Series on Emerging Technology, U.S. Foreign Policy, and World Order: A Conversation With Patrick P. Gelsinger of Intel

EFFRON: Good evening and welcome to the Council on Foreign Relations 2024 Corporate Conference. I’m Blair Effron, cofounder of Centerview Partners, vice chairman of our board here, and I am delighted really to welcome everybody. As is customary, we have a good group here, but we have zooming in as well both throughout the country and around the world probably three times as many people as you see here today. So before we begin, I do want to take a moment to thank our newest members of the corporate program. We have Amazon and Visa at the founders level. We have Circle, CoBank, IBM, Nvidia, PwC, Hyundai Motors, and Recognize at the affiliates level. And whether your company has been a longtime member or is a relative newcomer, we obviously appreciate your involvement with the Council.

And speaking of newcomers, we have for the first time our new president of the council, Mike Froman. Mike comes to us with years of private sector experience and experience in government at the highest levels. That breadth of experience really gives him a deep familiarity with all the issues facing the private sector today. And in a turbulent world, having that kind of dialogue really is what makes the CFR particularly special. Our corporate membership provides valuable access to all our own foreign policy experts. And with their help hopefully together we can all navigate these issues. So we hope you will continue to make the most of the benefits out of the program. That includes roundtable briefings, briefings with our CFR fellows, professional development opportunities—which is actually something that any companies can take advantage of. If you have great colleagues in the thirties and forties, we want to get them engaged in foreign policy early. And they really do love it.

So, most importantly, I have the pleasure in a few minutes of welcoming Pat Gelsinger from Intel. And before we do that, our new head, Mike, is going to make some remarks. (Applause.)

FROMAN: Well, thanks, Blair. And Blair chairs our Corporate Program Committee, and in addition to being vice chair of the board. And we’re very grateful for that. So want to recommend recognize chairman of our board, David Rubenstein, there in the back, who’s known to everyone here, I’m sure. And let me just add to what Blair said. I guess I’ve spent about half my adult life in government and the nonprofit sector and the other half in the private sector, in the corporate sector, and including most recently at MasterCard. MasterCard is a member here. And for some reason, I was never asked to participate in Council events, even though I was an employee of MasterCard.

So I just want to encourage you all to do as Blair suggested, and take full advantage of the program. And I’m working with Suzanne Helm and her team to introduce some new elements of the program and make it even more valuable for our corporate members. Because I think we’re at a time when, whether it’s CEOs or boards or senior management, the issues of geopolitics, of the changing economic relationships between countries like the United States and China, transnational issues like pandemics, climate change, are having more and more impact on corporations, on their strategy, on their operations, on their capacity to execute on their strategy. And we are certainly getting a lot of incoming inquiries and requests for information for our fellows and our programming here that go directly to our corporate members and the work that they do.

So I encourage you to take full advantage of your membership. As Blair said, we really want to encourage this both as a source of information but also as an opportunity for employees—up and coming employees to broaden their horizons, to get exposed to a broader network of people working in the same area, and to get involved in the issues of public policy that are interesting in their own right and increasingly relevant to their jobs in the private sector as well.

Let me just say, we’re launching four initiatives here at the Council. The first one was launched earlier this week, called RealEcon, reimagining American economic leadership. Really looks at the issues of trade and investment, development, economic security—that convergence of national security and economics—and what do we need to do to really think about reformulating how the U.S. leads in those areas, and brings—ensures that there’s a support by the American public for that kind of leadership. Matt Goodman, who I think is here—where’s Matt Goodman? There he is way in the back. We’re delighted to have running that initiative. I hope you’ll introduce yourself to him.

The second initiative is on managing great-power relations, particularly with regards to China. Rush Doshi, who has recently left the White House running—helping to run China policy, will be joining us to run that program. And, again, these programs look not just at what research we should be doing in this area, but what kind of programming, like, convenings we should have, what kind of outreach, how to involve our members, or individual members and our corporate members, and leverage their expertise, how to use our digital assets, our publications, et cetera. So it’s really a whole of CFR approach to taking on these issues.

The third one will be on technology and foreign policy, national security, and international economics. Starting, as you might imagine, with AI, but also looking at quantum computing, synthetic biology, any number of other emerging technologies and the impact on policy. And the fourth one will be on climate change and the impact of climate on conflict, migration, health, food security, trade, and finance. So to the degree that those touch upon interests of yours and your companies, I hope you’ll let us know, and volunteer, and be part of the efforts that we have—the study groups, the working groups, the task forces, the reviews of new proposals—and bring your expertise to the table—to the table as well.

It’s a great pleasure for me to introduce our first panel. And we’re really delighted to have Pat Gelsinger here CEO of Intel, interviewed by Jon Fortt. Jon Fortt’s from CNBC. NBC is a new partner of ours as we think about how to work with media to get our content and our expertise out to the broader public. And we’re very grateful for that partnership. Pat Gelsinger, I’m told, started at Intel at eighteen years old as a quality assurance technician. So there’s hope for all of us out there. (Laughter.) You start early, imagine where you can end up. And really a fascinating corporate leader in a fascinating sector going through so many changes and so many interesting challenges and opportunities. We very much look forward to hearing from him.

We’re grateful to you, Pat, for joining us. Let me welcome Pat and Jon to the stage. (Applause.)

FORTT: Well, Pat, you started off in quality assurance and now you are back to it. (Laughter.)

GELSINGER: Thank you, Jon.

FORTT: Well, I’m going to formally open up by saying, first of all, thank you, Mike, thank you, Blair. Welcome, everyone, to the opening session of the 2024 CFR Corporate Conference. We’ve got Pat Gelsinger, CEO of Intel with us for this keynote session. I’m Jon Fortt, co-anchor of CNBC’s Closing Bell: Overtime, alongside Morgan Brennan, a new CFR member. I’ll be presiding over this conversation.

