Thank you for standing by, and welcome to Intel Corporation's Fourth Quarter 2022 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. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. John Pitzer, Corporate Vice President of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. By now, you should have received a copy of the Q4 earnings release and earnings presentation, both of which are available on our investor 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, Pat Gelsinger; and our CFO, David Zinsner. In a moment, we will hear brief comments from both followed by a Q&A session. Before we begin, please note that today's discussion does contain forward-looking statements based on the environment as we currently see it. As such, it does involve risks and uncertainties. Our press release provides more information on the specific risk factors that could cause actual results to differ materially. We've also provided both GAAP and non-GAAP financial measures this quarter, and we will be speaking to the non-GAAP financial measures when describing our consolidated results. The earnings release and earnings presentation include full GAAP and non-GAAP reconciliation. With that, let me turn things over to Pat.

Thank you, John, and good afternoon, everyone. Q4 revenue came in at the low end of guidance and was impacted by persistent macro headwinds, which began in Q2 and underscored a 2022 characterized by unprecedented volatility, which will continue in the near term. We made meaningful progress on several fronts in calendar year 2022, notwithstanding all the challenges, but we readily admit our results and our Q1 guidance are below what we expect of ourselves. We are working diligently to address the challenges brought on by current demand trends and remain confident in our long-term plans and trajectory. Accordingly, we are even more aggressively executing on the cost measures we described in Q3, even as we keep the investments critical to our long-term transformation intact with a clear eye on making the right capital allocation decisions to drive the most long-term value. Today, I'd like to address three areas. One, our view on the macro and the markets in which we participate; two, the operational progress we made in 2022; three, as we enter the New Year, outlining the commitments we are making to all our stakeholders. First, on the macro. We expect macro weakness to persist at least through the first half of the year with the possibility of second half improvements. However, given the uncertainty in the current environment, we will not provide revenue guidance beyond Q1. Dave will provide guidelines for capital spending, depreciation, and adjusted free cash flow in his prepared comments. That said, we expect macro weakness to persist at least through the first half of the year with the possibility of second half improvements. Importantly, in the PC market, we saw a further deterioration as we ended calendar year 2022. In Q3, we provided an estimate for the calendar year 2023 PC consumption Total Addressable Market (TAM) of 270 million to 295 million units. Given continued uncertainty and demand signals we see in Q1, we expect the lower end of that range is a more likely outcome. Near term, the PC ecosystem continues to deplete inventory. For all of calendar year 2022, our sell-in was roughly 10% below consumption with Q4 under shipping meaningfully higher than full year, and Q1 expected to grow again to represent the most significant inventory digestion in our data set. While we know this dynamic will need to reverse, predicting when that will occur is difficult. Importantly, PC usage data remains strong, reinforcing that use cases brought on by COVID are persistent even as the economy has reopened. And as we highlighted in our recent PC webinar, strong usage and installed base, which is roughly 10% higher than pre-COVID levels and what we see as a conservative refresh rate supports a longer term PC TAM of 300 million units plus or minus, post this period of adjustment. We intend to capitalize on this TAM through a strong pipeline of innovation, and based on the growing strength of our product portfolio, customers are increasingly betting on Intel. We grew share in the second half of 2022, and we expect that positive momentum to continue in 2023. We remain clear-eyed on managing to near-term weakness in PCs, but we also see the enduring and increasing value PCs have in our daily lives. In the server market, the overall consumption TAM grew modestly in calendar year 2022, albeit at diminishing rates as the year progressed. Inventory burn drove server CPU shipments down mid-single digits year-on-year in calendar year 2022 with hyperscale up, offset by declines in enterprise and Rest of World. Our share in calendar year 2022 was in line with our subdued expectations, and our revenue volatility was a function of TAM, especially given our outsized exposure to enterprise and China. We expect Q1 server consumption TAM to decline both sequentially and year-over-year at an accelerated rate with first half 2023 server consumption TAM down year-on-year before returning to growth in the second half. While all segments have weakened, enterprise and Rest of World, especially China, continues to be weaker than hyperscale. However, we would highlight that the correction in enterprise and Rest of World, where we have stronger positions, is further along than hyperscale. Lastly, in our broad-based markets like industrial, auto, and infrastructure, demand trends throughout calendar year 2022 were strong but not completely immune to the macro volatility. Strong demand in these markets was mirrored by strong Q4 and record calendar year 2022 revenue in NEX, PSG, IFS, and Mobileye. We see calendar year 2023 as another growth year for us in these areas, even though the absolute rate is difficult to predict today. This is in contrast to the semi market excluding memory, which third parties expect to decline low to mid-single digits. We entered 2023 with a view that much of the macro uncertainty of the last year is likely to persist, especially in the first half. As such, we are laser-focused on executing our $3 billion in calendar year 2023 