WEBVTT - Instant Reaction: Intel Gives Encouraging Forecast After PC Market Rebounds

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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. We're watching

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<v Speaker 1>a lot of different companies, but I want to home

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<v Speaker 1>in on one, and that would be Intel shares surging

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<v Speaker 1>in the after.

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<v Speaker 2>Hours, building the momentum to the upside.

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<v Speaker 1>Yeah, seven percent to the upside of right now in

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<v Speaker 1>the after hours, little bit at the beginning trepidation I

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<v Speaker 1>think for shareholders, but it could have to do also

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<v Speaker 1>with some corrected numbers that we're coming back and forth

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<v Speaker 1>over the terminal for the results. The most recent results.

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<v Speaker 1>As you mentioned, shares what up ninety percent going into

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<v Speaker 1>the print this year.

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<v Speaker 2>Well, yeah, we know, like there was the US taking

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<v Speaker 2>that position Intel specifically an equity position, and it is

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<v Speaker 2>now the third largest investor in Intelsa. That certainly has

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<v Speaker 2>given it a jolt, if you will, this year. But again,

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<v Speaker 2>I think what's interesting is the company's CFO speaking in

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<v Speaker 2>an interview. You can check out our Ian King's right

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<v Speaker 2>through on this, but Intel saying the third quarter was

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<v Speaker 2>stronger than it thought across the board. So yeah, server

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<v Speaker 2>demand was a surprise positive. It feels like there's a

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<v Speaker 2>lot of things that feel like the changes, the moves

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<v Speaker 2>by lit Bhutan, the CEO, maybe some of it's starting

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<v Speaker 2>to pay off.

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<v Speaker 3>Well.

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<v Speaker 1>I want to see what Jake Goldberg has to say

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<v Speaker 1>about all this. He's Semiconductors and Electronics senior analyst at

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<v Speaker 1>Seaport Research Partners. He joins us from San Francisco. Jay,

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<v Speaker 1>good to have you. You cover a lot of these companies,

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<v Speaker 1>including Intel. You've got a neutral rating on Intel. Just

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<v Speaker 1>give us your first reaction to this report that shows

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<v Speaker 1>an encouraging forecast after a rebound in the PC chip market.

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<v Speaker 3>Yeah. I think it's an encouraging step forward for the company.

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<v Speaker 3>They've been through some rough times, and I think the

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<v Speaker 3>driver of this quarter's results are their new products coming

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<v Speaker 3>on stream using their eighteen eight their new manufacturing process,

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<v Speaker 3>as well as some help from TSMC so a bunch

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<v Speaker 3>of new products starting to ramp into production and volume.

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<v Speaker 3>I think that's helping a lot. And I'm most encouraged

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<v Speaker 3>by sort of the gross margin outlook for next quarter.

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<v Speaker 3>I haven't run through all my numbers, but it looks

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<v Speaker 3>like it's much better than expected, which is important, not

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<v Speaker 3>just for the financial way of that, but also it's

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<v Speaker 3>a good indicator into how their manufacturing process is tracking.

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<v Speaker 1>I don't well, sorry, go ahead, I don't want to

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<v Speaker 1>get you in trouble with compliance, but can you are

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<v Speaker 1>you going to change your outlook? You're rating on the stock.

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<v Speaker 3>So I just upgraded it about a month ago from

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<v Speaker 3>sell to neutral. And my concern here is more that

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<v Speaker 3>big picture question you all were talking about earlier. As

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<v Speaker 3>much as this quarter is good progress and we're seeing

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<v Speaker 3>sort of tactically they're moving in the right direction, the

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<v Speaker 3>looming question over the company is what are they going

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<v Speaker 3>to do with the fabs. Last quarter, CEO of Bhutan said,

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<v Speaker 3>if they don't get a customer for Intel Foundry Journal

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<v Speaker 3>customer for Foundry, they're going to stop doing advanced manufacturing.

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<v Speaker 3>And I think that's one of these tough analyst calls

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<v Speaker 3>because in the near term, if they stop doing that's

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<v Speaker 3>it removes a lot of expense numbers go way up,

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<v Speaker 3>stock goes up. It's a near term easy thing to do,

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<v Speaker 3>but long term it's probably really bad for the company,

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<v Speaker 3>and it's just hard to square that sort of long

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<v Speaker 3>term forecast multi year forecast. So I'm still on the fence.

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<v Speaker 2>Hey, one thing I want to just point out, Jay,

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<v Speaker 2>is that it looks like they're talking about seeing a

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<v Speaker 2>fourth quarter adjusted gross margin of thirty six point five percent.

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<v Speaker 2>Third quarter adjusted gross margin was forty percent against an

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<v Speaker 2>estimate of thirty six point one percent. Is that the

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<v Speaker 2>number you were looking for?

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<v Speaker 3>Yeah, but there's a lot of adjustments in there, so

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<v Speaker 3>I haven't worked them all.

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<v Speaker 2>Okay, Okay, Hey listen, listen. This is a company that's

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<v Speaker 2>been around for a long time. You know, you're entrenched

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<v Speaker 2>in how you were, what you were. Different executives coming

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<v Speaker 2>in to try and write this ship. You know, it's

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<v Speaker 2>a big ship to turn while also facing lots of

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<v Speaker 2>growing competition. Do you feel like it is in the

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<v Speaker 2>right direction.

