Intel Corporation (NASDAQ:INTC) Q1 2026 Earnings Call Transcript

Intel Corporation (NASDAQ:INTC) Q1 2026 Earnings Call Transcript April 23, 2026

Intel Corporation beats earnings expectations. Reported EPS is $0.29, expectations were $0.01897.

Operator: Thank you for standing by, and welcome to the Intel Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Mr. John Pitzer, Corporate Vice President of Investor Relations. Please go ahead, sir.

John Pitzer: Thank you, Jonathan, and good afternoon to everyone joining us today. By now, you should have received a copy of the Q1 earnings release and earnings presentation, both of which are available on our Investor Relations website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I am joined today by our CEO, Lip-Bu Tan; and by our CFO, David Zinsner. Lip-Bu will open with comments on first quarter results as well as provide an update on the progress we’re making on our strategic priorities. Dave will then discuss our overall financial results, including second quarter guidance before we transition to answer your questions. Before we begin, please note that today’s discussion does contain forward-looking statements based on the environment as we currently see it, and as such, are subject to various risks and uncertainties.

It also contains references to non-GAAP financial measures that we believe provide useful information to our investors. Our earnings release, most recent annual report on Form 10-K and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures, including reconciliations where appropriate to our corresponding GAAP financial measures. With that, let me turn things over to Lip-Bu.

Lip-Bu Tan: Thank you, John, and good afternoon, everyone. Q1 results demonstrate continued and steady progress across the business, reflecting strong demand for our products and disciplined execution to expand available supply. Revenue, gross margin, and earnings per share were all above the high end of guidance, marking our sixth consecutive quarter of exceeding financial expectations. Even as we improve factory output, demand continues to run ahead of supply for all our businesses, especially for Xeon server CPUs, where we expect sustained momentum this year and next. Intel 3-based Xeon 6 and Intel 18A based Core Series 3 products are now in full volume production ramp and each represents the fastest new product ramp in 5 years.

We are maximizing and optimizing our factory output to meet customer needs. It is our top priority. Intel is now a very different company than when I first joined over a year ago. We have taken and continue to take deliberate steps to rebuild Intel into a more competitive and more profitable company. Our cultural transformation is well underway, and we are embracing our roots as data-driven, paranoid and engineering-centric company. We are also listening closely to our customers and putting them at the center of everything we do. Intel possesses some of the most vital assets necessary to be successful and to flourish in this era of extraordinary opportunity for the semiconductor industry. With a stronger balance sheet, a new leadership team, a rejuvenated and motivated workforce and a renewed focus on engineering execution, we are turning our attention squarely towards innovation to capture opportunities in the near term and to position the company for robust growth in the long term.

Driven by tremendous demand for AI, the semiconductor industry TAM is now approaching $1 trillion. Intel is well positioned to benefit from this demand with 3 strategically important assets: our x86 CPU franchise, our advanced packaging technology and our vast manufacturing network. Artificial intelligence is now moving into the real world towards a more distributed inference and reinforced learning workloads like agentic, physical AI and robots and edge AI. This shift is now beginning to show up in our results as I want to spend some time on this today. For the last few years, the story around high-performance computing was almost exclusively about GPU and other accelerators. In recent months, we have seen clear signs that the CPU is reinserting itself as the indispensable foundation of the AI era.

CPU now serves as the orchestration layer and critical control plane for the entire AI stack. This is not just our wishful thinking, it is what we hear from our customers, and it is evident in the demand profile for our products. Xeon server demand is seeing strong and sustained momentum. Customers are deploying server CPUs along accelerators in the ratio that is moving back towards CPU. The accelerator remains central to Frontier AI, and we will continue to participate, innovate and partner in that category. Our recent announcement with SambaNova Systems is an example of such partnership on heterogeneous compute architectures. But the backbone of AI computing in production remain a CPU anchored architecture. That is good news for the x86 ecosystem.

It is great news for Intel. And it is a structural reason I’m confident that CPU franchise will continue to be a meaningful growth engine for the company in the years ahead, not just the quarters ahead. Turning to Intel Foundry. The accelerating deployment of AI infrastructure creates a meaningful opportunity for us as we continue to build our external foundry business. I’m pleased with the progress we have made in foundry technology development over the last year, even though I will continue to remind you this will be a long journey for us. We have made steady progress with Intel 4 and Intel 3 and 18A yields are now running ahead of the internal projections, representing a meaningful inflection in our execution and our factory finished good output.

We also continue to make steady progress on our advanced packaging technologies, including additional growth in customer backlog in the quarter. On Intel 18A(P) and Intel 14A, we continue to be encouraged by our external engagements. Intel 14A maturity yield and performance are outpacing Intel 18A at a similar point in time, and we continue to develop PDKs with multiple customers actively evaluating the technology. Their partnership has been critical and their feedback is continued to help us define the technology so that we can cater to their needs. We expect to see earlier design commitments emerge beginning in the second half of 2026 and expanding into the first half of 2027. I’m particularly pleased that our progress today has driven us to land more of our own future product types on Intel 14A as well.