cost savings that we committed on our Q3 earnings call. We are making tough decisions to rightsize the organization, and we further sharpened our business focus within our Business Units (BUs) by rationalizing product roadmaps and investments. NEX continues to do well and is a core part of our strategic transformation, but we will end future investments in our network switching product line while still fully supporting existing products and customers. Since my return, we have exited seven businesses, providing in excess of $1.5 billion in savings. We are also well underway to integrating AXG into CCG and DCAI, respectively, to drive a more effective go-to-market capability, accelerating the scale of these businesses while further reducing costs. While it was important to focus on what we are doing to address the current macro uncertainty, it is also important to highlight that despite disappointing financial results, calendar year 2022 did see considerable progress towards our transformation. We remain fully committed to executing our strategy to deliver leadership products, anchored on open and secure platforms, powered by at-scale manufacturing and supercharged by our people. Success starts with our people, and execution follows culture. In calendar year 2022, we took important strides to rebuild the leadership team, promoting from within and adding fresh perspectives from the outside. This includes the Board of Directors, with the addition of Lip-Bu Tan and Barbara Novick, both of whom have already made significant contributions and the appointment of Frank Yeary as Chair. In addition, a year ago, we reestablished OKRs to drive accountability and transparency across the organization, and we reintroduced TikTok 2 to establish a rigorous methodology of design and product development. Both are key spark plugs to our execution engine. Rebuilding the culture has begun to show benefits in manufacturing and design. Our progress against our Technology Development (TD) roadmap continues to improve throughout calendar year 2022, and every quarter, our confidence grows. We are at or ahead of our goal of five nodes in four years. Intel 7 is now in high-volume manufacturing for both client and server. On Intel 4, we are ready today for manufacturing, and we look forward to the Meteor Lake ramp in the second half of the year. Intel 3 continues to show great health and is on track. Intel 4 and 3 are our first nodes deploying Extreme Ultraviolet (EUV) lithography, and will represent a major step forward in terms of transistor performance per watt and density. On Intel 20A and Intel 18A, the first nodes to benefit from RibbonFETs and PowerVia, internal test chips and those of a major potential foundry customer have taped out with the silicon running in the fab. We continue to be on track to regain transistor performance and power performance leadership by 2025. Progress in the IFS pipeline continues to be validated by our IFS pipeline. I am happy that we were able to add a leading cloud edge and data center solutions provider as a leading edge customer for Intel 3, including prior customers such as MediaTek, and we now have a lifetime deal value of greater than $4 billion for IFS. We also have active pipeline engagements with seven out of the 10 largest foundry customers, coupled with consistent pipeline growth to include 43 potential customers and ecosystem partner test chips. Additionally, we continue to make progress on Intel 18A, and I've already shared the engineering release of PDK0.5 with our lead customers and expect to have the final production release in the next few weeks. In addition, we are working hard to complete the Tower acquisition, which will further amplify our momentum as our foundry business becomes even more compelling to customers. On the product front, the PRQ of Sapphire Rapids in Q3 and the formal introduction of our fourth generation Xeon scalable CPU and Xeon CPU MAX series, better known to many of you as Sapphire Rapids and Sapphire Rapids HBM, respectively, on January 10 was a great milestone. It was particularly satisfying to host a customer-centered event, including testimonials from Dell, Google Cloud, HPE, Lenovo, Microsoft Azure, and NVIDIA, among many others. We are thrilled to be ramping production to meet a strong backlog of demand, and we are on track to ship 1 million units by midyear. In addition, as part of AXG moves into DCAI, it is noteworthy that our Intel Flex series, optimized for, and showing clear leadership in media stream density and visual quality, is now shifting initial deployments with large cloud service providers and multinational corporations, enabling large-scale cloud gaming and media delivery deployments. Our DCAI roadmap only improves from here. Emerald Rapids is sampling and has completed power-on with top OEM and CSP customers, and it remains on track to launch in the second half of 2023. Granite Rapids, our next performance core addition to the Xeon portfolio, is on track to launch in 2024, running multiple operating systems across many different configurations. Further, our first efficient core product, Sierra Forest, is also on track for 2024. Lastly, it is appropriate to continue to highlight PSG for its standout performance, delivering record Q4 revenue up 42% year-on-year. We are planning to have a more fulsome look at our progress in DCAI at our next investor webinar later in Q1. Stay tuned for the invitation. In CCG, we continue to build on our market share momentum across the PC stack by focusing on delivering leadership products with our broad open ecosystem. I'm particularly pleased that our clear performance leadership at the high end drove record client average selling prices (ASPs) in the quarter. In Q4, the 13th Gen Intel Core desktop processor family, codename, Raptor Lake, became available, starting with the desktop K processors and the Intel Z790 chipset. In partnership with ASUS, we officially set a new world record for overclocking, pushing the 13th Gen Intel Core past the 9 gigahertz barrier for the first time ever. We provide desktop enthusiasts and gamers with the best processors and features for overclocking in the PC industry. We also introduced our