Intel is set to announce its largest quarterly revenue decline in five quarters on Thursday, a development that could indicate a continued downturn in its market share within the data center and personal computer sectors. This comes as the renowned American chip manufacturer struggles to maintain its status in a highly competitive landscape.
Attention from shareholders has shifted toward CEO Pat Gelsinger’s efforts to restore the company’s former market dominance amidst growing losses in its contract manufacturing division. Intel has faced challenges in capitalizing on the burgeoning demand for chips driven by generative AI, particularly after missing out on investment opportunities with OpenAI.
Wall Street analysts predict Intel will report an 8 percent decline in revenue, bringing it down to $13.02 billion (approximately Rs. 1,09,458 crore), according to data from LSEG as of October 26. Investors are eager for Gelsinger to shed light on his strategies for advancing the company’s latest manufacturing technology.
Concerns regarding Gelsinger’s approach were heightened following a disappointing quarterly report in August, which raised skepticism about the effectiveness of his recovery plan for the beleaguered chipmaker.
Hans Mosesmann, an analyst at Rosenblatt Securities, identified two pressing questions for Intel investors: “Can it be fixed?” and “Who is it going to be fixed by?”
Since taking on the CEO position in 2021, Gelsinger has implemented job cuts, halted dividends, and secured a new agreement with Amazon.com for chip production using their upcoming 18A technology. However, these measures have not alleviated investor concerns, as the company’s stock has plummeted over 50 percent this year, leading to a market capitalization falling below $100 billion (Rs. 8,40,694 crore).
Some investors are eager for updates on the development of Intel’s advanced 18A manufacturing technology, which is anticipated to launch in 2025, while others are advocating for the spin-off of its manufacturing business to focus solely on chip design.
“Many investors would welcome Intel selling off its foundry business,” noted Daniel Morgan, a portfolio manager at Synovus Trust, which holds shares in both Intel and AMD.
Intel’s foundry division is projected to incur an operating loss of $2.55 billion (Rs. 21,437 crore) for the quarter, primarily due to the high costs associated with operating and expanding fabrication facilities.
“The foundry services are a significant contributor to Intel’s weakened gross margins,” stated Ryuta Makino, a research analyst at Gabelli Funds, which invests in Intel stock.
Analysts estimate that the chipmaker will experience an adjusted gross margin drop of over 7 percentage points to 37.9 percent, according to LSEG data.
PC Sector Challenges
Margins may also face pressure from the ramp-up of Intel’s AI-powered PC chips, which the company is counting on to stimulate demand in this segment.
However, this anticipated recovery has not yet occurred, with estimates indicating a more than 6 percent decline in sales within Intel’s PC unit for the third quarter.
In contrast, AMD is projected to see a growth of over 18 percent in PC chip revenue during the same period, according to LSEG estimates. AMD will announce its third-quarter results following market close on Tuesday.
Furthermore, AMD is gradually gaining ground in the server market, with expectations of a more than two-fold increase in its data center revenues fueled by AI chips. Meanwhile, Intel’s data center revenue is anticipated to decline by around 17 percent, marking the tenth consecutive quarter of decreases.
Even though Intel maintains a substantial share of the server CPU market, there has been a notable shift in demand toward AI graphics processors, an area where Intel has minimal involvement.
With nearly half of the 31 analysts covering Intel reducing their revenue projections since September, some investors feel the bar for disappointment has been significantly lowered.
“I would be quite surprised if we see another negative surprise, as expectations have been thoroughly reset,” commented Gabelli Funds’ Makino.
© Thomson Reuters 2024
