Conference Transcript - INTC 2026-08-26

Melissa Weathers, Analyst — Deutsche Bank

Good morning, everybody. Let's get moving to the next fireside chat. I'm Melissa Weathers. I'm one of the lead analysts covering semis here at Deutsche Bank. This morning we have the pleasure of hosting Dave Zinsner, EVP and CFO of Intel Corporation. Thanks for being here, Dave.

Dave Zinsner, CFO

Thank you, Melissa.

Melissa Weathers, Analyst — Deutsche Bank

I'll just kick us off with a very exciting safe harbor statement. Today's discussion may contain forward-looking statements that are subject to various risks and uncertainties and may reference non-GAAP financial measures. Please refer to Intel's most recent earnings release and annual report on Form 10-K and other filings with the SEC for more information on the risk factors that could cause actual results to differ materially and for additional information on Intel's non-GAAP financial measures, including reconciliations where appropriate to the corresponding GAAP financial measures.

Dave Zinsner, CFO

Good job.

Melissa Weathers, Analyst — Deutsche Bank

So I think you guys have had a very busy month this month, so it's great to connect. I think if we could kick it off, can you talk about your historic equity offering that you did earlier this month? I think the final number was about $23 billion in capital raise. So talk about what was the reasoning behind that financing action, where is the capital going towards, and what does this say about how you're feeling about the core business at this point?

Dave Zinsner, CFO

Yeah, so the capital raise precedes capital investment. We talked about on the earnings call that we would be increasing CapEx significantly next year, and we had already upticked the CapEx in 26 by a couple billion dollars from $18 to $20 billion. We also talked about the fact that substrates are really constrained, and we're going to need to make investments associated with substrates as well next year, given the significant demand. I think what you can take away from this is two things are happening. Number one, from an execution perspective, particularly on our process and also in terms of the advanced packaging, it's going extremely well. 18A yields are progressing, beating the milestones that we've internally set. 14A, when you look at the defect density, is tracking better than the target curve we had for 14A, and it's also doing better than any of the previous nodes in terms of how quickly we're bringing down the defects. In fact, we haven't seen this performance since 22 nanometer, which is arguably one of the best nodes Intel's ever put out. So things are going very well. So we feel very confident around process. We feel very confident around how we're performing in terms of advanced packaging, in particular EMIB-T. and then on the other side is also the demand dynamic and we talked about on the earnings call we're seeing significant demand in CPUs in data centers we're seeing this ratio of GPU to CPU move more in the direction of CPUs that's driving significant demand on our business we think that both 18A and 14A will have significant demand in terms of our own way for usage for products, but also externally we'll see demand there. And so we now have confidence in demand. We have confidence in terms of execution, in terms of process. It's the right time to think about increasing capital so that we can make the CapEx investments necessary to take advantage of that growth.

Melissa Weathers, Analyst — Deutsche Bank

So on that process node side, one of the things I found most exciting from your earnings call, 14A, 14A, I think the 0.9 PDK comes out in October. I think you also said on the call that you're now officially committing to high-volume manufacturing for that in 2028. So can you talk about what gave you confidence to specifically ramp up, commit to high-volume manufacturing for 14A?

Dave Zinsner, CFO

Yeah, I mean, we're now within two months of the 0.9 PDK, So, you know, you can pretty much now expect us to land in October with that 0.9 PDK. And that's pretty significant. You know, obviously there's another version. There's a 1.0 PDK. But, you know, the step to go from 0.9 to 1 is not as significant as going from 0.5 to 0.9. So, you know, we have a significant amount of confidence there. I would say also, you know, we have allowed the internal customers, let's call them, to somewhat choose their process, whether they go internal or external, what they do from an internal perspective. And we're now seeing demand from our internal customers on 14A, which is, you know, they're actually probably the most cynical bunch out of anybody. And the fact that they're now designing products on 14A was a good confidence boost for us as well. And then, you know, the engagements with customers externally, from a Foundry perspective, has significantly increased. We're now, LitBoo and the team are now meeting on a weekly basis with customers. They're moving away from just looking at data to thinking about, well, how much capacity can I get? What does that supply look like? So we're now at a point where we have conviction around customers on 14A externally as well. So, you know, those things just, you know, have us now going, okay, it's, you know, we're going to be at the 0.9 PDK in October. We're going to now need to start doing risk production in 27. We've got to put the capital in place to be able to do that. We also, if we're going to ramp into high volume production in 28 on 14A, you know, given the lead times of products, we have to start putting out orders. and so that effectively was one of the biggest drivers of the capital raise was putting all those things in place requires us to make some commitments to suppliers and I need to know that we've got the cash to be able to make those commitments.

