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Intel (ticker: INTC) is on hot streak with its strong earnings reports over the last two quarters. But the chip maker is facing increasing competition from Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing (TSM).

Still, the company’s chief financial officer believes Intel is well-positioned to meet the new challenges, giving the chip maker a bright future.

In late October, Intel reported September-quarter earnings that beat Wall Street estimates. The company reported adjusted third-quarter earnings per share of $1.42, versus the $1.23 Wall Street consensus. Revenue of $19.2 billion beat expectations of $18.1 billion. Moreover, the chip maker’s 2019 guidance was above Wall Street’s expectations for the full year.

At the time, Intel also said that demand from its cloud-computing customers improved. Sales from its cloud-computing segment were up 3% year over year for the September quarter versus a 1% drop in the prior quarter.

Last Friday, George Davis, who was appointed as Intel’s chief financial officer in April, stopped by Barron’s offices and made the case for the company’s exciting future.

Here’s an edited transcript from our interview with the Intel executive.

Barron’s: Intel’s cloud-computing business improved in the September quarter. But since the report, we’ve had a couple of soft cloud-related data points—including Arista Networks ’ poor guidance and Facebook’s lower-than-expected capital expenditure forecasts. Did these announcements surprise you at all?

Davis: I can’t really comment on any one particular customer and the specific demand there. Facebook (FB) can say whatever they want.

It doesn’t change our view of what we see as the outlook for the next quarter. We’re in pretty close contact with the entire ecosystem. We try and reflect the best estimate out of the discussions that we’re directly having with the customers.

Intel’s gross margin is down significantly year-over-year. Where do you see future gross profit margins going with the new manufacturing node cadence of every 2 to 2.5 years? [Intel has stated it intends to move to next generation chip manufacturing technologies at a quicker pace]

We’re still keenly focused on gross margin. Everything from capital efficiency to the way we’re designing our products.

What we’ve said though, the delay in 10 nanometer means that we’re going to be a little bit disadvantaged on unit cost for a period of time. We actually gave guidance for gross margin out in 2021 to help people understand.

2023 is the period that we were ultimately guiding [when] we’re going to see very strong revenue growth and margin expansion. We’ve got to get through this period where we have the 10 nanometer being a little bit late [as] we’re not optimized on a node that we’re on.

But [by] then we’re moving to a two to two and a half year cadence on the next nodes. So we’re pulling in the spending on 7 nanometer, which will start up in the second half of 2021 because we think it’s the right thing to do competitively.

So we’re making the investment now that makes us just a little less efficient, and that’s reflected in gross margin.

My industry contacts are saying AMD’s (AMD) new Rome server chips are getting good traction with customers. Can you comment on the competitive landscape over the next couple of years against AMD’s chip lineup and Taiwan Semiconductor’s chip manufacturing technology?

We said we expect to have heightened competition over the next 18 to 24 months. And our outlook reflects that. Our view on the nature of that competition and impact hasn’t really changed since we gave [our] longer term forecast in May.

What are you most excited about in terms of future technologies over the next few years for Intel? What are the big tech trends?

I’m really excited about AI in particular. The evolution of AI is going to reflect all of the use cases that are going to come out of this movement to 5G and the amount of information that is going to go from device to device.

Let me give you example. Mobileye [Intel acquired Mobileye in 2017. It makes vision-based advanced driver-assistance chips and systems] is both about great hardware technology, but also extraordinary software. We’re investing heavily, and it’s getting adopted so rapidly, that it’s actually an attractive return in the near term and very attractive in the long term.

If you look at the design wins in level two and level three [autonomous driving], Mobileye is leading across the world.

What about AI?

One of the competitive advantages that Intel has is the way that AI has been embedded into the Xeon processor. When you take into account the capabilities that we’ve added there, you can get up to 9X capability than the competition can get because it’s been optimized, and we’ve been going at it for a very long time.

AI is very early in its development. We have more than one bet, so we’re looking at it from a number of different angles. Having the ability to look across the portfolio solutions will be very valuable to our customers.

Thanks for your time George.

Write to Tae Kim at tae.kim@barrons.com