Intel is expected to report its biggest quarterly revenue drop in five quarters on Thursday, potentially signaling more erosion of data center and personal computer market share for the once iconic American chipmaker.
Shareholders have turned their focus to CEO Pat Gelsinger’s attempts to salvage the company’s lost market lead as losses mount at its contract manufacturing business, while Intel fails to capitalize on the generative AI-driven chip boom, after a series of missteps including passing on an investment in OpenAI.
With Wall Street expecting Intel to report an 8% decline in revenue to $13.02 billion, according to data from LSEG compiled as of Oct. 26, investors want Gelsinger to provide clarity on his plans to get the company’s latest manufacturing technology up and running.
A disastrous quarterly report in August had raised some doubts over Gelsinger’s strategy to revive the struggling chipmaker.
Rosenblatt Securities analyst Hans Mosesmann said Intel investors have two big questions: “Can it be fixed?” and “Who is it going to be fixed by?”
Gelsinger, who took the CEO role in 2021, has cut jobs, suspended dividends and also landed a new chipmaking deal with existing customer Amazon.com – one of the company’s first major deals for production on its latest 18A tech.
But that has failed to soothe investors, with the stock down more than 50% this year. Intel’s market value has also dipped below $100 billion.
While some investors are seeking updates on Intel’s progress in setting up advanced 18A manufacturing technology, which is set to launch in 2025, others want the company to spin off its manufacturing business, which would leave it with the chip design business.
“A lot of people out there would applaud, let’s say, (Intel) selling off their foundry business,” said Daniel Morgan, portfolio manager at Synovus Trust, which owns shares in Intel and AMD.
Its foundry is expected to post an operating loss of $2.55 billion alone in the quarter, according to Visible Alpha, weighed down by the capital-intensive process of running and expanding fabs.
“The foundry services are the big reason why Intel’s gross margins are weak,” said Ryuta Makino, a research analyst at Gabelli Funds, which holds Intel shares.
The chipmaker is expected to post a drop of more than 7 percentage points in adjusted gross margin to 37.9%, according to LSEG-compiled estimates.
PC WEAKNESS
Margins are also likely to be pressured by a production ramp-up of Intel’s chips for AI-powered PCs – which the company has been betting on to drive demand resurgence in the segment.
