INTC - Earnings call transcript Q1 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Intel Corporation first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. And as a reminder, this conference may be recorded. I would now like to turn the conference over to Mr. Investor of Head Henninger, Relations. Mark begin. Sir, you may

Mark H. Henninger

the Intel's Thank earnings XXXX received it. copy release to along that you you, and welcome, a and earnings our operator, first of earnings conference with have presentation goes quarter should everyone, CFO call. now By

CEO, intc.com. in online. not you've our the of In Chief Brian for joining us website, Q&A. webcast joined our documents, earnings today presentation Krzanich, on our followed they're them, hear window Bob If CFO available is I'm Financial by moment, both by a both investor brief received Swan, The and also available those from remarks Officer. we'll

have non-GAAP begin, describing uncertainties. reminder when more measures. information statements could to as our it, we discussion and cause for me the Please today's press does results release, A intc.com, let release currently that to contains full based brief measures risk that financial and this include quarter earnings The the hand non-GAAP presentation factors to that, and be refer include provided see both we Before over CFO such, on forward-looking risk that actual to materially. will and Today GAAP remind environment let on Brian. everyone earnings on as and consolidated specific speaking reconciliations. results. financial our With available the differ non-GAAP GAAP me the we it we

Brian M. Krzanich

record XXXX, expectations and was the a is significantly off QX ever January. Intel's exceptionally set Coming Mark. quarter start. in we to first Thanks, XXXX off an best strong exceeded

company there network XG commercial with into to workload in when as And leadership also terabytes enterprise products, our a and a with core XG that we've Programmable McAfee, to the in we'll macro collection is importantly, the second again business richer PSG's data. of declining networks chose results IA-based date, PC performance, buys. underscores segment ever. Intel's is than on-premises my And links, Intelligent And using well, be share Xeon hybrid QX. XX% prepares business, execute vehicles. as to they're more addressable along data XX, at acceleration. reinforces power as to set growth. XG in our to compute wins data-centric customer broad-based our Search a announced business of preference all industry and growth Scalable, for data customers the our grew XX%. segment, Pyeongchang are And quarter over and in network Bing presence grew traditional including our them, We largest FPGAs powerful and center our over world's Solutions X,XXX analyze, That solutions, features data solutions infrastructure over drove What QX that saw these category, deployed begin the growth our in PSG's FPGAs, last for the share and consecutive not to CPU products The PSG's grew capacity. our recently the and using acquisition for new delivering across in up we're saw Intel's Winter deploying We're record year ASP for big edge modems, market. AI. products, continuing markets XX-nanometer take to in we demonstrate. we value of competing a provider and need dynamic the first up revenue service and transform on strength XG XXXX continued our center customers FPGAs continued of Data design continued contributing driven more Altera XX%, process, the of investments. Group the made segment of for revenue XX% directly segments are in and just bets store, memory, Data directly embedded as of a data shaping cloud XX%. those around strategy. transformation delivering including demand momentum and markets. quarter, grew win Group win customers to the to advanced the mobile established Center strength demand Microsoft up including the evidence strength industry-leading transition. revenue. Group autonomous from Intel's We've and that XXX% high-performance center segments was with XX quarter prioritized mix. for XX% volume, virtualize was design real-time to first of year. And The last-time showcase and Intel's capability. last also Intel The their and strength customers XX within DCG was Computing the Client confidence benefits XXXX, KT center to comm And devices. by year. Olympics unrelenting for Our leading translating seeing is networks businesses, it And also in an we're our largest accelerated, competing growth than year. and looking data-centric in our to We're producing XG. the

and to passed set crossing and Wind of with with commitment a continue on to to factory more and first to focus Consistent ahead record, our our yields quarter, mark Group] of that ramp opportunities a in revenue we over that schedule. as $X mark XX% closely compute business last revenue. [Internet mark volume, momentum that moves of edge. the was disciplined strategy. decade the business billion that ago. retail the Our in increasingly be growing continuing memory grew growth to the XX% with align DCG, other resources, IOTG The over on business our crossing over River The sharpen the decision IOTG output video divest unit the Dalian in Both in segments, our Things made record

in the brownfield wafer expansion fastest starts In fact, history. one the is we projects memory believe Dalian industry of fab

in We mainstream first clients, this profitable on continued of will SSDs test to Optane technology. be the adoption and as that Mobileye year. to I'm driving coming demonstrate And operate to vehicle NSG report momentum has autonomous in Series, other track also driving, revolutionary industry to happy full further and autonomous begun months. for for to remains in the XXX launched The Israel Intel geographies known the the expand fleet we our

the This applies product be the our design leading win its style. a and driving. X% Responsible-Sensitive for to And first-ever environment. of including RSS, Computing premium a strong recent system track high-volume a laptops execution Core PC vehicle's path its EyeQX a formal from enthusiast We commercial to launched The the leadership. full or the strength first manufacturer. processors in in provable autonomous was Revenue optimal autonomous segments, implements the outright in strong system, last safety decision-making, on extended iX driving progression seal to that for a winning of common-sense fully human-like with European record we're driving fleet up CCG Our to vehicle again will finally, TAM, Safety declining year. in ADAS Group the safety the And the seeing we and quarter, resulting a introduced unique despite significant capabilities believe a momentum marketplace, Client challenging mix. that demonstrating in PC combination

continue our XX-nanometer make progress We to on process.