Melissa Weathers, Analyst — Deutsche Bank

I want to get into some of those capex and budgeting discussions but back to the foundry side on the packaging business. This is a business that you guys have always had a pretty strong competitive positioning. And so can you talk about your competitive positioning at this point? How are those engagements going, things like EMIBT? And then can those engagements on the packaging side, can that kind of get your foot in the door on the front end?

Dave Zinsner, CFO

Yeah, so I mean, EMIBT is, you know, as Moore's Law has somewhat struggled a bit on just, you know, moving down on a node basis. Really advanced packaging is kind of a new angle of continuing Moore's Law progression. And our particular technology, and Intel has made a lot of not only development investment but research investment in advanced packaging. There's a ton of IP there. So we've developed capabilities to do things that really just aren't available elsewhere. We can increase the reticle size significantly. and that's an important component of what AI needs today. So we think we have a very differentiated solution. The development of it has gone extremely well. We're already eating our own dog food with EMIB and so EMIB-T being the extension of that, now we can take the Interposer out which makes it even more compelling as a product. And you're right. This is, you know, I'd say, like, just in terms of how that business probably evolves, I would, I think we'll likely see revenue start to ramp in the back half of the year of 27. And, you know, and then it'll start to become more of a, we'll call it more of a rum rate business in 28 and be definitely, you know, hitting its stride in 29. We should see for sure this business is in the billions. I'd say by customer it will be multiple billion dollars per customer per year of business. So in its own right, it's going to be a great business. And we think the margins, I think at times people probably thought of advanced packaging as not being great in terms of margins, but I think these margins will be in the 40%. So they'll be 40% gross, 30% operating margin business. It's not very capital intensive relative to the front end. So the ROIC is phenomenal. that business so and by the way I would say you know what maybe one of the better signals of the fact that it is going to be successful as Lipu hired Saki from you know who was previous CEO of SK Hynix to come over you know you don't get a CEO caliber person to lead one of these businesses less you know that particular individual sees the growth opportunity in front of us so so anyway so I think it's going to be a great business on its own that said yes It is a great on-ramp vehicle to show how we can perform not only from an innovation perspective but also just the blocking and tackling of operationally, how we provide the parts, when we provide them, what our yields look like in high volume. All of those things get tested in advanced packaging, and we win customers in advanced packaging. I think there's a great opportunity to cross-sell them on front end as well. And quite honestly, we've already seen that show up even now. And as we do better, I think it only gets better for us.

Melissa Weathers, Analyst — Deutsche Bank

Let's switch over to the demand side of things. Clearly, the data center spending is off the charts. You talked about CPU density rising within the data center, which I think we're all very happy to see. The CPUs come back in vogue. You talked about strong double-digit unit growth in servers. think this year and next. Can you flesh out a little bit more about like what trends are you guys seeing, how big do you think this market could be, how supply constrained are you, just how do we kind of frame that magnet?

