Intel Corporation (NASDAQ:INTC) Deutsche Bank's 2023 Technology Conference August 31, 2023 1:15 PM ET

Company Participants

Pat Gelsinger - CEO

Conference Call Participants

Ross Seymore - Deutsche Bank

Ross Seymore

All right. Why don't we get started with the next presentation? So we're very honored to have Pat Gelsinger, the CEO of Intel on stage with us.

Before I get started, Intel has asked me to read their safe harbor statement.

Pat Gelsinger

The exciting safe harbor.

Ross Seymore

Thankfully, it's not the entirety of that. But before we begin, please note that today's discussion may contain forward-looking statements that are subject to various risks and uncertainties and may reference non-GAAP financial measures. Please refer to Intel's most recent earnings release and annual report in Form 10-K and other filings with the SEC for information -- more information on the risk factors that could cause actual results to differ materially and additional information on our non-GAAP financial measures, including reconciliations where appropriate to the corresponding GAAP financial measures.

Pat Gelsinger

Don't you all feel better now?

Question-and-Answer Session

Q - Ross Seymore

I know. We're so safe now. So now we can take that slide down. There we go.

So Pat, first and foremost, thank you so much for coming. It's been exciting few years since you rejoined Intel. But before we get into the transformation, I want to talk a little bit about just the current macro trends. We've been through quite a boom and bust cycle over the last few years during COVID, after the lockdowns, et cetera, with differing paces of downturns and recovery times. So what's Intel's view on where we are in the market today kind of by your end market revenue segments?

Pat Gelsinger

Yes. Yes. Good. And overall, as we look at the current environment, obviously, we've been through a strong bust, boom cycle, as I say, pretty much everything that we laid out when we started this journey 2.5 years ago. We're 2.5 years into the transformation now has sort of gone the way I would have expected at the time in terms of rebuilding the company.

And in fact, if we go to the next page just for a second, right, I'll just quickly summarize this. Can we go? Yes. And we said, hey, we got to rebuild our execution machine and that follows 2 aspects, getting the product healthy again. And I'll say, hey, we're now hitting or beating all of our product schedules. We have to get our process technology healthy again. And I'll say that's on track, our 5 nodes in 4 years.

We're going to build this new strategy, IDM 2.0 and seminal to that is the foundry. So that's now well underway. We have to rebuild the financial disciplines in the company, right, smart capital, operational efficiencies and starting to do the value unlocks like we've done with Mobileye and now our mask operation, IMS.

And of course, the second big thing, we weren't expecting this major economic cycle, and we weren't fully expecting this huge AI boom, right, and now have to fully embrace that as well. But when you put all that together, I say, you always have some uncertainties, some aspects of unexpected, but we are executing this strategy. From the current market expectations, some things, hey, we said the client business would be healthy again, and the client business is healthy again.

Inventory levels are solid. Our market share is improving. We're about to go into a next major product, right, with Meteor Lake, which will usher in the AI PC generation of Centrino-like moment. So we feel good about where we are, and we feel good about the road map of capabilities going forward.

Data center, obviously, a lot of scrutiny on that. We said Q3 was down a bit from Q2 as we work through inventory. And I'll say incrementally, hey, it's right where we thought it would be at this point, Sapphire Rapids on Gen 4, very healthy ramp crossed the 1 million units, more and more AI use cases driving Sapphire, Emerald, the next generation and next year's road map very healthy.

In our networking business, we've had to fight through a lot of inventory challenges in this economic cycle. Taking all of those things together at this point, we say we're above the midpoint of our guide for Q3. So we're feeling good about Q3 as that progresses.

And the overall market, right, when you think about it, obviously, inflation, Ukraine, U.S.-China dynamic and I'll say some relative weakness in the enterprise market. Against that though, hey, we are, like I said, above our midpoint of where we expect to be at this point. And overall, we're feeling pretty good about the progress that we're making to be able to deliver Q1 above expectations, Q2 expectations and Q2 to Q3 growth. So overall, we feel pretty good.

