Categories Earnings Call Transcripts, Technology

Intel Corporation (INTC) Q2 2022 Earnings Call Transcript

INTC Earnings Call - Final Transcript

Intel Corporation (NASDAQ: INTC) Q2 2022 earnings call dated Jul. 28, 2022

Corporate Participants:

John Pitzer — Corporate Vice President of Investor Relations

Patrick P. Gelsinger — Chief Executive Officer & Director

David A. Zinsner — Executive Vice President & Chief Financial Officer


C.J. Muse — Evercore ISI — Analyst

Vivek Arya — Bank of America — Analyst

Matt Ramsay — Cowen — Analyst

Srini Pajjuri — SMBC Nikko — Analyst

Joseph Moore — Morgan Stanley — Analyst

Harlan Sur — JPMorgan — Analyst

Randy Abrams — Credit Suisse — Analyst

Stacy Rasgon — Bernstein — Analyst

William Stein — Truist — Analyst



Good day, and thank you for standing by. Welcome to the Second Quarter 2022 Intel Corporation Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to your speakers today, John Pitzer, Corporate Vice President of Investor Relations at Intel. Please go ahead.

John Pitzer — Corporate Vice President of Investor Relations

You should have received a copy of our earnings release and the earnings presentation, both of which are available on our investor website, The earnings presentation is also available in our webcast window for those joining us online. I’m joined today by our Chief Executive Officer, Pat Gelsinger; and our Chief Financial Officer, David Zinsner. In a moment, we’ll hear brief comments from both, followed by Q&A.

Before we begin, please note that today’s discussion contains forward-looking statements based on the environment as we currently see it. As such, it involves risks and uncertainties. Our press release provides more information on the specific risk factors that could cause actual results to differ materially. We’ve also provided both GAAP and non-GAAP financial measures this quarter, and we’ll be speaking to the non-GAAP financial measures when describing our consolidated results. The earnings presentations and the release are available on, include full GAAP and non-GAAP reconciliations.

With that, let me hand it over to Pat.

Patrick P. Gelsinger — Chief Executive Officer & Director

Thank you, John, and good afternoon, everyone. While we continue to make solid progress on our strategy, Q2 results were disappointing, below the standards we have set for the company and below the commitments we have made to you, our shareholders. The sudden and rapid decline in economic activity was the largest driver of the shortfall, but Q2 also reflected our own execution issues in areas like product design, DCAI and the ramp of AXG offerings.

We have an obligation to remain vigilant and to respond to changing business conditions while not losing sight of our long-term goals and opportunities. We will look to do both by adjusting and refocusing our spending levels in the near term at the same time as we accelerate the deployment of our smart capital strategy and improve product execution. Collectively, these actions will begin to show dividends in the second half of the year, allowing us to return gross margins to our target range by Q4 and maintain our initial free cash flow outlook for 2022.

While still early in our journey, we remain laser-focused on executing to our strategy to deliver leadership products, anchored on open and secure platforms, powered by at-scale manufacturing and supercharged by our people. The current economic backdrop only strengthens our result, and we are embracing this environment to accelerate our transformation. For example, regaining our leadership begins with Moore’s Law and the capacity to deliver it at scale.

Over the last 18 months, we’ve taken the right steps to establish a strong footing for our TD roadmap. We are well into the ramp of Intel 7, now shipping in excess of 35 million units. Intel four is ready for volume production in second half of this year, and Intel 3, 20A and 18A are all at or ahead of schedule. We’ve received additional strong third-party validation for TD, IFS and our manufacturing group just this week when we announced MediaTek as our next major foundry customer, a great example of our One Intel culture.

I want to congratulate our teams on what we expect to be many announcements as we execute to become an at-scale, leading edge, geographically diversified systems foundry. But we must also be clear eyed as we look into the second half. We are planning for volatility as the world adjusts to the end of a two-plus year pandemic and the unprecedented stimulus governments used to fight it. Across the economy, supply chain issues have both limited the ability to meet demand in some areas and driven inventory well above normal levels in others.

We are prepared to manage through a slowdown typical of the normal cycles the semiconductor industry has experienced over the last 50 years. While the depth and duration are still difficult to predict, we have a proven track record of being able to adjust and succeed in any environment. Let me address some of the specific actions we are taking. First, we further sharpened our focus in Q2, selling our Drone business and making the difficult decision to wind down our efforts in Optane as we embrace CXL, a standard which Intel Corporation pioneered. These add to actions last year in NAND in the sale of McAfee.

In total, we have now exited six businesses since my return, providing roughly $1.5 billion for investments aligned with our IDM 2.0 strategy. We are also lowering core expenses in calendar year ’22, and we’ll look to take additional actions in the second half of the year, which Dave will address later. Importantly, expense discipline is not impacting the strategy, and we remain firmly on track to achieve process performance parity in 2024 and unquestioned leadership in 2025.

This goal is our true North Star. Second, our ability to invest aggressively and fulfill our commitment to a strong and growing dividend is anchored by the progress we are making in deploying our smart capital strategy. We are thrilled to see the bipartisan vote in the Congress this week and expect CHIPS Act to be on the President’s desk shortly. We have been integrally involved in moving this groundbreaking legislation forward. This progress, combined with the strong momentum in Europe, will reshape our industry and bring us toward a geographically balanced, resilient supply chain that we are uniquely positioned to enable and benefit from.

Access to mission-aligned pools of capital supports the accelerated pursuit of our strategy and will enable our torrid pace. Third, I rejoined Intel to reenergize and reestablish a culture of execution and innovation. With process technology and capacity expansion both now trending very well, we have the critical foundation we need for improved product execution. We have rebuilt our leadership team, now fully assembled for the first time. And together, we have reestablished OKRs throughout the organization to drive common purpose and, importantly, a system of accountability.

In the coming months, we will begin to share more with the investment community on the next evolution of our TikTok model to drive consistent and predictable cadence of process and design innovation. As we look beyond the near term, the semiconductor industry continues to be at the beginning of a new structural growth phase driven by four superpowers: one, ubiquitous compute; two, pervasive connectivity; three, cloud-to-edge infrastructure; and four, AI. Combined, these drivers support a semiconductor industry eclipsing $1 trillion by 2030.