than is yields the We and slower improvement are rate of though shipping improving, in we are low volume anticipated.

understand As a result, from production half have yield them, XXXX. improvements time and but and qualify. is implement We they to second the XXXX volume defined the into moving will for take issues of

our of with Cascade on Whiskey Lake center customers. to Lake for leadership. take It continues that year. the and product to strategy significant Moore's our advantage coming Law products later Intel leadership XX-nanometer, for and and for have roadmap central create We is this our value data continue the clients to

While performance are process improvements. optimize yield advanced the we deliver able within node technologies, products more to to process and and it's taking meaningful deliver to longer our and costing

mitigations that all users. and optimizations responded require to products later our client Meltdown. advances process collaboratively we and leadership Intel manufacturing matters with results, and ultimately our gains nine of industry evidence product We're our Spectre more and over against begin we've customers with the security-first to micro our issue code-based that last were years most as that a architecture improvements that the example, And We'll as products and and products. expectations pleased truly transparency products security yet For known our in end produce to against mitigations also architectural and raising resulted XX% than working. rolled have first out now full-year in data hardware-based XX-nanometer XX-nanometer industry partners Intel it's we're launched. this is launched with With this both vulnerabilities year. center more customer-first stepped technology and and data center these combine for leadership the challenge Spectre for pledge strategy delivering our since up urgency. the progress Intel of performance proud our delivering tough We how I'm Meltdown. and transformation accelerating, protection with and to addressed

me artificial the revolution. the a its provider marks autonomous platform and it over hand Intel and let for With world anniversary, be the to positioned well end-to-end to As data we're in Bob. that, XXth new leader intelligence

Robert Holmes Swan

an Thanks, was start to truly Brian. QX outstanding XXXX.

was over transformation Revenue build Operating year of in a over from income to and returned billion, we at allocation year a and record was billion up generated first flow operations year, year $X.X over form continues EPS buybacks shareholders $X.XX dividends. data-centric of quarter momentum. a capital Our was billion $X.X up billion, XX% the $X.X XX% to $XX.X to up and XX% company year. From perspective, year. at cash

guide flow billion billion free result $XX.X raising seeing strength the our revenue raising We're and EPS a by guide in $X.X $X.XX, billion. to we by business, the full-year $XX.X to guide we're are $X.X our we by As $X.XX cash billion. raising our to of are

PC-centric Our XX% a QX digits. collectively, with data-centric were each transformation results businesses up Intel's from demonstrated growing company. our continued double momentum a business to in data-centric individually company

are revenue, data-centric high. approaching now our businesses Our XX% an of all-time

in DCG's cash strong in flows was Our and strength X% modem. desktop, Intel's fund on growth. new data-centric PC-centric notebook, up investments business

The end, incremental roughly recognition new we expect to revenue reminder, predominantly million NSG. half By drove revenue net As new QX. in in out. a QX of a standard and affected standard this CCG recognition. $XXX we This adopted year

we quarter, year earnings, the QX significant in to EPS on Moving year. expansion generated up XX%

top non-GAAP margins partially driven were Our growth, by rate. was decline X-point an driven in X-point operating The delivered The spending, gross in effective margin by XX-point in our was X-point more adjacencies, which our have margins, a reduction a year, improvement operating by margin. and tax line by in standpoint, revenue on strong improvement less EPS improvement a X-point $XXX spending. spending gross offset in X-point driven gross in margins than a billion CPU lower decline million our versus we in growth From products. $X.X reduction last

a standard earnings. mark-to-market equity realized second new adjustments we for gains volatility, our losses through XXXX, we XXXX, were adopted to have from excluded results. mark-to-market In recorded results. all effort non-GAAP our in a these our But and flow As In non-GAAP an eliminate reminder, investments. all adjustments in

GAAP QX our excluded our in from included mark-to-market ICAP for gains were EPS that $X.XX portfolio Our results. non-GAAP approximately

was percentage a our XXXX, making points. year and down our down over of to pulled over Total approximately X we from spending revenue January, in start operating X we're XX% spending quarter. goal also spending a costs to our are R&D progress as excellent efficiencies. on in XXXX. off X% XXXX In And was the good SG&A were in We points. down year

is meet Our to it now in top of strong as our spending years we line top a designed intensity Currently, on line our expectations. paying spending target XX% to original and growth, XXXX, accelerate two growth, off. result is of ahead expect

and revenue, on margin XX%. operating with in Let DCG was great customer Cloud We products much operating segment year $X.X revenue was our saw the billion were Data XX% expected. quarter, than was performance and billion Overall, which richer XX% by up up cloud X%. delivered Group XX% our center driving segments unit income me comm of were XX%. first our greater surpassed QX of the over provider service $X ASPs. data business. strength in ASPs of it business touch QX was QX, in grew than high-performance $X.X And this broad-based Center has quarter up a better for preference quarter. the first made and billion demand largest briefly volume year, segment. The

