Intel's latest earnings report very much in Focus challenge quarter for the chip giant I want to get right to Intel CEO Pat Giger Pat good to see you as always no matter what you report I I have to give you credit uh Rainer shine you're always here talking to Yao Finance after these results we thank you for taking the time um I I I don't know how else to put this quarter um the stock is under a lot of pressure um maybe we can go through this line by line how much how much pressure is
your business under right now yeah hey thanks sazy always a pleasure to chat with you uh you know the quarter we landed the top line within the range we said we had the uh you know challenges with the China export but the big news of course was the bottom line and uh for that uh it was uh very much hey we accelerated the aipc uh and uh that had lower margins as we moved into our next Factory to accelerate the ramp of it which was negative and obviously some other one-time things that we referenced uh
as well but was much more the Outlook where it was a weaker Outlook as well as we expect some of those challenges to persist and we made a major announcement about our structuring changes uh as we look to the Future so overall a lot of great product and process Milestones you all say phase one of the journey you know it's just stunning what we've been able to accomplish and now time to take pretty aggressive steps on the financially sustainable model for Intel for the future and that's what we've rolled out you know we're very committed
to the journey that we're on what surprised you I on the cost front as you went through the quarter well clearly uh as we made this decision to move into our Ireland Factory from our TD Factory had a quite a large negative impact on our margins from where we indicated at the beginning of the quarter this is the right thing to do get into the production factory accelerate the volume ramp of our AI PC components but it was a surprise and that and some of our own operational things as we said this new operating model
Intel Foundry Intel products you know we're not mature yet and we're making the steps necessary you know to mature that rapidly and overall you as we'd say you know the market was a little bit softer some of our cyclical businesses taken a bit longer to recovery some of the inventory digestion that we spoke about uh as well in areas like our client business so I'll say all of those put together you know moderate our Outlook and we're taking the steps for a more SU sustainably financially effective Intel for the future this is the biggest restructuring
of Intel I'd say since the memory microprocessor decision four decades ago you know we laid out the new operating model and we're taking decisive steps to execute on the process and product work that we've done to now combine it with an operating model to make us effective for the long term Pat this is a this is challenging stuff this has to test every leadership principle you you've learned over Decades of doing this well you know anytime I have to go to my Intel family and say sorry we have to take steps to reduce our headcount
you know that is challenging you know and we're going to do that with respect and dignity because many of these are you know just people that are so committed to the success of Intel and we also realize we have to combine you know that heart with making the decisions to make a healthy Intel the long term that's the most important thing that we've done this is a unique company a company that truly bends physics and chemistry in ways that are you know barely seem possible until we've made it common place and we now have to
have this new operating model Intel products and Intel Foundry for sustainable Financial results that allow us to continue to execute that in extraordinary Vision you know for decades to come that's the tough steps that we're rolling out yeah it's a challenging period but this is what I signed up for and committed you know to do with this leadership team the third quarter Outlook too um below consensus as well what don't you see getting better quarter over quarter overall we see the market recovering more slowly than what we indicated at the beginning of the year all
of our cyclical businesses see Improvement but less so and you know we've seen that in the Auto industry the fpga business each one of them are recovering more slowly we have some inventory in the client business that we have to work through you know the data center business remains primarily driven by the AI buildout so the CPU portion the Zeon portion of that is more modest so I'll say everything is moving a bit more slowly in the second half of the year than we would have indicated earlier you know but the overall Trends we see
more positive in the fourth quarter you we see slightly above right normal growth rates in the fourth quarter and clearly as we go into next year you know things like corporate refresh aipc accelerate you know our product lines are stronger and our new AI accelerators start to ramp more effectively so we're still optimistic for the long term but we realize that the second half of the year a bit more challenged than we would have indicated is this a market issue or or a product issue pet we see no market share changes than we felt at
the beginning of the year so we'd say every one of the things that I just said are Market effects uh in that regard we see no meaningful change in our market share you know position now obviously areas like AI you know have driven the discussion on where the Investments and data center and Cloud go so even as our products get to be stronger in those areas and we've launched our new products you know the overall market conditions are ones that we haven't found as much momentum as we would have hoped so each one of these