What remains very clear even during this period of uncertainty is the growing importance of silicon to the global economy and to each of our daily lives. However, as a result of macro weaknesses, we now expect the PC TAM to decline roughly 10% in calendar year ’22, characterized by broadening consumer weakness and relative strength in enterprise and higher-end SKUs. Importantly, our Q2 PC unit volumes suggests we are shipping below consumption as some of our largest customers are reducing inventory levels at a rate not seen in the last decade and, along with some pricing actions, should allow for sequential growth into the second half even as some customers manage inventory lower. While COVID-related dynamics, like work-from-home and school-from-home, pulled forward some demand, they also solidified the PC as an essential tool in the post-pandemic world.

For example, PC and Chromebook usage remains historically high even as the pandemic’s most acute impacts diminished. Markedly higher per PC usage and a larger installed base, including 600 million PCs that are four years and older, supports a PC TAM sustainably above 300 million units. Data center trends are still well entrenched. Data has been growing exponentially at a 50% CAGR for over 20 years. But until recently, it has been uneconomical to turn that data into true actionable insights.

With the advent of AI, along with CPUs, GPUs and accelerators, we now have the tools to access and use more of the data we create, driving significantly higher compute demand and a multiyear CAGR in the data center TAM of at least mid-teens. Despite these drivers, demand will not be immune from economic headwinds. In addition to match set issues, which have constrained shipments for multiple quarters, increasing economic concerns are leading to a reduction in second half demand.

As a result, we have lowered our server TAM assumptions to reflect more modest growth in 2022. Against this backdrop, let me highlight key developments in our businesses. In response to supply chain and match set issues, we closely collaborated with our customers and suppliers to effectively address their most critical needs. We rapidly adjusted to changing market conditions, made cost reductions and leveraged smart capital to execute towards our IDM 2.0 strategy.

Despite significantly lower revenue impacting overall gross margins, Q2 saw continued strong performance in our factory network, and we exceeded our wafer cost goals with 10-nanometer unit cost declining approximately 8% year-on-year. In TD, we continued to deliver on the promise of Moore’s Law and our ambitions to deliver one trillion transistors in the device by 2030. Intel 4 details were released at the recent VLSI conference to positive reviews, and we’ve now taped in the first stepping of the Granite Rapids CPU and expect to power on this quarter.

In the second half of this year, we plan to tape in numerous internal and foundry customer test chips on various process nodes, including Intel three and Intel 18A. In our client business, Alder Lake momentum continues. We have the strongest PC lineup in five-plus years, and we remain unapologetic about our growing leadership and share position. We are building on Alder Lake leadership with Raptor Lake in the second half of this year and Meteor Lake in 2023, exemplifying how our innovative design decisions can drive leadership performance even before reestablishing best-in-class transistor technology.

In Q2, we launched the 12th Gen Intel Core HX processors, the final products in our Alder Lake family. The Alder Lake family is now powering more than 525 designs from Acer, Asus, Dell, HP, Lenovo, LG, Microsoft, Samsung and others. To date, we’ve shipped well in excess of 35 million units of Alder Lake. Within the current market, we are also seeing relative strength in the premium segments we serve across consumer and commercial. We expect to build on this momentum with the launch of our next-gen product family, Raptor Lake, starting with our desktop SKUs this fall, followed by our mobile family by the end of the year.

The Raptor Lake family will offer customers significant advantages, including double-digit performance gains, gen-on-gen and socket compatibility with Alder Lake. And in 2023, we will deliver our first disaggregated CPU built on Intel 4, Meteor Lake, which is showing good health in both our and our customers’ labs. Turning to DCAI, as we stated at Investor Day, over the next couple of years, as we rebuild our server product portfolio, we expect to grow slower than the overall data center market.

It’s not a fact we like but the forecast we see. We have a singular focus to regain performance and TCO leadership across all workloads and use cases from enterprise to cloud. The advantage of our incumbency position remains underappreciated and provides significant opportunity to drive outsized advantages to our customers. For example, we expanded our supply agreement with Meta, leveraging our IDM advantage to ensure Meta can meet its expanding compute needs.

Also in Q2, we agreed to expand our partnership with AWS to include the co-development of multigenerational data center solutions optimized for AWS infrastructure. And Intel is a strategic customer for internal workloads, including EDA. We expect these custom Xeon solutions will bring greater levels of differentiation and a durable TCO advantage to AWS and their customers, including Intel.

In addition, NVIDIA announced the selection of Sapphire Rapids for use in their new DGX H100, which will couple Sapphire Rapids with NVIDIA’s Hopper GPUs to deliver unprecedented AI performance. Beyond Xeon-based CPUs, we launched our next-generation Gaudi2 AI accelerator in the quarter, with a whopping four times improvement generation to generation. And in the most recent MLPerf training benchmark test, Gaudi2 has a substantial lead in ResNet-50 and BERT benchmarks.

In the second quarter, we also began delivering our software strategy with the acquisition of Granulate, expanding our platform capabilities with real-time AI-driven continuous optimizations for cloud computing and the initial release of Amber, our security attestation service. Since we acquired Granulate, their customer pipeline has doubled and their revenue pipeline has tripled. Finally, Programmable Solutions achieved record 2Q revenue and was just shy of an all-time record revenue quarter driven by strong demand, including the ramp of the flagship Agilex FPGA family and improving supply.

In NEX, we had an outstanding Q2. We achieved record revenue in PRQ-ed Mount Evans, an IPU we co-developed and are now beginning to ramp with a large hyperscale partner with additional customers in 2023. In addition, our latest Xeon D processor built specifically for software-defined infrastructure across the network and edge, launched at this year’s Mobile World Congress and is ramping with leading companies, including Cisco, Juniper Networks and Rakuten Symphony.

Across the network edge, we’re continuing to see interest to deploy more compute and AI capabilities. For example, Ferrovial, a multinational Spanish infrastructure company is using our edge computing, AI and connectivity technologies to deploy roadside solutions that can identify wrong way drivers, warn of oncoming hazards and more.

In Singapore, Singtel has deployed a network solution with Xeon Smart Edge and OpenVINO to improve user experience for use cases like entertainment, industrial, smart manufacturing, smart transportation and smart city. Lastly, ABB is helping utility providers modernize their electric grid and create a more sustainable energy market by adopting standardized rugged servers based on third-gen Intel Xeon. NEX continues to clearly benefit from networks that are increasingly moving towards software and AI that is increasingly moving to the edge, and we expect another revenue record quarter in Q3.

