Intel Corporation\'s (INTC) Management Present At USB Global Technology Conference (Transcript)

Call Start: 11:00

Call End: 11:39

Intel Corporation (INTC)

UBS Global Technology Conference

November 14, 2017 11:00 AM ET

Executives

Navin Shenoy - EVP, Data Center Group

Analysts

Unidentified Analyst -

Presentation

Operator

Unidentified Analyst

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All right. So good morning, everybody. We're going to start the second day of the UBS Growth Tech Conference on a high note. We have Navin Shenoy with us, who's the EVP and General Manager of the ever-important Data Center Group from Intel, and have been in the job for a few months now after quite a long career at Intel already. So it's always a pleasure to have you today. We're going to start with a presentation, and then we'll have some time for Q&A. Thank you.

Navin Shenoy

Thank you. I just stand over here I think. Good morning. It's great to be here. Thank you guys for joining. I want to give you a little bit of perspective on data center strategy in general but before I do that I thought I just sort of give you highlight of the transformation that Intel itself is undergoing. You've heard from us I am sure since the beginning of this year that we've been in the midst of a transformation really over the last three or four years now. We see ourselves transforming into what we would call a data centric company, we are investing to be driving force in the data revolution, the notion of processing, analyzing, storing, moving data is really central --the central pieces to the company and is driving the investment profile that and the growth that we see ahead of us. I've been running the Data Center Group since June of this year. Prior to that I ran our client computing group. And one thing that I've recognized here in the last five or six months is that the silicon TAM opportunity that we have in front of us is much larger than perhaps we've thought about in the past. It's much larger than server and microprocessors. The total silicon TAM in a data center is about $50 billion. And our share of that is about 34%. So we see huge opportunities for growth ahead of us. That $50 billion TAM opportunity today is growing to nearly $70 billion over the next four or five years. And, of course, as we think about where the growth is coming from we are making investment shifts. And we started this summer and we are going to accelerate those shifts as we head into 2018.

We are investing in three primary areas of growth. Clearly the shift to the cloud has been happening for many years now. We expect that to continue. The transformation of the network, I'll talk a little bit more about what I mean by that. And the rise of AI and analytics. Those are really the three sort of market growth drivers that we see ahead of us. And our strategy quite simply stated is to build the broadest array of products for those three market growth drivers that we can. The microprocessor of course Ethernet and fabrics and FPGAs, silicon photonics, AI silicon, custom ASICs. We've a very broad portfolio of products that we will amass together to go after those growth opportunities.

As you saw in our Q3 earnings announcement, the focus of the company has been to demonstrate momentum in this transformation. And if you just look at this chart you can see that our data centric businesses, the one that are outside of the PC business grew 15% year-on-year in the third quarter. And they now represent an aggregate 45% of Intel's revenue, up from about 30% of our revenue in 2012. This collection of businesses, the data center of business itself being the largest but IoT business, the memory business, the FPGA business inside of that data centric envelop is well positioned to capitalize on the industry trends I talked about. We can create great value for our customers through the collection of those businesses. And it will drive the growth of the company moving forward. The PC centric businesses generate -- was flat in the third quarter year-on-year but generates improved operating margin. We improved our operating margin by three points year-on-year. And of course that business provides the scale for the company of the funds, the intellectual property, the manufacturing scale and it continues to generate a significant portion of the company's profit and cash flow that we then use to invest in yellow data centric businesses.

So I want to spend the 20 odd minute or so 25 minutes talking about the strategy for the data center business that I run. As I mentioned before, the silicon TAM opportunity that we see is much larger than server or microprocessors alone. And our mindset is one of going after all of that incremental growth that we see. 34% share in that silicon TAM in 2016 and this market expects we expect it to grow at $70 billion plus over the next four or five years. And the opportunity we have is to outgrow that market growth. And we think we can do that if we capitalize on the secular shift that you see on the right hand side of the chart. Move to the cloud, the transformation of the network, the growth of AI and analytics. Our strategy is a platform strategy. How do we collect together an array of assets, a broader array of assets beyond the microprocessor, the silicon photonics and FPGA and AI silicon and 3D cross point to deliver superior experience?

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