Misery May Love Company, But Intel Is the One Company That’s Miserable
It turns out that Intel isn’t always a bellwether for the high-tech industry.
One day after the chip giant warned that third-quarter sales would fall short of expectations because of weak demand in Europe, investors sent its stock sliding 22%. Intel shares fell $13.55 on Friday to close at $47.94 in the heaviest day of trading for any U.S. stock in history.
Analysts said the problems facing Intel are the result of a general slowdown in demand for personal computers, but they aren’t necessarily a sign that more widespread problems are to come.
“The Intel announcement is not the case for the rest of the electronics industry,” wrote Dataquest analysts Richard Gordon, Mary Olsson and Klaus Rinnen in a report released Friday. “Intel is a bellwether company and as such affects a $1-trillion industry because of Wall Street hype and investor overreaction. But the industry picture from semiconductors and systems applications is nothing but growth.”
While Intel lost nearly $91 billion in value Friday, shares of many of its rivals rallied, after tumbling in after-hours trading late Thursday with Intel.
Advanced Micro Devices, for example, gained $2.56 to $26.50 on Friday after falling $5.75 to $23.94 in late trading Thursday.
National Semiconductor jumped $3.50 to $42 on Friday and Texas Instruments gained $3.13 to $57.
Among PC makers, Gateway rebounded $4.50 to $55.50 and Compaq added 75 cents to $28.63. But Dell Computer continued to fall, losing $2 to $35.94.
“People did begin to realize this was an Intel-specific issue, not a technology market issue,” said stock fund manager Bob Turner, who heads Turner Investment Partners in Berwyn, Pa.
Indeed, Turner said he suspects that investors started the day by taking their money out of Intel and reinvesting it in other tech shares, helping to drive Nasdaq back up. Big gainers included such computer-networking-related issues as Juniper Networks, up $14.53 to $225.64, and Brocade Communications, up $20.92 to $253.92.
Aside from short-term money-shifting, Intel’s warning won’t have a major affect on other tech sectors such as semiconductors, PCs, networking and software, many analysts said.
For one, slower sales growth at Intel can mean stronger sales for other chip makers such as AMD. More important, companies that make networking equipment, provide computer services or manufacture data storage devices aren’t likely to see slower demand, experts argue.
Intel is affected more by PC sales than the other way around. The factors that led up to Intel’s trouble in Europe have been building since 1997.
“There has been a slowdown in the PC industry for a long time,” said Fred Hickey, editor of the High Tech Strategist, a newsletter based in Nashua, N.H. “We’ve seen a collapse in Dell’s growth rate. . . . There are big problems in basically all of PC-land. This problem has been going on for some time.”
Ironically, Intel helped create the problem by building ever-faster microprocessors. In recent years, those chips have become so powerful that the PCs they power can last longer than before.
“Before we had this speed race, the rate of change for PCs was every 2 1/2 to 3 1/2 years,” said Mark Margevicius, a research analyst with GartnerGroup in Cleveland. “Now we have all this wonderful new hardware, and customers are saying they don’t need to replace their PCs as quickly. They’re adopting longer replacement cycles, and that’s a big hit on sales.”
The increased chip power means people don’t have to buy new PCs to install new software. In the past, a new version of Microsoft’s Windows operating system would have sparked strong PC sales, he said.
“The older hardware will run Windows 2000 without much of an issue, so there’s no requirement for new hardware,” Margevicius said. “This is more a reaction to stuff that’s been happening. It’s not as much of a forward-looking impact.”