Ross Seymore

Perfect. Thank you so much for that near-term stuff. Now I know in your seat, you care about the near term, but almost everything you do is focused on the long term and taking care of that.

So let's dive a little bit deeper into the transformation topic that you have up on this slide. And the base of the transformation and everything else, in my opinion, at least has to come from the manufacturing side. So 5 nodes in 4 years or as John has talked about, maybe even 6. Talk a little bit about where you are with that. Are you still going to intersect with leadership at 18A? And what are the next steps?

Pat Gelsinger

Yes. And we feel, obviously, Intel 7 is done. Intel 4 with Meteor Lake is nicely on track. We'll be volume ramping that, which means I'm volume ramping those wafers now to have volume products out in Q4. So Intel 4, looking great. Intel 3 with Sierra and Granite really being led by the server products, looking great.

As we said in our data center update earlier in the year, we essentially accelerated those schedules for Sierra and Granite. So they're looking very good for first half for Sierra Forest and shortly thereafter for Granite. So that's looking very good. And the products are getting good acceptance.

So 7, 4 and 3, 20A, right, begins with Arrow Lake, our next-generation client product. And that also is looking very good. We've taken up the volume expectations on the internal factories there. There were some rumors about that in the industry. They were just false, right? We've increased the volume expectations in our road map for Arrow Lake. So that's looking very healthy.

I'm looking forward to showing that off in the near future. If I'm going to ramp that next year, I got to be able to start showing it pretty soon. Maybe there's events coming up in the near future, Ross, where we'll do that.

Ross Seymore

Innovative.

Pat Gelsinger

Yes. Maybe. I got to think about that and our innovation conference in September. And then 18A though is sort of the critical, critical completion point, right? When we sort of finish the 5 nodes in 4 years, get back to transistor leadership.

And I would say, and I was just in Oregon yesterday with our technology development teams, looking good. We feel like we're solidly on track with 18A. We're getting the -- and this -- for foundry customers, hey, they need good solid PDKs. They need confidence that we can do this. The amount of interest that we're getting in this area is progressing very well for it. The technology itself is progressing very well.

And as we said, we believe that, that will be manufacturing ready end of next year, giving us a leadership position in '25. We're making good progress for our internal products like Clearwater Forest, our next-generation client products are all in the latter design phases, but also foundry customers.

And in fact, we are very pleased that the -- as part of our smart capital strategy overall, it's build shells, get incentives, investment tax credit, U.S. and EU CHIPS, SCIP programs but also customer prepays. And we've now received a large customer prepay for 18A capacity. So now customers are getting confident enough that they're putting dollars on our balance sheet to accelerate our 18A capacity. So quite excited about that.

So we've -- I've begun a process to accelerate the build out of Arizona, right, and based on that customer prepay. So Arizona is great for us. Others might have difficulty. We love it. So we're accelerating our construction build there. We'll accelerate the capacity buildup that we have in Arizona. And the chips program office submission, right, is now in the chips program office hand for the Arizona site, the Oregon site. And the next 2 projects, Ohio and New Mexico, will soon be in their hands as well.

So overall, everything is coming together, as we've said. And this customer prepay really is a strong exclamation point to momentum for 18A and the manufacturing capacity for that.

Ross Seymore

I have a couple of follow-up questions on the technology, but one clarification from that data point that you just said on the prepayment. I know it's always difficult for you to be able to talk about those foundry customers by name, by year, volume, all those sorts of things. But the fact that they're prepaying is a good sign of their commitment and might be the best sign that you're able to give for a while. Is that true?

Pat Gelsinger

Well, we would say in this regard, we want to get public with some of the customer names over time, and we still hope to do that this year. But getting a significant customer prepay is a pretty profound statement of affirmation of their confidence if they're putting prepays on our balance sheet for us to not only commit capacity to them for 18A, but to accelerate our build-out as well.

