Intel Corporation

Thank you for standing by, and welcome to Intel Corporation's second quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. John Pitzer, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Jonathan, and good afternoon to everyone joining us today. By now, you should have received a copy of the Q2 earnings release and earnings presentation, both of which are available on our investor website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I am joined today by our CEO, Lipu Tan, and by our CFO, David Zinsner. Lipu will open with comments on our second quarter results, as well as provide an update on our strategy and priorities. Dave will then discuss our overall financial results, including third quarter guidance, before we transition to answer your questions. Before we begin, please note that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, are subject to various risks and uncertainties. It also contains references to non-GAAP financial measures that we believe provide useful information to our investors. Our earnings release, most recent annual report on Form 10-K, and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures. With that, let me turn things over to Lipu.

Thank you, John. And let me add my welcome. We had a solid Q2 with revenue above the high end of our guidance. This reflects strong demand across our business and good execution by the team. As expected, headline profitability was impacted by several one-time items and impairments. but I am pleased by the underlining operating performance in the quarter, even as we have more work to do. Dave will go through our detailed financial shortly. Today, I want to provide you with updates on four major initiatives where we have started to make progress and will continue to focus in coming quarters. our organization and culture, our foundry strategy, our core x86 franchise, and our AI strategy. First, on organization and culture. Over the last three months, I have completed a systematic review of every organization and function reporting to the CEO. These reviews included detailed analysis of headcount, skill sets, spending, site distribution, executive population, and restructuring plans. We have much work to do in building a clean and streamlined organization, which we have started in earnest and it remains an area of focus for me during Q3. Our goal is to reduce inefficiencies and redundancies and increase accountability at every level of the company. As mentioned in our Q1 earnings call, we need to right-size and scale back the company while ensuring that we are retaining our best internal talents and hiring the best external talents from industry and universities. During Q2, we completed the majority of the actions needed to achieve our year-end target of 75,000 employees. These were hard but necessary decisions and we reduce management layers by approximately 50% in the process. We are on track to implement our return to office mandate starting September. These actions are necessary not just to reduce our operating expenses, but to make the company more agile, collaborative and vibrant. to simplify our business and improve our product and process execution. Next, on our Foundry Strategy. I continue to believe that our heritage and expertise in semiconductor technology development and manufacturing remains a very valuable and vital asset. I also fully appreciate the strategic importance of the U.S. domicile semiconductor manufacturing. Transforming this unique asset into a robust foundry business requires us to take a systematic approach and act from the position of strength. The foundry business is a service business that relies on foundational principle of trust. We need to demonstrate to our customers that we can deliver wafers on time with high quality, reliability, and yield that we can manufacture their products at scale. We need to have process and packaging technology that is not only competitive, but more importantly, is designed to meet the needs of our customers. In addition, we also need to develop a rich and diverse ecosystem of IT and EDA partners who will enable our customers to seamlessly design chips using our process. And finally, perhaps most importantly, we need to build capacity smartly and carefully on a schedule that meets the needs of our customers and supports the economics of our business. This approach is fundamentally different than the path we have been on for the last four years. Unfortunately, the capacity investment we made over the last several years were well ahead of demand and were unwise and excessive. Our factory footprint has become needlessly fragmented. Going forward, we will grow our capacity based solely on the volume commitments and deploy CapEx lockstep with the tangible milestones and not before. As part of this new financial discipline, we have decided not to continue with our manufacturing projects in Germany and Poland. We also plan to consolidate our assembly and test operation in Costa Rica into larger existing sites in Vietnam and Malaysia. and we will further slow the pace of construction in Ohio to ensure our spending is aligned with market demand. Importantly, based on the progress we have already made in Ohio, we have flexibility to accelerate work as needed to meet customer needs. Tending specifically to process technology development, On Intel 18A, we will continue to make steady progress on our yield and performance targets. Intel 18A is the foundation of at least next three generations of Intel client and server products, and we remain committed to ramping this technology to scale. Intel 18A and Intel 18AP are critical nodes for Intel products and will drive meaningful wafer volumes well into the next decade. Our foundry and products teams remain focused on enabling Penta Lake to launch this year. Once we get our own product ramping in high volume, we will be in better position to attract external customers to this technology. The Intel 18A family is also important as we continue to advance our work for the US government within the secure and great programs, as well as for other initial committed customers. On Intel 14A, the Foundry technology team is continuing to focus on the basic building blocks, technology definitions, and transistor architecture, process flow, design enablement, PDKs, foundational IPs, and test chips to validate and improve