notebook Raptor Lake family at CES, including the world's fastest notebook CPU and the first with 24 cores. We look forward to ramping the more than 300 mobile design wins we have already secured in the first half of 2023. Meteor Lake, our first disaggregated CPU built on Intel 4, remains on track for the second half of the year. And with Meteor Lake progressing well, it's now appropriate to look forward to Lunar Lake, which is on track for production readiness in 2024, having taped out its first silicon. Lunar Lake is optimized for ultra-low power performance, which will enable more of our PC partners to create ultra-thin and light systems for mobile users. In addition, as we outlined on our webinar, we are excited by the strength of the Evo brand. The introduction of Unison for leadership multi-device experience as we ramp the more than 60 design wins and the uniqueness of vPro in the enterprise market, helping our customers drive almost a 200% return on investment by deploying vPro platforms to their end users. Lastly, as consumer graphics reintegrate into CCG, enthusiasm for our latest Alchemist-based discrete graphics products continues to build, and we expect volume ramp throughout the year. Turning to NEX and Mobileye, both businesses have performed well in Q4 and calendar year 2022, partially insulated by some of the market forces impacting PCs and servers. NEX hit the key product milestones with Mount Evans, Raptor Lake P&S, and Alder Lake N, and Sapphire Rapids to drive a second consecutive year of double-digit year-on-year growth in calendar year 2022. We expect market share gains and outperformance to continue in 2023. Mobileye increased revenue by almost 60% year-on-year in Q4 and is on a solid growth path for calendar year 2023. Calendar year 2022 design wins, including supervision, are projected to generate future revenue of approximately $6.7 billion across 64 million units. In addition, our manufacturing organization performed well throughout calendar year 2022. Starting the year, navigating the worst supply-constrained environment in over 20 years, only to have to pivot in Q2 to respond to rapidly changing demand signals, which are now driving near-term under-loading in our factory network. More importantly, we continue to push forward with the next phase of IBM 2.0, creating an internal foundry, evolving our systems business practices and culture to establish a leadership cost structure. This new approach is already gaining momentum internally. As a reminder, the internal foundry model will place our BUs in a similar economic footing as external IFS customers and will allow our manufacturing group and BUs to be more agile, make better decisions, and uncover efficiency and cost savings. We have identified nine different subcategories for operational improvement that our teams will aggressively pursue. In addition to establishing better incentives, this new approach will provide transparency on our financial execution, allowing us to better benchmark ourselves against other foundries and drive to best-in-class performance. We'll also provide improved transparency to our owners as we expect to share full internal foundry profit and loss statements in calendar year 2024. Ultimately, allowing you to better judge how we are allocating your capital and creating value. We expect additional efficiencies as we implement our internal foundry model, which is key to accomplishing our $8 billion to $10 billion of cost savings exiting 2025, as we outlined on our last call. I want to remind everyone that we are on a multi-year journey. We remain focused on the things that are within our control as we navigate short-term headwinds, while executing our long-term strategy. While I remain sober that we have a long way to achieve our financial expectations, I am pleased with the transformation progress we are making. I can tell you, in addition to obviously focusing on the day-to-day running of the company, we continue to examine numerous additional value-creating initiatives for 2023 as we always do. We will update you as we move along on any we deem appropriate. Rest assured, we remain committed to creating value for our owners and to delivering the long-term strategic roadmap we laid out at the beginning of this journey, and we are confident in our ability to do so. We will, one, deliver on five nodes in four years, achieving process performance parity in 2024 and unquestioned leadership by 2025 with Intel 18A; two, execute on an aggressive Sapphire Rapids ramp, introduce Emerald Rapids in the second half of 2023, and Granite Rapids and Sierra Forest in 2024; three, ramp Meteor Lake in the second half of 2023 and PRQ Lunar Lake in 2024; and four, expand our IFS customer base to include large design wins on Intel 16, Intel 3, and 18A this year. We also need to improve our cost structure and drive operational efficiency. On this front, we will, one, return to profitability and deliver the benefits of our calendar year 2023, 2024, and 2025 efforts to reduce costs and drive efficiencies; two, execute our internal foundry profit and loss by 2024; and three, expand on the use of our smart capital strategy to leverage multiple pools of capital, including SCIPs and Chips in the US and Europe to balance our long-term capacity aspirations with near-term realities. Before I turn it over to Dave, I'm going to close by saying we take our commitments to all our stakeholders extremely seriously, and ultimately, we strive to create value for each of them. For our customers, it is rebuilding our execution engine to provide a predictable cadence of best-in-class products to support their ambitions. For our employees, it is to provide them with the opportunity to develop and bring to market world-changing technologies. It is what inspires each of us inside the company. For our external owners, it is to make thoughtful, deliberate decisions around capital allocation, which drives the highest return on investment we can make with your capital. Our ambitions are equaled by our passion, and our efforts across manufacturing, design, products, and foundry are well on their way to driving our transformation and creating the flywheel, which is IBM 2.0.

