploy capital to meet demand. I also want to say that given the capital expenditure investments we have already made, we are in a pretty good position. So we already have a lot of assets on our books, as well as what we call construction in progress, and we have made significant investments in factory space. So we do see the prospect of leveraging our existing footprint to drive reasonable supply for external foundry customers, and honestly, by utilizing construction in progress and reusing the equipment we have on our books today. So we have flexibility. Clearly, if things progress better, we may seek to invest more and act faster, but we have reasonable confidence in our ability to handle this situation. Q2: Joseph Moore (Morgan Stanley): Additionally, with the supply constraints on server CPUs and other CPUs, we see those markets, I guess, but your growth is up 5% quarter-over-quarter and single-digit growth year-over-year. I wonder where the shortages are coming from? Is it just that there is better demand ahead that you cannot meet? Or is it due to some transformations you are undergoing? Just— I certainly see the market tightness. So I'm not arguing against that, but I'm just curious where you think this shortage is coming from and how it will be resolved? David Sinna, Executive Vice President and Chief Financial Officer: Yes. I mean, the shortages are pretty much across our business, I would say. We are definitely tight on Intel 10 and 7. Clearly, we do not intend to build more capacity there. So as demand increases, we are constrained. To some extent, we rely on inventory to maintain. We are also trying to guide customers to use other products through "demand shaping." Even outside of the specific challenges in our foundry business, there are shortages. For example, I think there has been widespread reporting of substrate shortages. So clearly, I think demand—everyone was cautious at the beginning of the year, I think across all industries, but now it seems that this year will be stronger and may continue into next year, and I think everyone is trying to cope. CJ Muse (Cantor Fitzgerald): Okay, good afternoon, thank you for answering the questions. I want to follow up on the current outlook that demand will continue to exceed supply in 2026. I am curious if this is primarily for servers or if it also includes clients. Based on your thoughts in that regard, how should we view the first quarter trends compared to normal seasonality, which I guess would typically be a high single-digit to low double-digit decline quarter-over-quarter. Given the investments from the U.S. government, NVIDIA, SoftBank, etc., I am curious how your thoughts on capital expenditures or other investments in product business have changed with the improvement in cash conditions and liquidity? Unnamed Speaker: Yes, both. But as we said, we are giving up a small part of the core market and clients to more broadly meet customer demand, specifically in the client area, more specifically in the server area So this is how we manage it. Looking ahead to the first quarter, clearly, we may provide more information in January. I just want to say that in the first quarter, we may actually be at the peak of shortages because we relied a bit on inventory to help us through the third and fourth quarters, and we are just trying to ramp up production as much as possible with the factories. We may not have as much of that convenience in the first quarter. So I'm not sure if we can reverse the seasonal trend because we will be very, very tight in the first quarter. After that, I think we will start to see some improvements, and we can catch up over the remainder of the year. David Sinisna, Executive Vice President and Chief Financial Officer: Clearly, we are in a good position. I want to say that when we think about this cash, our top priority is deleveraging. I mean, this is one of the things that Li Wu really wanted to do when he took office, and he was really not satisfied with the balance sheet. So we have done a lot of work on that and improved the situation for him. We paid off $4.3 billion in debt this quarter, and all maturing debt for next quarter or next year should be paid off. I think when you consider capital expenditures, it puts us in a flexible position regarding capital spending, but we want to be very disciplined in this area. So we will absolutely be focused on demand. Li Wu is very direct with us on this. He wants to see clear demand from customers that allows us to believe in that demand. If that demand exists, we will certainly increase capital expenditures as needed. When you consider investments, we still believe that the $16 billion in operating expenditure investment for next year is appropriate, although Li Wu and I are constantly looking at how to mix that $16 billion to drive the best possible growth and returns for investors, and we will make those adjustments. Beyond that, we will see how things develop. We want our operating expenditures to be quite disciplined as a percentage of revenue and drive leverage, but we do see opportunities for investment, and I believe these investments can bring great returns to shareholders, and we are not afraid to do so. Brian Curtis (Jefferies): Hey, everyone. Thank you. I have two questions. Regarding capital expenditures, I think you reiterated $18 billion, but I feel like your spending in the third quarter was, I guess, less than I modeled. Is that number still valid? I'm a bit curious about when you start to ramp up production in Arizona (inaudible: possibly referring to 18A), what is the timing for considering when to increase capacity? David Sinisna, Executive Vice President and Chief Financial Officer: Regarding the $18 billion, yes, I think that number is still valid. Clearly, capital expenditures can be uneven. It depends on when things are completed—when all the requirements related to invoice payments are completed, that’s when we pay. So we expect to be within that range. Clearly, there is a margin of error. It could be slightly less or slightly more than that number. 