Additionally, better and our and adjacent markets in quarter. strength grew and year. continue XPoint expanded memory. like expect beyond second aid traction ASICs, businesses are was year segments January XX% for over our silicon DCG we fabric, XD than redefined the the TAM gaining These to CPU, photonics, performance that DCG momentum to all we DCG to forecast, through network

Our a our additional becoming businesses, larger are data-centric quarter. IOTG, component and over growing overall XX% NSG, PSG, the business, year in year of

business driven to video over XX% year and year, spending, shifted Mobileye. revenue up achieved Things we lower million, higher was investments strength Operating profit as growing year of ADAS Internet million, Our in in of revenue and continued on XXX% by momentum retail. $XXX over year, $XXX our

track on $XXX our the And Brian, is while from million. in it's thesis. heard you As deal business journey, revenue QX strong. are was early the Mobileye to we going

strong in million, year reductions We the quarterly gigabyte The cost and improving strong to XD more center cost while invest for than SSD ASP in with unit losses expand operating with our reduced demand for our $X NAND and year, factory. our demand Our revenue Dalian reductions. transition we up XXL memory billion over offsetting is time, broke by $XX solutions. XX% first data business

PSG and in million, million, of We profitable to profit to The and balanced XX% year. be perform full $XXX of Operating driven expect with Solutions second embedded XXXX team be data $XX this to continues execute demand, X% by Programmable well. segments. year continue growth, we over XXXX. revenue strength to segment the center and of year The supply between half up was the the had Group for and expect

advanced products, at XX% over those XX, XX-nanometer, Our grew FPGA XX, quarter. the and in

in customer In fact, prior PSG in quarter. won more designs QX than any

costs quarter. down had billion margins modem X%, $X.X Computing transition points Client our in the business. were and to Revenues XX-nanometer due X growth Group strong Finally, and up another of were operating

company. market We've and in in shareholders perform supply levels. is but and strength chain it capital for acquisitively; we wisely. believe laid to worldwide and gaming a cash commercial the the organically; Our continues PC-centric We challenging of serves to flow capital out healthy return invest our business a the priorities: well source our as and improving PC at and significant businesses, do expand operating saw allocation

customer in $X.X agreements. We in in over We cash year. priorities. free almost in $X.X flow to cash in billion CapEx cash shareholders $X.X of We generated free from a received buybacks per returned continued operations. in $X.X $X.X flow, billion over invested delivered to year in year. We up our included XX% cash execute XXX% billion XX% to billion the dividends, billion billion share from increase form and NAND these This supply $X.X and of last

working Now is off. moving to our are full-year and our strategy outlook, investments paying our

in of $XX.X midpoint billion We at are revenue the range $X.X now forecasting our billion, versus expectations the up January.

From gross Versus from We January, costs a X expect versus QX, reflects prior production we to estimates. perspective, continue. set versus to we a to the offset point broad-based XX%. now XX%, from flow of XX%, line drops agreements. estimates, expect tax by approximately We volume growth approximately are flat, shift of billion business EPS is million up as expect up prior approximately January. $X will operating of with up capital top estimates. to $XXX versus our billion, the strength memory X billion, now of we as our revenue free of increasing associated cash by will our expect margin prepayments billion Overall, January. margins, deployed rate cash boost point $X.XX, supply and lower billion, of in $X.XX rate We net prior percent to as $X.X up $XX.X This operating margin approximately spending growth, XX-nanometer tax full-year flow improved CapEx offset In approximately for gross the a XXXX. customer strong a approximately be in down stronger higher $XX.X $XX.X expectations

midpoint the of billion, XX% $XX.X over year up year. forecasting range revenue are at We the

margin We X.X approximately a XX%, spending. X-point approximately in reflects up last and gross decline X.X-point point to expect versus which decrease operating of X margin year, in

We it exceeded rate. expect be adjustments, To XX%, strong and about financial line a plan. are another of EPS spending our top for sum record we We've Intel. up, believe we and year growth, our up excluding tax equity commitments, met will XXXX from reductions, $X.XX, lower we great feel to and relative where X-year

to we'll your our businesses turn it fueling fast, that the Our that, Intel's company to data-centric PC-centric powers over get transformation let a in and team and market devices. cloud questions. smart a growing keeps to and me Mark, challenging connected winning With are

Mark H. Henninger

All right. Thank and Bob. you, Brian

now as would and just ask we practice, normal introduce our to each go on first ahead our please participant is one one Moving ask follow-up, you if Operator, the have to Q&A, questioner. and one. question

