Intel CEO Gelsinger: AI, Intel Foundry Ramp To Drive Growth

‘Semiconductors are the currency that will drive the global economy for decades to come. We are one of two, maybe three, companies in the world that can continue to enable next-generation chip technologies and the only one that has Western capacity and R&D, and we will participate in the entire AI market,’ says Intel CEO Pat Gelsinger.

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Intel is banking on a host of new processors and other technologies as well as a ramping up of its Intel Foundry business to lead to improved growth going forward.

Intel CEO Pat Gelsinger late Thursday said during his prepared remarks during Intel’s first fiscal quarter 2024 financial analyst presentation that, while trends in the first half of the year are modestly weaker than originally anticipated, they are consistent with what is happening industrywide.

“We continue to see Q1 as the bottom, and we expect sequential revenue growth to strengthen throughout the year and into 2025,” Gelsinger said.

[Related: Intel’s 9 Biggest Moves Under Pat Gelsinger In His First 3 Years As CEO]

That growth is underpinned by three industry trends, Gelsinger said. The first is the beginning of an enterprise refresh cycle and growing momentum for AI PCs. The second is a data center recovery with a return to more normal CPU buying patterns. The third is cyclical recoveries in Intel’s NEX systems integration business, Mobileye autonomous driving technologies and Altera FPGA group, he said.

AI will play a major role in Intel’s growth, Gelsinger said.

“Intel during the quarter led the launch of the Open Platform for Enterprise AI Project,” he said. “This industry initiative aims to accelerate GenAI deployments in what will be the largest market for AI applications starting with retrieval augmented generation, or RAG. Our Xeon plus Gaudi use cases, along with our established enterprise ecosystem, have a big role to play here.”

In the three years since Gelsinger rejoined Intel, the company has managed to close the technology gap caused by several previous years of underinvestment, he said. In particular, he cited the company’s “5 Nodes In 4 Years” strategy to achieve semiconductor manufacturing process leadership. Those five nodes include Intel 7nm; 4nm; 3nm; 20 angstrom, or 2nm; and 18 angstrom, or 1.8nm.

“In so doing, we are in a unique position with at-scale EUV [extreme ultraviolet] technology, Western-based capacity, and at the very least a level playing field with the market leader,” he said.

Intel’s New Reporting Structure

To reduce the costs involved with developing new processor technology, Intel this quarter transitioned to a new operating model that divided the company’s business into two operating segments, with each segment having its own internal financial reports, Gelsinger said. The Intel Products segment consists of client, data center and AI, and network and edge processors. The Intel Foundry segment consists of the company’s new but growing foundry business.

“Separating the internal financial reporting between Intel Foundry and Intel Products was a critical step needed to provide transparency, accountability and the proper incentives to allow both groups to make better decisions to optimize their own cost structures,” he said. “This change also provided the added benefit of giving more transparency to our outside owners. We knew that the Day One P&L for Intel Foundry was going to spark debate. But we also knew it was important to establish a baseline and provide a target model based on reasonable to conservative revenue and cost assumptions that we have a high degree of confidence we will achieve.”

Intel Products is a solid fabless franchise with an established powerful and hard to displace installed base and ecosystem across enterprise, consumer and edge that provide meaningful benefits to Intel’s customers and partners, Gelsinger said.

Looking To Be An AI Leader

Intel with its client business is defining and leading the AI PC category, with expectations the company will exceed its original goal of shipping 40 million AI PC CPUs in 2024, he said. “As standards emerge and applications begin to take advantage of new AI-embedded capabilities, we see demand signals improving especially in the second half of the year, helped by a likely corporate refresh,” he said.

Intel’s Data Center and AI group has released its first Intel 3 server product, with more to come later this year, Gelsinger said.

“While budgets are still being prioritized to generative AI buildout, where we have a strong position in the head node, customer conversations continue to show improving signs for traditional CPU refresh starting in late Q2 and into the second half,” he said. “Our first Intel 18A product, Clearwater Forest, is slated to launch next year and will allow us to accelerate share gains.”

Intel’s Gaudi 3 AI accelerator launch gave the company a strong offering to improve its position in accelerated computing for the data center and cloud, leading the company to expect over $500 million in accelerator revenue in the second half of 2024, Gelsinger said.

Intel Foundry Ramping Quickly

On the Intel Foundry side, the company is still some distance away from profitability due to the large up-front investment it needed to build out this business, Gelsinger said.

“But we always said this was going to be a multiyear plan,” he said. “We are right on track with where we expect it to be right now.”

Intel Foundry’s transition to EUV wafers has become a tailwind for the company, giving it expanded margin opportunities and decreased need for using wafers manufactured by external foundries, Gelsinger said.

“Of course, more competitive wafers combined with our position as the only company manufacturing with leading-edge wafers outside of Asia is drawing strong interest from potential external customers,” he said.

Intel’s payoff from its investment in Intel Foundry will be significant in the end, Gelsinger said.

“Semiconductors are the currency that will drive the global economy for decades to come,” he said. “We are one of two, maybe three, companies in the world that can continue to enable next-generation chip technologies and the only one that has Western capacity and R&D, and we will participate in the entire AI market. Quarter by quarter, we are positioning ourselves well to capitalize on the immense opportunities ahead.”

Intel By The Numbers

For its first fiscal quarter 2024 ended March 30, Intel reported total revenue of $12.72 billion, up about 8.5 percent from the $11.72 billion the company reported for its first fiscal quarter 2023. Revenue for the quarter was $80 million below analyst expectations, according to Seeking Alpha.

That included client computing revenue of $7.53 billion between its desktop, notebook and other business, up from last year’s $5.77 billion; data center and AI revenue of $3.04 billion, up from $2.90 billion; network and edge revenue of $1.36 billion, down from $1.49 billion; Intel Foundry revenue of $4.37 billion, down from $4.83 billion; and other revenue including Altera and Mobileye revenue of $775 million, down from $1.44 billion.

For the quarter, Intel reported a GAAP net loss of $437 million, or 9 cents per share, a significantly better result than last year’s net loss of $2.77 billion, or 66 cents per share. On a non-GAAP basis, Intel reported earnings of 18 cents per share, up from last year’s loss of 4 cents per share. Non-GAAP earnings beat analyst expectations by 4 cents per share, according to Seeking Alpha.

Looking ahead, Intel expects revenue for its second fiscal quarter 2024 of $12.5 billion to $13.5 billion. The company also expects a GAAP net loss of 5 cents per share and non-GAAP net income of 10 cents per share.

Intel share prices Thursday rose slightly leading up to its reporting of the quarter’s finances to close at $35.11 per share. However, when the market opened Friday, share prices immediately plunged 9.6 percent to $31.74 per share before recovering slightly to about $32.00 per share halfway through the trading day.