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The chipmaker’s adjusted gross margin is predicted to drop to 37.9 percent, a decrease of more than 7 percentage points.
Intel is expected to report its biggest quarterly revenue drop in five quarters on Thursday, potentially signalling more erosion of data centre and personal computer market share for the once iconic American chipmaker.
While Intel fails to capitalise on the generative AI-driven chip boom after a series of missteps, including passing on an investment in OpenAI, investors are focusing on CEO Pat Gelsinger’s efforts to regain the company’s lost market lead as losses mount at its contract manufacturing business.
According to data from LSEG compiled as of October 26, investors expect Intel to report an 8 percent decline in revenue to $13.02 billion (approximately Rs. 1,09,458 crore). As a result, they want Gelsinger to clarify his plans for bringing the company’s newest manufacturing technology online.
Some questioned Gelsinger’s plan to turn around the faltering chipmaker after a dismal quarterly report in August.
“Can it be fixed?” and “Who is going to be fixed by?” are the two main questions that investors in Intel have, according to Hans Mosesmann, an analyst at Rosenblatt Securities.
Since taking over as CEO in 2021, Gelsinger has reduced staff, halted dividend payments, and secured a new chipmaking contract with long-time client Amazon.com. This is one of the company’s first significant agreements for manufacturing its newest 18A technology.
But that has failed to soothe investors, with the stock down more than 50 percent this year. Intel’s market value has also dipped below $100 billion (Rs. 8,40,694 crore).
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.
“If Intel were to sell off their foundry business, a lot of people would be happy about it,” Daniel Morgan, portfolio manager at Synovus Trust, which owns AMD and Intel stock, said.
According to Visible Alpha, the capital-intensive process of operating and growing factories is expected to cause its foundry to report an operating loss of $2.55 billion (Rs. 21,437 crore) in the quarter alone.
According to Ryuta Makino, a research analyst at Gabelli Funds, which owns Intel stock, “the foundry services are the big reason why Intel’s gross margins are weak.”
According to estimates compiled by LSEG, the chipmaker’s adjusted gross margin is predicted to decline by over 7 percentage points to 37.9 percent.
PC’s weaknessWeakness of PC
A production ramp-up of Intel’s chips for AI-powered PCs, which the company has been betting will drive demand resurgence in the segment, is also likely to put pressure on margins.
However, that recovery has not yet occurred, and in the third quarter, Intel’s PC unit sales are probably going to drop by more than 6%.
AMD is most likely to win because, according to LSEG’s estimates, its PC chip revenue is predicted to increase by more than 18 percent in the third quarter. Following the market close on Tuesday, AMD is scheduled to release its third-quarter results.
Additionally, AMD is eroding Intel’s market share in servers. The Lisa Su-led company is expected to report a more than two-fold rise in data centre revenue thanks to its AI chips, while Intel’s data centre revenue is expected to drop about 17 percent, the 10th consecutive quarter of declines.
Intel continues to dominate the server CPU market, but demand has been shifting to AI graphics processors, where it is less common.
Some investors say there is little reason to be disappointed because since September, about half of the 31 analysts who follow the stock have lowered their estimates for Intel’s revenue.
Makino of Gabelli Funds stated, “I will be very surprised if there is another negative surprise, just because the expectations are just completely reset.”