And it's just a great timing for that, particularly as we're in front of the chips program office because they're asking the question, will you be able to fill this capacity? Well, I have customers lining up and giving me prepays for it. So it's sort of like, okay, that's a pretty profoundly positive statement, not just for Arizona, not just for 18A and foundry, but also in Washington, D.C. for the chips office.

Ross Seymore

So a couple of kind of tactical or at least chronological questions. So Intel 4, Meteor Lake, those wafers started months ago already.

Pat Gelsinger

Ramping like crazy. And that's -- and again, that's also our first EUV node, right, which is an important technology statement.

Ross Seymore

And then Intel 3, you should be starting those for Sierra Forest imminently, I would assume.

Pat Gelsinger

Well, yes. Yes, they will start soon. The production stepping will soon go in. Obviously, we have the A steps on Sierra and Granite that we've been broadly sampling customers going through the validation. And now it's both dialing in the process and any final refinements to the design, and then we'll soon be sending what we believe will be the production wafers in the fab and Intel 3.

Ross Seymore

Great. Then the longer-term one and the real question on the technology side is that transistor leadership at 18A is interesting, not only because Intel catching up, of course, which is important, but also there is some significant transistor architectural changes on both the RibbonFET side or gate all around as well as on the PowerVia, the backside power. Talk a little bit about where you think you are relative to the competition on those to truly differentiate.

Pat Gelsinger

Yes. And remember, on both of these, this is new invention, right? There's RibbonFET, this is a new transistor structure. If you think about the planar transistor to high-K metal gate, strained silicon, FinFET, moving the gate all around is a once a decade, once every 15 year kind of transistor change, right?

So it isn't just like we're saying, okay, let's go create a new transistor. You have to invent new molecules, new physics, new chemistry, work with the equipment vendors. And we're now to the point that we're quite confident that we have it all figured out for the gate all around transistors.

So like I said, I was there just yesterday. And I view the gate all around transistor that we're now producing to be a work of art. And if you're a device physicist, you look at the SEM diagrams on this and you just say, that is elegant, right? It's just looking good for us.

And now it's, of course, creating an elegant transistor, but then getting it that it's volume, reliable, producible performance, et cetera, but we're in the final throes of that, as we said, to deliver transistor leadership next year.

But the one that has really surprised the industry was backside power, right? And being able to do this wafer-level assembly processing the metal layers, flipping it over, connecting it to the backside and creating essentially a wafer sandwich, but then being able to deliver power through the backside network.

And some in the industry have said, we'll get as much benefit from the backside power as you get from the new transistor, right? And this is an area that Intel is multiple years ahead of the industry as IEDM, analysts and others have come out from some of our disclosures there.

So this is an area that I'll say has been a profound leadership statement, right? Hey, the transistor, Samsung is working on gate all around. So is TSMC, and ours is a work of art. We'll see how theirs show up. But the backside power is now an [unquestionary] of leadership.

And it's really important because as you get to these very high performance, and particularly as we start seeing high-performance AI chips, things like power delivery, IR group and also moving all of that power network to the backside and giving you more signal integrity on the design, it's highly, I'll say, performance but also highly designable, right?

And that's what we're finding from some of the early foundry customers. They're saying, wow, I get a lot of area improvement, right? So because ultimately, they're paying for -- foundry customers are paying for how many millimeters square is their design going to take. And if I can get more millimeter square for their design per wafer, wow, then that makes my wafers that much more valuable to them as foundry customers.

And some of the early designs there have been really quite impressive, the area improvements that they're able to get because of the backside power and the performance improvements because of a better metal IR delivery and the new transistor, we're feeling really, really good about 18A.

And of course, we're not done, right? Yesterday, they just gave me all the stuff for the one after that and the one after that. So this is a race, right, to the future of science, chemistry, physics and manufacturing. And we're feeling good.

Ross Seymore

Why don't we stick with the foundry side because you mentioned it before. Where do you think the biggest advantage Intel will have in taking market share in that will reside? Is it going to be from the technology side? Is it going to be the geopolitical issues that we have in supply diversification? Where are you seeing the customers who are interacting with you showing most interest?

