Pat Gelsinger
Chief Executive Officer at Intel
Thank you, John, and good afternoon, everyone.
We delivered solid first-quarter results on both the top- and bottom-line. Upside was driven by better-than-expected revenue and very disciplined expense management across our organization. The latter is not easy and I want to thank the entire Intel team as we thoughtfully execute on cost reductions and efficiency improvements that support the investments critical to drive our strategy.
Q1 results demonstrate the progress we are making to advance our transformation in the IDM 2.0 strategy. We still have more work to do as we reestablish process, product and cost leadership, but we continue to provide proof points each quarter and we remain committed to delivering long-term value for all our shareholders.
Consistent with prior quarters, I'd like to focus my comments in three areas: one, our view of the macro and our markets; two, key highlights from Q1; and three, an update on our strategic priorities with a focus on our move to an Internal Foundry model.
As the industry continues to navigate through multiple global challenges and headwinds, we remain cautious on the macro outlook, even as we expect some modest recovery in the second half. We are seeing increasing stability in the PC market with inventory corrections largely proceeding as we had expected. However, the server and networking markets have yet to reach their bottoms as Cloud and Enterprise remain weak. As a result, our Q2 revenue guide embeds continued inventory corrections in our core markets and a range of normal seasonal to better-than-seasonal growth off depressed Q1 revenue levels.
We remain focused on what is within our control and steadfast in our commitment to advancing our strategy. As we anticipated on our Q4 earnings call, the PC market depleted a significant amount of inventory in Q1 and is tracking to be at a healthy level by the end of Q2. Importantly, the PC install base is larger and usage remains well above pre-pandemic levels, and along with a better-than-expected Q1, strengthens our view that the PC market is on track to a sell-through of 270 million units in calendar year '23.
As we highlighted during our PC webinar in January, strong usage and install 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.
In Servers, Q1 consumption TAM declined both sequentially and year-over-year at an accelerated rate and we still expect to see first-half '23 TAM decline year-on-year with a modest recovery in second half of the year. While all segments have weakened, we'd reiterate that the correction in Enterprise and Rest-of-World, where we have stronger positions, is further along and will likely recover more quickly.
Lastly, in our broad-based markets like Industrial, Auto and Infrastructure, demand trends are relatively stronger. Although, as anticipated, NEX did see a Q1 inventory correction that we expect will continue for the next couple of quarters and likely will cause NEX revenue to decline this year. In contrast, PSG, IFS, and Mobileye continue on a strong growth trajectory and we see the collection of these businesses in total growing year-on-year in calendar year '23, much better than third-party expectations for a mid-single-digits decline in the semiconductor market ex-memory.
While the semiconductor industry is cyclical by nature, we continue to accelerate our transformation and position ourselves to capture the significant market growth in semis expected over the next decade, nearly doubling to more than $1 trillion by 2030. Combined with the need for globally balanced and resilient supply chains and the Foundry market expected to be roughly $200 billion by 2030, we are well-positioned to capitalize on multiple vectors of growth.
On that front, let me highlight some key milestones from Q1. We are relentlessly focused on driving execution excellence across process and product roadmaps and throughout the company, including a rigorous focus on efficiency and cost savings. Looking first at the progress we're making with our process roadmap, we remain on track to regain transistor performance and power performance leadership by 2025.
Relative to five nodes in four years, notably, two out of these five nodes, Intel 7 and Intel 4, are now essentially done. Intel 7 is in high-volume manufacturing, and Meteor Lake on Intel 4's ramp in production wafer starts today for a second-half product launch.
We are quickly mastering EUV technology with Intel 4 as our first EUV node. As we focus on the next three nodes, Intel 3 is on track and we highlighted in our recent DCAI webinar, Sierra Forest will begin shipping in the first half of '24, with Granite Rapids shortly thereafter, both on Intel 3.
We also have significant milestones planned in Q2 for Intel 3, Intel 20A and Intel 18A, and look forward to providing more details as we execute. Overall, we are squarely on track to deliver five nodes in four years. We understand that our Foundry ambitions will not be realized overnight, building a vibrant Foundry ecosystem will take time. But we also understand our Foundry success is vitally important to establishing a geographically diverse and secure supply of semiconductors.
We took a major step forward in building our ecosystem this month when we announced a multi-generation agreement with ARM Holdings. This will enable chip designers to build leading-edge mobile SoC designs on Intel 18A, giving the design community a new Foundry alternative for product innovation and fast time-to-market, while also opening up new options and approaches for large ecosystem of Arm customers.