For AXG, while we will not hit our GPU unit target, we remain on track to deliver over $1 billion in revenue this year. In Q2, we started to ramp Intel Art Graphics for laptops and OEMs, including Samsung, Lenovo, Acer, HP and Asus. COVID-related supply chain issues and our own software readiness challenges caused the availability delays that we continue to work to overcome. Intel Arc A5 and A7 desktop cards will start to ship in Q3. Our energy-efficient blockchain accelerator, Blockscale, achieved a major milestone in Q2 with revenue shipments to our lead customers going from tape-in to shipping in less than a year.

We expect to ship millions of units this year, not originally in our forecast. Our data center GPU, codenamed Arctic Sound-M, has started production and is now shipping to customers, supporting a diverse range of workloads starting with media streaming and cloud gaming, followed by support for AI visual inference and virtual desktops. In high-performance computing, we highlighted the installation of the Argonne National Lab Aurora Supercomputer at our Intel Vision events in May, and we are on track to deliver over 10,000 blades in 2022, enabling over two exaflops of peak performance.

We also announced new partnerships, including the Barcelona Supercomputing Center to set up a pioneering RISC-V zettascale lab and our continued collaboration with the University of Cambridge to evolve their current lab from exascale to zettascale. Our IFS momentum continues, creating a geographically balanced secure and resilient semiconductor supply chain as well as access to our transistor technology is driving strong customer interest in our foundry business. In addition to the MediaTek agreement that we announced earlier this week, we now have active engagements with six of the top 10 fabless customers across our offerings, including 18A.

Overall, we are engaged with 30 customers for test chips, and now have more than 10 qualified opportunities in advanced stages across our process and package offerings that collectively represents a deal value of greater than $6 billion. Augmenting our organic activity is our proposed acquisition of Tower Semiconductor. We now have regulatory approval or clearance in four geographies, including the U.S., and we still expect the acquisition to close by early next year.

In Q2, we also launched the IFS Cloud Alliance, a partnership with leading cloud providers, including Microsoft Azure and AWS and EDA tool providers, including Ansys, Cadence, Siemens EDA and Synopsys. The IFS Cloud Alliance is the next phase of our accelerator ecosystem program that will enable secure design environments in the cloud, improving foundry customer design efficiency and accelerating time to market.

Lastly, in Mobileye, we achieved another record quarter in revenue in Q2, and we continue to be poised to unlock further value with our proposed IPO later this year, pending market conditions. Mobileye’s backlog continues to grow, with first half 2022 design wins generating 37 million units of projected future business compared to 16 million units actually shipped in the first half.

As a result to Mobileye’s high-definition map product called REM, we are currently crowdsourcing 43 million miles per day on average from approximately 1.5 million vehicles. This data is automatically built into a map, which currently covers greater than 90% of all roads in both Europe and U.S., which will support systems across the entire driving assist to autonomous vehicle spectrum. Looking ahead, before turning it over to Dave, I want to close with a few thoughts.

First, after a very successful Intel Vision event in Q2, I am looking forward to hosting Intel Innovation on September 27 and 28, our core technical conference for global developers, architects and engineering leaders. I hope to see many of you joining me there. Second, as I said when we began our journey, Intel will be a source of innovation, driving new businesses and additional TAM in large and growing markets.

Taken together, we have already announced over 10 new revenue-producing product lines so far this year, which are just beginning to ramp, and we expect to announce more in the second half and calendar year ’23. The foundations for our growth story are taking shape. I know I speak for all of our employees when I say that, while we have work to do, our best days are ahead.

David A. Zinsner — Executive Vice President & Chief Financial Officer

Thanks, Pat. Good afternoon, everyone. As Pat referenced, Q2 was a challenging quarter, negatively impacted by multiple factors. First, a weakening and uncertain macroeconomic environment impacted by inflation, higher interest rates and the war in Ukraine. Second, a much larger-than-expected OEM inventory correction as our customers adjust to this new macroeconomic environment.

Third, worse-than-expected COVID-driven demand reductions and supply dislocations in China and other parts of the supply chain. Due to the difficult macroeconomic environment, together with our own execution challenges, our results for the quarter were well below expectations and necessitate a significant revision to our full year financial guidance.

That said, we’re taking the actions necessary to maintain our prior full year adjusted free cash flow guidance, including a slowdown in hiring, capex reductions and the expectation for increased capital offsets, consistent with our smart capital strategy. We remain fully committed to the business strategy and long-term financial model presented during this year’s investor meeting in February.

Revenue was $15.3 billion, 15% below our original Q2 guidance as our CCG and DCAI businesses both underperformed our expectations. Note that even in this challenging environment, our NEX and Mobileye businesses achieved all-time record quarterly revenue. Gross margin for the quarter was approximately 45%, 600 basis points below guidance on lower revenue and Sapphire Rapids preproduction charges, offset by lower manufacturing costs. EPS was $0.29, $0.41 below our guide on lower revenue and gross profit, offset by lower operating expenses. Operational cash flow for the quarter was $800 million. capex for the quarter was $7.2 billion, resulting in an adjusted cash flow of negative $6.4 billion.

Our balance sheet remains strong with cash and investments of $27.5 billion, modest leverage and a strong investment-grade credit profile. Now turning to our business unit results. CCG revenue was $7.7 billion, below expectations and down 25% year-over-year on global TAM weakness, particularly in the consumer education and small-medium business markets. The shortfall was also driven by OEM inventory reductions as we work with our customers to lower their inventory, protect market share and continue to manage through match set constraints.

CPU ASPs were up 11% year-over-year on richer mix and strong demand for our high-end mobile and desktop products across both our commercial and consumer segments. Operating profit was $1.1 billion, down 73% year-over-year, on lower revenue, increased 10-nanometer and Intel seven mix and increased spending to further strengthen our product and platform roadmap.

DCAI revenue was $4.6 billion, below expectations and down 16% year-over-year on OEM inventory reductions, mix-related ASP decline and competitive pressures. Operating profit was $214 million, down 90% year-over-year on lower revenue, higher advanced node start-up costs, increased investment in the product roadmap and Sapphire Rapids’ preproduction charges. NEX achieved all-time record quarterly revenue of $2.3 billion, up 11% year-over-year on strength in data center networking products, specifically networking Ethernet and 5G.

