Vivek Arya from BofA's Semiconductor Semicap Equipment Research Team. I am really delighted to have the team from Intel join us today. Michelle Johnston Holthaus, or MJ as most people refer to her, is really happy that you could join us. Thanks for having me. What I'll do is I'll start with the safe harbor statement that Intel has given me. Then we'll go through my questions. But please feel free to raise your hand if you would like to ask a question, and I'll be sure to get you in. The exciting statement before we begin, please note that today's discussion might 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, Annual Report on Form 10-K, and other filings with the SEC for more information on the risk factors that would cause actual results to differ materially, and additional information on our non-GAAP financial measures, including reconciliations where appropriate to the corresponding GAAP financial measures. Okay. That was the highlight of your day. With that out of the way, I really appreciate you joining us. Maybe let's start with the state of the union, right? Give us a sense for how the demand environment has shaped up. I know a lot of macro cross-currents this year, but how has the demand environment shaped up so far versus what you guys had thought at the start of the year? Yeah, it's a little bit different. I mean, we haven't talked much beyond Q2, but there's a lot of uncertainty in the marketplace, I think, especially around tariffs. We certainly saw in Q1 customers buying ahead, trying to prepare for what tariffs were going to mean. You know, I think I look at Q2, things are a bit more stable, but I think everybody's kind of waiting for what's going to happen with Section 232. What does it mean? Overall, I would say actually a pretty resilient market considering kind of the macroeconomics. I do see positivity from customers where they see buying cycles, they see enterprise buying, small and medium business. It's probably the consumer segments that are the most price inelastic and the most sensitive. I remain optimistic for the second half. Yeah. Okay. You mentioned Section 232. I know not. Everybody's million- dollar question. That's right. How is Intel thinking about the impact? Yeah. First off, we have to understand what the impact is, but maybe the way we're dealing with it. I mean, obviously, no one knows what it's going to be, but we have a whole team that's doing a variety of scenario planning within Intel. We're doing scenario planning with all of our customers as well. It's like, how are they thinking about it? Where do they want to build? Where are their kind of core focus areas as they react to whatever the tariffs will be? I think the other thing that's really important is we have a pretty broad network of manufacturing capabilities. If you think about Intel 10, Intel 7, Intel 4, we can manufacture those in multiple sites, both in the United States and outside the United States. We use TSMC, so we can shift volume if need be there as well. We have 18A in the United States, our new process node. We have EUV capability outside the United States, so we would have optionality there if we needed it as well. I mean, I do not think in any one scenario planning they picked all the right lotto numbers. I guarantee nobody is going to get it perfectly right. I think we have enough scenario planning that we can pull pieces out. What is probably most important to me is really understanding what customers want. Where do they want to build? Where do they have optionality? By SKU. We understand all of that. The second we understand those and we already know what our customers want to do, we really quickly can pivot from a build forecast perspective. Your guess is as good as mine and what will actually get published as the rules, but we're trying to prepare for it as best as we can. Got it. We'll go through some of the details of Q1 earnings and what Intel saw. Big change. Lip-Bu joined as CEO. What have you seen so far in terms of the changes in the organization from whether it's an operational or financial or kind of a strategic perspective? Yeah, I think we're all thrilled to have Lip-Bu on board. We were talking a little bit about this. Obviously, an industry icon that's done a lot of great work over the last couple of decades. You know Lip-Bu's really come in and talked to us about four key areas. You heard some of those in the earnings call, which is really around reinvigorating the roadmap, making Intel relevant in this AI growth vector, bringing customers to Foundry and fixing our balance sheet. When you think about reinvigorating the roadmap, he's flattened the organization. He's brought engineering to him. He's doing deep dives. The number of customer meetings that he has had in his first eight weeks is astonishing to me. He came in with a very strong point of view, but really matching that customer point of view to what he's hearing from the engineering teams. He and Sachin have spent an enormous amount of time really mapping out what the AI strategy is going to be, where we're going to win, how do we use the IP portfolio that we have inside, and who do we need to partner with to bring that to market? You will hear more about that externally, I would assume, from Sachin and Lip-Bu over the coming couple of months. A lot around Foundry, like where are we on 18A? What is 18A-P? What type of whale or large customer do we need to have with 14A to make that capital investment make sense? Really had a lot of conversations with customers that have decided not to use Intel Foundry and really trying to understand that. The best part about those