We look forward to providing access to best-in-class CPU IP and the power of an open system Foundry with leading-edge process technology. Finally, as part of my recent trip to China, we continue to work hard to complete the Tower acquisition and we'll update you appropriately. In our webinar last month, we provided a substantial update on our Data Center and AI business, highlighting the progress and health of our roadmap.
Sapphire Rapids, our 4th Gen trends Xeon is one of the highest-quality data center CPUs Intel has ever delivered and continues to ramp aggressively with excellent customer feedback. We are shipping over 400 designs across numerous system and memory configurations for all OEMs, ODM, and cloud providers and we are on track to 1 million units by midyear.
Notably, AI inference performance and confidential computing substantially differentiate our 4th Gen Xeon from competitors, specifically 4th Gen Xeon offers the most comprehensive confidential computing portfolio in the industry, including virtual machine isolation with Intel Trust Domain extensions or Intel TDX and Trust Attestation services. Just this week leading cloud service providers signaled readiness for Intel TDX instances, including Alibaba Cloud, with Microsoft announcing their preview on Azure, and Google releasing joint research conducted pre-launch to further harden TDX in complex environments.
Emerald Rapids, our 5th Gen Xeon Scalable is already sampling with customers and is on track to launch in Q4 '23. As stated earlier, Sierra Forest, our lead vehicle for Intel 3 will begin shipping in first half '24, with Granite Rapids shortly thereafter. Both of which are receiving very positive responses from sampled customers. Sierra Forest is our first E-core server CPU which will provide competitive performance per watt across workloads and leadership across many, with all of the benefits of the x86 ecosystem. Clearwater Forest, which is the follow-on to Sierra Forest, is coming to market in 2025 and will be manufactured on Intel 18A, the node where we intend to achieve process leadership, and representing the culmination of our five-nodes-in-four-year strategy.
The combination of our roadmap strengthening as we highlighted in our webinar, better-than-expected Q1 market share results, and great execution on the Xeon Gen 4 ramp, Q1 was a turning point as the first quarter of an improving Data Center position since I became CEO.
Further in Q1, we taped in the Habana Gaudi3 AI Accelerator and the Habana Gaudi2 is in the market and offering substantial performance advantage over A100 in training and inferencing, vision and language models. For example, Gaudi2 delivered 60% higher power efficiency measured in throughput per watt for inferencing large language models such as BLOOM 176-billion parameter model. Along with 4th Gen Xeon and Xeon Max, Gaudi enables us to address the accelerating growth in AI. Recent endorsements by Hugging Face and Stability AI are strong proof points of the validation in our AI roadmap and strategy.
Our strategy is to truly democratize the incredible power of AI, championing an open ecosystem with a full suite of silicon and software IP to drive AI from Cloud to Enterprise, Network, Edge, and Client across training and inference, and both discrete and integrated solutions. Our oneAPI now includes the open and royalty-free C++ based programming model, SYCL, which is critical to driving collaboration and innovation.
As developers want the ability to write once, run anywhere, our open-source toolkit, SYCLomatic, is helping to accelerate the migration to SYCL as we work to democratize AI. While AI development sparked by enthusiasm around generative AI is today centered on LLMs in the cloud, AI deployment will rapidly migrate to inference as the dominant AI workload, and adoption will quickly expand outwards to Edge and Client, all areas that play to our strengths.
We are focused on capitalizing across all segments with optimized silicon and software solutions. Our Programmable Solutions business continues to perform well with an all-time record revenue in Q1. And our FPGA portfolio now includes more than 15 new products scheduled to PRQ this calendar year, the highest number of new product introductions ever in our FPGA business.
PSG is also piloting an initiative to build a more resilient supply chain by which customers would provide Intel with enhanced demand and new design visibility, while Intel provides customers with greater predictability of supply, leveraging the benefits of transitioning a great percentage of PSG products to an Intel supply-chain.
Our Client Computing business continues to execute on this roadmap and build on recent market share wins. We gained overall PC market share in Q1 and expect our competitive position to continue to improve as we ramp Meteor Lake production in Q2 for a launch in second half. In Q1, we introduced our 13th Gen Intel Core Mobile processor, followed by our new vPro platform powered by the full lineup of 13th Gen Intel Core processors. Intel vPro delivers the most comprehensive security and the necessary hardware for companies in the need of a PC refresh and increased productivity. In 2023, our expansive commercial portfolio will deliver more than 170 notebooks, desktops, and entry workstations from technology providers such as Acer, ASUS, Dell, HP, Lenovo, Fujitsu, Panasonic and Samsung Electronics.
