Chief Executive Officer at Intel
Thank you, John, and good afternoon, everyone. Q4 was the culmination of a year of tremendous progress towards our IDM 2.0 transformation. We consistently executed on our plan to reestablish process leadership, further build out our capacity and foundry plans, greatly improved product execution and began to execute on our mission to bring AI everywhere across our product segments.
We delivered solid Q4 results exceeding expectations for the fourth quarter in a row. Revenue was at the higher end of our guidance, and we had strong EPS upside, as a result of our ongoing relentless focus on driving operating leverage and expense management, including comfortably meeting our $3 billion cost savings commitment for fiscal year '23.
2023 was definitely a year when we did what we said we would do and more. We intend to make 2024 another such year. And when we look out over the next 12 months, we are confident that we can continue to drive considerable progress on our IDM 2.0 journey.
As we look into Q1, our core business, including client server and edge products continues to perform well and is tracking to the lower end of seasonal. However, discrete headwinds, including Mobileye, PSG and business exits, among others, are impacting overall revenue, leading to a lower Q1 guide. Importantly, we see this as temporary, and we expect sequential and year-on-year growth in both revenue and EPS for each quarter of fiscal year '24. Momentum and excitement around new products and businesses remain strong, as we head into the year and will grow stronger, as the year progresses.
We could not be prouder of the execution across our process technology road map in 2023, we became the world's first high-volume manufacturer of logic devices using EUV in both the U.S. and Europe, as we aggressively ramp Core Ultra on Intel 4 in both Oregon and Ireland. Intel 3 achieved manufacturing readiness in Q4, as committed with solid performance in yield progression. Our two lead vehicles on Intel 3 are on track, and we look forward to launching Sierra Forest in first half '24 followed shortly thereafter by Granite Rapids. Sierra Forest has final samples at customers and the production stepping of Granite Rapids is running ahead of schedule well into power own validation and very healthy.
We are even more excited about breaking into the Angstrom era with Intel 20A and Intel 18A. We are first in the industry to have incorporated both gate-all-around and back-side power delivery in a single process node, the latter and expected two years ahead of our competition.
Arrow Lake, our lead Intel 20A vehicle will launch this year. Intel 18A is expected to achieve manufacturing readiness in second half '24, completing our five nodes in four-year journey and bringing us back to process leadership. I am pleased to say that Clearwater Forest, our first Intel 18A part for servers has already gone into fab and Panther Lake for clients will be heading into fab shortly.
As we complete our goal of five nodes in four years, we are not satisfied nor are we finished. We have begun installation of the industry's first high-NA EUV tool in our most advanced technology development site in Oregon aimed at addressing challenges beyond 18A. We remain focused on being good stewards of Moore's Law and ensuring a continuous node migration path over the next decade and beyond.
Third-party engagements with IFS continue to validate our progress on this technology. We launched IFS with a long-term view of delivering the world's first system foundry that brings together a secure and sustainable supply chain with the best of Intel and our ecosystem. While our ambitions will not materialize overnight, we made tremendous progress in both Q4 and fiscal year '23 towards our goal of becoming the second largest external foundry by 2030.
The rapid adoption of AI by all industries is proving to be a significant tailwind for IFS, as high-performance compute, an area, where we have considerable wafer and packaging know-how, and IP is now one of the largest and fastest-growing segments of the semiconductor market.
We made major strides in building our foundry ecosystem in 2023 with now over 40 strategic agreements across EDA design services, IP, cloud and U.S. military aerospace and government. Critical agreements with ARM and Synopsys continue to gain momentum. We delivered the Intel 18A 0.9 PDK and broadened its availability in Q4. We expanded the RAM C program significantly, and just this quarter signed a major foundry contract with the United States government and Department of Defense.
We are also very pleased to have completed a major agreement with United Microelectronics, or UMC, to develop a 12-nanometer process platform targeting high-growth markets, including mobile, communication infrastructure and networking. This expands both Intel and UMC's foundry process portfolios and customer access to a broader and more resilient supply leveraging our Arizona site.
This agreement builds upon and furthers our long and deep relationships with the vibrant Taiwan ecosystem. This also meaningfully extends the production life of our installed capacity and improves our returns on investments, similar to the announcement last quarter of our Tower Semiconductor partnership at the 65-nanometer node with our New Mexico site.
Our success with IFS will be measured by customer commitments and revenue. We have taped out more than 75 ecosystem and customer test chips. IFS already has more than 50 test chips in the pipeline across 2024 and 2025, 75% of which are on Intel 18A.