performance and defect density. Designing 14A at its inception as a foundry node from the ground up better positioned us to meet specific customer requirements and address a broadened segment of the market. This work is being driven and informed by direct input from large external customers and from our own internal product teams. A key aspect of prudently pursuing our foundry ambition is also making sure we maintain sensible optionality for our internal product teams. They will continue to work closely with both internal and external foundry partners. They will do their homework and make process and supplier decisions based on what is best for our end customers against criteria of performance, cost, yield, and time to market. Our external foundry strategy has always been rooted in the economic reality of semiconductor manufacturing. Up to and through Intel 18A, we could generate a reasonable return on our investments with only Intel products. The increase in capital costs at Intel 14A make it clear that we need both Intel products and a meaningful external customer to drive acceptable returns on our deployed capital. And I will only invest when I'm confident those returns exist. I'm intimately familiar with the Foundry and Fabulous ecosystem. Having helped create it over the last two decades, I'm using that experience to put our Intel Foundry on a more solid footing for the future. I will do so while being prudent with our capital. and ensure we can deliver attractive returns on the investment we make. I do not subscribe to the belief that if you build it, they will come. Under my leadership, we will build what customers need, when they need it, and earn their trust through consistent execution. Next, onto our core x86 franchise. In client, our top priority is delivering our first Penta Lake SKU by year end, followed by additional SKUs in the first half of 2026. The successful launch of the Penta Lake will solidify our strong share in the notebook market across consumer and enterprise. We still have gaps to close in the high-end desktop market, but I'm encouraged by our unmatched go-to-market reach, our x86 ecosystem, and the progress we are making on NovaLake due out at the end of 2026. In traditional servers, We continue to have solid position in AI host nodes and storage, where our single-threaded performance has been optimized for those workloads. Granite Rapids is ramping as planned, and we continue to see good demand for our more established server products. but sustainable share improvement in this market will take time. Specifically, we need to improve in broader hyperscale workloads where performance per watt is key differentiator. I have also taken steps to correct past mistakes regarding multi-threading capabilities on our P calls. I'm also making progress on bringing in new leadership in our data center business and look forward to being able to announce these changes next quarter. Longer term, my directive to our silicon and platform teams is to define products with clean and simple architecture better cost structure to simplify our SKU stack, or well enable a path to robust product margin. I'm also instituting a policy where every major chip design need to be personally reviewed and approved by me before tape out. I have already begun this process. This discipline will improve our execution speed and move up towards a first-time bright mindset while also saving development costs. Finally, turning to AI. In the past, we approached AI with a traditional silicon and training-centric mindset without a cohesive silicon systems software stack and strategy. But we do need to build and consolidate upon our silicon franchise based upon our x86 CPU and our xe GPUs. We recognize the need to move up the abstraction stack into system and software. This is the area where Intel has traditionally been weak or entirely absent. But we intend to incubate and grow these important skill sets and capabilities under my leadership. This will take time, but it will be vital for Intel to stay relevant in the next wave of computing. In addition, we see the AI market continuing to evolve, and we are concentrating our effort on areas we believe we can disrupt and differentiate like inference and agentic AI. We need to start by first understanding emerging and real AI workloads, then work backwards to design software, systems, and silicon to enable best outcome for those particular workloads. We will strive to become the compute platform of choice. But we will also work towards a full stack AI solution, and I look forward to sharing more on our strategy in the coming months. Underpinning all of these efforts is a strong focus on improving our balance sheet. We continue to maintain solid liquidity, but despite meaningful capital spending offsets. Our last full fiscal year of positive adjusted free cash flow was 2021. This is completely unacceptable. How we allocate our owners' capital and the return we generate for them are of paramount importance to me. We have several major levels to generate better cash flow, including driving operating leverage and managing our capital outlays. I discussed earlier the action we have taken to reduce operating expenses and improve execution. I'm very confident in our ability to hit our operating expenses targets for 2025 and 2026, respectively. We have already lowered our CapEx guidance from the beginning of the year by roughly $5 billion YTD, while purchasing commitments made further reduction in 2025 difficult. We will continue to work to reduce capital spending in 2026. Lastly, as it relates to our non-core assets, We successfully monetized a portion of our ownership of MobileEyes earlier this month, and we look forward to closing the Altera transaction with Silverlake this quarter. I will evaluate other opportunities as we continue to sharpen our focus around our core business and strategy. I believe the actions we have taken during my first few months are steering us in the right direction that say i also know that turning the company around will take time and require patience we have a lot to fix in order to move the company forward and i'm determined to drive the changes necessary to improve our performance i am equally They opt that as we execute, we will rebuild this company and have a bright future. I will now turn it over to Dave to go into more detail on the financials.