Intel Corporation (NASDAQ:INTC) Goldman Sachs Global Semiconductor Virtual Conference 2022 June 7, 2022 11:00 AM ET
Company Participants
Chris Librie – Director of ESG, Applied Materials
Todd Brady – Vice President of Global Public Affairs, and Chief Sustainability Officer
Conference Call Participants
Brian Singer – Goldman Sachs
Brian Singer
Welcome to our next panel. So, delighted to present here today on the topic of semiconductors and ESG, and we’re going to touch today on the innovation, supply chain, and decarbonization, along with people, labor, and training, as well as the supply chain. These are super important topics, as you all know. Not just important for ESG investors, but for generalist investors as well. My name is Brian Singer; I’m the Global Head of our GS SUSTAIN equity research team. GS SUSTAIN has been a part of Goldman Sachs Global Investment Research since 2007, with our goal is to create both research and data tools on the key themes that will be impacting the EVS and the G, and how that’s going to impact capital flows looking at innovation, looking implementation, and looking at regulation.
We’re very, very happy to have with us from Applied Materials, Chris Librie, Director of ESG, and from Intel, Todd Brady, Vice President, Global Public Affairs, and the Chief Sustainability Officer.
Welcome Chris, and Todd. Thank you so much for joining us.
Todd Brady
Great to be here, thank you.
Chris Librie
Yes, indeed, thanks, Brian, for having us.
Brian Singer
As I mentioned in our intro, semiconductors plays such an important role in the broader supply chain. We’ve called semiconductors a green-abler or green enabler as we think about the products and services that are needed to meet a combination of net zero infrastructure and clean water goals. We do think the ESG community is going to, over time, start to look more at defining product impact, and that there is going to be a need for not just semiconductors, but others early in the supply chain to see increased investment to avoid supply chain bottlenecks in the medium-to-longer-term.
Additionally, as mentioned, and as I’m sure has been discussed already at the conference, supply chain, both the risks and engagement play an important role. Maintaining and retaining and attracting best people continues to be a key area of focus. And then what your companies in the sector can do to mitigate its own emissions footprint. So, we’ll touch on all those today, but before we get into the Q&A, maybe we thought we’d turn it over to each of you for some opening comments. And maybe you could structure those opening comments on what you see as the key areas of differentiation for your company that ESG investors maybe overlooking or ESG aspects of the business that non-ESG investors may be overlooking.
I think the best way to start this is maybe going alphabetically by company, and so, in this case, A is for Applied Materials, and we’ll turn it over to Chris.
Chris Librie
Thanks, Brian. Well, it’s, as they say, it’s a pleasure to be here and cover these topics. And as you say, it’s a comprehensive view of ESG. And I would say that’s the thing that I think distinguishes some of the work we’re doing at Applied Materials, is a comprehensive view of our impact. So, we have a framework that we call 1x-100x-10,000x, in which the 1x represents our operations, and the 100x represents the value chain, and the 10,000x actually represents the impact of electronics globally. And we’re working in each of those areas because they’re all interrelated and they all imply a great deal of cooperation and partnership.
Those numbers — we’re an engineering-based company, those numbers roughly represent the orders of magnitude and the size of our footprint from our own operations to the supply chain and value chain to the impact of electronics globally. And we feel working across that canvas distinguishes us, and we’re looking at ways to apply our technologies, pun intended, to be able to collaborate with others, not just our customers, like Intel, which is absolutely critical as we both work to reduce our impacts, but even their customers, and working up the value chain more comprehensively. So, I think that’s something that sets Applied apart from other companies generally, and perhaps even in our specific industry.
Brian Singer
Great —
Todd Brady
Thanks a — thanks, Chris. Yes, and —
Brian Singer
We’ll turn it over to you.
Todd Brady
You bet. And Applied has been such as great partner with us over the years, so we really appreciate that. So, if I can speak for Intel just quickly, I’d say a few things that set us apart, number one, our longevity, how long we’ve been working on ESG, it’s been over three decades now. I joined the company in 1995, the year before I joined is when we produced our first corporate responsibility report, CSR report, if you will, and set public goals and said here’s what we’re going to achieve and here’s how we’re going to do it. So, it’s really integrated into our DNA across the company, across all aspects of our business, so that’s number one.
And number two, is we’ve set extremely aggressive goals, similar to Applied. We have goals around — I know we’ll get into some of this in more detail later, net zero carbon, net positive water, zero waste; all of these things are very aspirational goals of where we’re headed. We have a good track record of where we are so far, and — which gives me great confidence in our ability to achieve these very aggressive goals to go forward. Third, we’re widely recognized as a leader. And, in fact, just this year, Barron’s ranked us number 1 most sustainable company on their list of sustainable companies.
