What Intel's Earnings Report Will Tell Us About Microsoft

Includes: INTC, MSFT
by: Warthog Equity Research

There's a big and exciting week coming up for Wall Street as so many of the market's big names are reporting earnings. Two of the most anticipated are those of Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT). Luckily for us investors, Intel will be reporting two days before Microsoft, so we will be able to get an idea of how Microsoft might do.

So to start off, let's look at the relationship between Microsoft's and Intel's stock price on the 5-year chart. While not a perfect correlation, it's not a stretch to say that trends in the PC industry are shared and reflected by both companies.

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But since we can't rely on a 5-year chart to see what is happening right now, let's look at the 2-month chart to get a better view of the current trend.

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Once again, it isn't exactly a bold statement to say that Intel and Microsoft still show signs of correlation. But that's far from a revelation, since, after all, the two companies are titans of the PC industry. What it show us is that the peaks and valleys in INTC and MSFT tend to coincide with each other, though not always to the same degree of volatility. So, the past tells us that what we see today with Intel could be similar to what we see with Microsoft on Thursday. And don't be surprised if a poor Intel earnings report also directly affects the stock price of Microsoft before Thursday.

On the other hand, if Intel surprises the analysts and manages to beat expectations, it's reasonable to assume that Microsoft could be following suit.

Currently, Intel has expectations to underperform. Declining revenue and an estimated 10-14% decrease in PC sales overall are expected to show themselves today in Intel's report. Wall Street expects an almost 21% drop in earnings versus Q1 2012, as the consensus estimate is $0.42 EPS - down from $0.53 EPS at the same time last year. Also of note are the questions regarding the next CEO of Intel, since this is expected to be Paul Otellini's last earnings report as CEO. It will be interesting to see how that plays out in relation to the bar that he sets for future earnings guidance that his successor will be responsible for.

Analysts opinions of Microsoft, on the other hand, are a bit mixed. It is expected to outperform its results from last year, but it also has seen its estimated EPS decline by $0.03 over the past month. Microsoft has beaten analyst estimates for 3 of the past 4 quarters, and if it beats them again on Thursday then we could finally see a sustained rally out of MSFT.


Microsoft and Intel are inextricably linked with each other. While Intel has low expectations for its earnings report, it has surprised analysts in the past because of the inability to track earnings in emerging markets until the actual numbers are released each quarter. If this holds true once again, then Intel shareholders could be in for a pleasant surprise today. At the same time, Microsoft shareholders must pay close attention to the Intel report to see what could be in store for them two days later, when Microsoft releases its earnings report.

Both earnings reports will be released after closing bell. Good luck to all.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.