Operator

And the will Bank. first from Ross come of you. Deutsche Thank question line the Seymore with

now is open. line Your

Ross C. Seymore

question Hi, on this the ask guys. center me on Brian, about sustainability congrats data you Thanks strong the for specifically for the one results. side. demand, letting of and a

is are I last the all and side going think that's for the is vectors that two of on if enterprise really side that of rates macro the do the the drivers for believe macroeconomic the reasons comm way, How is strong. and the go aware much cloud Intel-specific, have those acceleration well? the on quite right driver your of you expectations into growth why, quarters you pretty are beating things. own two helping as But and people bigger side been or the can the

Brian M. Krzanich

a Sure, good question. Ross. That's

to try it. me answer Let

at occurring have about going on. these to faster see I'd a It that over so the bit Remember, look is lumpy. to tell always do we've the a at you talked that you haul that a bit. transition long there It's here sometimes occur. bit continues that first is thing the rate, can to trend that So cloud you even be

the XXs investments teens, forecast is by of is you clearly is that long our companies for onsite of of So that lot a range kind term growth. for in up. high We as reinvigoration think that that that, data. said, enterprise We still low thought in

Our view in should moving over term out workloads to long again, a term I the long that of mode declining look it's over be the those long term versus as there, cloud. still the

so data-centric So, that if this, And in to growing as data at at our how this, a remarks, is from sustainable. these his we I said general, mid that look take center, in enterprise. teens believe if view look do just I cloud see Bob will high beyond in move businesses prepared the to we that's even and it we And range.

see a offset to edge, we through data something, those It's you'll pick that tied it, moving into really being analytics and data decisions sometimes but IoT cloud network And they're people really bit that's together. the up to into from in data-centric, data drive businesses. or why using but and coming the the the based grouped make applied and center, being and that then all

in you it's data-centric float we but various sustainable segments. think between those that So will saw, the it numbers

Robert Holmes Swan

that the beyond the Ross, quarter, the our similar would year I more little is for thing, a the to first add second quarter. probably into only it's The But outlook cloudier. of outlook in strength term, continued terms that, near is in our

I from are think global we environments. macroeconomic benefiting

a the through more I spend. the And think half money has IT-related we from think CIOs to first that earnings the deduct given to year. of I benefiting see little expenditures the ability ourselves higher and

retrieval you rapid I also as the Second function little a continue But a a is wait-and-see the the compute And which if into whether demand high-performance the this what half bit for Intel-related strength, going to we think for compute. short-term demand half. not dynamics we increased know but comments, is strength, really driving storage, is unit go think Brian's to second back the ASP of do only what's volume do be data, products. we see analytics, of to is

Ross C. Seymore

very helpful. That's

equation, a that question, then challenge everybody follow-up shrinking, frankly, is into competitive tailwind a from you, is to the it Any to margin versus competition the you said gross this side For have believe either do of move being Bob, going be headwind or your guide. a Thanks. to of for lead to when about XX-nanometer pushout, And that on going you would that have? a was my the starts be full-year the you linearity sort great. is headwind of

Brian M. Krzanich

Ross. Sure,

we So products and product XX-nanometer with absolutely We're process let start have today. leadership. shipping me

XX% that architecturally. prepared the of the over performance legs, the we that So there. in to products I to tied defects. I we and these believe it lifetime. that and to XX-nanometer, and have really technology of that. that and did current want you, continues able and performing fix room to process go its us down also, But to in really the last of That's not yield as tied sure this A), both we're mentioned understand We're continue that And we was issues. remarks effects very to improvements, strength make densest, the EUV are improvements. these real clear ramp make yield highest those amount multi-patterning and yields, having my go improvements breathing and slowing do make we technology being that to done the on we've the They're technology the can to out that the giving of within

products. it's world's really between best balancing the So delivering

to roadmap that been. where the And us XXXX we for stronger is them XXXX, So ever yields believe as we get it's into the we be. to than allowing have want strong our to carry or ability

anybody you and node, and So to just improvements you the transparent are be as the chosen may nodes have and if this. you those with us. rename XX% than what at that believe clean else rather technology we a and this look it's existing spending expect technology We others through go say we a on really as looked And line from improvement shareholder timeframe, at on they always renaming. during in a take said the if cost really

that. have believe we we So

Now do out we time, density. see look we the as in

time. density the architecture. the again, that narrowing take why parts a around out process lead bit, gap products continue world's But in and and multiple that's a really is function the in just that's of performance is and you And we but our standard. of performance think be to component, If power

Robert Holmes Swan

first secondly, That on and good continued strength, at year, are question, the year, margin. And function essentially contributed partially higher the saw we strong real of not both And our the rate pre-PRQ but associated a at as X anticipated on yields indicated a in volume quite is reserves expectations on the ahead we'll volume that to ASP quarter. beginning being quarter we top flowing ASP be expected by though, but points we have will the with the What shift offset of full into margins end XX-nanometer. improving the no gross gross for had change and we that of margin the so line in year at that performance XXXX. bit the of the there's the that performance we little through first – in our gross that full-year our costs

earnings-accretive good. And like businesses XX% getting Thanks, range, we're growth our historical the us, and margins a of which XX% despite So that but the will look the lower-margin the memory. XX-nanometer that full strong we for from bit the we When end modem of year, for at to still fact are at is costs year step for but quarter, drag. first those really be full Ross. our back, strong a little high that's in range, gross solid

Ross C. Seymore

Thank you.

