Wisdom Finance APP learned that recently, Intel (INTC.US) held the 2024 third-quarter performance conference call. Intel pointed out that the company is taking measures to further unleash the value of the x86 architecture, promote new levels of customization, compatibility, and scalability to meet the current and future needs of the next generation of computing. Intel and AMD jointly announced the establishment of an x86 ecosystem advisory group, aimed at simplifying software development, ensuring interoperability, and providing standardized architecture tools and guidelines.

In addition, Arrow Lake was launched earlier this month, bringing the power of AI PC to the desktop and introducing NPU for the first time to enthusiast desktops and entry-level workstation platforms. Panther Lake is scheduled to be launched in the second half of 2025 and will be Intel's first client product using the Intel 18A process.

In terms of AI and datacenter, Intel has launched the latest Xeon SP processor product, codenamed Granite Rapids, which offers performance twice that of the previous generation of products. Intel has also introduced the Gaudi 3 AI accelerator, with the network bandwidth being twice that of the previous generation and the memory bandwidth being 1.5 times that of the previous generation. Despite the impressive benchmark results of Gaudi 3, the overall update pace is slower than expected, so the company will not be able to achieve the $0.5 billion Gaudi revenue target for 2024.

Specific Details:

Corporate Performance

We achieved third-quarter revenue above the midpoint of the guidance and reached key milestones in Intel foundry and Intel product areas. We are actively reducing costs, expecting to reduce non-product sales costs by over $10 billion in 2025, reduce operating expenses to $17.5 billion, and increase gross profit and net income to $20-23 billion and $12-14 billion respectively. Adjusted free cash flow is expected to be positive in 2024, focusing on reducing leverage and improving liquidity.

Company Outlook

We are actively addressing challenges and striving to enhance execution and efficiency to create a leaner, more profitable Intel. Our fourth-quarter outlook is slightly above the current consensus. Overall, we are strengthening our focus on business efficiency and execution, which is having a positive impact. We are confident about the future, will continue to work towards our priorities, and create long-term value for shareholders.

Updates on Intel products and business

We continue to focus on the core X86 architecture and its ecosystem, planning to drive new levels of customization, compatibility, and scalability to meet current and future needs for next-generation computing. We have partnered with AMD to create an X86 ecosystem advisory group to simplify software development, ensure interoperability, and interface consistency. In the CCG (Client Computing Group), we have introduced new products like Intel Core i9-13900K and continue to lead the AI PC market. In the DCAI (Datacenter and AI Group), we have launched the Zion 6 product (codenamed Grain Rapids) and plan to strengthen its leadership position in the AI server market in the coming years.

Intel's foundry business

We are restoring our process leadership through orderly roadmap execution, with Intel 18A node progressing smoothly. We have signed multi-year, multi-billion-dollar cooperation agreements with customers like AWS to expand existing partnerships. We plan to spin off Intel's foundry business into an independent subsidiary to improve operational efficiency and optimize capital structure.

Mobileye and Altera

Mobileye continues to lead in the development and deployment of advanced driver-assistance systems (ADAS) and plans to accelerate growth through separation and independent operation. The Altera business achieved revenue growth in the third quarter and plans to go public in the coming years.

Financial performance and guidance for the third quarter

The third-quarter revenue was $13.3 billion, a 4% year-on-year growth, at the upper end of the guidance range we provided in August. Both Intel's products and Intel's foundry business achieved revenue growth, despite the impact of decreasing customer inventory on revenue.

Fourth quarter financial guidance.

We expect fourth-quarter revenue to be between $13.3 billion and $14.3 billion, with a gross margin of about 39.5%, tax rate of 13%, and EPS of $0.12 (non-GAAP). We expect adjusted free cash flow to be negative in 2024, but due to the uncertainty of restructuring expenses and the timing of capital asset deployment, we anticipate achieving positive adjusted free cash flow in 2025.

Cost and efficiency improvement cost reduction plan.

We have completed most of the layoffs in the third quarter and plan to achieve over 15% employee reduction by the end of this year. We have reduced capital expenditures by more than 20% and plan to increase productivity by improving FAD (fab utilization rate) and reducing overtime. We are simplifying and streamlining our product portfolio to increase efficiency and create value, and will reassess other product portfolio actions.

Efficiency improvement measures.

We aim to improve overall financial performance by reducing non-product selling costs, lowering operational expenses, and increasing gross margin and net income. We are closely monitoring customer demand and market dynamics to optimize product portfolios and investment decisions.

Industry and market dynamics industry trends We are optimistic about the growth of the AI PC market and plan to consolidate our market position by introducing new products and strengthening ecosystem partnerships. We believe that the demand for high-performance computing and AI solutions in the datacenter market will continue to grow, and we will continue to enhance our competitiveness in this area.

Market Competition

We are engaging in fierce competition with competitors in multiple areas, including ai PCs, datacenters, and operation businesses. We plan to address market competition by providing more competitive products and solutions, strengthening ecosystem collaboration, and optimizing operational efficiency.

