Intel CEO remains positive on PC market despite earnings
Intel CEO Pat Gelsinger joins Yahoo Finance Live to discuss company earnings, battling inventory corrections, investor sentiment, AI, and the outlook for Intel.
Q1 earnings
Despite Intel’s Q1 earnings, Gelsinger remained positive. He said, “All of the steps of our turnaround are underway. Good execution on the product side, good execution on the process, technology momentum that we have and I think investors are looking at.”
Generative AI
When asked about Intel’s integration of AI, Gelsinger added, “We're driving a software environment that enables everyone in the world. Generative AI becomes mainstream with democratization of AI and that's where Intel comes in.”
Video highlights:
00:00:30 - Intel Q1 earnings
00:01:30 - Inventory corrections
00:03:40 - New products
00:05:10 - Generative AI
00:08:00 - Outlook for Intel
Video transcript
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BRIAN SOZZI: Intel suffered its biggest quarterly loss in company history with revenue dropping 36% as the chip maker battles inventory corrections in the PC market. The company is in the midst of a massive turnaround campaign led by CEO Pat Gelsinger who's looking to take back market share from rivals in the chip space. Pat Gelsinger joins us now.
Pat, always nice to get some time through here. So a little different story today in terms of the stock market reaction compared to the previous few quarters. Shares of Intel up here almost 6%. What do you think investors are taking away from the quarter?
PAT GELSINGER: Thank you, Sozzi, and always great to be able to join you and the Yahoo team. It was a meet, beat, raised quarter. And we were able to beat on the top line. We were able to beat on the bottom line and increase guide for next quarter. So I think everybody says, wow, well, that was a good quarter. We obviously did so through very challenging macro environment, market conditions, and being able to demonstrate great cost discipline as well. So all of the steps of our turnaround are underway.
Good execution of the product side. Good execution on the process technology. Momentum that we have. And I think investors are looking at it and seeing a bit of the green shoots, as we've described, that's starting to emerge in the Intel turnaround story.
BRIAN SOZZI: Pat, one question I've gotten over the past 12 hours or so after the earnings have hit-- we are unclear. This is from mostly from the analyst community. Are we unclear if the bad news from Intel is done? How do you see it?
PAT GELSINGER: Well, we have to look that across the different market segments. And in the PC market, we'd say, hmm, we think we're seeing that turnaround. Inventory reductions made substantial progress in Q1. We think they're finished in Q2. So we feel like we continue to gain share in the marketplace. And we a very strong roadmap of products.
So in the PC marketplace, we're actually pretty optimistic that we've bounced off the bottom and now are starting to see a good trajectory. And the data center and cloud market, hey, it was a tough quarter. But even there, we did better than people expected. And we think we were able to hold market share. And I call that a turning point to the data center market one where we've been fighting for a while. And we had to fight through some poor product execution.
Our next-generation Gen 4 Xeon, the Sapphire Rapids product ramping very well hitting a million units. And all four of the next-generation products, the second half of this year. Key new products for next year on our next-generation process technology. Intel 3 looking very healthy. The market is seeing us deliver those before they expected.
So all of that is reinforcing product execution as well as process execution. And that combination is saying, wow, these guys are really starting to lean in tough market. But they're starting to stabilize. And as I said, the first moment that I see these glimmers of hope in the data center business. Tough inventory in the networking markets and edge. But even there, we're starting to see that, hey, we're have a good handle on this. We don't think we lost any market share. It's just overall tough market conditions.
And obviously globally, we're starting to see China start to emerge a bit more. And a second half in the tech industry is definitely stronger, and then the first half and most year. So all of those put together, we're a bit optimistic that Q1, improvement in Q2, and improvement through the second half of the year.
BRIAN SOZZI: Someone shot me a note, Pat, telling me that Intel 3 could be a real potential stock mover for your company. What is Intel 3? And when will it start showing up in your financials?