CDP, we received A ratings in both carbon and water in terms of our risk and our management of that risk. And then lastly, I think to reiterate some of Chris’ comments about the 10,000 opportunity, that there’s such a huge opportunity for semiconductors with sustainability to get to net zero carbon, to achieve the sustainability goals that we all have, it’s going to take technology, and semiconductors are at the root of that technology, so it’s a business opportunity for us as well, for Intel and for our industry as we move forward, to help make the world more sustainable through the use of technology.
Brian Singer
Great, thank you.
Question-and-Answer Session
Q – Brian Singer
Let’s start on the topic of supply chain, and we can look at this from both a risk perspective and an engagement perspective. Todd, let’s start with you since there’s been such an elevated focus stemming from the pandemic on supply chain and semiconductors’ ability to meet demand. You’ve got demand from — for electrification and automation likely to increase further in the coming years, semiconductor investment levels and supply chain risk is likely to remain front and center.
Todd, maybe if you could take us through and start us off with the latest on where you see supply chain risks or improvements in the shorter-term and how you assess medium-to-longer-term demand and what you see as the risks around whether investment levels will be sufficient?
Todd Brady
Sure, yes, great question, and one that Pat, I think, gets asked every time he does an interview, right, what does the supply chain look like. And so, as he shared in our Q1 earnings and more recently at Davos, we are seeing the supply chain improve, we are seeing things get better. However, we still see a year-plus, 2023, maybe even into 2024 before we see the normalization of the supply chain. So, there’s still a lot of work ahead of us, it’s — as — to try to balance the supply-demand that we’re seeing. And so, as a result, I mean we’re all in on our IDM 2.0 strategy.
And you’ve seen the announcements that we’ve made all around the world in terms of building new fabs in Arizona, recently announcements in Ohio, Germany, to put more capacity — manufacturing capacity out there for the world to satisfy the demand that we’re seeing, and also balance the supply chain geographically around the world so that we shift more of the supply chain capacity back to the U.S., back to Europe as we move forward.
So, anyway, we’re excited about that. We think that’s the right strategy, we’re all in, we’ll continue to move forward with that, and to then put the ESG lens on it. As we do that, the goals that I talked about earlier, net zero carbon, net positive water, zero waste, we’re applying to all of these new factories that we’re building, and they’re being built per U.S. Green Building Council lead standards so that we can make them efficient, minimize our footprint as we’re creating these factories, and addressing the demand that we see.
Brian Singer
Great, thanks. And from an ESG perspective, the environmental and social performance of the supply chain will also likely see increased focus. And performance characteristics of suppliers can be helpful to understanding risk more broadly. Chris, can you take us through how you’re engaging with your suppliers particularly from an environmental and human rights perspective, and what are your requirements of them, and what are the penalties for noncompliance?
Chris Librie
Well, I want to echo many of the comments that Todd made about the supply chain pressures that we’re under now. They will alleviate in the future, but we’re still in the midst of a supply chain crunch. And at a time like that, just to address your last question first, we don’t look at it so much as penalties but as, again, cooperation and collaboration. So, we’ve created a team we call SuCCESS2030. They are driven toward establishing with our supply chain a cooperative partnership around adherence to the RBA code, adherence to the human rights standards that we set as a company. And we’re working through a process of auditing and collaborating with them, quite frankly, to raise their game.
The other thing that’s really important in our supply chain is as we learn more about our Scope 3 footprint, our suppliers are category 1, for those of you out there who love Scope 3 they represent roughly about 15% of our footprint. We will be divulging these data in our next sustainability report that comes out at the end of this month. And so, the criticality of working with our suppliers to reduce their carbon emissions, and again this calls for collaboration, sharing best practices from the work that we’ve done as a company to reduce our own emissions, that 1x piece, but really driving that into the supply chain, and making sure that we’re getting the optimum performance from our suppliers with regard to their GHG emissions. So, GHG emissions, RBA code of conduct, human rights adherence all of those things are top on the agenda for our success 2030 team.
And the last is which you didn’t ask me about, supplier diversity. And so, that’s something that really matters to us. We are going to diversity I know later in this conversation. But, it’s not just about building a culture of diversity within the organization Applied Materials but also within our supply chain. So, that’s something we take very seriously as well.
Brian Singer
That’s great. Thank you. One of the questions that we get from investors is how we can find ways to quantify and how investors can find ways to quantify the benefits of those supplier interactions. And you’ve already both talked about collaboration. And the relationship between Applied Materials and Intel is arguably a real world example of supplier engagement. And Intel’s latest corporate responsibility report lists its top 100 suppliers. And Applied Materials received Intel’s 2021 Excellence, Partnership, Inclusion, and Continuous Improvement Award as well as two other areas of recognition.