Third Quarter Revenue and Profit

Revenue in the third quarter was $13.3 billion, an increase of 4% compared to the previous quarter, at the upper end of the revenue range we provided in August. Both Intel products and Intel's manufacturing business saw an increase in revenue, despite a decrease in client inventory. Intel product revenue was $12.2 billion, up 3% from the previous quarter. Intel manufacturing revenue was $4.4 billion, slightly higher compared to the previous period. Mobileye revenue was $0.485 billion, down 8% year-on-year, mainly due to a reduction of over 50% in shipments from China. Altera revenue was $0.412 billion, up 14% from the previous quarter, in line with our guidance.

Future Business Outlook

Our fourth-quarter revenue is expected to be between $13.3 billion and $14.3 billion, with a median of $13.8 billion. The gross margin is expected to be around 39.5%, tax rate at 13%, and earnings per share at 12 cents, all on a Non-GAAP basis. For 2024, we anticipate revenue to achieve an annual growth trendline of 3% to 5%, with the ability to expand to a growth rate of 7% to 9% as needed. Estimated capital expenditure for 2024 is about $11 billion, operational expenses around $17.5 billion, growth capex between $20 billion to $23 billion, and net capex between $12 billion to $14 billion. Positive adjusted free cash flow is expected in 2024.

Product Roadmap and Ecosystem

We are taking steps to further unleash the value of the x86 architecture, driving new levels of customization, compatibility, and scalability to meet the needs of current and next-generation computing. We jointly announced the establishment of an x86 ecosystem advisory group with AMD, aimed at streamlining software development, ensuring interoperability, and equipped with standardized architectural tools and guidelines. The Client Computing Group (CCG) continues to lead in AI PC category, launching the Intel Core i9-13900HX processor (officially named Lunar Lake) in September. Arrow Lake was introduced earlier this month, bringing the power of AI PCs to the desktop and introducing NPU for the first time to enthusiast desktop and entry-level workstation platforms. Panther Lake, our first client product using Intel's 18A process, is scheduled for launch in the second half of 2025.

AI and datacenter business

The datacenter and AI business unit (DCAI) focus on providing powerful AI systems, offering more choices and flexibility to enterprises while reducing total ownership costs. We have released the latest Xeon SP processor product, codenamed Granite Rapids, with performance double that of the previous generation. We have also introduced the Gaudi 3 AI accelerator, with network bandwidth twice that of the previous generation and memory bandwidth 1.5 times. Despite the impressive benchmark results of Gaudi 3, the overall update speed is slower than expected, so we will not be able to achieve the $0.5 billion revenue target for Gaudi in 2024.

Client and mobile business

The mobile business department is transitioning to CCG to more efficiently utilize our core client business and expand leadership into a wide range of vertical edge solutions. We will continue to drive the development of open Ethernet solutions through our Ultra Accelerator Link and Ultra Ethernet Alliance for connectivity.

Intel foundry business

Intel's 18A process is our fifth node in four years and is currently progressing smoothly. We have reached a multi-year, multi-billion dollar partnership agreement with AWS to expand our existing partnership, including new custom Zon 6 chips and new AI Fabric chips based on Intel 18A. We also received additional Intel 18A design orders from two computing center companies this quarter, with an increase in potential wafer design orders. We are creating a separate subsidiary for Intel's foundry business to give it greater operational independence, provide us with future evaluation of independent funding sources, and optimize capital structure flexibility.

Financial performance and cash flow

The third quarter non-GAAP gross margin was 18%, with a loss of 46 cents per share primarily due to around $3 billion in non-cash impairment and accelerated depreciation charges. Operating cash flow in the third quarter was $4.1 billion, an increase of approximately $1.8 billion quarter-over-quarter, while adjusted free cash flow was negative $2.7 billion. We expect major cash costs associated with restructuring to materialize in 2024, and we are also monitoring achieving positive adjusted free cash flow in 2025.

Cost and Capital Expenditure Management

We have completed most of the layoffs in the third quarter and plan to achieve a staff reduction target of over 15% by the end of this year. We have cut capital expenditures by over 20% compared to the beginning of the year. We plan to reduce non-product sales costs by 1 billion USD by 2025, reduce operating expenses to 17.5 billion USD, and control growth in capital expenditures and net capital expenditures between 20 billion and 23 billion USD and 12 billion and 14 billion USD respectively.

Operational Efficiency Improvement

We are simplifying the product portfolio to increase efficiency and create value by reducing the number of projects to re-establish the leadership position of the product portfolio. We are transitioning edge businesses to CCG and focusing the Any EX product portfolio on network and telecom. We are also integrating software development into core business units to promote more integrated solutions to address customers' most challenging issues.

Market Competitiveness and Industry Trends

We are increasing market competitiveness through strong execution and continuous cost reduction plans. We expect significant improvement in gross margin in 2026 with the launch of Intel's 18A process and the implementation of the wafer return strategy. We see a clear demand in the market for solutions based on open standards with superior Total Cost of Ownership (TCO).

Customer and Partner Relationships

We have established close partnerships with AWS, IBM, and other partners to drive technological innovation and market expansion. We continue to maintain close relationships with customers and partners to meet their most challenging needs.