by Tom Taulli | September 7, 2012 12:48 pm
Intel (NASDAQ:INTC) cannot seem to deal with the sluggishness of the PC market.
The company on Friday announced a cut in its revenue forecast for the third quarter, which calls for a range of $12.9 billion to $13.5 billion, vs. a prior forecast was for revenues of $13.8 billion to $14.8 billion. The news sent INTC shares down 3% by midday Friday.
As should be no surprise, Intel blamed the slowing global economy, which is spreading to emerging markets. That spells trouble for anyone in PCs, as in such an environment, it’s easy to delay the purchase of new computers.
Currently, the only bright spot for Intel is its datacenter segment — this involves technology that powers the megatrend of cloud computing.
Intel has long been facing the huge challenge of the PC market’s disruption. Apple (NASDAQ:AAPL) has fundamentally changed the industry with its popular mobile devices, especially its tablets. Based on research from IDC, the number of tablets is expected to surge from 107.4 million units shipped in 2012 to 222.1 million in 2016.
Unfortunately, Intel has been mostly flat-footed on this front. Not that it’s alone — many other PC-focused companies are also feeling the heat, such as chipmakers like Micron Technology (NASDAQ:MU) and Advanced Micro Devices (NYSE:AMD), and computer/laptop makers like Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ).
Intel does have a robust pipeline of chips for mobile devices, but those will take time to gain traction, and INTC’s already behind the 8-ball. What’s worse — the company likely will face pressures on its margins, as tablets generally have lower price points. Exacerbating this point even more is Amazon (NASDAQ:AMZN), whose unveilings of new devices might be a signal of an intensified industry-wide price war.
All the while, Intel must deal with an intensely competitive environment that includes operators like Samsung and Qualcomm (NASDAQ:QCOM). Even worse, Intel’s biggest partner, Microsoft (NASDAQ:MSFT), opted to split the use of chips for its new Surface tablet, using ARM Holdings (NASDAQ:ARMH) chips for its consumer model and only using Intel products in the more powerful version.
Intel’s shares aren’t going to collapse. The company continues to produce strong cash flows, and a hefty 3.7% dividend is more than enough to keep investors interested. But growth is likely to be meager for the next few quarters at least, which means INTC might be dead money, and thus should be avoided by anyone looking for more aggressive returns.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
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