Intel Corp (INTC) at Citi 2014 Global Technology Conference (Transcript)

And he has run various parts of Intel’s fabs and manufacturing capabilities for the better part of most of the last 17 years, including driving Intel’s moves into both 0.18 micron and 0.13 micron.

Today, Brian is driving Intel into not just 0.13 micron but 12 nanometer or 10x improvement roughly 10 years from where we were at the 0.13 space 10 years ago as well as attacking the mobility space and exploring opening up the foundries in a bigger way to other semis companies. I am pleased to have him here at this conference for the first time. Welcome Brian, thank you for being with us.

So we will open up the Q&A.

Question-and-Answer Session

Ehud Gelblum: Let me just start with the big picture question. What does Intel look like 10 years from now? We’re seeing obviously lots of moves in the PC industry. PCs were looking weak there; they have now made a comeback. You’re getting into mobility and lot of different moving parts. What does Intel look like 10 years from now? What is the dominant part? Are you still getting 90% of your revenue and 120% of your profits from PCs and servers or has the business started morphing into other areas?

Brian Krzanich – CEO, Intel

Yeah, I think if we look 10 years out, Intel is definitely going to be a broader company across a much broader spectrum of computing. Servers and PCs, I mean you have a business of PCs that’s over $30 billion a year. Servers, roughly about $10 billion or $12 billion now growing at double-digits. They’re going to still be major portions of our business. So I mean those are just large segments, it’s going to be hard for anything to grow in the next 10 years to work that.

I think what you’ll see is a much broader — you’ll see more in mobile, you’ll see more in Internet of things and a variety of other spaces that are yet to be defined. I think one of the things we’re working on right now is really figuring out how to take our silicon leadership and our architecture down into — we talk about parts that may only cost $0.50 and have comps, CPU, everything down there and can run on small batteries. We’re trying to really work on technology to cross that spectrum now.

Ehud Gelblum: So that will be one of the IOT, Internet of things.

Brian Krzanich – CEO, Intel

Yes, IOT, wearables all kinds of devices like that that we think can benefit from those two things Moore’s law and our architecture.

Ehud Gelblum: So we’ll definitely get into that discussion a little bit. Let’s talk about mobility, that seems to be a large part of the bet you’re placing going forward. Why did Intel feel the need to get into the business in the first place and how integral was that? Is that a side business that either succeeds or doesn’t succeed on its own merits or is that an integral part of what Intel has to be going forward?

Brian Krzanich – CEO, Intel

It’s an integral part, I mean if you look at the computing ecosystem and we think most of the devices that you have today are going to need a spectrum of comps. Whether it’s Bluetooth or Wi-Fi or 3G or LTE, things like Bingbooks and Chromebooks are going to be more and more connected. In fact they’re really only functional or highly functional when they’re connected. We think 25% to 50% of those over the next few years will have 3G or LTE connections. So even in our core business you’ve got to have that comps and mobility capability. So it’s critical to us.

We’ve shown that we can move into tablets fairly successfully. We’re on target to our 40 million units, that’s pretty good, we’ll go from virtually no presence last year to depending on what you size that market at probably 15% share in a year. That’s pretty good. I am pretty happy with that growth and that kind of a position in only a year. And in phones I think is going to be those ones where we have to figure out the right way for Intel to play. It’s dominated by two big players and we need to figure out how is the best to play our technology and our capability. But definitely mobility is critical, even in our core business you’ve got to have that comps and connectivity capability.

Ehud Gelblum: Two directions I want to go with that. One is the question you said about the comment you made about phone. Is our phones as critical part as tablets are to your strategy or they are just an upside as an opportunity because you’ve already created the comps opportunity for tablet?

