Pat, I just wanted to get a little bit more color on the inventory dynamic you're talking about. Your inventory is up internally, but you're talking about some of the inabilities to ship with match sets, et cetera, going forward. So can you guys just give a little more color on where the specific Intel inventory is versus a more generic inventory and shortage problem, specifically in the PC side of your business, it seems? Pat Gelsinger (CEO): Yes. Thank you, Ross. And I'll just start out by saying, again, I'm really pleased with the execution of our team and what had plenty of turbulence in Q1, and to meet and beat in Q1 was really spectacular. Now on the inventory piece, we did talk about that we are building 10-nanometer inventory. We have new products that we're ramping into the marketplace. And we do see some of those will be reversals as we go into the latter part of the year as that inventory will start flowing through the product area. So we would say this is very typical management of new product ramps and specifically around Sapphire Rapids, Alder Lake; we'll start seeing Raptor Lake as well. So those will be the key areas that you'll see that inventory shift occurring. Also, as we've indicated, we did see our customers' inventory burn down in Q1. We expect some of that to be in Q2 as well. But by the second half, we expect those adjustments, and obviously the strength of second half outlook, we do expect much of that inventory burn to have finished in the first half and a strong second half as we're ramping our new products that will have much better performance features, some of that with higher costs, but also coming with higher ASPs. null (Operator): And our next question coming from the line of C.J. Muse with Evercore ISI. Tony Balow (Head of Investor Relations): Operator, why don't you go to the next caller? We can just come back to C.J. later. null (Operator): Our next question is coming from the line of Stacy Rasgon with Bernstein Research.

I know you held the full year, but I mean the first half is kind of coming in lower, so it does kind of imply that you're taking the second half probably up versus the prior expectations. But in that light, obviously, we've got PCs that maybe look like they're at risk. You talked about China shutdowns that if they last longer, that could bring risk. You talked about issues, I guess, with server builds with your customers that you said would persist. I guess what gives you the confidence that things actually will be inflecting? And it looks like you're looking for kind of a hockey stick across all of your businesses in the second half to the first? Like how do investors get confidence that that's after the way things are going to be playing out and that you've built enough conservatism in the guide? I guess, long story short, I'm asking why hold the annual guide in the wake of all that? Pat Gelsinger (CEO): Thank you, Stacy. We clearly exceeded expectations in Q1. For Q2, we are slightly adjusting our outlook due to some factors, but it remains in line with our expectations. We have always anticipated a stronger second half of the year, which boosts our confidence. We have accounted for potential uncertainties in our yearly guidance, as any prudent company would. Let me highlight some factors that support our confidence. First, we are experiencing strong growth in our DCAI and NEX businesses, which have long lead times with our customers. We also see strength in our enterprise and governance sectors. As we transition from the first half to the second half, we typically experience normal cyclicality, and this time we expect to benefit from a robust product lineup with Alder Lake and Raptor Lake, along with improved inventory management for Raptor Lake and Sapphire Rapids. In the second half, we have an impressive array of products coming in, including discrete products from AXG and mobile products we launched in Q1, along with our new GPU offerings with Arctic Sound, the ramp-up of Ponte Vecchio, and our blockchain products. We anticipate strength in our Mobileye business as well. All these elements contribute to our confidence for the second half, aligning with the outlook we shared on Investor Day. We have accounted for a small overperformance in Q1 and some weakness in Q2, and we are positioned to achieve what we outlined. We are gaining momentum, thanks to our strong execution in the first quarter related to products, manufacturing, and navigating supply chain challenges. We are confident in our outlook for the second half. null (Operator): Our next question is coming from the line of C.J. Muse with Evercore.