Operating profit was $241 million, down 60% year-over-year on mix shift to networking Ethernet and 5G, increased investment in process technology and lower sell-through of reserved inventory. AXG revenue was $186 million, up 5% year-over-year on the ramp of supercompute and Alchemist discrete GPU products. Operating loss was $507 million versus an operating loss of $168 million in Q2 ’21, with the increase driven by inventory reserves on our Ponte Vecchio and Alchemist products, and increased investment to deliver the roadmap of visual supercompute and custom accelerated graphics products.

Mobileye achieved all-time record quarterly revenue of $460 million, up 41% year-over-year, outperforming the rate of increase of global automotive production, which was relatively flat year-over-year. Operating profit was $190 million, up 43% year-over-year on higher revenue, partially offset by increased investment in next-generation ADAS products. IFS revenue was $122 million, down 54% year-over-year, driven by lower mass tool sales, as well as revenue decrease in the automotive segment due to customer shortages in the automotive market.

Operating loss was $155 million versus an operating profit of $52 million in Q2 ’21, driven by lower revenue and increased investment to build out the custom foundry business. Before we transition to full year and Q3 guidance, after six months on the job, let me provide my perspectives on the opportunities I see and focus areas to improve our financial performance and achieve our long-term goals. At the highest level, I see opportunities to improve in two areas. First, ensuring we are allocating our capital to the programs that are clearly aligned to our revised business strategy and generate maximum long-term value to our shareholders.

As Pat mentioned, two good examples of continuing to optimize our portfolio are exiting the Optane and Drone businesses. We continue to deeply evaluate all opportunities to more narrowly focus our resources on the highest value programs, increasing the probability of success for each of these programs. Second, driving structural product cost and operational expense efficiency across the company, taking full advantage of our IDM 2.0 strategy. A major focus for me is driving Intel to world-class product cost.

Key to this is executing our five nodes and four-year strategy, but there are many more aspects to achieving this goal with programs in flight to dramatically reduce product cost. Likewise, there are opportunities in opex to ensure we are achieving world-class efficiency in everything we do. With my history in the memory business where every penny counts, I know there are large opportunities for Intel to improve and deliver maximum output per dollar. As part of these focus areas, we expect to see restructuring charges in Q3, and I’ll continue to provide regular updates on these efforts.

Moving to our full year and Q3 guidance. For the remainder of the year, we expect macroeconomic conditions to continue to soften with the potential for a recessionary scenario to materialize. There’s also risk for continued COVID-related impacts on demand and the supply chain to continue throughout the year. As a result of this high level of uncertainty, we’re moving to a range-based approach to revenue guidance for the rest of the year.

For full year revenue, we are now guiding a range of $65 billion to $68 billion, down from our prior guidance of $76 billion, driven by lower expectations for our CCG and DCAI businesses. More specifically, in our PC business, as Pat discussed, we now see TAM decreasing approximately 10% year-over-year due to the softening macroeconomic environment and inflationary pressures.

Although these headwinds have reduced our CCG revenue forecast, we expect CCG revenue to increase in the second half of the year due to seasonal strength, OEM inventory returning to balanced levels, inflation-related price increases to take effect and the ramp of our leadership Alder Lake and Raptor Lake products to position us to compete for share.

For DCAI, we expect to see second half revenue growth relative to Q2 levels, but growth will remain muted as competitive and macroeconomic headwinds persist, OEM inventory reductions continue and component constraints impact certain segments. For NEX, we expect another record quarter in Q3 and continued growth throughout the year. NEX revenue tailwinds will be fueled by new product introductions, data center and telco networking demand and continued improvement in pricing and component supply.

For AXG, we continue to expect full year revenue greater than $1 billion, driven by the launch and ramp of the Alchemist, Arctic Sound-M, Ponte Vecchio and Blockscale products. And finally, we expect to see second half growth in each of our two remaining businesses, Mobileye and IFS as they ramp new products and secure new customers. For full year gross margin, we’re guiding to 49% at the midpoint of revenue guidance with the expectation that gross margin will return to the low end of our target range of 51% to 53% in Q4 as revenue increases, we achieve scale on new product ramps and costs continue to improve.

We’re forecasting a tax rate of approximately 8% and EPS of $2.30 at the midpoint of the revenue guidance. For net capex, we’re revising down our forecast to $23 billion, $4 billion less than our previous guidance as we moderately adjust our investment in capacity and take advantage of potentially larger than originally forecast capital assets, highlighting significant progress on our smart capital strategy. We expect these actions to offset lower than originally forecast operating cash flow, allowing us to reaffirm adjusted free cash flow of negative $1 billion to negative $2 billion for the year.

Finally, we paid dividends of $1.5 billion, a 5% increase year-over-year, and remain committed to growing the dividend over time. Now moving to Q3 guidance. Given the aforementioned market environment, we’re guiding revenue of $15 billion to $16 billion. At the midpoint of the revenue guidance, we’re guiding gross margin of 46.5%, a tax rate of 13% and earnings per share of $0.35. In closing, the market turbulence and updated outlook are disappointing.

However, we believe our turnaround is clearly taking shape and expect Q2 and Q3 to be the financial bottom for the company. We remain completely committed to the strategy and financial model communicated at Investor Day. The long-term financial opportunity of compelling revenue growth and free cash flow at 20% of revenue remains. And I believe this downturn represents an opportunity to more quickly make the transformations necessary to achieve these goals.

With that, let me turn it back over to John and get to your questions.

Questions and Answers:

John Pitzer — Corporate Vice President of Investor Relations

All right. Thank you, Dave. Moving on now to the Q&A. [Operator Instructions] Operator, please go ahead and introduce our first caller.


[Operator Instructions] Our first question comes from C.J. Muse with Evercore ISI. Your line is open.

C.J. Muse — Evercore ISI — Analyst

Good afternoon. Thank you for taking my question. I guess, for my question, your implied guidance calls for roughly 12% sequential growth into December. Would love to hear what gives you confidence that inventory correction and the supply chain issues will be behind you. And as part of that, do you think a PC TAM of down 10% is conservative enough or is that something where there might be further risk ahead? Thanks so much.

David A. Zinsner — Executive Vice President & Chief Financial Officer

Thanks, CJ. So when you look at the fourth quarter, first of all, we are, at this point, given the inventory burns in both CCG and DCAI, shipping it below the rate of consumption for those markets. And so there is a natural recovery that occurs that we would expect as we progress through the rest of the year once inventory is in a good place.