three segments is he is very transparent with all of us about exactly what he hears. Employees know where we're winning, where we're not, where we're falling short. Lip-Bu's absolutely a person that wants to hear the bad news first. He's not looking for the glass half full. He wants to know where does he need to get in, where does he need fixing. Number four is really how do we address the balance sheet? Where are we? How do we bring our CapEx and our OpEx spending down? How do we get more in alignment with what we see as best-known methods within the industry and really drive those through for operational efficiency? He's done a lot in his first eight weeks. He's hyper-focused. I think he knows exactly where the problems are, which is very good to see. He's willing to listen. He's willing to learn, and he's willing to roll up his sleeves. I think employees are very optimistic about the fact that he can help us. There is no one at Intel that thinks that we have it all right. We absolutely know where our shortcomings are. I think sometimes it is easy to see the shortcomings and not always easy to figure out how to fix them. I think he is giving us some clarity for how to have those conversations and how to move the organizations forward. It has been very good. It has been a busy eight weeks. I can imagine. Is it fair to think that the focus has shifted from market share to first fixing the balance sheet and the profitability? Is that a fair representation or it's not as mutually exclusive as I'm making it? I don't think it's quite as mutually exclusive. I mean, I think he knows that we need volume and revenue, obviously, to continue on the journey. I do think in 2025, we try to be a bit more pragmatic about do we have to do all the deals that we're doing. Obviously, if you looked at our customer deal pipeline in Q1, it was significantly lower than it has been in past quarters. I think he's trying to look at it and say, "Hey, where do we have products that hunt? We We should get paid for those." Where maybe do we have some shortcomings where we have to use ASP to drive market segment share. He's laser-focused on the fact that we need to get our gross margins back up above 50%. We need to be building products that allow us to do that because they fit the right competitive landscape and requirements of our customers, but we also have the right cost structure in place. It really requires us to do both. I think it's going to constantly be a little bit of a tug-of-war in the short term because it takes a while to make product changes. Right. You know, as someone who is responsible for ensuring the success on the product side, are you happy with where the manufacturing side is right now? How much flexibility, MJ, do you have in saying, "Look, if internal manufacturing is whatever, 70%, right? What if we make it 50% or 60%?" How much flexibility do you have in sourcing versus outsourcing to make your business a success? Yeah, it's a very popular question today. Here's how I look at it. At the end of the day, customers want great products. I don't do anyone any good by building the wrong product on the wrong node. I try to be very pragmatic and say, "How do I deliver a world-class product?" I do it by SKU. I look at the SKU, the market need, the cost structure, what's it going to take to win, and I pick the node that way. We've done that consistently in our client product group, and I'm going to apply that across all the products. Obviously, I'm very happy with the Foundry and where and how far they've come along with 18A, and I'm obviously using that as a happy customer for Panther Lake. One thing that I constantly have a conversation about internally is sometimes an Intel Foundry is going to make sense for my products, and sometimes it's not. By the way, even when we think about it from a balance sheet perspective, I can't deploy the amount of capital that would be necessary to build on my products either. How do I use both Intel Foundry? We use Samsung as well and TSMC in ways that really allow me to optimize. I have been very public that come our next generation of product, Nova Lake, I'm using both TSMC and Intel Foundry. I'm doing that because I think it allows me to deliver a more competitive product for our customers. At the end of the day, the best product wins. Yes, of course, I want it to be on an Intel Foundry, but if it doesn't deliver the best product, I'm not going to build it there. Isn't there a cost to engaging with two foundries? There is a cost to engaging with two foundries, but if you do it in the right way, the cost is pretty minimal. What I mean by that is if you do it by package type, etc., and you're using more and more of the industry available IPs, I don't have to redesign them. There's a cost to doing that. A lot of times I can get my partners, my manufacturing partners, to bear the brunt of some of that cost as well. They're willing to take some of that on. At the end of the day, that cost is worth it if you have the right product mix portfolio. What I've heard from customers time and time again is, "I want the best products that solve my customers' needs. We'll leave it to you to figure out how to put that package combination in place. I think it's really important because at the end of the day, as investors, customers buy the best product over and over again. I mean, we've certainly seen that in AI categories. There's certainly markets where continuity is probably more important sometimes than the best product, but that only lasts for so long. You may be able to have one generation of product where you may not be unequivocally the best, but