At a time when advanced wafer capacity is in the short supply, this enables us to have better control over our supply chain. Intel has pioneered nearly every major innovation that has enabled dimensional scaling and high-volume manufacturing of silicon transistors over the last 6 decades. We have always been willing to take measured risks that have eventually paved the way for step function improvements in transistor density, cost, power and performance. As we look to continue challenging the status quo, I can think of no better partners than Elon Musk. We recently announced our partnership with SpaceX, xAI and Tesla to support Terafab. Elon and I share a strong conviction that global semiconductor supply is not keeping pace with the rapid acceleration in demand.

We are excited to explore innovative ways to refactor silicon process technology, looking for unconventional ways to improve manufacturing efficiency that will eventually lead to a dynamic improvement in the economics of semiconductor manufacturing. A year ago, the conversation about Intel was about whether we could survive. Today, it’s about how quickly we can add manufacturing capacity and scale our supply to meet enormous demand for our products. This is a fundamentally different company today, and we still have a lot of work ahead. I would like to take this opportunity to thank our many customers, partners and our hard-working employees across the world for their contributions towards building a new Intel. I remain firmly convinced of and focused on the opportunity ahead for Intel.

With that, I will pass it to Dave.

David Zinsner: Thank you, Lip-Bu. We delivered robust Q1 results, reflecting strong demand and better-than-expected available supply. We also benefited from improved product mix and pricing actions, in part to offset higher costs. First quarter revenue was $13.6 billion, $1.4 billion above the midpoint of our guide. Q1 revenue would have been meaningfully higher, but demand continues to outpace our growing supply. Our collective AI-driven businesses now represent 60% of revenue and grew 40% year-over-year. These results reflect real and deliberate changes we have made to be more responsive and accountable. This quarter, our teams worked directly and diligently with customers to reach mutually beneficial outcomes in weeks, not months.

We value the partnership and support shown by our customers, partners and suppliers as we work to navigate this environment together. Non-GAAP gross margin came in at 41%, approximately 650 basis points ahead of guidance due to the combination of higher volume, which included previously reserved inventory, mix and pricing. In addition, better yields on Intel 18A offset some of the higher costs we always incur in the early part of ramping a new node. We delivered first quarter non-GAAP earnings per share of $0.29 versus our guidance of breakeven on higher revenue, stronger gross margins and continued spending discipline. Q1 EPS included a roughly $0.06 onetime gain in interest and other. Q1 operating cash flow was $1.1 billion with gross CapEx of $5 billion in the quarter and adjusted free cash flow of minus $2 billion.

Moving to segment results. CCG revenue was $7.7 billion, down 6% sequentially and better than our expectations. Even with improved factory output, demand outstripped supply against a client TAM that remains resilient despite industry-wide component shortages and inflationary pressures. Our AI PC revenue grew 8% sequentially and now represents greater than 60% of our client CPU mix. Operating profit for CCG was $2.5 billion, 33% of revenue and up approximately $300 million quarter-over-quarter on improved mix and product margins, sales of previously reserved inventory, better 18A yields and lower operating expenses. Within the quarter, CCG launched Core Ultra Series 3 and expanded our offerings across consumer, commercial and edge. This has proven to be our strongest product launch in 5 years, delivering better performance per watt, stronger integrated graphics and more capable on-device AI features, all while maintaining our broad ecosystem of compatibility that partners and customers value.

In Q1, CCG also expanded the reach of our Core family by launching the Intel Core Series 3 processor, which brings the latest IP, modern features and all-day battery life to the mainstream for the first time. We’re enabling a new class of mainstream systems that once again set the standard for everyday computing. DCAI revenue was $5.1 billion, an increase of 7% sequentially and 22% year-over-year, well above expectations and reinforcing the strong year of growth for DCAI we signaled 90 days ago. Strength continued across all segments and customers as investments in CPUs are accelerating to support the evolution of AI from foundational training to inference and from inference to agentic. We also saw strong ASIC growth with revenue up more than 30% sequentially and nearly doubling year-over-year.

Operating profit for DCAI was $1.5 billion, 31% of revenue and up approximately $292 million quarter-over-quarter on improved product margins, better cycle times and yields, especially on Intel 3 and lower operating expenses. Within the quarter, DCAI signed multiple long-term agreements, including Google, supporting our view that the current business momentum is sustainable. In addition, Xeon 6 was selected as the host CPU for NVIDIA’s DGX Rubin NVL8 systems, and Xeon remains the most deployed host CPU due to its industry-leading memory, security and networking orchestration. Lastly, DCAI also established a multiyear collaboration with SambaNova to design a next-generation heterogeneous AI inference architecture combining SambaNova’s RDUs and Intel Xeon 6 processors.

Intel Foundry delivered revenue of $5.4 billion, up 20% sequentially on increased EUV wafer mix driven by Intel 3 and significant growth in 18A. External foundry revenue was $174 million in the quarter. Intel Foundry operating loss in Q1 was $2.4 billion and improved $72 million quarter-over-quarter as better yields across Intel 4, 3 and 18A drove higher gross margins. This was mostly offset by increased operating expenses associated with an intentional step-up in Intel 14A investments to support both internal and external customer evaluations. As a reminder, Intel Foundry carries the bulk of the costs associated with the early ramp of Intel 18A, and we expect Intel Foundry’s operating loss to improve through the year as 18A continues to ramp into volume and yields improve further.

