Conference Transcript - INTC 2026-06-02

Vivek Arya, Analyst — Bank of America

All right, good afternoon. Welcome back to this session at our Bank of America Global Technology Conference. I'm Vivek Arya from BFA's Semiconductor Semicaf Equipment Research Team. I'm really delighted to have the team from Intel join us this afternoon for this fireside discussion. David Zinsner, Executive Vice President and CFO, just wanted to make sure, not like, Executive Vice President and CFO, and John Pitzer, Corporate Vice President, IR, and Treasurer. And as always, I'll start with actually a disclaimer statement, then go to my questions. But please feel free to raise your hand if you have a question. So I'll just start with the disclosure. Before we begin, please note that 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 additional information on Intel's non-GAAP financial measures, including reconciliations where appropriate, to the corresponding GAAP financial measures. I'm glad I didn't have to remember all that. Okay, wonderful. So with that, really warm welcome to you, Dave and John. Really glad that you could join us. Before we kind of get into all the exciting stuff about CPUs and IFS, Dave, you've been on this almost 14-month journey, right, when Lipu joined the company. Maybe just walk us through what are kind of the strategic, you know, directions that you thought about at that time? What are the actions? Because one thing that we have been surprised at from the outside is when Libbu joined, we thought Intel would, you know, go to a more product-focused company versus a manufacturing company. And it's actually been, you know, one could debate more of the right mix versus being more manufacturing-focused, right, than before. But walk us through your perspective, right, at that time.

David Zinsner, CFO

I think when Lipu started, or maybe before he started, as he's making the assessment around why does Intel exist, I think he saw two things. One, a legacy of building CPUs over decades in x86. And second, a prowess, to call it, in manufacturing both in terms of front-end and back-end. And those are the things that, you know, you know, we have done over the course of the history of Intel. And, you know, obviously execution issues prevalent, but it's kind of the core underpinnings of the company. And as he comes in and looks at that, you know, you look at, you know, if you're largely just kind of treading along on those two aspects, You get a GDP, GDP-plus level revenue growth, and you get pretty good margins, and that's how you live off of. And by the way, that's how Intel operated, at least for the prior decade. But then there's two dynamics that are going on as he comes into the seat. One, and one felt earlier than the other. One is on the manufacturing side. You know, there is this clear need for a resilient and more secure supply chain, and there's a need for a company that can provide that for logic that is based in the U.S., that does development and does the manufacturing in the U.S., which, you know, we have that position. and then as we progressed you know going through the month earlier months of lip boost tenure it became apparent that the cpu market which ordinarily would be this kind of like bumping along growth kind of business is actually going to have explosive growth as a result of ai and i know we'll we'll go into those two things and so the market is now moving in the favor of of intel this then becomes well okay why is intel not being successful and it's really an execution issue you know at its core and if you step into okay it's an execution issue why is there an execution issue and there's a number of different aspects of it but at its but at its basic element it's a cultural thing we had a cultural problem for at intel and so i think more than anything that's what lipboo addressed early on while he was there um you know while he was still learning a lot of the things about how the business is run he was working on culture from from day one And you can kind of see it in the things that he did early on. He, you know, we had 12 layers of management. He collapsed it into six layers of management. We had over, I think at our peak, over 400 vice presidents. He collapsed that to 200. We had over 100,000 employees. He collapsed that to under 80,000 employees. And when he came in, he made a comment, which I think was maybe the biggest issue around culture at Intel, which is he said, hey, if we have a problem and you come to me, then we have a problem. And it's something we have to work out. If there's a problem and you keep it to yourself, then you have a problem and you're going to get fired. And that really drove, that combined with this restructuring of the organization and the collapsing the layers and so forth, really drove a level of transparency that we just didn't have before. And of course, when you're dealing that in the early months of that activity, it sucks because you are finding out a whole lot of information about stuff that's going bad that you never realized was going bad. But it allowed us to kind of work through a lot of the issues early on that has improved our execution dramatically as exemplified by the results of last quarter and our guide for this quarter. And then on top of that, the other thing I think he really wanted to drive is, you know, kind of a financially disciplined company. And, you know, of course, music to a CFO's ears, you know, that started with the balance We strengthened the balance sheet significantly in as early months in the company. And then on top of that, you know, really worked the financials of the company to improve the cost structure, improve margins. We took a bunch of expense out on operating expenses that also kind of built it. So now we're actually in a little bit more of the blocking and tackling, quite honestly, of the business, which is, you know, just drive relentless execution on the product portfolio, whether it be in terms of products coming out in client and data center or that's, you know, delivering process and improving yields at the right clip, bringing out the next process, improving those yields at the right clip. But maybe one last thing I think he did, and actually, quite honestly, he hasn't even put the finishing touches on it, but we're close, is he was looking for, you know, the best out there in everyone's individual discipline to come on to the company. And I'm sure early on it was a challenge for him, you know, to get recruiting as the stock started to perform. That helped out a lot. But we have, you know, put a number of new people in seats at the CEO staff level, let's call it, people that are, you know, world class in their specific area. You know, a lot of them obviously coming from the outside with a kind of a unique, fresh perspective. That said, you know, there was plenty of talent inside, and he identified the ones that had the talent inside, elevated those people into positions that allowed them to, you know, improve execution, improve the company, and so forth.

