WEBVTT - Instant Reaction: Intel Gives Strong AI-Fueled Outlook

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. This is a breaking

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<v Speaker 1>news update from Bloomberg instant reaction and analysis from our

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<v Speaker 1>three thousand journalists and analysts around the world. I'm just

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<v Speaker 1>looking at shares of Intel and we are seeing movement there. Okay,

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<v Speaker 1>love up close to fifteen percent after hours.

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<v Speaker 2>Let's go to it. Kuntown Sabani is with us. He's

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<v Speaker 2>Bloomberg Intelligence senior semiconductor analyst out there in the Bloomberg

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<v Speaker 2>San Francisco Bureaukon John, Good to have you here. Gosh,

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<v Speaker 2>investors like it. Tell us what you think is? Are

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<v Speaker 2>they right in terms of their response?

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<v Speaker 3>They are? We like it too, and thankfully. I mean,

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<v Speaker 3>we had sort of previewed in our Intel preview that

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<v Speaker 3>we're expecting double digit strongbeat and rais and it did

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<v Speaker 3>come through, so that's great. I mean, look, we are

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<v Speaker 3>seeing resurgence in terms of CPU specifically servers CPU demand

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<v Speaker 3>due to agentic AI and infants workloads, especially in the

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<v Speaker 3>AI headnotes, which are the CPUs that sit alongside the GPUs.

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<v Speaker 3>We're also we were surprised to actually see strong PC

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<v Speaker 3>or client segment beats as well. There were some concerns

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<v Speaker 3>around the growing memory constraint and memory pricing could impact

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<v Speaker 3>the PC and market. So we're going to listen closely

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<v Speaker 3>about what they have to say about second half outlook there,

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<v Speaker 3>but overall really good results. The best thing stands out

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<v Speaker 3>is the gross margin beat. Remember Intel is supply constraint,

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<v Speaker 3>so this higher demand is letting them fill of factories

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<v Speaker 3>more and really helping with the gross margins there.

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<v Speaker 1>Yeah, let's go to some of these Intel shares are

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<v Speaker 1>up higher right now. It was up as much as

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<v Speaker 1>seventeen percent earlier, about fifteen percent. The company says it's

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<v Speaker 1>not commenting with deals on deals with external customers, it'll

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<v Speaker 1>increase spending on new machinery. If we take a step

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<v Speaker 1>back and just think about where this company is in

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<v Speaker 1>a transition that has been many many many years in

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<v Speaker 1>the making, where would you say they are in this transit.

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<v Speaker 3>They've been doing everything correct since Libutan took the helm.

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<v Speaker 3>First thing that it is normalized CAPEC spend and not

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<v Speaker 3>spend beyond where they didn't have orders. They have normalized

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<v Speaker 3>OPIC spend. Finally, now the N markets are also becoming

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<v Speaker 3>a tailwind for them. So it's all about execution now.

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<v Speaker 3>I don't look the external customers. No matter how much

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<v Speaker 3>nice and shiny the headlines are, that still will need work,

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<v Speaker 3>that still will take at least a year or two

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<v Speaker 3>to get baked into the estimate. So they just have

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<v Speaker 3>to keep executing well. Hopefully then market tailwinds continue to

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<v Speaker 3>stay with them, gives them good cash flow from operations.

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<v Speaker 2>Few other headlines eighteen A and fourteen A progress ahead

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<v Speaker 2>of expectations. They see PC market declining in the second half.

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<v Speaker 2>AI business group double digits here over year. Double digit

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<v Speaker 2>year over year growth for DCAI expected to continue. What

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<v Speaker 2>about the inference chips that everybody or the inferencing that's

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<v Speaker 2>going on. Where are they I mean, is that where

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<v Speaker 2>they need to be focusing? Are they making progress in

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<v Speaker 2>that area?

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<v Speaker 3>Should they be? I mean? So, like I said, the

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<v Speaker 3>inferences is definitely helping the demand at the CPU service chips,

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<v Speaker 3>which they have. They still have a lions share in right,

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<v Speaker 3>that's their bread and butter. When it comes to other

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<v Speaker 3>sort of accelerator chips in terms of inference, unfortunately they

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<v Speaker 3>don't have much traction there, but that is something that

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<v Speaker 3>they have been making deals. One example is the deal

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<v Speaker 3>with Sambonoa, and they've also announced they might be you know,

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<v Speaker 3>coming out with their own new accelerator chips who attack

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<v Speaker 3>that inference challenge. So that is something more of an

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<v Speaker 3>optionality upside. But definitely the strength and CPU from inference

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<v Speaker 3>is still helping them right now.