Pat, I think I’ve known you for, what, about fifteen years?

GELSINGER: Something like that, Jon.

FORTT: Back when you were CTO at Intel. And, boy, you’ve taken on a tough job, right? Intel was in rough shape three years ago when you came back on board as CEO. But I really want to start off in today’s context geopolitically. Markets took a little bit of a dip today starting around midday, concerns about what Iran might do retaliation-wise where Israel is concerned. You got around more than 11,000 employees in Israel across, I believe, four sites. Intel’s been there for fifty years, so this isn’t a new challenge. Tell me, how does today’s environment affect the way you approach that site, its strategic importance, and your overall business?

GELSINGER: Yeah. Thank you, Jon. And, you know, Israel is so critical to us. This year is year fifty for us. You know, we began the tech boom in Israel. We were one of the first companies to establish a footprint there. You know, a fun story sometime I’ll tell you about Andy Grove and Dov Frohman, the inventor of the EEPROM, starting our site there. You know, just an amazing resilience in the Israeli people. And now it’s not just 11,000 employees, it’s also 5,000 Mobileye employees, 4,000 construction workers, and about 4,000 more contract workers there. So I have well over 20,000 souls I consider myself responsible for in Israel. And they’ve done extraordinary work for us, you know, now over fifty years.

You know, that said, right—you know, they’ve done so through conflicts before. This isn’t the first Israeli, you know, Middle East challenge. And they, you know, have never missed a product deliverable, never missed a wafer deliverable. And that’s why I say this is a resilient people, extraordinarily so. You know, that said, we seek peace, right? This is terrible what’s going on, first in October with the raids and then the responses. So we seek peace as quickly as possible. And, you know, seeing that measured, all right, you know, in the international community, it’s not particularly surprising at this point given the – you know, the human loss in Gaza.

You know, that said, you know, our job is to continue running our businesses as good as—as well as we possibly can. You know, making sure we have good resiliency. I’d also say part of our core strategy is building globally resilient supply chains. And whether it’s Taiwan, Ukraine, or Israel, that’s why we’re doing this. You know, we have to build resilience in the technology supply chains. And it underscores the importance of the essence of the strategy that I’ve laid out for Intel, the technology industry and, frankly, the Western world.

FORTT: Let’s get closer to that. Now, you mentioned Taiwan. There’s, of course, this overarching concern for the entire Western world and beyond, certainly in Taiwan as well, about what China is going to do there. How much of chip manufacturing is now based in Taiwan? How much of a concern is it when we have an earthquake, like we did over the past couple of days, and what that could mean for powering the economy around the globe?

GELSINGER: Yeah. And, yeah, it was rather frightening waking up on Wednesday morning to a 7.5 earthquake. Fortunately, it was on the eastern side of the island not on the western side, or the devastation or impact would have been far greater than it was. You know, that said, it just reinforces the point we need resilience in the supply chains, right? And today, you know, about 80 percent, 82 percent of the world’s semiconductors are built in Asia, right, not only in Taiwan, but Korea, China, Japan. And of the leading-edge semiconductors, over half of it is simply in Taiwan. One region of the world has well over half of leading-edge semiconductors today. And in fact, it’s one site in Taiwan in the world. And to me, that’s the epitome of not resilient, right? And to think it’s just a hundred kilometers from Chinese soil, right? You know, the most powerful leader in China, right? You know, boy, this is not a sustainable situation for the world.

And if you think, what aspect of your life, Jon, is not becoming more digital? Everything is, right? (Laughter.) Every aspect of humanity is becoming more digital. Everything digital runs on semiconductors, right? You know, and I’ve said—you know, the geopolitics of the world has been defined by where oil reserves have been for the last fifty years, right? The geopolitics of the world will be defined by technology supply chains for the next fifty years. And the AI surge has just, you know, made—put even a bigger exclamation point on it. So let’s build these factories where we want them. You know, in 1990, 80 percent of the world’s supply was in U.S. and Europe. You know, today it’s about 18 percent now, right? So but never was a vote in Congress taken to get rid of this terrible semiconductor industry. But there were votes taken in Taiwan, Korea, Japan, China, throughout Asia, to attract this industry. And thirty-plus years of defined industrial policy, we lost this industry. And we’re no longer economic here.

FORTT: Well, I want to talk about that, because when we talk about the CHIPS Act—and I saw you a few days ago in Arizona, where the president was unveiling the—

GELSINGER: Yeah. He invited some friends, yeah.

FORTT: Yeah. (Laughs.) The $8.5 billion-plus that you guys now have access to. Some people are like, oh, well, why do we need to give these multibillion-dollar companies more money to do what they should be doing anyway? Explain what happened in South Korea, in Taiwan, somewhat in Japan too, but especially those two places over the past several decades that has put them in position where—you know, my father-in-law grew up in Korea around the time of the Korean War. It was not industrial and not urban. And now it’s leading.

GELSINGER: Yeah. And if you read Chip War by Chris Miller, you know, he chronolizes much of this. But it truly was thirty years of intense industrial policy in those locations to build these industries. There were incentives. There were tax preferences. There were land grants. You know, there was R&D, you know, credits. There was, you know, university programs. You know, the government pushed companies to invest in TSMC. And, you know, there was this strong hand of the governments in those locations to build this industry. And, you know, it wasn’t—

FORTT: Well, how is that not—I’m just taking the other side here. If you know what I do on CNBC, you understand. How is that not picking winners, right?

GELSINGER: You know, and there are multiple companies there, right? You know, there’s, you know, UMC, TSMC, Samsung, Hynix. You know, and obviously, you know, some have merged, and so on. The capital and R&D intensity that have occurred over time, they innovated, you know, the foundry model. And to some degree, there was a free market aspect to it. But they chose this industry. They chose the technology supply chain around it because it’s not just the chip vendors—I mean, not just the foundry, like TSMC. But it’s also the chemical suppliers that are there. It’s also the system suppliers that are there. It’s also the component suppliers that they built up.

