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David Zinsner

Thank you, Lip-Bu. Our Q1 results mostly reflected our view entering the year that our two biggest markets were poised for growth. On the client side, the end of service for Windows 10, the expected growing adoption of AI PCs and an aging installed base following the COVID era refresh pointed to a PC TAM growing 3% to 5%.
Similarly, on the traditional server side, delayed infrastructure upgrades driven by the rapid adoption of AI servers in 2024, supported double-digit CPU core growth this year on a roughly flat units. More recently, the economic landscape has become increasingly uncertain driven by shifting trade policies, persistent inflation and increased regulatory risk. While we have yet to see a meaningful change in customer buying patterns, we think it's prudent to manage the business with a level of conservatism going into the second half of the year.
First quarter revenue was $12.7 billion, coming in at the high end of our guidance range, driven by better-than-expected Xeon sales. Similar to Q4 2024, we believe Q1 revenue benefited from customer purchasing behavior in anticipation of potential tariffs, though it is difficult to quantify the magnitude.
Non-GAAP gross margin was 39.2%, approximately 3 percentage-points above our guidance on much stronger-than-expected demand for Raptor Lake, combined with improved cost for Meteor Lake. While we continue to see the mix of AI PCs growing throughout the year, the rate of growth off a lower-than-expected Q1 will be lower.
We delivered first quarter earnings per share of $0.13 versus our guidance of breakeven EPS driven by higher revenue, stronger gross margin and lower operating expenses. I was particularly pleased to see our spending down $400 million sequentially and $700 million year over year as we continue to focus on optimizing our cost structure.
Q1 operating cash flow was $800 million. We had gross CapEx of $6.2 billion with offsets of $1.7 billion in the quarter resulting in an adjusted free cash flow of negative $3.7 billion. We ended the quarter with a cash balance of $21 billion and received $1.1 billion from CHIPS grants and $1.9 billion for the final close of our NAND business sale to SK Hynix.
Moving to segment results for Q1. As previewed on our Q4 '24 earnings, we updated our segment reporting for Q1 2025. Details can be found in the appendix to our earnings deck and in our Q1 '25 10-Q. The following commentary reflects the updated segmentation and accompanying recasted 2024 financials.
Intel products revenue was $11.8 billion, down 10% sequentially, but above our expectations. CCG revenue was down 13% quarter over quarter, below typical seasonality and in line with our expectation with higher-than-expected volumes offset by product mix and competitive pressure. DCAI revenue was down 5% sequentially and above expectations driven by hyperscaler demand for host CPUs for AI servers and storage compute. Operating profit for Intel Products was $2.9 billion, 25% of revenue and down $632 million quarter-over-quarter on lower revenue, partially offset by reduced operating expenses.
Intel Foundry, delivered revenue of $4.7 billion, up 8% sequentially on pull-ins of Intel 7 wafers and increased advanced packaging services. Intel foundry operating loss in Q1 was $2.3 billion, roughly flat quarter over quarter and in line with expectations. Structural cost improvements were offset by start-up costs associated with the ramp of products on Intel 18A.
Turning to All Other. Revenue came in at $943 million and was down 15% sequentially, slightly above expectations. The three primary components of All Other are Mobileye, Altera and IMS. Collectively, the category delivered $103 million of operating profit.
As Lip-Bu stated, we announced on April 14, our intention to sell 51% of Altera to Silver Lake Partners for an almost $9 billion valuation with Intel receiving net cash proceeds of $4.4 billion. We believe the value of our remaining 49% stake in Altera will grow over time through our partnership with Silver Lake and with the addition of Raghib Hussain as the CEO. We expect this deal to close in the second half of 2025, at which point we expect to deconsolidate Altera from our financial results.
Now turning to guidance. Historically, average sequential growth in Q2 has been roughly flat with Q1. However, the very fluid trade policies in the US and beyond as well as regulatory risks have increased the chance of an economic slowdown with the probability of a recession growing. This makes it more difficult to forecast how we will perform for the quarter and for the year even as the underlying fundamentals supporting growth I discussed earlier, remain intact.
While we have offsets, including a global, highly diversified manufacturing footprint to help mitigate tariffs, we will certainly see cost increase, and we feel it prudent to anticipate a TAM contraction. The biggest risk we see is the impact of a potential pullback in investment in spending as businesses and consumers react to higher costs and the uncertain economic backdrop.
As a result, we're forecasting a wider-than-normal Q2 revenue range of $11.2 billion to $12.4 billion, down 2% to 12% sequentially. The -- within Intel products, we expect DCAI to decline at a faster rate than CCG. We expect Intel Foundry revenue down quarter over quarter due to pull-ins to Q1, lower wafer and advanced packaging volume and capacity constraints in Intel 7, which we expect to persist for the foreseeable future. For all Other, we expect revenue for the sum of those parts to be roughly flat sequentially.
At the midpoint of $11.8 billion, we expect gross margin of approximately 36.5% on lower revenue and mix to our outsourced and lower-margin client products with a tax rate of 12% and breakeven EPS, all on a non-GAAP basis.
As you think about the full year, we recommend you start by using the last 10-year seasonality to model sequential changes in revenue, but be mindful of the significant uncertainty in markets today, especially due to the potential for meaningful tariffs and tight supply on our older nodes. We expect noncontrolled income or NCI and -- to net to zero in Q2 and for the full year to be approximately $500 million on a GAAP basis. NCI is still expected to grow in fiscal year 2026 and to an updated range of $1.3 billion to $1.5 billion on a GAAP basis and meaningfully increase further in future years.
As Lip-Bu discussed earlier, we're simplifying our organizational structure and the way we work across Intel so that we innovate faster and adapt more quickly where needed to better serve our customers. As a result, we now expect 2025 OpEx of $17 billion, $500 million lower than prior expectations with a 2026 OpEx target of $16 billion. We are likely to have restructuring charges associated with these actions, some of which may be included in our non-GAAP results. Since we have not yet estimated these charges, they are not included in our guidance.
These spending reductions will be driven by numerous broad-based transformation activities. Key 2025 focus areas will be refocusing our portfolio, eliminating organizational complexity, transforming our engineering functions and continuing to drive to leading SG&A efficiency.
As Lip-Bu stated, we anticipate our 2025 gross capital investment will now be approximately $18 billion, which is below our previous guide of $20 billion, reflecting further operational efficiencies and better utilization of our construction in progress. While gross CapEx is down, we maintain our range for 2025 net CapEx to be approximately $8 billion to $11 billion due to uncertainty regarding timing of the US government fulfilling their obligations in our CHIPS agreement. Beginning the process of delevering our balance sheet in 2025 remains a top priority for us as evidenced by our lower OpEx and CapEx targets and the value unlock across our noncore assets.
I'll wrap up by saying that Q1 was a solid quarter to start even as the rest of the year is more uncertain. We will closely manage what's in our control and react quickly as the environment evolves. I'm encouraged by Lip-Bu's leadership and focus on enhancing our competitive position, improving our balance sheet and setting us on a path to deliver consistent returns to our shareholders.
With that, let me turn the call back over to John to begin the Q&A.