Pat Gelsinger

Yes. Obviously, the geopolitical stuff, everybody wants more resilience in their supply chain. Check. We are the company that provides that. Everybody wants good transistors, good process technology so they could build better products, okay?

Per the last update, we feel like we're making good progress, and we're getting a lot of interest from customers in that respect. Obviously, everybody wants diversity in their supply chain. I don't want to be incumbent in one place somewhat irrespective, right, of the geopolitical aspects, give you more choice, more diversity. I want good cost, right, as well, right?

And hey, we realize that we're going to have to go win, right, on the value proposition that we present to customers. And we think about it as power, performance, area and cost, right? And I got to give them good power performance. They have to be able to build their designs very effectively. And then I'm going to have to compete on cost as we go establish our presence here.

We are off on doing all of those, and we're feeling quite good for that. But the near-term thing that's been most unexpected is our advanced packaging, right? And this is proving to be a big on-ramp for foundry customers because right now, there's an industry-wide shortage of technologies like TSMC's [colos], right?

Our technology, Foveros, is a little bit different than that, but largely is solving the same problem, right, in a very effective way. So right now, we have, I'll say, everybody who's doing high-performance computing right? And a lot of that is driven by the AI surge, right, is looking at us to become a complementary advanced packaging partner for them.

And I believe this will prove to be a big on-ramp for foundry customers because if I can satisfy a near-term urgent need, get them comfortable with us and trusting us as their foundry supplier, my ability then to ramp them as a major wafer supplier as well I think is huge.

And also, when we called it on the slide here, we call it an open systems foundry. I have a lot of capabilities that TSMC or Samsung doesn't have. I do high-performance computing. I do advanced packaging. I do thermals and systems. I do IO and connectivity.

I have a leadership position in silicon photonics and optics. We have leadership technology at multiple levels that I get to bring to those foundry conversations that my competitors don't have. So I think this -- the idea of the open systems foundry will be very differentiated for us and in the surge of how do I build high-performance computing.

And if you think about the world of, I'll say, Xeons and data centers was getting a little bit boring. It's like, okay, let's go from 32 cores to 48 cores. No, no, no. I need 56 -- no, no, maybe 64 -- it was getting reasonably boring.

AI is anything but boring in terms of the amount of innovation that's bringing into data center scale. And so much of that is what Intel's good at. So I think it really opens up new avenues of interest from foundry customers to look at us for not just our products, but our semi-custom products and our foundational technologies.

Ross Seymore

The last question on the foundry side just because we could go on that for hours, but we have a lot of things to hit on. When you talked about getting the costs right, you can get the technology right, other services that are unique to Intel can be great assuming you can get the service orientation of the foundry into your culture. But the cost of building things in the Western world as opposed to the Eastern world is just inherently more expensive.

Now I know the CHIPS Act will bridge some of that gap. But where do you think that Intel needs to land to be a competitive foundry from a cost structure point of view for the customers and yet balancing the margins that you need for your investors?

Pat Gelsinger

Yes. And we -- as we look at it, TSMC has established a market, right? Super clear. Remember, I'm a customer of TSMC. So I know exactly what their wafer costs are, what their wafer ASP is, they're presenting to their N5 customers, to their N3 customers, their budgetary for N2. We know what the target is, right, for that.

And then to my team, it's like, okay, how do I hit that target? Because I need to be able to be delivering better than their cost at that level, right? I have to be able to present to customers wherever they are, right?

If it's $10 per wafer, I have to be 10 minus per wafer that we present to customers to earn our way into the business. So we know exactly what we need to do in terms of getting our costs there, right?

Also then, right, as we look at U.S. CHIPS Act and ITC, they are designed specifically to close the cost gap, right, with Taiwan and Korea. That's how they're designed. That's built into our business case. We expect our first CHIPS Act dollars to appear this year.

The ITC, the investment tax credit, is part of law. So that's built into our business plan as well. And obviously, we just got to go attack our cost structure. And that's part of what we said in terms of the internal foundry.