Vivek Arya, Analyst — Bank of America

So big kind of cultural, you know, change.

David Zinsner, CFO

On the mix, you know, I think it's pretty balanced, by the way, between products and manufacturing or foundry. In fact, you know, I sit down on a lot of the meetings that LitBoo conducts, and I would say it's probably 50-50 as to, you know, what we spend our time on. 50% of the time we're spending on things related to the product's business. 50% of the time we're spending on things that are related to, you know, the foundry business. Got it.

Vivek Arya, Analyst — Bank of America

So let's first talk about the product side. And, you know, as you mentioned, the CPU growth has kind of caught this, you know, industry, I guess, from the outside, you know, got us by surprise. What I'm also surprised by is just the pace of how the TAM, right, expectations have been upgraded, right, like 60 to 100, 220, and, you know, now the latest is 200. Where does Intel fall in this spectrum? And more important than that, Dave, how does one conceptually, is it a simple unit time ASP maths so we can understand, you know, that number?

David Zinsner, CFO

Yeah, I think I would say we have scenario planning that we do, and we have a few different possible scenarios as to how things play out in the CPU space, in particular in the data center space, which I think you're talking about. I think probably the easiest answer to that is probably hard to articulate exactly which number we're going to hit. I think it's going to be a big market. Obviously, the ratio of CPUs to GPUs is growing meaningfully as we get from training to inference to inference to agentic and multi-agent and reinforced learning. So it's just going to drive a lot of CPU requirements. You know, quite honestly, big is enough. I mean, we've got enough demand out there that, you know, if we can do a good job executing on the ramping of supply, we should have no issue with growing our revenue meaningfully in the data center space.

Vivek Arya, Analyst — Bank of America

Got it. You know, one thing that there seems to be at least some consensus on is that if one were to segment that server CPU market, right, that is kind of your traditional, you know, enterprise type market, then you have the sort of head node, what I would describe as within the AI cluster, and then you have the standalone agentic CPU racks. Is that the way you think about it, and is there a simple way to kind of, so how would you segment, even if there isn't like an absolute number, whatever, it happens to be 100, 200 billion, is there a kind of X percent, Y percent, you know, segmentation?

David Zinsner, CFO

Probably not something I want to kind of double click into at this point. You know, I would say, you know, as you look at it from an enterprise to hyperscale level, It used to be enterprise was above hyperscale, and obviously that shifted meaningfully with what hyperscalers are doing in terms of AI workloads. And then as it double clicks, probably difficult to make the percentages, or I should say predict good percentages for the individual pieces. All of those markets are going to be big markets. There's no question about that. We're not segmenting it that way. We just want to sell CPUs into as many of those markets as possible. I would say, you know, what we are really good at is single-threaded performance. So things that operate better in terms of single-threaded performance are areas we're going to have, I think, a good position and a good participation in.

