Patrick Gelsinger
Chief Executive Officer at Intel
Thank you, John, and good afternoon, everyone. Before we begin, given our significant and now almost 50-year presence in Israel, we are deeply saddened by the recent attacks and their impact on the region. Our utmost priority is the safety and welfare of our people in Israel and their families, but I also want to recognize the resilience of our teams as they have kept our operations running and our factory expansion progressing. Our thoughts are with all of those affected by the war, and I am praying for a swift return to peace.
Turning to our results, we delivered an outstanding Q3, beating expectations for the third consecutive quarter. Revenue was above the high end of our guidance and EPS benefited from both strong operating leverage and expense discipline. More important than our standout financial performance were the key operational milestones we achieved in the quarter across process and products, Intel Foundry Services and our strategy to bring AI everywhere. Simply put, this quarter demonstrates the meaningful progress we have made towards our IDM 2.0 transformation.
The foundation of our strategy is reestablishing transistor power and performance leadership. While many thought our ambitions were a bit audacious when we began our five-nodes-in-four-year journey roughly 2.5 years ago, we have increasing line of sight towards achieving our goal. Intel 7 is done with nearly 150 million units in aggregate of Alder Lake, Raptor Lake and Sapphire Rapids already in the market. In addition, Emerald Rapids has achieved product release and began shipping this month.
In Q3, we began initial shipments of Meteor Lake on Intel 4, which we are now aggressively ramping on the most productive fleet of EUV tools in the industry, providing us with a greater than 20% capital efficiency advantage compared to when EUV tools were first launched. High-volume EUV manufacturing is well underway in Oregon and, more recently, in Ireland. Our Fab 34 in Ireland represents the first high-volume EUV production in Europe, underscoring our commitment to establish geographically diverse and resilient supply. We are the only leading-edge semiconductor manufacturer at scale in every major region of the globe.
Our Intel 3 process is tracking to be manufacturing ready by year end, supporting our first two Intel 3 products, Sierra Forest and Granite Rapids. In fact, our production stepping of Sierra Forest is already out of fab, and what we expect to be the production stepping of Granite Rapids has already taped in and is in the fab now.
We are particularly excited by our move into the Angstrom era with Intel 20A and Intel 18A. Adding to our accelerating adoption of EUV are two key new innovations, RibbonFET and PowerVia, representing the first fundamental change to the transistor and process architecture since we commercialized FinFET in 2012. I have been studying SEM diagrams for almost 40 years. RibbonFET and PowerVia are true works of art, the most exquisite transistors ever created.
We expect to achieve manufacturing readiness on Intel 20A in the first half of 2024. Arrow Lake, our lead product on 20A, is already running Windows and demonstrating excellent functionality. Even more significant, we hit a critical milestone on Intel 18A with the 0.9 release of the PDK with imminent availability to external customers. In simple terms, the invention phase of RibbonFET and PowerVia is now complete, and we are racing towards production-ready, industry-leading process technology.
Our first products on Intel 18A will go into fab on schedule in Q1 '24 with Clearwater Forest for servers, Panther Lake for clients and, of course, a growing number of IFS test chips. We expect to achieve manufacturing readiness for Intel 18A in second half '24, completing our incredible five-nodes-in-four-years journey on or ahead of schedule.
While Intel 18A reestablishes transistor leadership, we are racing to increase that lead. We announced that innovation, our plans to lead the industry in a move to glass substrate for high density, performance and unique optical capabilities. We also announced our plans to begin installation of the world's first high-NA EUV tool for commercial use by the end of the year to continue our modernizations and infrastructure expansions of our Gordon Moore Park in Oregon, home of our technology development team.
Moore's Law continues to be the foundational driver of semiconductor technology and economics, which in turn fuels broader innovation in every industry across the globe. We remain committed to be good stewards of Moore's Law and drive advancements until we have exhausted every element on the periodic table.
Importantly, our progress on process technology is now being well validated by third parties. We have made great progress with early IFS customers this quarter, which we expect to only accelerate with the release of the 0.9 PDK for Intel 18A. A major customer committed to Intel 18A and Intel 3, which includes a meaningful prepayment that expedites and expands our capacity corridor for this customer. The customer is seeing particularly good power, performance and area efficiency in their design. This opportunity is very significant and highlights our full systems foundry capabilities in high-performance computing, big die designs, leadership performance and area efficient transistors, advanced packaging, and systems expertise.
In addition, we are extremely pleased to announce today that we have signed with two additional 18A customers. Both are particularly focused in areas of high-performance compute and benefiting from power performance per unit silicon area. We have also made substantial progress with our next major customer and are expecting to conclude commercial contract negotiations before year end. Finally, we were also very happy to expand our growing foundry ecosystem by completing our strategic partnership with Synopsys in Q3 to include IP for Intel 3 and Intel 18A for both Intel internal and external foundry customers.
