Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is a breaking
Speaker 1: news update from Bloomberg instant reaction and analysis from our
Speaker 1: three thousand journalists and analysts around the world. I'm just
Speaker 1: looking at shares of Intel and we are seeing movement there. Okay,
Speaker 1: love up close to fifteen percent after hours.
Speaker 2: Let's go to it. Kuntown Sabani is with us. He's
Speaker 2: Bloomberg Intelligence senior semiconductor analyst out there in the Bloomberg
Speaker 2: San Francisco Bureaukon John, Good to have you here. Gosh,
Speaker 2: investors like it. Tell us what you think is? Are
Speaker 2: they right in terms of their response?
Speaker 3: They are? We like it too, and thankfully. I mean,
Speaker 3: we had sort of previewed in our Intel preview that
Speaker 3: we're expecting double digit strongbeat and rais and it did
Speaker 3: come through, so that's great. I mean, look, we are
Speaker 3: seeing resurgence in terms of CPU specifically servers CPU demand
Speaker 3: due to agentic AI and infants workloads, especially in the
Speaker 3: AI headnotes, which are the CPUs that sit alongside the GPUs.
Speaker 3: We're also we were surprised to actually see strong PC
Speaker 3: or client segment beats as well. There were some concerns
Speaker 3: around the growing memory constraint and memory pricing could impact
Speaker 3: the PC and market. So we're going to listen closely
Speaker 3: about what they have to say about second half outlook there,
Speaker 3: but overall really good results. The best thing stands out
Speaker 3: is the gross margin beat. Remember Intel is supply constraint,
Speaker 3: so this higher demand is letting them fill of factories
Speaker 3: more and really helping with the gross margins there.
Speaker 1: Yeah, let's go to some of these Intel shares are
Speaker 1: up higher right now. It was up as much as
Speaker 1: seventeen percent earlier, about fifteen percent. The company says it's
Speaker 1: not commenting with deals on deals with external customers, it'll
Speaker 1: increase spending on new machinery. If we take a step
Speaker 1: back and just think about where this company is in
Speaker 1: a transition that has been many many many years in
Speaker 1: the making, where would you say they are in this transit.
Speaker 3: They've been doing everything correct since Libutan took the helm.
Speaker 3: First thing that it is normalized CAPEC spend and not
Speaker 3: spend beyond where they didn't have orders. They have normalized
Speaker 3: OPIC spend. Finally, now the N markets are also becoming
Speaker 3: a tailwind for them. So it's all about execution now.
Speaker 3: I don't look the external customers. No matter how much
Speaker 3: nice and shiny the headlines are, that still will need work,
Speaker 3: that still will take at least a year or two
Speaker 3: to get baked into the estimate. So they just have
Speaker 3: to keep executing well. Hopefully then market tailwinds continue to
Speaker 3: stay with them, gives them good cash flow from operations.
Speaker 2: Few other headlines eighteen A and fourteen A progress ahead
Speaker 2: of expectations. They see PC market declining in the second half.
Speaker 2: AI business group double digits here over year. Double digit
Speaker 2: year over year growth for DCAI expected to continue. What
Speaker 2: about the inference chips that everybody or the inferencing that's
Speaker 2: going on. Where are they I mean, is that where
Speaker 2: they need to be focusing? Are they making progress in
Speaker 2: that area?
Speaker 3: Should they be? I mean? So, like I said, the
Speaker 3: inferences is definitely helping the demand at the CPU service chips,
Speaker 3: which they have. They still have a lions share in right,
Speaker 3: that's their bread and butter. When it comes to other
Speaker 3: sort of accelerator chips in terms of inference, unfortunately they
Speaker 3: don't have much traction there, but that is something that
Speaker 3: they have been making deals. One example is the deal
Speaker 3: with Sambonoa, and they've also announced they might be you know,
Speaker 3: coming out with their own new accelerator chips who attack
Speaker 3: that inference challenge. So that is something more of an
Speaker 3: optionality upside. But definitely the strength and CPU from inference
Speaker 3: is still helping them right now.
