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#Thanks, <UNK>
The third quarter exceeded our expectations with revenue $16.1 billion, which is $400 million better than our outlook
Operating income of $5.6 billion was more than $700 million better than our outlook
Our data-centric businesses grew 15% year over year, reaching 45% of our revenue, proving that Intel is becoming a data-centric company
The fiscal discipline that Bob and I have talked about is delivering results even faster than we had forecasted while simultaneously allowing us to focus more on innovation in our key growth segments
Revenue grew 2% or 6% after adjusting for the McAfee transaction
Operating income grew 8% and earnings per share grew 26%, both reaching all-time records
Add it all together, and this was a remarkable quarter in what is shaping up to be a remarkable year
Our strategy is to be the driving force of the data revolution across technologies and industries
Our data-centric businesses are the company's growth engine
Individually, these businesses provide great value to our customers
Collectively, they're solving our customers' problems in a way that no individual business or product could
We've built a collection of capabilities that is unmatched
At the same time, our PC business remains central to our success
It's a source of great profit, cash flow, scale, and intellectual property
We've made great progress in both our data-centric and PC-centric businesses over the last few months, and I'll share a few important milestones that illustrate that progress
We're going to start with CCG [Client Computing Group], which produced exceptional results despite a declining PC TAM
PC market conditions continued to improve, and we achieved record Core i5 plus Core i7 client mix
Our focus on an annual beat rate of innovation and thoughtful segmentation combined with an investment strategy designed to produce results, even in a declining market, is paying off
We're especially excited about the launch of our latest 8th Generation Core processor, code named Coffee Lake
The Coffee Lake family includes our first six-core desktop CPU. And it's our best gaming processor to date, with up to 50% better performance than the competition on top game titles
We're on track to ship our first low-volume 10-nanometer part by the end of the year
That will be followed by the initial ramp in the first half of 2018, with both high volume and system availability in the second half of 2018. We shipped our first modem into the auto industry, and our modem revenue was up 37% in total over last year
Moving on to our data-centric businesses, DCG [Data Center Group] revenue grew 7% in Q3 and remains on track for high single-digit growth for the year
We saw strong cloud growth, outgrew the comm service provider end market and, while the enterprise decline moderated sequentially, we still see workloads moving to the cloud
Cloud and comm service provider revenue combined is nearly 60% of DCG revenue now
In less than three months, we've had more than 200 Xeon scalable OEM systems begin production shipments, and our customers across all of our segments are beginning deployments that will continue to ramp in Q4 and through 2018. In our Internet of Things business, revenue was up 23%, with strength across the retail, industrial, and video segments
We also continue to build momentum in the vehicle infotainment market, winning designs from our competitors at leading automakers
Early in the quarter, we closed the Mobileye transaction a full four months ahead of schedule
So far this year, Mobileye has won 14 ADAS [Advanced Driver Assistance Systems] designs across 14 automakers, a pace well ahead of the 12 wins they recorded all of last year
These designs provide for typical features like automated emergency braking, lane keeping, and adaptive cruise control
But several also include next-step functionality like highway autonomous driving
We're also winning marquee designs for Level 3 and higher levels of autonomy, including our strategic partnership with BMW and Fiat Chrysler
Most recently, we announced that Waymo's newest vehicles, the self-driving Chrysler Pacifica Hybrid minivans, feature Intel-based technologies for sensor processing, general compute, and connectivity
With 3 million miles of real-world driving, Waymo cars with Intel technology inside have already processed more self-driving car miles than any other autonomous fleet on the U.S
roads
Intel and Mobileye provide the auto industry with unmatched product breadth, the architectural flexibility to support open and closed implementations, and technology leadership
Our progress in just a few short months illustrates the benefits of our combination
And together, we can deliver the promise of autonomous driving in a safer, collision-free future
Let's move on now to memory and FPGAs
Our memory business grew 37% over last year and operating margin improved significantly, as Fab 68, our Dalian factory, continued to beat both its ramp rate and yield goal
Fab 68 accounted for more than half of our supply in a quarter where more than 70% of the total bits were 3D NAND
Our memory innovation and technology leadership is having an impact
