1 00:00:02,560 --> 00:00:04,240 Speaker 1: Bloomberg Audio Studios. 2 00:00:04,700 --> 00:00:06,250 Speaker 2: Podcasts. Radio. 3 00:00:06,670 --> 00:00:07,090 Speaker 3: News. 4 00:00:09,210 --> 00:00:12,070 Speaker 4: This is a breaking news update from Bloomberg. 5 00:00:12,950 --> 00:00:17,360 Speaker 5: Instant reaction and analysis from our 3,000 journalists and analysts 6 00:00:17,579 --> 00:00:21,570 Speaker 5: around the world. Shares of her Intel down more than 20% 7 00:00:21,570 --> 00:00:25,630 Speaker 5: right now. This after its revenue forecast missed analyst estimates. 8 00:00:25,670 --> 00:00:28,250 Speaker 5: It was hurt by sputtering demand for PC processors and 9 00:00:28,290 --> 00:00:31,230 Speaker 5: supply chain problems with its lucrative data center components. I 10 00:00:31,250 --> 00:00:34,330 Speaker 5: want to bring in Kunjan Sabani, Senior Semiconductor Analyst for 11 00:00:34,370 --> 00:00:38,849 Speaker 5: Bloomberg Intelligence. Kunjan, this stock was up 150% going into 12 00:00:38,909 --> 00:00:43,770 Speaker 5: today's print, but still a 20% haircut is a big 13 00:00:43,800 --> 00:00:46,400 Speaker 5: haircut no matter which way you look at it. What's 14 00:00:46,420 --> 00:00:47,840 Speaker 5: your take on this print? 15 00:00:49,330 --> 00:00:52,269 Speaker 3: Yeah, I mean, look, the massive misses on the 4Q 16 00:00:52,310 --> 00:00:56,530 Speaker 3: guide is just very surprising. We all knew that the 17 00:00:56,570 --> 00:01:00,150 Speaker 3: PC market is not looking that strong, but the results 18 00:01:00,190 --> 00:01:04,220 Speaker 3: that came in are, again, surprising. At least from what 19 00:01:04,280 --> 00:01:06,600 Speaker 3: we have seen so far, it looks to me that, 20 00:01:07,040 --> 00:01:11,520 Speaker 3: you know, the data center, which was upbeat, is looking strong, 21 00:01:11,600 --> 00:01:14,460 Speaker 3: but they cannot get enough supply there to sell more 22 00:01:14,500 --> 00:01:17,880 Speaker 3: into the data center. And the headwinds from the PC 23 00:01:17,959 --> 00:01:20,600 Speaker 3: are large enough that whatever they are able to get 24 00:01:20,660 --> 00:01:22,979 Speaker 3: more supply on the data center side and get a bead, 25 00:01:23,060 --> 00:01:26,179 Speaker 3: it's not large enough to offset. One more key important 26 00:01:26,220 --> 00:01:30,470 Speaker 3: point here is that gross margin miss. That's very substantial. 27 00:01:30,510 --> 00:01:32,790 Speaker 3: We finally had Intel getting to sort of the mid 28 00:01:33,280 --> 00:01:36,240 Speaker 3: 40s after a few quarters of really good work. And 29 00:01:36,280 --> 00:01:39,220 Speaker 3: so we are back down again with almost 600 plus 30 00:01:39,280 --> 00:01:41,800 Speaker 3: basis point of a decline quarter over quarter. 31 00:01:42,300 --> 00:01:43,120 Speaker 4: That's substantial. 32 00:01:43,380 --> 00:01:46,000 Speaker 3: We think that's again coming from Intel trying to get 33 00:01:46,100 --> 00:01:48,520 Speaker 3: more supply and push more on the data center side. 34 00:01:48,940 --> 00:01:51,160 Speaker 4: Which is where the future is. But that comes at 35 00:01:51,180 --> 00:01:52,120 Speaker 4: the cost of. 36 00:01:53,500 --> 00:01:56,560 Speaker 3: Lower margins, loading up the factories on the new nodes, 37 00:01:56,620 --> 00:01:59,380 Speaker 3: which are, again, a headwind to the margins. And the 38 00:01:59,400 --> 00:02:02,000 Speaker 3: PC business, which is a better margin business, not doing 39 00:02:02,060 --> 00:02:05,280 Speaker 3: so well. So the mix of combinations between data center 40 00:02:05,310 --> 00:02:06,770 Speaker 3: and PC is not helping Intel. 