Brian Krzanich – CEO, Intel

I think some hybrid of that. So definitely tablets are closer to our core. They’re much more of a compute oriented product. I think we have — here’s what Intel does best. When we can bring our technology to a product and really use the compute cycles, use the capability inside there. We’re not going to build commodity tablets for example but we believe over the next year or so now that we’re in the market we’ve established ecosystem, we can bring real innovation to that space and bring some really unique features. You’ll start to see some of those come out as this holiday season kind of starts to play out and products start to come out. Those are very core, we can take technologies that we’re developing for the PC and move those down into tablets very easily. So it really is able to spin off of that.

Phones are a little bit different and we’re looking at those more opportunistically. We’re trying to figure out where is the best place to play. Like I said in most of the developed countries there is two big players but you move into China much more of an open market spaces like that. You saw our deal with Rockchip. I think you’ll see them move into phones over the next couple of years. Probably with our architecture you’ll see some other opportunities like that I think over the next couple of years.

Ehud Gelblum: Okay. Back on tablets for one quick second. We had Corning up here before and they made a distinction because they sell cover glass into tablets, so they’re end market in that area similarly to your opportunity. They made a distinction between the branded tablets, clearly the Apple, Samsung et cetera that we know brands, that are relatively flat this year, not growing, and the unbranded tablet world that is growing somewhat like a weed in emerging markets in China and places like that. Does it matter to you which of those two sides grow? Can you get into both of those or is it much harder to get into the unbranded side of the tablet world?

Brian Krzanich – CEO, Intel

Well luckily because we weren’t in tablets originally and if you take a look at the first three of the four years tablets have been around, we were absent. So the place we could go get in at the beginning was more the unbranded and you saw some little bit in branded but actually a lot of our early progress was we went into Shenzhen and we went into what we call the China tech ecosystem which is a space we kind of knew and understood because it’s very similar to the way Taiwan was 20 years ago with white box PCs. So we were able to go in there and build an ecosystem and probably somewhere between the third and half of the tablets were sold this year will come out of that marketplace. So we are pretty comfortable in there.

I’d say what’s a little bit harder is to get leading edge innovation into that space. They tend to be much more cost focused, they tend to be much more not quite having the engineering resources. So we do have to bring that innovation down to them and basically give them the solutions or it just takes them a bit longer. So we end up doing a lot of innovation up with the branded tablets. So we have a mix of both of those.

Ehud Gelblum: Okay. A Couple of last things on mobility before we move on. Interesting in that you’re playing from behind the mobility whereas you traditionally played from the lead in the PC and server world in terms of share. From that it’s a little more difficult to set trends, so you can go on one or two different directions, companies in this situation either go for technology leadership and beat the competition that features and the technology side, or they go for being a fast follower at cheaper prices. The risk of the first being that you could end up having a non-standard Betamax like product where you have — you may have the better products but by being non-standard you just don’t get the volume that you otherwise would the other way going with lower prices but making sure you’re standard and kind of following along. Between those two, where do you fit in this spectrum considering your strategy would lie to try and gain share in mobility?

Brian Krzanich – CEO, Intel

So, again it’s a bit of a hybrid, nothing is ever so simple. And by the way if you go back 15 years, 20 years, something like that, we weren’t always the leader in servers. So Intel has a history of knowing how to enter markets, drive leadership and grow share over time. And server space is actually a good one as an example. We’re trying to follow a similar path. I think when you’re not in a market and you’re trying to get in, there is a certain amount of this that you have to be a fast follower, you have to get in there and you have to play against prices. It’s just the way the law of economics works.

Moving forward, though, long term if I look out over time our role is not to be a fast follower or cost guy, that’s just not the role Intel plays, that’s not where we play in our strength. It’s going to be to bring that innovation in. You’re right, you have to be a little careful. You could be the, as you said, the Betamax in the VCR world. There is a unique feature about Intel architecture though, remember when you have any kind of hardware manufacturer one of the great things about building on an Intel architecture is you can build the same platform and it will work off almost any operating system. So that’s a real advantage to OEMs as they move forward and build hardware. So you can build one platform, it can run on Windows, it can run on Chrome, it can run on Android, it can run on Tizen, it could run on any of those operating systems. That’s we’re about the only ones who can do that. So, when we bring innovation to those markets it’s actually in a very ubiquitous way that they can use it across any operating system, any hardware space. So they actually prefer it.

