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Date

Thursday, Jan. 22, 2026 at 5 p.m. ET

Call participants

  • Chairman and Chief Executive Officer — Lip-Bu Tan
  • Chief Financial Officer — David Zinsner
  • Corporate Vice President, Investor Relations — John Pitzer

Takeaways

  • Revenue -- $13.7 billion, above guidance and representing the fifth consecutive quarter of actuals exceeding forecast, despite ongoing industry-wide supply constraints.
  • Non-GAAP gross margin -- 37.9%, approximately 140 basis points above guidance, primarily boosted by higher revenue and lower inventory reserves, but tempered by more outsourced client products and early Intel 18A ramp.
  • Non-GAAP earnings per share -- $0.15, compared to guidance of $0.08, with the uptick attributable to stronger revenue, gross margin, and disciplined spending.
  • Operating cash flow -- $4.3 billion, enabling positive adjusted free cash flow of $2.2 billion for the quarter after $4 billion in gross CapEx.
  • Full-year revenue -- $52.9 billion, marginally lower year over year due to persistent supply constraints in both internal manufacturing and external suppliers.
  • Full-year non-GAAP gross margin -- 36.7%; a 70 basis point increase, reflecting fewer period charges.
  • Full-year non-GAAP EPS -- $0.42, up $0.55 year over year, benefiting from reduced charges and improved operating leverage.
  • Full-year non-GAAP operating expenses -- $16.5 billion, a 15% decrease, the result of organizational streamlining and reduced complexity.
  • Cash and short-term investments -- $37.4 billion at period-end, bolstered by completed monetizations, government funding, and new investments from SoftBank Group, and NVIDIA.
  • Debt repayment -- $3.7 billion was repaid during the year, improving financial flexibility.
  • Intel products revenue -- $12.9 billion in the quarter, up 2% sequentially, driven by data center strength and increased AI PC unit growth of 16%.
  • Client Computing Group (CCG) revenue -- $8.2 billion; 3 new SKUs for Series 3 (Panther Lake) launched ahead of expectations, with 16% AI PC unit growth, but total CCG revenue down 4% sequentially.
  • Data Center and AI (DCAI) revenue -- $4.7 billion, up 15% sequentially, representing the fastest quarter-over-quarter growth of the decade and exceeding expectations.
  • Custom ASIC business -- More than 50% revenue growth year over year and 26% sequentially, reaching an annualized run rate above $1 billion in Q4.
  • Intel products operating profit -- $3.5 billion, representing 27% of segment revenue, though down about $200 million sequentially due to increased outsourcing and higher seasonal operating expenses.
  • Intel foundry revenue -- $4.5 billion, up 6.4% sequentially; EUV wafer revenue grew rapidly to over 10% of wafer mix in 2025 from less than 1% in 2023.
  • Intel foundry operating loss -- $2.5 billion, which increased $188 million over the prior quarter, linked to the early Intel 18A ramp.
  • All other segment revenue -- $574 million, down 42% sequentially owing to Altera's deconsolidation; primary contributors were Mobileye and IMS.
  • Q1 2026 revenue guidance -- $11.7 billion to $12.7 billion, with a $12.2 billion midpoint reflecting the low end of typical Q1 seasonality; CCG decline expected to outpace DCAI due to supply allocation.
  • Q1 2026 gross margin guidance -- 34.5% on a non-GAAP basis, indicating sequential pressure from revenue mix and increased Intel 18A volumes.
  • Yield improvement rate -- Lip-Bu Tan reported "7%, 8% yield improvement per month," as the company seeks to attain more consistent, industry-standard performance.
  • Intel 18A and 14A process updates -- Steady yield improvement reported for Intel 18A, with 1.0 Process Design Kit (PDK) delivered for 18AP, and active customer engagements for Intel 14A; Intel 14A volume production set for 2028.
  • Advanced packaging progress -- Notable early customer prepayments secured for EMIB and EMIB-T, reflecting tight industry substrate supply and customer commitment.
  • Capital expenditures plan for 2026 -- Guidance shifted from downward to "flat to down slightly," front-loaded to support future demand out to 2027 and beyond.
  • Debt maturities -- Plans to retire all $2.5 billion in maturities as they come due in 2026.
  • Inventory position -- Fixed finished goods inventory has fallen to 40% of peak, necessitating hand-to-mouth supply management, and driving Q1 supply tightness.

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Risks

  • David Zinsner stated, "our buffer inventory is depleted," leading to "most acute" internal supply constraints now impacting Q1 revenue and customer support.
  • Lip-Bu Tan acknowledged, "While yields are in line with our internal plans, they are still below what I want them to be. Accelerating yield improvement will be important lever in 2026 as we look to better support our customers."
  • David Zinsner noted that rising prices and tight availability for DRAM, NAND, and substrates "could limit our revenue opportunity this year," particularly for the client market.
  • Gross margin guidance of 34.5% for Q1 2026 is recognized by management as well below targeted levels, with Panther Lake identified as "still dilutive to the corporate average."

Summary

Intel (INTC 16.57%) reported quarterly results above its guidance across revenue, gross margin, and EPS for the fifth consecutive period, despite persistent industry-wide supply constraints. Management confirmed that the supply-demand imbalance is most severe entering Q1 2026 due to depleted inventory buffers, leading to explicit prioritization of server over client shipments. Intel emphasized significant customer engagement and progress in advanced manufacturing processes—specifically Intel 18A and 14A—with volume production of 14A targeted for 2028 and high customer interest in advanced packaging, including prepayments. Internal streamlining actions produced a marked reduction in operating expenses and strengthened the balance sheet via asset monetization, debt repayment, and new partner investments.

  • Management set a flat to slightly down capital expenditure outlook for 2026, shifting emphasis to tool investment to address ongoing capacity bottlenecks, with expectations for supply improvement starting in Q2.
  • Foundry performance saw rapid internal EUV ramp, and early foundry customer indications that advanced packaging revenue may now exceed initial expectations.
  • Intel reported robust growth in custom ASIC and AI-driven servers, while highlighting ongoing efforts to centrally coordinate data center and AI portfolios under new leadership, and to accelerate introduction of multithreading-enabled server products.
  • Gross margin improvement depends on both operational yield gains and product mix, with management explicitly targeting a path to 40% margins as a medium-term goal.