Dave Zinsner, CFO

Yeah so there's a number of things going on on the data center space. You know as we move from training to inference and inference to agentic the requirements for more CPUs goes up significantly. And I think in a regular training data center, and if you compare that to an agentic-like activity, it's like a four to six increase in CPU requirements in those dynamics. And so obviously that's driving a significant demand cycle for CPUs. You know, in addition, and that's, you know, somewhat of a core count unit dynamic. And so before on the data center front, you know, what we had is CPUs on a unit basis kind of declining, like low single digits, let's call it. But the core counts were still going up pretty significantly. So, you know, in general, things were moving up in terms of the growth rate of that business. But it was certainly held back by the unit growth. Now we're seeing unit growth now growing in this double-digit fashion and core count growing at multiples of that in terms of demand. And then on top of that, you have this overlay of the ASP per core. So ASP per core was declining. In some years, it was almost 20% ASP per core decline. So you were still seeing ASP increases because core count increases were growing faster. But it was, you know, holding back on the revenue. Now we've seen ASP for core at least stabilize. In some cases, I think we're seeing even ASP for core on a like-for-like basis going up. So now all the core count growth you get shows up in ASP growth. And now you have units growing as well. So, you know, this is going to be a phenomenal business. As you point out, the challenge is the supply side. In fact, you know, as we look at this year, next year, probably even into 28, This is going to be less about competitive performance of CPUs and more about can you get the CPUs to the customer. Our advantage is that we own a lot of the manufacturing. We don't own all of it. We have to go out and get substrates. In certain cases, we need other components. Memory is a companion, so we've got to worry about the memory in some cases. But we do own most of the manufacturing, so we can stress the manufacturing to try to drive better supply and meet the demand. I think share is going to be a function of how well everyone can do in terms of getting that supply. If you can do it, I think you're going to do well in terms of your share. If you can't, you're going to struggle. So what's important for us, most important, is Intel 3. It's Granite Rapids. Granite Rapids is our flagship product in data center. It's manufactured in Ireland on our Intel-free process. One of the reasons we're spending on CapEx next year is to ramp the capacity of Ireland. We want to more than double the output there next year. And so I think we are positioned well to be able to supply. I think we'll still be undersupplying. We'll undersupply for sure this year. We'll probably undersupply next year. but we'll do our best to catch up as much as possible, and hopefully by 28 we're in a good position.

Melissa Weathers, Analyst — Deutsche Bank

Since you brought up supply, let's just dig in on that. So clean room space, that's a big hot topic in semis. Can you walk us through where do you have clean room available? What shells do you have? As we think about your different geographies, and I know you've got something around in Oregon, maybe some high-volume manufacturing there, Arizona, Ohio. So can you just walk us through the FAB footprint?

