If Intel Corp. Guides Down, I'm Out

By Markets Fool.com

Intel server chips. Image credit: Intel.

Continue Reading Below

There have been numerous reports from the analyst community suggesting that PC sales continue to worsen. Indeed, a new report out of boutique research firm BlueFin (via Barron's) claims that the PC market has gotten so weak that it's reducing its chip manufacturing output to "reflect the realities of waning PC demand."

Intel, which derives the majority of its revenue from PC processors,had already lowered its outlook for the PC market heading into the year, and it's starting to look like there's risk that the company could either negatively pre-announce for the first quarter or simply take its outlook down for the remainder of the year.

If Intel does either, then at that point I plan to sell my shares in the chipmaker (in compliance with The Motley Fool's trading policy) and move on.

PC struggles have simply been too much of a drag on the business
At this point, I have accepted that the PC market probably isn't going to be a growth segment for the company. Mobile devices have gobbled up a significant portion of the "share of wallet" that consumers allocate to technology purchases, and it's not looking as though Intel will really be able to capture significant share in mobile.

Intel management has indicated that its long-term goal in the PC market is to simply keep sales around flat to slightly down, but in light of the disappointing performance from the PC market in 2015 and the declines seen in previous years (2012 and 2013), this goal is starting to look a bit lofty.

Continue Reading Below

The problem for Intel is that even though it runs some other very successful businesses -- the most important one by far being its Data Center Group -- the growth that the chipmaker enjoys in those "non-PC" businesses is routinely offset by declines in the core PC business.

If the declines in the PC business are sufficiently small, Intel is still able to post reasonable amounts of growth. If they get to be too large, though, or if Intel misses its growth targets for its Data Center Group (something that it has done many times over the past five years), it gets much harder to do so.

A word on opportunity cost
To be clear, the reason I would sell my stock in the case of a guide-down from Intel wouldn't be because I think that the stock would be set to crash and burn. Intel is a relatively cheap stock, the struggles in the PC market are well known, and I don't think that the shares would move too much downward in the case of a negative pre-announcement and/or lowered guidance for the year.

However, what I am more concerned with is the opportunity cost of holding a stock that would, at best, continue to be flattish after the likely decline associated with a potential disappointment. Sure, I'm getting paid a nice dividend, and maybe over the next three to five years the company's data center business will grow so large that the company's overall performance won't be anywhere near as dependent on the health of the PC market as it is now, but that's a long time to wait for additional upside from here.

However, in a world filled with interesting and good technology stocks, the opportunity cost of keeping a significant portion of my portfolio tied up in a stock that could be stuck in the mud for quite some time seems uncomfortably high to me.

The article If Intel Corp. Guides Down, I'm Out originally appeared on Fool.com.

Ashraf Eassa owns shares of Intel. 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.