Apologies for the confusion earlier. I guess given the change in segments, I would love to try to set the stage here for what expectations should look like for the big 3, CCG, DCAI, and NEX into Q2? And then for all of 2022, if there's any way you can kind of help plus or minus to the relative growth rates that you're guiding to for both June and the full year? Pat Gelsinger (CEO): Yes, thank you, C.J. This is the first quarter where we are providing clear updates regarding the six business units. This includes separating the NEX business from what was previously counted as part of the data center for better clarity on their performance. In the client business, we anticipate some seasonality in addition to strong product line performance. For DCAI, we expect growth to continue into the second half of the year, and we achieved significant year-on-year growth in the data center and AI sectors in Q1. We also foresee NEX growing at a faster rate than the market, which is a strong business for us. Our position in the Network and Edge markets is particularly advantageous, evidenced by over 20% growth in Q1. While we may not maintain that growth rate throughout the year, it's still a solid growth area. Additionally, I’d like to point out that businesses like IFS, AXG, and Mobileye are showing strong growth, and we expect more meaningful contributions from them in the second half of the year. This addresses Stacy's earlier question as well, highlighting solid growth across all business areas and an overall positive outlook for the second half, with improved product and execution strength. null (Operator): Our next question is coming from the line of Pierre Ferragu with New Street Research.

I'd like to focus on the 10-nanometer node and Intel 7. And maybe for you, Dave, first, you mentioned 100 basis points driven by improved yields. It's like really music to my ears, as you can imagine. And I'd love to hear a bit more, visibly this came as a surprise. So what's happening there? And could we hope for continued improved yield on Intel 7 driving some positive surprise on the gross margin? Or should we assume that this node has a very little room to improve? And maybe for Pat on the same topic, Intel 7, I don't know if it reflects reality, but there is a lot of noise in the market about products ramping slowly, which is a cadence at which Sapphire Rapid is ramping. It seems a bit slow, a bit difficult. So my question in all candor is do these nodes, 10-nanometer and Intel 7, make it difficult to get into the market with products? Is that slowing the pace at which Intel can execute on the velocity of the roadmap? And should we expect things to go much, much faster when you move to Intel 4 and Intel 3? Pat Gelsinger (CEO): I'll start, and then I'll ask Dave to jump in. Overall, as we mentioned, our five nodes in four years are performing well. Intel 7 is ramping more quickly than we anticipated. We recently updated that Meteor Lake, our first product on Intel 4, is now powered on. For Intel 3, we will see the test wafers with our leadership products like Sierra Forest. Just today, we taped out our first Granite Rapids compute die as well. We also expect the test wafers for 20a and 18a to be significant foundry nodes. Overall, the technology pipeline is doing exceptionally well, and I'm very proud of our teams. Intel 10 is also ramping effectively, and we are experiencing good yields, which adds to our momentum. In terms of products, Alder Lake has been a standout, ramping ahead of our expectations, confirming the health of Intel 7. Sapphire Rapids had its first peer PRQs this quarter, with more SKUs expected in the second half of the year, which may explain the more subdued ramp. However, we delivered on our commitments regarding the first quarter PRQs of Sapphire Rapids, and we anticipate seeing strength in that area moving forward. Additionally, Ice Lake has ramped nicely for our 10-nanometer server product. Overall, our technology and manufacturing capabilities are performing well, setting a positive outlook for this year and the future. Dave, would you like to add anything? David Zinsner (CFO): Yes. So we had a good quarter in the first quarter in terms of yields. We are going to see a little bit of pressure on 10-nanometer in the second quarter. That's part of the reason we're seeing margins down to the low end of our stated range of 51%. But we do expect 10-nanometer to become a tailwind for us as costs improve through the back half of the year. And although Intel 7 is behind that, we're expecting the same from Intel 7. null (Operator): Our next question is coming from the line of Joseph Moore with Morgan Stanley.

Dave, I believe you mentioned that CPU ASPs and client sales increased by 25% year-over-year. That's a significant figure. Can you clarify how much of that is due to a shift away from products like Chromebooks and how much is attributed to the success of new offerings like Alder Lake? Could you provide some additional insight on this? David Zinsner (CFO): I mean a lot of it is obviously mix, either shifting away from consumer education and newer product ramps. But as I said in the prepared remarks, given the inflationary environment, we are looking for targeted price increases in certain segments. So that really hasn't shown up that much yet, but will be part of the story going forward through the year. Pat Gelsinger (CEO): Yes. And I'll just say, overall, the product line is healthy. We're seeing the mix shifts as you move to Alder Lake, Raptor Lake being very strong, Ice Lake as well. We'll start to see Sapphire Rapids factor into that in the second half of the year. So overall, we're coming into a stronger product cycle, Joe, which just gives us more opportunity to deliver higher value to customers, remix the products to higher price points. But overall, just have a more competitive product line as we continue to compete for market share as well. null (Operator): Your next question is coming from the line of Harlan Sur with JPMorgan.