We shipped the industry's first 64-layer data center SSDs and have a strong Optane design win pipeline
That leadership technology has also resulted in strong customer interest in long-term supply agreements, and we've already signed two such agreements
Bob will share more about our approach, but this is an important step that will mitigate the short-term cash flow impact of ramping our memory capacity
And finally, in our FPGA business, revenue was up 10% over last year, with growth in the data center, embedded, and automotive segments, where we're ramping designs like the Level 3 autonomous 2018 Audi A8 and DENSO's stereo vision system
Strength in these segments was partially offset by continued weakness in comms infrastructure
Our design win revenue value was up more than 10% in the third quarter, the highest level in more than three years
This business is central to our success in artificial intelligence
In Q3, Microsoft announced that it would use our 14-nanometer Stratix 10 FPGAs for its accelerated deep learning platform that's code named Project Brainwave
And as part of a broadening engagement between our companies, Alibaba is using Intel FPGAs to power the acceleration of the service of Alibaba Cloud
We've made tremendous progress in AI and advanced computing technologies over the last few months
In addition to our FPGAs and autonomous driving wins, we launched the Movidius Myriad X, the world's first vision processing unit with a dedicated neural compute engine to deliver artificial intelligence capabilities to the edge in a low-power, high-performance package
We also achieved new research milestones, as Intel scientists pursue exciting emerging forms of compute
We delivered a 17-qubit superconducting test chip for quantum computing to our research partner, QuTech
And we'll follow that up with a 49-qubit test chip by the end of the year
We also unveiled the Loihi, a self-learning test chip that mimics the brain's basic mechanics and makes machine learning faster and more efficient
Later this quarter, we'll ship the Nervana neural network processor, the industry's first commercially available processor of its kind
I also announced last week that Facebook is working in close collaboration with us, sharing their technical insights as we bring this new generation of AI hardware to market
Together, these accomplishments reinforce several things for me
First, Intel is the leader in AI inference from the core of the data center to autonomous vehicles out to the edge devices where low power is especially critical
Second, artificial intelligence takes many forms and will require computing solutions that are tailored for the workload, the environment, and the user, rather than a one-size-fits-all
And third, our investments and pipeline of innovation position us to lead for years to come
We had a quarter any CEO would be proud of
And I'd like to take a moment to remember our former CEO and my friend, Paul Otellini
Paul had an enormous impact on the industry and this company, and his Intel family will miss him
He would be proud of our growing momentum, and it's an important part of his legacy
Wrapping things up, I'm excited about both our progress and our prospects
And we're competing aggressively for our $260 billion TAM, the largest opportunity in our history, with lots of room to grow market segment share
In some of our segments, we're facing new or resurgent competitors
In other segments, we are the new competitor
But in all cases, competition brings out the very best in our company, as our third quarter results demonstrate
We're now well ahead of our commitments we made to you in January
Our transformation is accelerating
And we're raising our full-year expectations for revenue by $700 million and for operating profit by $900 million, our third consecutive increase this year
This puts us solidly on track to deliver the best year in the company's history for the second year in a row
And with that great news, I'd like to hand it over to Bob
Hi, <UNK>
So let's talk about this
We can kind of break this down
So, first, we are already seeing the benefits of AI in that
Remember, as I said, we lead in inference, which is the actual application of artificial intelligence, and we're continuing to really grow in that space
I think AI, if you take a look at it in general, machine learning, it's the smallest segment to a workload if you look at the data center, but the fastest growing
So you're going to see it continue to become a bigger and bigger portion of our business
You're seeing the effects in our numbers already around Xeon, Xeon Scalable, the FPGAs; we talked about the Microsoft Brainwave launch that's occurring
So those products you're going to see, I'll call those more of our traditional products
And also at the lower end, outside the data center, things like Movidius and now Mobileye, you're seeing those hit our P&Ls as well real-time now as we speak
The other products like Nervana, you'll start to see really more towards the back end probably of 2018 from a P&L perspective
If you take a look at Nervana, it actually – we get our first silicon out
It will be handed out as test silicon