Vivek Arya, Analyst — Bank of America

Now, the CPU to GPU ratio, right, without going into the technical aspect of it, would Wouldn't you agree that the biggest part of the CPU growth might be in places where it is kind of bundled with the accelerator, whatever that accelerator happens to be, right, whether it's a GPU or a TPU or whatever? So unless Intel has a competitive accelerator, does that limit, is that a right pushback, you feel?

David Zinsner, CFO

Well, I mean, you know, we are bringing out Crescent Island, so we are in the accelerator business. We're also partnered with NVIDIA to operate with them. So I think that will clearly be a significant market, and we think we have a good position to participate meaningfully in that area. But there's a lot of work that CPUs have to do besides just what's going on in the core rack system around storage and orchestration that sits away from all of that workload, and that's also going to be a significant market. It has to be because CPUs, in most cases, are the only way to efficiently manage that activity. Got it.

Vivek Arya, Analyst — Bank of America

Now, one thing, Dave, just because you were in other companies where shortages really played a big part of showing the growth, but then over a longer period of time, as soon as the shortage went away, pricing and other factors changed very quickly. So from what we are seeing in the CPU market, right, today if you can make a CPU, you can sell it, right? At least that's how we perceive it. But do you think it's easier to resolve shortages in server CPU? Because we're not talking about different kinds of products, right? We're just talking about capacity allocation type decision. So if let's say, you know, your foundry competitor were to make a different capacity allocation decision, does that impact your CPU opportunity? Like how much of this is just the here and now of a shortage phenomena versus a large secular growth market?

David Zinsner, CFO

In terms of demand or in terms of pricing?

Vivek Arya, Analyst — Bank of America

In terms of demand and pricing, right? Also that matters.

David Zinsner, CFO

Well, I think demand, you know, just talking to, you know, I talk to all the CFOs of the hyperscalers and look at, you know, A, what they think in terms of their overall capbacks, what they think of their CPU percent of that total capbacks. One, it's clear over a multi-year period, they see demand going up meaningfully. And two, they also see the percentage of CPU of that CapEx going up. So I think I feel pretty comfortable that this year, next year, the following year, you know, the demand is going to be strong. I'm not worried about that. On the ASP front, you know, I mean, what we try to do is we want to give the customer a product that performs to a level that they give us commensurate pricing that goes along with that. And that's mainly our focus. I mean, this isn't the memory market, you know, my last company where, you know, things, you know, supply, you know, understrips demand and, you know, pricing spikes and it goes the other direction. That's not this market. I'd say, you know, we do see some inflationary pressure. So we are seeing ASP increases. That is obviously going to impact the top line over the course of, you know, the near term. But, you know, largely we're not driving our ASP Decisions Office of Applied Demand and Balances. What we are doing is trying to drive more long-term agreements with customers. So we're locking in a price for sure. We're locking in a volume commitment. And then that enables us to do a better job of planning out our capacity and making sure when we're investing in capacity, we're going to see customers take that supply when it comes off the line.

Vivek Arya, Analyst — Bank of America

So in Q1, what we saw was, you know, your server CPU business grew, I think, in the 20, 25%, you know, kind of range, mostly through ASP, at least. That's the data we got. So some of these LTAs and other discussion, do you think that kind of goodness and pricing that is still to come, or have you already seen it?

David Zinsner, CFO

Yeah, there will be price. I would say, you know, keep in mind on the data center side, core count is going up. So ASPs, by virtue of that, go up. You know, I mean, everything, put more, You know, if ASP per core is roughly stable, you know, you're going to see ASPs go up in data center regardless just because of core count. But, you know, that said, even on an ASP per core basis, that had generally been a dynamic of falling pricing. It has certainly stabilized. And in certain cases, we are seeing, you know, like for like ASP per core pricing going up. And I think that, you know, has, you know, a solid path towards realizing that over the longer term.

Vivek Arya, Analyst — Bank of America

Now, the competition, right, first within the x86 side, I think your competitor has outlined a growth rate of almost like 70%, right, for this year. And they're saying that almost two-thirds of that is units rather than pricing. and they're talking about preferential allocation from their foundry. And then on the ARM side, and I realize you can participate in ARM through IFS and we'll come to that question, but how do you think about the competitive landscape, Dave? Does Intel have a good competitive part that can withstand competition in x86 and ARM or do you think that is still under?

