“While that will obviously have a positive impact on gross margins, we still only expect a roughly 60% fall-through for gross margin next year.”

In context

“e as we make payments related to the restructuring charges necessary to achieve our spending targets. In 2025, with OpEx of approximately $17.5 billion and net CapEx of $12 billion to $14 billion, we expect to achieve positive adjusted free cash flow. The suspension of the dividend, initial Altera capitalization, and positive adjusted free cash flow should significantly improve our liquidity in 2025 and position us to begin the process of meaningfully decreasing our leverage. Before I close, let me take a moment to highlight a couple of items as you model 2025. As previously mentioned, we expect operating expenses to be reduced from Street expectations of $21 billion to approximately $17.5 billion. We will also reduce spending within non-variable cost of sales by approximately $1 billion. While that will obviously have a positive impact on gross margins, we still only expect a roughly 60% fall-through for gross margin next year. The AI PC is a big winner for the company and the early signals on the performance of Lunar Lake are very positive. We therefore intend to ramp that product significantly next year to meet market demand. While the product is great, it was originally a narrowly targeted product using largely external wafers and not optimized for cost. As a result, our gross margins will likely be up only modestly next year. The good news is the follow-on product, Panther Lake, is internally sourced on 18A and has a much improved cost structure. As the momentum of AI PCs drives Panther Lake demand, together with the improvements from our new operating model and the cost savings from our lower capital spending, we will be in a great position to see meaningful gross margin expansion in subsequent years. Lastl”