Question and Answer Session

John Pitzer

Thank you, Dave. We will now transition to the Q&A portion of our call. Michelle Johnson Holthaus, CEO of Intel products will be joining Lip-Bu and Dave during the Q&A session. As a reminder, we would ask that each of you ask one question and a brief follow-up question where applicable.
With that, Jonathan, can we take the first question, please?

Operator

Ross Seymore, Deutsche Bank.

Ross Seymore

Welcome to Intel. Lite, the first question is for you. You talked a lot about increasing the flexibility and speed at Intel and unfortunately having to shrink the head count to do so, how we balance fixing the road map with also filling the foundry and making sure you have the unit volumes there. It seems like the flexibility and speed goals would be more quickly adopted and capitalized by going to foundry, but you have the need to fill your own Intel foundry. So balancing the internal product road map versus the foundry side of things is basically the question.

Lip-bu Tan

Yeah, Ross, thank you so much for the questions. So a couple of things. One is clearly the approach is basically to flatten the organization to a number of layers and so that we can really focus on the right products and then deliver the customer solution. And then in terms of the product and road map, I think, clearly, we'd like to focus on what is the killing product that we want to have and a laser focus on make sure that we deliver on time, on the performance and then the power so that make sure that we meet the customer requirements.
And then in terms of the foundry, clearly, 18A is very important for us for Panther Lake. And secondly, I think we clearly one by one, improving the yield, the reliability and so that our internal customer can use of that. I think from the product side, they have to do the best they can and depend on whether it's inside or outside and then drive the performance of the products.

