Pat Gelsinger
Chief Executive Officer at Intel
Thank you, John, and good afternoon, everyone. Q4 revenue came in at the low end of guide and was impacted by persistent macro headwinds, which began in Q2 and underscored 2022 characterized by unprecedented volatility, which will continue in the near term. We made meaningful progress on several fronts in calendar year 2022, notwithstanding all the challenges, but we readily admit our results and our Q1 guidance are below what we expect of ourselves.
We are working diligently to address the challenges brought on by current demand trends and remain confident in our long-term plans and trajectory. Accordingly, we are even more aggressively executing on the cost measures we described in Q3, even as we keep the investments critical to our long-term transformation intact with a clear eye of making the right capital allocation decision to drive the most long-term value.
Today, I'd like to address three areas.
One, is our view on the macro and the markets in which we participate.
Two, the operational progress we made in 2022.
Three, as we enter the New Year outlining the commitments we are making to all our stakeholders.
First, on the macro. We expect macro weakness to persist at least through the first half of the year with the possibility of second-half improvements. However, given the uncertainty in the current environment, we are not going to provide revenue guidance beyond Q1. Dave will provide guidelines for capital spending, depreciation and adjusted free cash flow in his prepared comments.
Having said that, let me give you additional color regarding our view of our markets in 2023. To various degrees, all our markets are being impacted by macro uncertainty, rising interest rates, geopolitical tensions in Europe, and COVID impacts in Asia, especially in China. In the PC market, we saw a further deterioration as we ended calendar year 2022.
In Q3, we provided an estimate for the calendar year 2023 PC consumption TAM of 270 million to 295 million units. Given continued uncertainty and demand signals we see in Q1, we expect the lower end of that range is a more likely outcome. Near term, the PC ecosystem continues to deplete inventory. For all of calendar year 2022, our sell-in was roughly 10% below consumption with Q4 under shipping meaningfully higher than full year, and Q1 expected to grow again to represent the most significant inventory digestion in our data set. While we know this dynamic will need to reverse, predicting one is difficult.
Importantly, PC usage data remains strong, reinforcing that use cases brought on by COVID are persistent even as the economy has reopened. And as we highlighted in our recent PC webinar, strong usage and installed base, which is roughly 10% higher than pre-COVID levels and what we see as a conservative refresh rate supports a longer-term PC TAM of 300 million units plus or minus, post-this period of adjustment.
We intend to capitalize on this TAM through a strong pipeline of innovation and based on the growing strength of our product portfolio, customers are increasingly betting on Intel. We grew share in the second half of 2022, and we expect that positive momentum to continue in '23. We remain clear-eyed on managing to near-term weakness in PCs but we also see the enduring and increasing value PCs have in our daily lives.
In the server market, the overall consumption TAM grew modestly in calendar year 2022, albeit at diminishing rates as the year progressed. Inventory burn drove server CPU shipments down mid-single digits year-on-year in calendar year 2022 with hyper-scale up, offset by declines in enterprise and Rest of World. Our share in calendar year 2022 was in line with our subdued expectations, and our revenue volatility was a function of TAM, especially given our outsized exposure to enterprise and China.
We expect Q1 server consumption TAM to decline both sequentially and year-over-year at an accelerated rate with first half 2023 server consumption TAM down year-on-year before returning to growth in the second half. While all segments have weakened, enterprise and Rest of World, especially China, continues to be weaker than hyperscale. However, we'd highlight that the correction in enterprise and rest of the world, where we have stronger positions are further along than hyperscale.
Lastly, in our broad-based markets like industrial, auto and infrastructure, demand trends throughout calendar year 2022 were strong but not completely immune to the macro volatility. Strong demand in these markets was mirrored by strong Q4 and record calendar year 2022 revenue in NEX, PSG, IFS and Mobileye. We see calendar year 2023 as another growth year for us in these areas even though the absolute rate is difficult to predict today. This is in contrast to the semi-market ex-memory, which third parties expect to decline low to mid-single digits. We entered 2023 with a view that much of the macro uncertainty of the last year is likely to persist, especially in the first half of the year.
As such, we are laser-focused on executing to our $3 billion in calendar year 2023 cost savings that we committed on our Q3 earnings call. We are making tough decisions to rightsize the organization and we further sharpened our business focus within our BUs by rationalizing product road maps and investments. NEX continues to do well and is a core part of our strategic transformation, but we will end future investments in our network switching product line, while still fully supporting existing products and customers.
