Thanks a lot. Dave, I wonder if you can go through the gross margin walk kind of through the rest of the year. There's a lot of moving parts. I know you have the underutilization of 300 basis points. And it sounds like you also have another 200 basis points you highlighted from these pre-PRQ costs. So you're sort of normalized at 43 ex those two things, but there's a couple of offsets, too. You got puts and takes around higher die costs from these new products like Meteor and Sapphire. So can you sort of give us a walk in terms of what the puts and takes are when you move past June? Thanks. David Zinsner (CFO): Yes. Sure, Tim. Let me provide some detail. The 250 basis points you mentioned related to the pre-PRQ reserves will have a positive impact as we enter the latter part of the year, particularly linked to Meteor Lake and Emerald. Once those products are shipped, much of that will reverse, resulting in shipping at a 100% gross margin, which will be beneficial. Additionally, as demand improves, we anticipate ramping up production at the fab. However, I want to note that we are still dealing with costs associated with under-utilization that are reflected in our inventory. It will take a few quarters even after we stop incurring these underutilization costs before we fully overcome those headwinds. Ultimately, we will increase production levels at the fabs, which will provide a favorable boost. John Pitzer (Head of Investor Relations): Tim, do you have a follow-up?

I do. Yes. Pat, I guess you have a lot of products coming out in a pretty short amount of time. Basically, you've got five data center platforms in 2.5 years. I understand that some are E-core and some are P-core, but usually, customers want to leverage their investments in these platforms for a longer time than that. So could that be some impediment to how quickly these platforms could ramp? Can you kind of talk about that? Pat Gelsinger (CEO): Yes, it's a great question, Tim. And what I'd highlight is that Sapphire and Emerald Gen 4 and Gen 5 are the same platform. So from the customer's perspective, they get to leverage those platform investments in a substantial way. Similarly, as we go into next year with Sierra Forest and Granite Rapids, that's once again the same platform. And Clearwater Forest, the following year that we disclosed in the data center webinar for '25, also goes into that same platform. So essentially, even though it's five products that we've discussed, that's two platforms. And that ability to leverage that platform across a broader market space is very warmly received by our customers. John Pitzer (Head of Investor Relations): Thank you, Tim. Jonathan, can we have the next question please? null (Operator): Certainly. Our next question comes from the line of C.J. Muse from Evercore ISI. Your question please.

Yes, good afternoon. Thank you for taking the question. You've talked about PC CPU inventory normalizing exiting the June quarter. Can you give us a sense by how much you were under shipping end demand today? How do you think about the snapback? And can you talk about the timing of planned raising of utilization, at least for your CCG business? Pat Gelsinger (CEO): Yes. I’ll start with that, and Dave can add more. Generally, we believe that we undersold in the market by about 20% in the first quarter, and this trend continued into the second quarter. Overall, we’ve indicated a total addressable market for sell-through of 270 million units for the year. This is roughly equivalent to the sell-in figures of 240 to 250 million units reported by some industry analysts. Looking at the first half, we expect to finish with a strong inventory position both by our original equipment manufacturers and within the distribution channel. This puts us in a good position for a natural improvement as we anticipate a stronger second half, where we're now selling in at the same pace as we are selling out in the typically stronger latter half of the year. David Zinsner (CFO): Yes. So we have about 155 days of inventory aggregate - in the aggregate on the balance sheet. Obviously, as we get through the inventory depletion at customers and we start to normalize back up to the level of end consumption, we'll start to burn through that inventory, and you can expect us to start ramping the factories. I don't think we'll be fully ramped by the end of the year, but we certainly will be improving the ramp through the year. John Pitzer (Head of Investor Relations): C.J., do you have a follow-up question?

Yes, a quick one. Pat, in your prepared remarks, you talked about positive feedback from tests at your customers for Sierra and Granite. Curious if you can share any of the feedback that you're hearing to give us confidence on that ramp? Pat Gelsinger (CEO): Yes. And I'd say, generally, the feedback is, wow, right? You guys are delivering at the front end of your scheduled windows that you gave us with a very high-quality product, and they're now into their, what we call, the volume validation phase of their platforms. So where they're receiving enough samples that they can start to do broad validation of the platform. That validation cycle is very critical for us because it informs us of when we're ready to move forward with the production stepping of those parts in both the software and the firmware of the platform. John Pitzer (Head of Investor Relations): Thank you, C.J. Jonathan, can we have the next question please? null (Operator): Certainly. And our next question comes from the line of Ross Seymore from Deutsche Bank. Your question please.