John Pitzer

Ross, do you have a follow-up question?

Ross Seymore

I did have one for Dave. Dave, on the gross margin side of things, you talked a little bit about the slope for the rest of the year, but especially given the strategic changes that Lip-Bu putting into place, the cost cutting and the OpEx side of things and the lower CapEx that you talked about, can you just talk about some of the puts and takes on gross margin if you think about 2025 as a whole and maybe even 2026, what are some of the goals that you have?

David Zinsner

Yeah. Sure, Ross. And I'll qualify this by saying it's a relatively dynamic industry out there right now given the tariffs and the implications on what that might look like from our TAM and from the macro. So I'm saying this with some murkiness as it relates to the full year picture.
I would just say that when we look out through the year, we do expect to see our mix on the client side, move more to the Lunar Lake and so forth. And as you know, Lunar Lake's margins are more under pressure given the memories and package and so that makes the accounting look make it look a little funky. So that will be a headwind to our margins on a go-forward basis.
And in addition, when we look at 18A, we're going to be ramping that through the year. and there's start-up costs associated with that, bringing that up in Arizona. So that's always going to put some pressure on gross margins through the year as well.
I think as you get into '26, things start to go the other direction. Panther Lake will be ramping more in volume next year. It's a better margin product than Lunar Lake just on the -- on an apples-to-apples basis. But on top of that, as you know, we have 18A on Panther Lake, so it brings the wafers back in to the fabs and we get the margin stacking benefit of that on our -- on a consolidated basis. So we'd expect next year to look better.
Of course, all of that is subject ultimately a lot of what is reflected in the margins is how we do on the top line side. And so we got to sort through how tariffs impact us. I think from a tariff perspective, this year could be choppy depending on what ultimately is settled across the US and abroad. But we do have a global supply chain. So we do have the ability to flex to mitigate a lot of the headwinds we face. It's just we can't obviously turn this stuff on a dime, and it's going to take us time to optimize the network to what the rules are in terms of tariffs.

Operator

Timothy Arcuri, UBS.

Timothy Arcuri

Dave, can you help us -- just also on gross margin, can you help us with sort of what a claim number is for March? You guided 36%, but that was supposed to have some COGS headwinds from the way you accounted for the grants, but it came in -- so sort of what's the clean number for March? And then also, you said that the Q1 number would be the trough. So I know you're guiding Q2 to 36.5%. But like -- could it go lower than what you're guiding?

David Zinsner

Yeah. I mean obviously, we thought Q1 would be a trough and it turned out to be better. So that puts some pressure on 2Q now on a relative basis. And like I said, the tariff dynamics to kind of change the that outlook through the year. So that's an additional pressure point for the gross margins through the year.
In terms of the margins for Q1, kind of cleaning that out, I mean, clearly, the biggest benefit to the gross margins was the beat on the top line. We kind of handedly beat top line. That helped out a lot. In addition, we did better -- or we had more of our volume come from Raptor Lake versus Lunar Lake. And so that was mix beneficial to gross margins.
And then we did, I think, a little bit better job in terms of just managing spending and so forth that helped out. But the two bigger components were the higher revenue in Raptor Lake. I think if you strip those two things out, we would have been much closer to the guide.

John Pitzer

Tim, do you have a follow-up?

Timothy Arcuri

I do. Yeah. So Lip-Bu, I know the prior policy had been to not announce new third-party foundry customers. How do you think about that? And how can you update us on sort of where you're tracking? Is there anything to help us believe that maybe you can add a Tier 1 customer and maybe this year, if not sooner, I know that they want some power improvements on 18A. But can you kind of talk about that?

Lip-bu Tan

Sure. Thanks, Tim. I think the priority one for us is -- for Intel Foundry is ramping our internal customer like the Panther Lake I mentioned earlier. And then the next step is basically build the trust with our foundry customer and the PDK, the schedule to really make sure that we're really robust on that. And then in terms of the process technology, the priority is really focused on yield, reliability.
And also, I think it's very important to understanding this is a customer service mindset so that every customer have different design tool methodology style. We want to make sure that we really do the pattern matching so that we really optimize for their solution they want to drive. So I think it's kind of one , two steps, and then we really continue to drive the efficiency and then so that we can really scale the business.