Since my return, we have exited seven businesses, providing in excess of $1.5 billion in savings. We are also well underway to integrating AHG into CCG and DCI, respectively, to drive a more effective go-to-market capability, accelerating the scale of these businesses while further reducing costs. While it was important to focus on what we are doing to address the current macro uncertainty, it is also important to highlight that despite disappointing financial results, calendar year 2022 did see considerable progress towards our transformation. We remain fully committed to executing to our strategy to deliver leadership products, anchored on open and secure platforms, powered by at-scale manufacturing and supercharged by our people. Success starts with our people and execution follows culture.
In calendar year 2022, we took important strides to rebuild the leadership team, promoting from within and adding fresh perspectives from the outside. This includes the Board of Directors, with the addition of Lip-Bu Tan and Barbara Novick, both of whom have already made significant contributions and the appointment of Frank Yeary as Chair. In addition, a year ago, we reestablished OKRs to drive accountability and transparency across the organization, and we reintroduced TikTok 2 to establish a rigorous methodology of design and product development. Both are key spark plugs to our execution engine.
Rebuilding the culture has begun to show benefits in manufacturing and design. Our progress against our TV roadmap continue to improve throughout calendar year 2022 and every quarter, our confidence grows. We are at/or ahead of our goal of 5 nodes in four years. Intel 7 is now in high-volume manufacturing for both client and server. On Intel 4, we are ready today for manufacturing, and we look forward to the Meteor Lake ramp in second half of the year. Intel 3 continues to show great health and is on track.
Intel 4 and 3 are our first modes deploying EUV, and will represent a major step forward in terms of transistor performance per watt and density. On Intel 20A and Intel 18A, the first nodes to benefit from RibbonFETs and PowerVia, internal test chips and those of a major potential foundry customer have taped out with the silicon running in the fab. We continue to be on track to regain transistor performance and power performance leadership by 2025.
Progress in TD continues to be validated by our IFS pipeline. I am happy that we were able to add a leading cloud edge and data center solutions provider as a leading edge customer for Intel 3 including prior customers. Such as MediaTek, we now have lifetime deal value of greater than $4 billion for IFS. We also have an active pipeline engagements with seven out of the 10 largest foundry customers coupled with consistent pipeline growth to include 43 potential customers and ecosystem partner test chips.
Additionally, we continue to make progress on Intel 18A, and I've already shared the engineering release of PDK0.5 with our lead customers and expect to have the final production release in the next few weeks. In addition, we are working hard to complete the Tower acquisition, which will further amplify our momentum as our foundry business becomes even more compelling to customers.
On the product front, the PRQ of Sapphire Rapids in Q3 and the formal introduction of our 4th Gen Xeon scalable CPU and Xeon CPU MAX series better known to many of you as Sapphire Rapids and Sapphire Rapids HBM, respectively, on January 10 was a great milestone. It was particularly satisfying to host a customer-centered event, including testimonials from Dell, Google Cloud, HPE, Lenovo, Microsoft Azure and NVIDIA, among many others. We are thrilled to be ramping production to meet a strong backlog of demand, and we are on track to ship 1 million units by midyear.
In addition, as part of AHG moves into DCAI. It is noteworthy that our Intel Flex series optimized for and showing clear leadership in media stream density and visual quality is now shifting initial deployments with large CSPs and MNCs, enabling large-scale cloud gaming and media delivery deployments. Our DCAI road-map only improves from here and will rapid to sampling and has completed power on with top OEM and CSP customers, and it remains on track to launch in the second half of 2023. Granite Rapids, our next performance core addition to the Xeon portfolio is on track to launch in 2024, running multiple operating systems across many different configurations. Further, our first efficient core product, CFR is also on track for 2024.
Lastly, it is appropriate to continue to highlight PSG for its standout performance delivering record Q4 revenue up 42% year-on-year. We are planning to have a more fulsome look at our progress in BCEI at our next investor webinar later in Q1. Stay tuned for the invitation.
In CCG, we continue to build on our market share momentum across the PC stack by focusing on delivering leadership products with our broad open ecosystem. I'm particularly pleased that our clear performance leadership at the high end drove record client ASPs in the quarter. In Q4, the 13th Gen Intel Core desktop processor family, codename, Raptor Lake, became available, starting with the desktop K processors and the Intel Z790 chipset. In partnership with ASUS, we officially set a new world record for overclocking, pushing the 13th Gen Intel Core past the 9 gigahertz barrier for the first time ever.
Hands down, we provide desktop enthusiasts and gamers with the best processors and features for overclocking in the PC industry. We also introduced our notebook Raptor Lake family at CES, including the world's fastest notebook CPU and the first 24 cores. We look forward to ramping the more than 300 mobile design wins we have already secured in the first half of 2023.