18A, yes, we still need to ramp up production. I do not expect a significant increase in capacity in the short term. But I think as we said, we have not yet reached the supply peak for 18A In fact, we won't reach this until the end of the decade. We do believe that this node will be a relatively long-lived node for us. So over time, we will continue to invest in 18A. There will be capital expenditure investments next year, but I do not expect supply—at least capacity—to change significantly from our current expectations. Brian Curtis (Jefferies): I just wanted to follow up on the gross margin trajectory after the gradual incorporation of 18A. I know it may not be a great comparison compared to previous nodes, but perhaps it can be compared to a successful node. When you say the yield is in good shape and improving, is there any way to consider how these 18A yields compare to what you've seen historically with successful products, and how it has been gradually incorporated in the first half of the year? David Sinisner, Executive Vice President and Chief Financial Officer: Yes, I would say, overall, I'm not sure—honestly, the yields of older nodes are not our focus. So we are breaking new ground in this regard. The yield is—I would say the yield is sufficient to meet supply demand, but it has not yet reached the level we need it to achieve to drive appropriate levels of profitability. By the end of next year, we may reach that level. Of course, by the year after, I believe they will reach that industry-acceptable yield level. I can tell you that we started well on 14A. If you look at 14A compared to 18A at the same level of maturity, we are better in both performance and yield. So we started even better on 14A. We just need to continue this progress. Stacey Rasgon (Bernstein Research): Hi, everyone. Thank you for answering my question. I want to go back and ask about supply constraints. You've talked a lot about how AI is driving massive demand for servers and PCs. But at the same time, it seems that customers do not want your AI products. In fact, they are experiencing shortages of older products. So I guess you must have ample supply of (inaudible: possibly referring to older products like Raptor Lake, Meteor Lake) and even Lunar Lake. So how do you plan to get customers to move away from older products, given that they have not shown any willingness to abandon them even in the face of constraints so far? I mean, how should we think about the transition of these customers, since you clearly— I mean, you said yourselves that you are no longer increasing old capacity. In fact, you've even shut down some, right? David Sinisner, Executive Vice President and Chief Financial Officer: Yes, good question. I think saying AI is not performing well is a misunderstanding. I mean, it has grown double digits quarter-over-quarter. We talked about a number—by the end of this year, we will ship about 100 million AI PC units, and we will be roughly in that range. So I think the progress is quite good. However, it is clear that older nodes are also performing well, which may be the more surprising part Yes, we—I think we just need to participate in ensuring that the ecosystem drives enough AI applications in the PC space. We regularly collaborate with ISVs to push this forward. They are making progress. Like any market, it starts relatively immature and then gradually builds over time. But even within our company, we are starting to find uses for AI in PCs. In fact, the investor relations department is preparing one that we will use. So I think it's just a matter of time. That said, what is clearly happening now is that the Windows refresh is significantly more than we expected. And this is not necessarily an AI PC story. So Raptor Lake is also a product to meet that demand. So we are also seeing upward space in that part of the market. Stacey Rasgon (Bernstein Research): I want to follow up on two things I think I heard you mention about 18A. I think I heard you say, first, that yields will not be in a good state at least until the end of next year. And then I think I also heard you say that you won't be adding much 18A capacity next year. Did I hear that wrong? I mean, especially how could the latter be true? If you are ramping up production, if you are moving along the ramp path, how could that be the case? Or is it like a? (multiple people speaking at once) David Sinofsky, Executive Vice President and Chief Financial Officer: We are obviously in the early stages. I