The bad old days may be back for Intel and other PC stalwarts
Intel (INTC) warned Wall Street on Thursday that it wouldn’t be able to meet the quarterly guidance it offered less than two months ago, raising the specter of a return to the bad old days of frequent disappoints.
The Santa Clara, Calif., chip maker hasn’t had to lower its guidance abruptly mid-quarter in over two-and-a-half years, but it used to be at least an annual occurrence. From 2006 through 2012, Intel warned and cut its sales or profit guidance seven times, according to FactSet data.
Investors, who had already grown wary of Intel over the past few weeks, dropped the stock 4% on Thursday, leaving it with a 14% loss for 2015. That’s a complete reversal from last year, when Intel had the second-best total return among all large tech stocks, with a 47% gain.
As previously noted, Intel and other tech stalwarts still heavily reliant on the aging PC business, such as Hewlett-Packard (HPQ) and Microsoft (MSFT), got a boost last year that wasn't likely to recur. Sales of personal computers shrunk only 2% in 2014, despite early projections of a 6% decline and the record-breaking 10% crash in 2013.
But much of the unexpected strength was companies upgrading PCs running Windows XP after Microsoft ended support for that ancient operating system. The move was likely to provide only a temporary boost, as the larger forces pressuring overall PC sales remained.
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And sure enough, Intel pointed to a slowing of the XP replacement cycle on Thursday as it cut its sales guidance for the first quarter to $12.8 billion, give or take $300 million, from January’s sales guidance of $13.7 billion, plus or minus $500 million. Wall Street was expecting sales of $13.7 billion, according to FactSet.
“The company believes the changes to demand and inventory patterns are caused by lower-than-expected Windows XP refresh in small and medium business and increasingly challenging macroeconomic and currency conditions, particularly in Europe,” Intel noted in its press release.
The warning follows disappointing fourth-quarter reports from PC industry stalwarts HP and Microsoft, as well. Shares of Microsoft lost 2% after Intel's warning, while HP was nearly unchanged. Competitors free of the stalling Windows PC business did well, though. Shares of Apple (AAPL) rose 2%, while Facbeook (FB) and Google (GOOGL) gained 1%.
Intel has been touting its various growing businesses beyond PCs, such as chips for mobile phones and data center servers. The stock got a boost on Wednesday amid reports that Apple might use some Intel chips in upcoming iPhone models. But Intel has lost billions trying to break into mobile. And the data center business, while growing fast, isn't close to replacing the larger PC business.
And that may leave investors feeling an unpleasant sense of deja vu for the rest of the year.