Industry glossary

  • SKUs: Distinct product models or configurations within the Core Ultra Series, representing different performance levels or features.
  • Intel 18A: An advanced semiconductor process node featuring gate-all-around transistors with backside power, claimed as industry-leading and produced in the United States.
  • Intel 14A: Intel’s next-generation foundry manufacturing process, currently in development with targeted volume production in 2028.
  • PDK: Process Design Kit; a comprehensive set of files and tools enabling customers to design chips for advanced semiconductor nodes such as 18A and 14A.
  • EMIB / EMIB-T: Embedded Multi-die Interconnect Bridge technologies; advanced packaging solutions allowing high-density die integration for complex devices, with EMIB-T as a higher-performance variant.
  • CCG: Client Computing Group; Intel’s business segment focused on notebook and desktop CPUs and platforms.
  • DCAI: Data Center and AI; Intel’s business segment serving data center, cloud, networking, and AI infrastructure markets.
  • EUV: Extreme Ultraviolet lithography; next-generation manufacturing technology used for advanced semiconductor wafer production.
  • ASIC: Application-Specific Integrated Circuit; custom-designed chips optimized for targeted workloads such as AI or networking applications.
  • TAM: Total Addressable Market; the total revenue opportunity available for a particular product or business segment.

Full Conference Call Transcript

Lip-Bu will open with comments on our fourth quarter results as well as provide an update on the progress we are making on our strategic priorities. Dave will then discuss our overall financial results, including first quarter guidance, before we transition to answer your questions. Before we begin, please note that today's discussion does contain forward-looking statements based on the environment as we currently see it, and as such, are subject to various risks and uncertainties. It also contains references to non-GAAP financial measures that we believe provide useful information to our investors.

Our earnings release, most recent annual report on Form 10-K and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures including reconciliations where appropriate to our corresponding GAAP financial measures. With that, let me turn things over to Lip-Bu.

Lip-Bu Tan: Thank you, John, and thank you all for joining us today. 2025 was a year of solid progress. Over the last 10 months, we established the foundation for new Intel, a more focus and execution-driven company. We simplify our organization and greatly reduce bureaucracy to improve efficiency and accelerate decision-making. We also recruited new leaders from the outside and empower key leaders from within. We strengthened our balance sheet, forged strong new partnership and deepened relationship with existing as well as new customers. I'm encouraged by my conversation with our customers and partners around the world. I'm hearing a clear, consistent message.

They see the progress we are making, they want Intel at the table as they navigate their own transformations. The opportunity in front of us is meaningful and significant. The era of artificial intelligence is driving unprecedented demand for semiconductor across the entire compute landscapes from AI accelerated and traditional data centers into the network and enterprise domains all the way out to client and edge devices. Rapid deployment of AI workloads across this diverse environment will require heterogeneous silicon solution, leveraging CPU, embedded NPUs, discrete and integrated GPU, ASICs and XPUs.

In addition, we will need to see innovation in the software stack along with new emerging technologies like photonics, memory interfaces, interconnect and quantum to name just a few. The breadth of our IP and know-how across silicon design, system level integration, wafer manufacturing and advanced packaging uniquely position us to capitalize on these AI-driven trends, capture sustainable profitable growth. This will not happen overnight, and our execution needs to continue to improve. While we will stay humble as we address the work ahead and we will never be satisfied. Our Q4 was another positive step forward. Revenue, gross margin and EPS were all above our guidance.

We delivered these results despite supply constraints, which meaningfully limited our ability to capture all of the strengths in our underwriting markets. We are working aggressively to address this and better support our customers' needs going forward. Looking ahead for 2026. We will continue to position Intel to capture the significant growth opportunity AI presents across all our businesses. We will do this by strengthening our client franchise, advancing our data center, AI accelerator and ASICs strategies and continue to build trusted U.S. foundry. Let me start with our core x86 franchise, which remains the most widely deployed compute architecture in the world.

The deployment of AI is only amplifying the importance of x86 from orchestration and control planes to inference edge workloads and agentic AI. In our Client Computing Group, we strengthened our position in both consumer and enterprise notebooks with our Core Ultra Series 3 lineup, formerly known as Panther Lake. And build on our most advanced Intel 18A manufacturing process. We committed to deliver our first Series 3 SKU by the end of 2025, and we exceeded that commitment by delivering our first 3 SKUs.

While we still have work to do, I'm encouraged by the steady progress on our Intel 18A use, and Naga and his team remain laser-focused on additional improvements as they ramp Series 3 into the high volume needed to meet strong customer demand. Our client momentum was on full display at CES earlier this month, where we formally launched Series 3 with our OEM partners, powering over 200 notebook designs Series 3 will be the most broadly adopted and globally available AI PC platform we have ever delivered.

Along with our next-generation Nova Lake coming at the end of 2026, we now have a client road map that combines best-in-class performance with cost-optimized solutions giving me confidence that we are on the path to fortify market share and profitability in both notebooks and desktops over the next several years. In addition, PC become an important part of the AI infrastructure. The surge in AI workloads is driving massive demand for data centers, but cloud capacity alone cannot meet the scale of inference needed especially in the power constrained environment. This accelerating the push toward hybrid AI, splitting workloads between cloud and client which offers clear advantages in performance, cost and control.

We are working closely with ecosystem partners to seamlessly enable hybrid AI, and we are encouraged by the opportunity to grow the installed base and accelerate the refresh rates over time. Let me now turn to DCAI to support our AI objectives, I believe that our traditional server and accelerated road maps must advance together. To reinforce the alignment, I centralize our data center and AI businesses under Kevork, ensuring tight coordination across CPUs, GPUs and platform strategy. Demand for traditional servers continues to be very strong, and we are focused on ramping available capacity to support the meaningful uptick we are seeing including partnering with key customers to support their needs beyond 2026.