Hi guys. Thanks for letting me ask a question. Pat, in your preamble, you talked a little bit about some data center trends by the end markets, a little bit geographically, a little bit customer type with enterprise. I was hoping you could dig a little bit deeper into what you're seeing in the cloud side of things. The customers themselves seem to be reporting very strong numbers, but it seems that you alluded to that still being an inventory digesting end market for you. And then how Intel, specifically in cloud, is doing competitively? Pat Gelsinger (CEO): Thank you. Clearly, there was a decline in the enterprise and cloud sectors last quarter, and we anticipate this impact will carry into at least the first half of the year. However, we are optimistic about some of the comments made regarding the overall market. Our position appears to be improving, and as I mentioned in the first quarter, we observed a market segment share that exceeded our expectations. We also saw some green shoots for the first time in China. And we're encouraged by that market starting to show some positive characteristics. We'd also say that some of that strength in data center is driven by AI. And we're seeing a very positive response to Gaudi 2 and seeing our pipeline growing very rapidly for that product line. We also saw that as a driver of the early strong ramp for Gen 4 Sapphire Rapids. Those taken together, we do believe that's an important trend.

I do. I just wanted to go back and revisit the gross margin side so one for Dave. The underutilization charges, is there some trigger point at which, revenue-wise, I guess, we should expect that to go away because, obviously, that's the 300 basis point headwind, two quarters in a row of that? And then the pre-PRQ side of things, given the frequency of new product introductions that was alluded to in a prior question, it doesn't seem like those would necessarily go away that fast, or if they do for a quarter or two, they would come back. So can you just walk us through some of the puts and takes on those underutilization charges and pre-PRQ please? David Zinsner (CFO): Yes, you're correct that the pre-PRQ is often inconsistent. We experienced this with Sapphire Rapids last year. Such fluctuations will happen occasionally. However, we believe that in the second half of the year, we won't see this level of pre-PRQ reserves. The second quarter is expected to be a significant one for us. Regarding the under-loading charges, it relates partly to revenue and also to our current inventory levels. It's crucial for us to reduce our inventory from the 155 days we currently have. I think I would just say that hey, in the third and fourth quarter, I would see - I would expect to see an improving situation in terms of underloads. And likely, that will be behind us by the time we're through the end of the year, just on the period cost under load charges. We might be living with some higher cost per unit for a couple of quarters after that because of under-load that we built into the cost of the products. But ultimately, we'll have this factory, the factory network loaded back up. John Pitzer (Head of Investor Relations): Thanks Ross. Jonathan, can we have the next question please? null (Operator): Certainly. And our next question comes from the line of Matt Ramsey from Cowen. Your question please.

Yes, thank you very much. Good afternoon guys. Pat, I wanted to - the first question I wanted to ask is on sort of the node roadmap. You guys have made some good progress there, and we're working through some end market and near-term product dynamics, but focusing on the five nodes in four years. I know there's some internal nodes that are being developed as well around backside power via and also gate all around? So maybe you could give a little bit of an update as to how those roadmaps are going on those two pieces of technology individually? And I guess the second part of the question, if you do succeed in getting to node parity and the node leadership as you described, can you talk about a path to cost parity for internal and external potential customers on 18A? Thanks. Pat Gelsinger (CEO): Yes, great question, Matt. As I mentioned, we've completed two of the five nodes in four years, with Intel 7 finished and Intel 4 nearing volume production with Meteor Lake. The process is essentially PRQ-ed, and we are currently ramping the product, which will also be PRQ later this year. We feel confident that we are on track with our progress. Obviously, the next one up is Intel 3. And with Intel 3, the positive updates that we've given on Granite and Sierra Forest for next year, the volume sampling that I've already referred to gives us a lot of confidence that, that is now coming along very nicely. Both Intel 4 and Intel 3 are EUV nodes. As you say, as we go to 20A and 18A, the two major innovations are the RibbonFET, the gate all around transistor architecture and the backside power. Given the uniqueness of the backside power, as you indicated, we had an internal node that we didn't expose to products or externally to derisk that node, and that went extremely well. We achieved excellent results from the backside power, power delivery, and routability improvements. One example of this is the Arm announcement, which showcased the significant advantages of backside power. The next focuses will be on 20A and 18A, with 20A primarily serving as a client node as we prepare to launch our Arrow Lake products in 2024 and 2025. The 18A will encompass a wide range of offerings, including server products, client products, networking products, and various foundry products. We also noted that this was the quarter that we have our first foundry test chips coming out. And so some of the test chips for external customers on 18A are now popping out a fab and being tested by them. So good affirmation from them, you also mentioned, I think it's actually a very insightful question, Matt, the cost structure. And one of the things that we've put a lot of emphasis on with 18A is getting to structural cost parity with what we believe is the best in the industry at that point. So, we view this as not just getting to power and performance parity, but also area parity and cost structural parity as we get to 18A. And we believe, as we've benchmarked ourselves against the industry best, we believe we're on track to do that in the 18A timeframe. And that's part of why we talk about in the internal foundry model as being able to start really measuring the P&L right? I'm really viewing it as the industry price for wafers is understood, and we have to benchmark ourselves against that and deliver margin structure at the wafer level that's competitive with that. John Pitzer (Head of Investor Relations): Matt, do you have a quick follow-up?

