Stocks Today: Why Wintel Rained on the Market's Parade

By Markets Fool.com


Is the death of the PC finally here? Image: Wikimedia Commons.

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The stock market rebounded sharply on Thursday, reversing some of its losses from earlier in the week as investors appeared to grow more comfortable with the idea that an improving economy will inevitably result in an interest rate increase from the Federal Reserve at some point. Positive news from the financial sector also buoyed stocks, as nearly all of the industry's major institutions got the go-ahead from the Federal Reserve to implement capital plans and make dividend payments to shareholders. As of 11:30 a.m. EDT, the Dow Jones Industrials were up 200 points, and for most of the morning, all but two of the Dow's 30 components gained ground.

The two stocks that fell shared a common theme. Both Intel and Microsoft still get a huge amount of their current business from PC-related sales, and an announcement today from Intel paints an increasingly troubling picture of the PC industry going forward.

Source: Intel.

What Intel said
Intel fell more than 4% after warning that its first-quarter revenue would be lower than it had previously expected. Earlier, the company had given a range of $13.2 billion to $14.2 billion in quarterly sales. The revision cut the chipmaker's projected quarterly revenue to $12.5 billion to $13.1 billion, a decrease of roughly 5% to 8%.

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Intel blamed the shortfall almost entirely on the PC market, stating that its data center business "is meeting expectations." Demand for desktop PCs from business customers is weaker than originally expected, according to Intel, and inventory levels throughout the supply chain for PCs have also fallen short of its targets.

Microsoft lost 1.7% in sympathy with Intel, primarily due to the chipmaker's comments about the end of positive trends that both companies enjoyed last year. Intel said fewer small and midsized businesses are upgrading systems that ran Microsoft's Windows XP operating system than it had anticipated. Upgrades related to Microsoft's decision to stop supporting Windows XP helped lift both Microsoft and Intel shares last year, as new purchases temporarily ended the long-running trend away from PCs toward mobile devices.

What's next for Wintel?
Both Intel and Windows maker Microsoft have recognized the need to diversify more aggressively into mobile devices in order to avoid being left behind in the shift away from desktop personal computers. Yet despite some signs of success on that front, the sheer size of their PC-related businesses makes both companies vulnerable to pressure on revenue and earnings from the decline in PC demand.

The key question is how quickly the Wintel companies can reduce PCs' cut of their overall businesses. Intel and Microsoft will want to squeeze as much profit as they can from the decaying PC business lines, but it is becoming increasingly important that they do not get distracted from the bigger long-term goal of replacing those businesses with more cutting-edge technology.

Microsoft and Intel have been key pioneers in the tech world for decades, and that status helped them earn their place in the Dow. If they can't adapt to the mobile revolution, though, they could find themselves lagging their peers over the long run.

The article Stocks Today: Why Wintel Rained on the Market's Parade originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.