Intel (INTC) designs, manufacture, and markets semiconductors in the United States and throughout the world. Intel has its headquarters in Santa Clara, California. The company has a market cap of $107.5 billion, and its stock price is around $21.
On September 11th, Intel's stock price hit a 52 week low of $21.52. Intel stock price has decreased primarily because of a downturn in the personal computer (PC) market. While Intel has tried to diversify into areas such as cloud computing and just recently the foundry business, its earnings are still largely dependent on PC sales. In its second quarter earnings call, the company reported that the PC consumer market had slowed in Western Europe and North America, and that it probably will not recover, in the second half of the year. The company went on to say that PC sales in emerging markets such as China and Brazil are growing, but that the growth rates had moderated. As a result of the slowdown in PC sales, "Intel lowered its full-year revenue growth to the 3% to 5% range, down from a previous forecast in the high single digits." On September 7th, Intel announced that it expects its third quarter earnings to be $0.50 per share, the midpoint of analyst forecasts of $0.47 to $0.56. The company warned that third quarter revenues would be around $13.2 billion which was below its previous guidance of $13.8 billion to $14.8 billion.
Intel's revenue warning was not surprising, because several other companies whose earnings are tied to the PC business have done the same thing. For instance, on October 11th Advanced Micro Devices (AMD) warned that it expects its third quarter revenues to fall 10%. Other companies whose earnings are tied to PC sales such as DELL (DELL) and Hewlett-Packard (HPQ) have also warned that their earnings will be lower. Lower earnings for computer companies is an industry trend; Gartner Inc. which tracks computer sales, reported that third quarter worldwide PC shipments totaled 87.5 million units which was a decline of 8.3% from the third quarter of 2011.
Intel finds itself in the uncomfortable position of being a tech company whose technology has not kept up with the times. Global computing has migrated towards Cloud computing, and Intel, along with Hewlett-Packard and Dell, has been slow to adjust. Companies such as Apple (AAPL) and Google (GOOG) which positioned themselves to benefit from the trend towards Cloud computing, have seen their earnings explode.
Recent News about Intel
On October 11th, AMD warned that it expects Q3 revenue to fall 10% Q/Q, well below prior guidance of -4% to +2%. Gross margin is expected to be just 31% vs. prior guidance of 44%, partly thanks to a $100M inventory write-down. The chipmaker says it's seeing weak demand across all product lines - slumping PC sales are having an effect, but the size of the drop also suggests share losses to Intel.
On October 10th, PC shipments fell a stunning 8.3% Y/Y in Q3, estimates Gartner - that figure makes Q2's 0.1% drop look great by comparison and is raising eyebrows even with all of the negative industry data that has emerged. Weak back-to-school sales and cautious retailer orders are blamed.
On October 2nd, it was reported that challenging Apple's high-end consumer notebook dominance isn't proving easy: IHS now expects only 10.3M ultrabooks to be sold this year, down from a prior forecast of 22M. The firm's 2013 forecast is lowered to 44M from 61M, and it's not hard to see a further revision if demand doesn't pick up. Intel is hoping lower prices and the arrival of Microsoft (MSFT) Windows 8 hardware will stoke demand. Weaker-than-expected ultrabook sales could be causing inventory problems for the chip giant.
On September 27 it was reported that businesses are unlikely to adopt Windows 8 in large numbers before next summer, says Dell CFO Brian Gladden, as they wait for kinks to be ironed out. It's not uncommon for businesses to take a cautious approach to a new OS, but Gladden's remarks carry additional weight in light of Intel CEO Paul Otellini's rumored comments (later called "unsubstantiated" by Intel), and existing worries about poor enterprise Windows 8 adoption.
On September 20th, Intel announced that it was working on a foundry partnership with Cisco (CSCO) in which the former would manufacture the latter's custom processors, Piper reports. The firm thinks the deal could represent a $1B/year opportunity. Intel entered the foundry market earlier this year.
On September 7th, Intel issued downside guidance for Q3, lowering projected revenues ~7% to $12.9B-$13.5B from $13.8B-$14.8B due to "weaker than expected demand in a challenging macroeconomic environment." INTC sees customers reducing supply chain inventory, softness in the enterprise PC market segment, and slowing emerging market demand.
Intel's stock price is in a downward spiral since May 3rd its stock price has dropped by 35%. The stock's price, which had been slowly declining accelerated after September 7th when the company warned that its revenues would not meet expectations due to slow PC sales. Since the September 7th warning, the stock's price has slumped by an additional 15.7%. It is likely that Intel's earnings will get a boost from the October 26th, launch of Windows 8, but other than that there is no catalyst which will increase Intel's earnings or stock price. Sales of the Intel powered Ultrabook's have been disappointing, and Intel's attempts to enter into the area of Cloud computing has been slow.
Intel is scheduled to report third quarter earnings on October 16th. I do not expect any third quarter earnings surprises, but the fourth quarter earnings forecast will be critical. It has been reported that Intel's CEO Paul Otellini was said to have told employees "Windows 8 is buggy and being released before it's ready." If the rumor about bugs in Windows 8 is confirmed during the third quarter earnings call, Intel's stock will take a hit, and the stock price will sink below $20.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.