Intel warning highlights Windows 8 worries
SAN FRANCISCO (MarketWatch) --
Shares of Intel (INTC) traded down 3.6% to close at $24.19, weakening after the world's biggest semiconductor company cut its third-quarter sales forecast before the bell to $13.2 billion, plus or minus $300 million, from a previous range of between $13.8 billion and $14.8 billion.
And shares of fellow Dow Jones Industrial Average component Microsoft (MSFT) shed 1.3% to close at $30.95. The warning underscored concerns that Windows 8 may not turn out to be the game-changing product that the company's been anticipating.
Windows 8, the operating system featuring such capabilities as the multi-touch functions already found in smartphones and tablets, had been expected to give what's been a struggling PC market a much-needed lift while strengthening the software giant's position in the mobile market.
But analysts had warned of a difficult transition, citing the changes in Microsoft's flagship product as well as a still generally weak economy.
The revised outlook from Santa Clara, Calif.-based Intel, Microsoft's longtime partner in the PC market, appeared to reinforce those fears.
Analysts weigh in
"The magnitude of the cut is more significant than most of us had expected," Evercore Partners analyst Patrick Wang told MarketWatch.
"I think it's a pause," he said. "The deeper problem is a troubled consumer as a result of a terrible macro. That underlying problem only magnifies the pause as folks who are on the fence choose to just wait instead of 'buy and try.' "
Citi Research analyst Glen Yeung observed that the PC industry's "unwilling to build inventories."
"While we had expected a build ahead of the Windows 8 launch, feedback from our conference suggests the supply chain lacks confidence to do so," Yeung added in a research note.
Sterne Agee's Vijay Rakesh said in a note that manufacturers are "becoming more cautious" because of pricing concerns with Windows 8 as well as the "consumer training and support required with a totally new Win8 interface."
MKM Partners analyst Daniel Berenbaum argued that the reluctance of manufacturers also reflected "a plethora of new form factors and uncertainty over what will sell, as well as confusion around Microsoft's hardware strategy and a reluctance to compete with partners."
Microsoft, with the release of its Surface device, recently unveiled its own bid for a slice of the tablet market, but this had the effect of raising questions about how it would affect its longtime partners in the PC market.
That plays into a bigger worry: that tablets and even smartphones are "cannibalizing" segments of the PC market, which itself is undergoing a major change with the expected introduction of devices using chips based on the technology of
"While Intel cited the soft macro, the company stopped short of pointing to any degree of PC cannibalization by tablets and/or smartphones," Williams Financial analyst Cody Acree said in a note. "We believe it's very difficult for anyone to argue that tablets are not having a material negative impact on notebook sales, particularly in a soft economy when consumers' discretionary budgets are tight."
Acree also asserted that Intel "is at some degree of risk as Windows 8/RT opens the door for new competitors. Although the impact will be small at first, the PC market growth is already so muted that any erosion is likely to be meaningful."
Windows RT refers to systems based on the ARM platform.
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