Operator

Joe Moore, Morgan Stanley.

Joe Moore

Great. So a number of elements in your letter and in your comments about kind of improving product execution I guess, five weeks into it, can you give us your assessment of Panther Lake and Clearwater Forest and 18A product portfolio and give us a sense of are those leadership products? Do you still have work to do to get to the leadership position that you want to have?

Lip-bu Tan

Yeah, let me start. I think Michelle will chip in. First of all, I think clearly, our laser focus on execution and in terms of delivery on time, performance that we can meet the customer and industry trends and the workload. So that is number one priority for us. In terms of Panther Lake, clearly, on the 18A is very important. We have the first by the end of this year, then we have additional SKU in the next year. So I think so far, we are very focused on that, Michelle?

Michelle Holthaus

Yeah. Maybe just to add, Joe, I think -- I talked about this a little bit in our Q4 earnings. Panther Lake really matches what you see in both Meteor Lake and Lunar Lake in the way that we're going to ramp, bringing our first most performant product out first with customers and then the additional SKUs in Q1, which really allows us to line up with the commercial marketplace, that product looks quite good competitively, and we get a lot of customer interest.
So I think we continue to track well there. You also asked about Clearwater force, and I talked a bit about that and the prioritization between Panther Lake and Clearwater Forest in Q4 as well. And so for Clearwater Forest, it has some very unique packaging that comes to market with it, and therefore, we decided to prioritize getting Panther Lake out first. And then in the first half of 2026, you'll see Clearwater Forest.
I would just remind you that Clearwater Forest is an E-core-based product, so it's a derivative, right, of Granite Rapids. And so it will be more of a purpose-built product than your kind of leading performance part in the marketplace. But both -- both are on track for delivery.

John Pitzer

Joe, do you have a follow-up question?

Joe Moore

I do -- the comments that you guys made about 7-nanometer being constrained further -- I'm sorry, Intel 7 being constrained for the foreseeable future. Can you elaborate on why that is and what impact that might have?

David Zinsner

Pretty simply, we're doing better on Raptor Lake and Raptor Lakes and Intel 7 part. And so we obviously plan out our network to be just -- just to the edge in terms of capacity and when things shift meaningfully like they did, we're going to be handing out.
That said, that's usually a good thing for the factory. When they're constrained, they leverage the network to try to produce more wafers and every waste becomes less expensive as a result. So we do -- we obviously do like that. Ultimately, though, we do want to see these AI PC products. gain more traction in the market, and we're optimistic that happens for the year.

Michelle Holthaus

Yeah. Maybe just to add on both 7- and 10-nanometer. Obviously, with the macroeconomic concerns that we see and just with the overall economy, we are particularly seeing consumer a stronger N-1 and N-2 demand in the marketplace as those system price points tend to stay rather fixed. And so we've been doing our best to respond to that shift, while at the same time in the Commercial segment, we are seeing that Windows 10 refresh and a strong demand for AI PC.
I think there's both good and bad news in that. And that, as you see N-1, N-2, as Dave talked about, you see a lot of that gross margin flow to the bottom line. It is also, as the AIPC ramp slows, that's also good for gross margins. But I do want you to walk away with the fact that we continue to invest in the AI PC. We do view this as a long-term growth segment -- we have our AI symposium with all the software vendors this week, and we see a ton of excitement from our customers around Lunar Lake. And so we'll be balancing our portfolio and our mix across our foundries.

Operator

CJ Muse, Cantor Fitzgerald.

CJ Muse

I guess first question for Lip-Bu. You touched on your AI strategy, focusing on new and emerging workloads like reasoning models of Agentic AI and physical AI. Is the plan here to reinvent x86 to succeed in the AI world or perhaps a broader portfolio, including ARM? And then should we be interpreting your focus more on Edge AI?

Lip-bu Tan

Yeah. Good question, CJ I think first of all, as I articulated on the AI strategy, it's very important to understanding the workload and then make sure that we can really deliver and then clearly, we're going to look for partnership with the industry leader to build the purpose per silicon and the software to optimize for that platform. So we like to be the compute platform for doing that.
And clearly, I think one of the big areas will be the kind of edge and inference area, and that will be important to have the architecture that are low power and drive efficiency. And so those kind of things that we are exploring some of this new architecture and some of this disruptive platform that we try to build. So stay tuned. Over time, we're going to starting to articulate the sort for that.

