Intel Faces Investor Pressure Amid CEO Search and Revenue Decline
Intel is set to come under investor scrutiny regarding its CEO search when it releases its quarterly results on Thursday. The chipmaker is grappling with a significant revenue drop, primarily due to sluggish PC sales and a diminishing share in the datacenter market. Following the ousting of CEO Pat Gelsinger last month, Intel appointed two interim co-CEOs, raising questions about its strategy to expand into contract chip manufacturing—a plan previously advocated by Gelsinger.
Investors are eager to understand the company’s strategic roadmap for recovery. Daniel Morgan, a senior portfolio manager at Synovus Trust, which holds Intel shares, emphasized the need for clarity on how Intel plans to rebound. The company intends to establish its contract manufacturing division, or foundry, as a standalone entity. The interim co-CEOs, Michelle Johnston Holthaus and David Zinsner, indicated that a spinoff of this business could be considered if Intel’s anticipated 18A chipmaking technology does not perform as expected.
Northland Capital, which maintains an “outperform” rating for Intel, estimates that the company’s share price should stabilize around $28, translating to a market value exceeding $120 billion—significantly higher than its current market capitalization of approximately $85 billion. Last year, Intel’s shares plummeted by 60%, marking the worst annual performance in over fifty years, as the company struggled to reclaim its manufacturing leadership and missed out on the AI surge led by Nvidia.
Unlike many chip firms that have shifted to a “fabless” model, outsourcing production for cost efficiency, Intel continues to design and manufacture its chips. The high expenses associated with trying to catch up to leading chip manufacturer TSMC have strained Intel’s financials and cash flow. Additionally, U.S. government officials regard Intel as crucial for preserving essential domestic chip manufacturing expertise.
Despite these challenges, analysts predict that high costs and declining revenue will reduce Intel’s fourth-quarter gross margin by 9 percentage points to 39.4%. Revenue is projected to fall by 10.4% to $13.81 billion, with analysts forecasting a modest 1% revenue growth for the current quarter. The datacenter segment, which includes server chips, is expected to see a decline of over 15% in the fourth quarter, marking the eleventh consecutive quarter of downturns for this unit. Major cloud providers like Microsoft are increasingly investing in specialized AI chips, diverting funds away from Intel’s traditional server processors.
In October of last year, Intel abandoned its 2024 forecast of selling over $500 million worth of its Gaudi AI chips, which were positioned as a more affordable alternative to Nvidia’s high-priced processors. Furthermore, Intel has been losing market share in both the datacenter CPU market and the personal computer segment—its largest revenue source—to competitor AMD, with its share of the x86 CPU market for servers and PCs declining by approximately 4 percentage points.