The continuing proliferation and diversification of AI workloads is placing significant capacity constraints on traditional and new hardware infrastructure, reinforcing the growing and essential role CPUs play in the AI era. This is and will continue to benefit the ongoing ramp of Granite Rapids as well as our mainstream products, Sapphire and Emerald Rapids. We have also made decisive changes to simplify our server road map focusing resources on the 16-channel Diamond Rapids and areas to accelerate the introduction of Coral Rapids, where we can. With Coral Rapids, we will also reintroduce multi-threading back into our data center road map.

We also continue to work closely with NVIDIA to build a custom Xeon fully integrated with their NVLink technology to bring best-in-class x86 performance to AI host nodes. Over the last several quarters, we have been developing a broad AI and accelerated strategy that we plan to refine in the coming months. This will include innovative options to integrate our x86 CPU with fixed function and programmable accelerator IP. Our focus is on the emerging wave of AI workloads, reasoning models, agentic and physical AI and inference at scale, where we believe Intel can truly disrupt and differentiate.

Our long-term ambition is clear to rebuild Intel as a compute platform of choice for the next era of AI-driven computing, grounded in world-class engineering and accelerated road map, and a renewed culture of execution. We are also building momentum in ASICs as customers seek purpose-built silicon for AI, networking, cloud workloads. Our combination of design services, IP building blocks, and manufacturing capabilities position Intel well to resolve specialized problems at scale. This is not a new area for us, although this is one that I'm committing significantly more focused resources and investment dollars, including leveraging my own experience at Cadence Design supporting and growing this market.

Finally, we remain focused on the long-term objective of building a world-class wafer and advanced packaging foundry anchored in trust, consistency, and execution. As I have said before, building a foundry business will take time and considerable effort and resources. While still early in our journey, we have hit some earlier important milestones worth highlighting. We are now shipping our first products built on Intel 18A, the most advanced semiconductor process developed and manufactured on U.S. soil. As stated earlier, yields continue to improve steadily as we work to ramp the supply needed to meet strong customer demand.

In addition, Intel 18AP continue to progress well. and we are engaging with internal and external customers on this note, delivering our 1.0 PDK at the end of the last year. Intel 14A development remains on track. We have taken meaningful steps to simplify our process flow and improve our rate of performance and yield improvement. We are developing a comprehensive IP portfolio on Intel 14A, and we continue to improve our design enablement approach. Importantly, our PDK are now viewed by customers as industry standard. Engagements with potential external customers on Intel 14A are active.

We believe customers will begin to make firm supplier decision starting in the second half of this year and extending into the first half of 2027. We also have the opportunity to provide strong differentiation in advanced packaging, particularly with EMIB and EMIB-T. We are focusing on improving quality and yield to support customer desire for ramps beginning in second half of 2026. In closing, as I reflect on 2025, I'm proud of the resilient commitment our team has demonstrated. We exit the year with a stronger foundation and clearer road map for 2026 and beyond. The opportunity ahead is meaningful and significant as AI-driven computing expands all the markets we serve.

But I'm also mindful of the challenges ahead of us and transparent about the areas that we are doing well and areas we need to improve. In the short term, I'm disappointed that we are not able to fully meet the demand in our markets. My team and I are working tirelessly to drive efficiency and more output from our fabs. While yields are in line with our internal plans, they are still below what I want them to be. Accelerating yield improvement will be important lever in 2026 as we look to better support our customers. As I said earlier, we are on the multiyear journey.

It will take time in resolve, but my team and I are committed to rebuilding this iconic American company and increasing the long-term value for our shareholders. I would like to thank my team for their hard work over the course of the last 10 months. I look forward to updating you on our progress as we continue this journey together, including hosting an Investor Day in the second half of this year at our headquarters in Santa Clara. Let me now turn it over to Dave to walk through our financials and business trends in more detail.

David Zinsner: Thank you, Lip-Bu. We remain encouraged by the fundamental drivers of demand across our core markets. Fourth quarter revenue was $13.7 billion at the high end of the range we provided in October. We experienced strong growth across all our businesses, benefiting from the AI infrastructure build-out with AI PC, traditional server and networking revenue, all up double digits sequentially and year-over-year. Q4 marks the fifth consecutive quarter of revenue above our guidance even as we navigate industry-wide supply constraints for our key products.

Non-GAAP gross margin came in at 37.9%, approximately 140 basis points ahead of guidance on higher revenue and lower inventory reserves, partially offset by increased mix of outsourced client products and the early ramp of Intel 18A to support the launch of Core Ultra Series 3 codenamed Panther Lake. We delivered fourth quarter non-GAAP earnings per share of $0.15 versus our guidance of $0.08 and driven by higher revenue, stronger gross margins and continued spending discipline. Q4 operating cash flow was $4.3 billion with gross CapEx of $4 billion in the quarter and positive adjusted free cash flow of $2.2 billion. NVIDIA's $5 billion investment closed in Q4 as expected.

For the full year, revenue was $52.9 billion, down slightly year-over-year due to constraints across our own manufacturing network and with external suppliers which limited growth, especially in the second half. Full year non-GAAP gross margin was 36.7% up 70 basis points on reduced period charges. Full year non-GAAP EPS was $0.42, up $0.55 year-over-year on lower period charges and improved operating leverage. Specifically, non-GAAP OpEx of $16.5 billion was down 15% versus 2024 as we executed actions to reduce complexity and bureaucracy in the business and drive improved execution. For the full year, we generated $9.7 billion in cash from operations and made $17.7 billion of gross capital investments with capital offsets of approximately $6.5 billion.

Although adjusted free cash flow was minus $1.6 billion in 2025, we produced $3.1 billion in the second half as cash from operations more than doubled half-on-half. We exit 2025 with $37.4 billion of cash and short-term investments, bolstered by further monetization of Mobileye, the completion of our stake sale of Altera to Silver Lake, accelerated funding from the U.S. government and investments by the SoftBank Group and NVIDIA. In addition, we repaid $3.7 billion of debt. Looking back, 2025 marked an important year of progress against our key priorities, even as we know we have more work ahead.