John Pitzer

CJ, do you have a follow-up question?

CJ Muse

I do, Joe. Dave, to follow up on the OpEx guide for '25 and '26, do those numbers fully contemplate the head count reductions that you are planning? Or over time, could we see additional savings?

David Zinsner

I would say Lip-Bu has driven us to think about the company in a leaner, more efficient, faster to execution kind of way. And that's been kind of the underpinning of what we are doing from an OpEx perspective. So it's all of that elimination of bureaucracy, taking out the layers and so forth that drive us to a number that's kind of in the $17 billion range for '25 and $16 billion range for '26.
We are still in the process of working through the details of how we lend to that number. But I feel confident based on his direction, we will land in that ZIP code for those numbers. We have not yet identified what that means from a head count perspective. There's obviously other categories of spend in operating expenses in addition to labor and those will also be looked at and we'll scrutinize and make sure that they're spent in a highly efficient manner.
And we'll have more details around how we will land the $16 billion number for when we end the second quarter and do the earnings in July, I think we'll have a good sense of what that means. Whether it can be reduced further I think we'll have to see. I think the $16 billion number, we feel very confident we can land. We'll update you in July for sure where that number is with a little bit more precision.
I think if you ask Lip-Bu today, he'd probably say there are areas where he would like to invest as well. So to the extent we're freeing up investment, it may go to some other areas that he wants to invest in. So I think $16 billion would probably be the good working assumption, but we'll update you in July, like I said.

Operator

Vijay Rakesh, Mizuho.

Vijay Rakesh

I was just wondering, as you look at the data center side, how do you see that playing out through the year? Sorry, you kind of cited June.

John Pitzer

Vijay, I apologize. Can you restate that? You broke up a little bit at the beginning of the question.

Vijay Rakesh

Just wondering how the data center side would play out the rest of the year as you look at the second half, especially?

Michelle Holthaus

Yeah. Thank you for the question. As we look at Q1, we saw higher-than-expected growth really driven by a few hyperscalers. We are optimistic about the rest of the year. If you look at the product road map we have with Granite Rapids coming out and Xeon 6, some of the traditional consolidation that, that drives as well as being the CPO choice as the AI had noted, and we are starting to see some improvement in telco as well.
However, as Dave and everyone has talked about, we still do see a large macro concern, and so we need to continue to understand what that means. Much like we talked about before in client, we are seeing strong demand on older gen parts in data center as well, and we're working through that from a supply perspective.
As stated in last quarter's earnings, I talked about our main goal being to stabilize market segment share, create margin and drive up ASPs. And so those are things that we're going to be laser-focused on for the remainder of the year. We do have a good product portfolio. We do see strength both in hyperscalers and enterprise, but rest of world is where we really see a market segment share challenge. And so that's where we'll be focused.

John Pitzer

Vijay, do you have a follow-up question?

Vijay Rakesh

Congratulations on the US segment, just looking at CapEx, this is for Dave. Any thoughts on how you would look at CapEx through that time frame, '25, '26? Are you looking at rationalizing that given the footprint that you have?

David Zinsner

In '25, we think we can operate to an $18 billion number as we talked about. I would just tell you, we have $50 billion or so of assets under construction that are -- a lot of which are is equipment that's still in bubble wrap. So we're, in some ways, taking more aggressive approach to driving better return on what we've spent already. And that's allowing us to spend less in capital.
I think that story probably plays out next year as well, although I think it's too early to talk about guidance for CapEx for next year. We're going to leverage our assets under construction next year as well. Longer term, this is a high-intensity model, obviously. We've talked about roughly having 25% capital intensity as we look at this in a full IDM model. I think that's probably a good working assumption on a long-term basis.

Operator

Stacy Rasgon, Bernstein Research.

Stacy Rasgon

I wanted to go back to that 7-nanometer constraint or capacity constrained. So you say you see a lot of demand for Raptor, like I guess I'm just surprised given how good Meteor Lake and Lunar Lake are supposed to be. Like why are you seeing so much more demand for the older generation parts versus new ones? Or is it -- I mean, are you pushing the older gen stuff like because the margins are better. Like what's going on there?

