Intel lifts full-year guidance after posting revenue beat

Pat Gelsinger, Intel CEO joins Yahoo Finance’s Brian Sozzi to discuss the Intel’s latest earnings and the outlook for the company.

Video transcript

PAT GELSINGER: Certainly disappointed to see that reaction a bit, given the beat in the race, as you say, boy, I like to be better greeted than that as a result. But we also realize that there are some concerns around the data center business, which was slightly ahead of our expectation. But we had such a great year last year that the compare was down, also questions on our competitiveness.

And we announced a major new product this quarter. We're starting to ramp that. We're also going into an investment cycle. As we move to 10 and then 7 nanometer products, that brings more costs into the business line, so reducing margins there a bit. So some of those concerns are weighing on the market. But I'll tell you-- we are feeling our energy returning, the competitiveness coming back, and we're seeing our customers start to rebuild their emphasis.

And last year was a big build-up for the cloud guys. And so far this year, they've been mostly consuming that capacity. But we're starting to see signs that they're building up again. So we're looking forward to a better year with Q1 being the low in that area. And overall, we feel like we're back on track with stronger execution and market momentum.

BRIAN SOZZI: And, Pat, I know investors would appreciate that transparency. Let's stay on the data center side of the business-- sales down 20% in the quarter. Has that business bottomed? And if so, why do you think that'd be the case?

PAT GELSINGER: Yeah. Overall, we'd say, yeah, we believe this was the bottoming for that. We do think this big cloud cycle, as I refer to, is the biggest factor. Also, we're starting to see enterprises start to build up a bit. We're also starting to see some strength in networking and 5G-- our IOTG and our programmable solutions business starting to see strength. So we're starting to see strength in a lot of areas of the business overall. So we're really optimistic about the rest of the year.

But that's tempered a bit by the supply situation that you referenced. And overall, we are working our supply chains hard. We're working our own internal factories hard, because we see a lot of opportunity to beat the guidance that we gave if we're able to drive the supply situation more positively for the year. And one of the things, Soz, as we talked about last time you and I chatted, our IDM 2.0 strategy-- our internal and external lines give us more flexibility than others in the industry to respond to those supply challenges.

BRIAN SOZZI: How about PC demand, Pat?

PAT GELSINGER: Overall, PC is extraordinary quarter in the PC area-- biggest-ever laptop shipments in our history. This could be the highest volume PC year ever. And we're getting back to a million units a day. Overall, we do think there is some concern. Is this a peak? But we don't think it is. What we're seeing is everybody is more PCs per home, more for remote education-- lots of markets in the world that need education and work from anywhere platform.

So we see a lot of demand. We're expecting growth this year, and next year, and the following year in the PC business area overall-- a lot of strong signals. We're also seeing a bit of a resurgence in the ecosystem momentum across HP, Dell, Lenovo, Acer, ASUSTeK, others. We're seeing the opportunity to innovate around the whole ecosystem of experiences. And with our partner Microsoft, we're leaning into this in a big way.

BRIAN SOZZI: Since we talked last time, I'm surprised to read a lot of the coverage on Intel in terms of Wall Street analysis. The consistent mention is Intel's behind its competitors. It's losing market share. When you think that perception will begin to change? Is it this year? Is it next year? Is it 2023?

PAT GELSINGER: Yeah. Overall, I think the market is saying, OK, Pat, we're excited to have you as the leader-- good reinforcement for that. Some of these early moves, like our IDM 2.0, and opening the doors of the foundry-- you tried that before. We get the new strategy that you're laying out and it's different. We're getting it, we're seeing the response from the industry.

But give us a few more breadcrumbs of proof. And I think every quarter this year, we're just going to be building back that momentum. Overall, it's going to take a little bit-- bad decisions made in the past, some issues that we've had to work through on our own execution. But I'll tell you-- the energy is back, the passion is back, the excitement is back in our teams. And we believe every quarter this year, you're going to see more and more of that momentum as we get our process teams, our product teams executing.

And the excitement-- the 7-nanometer issue-- we've worked through that now and we're seeing great acceleration there. We're also seeing a path to, again, process parity and leadership again for Intel. And our big factory announcements that we just did-- boy, this is a manufacturing machine that's getting our teams excited about being that world-class supplier here on American soil-- so strong response in those areas. So this is going to be a good year for us to rebuild that confidence and momentum.

BRIAN SOZZI: As part of that $20 billion investment in increasing capacity, your first plant is in Arizona. Have you decided on a second location yet?

PAT GELSINGER: No, we haven't. A lot of states have shown interest, because these are big investments. And we start a new site, we don't expect to put one fab there, we expect to build lots of fabs over the next decade there. It's also great jobs. Each fab is, like, 1,500 direct jobs, 1,500 indirect jobs. And every one of those jobs is, like, 10x in the community.

So there's a lot of excitement around that potential of the next fab locations that we would be building out. We do expect to announce our next major site in the US this year, as well as a major one in Europe this year as well. So overall, a lot of interest, and we'll have something to talk about in the future in this area as well, Brian.