you don't get a rest on those laurels. At the end of the day, we have on the product side a lot of flexibility to do that. We've been very forthcoming that our mix moving forward is 70/30. We think that that's the right mix based on being able to deliver the best products to the customers. We would be open to that changing if it needed to, to make sure that we could deliver a world-class roadmap. Right. On the competitive landscape, even though Intel has access to TSMC and obviously your internal manufacturing, what has enabled your competitor to take the lead in average selling prices? One difference that was clear from the kind of the respective Q1 earnings call was that you saw a mix kind of downshift, right? They are not noticing that, right? Their ASPs have gotten better. Even though both have access to the same foundry conceptually, what is helping them gain the upper hand on ASPs, at least in the near term? You're really talking about ASP growth. That's right. Yeah. If you look at our primary competitor, they have generally historically sold N-2 through N-4 products. What you saw is not them selling a lot more of the end node, but more N-2 and N-3 products. It is a slight mix shift. For each of those process node mix shifts, you get more ASP because it is a better product. I think it is less about the way that they have used the manufacturing capabilities that are in the marketplace and more about how the mix overall has changed. I do think it is credibility to the fact that their product roadmap has gotten much stronger. As your product roadmap gets stronger, you have an easier time selling into those, I guess you could say, more current products. When you're selling N-4 and you move to N-2, you get a pretty significant ASP uplift. We've continued to see that in competitors. We do too get ASP uplift, but in Q1, particularly, we did see people buy older node products because they wanted to balance their portfolio mix for tariffs. What that means is, if you have an older mix of product inventory, you can hit more ASP price points, particularly in the client space because your overall cost structure is lower. Depending on the size of tariff, you can still fit in that $699-$799 price point where the majority of client volume is. For example, a $1,299 product for an OEM with tariffs would jump to $1,799. That market TAM is very small at $1,799. There's a much larger risk in carrying that inventory. Remember, the OEMs do not have a lot of cash on their balance sheet. They do not make large margins per unit. It is much easier for them when they are thinking about making sure that they have the right inventory for it to be lower cost inventory. That both advantaged our competitor and maybe a little bit of a disadvantage from an ASP perspective for Intel, but I am happy to sell those products because I make great gross margins on them as well. We continue to see that in Q2 where demand for those products remains quite strong. In fact, I am supply- constrained. Got it. One of the things we noticed was that this year, Intel did not make the incentive payments, right, to your PC OEMs, which I think we have seen in prior years. What made you kind of go away from that? I think most of us are more in the mindset of you want the business to land in the quarter for which it needs to land. We do have a more competitive client roadmap than we have had historically, and we should get paid for that. As well as particularly in Q1, you just saw strong demand because we did see pull-ins. You do not want to go pay people to pull in product if they are naturally going to do it anyways. I think Lip-Bu, Dave, and I have maybe a little bit different philosophy of we really want to land the business that is in the business within the quarter. When it makes sense to do a customer incentive, I am not saying we will not do it, but I think we just want to be very balanced and pragmatic about the way that we go about that. And as our roadmap gets more and more competitive, we should have to spend less dollars in that regard. I see. Have you seen any change in the competitive situation on enterprise PCs? In In that, again, the competitors' claim is that, "Look, we are gaining share. We have all these SKUs at Dell and whatnot." Have you, and this has been an area of real strength and dominance, right, for Intel? I believe that enterprise will remain a real strength. This is one of the categories where when you're a CIO and you're thinking about managing a fleet of iPads or notebooks or whatever you deploy as your edge unit, ubiquity in those units is extremely important. Things like vPRO technology, manageability, and security are extremely important. We've done a lot of upgrades for enterprise, particularly around vPRO this year. There are a lot more competitive enterprise SKUs. I think the question that we need to watch and we need to be kind of laser-focused on is how much selling do you have? It's one thing for an OEM to offer the SKU. It's another thing to actually gain traction. What I hear from CIOs is that they love working with Intel. We deploy engineering talent. The second they have a problem, we understand how to manage their fleet. We are very good at working with them to deploy real-time updates to their fleet. We know what it means to manage a fleet. It is one thing to build an enterprise product. It is another thing to manage an enterprise portfolio. We have seen that to be a core strength. You can be assured, I know that is a core strength and an area we will continue to invest in and an area where I absolutely want to protect market segment share because it is sticky share. There