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Intel Corp Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Intel Foundry delivered revenue of $4.5 billion, up 3% sequentially, on increased EUV wafer mix and higher equipment sales by IMS.
- DCAI revenue was up slightly sequentially off a better than expected Q3 as demand for traditional servers remained stable.
- Intel Foundry is making progress on performance and yields as the first volume customer of Intel 18A.
- Intel received $1.1 billion in Q4 and has received an additional $1.1 billion in January of Q1.
- Intel is pleased to sign with the US Department of Commerce a definitive agreement awarding up to $7.86 billion in grants.
- The company's profitability is below where it needs to be, and it must enhance its competitive position in the market.
- The company expects Altera revenue to be down sequentially in Q1.
- The company expects a decline in Foundry Services due to the end of life on traditional packaging revenue.
- The company's cost structure is under pressure due to Lunar Lake.
- Intel is forecasting a revenue range of $11.7 billion to $12.7 billion in Q1 2025, down between 11% to 18% sequentially.
- Intel Products revenue is expected to decline across all three of its segments at roughly similar rates.
- Intel expects Clearwater Forest to come to market in the first half of 2026.
Q&A Highlights from Intel Corp Earnings Call Q4 2024
- Analyst asked about the reason for the decline in all three product segments, including client, data center, and NEX, despite the company's headwinds from PC inventory digestion and tariff pull forward.
- David A. Zinsner explained that the decline is due to a combination of macro uncertainty and typical seasonality across all markets. He added that the company is cautious about the macro environment and that seasonality affects all markets.
- David A. Zinsner explained that the decline is due to a combination of macro uncertainty and typical seasonality across all markets. He added that the company is cautious about the macro environment and that seasonality affects all markets.
- Analyst asked about the persistence of the decline in client and data center segments through the year and the impact of increased competition on pricing.
- Michelle Johnston Holthaus explained that the company faces increased competition from new market entrants, particularly in the CCG market, and that the margins on the Lunar Lake product are more pressured due to the cost of the product. However, the company is committed to stemming the market segment share decline in client and data center and will be aggressive in winning every socket.
- Michelle Johnston Holthaus explained that the company faces increased competition from new market entrants, particularly in the CCG market, and that the margins on the Lunar Lake product are more pressured due to the cost of the product. However, the company is committed to stemming the market segment share decline in client and data center and will be aggressive in winning every socket.
- Analyst asked about the incremental growth rate from Q4 to Q2, Q3, and Q4.
- David A. Zinsner explained that the incremental growth rate from Q4 to Q2, Q3, and Q4 is not clear and that the company is still working on it.
- David A. Zinsner explained that the incremental growth rate from Q4 to Q2, Q3, and Q4 is not clear and that the company is still working on it.
- Analyst asked about the CapEx budget for 2025 and whether it is coming down this year.
- David A. Zinsner explained that the CapEx budget for 2025 is $20 billion, which is lower than the previous budget due to better utilization of assets under construction. The company has a significant balance in assets under construction, which has not been fully deployed, and the team is working to digest as much as possible and limit external purchases to improve ROA and return on invested capital. The company is also working on payment terms with suppliers to improve CapEx and lower costs.
- David A. Zinsner explained that the CapEx budget for 2025 is $20 billion, which is lower than the previous budget due to better utilization of assets under construction. The company has a significant balance in assets under construction, which has not been fully deployed, and the team is working to digest as much as possible and limit external purchases to improve ROA and return on invested capital. The company is also working on payment terms with suppliers to improve CapEx and lower costs.
- Analyst asked about Intel's approach to outsourcing manufacturing and the impact of external foundries on regaining share, specifically in the cloud and enterprise segments.
- Michelle Johnston Holthaus, Intel's Chief Financial Officer, explained that the company's approach to outsourcing manufacturing is to ensure that it has the right product, process, and market window, and that it will never be completely outsourced. She also mentioned that the company's current outsourcing rate is around 30% and that it may consider outsourcing data center products in the future if it means hitting the right product, market window, and performance for customers.
- Michelle Johnston Holthaus, Intel's Chief Financial Officer, explained that the company's approach to outsourcing manufacturing is to ensure that it has the right product, process, and market window, and that it will never be completely outsourced. She also mentioned that the company's current outsourcing rate is around 30% and that it may consider outsourcing data center products in the future if it means hitting the right product, market window, and performance for customers.
- Analyst asked about modeling the impact of NCI (non-controlling interest) on reported EPS, specifically the impact of selling stakes in companies like Mobileye and Altera.
- David A. Zinsner, Intel's Chief Financial Officer, explained that NCI is affected by more than just SCIPs (stock compensation plans). He mentioned that Mobileye shows up in non-controlling interest, and as Intel sells stakes in companies like Mobileye and Altera, it exacerbates the NCI. He also mentioned that it's difficult to forecast the impact of NCI on reported EPS due to the complexity of the situation, and that it's too soon to identify an exact number.
