WHEN: Today, Tuesday, September 19, 2023
WHERE: CNBC’s “Closing Bell: Overtime”
Following is the unofficial transcript of a CNBC exclusive interview with Intel CEO Pat Gelsinger on CNBC’s “Closing Bell: Overtime” (M-F, 4PM-5PM ET) today, Tuesday, September 19. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
JON FORTT: Welcome back to “Overtime.” Intel, the worst performer in the Dow today but about the best performer over the last month. The company making a flurry of announcements here at its Intel Innovation conference. The overarching question for the stock though, can Intel design artificial intelligence chips to chase down Nvidia and fix its manufacturing problems in time to make them? Joining me now to answer that question is Intel CEO Pat Gelsinger. Pat, thanks for having me back in my second home in San Jose.
PAT GELSINGER: Hey, always a pleasure Jon and really appreciate being on the show with you as always.
FORTT: So let’s get straight to it. Gaudi, you announced for Gaudi2, that’s your existing chip, a pretty big customer instability AI. So that’s heartening but Gaudi3 is the one that’s really supposed to close the gap with Nvidia. Is it on schedule? How soon in calendar ’24 can we expect it?
GELSINGER: Yeah, so I say overall, you know, Gaudi2, Gaudi3 next year. We also disclosed Falcon Shores here. We have a robust roadmap for ’23, ’24 and ’25 and Gaudi2 is super important because it’s sort of that on ramp to get Gaudi3 and then to Falcon Shores so that whole momentum of the roadmap, obviously the stability announcement today is big Gaudi2 announcement. We also announced Dell as a partner in delivering Gaudi to bay systems but as you say, it’s the warmup for Gaudi3 next year. We have for silicon out of fab it’s now in packaging, looking very healthy so far. So we’d say the roadmap is on track and the MLPerf scores, you know, the key machine learning benchmark today is showing us we are very competitive with the market leader, Nvidia. And in many cases, you know, finding the best that they have is about as good as Gaudi2 so we’re very competitive today and obviously Gaudi3 will be a big step up from there and I just disclosed the first details on that today. But we’re gaining momentum right now and the market’s starting to realize there’s another opportunity here for AI leadership in the industry.
FORTT: As I mentioned, the stock has been up considerably outpacing the overall semiconductor ETFs over the past several weeks. Now I got to ask you about manufacturing, right, because these five nodes in four years for those who aren’t, you know, fab geeks, that’s moving at about twice the pace that Intel used to move. The longer we go with you saying that you’re on pace in manufacturing, that’s a good that’s a good sign. So are you on pace?
GELSINGER: Yeah, in the five nodes, the first Intel 7 done that’s the Sapphire Rapids, Raptor Lake and the PC products that are now in volume, Intel 4 our Meteor Lake product today we announced the brain for that called Intel Core Ultra, right, you know, with the new AI capabilities so that’s now ramping in volume so we’ll say two are done. And we showed the server products for next year, what we call our Granite Rapids and Sierra Forest and they’re on or ahead of schedule. So we’d say the next two are on track. Then we showed the first Intel 20A and this is super important because this is the new transistor, the new backside power. You know, these are the breakthroughs and as I said on stage, today, this new transistor, it is a Picasso. It is a work apart. And for somebody like myself who’s been in the industry for 40 years, right? It is spectacular, but the culmination is 18A and what we said today is hey, we’ll soon be releasing the final design rules for that in the very near future so that the industry can start and I’ll be sending my first products in the early part of next year for manufacturing so it’s on track. So two done, three on track, we’re feeling really good about getting back to process leadership. And we’re doing that from a manufacturing base in the U.S. and Europe. This is spectacular.
