The Six Five team discusses Intel Q1/24 earnings.
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Transcript:
Patrick Moorhead: Intel’s in a tough spot. There’s the show me states and there’s the show me companies, even a slight twinge or tweak of anything out there, and people, at least the day traders want to pile on Intel, really good Q1. EPS beat improved gross margins, lower than expected top line with a lower forecast, and the forecast just… Are they down double digits this morning? I haven’t checked, deep single. Anyways, it was weighing on it in after hours and I got the chance to talk with Intel CEO Pat Gelsinger before the – when the numbers went out, and as you would expect, he focused on positive execution. I think that’s fair. Intel, it doesn’t have flawless execution, like we saw Sapphire Rapids push out. Man, that architecture was nailed three years before Pat came on. Talk about a stronger second half than first half.
That’s an Intel reality, that just is the way Intel works. And on a market share side, even when you might not have a good forecast, believes he did take share in market servers, his market share in servers, that’s x86, NR, and client PC. So interesting part, Pat said he could have sold more Meteor Lakes, the upsides from his customers came in, but he just couldn’t make it fast enough. There’s two ways to look at that, which is on the plus side, hey, there’s all this increased demand for Meteor Lake, that’s a plus. That’s the first AI PC platform that Intel announced. But on the negative side, why wasn’t the company ready with the backend? I don’t think it’s wafers, I think it’s backend. So, positive to see client computing group at 30%, data center group, for this exploding data center market, not impressive. It’s single digits, like how? You can’t just buy an H100 and not have a new CPU that goes with it.
That’s just not the way this works. So, I don’t fully understand how that number can be so low. We’re going to have to wait for AMD to see what happened. I’m pretty sure ARM was down this quarter, because they had built a lot, not ARM, but obviously Graviton and folks like that. So, EdgeMarket in the toilet, not surprised that the EdgeMarket, Mobileye, and Altera were not good, and I’m going to end here positive to see Intel III, high-volume manufacturing, the most sophisticated process being run in the United States today. This to me bodes well for 18A. I know the tech is different, I know the machines are different, but this is just a good sign, because this means the engineers are not fixated on fixing Intel III. They’re focused on 18A, which that’s going to be the difference maker. At least that’s a thesis, 18A or Intel III and Foundry.
Daniel Newman: So here we go, it was a good quarter, very close on revenue, slightly above expectations on earnings. I happen to possibly be in the room where you were in the room and heard from Mr. Gelsinger as well. I might’ve been the fly on the wall, I don’t know, whatever, but the point is that he really did reiterate, Pat, “We’re a second half company.” So, for the second quarter guide sort of maybe should have been expected, because he already was saying, “We’re a second…” By the way, this isn’t this year, this is just historically speaking. They’ve always had a very, very strong back half of their years for somewhat obvious reasons.
Pat, the 31% client growth was outstanding. That was a really great result. I don’t think anyone saw that coming. The data center growth, it’s just unexciting to people. You got to acknowledge, Pat, you got these NVIDIA growth numbers, these AMD expected growth numbers on MI. You’ve got Broadcom growth numbers, you’ve got these really strong growth numbers on all silicon for the data center, and Intel just hasn’t found its mega growth. It did have some early growth a couple years back that was really, really big, hasn’t seemed to catch up yet again from that. Pat, I want Signal 65, our testing and lab performance playing with the Intel Gaudi 3, Xeon combination to show that Intel does have the software and the hardware to do this. Of course, the abstractions and the software and in OpenVINO, and not having one API, not having… What’s the code name of the GPU? I always forget.
Patrick Moorhead: Falcon Shores.
Daniel Newman: Falcon Shores. Not having Falcon Shores is always going to bring up questions, but ASIC is not… It’s a little bit more flexible than just a pure… This is more XPU architecture and with Xeon it can do a lot of the AI stuff and does it very efficiently, and there’s some papers out there on it, and I’m hoping our team can get more around this. What I’ve really come to the conclusion is everybody wants it to be just NVIDIA, but there are a lot of players. Intel will be a player. The AI race is not over, but this is also a multi-year front to fight a battle on, because the Foundry business is exciting, it’s necessary, it’s a redundancy, the US needs for resiliency, but it’s going to take three or four years.
And so, this is a long game. If you have a decade and you want to take a risk, this could be a really exciting play, because if the Foundry business lands… And by the way, Pat, I read an article yesterday about TSMC and their toxic culture. I don’t know if you saw it, because we always get the same feeds. I don’t know if you saw this, but the toxic culture of TSMC and how poorly that’s being received here in the US and that basically they can’t hire and they can’t build and they can’t get anywhere here in the US, because no one wants to work in a company that basically competes to see who can send the most emails overnight. I don’t know, I’m just saying, so maybe that’s an opportunity for Intel, like the culture, it’s a US company and it is a company that people at least in the US should want to win. I know there’s a lot of people that don’t, but they should.
Patrick Moorhead: I’ve said this many times, I’m going to say it again. Here’s the way I think this is going to work out. I think 18A is going to be good. Will it be as amazing as Intel says it’s going to be? I don’t know yet. PDKs look good out there, but watch this space. US defense industry has a program that you have to go through what’s called RAMP-C. And by the way, Intel I think got a word at the third version of that.
My expectation is that if and when Intel can show traction on 18A, we’re going to see all infrastructure… What are you smiling at, buddy? Who are you grinning at? All critical infrastructure will be flipped, and if you’re a carrier, if you’re a potentially university, if you’re a financial institution, you might have to fab that leading edge at Intel. That is my prognosis. And if that happens, just imagine the value creation, because right now Intel is getting negative valuation on Foundry, and I get it. The numbers are ugly, but gee, who thought that investing four years ahead, $50 billion before revenue was going to be pretty? It’s not, and it’s tough.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
