Thank you for standing by, and welcome to the Semiconductor Co-Investment Program announcement August 23rd, 2022. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. As a reminder, today's program may be recorded. Now I'd like to introduce your host for today's program, Mr. John Pitzer, head of Investor Relations. Please go ahead, sir. Yeah, thank you, Jonathan. Good morning and welcome to our conference call to discuss Intel's announcement with Brookfield Asset Management, outlining our semiconductor co-investment program or SCIP. Joining me this morning is Dave Zinsner, Intel's Chief Financial Officer, who will go through some prepared comments on this first of its kind program for the semiconductor industry, how it underscores our smart capital strategy, and how it will help accelerate our IDM 2.0. Following his comments, Dave will be joined by Keyvan Esfarjani, Executive Vice President and Chief Global Operations Officer at Intel, in order to answer your questions you have about today's announcement. A replay of today's audiocast will be available later today by visiting Intel's investor website, intc.com. Our discussion today will include forward-looking statements relative to our outlook, expectations, and beliefs. These statements are based on the environment as we currently see it and are subject to a number of risks and uncertainties that could cause actual results to differ materially. We will also be providing non-GAAP financial measures during this discussion. Please review our press release announcement regarding the proposed transaction, as well as our SEC filings on intel.com for further details regarding these risks and uncertainties, non-GAAP financial measures as well. With that, let me turn things over to Dave. Thank you, John, and I want to thank everyone for joining us on a relatively short notice this morning to discuss the announcement of our semiconductor co-investment program and arrangement with Brookfield Asset Management on what we see as an important pillar to our smart capital strategy discussed at our February investor meeting. Capital allocation towards the highest ROI projects is a top priority as we optimize the business. We're in the midst of a transformation to regain manufacturing and product leadership, which we understand involves accelerating investments in both CapEx and OpEx. We look at our smart capital strategy as providing velocity and flexibility as we progress on this journey. As we highlighted at our investor meeting, there are five key elements of our smart capital strategy. Number one, aggressively build out relatively low-cost shells to give ourselves flexibility to more quickly bring on additional capacity as needed. Number two, thoughtfully use third-party foundries to optimize our product roadmap. Number three, take advantage of government incentives to provide a level playing field for building a geographically diverse and more secure manufacturing network. Number four, customer participation in our internal capacity build out as we execute to our foundry strategy. Number five, germane to today's announcement, leverage agreements with third parties interested in participating in this great industry. In combination, we see our smart capital strategy providing both financial guardrails and points of acceleration to return to a leadership position across all our products more quickly. Velocity on executing our strategy is the highest ROI we can provide to our owners. The semiconductor industry is among the most capital-intensive industries in the world, and Intel's bold IDM 2.0 strategy demands a unique and innovative approach to capital management. We are already putting points on the board with our smart capital strategy. First, we're making investments in shell space. In 2021, approximately 35% of our CapEx was spent on infrastructure. We're aggressively investing in shell space to give ourselves flexibility in how and when we bring additional capacity online based on milestone triggers such as product readiness, market conditions, and customer commitments. That spend is the much smaller portion of the cost of a fab, and it's spent over several years. We equip that space, which is the vast majority of the cost, in a very disciplined way and as needed based on customer demand. The initial infrastructure spend only triggers depreciation when the fab starts up and has longer depreciable lives, which limits the pressure on growth margins. Second, we'll exercise external foundry capacity to increase flexibility, optimize our roadmap, and manage our capacity peaks. As we move to a disaggregated roadmap, we have even more options as we can make capacity decisions on a tile-by-tile basis based on both the performance requirements and the capital envelope we want to drive. Third, several IFS customers have indicated a willingness to make advanced payments to secure capacity from Intel. We're an attractive option for customers looking for foundry partners with a