Within the quarter, Intel Foundry delivered output above our expectations, drove steady improvements in yields and met key 14A milestones. Intel Foundry also added to its backlog of advanced packaging services and announced a multiyear expansion of our back-end facilities in Malaysia. This expansion will help support the committed demand that will begin to convert to revenue in 2027. Turning to All Other. Revenue came in at $628 million and was up 9% sequentially due to a strong quarter for Mobileye. Collectively, the category delivered an operating profit of $102 million. Now turning to guidance. As we look ahead, we remain mindful that the macroeconomic and geopolitical environments are dynamic. Views on global growth, policy and trade continue to shape customer behavior and investment decisions.

In addition, constraints and rising prices around key components like memory, wafers and substrates are driving higher costs that could impact demand for our product at some point in the year. We’re prudently planning for PC demand to weaken in the second half of the year and expect the full year PC unit TAM to be down low double-digit percent in line with industry peers and experts. Offsetting this, near-term customer order patterns remain very robust across all of our businesses. In addition, our confidence in the sustained growth of CPUs driven by the AI infrastructure build-out is growing. Our outlook for server CPU demand has improved over the last 90 days, and we expect a strong year of double-digit unit growth for the industry and for us with momentum extending into 2027.

Combining all of these factors, we’re guiding Q2 revenue to a range of $13.8 billion to $14.8 billion, up 2% to 9% sequentially. As we work hard to support the needs of all of our customers, we expect sequential revenue growth in both CCG and DCAI on improved supply and a full quarter of pricing actions, with DCAI up double digits. At the midpoint of $14.3 billion, we forecast a gross margin of 39%, a tax rate of 11% and EPS of $0.20, all on a non-GAAP basis. Our Q2 gross margin guide declines modestly from Q1 due to a meaningfully larger contribution from Intel 18A, still early in its ramp and some inventory benefits in Q1 that aren’t expected to repeat in Q2. Before I close, I’ll share some additional insights on the full year. We expect our factory network to continue increasing available supply in the third and fourth quarters, though at a more measured pace than we anticipated 90 days ago, reflecting the base effect of much stronger-than-expected first half output.

We also expect 2026 revenue on a half-on-half basis to follow the seasonal trends experienced over the last 10 years with servers above and PCs below. We were very pleased with Q1 gross margins, and we will continue to push for gross margin expansion. It’s my top priority. Our foundry team is delivering consistent yield and throughput improvements across all process nodes, which will help gross margins. With that said, Intel 18A is still early in its ramp and rising input costs, especially in memory, present growing headwinds in the second half that we need to overcome. For OpEx in 2026, we have been directionally targeting $16 billion, but are likely to be higher due to inflationary pressures, variable compensation and targeted investments we are making to capture the opportunities ahead.

The drive for efficiency is core to the new culture Lip-Bu is creating, and we will remain laser-focused on finding additional operational improvements and maximizing ROI on all of our investing activities. We forecast capital expenditures in 2026 to be flat to last year versus our prior expectation of flat to down, reflecting increased capacity investments to support committed demand and a continued emphasis on improving fab productivity and output. We now expect expenditures to be roughly equal across the year and still to be heavily weighted towards the equipment that directly grows wafer outs to support growth this year and next. We recently closed the transaction to repurchase the 49% equity interest in the joint investment in Fab 34 in Ireland, a highly accretive deal, allowing our shareholders to participate in the full economic benefits from a fab just now hitting its stride.

As a result, we now expect noncontrolling interest, or NCI, to net to approximately $250 million in each of Q2, Q3 and Q4 of this year and be approximately $1.1 billion for 2027 and 2028 on a GAAP basis. Lastly, excluding the buyout of the Fab 34 joint investment, we still expect positive adjusted free cash flow for the full year. As a reminder, we funded our purchase with approximately $7.7 billion in cash and $6.5 billion in new debt. We remain committed to retiring all $2.5 billion of maturities as they come due this year and all $3.8 billion in 2027. In closing, Q1 was a strong quarter financially and operationally. All demand signals continue to emphasize the growing and essential role of the CPU in the AI era and the unprecedented demand for leading -edge wafers and advanced packaging to realize the vision of driving silicon-based intelligence to the edge efficiently and at scale.

Our confidence is growing. We have the right team and the broad IP portfolio needed to solve our customers’ most pressing economic challenges and drive long-term value for our shareholders. With that, I’ll turn it over to John to start the Q&A.

John Pitzer: Thank you, Dave. [Operator Instructions]. With that, Jonathan, can we please take the first question?

Q&A Session

Operator: Certainly. And our first question comes from the line of Ben Reitzes from Melius.

Benjamin Reitzes: Congrats on the quarter, and this is good news for the country, too. With regard to my questions, the first one is on LTA. If you could just talk about the Google deal and there’s a comment I believe in the release that you signed other [ LTAs ]. And how are these structured and how do they give better ability in long term [indiscernible]?