You know, TSMC is the center of the technology ecosystem of Taiwan. And Taiwan has become the technology center of the world, in that respect. And this was defined industrial policy that wasn’t picking winners and losers, but it was picking industries and deciding that they were going to build those up in a very sustained set of policies over many administrations that have emerged. It really is spectacular what they’ve done. You know, if you haven’t read Chip War yet, by Chris Miller, you know, take a read of it. And in some regards, that is what led to the creation of the U.S. chip industry, the industrial policy of DARPA, right? You know, I mean, it wasn’t arbitrary that got it here, right? (Laughs.) You know, we invented this. And then there were strong policies that enabled it to occur.

FORTT: And not just the chip industry. All of Silicon Valley, arguably, has grown up around that ecosystem that started with government support. Then there are universities around it, right? There’s culture around it. Software industry grew up. And now it sort of self-perpetuates.

GELSINGER: Yeah. And that’s what led to this huge, you know, 30 to 40 percent gap. You know, we’re not asking for handouts. But if I was a good, you know, CEO, I would invest where I can get good economic return. And I would not do it in the market that I have a 30 or 40 percent cost gap. I’d go build my factories in Asia. You know, that’s the thing that, you know, any good CFO or Wall Street investor would choose to do—invest where you get good return. So if we want to build these factories in the U.S., we have to close that cost gap. And that is exactly what the CHIPS Act was designed to do, make it economic to return manufacturing to U.S. shores. And that’s what’s now underway.

FORTT: Is it enough?

GELSINGER: You know, today—you know, when you look at CHIPS Act today, since, you know, we began this journey, you know, four years ago to get CHIPS Act underway—you know, it was passed in August of 2022. You know, a proud moment to stand on the West Lawn for the signing of the CHIPS Act. And the estimates today are—you know, we’ve declined since that began a couple more percent, from like 12 percent to 10 percent. But the projects that have been announced by Intel, by TSMC, by Samsung, by Micron, just one by SK Hynix this week—that the estimates are that that takes us from 10 percent to 20-plus percent approximately by the end of the decade. So the announced capital projects that are underway today would be more than doubling this industry back in American shores in less than a decade. That’s pretty phenomenal. Now, is it enough?

FORTT: But is it enough? (Laughs.) Yes.

GELSINGER: You know, as we think past CHIPS, you know, there’s a set of long-term policies that need to come into place, in my view, because we lost this industry. You know, and $152 billion, right, industrial policy, you know, shot in the arm ain’t gonna fix over three decades of bad policy. Our tax policies are wrong. Tax policies are wrong for R&D, for capital investments. You know, the bigger portion isn’t the 8.5 billion (dollars) of grants, you know, that we’ve received. Though that’s important. But it’s 25-plus billion (dollars) of investment tax credits we get.

You know, put it all in the tax policy. You know, to me, if we invest it, we should be able to say we’re getting benefit financially for making long-term manufacturing capital investments. And I believe that should apply to every industry that we want manufacturing footprint in the U.S. We have to build long-term R&D capacity as well. You know, DARPA was essentially an R&D program, you know, for the nation. And we need—you know, this is seed corn for the future. We need talent as well.

And I think the last component, as I think about the next phases, is supply chain preference. Got to get the supply chains that support the fabs back here, both the incoming as well as the outcoming, and put much more pressure on using government purchasing power and authority to incent, you know, products to be built, manufactured. You know, while President Biden’s comments at our chips grant, you know, he had one line that I really enjoyed. He said, supply chains shouldn’t end in the U.S. They should begin and end in the U.S. And I think that’s summarized the objective very well.

FORTT: You talk about Samsung, TSMC, SK Hynix also trying to build some U.S. manufacturing capability. When it comes to the government’s need for chip manufacturing in the U.S., because defense has also become a much more technology-driven experience, how do you think the government should think about where they source those chips?

GELSINGER: Yeah. There’s this binding of manufacturing and R&D that becomes an important aspect for government purchase. Intel happens to be, you know, the only Logic R&D provider in the U.S. You know, I believe we have to see more of those R&D footprints of those Asian countries move back to the U.S. as well. But from a government perspective, you know, that’s part of the reason, you know, the President and Secretary Raimondo called us the U.S. champion. You know, we’re the unique company that does manufacturing and R&D in the U.S. One of the objectives we would have as we get these commercially viable technology leadership, you know, manufacturing corridors underway in the U.S., that we build the national defense requirements as adjuncts to those commercially viable capabilities.

And you might have seen some of the language of, you know, secure enclaves. You know, build a little thing on top of a big commercial thing to meet the unique requirements of governments. So that today, many of the government programs, you know, literally are more than a decade behind in their technology, right? In some cases, two decades behind. So, right, if you’re trying to, you know, put the best drone fleet in the air around the next generation F-35, are you OK if your AI capabilities and the drones are 20 years out of date? Of course not, right? We need to enable leadership technology for the secure defense program. So from our perspective, this is clearly a statement of, you know, the right economic policy—you know, building jobs through the manufacturing and R&D, but also the right national security policy as well.

FORTT: Let’s talk about Intel now, because you’re embarking on a very gutsy, and extremely expensive turnaround right now. But you actually started at Intel, as was mentioned earlier, when you were eighteen years old. And you happen to be a Christian. I am too. Your Intel story kind of reads biblical, in the sense that you came in as a young lad. Mid-career you were forced out. Ended up being a successful CEO elsewhere. About three years ago, Intel’s board reaches out and says, will you join the board? And then they end up saying, actually, will you come back as CEO? Over Christmas you think about it, talk to your wife about it, end up saying, well, here’s my plan. If you let me do this, I’ll come back, right? You and I have talked about this before?