Ehud Gelblum: Okay. The relationships you have in PC, which is very strong. How helpful will they be in getting into tablets and handsets and getting larger share? Lenovo comes to mind as being a large player that plays in both. Does that help or is that just a very small part of the bucket? And then secondly, playing into the handset world, you would be playing a lot more against guys like MediaTek, a different kind of an animal than you probably competed against before. Does that change the dynamic of the market at all in terms of what you feel you have — need to do on investment side to succeed?

Brian Krzanich – CEO, Intel

So our partnerships are important. If you take a look at this year probably the biggest — I think at the end the biggest customer for us in tablets, for example, will end up being in Asus. And that would be my guess right now based on our forecast. They are a great partner in the PC side as well. Lenovo is going to be another one of our strong partners and have a good volume. At the same time, Foxconn may end up being one of the big users of our architecture for tablets as well. They are a semi partner, they do a lot of our piece parts in the PC world. So I would say the PC relationships have been important that’s helpful. But like I said about half of the tablets we will sell this year will be in that white box China, Shenzhen ecosystem. So still half will be completely new partners that we’ve had to establish this year. I think if you — what was the second part of your question?

Ehud Gelblum: Coming up against MediaTek, is that a different — I mean going up against Qualcomm, fine, you’ve seen Qualcomms in the past. Going up against MediaTek is a slightly different animal. Is that something that changes your definition your mind as to the type of investment you need to make to be successful?

Brian Krzanich – CEO, Intel

I’d say no. If you take a look at MediaTek versus the Qualcomm or if you go back to the years AMD every competitor comes at a company like Intel usually with a couple of tools. They have cost, they are charging these costs, speed, they’re smaller, they try to be more nimble. What we bring to against our competitors is we have silicon architecture, we have the design and we have the ecosystem and partnerships. And then we bring the innovation. One of the things people need to understand about Intel’s business model is we have the core of the PC that generates great cash, great profits, but it also generates a huge amount of innovation. And that innovation is able to be carried up and down into these markets, up into the server market and then down into tablets, phones and even wearable devices.

So when we go and we compete against MediaTek versus the Qualcomm or AMD in the past, whoever, it’s still the same. You have to bring the best of what you do, you don’t try and play on their markets, you don’t try and play on their playing field, you play it yours. And the difference so we have against them is we have that leading edge silicon that they don’t have. We can beat them in cost over the long run because of that leadership and we bring the innovation down that’s already being paid for by the PC.

Ehud Gelblum: Okay. Question that I have to just get to ask because it’s on everyone’s mind. And so it’s something that I am sure you think about all the times. But the billion dollars in investment, let’s say, that goes into mobility each quarter. How long can you – certainly a balance sheet can take that for a long time, you generate lots, lots of money on the other side of the business. But how long, in your mind, can you let that go at that rate before having to change that? And just building that mig-meg zero so it’s a breakeven business which will be hugely accretive to the company. Is that the definition of success?

Brian Krzanich – CEO, Intel

I’d say it’s the minimum definition of success. We stated all through this that that loss in tablets goes down as we move through this year and we really target our products towards the mobility space. And we have Bay Trail cost reduction in the second half of this year, that really helps drive down the cost of building a product on an Intel part. As we go into next year we have our SoFIA product, which is really the first product that’s targeted towards that. And that product has none of these subsidies, none of these cost advantages. So, as it moves out through the next year into products you see it coming out with none of those losses. So, we think we can dramatically reduce some next year as we go into ’16. We think they can be either very small or zero. So I think that’s kind of my view of how long it should last but it shouldn’t be a billion dollars a quarter as we go through next year though.