How many heads do I have per wafer start per month, right? Okay. If I'm not competitive with TSMC, what does it take to get competitive? How do I put more AI, machine learning, telemetry to get my headcount cost equal to theirs over time?

So these are all things that we are well underway. And again, right, I get to sort of crawl my way up that margin stack from where we are. And the value creation for the Intel shareholder, as I work my way toward a TSMC-like margin structure is extraordinary, right?

And if you do any form of calculation on how you value Intel today, we're getting credited 0 for those factory capacities. And if I start producing reasonable margin structures and don't even get all the way to TSMC, that is an extraordinary value creation story, value unlock for our shareholders over time.

And we believe we're on track to do that. Obviously, 5 nodes in 4 years is expensive. I'm putting a lot of capital. I'm churning capital rapidly. But as we start to get to those cost structures, we get to a normal cadence on a leadership transistor structure and get our costs in line, start realizing the benefit of U.S. CHIPS and ITC and EU CHIPS Act, we think that we'll be in a very competitive cost structure. And if I have the best transistors, we're going to do very well.

Ross Seymore

Part of that cost structure discussion brings you into the Intel -- or the internal foundry model that you're putting in place. In the first quarter of next year, you guys are going to split out your manufacturing operations or P&L for that.

Pat Gelsinger

That's getting huge discussion internally.

Ross Seymore

Yes. That's to me, it's more important internally in the cultural change than it is externally. We'll all look at the numbers and argue about what's good and bad and ask you 15 questions every time we see you on it.

Pat Gelsinger

Only 15? Is that all?

Ross Seymore

Yes.

Pat Gelsinger

Yes. Okay.

Ross Seymore

But the cultural -- the culture importance in the company is changing. How have people embraced that? Because I know you're doing it now even though you won't set reporting it until later.

Pat Gelsinger

Yes. And with this, let's just take like a little example. My design teams now -- or my product teams are now being -- they are looking at their product decisions through the lens of a wafer price that's comparable to the TSMC price as they make their product decisions. They are making different design decisions not because they're making them based on a wafer price, not on the wafer cost. That was diluting them into using too expensive technologies for different market price points. So we were creating inherent inefficiencies by the bad economic model that we have of presenting cost as opposed to a price that's a market price.

A second example has been, and we now are charging our internal teams for wafer expedites and new product introductions, just like TSMC does. And all of a sudden, they're saying, well, why are we doing another stepping? Why are we doing another expedite on this?

And you sort of say, well, hey, Pat, that's sort of false economics. It's not false economics because if you're expediting wafers in a factory, you are making the factory less efficient. It has a real cost associated with it to say, I did another stepping because I had a crazy design idea. Let's run it fast. That hurts the factory's economics, and [indiscernible] aren't bringing a real internal economic model to all of these questions, it's causing us to get efficient, more disciplined on every dimension how we operate internally.

And that's a major cultural shift that's going to take us multiple years to fully realize all the benefits. That's part of what we said $3 billion this year in cost savings, $8 billion to $10 billion over time. That's a key aspect of how we achieve that because we're going to drive in all of my business units, well, what margins is AMD able to get, right? On that economic model, why can't you be as good as AMD, right?

And so my foundry team, here's what the margins that TSMC is able to get. Why aren't you that good, right? And it starts driving, I'll say, the appropriate disciplines and accountability to how we operate the company internally.

And it's really fun to watch, right? And I get to sit somewhat as judge and jury on some of these trade-offs that are occurring between them, and that's too high of a wafer price. No, it's not. This is the TSMC price. It just unleashes good, productive energy to make the company great.

Ross Seymore

We have about 10 minutes left, and there's 2 topics I want to address. And so one is AI and then the last one is just wrapping this into some financials, given the audience here.

I think we could spend an hour talking about each alone, but I'll try to make it quick. On the AI front, are GPUs crowding out CPUs? Is that a permanent trend? And just generally speaking, how is Intel going to address AI?