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<v Speaker 1>Just for fun, Carol, and because you can slice and

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<v Speaker 1>dice numbers anyway you want, you can. I went back

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<v Speaker 1>and looked at Intel's returns going back to the beginning

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<v Speaker 1>of twenty twenty five, so the beginning of last year, Yeah,

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<v Speaker 1>of two hundred and thirty three percent since and beating

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<v Speaker 1>in VideA up forty nine percent, so out performing in

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<v Speaker 1>video from the beginning of last year. Just just you know, look,

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<v Speaker 1>if you go back a few years, it would video

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<v Speaker 1>would destroy it.

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<v Speaker 2>I love that you went there, Coon John. If the

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<v Speaker 2>government hadn't taken their position in Intel, would it be

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<v Speaker 2>up so much? Would we be so enthusiastic about Intel.

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<v Speaker 2>Would they be having this kind of report without it?

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<v Speaker 3>I can't comment if what the stock would have done,

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<v Speaker 3>I can comment this. Look, the government taking the stake

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<v Speaker 3>has not impacted anything fundamental so far. Right, It's not

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<v Speaker 3>like the stake is driving revenues for them. It's not.

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<v Speaker 3>It did help in terms of liquidity, but the capex

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<v Speaker 3>spending was already normalized, so it's like if they didn't

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<v Speaker 3>get the money from government, I don't know what could

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<v Speaker 3>have changed so far in the business, whether it's on

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<v Speaker 3>the revenue line side, item or capex side of things.

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<v Speaker 3>So it did definitely have this help with sentiment and

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<v Speaker 3>morale boosting for sure.

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<v Speaker 2>Anything missing question on the call that you're going to

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<v Speaker 2>be looking at for real quickly.

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<v Speaker 3>I think the headline about again what the pc how

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<v Speaker 3>much of a weakness in PCs we expect because it

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<v Speaker 3>still is the biggest portion of their revenue, so they

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<v Speaker 3>do get definitely impacted by that weakness if it continues

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<v Speaker 3>to grow stronger.

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<v Speaker 2>All right, so appreciate it. Coon John, thanks so much,

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<v Speaker 2>Ku John Sabani. He's our senior semiconductor analyst at Bloomberg

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<v Speaker 2>Intelligence out there in our San Francisco bureau. Our next

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<v Speaker 2>guest usually out there in our San Francisco bureau.

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<v Speaker 1>He's back here from the Bloomberg Interactive Brokers studio. We're

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<v Speaker 1>talking about Ed Ludlow shares an Intel right now up

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<v Speaker 1>by more than fourteen percent, shares just surging. The company

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<v Speaker 1>giving the strong sales forecast for the current period, there's

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<v Speaker 1>the signal is that the company is beginning to benefit

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<v Speaker 1>from the build out of AI infrastructure. Ed Loudlow is

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<v Speaker 1>with us from Bloomberg Tech. Ed, you've looked at this

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<v Speaker 1>company for a long period of time, especially during this

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<v Speaker 1>turnaround over the last few months.

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<v Speaker 4>How's it doing well?

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<v Speaker 3>So?

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<v Speaker 4>Ian and I just had a good, pretty long phone

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<v Speaker 4>call with Litvu, Tan and Dave's into the CFO, and

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<v Speaker 4>there's that. We have a lot of answers. Actually, you know,

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<v Speaker 4>when there were so many headlines that hit, it's hard

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<v Speaker 4>to see what the real driver was. I don't obviously

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<v Speaker 4>the revenue guide really important, you know. For the current period.

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<v Speaker 4>The story is really simple. CPU demand, the Xeon server

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<v Speaker 4>processor is really really big, and so they are now

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<v Speaker 4>in what they would describe as the enviable position where

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<v Speaker 4>they can divert supply to feed that market. Kun Jam

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<v Speaker 4>was just talking about the PC market or the client market.

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<v Speaker 4>We can talk a little bit about that. There are

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<v Speaker 4>some unique factors there, but basically demand is strong, it

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<v Speaker 4>is growing, and they are not yet able to meet it,

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<v Speaker 4>and that is a good position for Intel to be in.

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<v Speaker 4>One thing, I would say, by.

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<v Speaker 2>The way, what do you want to be able to

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<v Speaker 2>meet it, right, you want.

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<v Speaker 1>To be able.