Internally, we reorganized and rightsized the team to become customer-centric and engineering-focused while shoring up our balance sheet to give us more flexibility to pursue our goals. We've navigated a market that has shifted from tariff-driven uncertainty in the first half to an intense AI-driven demand environment constrained by supply in the second half. 2025 demonstrated the staying power of the x86 ecosystem across client and data center, and the importance of our manufacturing assets as we launched Core Ultra Series 3 on Intel 18A, the most advanced process fully developed and manufactured in the United States. Both create a firm foundation on which to build the new Intel. Moving to segment results.

Intel Products' Q4 revenue was $12.9 billion, up 2% sequentially. CCG revenue was down 4% quarter-over-quarter even as AI PC units grew 16%, and DCAI was up 15%, reflecting strong demand for traditional server compute. These results reflect our efforts to balance our constrained supply with strong data center demand while maintaining support for our client OEM partners. Where possible, we're prioritizing our internal wafer supply to data center and leveraging an increased mix of externally sourced wafers in clients. CCG revenue was $8.2 billion and in line with our expectations.

We estimate the client consumption TAM was greater than 290 million units in 2025, marking 2 straight years of growth of the post-COVID bottom in 2023 and the fastest TAM growth since 2021. Within the quarter, CCG launched 3 SKUs of Series 3 ahead of our expectations of one. Performance reviews have been extremely favorable, with up to 27 hours of battery life, a 70% gen-on-gen improvement in graphics and performance on industry standard benchmarks that is 50% to 100% better than peers. DCAI revenue was $4.7 billion, up 15% sequentially, above expectations and the fastest sequential growth this decade. Revenue would have been meaningfully higher if we had more supply.

While the market continues to benefit from more power-efficient CPUs, stimulating a refresh cycle, all indicators point to the growing and essential role CPUs will play within hyperscale and enterprise AI data centers as inference-driven AI usage expands. The world is shifting from human-prompted requests to persistent and recursive commands driven by computer-to-computer interactions. The CPU central function coordinating this traffic will drive not only traditional server refresh, but new demand that grows the installed base. In addition, due to the networking demand for the AI infrastructure build-out, our custom ASIC business grew more than 50% in 2025, 26% sequentially and reached an annualized revenue run rate greater than $1 billion in Q4.

This strength provides our ASIC team a solid base to pursue a $100 billion TAM opportunity. Operating profit for Intel Products was $3.5 billion, 27% of revenue and down approximately $200 million quarter-over-quarter on an increased mix of outsourced products and seasonally higher operating expenses. Intel Foundry delivered revenue of $4.5 billion, up 6.4% sequentially on increased EUV wafer mix. EUV wafer revenue grew from less than 1% of wafers out in 2023 to greater than 10% in 2025. External foundry revenue was $222 million in the quarter driven by projects with the U.S. government and the deconsolidation of Altera.

Intel Foundry operating loss in Q4 was $2.5 billion and $188 million worse quarter-over-quarter driven by the early ramp of Intel 18A. Within the quarter, Intel Foundry met key 18A and 14A milestones. With the official launch of Core Ultra Series 3, Intel Foundry is the only semiconductor manufacturer in the world shipping gate-all-around transistors with backside power for revenue. These advanced wafers are rolling off our production lines in Oregon and Arizona here in the United States. Finally, our continued progress on Intel 14A demonstrates our commitment to research and develop the world's most important technology on U.S. soil. Turning to All Other.

Revenue came in at $574 million and was down 42% sequentially due to the Q3 25 deconsolidation of Altera. The primary components of All Other in Q4 were Mobileye and IMS. Collectively, the category delivered an operating loss of $8 million. I'm pleased with the early momentum at Altera as an independent company with a new leadership team. Their industry-leading programmable fabric, developer productivity-driven software tools, and a large installed base positions them well to drive long-term value creation. Now turning to guidance. During the second half of 2025, we supported strong demand for our products with intra-quarter wafer production and inventory on hand.

As we enter 2026, our buffer inventory is depleted and the mix shift in wafers towards servers, which began in Q3 will not come out of fab until late Q1 '26. As a result, and as we stated last quarter, our internal supply constraints are most acute in Q1. In light of these dynamics, we are forecasting a Q1 revenue range of $11.7 billion to $12.7 billion. The midpoint of $12.2 billion reflects a lower end of seasonal Q1. Within the Intel Products, we forecast a more pronounced revenue decline in CCG than in DCAI as we continue to prioritize internal supply to our server end markets.

We expect Intel Foundry revenue up double digits quarter-over-quarter, helped by continued mix shift to EUV wafers and Intel 18A pricing. At the midpoint of $12.2 billion, we forecast a gross margin of approximately 34.5% with a tax rate of 11% and breakeven EPS, all on a non-GAAP basis. Gross margin is down sequentially due to lower revenue, increased 18A volumes and product mix. Let me take a few moments to provide some color for your full year 2026 model. First, from a revenue perspective, we expect our factory network to improve available supply beginning in Q2 and for each of the remaining quarters in 2026.

Within the server market, customer feedback and our own market intelligence points to the likelihood of a strong year of growth for DCAI. Finally, client CPU inventory is lean, and there is excitement for Series 3. In contrast, over the last several months, industry-wide supply for key components like DRAM, NAND and substrates has come under increasing pressure due to intense demand to support the rapid expansion of AI infrastructure. Rising component pricing is a dynamic we continue to watch closely, especially relative to the client market and could limit our revenue opportunity this year. For OpEx, we target 2026 operating expenses of $16 billion.

We expect noncontrolling interest or NCI to net to approximately $325 million in Q1 and be approximately $1.2 billion for the year on a GAAP basis. NCI is expected to grow meaningfully again in fiscal 2027. Our share count is forecast to be 5.1 billion shares in Q1 and grow in line with our stock-based compensation going forward. As we think about our capital expenditures for 2026, we're working to balance our ability to drive capital efficiencies with our need to respond to the demand signals we're receiving. Previously, we said CapEx would be down, but are now planning for a range of flat to down slightly and for expenditures to be more weighted to the first half.