41 00:02:07,470 --> 00:02:10,230 Speaker 1: Yeah, Kunjan, you know, what's interesting, too, is, you know, 42 00:02:10,350 --> 00:02:12,790 Speaker 1: is it a case of that if they could get 43 00:02:12,830 --> 00:02:15,850 Speaker 1: all the supply they needed in order to meet demand, 44 00:02:15,910 --> 00:02:18,359 Speaker 1: we would be having a very different conversation today? Or 45 00:02:18,380 --> 00:02:20,079 Speaker 1: is it more than that because of what we're seeing 46 00:02:20,100 --> 00:02:20,919 Speaker 1: on the PC side? 47 00:02:22,639 --> 00:02:24,480 Speaker 3: If they were able to get more demand on the 48 00:02:24,520 --> 00:02:27,620 Speaker 3: data center side, on the revenue line item, we would 49 00:02:27,660 --> 00:02:30,330 Speaker 3: not see such a big deviation. It would still be 50 00:02:30,370 --> 00:02:33,990 Speaker 3: able to offset the weak demand in PC. But I 51 00:02:34,030 --> 00:02:36,910 Speaker 3: think we would still have seen some headwinds on gross margin. Remember, 52 00:02:37,250 --> 00:02:39,590 Speaker 3: data center products, the more they ship right now, it's 53 00:02:39,650 --> 00:02:43,600 Speaker 3: a headwind for gross margin because it's a lower gross margin. 54 00:02:43,639 --> 00:02:46,180 Speaker 3: They are loading it all up on the newer nodes, 55 00:02:46,560 --> 00:02:49,340 Speaker 3: which are much more expensive until you reach a certain point. 56 00:02:49,669 --> 00:02:51,130 Speaker 4: Where it starts being more profitable. 57 00:02:51,230 --> 00:02:54,060 Speaker 3: So we would have seen less of an impact on 58 00:02:54,100 --> 00:02:56,320 Speaker 3: the top line, but still an impact on the gross margins. 59 00:02:59,720 --> 00:03:01,760 Speaker 1: You know, it's interesting. We had a conversation earlier with 60 00:03:01,800 --> 00:03:04,490 Speaker 1: one of our guests here at Schwab Impact in Boston. 61 00:03:04,530 --> 00:03:07,389 Speaker 1: And this kind of concept of, you know, you kind 62 00:03:07,410 --> 00:03:09,150 Speaker 1: of have to invest for the future so that if 63 00:03:09,190 --> 00:03:11,230 Speaker 1: you look at a company like Alphabet, which just got 64 00:03:11,330 --> 00:03:14,500 Speaker 1: creamed today in today's session, if you think about the 65 00:03:14,600 --> 00:03:17,880 Speaker 1: market cap drop that it endured, that this whole idea 66 00:03:17,900 --> 00:03:22,910 Speaker 1: that you're investing in the future of Alphabet. and if 67 00:03:22,930 --> 00:03:25,250 Speaker 1: you believe in the course and the impact of AI. 68 00:03:25,570 --> 00:03:28,750 Speaker 1: And I do wonder about Intel. Have they righted the ship, 69 00:03:28,990 --> 00:03:31,750 Speaker 1: made the changes they need for an Intel of the future, 70 00:03:31,770 --> 00:03:34,220 Speaker 1: and that investors need to be patient here? 71 00:03:36,560 --> 00:03:39,160 Speaker 3: I think investors do need to be patient, and they 72 00:03:39,220 --> 00:03:42,260 Speaker 3: have been patient. Look, they are investing here for the future. 73 00:03:42,960 --> 00:03:45,320 Speaker 3: Investing to bring up capacity in the data center and 74 00:03:45,370 --> 00:03:47,710 Speaker 3: focusing on the data center is the right choice because 75 00:03:47,750 --> 00:03:51,270 Speaker 3: that is the better, faster growing end market in the future. 76 00:03:51,690 --> 00:03:54,470 Speaker 3: And the North Star for Intel, again, remains that foundry business. 