Interview With Intel CEO Pat Gelsinger (Full Special)

Intel's Q4 Forecast and Market Optimism

• Intel has given a fourth-quarter revenue forecast slightly above estimates, sparking optimism that the company is capable of reclaiming lost market share in key categories, with shares rising in after-hours trading (56s).
• The company had a painful third quarter, with billions of dollars of impairment charges and a headcount reduction, but is trying to signal that it has regained footing going forward (1m42s).
• Intel's latest earnings report shows that the company cut costs, cut expenses, and cut headcount, with a focus on retrenching, and gave a forecast for the fourth quarter that slightly exceeded analyst expectations (2m5s).
• Despite the positive forecast, Intel is not out of the woods yet, with orders for AI chips still lacking momentum and the company unlikely to meet its $500 million threshold (2m36s).
• There is speculation about potential interest in an Intel deal from outside companies, including Qualcomm, but any movement is unlikely until after the election and the new year (2m55s).
• Investors are breathing a sigh of relief, but Intel CEO Pat Gelsinger still has a lot of expectations to live up to, particularly in terms of meeting revenue expectations and competing in the AI chip market (3m18s).

Restructuring and Cost-Cutting Measures

• Intel's third-quarter impairment charges and headcount reduction were necessary actions to resize the company for expected revenue going forward, with Gelsinger aiming for 3-5% gross margin and potentially up to 7% (3m59s).
• Intel's business is split into two main divisions: chips for PCs and data centers, and manufacturing, with Gelsinger planning to run them as distinct divisions but still under one whole company (4m27s).
• Gelsinger believes that managing the overall finances of the company is crucial, and that splitting the divisions completely would not be beneficial (4m56s).
• Intel has made significant progress, taking an important step forward with cost-cutting measures and achieving a lot in the last quarter, but still has a long way to go due to the huge hit on their gross margin from outsourcing (5m36s).
• The company is taking a hit on their gross margin because of the lack of execution in the past on the manufacturing side, which is not expected to improve until 2026 when they wrap up Panther Lake in real volume (5m48s).
• Despite this, 70% of Intel's production will be in-house, while 30% will be outsourced, which is seen as a smart business decision to ensure reliability and mitigate potential yield issues (6m15s).

Challenges and Competition in the Semiconductor Industry

• Intel's stock has risen after hours, indicating a positive reaction from the investment community, but the company still faces challenges in the semiconductor industry (6m57s).
• Intel is a distant follower in the AI market, particularly in high-performance chips used for training AI models, with NVIDIA and AMD leading the way, and it will take time for Intel to make inroads (7m26s).
• The company has lost significant market share in servers to AMD, from 97% to a lower percentage, and faces competition from new products and custom solutions from companies like Google and OpenAI (8m8s).
• Historically, Intel was the leader in product categories and margins, with margins above 60%, but this is no longer the case due to the company's loss of advantage in manufacturing (8m25s).
• The foundry business is expected to play a crucial role in Intel's future, with the company aiming to manufacture chips for other customers, but a timeline for this is still unclear (9m5s).
• Analysts are questioning when Intel's factories will be able to produce high-margin products, with the company currently outsourcing a big chunk of their best products (9m28s).

Gelsinger's Leadership and Positive Q3 Results

• Pat Gelsinger, Intel CEO, has made painful decisions that resulted in impairment charges, but he believes the actions taken will reflect positively on the company's bottom line, with the restructuring charges largely finished in the current quarter (11m39s).
• The company has delivered better-than-expected results, eliminating one-time charges and taking guidance up for Q4, which Gelsinger attributes to the team's discipline and results (11m56s).
• The investor base has reacted positively to the news, with the stock price increasing after hours, largely due to the focus on the company's guidance for the final three months of the year (12m28s).
• Gelsinger's confidence in the guidance comes from the product business and foundry business, including the launch of the Lunar Lake product, the second generation of RA IPC, and the commercial version of the AI PC category (12m48s).
• The company sees strength in the AI PC category, with a strong case for use cases and ISVs bringing more use cases to the marketplace, and a stronger product line with products starting to ramp (13m9s).
• Intel Foundry Services has seen quarter-on-quarter growth, with a strong pipeline of external customers, including Amazon and two other big customers, and additional advanced packaging customers (13m30s).
• The company is seeing the foundry business come to life, with a long-term focus, as people move designs and major designs take several years to move into foundries (13m43s).

