Thanks a lot. George, I guess I wanted to double quick on gross margin. It came in, obviously, below for Q3 and Q4 is about 400 basis points below what it was thought to be. So there's not much of a recovery in Q4. And I certainly understand the weaker enterprise and government and mix, but you were already pretty cautious on those segments and you already paid the price for the pre-quals on the Tiger Lake. So it sounds like that's at least on track. And Q4 revenue is about as you thought it would be three or so months ago if not a bit better. So I guess I'm just trying to understand how mix could account for this much lower gross margin. I guess, the point that investors are going to say is that this is competition and it's the beginning of a slippery slope. So I wonder if you can both talk about that. Thanks. George Davis (CFO): Thanks Tim. You summarized what happened in the third quarter well. The fourth quarter is quite similar with a few changes I'll mention. The two-point decline in the third quarter was due to it being different than we anticipated, with a much heavier mix in entry-level PC markets for both consumers and education. This affected the average selling prices even though we experienced strong demand for units. In the server, enterprise, and government sectors, after two consecutive quarters of growth at 30%, we saw a drop of 47% year-over-year. This market has historically been healthy for us from an average selling price perspective. Additionally, growth in our system on chips for the data center negatively impacted our average selling prices since they have lower average selling prices compared to server chips. Overall, this was a story about mix. We are noticing increased competition in the second half of the year, but it's not at levels beyond our expectations. We are confident in our position for the year. So, ultimately, it's a mix issue and very different from what we anticipated initially. Bob Swan (CEO): Maybe just… George Davis (CFO): Go ahead, go ahead. Bob Swan (CEO): To add, I wanted to mention that one other dynamic impacting us is the demand for our 10-nanometer products. Initially, we projected that it would increase by 20% in the second half of the year, but now we're looking at an increase of over 30% from our earlier estimates. This change is largely due to the strong demand for the Tiger Lake product we launched in the third quarter, which has resulted in double the design wins expected to be on the shelves during the fourth quarter, along with the ramping of three high-volume manufacturing fabs to boost supply. We're now anticipating more 10-nanometer products than we expected just 90 days ago. This is an important point to add to George's comments. George Davis (CFO): Yes. In Q4, you will see greater benefits from Tiger Lake as the volume increases. Consequently, notebooks will contribute more in Q4 compared to Q3. As we mentioned, we believe cloud digestion will begin, which may reduce gross margins since we do not anticipate E&G returning. The stronger notebook performance will improve flow-through, and we expect a similar gross margin outlook as before. However, this is a mixed situation, and we believe that as the mix normalizes, gross margins will become healthier. Trey Campbell (Head of Investor Relations): Thanks Tim. Operator? null (Operator): Yes, sir. Our next question comes from the line of Harlan Sur of JPMorgan. Your question please.

Good afternoon. Thank you for taking my question. Another question on gross margin. So the positive 10-nanometer demand acceleration this year, obviously, good to see but it is having the impact of muting your gross margins. You're still coming off the learning curve. But this should be a tailwind to gross margins in 2021 as more of the volume is going to be on 10, you're getting through the early yield learning and higher cost profile this year. Is that how the team sees it? And if so, should we expect the team to recapture the 200 basis points of gross margin next year that you gave up this year because of the more aggressive 10-nanometer pull-forward? George Davis (CFO): We believe that as we transition to 10-nanometer technology, which is replacing 14-nanometer, there will be an impact on margins. Despite seeing cost improvements and yield performance enhancements for the 10-nanometer process, these factors should have a positive effect moving forward. The influence of 10-nanometer technology will continue to be significant in 2021, as we indicated previously. The earlier ramp has altered our expectations for 2020 a bit and has created some pressure. However, I wouldn't characterize 2021 as a period of simply benefiting from tailwinds. We do have other positive factors contributing to our gross margins in 2021. For example, our IoT group experienced difficulties this year, but we anticipate a recovery which should help our margins. Mobileye has already shown year-over-year growth in the third quarter and we expect that growth to accelerate. Additionally, we saw an unusual trend with enterprise and government, where we had a strong first half followed by a weaker second half, but we believe things will normalize. While cloud absorption might take some time, we expect cloud services to rebound in 2021. Furthermore, our exit from the modem business should improve margins as we reduce our modem sales, and we also expect our planned exit from the NAND market to provide a one- to two-point boost to gross margins next year.