So, I am putting up perhaps a question to both of you. And Chris, we can start with you which is how do you measure the performance contribution for your suppliers or as a supplier? And what’s your advice to investors to be able to quantify these benefits both the benefits to Intel and the benefit to Applied Materials?
Chris Librie
Well, I’ll focus — and so, I talked a little bit about success 2030, I’ll focus on kind of the other side of the supply relationship for supply to Intel and obviously other fab operators, chipmakers. It’s important to us to reduce the footprint of our tools. And we have a team within our organization that’s a Design for Sustainability Center of Excellence which doesn’t exactly trip off the tongue. So, I call them 3 x 30 because they have three goals to deliver by the year 2030.
One of them is to reduce by 30% the average energy consumption of our tools. The other is to reduce by 30% the chemical consumption and usage of our tools. And then also the third goal is to reduce the footprint of our tools by 30% — the physical footprint for wafer pass at the fab. So, we’re doing everything we can in the design of our tools and our products in order to enable Intel to have a better chance of delivering what they want to do in terms of net-zero consumption.
And that in turn – so, this is this partnership we are talking about that in turn enables us to achieve our science-based targets that we plan to set by the end of this year because as I mentioned, 15% is category 1, 80% is category 11. So, the use of our tool products — in our words Intel’s of our tools is a huge part of our Scope 3. And if you kind of achieve science-based targets as a company and we certainly intend to do that, it’s going to be through partnership and working with Intel.
Todd Brady
Yes, Brian, if I could add, I mean Chris said it well. We’re all connected as we go after the sustainability because no one company can do it by themselves. We’re all connected to the supply chain. That what Chris is mentioning partnerships which we have those didn’t extend to our customers. Our customers are asking us the same questions. Intel what are you doing to help us reduce our footprint. How can you make your chips more energy efficient? What’s the embedded carbon associated with the products that you are providing to us? And so, it’s critical that we partner very closely with our suppliers. And we do that through kind of a carrot/stick approach. Applied Materials is an example of the carrot — I mean they are phenomenal. So, they do a great job. We recognizing them as such terrific partner leader in sustainability. And so, we want to make sure we are recognizing encouraging our suppliers to move in that direction, encouraging other suppliers to be more like Applied Materials.
On the flipside, we have the supplier scorecard. And so, as we go and sit down with our suppliers and give them feedback on their performance not only do we discuss cost, quality, did they meet our schedule and timelines that we needed, did they meet the technical specifications that we indentified for them. And did they meet the ESG requirements as well. And so, all of those are factored into that scorecard and our suppliers are given feedback. And if they are not performing in anyone of those areas including ESG, then there is a corrective action plan that’s taken with the supplier to improve their performance over time.
We work with them, sit down. We have this one on one meetings. And if they are not able to overcome whatever the shortcomings are that they have and that includes in the ESG space, then unfortunately we have to move on and find other suppliers that can meet our requirements. So, we have really fully integrated ESG into the way we do business, and like I said, on par with all the other critical factors that we talk to our suppliers about. And again, by the way, our customers are having those same discussions with us. So, it’s up and down the supply chain.
Brian Singer
It’s supper helpful. Todd, can you talk a little bit more as it relates to the human rights aspect of the supply chain? You are looking to increase your risk assessments I think by a little — by an additional 21% of suppliers this year. And can you talk a little bit more about how you do that? And what actions do you take for as suppliers you classify as high risk? And then I guess the flip would be for those that are low risk? Does that and can that — does that translate into consideration for greater business?
Todd Brady
No, you bet I mean human rights is critical part of that whole ESG equation. How employees — employers are treating their employees, ensuring that there is no force and bonded labor, ensuring that the employees have a voice with their management team, all those types of things. And so, they way we do that, Chris mentioned earlier an acronym RBA which you may or may not be familiar with that’s Responsible Business Alliance. This is a coalition that the IT industry pulled together.
I am trying to think how long it’s been now. It’s been over — well over a decade. And as we look up and down the supply chain, you go back 10 – 15 plus years maybe even 20 years now, each company had different requirements for their suppliers, which as Intel we were caught in the middle of getting inputs from our customers and then also asking our suppliers not do things. And so, as opposed to each of us going off and creating a different set of standards, different set of requirements, we got together and said, we create single set of requirements. And audit protocols and processes that we audit our supply chain too. And that led to what was originally EICC and now RBA where we have processes and standards with which we have — can audit our supply chain up and down our supply chain.