Michelle Holthaus

Yeah. Thanks for the question, Stacy. We're not pushing the old parts based on margins. What we're really seeing is much greater demand from our customers for N-1 and N-2 products so that they can continue to deliver system price points that consumers are really demanding. As we've all talked about, the macroeconomic concerns and tariffs, have everybody kind of hedging their bets and what they need to have from an inventory perspective. And Raptor Lake is a great part.
Meteor Lake and Lunar Lake are great as well, but come with a much higher cost structure not only for us but at the system ASP price points for our OEMs as well. And so as you think about an OEM perspective, they've also ridden those cost curves down from a Raptor Lake perspective, and it allows them to offer that product at a better price point. So I really just think it's macroeconomics, the overall economy and how they're hedging their bets.

John Pitzer

Stacy, do you have a follow-up?

Stacy Rasgon

I do a follow up on that. So what does that imply for the Panther Lake launch, which I guess is going to happen, you said by year-end. So I guess, we'll get at least one SKU by December, most of it comes next year, but if that's happening like in the midst of a macro event tariffs, like who knows like -- how do I think about like the launch of those new products, given like demand synergy pivoting back to the older products? And the environment hasn't even gotten bad yet.
Yeah. I think it's a very fair question. The Panther Lake launch matches exactly what we did on both Meteor Lake and Lunar Lake in regards to timing. So it's very aligned with how customers like to take products to market. Panther Lake is a great product, both from a performance and price perspective for our customers. So I think you'll see a strong uptake of that product, right?
We still see very strong commercial demand for AI PC as they're deploying their fleets as they're doing their upgrades, they want to future-proof their products and have that AI capability. So I don't think you're going to see that change in commercial. And if you look at our traditional ramps for these types of products, we tend to go faster in commercial first and then consumers come on board. And so we'll have to balance where is the economy at the end of the year, but I feel very bullish about the Panther Lake product and our customer feedback.

Operator

Srini Pajjuri, Raymond James.

Srinivas Pajjuri

Michelle, I want to go back to the comments you made about the server market. In particular, about the Q2 guidance, I'm just curious as to why Q2 is tracking a little bit weaker. And then as we look out to the next few quarters, I know you talked about granite ramping and also potentially TAM growing from a per core basis in double digits. But at the same time, we do have incremental competition from ARM, especially in head nodes, where I think you guys have done well. So I'm just wondering how to think about maybe talk about why the guidance is a little softer for Q2 and then how to think about your market share for the next few quarters?

Michelle Holthaus

Yeah. Thank you for the question. As I look at Q1, I mean, we had a few hyperscalers that were particularly strong in Q1. And so you could call that hedging your bets or doing pull-ins or just balancing out their portfolio, but we don't expect to continue to see that into Q2. And so when we look at the overall macro demand, the concern around tariffs and restrictions as well as the stronger demand for older generation parts there's more demand there than we currently can supply, and so you have to balance that as well.
And then as I've continued to say, we're going to do everything we can to stabilize market segment share, but that also creates a lot of margin and ASP pressure that we need to balance throughout the year. And so Granite Rapids is a great product. We are seeing excitement from our customers around that, particularly in the consolidation, particularly with edge, AI, a lot of excitement from customers about finding ways to be able to offer service revenue there.
But at the same time, as you said, there is good competition. And so we're just being, I think, very prudent in what the year looks like. We understand there is competition, but we've got a good product portfolio. But as Lip-Bu said, we want a very strong say-do ratio. So we're going to commit to a number that we can beat.

John Pitzer

Srini, do you have a quick follow-up?

Srinivas Pajjuri

Yeah. And then on Panther Lake, I know Lip-Bu said it's a priority to ramp 18A with Panther Lake. I know in the past, your target was to, I guess, bring in 70% of the die in-house to 18A. I'm just wondering if that's still the target. And then as we look forward to Nova, has the decision about internal versus external being made yet if so, maybe you can give us some color on that as to what percent or how you think about internal versus external mix for Nova Lake.