Dave Zinsner, CFO

Yeah, well, I already talked about Ireland. Ireland, you know, we have our shell. Now it's about equipping, and we're in the midst of ramping that output as we speak. We have 52 in Arizona, which is running 18A. There is another FAB 62 that's almost ready that, you know, we have to do some. And, again, part of our investments next year are going to be about accelerating that space to get that equipped. So we're in pretty good shape in the fact that we have that shell ready to go, and now it's just about equipping it. One of the things we'll do, you know, Oregon has always been more of a, you know, kind of get a node ready, get it up to a modest level of waiver starts, port it over to one of the other fabs as a high-volume fab, go back in Oregon, do it for the next process. I think we're thinking about it a little bit more differently. Yes, we want a pilot line in Oregon. It will be the beginnings of every process for us. But once we're through that initial phase, we want to get things more into one or two centralized locations at high volume to drive the scale to get the cost structure to be better. So what we're doing with Oregon is we're going to try to push 18A to be in Arizona as quickly as possible so we can free up all that space to make 14A really in Oregon to start. So, yes, it'll be the pipeline for sure, but also we'll run volume 14A in Oregon as well. And so that's where we're making the investments on 14A. And then, as you mentioned, we have Ohio. We are, you know, working on the shelves as we speak. You know, there's the ability to have eight mods, or there's two mods per fab, so four fabs in Ohio. Mod 1 is the one, obviously, we're working on right now. if we could make it go faster we would we're going as fast as we can to get that one ready so I feel like in general we're in an okay shape in terms of in terms of space we feel like we're in a good position with the vendors where I think we're giving them good lead time line of sight into when we need equipment and I think they're reacting really well to those requests but you there's also a limit for ours you know there's only so much fab space we have it's a it's at a premium right now it's it's um you know we'll continue to make investments around space to make sure that we're positioned as we progress through not only this decade but into into the next decade to be able to to ramp supply with with demand and a quick follow-up on Ireland those are internal only notes it's impossible to do until three or four with an external arm it's let's say this way Intel 3 would not be a great logic process for external but we use it for base die and it can be used for base die out you know for other companies and you know as the fact that we have advanced packaging and all these things kind of all under one roof there could there could potentially be some opportunities there back to the demand side of things I want to talk a little bit about client as you're allocating all this supply memory prices are going up that's tough for PC makers so can you talk about how do you allocate these wafers between your data center customers and clients yeah so we made a conscious decision almost at the beginning of the year really we kind of saw this coming you know we knew that pricing in memory would get to a point where it was going to start to destroy some of the demand on the client side. So, you know, we're not surprised by this at all. It was pretty much expected. And so we started to make shifts around, okay, we're going to focus our CPU capacity for client towards the big core type products. We would yield a lot of the small core stuff to others and try to shift as much of our supply over to data center as we could possibly get away with. because we were getting good line of sight because of the long-term agreements with customers that we were going to have this big demand cycle on the data center side. So we've been doing this positioning to optimize as much as possible. I would say it's not a perfect puzzle that we can kind of put all that stuff together. We talked about data center and Intel 3. So Intel 3 doesn't have really much of client going on there. Meteor Lake was the only product that was going on in Ireland, and it's kind of rolling off its life cycle as we kind of ramp up Panther Lake. And so the opportunity to flex that really much is not really there. What we've got to do to get more output for granite is just build more capacity and do better in terms of throughput and yields, and that's what we're focused on to get more supply. But we have, you know, as much as possible shifted out of 10.7 on the client side into 18A as we ramp 18A. That's, you know, 18A is obviously doing phenomenal at this point. That frees up some capacity that we can use on Intel 10.7 to supply the data center market in addition to, you know, what we're doing with Granite. And that's kind of how we're – it's a balancing act, but that's how we're kind of managing the different pieces to make it all work. In reality, the client business weakening was probably the best thing we could have given the data center demand because we needed as much to be freed up as possible to meet what's being required.

Melissa Weathers, Analyst — Deutsche Bank

And on the share side, is there anything to call out within client? I guess you're just trying to ship whatever you can.

Dave Zinsner, CFO

Yeah, I mean, obviously we want to maintain. You know, while doing all this, you know, it is important to maintain strong share, particularly with the lead customers in that space. And, you know, like I said, I think Panther Lake is a killer product. So we've done very well with the customers in that space and I think, you know, doing fine. Where we, I think, could do better is in the, you know, desktop arena, the high-end kind of part of the desktop space. you know, Arrow Lake was an okay product and we did a refresh but it hasn't addressed every concern that customers have the good news is Nova Lake is going to be great, it's broader in terms of what it's addressing as we look at it relative to where we think competitors will be we love it, it looks we look really good there so we'll see on the share side but I feel really confident around how things are going to go for us next year on the product side. And then, you know, of course, you know, we'll see how demand goes. You know, clearly this memory thing is probably going to be a hangover into next year. Again, probably not the worst thing because we're going to need it for the data center side of the business. But, you know, and eventually I think it'll, you know, kind of snap back through 27.

Melissa Weathers, Analyst — Deutsche Bank

So CCPG is the new name of the segment.

Dave Zinsner, CFO

We should have a rule never to have four letters to an acronym because it's impossible. I was doing it on the earnings call, and I could not get CCPG out to save my life. But anyway, it is the new acronym.

Melissa Weathers, Analyst — Deutsche Bank

Yeah, somewhere in there, I think there's an EDGE business, somewhere between the CC and the G. And it's something you called out on your call is EDGE and some of the trends that you're seeing. Obviously, you didn't get as much attention as some of the other parts of the business, but can you talk a little bit more about what you're seeing there?