On Accelerated Computing and Graphics, client discrete GPU market is a pretty big market opportunity for Intel, right, $12 billion, $13 billion per year. So it looks like you guys started ramping your Arc GPU into notebooks now. Your first gen product, the reviews look quite constructive. Is the team still on track to roll out desktop versions this quarter and still on track to ship 4 million-plus discrete GPUs this year? And then any feedback from customers or gaming developers will be helpful as well. Pat Gelsinger (CEO): Thank you, Harlan. Overall, AXG is progressing well. We have launched the mobile SKUs and will introduce the desktop SKUs in Q2. More SKUs will be added throughout the year as we expand our product line. There is significant work involved in qualifying games, and if you're a gamer, you understand that much individual optimization is needed for key titles. This work is currently in progress, and we are collaborating with our OEMs to enhance their product portfolios. You will see an increasing number of products entering the market, and we are set to release three versions: 5, 7, and 9 throughout the year as we develop that portfolio. Additionally, AXG has a wide range of products launching across various segments, including high-performance computing, data center GPUs, and blockchain products. Beyond our discrete graphics offerings, we have numerous products being introduced. Overall, we are on track to meet our volume goals and the $1 billion revenue target set during Investor Day, aiming to build this into a $10-plus billion business over the next five years. We see this as a substantial opportunity, bolstered by technologies like Deep Link, which leverage our strong installed base and years of software development within the PC platform. These factors contribute to our confidence in establishing a significant new business, transitioning from a small starting point into a vast, rapidly growing market that Intel is actively pursuing. null (Operator): Your next question is coming from the line of Vivek Arya with Bank of America.

So the Q1 CapEx was about $4.6 billion, suggests a very big ramp in the back half to get to your $27 billion net CapEx target. We are hearing of a lot of constraints on equipment supply. I was hoping, Pat or David, if you could give us some color on the availability of tools and if there are any implications on your full-year sales outlook because of the availability of tools? Pat Gelsinger (CEO): Yes, I'll begin with that, and then Dave can add. Overall, capital expenditures are uneven throughout the year. However, we believe we are still on target to meet our overall CapEx goal. We are proactively collaborating with equipment companies, maintaining solid, long-term relationships with them. Currently, we are aggressively working on our equipment objectives for 2023 and 2024, and we are confident that we have the supply chains in place to support our equipment needs and effectively manage the factory ramp cycles we've planned as we launch new facilities, such as our recently announced Oregon fab. We are also beginning to receive equipment for our Ireland facility and will soon start ramping up our Israel fab. We plan to break ground on our Ohio site later this year and will provide more updates about the German fab. We are diligently executing our capital expansion strategy and are pleased with our partnerships with equipment manufacturers. That said, there is some strain on the equipment supply chain. We are closely coordinating with our equipment vendors, many of whom utilize Intel FPGAs, to ensure we prioritize that demand and support their requirements. Dave, do you have anything to add? David Zinsner (CFO): Yes. I would just add that we did expect this quarter to be a bit lower than the quarterly average for the year to get to the $27 billion. So it's not a complete surprise, although it was lumpy, as you said, and did come in a little bit lighter. But we feel good. I would say the other thing is that when you look at it, I think we feel confident about the $28 billion growth CapEx. The $27 billion net CapEx obviously assumes a $1 billion of capital offsets. And I'd say the early read and of course, we're still early in the year, but looks quite good. So there's a potential we could actually do a bit better on the offset side, so that the net CapEx could potentially be a little bit better. null (Operator): Your next question is coming from the line of Matt Ramsay with Cowen.

