All right, Pat Gelsinger, CEO of Intel. You just reported Q4 earnings, and it wasn't so much a matter of Q4, it's that Q1 guide that's first getting people's attention. So break that down for me if you will. I know you said a part of this is that Q1 is going to be toward the low end of seasonal, and then part of it is non-core areas like Mobileye, etc., that aren't performing. First, tell me about the low end of seasonal. How much of that is inventory? How much of that is demand? Why the low end of seasonal?
Well, first John, we got to start. We had a great Q4 finishing a great 2023, so I'm going to remind you that we beat on top and bottom line in Q4. We had four quarters that we beat last year. We had a good year and an important year of transformation for the company. Obviously, we bring that momentum into Q1. I would say on the low end of seasonality, and seasonality Q4 to Q1 has a wide range, but in the core businesses, the products are healthy, the market share we think is strong, so there's not any particular news there. We just see a little bit of, I'll say, more conservatism in the market outlooks as we come into the year. But we also said we're expecting the year to improve quarter on quarter, sequentially, year on year, so we expect that we're well set up for a good year. We did mention that part of the Q1 guide is driven by about a billion dollars of these unique events in the different business areas that are non-core, exited businesses, some of the inventory issues that have already been talked about in the industry. So if we take those and separate them, we'll just say the Q1 guide is just fine. The year's going to be good. We come into it with a lot of momentum, and we're quite optimistic that the great financial performance of '23 will continue into '24.
I got to go back on the lower end of seasonal thing though, just because I got to acknowledge, yes, the beats on Q4 itself, but on Q1 there are a number of things it could be. It could be market share losses in general, could be leftover inventory issues which I know you had that big moment a few months ago where the excess inventory got cleared out. So just give me a little bit of a sense: is it excess inventory, is it CPU in OEM, is it market share loss, is it a mix of things?
Well, I do think there's a little bit of the market view as we come into the year which is leading the channels and the OEMs to be a little bit more conservative in their outlooks. But I'd say that Q4 to Q1 variability is often the case. That said, we look at it, our market share looks healthy. We don't see any unique inventory issues outside of the non-core areas that we've already talked about. So we think the Q1 guide is just where the market is right now in terms of its outlook. And we see our products are well positioned, our competitiveness is good, our market share is solid, and we believe that we'll be improving in all of those metrics as we go through the year. It's going to be a solid year for Intel. You know, AI PC tailwinds, our improving data center product line, the momentum of our AI accelerator. We see this being a good year, and our financial performance and the disciplines we brought into the business, we're on solid footing and looking forward to outperforming again in 2024.
Tell me more about that. You said in Q2 and in the back half of the year you really do have an expectation of topline improvement in the business quarter to quarter. So what gives you that confidence? There was a big refresh of PCs during the pandemic, and now I've had questions about how much of that gets refreshed and how quickly. Have you seen enough consumer behavior to feel confident that you understand how that's going to happen?
Yeah, and I'd say as we look at the market and the analysts, everybody's predicting a slightly increasing PC market year on year. The product line is very healthy for us. We've launched our Core Ultra, we've ushered in the AI PC category. We also have a Windows 10 end of service, four years since the COVID cycle began. So all of those, we believe, give natural tailwinds to the PC market as we go through the year. And with a strong product line, a new category I've defined, it's like the Centrino moment if you remember, John. That was ushering in the Wi-Fi category, redefining the PC. That's how we think about the AI PC. So every aspect of this, we just think the market gets stronger and stronger as we go through the year. And I've probably met with 50 customers between CES and the World Economic Forum in Davos. Every one of them is reinforcing that same message, looking forward to that new category and how they're going to start to define new use cases, new productivity. And PCs, the ultimate Darwinian device, are evolving yet again to be that productivity tool for consumers and for businesses. I believe it's going to be a good year for us in the AI PC category and overall in our business.
Now to the overall strategy, five nodes in four years. And for the people who don't think about chip manufacturing all day, that's five revs of the process technology, about twice as fast as that normally happens. Where are you relative to where you were a quarter or two ago in your confidence that that's happening?
Yeah, every quarter we've just been building more and more confidence that we're going to make it happen. Obviously, one of the things that we just described on our earnings call is the first product going onto 18A, and 18A is the fifth of those five nodes, so it's sort of finishing the gauntlet. So we sent our first product, our Clearwater Forest, our 2025 server product, is now in fab on that. So that's a huge statement of the confidence of the process technology but also the product execution. So we're on track to make five nodes in four years happen, getting back to process technology leadership. I'll just say everything there, we're executing. The S-do ratio around Intel is very high, and this in particular, getting process technology leadership that enables both our foundry business and leadership products, on track. It's been a stunning year of execution in '23, and we have a lot of momentum as we come into '24 to make all of that happen and get back to process leadership.
That process leadership is going to be an essential piece of the foundry strategy, being able to manufacture chips for third parties, which is an area where Intel hadn't had big emphasis in the past. But you do have it now. And so as a piece of that, you announced an agreement with United Microelectronics Corporation, UMC, not on leading edge process technology but having to do with 12 nanometers. So in the context of the foundry strategy, tell me why that's important and what that's going to allow Intel to do two, three years from now.
Yeah, thanks John. And the relationship with UMC is on older nodes, 12 nanometers. Our most leading edge node is sub-2 nanometers, so that just gives some view of where that falls. But the idea is that Intel was always ramping new factories for new nodes and then we moved on to the next node. We didn't run them for a long time, and that was one of these aspects of the foundry business where those are great cash flows when you've depreciated those assets, you've matured the factory processes associated with it. And this is part of being in the foundry business. So this relationship with UMC strengthens our position in the Taiwan ecosystem, takes advantage of an older factory in our Arizona site, brings another component of a foundry technology that we and UMC will develop and take to market, and give us more things on the foundry menu. And obviously, we had good momentum for adding our fourth 18A, that leading edge technology. We added another customer on Intel 3, the Valin announcement. We added three more customers in advanced packaging, and now a whole new portfolio with the UMC relationship. Overall, the foundry business is coming along very nicely, and people are increasingly realizing indeed Intel will be a Western foundry at scale. Key new factories coming online, like the New Mexico advanced packaging factory that we announced. Overall, we're executing and being the foundry that the Western world is looking for. Quite excited about the momentum that we have.