With the rise of AI and high-performance computing applications, our advanced packaging business is proving to be yet another unique advantage. We have seen a surge of interest in our advanced packaging from most leading AI chip companies. With capacity corridors quickly available, this is proving to be a significant accelerant and on ramp for Intel Foundry customers. During the quarter, we were awarded two customer AI designs for our advanced packaging. And with an additional six customers in active negotiations, we expect several more awards by year end.
We have also established an important business relationship with Tower Semiconductor, utilizing our manufacturing assets in New Mexico, along with Tower investing capital expenditures of roughly $300 million for its use in this facility. This represents an important step in our foundry strategy, improving cash flows by utilizing our manufacturing assets over a significantly longer period of time.
Finally, we have submitted all four of our major project proposals in Arizona, New Mexico, Ohio and Oregon, representing over $100 billion of U.S. manufacturing and research investments to the CHIPS Program Office and are working closely with them as they review these proposals. We look forward to providing a deeper update on our foundry business during our planned IFS industry event in Q1 of 2024.
We are on a mission to bring AI everywhere. We see the AI workload as a key driver of the $1 trillion semiconductor TAM by 2030. We are empowering the market to seamlessly integrate and effectively run AI in all their applications. 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 a very cost efficient TCO. However, as the world moves toward more AI-integrated application, there's a market shift towards local inferencing. It's a nod to both the necessity of data privacy and an answer to cloud-based inference cost.
With AI accelerating Xeon for enterprise, Core Ultra launching the AI PC generation and OpenVINO enabling developers seamless and versatile support for a range of client and edge silicon, we are bringing AI to where the data is being generated and used rather than forcing it into 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. The AI continuum enables AI everywhere.
DCAI exceeded our forecast this quarter, with server revenue up modestly sequentially. We continue to see a strong ramp of our 4th Gen Xeon processor. With the world's Top 10 CSPs now in general availability and improving strength from MNCs. During the quarter, we shipped our 1 millionth 4th Gen Xeon unit and are on track to surpass two million units next month. 4th Gen Xeon includes powerful accelerators demonstrating best-in-class CPU performance for AI security and networking workloads.
Our AI-enhanced Xeons are primed for model inferencing, enabling seamless infusion of AI into existing workloads. This was visible this quarter with over one-third of 4th Gen Xeon shipments directly related to AI applications. We are the clear leader in AI CPU results as seen in MLCommons benchmarks today, and our roadmap provides significant further improvements, with Granite Rapids expected to deliver an additional 2 times to 3 times AI performance on top of our industry-leading 4th Gen Xeon.
We continue to make excellent progress with our Xeon roadmap. Our 5th Gen Xeon processor, codenamed Emerald Rapids, is in production and ramping to customers and will officially launch on December 14 in New York City. Sierra Forest, our first E-Core Xeon, is on track for first half '24, with customers well into their validation process. Sierra Forest will feature up to 288 E-Cores, targeting next-generation cloud-native workloads, delivering even more price performance and power efficiency for our customers. Granite Rapids, which shortly follows Sierra Forest, is also well into our validation cycle with customers.
While the industry has seen some wallet share shifts between CPU and accelerators over the last several quarters, as well as some inventory burn in the server market, we see signs of normalization as we enter Q4, driving modest sequential TAM growth across most customers. We expect to exit the year at healthy inventory levels, and we see growth in compute cores returning to more normal historical rates off a depressed 2023. More importantly, our successful roadmap execution is strengthening our product portfolio with Gen 4 and Gen 5 Xeon, Sierra Forest and Granite Rapids, positioning us well to win back share in the data center.
In addition, we expect to capture a growing portion of the accelerator market in 2024 with our suite of AI accelerators led by Gaudi, which is setting leadership benchmark results with third parties like MLCommons and Hugging Face. We are pleased with the customer momentum we are seeing from our accelerator portfolio, and Gaudi in particular, and we have nearly doubled our pipeline over the last 90 days. As we look to 2024, like many others, we now are focused on having enough supply to meet our growing demand.
Dell is partnering with us to deliver Gaudi for cloud and enterprise customers with its next-generation PowerEdge systems featuring Xeon and Gaudi AI accelerators to support AI workloads ranging from large scale training to inferencing at the edge. Together with Stability.AI, we are building one of the world's largest AI supercomputers entirely on 4th Gen Xeon processors and 4,000 Intel Gaudi 2 AI accelerators. Our Gaudi roadmap remains on track with Gaudi 3 out of the fab, now in packaging and expected to launch next year. And in 2025, Falcon Shores brings our GPU and Gaudi capabilities into a single product.