Operator

the Thank Stacy with you. line question The Bernstein from Rasgon next Research. comes of

is now line Your open.

Stacy Aaron Rasgon

wanted guys. Hi, my for that Thanks questions. up to follow XX-nanometer I taking point. on

understand into process the So does shipping, out first you current out will ramp, pushout, half? actually it be to think or second a the you is potentially? supposedly, yield given as or does that's this push the XXXX, XX-nanometer that will into actually pushes plus out volume issue be XX-nanometer production when the slipping it it And do half

Brian M. Krzanich

I'm correct you. So going just to

that going we can do these soon shipping. have You that Right to we we think these, Stacy. solutions. said are confidence I yields We have do line. go and as now, we that in start work as so the supposedly like we are and ramp understand said, We're issues, the

XXXX. was first the or we but part your that as improvements as think said say I it more that, on on question, or the making yield. We based The So do last can XX-plus we're whether XX we'll yield will second question quickly are about of didn't or be yield. XX-plus-plus it just half, your I focused a

patterning So think multi-multi-patterning, where of them edge cases, thin and, stuff, the and the some in as the in improvements (XX:XX) lithography drive cleans that various already, really to six feature. have about five, XX-plus-plus. do to have aren't We four, like stuff, layers a of and necessarily XX-plus produce XX-nanometer, plans It's to things order XX-nanometer really performance. around They multi-patterning that. to on for similar you

into built these off the of come technologies improvements years they multiple so performance floor. think have them of all as we And now

Stacy Aaron Rasgon

Thank you.

wanted and gross about For I flow drivers my free ask drivers follow-up, cash XXXX. margin into to

have pretty significantly at depreciation outpacing the CapEx We moment.

And and the probably NAND free potentially that modems the margin are for. going eventually gross starting. have you puts been that growing. ramp about takes shipping we've and the paid of XX-nanometer elements into do How start NAND as you've the get XXXX? as flow side, we cash and then drivers, Memory You'll around through think on we be reversal the prepayment got – maybe go those others to

Robert Holmes Swan

think are outstanding lot an probably XXXX I we've few what XXXX. we First, that believe been execute on will a wrestling But with. trying whole there not we as a dynamics to I'll be on focus dwell

that, really flow, driven the As additional CapEx over rates things. couple by and the and you with along inventory it's of gap know, success, One, earnings and goes been last and by years, mean between that that accelerating a both growth, levels. a capital we've cash seen growth and couple I

the drivers. one been of those So have

it brought haven't on use on XX-nanometer Secondly, without phase. memory the in to necessarily we've is equipment a cash yet, put driver that's impact so third, And but investment an earnings.

you're we're strategic that we that can the short, a and the us And And move. three excited the we long-term guided mentioned, been are driving a engaged what's the building think in year, really the that in is positive a this thing, things that things the we medium, those of fund about, scaling think that's other really their Stacy, we earnings. we to help you aware we've customers sign So of. just agreements if – that how that gap. And such committed you few of which for good supply One, memory, and technologies money done our business. have can to you have light use help

give don't the roughly free XX% and see growth. see credit that's in gains you out, And you That's that mid-XXs. us growth for – flow XX%. earnings ICAP you last year cash the strip If

start you'll flows through our XXXX go the as as a year, course the $X.X thing then in year. to and other going last of that see on that's cash fairly of year. this to the is And going we're result gains gap ICAP tax So narrowing make this cash from weigh a roughly significant we that's billion payment to

accelerating that XXXX roughly gap rate cash XX% begins for out And you that what second, while the business. earnings of the of a see is roughly the free XX% during strip you narrow If course flow and to we're growth. growth growth

for those relative on of year. improvements dynamics deploying to line per growth the cash share this in terms capital are how flow earnings we're So the top accelerating and free

light shed what on little the through start that means later get in year. for we'll XXXX more XXXX, a the we course of As to

Mark H. Henninger

question, Thanks the Stacy. for

Stacy Aaron Rasgon

Thank guys. you,

Operator

of from The question Danely you. Citigroup. line comes next Chris the Thank with

now open. is Your line

Christopher Brett Danely

why ramp changes I Hey. just yields a Have Thanks, it bit another on in been well; or slower the guys. guess manufacturing? been expected? future the slower bit Can to you why any have little than should talk manufacturing. the about little And question as generations extend then in expect i.e., there this we been in the also, a past? to than had XX-nanometer