Lip-Bu Tan: Yes. Good question, Ben. I think let me describe. Google is one of the multi- long-term contract agreement in Q1. And this is significant. Google will have the Xeon IPU and building a long-term trusted partnership. This is very important for us. It’s a very — just evidence of a strong demand for our CPU and some of the ASIC business that is important for us. And this is a good example of how we win in AI infrastructure build-out. And then stay tuned. We — at the right time, we will announce other contracts. Dave, anything to add?

David Zinsner: Yes. Maybe just to add, most of these agreements are structured with volume and pricing, and they are usually somewhere between 3 and 5 years. The Google one, I think both parties wanted to see an announcement. In some cases, customers want to keep that confidential, and we respect their desire to maintain confidentiality. So some of them we just didn’t announce. It’s a win-win, I think, in a lot of ways. We get a good understanding of the volumes that we can then build into our assumptions around supply. It’s good for the customer because they know where the supply is coming from and they get a good sense of what pricing they can expect.

John Pitzer: Ben, do you have a brief follow-up?

Benjamin Reitzes: Yes. With regard to CapEx, is there anything in there with regard to investing in foundry customers? Or is that still not in there? And when do you think we’ll hear more about that in the CapEx figure?

David Zinsner: I’d say let me unpack CapEx just for a minute. So what we’re now calling it is flat year-over-year. The initial thinking was that it was going to be down. I think we kind of moved it last quarter to flat to down. And now I think we’re looking at flat. And that is really a function of the current demand environment we’re seeing. One thing to keep in mind, in the last few years, a lot of our CapEx spending was space. And I think we’re actually in a pretty good position in space. We wanted to have white space available to move into when needed. And I think Lip-Bu and I both feel like we’re in a good place. So we actually will be bringing the space spend down pretty materially, even though the total is flat. And so what that means is the tool spend is actually increasing pretty significantly.

In fact, tool spending will be up year-over-year 25% or so. And so that’s, I think, a function of the fact that we just see a lot of demand, and we want to make sure we’re catching up on the supply front. And then as we get into next year, we’ll have a better sense, I think, of what CapEx looks like for next year. As it relates to external customers on the foundry side, our expectation and which we’ve been pretty consistent on this through almost, I think, a year is that we thought that customer signals would be more concrete in the back half of this year and into early next year. And so as we kind of pull that information together, combined with our own requirements, which are growing over time here, that will give us a good sense of what supply we need over the next few years, and we’ll be putting the spend in place.

Lastly, maybe just to tack on, I think our relationship with the equipment vendors is quite strong. And so I think we have a pretty good ability to flex as needed. Naga and Lip-Bu are in regular engagement with all of the CEOs of the equipment suppliers. And so I think we’ll be able to manage and course correct as necessary as we get a better sense of the supply dynamics for us, both internal and external and move our capacity accordingly.

Operator: And our next question comes from the line of Ross Seymore from Deutsche Bank.

Ross Seymore: A couple of questions. First on the CPU side of things, the server CPU side. Can you talk about how Intel is positioned competitively? Is the strength that you’re seeing more that the market demand is just that high? Or do you believe that your product line actually has some competitive differentiations versus either other x86 competitors or Arm offerings?

Lip-Bu Tan: Yes, Ross, I think good question. So first of all, I think the feedback from the customer, CPU is very important when you move from training to inference. Inference side, I think in terms of orchestration, control plane and also managing all the different agent with data, CPU is much more efficient. So I think the ratio of CPU to GPU used to be 1 and 8, and now it’s 1:4 and I think towards parity or even better. So I think the demand is very strong. And then secondly, I think, address your issue question. I think clearly, we are kind of continue to refine our road map in terms of — at the end of the day, it is the best product win. We have a lot of changes in terms of the CPU architecture change to focus on optimize for the different workload.

And then the other part is, I think we have a very big advantage we’re not just have the CPU, we have advanced packaging and foundry, we can really effectively driving some of the changes more quickly to serve the customer in terms of their different workloads. So I think overall, I think it’s an exciting time that we call it the XPU. Besides CPU, we’re also quietly building up the GPU with a new hire. And also we are moving into the accelerations and so that we can serve the customer from the edge and then to the physical AI and then really drive some of the new initiatives to drive the competitiveness.

David Zinsner: Ross, maybe one other thing to add is that just it’s obviously early in the Granite Rapids life cycle here. But so far, the early traction has been quite good. So at least that’s a positive step for the data center CPU business.

John Pitzer: Ross, do you have a follow-up question?

Ross Seymore: Yes, I do. Lip-Bu, it’s following up on something you said in your preamble where you said a year ago, Intel was trying to survive and now it’s all trying to scale the supply, and that’s a very positive change year-over-year. How does the business model and the spending behavior strategically change in that? Dave talked about increasing CapEx at a relatively small amount, maybe $17 billion up to $18 billion this year. But if you’re scaling supply, supply is under demand across the board, is that something that you can handle with just improving yields? Or does structurally CapEx need to go up and maybe call into question that you’re not going to spend on 14A until you actually get customers thesis that you’ve said in the past?