diverse manufacturing footprint and the opportunity to leverage our huge IP portfolio. These customers also provide us with the advantage of committed volume, which de-risks investments while providing capacity corridors for our foundry customers. Fourth, we continue to look to partner with local and federal governments, and we're thrilled that President Biden recently signed the CHIPS and Science Act, which provided the funding for the groundbreaking CHIPS Act passed in 2021. We also expect increasing support from state governments across the U.S., and we're pleased with the strong momentum we continue to see in Europe. These government incentives help level the playing field in the U.S. and Europe as other countries have been incentivizing their nation's manufacturing industries through favorable grants, tax credits, and other incentives for years. It's also important to note that in addition to supply assurance for the leading edge, advanced fabs can be a growth engine for the local economies in which they're located. Finally, as part of today's announcement, we've established a semiconductor co-investment program, or SCIP, to optimize our investments in new fab projects. Building off the MOU we announced earlier this year, today, we have signed a definitive agreement with Brookfield, one of the largest global alternative asset managers, through which we will jointly fund Intel's two new leading-edge manufacturing sites in Arizona. SCIP will increase Intel's capital flexibility and support Intel's manufacturing build-outs. It allows us to fully leverage a premier financial institution to scale our capacity in a capital-efficient manner. Importantly, it also shows how private capital can be a force multiplier to government incentives for semiconductor manufacturing expansion. Government support, customer participation, and our semiconductor co-investment program are important offsets to our capital spending. As I shared in February, we have assumed these offsets to be roughly 10% of our five-year growth capital expenditures, but our goal is to achieve 20%-30%. We believe this is a reasonable goal. In 2022, for example, we expect our offsets to meaningfully eclipse 10% of our gross CapEx. As we examine the various opportunities for offsets, we know we won't get the entire pool of funds, but we're confident we will get our fair share to further invest in and accelerate our transformation strategy. Let me now discuss today's news in more detail. This is a first of its kind manufacturing co-investment program for the semiconductor industry, in which Brookfield will be our first partner. Brookfield has helped fund and successfully execute large-scale projects from 5G build-outs globally and fiber to the home in Europe. These types of co-investments have been in place for many years in other capital-intensive industries, and Brookfield's commitment to this partnership is based on their confidence in our manufacturing leadership and foundry strategy. This program opens the door to a new source of capital, which we estimate to be sized at $2 trillion, providing ample capacity for additional programs with multiple partners over time. Extending this model to the capital-intensive semiconductor industry is one of the innovative ways Intel plans to fund its capital commitments and accelerate its IDM 2.0 strategy. We believe partnerships with institutions like Brookfield will provide Intel with a new and expanded pool of capital. Intel and Brookfield will jointly invest up to $30 billion in Intel's manufacturing expansion at its Ocotillo Campus in Chandler, Arizona, with Intel funding 51% of the total project cost and Brookfield funding the remaining 49%. Intel will retain a majority ownership and control of the two new leading-edge chip factories in Chandler, which will support long-term demand for Intel's products and provide capacity for Intel Foundry Services customers. There are many anticipated benefits from SCIP. It will protect our strong balance sheet. It allows us to tap into a new pool of capital while protecting our cash and debt capacity for future investments. Adjusted free cash flow will be $15 billion higher, and EPS will be accretive during our investment phase over the next several years. Funding from SCIP is expected to be higher than the cost of debt, but lower than the cost of equity. Similar to a customer prepayment, SCIP allows us to better align our cash inflows with our outflows. We expect funding from SCIP will be cumulatively adjusted free cash flow accretive for most of the life of this partnership and allows us to break even on free cash flow earlier. Intel will fully consolidate the new entity's financials and make an adjustment for net income or loss attributable to Brookfield's 49% share of equity. As I shared in February, my goal is to support Intel's growth with an eye on profitability, the balance sheet, and a healthy and growing dividend. I committed to managing the business over the long