FORTT: Now, I’ve been hearing questions about gross margins, right which have taken a big hit as you guys have, you know, both gone into investing in capital to build out fabs and lost some market share over the past couple of years. And I think some people wanted to hear today about gross margins in 2024, but correct me if I’m wrong here. We don’t know what inventories are going to look like heading out of q4, which is right in front of us, that’s a big question, big issue that affects margins because of factory loads. And then as you’re spinning up these new process technologies, that’s what tends to hit margin soon, as you’re getting a new process started. So is that why perhaps you’re not saying too much about margins and 24?
GELSINGER: Well, you know, we’re in the quiet period, you know, a couple of weeks left in the quarter, we just weren’t gonna give any more updates on the financials. So far this quarter, you know, we said hey, we got our first major prepay for 18A, our next process technology. So you know, boy, that’s better than a customer name, you know put money on my balance sheet to accelerate my manufacturing build out. You know, we also announced that we were, you know, above the midpoint of our guide. I’d also say hey, we were beat and raised the last couple of quarters and we’ll be updating on our October earnings calls. I’ll say overall, we’ve shown great financial discipline on cost savings, we’ve been beaten raise as we’ve gone through the year and clearly as we come up on our next earnings call, we’re feeling the momentum in the marketplace. The product machine is working, the manufacturing machine is doing well. But obviously, hey, the market has worked through a lot of inventory issues. Those we believe are largely behind us on the client side. We said we still have a little bit more work on the networking and in the data center side for that. But of course this is an expensive journey. Right, you know we’re investing a lot but we’ve lowered the margins and we’ve been consistently bringing them back on our head of what we’ve committed to the street. So I’m feeling good about every aspect of the execution and our financial performance.
FORTT: Back to AI, but not necessarily in the data center this time, you talk to them about the AI PC and you and I have talked about how your expectation is we’re going to move from accelerators, from generative AI in to more inferencing. And with those workloads, there’s going to be more need for AI on the client, on the PC, on the phone, places like that, places where Intel has more strength let’s say that right now in the data center. Is this AI PC a preparation step in that direction, what are we going to get with that?
GELSINGER: Yeah, we see this idea of the AI PC and I’ve described as sort of like a Centrino moment, you know when we first brought Wi-Fi into the platform and now to cut the wires have changed everybody’s life. We see the AI PC that begins now with our next generation, Ultra processor launch is ushering in volume AI deployment. Hey, a little bit of Gen AI in the cloud, hey, that’s fun, but can I make it part of your everyday experience? Where, you know, we showed off today, one of my favorite demos of today was rewind that AI. We’re literally on the PC locally, I’m not sending my data to the cloud, no privacy concerns, but I’m able to record everything that I do on my PC, and then be able to ask questions. When was the last time I talked to Jon Fortt and it will tell me when I spoke to him. This is impressive capabilities that are in place, and I don’t lose any privacy concerns, all generated locally.
FORTT: And you need developers though, to take advantage of that –
GELSINGER: Absolutely.
FORTT: And right for the client in order for that to really work.
GELSINGER: Yeah and I really see this as a next phase of development. Right. And this is why – it’s a developer conference that we’re here at with innovation developers one and all. And as I say, the killer apps are underway. That one to me was pretty compelling. Also, the hearing aid demo I did, right? Where, you know, literally it’s now on my – my PC is now interacting with my hearing aids real time transcription, language translation, you know, focus management, being able to suppress or enhance, you know, external effects for my Zoom or Teams call or whatever it might be on. It’s going to be next generation creators, as well. Where literally you’re seeing, you know, gen AI and being able to see image you know with gib – in real time, and song creation. We’re all going to become creators, but with spoken language. Asking what to be done. So I think this is just going to be the killer app is the AI PC, and our product line is strong, and I believe that it will become a driver of an expanded PC marketplace.
FORTT: Well, we’ll talk more about that and I know you got earnings coming up, where I’d love to talk to you. So Pat Gelsinger, thanks once again for having me here –
GELSINGER: As always, Jon.
FORTT: At Intel Innovation. And Morgan, you know, the stock did what it did today, but perhaps bottom line, Pat’s saying they’re still on track with that turnaround strategy, with design, with manufacturing.
