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Intel CEO on earnings: ‘I’m committed to see this turnaround through’

Intel CEO Pat Gelsinger joins Yahoo Finance Live to discuss company earnings, the expectations for next quarter, inventory adjustments, demand in the PC market, and the outlook for Intel.

Video transcript

[MUSIC PLAYING]

- Intel's turnaround is going to take longer. The chipmaker saw steep declines in its cloud client computing and data center segments in the fourth quarter and is warning the challenges may persist.

The company said its Q1 revenue expectations between $10.5 and $11.5 billion, well below the expected $14 billion. Intel CEO Pat Gelsinger joins us now.

Pat, always nice to get some time with you here. For those unfamiliar with your story and your background at Intel, how personal is it for you that we're back here and we're still talking about numbers and guidance like this?

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PAT GEISINGER: Well, it's very disappointing, of course, Sozzi. And always a pleasure to come on the show with you. But numbers that basically we haven't seen for the company for a decade, projecting losses that we haven't seen for 30 years.

It's very difficult. At the same time, hey, I'm committed to see this turnaround through. And we knew it was going to be a hard journey. We knew that we had to navigate through rebuilding execution, getting our products back, having the technology back, making the long term investments to do so.

And hey, I sure would have liked to do so not through such a harsh economic cycle affecting our industry this way. But these are the cards that we're dealt with. We have a tough environment. We're going to keep making those long term strategic investments but with a lot more austerity in the core business in the near term.

And that's what we laid out for Q1, a very tough picture, but one that I'm confident that we'll navigate through and will make the company better as a result.

- Pat, make the pitch that a turnaround can happen in Intel.

PAT GEISINGER: Well, we're seeing all of the green shoots, if we could call it. We have the core product shipping now, all of the data center products with Sapphire, good momentum on Emerald Rapids later this year, Granite Rapids this year for us. Next year all of those are looking good.

We've seen multiple quarters, and last year, we gained 3 to 4 points a share in the client space. Good execution on the client products. And maybe most importantly, the five nodes in four years, getting the process technology back to leadership.

You know, Intel 7, done. Intel 4 will be ramping with Meteor Lake. Intel 3 on track. 20A and 18A, we're presenting that now to the market so they can start designing as a foundry customer on those process technologies.

And we had another external validation this quarter with a leading edge Intel 3 foundry customer commitment. So all of the things that we said that we needed to do to rebuild long term leadership, we're on track to do that.

And additionally, we laid out this internal foundry model to really attack the operational efficiency and cost basis of the company. And that's now well underway.

So tough economic cycle. But the strategy for a turnaround, nothing has changed in the formula that we have laid out. And we're on track to accomplish exactly that.

- Before we unpack just what's happening in each line of business. And I got this question this morning from an analyst. And Pat, I didn't the answer. Pat, do you feel as though the guidance that you gave last night, is that kitchen sink, that we're not having this chat again a couple of months from now?

PAT GEISINGER: Well, one of the things in the guidance that we gave is clearly that our customers are making significant inventory adjustments. And if you think about the way, in particular the PC market works, Sozzi, Q3 and Q4 are generally buoyed by holiday refresh and back to school purchase cycles.

So customers coming off of literally five or six years of shortages, carried more inventory into the second half of the year. They burned inventory in Q3. They burned inventory in Q4 but still had high inventories levels as they finish the year.

Q1, those numbers have come down dramatically. In fact, it's the largest inventory burn in recorded history for us. We can't see any period where they're making such dramatic adjustments.

We're, of course, working with customers to make those adjustments. But the amount that we're selling in is dramatically below what they're selling out as they burn through inventory. So we do believe that they're making the necessary adjustments, that much leaner positions in our customers inventories and in the channel.

So we do believe that, hey, first half, yeah, it's going to be pretty rugged as we go through this period of time. But everybody is predicting some level of recovery as they need to buy their sell through rates and some level of market recovery in the second half of the year.