Yes I do John and thank you Pat for the detail there. My second question is on server roadmap, and you guys had a helpful DCAI roadmap day a month or so ago. I guess my question is kind of related to another question that was asked on platforms compatibility. I think Pat, you mentioned a few products on the roadmap, including - up into including Clearwater Forest being on the same sort of platform as Granite? There was another product that was on the public roadmap before, Diamond Rapids, for the next sort of P-core product. Any update there? I just want to - it wasn't really mentioned in the DCAI Day, and I've had a few folks asking me about it. And is it on the same platform? Thanks. Pat Gelsinger (CEO): Yes. And while we're not speaking a lot about that next-generation product, that would be the introduction of the next-generation platform at that point would be when we move to the next platform, which will change package architecture, power delivery architecture, memory channel, key steps in memory scalability with our CXL technology. So that will be a big step in terms of the platform architecture at that point. And I'll just say, every aspect of our roadmap is getting well received by our customers for both enterprise, but also and critically for cloud customers as well. John Pitzer (Head of Investor Relations): Thanks Matt. Jonathan, can we have the next question please? null (Operator): Certainly. Our next question comes from the line of Pierre Ferragu from New Street Research. Your question please.

Sorry. Is the line is that for me clear? David Zinsner (CFO): Yes, Pierre, how are you?

Yes, sorry apologies, it's very unlucky the line gets right when you say my name. Thanks for all the details on the gross margin. And taking a step back, I'm kind of thinking between now and the end of 2025, your gross margin is going to be very volatile and very difficult to read because you have a lot on your plate, a lot of costs coming in and out with all the various nodes? And so my question would be, maybe looking at things from a much higher level, let's say, we are around about 20 points below the historic margins as Intel being in a good competitive position. Some of that is clearly a scale issue. The business has shrunk a lot recently. And then some of that is really this very difficult 10-nanometer node where the cost per unit is significantly too high? And so my question really is, from what you know already from the nodes that you have coming up like that is now very, very tangible across Intel 4, how much of this gap are you going to regain with this node, really looking at it on the wafer against wafer, without making that any sort of guide of what do you get in 2023 or '24 or '25? But forgetting about the roadmap, looking at it, wafer against wafer, what order of magnitude of improvement in pricing power do you think you get or earnings power just because you now have like a competitive cost base in your manufacturing? David Zinsner (CFO): Yes. So I'll take some of it, and then you... Maybe like at a high level, Pierre, maybe the way to think about it is, look, one element of getting to the appropriate cost structure to deliver the margins is getting our process technology to be competitive. And that's really at 18A where we intersect that. So we make improvements along the way, but that's really where we make the meaningful improvement to get there from a process perspective. Now the challenge is all along the way, there's this kind of start-up costs that we have to deal with, which is hundreds of basis points of headwind for us that we have, by virtue of the fact that we're stacked on stacked. The five nodes in four years that Pat is driving is the right strategy, but it does create headwinds on the cost side. So that - we've got to work our way through that, but once we're on the other side of five nodes in four years, we have a competitive process technology from a cost perspective. We've gotten ourselves this, let's say, significantly higher startup costs that we are incurring behind us as well. And then as you point out, you have the benefits of the scale of revenue that we would expect. And then lastly, you have, as Pat was talking about, this whole notion of the internal foundry model, which just drives a lot of attention on cost and where we think we're going to get a lot of that $8 billion to $10 billion of savings exiting 2025. So I think the way I look at it at least is that we put forth a model for gross margins. We changed the depreciation, which incrementally raises that target. And there's nothing that's going on at the company that would suggest that we're off pace from that. We think we are going to achieve that. The timing is obviously a function somewhat of the market. But other than that, we feel like we're on a great path to have those margins. Pat Gelsinger (CEO): Yes. And I would just say there will be lumpiness Pierre, right, of the ups and downs along the way, when process nodes come online, as you work through different product cycles, et cetera. But we'd say, as Dave said, we're going from the 30s into the 40s comfortably this year. We set a long-term model into the 50s that if you consider the useful life, gets us up around 60 by the end of the five-year period, as we've talked about. So we're on track to, I'll say, margins should be up and to the right as we work over time with lumpiness up and down due to these various considerations, but that's the path that we're laying ourselves upon. John Pitzer (Head of Investor Relations): Pierre, do you have a quick follow-up question?