So you’re right. It could be positively accretive as we go through the year. Minimum success is there has to be a breakeven in this business, we don’t go into these businesses to lose money. But long term, I believe, we can make money in that space. We can bring out really innovative products. We have technologies that we’re working on in tablets right now that are really dramatic and can bring some unique features to the tablet space. And you expect to see some of those in holidays but as we move through next year you’ll start to see quite a few of them.

Ehud Gelblum: Are you talking about 3D cameras and those —

Brian Krzanich – CEO, Intel

3D cameras, battery life, things like that I really believe there is — we have some tablets we’ve been playing with already that have the first substantiation of these 3D cameras where you can sit there and scan a warehouse and it will tell you what every box the size is. And then from that they can also try and estimate what’s inside there. You can take a picture of a room and measure all the furniture in there after the fact, no longer can you lie about the size of the fish you caught because when you take the picture somebody on Facebook will simply be able to measure the size of that fish.

Ehud Gelblum: Well, the fish will have a wearable on it will probably –

Brian Krzanich – CEO, Intel

Possibly. So there is a lot of really unique applications like that I think are going to really change people’s perspective of what a tablet should be able do and what a device in general should be able to do.

Ehud Gelblum: Cool. Let me ask one last big picture question. There is a theory on technology companies that you’re either growing or you’re shrinking and that you need to be investing in at all times to make sure you don’t — not too narrowly focused and that you don’t get to eventually disintermediated. Let’s give it a benefit of doubt, you feel that billion dollar home mobility is now breakeven possibly even heading towards profit. Would you be willing to take on that same level of investment for something else and whether it’s been Internet of things or something else and we’ll get to those other topics in a moment. Is that a level of investment that you feel comfortable once you finish with one and make it successful to be able to do another one? Do you feel that as that company needs to constantly be investing whether it’s that much or less to make sure doesn’t get blindside?

Brian Krzanich – CEO, Intel

Yes, I want to make sure people are going to walk out saying you signed up for a billion dollar – But I do believe in the fact that technology companies thrive on developing technology. That’s why we’re here, that’s why we’re born. And to be honest with you that’s why guys like me are in these companies. So if it became a sustained or pretty sustained product, I’d probably move on and do something else. Yes, we have to keep innovating. We have to keep driving these technologies. Part of it, people don’t forget just bringing out Moore’s law every two years requires huge amounts of invention. And we invest several billion dollars every year in driving that roadmap. So even that is an invention that has to keep occurring in order for Intel to continue to thrive and grow.

Ehud Gelblum: So let’s talk about Moore’s Law since you brought that up. And of course we had Broadcom here yesterday talking about cost of wafers and multi-patterning. What happens as you get below 28 nanometer level on 10 nanometer and 7 nanometer? How do you — so they and others clearly talk about the fact that Moore’s Law is no longer working and you’re no longer getting the same cost benefits as you move down the design node. Intel has pretty much the exact opposite opinion. Walk us through how you look at Moore’s Law as you move down, how far can we get down on the design nodes, when do we sort of hit the Shannon limit of design nodes and patterning.

Brian Krzanich – CEO, Intel

Nobody wants to be the CEO of Intel when Moore’s Law died. That’s like the worst headline you could have. So my objective during my career is to make sure Moore’s Law stays alive, that’s number one on your list. You always want it to be the next guy’s problem and say good luck. In my 32 years at Intel I think I’ve seen the death of Moore’s Law at least four or five times. The first time I remember it was at about three micron and about one micron, I remember it was going to die. I am always amazed at our ability to innovate and find new ways to keep Moore’s Law alive. We are shipping 14 nanometer product now. We have a path we believe to 10 nanometers and we know how to make 10 nanometers still stay on that and Moore’s Law is an economics law. If you actually read Gordon’s original paper, it’s about economics, it’s about driving the cost down with each node by 50% roughly. So it is an economics law, so when I say we can keep Moore’s Law alive, we’re talking economics not just the physics of shrinking the dye. So we know how to do 7 nanometers which is 10, 7, 5 is kind of — and this is pretty normal, 5 out there, we have some ideas but it’s still kind of gray and fuzzy. So we always have about that long of a view of Moore’s Law much beyond that at seven to 10 years, much beyond that’s really hard to go see what’s going on.