As a reminder, CapEx in 2026 would be to support demand in 2027 and beyond. We expect to generate positive adjusted free cash flow for the full year, and we're planning to retire all $2.5 billion of maturities as they come due this year. I'll wrap up by saying that Q4 was another solid quarter to mark our fifth consecutive quarter of overdelivering to our guide. We exit 2025 increasingly confident in the long-term sustainability of the end markets we serve.

We believe our improved balance sheet, thanks in part to the trust of our strategic partners, combined with the strong talent we have will enable us to meaningfully participate in the next wave of computing as the industry pushes for returns on their AI investments. I look forward to providing you, our shareholders, an update on what this future means to you at our Analyst Day later this year. With that, I'll turn it over to John to start the Q&A.

John Pitzer: [Operator Instructions] With that, Jonathan, can we please take the first question?

Operator: Certainly. And our first question for today comes from the line of Ross Seymore from Deutsche Bank.

Ross Seymore: I guess the first one is 2 quick parts. It's both on supply. In the short term, are the yield improvements and the other actions you're taking sufficient to address just typical seasonality throughout the year given that usually the first quarter would be the low point on revenues? And then perhaps more importantly, longer term on the supply side, you guys seem more confident in your 14A, your 18A, the customer engagements, your internal road map, when would you decide to loosen up the reins on the CapEx side of things so that you could address structurally higher demand going forward with more internal supply?

David Zinsner: Thanks, Ross, for the question. So on the short-term supply, certainly, improving yields and throughput are a great driver of supply increases. In fact, it's got a great ROI to it because it doesn't require any incremental capital. So that's what Lip-Bu and I are actively working on to improve and we're reasonably confident that there's a good trajectory there. That said, when you look at CapEx, it's a little bit more nuanced than just it's going to be flat to slightly down. It's actually down significantly in space. So we're spending a lot less in space. We think we have a good footprint in terms of cleanroom. And what we're devoting more of our dollars to is tool.

So we are ramping up tool spending quite a bit in '26 relative to '25 to address this supply shortfall as well. And in fact, every quarter, we're seeing kind of wafer start increases pretty much across the board across Intel 7, Intel 3 and 18A. So all 3 of them every quarter improve and get better to address the supply. Like I said, we think we -- things will certainly improve in 2Q but we won't be completely out of the woods here. But as we progress through the year, we think things will get better and better. Do you want me to take the 14A thing or? Yes.

On 14A, Lip-Bu has been very direct with us on all of this. He does not want to spend on capacity on 14A, only spend on the kind of TD spend or R&D spend associated with 14A even in the fab until we have customers secured. We've talked about, the likelihood is, our customers on 14A their window to secure or for us to secure them will be in the back half of this year and in the first half of next year. And so once visibility improves there, we'll start to unlock the spend on 14A.

Lip-Bu Tan: I can just add a little bit more. I think on the yield improvement, which we see in the 7%, 8% yield improvement per month. I think it's more in focus in the variation, make sure that we can be more consistent delivery and also the defect density at the end so that we can ship quality wafer to the customer. So I think all those are very important for our PC client, Panther Lake and then also for the 18A and 14A development. So I think, all in all, I see improvement, but still not quite to the industry-leading standard yet.

John Pitzer: Ross, do you have a quick follow-up?

Ross Seymore: Yes, I do. The gross margin side, Dave, you gave some puts and takes for the full year on a bunch of different metrics but you didn't mention gross margin. How should we think about that? And forgive me, the 40% to 60% incremental, I know you guys give kind of -- you can drive a truck through. So anything perhaps just a little more precision directionally, it would be helpful.

David Zinsner: I'm not even sure the math is that good on this, this time around. When you look at Q1, the gross margin decline in Q1, there's 2 main components. Obviously, revenue coming down with a largely fixed cost business is going to affect gross margins. But the other piece of it is Panther Lake, while the cost structure improves from Q4 to Q1, it's still dilutive to the corporate average, and it's a bigger percentage of the mix. So it actually has a relatively negative impact on gross margin. So that's partly why we're guiding down. There's some mixed things going on as well. I think as we progress through the year, the 2 things should benefit us.

One, we improve our supply, ergo, that should improve our revenue picture. On top of that, Panther Lake's cost structure gets better and better. Look, we talked about the incremental improvement every month, we're going to see in yields. We're working on the throughput as well. So those 2 things combined, that should help in terms of cost structure and make this more of an accretive product to us as opposed to a diluted product. And I think that will be a lot of what is the story around gross margins for the year. There's still mix and mix can go in any different direction depending on how things play out.

But what we're largely focused on for the kind of the next 12 months is driving the cost structure of these products that we're building to improve the margins. We know that 34.5% is by no means an acceptable level of gross margins. And we're actively working it, first to get it to 40% and then once we get it there, we'll move to a new target.

Operator: And our next question comes from the line of Tim Arcuri from UBS.

Timothy Arcuri: Dave, I'm wondering in the guidance, you're guiding to $12.2 billion, but I'm wondering if you can kind of pro forma that for us like if you could meet all the demand, what would the kind of unconstrained guidance be for March?

David Zinsner: Yes. It's a squishy figure to figure out, Tim, but I would tell you that if you look at kind of that $12.2 billion relative to the $13.7 billion we posted in the fourth quarter, and look at normal seasonality. It's in the range of seasonal but it's at the low end of that range of seasonal. We'd be well above seasonal if we had all the revenue or supply, I should say, to hit the revenue.

John Pitzer: Tim, do you have a follow-up?

Timothy Arcuri: I do, thanks. Lip-Bu, there's obviously a lot of excitement about your foundry business. It sounds like we might get a few customer announcements maybe in the second half. But I just wanted to ask you, what do you define as like success in that business? I think prior to you arriving, the mantra was sort of to be #2 -- the #2 foundry player by 2030. If you look at most of the forecast for that #2 player at somewhere in the range of like $30 billion and revenue up by that time. Is this still kind of a reasonable bogey that you're shooting for? And like what do you consider as a successful outcome for that?