So, we use third-party auditors. We will also do some of those audits ourselves to go in and assess how our suppliers are doing as it relates to human rights. And when there are deficiencies found, then again we — those are brought to our attention and brought to our supplier’s attention. We sit down and say, “Okay, here’s the deficiencies.” And we map out how are we going to close the gaps here, and address those as we go forward. Ninety five percent of the time we are able to work through that and get to a better place. In times that we can’t, then we have a corrective action plan and a formal process that we go through with our suppliers to correct that. And as I mentioned ultimately if we are able to, then we have to find a different supplier.
Brian Singer
Great. So, to finish up on the supply chain, just maybe a quick final question if either of you want to weigh in, which is you both said more broadly the supply chain crunch may take some time to get better. Todd, you said it would be consistent with some of the comments that Intel has made in the past, a year plus, 23 to 24 for a normalization. I think the question is do you see any of the ESG characteristics or the need to audit? Or, any ESG-related issues from the supply — as it relates to supply chain contributing to that crunch or for long do you think this is really just more wind supply actually meets demand unrelated to the ESG processes?
Chris Librie
Well, I’ll take the first short that one if you don’t mind, Todd. First off, I want to highlight Todd’s excellent description of the RBA code and how we try to apply it and work through the audits with our suppliers to ensure compliance and make corrective actions. I think one of the ESG-related impacts of the supply chain issues that we are facing at the moment interestingly in human rights is working hours.
We’re running into situations where because of the supply chain — I guess kinks in the supply chain and the need to speed things up, it’s having an impact at times on working hours not only at our suppliers but even sometimes in our own assembly facilities. And so, — and that’s something that we’ve addressed internally by creating a working hours team to look at this across the organization supply chain and internal to Applied Materials to ensure that we take the right actions with logistics planning, with our fulfillment and supply to folks like Intel, so that, we’re removing those kinks in the supply chain as much as possible and doing that in a way that respects people’s working hours, because that has a big impact not only on their — not only their human rights, but also their motivation, their desire to be at work. So, it’s a real balancing act of making sure we get the product out the door, but we do it in a way that that respects the folks who are helping us do that.
Todd Brady
Yes, and I guess I would just add to that, our experience has been, you asked what was ESG contributing to the supply chain issues? I don’t think so. And here’s why. Aside from the working hours, which is a legitimate concern as Chris mentioned, the correlation that I’ve found over the years is typically when we find issues in the ESG space, they’re not unique to the company’s ESG performance, there’s broader issues with the company, with the supplier that needs to be addressed.
And so, it actually I would argue, can help uncover more underlying issues associated with just the underlying management systems, the underlying worker, Manager relationships that ultimately lead to bigger issues. And so, we’ve actually found it as a useful tool as we go and audit suppliers to help have broader discussions around our suppliers performance as they move forward.
Chris Librie
I would agree with that, I think a company that’s doing a good job on ESG tends to be a better partner. And that’s obviously, it’s reflected in the recognition that that Todd mentioned about Applied Materials. So, it runs up and down the value chain.
Brian Singer
Great, thanks for that. Let’s switch to the topic on people and diversity, training and culture. And Chris, we’ll start with you, women’s representation in the U.S. at Applied Materials has increased to 20.2%. And you’ve highlighted women of color are the tech industry’s most underrepresented group. What do you see as the prospects for improvement? And what is Applied Materials strategy and how does that impact your views on labor tightness and inflationary pressure?
Chris Librie
Well, I mean, the good news is that since those data were published, we’ve continued to increase the representation of women, we passed the 21% mark, but to be honest, those are, we’re talking about tensive percentages. So, we’re trying to move the needle. And it is a slow moving needle, which is frustrating. So, we kind of look at it as a root cause solution that we need to look at.
So, the first thing is to establish a culture of inclusion within the organization. And we’re doing that in a number of different ways. The first is to engage leaders as Champions of Change. And so, we’ve made this personal. And we’ve taken on the task of training, not just employee Managers across the organization, but our most senior leaders have been through a number of training programs.
The second part of this is to eliminate the systemic barriers to inclusion. So, like break down sort of the things that are happening within the organization, and engaging and empowering inclusion through change teams, so that we can break down barriers, ERGs are a great way of doing this as well. So, those are a couple of things that we’re doing that are like internal to us, external to us in terms of our recruitment, we’re targeting universities and graduate programs that we know have large Black and Hispanic populations.
So, we’re trying to get the underrepresented minority representation through that recruitment process that is required. We’re also investing in STEM education initiatives with colleges, universities and grad schools, working with nonprofit partners. In fact, we have through our Applied Foundation, a major program with young girls called Generation Girl that target STEM education, and so, all of these things are kind of aimed at addressing the talent pool and increasing it.