mean, relative to the capital expenditure plan, we will not be incrementally increasing 18A supply next year. But yes, of course, we will gradually increase production throughout the year. Yes, I wouldn't say that the yields for 18A are in a bad state. I mean, they are at the position we hope to reach at this point in time. We have set a goal for the end of the year, and we will achieve that goal. But to fully contribute to the cost structure of 18A, we need the yields to improve. I mean, this is like every process. This will happen. I think it will take the whole of next year to really reach that kind of situation. Joshua (TD Cowen): I want to ask about Li Wu's comments in the prepared remarks regarding fixed-function computing and possibly supporting more ASICs. This is—maybe you can provide more background on the scope? Is this aimed at potential foundry customers, or are these products, and if they are products, what types of applications do you expect to support with custom silicon? Thank you. Chen Liwu, Chief Executive Officer: Good question. So I think first, I just mentioned that the central engineering team drives ASIC design, which will be—therefore, it is actually a great opportunity to enhance the coverage of our core x86 IP and drive some customized chips for our certain systems, cloud vendors, and customers. Then certainly, foundry and packaging are also helping them meet their demands. So overall, I think this AI will drive a lot of growth, especially in (unclear: possibly referring to "doubling down on Moore's Law"?), which will greatly help our x86 uplift, and then—that is the opportunity we are building the entire ASIC design to serve certain customer needs Joshua (TD Cowen): Yes. Regarding last quarter, clearly, there has been a lot of attention on your potential decision to forgo the 14A disclosure. I just wanted to ask, given that your balance sheet situation is quite different from three months ago, has there been any change in this regard? I believe the queue (possibly referring to the 10-Q document) hasn't come out yet, so I haven't seen if there are any changes in the wording there. I'm curious if there have been any changes since last quarter, given all the changes in the balance sheet? Thank you. Chen Liwu, CEO: Yes. Since last quarter, I think it’s clear that our engagement with customers on 14A has increased, and we are engaging deeply with customers to define technology, processes, yields, and IP needs to serve them. They clearly see the huge demand, and they need Intel to remain strong in 14A. So we feel pleased and more confident. At the same time, we have also attracted some key talents in process technology who can really drive success, which is why it gives me more confidence to push this forward. Ben Reitzes (Melius Research): Hey, thanks, everyone. Liwu, can you provide an update on the relationship with NVIDIA and the product timeline? Have you received any feedback from customers regarding your ability to articulate the importance of that relationship, and in terms of timeline and significance, or any other information you’d like to share with us? Thank you very much. Chen Liwu, CEO: Of course. Thank you. This is a very important collaboration with NVIDIA. As you know, it’s a great company, and Jensen Huang and I have been friends for over 30 years. We are very excited about the effort to combine Intel's CPU x86 leadership with their unparalleled AI and accelerated computing advantages, and through the connection, this will truly create new product categories that span multiple generations. This is a very deep engineering-to-engineering engagement that will drive some new custom data center and PC products that are truly optimized for the AI era. So overall, I think this will be a multi-year collaboration, entering a market we are excited about, while also driving some demand for AI infrastructure. David Zinsner, Executive Vice President and Chief Financial Officer: Perhaps to add a bit more, what’s really special for us is that it’s not attacking our existing TAM, but rather providing incremental opportunities to expand our TAM. So these—these are huge opportunities for us. Ben Reitzes (Melius Research): Yes. Thank you, John. Liwu, you mentioned that your current AI strategy is to attack the inference market, and there is—do you see space for Intel solutions there? It sounds like you will be doing a lot of collaboration there. Is this strategy more about collaboration? Or is it more about—are there any specific Intel IP inference technologies that excite you, or is it more of a "Swiss" model where you can collaborate with many existing players to attack more TAM? Thank you. Chen Liwu, CEO: Yes, good question. So I think, first of all, with AI driving a lot of growth, we definitely want to be a part of it. I think this is a very early stage, so I see it as an opportunity for us. One area we are focusing on is revitalizing our x86 and really tailoring purpose-built CPUs and GPUs for new AI workloads, and then really addressing the efficiency issues and managing all the different agents. This is a new preferred computing platform approach that will also apply to systems and software. They will tell you, I think we will—work with some existing companies as well as emerging companies that