Turning to NEX and Mobileye, at Mobile World Congress, we demonstrated that nearly all vRAN and virtualized network core deployments run on an Intel. We also introduced a range of products and solutions that enable the world's networks, from the Core to the Radio Access Network and out to the intelligent Edge to transition from fixed-function hardware to open programmable software-defined platforms. Highlights include the launch of our 4th Gen Intel Xeon Scalable processors with Intel vRAN boost, delivering 2 times the capacity gains gen over gen, within the same power envelope and up to an additional 20% power savings with integrated acceleration, and with extensive industry support from Ericsson, Verizon, Telefonica and Vodafone, among many others. In particular, Ericsson has been working closely with us to enable the cloudification of the network, making possible industry-scale Open RAN.
Lastly, Mobileye continues to be an important part of the Intel family and delivered strong growth and profitability in Q1. They continue to gain significant traction with customers for their advanced product portfolio, and we remain very confident in the long-term growth profile and value of the Mobileye business. In addition to our process and product roadmap, we continue to make progress on our commitment to reduce costs and drive efficiencies. We are well on our way towards our goal of reducing $3 billion in costs in 2023, and $8 billion to $10 billion in annual savings exiting 2025. We further rationalize our products as we prioritize our investments in support of IDM 2.0. This includes integrating AXG into DCAI and CCG, respectively. In addition, we exited our server business in Q1 and signed an agreement with MiTAC, an Edge to Cloud IT solutions provider and longstanding ODM partner, to manufacture and sell products based on the designs of our server systems business to create a path forward for our channel customers.
I'm going to spend a few minutes on cost leadership. Last month, I had the opportunity to meet with some of you on the East Coast, and while everyone understands that we are establishing an Internal Foundry model, I'm not sure we've fully explained the importance and impact of this change. Giving the manufacturing group their own P&L and the BUs' standard wafer price will drive a more efficient factory network and a better decision on design to cost at the BU level. It will also serve to create parity between internal and external Foundry customers and drive a more efficient manufacturing cost structure needed to compete and win external Foundry customers.
With a separate P&L for the manufacturing group, we will also provide you with a cleaner comparison of the BUs to their external fabless peers. As we stated on our Q3 earnings call, we believe the structure should allow us to access and execute on multiple pools of profit that are unique to an IDM, which none of our peers have.
Establishing an internal Foundry model is one of the most consequential steps we are taking to deliver IDM 2.0, and fundamentally shifts the way the company operates and the incentive mechanisms that drive day-to-day behaviors. We look forward to discussing this in more detail during our Internal Foundry webinar in Q2.
I am proud of our team's progress this quarter. We remain committed to executing on our strategic roadmap by, first, delivering on five nodes in four years, achieving process performance parity in 2024, and unquestioned leadership by 2025 with Intel 18A.
Second, executing on our Data Center and AI roadmap, including the Sapphire Rapids ramp; the launch of Emerald Rapids in the second half of '23, and Granite Rapids and Sierra Forest in 2024. Third, ramping Meteor Lake in second half '23, and launching Arrow Lake and Lunar Lake in 2024.
And fourth, expanding our IFS customer base to include large design wins on advanced packaging, Intel 16, Intel 3, and Intel 18A this year. As we improve our cost structure and drive operational efficiency, we will first return to profitability. Second, execute on our Internal Foundry P&L by 2024; and third, expand the use of our Smart Capital strategy to balance our long-term capital aspirations with near-term realities.
We are steadfast in our commitment to continue to effectively allocate your capital in the pursuit of creating value for all of our stakeholders. Before I turn it over to Dave, I'd like to take a moment to honor and pay tribute to the life of Gordon Moore, who passed away on March 24. Gordon defined and enabled the technology industry through his insight and vision. He was instrumental in revealing the power of transistors and inspired technologists and entrepreneurs across the decades. I am forever grateful for his guiding hand, willingness to mentor me, and his unwavering friendship. Gordon famously said, "What can be done, can be outdone." This is our guiding principle as stewards of Moore's Law, which we intend to enable and drive until the periodic table is exhausted, as we use the power of technology to improve the lives of every person on earth.
Intel will hold a memorial service to honor the life and accomplishments of Gordon and we will share more details on this shortly.