term to a net CapEx intensity of approximately 25% of sales at the steady state, and this continues to hold true. As I also discussed at our investor meeting, over the next few years, we're in an investment phase, which means we will see a short-term rise in our CapEx intensity to catch up on shelf space and accelerate our node transitions. Once we adjust back to a normal node cadence, we intend to adjust our net CapEx intensity back to our longer-term rate of 25%. To hit this goal in a dynamic environment, we must be disciplined with our capital investment and have robust, flexible plans that ensure we do not get ahead of ourselves on capacity or spending. This is where our smart capital strategy comes into play. SCIP is a subset of our smart capital approach, and smart capital is a subset of our capital allocation strategy. Since I joined Intel seven months ago, I've spent every day focused on allocating our owners' capital to maximize long-term value creation. While we've made solid progress, we continue to find opportunities to improve, which will improve Intel's execution to the five-year business transformation and financial model that Pat and I laid out at Investor Meeting. As we achieve our ambitions, our employees, our customers, our communities, and our owners will all win. I want to close by saying that I'm pleased with the progress we're making on our smart capital strategy, including our semiconductor co-investment program and engagement with Brookfield, as well as the CHIPS Act, SCIP is a model that we can consider replicating with other partners in other geographies as we accelerate our plans to create a more distributed and resilient supply chain. In fact, since first addressing equity partnerships as part of our smart capital strategy at our investor meeting, we've seen significant enthusiasm about this strategy and expect continued interest for other planned Intel build outs. Our definitive agreement with Brookfield is expected to close by the end of 2022, subject to customary closing conditions. Now I'd like to invite Keyvan to join me in answering the questions. Thank you, Dave. I'd like to highlight that the purpose of today's Q&A session is to address the Brookfield announcement and our smart capital strategy. As such, we would ask that you limit your question to these topics. Please ask one question and one follow-up question so as to have time to get through as many questions as possible. Lastly, as Dave mentioned, Keyvan will be joining him for this portion of the call. Jonathan, can we take our first question, please? Certainly. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one. One moment for our first question. Our first question comes from the line of Ross Seymore from Deutsche Bank. Your question please. Hi, guys. Thanks for letting me ask a question. I guess for my first one, Dave, you said the cost is somewhere between above debt, but below equity. Could you just be a little more precise? What's the cost of the deal over time? Yeah, thanks. Thanks, Ross, for the question. Some of the agreement is obviously governed under NDA, so I can't go specifically into the rate. But what I'd tell you is that, you know, we just did a debt offering a couple weeks ago, and that rate had about an 18-year maturity on a blended basis, and it was roughly a coupon of 4.4% kind of blended. Consider debt, you know, roughly somewhere in that range. Our cost of equity is somewhere between 8.5% plus or minus a little bit. It's somewhere, you know, kind of in between that range. I would say, you know, another measure would be our weighted average cost of capital. This, the rate that they're getting is, you know, kind of favorable to that rate. Okay, thanks for that. I guess for my follow-up, I wanted to just head into the accretion that you mentioned. It seems like it's accretive during the construction and ramp phase, but later on during the production phase, it seems like when you're paying them back. Yeah. Can you just talk about how that accretion terminology, whether it's EPS or free cash flow accretion, transitions over time? Yeah. I would say, you know, once the fab ramps to volume, it's relatively consistent through the life. I would call it, you know, kind of nominally dilutive, but, you know, it's, as I said, somewhat similar to what you'd see in a debt transaction. Thank you. Thanks. Thank you. Our next question comes from the line of Vivek Arya from Bank of America. Your question please. Thanks for taking my question. Dave, since the Analyst Day, you know, the PC volumes are, you know, down anywhere between 10-20% below the original expectations. I'm curious, let's say if these PC volumes kinda stay at these levels rather than what you thought at Analyst Day, does that change, in your mind, the funding requirements from CHIPS Act or this SCIP program or your views of cash flow that you thought at Analyst Day? Yeah. We're still rolling up the CapEx plan for next year. I would say that, maybe