So then the next part of your question is why you guys think you can keep this alive and other people say it’s getting hard. Well, first we’ve been able to do it. You’ve seen us move through 20 nanometers down to 14 nanometers. It has gotten harder, it’s taken us longer than we wanted to, to get 14 nanometers still production. The technologies are harder, the defects – actually what’s become very difficult is the pattering itself, the amount of interference patterns you have to engineer through to make an image now.

Definitely, we’re late with EUD relative to when the market and technologies needed it. So all of those things make it hard but what we have is the design team and the silicon team working together to drive that cost curve. And so what we did is we moved from 22 to 14 to 10 and we did see the cost going up. What you can do then is work on your scaling factors, basically how much do you shrink the dye? And so we worked on our design roles and worked between the silicon and the design guys. And actually increase the scaling so that the dye cost ended up being consistent with Moore’s Law. And we think we have a path to continue through that till we see EUV come in and we can hit the cost a little bit better because of lithography.

Ehud Gelblum: At what point do you need EUV? 10 nanometers or 7 nanometers?

Brian Krzanich – CEO, Intel

We know we can get through 10 nanometers without it.

Ehud Gelblum: And one of those machines I think are the size of this room —

Brian Krzanich – CEO, Intel

And what you always have to remember with — fab equipment is kind of like an iceberg. What you see in the factory itself is a small percentage of that total tool space. Go underneath and whenever I take people on fab tours, the fab is kind of neat but if you go below the fab that’s where the real engineers live and that’s where the fun is. There is usually much more equipment down below the fab line than on above it. And the pumps and the computers and everything else that’s running that machine is down below the fab actually.

So if you take a look at an EUV machine it’s quite large and footprints inside the clean room is quite big but the footprint down below is equally or maybe even slightly bigger.

Ehud Gelblum: That’s scary. So does Moore’s Law an economic — would that work for everyone else even if they say doesn’t work or does only work for someone with the balance sheet of an Intel?

Brian Krzanich – CEO, Intel

I don’t know it’s as much the balance sheet — it does cost couple of billion dollars now to generate one of these technologies. I definitely think you have to have scale. One of the things you have seen as Moore’s Law has got harder is you have to have scale. I mean just the economics of shrinking the dye and you have to have enough dye to produce to keep our factory full. And if you’re shrinking them in half every two years you got to have enough dye enough growth to keep your factories full. So you need scale. I think scale is the number one thing you have to have.

The second thing though is this relationship between the architecture the design guys and the silicon is important, because we really work together. This is the integrated device manufacturing advantage. We’re able to work together at a very early stage with a mutual target that says on this date we’ve got to have a product that has this cost and both sides have to bring this together to deliver that. I think that’s the uniqueness that Intel has that makes it a little bit more difficult on the outside world. They kind of each are handing something over across a wall so to speak. And it’s just not quite as simple an integration.

Ehud Gelblum: So the major foundries out there you think are going to have a tougher time following you down this path?

Brian Krzanich – CEO, Intel

I think it’s just inevitable, and it will be a bit harder. And then as you start to get actual products out you earn quite a bit and as these technologies get more complex the interaction between the silicon and the design becomes much more integrated and difficult. And so you have to be willing to make changes almost on the fly as you’re getting the first product out the door. And again having everybody as one team and one building makes it quite a bit easier than I think when it’s across two companies.

Ehud Gelblum: So let’s talk about your foundry business, because this could be an advantage, you have a scale and you can get down there, others may or may not be able to do that at the time. This new foundry strategy that you have, does this gives you a headstart as it’s going to allow you to talk to us obviously that Altera is a core anchor customer right now. How do you see this foundry business growing over time? What types of customers can you get versus which ones to be scared to work with you? And how does that play in what you were just talking about with the advantages on manufacturing?