So we do feel we’re at the bottom here in terms of revenue in the Q2, Q3 time frame, and Q4 would recover just based on that alone. I’d say the other thing is we’ve got a good set of products coming out over the course of the second half of the year. And I think we’re kind of operating with wind at our sails in terms of product offerings in all of our businesses. And then third, we are increasing pricing, and pricing generally takes effect in the fourth quarter. We’ve done a fair amount of time.

The advantage of the IDM strategy is we can absorb a lot of inflationary impacts that others can’t. And so we were able to kind of go a little longer in terms of the price increases. But at this point, now that some of those pricing inflationary increases have turned out to be more permanent, where there is a certain amount of that, that we do need to pass on to the customers and they’re comfortable to do that. And so that also is a factor.

And then lastly, I would just say the fourth quarter is generally just a seasonally strong quarter for us and particularly in the PC space. So I think all of those factors give us really good confidence that Q2, Q3 represent the bottom for revenue. And at the fourth quarter, we’ll see some strength.

Patrick P. Gelsinger — Chief Executive Officer & Director

And in fourth quarter, we also see that some of the new business unit areas, right, are starting to contribute more significantly as well. On the PC TAM, before we were above the market. And with our down revision, we’re now exactly aligned with the market. We were over 350 million units before. Now market ranges are 310 million to 325 million. Our range is consistent with that, C.J. So we don’t see ourselves ahead of the market like we were before.

We were more optimistic now we’re firmly in line with the market. Clearly, the market has shifted heavily on the consumer side, but there remains strength on the enterprise side, which also gives us confidence. So in addition to the strength of the product roadmap, which Dave said, we also see the enterprise market remaining very healthy. And our position in the higher price points in the enterprise, these are good markets for us. And as we’re on the back of Alder Lake, over 35 million units, Raptor Lake ramping, we’re just coming into a great cycle of the overall business.

We’d also say that the PC is strong as that work-from-home, school-from-home device usage numbers are up significantly for the time that people use their PCs. We also have a strong replacement cycle in front of us. We now have over 600 million PCs that are over four years old. We’re definitely seeing that roll through the enterprise markets, again, where we have stronger market share and better ASPs. So all of that taken together, we think we’ve ranged it, and that’s consistent with the financial guidance that we’ve given you for the rest of the year.


We have a question from Vivek Arya from Bank of America. Your line is open.

Vivek Arya — Bank of America — Analyst

Thanks for taking my question. Pat, I’m curious, why didn’t Intel choose to negatively preannounce given the extent of the shortfall? I mean, I can understand the PC market being weak, but for data center to be almost 25% below expectations, that seems very strange to me. So I’m just curious why Intel took these actions. And then when we look at your data center revenue, especially in the reported quarter, most enterprise and cloud customers reported their sales and spending kind of in line with expectations. So is it mostly competitive pressures? If you could just help us understand what the thought process was for Q2. Thank you.

Patrick P. Gelsinger — Chief Executive Officer & Director

Yes. Thanks, Vivek. I think that officially is actually two questions. But anyway, we’ll take them both. On the market side, we’ll say we were well into the quarter and we saw the market characteristics change quite suddenly, right? And that resulted in both the sell-through in the marketplace, but also these significant inventory adjustments. We work with our customers on those inventory adjustments.

And as we said, these are like once in 10-year kind of inventory adjustments because the customers were working through the quarter, catching up to demand that was short for years, right? And all of a sudden, as they saw that shifting, they took quite significant adjustments to their inventory positions. And we wanted to be in a position that we had some thoughtful view of what the market was for the future. So that’s the reason that brought us to today. We think that we’ve given you a clear view of where the market is coming into the future.

The DCAI point, as I said in my formal comments, we were disappointed. Some of that was driven by the macro. It was also match set issues that we’ve been struggling with as well and Ethernet components, power supply components, etc., have been challenged. But as we also said, we have some of our own unique execution issues, and we kept the quality bar high on Sapphire Rapids. And thus, we did another stepping, which was a forecast, which puts some inventory and reserve issues in front of us as opposed to high ASP, new product revenue. So some of those things were unique issues to us that we were addressing.

That said, we do feel like the progress on the data center, right, is clear in front of us. We have — Emerald is looking very good. We’ll be powering on Sapphire or Sierra Forest and Granite Rapids shortly. All of that taken together, we feel our competitive position is improving. We also see that’s — we know where the market share is, and wins like we announced with AWS and Meta, we are going to focus on every socket, every workload, every customer quite aggressively on both AWS and Meta. These were substantial wins for us this quarter, and we hope to be announcing several others like that as we go forward.

We’re also bringing new capabilities. As we sort of said in our formal comments, the size of our footprint here is underappreciated. And we’re going to be focusing on really benefiting from that and bringing new capabilities against that enormous footprint with capabilities like Granulate and our Amber Security Service, things that allow us to bring more value to our customers, as well as harvest more revenue from that enormous installed base. So all of that taken together, we feel like we are owning up to the challenges that we had in data center, but we have a clear view of how we write this business for the future and are well underway on doing exactly that.

David A. Zinsner — Executive Vice President & Chief Financial Officer

And maybe I’ll just add, in terms of profitability, it was disappointing where operating margins landed for the DCAI business for sure. That was largely the impact of the decline in revenue. But keep in mind, we’re also investing a lot, for all the reasons that Pat said, to bring out great products that wow our customers. And so that investment does also weigh down on the operating profitability of the business. We do see that getting better. We took, as Pat mentioned, reserves on Sapphire Rapids. And those are kind of a one-off thing that dissipate as we go through the second half of the year.

We also expect revenue to improve as we progress through the year. Those things combined should improve operating margins in the near term. In the long term, we see this business as a business that gives us greater than corporate average operating margins, gross margins and operating margins for that matter. It has traditionally actually for us and for the industry. And so it’s a matter of just putting our nose down and executing to get those results, and we feel very confident we’ll get there.

Vivek Arya — Bank of America — Analyst

Thank you.


Our next question comes from Matt Ramsay with Cowen. Your line is open.

Matt Ramsay — Cowen — Analyst

Yes. Thank you very much for taking the question. Good afternoon. I guess, Pat, I wanted to follow up a little bit on the prior question in the server business, particularly on the roadmap. You guys just mentioned some reserves we need to take for Sapphire, and the time lines have been pushed out. So I guess the questions are, one, Pat, can you give us a more specific timing on where things are with Sapphire Rapids, not just early units, but actual volume production?