GELSINGER: Yes, yes.

FORTT: Now you find yourself with the stock lower than when you joined, tens of billions of dollars deep in this commitment to try to bring manufacturing back here. And with this plan to separate design at Intel from manufacturing, when the thinking had been the fact that those two things are, you know, intertwined is a strength of Intel. You gave some detail about that earlier this week. Wall Street freaks out when they see how much the manufacturing is costing. Why is it so important right now for Intel’s future to separate these two things?

GELSINGER: Yeah. And, you know, the strategy that we’ve laid out is to take what was called integrated design and manufacturing—and, you know, the industry has moved on. You know, Intel perfected that. We produced superior financial results. We had leadership technology. And that business model worked until it didn’t, right? And when we stumbled and Intel lost technology, leadership, you know, then we were behind on both products and technology. And that exposed an uncompetitive manufacturing capability, as well as always hidden inside of, you know, the product manufacturing combination. So, today we look at it and we say, hmm. Most of the world’s wafers—you know, what we produce for semiconductor manufacturing—are actually done by foundries today.

FORTT: Foundries being manufacturers for hire?

GELSINGER: Correct. Correct. You know, I become your factory. You know, Nvidia makes no chips.

FORTT: AMD makes no chips.

GELSINGER: Right? Qualcomm makes no chips. You know, they use other people’s factories. And Intel was the lone company still making their own chips. So now we said we’re going to take the company and create, you know, a fabless company that looks like AMD, Qualcomm, Nvidia. And we’re going to create a manufacturing capability for the world. All right? Jensen, I want to build your chips. Lisa, I want to build your chips. You know, Christiano, you know, Tim Cook. I want to—you know, we want to be that foundry, because scale is critical to be able to maintain the R&D and the capital requirements of the industry. And the world needs resilient supply chains.

FORTT: Isn’t that kind of like McDonalds saying to Burger King, I want to cook your burgers?

GELSINGER: You know, in some ways it is. Now, and if burger cooking was quite as sophisticated as fabs, that may be a good strategy for them. But, you know, I’d also—right, you know, and to the audience here, if you haven’t seen one of these fabs, you just got to see them, right? You know, we had Jon there. You know, these are some of the largest construction projects occurring on Earth, building the smallest things that have ever been built on Earth. These are marvels, right? You know, the Ohio project, you know, when we announced, you know, it’s going to be $30 billion of capital there. You know, the site that we’re putting it on, I have capacity to create the largest manufacturing site on the planet, right, with fifteen fab modules. You know, the initial investment is $30 billion. We have—you know, next year, we’ll probably peak at 7,000 construction workers on the Ohio site.

You know, today, I have about 6,000 construction workers on our Arizona site. These are extraordinary, capital-intensive facilities. It’s not like flipping a burger, right, on your camp or barbecue in the backyard, trust me. And the business model of the industry has changed. So we do believe we need to do that. But we need to create separation so that Lisa can look at me, or Jensen, or any of these other fabless companies, and say: You’re securing my supply chain. You’re protecting my IP. And that’s why we went through the steps that we just announced this week, right? Clean separation. You know, being able to present the financials of the foundry business separately to the industry.

You know, by the way, it’s a reporting requirement. If I’m managing the company that way, SEC requires me to be public on it. You know, so we’re required to do it. And it’s the transparency I want to bring, you know, to drive that business to profitability, which we said will take a couple of years. And we believe it’s a huge value unlock. You know, practically from a shareholder perspective today, you know, we have almost $100 billion of, you know, invested capital in our manufacturing footprint. And we believe Wall Street today gives us zero to negative valuation, you know, for $100 billion of assets in the books. OK, what a value unlock, right, if we get it to profitability and competitiveness over time. So I think this is going to be, you know, great for potential customers. It’s going to be great for improving the operations. But ultimately bringing shareholder return as well is part of my job.

FORTT: Speaking of potential customers, a lot of people might not realize this isn’t just existing chip companies that are fabless that need a manufacturing partner. Over the last several years Amazon, as it’s built up its Hyperscale Cloud is making its own chips—designing its own chips, to try to get more efficient. They need somebody to make them. Microsoft has made the same decision.

GELSINGER: Yeah, and they just—Microsoft just announced being a customer of Intel, and our Intel foundries. And that was one we just announced.

FORTT: And, as we all know, Apple began making—designing its own chips for first iPhones to now its entire hardware line. And they need people to make chips. They didn’t start off as a chip company.

GELSINGER: Yeah. But these are big companies. Plus, it’s lots of other companies as well. You know, it’s the Marvells, it’s Broadcoms, you know, it’s Qorvos, it’s Texas Instruments. It’s a long list of these companies. Yeah, you know, Tesla as well. You know, Dojo and what—they’re designing their own chips in cars. But it’s also Lockheed Martin, and, you know, Raytheon, and all of the defense contractors, and, you know, the Department of Defense, in many cases, designs their own chips as well. So, you know, the list of these customers for foundries is actually quite broad.

And until I changed the corporate strategy three years ago, Intel said: No, you can’t come into our factories. And now we’re saying, yes, please. And we’re becoming industry standard and making that available, you know, across the industry, across the globe. And key segments, like the national security interest, are super critical for us to enable.

FORTT: We’ve talked about the policy implications for semiconductor manufacturing and what’s necessary to set up that ecosystem domestically. But there’s also a knowledge ecosystem and a knowledge pipeline that, arguably, needs to be created and nurtured. What’s your assessment of the state of U.S. investment in education, and whether there are the human workers, that I assume will still be necessary in the AI era, to run these fabs and design the chips that are going to run through them?