the best way to describe this is we take somewhat of a longer term view of CapEx investments. We look at demand over a multi-year period. We have to because, you know, the investments we make today in the Arizona facility, for example, you know, won't translate to volume for several years. Our thinking here is that, you know, we've got to have a good sense of where we think demand over the longer term is gonna be for wafers and invest in our capital accordingly. And, you know, I, you know, based on our outlook in terms of, you know, demand for semiconductors, we think that, you know, the growth rates look quite attractive. In the near term, obviously, you know, we will fine-tune our capital investments a bit. We also will manage our capacity and our inventory levels to manage through any kind of volatility we see in the near term demand. I don't know, Keyvan, if you have anything to add to that. No, you hit it right on. The only thing I would say is, you know, the core part of our smart capital strategy is we are, you know, building ahead the shelves, which is a smaller portion of the total investment. Of course, for the larger portion of the investment, which is equipment, those triggers, we will do exactly the kind of assessment you were referencing. It's the market, it's the customers, it's the product readiness. All those elements are gonna come into play. For this project, it's still some time until 2023 where we have to make those decisions. For my follow-up, I'm still trying to, you know, assess what is in this program for Brookfield. Or, you know, if they're interested in semis, I mean, there are many ways of, you know, going and investing in the industry, right? Without getting their hands on this, you know, particular manufacturing option. What is downside protection? Let's say in the next three or four years, right, if there are changes in your competitive positioning, right, or if, let's say, the foundry program doesn't become successful, what is the downside protection for an investor like Brookfield in this arrangement? Yeah, I mean, here again, we're not gonna go into the particulars of the agreement since we're governed under an NDA. But I'd just say, you know, this is a lot like any other transaction that you see Brookfield make in infrastructure-like investments. You know, they look at the cash flows of that particular infrastructure investment. They make an assessment of the kind of risk profile, and they, you know, expect a certain level of return as a result of that, and they kinda build that assumption into what, you know, their percentage of cash flows are gonna look like. And you know, their goal is to get a good return. The good thing for us is that the return is, I think, attractive to them, but attractive to us in terms of, you know, the risk return profile of investing in a fab. You know, the other thing I think for them is I think they wanna do more of these types of investments across the semiconductor space. You know, this is a first of a kind, but I'm gonna guess it's not going to be the last. You know, this is a good beachhead for them to have their first foray of investment into semiconductors and then, you know, from there, they'll, I'm sure, look to do other transactions. Thank you. Sure. Thank you. Our next question comes from the line of C.J. Muse from Evercore ISI. Your question please. Yeah, good morning. Thank you for hosting the call. I guess, Dave, a few questions here on the structure. You're effectively, you know, converting debt into equity, and what I'm interested in is what do you have to give up to do that? You know, is there a wafer plus cost kind of a agreement within the structure? Is there a required utilization rate profitability for the structure? You know, do you have contracted timing of drawdowns from Brookfield? Once you sign the agreement, you're kinda locked in to when you're turning on Arizona. Would love to hear kind of your thoughts around that. Yeah, I mean, you know, clearly the agreement has elements of all of those, C.J., in there. I think the bigger thing for them is, you know, the return. They want to achieve a certain level of return and, you know, we kind of conservatively, I would say, estimated what the cash flows had to look like for them to achieve that return and kind of build that in. You know, it was good for us and good for them. You're right. There's a certain amount of incremental return that they get above what would be traditional debt to make this make sense for them. You know, we were comfortable with that level or that rate based on you know what our expectations would be for the fab. You know, at the end of the day, once we build a fab, we've you know we gotta run it at a fairly high level of volume no matter what, regardless of whether we are co-investing with a financial partner or we are you know operating the fab on our own. If the asset sits idle, it's generally not a good return for us. You know, I think in that regard, it's