Lip-Bu Tan: Yes, good question. So I think in terms of spending, like Dave mentioned earlier, we are — over the last year, we drive a lot of efficiency, driving a lot of layer of management team. And now we are really focused on — I spent a lot of time meeting with customer and customer’s customer. So we are understanding the workload, understanding the engineering side, how do we drive improvement in terms of the architecture, the execution in terms of tape-out and the design to really drive efficiency there. And then the more important, I think, is talk to the foundry side. Now clearly, we really drive the yield improvement. We see a very nice yield improvement on the 18A and then 14A, we already have the 0.5 PDK available.

And now we are aiming for the 0.9 PDK. That’s where customers are going to decide which product, how much volume capacity we need to have. And then besides just driving the yield, we’re also driving the improvement in the cycle time so that we can really meet the customer demand and timing that they request and then really optimize for them.

Operator: And our next question comes from the line of Stacy Rasgon from Bernstein Research.

Stacy Rasgon: For the first one, I did want to dig into the segment outlook and I guess the implications for gross margin. So you said data center up, I guess, double digits. So that puts it up, I guess, 40% year-over-year, something like that. assuming PC sequential or year-over-year similar up maybe low single. I guess I’m just surprised the gross margins, I understand the inventory benefit in Q1, but it feels to me gross margins are still — are probably flat, excluding that inventory benefit, maybe even down a little bit. I guess I’m just surprised given the magnitude of the server growth, especially given the 18A yields are supposed to be improving. So are they still low enough that the 18A mix is just completely offsetting that? Or I guess any color you can give us in more detail on the gross margin drivers in the near term would be really helpful. I’m just a little confused.

David Zinsner: Yes. Okay. So I obviously don’t have your model in front of me. But the — I’d say gross margins, if I unpack 2Q, we will see some benefit from pricing. We got a little bit of pricing benefit in the first quarter, but I would expect us to see some more meaningful improvement in the second quarter. That’s certainly going to help. Mix, I don’t know, it’s going to plus or minus be in the ZIP code. Yes, data centers like is obviously going to grow faster, I think, but I’m not sure that mix is going to drive much. But 18A is going to be a pretty decent headwind to our gross margins. And if you look at Panther Lake volume increases, it’s going to be going up, I don’t know, 6 or 7x in the second quarter relative to the first quarter.

And while the gross margins are improving in Panther Lake quarter-to-quarter, it’s still below the corporate average. So when you have that big a shift in the mix, with gross margins below the corporate average, it kind of weighs down on the gross margins. But I mean, we’re roughly in the ZIP code of what Q1 was like anyway. So I’m not too concerned about it. In the back half of the year, we’ll see some of those dynamics helping us. I’d say the one cautionary concern I have on gross margin in the back half of the year is just some of the materials have gone up in terms of cost, substrates are going up, T glass. We’ve got memory going up, as you know. So those things offset some of the improvements that we’re having through the year. Longer term, I’m still hyper focused on gross margins.

And I think we have elements of the road map in the right place in terms of cost structure, certainly on client, definitely seeing improvement on the foundry side. We got more work to do on the data center front, but our goal is get the gross margins up clearly.

John Pitzer: Stacy, do you have a follow-up question?

Stacy Rasgon: I do. To push on the PC a little bit. So you said industry volumes probably down double digits. So it’s going to be even worse, I guess, in the second half given where you guys are running pretty strong in the first half. I guess, do you expect your full year client revenues to be down consistent with that industry outlook? Or is pricing helping you or hurting you or share helping you or hurting you? I think about the — how do we think about the shape of your client business in the wake of that industry forecast?

David Zinsner: Yes, good question. Well, one thing you got to kind of separate is when we talk about the industry, we’re generally talking about consumption. And when we’re — obviously, that’s different than our billings because of the inventory movements at customers. We’re not going to be as impacted as the industry TAM because we expect partly because of pricing a little bit, but also because of inventory replenishment at the customer level. So I think from a modeling perspective, if we — whatever we get to in 2Q is probably what we run the rest of the year roughly. So it’s going to be kind of flattish from Q2 onward from a revenue perspective, at least that’s how we’re modeling it.

Operator: And our next question comes from the line of Timothy Arcuri from UBS.

Timothy Arcuri: Lip-Bu, I wanted to ask just about the evolution of your foundry model. And of course, you’re pursuing typical foundry customers, but it seems like Terafab is a little bit of a different deal and maybe even like a process licensing agreement. I wouldn’t normally ask about one particular customer, but he did talk about it yesterday. So I’m wondering if you can just talk about that? Like is that going to be a typical foundry arrangement? Or are you sort of going to possibly turn the keys over like on Terafab to them?

Lip-Bu Tan: Yes. Timothy, thanks so much for the question. So I think on the 14A, I think we are making great progress in terms of yield and the cycle time. And then clearly, we are engaging with multiple customers, heavy engaging. And as usually my style is under promise, over delivering. So we have no plan to announce the customer unless a customer want to announce it, and we are supporting that. So I think back to the Terafab, clearly, Elon and I, we believe that global supply chain is not keeping pace with the rapid acceleration in the demand. And so we both share the vision that we’re going to learn a lot together, exploring the innovative way and then in the process of the manufacturing. Saying all this, clearly, it’s a very broad relationship. And then we would update you as we go. Clearly, this is a very exciting customer to work with, and we have multiple other customers we are engaging. Stay tuned. We’ll update you when we come.