GELSINGER: Yeah, there’s very good news here, and there is not-so-good news. The very good news is that the world sends their best in their brightest to U.S. universities, right? Our university system is chunking out, you know, every AI leader, you know, every, you know, innovator of quantum computing and neuromorphic—you know, that’s all being done in the U.S. So we clearly have the top tier, right? You know, unquestionably it’s here. We have a great pipeline of those capabilities.

We lost all the manufacturing sciences, right? You know, we just sort of said, oh, I just want good quarterly results. I get that better in software. And, you know, sorry, Chuck, right? (Laughs.) You know, in other category—you know, higher margin. You know, so there are areas that we lost focus for. So some of those need to be built up. And, for instance, when we announced the Ohio site, you know, I stood on stage and I said: Today, the Rust Belt ends. Today, the silicon heartland begins. And we’re right next to Ohio State. You know, we have the top ten universities in that area committing to develop the programs for the talent that we need for the future. We committed fifty million (dollars), National Science Foundation has committed fifty million (dollars) for those programs.

And, you know, there’s a surge of interest to rebuild those areas in the U.S. And I do think—you know, it will takes us a while to get those capabilities back, but I believe we’re well on course to do that. And I believe the talent pipelines will be there if the jobs are there. And a lot of people, hey, they want to come back to the Midwest. Yeah, right? (Laughter.) You know, when I gave the commencement speech at Ohio State, I said to every mother and grandmother in the audience: Bring your kids home. We want them right back here in the Midwest. So I was playing to the hometown crowd a little bit, but it seemed to work. (Laughter.)

FORTT: Yeah. it also happens to be a purple state, so that doesn’t hurt.

GELSINGER: Ah, may have—may have affected our decision.

FORTT: (Laughs.) So, first of all, I’m going to open it up to questions in just a couple of minutes. So have those ready. When you look at Intel’s cadence of this turnaround that you’re trying to drive, where are you both on the strategy and then on the financial result?

GELSINGER: Yeah. So when I took the job, my—as Linda and I—my wife is Linda. As we were debating the job—ruined my Christmas in deciding whether to take the assignment. Linda asked me two questions. She said how much—how much you going to have to work? And I said to her, I don’t know. A lot. And then said, how long? You know, we were just expecting our eighth grandchild, right? So she wasn’t expecting me to, like, you know, spend another decade or two in the workplace. And I said, it wasn’t less than five years to turn this around. You know, it’s well over a decade of bad performance and strategy. You don’t fix that in this kind of industry.

So here we are, three years into what I said was at least five years. And I’d say we’re about halfway through the journey. You know, the technology is coming back to life. You know, the products are coming back to life. You know, we’ve laid out this clean separation of the two businesses inside of Intel. You know, we went through—you know, our financial trough was Q1 of last year, where I had the—you know, the distinct displeasure of announcing Intel’s first loss in over three decades, right. You know, and we’ve bounced off the bottom. You know, and now we’re—you know, we’re well over a buck of earnings this year, what the street is forecasting. Our consensus too. So, you know, we’re on the financial journey to build it back.

You know, that said, we still have several years to go, right? This is—you know, if you want a—right, a great, you know, pop in your portfolio in the next two weeks, we’re not it. But I don’t want you. I want people who are committed to the strategic journey of rebuilding the most iconic technology company in American history, who is building long-term manufacturing capacity for the digital future that is more critical to every aspect of human life, the national security, and the economic engine. That’s who I want as my investor. And that’s a long-term, you know, commitment. And we’re well on our way to getting there. And we bounced off the bottom of the stock price when it was in the twenties. It was a great buy. So I bought a bunch, right?

FORTT: (Laughs.) So it sounds like you’re saying Intel is not a meme stock?

GELSINGER: So, no. So, all right. But, hey, this is a long-term journey to rebuild a company and rebuild value. And semiconductors—you know, there’s only a couple, three companies that can do this on the planet. And there’s only one of them that’s a Western company. And if you want to jump into the semiconductor manufacturing industry, all you have to do is invest tens of billions of capital, tens of billions of R&D, and do that for forty or fifty years. OK, then you can be a competitor in leading-edge technology. You know, there just aren’t those other opportunities. And the industry is consolidating because of the capital intensity and the R&D intensity.

So in that sense, I view this as a—you know, not just restoring in honor of the founders Grove, Noyce, and Moore, right, the people I came back to the unique position Intel plays in the technology industry. But, you know, this is rebuilding the Western supply chains of the world. Those are the three reasons I came back. And we’re going to get them done.

FORTT: All right. Well, we’ve got a full room and we’ve also got audience online. So first in the room. Michelle Caruso-Cabrera, I saw your hand first.

Q: Great job, Jon. Michelle Caruso-Cabrera. I worked with Jon for a long time. Thanks for doing this, Pat.

The foundry business, will it ever be profitable, do you think? Or do we just assume that it has to live on government subsidy in the name of national security or for the sake of national security?

GELSINGER: Oh, absolutely. It must be profitable. It must become cashflow-positive. You know, and the picture that we laid out literally on Tuesday of this week was that we expect to break even in that business in the 2027 timeframe. And then it turns nicely profitable. As we go through the rest of the decade, we start to see ROIC, you know, get to the double-digit range by the end of the decade. But, you know, part of the problem is we have to significantly overinvest to get back to competitive.

So we were years behind. So, you know, we had to churn capital and R&D investments to catch up. And that’s expensive. And, when I build the new factory, you know, it takes me four to five years to build the factory. So I’m investing 30 billion (dollars) of capital before I get a penny of revenue, right? And then you got to ramp that new factory. So that takes a couple, three years. But it doesn’t even start producing profits, right, out of a new factory for seven or eight years, right? You know, so it’s hard to pay for your cost of capital with those investments, you know, in a short period of time.