During CES, we welcomed Valens Semiconductor to the growing list of foundry customers, as they announced they would use IFS to fabricate their MIPI A-PHY chipsets using our advanced technology. In addition to the three Intel 18A customers we disclosed in Q3, we won a key design win with a significant high-performance computing customer. This customer was particularly motivated by our unique leading-edge manufacturing capabilities and U.S. capacity. We came into 2023 committing to one 18A foundry customer. We executed on four inclusive of a meaningful prepay and our momentum continues to grow.
Our advanced packaging business is proving to be yet another important advantage for IFS, a faster on-ramp to broader foundry relationships. During the quarter, we captured three additional advanced packaging design wins, bringing the total to five in 2023, with the majority of revenue starting in 2025.
To support our growing demand, just yesterday, we opened Fab 9 in New Mexico, marking a milestone for high-volume 3D advanced packaging manufacturing. The momentum in advanced packaging is very strong and is another facet of our foundry strategy, which is clearly benefiting from the surge of interest in AI.
With leadership technology and available capacity, our opportunity set continues to grow. In total, across wafer and advanced packaging, our lifetime deal value for IFS is now over $10 billion, more than doubling from the $4 billion we provided in our last update.
Supporting our growing momentum in IFS is our global manufacturing footprint. We are the only semiconductor company with that scale and sustainable manufacturing in every major region of the world providing ourselves and our foundry customers resilient access to the right capacity in the right regions at the right time. All of our expansion projects in the U.S., EU, and Asia are progressing on schedule, and our chips applications in the U.S. and EU are progressing well.
Finally, we are thrilled to be hosting our first foundry Day, IFS Direct Connect on February 21st in San Jose, where we will have the opportunity to showcase the breadth of our ecosystem, as well as begin to talk about our process road map beyond Intel 18A, next-generation packaging and our full foundry vision. We hope to see many of you there.
Intel continues its mission to bring AI everywhere. We see the AI workload as a key driver of the $1 trillion semiconductor TAM by 2030. And given our foundry and product offerings, we're the only company able to participate in 100% of the TAM for AI Silicon logic.
We have already discussed how our 50-year heritage in high-performance computing transistors and our advanced packaging positions IFS to benefit from the accelerating move to AI. Within our product portfolio, we are the only company with the products, IP and ecosystem reach to empower customers to seamlessly integrate and effectively run AI in all their applications from the cloud through the network, into the enterprise client and edge.
For the developer working with multi-trillion parameter frontier models in the cloud, Gaudi and our suite of AI accelerators provides a powerful combination of performance, competitive MLPerf benchmarks and leadership TCO. As AI proliferates and the world moves towards more AI integrated application, there's a market shift toward local inferencing and smaller, more nimble models. It's a nod to both the necessity of data privacy and an answer to its cloud-based inferencing cost and round-trip latency.
With AI accelerated Xeon for enterprise, Core Ultra ushering in the AI PC era and OpenVINO enabling developers seamless and versatile support for a range of clients and edge silicon, we are bringing AI to where the data is being generated and used rather than requiring it in the cloud. Our expansive footprint spanning cloud and enterprise servers to volume clients and ubiquitous edge devices positions us well to enable the AI continuum across all our market segments.
In Q4, our server business experienced solid sequential growth, consistent with market share, which we believe was flat with Q3 levels. Since launching 4th Gen Xeon in early 2023, we have shipped more than 2.5 million units with approximately one-third of all 4th Gen demand driven by AI.
With our 5th Gen Xeon launch, we enable up to 42% higher AI inference performance compared to the industry-leading 4th Gen Xeon. 5th Gen Xeon has reached general availability at Alibaba, is entering public and private previews with several CSPs and is on track to ship with OEMs next month.
More importantly, our improved execution is strengthening our product portfolio with Gen 4 and Gen 5 Xeon ramping well, Sierra Forest and Granite Rapids coming soon, and Clearwater Forest already going into the fab. Momentum is building and positioning us well to win back share in the data center.
Our Gaudi2 AI accelerators continue to demonstrate price performance leadership compared to the most popular GPUs. In a recent blog published by Databricks, Gaudi2 was shown to clearly deliver the best training and inference performance per dollar based on public cloud pricing. We're building on this momentum with Gaudi3, which is on track to launch this year and is expected to deliver performance leadership with 4x the processing power and double the networking bandwidth for greater scale out performance. Gaudi3 is now in the lab, powered on and showing great health and performance and Falcon Shore is also well underway.
Our accelerated pipeline for 2024 grew double digits sequentially in Q4 and is now well above $2 billion and growing. We recently increased our supply for both Gaudi2 and Gaudi3 to support the growing customer demand, and we expect meaningful revenue acceleration throughout the year. As we announced last quarter, we are now operating PSG as a standalone business beginning on January 1st. Our intent is to bring in private capital this year to create an eventual path to an [Phonetic] IPO over the coming years.