Lip-Bu Tan: Yes. Thanks. Good question. So I think we are determined to commit to drive the world-class foundry business. So I think, first of all, on the 14A, I think we clearly, development is on track. We like what we see. And we simplify the whole process flow. Most important is kind of building up the IP portfolio so that we can serve the customer. Some of the IP is very critical in order to serve the customer. The other part is on the yield and improvement. We see a trend of improvement, and we also see the valuations getting better.

I think in the long run, I think clearly, we are kind of anticipating the -- we have heavy engaging in some of the key customers. We think that the second half of this year, they're going to indicate to us what kind of capacity firm commitment so that we can deploy the capacity CapEx to really build that. So I think all in all, I think it's a service business, We really built a trust and the consistency we're able to deliver. And then we have the PDK on the 14A first quarter, 0.5. And then we're starting to engage with customers with the key products that they want to run with us. So I think all in process.

I think in the second half of this year, we were able to have the commitment that we can really drive the scale of the operation.

David Zinsner: Another early indicator, I think, of success in the foundry is going to be advanced packaging. And we'll start to see that revenue come in even before we start to see meaningful wafer revenue. And I think as I was talking to investors over the past kind of 12 to 18 months, I was thinking that those opportunities would be measured in hundreds of millions of dollars and wafer opportunities would be measured in billions. I'd say some of the early customer engagements suggest that we'll be well north of $1 billion on many of these opportunities for advanced packaging. So they're way more exciting than even I had expected.

And it's because we have really good technology there that's very differentiated and supports AI in a way that is particularly special.

Lip-Bu Tan: I think the EMIB-T, I think, is a very big differentiator for us. And then clearly, we have a couple of customers willing to even prepay the subscript -- because [ subscript ] is very big supply shortage and then they're willing to share with us. That means that show the commitment they are going to be working with us.

Operator: And our next question comes from the line of Joe Moore from Morgan Stanley.

Joseph Moore: Yes. I wonder if you could talk about server prospects. You sort of talked about some of the challenges of Diamond Rapids not having symmetric multi-threading and Copper Rapids is going to be important. Can you give us a time frame on Copper Rapids and sort of what's your expectation for the potential for market share puts and takes as you wait for that to come?

Lip-Bu Tan: Yes, good question. So I think, first of all, I would centralize the data center and AI under Kevork that I hire in to help us to build that. He already built the team and then include some of the -- recruit some of the talent on board. I think the more important right now, we are laser-focused in 16 channels Diamond Rapids and we simplify the product road map. And then the other part is accelerate the introduction of Coral Rapids. And Coral Rapids will have the reintroduced the multi-thread into our data center workforce. So I think overall, we are very positive. The team is in place now.

The road map is very clear, and we are very decisive for doing that. and are laser focus on the Diamond Rapids 16-channel and also accelerate the Coral Rapids introduction.

John Pitzer: Joe, you have a quick follow-up?

Joseph Moore: Yes, sure. And just in terms of the mix for the rest of the year, are you able to move wafers towards data center away from PC? Is that something that you're thinking about and just -- it seems like the constraints are at their worst point in Q1 and get better, but I assume you're still constrained beyond that. Are you able to move the mix towards data center?

David Zinsner: We're absolutely constrained, Joe. So what we're doing within client we're focusing on the mid- and high end and not as focused on the low end. And then to the extent we have excess, we're pushing all of that into the data center space to meet that customer demand. And I think you'll see some share adjustments based on that because our primary focus is to our main customers. And obviously, we have important customers in the data center side. We have important OEM customers on both data center and client and that needs to be our priority to get the limited supply we have to those customers.

Operator: And our next question comes from the line of Ben Reitzes from Melius.

Benjamin Reitzes: My first question is about seasonality throughout the year. So Dave and Lip-Bu. I mean you're subseasonal in the first quarter, you said you'd be well above seasonal if you had the supply. So what does that imply for 2Q to 4Q? Should we model that above seasonal or are the constraints in PC so much that we shouldn't?

David Zinsner: Yes, I mean, we would expect to be better than seasonal through the year if we can get the supply to where we think we can as we get into 2Q. So that's correct.

John Pitzer: Ben, do you have a follow-up question?

Benjamin Reitzes: Sure. I wanted to ask about, with regard to the hyperscaler situation in servers. It's -- in terms of your momentum there, is this mostly driven by hyperscaler? Or do you feel like the shortage is mostly impacting them, making you subseasonal? Or is the enterprise demand also are you seeing it there?

Lip-Bu Tan: Yes. I think, let me answer that question. I think the hyperscaler is very important for us to scale the business, and I spent a lot of time with the hyperscalers. I think a couple of thing. One, clearly, message from them is the CPU actually is driving a lot of that business in terms of the different workloads that they're driving. So I think it's very encouraging to see that they are willing to commit long-term agreement. So we really prioritize their CPU deployment. So that something is very positive.

And then secondly, I think they are very excited about working with us in terms of decide working on the silicon, the software and the system level engagement, and that something is also very exciting. So all in all, I think they are very strong. The workload they shared with us what they're looking at and what can we helping them. And also the ASIC design also is an opportunity for us. They also want to build some of the purpose-built silicon with the Xeon CPU included. And also, they are very interested about overall, how do you use the advanced packaging and then to make it more complete.

I think overall, I think it's a great opportunity for us to work with them.

Operator: And our next question comes from the line of Stacy Rasgon from Bernstein Research.

Stacy Rasgon: For my first question, I wanted to dig a little bit into the segments. So I mean if I sort of run the math, like Mobileye is going to be up and the Altera foundry revenues maybe close to a couple of hundred million dollars. I mean both DCAI and client to be down pretty meaningfully. And the client's down more -- I mean maybe DCAI is down high single digits and clients' down like mid-teens. But I guess, number one, is that true? And number two, like why should data center be down so much given where the demand is and given where you're prioritizing? Like why would I expect data center units to be down?

