Intel CEO Pat Gelsinger’s First Fiscal Quarter: ‘Intel Is Back’

‘We’re firing on all cylinders. Our best days are ahead of us. We’re investing for the future. We’re executing. And we’re just getting started,” the Intel CEO says in his first quarterly financial analyst call.

Pat Gelsinger, in his first quarterly financial analyst conference call since becoming Intel CEO, said Thursday that Intel not only delivered a strong fiscal first quarter 2021, but has laid the groundwork for expansion across the board from PC and server processors to harnessing its new IDM 2.0 strategy with partners including cloud developers.

“Intel is back,” Gelsinger said. “We’re firing on all cylinders. Our best days are ahead of us. We’re investing for the future. We’re executing. And we’re just getting started.”

Gelsinger, who left Intel in 2012 for VMware only to return as Intel CEO early this year, told analysts on the first fiscal quarter 2021 financial analyst conference call that the Santa Clara, Calif.-based company delivered a quarter that beat its previous guidance for revenue and earnings because it shipped a record volume of notebook CPUs, launched new competitive Intel Core and Xeon processors, and had strong uptake on its Mobileye automated vehicle systems business.

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“[And] with tremendous industry support, we unveiled our IDM 2.0 strategy, setting a bold new course for technology leadership at Intel,” he said during his prepared remarks.

Intel’s IDM (integrated device manufacturer) 2.0 strategy, unveiled in March, is a planned $20 billion manufacturing expansion in the U.S. and an increase in the use of external foundries to improve its chip capacity and return to semiconductor leadership.

“Said simply, Intel is the only company with the depth and breadth of software, silicon and platforms, and packaging and process with at-scale manufacturing that customers can depend on for their next-generation innovations,” he said.

The unprecedented demand for semiconductors has stressed supply chains across the industry, and Intel has doubled its internal wafer capacity in the past few years, Gelsinger said.

“But the industry is now challenged by a shortage of foundry capacity, substrates and components,” he said. “We expect that will take us a couple of years for the ecosystem to make the significant investments to address these shortages.”

This fundamental industry challenge underscores the importance of Intel’s IDM 2.0 strategy, Gelsinger said.

“IDM 2.0 utilizes our internal factory network to reliably deliver leadership products and provide the industry another source of foundry capacity through our new Intel Foundry Services,” he said. “Leveraging our IDM advantage, we’re working aggressively across our global supply chain to solve substrate shortages to satisfy our customers’ surging demand and gain market share.”

For example, Gelsinger said, the company is working closely with its suppliers to utilize its internal assembly factory network to remove a major constraint in substrate supply starting in the second quarter that will significantly increase availability in 2021.

“It’s clear the industry and Intel will need more capacity to meet strong future demand, which is why we are dramatically expanding our foundry capability with Intel Foundry Services, starting with the $20 billion investment for our first large-scale foundry operations in Arizona,” he said. “We plan to expand other locations and establish Intel Foundry Services as a major provider of committed foundry capacity in the U.S. and Europe, while ensuring a sustainable and secure semiconductor supply for the world.”

Intel has seen strong industry response to its Intel Foundry Services announcement and is already engaging with well over 50 potential customers, Gelsinger said.

“We’re doing our part to address this global supply crisis, but we cannot do it alone,” he said. “The investment needed at the scale required is immense, and it will require close industry and government partnership to address this need. Governments around the world are recognizing the critical nature of semiconductors and the need to increase advanced chip manufacturing capacity and prepare for the future. We are encouraged by President Biden’s recognition of semiconductor manufacturing as a critical component of our national infrastructure and its inclusion along with key research and infrastructure investments in broadband and the American Jobs Plan.”

Intel IDM 2.0 is only one part of the company’s move to increase the speed of its innovations, Gelsinger said. He said Intel’s 7-nanometer process development is progressing well, its successor to Rocket Lake processors, which it calls Alder Lake, is currently sampling, and Intel in the next couple weeks will tape in the compute tile for its first 7-nanometer CPU for 2023, code-named Meteor Lake.

