David Zinsner
Interim Co-Chief Executive Officer and Executive Vice President and Chief Financial Officer at Intel
Thanks, Michelle. Let me add my welcome. I'm going to address three topics today, an update on Intel Foundry; second, Q4 and full-year financials and third, our Q1 guidance. Starting with Intel Foundry, I've had an opportunity to meet with a number of our partners and potential customers for Intel Foundry over the last couple of months. I come away from those meetings encouraged by the opportunity we have in front of us and I've received clear feedback on what our customers need from us to succeed. This starts with our execution on Intel 18A. This has been an area of good progress. Like any new process, there have been puts and takes along the way, but overall, we're confident that we are delivering a competitive process. We're excited by the launch of Panther Lake this year and the internal ramp of Intel 18A in the second-half that will support increased volumes and improved profitability in 2026. From the perspective of external customers, Intel 18A is a very competitive offering that gives each of them a reason to engage with us. However, foundry wins are about more than just technology. Trust is also a significant factor. Customers must believe you can execute consistently and be willing to invest in IP to port a design to a new foundry. That's why past transitions in the industry have generally started with customers giving new foundry partners smaller volumes, then gradually increasing as trust grows. We've made good progress, but to accelerate this, I'm asking the team to redouble their efforts on ease of porting, IP availability and best-known foundry methods. I'm particularly pleased by the willingness of our suppliers and partners to engage with us, augmenting our expertise and hard work with theirs. Job number-one is earning the customers trust. The Intel 18A design-wins to date provide good validation of the strategy and we continue to have a healthy RFQ pipeline of potential customers. But we won't win every deal out-of-the gates. We'll be selective and focus on areas where we are confident that we can be a meaningful contributor to the success of our customer and we look-forward to updating you as RFQs become wins. In addition, we continue to have good momentum in advanced packaging and in our collaboration with Tower Semiconductor and UMC. All three are critical to utilize our assets longer for higher rates of return. This is a good segue into my other key areas of focus for Intel Foundry, improving our financials and making sure that we're deploying your capital appropriately. At roughly $18 billion in revenue, Intel Foundry today is larger than all but one external foundry. That's clearly not reflected on our P&L with negative gross margins and a greater than $13 billion operating loss in 2024. We're going to systematically attack our costs and remain highly focused on our goal of delivering breakeven operating income for Intel Foundry by the end of 2027 and we expect to demonstrate improvements this year. The financial benefits of shifting our wafer volume from Intel 7 to Intel 18A, along with learning to run our fabs more efficiently and our process nodes longer will be important drivers of improving our financials. Beyond 2027, we need to drive-to cash-flow from operations that supports our capital spending needs and ultimately generate a great return on your capital. I remain very optimistic on our opportunity at Intel Foundry. The pervasive growth of AI is driving accelerating and unprecedented demand for silicon and there continues to be an unmet need for greater choice in overall manufacturing capacity in the industry today. TSMC is a valued supplier to Intel products and important partner to IMS and they've established a very-high standard for what it takes to be a world-class foundry. But the market overall needs multiple players and as we execute, Intel Foundry has a very important role to play globally and especially here in the US, where we continue to invest in leading-edge R&D and manufacturing capacity. We're also pleased to sign with the US Department of Commerce a definitive agreement awarding us up to $7.86 billion in grants. As you know, these grants are milestone-based and we have already received $1.1 billion in Q4 and have received an additional $1.1 billion in January of Q1. In addition, we continue to make-good progress building out our Secure Enclave in partnership with the Department of Defense. We look-forward to continued engagement with the Trump administration as we advance this work and support their efforts to strengthen US technology and manufacturing leadership. Finally, as you will recall, we announced our intention to establish an independent subsidiary structure for Intel Foundry to provide clear governance and operational separation. This structure also enables us to seek additional funding options from both strategic and financial partners, which we are now actively beginning to explore. Let me now turn to our consolidated financial results and Q1 guidance. $14.3 billion, up 7% sequentially and at the high-end of the range we provided in October as a result of solid growth in CCG, equipment sales at IMS and the Edge business of NEX. Non-GAAP gross margin came in at 42.1%, 260 basis-points ahead of guidance on higher revenue, better costs and the receipt of our first chips grant, offset partially by inventory reserves related to Gaudi. We delivered 4th-quarter earnings per share of $0.13 versus our guidance of $0.12. Higher revenue, stronger gross margin and improved operating leverage was offset by lower interest and other income, which includes an accrual related to our second skip agreement of roughly $750 million, reflecting an adjustment in our planned capacity ramp-in Ireland. In Q2, we began the process of resizing our expense structure to support more modest long-term growth, including adjusting our capacity plans to more conservative levels, driving impairments in Q3 and this accrual in Q4. Q4 operating cash-flow was positive $3.2 billion, down approximately $900 million sequentially due to the cash outlays associated with our Q3 restructuring charges. We had gross capex of $6.3 billion with offsets of $1.6 billion in the quarter, resulting in an adjusted free-cash flow of negative $1.5 billion. As I mentioned earlier, we also received a portion of the chips grants this quarter. For the full-year, revenue was $53.1 billion, down 2.1% year-over-year. Modest year-over-year growth in Intel Products was