On September 7th, Intel (INTC) made an announcement about lowering guidance for Q3 2012 by roughly $1 billion due to weak demand from the world economy, and particularly terrifying slowdowns in emerging market demand. In reaction to the news, shares slumped 3.6% by the closing bell and will likely sink more as other shareholders become uneasy.
Due to similar releases by other semiconductor companies, some analysts are already speculating that the PC is on the verge of extinction again. Even Microsoft (MSFT) was down the news, further reflecting market pessimism towards the dinosaur of computer software.
Naturally, the first culprit that comes to mind is Apple (AAPL), which is trading at an all-time-high yet again. Apple, after all, is the largest company in the world. It made the bulk of its fortunes by dominating the consumer electronics industry and has baffled Wall Street analysts over and over in recent years. Even now, it continues to grow sales at double-digit rates. Who would want to stand in the way of that?
Intel's press release had a key takeaway that many have glossed over, which also removes blame from Apple (at least for now). The company specifically points to enterprise PC sales as one of the biggest reasons for the reduced outlook, which is proof that companies have curbed spending.
Analysts have been quick to tie this sudden, intense drop to the pending release of Windows 8 that is expected in the fourth quarter of this year. Some argue that Intel's words should put bearish pressure on Microsoft since it implies a weaker outlook for Windows 8 at launch, while some are considering Windows 8's potentially positive effects on PC sales too.
Another major factor was apparently a slowdown in emerging markets, although this was only one quarter (before the holiday season too).
I noticed that a lot of bears have returned way back from Q3 2010, when everyone hated the PC industry (which meant Intel) because of how well iPhones were selling and how prolonged Apple's rally was. There isn't much mention of the ~25% INTC share appreciation (plus dividends and dividend hikes) that we've seen since then, but I suppose any major tech company would have looked lame next to Apple in recent years. Still, Intel proved the analysts wrong and gave us many shockingly strong quarters after that.
There's a much simpler idea to be used on top of the Windows 8 explanation for the weak Q3 report we're going to get in October. The world economy is actually quite anemic, and US labor data suggests that companies are still being stingy with spending.
Intel has managed to perform quite well up to this point despite Apple's enormous momentum. One bad quarter shouldn't be enough to shake your faith.
INTC yields about 3.7%, runs a near-perfect balance sheet, hikes dividends generously, diversifies its business more every year, manages to grow in tough environments, and runs on incredibly high operating margins. Best of all, the analysts don't like it very much. Buy this stock on any dips. If I can grab Intel under $20/share again it'd be a steal.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INTC over the next 72 hours.