Michelle Holthaus

Yeah. Both are great questions. When we look at 18A, our goal of bringing everything in-house, getting to a 70%, approximately 70% mix remains steadfast, and there's no change to that POR and Panther Late helps us get on that journey. Pat talked about this in Q3, I talked about it in Q4. One of the great strengths we have is the fact that we do have optionality when it comes to where we build our products. We build products with TSMC, Samsung and Intel.
And so when you look at Nova Lake, really what we have done is we've optimized at the SKU level, the process node that we're going to use. And so when you look at Nova Lake, you'll see product both at TSMC and UEC product internal to Intel. But when you look at the aggregate of Nova Lake, we will build more wafers on Intel process than we are on Panther Lake. So that commitment to continue to drive wafer growth with our internal foundry partners remains steadfast and there's no change to strategy there.

David Zinsner

I'd just add one other thing that just I come over the top of the organization on is we are going to continue to balance internal and external manufacturing of wafers. We do that because that's part of our capital strategy to maintain a reasonable capital intensity relative to the business. So just as much as we're pushing on filling the fab and making sure we're utilizing all of our assets and leveraging the investments we've made on the process side, we also want to make sure that we're not overinvesting in capital and or left ultimately with a bad answer from a return on asset perspective. So that's part of our smart capital strategy is always to keep a certain percentage of our wafer capacity outside.

Operator

Thomas O'Malley, Barclays.

Thomas O'Malley

This one is for Dave a little more shorter term. Just if you look at the first 20-something days of the quarter here, I was surprised that you saw a little bit of weakness on the client side. Obviously, data center down a little bit more. But could you maybe just give us an update if you're seeing any pull-ins, any changes in dynamics from a geography perspective, any customer behaviors that are looking any different for the first couple of days this quarter just as it helps as a framework for the entire market and then also for you guys as well?

David Zinsner

Yeah. I would just say that for the first, whatever day that help. I didn't count it, so I'm assuming it is 20 days. We are off to a relatively strong start. But what we are anticipating and what's built into our guidance that the macro is going to start to catch up to the implications of the tariffs. And so June is likely to be softer than our strong start to the quarter. But so far, we're off to a strong start. Of course, I can't completely rule out that it might continue through the whole quarter, in which case, we're probably looking at the higher end of the guidance. But for now, we've built in the expectation that tariffs will start to weigh on the macro.

John Pitzer

Tom, do you have a follow-up?

Thomas O'Malley

Yeah, I do. Michelle, in December, when we chatted when you first took over the job, you spoke about products being first and specifically, we talked about the data center side of things. And I think earlier to CJ's question, you addressed the edge. But if you look at the products that you've had with Gaudi, Falcon Shores inside the data center specifically. Could you talk about what the strategy will be going forward? Are you planning on launching a new product? I think at the time you said, we need to learn with what we've already had. So we're not starting from scratch, but any update to that strategy, particularly inside the data center.

Michelle Holthaus

Yeah. I'm glad that you asked. Actually, in the first five weeks that Lip-Bu's been here, he and Sachin has spent a significant amount of time relooking at our whole AI strategy, our portfolio of assets how we need to come to market to be able to compete in that marketplace. You've heard Lip-Bu really talk about the fact that we want a workload first approach. And so in Q4, I talked about the fact that we weren't going to build Falcon Shores, right, and that we were going to stay with the POR Jaguar Shore.
So we still have the Jaguar shores product on our road map and Sachin and Lip-Bu over the coming months or so, we'll start to talk externally about what our AI road map looks like. what we'll do in between then. And then as we really dive in with our customers on that workload road map, what needs to change. But I think you'll see us be quite aggressive. We know that, that is a segment of the data center market that we're not competing in today, and we need a robust portfolio as all the customers are looking for alternatives.

Operator

Vivek Arya, Bank of America Securities.

Vivek Arya

Lip-Bu for the first one, you said there are no quick fixes. So how much time realistically should investors be prepared for in terms of Intel's turnaround? Is it one year, two years, three years? And related to that, what are the right metrics to measure that progress? Is it share gains? Is it gross margin? Is it free cash flow? So basically, what metrics are you optimizing for? And what is the time line in order to achieve that?