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<v Speaker 4>And so this was the story quarter to quarter. What

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<v Speaker 4>is the lipbutan effect? What does him becoming CEO and

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<v Speaker 4>changing how the company works actually mean. It means not

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<v Speaker 4>leaving any money on the table, you know, finding the

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<v Speaker 4>CPUs that are coming from finding the CPUs to meet

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<v Speaker 4>the demand that's out there. And they're doing their absolute

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<v Speaker 4>best for sure. Now, margins were really good in the

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<v Speaker 4>quarter gone first call, not against history. You know, Intel's

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<v Speaker 4>a company just have margins at sixty percent. Now we're

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<v Speaker 4>at thirty seven point five or maybe slightly beyond that

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<v Speaker 4>on an adjusted basis. But I think what was so

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<v Speaker 4>interesting is this is financial jargon. But they were honest

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<v Speaker 4>that that's just because revenues were higher. You know, they're

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<v Speaker 4>not necessarily finding the secret source yet nonprofit.

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<v Speaker 2>So because the demand is strong, the supply isn't there,

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<v Speaker 2>they can charge more.

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<v Speaker 4>Yeah, And so kun Jam poses a question, why I'd

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<v Speaker 4>like to hear more about the PC market. This is

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<v Speaker 4>what Intel sees in the PC market. In the first

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<v Speaker 4>part of this year. The PC makers, the Client group,

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<v Speaker 4>were able to build up supply of memory chips. Remember,

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<v Speaker 4>the backstory is that memory is being claimed by the

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<v Speaker 4>data centers. You know, it's very similar the type of

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<v Speaker 4>memory chip that goes into a PC that goes into

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<v Speaker 4>a server. The problem is is Intel sees it that

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<v Speaker 4>in the second half of this year they're going to

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<v Speaker 4>run out of that inventory of memory and they're going

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<v Speaker 4>to have to be buying in the market spot prices

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<v Speaker 4>and at as far as Intel sees it means half

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<v Speaker 4>and half the second half of this year, the PC

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<v Speaker 4>market will decline. That's the explanation. It's the behavior of

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<v Speaker 4>the client group itself, the PC makers and what they

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<v Speaker 4>have or have not been able to do in building

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<v Speaker 4>up inventories and supply of memory chips.

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<v Speaker 1>Interesting. And I want to go back to this question

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<v Speaker 1>that Carol asked Koon John about the US investment.

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<v Speaker 2>Yeah, it is.

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<v Speaker 1>It's just it is an interesting time for economic statecraft

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<v Speaker 1>in the US. I mean, we are the third largest

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<v Speaker 1>shareholder right before in video. Actually did the investment is

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<v Speaker 1>I mean, is it even a possible question to answer?

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<v Speaker 1>Did the US investment fundamentally change this company?

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<v Speaker 2>Is a big support for the CEO talked about morale.

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<v Speaker 4>I mean, remember that it was not the only if

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<v Speaker 4>you look at it from this perspective. It was not

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<v Speaker 4>the only balance sheet strengthening exercise that that Boo's done.

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<v Speaker 4>He looked at you right in Vidia, He's looked at

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<v Speaker 4>the private markets or looked at working with private equity

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<v Speaker 4>on projects. The goal was to strengthen the balance sheet

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<v Speaker 4>to allow them to be nimble do the things that

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<v Speaker 4>they wanted to do. As for US manufacturing, that's a

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<v Speaker 4>different story, right. They don't name their foundry customers. There's

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<v Speaker 4>a lot of question marks over Foundry. But what's so

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<v Speaker 4>interesting is I asked Lip Bhutan about Elon Musk and

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<v Speaker 4>I was like, last night on his own earnings call,

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<v Speaker 4>Elon Musk name checked you and said we will use

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<v Speaker 4>Intel's fourteen A process, which on paper would be the

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<v Speaker 4>first time anyone said that they'll use Intel's fourteen A process.

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<v Speaker 4>And he declined to say anything about that. He was like,

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<v Speaker 4>it's up to the customers to decide if they want

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<v Speaker 4>to talk about that. We don't comment. Put that to

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<v Speaker 4>one side. But what he said was, and what Dave's

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<v Speaker 4>insterer said is they think they'll get more out of

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<v Speaker 4>working with Elon Musk, then Elon Musk and his TERRORFOWD

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<v Speaker 4>project will get out of Intel. In other words, Elon's

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<v Speaker 4>really good at stuff process, eliminating barriers and inefficiency, and

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<v Speaker 4>that was their answer. We think we're going to really

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<v Speaker 4>benefit from being in this partnership with Elon Musk. He's

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<v Speaker 4>really good at that.