Brian M. Krzanich

And the XX-nanometer, that into we that to technology lay this the issues trying without that you around need getting also took is But out understand so aggressive the technology. to EUV. nanometers. is Sure, doesn't at goals deep too XX last very what I'm flat incorporate

multiple the target think the at about shrink which you or So about scaling we X.X. as factor a if you feature, it took of talk a

the any dimensional feature to run and So device. you did over you that this shrink is X.X took

XX target and industry standard, example, a so XX-nanometer, more is range. the at doing, typically in X.X that on are took other X.X you're we almost And if XX% typically players what you what For on aggressive they're foundries X.X, nanometers. the of to look

So there, we're XX% maybe more aggressive.

little it's targets more life combined we technology where immersion the of and hit scanner aggressive that's a end difficult. hit cost of goals to So with has be. that very before EUV created the just our And bit we the to something want

why transistors performance confidence that's is The have work. we're So in the this something not We that I shipping. line. is know the

to we So getting the just line want. about it's the in costs defects where and really

easier. does makes X is of a we moving not like a using And difference kind case. lot you're the any it may a silicon We us. a seem this lot immediately not lot, lithography we're at but of far some it piece as made We're what future nanometers makes in a changes packaging a a X.X, make the are and we to to look As this such nanometers. little different. much unique that little technologies very of technology XX% a we as of think that going At world. and implement at single for X so number bit And being X-nanometer so world allow that thirdly, a going off can in beyond, back really node. imply to where system forecasted for compaction too standard, of to bit currently more us, technologies, first that EUV,

we're multiple You're for that silicon us nodes. going what going allow techniques use use to call heterogeneous to to

even behave nanometers use to piece IP from for X nanometers may the put XX them from perform XX and we're far a single make back as the as nanometers the and you don't like And and high silicon cores together that able performance. those So of in package. parts need and

a as don't impacts result, bit these see So expect to and I we a on is quite really X nanometers. nanometers different, X of kinds think so

Christopher Brett Danely

Great.

is mentioned responsible the down impact moved and center that year, going to margin some the that on assuming for you have second will For be that's that half in presentation, adjacency in gross XX-nanometer rest slow gross in the growth the issue? entirely is reason of it margins of for any or margin QX. are I my down follow-up, up, you know why hasn't or year, data the of the the another ramps Does being the gross

Robert Holmes Swan

No, it's maybe three. all

effect First, will, have the the we will a than to grow rest expect throughout of course compression to the adjacencies do the so the of year. that the you continue if of course throughout faster the business, year

a year half third, the center growth the Secondly, data the we're in And half be XX-nanometer second expecting yes, first year, growth, headwind. of deceleration. will our the through guidance a while is of strong implied for

from through we data-centric but it we there second where be to we've months tougher first the we're the see to half. right experienced now, But updated put DCG second And DCG But in guide, teens. do you have for to the of into going because And the If We'll for hope going the of trends virtually biggest all mid-teens of you trends for we half. sit into it's context deceleration play growth tougher attribute obviously first that have comps. see can have from half sure. We July going to growth to wait the we'll expect see wrong, the to the four higher we to component. the competition continuing we half second out year how we're QX.

Christopher Brett Danely

Great, guys. thanks

Mark H. Henninger

Chris. Thanks,

Operator

Caso Raymond comes question Thank James. you. next of with And from line the the Chris

is now open. line Your

Chris Caso

Yes, thanks me for ask letting question. a

up Just the a that's on bit. been first is coming CapEx question

changes little the that's in what the XX-nanometer? of in with. effects a any And the could, there you associated CapEx, incremental associated bit talk about growth with are ramp CapEx If

Robert Holmes Swan

$X.X of we that revenue. function is took the really of CapEx incremental the billion a $X.X Just up, billion

So, Chris, revenue $XX when had $XX.X of we we came of a into billion, and larger CapEx we the year, billion. full-year guided roughly

That's go billion the we've half of for and as year additional to billion. the $XX we billion roughly $X.X So require taken going CapEx second to up $XX.X into XXXX.

cash So revenue. the $X.X CapEx And increase. well. increase, more it's $X.X we'll as generate the result indicated, And of best free flow I've ever billion net of CapEx an a felt as we a it's billion additional about

Chris Caso

year. that great. you. you about with for the you you I bit a year outlook memory guys more what in any your being as And you And on a bit give can I said you perhaps the expectations last color as if as for what's right, on Thank and a consistent profitable quarter. year? follow-up, think memory. framed look the talked know All the you go expectations talk been your through could, Have about little there changes through

Robert Holmes Swan

real no First, changes.

mentioned, billion relatively in we're Brian Gigabyte seeing. demand demand $X quarter strong. As it's our feel is We the QX. that first good about

trend Our same rest gigabyte But down of fab we balanced. the cost and Dalian coming bit. a go see ASPs out see down. as year, we to the per continues well time, supply relatively at of were through we our the be And to demand

the gigabyte growth the year. profitability cost We (XX:XX:XX) in That's we down gigabyte come believe in for curve But contributing are is of continued be continued business Dalian and bit. little to full are a a to fab, for the ramping the scale A stages so what and that continuing per demand, Mod Dalian, – the to ramp. the early costing all continuing will

Brian M. Krzanich

to Bob I'd And remarks. add is, his maybe only that thing it the mentioned in

the gives product product very a believe also also and good costs really XX-tier Our we leading-edge us market. relative to

our technology relative XX tiers, the of ramp rest believe that are So in at costs to market. very we the competitive Dalian, as we

Chris Caso

Great, thank you.