77 00:03:54,790 --> 00:03:58,560 Speaker 3: which they've done a lot of progress on. But you look, 78 00:03:58,600 --> 00:04:01,100 Speaker 3: you are in an environment where every single one of 79 00:04:01,140 --> 00:04:05,100 Speaker 3: your peers is beating by billions of dollars. You know, 80 00:04:05,220 --> 00:04:08,350 Speaker 3: they are guiding up their revenues multiple times in a 81 00:04:08,410 --> 00:04:12,250 Speaker 3: year just for future years. Folks are giving guidance more 82 00:04:12,270 --> 00:04:14,750 Speaker 3: than two years out when it comes to your semi peers. 83 00:04:14,770 --> 00:04:17,090 Speaker 4: So there's also that peer pressure, right? 84 00:04:17,170 --> 00:04:19,870 Speaker 3: So for investors, when they're looking at other semi companies, 85 00:04:20,279 --> 00:04:23,080 Speaker 3: which are giving such robust results, both in near-term and 86 00:04:23,140 --> 00:04:26,460 Speaker 3: outward guidance. It's just difficult to stay patient when you 87 00:04:26,500 --> 00:04:27,520 Speaker 3: see such hiccups. 88 00:04:27,260 --> 00:04:27,640 Speaker 2: On the way. 89 00:04:31,130 --> 00:04:33,349 Speaker 1: All right, so top question that you think has to 90 00:04:33,390 --> 00:04:36,770 Speaker 1: be asked on this call with analysts and investors from 91 00:04:36,810 --> 00:04:37,770 Speaker 1: the Intel C-suite. 92 00:04:39,430 --> 00:04:40,390 Speaker 4: I think two questions, right? 93 00:04:40,450 --> 00:04:42,950 Speaker 3: When do we really expect sort of the gross margin 94 00:04:42,990 --> 00:04:46,660 Speaker 3: trajectory to really find a floor? We have seen this 95 00:04:46,720 --> 00:04:49,299 Speaker 3: repeat a couple of times where we see positive progress 96 00:04:49,360 --> 00:04:51,570 Speaker 3: on gross margin and suddenly we hit a quarter where 97 00:04:51,940 --> 00:04:54,790 Speaker 3: We sort of take one step forward and two steps back. 98 00:04:55,150 --> 00:04:57,530 Speaker 3: And I think the second question remains, how is the 99 00:04:57,630 --> 00:05:00,610 Speaker 3: progress going on the Foundry side? We have seen a 100 00:05:00,650 --> 00:05:07,180 Speaker 3: lot of announcements, positive announcements around packaging, and their packaging technology. 101 00:05:06,750 --> 00:05:07,860 Speaker 4: Is really differentiated. 102 00:05:07,940 --> 00:05:11,680 Speaker 3: We really want to start seeing significant material revenues come 103 00:05:11,720 --> 00:05:12,560 Speaker 3: out of that business. 104 00:05:16,060 --> 00:05:17,979 Speaker 1: Is there any other semiconductor name that we should be 105 00:05:18,020 --> 00:05:20,060 Speaker 1: watching as a result of what we're seeing from Intel? 106 00:05:20,080 --> 00:05:20,710 Speaker 1: Just real quickly. 107 00:05:22,029 --> 00:05:22,990 Speaker 4: Yeah, next week, AMD. 108 00:05:23,029 --> 00:05:26,279 Speaker 3: Again, AMD is also exposed to the similar PC head markets, 109 00:05:26,380 --> 00:05:29,440 Speaker 3: but we don't think they will do much worse because 110 00:05:29,460 --> 00:05:32,170 Speaker 3: of their exposure and share gains. But that's something we'll 111 00:05:32,210 --> 00:05:33,049 Speaker 3: be watching carefully. 112 00:05:36,650 --> 00:05:38,870 Speaker 1: All right. Going to leave it on that note. Kunjan Subani, 113 00:05:38,910 --> 00:05:42,970 Speaker 1: he is Senior Semiconductor Analyst at Bloomberg Intelligence, joining us, 114 00:05:43,010 --> 00:05:46,570 Speaker 1: of course, on Intel shares, continuing to trade lower in 115 00:05:46,610 --> 00:05:48,839 Speaker 1: today's session, down about 18.5%. 