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IBM and Intel Earnings Could Ding the Dow

Big Blue's big weighting in the index could have a outsize impact

It’s been challenging year for Intel (NASDAQ:INTC), whose shares are off by about 8%. But IBM (NYSE:IBM) has shown that bright spots remain in tech. It shares are up 15%.

Both companies reported their third-quarter results today after the market closed. Unfortunately, the results were mixed.

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First, let’s take a look at Intel. In the quarter, the giant chipmaker reported earnings of $3 billion, or 58 cents a share, which beat the Street forecast of 49 cents.

Revenue fell by 5.5% to $13.5 billion. But that, too, was above the estimate of $13.22 billion.

So what was the problem? Well, guidance was weak. Intel says its Q4 is tracking for $13.6 billion in revenue, which compares to analysts’ forecasts of $13.7 billion.

This is certainly disappointing because the Christmas season typically is strong for Intel. But it looks like shoppers are more interested in buying tablets from Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN).

It’s true that Intel has been investing heavily in the space, especially with ultrabooks. But it could take a while for the business to make up for the deterioration in the core PC market. However, Intel may benefit from market share gains it takes from ailing Advanced Micro Devices (NYSE:AMD).

At IBM, Q3 earnings per share came in at $3.61, which was a beat by one cent. However, revenue was light, at $24.7 billion versus a consensus of $25.3 billion. On the news, the shares of IBM are off 3.4% to $203.90 in after-hours trading.

This could put lots of pressure on the Dow Jones Industrial Average tomorrow (keep in mind that it’s a price-weighted index, and IBM accounts for about 12% of the index’s moves).

As for fiscal 2012, IBM reaffirmed guidance of $15.10 in EPS. But analysts were looking for $15.15.

Unlike other mega tech companies, such as Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL), IBM has pulled off a successful transition of its business from hardware to software applications, which have juicy margins. What’s more, Big Blue has also benefited from the growth in mobile and cloud computing.

Despite all this, it still looks like the global economy is taking a toll as customers appear to be delaying purchases of technology, at least for the short run.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2012/10/ibm-and-intel-earnings-could-ding-the-dow/.

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