So this is a long game in that regard. But, you know, semiconductors, yeah, it’s a profitable industry if you’re ready to go through these hard cycles, long-term investments. And our objectives as we think about chips and the long-term chips policies, is we have to rebuild a vibrant ecosystem on American soil. You know, it’s not about sustained investments and so on. I think that’s appropriate. You know, good tax policy, you know, good investment policy, you know, good long-term R&D. But we have to make this an economic industry back on American soil. That’s what we’re off to do. But we needed a jolt, let’s say, to fix some of those huge gaps, and to start rebuilding the ecosystem and supply chains.

FORTT: I saw a hand here up front. That was the first one I saw.

Q: Hi. Fred Hochberg. I was in the Obama administration with Michael—(laughter)—and others. (Laughter.)

So this may be a question to—take us out of Intel. You know, automobiles are becoming more and more—as they become more electric and more chip-based—we see a lot of twelve-year-old cars on the road today. That’s the average age. No one wants a twelve-year-old computer. No one wants a two- or three-year-old iPhone. How does that ripple effect through the whole rest of our economy? I mean, the auto industry is a huge driver of our economy. Can you just help us—how would we navigate that? How is the world going to navigate that?

GELSINGER: Yeah. And just to, you know, put a few numbers against the—you know, if you pick on the auto industry for a second. The auto industry in 2021-2022, about 4 percent of the bill of materials of the car was electronics. The estimates are by 2030, that hits 20 percent. So a 5X increase in the amount of electronics and semiconductors going into cars. You know, obviously, the electrification of the car, you know, what we call the software-defined car, right? You know, I mean, some of the modern cars that you’re seeing today, they have seventeen screens in the car, right, for some of the high-end models today—for the kids, for the navigation, for the different—you know, seventeen different displays. And, of course, you know, electrification. And, of course, the AV, you know, autonomous driving. So, you know, a 5X increase in the semiconductor technology going into cars. And this is across industry after industry. And that’s why, you know, today semiconductors is about a $600 billion industry. By 2030, trillion-plus, right? So, you know, and these are—this is one of the factors that are driving that.

Now, how do I expect the car to look, you know, going forward? I do expect, you know, when you pull in, right, you’re not going to need oil in the car anymore, since you don’t have a combustion engine. You know, but every once in a while you will get a computer upgrade, right? You already get down the wire upgrades and software into the car. You know, your braking system, you want it to be firmer? Great, I’ll change that, right? You know, the automation of driving, mapping, all of those kinds of things are going to be a combination of cloud, you know, delivered services and computing. And every once a while you’ll come and you’ll get a new computer plugged into your car. And, you know, I do think it will drive a more aggressive refresh cycle for the automotive industry as well over time.

So I think in these kinds of things, the capabilities, you know, will be so significant that you’ll see over the next decade are the result of electrification, right, you know, these software capabilities, and autonomous driving, you know, that we do expect to see acceleration in that industry. And I think you’ll see similar characteristics in other industries as well. You know, whether that’s construction equipment, farm equipment. You know, this combination of electrification, AI capabilities will truly be, I would say, so powerful for business process improvement in many of those industries, and acceleration, right, of the introduction of technology as a result.

FORTT: Well, we have a question from our remote audience.

OPERATOR: We’ll take our next question from James Sullivan.

Q: Good morning from Singapore. And thank you very much for taking the question.

Pat, you had noted that both countries like Taiwan and Korea had chosen this industry, and that the U.S. is pivoting towards a more similar industrial policy. I would say the U.S. isn’t the only country making that decision. If you could compare and contrast, the policy decisions that you see coming out of both China and the United States relative to the semiconductor industry. And if you have a view in terms of where this ends up, that would be fantastic. Thank you very much.

GELSINGER: Sure. You know, and if we look, you know, across the world, obviously, we’ve seen policy in Europe as well. You’ve seen strong policy in Japan. India has taken some steps here as well. Singapore has also programs in place. You know, China has probably been the most aggressive of any of the countries. And, you know, they—you know, their equivalent of the CHIPS Act, you know, it was probably four to 5X bigger in China. You know, what they’ve put in place. So they’ve been quite aggressive for this industry.

Obviously, one of the limitations for China has been the export policies that the U.S. has driven as well. You know, that limits some of the most advanced capabilities to emerge in that industry. It’s led some, like me, to believe that, hey, leading-edge technology is going to be a good market to be in. Trailing edge is going to be heavily pressured by the overinvestments that we see China making over time. So I do think it’s going to create some distortions in the industry as a result.

FORTT: And “leading edge” meaning your most sophisticated chips that are using the most advanced, what you call, process technology?

GELSINGER: Yes. Yeah. And, you know, today, you know, we’re about to introduce our first below two nanometer technology. And not trying to make you all semiconductor experts, but the Chinese are sort of limited about ten nanometers. And, you know, and that’s sort of going to be the floor for how far they can go. And we’re going to go from two, to 1.4, to 1.0. You know, so that gap is going to become larger over time. Now this, of course, you know, the Chinese, you know, they’re going to build AI, you know, chips. They’re going to build phones and, you know, so on. Are they going to rely on, you know, our products and exports? Or are they going to be overinvesting in creating some of those technologies themselves? And today, you clearly see them trying—(laughs)—you know, to invest in their industry to build their suppliers, that they’re not dependent on the rest of the world. So more of the dual circulation model is emerging.

But I think these technologies are so hard. You know, I expect the leadership position that the U.S. will have will be on the order of a decade—U.S., Europe, Japan. And, you know, as I talk about our overall export policies, you can’t ignore the China market. This is 25-ish percent of the global semiconductor market. So I need 25 percent less factories if I don’t have access to the China market. So we would say good policy is export all of our products we can to China, right? It’s a great market. It allows me to invest more in R&D and manufacturing. Be very thoughtful about what technologies you want to be exportable. You know, there are good, valid reasons for national security and others. As, you know, Jake Sullivan has said, you know, small garden, high fence. You know, be thoughtful about that.