is some share where you can lose and bounce right back just because you have the next best product. This is a place where you do not bounce back really quickly from. I am going to do everything we can to protect share in the space. I actually think most of the OEMs are on board in wanting to deploy Intel into enterprise because they see good traction and stickiness for themselves as well. You mentioned Panther Lake is up and running. You're happy with that success. If that progress is going by your expectations, why go back to TSMC for Nova Lake? Yeah. Maybe just to baseline everybody on Panther Lake. Panther Lake is a product that's going to launch in the second half of this year. It is all built on Intel 18A. Really, Panther Lake is an all-mobile stack. When you get to the next generation Nova Lake, it is both a mobile stack and a desktop stack. And so one of the things about the desktop market, which is a place that we have lost market segment share, is it is a very elastic market. The best product at the time of graphics card launch is really how you kind of take advantage of that TAM. And so being able to land on a node that is already ramped, is at very high performance plus yield, is very important. You can imagine I'm looking at how much yield and product can I get in a very short amount of time. When you look at that, you might actually pick maybe not the latest dot of a node at TSMC, but you know you can get a lot of wafers and a lot of product in a really short amount of time. You'd put that SKU on TSMC. And so when I say I'm pragmatic, I literally look at it by SKU and where it makes the most sense. I like personally a portfolio where I use both foundries because at times I want to be cost, at times I want to be about volume, and at times I want to be about performance. Depending on which is most important for the customer in the segment, that's what I pick. And so it is not anything about Intel doing something wrong. It is more about optimizing the mix to be able to deliver best on behalf of my customers and hit a particular market window with a particular amount of volume. Right. Makes sense. On the server CPU side, when do you think investors should say, "All right, this is the Intel product that's going to help start taking the market share in the other direction? Yeah. So when we look at the data center market, what we've said is like in 2025, we want to stem the share loss. We want to kind of get to the bottom and then start to move up. Obviously customers are deploying Granite Rapids right now, which is a good step function. Then we've got Clearwater Forest and Diamond Rapids, which is our E-core and our P-core product lines coming in 2026. I think we'll stem the tide and then we'll start to see market segment share start to build back up with those next two generations of products. It is a journey. It's not like this large step function where you're going to see 10 points of share added because these are more inelastic markets and it takes time for customers to ramp. In some of these cases, you have to move an entire data center to your product where it may have been deployed all on a competitor and you have to make like a lock step shift with some of these customers. It takes time. The journey back in data center is a little longer than it would be in client, as an example. I feel good about the products we have. I feel good about the execution on Granite Rapids. Now we need to repeat that on Clearwater Forest and Diamond Rapids. We have good feedback from customers on both of the products. It comes to execution. I think it's not a surprise. Our execution on the client side has been more consistent than it has been on the data center side. I am really trying to bring a lot of the best-known methods and things that we have deployed on the client side to data center, but we just have to continue to build products that our customers want to bet on. Obviously, not just for us, but for our customers, data center is a high-growth category, high-margin category, and you cannot afford to miss the market window. We need to be the trusted partner for them in that. I think we are doing a better and better job, but it is a journey back to the Intel, I think, that all of you would expect. In terms of the wallet share shift that we have seen in the last few years towards AI, right, and away from traditional compute, are we on the other side of that? Are we at a point where that trend has stabilized? I guess the roundabout way that I'm trying to ask this question is that if Intel's AI product takes some time to become competitive, does that influence how quickly you can rebound on the server CPU side? Is there a correlation? Yeah. Is there a Yeah. Is there a correlation? We're actually doing quite well on server head nodes for AI. I mean, our market segment share there is actually quite good. The more AI grows, I think that's positive for us. Oh, I think we're just at the beginning of the AI explosion. I mean, this is a trillion-dollar market that's going to continue for a while. I think the million-dollar question for us is, when are we going to have rack scale architecture products that we can deploy in meaningful size so that we have billions of dollars of revenue? I think it's in the next few years. I mean, I think that's really for Lip-Bu and Sachin to come talk about, but I do think they have ways over the next each year of coming to market with new products that will help us learn and continue to be there. I mean, there's no one at Intel that's going to tell you that we're late here. I'm optimistic that we have the right pieces. We have the right