Intel Faces Investor Scrutiny Amidst Revenue Decline and CEO Search
As Intel prepares to release its quarterly results, investors are bracing themselves for another disappointing report. The chipmaker’s revenue is expected to take a significant hit, largely due to weak PC sales and its dwindling market share in the datacenter sector.
A Strategic Plan in Question
The sudden ousting of CEO Pat Gelsinger last month has raised concerns about Intel’s plans to establish a contract chip manufacturing business. Investors are eager to know how the company intends to revitalize its fortunes. “What’s the strategic plan to bring Intel back from the ashes?” asked Daniel Morgan, senior portfolio manager at Synovus Trust.
Contract Manufacturing Business in Limbo
Intel’s interim co-CEOs, Michelle Johnston Holthaus and David Zinsner, have hinted that a spinoff of the contract manufacturing business may be considered if the company’s 18A chipmaking technology fails to deliver. This uncertainty has cast a shadow over Intel’s future prospects.
Market Value Under Pressure
Northland Capital, which has an “outperform” rating for Intel, believes the company’s share price should be around $28, giving it a market value of over $120 billion. However, Intel’s current market capitalization stands at around $85 billion, a significant gap. The company’s shares plummeted 60% last year, marking its worst annual performance in at least five decades.
Manufacturing Woes
Intel’s decision to design and manufacture chips in-house has proven costly, straining its balance sheet and cash flows. In contrast, most chip firms have adopted a “fabless” model, outsourcing production to reduce costs. The high costs of attempting to catch up with leading chip manufacturer TSMC have only added to Intel’s woes.
Government Support
Despite its struggles, Intel remains crucial to maintaining strategically valuable U.S. chip manufacturing know-how, according to many U.S. government officials.
Fourth-Quarter Expectations
Analysts expect Intel’s fourth-quarter gross margin to decline by 9 percentage points to 39.4%, with revenue projected to slide 10.4% to $13.81 billion. The company’s datacenter revenue is likely to drop more than 15% in the fourth quarter, marking its eleventh straight quarter of declines.
Competition from AMD and AI Chips
Intel has been losing ground to rival AMD in the data center CPU market and personal computer segment. Its share of the x86 CPU market for servers and PCs dropped about 4 percentage points in the third quarter of 2024, with AMD gaining as much. Additionally, large cloud providers such as Microsoft have been shifting their focus towards specialized AI chips, further eroding Intel’s market share.
A Glimmer of Hope
Despite the bleak outlook, some analysts believe Intel may be able to surpass low expectations. “There’s a chance that it’s slightly easier for Intel to outdo these expectations,” said Ryuta Makino, an analyst at Intel investor Gabelli Funds. However, only time will tell if the company can turn its fortunes around.
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