And secondly, this push out, how does this impact the time lines for Emerald and Granite? Do you see those pushing out sort of congruent with the push out here? Or are those time lines going to be held and maybe the platforms be a little bit different? I’m just curious on the roadmap. Thank you.

Patrick P. Gelsinger — Chief Executive Officer & Director

Yes. And giving a bit more detail on Sapphire, we’re already ramping a number of SKUs of Sapphire Rapids already. They began ramping last quarter. So we have a number of those ramping. The particular issue that we highlighted wasn’t affecting those SKUs, so those continue to ramp. So we did another tape out, which I’ll say, for the larger volume SKUs, and those will be volume shipping in the second half of the year. So you’ll see us ramping those and launching those.

So we’re fully on track for that, and we feel like we’re over all of the issues that we’ve had in bringing that product to marketplace. So we feel very comfortable with that. We’re then working very closely — emerald goes into the Sapphire platform. So we’re working very closely with our customers on the timing there. The product is looking very healthy. So we’re nicely on track. So that will be a ’23 product. And then Granite and Sierra Forest is the ’24 product. And just to remind everybody, this is a major new platform.

We believe this is a major step forward as we go into Granite Rapids but also was our first E-core product with Sierra Forest, right? And this, we believe, is really sort of — this ability to have a fleet offering where a lot of cloud workloads, they just say, give me a great container and let me run that quite thermally efficient TCO efficiently, and that’s what Sierra Forest will do and then Granite Rapids, clearly, the performance leader in the marketplace.

So both of those will be ’24 products. And again, right, we’re powering on that this next quarter. So we’re looking very healthy — or this quarter, I should say, in Q3. So looking very good so far. So we just say the road map is healthy, looking on track, and our execution here must improve. Many of these products were well underway when we showed up. As we said, the culture, right, of execution needs to be rebuilt. And we are working heavily to rebuild the culture of this team. And in fact, we just completed our employee engagement survey, and this is the most significant year-on-year improvements in history. Many of our employment — employee engagement survey results now are now best in the industry.

We’ve totally reversed the brain drain that we had. So teams are excited, the momentum is building and many of these products — hey, we’re launching the new products with the revised — and you’ll hear us talk more about our TikTok execution discipline going forward. But a lot of these products were underway, so they weren’t launched with the new execution and methodology discipline, so we’re working through those. And as each one of these gets better, our execution and confidence in those deliveries is improving, culture is improving. We’re making great progress.

Thank you. Next question.


Our next question comes from Srini Pajjuri with SMBC Nikko.

Srini Pajjuri — SMBC Nikko — Analyst

Dave, if you can clarify why you’re taking the Sapphire, I guess, charges? Is it just a preproduction reserve? Or is there something else going on? And my question is, based on your comments about the recovery profile for DCG, and I guess, DCAI in the second half, it seems like PC market is — at least your expectation is that the PC market will recover quicker than DCAI. I’m a little bit surprised by that because you have Sapphire ramping, and I don’t know if the inventory situation was worse in DC versus in PC. So I’m just surprised by the fact that you’re saying that PC will recover faster than DCAI. If you can classify that, that will be helpful. Thank you.

David A. Zinsner — Executive Vice President & Chief Financial Officer

Okay. So yes, you’re right, Sapphire Rapids. We reserve the production inventory when it’s — before it has gone, what we call, PRQ, so it’s a quality metric. And so we reserve all of the product. And since the main — as Pat said, the main SKUs have not, at this point, reached PRQ, we continue to reserve them. Once they do, which we expect later this year, then we stop, first of all, reserving the production inventory. And then the likelihood is some of this will also sell.

And so we’ll be able to recover some portion of that reserve likely as we progress through the end of this year and next year. On CCG and DCAI, I think the inventory correction in CCG was definitely more pronounced. And so you get this — the benefit of the shipping back to the consumption level is more pronounced when things recover. That’s number one. We also will see more pricing improvement in CCG than DCAI. They’re both — we’re adjusting pricing, but the pricing is more significant in CCG. And so that also gives CCG a lift in the later part of the year.

Srini Pajjuri — SMBC Nikko — Analyst

Thank you.

David A. Zinsner — Executive Vice President & Chief Financial Officer

Next question.


We have a question from Joseph Moore with Morgan Stanley. Your line is open.

Joseph Moore — Morgan Stanley — Analyst

Great. Thank you. I wonder if you could talk about the capital spending cuts. Can you give us a sense for — does that affect shells versus wafer fab equipment? And is there sort of any opportunity cost to that? And then to the extent that — does that change your comments about the overall trajectory over the next few years? Do you still expect capex to be rising from here?

David A. Zinsner — Executive Vice President & Chief Financial Officer

Good question. So important thing is that when you look at growth capex, it’s about 25% of the reduction. About 75% of the reduction is actually increased capital offset. So it’s not a significant adjustment to the growth number. It’s almost entirely on the equipment side, the reduction, and some of it is just timing of receipts of equipment. And sorry, Joe, what was the other part of your question?

Joseph Moore — Morgan Stanley — Analyst

Just the trajectory. I know you had talked about capital spending generally rising from here, but you also talked about guardrails. Can you just talk about the trade-offs of your business being slower versus, not looking for forecast, but how you’re thinking about the long term spending…

David A. Zinsner — Executive Vice President & Chief Financial Officer

So we intend to manage to the guardrails for sure. What I think has become really positive for us is the capital offsets. Maybe I’ll talk a little bit about it, and you can go into details about chips, if you want, Pat. We just are, in general, way more optimistic about what we’re going to get in terms of capital assets.

In fact, I think our forecast for the year is four times what it was when we talked about it at Investor Day. And so clearly, for this year, we’re going to see strong offsets. And I think given what happened today, I think we’re going to have good offsets in the coming years as well. So I think that will really help us kind of keep the guardrails intact. I mean, obviously, on a long-term basis, we’re always looking at our capex in relationship to demand. We’re building supply to meet demand and modulating that as the signals change on the demand front.

At this point, I think given the long lead times of building out these factories, we’re very confident that the growth rates of our markets are going to be quite healthy, and we’re going to need the supply to come online. May we modulate or make tiny adjustments to it over the course of years? Yes, but I wouldn’t say it’s going to be a significant magnitude. But we — but still at the end of the day, we feel very good about the guardrails we talked about. It’s going to be more like mid-30s net capex intensity. Our investment phase that goes through 2024, and then ’25, ’26, we’ll see a step down as we start to get the benefits of that in terms of revenue growth and margin growth, and will normalize more into the mid-20s.