Intel's Foundry Business and AI Strategy

• Gelsinger believes Intel is getting back to competitive process technology with 18A, a very good quarter of operational results (14m2s).
• The company is also addressing the trend of on-device AI, with Gelsinger acknowledging the shift towards smaller models and the need for more on-device AI use (14m35s).
• The AI industry is shifting from a cloud training role to an edge role for inferencing, with data centers and edge devices playing a larger role in the future (14m46s).
• The three laws of the edge are the laws of physics, economics, and the land, which dictate that data processing should occur at the edge due to latency, cost, and data ownership concerns (15m13s).
• Intel's AI accelerator did not meet its sales target of $500 million for the fiscal year, due to two main factors: enthusiasm for the next-generation product and software limitations (15m56s).
• The current AI accelerator is not a full reprogrammable GPU, making software porting and optimization more difficult, but development is underway to move to a complete GPU capability (16m20s).

Acquisition Rumors and Foundry Business Growth

• Intel is committed to its strategy and has taken steps to restructure and reduce costs, with a focus on producing sustainable profitability and shareholder return (17m52s).
• The company does not consider rumors of potential acquisitions by ARM and Qualcomm to be meritorious, and is focused on executing its own strategy (17m29s).
• Intel's foundry business is expected to grow, with third-party customers starting to show up in 2026, and the company is committed to developing the business as a standalone unit (18m27s).
• The path to 2026 includes quarter-on-quarter growth, driven by early packaging design wins and advanced packages, with a focus on becoming a factory for the industry (18m44s).
• Intel has already seen major design wins, including with Amazon, and will provide updates on the market and lifetime deal value of these wins as they occur (19m6s).
• Key milestones for 2023 include customers beginning design cycles, with the design tools and libraries being moved to 18A, and meaningful volumes expected externally in 2026 and 2027 (19m35s).

CHIPS Act and Investment Tax Credit

• The CHIPS Act has bipartisan support, and its importance to industrial policy and the semiconductor industry is well-supported by Congress and both parties, regardless of the election outcome (20m24s).
• Intel is disappointed with the slow dispensing of CHIPS Act funds, which has taken over two years, and has invested $30 billion in capital without receiving any CHIPS grants (20m43s).
• Despite the slow progress, Intel believes the investment tax credit, which is now law, will be beneficial, and the company expects broad support from the administration, regardless of which party wins the election (21m5s).

Restructuring and Future Prospects

• Intel's CFO previously stated that the company was over-indexed to CPU, which led to painful decisions, including reducing headcount by 16,500, but the company has a plan in place and is confident in its future prospects (21m40s).
• Intel has laid out a clean sheet program to benchmark the business, taking a conservative view of the funding plan, and has built options to scale up into the business if necessary (22m2s).
• The company has made a smaller, more efficient company able to execute with more agility and speed, and feels well set up for the future, with good operational results that exceeded market expectations (22m32s).
• Intel's CEO, Pat Gelsinger, expressed confidence in the company's future, despite a challenging quarter, and increased guidance for Q4 (22m47s).

Analyst Reactions and Concerns

• Bloomberg Intelligence analysts reacted to the conversation, noting that details on two new ANA customers will be key to offset pains from the third quarter, and that while there are positives, the company's gross margin and impairment charges are areas of concern (23m13s).
• The analysts also questioned how many times Intel can "draw a clean sheet" and start from there, and noted that the AI story does not seem to be improving, with implied guides suggesting that losses have not stopped (24m5s).

Gelsinger's Confidence and AI Outlook

• Pat Gelsinger, Intel CEO, acknowledges the difficulty of cutting 16,500 jobs but projects confidence in the company's future (25m16s).
• Gelsinger is being honest about the AI outlook, which is crucial for chipmakers, but Intel is currently not selling a strong AI story (25m24s).

Stock Movement and Market Analysis

• Intel demonstrated progress despite the challenges, as reported by Ian King on the terminal (25m43s).
• Intel's stock movement was significant, with an 8% increase, but the momentum may not be sustained as investors digest the information provided by Gelsinger (25m55s).
• The market may have a tough time ahead, and there wasn't enough in the story to indicate that Intel is in the clear (26m32s).
• Gelsinger was upfront about the challenges, but also tried to accentuate the positive aspects of the company's situation (26m43s).

Bloomberg Technology's Perspective and Mega Earnings Period

• Tom Giles, Senior Executive Editor of Bloomberg Technology, provided his take on the conversation with Gelsinger, highlighting the difficulties and the need for a strong AI story (24m53s).
• The conversation with Gelsinger was part of a mega earnings period, which also included reports from Apple and Amazon (25m50s).