Brian Krzanich – CEO, Intel

So definitely I think as people start to see product come out from Altera and that we’re really able to work with the partner and a customer and produce the product. That’s going to give people a much higher confidence in Intel’s capabilities. We’re always going to launch our work with people who can utilize leading edge technology. So we’re not going to go take the large volume trailing edge customers and say let’s go have a factory fill kind of strategy.

Ours would be, who could within the same year or maybe a year later at the most, take the leading edge technology that we’ve already kind of Roto Rootered and made sure it works and build the product with that can really differentiate. That way they can really go and change their markets but they also can then hopefully make it a profit that they can pay us a reasonable margin. And what Stacy has said throughout our calls is, we believe we can grow this foundry business at a reasonable rate with not impacting our margin structure. And that’s because when people see these cost advantages in terms of Moore’s Law they can afford to pay their margins that we’re talking about. So, we’re really looking for customers like that. It will grow at a rate that it’s not going to be an extremely fast or large part of our business over the next two or three years. It takes — once you even acquire a customer it takes them two to three years to get their first product out. So I think it’s going to be — this is a long term play that will play out over the next five to seven years as people start to see how we keep margin down Moore’s Law and we think our leadership in Moore’s Law continues to grow.

Ehud Gelblum: Now one of the paradoxes is we make a list of companies that fit that criteria, the handset baseband guys, the entire mobile space sort of comes up as being customers for leading edge technology. Can you be in the mobility business and compete against those guys and have a foundry business and look for companies like that to fill your foundries at the same time or the antithetical?

Brian Krzanich – CEO, Intel

Well, I mean, look Samsung does that today. So clearly there are business models out there that people are able to do that. So I think that yes it —

Ehud Gelblum: It’s unclear however how well Samsung’s baseband business is doing outside of Samsung handset business?

Brian Krzanich – CEO, Intel

True. But in general, yes. I don’t think our shareholders worry that much about how we make profits in each one of these segments, whether we make it through our own products or whether we make it through foundry. They’re worried about are we growing in each one of these segments, are we participating and are we getting our share of that business? And so we look at each one of these partnerships as a separate economic discussion and if we can make roughly the same amount of money being in the foundry business as we would if we brought our own products in there we’re okay with that and we believe our shareholders benefit from that. So we’ll go at it from either direction. So yes I do believe we can have partners that potentially — you can almost pick no partner today and not have some spot where they’re going to conflict with us in some segment of the business. And we have to be okay with that.

Our shareholders will benefit from that in the long run. And we’ve done enough isolation we believe at how we manage our IT, how we separate the product, we’re not even able to see the forecast for volume of our foundry customers in the rest of the company. So that people don’t have the ability to see what the other guy is doing across the wall.

Ehud Gelblum: Well, TI was actually so successful with that with Nokia back 10 years ago that they couldn’t develop their own baseband chip.

Brian Krzanich – CEO, Intel

So we will try to prevent that from happening.

Ehud Gelblum: You talk a lot about manufacturing and process and then the advantages that Intel has there. Your architecture is also another advantage and the architectures that you bring out — strange question theoretical question, which is more important – the manufacturing prowess or the architectural stepping to the architectures that you say you come up with – if you could be better at one versus the other how do you kind of rank in your head and make an investment?

Brian Krzanich – CEO, Intel

You’re asking me that no matter what I am going to piss off one half of the company or the other —

Ehud Gelblum: Have a break then, it’s not too different from PCs and servers than it is for phones and tablets perhaps, so is one important —

Brian Krzanich – CEO, Intel

I think there is a consistent, I will be honest with you. I would say that if I had to give up one or the other I would keep the silicon’s leadership, Moore’s Law and that’s not to say that the architecture itself is not highly valuable. But in the end I believe what has always driven Intel’s ability to bring products that are at a even higher level of innovation, better cost all of that is that Moore’s Law, that is the foundation of what we were born and bred on. You could bring any architecture to that and it will be better for it. So, that’s why I’d say you have to take Moore’s Law as the foundational element. The architecture has the ability to build upon that but if I could only keep one I would keep the Moore’s Law.