David Zinsner, CFO

Yeah, I think you said it best. If you just stamped something and called it a CPU right now, it probably would sell. So, you know, in the near term, it's all about supply. And, you know, we are ramping supply as we speak. There'll be a meaningful increase in supply of 3 and 18A over the course of the next, you know, call it 12 quarters or so, you know, that will ramp up to meet what we're seeing from a demand perspective. We're even actually this year going to see Intel 7 go up in terms of wafer starts, at least initially and then probably next year I think we can start to wind it down a little bit in 27 and allow Intel 3 and 18A to pick up the slack. Longer term it's going to be about products. We have to deliver products that are performant. On client, I think we're in a stellar shape. You could argue right now maybe we're a little bit weaker on the desktop side but 18a on the on the notebook side is ramping it is ramping as fast as i mean i think it's the fastest ramping product we've had at least in the last five years on the client side so i mean it's it's selling as much as we can produce um and our ramp in general has been quite good uh mainly because 18a is now making really good progress on yields month to month which is helping which is helping a lot and you know we also are ramping in two facilities now both in oregon and in arizona which is helping us a lot. And then what was the other part of the question?

Vivek Arya, Analyst — Bank of America

Yeah, just competition versus ARM. Right, yeah.

David Zinsner, CFO

And then on the data center side, I would say, you know, we have, in certain cases, we have a very strong product. In other cases, particularly in multi-threading, not as good. And, you know, when you look at Diamond Rapids, which, you know, is the product after Granite that will come out, that does not have multi-threat, SMT, basically. And so we will have it back in Coral Rapids, which will be the next product. So this was, you know, back to, you know, kind of cultural changes. This was Lipu listening to customers, hearing what their needs were, and then adapting the product portfolio and product roadmap to what he was hearing. This is an example of that. You know, we've made steady progress in terms of improvement. I think Granite is certainly better than prior products. Coral will definitely be better than prior products. And Diamond and its swim lane, you know, not counting the SMT, will be better than Granite. So we'll make steady improvement. I think we have, you know, a really good roadmap. We brought in a new person from the outside, what was it, like six months ago or something like that, Kavork. He's doing a good job tearing things down and making sure that we're back to executing at a high level. It helps that we have leveraged our own nodes in that area, and now those nodes are becoming more performant too. 18A's, what they call PPA, our power performance area, is much better than Intel 3. So, you know, as we kind of migrate our process nodes, you know, we should see continually better performance.

Vivek Arya, Analyst — Bank of America

Recently, we saw, you know, NVIDIA also announced their client portfolio at Computex, right, with the N1X that they are designing with Mediatek. Do you think of that as kind of competition at the high end of the market? I know a lot of it was kind of well advertised in advance, so it should not have been a surprise one way or another. But do you see that as kind of incremental competition in the client market?

David Zinsner, CFO

Of course, we always look at ARM-based solutions as competition in the client space. I think we've shown we can do pretty well against those solutions, given our share and performance. So, you know, I feel really confident about our portfolio, but we take all competition seriously. And, you know, we aim to always bring out the next product to be better than the product before.

John Pitzer, Head of Investor Relations

I just might add on that. I remember last fall, NVIDIA validated the x86 ecosystem with their collaborative agreement with them across both client and data center. And as we made that announcement last fall, we kind of told the investment community, this isn't going to stop us from wanting to bring our own discrete GPU to market, just like it's not going to stop NVIDIA from wanting to bring their own discrete CPUs to market. You should really think about it as an additional arrow in their quiver. But today's point, we feel pretty confident about not only the value of the x86 ecosystem, but our roadmap there as well. I think the other really important point as you think about the client market is all of the buzz that we've been talking about today is really around server CPU. Client is gonna have a big statement to make in the AI infrastructure as well. Cause we sort of, on the last earnings calls, we talked about CPU density. We stopped at agentic and multi-agent. Beyond agentic and multi-agent, you're gonna have physical AI and you're gonna have AI at the edge. And a lot of that demand is gonna be serviced by client-based CPU platforms. And that's going to be a significant growth, a new growth opportunity for us. And we would expect that because it's such a great growth opportunity to see additional competition over time.