Dave Zinsner, CFO

Well, because it's small right now, you know, but we've had a long-term business with a lot of customers in that space, and it just wasn't, you know, it was very profitable because we took products that we were developing for the client space, used them in edge, so very little R&D associated with it. The margins are very good in there, and so profitability is very good, but, you know, it wasn't really growing that much. It was a relatively stable business, but now with AI, you know, as AI becomes more, you know, distributed and heterogeneous across a lot of different applications, the edge is going to start to be an area that's going to be very interesting. Of course, everybody knows, you know, humanoid robots will be one of them, but the humanoid robot is going to be a small portion of the overall robotic requirements. I mean, a lot of the robotics is, you know, an arm or, you know, it's like, or some kind of other, like, just one single motion that needs to be more intelligent, quite honestly, for businesses to take better advantage of the physical AI space. And so we think there's a tremendous opportunity there. We also think there's going to be a lot of opportunity in AI just in compute, in industrial applications, agentic, and so forth. So we think this market's going to grow significantly. Secondly, and I think we said it on the call, we could see this market being the same size as the client space, quite honestly, and over a period that's not that long. And so here we have this tremendous opportunity. We have to take the capabilities that we have in client and bring them to the edge in physical AI. And we also have to think in a more system way about how to bring those devices. It needs more than just the component. You need to think about the software stack and things of that nature. That, you know, obviously was not a skill set necessarily we had internally. So, you know, Lipu made the decision to bring in Alex, who, you know, does have a lot of that experience, to think about how we can build out this capability so that we're better positioned to take advantage of it. We already have all the customer contacts. We're engaged with them in a way that I don't think any other player in the marketplace is. It's about making sure that we've got the right applications, the right products, the right software stack, you know, the right system level thinking that those customers can take advantage of. And that's what Alex is working on. We've been having some of the conversations in the last few weeks and I'm super excited about, you know, his strategy and the way he's thinking about it and how he's going to take a lot of the existing capabilities that we have within the company and kind of re-mold them into solutions that I think will be pretty compelling in that space.

Melissa Weathers, Analyst — Deutsche Bank

I think, I mean, since he became CFO, Lipbooth seems like he's injected a lot of like creative thinking and a lot of these new initiatives. So I guess as he, before we get to the financials as he's thinking about his product lines. Like, where is most of his energy being spent at this point?

Dave Zinsner, CFO

I would say, like, in the near term, just as a side joke, is, like, you know, now we're in a transitionary period where our new sales leader, Dean, hasn't come on yet, and so we're without a sales leader. So Lipu right now is actually spending a lot of his time on sales because he is the interim sales leader right now. I'm sure he's anxious to get Dean on board, so he doesn't have to think about that as much. You know, what Lipu spent a lot of his early months doing was just kind of getting the culture to where he wanted it to be. I mean, I think if you look back at Intel and the challenges we've had over the last decade plus, a lot of it can be boiled down to culture and and you know Lipu I think understood that he understood that at the board level and as we were talking about him coming on I mean I think I think he knew right away he had to fix that and so part of the way he fixed that was management change you know he brought in a lot of people that he trusted that thought differently more aggressive you know kind of a take no prisoners mentality but also you know knew how to operate in a leaner environment be more successful the first time out those kind of things so that I think that was one kind of thrust he was working on the second was really just eliminating a lot of bureaucracy and he did it in two ways which was he collapsed the number of layers of the organization he took it from 12 down to six and in doing so kind of pulled a lot of middle management out which you know bogged down a lot of the decision-making there was a lot of veto power across that organization so a lot of things got slowed down and it just led to suboptimal outcomes you know where we we do product spins four or five times before a product was ready instead of getting it out you know the first time like I mean lots of startups that can get products out to start to look who founded or invested in a lot of them and we just weren't seeing that in a company that should be executing at you know way better you know kind of pace than anybody that's you know got 50 people in a shop and yet we weren't so he did that and then the second thing he did was he eliminated a lot of the VP layer and so I think we had probably at our peak like 450 VPs and we're down to I don't know maybe 200 so I mean it was a massive massive change and you see already some of the improvements in that like you know like I said you know we weren't getting products out in the first you know what they call a stepping like the first approach to the product we now have had multiple products out in a stepping you know the execution around the process we talked about way better since he's been here so that was a key component Then the third thing he did that I thought was brilliant was he really elevated the need for transparency. And it seems like a very simple thing, but amazingly, Intel fell down a lot on transparency. A lot of people at one level knew what was going on, and by the time the PowerPoints got modified to where it was getting presented to the CEO, it was an entirely different story. And I think they thought they were doing the right thing. You know, hey, I'm not going to admit defeat or whatever. But, man, did it lead to a lot of bad decisions. It had, you know, the management team thinking we were going one way when we were actually going another way. And so fixing all of that, and, you know, I can go into all kinds of anecdotes about how to fix the transparency, some of which was, I think, pretty painful for the people that were not being transparent at the time. But it really has made a lot of difference in the organization. So I think fixing culture was his number one job. And, of course, that's an ongoing thing. You're never quite done with it. But I think he has really moved the needle on that as a company. So now it's about, like, you know, okay, so he's got that done. Then the second thing was, you know, hey, I've got to get these processes right. And so he went out and focused on that. And, you know, now we're on a good path there. Now he's in the third phase, in my view, which is on the product side. How can I bring winning products to the marketplace that are super compelling to customers, make a big difference in their own business applications, what have you? And he has these thrusts, right? Obviously, data center, we're not where we want to be, but he's now identified Coral Rapids as the product that he wants to put his fingerprints on to really make a difference. He's building this ASIC business to make customized silicon for customers, listening to customers figure out that. He's working on that. Some of that, by the way, is just cobbling together all the IP capabilities we have to bring them to market. Some of it is going out and finding other IP blocks that we need. One of the great things about Lipo is he's so plugged in to every small startup company out there that he knows where everything's getting developed, how it's getting developed, which ones are compelling, and thinking about how to, you know, what it could. I mean, some could be acquisitions, but it could be partnerships. It could be, like, joint go-to-market type approaches. He's working a lot on that stuff to really make the ASIC business super compelling within Intel. And then, of course, I already talked about all the, like, edge and physical AI and so forth that he's working on. So I'd say a lot of what he's doing is now geared towards getting the products right.