are driving these changes. Timothy Arcuri (UBS): Thank you very much. Dave, we don’t often see high fixed-cost businesses with gross margins below 40% under constraints. I certainly understand this is primarily due to Intel's 10 and 7 wafer costs, and your still low yields on 18A. But I wonder—this might be a difficult question to answer, but I wonder if you could give us a bit of a forward-looking view, saying if you were to completely move away from 10 and 7 and fully utilize 18A, what would the gross margin be? Is there any way you could provide us with a standardized estimate? David Zinsner (Executive Vice President and CFO): Yes. I mean, obviously, you may... you might have heard some of my internal discussions with the team, because this is indeed something I have been emphasizing. I think there are two dynamic factors, one of which is the comparison between the high costs of old processes and the better cost structure of new processes, which is obviously important. I mean, our foundry business is currently in a negative gross margin state. Even just lifting it into positive territory would be a significant improvement. But another aspect of our gross margin relates to the quality (competitiveness) of the products themselves. In the client business, our product performance and competitiveness overall are decent, although there are some exceptions, but on a cost basis, we have not yet reached an ideal level. Therefore, we need to make improvements in this area. We have planned for this in our roadmap, and the team is aware of it, but it will take a multi-year process to achieve. And in the data center area, this issue is even more pronounced. We not only lack the right cost structure but also lack sufficient competitiveness to achieve ideal margins from customers. Therefore, we still have work to do in this area. This is precisely the area that Liwu and the team are currently highly focused on: building great products with the right cost structure to drive better gross margins. In my view, this is the key to all the issues. However, I believe improvements in the foundry area will come naturally. Our product mix will gradually transition to a higher proportion of Intel 3, 4, then 18A, and eventually 14A. The cost structures of these (advanced) nodes are actually quite close. At that time, the improvement in gross margins will primarily benefit from the much higher value provided by these leading nodes, which will substantially boost gross margins I also want to say that due to the rapid and intensive investment in a series of new processes, we are currently bearing a significant amount of initial startup costs. Once we enter the 14A phase, our (technology rollout) pace will become more normalized. Therefore, you will not see so many startup costs piling up, which is currently affecting our gross margin, involving amounts up to billions of dollars. So I believe that in a few years, this portion of costs will gradually decrease, which will also help. Timothy Akuri: Li Wu, you did not update the release date for "Diamond Rapids" in the last conference call. I know the entire roadmap is under review, but you sound— the company seems quite optimistic about the "Rapids" series. Can you provide us with some updates on the data center roadmap? Thank you. Chen Liwu (CEO): Okay, thank you. Great question. I think it is clear that "Diamond Rapids" is receiving stronger feedback from hyperscale customers. At the same time, we are also focusing on the new product "Rapids," which will include SMT (synchronous multithreading), enabling higher performance. We are currently in the definition phase, after which we will finalize the roadmap and execute in the future. Aaron Rakes (Wells Fargo): Okay. Thank you for the opportunity. Just a few very quick questions. I want to go back to the relationship with NVIDIA; I understand that this announcement is primarily related to the NVLink Fusion strategy and its integration with the x86 ecosystem. However, I think there have also been some recent reports mentioning that Gaudi might be used in NVIDIA's tech stack to handle certain dedicated inference workloads. What do you think— is this collaboration a starting point? Should we expect to see more potential integrations beyond the current scope in the future? Chen Liwu (CEO): Okay. I think—I’ll answer this question. I believe NVLink is more like a hub connecting x86 and GPUs. In terms of AI strategy, we are clearly defining what we mentioned as "Crescent Island," while there is also a new product line in our product lineup aimed at addressing physical AI and more early-stage (AI) areas. So I think, please stay tuned. We will update relevant information later. Aaron Rakes (Wells Fargo): Okay. Yes, I will be very brief. Can you provide us with some updates on non-controlling interest (NCI) expenditures to help us understand the situation for the remainder of this year and into the future? I think you have previously made some comments on how you are considering the situation for 2026? Thank you. David Sinisner (Executive Vice President and Chief Financial Officer): Yes. I think for 2026, an estimate in the range of $1.2 billion to $1.4 billion might be a good estimate. Obviously, we are paying attention to this matter and will do our best to minimize it