We have a yearly cadence of products, and so I expect the first substantiations to be more people figuring out how to use it
It won't be a big impact
But as we go through next year and move on beyond that and get the second generation and beyond, that will grow, we believe, quite considerably
And then products like Loihi, which is our neuromorphic, are same things
The part we've put out so far is really a chip for people to begin to use and learn how to program with neuromorphic, which is a very different type of machine learning
It lets you learn at hundreds of times faster rates than traditional, I'll say, GPUs and CPUs, especially around visual learning
Those as well you'll start to see late next year and beyond as people really begin to learn how to program with these
So seeing it already and those newer products really think late 2018 and beyond before they really start to hit P&Ls
I'll start and Bob can jump in, <UNK>
First, because you've got a couple questions in there, what I would tell you is that the Purley ramp has just really started
It starts with the big cloud service providers
You saw Google talk about it a couple weeks ago
You saw Microsoft talk about it earlier this week
Those ramps are just beginning
I talked about the 200 design wins or design-ins at customers
Those are just starting to come out, so we're really early
These ramps, remember because we have to – it will go through the cloud service providers and the Tier 2 cloud service providers, then on into comms and eventually into enterprise as well
This is going to take a year or more
So I think it's early to make this judgment
The ramp is right within the range we predicted it to be from a ramp of that product The second part of your question, is 7% high single digits, I'll just make it simple and say look, if you look mathematically, I think it would meet a minima of high single digits, but it's certainly not necessarily where we're targeting to get to, but it's a high single digit number
I'm not going to – the math doesn't lie
<UNK>e, we don't separate out inference
So what we said is simply in the past publicly that AI is one of the smallest workloads and in fact one of the fastest growing
We haven't broken out – beyond just saying here's what cloud is growing at and here's what comms and here's what enterprise, we don't break out by workload
And there's a variety of reasons for that
Part of it, it's sometimes hard
The mixture of what – when somebody goes out and builds a rack, what is it going into? How much of its workload is really being used by AI? Anybody who tells you exactly what that number is, is just wrong, to be honest with you
So it's very hard for us to say with precision that X percent of our units went into AI workloads because it's rare that a rack is purely AI except for rare cases
But we know that it's small, just by the type of interactions we have, but also fast-growing and one of the biggest areas of interest
So you've captured it quite well
Let's just talk about this
We can talk about it from a unit standpoint and then we can talk about it from how has our business done
From a unit standpoint, the decline has certainly slowed down
If you go back a year or two ago, we were high single digits to low teens declines at times year over year from a unit basis, and that slowed into the low single digits that we're seeing today, but we still are seeing a decline on a unit level
And I always remind people, we've taken probably something like 25% of the annual units out of this business, yet grown in that timeframe the profitability of that business significantly
So, that I think just talks about both the great execution in products and segmentation strategy and just the leadership that that team, at first with Navin Shenoy and now with Greg Bryant, have really delivered to the company
So our view is, <UNK>, that if you take a long-term view, we see the pattern kind of stabilizing at about where it is
I think we'll come in here and there will be quarters when the units are up slightly, and there will be other quarters when the units are down a little more slightly
But when we look at it over the long haul, they're probably going to be down those low single digits
But we also see segments that are growing, that are very performance focused, which allow us opportunity
So you talked about them, gaming, 2-in-1 devices, thin and light, the Ultrabook as we like to think about it from the old, those products are continuing to see growth actually, and they are pushing that record Core i5, Core i7. They're pushing the desire for Core i9, which is a new product we introduced
Those are what's driving the segmentation, the ASP uplift, and the increased profitability
We think to some level that trend will continue
How long? I'm not going to be that good a prognosticator, but certainly for the near-term future, we don't see this trend shifting very much
<UNK> <UNK> <UNK> - Credit Suisse Securities (USA) LLC And then, <UNK>, just on the modem side, your prepared comments, I think you said it was up 37% year over year
What's the sustainability of that business and your ability to continue to grow that business through penetration?