It seems like they have to be down pretty meaningfully in Q1.

David Zinsner: Yes. I mean, both will be down as a function of supply. Obviously, we're shifting as much as we can over the data center to meet the high demand. But we can't completely vacate the client market. So we're trying to support both as best we can and obviously work our way out of this supply issue. I do believe that the first quarter is the trough. We will improve supply in the second quarter. And part of the challenge is that in the third and fourth quarter of '25, we lived off of supply, but we also had a reasonable chunk of fixed finished goods inventory to also work through.

Unfortunately, that is now down to kind of 40% of what it was at peak levels. So we don't have that to rely on. So it's just literally hand to mouth, what we can get out of the fab and what we can get to customers is how we're managing it.

John Pitzer: Stacy, do you have a follow-up question?

Stacy Rasgon: I do. I mean just to push on that a little bit. I mean, you guys have your own factories, like why are you in the inventory situation that you're in? And then -- I mean, even if you look at -- I get the whole idea about finished goods versus other stuff. But I mean like you have $11.6 billion of inventory. And yet, it's not in the right place at the right time. Like how does that happen?

David Zinsner: That's largely a win. I'll tell you, Stacy. I think the biggest thing is that we if you go back 6 months or so ago and looked at what the outlook was. Core count was absolutely looking like it would increase, but the units were not expected to increase. And every hyperscaler customer we talked to was signaling that. And obviously, it has rapidly increased over the third and fourth quarter. And in talking to a few of them right before this call, I got the feeling like it was going to be a story we'd feel for several years.

And yes, the advantage we have is we do have our own fab so we can squeeze out supply as much as possible, which is what we're working on, but we directionally weren't managing the supply to an expectation that there would be unit increase that significantly in data center.

Operator: Our next question comes from the line of Vivek Arya from Bank of America Securities.

Vivek Arya: For the first one, Lip-Bu, I'm curious, when do you think Intel should start getting any credit for external foundry efforts because you mentioned that you might hear of awards in the second half of this year. I assume that you start building the capacity for that, right, sometime late this year or next year. So when do you actually start to get a decent amount of revenue from those customers? And I think you mentioned that building this business will take incremental amount of resources. So what level of external foundry revenue does Intel need to call this business a success? And when do you get that? Is it '27? Is it '28? Is it later?

Lip-Bu Tan: Yes. Good question. I think first of all, I think the engagement with our potential external customer on the 14A are very active right now, a couple of key customers are working with us. We expect them to really go through the milestone basis on 0.5 PDK and then starting to look at the test chip and look at how is our yield performance. And it's going to be a process to work with them. And then I think the second half of the year, then they're starting to satisfy, then they're going to asking us, okay, now this is the particular product we're going to run with your foundry and the production.

And then the indication to us and that's the time my discipline is until they have a commitment to the volume, then starting to really build and the foundry expansion so that we can meet their requirement. And then the other part parallelly, they also give us a list of IP. If it's a mobile related, you have to be low power IP that we need to have. If it is data center related, it clearly will be the performance, the connectivity, all these things that we need to really get it ready so that we can serve the -- service as a customer to meet their requirement.

So it's parallelly on the IP readiness and also our yield readiness then is, I think, satisfied. Okay. Now this product. This is a volume we're going to run with you and that's how you're starting to build. So in terms of 14A, realistically in terms of, I call it, the risk production in the later part of 2027 and real production, volume production in 2028. That is similar to the same time frame as a leading foundry.

David Zinsner: And I'd just say, we probably will be able to give you a lot more color around all of these things at the Analyst Day that Lip-Bu mentioned will have in the back half of the year.

John Pitzer: Vivek, do you have a follow-up question?

Vivek Arya: For my follow-up, I'm curious, what do you think is the server CPU TAM in 2026? How much of that is x86? How much of that is ARM? I mean if you are supply constrained, is the entire industry supply constrained? Do you think that whatever you can't supply all that market share is going to go to your x86 competitor and to everyone in the AI community that is building ARM-based servers? So like when do you think your supply -- how much does the market grow? And when do you think your server CPU supply constraints come off?

David Zinsner: Okay. Maybe I'll start and you -- so I think this demand, what we're seeing is largely an x86 phenomenon because it's an upgrade cycle in a lot of ways around older networks that have to talk in some way to the AI systems and the performance is not where it needs to be. So I really view this as x86. Of course, we do have another competitor in the space, and we'll be jockeying for position from a market share perspective. I think we will make great strides on the supply as we progress through the year. So I wouldn't envision that to be the fundamental driver ultimately a market share.

And it's really about products and Lip-Bu talked about getting to a 16-channel Diamond Rapids out, accelerating the introduction of Coral Rapids. Those will be the things that are most important for us as we look at market share dynamics in the coming years.

Lip-Bu Tan: I think from my side, I think clearly, hyperscale and the high-end OEM, ODM is critical for us on the server side. And then we're basically working with them. Their first choice is the CPU from Intel. And that is a very clear message from them. They will try to get as much as we can give them. And then I think that's the key home driver.

Operator: Our next question comes from the line of C.J. Muse from Cantor Fitzgerald.

Christopher Muse: I guess to follow on Stacy's question around supply. Considering your bullish commentary and AI-led demand and how you're supply-constrained and your peers, TSMC and Samsung Taylor are aggressively slotting for equipment delivery. Do you worry that if you wait for late 2026 to place orders that the lead times then might be longer than you thought? And as part of that, why wouldn't you look to be more aggressive today?

David Zinsner: Yes, maybe I don't know if this is the answer to your question, but I mean we are aggressively getting tools on Intel 710, Intel 3 18A, that is happening. And we will be increasing our wafer starts as aggressively as possible on those nodes. What we're holding back on is 14A because 14A is really linked to foundry customers, and it does not make sense to build out significant capacity there until we know that we have the customers that will accept that demand. And so that's just the discipline we're going to have.