Melissa Weathers, Analyst — Deutsche Bank

He gave us a little nugget at the end of the call last quarter about some interest in memory. I assume you're not going to become a memory maker. But any more comments you can make on any aspirations on the memory side?

Dave Zinsner, CFO

I would put it this way. Yeah, I mean, I escaped the memory space, so I was hoping he wouldn't say we're getting back into the DRAM space. But I think his view is that memory is going to play an important role in AI workloads across all workloads, quite honestly. I mean, you're feeling it a lot, obviously, in the data center, in the hyperscaler space, but it's a challenge across the whole space. And there are ways we can, you know, approach our products that can help customers in terms of the memory bottlenecks and the cost associated with memory. And so I think he views us as being a key player in making that all work. That includes working with the three major memory players out there, and he has great relationships with all three of them. and he is in regular contact and we're in regular conversations with him on things we can do together and then there's just ways you can develop the product architect the product the products we have to be better in memory and I think that's the way he thinks about it there probably will be compelling products that really address this in a way and I think that's when he said stay tuned at the end if I'm not mistaken And, you know, he's got some thoughts around how we can go out there and be differentiated and really help customers. And so, I guess, stay tuned.

Melissa Weathers, Analyst — Deutsche Bank

Well, another thing we're staying tuned for, I just want to make sure we ask this before we get into financials. Analyst Day. You haven't had one in a long time. A lot of changes are happening. Any plans to tell us one?