not too different than where we stand today in any investment we make with a fab. Okay. I guess as my follow-up, just looking at the last slide on your PowerPoint presentation, where non-controlling interest is a component of equity as part of SCIP. Yeah. I guess, within that structure, is it just a guaranteed rate of return or, you know, i.e., is it capped or, you know, depending on the profitability of the fab, they could get paid out even more? There's a bit of variability. Again, you know, we're not gonna go into too many of the details, but I think if the fab really exceeds expectations, you know, Intel would get most of that. Okay. Thank you. Sure. Thank you. Our next question comes from the line of Pierre Ferragu from New Street Research. Your question please. Hey, Dave. Thanks for taking my question. Can you hear me fine? Yeah. Great. I was just wondering, you know, about like the 25% CapEx to sales ratio you mentioned as your target on a long-term basis. Can you remind us if you ever, you know, gave us some insight about how you were thinking about it on a gross basis? Mm-hmm. Where I'm trying to come to is trying to think about like the returns Intel expects to generate on operating assets. Mm-hmm. If we go towards 25%, CapEx to sales on a net basis, even more on a gross basis, that means you're going to increase your asset base very significantly. Mm-hmm. Tell me how you think about it because we need to plug in the underlying growth you're expecting with that kind of level of investment. Mm-hmm. My bottom line is, do you expect returns on operating assets to come down over a long period of time? Yeah. Okay, first of all, break out the first question. You know, what we feel comfortable with is that we can, over the longer term, manage to this 25% capital intensity. Obviously, it's gonna be higher in the next couple of years, but beyond that, we think we will settle back down to the 25% rate. I would tell you that, you know, this thinking that we're probably in the 20%-30% capital offsets is probably a good assumption for calculating back in what the gross might look like. You know, obviously, if we do a little bit better in terms of capital offsets, which, you know, we're feeling more confident that that's the likely scenario, we'll have to make a decision whether that dollar makes more sense applying to capital and accelerating our transformation, or we feel like we're on a good path in terms of that, you know, not investing that existing dollar, and then it kind of flows to the bottom line. You know, as it relates to ROA, I think, or return on assets, I feel like we will, you know, get back to a fairly attractive level on return on assets. Obviously, there's a heavy investment period which we'll have over the next few years, which, you know, puts some pressure on return on assets. You know, once we get back to where we wanna be in terms of process, leadership, and have the capacity in the places we think there's an attractive location for customers, from a foundry perspective and for our continuity of supply, I think we will be at a place that has, you know, very attractive ROAs that, you know, are at a very similar level to where they've been in the past. Thanks. Sure. Thank you. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please. Stacy, you might be on mute. Oh, apologies. Am I on now? Yes, you are. Sorry about that. Thank you for taking my questions, guys. Sure. For my first question, I want to ask kind of a dumb question because I'm not an accountant. I know you said you're excluding the income attributable to non-controlling interest. They have 49% equity. They're not just getting 49% of the non-controlling interest or at least that much, or maybe even more than that, given the need to give them a return on this. Like, what does that accounting actually look like? Is that just too simplistic? Is it not that severe or what? They share in the cash flows, but they are, they have a yield that they expect to achieve. They're not looking for significantly above that yield. You know, depending on how we run the fab and the level of cash flow we get from those assets, the fab, we could potentially do a lot better than that and, you know, they're comfortable with the returns that they're getting. Okay. You said it's a 15% increase to the free cash. I mean, not really, right? I mean, 'cause you're giving up at least up front, sounds like at least half of that cash flow, right? I get it, some of the CapEx comes off 'cause they'll fund that, but I mean, you're gonna have to give up cash flow, you know, cash flow from operations from the fab, like, to offset that, correct? We will, you know, initially it will be cash outflows. We will have a very reduced level of cash outflows because they're contributing 49% of it. Then as, you know, the fab ramps to volume and starts generating cash flow, you know, they will take some of that cash flow. As I said, it will, you know, implicitly look like some