And then, the last thing I would say is actually in a strange sort of way, COVID has presented us with a little bit of an opportunity, which is that because we’re working more like this through video and virtual connection, we can start to think about our geographic reach across the U.S. and actually start to recruit from outside of just our geographic centers. And so, that’s another opportunity that we’re seizing as a company to increase diversity as much as we can. So, yes, it’s a tight talent pool. And we know the war for talent is very intense, but we’re addressing it, both internally and externally, in many different ways.
Brian Singer
Do you have a view, Chris on the implications of that on just inflationary pressure or wage pressure to get us there any kind of?
Chris Librie
I don’t think diversity in any way is going to impact, I think that there are definitely trends that are happening in the marketplace generally, that are putting pressures on employment, because we’re at a pretty full employment right now. And so, recruitment of talent is fierce, particularly the kind of talent that we needed an organization like Applied and I would imagine this is true for Intel as well. But I don’t think diversity, it’s kind of like the question about ESG in the supply chain, I think diversity makes you stronger, as an organization. And so, this is not something we plan to take the foot off the pedal on.
Brian Singer
That’s great. So, Todd to you, labor markets are tight, you’ve highlighted the competitive landscape for technical talents as Chris just highlighted, what are your thoughts on technical labor availability? And what Intel is doing to differentiate to attract and retain talents and maybe you could touch on some of the diversity aspects as well?
Todd Brady
Yes, no, happy to — I think Chris gave a good overview, good summary. And actually it again, I’ll caveat this with I’m not an economist. But I would argue that by opening the talent pool to a more diverse broader group of people, it could actually be beneficial in terms of wages, inflation, that kind of thing. People are given opportunities, who didn’t have those opportunities, you broaden your talent pool, you broaden the number of people that are eligible.
So, anyway, very, very positive from my perspective, from that aspect, but yes, it is a tight labor market. Having said that, things we’re doing very similar to some of the things that Applied Materials mentioned, we recently announced in Ohio, where we announced our two new fabs, $100 million investment in education and $50 million of that being in the State of Ohio, $50 million of that been in all across the U.S., that $50 million across the U.S. being matched by the National Science Foundation. So, $150 million in education, focused around STEM, engineering, technicians, that type of work.
And so, we have in the current labor market although traditionally this has been a focus area, we’ve really doubled down, particularly with our community colleges, where we operate in creating curriculum that allows people we call it Fast Start Programs, where we can train people quickly in a technician type role in a short period of time and have that curriculum where they can go through that process, and then have a job at Intel and create that very fast, very efficiently, and make sure we’re addressing the challenges that we do see in the labor market.
So, we’ve been doing a number of those types of things, those Fast Start Programs also, we have targeted a number of schools that are underrepresented, or have a high number of underrepresented minorities, depending on which geography we’re located in. We have an initiative called the Million Girls Moonshot again, similar to what Applied setting getting more women interested in technology and doing so at a young age. So, engaging the K-12 because our, what we have found is that if that interest starts at a young age, then it will carry through college and grad school and whatnot, as opposed to if we tried to engage people, once they’re in college.
So, all of those initiatives are ongoing. And then I would say anecdotally, we’re also finding that our industry and Intel in particular is still a very hot commodity. We have lots of people who want to come work for us. I just posted a job in Ohio, hundreds of applicants, extremely qualified people. We were very pleased with the talent that is available and is interested in coming to work for Intel and our industry. So, yes, it’s a tight labor market. But I still believe that our industry is one of the ones that that people want to come to and flock to, and we’re still seeing signs of that across the board.
Brian Singer
That’s great. I think as we move on to other topics, I would highlight our Global Investment team’s Womenomics and Black Womenomics reports for those that want more details, and in particular on these topics. Todd, I was going to ask on the topic of geographic concentration and risk, because you mentioned a couple times the expansions in Ohio and Arizona, and in Germany. I think you just mentioned a little bit on the labor side, but as maybe a bit of a transition to thinking about the decarbonization and the E side of ESG, wondered if you could talk about those areas from a kind of cost competitiveness perspective, but also from an emissions and water perspective. Ohio doesn’t always necessarily have the reputation of having the most renewables on the margin. And Arizona, obviously, water and temperature drags, drought, et cetera, and how that goes — it goes into the mix, in addition to labor pool’s opportunity to expand diversity at you think about where to or where to expand?
