Intel(US:INTC)2024-08-02 00:56Financial Data and Key Metrics - Q2 revenue was $12.8 billion, down 1% YoY and up 1% sequentially [29] - Q2 gross margin was 38.7%, below expectations due to accelerated AI PC ramp, higher wafer costs, and unfavorable product mix [29][30] - Q2 operating cash flow was $2.3 billion, up $3.5 billion sequentially due to better working capital [31] - Adjusted free cash flow for Q2 was $8.2 billion, driven by $11.5 billion in grants and partner contributions [31] - Intel Products revenue grew 4% YoY to $11.8 billion, while Intel Foundry revenue grew 4% YoY to $4.3 billion [31][32] - Intel Foundry operating loss was $2.8 billion, with losses expected to continue in Q3 [33] Business Unit Performance - Client Computing Group (CCG): Revenue grew 9% YoY, driven by AI PC ramp, with Intel Core Ultra volume more than doubling sequentially [20][31] - Data Center and AI (DCAI): Revenue was flat sequentially and down 3% YoY, with expectations for modest growth in H2 2024 [31] - Network and Edge (NEX): Revenue was flat sequentially and YoY, but grew 10% YoY excluding telco inventory digestion [32] - Mobileye: Revenue improved 84% sequentially to $440 million, but H2 guidance was lowered due to challenges in China [34] - Altera: Revenue grew 6% sequentially to $361 million, with double-digit growth expected in H2 [34] Market and Strategic Focus - AI PC market is expected to grow from less than 10% today to over 50% by 2026, with Intel shipping over 15 million AI PCs since December 2023 [8][20] - Lunar Lake, the next-gen AI PC, achieved production release ahead of schedule and is expected to drive device refresh in H2 2024 [21] - Intel Foundry is targeting process leadership with Intel 18A, expected to be manufacturing-ready by end of 2024, with production starting in H1 2025 [15][16] - Foundry Services revenue more than doubled sequentially, driven by advanced packaging revenue [32] Management Commentary on Environment and Outlook - Management acknowledged disappointing Q2 profitability but emphasized progress on product and process roadmaps [7] - The company is targeting over $10 billion in cost reductions by 2025, including a 15% headcount reduction by end of 2025 [9][10] - Q3 revenue is expected to be $12.5 billion to $13.5 billion, with gross margin around 38% and EPS of -$0.03 [36] - Long-term targets include 60% gross margin and 40% operating margin by the end of the decade [42] Other Key Information - The company suspended its dividend starting Q4 2024 to prioritize liquidity for strategic investments [13] - Intel is transitioning to a more normalized cadence of node development, with Intel 14A and 10A already underway [19] - The company is focusing on capital efficiency, reducing 2024 gross CapEx to $25 billion-$27 billion, down over 20% from initial plans [11][38] Q&A Session Summary Question: Challenges and Plan B for Intel's recovery [44] - Management acknowledged the challenges but emphasized progress on product competitiveness and cost reductions, with a focus on building a sustainable financial model [45][46] Question: Impact of restructuring on R&D and external foundry opportunities [47] - The company remains confident in its strategy, with no significant impact on CHIPS Act funding or long-term external foundry revenue targets [48][49] Question: Structural changes and financial targets [53] - Intel is focusing on efficiency and capital optimization, with no changes to long-term financial targets, but adjustments to near-term growth expectations [57] Question: Gross margin outlook beyond 2025 [64] - Management expects gross margins to improve significantly in 2026 as more tiles are brought in-house, with Lunar Lake being a near-term headwind and Panther Lake a tailwind [65][68] Question: Server roadmap competitiveness [72] - Intel's server roadmap, including Sierra Forest and Granite Rapids, is showing positive early feedback, with Clearwater Forest expected to be a strong product in 2025 [73][75] Question: Client market dynamics and inventory [98] - Intel is confident in its AI PC leadership and expects a refresh cycle in the enterprise market, with Lunar Lake and Panther Lake strengthening its position [101] Question: Foundry customer progress on 18A and 14A [102] - Intel has $15 billion in committed foundry deals, with significant activity in advanced packaging and positive indicators for 18A following the release of the PDK [103][104]