Thank you, Pat, and good afternoon, everyone. We saw solid business execution in the fourth quarter despite persistent macroeconomic headwinds impacting the semiconductor industry. As Pat indicated, we expect challenging macro conditions to continue through at least the first half of the year. As outlined last quarter, we will continue to prioritize investments critical to our transformation, prudently and aggressively manage expenses near-term, and drive fundamental improvements in our cost structure longer term. We're executing well towards our $3 billion target in 2023 and $8 billion to $10 billion exiting 2025. Fourth quarter revenue was $14 billion, landing at the low end of our range and down 8% sequentially. Revenue from DCAI and NEX were in line with expectations, while CCG was impacted by softening demand for PCs. Gross margin for the quarter was 44%, slightly better than we had expected for the low end of our revenue range. Q4 gross margins were impacted 220 basis points from factory underload charges, offsetting a sequential 170 basis point benefit from an insurance settlement. EPS for the quarter was $0.10 below our guide on lower revenue and increased inventory reserves. Operating cash flow for the quarter was $7.7 billion. Net CapEx was $4.6 billion, resulting in an adjusted free cash flow of $3.1 billion, and we paid dividends of $1.5 billion. We finished FY 2022 with revenue of $63.1 billion, gross margin of 47.3%, and EPS of $1.84. We generated $15.4 billion of cash from operations and an adjusted free cash flow of approximately negative $4 billion at the low end of the range we provided last quarter, despite approximately $3 billion of capital incentives that shifted from Q4 into 2023. When we spoke at Investor Day last February, we forecasted revenue of $76 billion and adjusted free cash flow of negative $1 billion to $2 billion for FY 2022. As macroeconomic conditions deteriorated at a rapid pace in the second half of 2022, we committed to optimizing the areas of the business within our control. Through reductions in spending and significant working capital improvements, we offset a $13 billion reduction to revenue expectations to come within $2 billion of our initial adjusted free cash flow guide while still making the needed capital investments in support of our IDM 2.0 strategy and to position ourselves for long-term growth in a market expected to reach $1 trillion by 2030. Our balance sheet remains strong with cash and investment balances of more than $28 billion, modest leverage, and a strong investment-grade profile. Moving to fourth quarter business unit results. CCG revenue was $6.6 billion, a decline of 36% year-over-year as PC TAM deteriorated faster than expected due to macroeconomic headwinds. Customer inventory remains elevated beyond our previous expectations and will continue to burn into the first half of 2023. CCG realized record CPU ASPs, up 11% year-over-year as we continue to see relative strength in our premium segments driven by leadership performance and attractive features of our Evo and vPro platforms. Q4 operating profit was $0.7 billion, down year-over-year on lower revenue and increased Intel 7 product mix. DCAI revenue was $4.3 billion in Q4, up 2% sequentially, with higher ASPs offsetting demand softness and down 33% year-over-year, driven by TAM contraction and competitive pressure. DCAI operating profit for the fourth quarter was $371 million. While still unsatisfactory, profit was up more than $350 million sequentially on reduced factory costs. Operating profit was down substantially year-over-year, impacted by lower revenue, increased advanced node startup costs and higher product costs. Within DCAI, PSG achieved record Q4 revenue, up 42% year-over-year, along with record full year revenue, up 29% year-over-year, through increased ASPs, improved external supply, and strength in the infrastructure segment. PSG enters 2023 with still significant unfulfilled backlog. NEX quarterly revenue was $2.1 billion, down 1% year-over-year, as declining global GDP impacted the Edge business, offsetting growth in Xeon network CPUs and the ramp of our Mount Evans infrastructure processing unit. Despite second half macro headwinds, NEX set another full year record revenue at $8.9 billion, up 11% year-over-year and marking consecutive years of double-digit revenue growth. Operating profit was $58 million in the fourth quarter, down on mix shift to lower-margin segments and higher factory startup costs. AXG achieved record quarterly revenue of $247 million, up 34% sequentially and up 1 point year-over-year, supported by the launch of Sapphire Rapids HBM. Operating loss was $441 million, down $63 million sequentially, with inventory valuations negatively impacted by softer demand, especially for crypto processors. Mobileye delivered another record revenue quarter of $565 million, up 26% sequentially and growth of more than $200 million and 59% year-over-year. Full-year revenue of $1.9 billion was also a record for Mobileye, growing 35% year-over-year. Fourth quarter operating income of $210 million represents 71% growth year-over-year. IFS achieved record quarterly revenue of $319 million, up 87% sequentially and 30% year-over-year on increased automotive shipments. Operating loss was $31 million, a $72 million improvement sequentially on higher revenue. We continue to reshape the company to drive to world-class product costs and operational efficiency. We remain committed to the $3 billion of 2023 cost savings outlined on our Q3 earnings call, while mindfully protecting the investments needed to accelerate our transformation and ensure we are well positioned for long-term market growth. Before turning to Q1 guidance, let me take a moment to discuss an accounting change that will impact our results beginning in the first quarter. Effective January 2023, we increased the estimated useful life of certain production machinery and equipment from five years to eight years. This change better reflects the demonstrated economic value of our machinery and equipment over time and is more aligned with the business model changes inherent to our IDM 2.0 strategy. The growth of the IFS deal pipeline will extend the life of manufacturing nodes beyond what was practical within IDM 1.0. Disaggregated CPU architecture allows performance and cost optimization for each chiplet to better leverage older nodes. We are optimizing our core business around more sustainable capacity quarters to improve equipment utilization and maximize return on invested capital (ROIC). The change will be applied prospectively beginning Q1 2023. When compared to the estimated useful life in place as of the end of 2022, we expect total depreciation expense in 2023 to reduce by roughly $4.2 billion, an approximate $2.6 billion increase to gross profit, a $400 million decrease in R&D expense, and a $1.2 billion decrease in ending inventory values. This change will not be counted towards the $3 billion short-term or $8 billion to $10 billion long-term structural cost improvements we committed last quarter and is intended to provide the most accurate reflection of company financial results to our owners. Now turning to guidance. For Q1, we expect first quarter revenue of $10.5 billion to $11.5 billion. In addition to continued macro headwinds, we expect customers will burn inventory at a meaningfully faster pace than the prior few quarters in response to macro TAM softness impacting CCG, DCAI, and the x lines of business. We see potential for market conditions to improve faster than typical seasonality as third-party data shows macro headwinds easing in the second half of the year. While we're progressing toward a $3 billion spending reduction with significant austerity across the company, given the fixed cost nature of our business, we expect the sequential revenue decline will result in negative operating margin in the first quarter. We're forecasting gross margin of 39%, a tax rate of 30%, and EPS of negative $0.15 at the midpoint of revenue guidance, inclusive of $350 million to $500 million of operating margin benefit from the useful life accounting change, split approximately 75% to cost of sales and 25% to operating expenses. Factory underload charges are projected to impact Q1 gross margin by 400 basis points. We continue to evaluate all investments and will remain laser-focused on optimizing for ROI, adjusting for market conditions across operating expenses and capital assets. While we're not providing guidance beyond Q1, I'll touch on a few elements of our outlook. At Investor Day, we noted that during the investment phase of IDM 2.0 from 2022 through 2024, our model was to operate at approximately 35% net capital intensity. For FY 2023, despite the lower revenue level, we expect to be at or below the 35% model. Embedded in our assumptions are capital offsets of around 20% to 30% of growth CapEx, including our innovative SCIP partnership with Brookfield. We expect FY 2023 operating expenses of under $20 billion, a roughly 10% year-over-year decline consistent with committed cost-cutting measures totaling $2 billion, adjusting for the depreciation change. Adjusted free cash flow will be below our Investor Day guide of approximately neutral in the first half of 2023 and return back towards guardrails in the second half of 2023. In closing, we remain committed to the strategy and long-term financial model we laid out at Investor Day last year. The opportunity for strong revenue growth across our business unit portfolio and free cash flow at 20% of revenue remains. While we're not satisfied with near-term results, this market downturn represents an opportunity to accelerate the transformation necessary to achieve our long-term goals. I look forward to providing updates on our transformation journey as the year progresses. With that, let me turn the call back over to John.

