Intel faces a big drop in sales as the chipmaker struggles to bounce back

Intel is expected to report its biggest quarterly revenue decline in five quarters on Thursday, potentially signaling further erosion of data center and PC market share for the once-iconic US chipmaker.

Shareholders have turned their attention to CEO Pat Gelsinger’s efforts to salvage the company’s lost market leadership as losses in its contract manufacturing business mount, 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 percent decline in revenue to $13.02 billion (approximately Rs. 1,09,458 crore), investors, according to LSEG data collected on October 26, want Gelsinger to provide clarity on his plans to expand the to acquire company shares. latest production technology operational.

A disastrous quarterly report in August had cast some doubt on 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 “By whom will it be resolved?”

Gelsinger, who took on the role of CEO in 2021, has cut jobs, suspended dividends and also signed a new chip manufacturing deal with existing customer Amazon.com – one of the company’s first major deals to produce its latest 18A technology .

But that hasn’t reassured investors as the stock is down more than 50 percent this year. Intel’s market value has also fallen below $100 billion (Rs. 8,40,694 crore).

While some investors are looking for updates on Intel’s progress in establishing advanced 18A manufacturing technology, which will be launched in 2025, others want the company to spin off its manufacturing operations, which would leave it with the chip design business.

“A lot of people would welcome, let’s say, Intel selling their foundry business,” said Daniel Morgan, portfolio manager at Synovus Trust, which owns shares in Intel and AMD.

According to Visible Alpha, the foundry will post an operating loss of $2.55 billion (Rs. 21,437 crore) this quarter alone, weighed down by the capital-intensive process of running and expanding factories.

“Foundry services are the main reason why Intel’s gross margins are weak,” said Ryuta Makino, research analyst at Gabelli Funds, which owns Intel stock.

The chipmaker is expected to post a decline of more than 7 percentage points in adjusted gross margin to 37.9 percent, according to estimates compiled by LSEG.

PC weakness

Margins are also likely to come under pressure from an increase in production of Intel’s chips for AI-powered PCs – which the company has been banking on to revive demand in the segment.

But that recovery has yet to materialize, with Intel’s PC division likely to see sales fall by more than 6 percent in the third quarter.

The winner is likely AMD, whose PC chip revenue is expected to grow more than 18 percent in the third quarter, according to LSEG estimates. AMD will report third-quarter results Tuesday after markets close.

AMD is also chipping away at Intel’s server market share. The Lisa Su-led company is expected to report a more than two-fold increase in data center revenue thanks to its AI chips, while Intel’s data center revenue is expected to fall about 17 percent, its tenth consecutive quarter of declines.

While Intel still has a large share of the server CPU market, demand has shifted to AI graphics processors, where Intel has little presence.

With about half of the 31 analysts covering the stock lowering their revenue estimates for Intel since September, some investors believe there is little room left for disappointment.

“I will be very surprised if there is another negative surprise just because expectations have just been completely reset,” said Makino of Gabelli Funds.

© Thomson Reuters 2024