APs in CPU. We have the right APs in graphics and interconnectivity. We know how to do rack scale. We also need an infusion of talent. This is a huge focus for Lip-Bu of bringing in some new talent to help us here. I think we also have to look at delivering products in these categories that fit in some seams in the marketplace, maybe non-traditional places where we can differentiate ourselves against the market leader, NVIDIA. That'll be a big focus for us as well. The one thing I can tell you, and I'm sure as you've had your meetings throughout the day, people want alternatives. People want choice. They want open. Those are all things that Intel brings. Now we have to bring them in a meaningful way. I can tell you all that work has been happening. I've seen product roadmap plans. I think there's a meaningful opportunity there that we can go and deliver. At the end of the day, we have to prove it to customers. We need partners that want to deploy with us in mass scale because that's what it takes. I'm optimistic we can get there. Do you expect it to be more organic or inorganic? It probably depends on the segment. It is probably a little bit of both. Like if you are thinking about training, it is very different than if you are thinking about inference, as an example. I do not think we can do it all by ourselves. I think we have to use industry partners, etc. I will let Sachin and Lip-Bu talk a bit more about that. I can tell you in the first eight weeks that he has spent a lot of time here, spent a lot of time with industry partners about how to do this. It is the number one request of every one of our customers, right? Like get in the AI space. I need alternatives. I need partners. You are missing. It is a good opportunity for us. We certainly have all the pieces of the toolkit. We just need to put the Rubik's Cube back together. Got it. How do you see competition from ARM? Because outside of the Apple ecosystem, they do not show up in very big numbers in Mercury, right? We hear of these large hyperscalers talk about, "Oh, half of my instances are based on this ARM product," or somebody else saying, "Oh, all my incremental instances." What do you actually see, MJ, from your customer discussion? How important is ARM to them? Let's say if it is more important than you think, what is Intel's strategy to deal with it? Yeah, I think the answers are very different depending on if you're a client or data center. I think in client, there was this large push for diversification over the last 18 months. You saw obviously one of our competitors come to market with an ARM-based solution. I think what we found is no matter how much money you throw at it, I actually think to fix the ARM ecosystem pieces in client, it's really about volume. It is about shipping billions of units and getting the software ecosystem that x86 has built over the last couple of decades. It's really getting that to port to the ARM ecosystem. That is not something that's going to happen overnight. It's going to take a lot of time. Data center is very different. In data center, we do see large deployments of ARM, particularly at a lot of the CSPs. My understanding is that their deployment of ARM is more their internal workloads. The workloads where they can do the software work and they can deploy that. What I am not seeing is when you think about somebody who is going from on-prem and moving a workload to the cloud, if that is a customized workload for them, I am not seeing a lot of that being deployed on an ARM-based workload. I am seeing it being deployed on an x86-based workload. This is where our open x86 architecture and building chiplets. I think albeit we could have done this earlier, the fact that now if they want to go build a custom CPU for their data center and they can do it on x86, that will be easier for them to port the software ecosystem outside of their custom workloads there. I think you'll see a deployment of both. I'm optimistic that by opening up x86 and making it available, if it's easier for the software ecosystem to port, I think we put to bed that we can't match them in the performance per watt. I think we've taken that off the table. The fact that there are no intrinsic things that would stop somebody from deploying, now I think we need to go enable a few of them to build a custom x86 chiplet with their own configuration and deploy it and see how it works. ARM is a formidable competitor in data center. They're a formidable competitor. They have a product, but they were also much better at listening to the customer's needs and allowing them to build a customized product. I now have that. Albeit I might be a bit late to the market, I still think I have the software ecosystem in favor. Now I need to get some of those large CSPs to be building some custom chips with an x86 core instead of an ARM core. We do see interest. I do not have any new design wins to report, but I do see some strong interest in really understanding. I do not think there is a customer in the marketplace that would tell you that the value of the open x86 software ecosystem is not very, very strong. I think you will hear that from every competitor that we have. We just have not necessarily utilized that strength as well as we should, and now we are. I think now it's on us as a product team to go and get some design wins and show the world what it can do. You mentioned the move towards 50% as kind of an intermediate type target. What needs to happen? Is it a product issue? Is it a pricing issue? What is the timeframe over which you think Intel can get to those kind of gross margins levels? Yeah. We haven't