As we outlined on our Q3 call, PSG is in the midst of an industry-wide cyclical correction for FPGAs, which we expect to last through the first half of '24. Despite the financial correction, operational momentum is strong, and PSG executed its most ambitious FPGA road map, delivering 21 new product releases in 2023 and executing supply assurance agreements valued by our customers.
Finally, even as we congratulate Sandra Rivera, the new CEO of PSG, I am extremely pleased to welcome Justin Hotard, as Executive Vice President and General Manager of DCAI. Justin joined us from Hewlett Packard Enterprise, where he was Executive Vice President and General Manager of High-Performance Computing AI and Labs. He will play a key role in helping customers accelerate their businesses with our Xeon processor family, delivering on our commitments to customers and partners by increasing our GPU and accelerate our footprint and supporting our mission to bring AI everywhere.
Moving to client, CCG performed very well in Q4, posting the third consecutive quarter of double-digit sequential growth. Demand reflected a normalized inventory environment with sustained strength in gaming and commercial with our highest-end SKUs exceeding Q3 records by 20%. The 2023 consumption TAM was roughly 270 million units consistent with our views entering the year, and we expect the PC TAM up low single digits year-on-year in 2024, in line with third-party estimates. Our share position is strong, and our product portfolio for 2024 and beyond and ecosystem work will continue to drive industry-leading performance and experiences.
In Q4, we ushered in the age of the AI PC with the launch of Intel Core Ultra, representing our largest architectural shift in decades, the Core Ultra is the most AI-capable and power-efficient client processor with dedicated acceleration capabilities across the CPU, GPU and Neural Processing Unit or NPU. Ultra is the centerpiece of the AI PC, systems that are capable of natively running popular $10 billion parameter models and drive superior performance on key AI-enhanced applications like Zoom, Adobe and Microsoft. We expect to ship approximately 40 million AI PCs in 2024 alone with more than 230 designs from ultrathin PCs to handheld gaming devices to be delivered this year from OEM partners, Acer, Asus, Dell, HP, Lenovo, LG, MSI, Samsung Electronics and others.
The Core Ultra platform delivers leadership AI performance today with our next-generation platforms launching later this year, Lunar Lake and Arrow Lake tripling our AI performance. In 2025 with Panther Lake, we will grow AI performance up to an additional 2x. NEX is well positioned to benefit from the proliferation of AI workloads on the edge, where our market-leading hardware and software assets provides improved latency, reliability and cost.
OpenVINO adoption grew by 60% sequentially in Q4 and today is a core software layer for AI inferencing on the edge, on the PC and in the data center. NEX is also driving the shift of AI networking in the cloud from proprietary technologies to open Ethernet-based approaches in partnership with a broader industry ecosystem. NEX Q4 results beat our internal forecast and the division is poised for solid growth in 2024 across edge network and ethnic products more skewed to the second half.
Yet another growing market opportunity for us is automotive. While Mobileye is experiencing a sharp inventory correction in Q1, we are encouraged by their improving forecast throughout 2024 and more importantly, the recent announcement at CES that they were awarded a series of production design wins by a major Western automaker across the company's three key platforms, SuperVision, Chauffeur and Drive.
In addition to Mobileye's strengths in AV, at CES, we announced the launch of AI-enhanced software-defined vehicle SoCs with Geely's Zeekr brand, as our first OEM partner and our agreement to acquire Silicon Mobility, a fabless silicon and software company specializing in power management SoCs focused on EVs. These announcements build on shared IP across clients and data center, and our existing Intel SoC footprint of more than 50 million vehicles worldwide. Our strategy will continue to broaden our exposure to the growing auto market on both the product and the foundry sides of our business.
Finally, underpinning our across-the-board progress in 2023 is our operational and financial discipline. As our new internal foundry model, which is designed to drive greater transparency, accountability and focus on cost begins to take root. We expect to unlock further cost savings and efficiencies in 2024 and beyond. We have officially transitioned to this new operating model on January 1st, and we'll report the new segmentation format, as part of our Q1 earnings. We see incremental efficiencies, as we drive to our long-term model of 60% gross and 40% operating margins.
As I reflect on our progress in 2023, I am incredibly proud of our employees, whose commitment and perseverance were instrumental to the execution of our ambitious strategy. Together, we exited the year accomplishing exactly what we set out to do. We improved our execution engine consistently being on track or ahead on our process and product road map. And as I said at the beginning of my remarks, we are confident in our performance and financial trajectory for the year ahead. We know we have much work in front of us, as we work to regain and build on our leadership position in every category in which we participate. We will maintain our relentless focus on our mission and commitment to driving long-term value for our shareholders.
With that let me turn things over to Dave.