John Pitzer: Tim, do you have a follow-up?

Timothy Arcuri: I do. Yes. Dave, is there a way to sort of quantify like how much demand you’re sort of missing out on? Like how much are you undershipping the market still in Q2? Is it like as much as 10%? So if you were unconstrained, you could — revenue would be like 10% higher? Is that like a reasonable number?

David Zinsner: I probably not want to put a specific number. Let’s just say it starts with a B. So it’s meaningful.

Operator: And our next question comes from the line of Vivek Arya from Bank of America Securities.

Vivek Arya: For the first one, I just wanted to understand the server CPU TAM growth this year. I think, Dave, you mentioned up double digit. I was hoping you could help kind of tighten that. Is it [ 10%, 15%, 15%, 20% ]? And then how much ASP expansion do you expect this year also, right? And what I’m really curious to understand is the new server TAM growth that you have, how does this compare versus what you thought 6 months ago, just so that we can get a better sense for what does this agentic CPU workload mean in terms of incremental unit and ASP growth?

David Zinsner: I mean I think when we’re talking about the market, we’re generally talking about units. 6 months ago, we certainly expected it. Well, I’d say probably at that point, we were thinking it would be up instead of down from a unit perspective. Now obviously, it’s going to be up meaningfully. I’ll probably leave it to the industry analysts to come up pinpoint the exact number. ASPs, we have moved, obviously, to offset some of the cost increases we’ve seen over the last couple of quarters. But it’s not the biggest driver, obviously, of our revenue outlook. We think the unit volume is going to be the biggest driver. Now that’s on an ASP per core basis. Obviously, core count is increasing significantly in the data center CPU space. And so we get the lift on a — as core count increases, we get the lift on the ASPs from that, and that obviously is meaningful.

John Pitzer: Vivek, do you have a follow-up question?

Vivek Arya: Yes. Maybe the follow-up, Lip-Bu, is for you on server CPU competition. So both when we look at competition versus x86 against AMD, do you think you are gaining share? Do you expect to gain share against them? And then broader, I think the competition against Arm because NVIDIA is planning to launch a stand-alone Vera CPU Rack. Recently, we heard Amazon talk up their Graviton option. I think Google yesterday said they would launch Axion and connect it with every TPU. So just kind of near term, how do you look at competition versus AMD and x86? And then kind of medium to longer term, how do you see the competition develop against ARM?

Lip-Bu Tan: Yes. Good question, Vivek. I think clearly, a couple of things. One, the CPU is a great demand right now. I think we all enjoy that. And then in terms of our product road map, we have been fine-tuning the last year. Typical new chip come out, it will take about 12 to 18 months. We are laser-focused on execution. Multithreading, I think we are putting in. So we’re going to have Coral Rapid, have the multithreading that we can compete effectively with AMD. And we try to accelerate that Coral Rapid ahead. And then the other part is we’re also looking at some of the architecture, CPU and GPU architecture. I’ve been recruiting some of the top talent to really refine the new product to effectively competing against. In terms of your second question about Arm, clearly, we know Arm a lot, a lot of respect for them.

Rene is a good friend of mine. They have a licensing model. They have been very effective. And of course, they have continued to raise the royalty fee. And then now they also have the silicon team and they’re building the silicon to compete and then provide the reference. And clearly, some of the Amazon, Google, they are using that. That’s not news. I sold the Annapurna lab back to Amazon. So very familiar with that. Good news is, I think, clearly, we have this OEM customer working with us. And then we also have a long-term relationship with some of these important customers. So the road map from Granite Rapid to Diamond Rapid and then now to Coral Rapid is coming up strong. We very like our portfolio. And then on the server side, we also look at beside the 86, and we also have SambaNova partnership, so that we do the data flow architecture to really driving that whole together, and we already have some success on that.

And then the other part, we also recruit some of the top talent. [indiscernible] used to be running the ARM data center server chips, so he knows very well. And then Srini used to be working with me at Cadence. We optimize for all the ARM products with the customer. So he knows how to optimize all the requirements in terms of tweaking the performance to meet some of the requirements. So I think all in all, I think we have the team, we have the technology road map. I think we’re going to be, over time, going to be a very effective competitors to them.

David Zinsner: And keep in mind, Vivek, that beyond the product side, we have another bite at the apple or maybe multiple bites at the apple on the foundry side. We can provide customers with advanced packaging. We can provide customers with wafers. So we have a pretty strong breadth of offerings to customers to help support their CPU needs or AI needs in the marketplace.

Operator: Our next question comes from the line of C.J. Muse from Cantor Fitzgerald.

Christopher Muse: I guess I was hoping you could walk through how you’re planning to drive increased output through the second half of the year. How much of it is yields? How much of it is cycle times? How much incremental wafer fab equipment as well as outsourcing to TSMC. Would love to kind of get a feel for that, please.

