Intel CEO Pat Gelsinger joins Yahoo Finance to discuss the chip maker’s difficult quarter, its product lineup, the global economic slowdown, hiring and corporate culture, and the passage of the CHIPS Act.
Video Transcript
- Shares of Intel are sliding today after the company missed on earnings, prompting Wall Street to come out more cautiously on the stock today. The chip maker also lowered its full year guidance, warning of further product delays and a slowdown in the PC market. Intel CEO Pat Gelsinger joins us now. Pat, always nice to get some time with you. You didn't mince any words out there on the conference call last night about your disappointment with the quarter. So take us through that quarter. What went wrong?
PAT GELSINGER: Yeah. Clearly, as we look back in the quarter, mid quarter we saw a very sharp economic swing. US inflation, Europe, Ukraine, and China COVD. But it was also combined then with misses in our inventory understanding of our customers. And they created very sharp shifts. And some say cases 10 years we haven't seen customers move inventory positions that rapidly.
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So major inventory corrections. And if you think about it, Sozz, they were building inventory for demand expansions for multiple years and we call match set issues in their supply chain, where they didn't have all the pieces to ship a product.
So major inventory corrections on the part of our customers, plus some of our own execution issues and. We sort of say, we put those three together, yeah, it was a market shift in the quarter, well below our expectations. And with that, we said, boy, we have to change our view of the rest of the year. Clearly, we lowered that guidance for the year. We believe that we're at the bottom. And we've said that very plainly that we're below the shipping rates of our customers to the end customers. So we see that building back naturally.
Also as we go into the second half, you have some of the natural cycles, holiday, Christmas cycles as well. So all of those give us confidence in the guide that we gave. But, yeah, it was a difficult conversation. And everything we're doing is about rebuilding the execution of the company. A great product line and PCs, best that we've had in five-plus years where. Our server roadmap is getting stronger as we go forward. Key new products. But, yeah, today is the first day of the new plan that we've laid out to the Street. A tough market.
- Pat, there's always these wild swings in the semiconductor industry. I believe the right term has always been booms and busts. How would you compare to what you're seeing now in the market compared to those prior periods?
PAT GELSINGER: This is, in many ways, we've seen adjustments to the level that we haven't seen for a decade or so. So it's a very sharp swing in the economics, a very sharp swing then in the inventory and supply chain positions that we're seeing. And as a result, boy, this is a time for a bit of austerity. We've exited our Optane business. We sold the drone business. I made six product exits since we've been here. And those are allowing us to put more focus on key areas.
Also, a bit of austerity, Sozz, allows us to-- well, we have stuff that accreted over the last decade that needs to be cleaned up, gotten more efficient as well. So a bit of austerity helps to drive a more accelerated pace to the transformation that we have underway.
But we also say, hey, this is the time to invest for the future. And 10 new product lines that we've launched consistent with the strategy that we've laid out. Key wins like our Amazon and Meta customer wins that we describe, the media tech win for our foundry business, key new products like Gaudi, the highest performance AI processor in the world that we're launching into the data center. So all of these taken together, it really is a story of two cities and the challenges and the opportunities.
- You talked a lot about on the call last night, Pat, the pullback-- or I believe you actually took down your total addressable market estimate, or TAM, for the PC market. When does that correction end?
PAT GELSINGER: Yeah. We were up in the $350 million-plus units. We took about 10% reduction in that. We were above many other forecasts. Now we've set our range consistent with the market forecast in the 310 to 325 range. And if you go look at IDC Gartner plus other OEM and channel forecasts, we're now right in the range. And you say, boy, how firm is that view of the market? And we feel very comfortable with the range that we've now set because there's a lot of strength in areas like enterprise.
And we have 600 million PCs that are greater than four years old that need to be replaced over the next year or two. We also see that the strength of our product line. Alder Lake is now fully in the marketplace. Raptor Lake about to launch. And Meteor Lake for next year. So strong products. Good ASPs. We did a price move for some of those product lines. So all of that taken together, we feel very comfortable that this was the bottom. And we're rebuilding from here. And the guidance we've given we're quite confident in.
- And you have tremendous respect, Pat, for the history of Intel. And you recently passed your one year mark at the company in the CEO role. How do you explain these execution issues? As you've gotten deeper into the company, is it a cultural issue? Is it processes? How do you see it?
PAT GELSINGER: Yeah. And, overall, when you think about an execution machine like Intel, it starts with culture. And we've laid out a new culture. I say what's old is new again, that Grovian disciplines. We've built that into the operations of the company. We've rolled out we call objectives and key results, OKRs, a discipline that many use in Silicon Valley, Intel invented, but we had stopped doing.
So we've rebuilt that. So many of these cultural aspects are now being seen as catching hold. We just completed our employee engagement survey. Largest ever one-year improvements. And many of the results are best in industry results. But execution. Many of the products that we're now struggling to bring to market began two, three years ago.
So we're having to finish those even as we launch the next generation products with the new methodologies and the new disciplines. We just have to work through this challenging period of time. We own that. We're disappointed by our execution. And it's come in the face of a very once in a decade kind of market swing that we're now navigating through.
- You have been a real champion of the Chips Act. And now it looks like it will finally get done. Why do you think the industry needs that money? And what will you do with it?
PAT GELSINGER: If you look at the semiconductor industry, the US is doing just fine in terms of design. But our manufacturing position continued to deteriorate. COVID has shown that where the supply chains are is critical to the ability to have economies, and national security. What aspect of your life, Sozz, is not becoming more digital? Everything's becoming more digital. And semiconductors is essential for everything digital.
With that in mind, this is the most significant piece of industrial policy legislation that maybe has occurred in the US since World War II. This is significant. And with that in mind, the rebuilding of manufacturing, the reshoring of supply chains, and the investments in long-term research, we think this is critical for the industry. And it's about the industry. We will be a beneficiary. We've talked about our smart capital strategy and how it will benefit from the capital offsets, the tax offsets, and the long-term research investments.
But this is about the industry. It's about rebuilding America. And US Chips Act, EU Chips Act, we are proud that we've been able to play a role in helping to bring about this essential seminal legislation.
- All right. We'll leave it there for now. Intel CEO Pat Gelsinger, always good to see you. Thanks for giving us some time today. I know these are long days. Not the results you wanted. But look forward to catching up with you again soon.