Intel Corp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ross Seymore - Deutsche Bank Securities, Inc. - Analyst : Congrats on solid results. Pat, I want to talk about the 18A transition. Can you just talk about what are the metrics we're going to be able to see externally on this to give people confidence in the ability to ramp it? You've said it's healthy. You've talked about new design wins. But when are some of the true metrics going to come either internally or perhaps even more importantly, externally as your Intel Foundry revenue from an external customer base grows?

Question: Ross Seymore - Deutsche Bank Securities, Inc. - Analyst : Yes, I do. One for Dave on the gross margin side of things, just somewhat chronologically, ex the charges, it looks like you're about a 41% gross margin in the second -- or excuse me, the third quarter, I know that's not where you want to be overall, but that's much better than you guided. So what was the cause of the upside there? Why is it going down in the fourth quarter? And what are the big picture puts and takes that you're alluding to about the gross margin leverage or lack thereof, especially as we get into the second half of next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 9:00PM, INTC.OQ - Q3 2024 Intel Corp Earnings Call

Question: Timothy Arcuri - UBS Investment Bank - Analyst : Pat, I think you mentioned at a conference maybe in September that defect density on 18A is you said sub-0.4, I think. Can you just talk about how that translates to yields? Is that sort of a good enough number to translate into high volume? And what sort of number for, say, defect density does a customer want to see when they're looking at your foundry?

Question: Timothy Arcuri - UBS Investment Bank - Analyst : I do. Yes. I have a question on Panther Lake, Pat. So I know that it's coming back in-house, but we do still hear that most tiles are still being outsourced. Can you speak to that? Is that a change? Or was that always the plan? And I guess when you look at Nova Lake on the desktop side, is it still being dual track, meaning that there is still an option that it could be outsourced? Or is it guaranteed to be brought back in-house?

Question: Christopher Muse - Cantor Fitzgerald & Co. - Analyst : Wanted to follow on that last question. In terms of the optionality in terms of securing leading-edge capacity, obviously, you're all in on 18A. But if that were to get delayed, what do you have in terms of negotiated capabilities in terms of securing capacity in '26, '27. And on the other hand, if 18A proves to be more successful, how are you thinking about time frame being more aggressive in terms of adding capacity in Arizona?

Question: Christopher Muse - Cantor Fitzgerald & Co. - Analyst : I do. Following the better the consensus guide for Q4, could you give us an early read on how you're thinking about seasonality into Q1?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Yes. I appreciate it. The -- two questions, if I can as well. So first on the foundry business as you guys ramp that, we start to focus on the ramp of 18A looking forward, given the pipeline of the design wins that you guys have talked about. I'm curious, how large is your external piece of that, call it, $4.4 billion revenue in this most recent quarter, I think it was about $77 million last quarter. And how do we think about the pace of that kind of inflecting higher as we look out into '25, '26? And I'm just curious how you would define success in that external business.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Yes, I do. Real quickly on the server side of the business kind of off the prior question. I guess there's a continual discussion or debate of like Intel's positioning as far as stabilizing or recapturing share position in x86 service. I'm curious as we think about Granite Rapids, we think about Clearwater Forest and Diamond Rapids, how do you characterize your ability to kind of your views of recapturing share in that server CPU market?

Question: Srinivas Pajjuri - Raymond James & Associates, Inc. - Analyst : Pat, I have a question on the foundry side, in particular, the packaging business you have. I know, even though there's a lot of skepticism about 18A but I think you guys have pretty good packaging technology, and it's proven, I believe, if I look at EMIB and Foveros, et cetera. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 9:00PM, INTC.OQ - Q3 2024 Intel Corp Earnings Call So my question is, given the tightness in the packaging industry right now, I would have thought we would see more interest in your packaging services. So I'm just curious as to why we are not seeing that. Is it because it's -- I guess there must be some nuances of using your packaging with TSM wafers. I'm just curious as to why we are not seeing more interest.

Question: Srinivas Pajjuri - Raymond James & Associates, Inc. - Analyst : Yes, I do. I guess a question on the gross margin side, Dave. I guess there are two issues impacting your PC gross margins. One, the wafer outsourcing and the other, you said packaging of the memory. I'm just curious how much of an impact that memory packaging is having on your gross margin? I suppose that helps your ASPs, but I guess it hurts your gross margin percent. So just curious to know how much of an impact that's having. And then maybe for Pat, architecturally, why do we need to, I guess, combine memory in one package? And is this something that's going to be ongoing? Or is it just a one-off with, I guess, Lunar and Meteor Lake?

Question: Christopher Caso - Wolfe Research - Analyst : Yes. I guess the first question is on both CapEx and OpEx as you go through next year. And I think you were a bit clear about what the plans are and what the resulting free cash flow is. I guess, Dave, the question is how much flex maybe in those numbers, I guess as you go through '25 and '26 as well given the fact that you do have to invest in new technology nodes, how much flex is there for changes in market conditions. Also recognize that you don't have pretty much revenue growth in the plan for that as well.

Question: Christopher Caso - Wolfe Research - Analyst : I do. And I mean, it's a good segue in the next question, Pat, and it's -- I guess a question about your comments on Better Together. And if you could kind of explain the rationale of why you think that's the case, obviously, there's various opinions on that. And if Intel would be willing or has looked at anything strategic beyond what the current plan is right now.

Question: Joseph Moore - Morgan Stanley - Analyst : In your opening remarks, you talked about narrowing the product focus and prioritizing x86. Can you talk about, practically speaking, what happens there? Does that mean, are there other areas you're investing less in to focus more on x86? Is that a mindset shift organizational shift? Just what do you mean by that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 9:00PM, INTC.OQ - Q3 2024 Intel Corp Earnings Call

Question: Joseph Moore - Morgan Stanley - Analyst : Yes, I do. To the extent that you are kind of prioritizing the x86 leadership that you have does anything shift in the IDM 2.0 model? Is it -- they referenced that the arm's length relationship with IFS is still going really well? Like is that still a focus, is there a benefit to -- if the focus is more on internal foundry versus excess to marrying those business more tightly? Just how do you think about that relationship?