Great. Thank you. George Davis (CFO): Next question operator? null (Operator): Thank you. Our next question comes from Blayne Curtis of Barclays. Your question please?

Hey guys. Thanks for question. Maybe just drilling down on the gross margin. Just looking at the op margin in DCG 32%, I think that's the lowest ever. So maybe if you can just redo that answer, I guess just focusing on gross margins in data center, because that's an area that you haven't yet really ramped 10-nanometer. So I'm just kind of curious how to look at that business as that layers in. And also you fold Optane in later. George Davis (CFO): Yes, we experienced lower revenue than anticipated due to the decline in E&G. The significant drop of 47% year-over-year in average selling prices has impacted our gross margin, which subsequently affects our operating margin. Additionally, we've included the Habana business in our spending profile, leading to some increased expenditures as we invest in AI. Overall, we expect strong margin performance in DCG as E&G recovers and the cloud sector improves. Bob Swan (CEO): As George mentioned earlier, there has been a 15% decline in average selling price year-on-year. However, examining the business segments reveals that cloud growth remains robust, with a mid-30% increase year-to-date. The cloud segment is performing relatively well. Our communications business also experienced substantial volume growth, as our role in networking and edge computing expands. Nonetheless, this significant unit volume growth is accompanied by lower average selling prices compared to our typical cloud and enterprise operations. Additionally, the enterprise decline has been considerable, where average selling prices tend to be higher, and this mix effect contributed significantly to the 15% average selling price decline. Although George highlighted these mix dynamics, the strong cloud growth indicates that the E&G segment is doing relatively well, having increased by 34% in the first half of the year. When factoring in third-quarter volumes, the E&G business is flat year-to-date in a challenging macro environment. Overall, during the second quarter leading into the third quarter, inventory levels in the channel seemed relatively high but decreased significantly in the third quarter. Consequently, being flat year-to-date aligns with our initial expectations, with a stronger first half and a weaker second half. George Davis (CFO): Yes. Another way to look at it, Harlan, is that we had a year with strong performance in the second half, while the first half showed significant increases in operating margin for DCG year-over-year. What we are observing is in line with our forecast of a weaker second half, which closely resembles the normal trends we expect in the first half.

Thanks for the color. George Davis (CFO): Thanks, Blayne. Next, operator? null (Operator): Thank you. Our next question comes from the line of John Pitzer of Crédit Suisse. Please go ahead.

Yes. Good afternoon, guys. Thanks for letting me ask question. Bob, I appreciate your comments around 7-nanometer and your ability to kind of want to maintain maximum flexibility around your 7-nanometer decisions. But there comes a point in time where your own lead time for capacity or a foundry's need for lead time for capacity forces the decision upon you guys. So I'm wondering if you could just help us understand the window close to when you have to make a decision on 7 and if you could help us understand kind of the scenarios we should be thinking through. Is this as much as an all or nothing? Or are we talking percentages here? And how should we think about that? Bob Swan (CEO): Thank you, John. We have a strong product lineup planned for 2020, 2021, and 2022 across client, server, and IoT segments. We feel confident about the next three years not only for our CPUs but also for GPUs for AI and FPGAs. Looking ahead to 2023 and beyond, we are assessing the necessary products and comparing our processes with those of external suppliers. Our evaluation criteria are fairly straightforward: we prioritize schedule and predictability, product performance, and supply chain economics—essentially our ability to maintain control over our supply chain. We are considering all these factors as we approach the end of 2020 and early 2021, as that will be the time to decide whether to invest in more 7-nanometer equipment or to collaborate with a third-party foundry on capacity. Since our last conversation, our 7-nanometer process has shown significant improvement. Previously, we encountered an issue that we have since resolved, and we've made great strides. However, we will continue to assess both our foundry and third-party options based on those criteria, with a decision coming towards the end of this year or early next year. In response to your last question about whether this is an all-or-nothing situation: we evaluate server or client needs, large cores versus small cores, and various segments within our product lineup. It is not necessarily an all-or-nothing scenario; it's likely a blend that will best support a reliable schedule of leading products for 2023 and 2024, similar to our expectations for 2020, 2021, and 2022. We expect to gather further insights over the next three months, which will help us make a more informed decision by January.