“In the data center, we will follow the strong ramp of Ice Lake with Sapphire Rapids, which is scheduled to reach production around the end of this year and ramp in the first half of 2022,” he said.

During the question-and-answer period of the conference call, Gelsinger responded to an analyst’s question about Intel’s 7-nanometer process by saying Intel is seeing very good progress and is confident in the changes it has made, including the embrace of extreme ultraviolet lithography.

Furthermore, as Intel previously said, the company expects to move to a yearly cadence for advancing process technology, he said.

“We’re going to be laying that path out very clearly,” he said. ”We’re very excited about our team’s ability to get us back to process parity and ultimately to sustained leadership again.”

This is only one piece of Intel’s technology leadership strategy, Gelsinger said.

“As you’ve seen in our IDM 2.0 strategy, it’s about packaging,” he said. ”It’s about the process. It’s about the full set of IP [intellectual property] that we’re bringing to the table and at-scale manufacturing. And I will say some of the early enthusiasm we’ve seen from some of the foundry customer pipeline is really bringing together our packaging technologies with the full IDM 2.0 strategy.”

When asked how Intel will get customers to take advantage of its IDM 2.0 strategy, Gelsinger said Intel is all about making leading-edge capacity available for its foundry customers.

“The world needs more leading-edge capacity,” he said. ”And there are very few companies that can supply it around the world. So we’re seeing a lot of enthusiasm for that.”

That will push Intel to build and expand its capacity aggressively and take advantage of improved monetization on the longer life cycle of a foundry business, Gelsinger said.

Intel is seeing enthusiasm from customers around its leading process technology as well as those looking to combine their intellectual property with that of Intel, Gelsinger said.

“And in particular, some of the cloud customers have been very excited about the ability to say, ‘Hey, I can take some of my cool ideas and be better optimized,’ including things like x86 cores to have a more optimized solutions for their market requirements. This is compelling for them.”

Intel is also seeing international and government aspects to its IDM 2.0 strategy.

“[They’re] saying, ’Yeah, we need a more geographically dispersed, resilient supply chain for something as critical to the future of humanity as semiconductor technology,” he said. ”This is the right strategy for the right time, and we’re seeing great response for it.”

When asked for more information on Intel’s cloud strategy for IDM 2.0, Gelsinger said its plan is a “powerful” one.

“Now we’re saying to them not only are we going to be building better and better products for you in this area, but we’re also going to be co-designing and co-innovating and bringing new capabilities for them to optimize solutions for their markets as well,” he said. ”Yes, we’re going to be aggressive in the data center and cloud business going forward.”

For its first fiscal quarter 2021, which ended March 27, Intel reported total revenue of $19.67 billion, down slightly from the $19.83 billion it reported for its first fiscal quarter of 2020.

That includes Data Center Group revenue of $5.56 billion, down from last year’s $7.00 billion; IoT revenue including Mobileye of $1.29 billion, up from last year’s $1.14 billion; Non-Volatile Memory Solutions Group revenue of $1.11 million, down from last year’s $1.34 billion; Programmable Solutions Group revenue of $486 million, down from last year’s $519 million; Client Computing Group revenue of $10.61 billion, up from $9.78 billion; and other revenue of $620 million, up from $66 million.

For the quarter, Intel reported GAAP net income of $3.36 billion, or 82 cents per share, down from last year’s $5.66 billion, or $1.31 per share. On a non-GAAP basis, Intel reported income of $5.70 billion, or $1.39 per share, down from last year’s $6.06 billion, or $1.41 per share.

Looking forward, Intel is expecting second fiscal quarter 2021 revenue of $18.9 billion and earnings of $1.05 per share on a GAAP basis, down from second fiscal quarter 2020’s revenue of $19.7 billion and earnings of $1.19 per share. On a non-GAAP basis, Intel is forecasting second fiscal quarter 2021 revenue of $17.8 billion and earnings per share of $1.05, compared with revenue of $19.7 billion and earnings of $1.23 per share.