I'd say the other thing with regard to a lot of this around supply is, Lip-Bu's first focus and our short-term focus is we think we gain a lot of supply just by doing things better with our existing tools and footprint, getting yields improved, getting cycle times improved and we're aggressively working on that. And we think there's lots of opportunity to improve our supply just on those 2 things that don't require CapEx, quite honestly. And that's something that's probably more unique to us right now than to other foundries.

John Pitzer: C.J., do you have a follow-up question?

Christopher Muse: Yes, John. Just to hit on the press release, you talked about demonstrating technical feasibility on High NA for future HVM. And so just curious, is that something you're still contemplating for 14A? Or is that more of a 10A adoption?

David Zinsner: It will be part of our 14A process. Of course, there will be different variants of 14A, but High NA is targeted at 14A.

Operator: And our next question comes from the line of Harlan Sur from JPMorgan.

Harlan Sur: Lip-Bu, as you look forward to 14A, you talked about engineering engagements with customers. And typically, the largest fabless semiconductor companies in the world want to run their own test chips to assess the new foundry node, and they typically wait for PDK 0.4 or 0.5 before they start their test chip designs, it looks like they can get started now on test chip design with the release of your PDK 0.5. So I guess the question is, have customers commence test chip designs or are they maybe even further along than that and customers are already running their own 14A test chips now?

I mean, in order for them to make decisions on 14A in the second half, they need to be running their test chips fairly soon. So if you give us an update there.

Lip-Bu Tan: Yes, good question. So I think you're absolutely correct. A couple of customers we are already engaging about the PDK 0.5 and they are looking at the test chip. And also more important is a specific product they're going to run to our fab foundry. And that one, we are working with them. And then, of course, they want to know the capacity, the pricing, those are all in the discussion right now. So that's why I mentioned the second half of this year, they're starting to satisfy, then they can starting to say, okay, now we need this volume and we need particular fab from yours to do it.

And then also the other part is, do we have all the right IP to serve them? And so those are the things that we are parallelly process with their supply chain and also their design teams to work with them. So this is a very complex step and that we are very familiar, we are working in the right way.

John Pitzer: Harlan, do you have a follow-up question, please?

Harlan Sur: Yes. On your server portfolio, I apologize if I missed this earlier, but Clearwater Forest, right, your E-core sort of cloud workload optimized server platform that was targeted to be the first server platform to use your 18A manufacturing and ramp first half of this year. But Lip-Bu, you talked about server road map changes to focus on more performance-focused products. So is the team still supporting Clearwater Forest? Or just focusing now on Diamond Rapids? And has the team taped out or taped in your next-gen Xeon 7 Diamond Rapids products and any preliminary views on ramp timing of Diamond Rapids?

Lip-Bu Tan: Yes. So answer to your question is, yes, we continue to do this and support that. And what I mentioned about focus on the 16-channel of Diamond Rapids is kind of focus on the high end of the Diamond Rapids so that we can really laser focus and really providing a differentiating competitive products. And then the other part is, as I mentioned in the past, this multi-threading is very important in terms of driving the performance. And the one that we can really come out with and it takes time to have that and we're going to have that in the Coral Rapids.

Now the question mark is how can -- how much can we accelerate that -- pull in earlier, customer is really excited about that, "Lip-Bu, can you pull it up earlier?" That's why I work with Kevork and his team to see how -- what are the way we can really drive that acceleration to bring the market -- to bring the customer earlier.

Operator: And our final question for today then comes from the line of Aaron Rakers from Wells Fargo.

Aaron Rakers: I have 2, if I can fit them in. But on the memory side and what we're seeing in the market, I'm curious of how you guys are seeing customers react to memory. Is there a potential demand disruption in the PC market? Just any kind of curiosity on what you're seeing in that? And how impactful is memory pricing to the gross margin, given obviously, I think, stronger for longer Lunar Lake demand.

Lip-Bu Tan: Yes, good question. So I think industry facing a very big challenge is the memory constraint and also the pricing. So I think we also listen to our customers, some of the bigger players and in the OEM and the bigger player in the hyperscale, they have more access into the memory locations. So we kind of hear from them. And then secondly, I think some of the smaller ones, they are really challenging to scramble to get the memory. So I think that will be very important for us, Dave and I, how to allocate and also our sales great -- in how to allocate to the right customer.

We don't want to have a CPU, we sent to them, but they are missing the memory, they cannot complete the products. So we try to do it correctly and then -- that is very important to have that intelligence and then also feedback from the customer to work with us and so that we can fulfill their requirement. Dave?

David Zinsner: Yes. I think on the Lunar Lake side, I think we've got what we need based on the current forecast, of course, that could always tick up, and then we would need more memory which would kind of impact gross margins. But we were relatively aggressive in terms of getting the memory early. So I feel like we're in a relatively good place there. Now that said, those margins are low because the memory is in package. So that is an impact to our gross margins as well. But I think we're largely in the place we thought we would be a quarter or 2 ago.

John Pitzer: Aaron, do you have a quick follow-up?

Aaron Rakers: I do, and I'll be really quick. I'm curious on the custom ASIC side, you talked about hitting $1 billion of run rate business. How do we think about the progression of that? And how broad is the customer base within that opportunity set?

Lip-Bu Tan: Good question. I think Dave mentioned earlier, is a $100 billion TAM market opportunity. And we are delighted. We are already in the run rate of $1 billion. It's a robust demand and customers really excited about what we have in terms of the CPU Xeon and also the AI-related momentum. So they're more building a purpose-built silicon for AI and network and cloud. And that part, I think we continue to work on that. And also more important for them is also the advanced packaging, make that more compelling. And that's the advantage of Intel that we can do both to provide the customer delight. And so that, I think, is a good opportunity for us.

With that, thank you again for joining us today. As we move forward, I remain focused on disciplined execution and deep collaboration with our customers to seize the meaningful opportunity created by AI era. While we have a lot more to do, we are confident in the foundation that we built and the progress underway. We're looking forward to provide you another update in April.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.