David Zinsner: Yes. Okay. So first and foremost, we are increasing wafer starts in all 3 of our nodes, Intel 10, 7, Intel 3 and 18A more meaningfully the EUV nodes, of course, but even Intel 10, 7 will be increasing wafer starts this year. So that’s a key component of our ability to meet demand. That said, Lip-Bu has pushed the team really hard to provide more supply the old-fashioned way with better yields and better throughput. And I think that’s largely how we got it in the first quarter. So we can expect him to do that through the year, and I think that will be a meaningful contributor to our output. Of course, we use outside foundries as well, and we flex them as needed as well. We have got — Lip-Bu has got great relationships with the external foundries. And so he’s able to leverage that to help us in that area as well. So it will be certainly a component of it as we move through the year.

Lip-Bu Tan: Just to add on to that, I mean, TSMC is a very important partner for us. Morris and C.C. have decades of friendship. And then clearly, with our product group will decide which is the best foundry. So I think we’re going to use a multi-foundry approach, our own internal and also external. And so we really have good relationship, continue to build from both sides to benefit the customer.

John Pitzer: C.J., do you have a follow-up?

Christopher Muse: I do. I guess I would love to kind of level set where we are on the advanced packaging front. You talked about rising backlog. Anything you can share in terms of what that number looks like, revenue targets this year or next, the number of customers? Any help there would be great.

David Zinsner: Yes. I mean I think I’ve actually said this in the past. We have been really pleased with our traction there. And I think maybe naively, I had thought that these opportunities would come in the hundreds of millions of dollars level. But so far, what we’re seeing is that their demand is more in the billions of dollars per year kind of level. So this is going to be a big part of the foundry revenue as we get through this decade. And the good news is advanced packaging really is a differentiated offering for us, and it does a lot for the customer in terms of allowing them to use larger reticles. So there’s real value to the customer. And as a result, we get very attractive pricing relative to some of the other areas of the foundry business. So we’d expect this to be at least foundry — corporate average or foundry average gross margins over time.

Operator: Our next question comes from the line of Srini Pajjuri from RBC.

Srinivas Pajjuri: My first question on the 18A yields, Dave. You obviously said the yields are better than you expected and looks like they’re improving further. But at the same time, it is still a headwind to your gross margin. So if you could give us some context as to how much better they are. And also, as you go through the year, when do you see — I guess, when do you expect that being a headwind to your gross margin? When do you expect that, I guess, at least neutral to gross margins?

David Zinsner: Yes. I think 18A yields are somewhat a closely guarded proprietary piece of information for us. So we don’t typically — I would just say Lip-Bu had a target as we came into the year for the end of this year, and we’re probably going to hit that probably the middle of this year. So he’s done a very good job working the team to drive a better response there. And of course, that carries on to next year’s expectations around yields. I think as we get towards the end of the year on a kind of a full pick basis, this is combining the product margins and the foundry margins, we’ll be in a relatively decent place in terms of the gross margins at Panther Lake. We’ve got more work to do at the foundry level to drive the gross margins to where we want to be.

That’s going to be multiple, multiple quarters before we get those to be foundry average gross margins. But it’s tracking better than we expected, which is good. I think we have focused a lot on yields. Lip-Bu’s brought in a lot of talent into that space to really focus on it. And we’ve brought in external partners that are particularly good at including metrology that’s helped us execute better there, and we’re starting to see the benefits of that this quarter.

John Pitzer: Srini, do you have a follow-up question?

Srinivas Pajjuri: Yes, John. And then on the ASIC business, Dave, I think you said it doubled year-on-year. If you could maybe help us with what is included in that? I believe it’s IPUs, but I just want to get a better sense how big it is. And as you look out to the next few years, what’s the strategy for that business to grow? I mean, are you going after the classic ASICs in terms of XPUs? Or is this more some of the adjacencies like what you’re doing with IPUs. So any color would be, I think, helpful.

Lip-Bu Tan: Thank you, Srini. I think it’s a good question. So I think this ASIC business, sometimes I call it the purpose-built silicon optimized for specific workload that customer want. And that’s very important. I spend most of my time besides and our focus on engineering improvement is spending a lot of time with customers. So it’s very important to understand that the workload and then how do we drive the workload and then to purposely tailor for their requirement. And then clearly, it’s very important to really have the right strong IP portfolio to be able to do that. And also, we are in a very unique position. We have the CPU, XPU and then we also have the advanced packaging and also advanced processing, so that we can really optimize for the customer.

That, I think, is a very exciting opportunity. It’s a fast-growing area. And then clearly, we have something unique to offer. And we are already engaging with a couple of customers. The feedback from the customer is very excited, very positive to work with us. And I think stay tuned on that one, the next 5 years is going to be a fast growing for us.

David Zinsner: I think one thing that people have been surprised about is how big the business is already. It’s at a run rate that’s north of $1 billion already. And I think Lip-Bu and his partner, Srini, have barely gotten started in terms of what we can make from that. So it’s got a really strong base in which to grow meaningfully from.