116 00:05:48,839 --> 00:05:52,820 Speaker 5: Hey, Amazon shares are lower in the after hours as well, 117 00:05:52,860 --> 00:05:57,260 Speaker 5: down about 6.7%. Third quarter AWS net sales, excluding FX, 118 00:05:57,360 --> 00:06:01,060 Speaker 5: did beat estimates. The company still sees year cash capex 119 00:06:01,100 --> 00:06:04,180 Speaker 5: at about $ 220 billion. It sees fourth quarter net sales, 120 00:06:04,180 --> 00:06:08,390 Speaker 5: $ 240 to $ 247 billion. That's in line with estimates at 121 00:06:08,380 --> 00:06:12,130 Speaker 5: $ 244 billion and a half. Third quarter AWS net sales, 122 00:06:12,190 --> 00:06:15,109 Speaker 5: excluding FX, was up above estimates at 39%. I want 123 00:06:15,470 --> 00:06:18,370 Speaker 5: to bring in Anurag Rana, Senior Tech Analyst at Bloomberg Intelligence. 124 00:06:18,390 --> 00:06:21,770 Speaker 5: He joins us from our Chicago bureau. Anurag, we just 125 00:06:21,790 --> 00:06:24,979 Speaker 5: spoke to Kunjan about Intel, shares of Intel down, wow, close, 126 00:06:25,070 --> 00:06:28,020 Speaker 5: you know, 20% at this point. Shares of Amazon are 127 00:06:28,040 --> 00:06:31,080 Speaker 5: down lower in the after hours right now by 6.7%. 128 00:06:31,080 --> 00:06:32,339 Speaker 5: Your takeaways from this print? 129 00:06:33,950 --> 00:06:36,650 Speaker 2: Yeah, when you look at cloud results from both Google 130 00:06:36,710 --> 00:06:40,029 Speaker 2: and Microsoft, we saw a big beat on the growth rate. 131 00:06:40,390 --> 00:06:42,070 Speaker 2: I think in the case of Amazon, they just went 132 00:06:42,150 --> 00:06:46,320 Speaker 2: ahead and met the expectations at 39%. So basically, you know, 133 00:06:46,480 --> 00:06:48,600 Speaker 2: that is probably what's causing the shares to go down. 134 00:06:48,980 --> 00:06:51,400 Speaker 2: But I'd also point out to one particular thing that 135 00:06:51,440 --> 00:06:54,920 Speaker 2: they said. they're expecting AWS sales to be above 40% 136 00:06:54,920 --> 00:06:58,640 Speaker 2: into 27 and 28. I think that's a very, very 137 00:06:58,660 --> 00:07:01,520 Speaker 2: strong numbers given where we are in the cycle. So 138 00:07:01,880 --> 00:07:04,660 Speaker 2: I think in my view, people are maybe disappointed that 139 00:07:04,700 --> 00:07:08,550 Speaker 2: they didn't beat AWS by a big number. But from 140 00:07:08,620 --> 00:07:11,020 Speaker 2: our side, I think we really like those 40% numbers. 141 00:07:14,730 --> 00:07:17,750 Speaker 1: Yeah, it's interesting too. Amazon in total sees revenue growth 142 00:07:17,790 --> 00:07:21,890 Speaker 1: rates of over 40% in 2027 and 2028. Free cash 143 00:07:21,930 --> 00:07:25,570 Speaker 1: flow falling to an outflow of $ 42. 4 billion. 144 00:07:27,300 --> 00:07:27,760 Speaker 2: Wow. 145 00:07:28,900 --> 00:07:29,360 Speaker 4: Repeat that? 146 00:07:30,440 --> 00:07:34,160 Speaker 1: And cash flow fell to an outflow of $ 42. 4 billion 147 00:07:34,320 --> 00:07:37,130 Speaker 1: for 12 months, I guess, trailing. For trailing 12 months? Yeah. 148 00:07:37,190 --> 00:07:37,550 Speaker 2: Wow. 149 00:07:37,630 --> 00:07:38,750 Speaker 1: So, I mean. 150 00:07:42,130 --> 00:07:43,850 Speaker 1: How do we make sense about the spend? You need 151 00:07:43,870 --> 00:07:48,060 Speaker 1: the spend to be in it, right? These guys obviously 152 00:07:48,070 --> 00:07:50,620 Speaker 1: have the money to do it, but they're increasingly tapping 153 00:07:51,020 --> 00:07:54,120 Speaker 1: credit markets and debt markets, as we've often talked about. 154 00:07:55,140 --> 00:07:56,440 Speaker 1: You guys still seem pretty upbeat. 