Moving to the client, CCG delivered another strong quarter, exceeding expectations for the third consecutive quarter, driven by strength in commercial and consumer gaming SKUs, where we are delivering leadership performance. As we expected, customers completed their inventory burn in the first half of the year, driving solid sequential growth, which we expect will continue into Q4. We expect full year 2023 PC consumption to be in line with our Q1 expectations of approximately 270 million units. In the near term, we expect Windows 10 end of service to be a tailwind, and we remain positive on the long-term outlook for PC TAM returning to plus or minus 300 million units.
Intel continues to be a pioneer in the industry as we ushered in the era of the AI PC in Q3 when we released the Intel Core Ultra processor, codenamed Meteor Lake. Built on Intel 4, the Intel Core Ultra has been shipping to customers for several weeks and will officially launch on December 14 alongside our 5th Gen Xeon.
The Ultra represents the first client chiplet design enabled by Foveros advanced 3D packaging technology, delivering improved power, efficiency and graphics performance. It is also the first Intel client processor to feature our integrated Neural Processing Unit, or NPU, that enables dedicated low-power compute for AI workloads. Next year, we will deliver Arrow Lake as well as Lunar Lake, which offers our next-gen NPU, ultra low-power mobility and breakthrough performance per watt. Panther Lake, our 2025 client offering, heads into the fab in Q1 '24 on Intel 18 A.
The arrival of the AI PC represents an inflection point in the PC industry not seen since we first introduced Centrino in 2003. Centrino was so successful because of our time-to-market advantage, our embrace of an open ecosystem, strong OEM partnerships, our performance silicon, and our developer scale. Not only are these same advantages in place today, they are even stronger as we enter the age of the AI PC. We are catalyzing this moment with our AI PC Acceleration program with over 100 ISVs already participating, providing access to Intel's deep bench of engineering talent for targeted software optimization, core development tools and go-to-market opportunities. We are encouraged and motivated by our partners and competitors, who see the tremendous growth potential of the PC market.
NEX is also seeing early signs of the benefits from growing AI use cases. Our ethnic and IPU businesses are well suited to support the high I/O bandwidth required by AI workloads in the data center, with growth expected to accelerate for both in 2024. Additionally, at the edge, as part of Intel's focus on every aspect of the AI continuum, NEX launched OpenVINO 2023.1, the latest version of the AI inferencing and deployment runtime of choice for developers on client and edge platforms, with ai.io and Fit:match demonstrating how they use OpenVINO to accelerate their applications at our Innovation Conference. We have leadership developer software tool chains that have seen a doubling of developer engagements this year. While NEX entered their inventory correction after client and DCAI, Q3 results beat our internal forecast and grew sequentially. We see continued signs of stabilization heading into Q4.
Finally, our smart capital strategy underpins our relentless drive for efficiency and our commitment to be great allocators of our owners' capital, while consistently looking for innovative ways to unlock value for all our stakeholders. We remain on track to reducing costs by $3 billion in 2023, and we continue to see significant incremental opportunities for operational improvement as we execute on our internal foundry model.
In addition, in Q3, we made the decision to divest the pluggable module portion of our silicon photonics business, allowing us to focus on the higher value component business and optical I/O solutions to enable AI infrastructure scaling. This marks the 10th business we have exited in the last 2.5 years, generating $1.8 billion in annual savings and a testament to our efforts to optimize our portfolio and drive long-term value creation.
Mobileye's solid Q3 and Q4 outlook continue to underscore the benefits of increased autonomy afforded by our initial public offering last year. In addition, we added TSMC as a minority investor in our IMS Nanofabrication business in Q3 and, earlier this month, we announced our plans to operate PSG as a standalone business beginning January 1. Similar to Mobileye and IMS, this decision gives PSG the mandate, focus and resources to better capitalize on their growth opportunities. We plan to report PSG results as a standalone segment in Q1 to bring in private investors in 2024 and to create a path to an initial public offering over the next two to three years.
In summary, we continue to deliver tangible progress 2.5 years into our transformation journey. We are on track with five nodes in four years. We are hitting or beating all our product roadmap milestones. We are establishing ourselves as a global at scale systems foundry for both wafer processing and advanced packaging. We are unlocking new growth opportunities fueled by AI, and we are driving financial discipline and operational efficiencies as we continue to unlock value for our shareholders.
While we are encouraged by our progress to date, we know we have much more work in front of us as we continue to relentlessly drive forward with our strategy, maintain our execution momentum and deliver our commitments to our customers. I'd like to personally thank the intel family for all their efforts.
With that, let me turn it over to Dave to go through our results in more detail and provide guidance for Q4.