Meteor Lake, our first disaggregated CPU built on Intel 4, remains on track for the second half of the year. And with Meteor Lake progressing well, it's now appropriate to look forward to Lunar Lake, which is on track for production readiness in 2024, having taped out its first silicon. Lunar Lake is optimized for ultra-low power performance, which will enable more of our PC partners to create ultra-thin and light systems for mobile users.
In addition, as we outlined on our webinar, we are excited by the strength of the Evo brand. The introduction of Unison for leadership multi-device experience as we ramp the more than 60 design wins and the uniqueness of vPro in the enterprise market, helping our customers drive an almost 200% return on investment by deploying vPro platforms to their end users.
Lastly, as consumer graphics reintegrate into CCG, enthusiasm for our latest Alchemist-based discrete graphics products continue to build and we expect volume ramp throughout the year.
Turning to NEX and Mobileye. Both businesses have performed well in Q4 and calendar year '22, partially insulated by some of the market forces impacting PCs and server. NEX hit the key product milestones with Mount Evans, Raptor Lake P&S, and Alder Lake and Sapphire Rapids to drive a second consecutive year of double-digit year-on-year growth in calendar year '22. We expect market share gains and outperformance to continue in '23. Mobileye increased revenue by almost 60% year-on-year in Q4 and is on a solid growth path for calendar year '23. Calendar year '22 design wins, including supervision, are projected to generate future revenue of approximately $6.7 billion across 64 million units.
In addition, our manufacturing organization performed well throughout calendar year '22. Starting the year, navigating the worst supply-constrained environment in over 20 years, only to have to pivot in Q2 to respond to rapidly changing demand signals, which are now driving near-term under-loading in our factory network. More importantly, we continue to push forward with the next phase of IBM 2.0 creating an internal foundry, evolving our systems business practices and culture to establish a leadership cost structure. This new approach is already gaining momentum internally.
As a reminder, the internal foundry model will place our BUs in a similar economic footing as external IFS customers, and will allow our manufacturing group and BUs to be more agile, make better decisions and uncover efficiency and cost savings. We have identified nine different subcategories for operational improvement that our teams will aggressively pursue.
In addition to establishing better incentives, this new approach will provide transparency on our financial execution, allowing us to better benchmark ourselves against other foundries and drive to best-in-class performance. We'll also provide improved transparency to our owners as we expect to share full internal foundry P&L in calendar year 2024. Ultimately, allowing you to better judge how we are allocating your capital and creating value. We expect additional efficiencies as we implement our internal foundry model, which is a key element to accomplish our $8 billion to $10 billion of cost savings exiting 2025, as we outlined on our last call.
I want to remind everyone that, we are on a multi-year journey. We remain focused on the things that are within our control as we navigate short-term headwinds, while executing to our long-term strategy. While I remain sober that, we have a long way to achieve our financial expectations, I am pleased with the transformation progress that we are making. I can tell you, in addition to obviously focusing on the day-to-day running of the company we continue to examine numerous additional value-creating initiatives for 2023 as we always do. We will update you as we move along on any we deem appropriate. Rest assured, we remain committed to creating value for our owners and to delivering the long-term strategic road map we laid out at the beginning of this journey, and we are confident in our ability to do so.
We will, one, deliver on five nodes in four years, achieving process performance parity in 2024 and unquestioned leadership by 2025 with Intel 18A. Two, execute on an aggressive Sapphire Rapids ramp introduced Emerald Rapids in second half '23 and Granite Rapids and CR4s in 2024. Three, ramp Meteor Lake in second half '23 and PRQ Lunar Lake in 2024, and four, expand our IFS customer base to include large design wins on Intel 16, Intel 3 and 18A this year.
We also need to improve our cost structure and drive operational efficiency. On this front, we will one, return to profitability and deliver the benefits of our calendar year '23, '24, and '25 efforts to reduce costs and drive efficiencies. Two, execute on our internal foundry P&L by 2024. And three, expand on the use of our smart capital strategy to leverage multiple pools of capital, including skips and chips in the US and Europe to balance our long-term capacity aspirations with near-term realities.
Before I turn it over to Dave, I'm going to close by saying, we take our commitments to all our stakeholders extremely seriously, and ultimately, we strive to create value for each of them. For our customers, it is rebuilding our execution engine to provide a predictable cadence of best-in-class products to support their ambitions.
For our employees is to provide them with the opportunity to develop and bring to market world-changing technologies. It is what inspires each of us inside of the company. For our external owners is to make thoughtful, deliberate decisions around capital allocation, which drives the highest return on investment we make with your capital. Our ambitions are equal by our passion, and our efforts across manufacturing, design, products and foundry are well on their way to driving our transformation and creating the flywheel, which is IBM 2.0.