Patrick P. Gelsinger — Chief Executive Officer & Director

Yes. And as Dave was alluding to, the passage today by the house of the CHIPS Act following the Senate passage on Tuesday, this is historic legislation. Literally, since World War II, there might not have been a more important piece of industrial policy that came forward through Congress. So we are thrilled by that. And that also is something that we pointed to, and we’ve been very active, and I’ve been very active.

This is great for the semiconductor industry. This is beneficial to Intel. This was one of the pieces of the smart capital program, as we described back at Investor Day. And now seeing this come across the line will clearly be part of that ability for us to invest aggressively in the strategy that we described to you. We see this as an accelerant to our strategy and something that will give us the capacity to both meet our product needs, as well as our foundry customer needs as well. This is powerful and something that we are thrilled to have come across the line just today.

We look forward to this being on the President’s desk in the next couple of days and signed into law. This was a historic moment for the semiconductor industry. And I hope everybody on the line just realizes how significant the passage of this was for semiconductors, for technology, for long-term research. This was huge. We were thrilled to be a part of it.

John Pitzer — Corporate Vice President of Investor Relations

Next question please, operator.


Our next question comes from Harlan Sur with JPMorgan. Your line is open.

Harlan Sur — JPMorgan — Analyst

Good afternoon. Thanks for letting me ask a question. So, Pat, you led us to your prepared remarks discussing the macro environment, but you also called out Intel-specific execution issues and specifically product design. Were you just referring to Sapphire Rapids or was this a general statement across several of your product segments, including client and graphics?

And can you just articulate like what some of these product design issues are? Are they architectural issues, performance issues, design closure, changing customer requirements? Any help there would be great. Obviously, as you mentioned, many of these programs were already underway when you joined the team. But what is it specifically that you’re doing now to ensure better design execution going forward?

Patrick P. Gelsinger — Chief Executive Officer & Director

Yes, Harlan. And if I would, just to step back slightly, right, I view the recovery rebuilding in three different chapters: one was TD and manufacturing, best transistors capacity; second, design and products. We have to deliver the products that we say to our customers. And if they ask for it Monday at noon, Monday at 11:59, it is there, right, and the volume is the same, at the performance levels, power levels, etc. And the third chapter is building growth, right, and establishing the new products, the new product lines for growth. And obviously, we’ve laid the foundations for all three.

As TD and manufacturing are now making good progress, the focus really is get the product and design execution superb again. And I point back to that sort of TikTok discipline that we had in the past, that was a key part of what we’re doing. And that’s exactly what we have underway, rebuilding that kind of product disciplined execution. Clearly, the Sapphire Rapids miss that we had, we’re raising the quality bars for that. We weren’t shipping at the quality levels, the security levels that we needed to in the past. And clearly, we shouldn’t have had that bug in the product in the first place.

So that caused another stepping for the volume release. Our software release on our discrete graphics, right, was clearly underperforming. We thought that we would be able to leverage the integrated graphics software stack, and it was wholly inadequate for the performance levels, gaming compatibility, etc., that we needed. So we’re not hitting our four million unit goal in the discrete graphics space, even as we’re now catching up and getting better software releases. We also, I’ll say, the time lines for our products as we’ve committed them to customers, hey, we don’t think we’re competitive with the best-in-class in the industry.

Our design time lines, we have to get them better, and we’re focused on doing that, and that’s for some of the longer roadmap term items where we have to be best-in-class in our design cycles, design costs, power envelopes, architectural leadership, things that you would expect from Intel in the past, and we’re rebuilding those muscles for the future. So those would be the two examples we point to specifically that were visible this quarter, but we just have a lot more work to do. And as I said, it takes — these are three, four-year long projects.

These were — many of them were underway. We’re putting in place these disciplines now. And the products that are being launched with this entirely new methodology and alignment, they don’t come out for a couple of more years. So we’re still working through that inventory of designs that were in process, a lot of work to do, a lot of rebuilding and that’s where a lot of my attention is being focused on. And maybe now that I spend a little bit less time in Washington, right, this is the focus for us as a team is getting that execution to be superb once again.

John Pitzer — Corporate Vice President of Investor Relations

Next question please, operator.


We have a question from Randy Abrams with Credit Suisse. Your line is open.

Randy Abrams — Credit Suisse — Analyst

Yes. Thank you. A multipart question. If you could talk in IFS, so more on the MediaTek announcement, the products growth and potentially expand that to advanced products were referenced, design cooperation. I also want to ask a bit more on the CHIPS Act, how it changes your approach to the business. And for David, if the capital offsets assume some of the U.S. benefits, how could it impact the tax rate?

Patrick P. Gelsinger — Chief Executive Officer & Director

Good. On IFS, clearly, MediaTek, they’re the largest fabless supplier from Taiwan made. They’re seeking to have a broadening of their supply chain. And as we’ve said, our strategy is to provide a pathway for customers to have a globally balanced resilient supply chain. As I also mentioned in the formal comments, six of 10 of the largest foundry customers in the world, we now have active engagement. So the pipeline of customers grew.

We added another $1 billion to the pipeline this quarter. MediaTek was an Intel 16 announcement, one of the more mature offerings in the portfolio, which makes sense, right? Intel 3, Intel 18A, these are yet to be, I’ll say, designable products, and we have test chips underway, but we’re not yet to the point that the PDKs or the design libraries would be adequate for people to make design commitments quite at this point in time. But overall, great progress on IFS.

We’re thrilled with the MediaTek announcement and a robust pipeline of customers continues to build because this idea of a geographically balanced, resilient supply chain, Intel giving the best transistors and capacity corridors. And I’d also say that our IFS strategy pivots on this idea of system foundry. The world is moving — were moving from a board to a system and package. And a system package needs advanced 2.5 and 3D package, an area of Intel’s leadership, interconnect standards.

We’ve announced the standardization of UCIE. We’re leading that. Software assets, another area of advantage for us. And we’ll engage with and deliver this across portfolio process technologies, ours and others. This idea of System Foundry is gaining a clear interest to our customers as well. With respect to CHIPS and capital, we’ll say we were driving this for the last one and half years, and we’re fully expecting this to be the case in time. We’re thrilled to get it done.

That said, we also initiated such an effort with Europe. And that’s making great progress as well. And as Dave said, we’re also looking through other capital partners as well, which we hope to be able to talk about more in the future with you as well.