Todd Brady
Yes, great question. Our manufacturing, I think it’s one of our strengths in that we have a global manufacturing network across the U.S., Europe, and Asia. We’re one of the few companies that has that, and particularly the breadth of that manufacturing in all of those geographies. As we’ve mentioned many time publicly, 80% of the manufacturing today is in Asia, 20% across — in semiconductors, 20% across the U.S. and Europe. We want to get to a 50-50, and thus you’re seeing the investments in the U.S. and Europe. We think it’s critical to have that balanced supply chain around the globe, and so we’re investing heavily in that area.
In terms of in the ESG impacts, and E in particular, this is absolutely, as we go through the site selection process, I’m part of that team at Intel that takes a look at where we’re going to site our new sites. And things such as renewable energy, water availability are absolutely part of that matrix as we go through and map out where we want to build next and why. And then it also goes into the plans that we have as we build these new facilities. So, if we take water in Arizona as an example, as we — and this is something we’re researched heavily. It’s actually a surprise, in the Phoenix area, the Phoenix area uses less water today than it did 50 years ago, and that just — people find that hard to believe given the population growth in that area.
But the reason is because it’s moved from an agricultural economy, which still, in the Southwest, agriculture uses 70%-80% of the water, to a more modern commercial-industrial economy, which uses far less water. When you replace cropland with residential areas you use far less water. So, the water availability is still there, we wouldn’t be building $10 billion fabs if we thought we were going to run out of water. Having said that, yes, that there are concerns with the Colorado River, water availability as you go forward. And so, we’ve invested heavily in both our own water treatment onsite, where we can treat and reclaim that water over and over again, reducing the amount of water we use, and reusing the water multiple times.
And then also, we’ve launched an initiative that we call, Water Restoration, which is partnering with the local community, governments, nonprofit organizations to put water back into local aquifers, rivers, streams, et cetera. And again, as I mentioned, agriculture is the major use of water in the Southwest, and so many of those projects have been to partner with the agricultural industry to help them be more efficient and use less water, while at the same time growing their crops and being profitable. And in doing so, what we found is that investments outside of Intel can have a 100 to 1,000-time return as that same amount of money invested inside of Intel in terms of the water saved, and so, really some innovative programs going on there.
I’ll just put in a plug. Go to intel.com/water, and you can see a list of a number of these different projects that we continue to invest and innovate in. So, it’s absolutely part of our selection process, and we do find it critical. Again — once again, when you’re making the type of capital investment we are you turn over every rock and make sure you’ve thought through every risk that — as you do, and that includes the ESG risks in our site selection.
Brian Singer
Great, thank you for that. Let’s talk more specifically on the decarbonization efforts, and how you’re each trying to mitigate your company’s own footprint. Chris, let’s start with you. Applied Materials has set goals to source 100% of energy globally from renewable sources by 2030, and to reduce Scope 1 and 2 carbon dioxide emissions by 50% by — in 2030 relative to the 2019 baseline. Can you discuss the path and the catalysts to achieving these goals? And how does strong product demand that we’re seeing impact the ability and the timing of some of these absolute emissions reduction objectives?
Chris Librie
Yes, I mean I would say, and there’s a couple of things that factor into this, and definitely one of them is the excellent work that Todd outlined about site selection, right, so where we put our facilities and the due diligence we go through in terms of ensuring the supply of clean energy and other factors. Water is less of an issue for us as a company than it is for Intel. However, as a partner to Intel, we’re looking at the water of our tools, of course, and enablement of that 3×30 program I talked about earlier. But specifically about renewable energy, about two years ago, we engaged with a major supplier of renewable energy here in the U.S.
NextEra is the name of the company. And they were building a wind farm in Texas, in White Mesa, Texas, so, entered into a VPPA or virtual power purchase agreement with them. That came online late in 2021, and has started to have a material impact on our footprint. And for 2022, I can tell you we will reach 100% renewable energy here in the U.S. So, it’s through efficiency, site selection, but also purchases of renewable energy on a large scale that we’re going to achieve the goals that we’ve set for ourselves in this space. I will tell you there are some challenges ahead, because as you start to look globally, our footprint also is not just in the U.S., it’s in Asia, primarily, outside of the U.S. And there are certain markets in Asia where it’s a little bit more challenging than it is here in the U.S. to enter into a VPPA or to find renewable solutions.
So, what we’ve done is we brought onboard a consultant, a global consultant that’s working with us to develop projects and collaborations, frankly, because maybe it’s by working with Intel or other tech manufacturers in Asia and finding solutions for renewable energy in places like Taiwan or Singapore, where our footprint is reasonably large, right. So, that’s a program we’ve got in place. We have a roadmap that we’ve been working on with that consultant that will deliver us toward that 100% renewable goal by 2030, as we’ve set out to do. And we’re pretty confident that we’re going to get there. The issue you raise is that the goalposts do keep moving; the business is growing.