Thank you. Helpful color. null (Operator): Thank you. Our next question comes from the line of Joe Moore of Morgan Stanley. Your line is open.

Great. Thank you. I wonder if you could talk a little bit about the server roadmap. And in particular, you've talked about Ice Lake being kind of more volume early part of next year and Sapphire Rapids also next year. It seems like a pretty quick transition to what seems like a pretty important Sapphire Rapids launch. Can you just talk about how that's going to play out with those two being so close together? Bob Swan (CEO): I believe, Joe, we have maintained a clear roadmap over the past 18 months, with Cascade Lake transitioning to Ice Lake by the end of the year and ramping up early next year. We see a very appealing and enhanced feature set for Sapphire Rapids, which is slated for release about four quarters later. This has been the plan we have communicated to our customers over the last 18 months, and there is considerable excitement surrounding the release of Ice Lake and the upgraded features of Sapphire Rapids. As long as we can keep this plan consistent and predictable, it allows our customers to prepare effectively. We aim to continue delivering a sequence of leading products, potentially within a timeframe of four to five quarters, which aligns with our past strategies.

Okay. So just to clarify, will Sapphire Rapids see increased volume in early 2022? Or am I being too precise in my question? Bob Swan (CEO): You're doing a little too fine cutting it. Thanks a lot. null (Operator): Thank you. Our next question comes from the line of Tristan Gerra of Baird. Your line is open.

Hi, good afternoon. Under a scenario where TSMC starts building leading node processes for you and I understand you haven't - you still have to reevaluate all of this over the next 90 days, can you explain how easy it is to transition from TSMC back to your internal manufacturing? How comfortable that is? And would that be for existing type of architecture or more like chiplet type of architectures? Bob Swan (CEO): Yes, that's a great question. I outlined the criteria regarding when we might consider transitioning to TSMC, primarily focusing on three factors: schedule predictability, performance, and economics. We are confident in our ability to transition our technologies to TSMC. Additionally, we also assess how easily we could revert back if necessary for either our core products or chiplets. Overall, we are increasingly confident that if moving to TSMC makes sense, we can do so. Furthermore, if we decide to come back to our internal manufacturing, we can manage that as well. These observations are general, but the decision can become complex depending on the type of product—whether it’s larger cores or more synthesizable cores. We are actively evaluating the conditions under which these transitions should occur.

Great. Thank you very much. Bob Swan (CEO): Thanks. null (Operator): Thank you. Our next question comes from the line of Pierre Ferragu of New Street Research. Your question please. George Davis (CFO): Pierre, please make sure your line unmuted. Using the speaker phone, lift the handset.

Can you hear me well? George Davis (CFO): We can now.

I would like to revisit the PC market and your comments on market share. It appears that you are regaining market share in the lower segment of the notebook market. How is the higher end, particularly regarding the gaming community? How did Q3 perform, and what are your expectations for the year ahead? Bob Swan (CEO): I’ll begin. George may add more later. Firstly, we have achieved a 9% increase in unit volume year-to-date and an 11% increase in the third quarter, with the total addressable market likely experiencing growth in the high single digits. At the start of the year, our goals were to increase capacity, which we have successfully done, launch strong products, and use this additional capacity along with an improved product roadmap to regain market share. Although we are uncertain about the exact Q3 total addressable market, we believe we've managed to recover some market share thus far, largely by focusing on the higher-end segment and reclaiming some of the small core market. These gains have been supported by a market that is performing better than we expected, as well as a significant shift in product mix that occurred in the third quarter, which we anticipate will continue into the fourth quarter, favoring mobile notebook products where we believe we have an excellent product lineup. Overall, we are expecting mid to high single-digit growth for the total addressable market this year. Our volume for the first nine months stands at 9%. We expect strong adoption of our 10-nanometer product during the holiday season and a robust supply chain as we approach this busy period. George Davis (CFO): Yes. In the first half of the year, we noticed an increase in our presence in the entry markets. However, we lacked the capacity to cater to both the higher-end PC markets and the entry-level segment. We anticipated a shift in product mix, but it was more pronounced than we expected in the third and fourth quarters. This has given us a chance to regain market share in this area. Frankly, if we could have produced more than what we did in the third quarter, we could have sold it, as the demand is exceptionally strong as we move into the fourth quarter and increase our capacity. We are optimistic about recovering and growing our share in the second half, especially after experiencing a decline in the entry market during the first half.