Thank you, Dave. We will now move into the Q&A portion of our call. As a reminder, we ask each caller to ask one question and a brief follow-up question where applicable. With that, Jonathan, can we please take the first caller?

Certainly. Our first question comes from Ross Seymore from Deutsche Bank. Please go ahead with your question.

Hi guys. Thanks for let me ask a question. I guess, Dave, to hit on some of the revenue questions or items you just said, do you expect the first quarter to be the bottom in absolute dollars through the year? And any color between the segments? It seems like it's exceedingly a CCG problem right now in the quarter, or is it broader than that?

Yeah. So you want to go first?

No.

So let me start, and Pat will provide some additional details. Regarding the $11 billion, we anticipate that most business units will experience a sequential decline in double digits. We will not issue guidance for the remainder of the year. However, I mentioned that the first half is likely to see inventory corrections. Additionally, I want to highlight that we expect Q1 to have the most significant inventory decline at our customers that we've observed in recent history. Compared to the past four or five quarters of reductions, this decline will be considerably larger. This situation is certainly affecting our outlook for Q1.

Yeah. And clearly, as we look at Q1, affected by macro significant inventory adjustments, and that's affecting clearly clients but also data center as well. And we do see that year-on-year, quarter-on-quarter data center to be down as well. And we think that's a macro statement across all segments across cloud, enterprise, government, and uniquely China. Part of our more positive expectation for the second half of the year is clearly from our customers and what we've heard from them but also with expected some level of recovery from China as well. So overall, clearly, a major inventory correction cycle is coming after back-to-school, as they refresh our customers clearly wanting to take more aggressive steps as they adjust. But that inventory adjustment is well below their sell-out rates. So for that, we do believe that we will see recovery as they have made those inventory adjustments, and we'll see the business be stronger as we go through the year.

Ross, do you have a follow-up?

I do. Quickly, Dave, I want to pivot to the gross margin side of things, excluding the change in the depreciable life side of the equation. I know revenue is the biggest headwind right now. But you had talked at the Investor Day last year about a 51% to 53% gross margin range and you want to operate within those bands. What does it take to get back to that? Is there a revenue level? Do you have to be above $17 billion, $18 billion? Are there offsets, any framework you can give to give investors confidence that we never thought we'd see a three handle on your gross margin? And so we really want to know what it's going to take to get back to a five handle. And if that's significantly changed from the last framework that you provided us?

Yeah, good question. So, obviously, revenue is the most significant impact to gross margins. We obviously did not expect to be down at these levels. That said, it's a function of some significant inventory burn. So it's not necessarily a reflection of the demand in the market. So obviously, we would expect that to ever at some point, which will be a significant lift to the gross margins. The other thing is, in the first quarter, we're going to have about a 400 basis point impact on our gross margins just from under loading, because of the demand softness. And we would expect loadings to improve once we get past the inventory correction we're currently experiencing. In addition to that, we have a number of initiatives underway to improve gross margins, and we're well underway. When you look at the $3 billion reduction that we talked about for 2023, $1 billion of that is in cost of sales, and we're well underway to getting that $1 billion. And then when you start to click it further into the $8 billion to $10 billion that we want to hit by the end of 2025, about 66% of that, two-thirds of that is cost of sales improvement. And we're getting a lot of that from our internal foundry model that Pat mentioned. We're already seeing significant opportunities to be efficient – more efficient between our business units and our factories. And I think we'll have a lot of things to say over the course of this year about areas that we see meaningful improvement. Also, we have smart capital that was modest in 2022, it's going to be more significant in 2023, and much of that smart capital does translate to a better cost structure for us that will help gross margin. So net of that, I feel very confident we will get back to 51% to 53% in the medium term. And in the long term, I feel very confident we will get back to 54% to 58%. And I think Pat said it in the past, we aim to beat that range.

Thank you, Ross. Jonathan, can we have the next question, please?

Certainly. And our next question comes from the line of Vivek Arya from Bank of America. Your question, please.

Thanks for taking my question. I'm curious, how many weeks of PC microprocessor inventory is still in the channel? I'm trying to understand, whether the demand assumptions are not what they should be, right, or is it the supply assumptions? So when you say that, the consumption this year will be $270 million, right, which is the low end. How do we know that for sure? What if the consumption rate is much lower than that? So just how many weeks of PC microprocessor inventory is there? And do you think Q1 is that clearing quarter, or you think even in Q2, you could be shipping below consumption levels?

So overall, as we said, we saw the range $270 million, $295 million. We believe the sell-through rate will be to the lower end of that. The consumption that we saw in Q4 was well below that, and the consumption rate or the sell-in rate in Q1 is even more significantly almost 2x more significant below the consumption rate. Obviously, these are the macro effects that we can't predict, and that's what's taken us a bit more to the low end of the range. But clearly, as we've been working with our customers and channel partners, we've been monitoring very carefully the sellout that they've seen. So we're pretty comfortable with that range. Also, we would point to China and a very unique circumstance there as is well known. And we do expect that there will be some level of economic recovery there, particularly we forecasted in the second half of the year. This is a topic that we continue to work closely with our customers. That said, overall, and as we updated on our PC webinar, we do expect that the long-term market is in the 300 million unit range. So as we overcome this inventory adjustment cycle, and some of this near-term economic. And I think as you heard from Microsoft, PC usage is up, the number of hours per PC continues to be up. The installed base has gone up. So all of those factors give us reasonable confidence that post this period of inventory correction we will have a very healthy $300 million unit plus or minus market that we're selling into.