is a market condition and as we get stronger over time we'll be better positioned to start regaining share in some areas like Data Center and accelerators and continue the strong growth in our areas like aipc of course we have to also say about The Foundry and we're seeing a good momentum in areas like our Advanced uh packaging uh area of that business the 18a uh pdk release this is sort of the starting gun for people to start their production designs and so we're seeing a lot of energy and that area but overall market conditions a
little bit more modest and I think outside of the AI sector you've seen that in multiple announcements Pat you know I followed uh your journey at Intel from day one I've followed Intel for a long time I to be frank I was surprised by the dividend cut and the capex cuts for this year and next year now there's a lot of people in this country rooting for your comeback to be that Beacon of Hope to make chips in the country but how do you I guess quiet their concerns that you know is running out of
time to turn itself around and it won't be that Beacon of Hope to make chips in the country so you know as we laid out our overall projects in the US and the chips agreements they're all Milestone based and we're comfortably inside of the Milestones that we have so our plan to build out us manufacturing unchanged we continue to see great momentum with US Government chips program office many areas as that unique national champion and many of those things are seeing very good good progress in those areas so no change in those plans the capex
reductions are very much focused on building a more efficient Intel and we've made many of the catch-up Investments you know we radically increased our Capital expansion and capital Investments over the last several years since I came back you we had no shell capacity no sight capacity we had to catch up on our process uh technology so all of those Investments are ones that we can now build on as we build an efficient effective Foundry and foundaries manage their capital investment very carefully and as we have laid out this new operating model of Intel products and
Intel Foundry we should be scrutinizing those Capital Investments carefully and that's the decisions that we're making as we do those and some of that adjustment is just based on market conditions as well where we see the growth rates in the marketplaces so we could say our strategy is unchanged we remain committed to being that worldclass Foundry stepping into that space for a resilient supply chain for the world our plans for our build outs our chips Investments no change in those even as we make these near-term adjustments to be a more efficient supplier for the future
you mentioned the headcount reduction Pat 15% that's a large number um 15 16,000 people uh how concerned are you that that reduction will will impact the culture of Intel and then slow up the turnaround at the company you know given that we've now I say gotten our process and product in place we feel like we're in a position that we can make these next steps we are doing that clean sheet work of what a world-class Foundry looks like what a worldclass fabulous company looks like and those efforts to clean sheet the company are showing that
we have many areas of inefficiency we were still built like a IDM 1.0 as we've said this integrated company so being able to separate those and look at best and class companies has identified many of those inefficiencies so I need to change the culture to be focused in those areas and these steps are consistent with that building on the momentum of the last three years they're also surgical you know we're looking business by business function by function what do we do in GNA and sales how do we do our development what's the best in class
in the industry for each one of those Which business areas do I need to go up which business areas am I over investing in so we'd say all of this is healthy for a sustainable Intel for the long term even though it's challenging in the near term and something we don't consider this you know modestly we consider this very seriously these are members of the Intel family we're going to treat them with dignity and respect even as we go through these changes lastly Pat um for investors who maybe don't know you like you and I
have talked for for some time to be clear you take delivering a quarter like this and news like this which some people have not seen before from Intel pretty seriously I you've were at the company for a long period of time for many years have came back to turn the company around this is not something where you I imagine you take lightly delivering news like this uh in no way uh sazy you know I grew up at the feet of Grove noise and more you know I feel as close to a Founder that you possibly
could of a 50 plus year old you know company this is my company these are my people you know this is the vision that we have laid out to transform and rebuild a iconic you know company this is what I signed up for this is a challenging period and with it none of this is easy none of this is taken lightly we're going to treat our people the right way but we're going to build a sustainable Intel a sustainable Intel in products and technology and a sustainable Intel in our financial performance as well that's what
the market expects of us you know we have to have a company that's good for the long term that's what we're creating that's what we've signed up for that's what I've signed up for and I'm committed to finish the job that we started