So, the work that we need to do is to make sure that we keep a focus on efficiency, and as we grow the business we grow it in a responsible way, and keep that growth of the Scope 1 and 2 footprint as minimal as possible, and continue to buy the renewable energy that will help us to stay on track.
Brian Singer
Great, thank you.
Todd, Intel’s targets call for a 10% reduction in Scope 1 and Scope 2 greenhouse gas emissions by 2030 with 100% of electricity sourced from renewables. Similar question, what do you see as the catalysts and the path, and what are the risks that’s drawn product demand growth delays achieving these goals, so kind of the plus —
Todd Brady
Yes.
Brian Singer
The plus of great demand and then how you navigate that?
Todd Brady
Yes. Yes, and I would add to those goals — goal, by 2040, to be net zero. So, 2030 is an interim goal that we have for Scope 1 and 2, and then net zero by 2040. And so, to get there, that there’s really three areas that we have to focus on. And Chris outlined one of them, renewable energy. We are 100% renewable in the U.S., Europe, Israel, and Malaysia today. So, we’re about 80% renewable globally, and as Chris indicated, that the markets that are most challenging for us are in Asia. And so, more work to do there, more opportunities to work together as an industry to figure out how we could break through in some of those markets.
That said, a couple of other areas that we’re focused on again as an industry. One other area, the use of natural gas, we’re a large industrial manufacturer, natural gas is commonly used for anytime you need heating, or even for abatement to control your emissions, the burning of different gases and pollutants and whatnot. And so, that’s going to take some work, I think not just as a semiconductor industry, but a bit of broader industrial manufacturing to take a look at what are options to the use of natural gas, what technologies might be available, could hydrogen potentially be used in certain applications, could green natural gas be used all the various tools on the table that we’re taking a look at.
And then lastly, one that’s unique to our industry and Applied has been a great partner on. And that’s our use of PFCs, perfluorocarbons, which are used in semiconductor manufacturing. But this is something that we’ve been partnering on for two decades now. And that is, these chemicals that are critical to make a chip and are used in our action CBD processes can be abated and we have abated those chemicals for some time. So, the question now is, can you further abate them? So can you move your efficiencies, I’ll just throw out a hypothetical from 80% abatement to 90% to 95% to 99%, it’s close to 100%. So, what new technologies are available to do that and get to those higher efficiencies, reducing your emissions?
And then also, are there other green chemistries that we can take a look at? Again, that’s fundamentally a major shift for our industry. But I think all of those things are on the table, and shows why we have to work collaboratively if we’re ultimately going to get to net zero, we’ve got to look at the problem differently, come at it differently and come up with new solutions.
Brian Singer
On the last part of that the PFCs, as you think about the technologies that could further increase the abatement, is that innovation that’s needed to come or are there ideas and opportunities that you’re seeing maybe in earlier stages that you think could be materially game changing?
Todd Brady
Yes, I think it’s sum of both. And maybe I’ll defer to Chris, who’s even more of an expert here in creating the tools for us. But I think that’s sum of both, some novel technologies that are being development and show promise, and then probably some things we need to look at, they’re not yet on the table.
Chris Librie
Yes, I would reinforce that. It’s both and it’s definitely a focus area for us with our 3 by 30 initiative. One of those goals is 30% reduction in chemical is at the fab. And so, that’s something the team is actively working on and partnering with folks like Intel.
Brian Singer
Great, so final topic will be on the decarbonization front, will be help customers avoid their emissions, and we — as we think more downstream to the final, final product consumers. And Chris, we’ll start, we’ll start with you on this one. We’ve seen significant innovation from semiconductor products over the years, it’s contributed to lower emissions intensity via lower electricity intensity in areas like data centers, where between 2015 and 2020, workload demand tripled and power demand only increased by 6% cumulatively, what’s your outlook for the pace of efficiency gains going forward and with rising need for automation accuracy, what’s your outlook for underlying demand?
Chris Librie
Yes, the underlying — point you’re making Brian here is a good one, because you’re absolutely right, the increase in AI, the amount of data accuracy that’s required, if you think about autonomous driving for instance, we have to move to 99.9% accuracy, anything less than that is not acceptable.
So, the levels of compute that are going to be required in the future will continue to accelerate. And so, this is something that Applied Materials is focused on, then concerned about, but we feel there are solutions available through again, through collaboration, that’s been the theme of this discussion, right? It’s, if we don’t, if we continue to try and meet these expanded needs for data, we forecast the amount of energy that’s going to be required is going to increase from roughly 2% of global electricity to 15% by 2030.