BRIAN SOZZI: Well, I know you'll tell me first there, Pat. I appreciate that in advance. In terms of the chip supply shortage, is there any light at the end of this tunnel?

PAT GELSINGER: You know, there's a lot of work going on across the industry and supply chain. And I've sort of broken our response to it into near, medium, and long-term. Near-term, hey, you know, it's hard to respond because factories take a long time to build up. But can we leverage our supply chains, make some trade-offs to be helpful to the auto industry? In the medium-term, we said, boy, our Intel foundry services, this is new capacity for the auto industry to take advantage of, because we didn't offer that before.

So we're looking-- can we bring designs? Can we help their suppliers by bringing some of that capacity online? Because we don't have to build a new fab. We're reallocating some of our existing fab capabilities in the foundry services. And then longer-term-- hey, products and areas like our Mobileye division are just killing it in the market, Brian.

And we expect that the auto sector overall becomes a much bigger partnership and customer opportunity for Intel as it becomes more autonomous, more assisted, and more EV. Cars are becoming computers with rubber on them. It's an exciting category for us.

BRIAN SOZZI: It's true. I still don't know how to use half of the stuff in my new car that I got. Pat, how damaging do you think this chip supply shortage will be to the US economy this year?

PAT GELSINGER: You know, I'm not an economist, Brian. And I know you just look at it and say, boy, having an auto worker out of work because of some little chips, boy, that's just so politically difficult-- so difficult for the families that are being impacted by that. So I'd just say, we're doing everything we can to get that back as quickly as possible.

And we've had reach-outs and we've reached out-- you know, let's help there as quickly as possible, because it's such an important piece of our economy. And they're going through such a disruptive, innovative period with autonomy and EV. You know, this is an exciting period of time, but a lot of transformation to deal with the near-term challenges and the long-term opportunity.

BRIAN SOZZI: And the Biden administration has floated spending $50 billion to help chip-makers out at increasing capacity. Just given where the situation is right now with the shortage, is $50 billion enough?

PAT GELSINGER: We would say that it helps. It's not enough for the vision that I'm suggesting. And think about it this way, Brian-- 2 and 1/2 decades ago, 25 years ago, the US industry was at 37% of worldwide capacity. Today, that number went from 37% to 12%. And industry analysts say it could go even lower than that.

And in something that is so important to every aspect of humanity, everything is becoming more digital, and all of that manufacturing for that is being done elsewhere. And we've seen these supply disruptions through COVID-- no. We need to stop the decline and start the rise.

We think the $50 billion is a great first step. We fully support the JOBS Act. We're seeing good bipartisan support for this $50 billion in manufacturing. But we believe it would need to be bigger than that. And I've suggested our moonshot objective be 37% to 12% and back to 30%-plus. We believe that that's going to require more than $50 billion. But given the administration and the bipartisan support, this is a great place to start. We're fully behind it.

And we're anxious to get the wheels moving, because then we show progress, then we can start building for the next tranches that are going to be necessary to get us to that moonshot of back to 30%-plus.

BRIAN SOZZI: And, Pat, before I let you go, you've talked consistently since you've come back to Intel, and now in the CEO position, about jumpstarting the Intel culture. You're one guy-- you don't get a lot of sleep. I know I don't get a lot of sleep. We've talked about this before in the past. How do you go about changing the culture inside of a company the size of an Intel?

PAT GELSINGER: In some ways, I'm trying to revive the culture that was already there. And I've called it the Grovian culture. And there are so many people here, and it's such an extraordinary workforce of talented people that when you start talking about, hey, we're going to get back to these direct, data-driven conversations, people say, yeah, I remember what those were like. And people are going to start having engineering focus-- what it takes to execute and deliver. People are saying, yeah, I remember that.

So it isn't as much that I'm creating a culture. I'm rebuilding a culture that was already there. And it's sort of like the first rain in the desert. All of a sudden, flowers start popping up all over the place. There's so much life there. But it's been a little bit hidden for a while.

So what I'm seeing from the organization is a clear vision-- or IDM 2.0 vision, some wins in our near-term execution-- and we're starting to see those emerge-- and the passions being reemerged for the culture at the lower levels, through the middle management, at the top level, and a may be passionate crazy cheerleader named Pat Gelsinger at the top of the heap saying, go, team. We can do it.

We're going to be that great company again that the industry needs, and our nation needs, and is the right thing for the entire view of the world becoming more digital-- these superpowers that I've called cloud, mobility, AI, and edge. You know, this is a period of time where we have the opportunity as a company to improve the lives of every human on the planet. Not many people get to say that. We get to say that at Intel, and we're getting teams fired up to do exactly that, Brian.

BRIAN SOZZI: Pat, I reminded you last time, I will remind you again-- get some rest. It's going to be a long year. We will leave it there. Intel CEO Pat Gelsinger, good to see you as always, stay safe. We'll talk to you soon.

PAT GELSINGER: Thank you, Brian.