Ehud Gelblum: Until it stops working. But again that’s the next CEO’s problem.

Brian Krzanich – CEO, Intel

That’s going to be the next CEO’s problem.

Ehud Gelblum: So let’s go to something that’s more – it’s near and dear to my heart as well and that’s the data center business and infrastructure. You have a 15% guidance out there growth, you did 19% I think growth in the second quarter. You have been acquiring there, got the LSI assets, the Avago assets. Talk to us about what’s growing there? Where you see growth and how do you see that business — how do you see that business working together with your PC server business?

Brian Krzanich – CEO, Intel

So, almost every segment of the data center has continued to grow. You can say that they’re growing at different rates, right? Networking and storage is growing at 20% plus, cloud in teens, enterprise, the traditional big company data centers probably in the single-digits; we’ll see how that goes. Lot of that’s driven by GDP and economic, macro-economics. But if you take a look at the data center business as a whole we think that if you look at over the next five years, let’s call it, it’s probably the biggest growth area for Intel from a value perspective. If you look at where are the largest amount of growth in earnings and growth in profit will come, I think it will be the data center.

And what’s fueling that is a couple of things. One is just people moving to the cloud, more and more applications whether it be private clouds or public clouds or some hybrid cloud. Movement to the cloud, the ubiquitous availability of data is causing people to drive a lot more data center requirements. Then the number of connected devices, people ask me often times why are you in wearables? Why are you so excited about the Internet of things? I am personally excited about them as technologies and as innovation areas. But also they’re a fuel, they’re the grain of the data center. They are going to fuel billions and billions of pieces of information up into the data center that will then require more and more data centers to be built. And our technology is built out. So we look at this and just say this is we’re in an explosive time of growth because of the cloud and the amount of devices being connected to that cloud.

Ehud Gelblum: So Internet of things is one giant Trojan horse to sell more server chips –

Brian Krzanich – CEO, Intel

No, I don’t think of it that way. Actually, no, no, there is great learning and we have a lot of innovation on the Internet of things. On the other side, though, yes it does fuel the data center and it is very positive. But I think there is a lot of improvements in innovation that’s going to come out of the Internet of things, that people don’t even realize yet.

Ehud Gelblum: So as we’re talking about data center and servers, walk us to Grantley. You’re obviously going to make an announcement pretty soon and give us some more specifics on Grantley with the launch. Anything we should be knowing or looking forward to it that will take you further on the server side?

Brian Krzanich – CEO, Intel

Well we’ve been shipping Grantley for a while now, again mostly to our big cloud providers who like to get a headstart on it. I think the actual product introduction and announcement occurs next week. Grantley is going to be another big step. It’s got lot of improvements in performance. It’s going to support next level of DDR, DDR4 but couple of other memory technologies as well. You are going to see a lot of – I think this will fuel another good growth of orders and growth in the data centers as a result of Grantley.

Ehud Gelblum: So you plan mainly on the server side and data centers, with the Fulcrum acquisition you got into the switch side as well. That again near and dear to my heart but that business to date has been dominated more by Broadcom than it is by Intel. With Fulcrum you have taken a step into that. Is that an important business to get into, how large can you get there or is that — is that something we should be seeing Intel take more interest in?

Brian Krzanich – CEO, Intel

Yes, what we’ve started doing is not thinking of the data centers as a server. We’re thinking about it across the entire rack and actually we think about it now not only the rack but the row and the room. And you have to think about all of those segments as you start to think about what you are designing for your architecture and the importance of switches networking, we’re going to introduce next year our Silicon Photonics for rack scale interconnection.