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<v Speaker 3>I think it's too soon to tell. I really hope

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<v Speaker 3>it's in the movement in the right direction, but it's

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<v Speaker 3>too soon to tell. Like, what are they going to

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<v Speaker 3>do with those fabs? Right? And you know, I've been

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<v Speaker 3>saying for years that Intel's biggest challenge is not external

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<v Speaker 3>competitors or customers. It's their biggest challenge is internal and

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<v Speaker 3>fixing their culture. So that on that mark, I think

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<v Speaker 3>this is a step forward. Lipoo, who has put it.

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<v Speaker 3>You know, he has a plan and he's chipping away

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<v Speaker 3>at this sort of internal problem. But they really have

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<v Speaker 3>to readjust their worldview internally and understand that they're not

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<v Speaker 3>the dominant player that they were for twenty years. They're

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<v Speaker 3>they're the upstart now and they got to act like it.

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<v Speaker 1>Jay, we spent a good portion of our program earlier

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<v Speaker 1>talking about economic statecraft and the new role of the

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<v Speaker 1>US government is taking in companies, the reporting around potentially

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<v Speaker 1>investing in some of these quantum companies.

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<v Speaker 3>We of course have of.

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<v Speaker 1>The Intel, among the US government being among the biggest

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<v Speaker 1>shareholders in Intel, US Steel, the Golden share there the

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<v Speaker 1>critical minerals and mining companies that have taken investment or

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<v Speaker 1>had interest expressed in them. From an Intel perspective, how

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<v Speaker 1>does the US government investment change Intel.

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<v Speaker 3>I think it is going to encourage other US chip

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<v Speaker 3>companies to consider working with Intel Foundry, right because you know,

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<v Speaker 3>Nvidia has already invested in it, SoftBank's invested in Intel.

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<v Speaker 3>Now do we see Apple or Amazon or Google or

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<v Speaker 3>one of these other potential Intel customers sign up to

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<v Speaker 3>work with Intel Foundry take that risk? But because it

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<v Speaker 3>could be seen as patriotic.

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<v Speaker 1>Well, that's okay, I'm glad you said that. Do they

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<v Speaker 1>do it because it's the right thing for their business,

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<v Speaker 1>because it's the best option for a foundry, or is

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<v Speaker 1>it because it shows the Trump administration that they're supporting

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<v Speaker 1>a business that the administration has invested in.

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<v Speaker 3>So I think it can be both, right. My view

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<v Speaker 3>is that these companies need to work with Intel. They

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<v Speaker 3>need to see Intel boundaries succeed because if they abandon

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<v Speaker 3>Intel foundry today and Intel abandons it, you know entirely

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<v Speaker 3>what happens in five years when they're you know, TSMC

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<v Speaker 3>has an effective monopoly today, right in five years they'll

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<v Speaker 3>have a true, actual monopoly. And that's that's going to

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<v Speaker 3>be really challenging for all these all these companies. And

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<v Speaker 3>so it's hard. You know, the way that companies work,

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<v Speaker 3>they you know, they're thinking on ninety day cycles. Somebody

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<v Speaker 3>needs to be thinking of sort of the five ten

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<v Speaker 3>year time horizon, and maybe the government is sort of

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<v Speaker 3>the forcing function that gets us there.

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<v Speaker 2>You know who thinks in more than five or ten

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<v Speaker 2>year cycles. A little country named China. They're pretty good

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<v Speaker 2>about those long term plannings. Does Evan's some fun with you,

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<v Speaker 2>Jay Well having said that though, you know, on the

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<v Speaker 2>other hand, are there companies who are saying, I don't

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<v Speaker 2>get involved with anybody who's involved in the government because

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<v Speaker 2>just like the way the US government for a long

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<v Speaker 2>time has been or you know, US investors been critical

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<v Speaker 2>of you know, sovereign held entities you know, in other countries.

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<v Speaker 2>So is there some you know, justification in that as well,

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<v Speaker 2>or should we just assume that Intel now has a massive,

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<v Speaker 2>you know, backup called the US government.

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<v Speaker 3>So I think everybody's a little bit uncomfortable with the

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<v Speaker 3>US government taking stakes in companies. Everyone I know on

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<v Speaker 3>Wall Street, everyone I know in the valley, just a

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<v Speaker 3>little bit uncomfortable about it, sort of ideologically, it's not

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<v Speaker 3>something we're used to. It's clear that, you know, the

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<v Speaker 3>US is moving towards some kind of national industrial policy.

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<v Speaker 3>This is one way to achieve that. I'm not sure

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<v Speaker 3>taking a stake in it is quite the right way

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<v Speaker 3>to do it, But you know, there are merits for

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<v Speaker 3>being a little bit more somewhere in between the government

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<v Speaker 3>controlling everything and the government doing nothing. Maybe there's a

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<v Speaker 3>happy medium we can find.

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<v Speaker 2>Hey, thirty seconds on the call, or you're sitting down

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<v Speaker 2>with Intel execs what do you want to ask them?

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<v Speaker 3>Just quite what are you doing with foundry?

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<v Speaker 2>Okay, that was.

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<v Speaker 3>Great, so appreciate it.

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<v Speaker 2>Jay Goldberg, thanks, Senior Analyst Semiconductors and Electronics at Seaport

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<v Speaker 2>Research Partners. We're looking at Intel continuing to trade higher

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<v Speaker 2>here in the aftermarket.