But the last piece that I would say in this, is we must align with our global allies. And in the semiconductor industry in particular, that means Europe and Japan. Almost every semiconductor technology, it comes from U.S., Europe, or Japan. And if we are aligned in our export policies, on how we view the rest of the world, that defines the technology for the world. So in that, those three, to me, you know, that is good policy framework for the future.

FORTT: Let me look over to this side. Try to be even handed. Here.

Q: Hi. I’m Emily from Goldman Sachs. Thanks so much for being here and speaking with us today.

You know, you’ve spoken to the fact that your plan is long term for Intel. Given the uncertainty and headwinds in terms of, you know, current policy, you know, Wall Street valuation headwinds, you know, how did you get the board on the same page? (Laughter.) That seems difficult. And also, as a technologist myself, like, how do you keep kind of so engaged with the cutting-edge technology, given your role as, you know, CEO? How do you keep that balance?

GELSINGER: Yeah. Thank you. On the first one, when Linda and I were debating the topic and deciding to take the job, I wrote a strategy document for the board. And when they asked me to take the job, I said: I need two things. One is, it must be unanimous. We are going on a hard journey. And the board must be aligned to me but, secondly, to the strategy. This is an expensive, long-term strategy. And if you want a guy to, you know, just clean up the company, break it into pieces, sell off the component parts and so on, that’s not me. And that’s not the strategy that we’re going on. Go hire somebody else.

But this is the strategy. And I’m the leader to go drive that strategy. And we had unanimity when I joined it. And part of the reason we could roll out this strategy so quickly is we’ve got 100 percent alignment of the board to me as the CEO and to that strategy. And, by the way, when I slow down and write the next book, right, for future leaders, you know, to me, this is a good thing to do in any leadership decision—both for those who are the board, or calling somebody, as well as for somebody coming into the role. If you don’t have alignment on their support for you and for the strategy you’re going to pursue, don’t take the job, right? You must bring those two together into harmony. And we moved, you know, well through it.

Now, of course, part of my job is the board has to stay on board, right? And one of the other things I would say is the board should never surprise their CEO. And the CEO should never surprise their board.

FORTT: How are they doing?

GELSINGER: And, you know, communications, and, you know, keeping it—it’s not that we don’t have tough conversations. Part of the board’s job is to have tough conversation. Pat, do you really need 40 billion (dollars) of capital authorization, right? That’s, like, a freaking big number. What are you talking about, right? You know, they should be challenging that. You know, you want good inspection on that kind of thing. But at the end of the day, we need to come to harmony, right, on such an audacious strategy. Because we know, right, you know, there’ll be questions from Wall Street. There’s going to be, you know, those who are doubters on the journey. And, you know, certainly will not be the first day that I wake up at 2:00 in the morning, are we going to be able to pull this off? OK. OK, Lord, help me, right, you know, for it. Because it is a challenging journey on that.

You had a second—

FORTT: Technologist.

GELSINGER: Oh, and the technologist piece. One is, you know, when I became a technician at Intel, it was because I loved technology, right? And to me, a great day is spending time with engineers asking technology questions. I do technology CEO review with the team every week for a couple of hours, right? And to me, that’s some of my most fun hours of the week. I mean, meeting with Jon, that’s a fun hour of the week, right? And my government affairs team, and so on like that. But what do I really enjoy? You know, it’s the technology and customers using the technology.

And if you’re going to be, and I really believe this, that particularly for technology—a technology company should never be led by somebody who’s not a technologist. You got to love technology. And you have to have an innate sense for the technology itself, as you’re making these very hard, long-term decisions. And I think if you look across the history of the industry, you know, technologists running technology companies have well outperformed the alternatives.

FORTT: In the back.

Q: OK. Pat, you know, I’m Jean-Hugues. I’m a partner with McKinsey.

I love the technology, you know, point. Listen, if we were in the same room in Taiwan, or in Europe, you know, about, you know, corporate leaders, two-thirds of them will be engineers, master of science. And, you and I, you know, have that as a common. Why are we failing in our country to get the top talent to do science? You know, it’s a long-term question, but this is, as you say, what can I get us, you know, to solve for the future of humanity? So any advice of what our country should do about science? And why are we failing globally on that here?

GELSINGER: Yeah. You know, I think about the two policy things—given this forum and Council. To me, the two policy things are every graduate in a technology-related, you know, field should get a green card attached to their diploma, right? If the world wants their best talent to come and get educated here, keep them, right? Just every opportunity that we get. And if I could fix one thing in our immigration policy, that’s the one. And by the way, if you go look at the most successful companies in Silicon Valley, how many of them were led by hungry, bright immigrants? It’s an extraordinary percentage of those companies. And I think there’s magic inside of that. You know, they’re hungry. They’re smart. You know, many of them were educated here. And they love our way of life. They’ve chosen, you know, the values of America. Keep them every chance that we get.

You know, the second thing is long-term R&D, right? And, you know, like, right now—you know, there’s a bill in front of Congress right now on the R&D tax amortization. You know, we have—you know, the U.S., of the—you know, of the top thirty countries in the world, we now have, you know, the worst or the second worst, right, R&D policies of the—you know, of the leadership countries in the world, right? Since R&D amortization went into effect a little bit over a year ago—a heinous policy—we saw the R&D growth year on year go from an average of the prior five years, 6.6 percent, it dropped to 1 percent growth last year, right? You know, cause and effect? I have to believe so, right, at that level. I’m going to lose a billion dollars if this doesn’t get fixed. And, you know, I invest about 30 percent of revenue into R&D. This is a bad policy. It needs to get fixed. R&D deductibility immediately.