Pat Gelsinger

Yes. And let's step back just a little bit before we go specifically to the data center piece of it, right? Remember, AI, as we said, will affect everything, right? I have AI in my hearing aids. We're going to be building AI into the PC clients, right? AI will be at the edge footprints as well. So we will be building an AI, and we call this AI continuum picture here, right?

We'll be launching the AI PC with Meteor Lake in the fall that now includes neural accelerators, the NPU as part of it. So we see that occurring. And hey, could you go run that AI model on -- for your Zoom real-time language translation? Could you go run that in the cloud? Of course, you could.

It's really expensive, really slow, high latency to go do that. You're, of course, going to push that to the edge, right? Are you going to do real-time human tracking in stores and manufacturing and supply chain locations with AI? Could you run that in the cloud? Absolutely.

Are you going to? Absolutely not. The laws of economics, the laws of physics, the laws of privacy will force it to the edge. So we really see this AI being pervasive.

Now of course, the hot topic today then, of course, what happens in the data center. But on those other aspects, Intel has huge assets. I'm going to deliver more AI tops than any other company in the world in 2024. Why? Because I put it into our volume products, right?

We're not talking about shipping millions of data center accelerators. We're talking about building hundreds of millions of clients and edge devices, right? And hey, volume matters for what developers and ISVs take advantage of. So those volume plays are a natural area of strength for us.

Coming back though to the data center, hey, NVIDIA is -- hey, they worked hard, right, to have a great leadership position. But right now, there's a bit of false economy there. Huge demand, ASPs are high, supply chains are constrained, double, triple booking. All these kind of things are underway. And lots of people are showing up, including us, to compete for those.

We've seen a rapid expansion of our Gaudi pipeline. We're building our supply chains to get much larger for our footprint there as we start competing as well as others will start competing for those.

And then the critical question is how does CPUs versus GPUs play? Well, I call it -- there's the 3 laws, right, of the data center. One is the laws of economics. If I run a piece of software on a GPU at 10x the cost of the CPU, okay, they're going to run it on the CPU, right? And a lot of this is then driven by law number two, Amdahl's law, right?

If you have a little bit of AI and a lot of general purpose, then speeding up the little bit of AI workload by 100x doesn't improve the application because it's 10% of the total workload. So you end up with Amdahl's law effect and the law of inertia, right?

These are decades-long application environments for security, regulation, privacy, all of those types of things, traditional areas of strength. So I think right now, there is a bit of euphoria, right? We've sort of been like the third cycle of AI euphoria.

If you think about the 50-year history of AI, and this one is big, right? I think it really is industry shaping what's possible. But as we put more and more AI capabilities into all of our products, including Xeon, and we expect somewhere between 1/4 and 1/3 of today's Sapphire sales are driven by AI use cases today, and that's ramping nicely for us.

So overall, I expect to see a more moderation there. We're going to be competing more for the GPU and accelerator, but we also see workloads driving energy that will create opportunities for our CPU offerings as well.

Ross Seymore

Great. So AI is a positive driver is the key take, not a trade-off away from Intel.

Pat Gelsinger

And hey, they're doing well, right? We all have to give them credit for that. But we're going to show up. And many of the technologies that we have on the table, memory, power, cooling, design, advanced transistors, these are all going to play significantly for AI opportunities for Intel's products but also our foundry.

Ross Seymore

So the last question I wanted to hit on in the last 4 or 5 minutes we have was kind of wrapping all this together into a little bit of a framework, financial framework. Your last analyst meeting was coming up on 3 years ago. I might guess that you might have one next spring as well, just tends to be your typical timing. So maybe you'll update us then.

But at the time and since then you've talked about good companies have kind of a 60-40 gross and operating margin model. Let's just focus for now on the gross margin side of things.

At the time you laid that out, it seemed like it kind of implied roughly $100 million -- or $100 billion in revenues. You're about half of that, roughly speaking now. If we think things normalize, cyclically, you get up, call it, $65 billion instead of $50 billion to $55 billion, somewhere in that range.