more than offset by lower revenue at Mobileye and Alterra as well as the forecasted decline in foundry services due to the end-of-life on traditional packaging revenue. Full-year gross margin was 36% and down 760 basis-points due to Q3 impairments, lower revenue and inventory impacts. Full-year EPS was minus $0.13 and down $1.18 on lower revenue, lower gross margin and higher period charges. We generated $8.3 billion in cash from operations, made $24 billion of gross capital investments and generated capital offsets of approximately $13.4 billion from skip partner contributions and government grants and incentives. As a result, adjusted free-cash flow was minus $2.2 billion and we ended the year with $22.1 billion of cash and short-term investments. Moving to segment results for Q4, Intel Products revenue was $13 billion, up 7% sequentially. CCG revenue was up 9% quarter-over-quarter as the rate at which our customers digested inventory slowed meaningfully from Q3. While difficult to quantify, we suspect a portion of Q4 revenue upside was due to customers hedging against potential tariffs. DCAI revenue was up slightly sequentially, off a better-than-expected Q3 as demand for traditional servers remained stable. Revenue for NEX was up 7.5% sequentially and is now up more than 20% from Q2 lows as customers are returning to more normal buying patterns, especially in our Edge business. Operating profit for Intel Products was $3.6 billion, 28% of revenue and up $300 million quarter-over-quarter on higher revenue and reduced operating expenses. Intel Foundry delivered revenue of $4.5 billion, up 3% sequentially on increased EUV wafer mix and higher equipment sales by IMS. EUV wafer revenue grew from 1% of total revenue in 2023 to greater than 5% in 2024. Intel Foundry operating loss in Q4 of $2.3 billion improved meaningfully sequentially as Q3 was impacted by $3.1 billion of impairments. Excluding impairments, operating loss would have been roughly flat quarter-on-quarter. Turning to all other, Mobileye reported revenue of $490 million, up 1% sequentially with operating profit of $103 million and earlier today guided for full-year 2025 increases to both revenue and operating income. Alterra delivered revenue of $429 million, up 4% sequentially. Operating margin was 21% versus 2% in Q3 on better gross margins and operating leverage. For Q1, we expect Alterra revenue to be down sequentially less than overall Intel consolidated. We continue to make-good progress on the stake sale of Alterra and see a path for an IPO in the coming years. Now turning to guidance. Q1 has historically been our seasonally weakest quarter of the year, down high single to low double-digits percentage sequentially on average. In addition, we see added pressure coming from macro uncertainty, especially around tariffs, balancing of PC inventory and increasing competition. These mitigating factors support a more tempered revenue outlook as we come into the New Year. As a result, we're forecasting a revenue range of $11.7 billion to $12.7 billion in the first-quarter of 2025, down between 11% to 18% sequentially. Within Intel Products, we expect revenue to decline across all three of our segments at roughly similar rates. We expect Intel Foundry revenue roughly flat-to-down modestly quarter-over-quarter, helped by continued mix-shift to EUV wafers, Intel 18A samples and advanced packaging. At the midpoint of $12.2 billion, we expect gross margin of approximately 36% with a tax-rate of 12% and breakeven EPS, all on a non-GAAP basis. Let me take a few moments to provide some commentary that may be helpful for your full-year 2025 modeling. At the consolidated level, we expect gross margin to improve from Q1. Intel Products gross margin was 51% in 2024 and is expected to decline this year due to product mix in both CCG and DCAI. Intel Foundry gross margin will improve on EUV mix-shift and growth in advanced packaging despite expected depreciation growth in 2025 of roughly 10%. We continue to target 2025 opex of $17.5 billion with further reductions in 2026. We expect non-controlled income or NCI to net to roughly zero in Q1 and be in the range of $500 million to $700 million impact this year-on a GAAP basis. NCI is expected to grow in fiscal year 2026 to a range of $1.2 billion to $1.4 billion on a GAAP basis and increase further in future years as we increase wafer outs at our fabs where we have agreements with skip partners. We anticipate that our 2025 gross capital investments will be approximately $20 billion at the low-end of our previous guide of $20 billion to $23 billion, reflecting further capacity adjustments to Ohio and Ireland as well as better utilization of what we call our construction in-progress. Specifically, we invested ahead of demand over the past few years and these capital investments will enable us to meet expected demand at a lower level of spending as we drive-to more efficiently deploy our capital. We expect 2025 net capex of $8 billion to $11 billion with roughly half of the offsets expected to come from government incentives and tax credits and half from partner contributions. Delevering in 2025 remains a top priority for us on lower capex, increased cash from operations and value unlock across our non-core assets. Finally, I will remind you that we will provide new segment reporting in conjunction with our Q1 earnings. We expect to make further changes to our segments, including moving the edge portion of NEX into CCG and our auto business from all other into CCG. In addition, we expect to move the networking portion of NEX, which includes Xeon sales into DCAI and the IMS equipment business out of Intel Foundry into all other. I'll wrap-up by saying that Q4 was a solid quarter to close-out a challenging year. With that said, our profitability is below where it needs to be and we must enhance our competitive position in the market. Michelle and I will continue taking actions to improve the operational and financial trajectory of the business. We'll remain focused on building a stronger Intel Products business and becoming a more efficient Intel Foundry. And by driving continued progress in these areas, we're confident in our ability to unlock value for our stakeholders. Before we open the line to questions, it's worth-mentioning that the Board remains intensely focused on the search for a permanent CEO. The search is progressing, but we have nothing new to report and won't be able to add additional information on this topic today. With that, I'll turn it over to John to start the Q&A.
