Intel (INTC 2.20%) will report its third-quarter results on Oct. 27, and analysts have set a low bar for the chipmaker. They expect its revenue and earnings to decline 15% and 81% year over year, respectively, as it grapples with slower PC sales in a post-pandemic world, macro headwinds for data center operators, and its ongoing market share losses to Advanced Micro Devices (AMD 7.50%).

For the full year, Wall Street expects Intel's revenue and earnings to drop 12% and 60%, respectively. That's why its stock price has declined more than 50% this year and trades at just nine times forward earnings.

Unfortunately, five red flags indicate Intel could still fail to clear those low expectations.

Illustration of a semiconductor.

Image source: Getty Images.

1. AMD's chilling preview of its Q3 earnings

AMD has been growing at a much faster rate than Intel because it outsourced the production of its top-tier CPUs to Taiwan Semiconductor Manufacturing (TSM 1.29%), the world's most advanced contract chipmaker. Intel, which still produces most of its own chips, had fallen behind TSMC (and AMD) in the process race to create smaller, denser, and more power-efficient chips.

As a result, AMD's share of the x86 CPU market more than doubled from 17.8% at the end of 2016 to about 38.1% today, according to PassMark Software, as Intel's share withered from 82.2% to 61.7%. AMD's gains arguably made it a better bellwether for the x86 CPU market than Intel, which repeatedly struggled with product delays and cancellations.

That's why AMD's preliminary third-quarter report on Oct. 6 should rattle Intel's investors. AMD now expects its revenue to grow just 29% year over year with an adjusted gross margin of 50%, compared to its prior forecast for 55% growth with an adjusted gross margin of 54%. AMD CEO Lisa Su blamed that guidance cut on "lower-than-expected PC demand and a significant inventory correction across the PC supply chain."

If AMD is already struggling, Intel could face an even uglier slowdown.

2. The PC market's imminent slowdown

The PC market experienced a growth spurt during the pandemic as more people worked from home, but that demand dried up in a post-lockdown world. Inflation has further curbed the market's appetite for new PCs.

That's why IDC expects global shipments of personal computing devices (PCs and tablets) to decline 10.8% in 2022 and dip another 2.3% in 2023. That's dire news for Intel, AMD, or any other chipmaker that relies heavily on the stable growth of the PC market.

3. TSMC's capital expenditures reduction

Last year, Intel declared it could catch up to TSMC in the process race by 2025. It initially planned to accomplish that by increasing its capex from $18.7 billion in 2021 to $27 billion in 2022, but it reduced that forecast to $23 billion this July as the market's demand for new chips cooled off.

TSMC initially planned to increase its capex from $30 billion in 2021 to $40 billion in 2022 to maintain its technological lead while ramping up its production of smaller chips. However, it recently reduced that forecast to $36 billion to account for the broader slowdown of the semiconductor industry.

That reduction indicates that Intel will also reduce its full-year capex forecast again as its revenue growth stalls out. This move might stabilize its margins, but it will also throw cold water on its plans to overtake TSMC in the process race -- and regain some lost ground against AMD -- within the next three years.

4. Thousands of layoffs

Intel hasn't formally announced any major layoffs yet, but it could reportedly lay off thousands of employees ahead of its third-quarter report. A recent Bloomberg report claims Intel could lay off about 20% of its sales and marketing division to rein in its expenses as PC sales slow down.

Yet that decision wouldn't be surprising. During Intel's second-quarter conference call in July, CEO Pat Gelsinger said the company would work on "lowering core expenses in calendar year 2022" and take "additional actions in the second half of the year" to stabilize its profits.

5. New export restrictions

Intel and other chipmakers have already struggled over the past year against all those headwinds, but the U.S. Commerce Department just exacerbated that pressure by publishing new rules, which would require chipmakers to obtain individual licenses to sell advanced chips in China. This means Intel can't export any of its current-generation chips -- which are smaller than the 14-nm threshold set by the new rules -- into mainland China, which accounted for 27% of its revenue last year. It also suggests that analysts' top-line expectations for Intel could still be too high.

Stay away from Intel (for now)

Intel's stock looks dirt cheap, but it's trading at a discount because it faces so many unpredictable challenges. These five red flags indicate Intel's third-quarter earnings will pack a lot of unpleasant surprises, so investors should stay far away from its beaten-down stock until the smoke clears.