So that's reflected in the Q1 guide very firmly. We're also saying, well, we're not quite sure. It's still murky picture for the year in that regard. And we're being somewhat cautious as we lay out what the future looks like, but one that we're also very confident in the long term position that we're rebuilding for this great company.

- And what ultimately ends this PC correction, Pat? Is it prices coming down or employees or people going back to offices and we need to all upgrade these computers?

PAT GEISINGER: Well, there's a lot of things going on in the market. One of those is exactly what you say, people going back to offices, they upgrade. We've seen lifetimes continue to increase.

But fundamentally, post-COVID, the PC is a more critical device. And with that this inventory correction we're still in the 270 to 275 million unit range is our expectations for this coming year.

We set a range of 270 to 295, we believe at the lower end. But the selling rate is dramatically below that today. And that's why you say at some point they've just got to start replenishing to the sell through rate.

The other big factor, of course, is China. Right? And obviously, we all know the things that they've been going through. So we expect some unique recovery in the China market as that economy starts coming back, we believe.

And we heard very positive statements to that effect at the World Economic Forum this year. So overall, we do believe that first half rugged, some level of recovery as we go through the year.

- I know you're still dealing with execution issues, still trying to get the rhythm back inside the company. But what is the economic component that you just mentioned, Pat? Do you feel from your perch at Intel that the US is in a recession?

PAT GEISINGER: Well, any CEO should never talk about the R-word. That's for an economist. We believe that, hey, there isn't really good news on the horizon here. US, we're still fighting inflation. Europe, still fighting energy and Ukraine. And China and Asia, still working through the COVID implications.

So I say, over the three big markets, we don't see good news yet. You know, that said, I think everybody left for instance the World Economic Forum a little bit more optimistic, Sozzi, that we're fighting through these in a positive way and that the correction may be softer in the economy than some had feared against that.

For us, we're saying we have to go manage the business in a murky environment. We're adjusting costs. We're on track or ahead with regard to the 3 billion cost savings that we laid out. So we're executing that well.

We're adjusting our customer and inventory levels as we see in the Q1 guide. But fundamentally, it's about getting back to product, getting back to product, technology, leadership, that satisfies our customers and wins us back market share.

- Is the dividend at its current payout ratio, is that safe?

PAT GEISINGER: Overall. We have to look carefully at our capital allocation. And we have a lot going on in the capital allocation budget. As we think about the capital offsets, US chips, and EU chips, and what we're doing for our SCIP program, semiconductor co-investment, the very innovative co-investment program that we laid out.

Of course, we're committed to the dividend and to a very healthy and competitive dividend. And we're also making big long term strategic investments.

So we're putting all of that together and looking very carefully at the capital allocation priorities for the company overall even as we remain committed to rewarding our shareholders with the dividend.

- You mentioned, lastly, on the earnings call last night that you were looking at other value creating initiatives inside of Intel. Do you see other assets to be sold? What do you mean by that?

PAT GEISINGER: Well, obviously, we're not quite ready to answer that question directly, Sozzi. But I'd point to what we did with Mobileye. Hey, this was one of the few successful IPOs that were done last year. Clearly value creating in the marketplace and showing that we're being creative in how we can move forward with the assets that we have.

The SCIP program that we describe, semiconductor co-investment, first time that you've ever created that capital co-investment program for asset classes and semiconductors. So overall, we're finding very creative ways to lead in how we manage the balance sheet and how we're able to take the assets that we have and present more value to the marketplace.

And the comment was really saying, hey, we're working on some more of those ideas. Stay tuned. We're coming back to you in the future.

- All right. Well, Pat, you're a good guy for coming on here. I know it's probably been a long few hours. But we appreciate you answering these questions. Intel CEO Pat Gelsinger. We'll talk to you soon. Have a good weekend.

PAT GEISINGER: Thank you, Sozzi.

- Appreciate it.