I'm excited about the modem business
We, I think, really gotten a team together that is world-class
We believe we now are on a yearly cadence of world-class modems, which is really critical
That's a big hurdle to get that technology to where you can reliably put out on a yearly cadence a world-class modem
We believe we're there now
We continue to increase the profitability or the efficiency of that organization, which we've always talked about in the past, and that's continued
So we think we can continue to both drive the technology and continue to grow that business
<UNK> <UNK> <UNK> - Credit Suisse Securities (USA) LLC Thank you
<UNK>e
I think in our statements and in the release, we showed you that we actually lowered CapEx by about $500 million for this year
We've talked about CapEx and thinking about it as being in this range
I don't think we have anything else to say about – it's pretty close right now
We're just focused on the execution into Q4 and prepping for our view for 2018. So I don't want to have any other discussion on CapEx until we get to the January timeframe right now for 2018.
Yes, think of it – so first, absolutely you're right that we are going to move much more of our focus towards data center products coming first
It's not going to be the early part of 10-nanometer, though
You've got to look at the design cycles
And you make a decision like that, even if you make it last year, you'll start to see the effect at the back end of 10-nanometers and you'll really see it affect 7-nanometers, so not these early products on 10-nanometer, though
They were already in the hopper when we made that move
<UNK>e, that's a great question
So we mentioned that even out of those 14, many of those continue on up into Level 3, Level 4. The Level 5 work that you see out there is pretty far out there
And I'd tell you that's there's a lot of just experimental work going on there
If I take a look at the bigger picture, which is what you're asking, this whole picture that we've been putting together is – I said in the statement that individually these businesses are great
But when you put all these together into one package and you're able to walk into a customer with a complete solution, they're truly world-class and something nobody else can deliver
So you're right, when we go in and we talk to somebody about autonomous driving in general, whether it's Level 2 bots, Level 3, Level 4, or Level 5, we bring with us a suite of products, depending on what kind of architecture
And what we're seeing is different OEMs, different customers thinking about those architectures even differently across that spectrum
Some are thinking but by Level 5, I think my skills will be up
I want a closed system
I want to have much more control of the software
So we have a set of solutions we bring to them there
Some of them want to have more FPGAs for how they bring their software down onto the silicon earlier on
But what we're able to do is bring our modems
We shipped, and we mentioned it in the release, our first automotive modem
So we're able to bring automotive modems all the way through 5G
Most of these car companies are having to build data centers, and not just data centers, centralized data centers, but really a data center architecture that goes all the way out with data and compute at the edge
You're going to want to be able to manipulate and transfer mapping, high-precision mapping, to the cars and data back from the cars to change those maps' construction and things like that
So we're building that architecture, and we have the products and the talent to uniquely work with them all through that infrastructure
And then you get out to the car again and we can bring the FPGAs, the Mobileye for sensor fusion or compute
We can put Xeons in there
And each one of these discussions, they're all a bit different
They all have multiple phases as you go through 3, 4, and 5 on the levels
And what we're able to do is say you don't have to just take this one solution
This is not the only solution there is
What would you like to do? What best solves your problem in the most cost-effective, lowest power, efficient way? How much work do you want us to do in software and development versus how much work do you want to own and have IP within your company? And that's changing, as we said, over time
And that's part of also why we're building out that 100-car fleet
Amnon [Shashua] really has driven a vision that says it's one thing to bring foils to a meeting
It's another thing to bring a car and say now let's go out and drive and show you how all of these fit together
So all of that is – this package that we have is unique and it's resonating quite well as we walk in to the various car OEMs. And I'm out there with them in various modes almost every week, every other week
Amnon is out
We're all talking about a complete package