Vivek, do you have a follow-up question?

Yes. Thank you, John. And thank you, Pat. Second question is on the data center. Historically, the semiconductor market likes incumbency, and there is only a share shift if and when the incumbent messes up. And right now, your competitor seems to be becoming a larger incumbent in a lot of cloud deployments, and it doesn't seem to be messing up. Doesn't it make it harder to displace them? I'm just curious what edge you think Intel has to change the status quo of share shift in cloud server? Do you think your design will get noticeably better? Is it architecture? Is it manufacturing? What helps you specifically to change this current momentum of share shift in cloud servers?

Yes. Thank you. And I think the most important thing is what we just did with Sapphire Rapids, right? Our customers were anxious for a great product from Intel. Obviously, we would have liked it to be earlier, as we had initially estimated, but we are now shipping a very high-quality product with significant areas of leadership in areas like AI performance, power performance, security feature function, high-performance computing workflows that are five times the competition. And features in areas like confidential computing and security that are quite differentiated from anything in the marketplace. Obviously, share shift, particularly in the data center space, these designs were one a year ago or two years ago. And so, it takes some amount of time. And against that, we're seeing a very strong outlook for Sapphire Rapids ramp through the year, as I said, 1 million units in the middle of the year, so very strong demand from our customers. And the other thing, as we've indicated, is have we rewon our customers' confidence that they could bet on our roadmap. Emerald Rapids looking very healthy for later this year, Granite Rapids and Sierra Forest looking very healthy for next year. And all of those, I believe, are rebuilding our customers' confidence. And I believe with that, given the massive incumbency that Intel has, and I would just emphasize that even though we have seen the share shift in recent sell-in, the installed base is Intel. There's an enormous, on many of the cloud customers, 95-plus percent of their installed base is Intel that gives us a very strong incumbency that we get to renew as we rebuild our customers' confidence. So as you put all of those things together, yes, we realize that we stumble, right? We lost share. We lost momentum. We think that stabilizes this year, and we're going to be building a roadmap that allows us to regain leadership for the long term in this critical market.

Thanks, Vivek. Jonathan, can we have the next question, please?

Certainly. Our next question comes from the line of Timothy Arcuri from UBS. Your question, please.

Thanks a lot. Dave, I had a question on CapEx. I know you don't want to guide for the full year, but you did say that 20% to 30% of the gross CapEx, whatever the number is this year, is going to be sets. I know you don't have a lot of visibility on the chips money you're going to get. But it seems like, best case, revenue is going to be in the mid-50s roughly. And if I take a little less than 35% of that, because you said that it's still going to be 35% or less, that will be the net CapEx intensity. And I sort of divide the numbers, it implies a gross CapEx number, something in the range of $20 billion, give or take. Can you sort of help us just handicap that number?

Yes. We are currently not looking to provide guidance beyond the first quarter due to uncertainty. However, we are committed to making the right investments for our long-term IDM 2.0 strategy while carefully managing our capital expenditures to ensure good free cash flow. I anticipate that our Smart Capital offsets will be significantly better this year, partially because we will be fully engaged with SCIPs 1 through our partnership with Brookfield. We also expect grant incentives to contribute to this year's Smart Capital offsets. Additionally, the investment tax credit is already in place and may benefit us this year. While Smart Capital will be robust, we are being cautious with our total capital spending throughout the year. As the year progresses, we will monitor developments closely and adjust accordingly. Importantly, we did not foresee reaching this revenue level for 2023 when we previously mentioned a net CapEx intensity of 35%. Nevertheless, we are maintaining our discipline to keep spending at or below that 35% threshold for the year, which is a key takeaway for investors.

Yes. Also, I'd just add that we do, and Dave sort of implied it, but we do expect to do SCIP 2 this year as well, which is another source. Also, the credit center clearly has motivation on the part of commerce to get that underway, and the rules are making in place in the near future and start to dispense funds this year. Also, I'd point to Europe as well, so it's EU chips as well as US chips. So all of those efforts are part of Smart Capital for us. We do believe that we'll have the capital necessary to meet both our near-term but more importantly the strategic long-term investments. And that's what we say we're on track with IDM 2.0. We're on track with the capital, the builds that allow us to restore leadership in our process technology as well as have the factory capacity to both deliver that for our products as well as for our foundry customers.

Tim, do you have a follow-up?

I do, John. Dave, could you walk us through some of the factors affecting gross margin? I understand you don't want to provide guidance for the full year, but could you help us think about the factors that might influence it? Obviously, as volumes increase, that will positively impact gross margin. Are there any other factors you would highlight for us? Thanks.

Yes, revenue will be the primary factor influencing gross margins. We operate with a high fixed cost structure, which negatively impacts us when revenue declines, but we also gain advantages when revenue increases. What is currently a challenge will become favorable as the business improves. The second major factor affecting us is the underload charges, which amount to about 400 basis points this quarter. We will evaluate the appropriate loading for the second quarter as we approach that time. This approach is aimed at effectively managing our cash flow. However, as business conditions change, we will increase the loading at the fab, which will enhance gross margins. Additionally, we have various cost initiatives underway, targeting $3 billion in savings for 2023 and an improvement of $8 billion to $10 billion over the coming years, which will further contribute to managing costs and improving gross margins beyond just revenue and loading factors.