I wanted to ask a couple of questions on the DCAI segment. The revenue, I guess, went from $5 billion to $6 billion from last year, and you have operating margin down, I guess, 7 points. And I guess it's no surprise after some of the disclosures that we had last year. But maybe you could tease that apart a little bit mix between enterprise and cloud, were there big changes there? And I guess the real question, Pat, is what gets that margin moving in the right direction? Is it the move to Sapphire, where you have multi-die products that might yield better? Is it revenue growth? I'm just trying to understand the drivers to turn around the operating margin in that segment as we go forward. Pat Gelsinger (CEO): Yes, I'll start with that. Overall, the DCAI performed slightly better than our expectations for Q1. I would say this aligns with our predictions. The main factor influencing margins was the ramp-up of the 10-nanometer product line and its associated costs. This was the most significant factor. During this period, we also experienced some strength in the cloud segment, while the hyperscalers and enterprise segments faced constraints related to matching sets. We did observe some of that impact in Q1. Looking ahead for the rest of the year, we are optimistic about both the hyperscaler and the enterprise and government segments. We are actively working to resolve the matching set issues, and we hope to improve in that area if we can address the shortages we’ve encountered, particularly with Ethernet. As we move into the second half of the year, the product line is set to strengthen further. With the ramp-up of Sapphire Rapids, we will be launching products like Sapphire Rapids, HBM, and aggressively increasing the volume of Ice Lake as we enter the latter part of the year. These developments point towards positive movement for the product line and corresponding improvements in margins. We have also received positive feedback regarding the long-term strategy for our segment and roadmap. As previously mentioned, we will offer both efficient and performance cores that better meet market demands. I believe this will lead to improved pricing and margins over time, as we won't be forced to stretch a single product across two distinct market segments, allowing us to create highly optimized products for both hyperscaler and enterprise needs. Overall, we think the strategy we've outlined has been well received by our customers. As I indicated earlier, we are on track to execute with Sapphire Rapids' first PRQs this quarter, with many more to follow throughout the year, and we will ramp that up aggressively while receiving positive customer feedback. Notably, with Sapphire Rapids, every hyperscaler and OEM has numerous SKUs prepared, and we anticipate this product will be highly regarded, accepted, and widely deployed in the market this year. Dave, do you have anything else to add? David Zinsner (CFO): I would just add, we set out a goal in the Investor Day for the company to have gross margins of 54% to 58% and call it, roughly 30% operating margin. And I think when we start to see the fruits of the investments we're making, both in terms of process technology that's weighing down on the COGS and the investments we're making in operating expenses to build out the product portfolio and get to leadership, those things will start to show strong scale on the top line side. And so I would bet this business is accretive to our overall corporate average. null (Operator): Your next question is coming from the line of Timothy Arcuri with UBS.

I had two. I guess the first question is, TSMC is kind of pushing out the timing of the high-volume 3-nanometer EUV. And I guess the first question is sort of how that impacts your GPU and your CPU roadmap? And then I had a follow-up where really, Dave, I wanted to ask you on how you're going to account for subsidies? Are you going to account for those kind of in a contra account, so that as the depreciation ramps, you could offset some of that with that contrary account coming from subsidies? Pat Gelsinger (CEO): Yes. And on the first part of it, clearly, the implications of foundry timing is something we have to work very carefully. And there is not just a question of the timing of a node, it's also the capacity of nodes. And with some of those changes that have been reported in the industry, we're just working through that with our product teams to make sure that we're aligning well to the availability of the foundry technologies. But I would say that our IDM model just gives us fundamentally an advantaged business model here, where given the majority of our volumes are internal, we are able to balance between what we use externally for wafers and what we use internally for wafers. And thus, we're able to do a much better job satisfying our customers and having a more competitive product line. I'd also again add, Tim, that our execution of our five nodes in four years on or ahead of schedule across it, this just reinforces the competitiveness that we've described where we do see ourselves coming back to a position of unquestioned process technology leadership, and we're building out the manufacturing capacity at scale to deliver that to our customers. So IDM 2.0, well leveraging the foundries, but even more importantly, building leadership technologies with that scale manufacturing to deliver the most robust product line in the industry. So Dave? David Zinsner (CFO): Yes, it somewhat depends on which capital offset you are referring to. Grants are typically aligned with a specific set of assets and are counter accounts that depreciate over the same lifecycle as the asset. Preplays, which we mentioned, function more like a financing arrangement, so they don't directly affect the profit and loss statement, but they will appear on the capital statement as a capital offset, similar to a partner contribution that helps reduce our cash flow burn. Prepays are managed as assets on the balance sheet, and as products are shipped, that account is reduced. Therefore, it depends on which aspect we're discussing, but I believe you are referring to government incentives, which are indeed counter accounts. null (Operator): Your next question is coming from the line of Tristan Gerra with Baird.