Operator: Our next question comes from the line of Joshua Buchalter from TD Cowen.

Joshua Buchalter: Congrats on the very strong numbers. Actually, I wanted to follow up on Vivek’s question from earlier. You gave some metrics on the near-term CPU TAM. But I think investors are directionally really struggling with how to model the CPU demand for agentic workloads. Any help you can provide us longer term about how we should think about growth, whether in terms of units, cores, gigawatts, CapEx? Just anything you can give us? I mean, but bluntly, is the $100 billion number that ARM gave reasonable in your view?

David Zinsner: Yes. Maybe I’ll start and Lip-Bu can pile on here. I think one statistic that we look at is the ratio of CPUs to GPUs. And if you look at training solutions, they’re generally running in the kind of 7 to 8 GPUs to 1 CPU. As we look into inference, it’s probably getting into like the 3 to 4:1 kind of level. And as you get into agentic and multi-agent, it’s one potentially even flip in the other direction a little bit. So that’s one way to think about it. As you think about the growth rate now going forward, it’s going to become a significant part of the AI TAM. Keep in mind also, I would just say, data center, obviously, is where we’re focusing a lot of our conversation on. But there is going to be AI and particularly CPU opportunities in a lot of different areas.

The client space is, of course, as I already said, migrating towards AI PC in a more meaningful way. There’s edge computing, there’s physical AI specifically. All of those, I think, can benefit a lot from CPUs because of the nature of the power consumption. relative to the performance. And so those areas could have even more explosive growth than the data center space.

Lip-Bu Tan: Yes. Just to add on to it, I think we have to think about the full stack. And so you addressed some of this agentic AI and later on the physical AI, how the CPU optimize working together with the foundation models, how to optimize that and using the data to really drive the massive opportunity in the agentic AI. I think the inference is going to be a much bigger market and the physical AI is another big market. So I think that’s an opportunity for us. And it’s hard to quantify, but I think as you go, we will update you on that.

John Pitzer: Josh, do you have a quick follow-up?

Joshua Buchalter: Yes, sure. And then as we think about your capacity tightness, the leading edge foundries are also quite tight as well. Has this driven any near- to medium-term share gains? And longer term, how important is your captive capacity to winning business with customers on a multiyear basis?

David Zinsner: I mean, obviously, all the supply right now or the lion’s share of the supply is all internal, but we do expect, obviously, to win customers over time. I think I don’t know if there is anything else you want to add on?

John Pitzer: Jonathan, I think we have time for one more question, please.

Operator: Then our final question for today comes from the line of Aaron Rakers from Wells Fargo.

Aaron Rakers: I want to go down the path of the supply side as well. I think in prior quarters, the suggestion was that you were reallocating maybe some supply of wafers from client to data center. And I think the notion was that maybe 1Q would kind of be the peak degree of constraints. As you rolled up your guidance for this current quarter, I’m curious of how you would frame the level of constraints that you see in the guidance this quarter? And maybe does the back half improve that dramatically?

David Zinsner: Supply will go up in the second quarter. It’s going to go up every quarter now going forward. I would say we certainly were in our lowest point in terms of supply probably in the first quarter relative to the rest of the year. But what we were able to do in the first quarter was go through finished goods inventory and find opportunities to sell product we didn’t think we would be able to move. It was either despect product or it was legacy product we had shelved and then worked with customers and found opportunities for them to leverage that technology in their system. So that helped out a lot. I’m not sure we have that benefit in the second quarter. So obviously, we will scrutinize our finished goods inventory to see if we can find some opportunities. But for the most part, what we’re relying on from a volume growth perspective, Q2 versus Q1 is going to be increasing supply.

John Pitzer: Aaron, do you have a quick follow-up?

Aaron Rakers: I do. I guess as a follow-up, I know you talked about kind of the path of the server CPU and the competitive dynamics there. And I can appreciate that you’re not giving kind of descriptive timing of kind of road maps or future generation products. But how do we think about like the progression of your CPU on the server side, Xeon to Diamond Rapids, Coral Rapids and really kind of closing that gap with simultaneous multithread? Just any kind of color on the cadence of the road map would be helpful.

Lip-Bu Tan: Thank you. I think clearly, the demand is strong, and then we fine-tuned the road map. I think clearly, we highlight the Diamond Rapid after the Granite Rapid we have. And then Coral Rapid is the next one that we’re multithreading. And then so I think that is our road map. We’re laser-focused on execution. And then meanwhile, we’re going to use our ASIC business to really drive some of the customer requirement. We can build some purpose-built silicon in the short term. And then that is a huge opportunity for us. We have all the unique assets that we can really provide. So I think those are kind of road map and execution. I think year 2026, I call it the year of execution. So we are improving the execution back to Dave mentioned about the yield, productivity, the cycle time, make sure that supply chain, we can catch up with the demand.

With that, I would like to thank everyone again for joining us today. It has been an eventful first year for me at Intel. It is gratifying to see our progress even as we know we have a lot more to do. I’m looking forward to see many of you at the JPMorgan conference in May and at the COMPUTEX in June.

Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.