Dave Zinsner, CFO

Yeah, it's a good question. Definitely we have plans to do one. The question is when to do it. and I'm somewhat scarred from the first analyst day I had at Intel because if you remember, I think I started midway through January and I was doing an analyst day in February. That's not a great dynamic. You need time to get a sense for the business and come up with your thesis and your strategy. And he's in the process of pulling in all these people that to have any of them like a month in like go and present to investors, I just don't think it's fair. So I think he's putting his finishing touches here with Dean coming in in September. So we have a couple of people that are relatively new in the company that are in leadership positions that we'd want to put in front of investors. Alex would be another one. And so I want them to all get their sea legs, make sure they have the story down as to really what they want to do with their particular function or business, and then we'll be ready. And so I don't think it's this year. For sure it's not this year. I think it's sometime next year. We just got to, you know, once we feel confident. The other thing is Lipu's in the middle of driving a transformation, and he's really riding the team hard to go make those changes. And it's fairly time-consuming to do an investor day. So I just want to make sure, you know, we're past some of that. The team is all settled. And then, you know, John Pitzer and I will work out a date that makes sense and will come out. We're not hiding it. It's something that we want to do. We just want to make sure it's the right time. Maybe one other thing I'd add on the investor day is because I think investors are correlating this in some way with wins on the foundry side. It's not. In fact, even when we have the analyst day, you can rest assured Lipu is not going to announce a customer because he's been very clear that he does not want to be announcing customers on the foundry side. That's not done in the foundry industry, and we're not going to be an outlier. So obviously, if customers want to make announcements, they can do that, but we're not going to So it's not in any way correlated to that, and you shouldn't expect, even when we have it, that we're going to come out and talk about customers in that space.

Melissa Weathers, Analyst — Deutsche Bank

Yeah, that's helpful. And I think I speak for all of us in the room that we'd rather have a good analyst day than the rest one.

Dave Zinsner, CFO

Yeah, of course. So would John, mostly, most of all.

Melissa Weathers, Analyst — Deutsche Bank

So on the financials, gross margins, let's start there, A lot of moving pieces, a bunch of different things to track. I think you just printed a 40-ish or above 40. Would you say you're now comfortably in the 40s? Or, like, how do we think about stability of gross margins? That's a good question.

Dave Zinsner, CFO

And let me just say, you know, when we came into the year of 26, you know, I think like a lot of companies, there's a plan, and then there's like, okay, let's try to push ourselves a little bit to do more. The plan, you know, submitted by the businesses was something with a three on it. It was a 30, you know, high 30s gross margins. And, you know, I've in my career always been hyper-focused on margins. I've improved margins in all three other semiconductor companies I've been CFO at. So this was like to say that we were in the 30s. with. So one of the things I was really pushing on the team to do was to outperform that and to get ourselves into the 40s in terms of gross margins. So I am actually pretty pleased with the execution that the team, you know, some of it is things that were outside of our control. Revenue's obviously done better and, you know, we've had some opportunity to do pricing and, you know, that's obviously helped as well. But most of it was real roll up your sleeves, hard work to get gross margins to where we have them. So I'm really happy that, and I can safely say, I think, that we're now kind of comfortably in the 40s in gross margins. Low 40s, but we're comfortably in the 40s. And now it's about improving from there. We're going to get into the mid-40s and the high-40s, and ultimately something that starts with a 5. That is absolutely the goal. on the plus side of this thing the things that we're really driving to improve margins one of which is we have to get a better cost structure just across the board on the product side that's about better use of silicon, less silicon as much as we can make the packaging as cost effective as possible think about all the components and test times we're working all of those things to drive a better cost structure for products and get improvement there. Obviously, as we move from older nodes that aren't that great to nodes that are more competitive, have better yield profiles to them, we can do better in terms of throughput. We get margin lift from there. So the things that Foundry is doing to move down the node curve and improve scale are absolutely going to help on gross margins as well. So those two things are, I think, going to be the positive. The one thing that could weigh it a little bit and why we maybe are a little bit more reticent to throw out, you know, we're going to be above 50 at X date, is some of our businesses actually don't get 50-plus percent gross margins. But they are really high-growth businesses. The foundry businesses, both from the front end and the back end, advanced packaging, are probably 40% gross margin businesses, at least for now. Now, maybe Foundry, the front end over time, does better as we become more competitive. But I think we've got to recognize we've got to earn our keep here first. And so I think it's right to think about that as more like a 40% gross margin business. It still has great operating margins, still be in the 30s, but still, I think, weighs down the overall corporate gross margins a bit. The other is the ASIC business, depending on the products you win, Some of them do have a higher margin profile, but a lot of them actually are kind of 40s, 40-ish kind of gross margin type products. And so, you know, depending on how successful we are there, that also could put some pressure on gross margin. So we thought about, Lippo and I have been thinking about this, and, you know, okay, well, you know, we obviously want the most profit possible. We also want the most growth possible. How do we drive each business to do the optimal level that we can get out of them? And so, Lippoo comes from cadence, like more of a software thinking and software space to have this rule of 40 kind of thing. So we said, okay, well, we should have a rule of then for ourselves, so why don't we call it the rule of 45? We kind of backed into what should be reasonable to expect over time. And so that then allows, hey, if you're a, you know, kind of a low GDP plus type growth business, okay, then you better be delivering really great gross margins, really great operating margins to get to the rule of 45 because we're adding the revenue growth plus the operating margin to get to a 45 number. But if you're a, you know, you're a business that's growing like a weed, then okay, fine. You know, we can make some investment both in terms of maybe pricing or in the cost structure to get the product to where we want it to be or we'll invest more in terms of operating expenses to drive better growth, fine. You can yield a better growth rate than you can yield a higher spend level and still get to the Rule of 45. So we've really told every business unit, this is the way we want you to think about it. Is every business out of the gate next year going to be hitting the Rule of 45? Probably not. There's some things that have got to be fixed in certain cases. But every one of them has embraced it. Every one of them has shown me a long-range plan that achieves it. And so I think we will be driving the right behavior across the businesses and holding them all accountable to this number. And when we talked about this in the capital raise, this was one of his main slides, I think, was the Rule of 45. So he's embraced this. He's super supportive of it. And, of course, it's the best thing a CFO can hear is that everybody's going to be tasked in this kind of measure.