Speaker 1: Just for fun, Carol, and because you can slice and
Speaker 1: dice numbers anyway you want, you can. I went back
Speaker 1: and looked at Intel's returns going back to the beginning
Speaker 1: of twenty twenty five, so the beginning of last year, Yeah,
Speaker 1: of two hundred and thirty three percent since and beating
Speaker 1: in VideA up forty nine percent, so out performing in
Speaker 1: video from the beginning of last year. Just just you know, look,
Speaker 1: if you go back a few years, it would video
Speaker 1: would destroy it.
Speaker 2: I love that you went there, Coon John. If the
Speaker 2: government hadn't taken their position in Intel, would it be
Speaker 2: up so much? Would we be so enthusiastic about Intel.
Speaker 2: Would they be having this kind of report without it?
Speaker 3: I can't comment if what the stock would have done,
Speaker 3: I can comment this. Look, the government taking the stake
Speaker 3: has not impacted anything fundamental so far. Right, It's not
Speaker 3: like the stake is driving revenues for them. It's not.
Speaker 3: It did help in terms of liquidity, but the capex
Speaker 3: spending was already normalized, so it's like if they didn't
Speaker 3: get the money from government, I don't know what could
Speaker 3: have changed so far in the business, whether it's on
Speaker 3: the revenue line side, item or capex side of things.
Speaker 3: So it did definitely have this help with sentiment and
Speaker 3: morale boosting for sure.
Speaker 2: Anything missing question on the call that you're going to
Speaker 2: be looking at for real quickly.
Speaker 3: I think the headline about again what the pc how
Speaker 3: much of a weakness in PCs we expect because it
Speaker 3: still is the biggest portion of their revenue, so they
Speaker 3: do get definitely impacted by that weakness if it continues
Speaker 3: to grow stronger.
Speaker 2: All right, so appreciate it. Coon John, thanks so much,
Speaker 2: Ku John Sabani. He's our senior semiconductor analyst at Bloomberg
Speaker 2: Intelligence out there in our San Francisco bureau. Our next
Speaker 2: guest usually out there in our San Francisco bureau.
Speaker 1: He's back here from the Bloomberg Interactive Brokers studio. We're
Speaker 1: talking about Ed Ludlow shares an Intel right now up
Speaker 1: by more than fourteen percent, shares just surging. The company
Speaker 1: giving the strong sales forecast for the current period, there's
Speaker 1: the signal is that the company is beginning to benefit
Speaker 1: from the build out of AI infrastructure. Ed Loudlow is
Speaker 1: with us from Bloomberg Tech. Ed, you've looked at this
Speaker 1: company for a long period of time, especially during this
Speaker 1: turnaround over the last few months.
Speaker 4: How's it doing well?
Speaker 3: So?
Speaker 4: Ian and I just had a good, pretty long phone
Speaker 4: call with Litvu, Tan and Dave's into the CFO, and
Speaker 4: there's that. We have a lot of answers. Actually, you know,
Speaker 4: when there were so many headlines that hit, it's hard
Speaker 4: to see what the real driver was. I don't obviously
Speaker 4: the revenue guide really important, you know. For the current period.
Speaker 4: The story is really simple. CPU demand, the Xeon server
Speaker 4: processor is really really big, and so they are now
Speaker 4: in what they would describe as the enviable position where
Speaker 4: they can divert supply to feed that market. Kun Jam
Speaker 4: was just talking about the PC market or the client market.
Speaker 4: We can talk a little bit about that. There are
Speaker 4: some unique factors there, but basically demand is strong, it
Speaker 4: is growing, and they are not yet able to meet it,
Speaker 4: and that is a good position for Intel to be in.
Speaker 4: One thing, I would say, by.
Speaker 2: The way, what do you want to be able to
Speaker 2: meet it, right, you want.
Speaker 1: To be able.