Thanks, Tim. Jonathan, can we have the next question please?

Certainly. And our next question comes from the line of C.J. Muse from Evercore ISI. Your question please.

Thank you for taking the question. Another question on CapEx. I guess, bigger picture, can you speak to your CapEx philosophy in a slower demand environment? Is it finding the right number to fit a free cash flow model, or are you looking at your overall demand picture and saying, we need X minus Y wafer starts, and that's why we can spend less? Would love to get a sense of how the slowdown here is potentially changing or potentially not your strategy of spending? And if it's not, is it just simply delaying investments into 2024 and 2025? Thanks.

Yeah. Thanks, C.J. I'll start and ask Dave to jump in. We think about the capital budget with two lenses in mind, right? One is the strategic lens. Am I going to get back to leadership at 20A and 18A? Yes, am I going to make the capital investments required to do that? Absolutely. To some degree, do we scrub those? Could we look hard at those? Where can we save tens or hundreds of millions of dollars on those? Yes, we will. But we're not going to diminish from the capital required for strategic leadership for the long-term. So strategic capital largely unchanged. The second bucket, of course, I'll just call it capacity capital, right, and adjusting to the near-term ebb and flows of the business requirement. And obviously, in this macro environment, that's been adjusted meaningfully downward, and we're finding everywhere we can to squeeze our existing capacity more effectively to be more aggressive in terms of how we work with our equipment suppliers in those areas and doing everything we can to minimize the capital that's required for capacity-driven requirements as well. And that's where the larger trade-offs have been. And, of course, in a business as large as ours, we have labs and buildings and everything else. We are scrubbing those like crazy as you would want us to. Dave, what else would you add?

You took one of mine. Obviously, the OpEx area, yeah, is an area that we've really focused on and Pat mentioned the lab piece, which is one of the areas that we have found efficiency. And I guess the last thing is that we have seen our capital offsets be higher than our original expectation. We were planning for probably one-third of what we think we'll get in 2023 when we announced our smart capital initiative at the Analyst Day. So that's obviously coming in stronger. Of course, Pat already alluded to the fact that a lot of that is SCIP has turned out to be a pretty powerful tool, and this will enable us to do a SCIP 2 this year as well, which obviously helps.

C.J., do you have a follow-up?

I do a quick one. And again, I know you don't want to guide the full year, but as you look at different scenario analysis for 2023, how do you see return to positive free cash flow playing out? Is that something that could come in the second half, or that's really a 2024 event?

In 2023, we initially thought we would break even on free cash flow, but in the first half of the year, we are falling short of that expectation. However, we anticipate getting closer to our expectations in the latter half of the year. As for 2024, it's still a bit far off, but we are dedicating a lot of time to planning for it. Looking back at our free cash flow for 2022, we saw a result of about minus $4 billion, which was within our forecast range of minus $2 billion to minus $4 billion. We had anticipated a higher level of capital offsets that are now being pushed into 2023, yet we still reached the high end of our forecast. We achieved this through initiatives focused on working capital, which is a significant part of our free cash flow strategy. In the past, this was not a major focus for us, but it is now. We are managing our shipments, payment schedules, and inventory more effectively. While our underload affects gross margins, it also enhances our cash flow by reducing variable costs. We believe these strategies will be advantageous and support our free cash flow as we move forward through the year.

Thanks, C.J. Jonathan, can we have the next question, please?

Certainly. And our next question comes from the line of Matt Ramsay from Cowen. Your question, please.

Good afternoon, guys. Thank you. Dave, the first question, I get it a lot is, just with the challenges that you just mentioned at C.J.'s question on free cash flow. And I guess, well done to you and your team for extracting as much cash as you did out of working capital in the quarter. But I get questions about the security of the dividend all the time. And maybe that's a Board-level decision, but maybe you and Pat could address it a bit. Is that the current levels of dividend? Is that sort of a sacrosanct thing at Intel in your current operating plan? Are there discussions around it either way? Don’t shoot the messenger, it’s a question I get a ton.

Yes. Well, obviously, we announced a $0.365 dividend for the first quarter. That was consistent with the last quarter's dividend. I'd just say the Board, management, we take a very disciplined approach to the capital allocation strategy, and we're going to remain committed to being very prudent around how we allocate capital for the owners. And we are committed to maintaining a competitive dividend.

Matt, do you have a follow-up question?

Thanks, everyone. As a follow-up, I wanted to explore the DCAI business further. You mentioned that PSG or Altera has grown around 40% year-over-year. If my calculations are correct, this suggests that the core cloud and enterprise server business is down by about 40%. Pat, could you clarify if that math is accurate? Furthermore, could you explain your perspective on share loss, average selling prices, and market weakness in China and the enterprise sector? How would you break down what’s happening in the server share market?

PSG had a strong quarter with a solid backlog and continued growth. However, I believe your calculations regarding the size of those businesses are inaccurate. We're open to discussing this further offline. Last year, we experienced slower growth than the market and some share loss, but we anticipate stabilization this year. The key to improvement lies in better products, which we've just launched with Sapphire Rapids. The feedback has been positive, particularly during our customer-focused event on January 10, which saw strong participation from all customer segments. This year, our focus will be on ramping those products, which we expect will lead to improvements in market share and average selling prices as we rollout the product. Customer confidence in our long-term roadmap is crucial; we've established a credible plan moving forward. Expect to see numerous updates from us this year as we begin delivering samples of our next-generation products, alongside the continued ramp of Sapphire Rapids featuring unique capabilities. We believe we have moved past the most challenging times and are now advancing in this area with a strong focus on customer needs and use cases.