rate between, you know, our debt rate and our cost of capital or our cost of equity. There'll be some level in between those that will ultimately, you know, be the resulting returns they get from their investment. Got it. Thanks. I guess for my follow-up, I wanna ask about how the government subsidies, like, feed into this. Is that, like, another source of return for Brookfield? I mean, if they're contributing to the CapEx and they're sharing in the cash flows, presumably they share in those government subsidies as well. Like, is that a source of their returns? I guess even do they get preference over those government capital receipts, like, similar to some of the kind of partner deals that we've seen in things like solar? They’re gonna contribute 49%. Their source of that is their own, you know, fund, plus any, you know, leverage they decide to take on the back end. Our sources of the cash will be our own cash on the balance sheet, cash we’re generating from operations and government incentives. We will have 100% of the government incentives. Okay. Thank you, guys. Jonathan, in the interest of time, can we take one last question, please? Certainly. Our final question for today comes from the line of Srini Pajjuri from SMBC Nikko. Your question, please. Thank you. Thanks for squeezing me in, guys. Dave, couple of questions on the timing of equipment investments. When do you anticipate making that call? Also you mentioned that this can be used, it gives you a lot of flexibility, it can be used for either Intel capacity or foundry capacity. I would guess that the economics are different for, you know, if it's Intel capacity, I'm guessing the economics might be, you know, maybe better, you know, versus the foundry capacity. I guess, you know, both from a financial standpoint and also from an operational standpoint, how much flexibility do you have? When do you have to make that call? You know, if you were to go with, you know, one or the other, assuming that the returns are lower in one case, you know, how does that, you know, impact, I guess, your own returns? Yeah, I think from a wafer perspective, I think we can structure it in a way that, and I think this one is structured in a way that, you know, there really isn't a delineation between foundry and our own capacity. So I don't think we will have to adjust things. I would say it's more on, you know, kind of a volume of the fab itself and the process technology it's on and so forth that really probably drives more of the determination as to how the, you know, the economics work. As it relates to decisions around, you know, when equipment comes online, I'll pass that on to Keyvan since, you know, he's the one that actively manages all of that. Yeah. Hey, thank you, Dave. Yeah, it's a good question. You know, our strategy is exactly what we talked about in the Investor Day, which is in the early phase of this is the Shell's investment. Specifically to your question, the equipment triggers are sometimes in the first half of 2023. As your follow-on question, really this is a tremendous opportunity where both IDM and the foundry volumes are helping each other. As you know, the economics of the fab for such a big capital intensity, you know, filling it up and going very fast ramp is the significant lever to reduce early cost in the first phase of that ramp, which is a lot of overhead. This is really the strategy we're pursuing and, you know, clearly it's gonna help us from the overall, you know, pace of our ramps and going vertical in the early part of that because that's economics that's gonna be very, very attractive for us. Hope that helps. Okay. Yeah. Thank you. Just, as a follow-up, Dave, an accounting question. You know, we talked about free cash flow impact and you know, the consolidated nature of the income statement. Any impact on gross margins that we should be aware of? Looks like your depreciation is gonna be lower. But just curious if you already contemplated that when you gave us the long-term model, because I think, you know, from 10% to 20% to 30%, there is some variability in terms of how much this could account for. That's actually a good question. We'll consolidate this as if we own 100% of it, and it really won't impact us from a gross margin perspective. It really ends up, you know, kind of in this, you know, will be like income and losses from minority interests. It'll show up as a separate line item in the P&L. We'll consolidate it as if it's 100% and then flush out any of the expenses and income in that one line item that's below operating profits. Got it. Thanks, Dave. Thank you. Srini, thank you for the question, and I'd like to thank everyone again for joining us today, especially on such short notice. You can find our announcement and Form 8-K filing, which includes a link to our definitive agreement with Brookfield on intc.com. We appreciate your time. Thanks again, and have a great day. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.