By Arsheeya Bajwa
(Reuters) – Intel will face investor scrutiny on its CEO search when it reports quarterly results on Thursday, because the chipmaker stares at one other big decline in revenue attributable to weak PC sales and its shrinking share within the datacenter market.
The struggling company ousted CEO Pat Gelsinger last month and named two interim co-CEOs, casting doubts about its plans to construct out a contract chip manufacturing business — a method championed by Gelsinger.
Investors need to know, “What’s the strategic plan to bring Intel back from the ashes?” said Daniel Morgan, senior portfolio manager at Synovus Trust, which owns shares of the chipmaker.
Intel plans to establish its contract manufacturing business, or foundry, as an independent unit. Interim co-CEOs, Michelle Johnston Holthaus and David Zinsner, said last month a by-product of that business could also be on the table if Intel’s 18A chipmaking technology slated for this 12 months doesn’t succeed.
Northland Capital, which has an “outperform” rating for Intel, said Intel’s share price should rest at about $28, giving it a market value of greater than $120 billion.
That’s higher than its current market capitalization of around $85 billion. Intel shares sank 60% last 12 months of their worst annual performance in no less than five a long time as the corporate struggled to regain its lost lead in manufacturing and missed out on the AI boom dominated by Nvidia.
Intel designs and manufactures chips – a practice that almost all chip firms have abandoned for a “fabless” model that outsources production and is seen as more cost effective.
The high costs of attempting to meet up with leading chip manufacturer TSMC have strained Intel’s balance sheet and pressured money flows. Meanwhile, many U.S. government officials view Intel as key to maintaining strategically helpful U.S. chip manufacturing know-how.
For Intel, “the sum of the parts exceeds its market cap”, Northland analysts said.
MARGIN PRESSURE
Still, analysts expect high costs and weaker revenue to pull Intel’s fourth-quarter gross margin by 9 percentage points to 39.4%, in keeping with data compiled by LSEG.
Revenue is anticipated to slip 10.4% to $13.81 billion. Analysts estimate Intel to predict revenue growth of 1% in the present quarter.
Its datacenter revenue, which incorporates server chips, is prone to drop greater than 15% within the fourth quarter, which might mark the unit’s eleventh straight quarter of declines.
Large cloud providers akin to Microsoft have been spending more on specialized AI chips and fewer on traditional server processors offered by Intel.