The question I have is, what is the revenue level necessary, just in round numbers, to get to that margin structure so the investors in the room can get the return that they're looking for? And then how do you get there? Is it market share? Is it more data center than CCG? Is it a huge foundry assumption? Just the moving parts in a general sense would be very helpful to people.

Pat Gelsinger

Yes. And in terms of hitting those metrics, we don't -- we believe that we have a lot of cost work to do, rightsizing the business, margining the business, et cetera. So we don't believe we have to get to that revenue levels to get in that zip code to go get there, right?

So I'll just say that's too high of a number for the aspirations we're setting on fixing the financial foundations of the company. Obviously, we're out to grow the revenue line going forward.

We do see modest growth in the client business going forward. We're now getting our market share back to historic levels. We do think the AI PC will become an accelerant upgrade cycles, but nothing, I'll say, heroic on the client side in terms of growth rate, but we do see that contributing to growth for the company.

Data center, obviously, we're at a cyclical low, right? If you look at it, our products were uncompetitive. We lost share. We're now getting better products associated with that. We believe that we'll start doing better on the data center business going forward. And we believe that AI accelerators and other aspects of the data center will be a meaningful contributor over a multiyear basis.

In the networking business, also we're at sort of a cyclical low for that business. And again, we have a lot of technologies, new products that we're bringing into that category. So we do see reasonable revenue growth there.

And I think, of course, based on the earlier part of this conversation, how big we can grow the foundry business ends up sort of being that last big factor for us. Near term, as I say, we're seeing an extraordinary amount of interest for the advanced packaging technologies. As we start winning some of these whale customers and the prepay was a great proof point that we're making progress there, I think that's going to start to really contribute.

But foundry wafer customers don't materialize for several years, right? Because you got to win their design, they got to get their designs done, and then they ramp the wafer. So that really starts contributing on a multiyear basis, but that's on track.

So the idea of a much higher revenue Intel, that's why I'm here. But we have to also then underlay to how do we get our basic financials well. The internal foundry model helps us get good financial accountability, fixing our core cost structure and our manufacturing operations.

Obviously, as we start ramping the new nodes and we get past this rapid churn of 5 nodes in 4 years, hey, I'm getting more capital-efficient, right, as well. I'm not churning as much new capital that isn't producing free cash flow.

And the final thing about the foundry model from our perspective is that as it starts to scale, I am going to keep those factories full forever, right? Because we're going to -- instead of turning over those factories when they start getting good cash flow, we're going to be filling them, right, with other advanced packaging technologies. We're going to be adding variants to the process technology for RF and wireless and mobile so that we're able to run those factory networks much longer with very healthy cash flows on the other side of it.

And that's always been the gravy train of the foundry business, right? It's being able to run those depreciated assets on a much longer basis with good margin wafers. And as we start layering that into the business, I think this is an extraordinary value creation cycles for the shareholders as we pull this off.

And I think appropriately, we're 2.5 years into this journey. When we laid out this bold strategy to start, people should have looked at us and say, wow, you guys are like a little bit, right?

As I joke, there's a thin line between audacious and crazy from this. And which side of that line where you want, right, for it. But as the evidence is mounting of 5 nodes in 4 years of rebuilding the product execution, the factory network coming online, our ability to create this financial model of competitiveness with U.S. CHIPS, EU CHIPS and ITC and SCIP and customer prepays, et cetera.

All of the pieces are starting to come into place that whatever -- however skeptical you might have been 2.5 years ago, you have to be much less skeptical about our ability to pull this off. And fundamentally, right, we are rebuilding the iconic Intel, right, image of the trinity: grove, noise and more.

Secondly, we are making huge progress to rebuild the technology supply chains of the Western world. And fundamentally, this is the most important company to reestablish the geopolitics that we are interested in for decades to come.

That's the mission that we are on. And I think we've made pretty good progress in getting that done in 2.5 years.

Ross Seymore

Well, Pat, thank you so much for your views and joining us here at the conference today. And good luck with the continued success in the transformation.

Pat Gelsinger

Very good. Thank you all.