So, it’s clear the need is there for us to work not only with Intel, but even ultimately with some of Intel’s customers, right. So, if we’re thinking about the companies that provide the data services, the cloud services that enable this AI and this connectivity, this data processing that’s going to drive things like autonomous vehicles, cryptocurrency, I mean, there’s been plenty of articles written about how cryptocurrency or Bitcoin as big a footprint is, in some cases as countries.
So there’s really a need here for us to work across the platform. And it’s not just about reducing the footprint of making those chips, which don’t get me wrong, that’s important. It’s also about making those chips ever more efficient, so that this 15% increase is not going to happen. And we can abate that or we can keep that under control because IT efficiency, the work that we do in terms of improving AI connectivity is absolutely critical to some of the other solutions that we’re trying to create as a society, and it’s critical to economic growth. So, we have to make sure we bring it in line with the energy required for it.
Brian Singer
Great, that’s very important in the prospects of that level of electricity increase is a bit eye popping. So, Todd as you think about the essential role semiconductors can play in advancing sustainable development goals, what’s your outlook for innovation, and the technologies that you see in the pipeline that can be most transformative?
Todd Brady
Yes, big opportunity, there’s a study out of Europe by an organization called Jessie. And one of the conclusions they come to is that for every ton of carbon that’s invested in the IT industry, you can return up to 10 tons of savings more broadly, through smart applications, whether that’s smarter transportation, smarter manufacturing, smarter energy grids, all of those things. So, huge opportunity here for our industry and for Intel, and so you see us taking advantage of it recent announcement about, Chris mentioned cryptocurrency, a new chip that we produce extremely more energy efficient in terms of data mining.
Another example would be in the IoT space, our IoT businesses is really taking off because of all of these various embedded applications, that you have to make the World more intelligent, smarter, we have a smart energy solution. Again, as the energy grid is moving from the traditional grid to a renewable grid, you need to manage it differently, the loads are different. And so, having smart solutions to do that, and having offerings to do that, such as we have is an advantage for us.
In the server space, we continue to innovate and come up with more energy efficient chips and energy efficient approaches to how work gets done in the data center. So, the list goes on and on. But we see it as a big opportunity, not just for the industry, but for Intel.
Brian Singer
Great. And we tried to take a shot at from semiconductor sector overall to try to estimate what the level of emissions avoidance the sector takes from the products the sector creates, and we got to a five times greater in emissions avoidance than Scope 1 and 2 emissions. That’s not an easy exercise. And definitely there are some assumptions that needed to be made that, that we’ve had engagements with investors and companies. But Chris, you’ve highlighted the 10,000x part of the objective in your plan. How do you measure this? How do you measure emissions avoidance? What are the metrics you think investors should look at to quantify product impact because I think I’ve brought up the quantification, maybe a couple different times here?
And it’s because I think, for the ESG investors, specifically looking to say, hey, I want to own a semiconductor stock in my portfolio, for many they look to say here is actually the good that the industry or the company is doing, which means in an effort to try to quantify it, which seems like it’s exactly what you’re trying to do with your 10,000x objective. So, perhaps, you could add some color on this?
Chris Librie
Yes, I mean, we’re at the early stages, I think of measuring this, quantifying the impact, but you’re alluding to kind of where we want to go with this, which is what’s the avoided emissions, right. So, as I already talked about the efficiencies that are created by IT, the nine times that Jessie I think has quantified, in our case, what we’d also like to do is see, how can we work with a chip manufacturer and then a deliverer of Cloud services in order to be able to show through the design process, we created a chip that is X percent more efficient and therefore has avoided why emission, so whatever the calculation, so that’s going to require some partnership that that is a collaborative of that nature.
And that’s something that we’re working to right now and had a number of discussions and outreach with different partners and hope to be able to talk about that more in the future. But the quantification directly to your question would be, how can we help that ecosystem create the next chip that makes the data center that much more efficient and avoid that curve that I mentioned earlier from 2% to 15%. And that’s exactly what we’re set out to do. And that’s what the 10,000x piece of our framework is meant to address.
Brian Singer
Great. Well, this has been a great discussion. We’ve touched on a lot of issues here and I guess about 50 or 55 minutes period of time, and I’ve got more questions we could have gone with and I think there’ll be a lot of opportunity to continue to have these dialogs on these topics going forward. Todd, and Chris, thank you, thanks to Intel and Applied Materials for participating and hope we will continue to have these dialogs going forward.
Todd Brady
Great, it has been a pleasure.
Chris Librie
Thank you so much, Brian.
Brian Singer
Thank you.
Source: seekingalpha.com