Thank you. George Davis (CFO): Thank you, Pierre. null (Operator): Thank you. Our next question comes from Chris Danely of Citi. Your line is open.

Hi. Thanks, guys. Actually just a clarification first and then a longer-term question on gross margin. So when you talked about the reasons for the pressure on gross margin as far as mix goes I just want to make sure that there's no I guess aggressive pricing on your part or no pricing pressure from the competition? And then my longer-term question is, it seems like some of these headwinds on pricing such as mix and more comm revenue are not going away. So do you think longer-term, we should look at your gross margins as maybe being the range being a little bit lower than what you've indicated previously? Or is that going to be offset by the NAND situation? Maybe just a little clarification there. George Davis (CFO): Sure, I'll begin and Bob may want to add some points. Regarding the pricing challenges, they are primarily related to mix. We are experiencing the competitive environment we anticipated. While there is some pricing pressure from competition, the significant change is largely due to shifts in mix. Concerning long-term effects, we are in a unique situation this year, which has been a 55-45 split, along with a drastically different mix. Both factors have largely been influenced by COVID-related demand changes. Therefore, I wouldn't make too many long-term predictions based on this. Our priority is to maintain a competitive profile across all segments, and we believe that the mix will normalize to resemble 2019 levels more than those of 2020 in the long run. Bob Swan (CEO): As we approach the end of the year, I would like to address the outlook for 2021, considering that we face both tailwinds and headwinds. Overall, I believe these factors are relatively balanced compared to the long-term outlook we provided in May 2019. To emphasize some of the tailwinds, we have made strategic decisions regarding lower-margin businesses. For instance, this week's announcement on NAND and the anticipated decline in modem volume as we move into 2021, along with our exit from the home device connected business earlier this year, contribute positively to our business mix as we start the new year. Additionally, we have made significant advances in 10-nanometer yields this year, and we expect further improvements as we continue to mature next year. Furthermore, we will still maintain a considerable portion of our volume in 2021 at 14-nanometer, which will include an increasing amount of fully depreciated equipment. These tailwinds are consistent with what we anticipated 6, 12, or even 18 months ago. The decision regarding NAND remains a key positive factor. However, we do face some headwinds, particularly as we shift more of our volume from 14 to 10, which aligns with our plans. The competitive landscape remains largely unchanged from our prior assumptions, but one of the main uncertainties now is the mix, which has surprised us somewhat, particularly due to the dynamics in the second half of the year related to COVID and its implications for 2021 and beyond. Nevertheless, I would say there's a roughly equal chance of experiencing positive tailwinds or negative headwinds in this area. In summary, while we have both tailwinds and headwinds, I would characterize our position as somewhat improved compared to where we stood in May 2019.

Thanks a lot. That's very helpful. Trey Campbell (Head of Investor Relations): Bob, maybe just a couple of thoughts, if you want to close the call out. Bob Swan (CEO): Yes. Well, first thanks for joining us. I'd just say through a very challenging market environment, we expect to grow revenue this year by $1.8 billion and free cash flow by $1.5 billion to $2.5 billion above what we laid out back at the beginning of the year. So despite all the inherent challenges, we'll deliver a stronger year and we'll have a better product portfolio as we go into next year. Second, we are relentlessly focused on delivering a predictable cadence of leadership products. And as I said in the prepared remarks, we have a great product lineup through 2022. The fact that we're working really hard on 2023 at this stage I think is a relatively good position to be in. Third, we continue to extend our reach and accelerate our growth by meeting these key technology inflections such as cloud, 5G, intelligent and autonomous edge computing and AI. So I think we're positioning more and more of our resources into real strong growth characteristics. And last thing I'd just say is we're incredibly grateful for the dedication and resiliency of Intel employees, the partners that we work with, and our collective efforts to continue to retain a health and safe environment while delivering for our customers. So we are collectively inspired by our purpose, which is simply to create world-changing technologies that enrich the lives of every person on Earth. And I can't imagine a time where that purpose could be more important than it has been during the course of this year. So thanks for joining us and we'll talk to you soon. Trey Campbell (Head of Investor Relations): Thanks, Bob, and thanks everyone for joining the call. With that operator, let's go ahead and close the call. null (Operator): Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.