PAT GELSINGER: Yeah, Intel 3, that's-- we said five nodes and four years. Intel 7, Intel 4, which is Meteor Lake, which ramps in the second half of this year. Intel 3 is the next year process technology that we're basing our next-generation server products on what we've called Granite Rapids and Sierra Forest. When we said that we were delivering the first one of those Sierra Forest in the first half of next year, I think everybody says, wow, that's a little bit sooner than we thought.
On a leadership process technology, like Intel 3, the combination of a stronger server product on a stronger process technology gave everybody in the marketplace a bit of more-- bit more confidence than I think people expected. And with that, we're obviously be building that in the US. A key process technology for US manufacturing but also for our foundry business as well.
Well, I think that combination of getting back to leadership and the data center with leadership process technology, everybody has looked at that and says, wow, they're starting to get their execution mojo back. And I think that was one of the things that I was most proud of. My team in the first quarter really executing product process and financial discipline.
BRIAN SOZZI: It was interesting week for earnings, Pat. You had Microsoft and Google, I would say, had earnings call battles in terms of AI. They talking-- I think they took some thinly-veiled shots at another. But that's just me reading a lot into these calls. Where does Intel fall into this generative AI discussion?
PAT GELSINGER: Yeah, and I think-- I like to think about the AI discussion in three parts. One is you have these ultra, high-end machines for large, learning models where you're now talking about hundreds of billions of parameters that run for months to see stabilization of the model. You know, and there's few that can create those models. And Microsoft and Google being two examples that can invest in these very high-performance computing environments.
And I sort of think about that Sozzi-like weather simulations. Only a few have machines big enough to build them. But then many need to use them. And that's what we call learning versus inference. And inference is one where we say everybody wants to be able to take advantage of those large language models, but using them, not creating them. And that's really where the second layer of this comes in.
And we're starting to compete for the large language models. We have new component called Gaudi2, right, which is setting performance records for those largest training environments. But Intel is much more about democratizing AI. And that's where products like our Xeon Gen 4 Sapphire Rapids' strong performance on AI helping customers to inference. And we see inferencing to become the dominant AI workload, an area of more natural strength.
But then we also say the third piece is we need to enable the entire software ecosystem across every platform that we deliver. And our next-generation client, for instance, has a lot of AI capabilities because you'll be able to do things on the client generating your text, being able to do eye movement into your Zoom, being able to do real-time language translation in your team's call.
But also then at the edge, right, where you'll be using, inferencing for in-store analytics or for security in the data centers of our enterprise customers where they want to be able to take those big models but use it locally with their data without eliminating any of their restrictions around security and data privacy. And finally, helping for those super, ultra-large language model creation. So we're driving a software environment that enables everyone in the world. Generative AI becomes mainstream with democratization of AI. And that's where Intel comes in.
BRIAN SOZZI: So in the past 7 minutes, I've heard you talk about you have an AI strategy. That's good. Potential turn or turning the corner. Green shoots in the PC business. Data center-- maybe some green shoots at the back half of this year. I mean, how powerful do you think a turnaround will be at Intel because I think there are some folks questioning the earnings power of the company two or three years from now.
PAT GELSINGER: Yeah, and obviously, we have a lot of work to do yet to that regard. But I think everybody is looking, saying, hey, they're starting to do what they said they would. We said we have to get back to process technology leadership well underway in our discussion on Intel 3. An example of that, product leadership, multiple generations of client products, regaining share in the client, data center.
Oh, the product, oh, a little bit better than we thought. They're getting their mojo back. And then, of course, the big investments around our process technology leading to the foundry business. A whole new area that is so aligned with the Western interests of a balance-resilient supply chain.
Our margins, we laid out a picture for that improving as we go through the year, as we go through the reserves and the front end of the year as we start building back and having a fully loaded factories, improving the margin structure of the company for the long term. Clearly, we've laid out a multi-year path for that to accomplish. We've got a lot of work to do. But Q1 meet, beat, and raise was a great foundation to build on for the rest of the year.
BRIAN SOZZI: All right, we'll leave it there. Intel CEO Pat Gelsinger, always great to get some time with you. We'll talk to you soon.
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