- David A. Zinsner, Intel's Chief Financial Officer, explained that NCI is affected by more than just SCIPs (stock compensation plans). He mentioned that Mobileye shows up in non-controlling interest, and as Intel sells stakes in companies like Mobileye and Altera, it exacerbates the NCI. He also mentioned that it's difficult to forecast the impact of NCI on reported EPS due to the complexity of the situation, and that it's too soon to identify an exact number.
- Analyst asked about the progress of the discussions with the government officials regarding the semiconductor manufacturing in the US.
- David A. Zinsner, co-CEO of Intel, stated that they have good engagement with the government officials, including the CEO level, and have a strong government affairs team that engages with them every day. He also mentioned that the government officials are interested in bringing semiconductor manufacturing back to the US and that they understand the value of doing R&D in the US. Additionally, they want to see more jobs coming back to the US and are interested in secure manufacturing for the Department of Defense.
- David A. Zinsner, co-CEO of Intel, stated that they have good engagement with the government officials, including the CEO level, and have a strong government affairs team that engages with them every day. He also mentioned that the government officials are interested in bringing semiconductor manufacturing back to the US and that they understand the value of doing R&D in the US. Additionally, they want to see more jobs coming back to the US and are interested in secure manufacturing for the Department of Defense.
- Analyst asked about the pricing comment and the impact on gross margins on products.
- David A. Zinsner explained that the cost structure is under some pressure due to Lunar Lake, which will impact the gross margins on products. However, he mentioned that the Foundry business will see improvements over the course of the year, and more wafers will be coming back with Panther Lake, which will have a better cost structure and margin structure relative to the price structure. He suggested that a rough order of math to get to where the margins will go in any quarter based on the projected revenue would be somewhere in the range of 40% to 60%.
- David A. Zinsner explained that the cost structure is under some pressure due to Lunar Lake, which will impact the gross margins on products. However, he mentioned that the Foundry business will see improvements over the course of the year, and more wafers will be coming back with Panther Lake, which will have a better cost structure and margin structure relative to the price structure. He suggested that a rough order of math to get to where the margins will go in any quarter based on the projected revenue would be somewhere in the range of 40% to 60%.
- Analyst asked about the assumptions behind Intel's plan to achieve profitability in 2027, specifically whether it can be achieved with internal wafers or if external customers are also needed.
- David A. Zinsner, CEO of Intel, explained that the company is aiming to achieve profitability in 2027 based on internal wafers, with a focus on EUV wafers that carry a better margin. He noted that the original premise of creating a different P&L structure was to drive the foundry business towards efficiency and to focus on ROIC. He also mentioned that the company has seen a transformation in staff meetings, with a focus on how to make money in the business, and that they will see significantly more efficiency as they work through 2025 and into 2026. He acknowledged that the company wants to have external customers, but that they have assumed a small amount for 2027, and that they will probably outperform in terms of the mix of external customers versus internal customers. He concluded by stating that the company wants to achieve profitability and ultimately wants to get the business to a profitable level that's consistent with what the foundry industry gets.
- David A. Zinsner, CEO of Intel, explained that the company is aiming to achieve profitability in 2027 based on internal wafers, with a focus on EUV wafers that carry a better margin. He noted that the original premise of creating a different P&L structure was to drive the foundry business towards efficiency and to focus on ROIC. He also mentioned that the company has seen a transformation in staff meetings, with a focus on how to make money in the business, and that they will see significantly more efficiency as they work through 2025 and into 2026. He acknowledged that the company wants to have external customers, but that they have assumed a small amount for 2027, and that they will probably outperform in terms of the mix of external customers versus internal customers. He concluded by stating that the company wants to achieve profitability and ultimately wants to get the business to a profitable level that's consistent with what the foundry industry gets.
- Analyst asked about the plan to bring back the die inside the chip for the Panther Lake product and whether it's set in stone or if the company has flexibility to bring back more or less of the die.
- Michelle Johnston Holthaus, EVP and GM of the Data Platforms Group, explained that the company moved Panther Lake inside of 18A design win, but that it was based on what's the right product, process, market window, and what allows the company's customers to win. She stated that they are very happy with the performance and yield of Panther Lake at this point in the process, and that it will stay on 18A. For the next-generation product, Nova Lake, the company will have compute tiles inside and outside, allowing them to optimize their product portfolio and win in the market. She noted that they will continue to have a balance between internal and external customers, and that they will be doing the same look across their data center portfolio.
- Michelle Johnston Holthaus, EVP and GM of the Data Platforms Group, explained that the company moved Panther Lake inside of 18A design win, but that it was based on what's the right product, process, market window, and what allows the company's customers to win. She stated that they are very happy with the performance and yield of Panther Lake at this point in the process, and that it will stay on 18A. For the next-generation product, Nova Lake, the company will have compute tiles inside and outside, allowing them to optimize their product portfolio and win in the market. She noted that they will continue to have a balance between internal and external customers, and that they will be doing the same look across their data center portfolio.