David A. Zinsner — Executive Vice President & Chief Financial Officer

And then just on your question, we have not assumed any Chips Act money in 2022. Our expectation is there’ll be a process, and that process will take us into 2023 before we start receiving money from CHIPS. So not assumed in 2022, although we’re assuming that we will see some in 2023. As you point out, the CHIPS Act or the bill that was passed is a combination of grant money and tax credits. I think it’s a little early to determine exactly how all that is administered and makes its way into our P&L. So we’ll table that until that becomes clear to us exactly how things shake out, and we’ll give you more color once we have a better assessment of that.

John Pitzer — Corporate Vice President of Investor Relations

Thanks, Randy. Can we get another question please.


Our next question comes from Stacy Rasgon with Bernstein.Your line is open.

Stacy Rasgon — Bernstein — Analyst

Hi, guys. Thank you for taking my question. I’m a little confused. You said that Sapphire Rapids was on time, and it’s ramping in volume in the second half. But you also said data center growth in the second half was going to be pretty muted off of a base that’s really low. And then you also said that data center pricing improvements in the second half would be less than what you’re seeing in clients.

So it doesn’t really sound like the Sapphire Rapids ramp is helping at all. What is going on with that? Like how should I be thinking about the impact of that Sapphire Rapids ramp as that ramps into volume? Or is it a question is like most of the volume coming into 2023? Or why isn’t it having more of an impact in the second half as it ramps?

David A. Zinsner — Executive Vice President & Chief Financial Officer

We said in the prepared remarks that it’s later than we expected, Sapphire Rapids. It’s ramping later. We have some SKUs out, which is good, but the main SKUs are not out and they happen later in the year. And of course, they’ll contribute way more significantly to next year than they’re going to contribute to this year. We do see an opportunity in the client space, given our Alder Lake position for pricing increases that are really passing on inflation, and we know customers understand that. Obviously, our competitive positions are not as strong in the DCAI business. And so there are opportunities to adjust pricing but not across the board. So that is impacting us a bit.

Stacy Rasgon — Bernstein — Analyst

But you’re basically saying that Sapphire Rapids is effectively a first half ’23 volume ramp. That seems to be what you’re saying, yes?

David A. Zinsner — Executive Vice President & Chief Financial Officer

I think there’s some ramp this year, and then mostly, it ramps next year, yes.

Patrick P. Gelsinger — Chief Executive Officer & Director

Yes. Like we said, we started shipping some of the SKUs earlier in the year, right? Those weren’t some of the higher-volume SKUs. The volume ramp SKUs were pushed out, right, as we said, Stacy, and they will start ramping late in the year. But the bigger financial impact definitely is next year. Sapphire Rapids, right, it’s still a leadership product.

We continue to get great reviews from our customers on the product areas like AI performance that we’re competing with low — the mid-tier of NVIDIA-dedicated AI processors. The security capabilities as part of it, unquestioned, the accelerators in it, unquestioned, leadership. We’re also getting more and more momentum from our software optimizations that come with it as well. So all of those taken together, a lot of enthusiasm. Every cloud vendor, every data center vendor, etc., is enthusiastic for this product.

And we’re now, as I say, in the final days of getting it completed and beginning those customer volume ramps. And obviously, financially, we’ll start to see some of those inventory reserves reversing as well. But yes, this was not our finest hour in execution. We’re rebuilding our execution machine. And this product, a lot of enthusiasm for it in the marketplace as we deliver it.

John Pitzer — Corporate Vice President of Investor Relations

Thanks, Stacy. Operator, we have time for one more question, please?


We have a question from William Stein with Truist. Your line is open.

William Stein — Truist — Analyst

Great. Thanks for taking my question. It relates to that last topic of the timeliness of delivery of new products. So while Sapphire Rapids is delayed, it sounds like something on the order of half a year, Pat, in the press release, it noted that the later nodes are still on track — or ahead of the track, I think, was the language.

As outsiders, what can we look to sort of judge and determine whether Intel is continuing to be on pace as we progress through the quarters? Aside from just the sort of summary statements in the press release, is there some other metric you could disclose to us or some way we can better understand whether Intel is getting back on track and keeping these commitments to deliver these products as you’ve scheduled it? Thank you.

Patrick P. Gelsinger — Chief Executive Officer & Director

Yes. Maybe as we just run through the five nodes quickly, Intel seven done, volume shipments, we said five nodes, four years, Intel 7, 35 million units, you can go rip one apart. I’m sure our competitors have done teardowns on it, done. Intel 4, right, we said is, hey, Meteor Lake, looking good at this point. It’s now broadly sampled to customers. And it’s looking very healthy as well.

Also, we had the independent analysis of our detailed updates that we gave at the VLSI conference recently. And if you go look at some of the reports from that, people were pleasantly surprised. They said, “Oh, Intel 4, it looks as good as some of the three-nanometer competitors.” So this is looking pretty good. And certainly, we’ll be giving more of those technical updates going forward on the real performance. Also, we’ve given updates on Granite Rapids, one of the lead vehicles of Intel 3. We also have said that we’ll give you updates on 20A and 1A test chip updates and others.

We’ll also have independent assessments of those as we announce foundry customers, right, which will be another point of validation that you’ll see. So we’re going to keep giving you more and more points of validation as we go along for it. Trust me, these are analyzed. The performance of each one of these process nodes, the defect density of each of these process nodes, the maturity of the design collateral, the resonance from the foundry customers for each one is being scrutinized extraordinarily well. And with that, I think you’ll get more and more confidence that what we’re saying is not only verified by us but independently by industry sources as well.

So with that, let me just wrap up our time. First, I’d like to say, thank you. We’re grateful for you joining us today, opportunity that you’ve given us to update you on our business. We’d summarize three key messages as we finish. We’re not satisfied with the quarter and the financial results that we gave you today, we have growing confidence in the strategy and we are optimistic finally about the future. We deserve some tough questions this quarter but also appreciate that they’re fair and relevant to the business.

Transformations are not easy, but nothing worthwhile ever is. And despite the headwinds that we’re seeing, we demonstrated substantial progress on IFS, NEX business, records, PSG, record in that business, the CHIPS passage today, huge, clear customer wins like AWS and Meta and NVIDIA. And for the last question, great progress on our TD milestones and our manufacturing milestones.

With that, we look forward to updating you again next quarter. Thank you.


[Operator Closing Remarks]


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