David Zinsner, CFO

And by the way, we're already strong in the edge. We've been doing edge for a while. So that obviously gives us an advantage. And I would just say Panther Lake's already in physical AI solution.

Vivek Arya, Analyst — Bank of America

And you recently made a hire, right, from Qualcomm, right, to... Alex, right, on that market. Okay, let's talk about IFS. if you could just help us kind of set the record straight Dave, which is where is 18A in terms of its yield on an absolute basis, is it comparable to where your foundry competitors are, if not where when can it get to that level where you can say, you know, no questions asked this is as competitive as you can find I would say it this way you know I don't know, early last year you know, I think the challenge around 18a was two things one we tried to do too much uh at once and um it took a while to get that

David Zinsner, CFO

settled out um and we heard that from customers um and i think second is we were trying to play performance and yield and trying to improve both at the same time it was like trying to fly the plane and you know fix the wing at the same time basically um and we what we you know when i put uh When I was king for a day, I took Naga and I put him over TD and manufacturing. And then they really just focused on first stabilizing performance. And so they stabilized performance. Then once you've got your performance stabilized, then all you do is you work yield every month. The second thing that we did when LitBoo joined is we really opened up our data to our vendors to really help us learn things that we could do to improve yield. And that made a dramatic difference. Surprisingly, it seems like 101, but there was a resist, back to the culture thing, there was a cultural resistance towards providing significant amount of data to vendors. Once we fixed that, we really started to get some feedback into what we could do to improve. And then it was just our team just grinding it out every month. And probably was a little bit up and down in the first couple of months. But after that, we made basically what industry standard improvement month over month would look like. We were seeing that improvement. And then, of course, we extrapolated that to, okay, at the end of 25, we want to be here. At the end of 26, we want to be here. At the end of 27, we want to be here. And ultimately, the goal is to get to the yields that generate great margins, which is, you know, kind of out in this end of 27 timeframe. I would tell you that based on the progress we've made to date now, we are likely going to pull in some of those milestones by at least a quarter, potentially even a little more. So that I think is a testament to, hey, things are actually going better than planned and have been over the course of the last several quarters. That said, you know, there's more in front of us, and we've got to do more to drive the right level of margins. Right now, when you look at Panther Lake kind of on a consolidated basis, those margins aren't to the level that they're, you know, at least neutral, if not hopefully over time, but creative to gross margins of the total company. So more work to be done. But the progress today has been very good, and the yields are actually at a respectable point at this point.

Vivek Arya, Analyst — Bank of America

So just to understand, you know, pulling by a quarter means that if in the past your yield progress would have let you achieve break-even in IFS by the end of 27, now you can pull it by a quarter.

David Zinsner, CFO

Yeah, relative to, you know, the milestones we set forth, right, exactly. Now, I would just say we have a more aggressive plan for 14A than 18A. And when you look at kind of, now this is obviously early in its maturity, but when you look at kind of yield and performance measures at this point in time and maturity of 14A and compare it to that same moment in time for 18A, we're ahead. So we're already ahead on 14A. You know, this is way more an industry standard PDK that we're bringing out for 14A. So now the advantage is in all the stuff that I said that we bit off more than we could chew on 18A and it really took some time. Now it's just a little bit of rinse and repeat. I mean, engineers are going to hear this and go bonkers on me, but it will be a lot easier to do 14A because it's just using a lot of the gate all around and backside power and so forth that we implemented in 18A. Understood.

Vivek Arya, Analyst — Bank of America

One thing I heard recently is apparently the thought of targeting Intel's financial model to the rule of 45. Did I hear that accurately? And so if I were to look at just where consensus expectations are, right, for this and next year, it's low double-digit kind of growth and kind of high single-digit, low double-digit kind of operating margins. My simple math suggests you're not getting 45. You're not getting 45. So what is the right time frame in which Intel can strive to hit those kind of...