Melissa Weathers, Analyst — Deutsche Bank

The last couple of minutes that we have, the timing to Foundry break even. Can you remind us how you guys are thinking about that?

Dave Zinsner, CFO

Okay, so we've got to hope that none of the Foundry guys because I'm going to give a little bit of a double answer to this. We are driving the Foundry business to go break even by the end of 27. And so that's their internal target. That's what we're driving them to. When I talk to Naga and his leadership team, that's all he hears is me telling him this. That said, I do recognize that if you are more successful on Foundry, it has a cost to it. The more customers we've got to port over, that requires some investment on our part. You know, the more demand we have, the more startup expenses we will likely see. That could elongate the time to break even. There's no question about that. So I could see us, you know, going into 28 and not being there yet, and maybe it's the end of 28 even that we get there. But it will have been for a good reason because it will be that they're more successful, ergo they need to make the investments associated with that. That said, I think as you look at operating profit like in absolute dollar terms, you know, it's been running at like a $2.5 billion loss or so per quarter. And what we're also doing is just, you know, regardless of whether you cross over at the end of 27 or you cross over sometime in 28, I want to see relative steady improvement every quarter. and um you know i i think you will see that you know it's it could be lumpy obviously you know not every quarter is going to kind of work out exactly this way but in general i want them kind of just fighting it out to get better profitability every quarter and i think that also will be helpful and value creating for investors so the combination of you know we win a bunch of businesses maybe that elongates the the uh the time to to break even and but you see the steady improvement in operating profit and I think that that alone should be should be helpful.

Melissa Weathers, Analyst — Deutsche Bank

Last couple seconds that we have that I have to squeeze in. CapEx.

Dave Zinsner, CFO

Yeah.

Melissa Weathers, Analyst — Deutsche Bank

Any guideposts how to think about how you're thinking about CapEx? What's significant is?

Dave Zinsner, CFO

Yeah I mean I said it's not significant. I'll be honest with you we haven't like completely locked the number in for next year. It doesn't get done until you know towards the end of the year and quite honestly you know they of course they've come out with a number they've told me what the number is they think they should spend, and I've told them no. So, you know, they're going back to rethink, like, how they can be more efficient. I'd rather hold them to that, drive more efficiency, and then, you know, hopefully by the end of the year we'll figure it out exactly how to be as efficient as possible and I can give a better indication of the number.

Melissa Weathers, Analyst — Deutsche Bank

Thank you so much, Steve.

Dave Zinsner, CFO

Appreciate it.