By Arsheeya Bajwa

(Reuters) - Intel will face investor scrutiny on its CEO search when it reports quarterly results on Thursday, as the chipmaker stares at another big decline in revenue due to weak PC sales and its shrinking share in the datacenter market.

The struggling company ousted CEO Pat Gelsinger last month and named two interim co-CEOs, casting doubts about its plans to build out a contract chip manufacturing business - a strategy championed by Gelsinger.

Investors want to know, "What is 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 set up its contract manufacturing business, or foundry, as an independent unit. Interim co-CEOs, Michelle Johnston Holthaus and David Zinsner, said last month a spinoff of that business may be on the table if Intel's 18A chipmaking technology slated for this year does not 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 more than $120 billion.

That is higher than its current market capitalization of around $85 billion. Intel shares sank 60% last year in their worst annual performance in at least five decades as the company 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 most chip firms have abandoned for a "fabless" model that outsources production and is seen as more cost-effective.

The high costs of attempting to catch up with leading chip manufacturer TSMC have strained Intel's balance sheet and pressured cash flows. Meanwhile, many U.S. government officials view Intel as key to maintaining strategically valuable 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 drag Intel's fourth-quarter gross margin by 9 percentage points to 39.4%, according to data compiled by LSEG.

Revenue is expected to slide 10.4% to $13.81 billion. Analysts estimate Intel to predict revenue growth of 1% in the current quarter.

Its datacenter revenue, which includes server chips, is likely to drop more than 15% in the fourth quarter, which would mark the unit's eleventh straight quarter of declines.

Large cloud providers such as Microsoft have been spending more on specialized AI chips and less on traditional server processors offered by Intel.

In October last year, it scrapped a 2024 forecast that it would sell more than $500 million worth of its Gaudi AI chips it had positioned as a cheaper option to Nvidia's pricey processors.

Intel has also been losing share in the data center CPU market and personal computer segment - its largest by revenue share - to rival AMD.

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, according to data from Mercury research.

Intel's PC revenue is expected to drop more than 11% in the fourth quarter as the sales of those devices remain tepid.

Susquehanna analysts have said the segment's performance could, however, be cushioned by customers possibly stocking up in December, ahead of potential tariffs from U.S. President Donald Trump.

Still, overall "expectations are low", said Ryuta Makino, an analyst at Intel investor Gabelli Funds. "There's a chance that it's slightly easier for Intel to outdo these expectations."

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Aditya Soni and Arun Koyyur)