155 00:07:57,980 --> 00:07:59,200 Speaker 4: Yeah, but think about it this way. 156 00:07:59,260 --> 00:08:02,400 Speaker 2: You have to invest that money because imagine the backlog 157 00:08:02,420 --> 00:08:04,760 Speaker 2: that's on their balance sheets. And it's not as if 158 00:08:04,780 --> 00:08:08,930 Speaker 2: they don't have really strong businesses that's driving revenue from 159 00:08:08,960 --> 00:08:11,330 Speaker 2: them or cash flow from them from other side. I mean, 160 00:08:11,350 --> 00:08:14,510 Speaker 2: this AWS, think about it this way, has operating margins 161 00:08:14,550 --> 00:08:18,030 Speaker 2: close to 39%. That's a very good business to be in, 162 00:08:18,070 --> 00:08:21,750 Speaker 2: frankly speaking. And once you gain some market share, you're 163 00:08:21,770 --> 00:08:25,440 Speaker 2: going to go out and sell additional services, application modernization. 164 00:08:25,480 --> 00:08:28,360 Speaker 2: I mean, we're just in this... start of this particular cycle. 165 00:08:28,420 --> 00:08:32,240 Speaker 2: And I understand that cash flow is down this year. 166 00:08:32,580 --> 00:08:36,740 Speaker 2: But frankly speaking, you look ahead, I mean, from the 167 00:08:36,840 --> 00:08:39,360 Speaker 2: run rate of that they have for cloud, let's say 168 00:08:39,380 --> 00:08:41,939 Speaker 2: about $ 180 billion, growing 40% each year. That's really commendable. 169 00:08:48,309 --> 00:08:50,250 Speaker 1: Is there a narrative around all of them? I just 170 00:08:50,270 --> 00:08:55,250 Speaker 1: think about what we've heard from Meta, from Microsoft, from Alphabet, 171 00:08:55,450 --> 00:08:59,530 Speaker 1: from obviously Amazon today as well. I'm sure I'm leaving 172 00:08:59,580 --> 00:09:04,099 Speaker 1: out one of them. But they're not all the same companies, Anurag. 173 00:09:04,120 --> 00:09:06,800 Speaker 1: We know that. But is there a narrative around the 174 00:09:06,940 --> 00:09:09,640 Speaker 1: AI spend and the payoff or no? 175 00:09:11,120 --> 00:09:12,800 Speaker 2: It's not a question of payoff. I think what has 176 00:09:12,860 --> 00:09:15,380 Speaker 2: changed in the last decade I would say six months 177 00:09:15,410 --> 00:09:17,960 Speaker 2: or so are twofold. One is that interest rates have 178 00:09:17,980 --> 00:09:19,680 Speaker 2: gone up quite a bit. I mean, you're looking at, 179 00:09:20,040 --> 00:09:23,760 Speaker 2: you know, people's ability to fund these expansion plans. 180 00:09:23,780 --> 00:09:24,320 Speaker 4: So that's one. 181 00:09:24,360 --> 00:09:27,949 Speaker 2: The second is a changing political climate, which is seeing 182 00:09:28,070 --> 00:09:31,929 Speaker 2: some opposition to data center buildup. So, you know, we 183 00:09:32,050 --> 00:09:34,710 Speaker 2: all know the CapEx numbers right now. But what if 184 00:09:34,950 --> 00:09:39,010 Speaker 2: the data center delivery becomes a delay? Then what happens 185 00:09:39,070 --> 00:09:41,679 Speaker 2: is The cash flow is still negative, and your growth 186 00:09:41,700 --> 00:09:45,260 Speaker 2: rate that you are projecting out doesn't realize because of 187 00:09:45,559 --> 00:09:48,740 Speaker 2: factors that are not in your control. We saw Microsoft 188 00:09:48,760 --> 00:09:51,540 Speaker 2: talk yesterday about there was a delay in data centers 189 00:09:51,580 --> 00:09:54,230 Speaker 2: from one of their third parties. That's the first sign 190 00:09:54,270 --> 00:09:56,730 Speaker 2: we have. What if something like this happens a lot 191 00:09:56,790 --> 00:10:00,740 Speaker 2: next year because the political climate is extremely bad? negative 192 00:10:00,820 --> 00:10:02,100 Speaker 2: towards new data center build?