David Zinsner, CFO

Look, it's a multi-year aspirational goal. I'd start with that. But there are a number of things that we should see that improve the profitability of the business. Already, I think we've got OPEX to a level where we can grow revenue at a faster rate than OPEX grows. Maybe we can even hold it more flattish. And that should drop leverage. And, of course, as you grow revenue in a business that's largely fixed on the cost of sales, we have an opportunity to improve margins over time. And then on top of that, I would just say that, you know, as we execute better and products come out on time, performant, you know, we have an opportunity on the pricing side, you know, to drive better margins. And we've talked about this on the Foundry front that, you know, we'd like to, you know, get to break even as we exit 2027. The only reason at this point we see that we would not get to break even on the Foundry side is we're just so more wildly successful than we expected on Foundry. And that just drives a whole bunch more fixed, you know, for startup costs to the business that could impact it. but i i think you know there's a great opportunity to drive this this rule of 3045 and we have the advantage of having both uh you know the manufacturing and the the product margins and margin stack those in a way that that should give us a real opportunity to hit that um i would i would just you know look who's been pretty uh focused on this measure and you know His expectation is those that are doing these longer-range plans have a credible path towards getting to this rule of 45.

John Pitzer, Head of Investor Relations

I just might add, I think the important part of the rule of 45 is I think LipBoo's philosophy on creating value for owners is growing profitably with stress on a growth profitably. If you look at our long-term CAGR, and I'm sure you've looked at it from like 1990 to 2020, we were a 3% CAGR, top-line company. If you look at the opportunities that we have in front of us today, not only with the resurgence of the CPU, but quite frankly, the opportunities we have in ASIC, the opportunities we have in advanced packaging, the opportunities we have in Foundry, we are going to be a solid double-digit growth business structurally going forward as we execute. And I think that's sort of the key point of thinking around the rule of 45. It's not just about the profitability you can drop to the bottom line, but I think Lipu is really intent on driving a much better growth profile for the company.

Vivek Arya, Analyst — Bank of America

Gotcha. The last question, I'll actually try to jumble in two questions. Let's see if I can. So first, Dave, is that most successful kind of foundries have capital intensities, right? That could be in the mid-30s or even higher. So that's kind of one part of the equation, because if your operating margins get into the 30s, I mean, you know, capex intensity might be there. So that's one aspect of the question. The second is that with the fab buyout, you know, your leverage ratio has now gone back up to, I think, close to four times. So how are you managing these different trade-offs where you would like to grow faster, but that would involve much higher capital intensity and takes you away from free cash, right? You, John, mentioned. So how are you kind of balancing all these factors?

David Zinsner, CFO

Yeah, I mean, it could be in those intensity levels. I actually think we should probably longer term operate more in the 20s in terms of capex intensity. That's what we talked about. in the last couple of years as we were looking at it. In the near term, CapEx intensity could rise. And again, it'll be a high class problem because it'll mean that we have a lot of growth opportunities, particularly on the foundry side that would drive that level of CapEx intensity. We do have the advantage as a company of, again, with this margin stacking, that gives us an opportunity to generate good cashflow irrespective of the fact that we have to have you know a significant amount of capex outlays that's different than many other companies that have to fund their capex through just the wafer the wafer revenue um but again in the near term could it be affected uh because we're um you know successful and we're you know winning more customers on the foundry side that that require more capex yeah possible i would say the one thing that we have coming into um into this you know what is hopefully a really good growth period is we've already made a lot of the investments on the space side so we have multiple clean rooms that are you know within a year or two of being ready um you know that felt like a boat anchor there a year ago and now feels like glad we have that uh because now all although we're talking about is equipping it and um you know we've done i think a pretty good job of giving uh suppliers on the equipment side, good line of sight as to what kind of range we might be looking for in terms of equipment. So we've got the right, we're in our right place in line to make sure that we get all the equipment we need to manage upswings that we might experience on the demand side. Got it.

Vivek Arya, Analyst — Bank of America

We'll have to close it there. I can have gone on for another 45 minutes, but thank you so much, Dave.