actually forecasted a gross margin, but we all know we should be at 50% or above. We've been there before. I think our future products can all get there. I think really what it comes down to is you have to have a lot of discipline in your product lifecycle planning to build products from day one that hit that. There are a lot of things that I talked about when we talked about Lip-Bu coming on board of getting our OpEx and our CapEx in line, getting the types of products that we're going to build in alignment, really understanding market and ASPs. We'll see that across the board, but future products that are already on my roadmap show me that we can have a 50% gross margin like across that entire product line. That's the expectations that our shareholders have. That's what our competitors can do. There's no reason we can't do it. There are some things that we have to change internally, I think, particularly around our spending, the way we build products, the efficiency for the way we build products. One of the things you've heard Lip-Bu say a lot of, we need to go to market a lot more on a stepping. Every stepping costs a significant amount of money. We needed to be doing a lot more upfront silicon validation and things like that prior to tape ends and things like that. More EDA? Yeah. More EDA. Yes. You might imagine he likes that. There is just a lot more of those types of things that we naturally need to build into our product processes that we had already started doing. Now, obviously, we will do it more rapidly. That will help us get there. I think the most important message is we all know that is the expectation. Moving forward, if you have a product and you are going through our decision matrix, you actually cannot get approved if you are not a product that can show me that you can get above a 50% gross margin based on a set of industry expectations and ASP, which is something that we probably should have had before, but we have it now. That product does not move forward. You actually don't get engineers assigned to it if it's not 50% or higher gross margins moving forward. Okay. The last question is, in the theoretical scenario where Intel is not able to get a large external customer for 18A or 14A, how does your product strategy and insourcing versus outsourcing decision and the cost structure and margins change? I do not know if they really change. Because when you think about what we have said about foundry and profitability at the end of 2027, it has a very small external footprint. I think part of this is just getting the right mix in the factory, the right cost structure, etc. I think on the product side, it is probably less on the product side. I think more it is about foundry and thinking about what kind of capital deployments are they going to do and what kind of customers do you need to ensure that you have so that those dollars are spent well on behalf of shareholders, right? If you are thinking about 14A, in 18A, we started that process not as a foundry process, and then we tried to make it a foundry process. 14A, we're starting from day one with being a foundry process and having all the right PDKs and IPs in the industry. If I were going through that process, I would say to make those investments, you need to know that you have a customer besides Intel products that's going to fill that factory because you need that diligence, I think, to go and make that capital investment. If you do not have it, do you do iterations of 18A, 18A-P, and whatever after until you can show a customer that you can get there and then they come on board? I think those are the level of discussions that Lip-Bu is going to need to be having as he's thinking about the overall balance sheet and the way that we deploy capital. Even before then, there's a lot we can do. We have a lot of assets under construction, over $50 billion. How do we get all that deployed before we build anything else as we think about deploying our capital dollars? This year, we'll actually have the lowest number we've had in the last four years of AUC. I just think there's a lot of financial discipline that we can have there that we're laser-focused on. You've got to do all these things in parallel, right? I feel good about where the foundry is. I feel good about where they'll get to profitability by the end of 2027. I think to continue to make investments, we've got to show we can bring other customers in. Got it. Last question, I know we are at the end of our time. What are you most excited about the second half, right, of this year, right? I know there is a lot of macro cross currents, but what? I think there's a great opportunity in the marketplace. I mean, like obviously, I come from the client side of the business, but with Windows 11 refresh, with the explosion of AI, I mean, AI is going to come to the edge at a rate and speed that I don't think any of us have predicted. Like the excitement that I hear from customers about local AI, all the verticals for AI, I mean, I just think there's an explosion of opportunity that we haven't even seen unleashed yet. We just need to make sure that some of the other challenges that we're all balancing around tariffs and things don't slow that down. I actually am quite optimistic about the market, AI, where we are from a roadmap perspective, and new places that you'll see AI where I think very much play to Intel's strengths. I remain very, very optimistic about the market in general and the way that Intel can play and service our customers there. Terrific. Thank you, MJ. Thank you for your insights. Really appreciate it. Thank you, everybody, for coming.