So all of these segments become important because they’re all integrating. What you’re really doing as you move through all of those is making sure that wherever the rate limiting agent is you’re speeding it up and bringing performance to those segments. And you’re right, we’re a new entry into some of these. We’re starting to grow into the networking space, even in the storage space we’re fairly low share. We look at those as opportunities of growth. They benefit, what’s happening is the main server performance is increasing, the performance is being required in those other segments and our technology is able to come in there and perform quite well. There are other players who have a great share there. They have great products. We think we can perform well though in the long run. So it becomes important.

Ehud Gelblum: Silicon Photonics is actually — it’s an area people have been looking for towards for the last couple of years. Do you need to make anymore M&A in that space or do you have the assets and does that completely change the datacenter?

Brian Krzanich – CEO, Intel

Yes, we believe we have the assets and in fact we have been working on our product and have set target date of launching the product into next year. So we believe we’re actually kind of in the final stages of getting the product to production and capability. And you’re right I agree with you it will be at the rack level will the next thing that really transforms the speed at which the datacenter is operating at.

Ehud Gelblum: Huge and it will change the environment in terms of the competitor playing field in the optical side in a big, big way. One last thing I want to get in before we finish, the Cloudera investment. About 18% of the lot of different things, but I never understood why. Why do by 18%, when did you take the whole thing out?

Brian Krzanich – CEO, Intel

Well —

Ehud Gelblum: Because in a world where Amazon, Google and other people just are putting up big numbers and buying whole companies and yet strategically decide to partner with these guys.

Brian Krzanich – CEO, Intel

Yeah I think any time you do, you go in and you try and figure out whether you’re going to do an equity investment or an acquisition, you have to really think about what do you want out of it. And definitely if you want the IT, if you want the technology you should go in and buy them, you should just go in and buy the whole company make sure you’ve grabbed it, secured it, taken that IT, proliferated it in your products, those kinds of things. If you’re not going to do that and you really want to partner and in this case this is about Big Data and working in an open source environment. Now what Cloudera does is it contributes to the open source environments and then build the products above that.

And in this case what we really wanted was we took the number one market leader in this space and we wanted to partner with them because we believe that Big Data can grow at a much-much faster rate if we can do a couple of things. We need to make it simpler, we need to make it enterprise ready, which means it’s got security, it’s got disaster recovery, it’s hardened; and we can make it faster. Right now, these operations take too much time in our mind. By partnering, we believe we are able to keep an open source environment. People don’t see it as Intel coming in there, they see it as Intel partnering with this community. And this is a community that you want to be a partner with. This open source map reduced Big Data environment. The reason we wanted to do this though was we believe that if we take the software and show them how the architecture works and in some cases bring the software down into the silicon, then we can make huge strides in all of those things – the security, the speed, the performance, all of that can be greatly enhanced.

As we showed, Cloudera when we walked in and knocked on a door and said hey we’re here to be your buddy, they said why you, you guys just make the silicon that we run on. And as we started to open up and show them what we’re doing with the architecture all the way through the datacenter and how it could be optimized between the software and the silicon and how we could bring some of this down into the silicon they got really excited too. And then why 18%, we wanted to stay below 20%, its cost accounting that’s when the finance guys take over and they go whatever. I got what I wanted which was a partnership and the ability to build a faster better product.

Ehud Gelblum: Okay, I have 10 more questions to ask but I think we’ll end it right there we’re out of time Brian, thank you very much for being with us today.

Brian Krzanich – CEO, Intel

Great. Thank you very much.

 

Related Posts

• How to Choose the Right Cryptocurrency for You
• Transcript: Sara Eisen Interviews Scott Bessent At CNBC’s Invest in America Forum
• Transcript: What I Learned Working With Buffett – Tracy Britt Cool on The Knowledge Project
• Transcript: Why Your Money Buys You Less Every Year – Dominic Frisby on TRIGGERnometry Podcast
• Transcript: Federal Reserve Chair Powell’s Remarks At The 67th Annual NABE Annual Meeting