Operator

comes John next Thank of with Credit you. question line Suisse. Pitzer the from The

key that's get what partners questions. William probably XX the the line Securities guys. And dynamics Microsoft surprised on curious strength VMware the view a driver hyperscale John reluctant and out enterprise. specifically, results. what Brian, when to wondering you quarter. And just the you December now enterprise in finally investors. you is Thanks of I'm was for LLC I that Suisse yourselves, strong Congratulations your actually how the And year of And data software is days ask I letting days some couple if brought - within think solution. XX some trend, in demand think do by later. the understood more to stack well hybrid now the Yes, open. (USA) Credit reported enterprise I'm in good Pitzer software call are Your afternoon, including me of been last the their of it is? points. December, this a ago, of I cloud and cloud think everybody, DCG, sustainable were you think wanted to as pent-up

Brian M. Krzanich

positive QX, for John. same great What It's question, trends into of expecting is quarter. the look as clearly, would the enterprise tell Yeah. a we you out I kind on we're second

the the of the look though, digits that we as says that moving think that workloads and in over long growth term, base growth that's not the are and I of cloud, enterprise of cloud it helps to decline those should continue. of at drives all low single the trend driver and fuel cloud,

one are but just great right. like hybrid, low haul, think examples you're Again, over Azure in not trend. at to and I and over two at even over about you to but Azure versus the sustainable or the or two see trend others invest single that probably to digits is how be really can thinking the try to quarter, quarter, look that that likely Products don't think on-prem and the cloud, five businesses Microsoft I even next am where how long I continue. going got these within I Azure that a years. – say I quarters, to is I've look

of as now look over at center, understand that us, cloud Now are need those segments for the revenue of and and comm, well data networking that I segment. the Center of also XX% the Data we to other Group,

So we the I'll by impacted, say, are less less and enterprise.

and around that go way and XX% growing where when I right, now as CEO, enterprise wildly the the is of XX%, the business, to and now, XX% we It's other swung are cloud to storage started back, and you less and was that. If less. so XX% – enterprise the networking by

to my - That's LLC on other helpful. the the is cloud William (USA) So just realize, And full is that and Suisse question you follow-up anyway. guide driven thing year. for John, as by Bob, more we're John need a Pitzer to QX multipart the Credit Securities what doing

Wind rates in how when Thank original And in anything XXX River there it now specifically, you. ASC an is that at quarter you you'll embedded on than still below QX larger operating look guided lot the Is that was March like business? can the than the beat. and going a out line is the the Is other QX income tax that guide, that then that seems impact First, third, of EPS only And that? big the you quarter beat ASC the just it? looks Second, guidance? explain XXX to full-year the where is impact? have or

Robert Holmes Swan

Yes, great question.

and in we we first unwinds XXX had for on ASC expect the of that First during the year, the course full a half what strong the and of quarter, benefit roughly year.

unwind contributed It it will course to QX. throughout growth the of itself So year. in the

next the $XXX will we've but So impact got full-year this of the likely to game, million, around be quarters. it – at $XXX million unwinds stage somewhere through several

question, Wind second think I River. was your John,

assumptions at that will sale Our second of the end we quarter. are the complete that the business of

half but in it's to component guide, our second second first a deceleration. half of quarter it's So the

charge that line, and is other have line. associated it else But the diluted outstanding in reduces associated quarter, flow-through I we below-the-line people non-cash charges forward. is, question, certain will have our charge as to through people operating going In shares, as a coupon that convertible we'll with, reason – margin below aspect there is the we see securities third our fundamental equal, with relates second to had it – – The exercise feature. EPS. exchange good The we some quarter, have exercise the avoid stock we is that And flow-through which think not an negative. rich. can the of it And that all volume, the implications non-cash more and The XXXX have that them. feature, goes first as interest our we our as outstanding good that, exchange a a that associated A), exchange hit holders feature with that's are the price,

Securities drag QX. through bit to of little that's in flowing (USA) appreciate a Pitzer guys. growth LLC I a causing Thanks, - on John William So it. the Credit EPS Suisse Perfect. operating income

Mark H. Henninger

Thanks, two we John. questioners. And, I have operator, more for time think

Operator

Thank come next Arcuri from you. line Timothy UBS. question from our the will And of

line open. is now Your

Timothy Arcuri

seemed two-part a issues XX-nano. question it's had be now the actually going I time, almost The something some on are and design flawed. on you. as if or for to Thank libraries

question cut first experience the out why and and XX-nanometer of multi-pattern a skip go You is to not guess EUV I layers. X-nanometer? it's lot So directly going lot guys have of to a the