Speaker 4: And so this was the story quarter to quarter. What
Speaker 4: is the lipbutan effect? What does him becoming CEO and
Speaker 4: changing how the company works actually mean. It means not
Speaker 4: leaving any money on the table, you know, finding the
Speaker 4: CPUs that are coming from finding the CPUs to meet
Speaker 4: the demand that's out there. And they're doing their absolute
Speaker 4: best for sure. Now, margins were really good in the
Speaker 4: quarter gone first call, not against history. You know, Intel's
Speaker 4: a company just have margins at sixty percent. Now we're
Speaker 4: at thirty seven point five or maybe slightly beyond that
Speaker 4: on an adjusted basis. But I think what was so
Speaker 4: interesting is this is financial jargon. But they were honest
Speaker 4: that that's just because revenues were higher. You know, they're
Speaker 4: not necessarily finding the secret source yet nonprofit.
Speaker 2: So because the demand is strong, the supply isn't there,
Speaker 2: they can charge more.
Speaker 4: Yeah, And so kun Jam poses a question, why I'd
Speaker 4: like to hear more about the PC market. This is
Speaker 4: what Intel sees in the PC market. In the first
Speaker 4: part of this year. The PC makers, the Client group,
Speaker 4: were able to build up supply of memory chips. Remember,
Speaker 4: the backstory is that memory is being claimed by the
Speaker 4: data centers. You know, it's very similar the type of
Speaker 4: memory chip that goes into a PC that goes into
Speaker 4: a server. The problem is is Intel sees it that
Speaker 4: in the second half of this year they're going to
Speaker 4: run out of that inventory of memory and they're going
Speaker 4: to have to be buying in the market spot prices
Speaker 4: and at as far as Intel sees it means half
Speaker 4: and half the second half of this year, the PC
Speaker 4: market will decline. That's the explanation. It's the behavior of
Speaker 4: the client group itself, the PC makers and what they
Speaker 4: have or have not been able to do in building
Speaker 4: up inventories and supply of memory chips.
Speaker 1: Interesting. And I want to go back to this question
Speaker 1: that Carol asked Koon John about the US investment.
Speaker 2: Yeah, it is.
Speaker 1: It's just it is an interesting time for economic statecraft
Speaker 1: in the US. I mean, we are the third largest
Speaker 1: shareholder right before in video. Actually did the investment is
Speaker 1: I mean, is it even a possible question to answer?
Speaker 1: Did the US investment fundamentally change this company?
Speaker 2: Is a big support for the CEO talked about morale.
Speaker 4: I mean, remember that it was not the only if
Speaker 4: you look at it from this perspective. It was not
Speaker 4: the only balance sheet strengthening exercise that that Boo's done.
Speaker 4: He looked at you right in Vidia, He's looked at
Speaker 4: the private markets or looked at working with private equity
Speaker 4: on projects. The goal was to strengthen the balance sheet
Speaker 4: to allow them to be nimble do the things that
Speaker 4: they wanted to do. As for US manufacturing, that's a
Speaker 4: different story, right. They don't name their foundry customers. There's
Speaker 4: a lot of question marks over Foundry. But what's so
Speaker 4: interesting is I asked Lip Bhutan about Elon Musk and
Speaker 4: I was like, last night on his own earnings call,
Speaker 4: Elon Musk name checked you and said we will use
Speaker 4: Intel's fourteen A process, which on paper would be the
Speaker 4: first time anyone said that they'll use Intel's fourteen A process.
Speaker 4: And he declined to say anything about that. He was like,
Speaker 4: it's up to the customers to decide if they want
Speaker 4: to talk about that. We don't comment. Put that to
Speaker 4: one side. But what he said was, and what Dave's
Speaker 4: insterer said is they think they'll get more out of
Speaker 4: working with Elon Musk, then Elon Musk and his TERRORFOWD
Speaker 4: project will get out of Intel. In other words, Elon's
Speaker 4: really good at stuff process, eliminating barriers and inefficiency, and
Speaker 4: that was their answer. We think we're going to really
Speaker 4: benefit from being in this partnership with Elon Musk. He's
Speaker 4: really good at that.