Yes, very quick one. Pat, you mentioned Gaudi like a very, very positive benchmark on large language models. When I look around me, I don't see, like, good tangible signs of Gaudi, like really gaining traction and getting big, despite the fact that the work today is really starting for more processing power and more capacity to run these models? So my question was, am I just not seeing something that will become apparent very, very soon? Or are there still building blocks and parts and things that Gaudi is missing before really taking this very fast-growing opportunity? Pat Gelsinger (CEO): Yes. I think it's a fair commentary that we're only starting to see good positive proof points in the industry. So I think that's a fair critique, Pierre. But I'd point back to the announcement of the Hugging Face, which is the most popular sort of like the GitHub of the AI world. Very positive proof point this quarter, stable diffusion, right, another in Stability AI, important forces also my comments around a rapidly growing pipeline. Obviously, you can't measure that, but I'll tell you, we have many opportunities that we're now engaging in globally. You'll also see us taking more aggressive steps with our dev cloud presenting this as a developer environment for the market. So I think we have a lot of work to do here to show up in a meaningful way. But we think the Gaudi 2 strategy has now started to gain quite a lot of interest in the market. As I said in my prepared remarks, Gaudi 3 has now taped out, which will be the next step-up. Also, we're describing to customers our 2025 platform, the Falcon Shores product, which is another step-up. That also brings together the full offering of our HPC and AI into a single platform offering. Customers are responding very well to the, I'll say, the alignment and simplification of our roadmap in HPC and AI coming together. So overall, we feel like we're now starting to show up in this space, but we have a lot of work to do to land meaningful revenue customers in this area. And I'm hopeful that we'll be able to put some clear proof points that you can start to see in the marketplace in the near future. John Pitzer (Head of Investor Relations): Thanks Pierre. Jonathan, can we have the next question please? null (Operator): Certainly. And our final question for today comes from the line of Vivek Arya from Bank of America. Your question please.

Thanks for taking my questions. I had a near-term and then a longer-term one. So on the near term, how should we think about the second half? Right now, when I look at consensus expectations. They are set for about 15% to 20% half-on-half growth. I appreciate you're not giving guidance. But is that the kind of growth that is contemplated or reflected in the return to the low 40s gross margin? David Zinsner (CFO): Yes. I think what Pat said is, we thought things would be modestly better in the second half of the year. And that, combined with the fact that pre-PRQ reserves reverse themselves, we'll probably see some better utilization levels. That's what gives us the confidence of comfortably in the 40s, and we're not providing any specific revenue guidance on the second half? Pat Gelsinger (CEO): Well, I'd say there's three things to just think about for the second half. One is that you normally have a stronger second half in our industry. We expect that to be the case. Second is we'll have worked through a lot of the inventory issues as you go first half to second half. And we are seeing some green shoots in the marketplace. We think it's a tough market for all, right? And we're navigating through it well, as seen by our top and bottom line beat in Q1. But hey, it's a tough market out there. So we're still being fairly cautious as we look out over time. And then third, obviously, our strengthening execution. Our roadmap is getting stronger. We're gaining market share. And I think of our Q1 as a solid proof point that we're navigating through the tough environment that we have in a better way than most. So we are incrementally more positive on the second half, but we also believe we have to continue careful execution, careful fiscal discipline as we go through a very uncertain macro outlook.