How should we look at your discrete GPU platform in terms of expanding that beyond just consumer? And if you could talk about the software ecosystem that you might be building around to encourage adoption? Pat Gelsinger (CEO): Yes. Thank you. And the answer is yes, we're going to be delivering the GPU products first for mobile, as we said, next for desktop. It will be game-centric as we're bringing them out of the marketplace. But we're also going to have a full lineup, and we see actually some very unique advantages as we think about media, some of the professional developers where we're already demonstrating a radically advantage that positions like on some of the advanced graphics and media artist product lines. So these will be areas of strength. Particularly when we bring our Arctic Sound product into the marketplace later this year, this will be well optimized for GPU environments and particularly will be strong in areas like encoding and media processing as well that if you think about cloud, you can certainly think about AI and training workloads, but many clouds are actually spending far more time on transcoding and media operations. So that will be an area of unique strength of our Arctic Sound product line. So if you think about that taken together, we'll be competing in the integrated graphics, the discrete graphics, the GPU business, the high-performance computing business will really be leveraging that technology across the entire space of the market. And that's part of the reason that we're very encouraged by our ability to ramp this into a very significant business for Intel and one where we have a lot of advantages to build upon. Tony Balow (Head of Investor Relations): Okay. Last question? null (Operator): And our last question is coming from the line of Srini Pajjuri with SMBC.

Pat, I want to go back to the Sapphire Rapids ramp. Can you discuss how the ecosystem is developing since this is a new platform, particularly regarding DDR5 and PCIe 5.0? My main question is to understand your expectations for the ramp compared to previous generations. Do you anticipate this ramp will be faster or slower than Ice Lake? Additionally, when do you expect to see a public cloud instance based on Sapphire Rapids? Pat Gelsinger (CEO): Yes, that's a great question. One of the strengths of Intel as a market leader is our ability to introduce new technologies quickly. With the Sapphire platform, we are integrating DDR5. A few months ago, we faced challenges with DDR5 due to issues with memory suppliers, which required us to debug the interfaces. Now, we are confident that multiple suppliers are qualified, and we are seeing positive momentum as our memory partners increase their supply chains for the Sapphire platform. This platform introduces a significant new memory technology into the market and reinforces Intel's leadership in the data center and server segment. We are carefully modeling this ramp compared to Ice Lake, aiming to increase the speed of the Sapphire platform's rollout. We are focused on optimizing the software stack, validating it, and addressing any initial concerns from customers to minimize defect rates. There is a strong variety of SKUs and instance types coming from all OEMs and hyperscalers in the market, and we anticipate broad availability in the second half of the year. To wrap up, thanks to everyone for joining us and allowing us to share our business updates. We are pleased to start the year on a positive note. Intel is making solid progress with our execution strategy, launching five nodes in four years, including Alder Lake, Sapphire Rapids, and Arc, while enhancing momentum with our customers. We are committed to building a balanced and resilient supply chain, and there are many positive developments underway, which give us confidence not only for Q2 but also support our guidance for the year. Our leadership team is energized, and we believe that this turnaround is exceptional. I'm honored to be part of this team. Thank you all for being here today. Tony Balow (Head of Investor Relations): All right. Thank you, Pat, and thank you for joining us today. Operator, can you please close the call? null (Operator): Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.