Lip-bu Tan

Vivek, a good question. So I think in the clear day, there's no quick fix and as you described. And as we're working through the road map and quickly update with the team and then defining what is the new workload look like in terms of the CPU, GPU and AI and then driving the -- some short-term and some longer-term products. And then shorter term, we may embrace some of the disruptive technology that is out there, and we can partner with them to bring the market faster and that meet the customer requirement. So I think stay tuned. I mean those are the things that we are working on.
In terms of the matrix, clearly, we want to have the best products, and that is really especially addressing the edge. It's got to be a power efficient and also able to drive the performance that we like. And time to market is critical on schedule. And so those are the things that we look at in terms of matrix to really deliver what the industry wants and customers want, and that's something that we're working on.

John Pitzer

Vivek, do you have a quick follow-up?

Vivek Arya

So on the IDM structure, Lip-Bu, given your experience in the industry, what we have seen from the outside is that the most successful businesses in semis are either fabless or a dedicated foundry. And a few years ago, when Intel started to give out financials for the manufacturing business, the hope was that, that would turn it around. But what we have seen is just consistently negative gross margin. So do you think that just 18A progress is sufficient, just kind of low single-digit top line growth is sufficient to make this business viable? So at what point do you need to rethink whether this IDM structure regardless of the way financials are broken out, does it make sense?

Lip-bu Tan

Right. That's a good question. So I think, clearly, we want to have that kind of balance approach. One is our -- the foundry got to be able to deliver the product that internal customer needs and also can serve our Intel customer well and -- so that we make them the simplicity and also online scheduled to deliver. And then meanwhile, in that respect, we clearly view TSMC as our partner.
And they have been very good partners to have. And Morris and (inaudible) are very long-time friend of mine. And we also met recently tried to find area we can collaborating and so that we can create a win-win situation. And then meanwhile, we continue to drive the efficiency of the yield that 18A and also look at with the customer, what can we do on the 14A and then so that we can really wisely effectively using some of the foundry capacity footprint that we have.

John Pitzer

Jonathan, we've got time for one last question, please.

Operator

Aaron Rakers, Wells Fargo.

Aaron Rakers

I guess maybe the first question would be is just as I think about the guidance that you gave and more importantly, the operating expense structure that you talked about in '25 and '26. Just to be very clear, -- that's exclusive of the pending divestiture of the 51% stake in Altera. I guess that's just a point of clarification.

David Zinsner

Yeah. Let me decide what exclusive means. But essentially, the $17 billion in '25 and the $16 billion in '26 actually assume Altera's OpEx is in that number. Now obviously, as soon as we deconsolidate it won't be. So the target of the 16 will come down dollar for dollar for what Altera is spending in terms of OpEx. But given that it hasn't closed, we don't know the timing of when it closes, it was a little difficult to provide anything with that built into the forecast. So we just included it .

John Pitzer

Aaron, do you have a follow-up?

Aaron Rakers

I do, and it's maybe more strategic back to kind of the core data center AI strategy. And I know it's early days, but I'm curious of how you think about rack scale networking and the pieces that Intel has internally to really compete in the cloud infrastructure AI build-out? Is it UCIE? Is there other pieces of the building blocks that you think strategically is needed to really drive if it's with Jaguar Shores or how that strategy plays out around the networking scale-up side

Lip-bu Tan

Yeah, it's a good question. So let me start first and then Michelle will add on to it. So clearly, the rack scale approach of the system, I think, is very important that we need to have a full scale into hardware and software to do it and then clearly, leverage on our XPU, our CPU and GPU approach and then to drive that. And I think there will be something that we're going to work on and then come up with the chilling product that we can really launch the product.

Michelle Holthaus

Yeah. Maybe I would just add that we are seeing great success with the IPU products that we've built. We will see at least double-digit -- or excuse me, doubling of that revenue from '24 to '25. We also see optics as a critical element of that rack scale architecture as well. And I think I would just remind everybody that Intel is the only foundry out there that has an optics-based foundry option for our customers.
And so we're very optimistic that those two things add to the overall opportunity to build out that rack scale architecture. Also just our Open x86. What we are seeing is that customers do love the x86 ecosystem, the software around it. And if they can build out an AI infrastructure with x86, they're very interested in doing that, we already have one large custom design win, and I would expect more.

Lip-bu Tan

Now with that, thank you for joining us today. We have a clear opportunity to strengthen our business in both products and foundry. We have clear priorities to better serve our customers and create value to our shareholders. I look forward to work ahead as we build the new Intel. Thank you.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.