Intel's biggest revenue decline in five quarters to hit amid broad layoffs and missed AI boom

Intel is expected to report its biggest quarterly revenue drop in five quarters on Thursday, potentially signaling more erosion of data center and personal computer market share for the once iconic American chipmaker.

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Shareholders have turned their focus to CEO Pat Gelsinger's attempts to salvage the company's lost market lead as losses mount at its contract manufacturing business, while Intel fails to capitalize on the generative AI-driven chip boom, after a series of missteps including passing on an investment in OpenAI.

Intel.

With Wall Street expecting Intel to report an 8% decline in revenue to $13.02 billion, according to data from LSEG compiled as of Oct. 26, investors want Gelsinger to provide clarity on his plans to get the company's latest manufacturing technology up and running.

A disastrous quarterly report in August had raised some doubts over Gelsinger's strategy to revive the struggling chipmaker.

Rosenblatt Securities analyst Hans Mosesmann said Intel investors have two big questions: "Can it be fixed?" and "Who is it going to be fixed by?"

Gelsinger, who took the CEO role in 2021, has cut jobs, suspended dividends and also landed a new chipmaking deal with existing customer Amazon.com - one of the company's first major deals for production on its latest 18A tech.

But that has failed to soothe investors, with the stock down more than 50% this year. Intel's market value has also dipped below $100 billion.

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.

"A lot of people out there would applaud, let's say, (Intel) selling off their foundry business," said Daniel Morgan, portfolio manager at Synovus Trust, which owns shares in Intel and AMD.

Its foundry is expected to post an operating loss of $2.55 billion alone in the quarter, according to Visible Alpha, weighed down by the capital-intensive process of running and expanding fabs.

"The foundry services are the big reason why Intel's gross margins are weak," said Ryuta Makino, a research analyst at Gabelli Funds, which holds Intel shares.

The chipmaker is expected to post a drop of more than 7 percentage points in adjusted gross margin to 37.9%, according to LSEG-compiled estimates.

Margins are also likely to be pressured by a production ramp-up of Intel's chips for AI-powered PCs - which the company has been betting on to drive demand resurgence in the segment.

But that recovery has yet to materialize, with sales in Intel's PC unit likely to decline over 6% in the third quarter.

The winner likely is AMD, whose PC chip revenue is expected to grow more than 18% in the third quarter, according to estimates compiled by LSEG. AMD is set to report results for the third quarter after the close of markets on Tuesday.

AMD is also chipping away at Intel's server market share. The Lisa Su-led company is expected to report a more than two-fold rise in data center revenue thanks to its AI chips, while Intel's data center revenue is expected to drop about 17%, the 10th consecutive quarter of declines.

While Intel still has a big share of the server CPU market, demand has been shifting to AI graphics processors - where it has little presence.

With about half of the 31 analysts covering the stock lowering their revenue estimates for Intel since September, some investors believe there is little room left for disappointment.

"I will be very surprised if there's another negative surprise, just because the expectations are just completely reset," said Gabelli Funds' Makino.