A Fall in Intel’s Q3 Revenue Will Make it a Haven for Long Term Investors
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Though Intel’s (NASDAQ: INTC) quarterly revenue results won’t be out till October, it seems the company is already preparing its shareholders and analysts for a rough ride. The company announced that its Q3 revenue forecast will be in the range of $13.2 billion, with a tolerance of $300 million; this is pretty low compared to the $14.3 billion with a tolerance of $500 million last quarter. The gross margin is also expected to be about a percent or two short of last quarter’s 63%.
So now the question is what caused this revenue miss? Intel has cited the slow PC sales to enterprises and emerging markets as the prime reason for this slow down. Moreover the expansion of the tablet market has in a way hit the sale of conventional PCs and desktops (a sect that had Intel on top of the market). In the tablet sector, Intel’s presence is overshadowed by ARM- based chip sets. Intel chips will be used in a couple of Windows 8 tablets; let’s hope that this helps them out.
Does this mean that Intel is forecasting low revenues because of the ARM Holdings' (NASDAQ: ARMH) dominance in the tablet space? I believed that this could be a possibility till ARM CEO Warren East came out with a sort of warning for its investors; here’s what he said:
“Many of the chip companies are indicating that they are not expecting an uplift, and mathematically, that will hit us.”
This statement suggests an industry-wide weakness as opposed to an Intel-centric weakness. With Warren’s statement the performance of all ARM licensees (which includes Nvidia, Texas Instruments and Qualcomm) become imperative, and this scrutiny will help investors gather more credibility for the notion that the tablet space is resulting in Intel’s unimpressive figures.
How does all of this favor a long term Intel investor? As an investor, you would look into the negatives of it all, but what you have to keep in mind is that Intel by nature is fundamentally a very strong company even in such situations. The company only lost about 3% after the so called announcement.
The slowdown that Intel and ARM face is to a huge extent caused by the consumers' delay in purchasing new PCs as they anticipate a Windows 8 launch from Microsoft (NASDAQ: MSFT). This delay could be accounted for in two ways: The first being the case where the consumer expects a discount in current models and the second being the case where the consumer is not willing to spend money on a product that is sure to be obsolete in a couple of months. I feel that the slowdown in the second case is unlikely as Microsoft has announced an upgrade to Windows 8 from Windows 7 for a mere $15.
Why is this stock a long term haven?
I call this stock a long term haven for the following reasons:
Once Windows 8 is available in the market, we are going to witness the release of a number of Windows 8 tablets.
Microsoft has announced that its own Surface tablets will feature two versions and one of these versions will exclusively run on Intel’s Core platform (with Ivy bridge core i5 processor) while the other will run on ARM based chips, which use Nvidia’s Tegra 3. This theoretically creates two competitive products to battle it out with the iPads. This also enables Microsoft to gauge both configurations.
In the tablet sector, Intel will turn up with another product in a couple of months: the “Clover Trail” 32nm Atom chips. How is this going to help Intel? Well, the architecture of this line of chips enables it to be used in both tablets and computers. Moreover, as it uses a 32nm process, it provides a better energy efficiency gain.
Another chip set down the line is Haswell; Intel calls it “the solution to the ARM problem.” They claim that this product is capable of delivering extremely low idle power consumption while it can deliver higher performance. Haswell will also have integrated graphics, which will make them very significant in the ultrabook sector.
Right now I feel that this stock is priced attractively as it yields a dividend of 3.72% and, to top it all, Intel has an amazingly strong balance sheet. For an immediate growth in the stock, I feel a lot will depend on how consumers respond to Windows 8.
Know What You Own
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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.