Thank you, John. Pat, my longer-term question is about the role of Arm in the server CPU market. It's interesting that you're beginning to partner with Ampere on Arm servers. I assume this indicates a more credible ecosystem developing for Arm servers. I believe it's already around the mid-single digits in terms of cloud instances. How do you see the role of Arm servers evolving over the next few years? Additionally, what impact do you foresee on the x86 server CPU total addressable market if Arm gains more prominence? Pat Gelsinger (CEO): Yes. And a couple of things here, Vivek. One is the announcement that we did with Arm this quarter around IFS, it was a strong ecosystem statement for our foundry offerings and one that was focused around the mobile platform, but we do expect that we'll have a broader play over time as the announcement indicated that it's first focused on mobile, where Arm has proven considerable strength across the market. I'd also say that we think of the market and the future of four architectures matter. Arm, RISC-V, x86, right, you're playing a critical role and the role of accelerators in GPU, right? And we'll be participating across all of those, whether that's through foundry or through our product offerings. I've continued to view that if we are doing a great job with our roadmap that the role of Arm in the data center will be limited, right? And particularly with the E-core product line that we've laid now laid out with Sierra Forest, Clearwater Forest and strong products coming thereafter, we believe that we now deliver power performance TCO benefit at x86. Migrating software stacks in the data center is a lot of work, right? And if I give customers an easy path with x86 and E-core solutions with superior TCO alternatives, that will do very well. So with that, that's our primary play. At the same time, our foundry play will become one, come all. We will manufacture, right, any of the RISC-V arm, x86, and GPU alternatives for the industry through our superior capabilities in our foundry offerings over time. We view this as an industry play of great significance and one that we're committed to competing for leadership wafers across every architecture, every segment of the industry. John Pitzer (Head of Investor Relations): Thanks Vivek. Jonathan, we have time for one last question, please. null (Operator): Certainly. And our final question comes from the line of Joseph Moore from Morgan Stanley. Your question please.

Thank you. Could you discuss the CapEx? You mentioned that 10% is allocated to the foundry. I'm trying to understand if the gross CapEx is over $20 million. Does that sound accurate? Are you directing that spending mainly towards shells and capacity? Additionally, how much of that funding is designated for the five nodes over the next four years? David Zinsner (CFO): Yes. Gross will be over $20 million. We believe, as I mentioned, that we can maintain net CapEx intensity in the low 30s as a percentage of revenue, which is slightly better than what we projected during the capital-intensive phase of our transformation. Regarding the allocation, there is a significant amount of CapEx going toward equipment, and a considerable amount is directed toward shells. Currently, we are leaning more towards shell investments. In the past, we were behind in this area, which impacted us. These are long lead time investments. It's important to ensure we have a shell available when needed. Therefore, we have focused on making appropriate investments in this area, which mainly align with our own needs. Currently, we are also making some modest investments in foundry as we start to see progress with customers. As we gain more customers, we will increase that investment as necessary. John Pitzer (Head of Investor Relations): Joe, do you have a quick follow-up?

I do, yes. In terms of the sort of capital offsets that you've got another 20% to 30%, is there the opportunity for that number to be better? For example, with the CHIPS Act, as the grant money starts to get dispersed? Or you've talked about additional yield with deals like Brookfield? Like I guess are you contemplating within that number potential future improvement? Or does that number get better if we start to see benefit from those things? David Zinsner (CFO): I mean, this is our current outlook is somewhere in the 20% to 30%. It obviously can get better. It assumes that we will have another skip by the end of the year and some government incentives. But obviously, I've got the CEO out there managing the offsets. And so I think there's certainly opportunity to see upside, if not this year, next year. And keep in mind, next year, we'll also have the benefit of the investment tax credit coming in at that point, which will obviously be helpful. Pat Gelsinger (CEO): Yes. And I would just add on top of that, this is something we're working. We're engaging right now with the Department of Commerce and working through our grant applications in that area. We have modeled a certain level in the guidelines that Dave said. Obviously, we're going to be working to do better than that in this regard. And fundamentally, the CHIPS Act is all about making U.S. manufacturing competitive in the world. And that's the focus that we have and the intent of Congress as was laid out, and we hope to get those done as quickly as possible. We also had a major milestone with the EU CHIPS Act passing Parliament last week, and we continue to work on that front. And obviously, skip an investment tax credit. We're working to make our capital intensity and efficiency to be a great opportunity for us to bring shareholder returns in a meaningful way. So with that, let me just wrap up our time together. First, let me say thank you. We're grateful that you joined us. We're grateful that we have the opportunity to give you an update on our business and the progress that we're making. While the macro is challenging and plenty of headwinds out there, we also believe that our execution on our financials will be on top of bottom line, great execution on our process and product road maps. And here we are two years into my tenure, and the journey to date has had some unexpected bumps in the road. We're also beginning to see clear points that increase my confidence that we have the right strategy, the right team, and we are executing on this transformation. And we look forward to updating you throughout the quarter and our next call together. So thank you all so much. null (Operator): Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.