Thanks, Matt. Jonathan, can we have the next question, please?

Certainly. One moment for our next question. And our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question, please.

Hi, good afternoon. Thank you for your question. Pat, could you discuss the demand environment in DCAI across cloud, enterprise, and possibly your communications customers? In your prepared remarks, you mentioned that the inventory correction in enterprise is ahead of cloud. Does that suggest that cloud demand might moderate or decline as we move further into the year? Any elaboration on that would be appreciated.

Thank you, Toshi. We observed a softening in demand throughout the year in the data center market overall. Our increased exposure to the enterprise sector in China has slightly weakened our position, and we're seeing similar trends with cloud providers as well. All of them showed weakness in the first half of the year. However, we are somewhat optimistic that the enterprise sector in China will recover more quickly than the cloud sector. Given our stronger presence in those areas, we think this could be beneficial for us relative to competition. In the networking space, we maintain strong leadership, especially in vRAN and O-RAN, where our platform significantly outperforms competitors. While we anticipate some softening in networking during the year, it may not be as pronounced as in other segments. We expect a year-over-year decline in the first half, but we anticipate a return to growth in the second half. Overall, we believe our position is stabilizing, and we are optimistic about stronger recovery in the markets where we have an advantage as the year progresses.

Toshiya, do you have a follow-up?

I do. Thanks, John. Pat, you also talked about your focus and commitment toward value creation. You mentioned how you guys are pulling future investments from the switching business. As you look across your portfolio as of today, I think to your point, you've done quite a lot since coming back. Like where is the incremental opportunity as you think about improving the portfolio going forward and creating value?

Yeah. And I would just say here without being too specific and some of these things are under evaluation, discussion with customers and the best way to handle it. We're doing a thorough analysis across the portfolio. And I would say we are looking at every aspect of the portfolio, where we're getting good returns, where we're not. And we're making decision after decision to optimize the portfolio. And as you say, we haven't been hesitant to make those decisions inside the back. And we have a few more that we're looking carefully at. But we're also looking at every area of the business. Dave suggested in his comments, hey, can we do a better job with our line? Could we do a better job with our building assets? We've also discussed as part of the internal foundry model that we're making major steps to improve our automation and ERP efficiency to run the company more. Some of our people actions. We've been very scrutinizing and benchmarking ourselves against best-in-class in every aspect of how we run the business. So one-by-one, we're saying we're going to be world-class as measured by benchmarks in these areas, and all the business areas that we're in, we believe they're strategically important and yielding good results with our shareholders' investments.

Thanks Toshiya. Jonathan, we have time for one last question please.

Certainly. Then our final question for today comes from the line of Joseph Moore from Morgan Stanley.

Great. Thank you. We’re going to talk about the reception you're seeing with Sapphire Rapids. And in particular, it seems like it's a really good chip. But I think the price at the platform level is getting more expensive, DDR5 is more expensive. What's it like right now migrating to a more expensive platform and environment or budgets are under pressure, does that change the ramp relative to other CPUs that you have?

Yeah. Thanks, Joe. And you are touching on a very important issue, the memory. And obviously, the memory pricing for DDR4 has collapsed, right, and making that pricing gap versus DDR5 very visible currently. That said, customers don't buy these platforms on memory prices. They buy them on total cost of operations that they get for the performance as they put them into operations. So memory price is one piece of that. But I'd also say DDR prices are expected to decline as we go through, and the gap to DDR4 is widely forecast to decline, and that gap will diminish as we go through the year. However, right, you contrast that to the significant performance capability. And in some areas like AI, we're seeing five to six times performance benefits. And when you put that into a TCO calculation, it's overwhelmingly positive. Security is not measured on TCO. It's measured on absolute statements of security and confidential computing. So overall, we are driving this ramp very aggressively through the year. We have strong demand from customers. We're ramping our factories quickly. And we do believe that we will have a strong ramp of the Sapphire Rapids platform as we go through the year.

Joe, do you have a quick follow-up?

I also wanted to inquire about the migration of the AXG business into DCAI and CCG. Is there any change in priorities, or is it simply a restructuring of where those businesses are located?

Yeah. It's a restructuring of where the businesses reside. And as we move past this, I'll say, launch phase of those products. And we're now into the scale phase of those product lines. And for instance, discrete graphics, driving the attach rate and channel motions with our enormous client business. In the data center, bringing a broader portfolio across HPC, our Flex product line, the AI capabilities that we have that we're uniquely delivering through data center. So all of this is about is the efficiency and scale of those business areas. And we've been having numerous discussions with our customers about these changes, and they have been very well received. And I'd say all the products that we launched out of AXG, the Flex product line, the discrete graphics product line, the MAX product lines. All of those products are continuing forward, and we believe all of those will have strong ramps in their volumes, revenues, and market impact as we go through the year. So with that, let me just wrap up our time together. First, thank you. We're grateful for you joining us today, the opportunity that you've given us to update you on our business. And clearly, the financials aren't what we would hope for. But we're also pleased with the execution progress we made. And as a result, we're confident in the strategic outlook that we have for our business. Though the macro is difficult. It was difficult in Q4. We expect it to remain difficult as we go through the first half of the year, but we're laser-focused on controlling the things that we can and every aspect of our execution, cost management, and transformation is in our hands and we are well underway in executing against those paths.

So with that, we look forward to seeing many of you throughout the quarter, updating you on our progress next quarter. Thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.