So looking is you two, would that's drag the because XX-nanometer? did margin gross And that, never Thanks. out question if real net really the that question. that monetized first to you number be a

Brian M. Krzanich

and your we're that. nothing so answer is proof of product. Okay, try libraries like the question. let The that that me or No, there's wrong shipping anything with design

and the how were there critical basic the wouldn't that, if like to ship layers around is layers. end issues the of Again, are produce able and on for immersion multi-patterning as the life of be product. many I So all this you said, functionality

into idea. from can to don't of XX-nanometer answer happen good is X carry The will that carried the to learning forward lot a nanometers think that just margins? just benefit I that's best was an is that simple second or The it part your no. nanometers, we there's a XX-nanometer. like gross of have effect question capital to the on answer would would and The skip X we

to roughly node. our fungible to or The node hold other next that backwards thing – equipment we capital is XX% the the still of is prior

we so able that our greatly move without capacity why just the is thing and shifted do going as XX-nanometer, we're – to shifting The same XX-nanometer were expenditures to able to back happen capital X-nanometer. XX-nanometer that's from and And and between forth. we've

XX-plus, the ramping do how have we're doing. part This right and for some it's will can out lot X-nanometer we driving and based products between a of to a that. as on issues. exactly be the than most If always a lot what equipment are can thing technology. keep well. and is a going and XX-nanometer, to demand that a XX-plus-plus, But the a and We the you'll of a no, performance yield XX-nanometer There's you're XX-nanometer. unique But of So percentage, more see fix XX-nanometer opportunity is fast of things have all have. performance fungible that. lot We'll

Timothy Arcuri

you. Thank Brian. it, Got

Operator

from The next line question Romit with Instinet. Shah you. Thank Nomura the comes of

is now line Your open.

Romit Jitendra Shah

and China. congratulations. I to you about Brian, wanted Thank ask you

it mainland China? your filings now figure to represent environment ZTE. current And of just impact U.S. the XXXX. One, are And China questions. you China, domestic are I in about does there of I the ban Your XX-plus in two How reports indicate exposure between percent the revenue potential to concerned and a that was have vendors in beyond as the to relates light Intel? that guess of

Brian M. Krzanich

if be, oriented, about now. companies world shipments or It is number broader, more domestically all like everything Huawei the that now. companies it, that, think That much goes although from ZTE so that you companies are Spreadtrum, ships Huawei of to would so like into those and around Lenovo

Chinese look selling almost are and shipping at products all you If just China. very few within They're across companies, world. holding the

all of the So of the within really is are building number China. companies representative that

very and able getting us. to of countries and It's market, the is be as to important you issues. world counting Our in need percent. trade. an as well. resolve fair important described, worked segments out. the believe that one fairly compete, view We and fastest XX-something-plus It's we're on of on We important we're leaders just play these growing in and to and China companies our that believe to our to markets us, go counting That's is leaders this

Romit Jitendra Shah

Thanks longer-term think I'm more it's on our reasonable light XXXX, additional you'll leverage drive that great. for you for sure Okay, as shed operating But build beyond we Bob, can that. XXXX? And do targets. then, you assume models to spending

Robert Holmes Swan

by and right. in is that lower to things look, last that how gross Analyst as – margins, gross said we're that be expanded guess. a growing we've expect modest margins spending there areas offset margin believe light earnings have that that No, be later. continued that framed time, in I see over you've priorities, seen different And to with expanded the result years growth a TAM, on invest critical Day over segments. time will gross same getting and degradation an accelerating couple existing the but at that on continuing last both will back I in we leverage You're we modest year, our early our think that but of that But erosion shed more base. that we the the trends in is TAM, I will at going

to ahead So we think the growth with key on to the that continue in to accelerating continue leverage believe that, accelerate We're priorities two invest as going I we about a our offset. growth to XX%. have to down. do targets come you're of of get And spending company. natural We're our and excited years that

Romit Jitendra Shah

you. thank Great,

Mark H. Henninger

for you thank and call. all us. the up Romit, Operator, wrap Thanks, ahead and joining go please

Operator

today's Thank you. Ladies and this gentlemen, conclude does conference.

disconnect. all great a You day. may Everyone, have

Mark H. Henninger	Intel Corp.
Brian M. Krzanich	Intel Corp.
Robert Holmes Swan	Intel Corp.
Ross C. Seymore	Deutsche Bank Securities, Inc.
Stacy Aaron Rasgon	Sanford C. Bernstein & Co. LLC
Christopher Brett Danely	Citigroup Global Markets, Inc.
Chris Caso	Raymond James & Associates, Inc.
John William Pitzer	Credit Suisse Securities (NYSE:USA) LLC
Timothy Arcuri	UBS Securities LLC
Romit Jitendra Shah	Nomura Instinet

Intel (INTC) 26 Apr 182018 Q1 Earnings call transcript