And I do think long-term investments—U.S. government investments, you know, national labs, et cetera, you know, over R&D administrations, has been essentially on a declining path. The Chinese R&D investment that they put in place with their five-year, you know, policy that they just described a couple of months ago, it was 6.6 percent, right? So the U.S., as a percentage, right, of a budget, we’re now well below 2 percent, right? And, you know, R&D is the future. So improve immigration policy. Keep the best and brightest. And fix long-term R&D and R&D deductibility. So, to me, those are the two most important policies.

FORTT: We have another question from our remote audience.

OPERATOR: We’ll take our next question from Paula Stern.

Q: Am I unmuted?

GELSINGER: Yes. We hear you great, Paula.

Q: OK. Thank you so much. I agree with you on the green card. But I would like to ask my question really based on work I have been doing for twenty years with the National Center for Women and Information Technology that the National Science Foundation created. And that is: What do we do with our homegrown talent, particularly if they are women or underrepresented groups, who even when they graduate with their CS, computer science, or engineering, do not stay in the corporate world? What are you doing, particularly at Intel, or if there are other models that you think have been successful, to retain that talent which, for the most part, has been underrepresented and has kind of stuck at the same level that it has been for the last twenty-four years, at least in computer science—that is, about 24 percent?

GELSINGER: Yeah, thanks, Paula.

And this is a problem that I’ve personally been hammering on for about three decades now. So I have spent a lot of time on it. And if we were here three decades ago, we would have been about eighteen percent of females in the technology industry. Today that’s comfortably over 25 percent now. So it took us three decades. We moved eight, nine points. You know, good news, though, is generally most of the top academic institutions now are in the order of 40 percent of their engineering and science programs of females now. So it’s been long and slow to fix that in the industry. You know, I think immigration policy is another aspect of this as well, you know, that could be helpful.

There’s many, many, you know, efforts underway. I also think, you know, particularly Historically Black Universities in the technology fields have been even worse than females into it. So programs that specifically focus on technology in Historically Black Universities. And I think a lot of it is just hard, consistent expectations on the part of leaders, and policies to keep improving these numbers. I view it as, hey, we have half representation of half of humanity. You know, what an untapped set of IQ, right, to unleash into the industry. And it’s been a very slow process, and one that, Paula, you and I could spend many hours on this, you know, next steps. But I’ll just say, it’s been a labor of love of mine personally. And Intel at this point, we’re just under 30 percent. So we’re comfortably ahead of the industry. But I think we still suck. (Laughter.) So we’re one of the best, and we suck.

FORTT: Here in front.

Q: Thank you for the time. Mo Hechain (ph) from Moore Capital.

I was hoping to learn a little bit about the future of how our data center footprint will look like. Especially because these data centers will require a lot of energy and will require a lot of cooling infrastructure, since these chips tend to run hot. Just talk to us a bit about where that energy is going to come from and how the cooling infrastructure looks like.

GELSINGER: Yeah. Great question. And, you know, what’s happening is, you know, today, IT and data centers probably consumes—about four-ish percent of the world’s energy goes into those environments. And as we’re, you know, applying, you know, more and more computing infrastructure toward, you know, AGI, you know, these explosions in datacenter spend—and I quite love this, because as a technologist, you know, we had a pretty boring decade in the datacenter, right? A little bit faster. Make the network better. A few more cores. And AI has made it anything but boring. You know, and now, for instance, a rack—you know, a typical rack in a datacenter might have been, like, fifteen to twenty kilowatts. You know, now people are casually talking about 100,000 kilowatts in a single rack, right? So the compute density that’s emerging here, right, it’s exploding. And if you go back to that 4 to 5 percent number, some have, you know, expected that over the decade that will go to 20 to 25 percent, of the globe’s energy, right?

You know, this is just an extraordinary explosion, right, in power consumption going into the industry. And I’d sort of respond to that in one of—one of two different dimensions. One is, I have to lower that number, right? We have to find more, right, I’ll say, power-efficient ways to execute those AI computing capabilities, because I don’t think the world is going to create, you know, a quadrupling or 6X the amount of energy going into IT infrastructure. Not going to happen. And I don’t believe the road can build energy that rapidly. And if they do, it’s going to be the wrong kind, right? We’re not going to be able to keep up with green energy, right, sources in that effect as well. So I think we have to lower the demand, finding more computationally efficient ways to deliver those AI capabilities.

At the same time, I do think there’s going to be a surge in demand, right? And, you know, I do think this is creating a lot of good pressures on the industry for next-generation datacenters. There’s a lot of bias toward having that be renewable energy, you know, sources that are emerging to accomplish it. And I’m actually quite excited about some of those projects that we’re involved in on different energy types. Some of those can be sort of exotic. You know, some of the fusion ones could be, you know, super incredible. A lot of it is building large solar farms in different regions of the world, where there’s lots of solar energy available.

You know, unfortunately, most of the solar panels come from one country. (Laughter.) Another problem in the supply chain. But, you know, I do think it’s creating a lot of good pressures and unleashing capital in good ways, you know, to both make the energy consumption lower but also to create the right kind of energy footprints and datacenter, you know, footprints. So I view the big three that we have to do: We need more semiconductor capacity, we need more datacenter capacity, and we’re going to need more energy capacity for both of the above.

FORTT: All right. Well, I’ve got good news and bad news. The bad news is right after I nodded at you for next question I got the nod that we’re out of time.

GELSINGER: Well, I’m not done yet, Jon.

FORTT: Well, that that brings us to the good news, which is that we’re going to have a reception upstairs. So there will be time to ask that question if you’ll join us. I’d like to thank you, Pat, for this conversation. Thanks to all of you in the room and those remote. (Applause.) I’m told to inform you the conference will resume again tomorrow morning with breakfast at 7:30 a.m., followed by a panel on the global economic outlook with Bill Dudley, Dambisa Moyo, and Bob Rubin. Now let’s head upstairs.

Pat, thank you.

GELSINGER: Thank you.

(END)