"The decline in the price of Intel (NASDAQ: INTC) is disconcerting, but on balance, not a surprise," says tech guru Paul McWilliams.
Here, in his Next Inning newsletter, the advisor reassesses his forecast for Intel and the tech sector made at the start of the year, and his continued optimism for the stock's future performance.
"In January, I initially concluded that mature global economies were likely going to exhibit slow growth in 2008 and may dip through a recession.
"However, I also had forecast that emerging economies were large enough to where their contributions, even though they would also probably see some slowing in 2008, would keep aggregate growth high enough to avoid any serious worldwide macroeconomic pain.
"My conclusion was that while it is normal to expect spending by governments, businesses, and consumers to follow GDP patterns, there are what I saw then and still see now as good reasons to believe there would be a preference given for tech.
"In other words, my belief was then and still is today that spending on certain tech sectors would hold stronger than normal in the face of aggregate GDP slowing.
Intel (NASDAQ: INTC) has been building new chips for "netbooks," a product that is much smaller than most laptops and significantly less powerful. Dell (NASDAQ: DELL) has decided to drink that water and bring out a netbook of its own.
According toThe Wall Street Journal, "One person familiar with the matter said the new device will likely sell for less than $400."
The launch is a waste of time and money. The smallest laptops now weigh under two pounds and have modest processors. That means the price points for them will keep dropping.
Over in the smartphone industry, companies like Apple (NASDAQ: AAPL) and Research in Motion (NASDAQ: RIMM) are putting out more "computer-like" products each year. Larger handset companies are working to get into the same business because the higher price points of these handsets yield a better margin.
Dell should stick to what it does well. The "netbook" has too much competition and no future.
Douglas A. McIntyre is an editor at 247wallst.com.
Today was supposed to be the day of days for stocks. Oil collapsed by $6 on news that Hurricane Gustav had done relatively little damage to oil facilities. The major indexes opened up nearly 2%. Stocks tied to fuel prices, especially airlines and auto shares, spiked.
A little after midway through the afternoon, it began to dawn on traders that less expensive oil does not solve the problems of falling employment and weak spending by consumers and businesses. Suddenly, the numbers on Wall Street turned red.
Despite rumors of a large investment from the Korea Development Bank, Lehman (NYSE: LEH) moved from a big gain to trading flat to down at the close. Investors must still think the mortgage and credit crisis has a long way to go. Merrill Lynch (NYSE: MER) dropped 3%. Ambac (NYSE: ABK), which has recovered from its lows of a month ago, also sold down 1%.
Just a few weeks back, tech was the one sector that was going to hold its own. Consumer electronics spending and IT investment by companies were not going to be undercut by slowing GDP. That was true until Dell (NASDAQ: DELL) reported weak numbers last week. It sold off 3% and mega-cap techs Apple (NASDAQ: AAPL), Cisco (NASDAQ: CSCO), and Intel (NASDAQ: INTC) all dropped.
It will be interesting to see what happens on a day when oil goes back up.
TheStreet.com's Jim Cramer says intra-quarter signs that all was well were far off the mark.
Dell (NASDAQ: DELL) (Cramer's Take) totally fooled us. Throughout the quarter, we heard rumblings that things were just right.
Instead, Dell gave us a quarter that reminds us that the body language in tech has become meaningless. Never forget that you can only trust these guys on the day they report, and that report -- with its depictions of a slowdown across all geographies -- made me want to go out and pick up some Altria (NYSE: MO) (Cramer's Take).
The Dell report reminds me of Nordson (NASDAQ: NDSN) (Cramer's Take), another company that has made you feel all rosy about the international markets. But with that industrial play, it was only Europe that was bad.
The top line was okay. Net sales increased 11% to $16.4 billion, beating estimates that called for growth of around 8%. But earnings per diluted share were not okay. They came in at 31 cents, a 6% decrease in terms of year-over-year comparisons. Wall Street was looking for 36 cents per diluted share. Costs went up at a greater rate than sales growth, driving the gross margin down. As can be seen, Dell needs to better manage its cost structure so that it may protect its margins. It's a shame that the company couldn't have grown the bottom line considering the nice revenue gain.
Not only was the profit drop disillusioning, but the operational cash flow was likewise disappointing. It dropped 40% during the quarter, and it decreased 29% over the least six months. Dell watches its cash flow carefully, and it would like the money generated from operations to exceed the net-earnings figure. So far, the company has fallen short in this regard. However, according to the transcript, Dell's CFO, Brian T. Gladden, believes that operational cash flow will exceed net earnings. Shareholders obviously hope that he'll be ultimately proven correct on this prediction.
Very few companies had a decrease in the size of their shares sold short as Intel (NASDAQ: INTC) had. The numbers compare data from July 31 with figures from August 15.
The change is a bit odd because Intel's shares trade in the middle of their 52-week price range, changing hands at $23.15. So far this year, the company's stock price is down almost 15%.
There is evidence that PC sales are growing. Hewlett Packard (NYSE: HP) recently announced earnings. Its computer business did well, especially in Asia. Apple (NASDAQ: AAPL) cannot build enough Macs. All of that may mean that the market undervalues Intel's potential earnings over the next few quarters.
Intel is also picking up market share from smaller rival AMD (NYSE: AMD), which is struggling with a large debt load. If the AMD situation worsens, Intel is likely to get a significant benefit.
Some investors may also be willing to bet that Intel's move into chips for small portable devices, little computers slightly larger and more powerful than cellphones, will pay off.
Whatever the reason, the gambles that Intel's stock will fall are falling themselves.
Douglas A. McIntyre is an editor at 247wallst.com.
Research in Motion (NASDAQ: RIMM) closed at $127.18 Tuesday. RIMM October option implied volatility of 53 is near its 26-week average according to Track Data, suggesting non-directional price movement.
Apple (NASDAQ: AAPL) closed at $173.64 Tuesday. AAPL October option implied volatility of 37 is below its 26-week average of 47, suggesting decreasing price movement.
Google (NASDAQ: GOOG) closed at $474.16 Tuesday. GOOG October option implied volatility of 39 is near its 26-week average, suggesting non-directional price movement.
Intel (NASDAQ: INTC) closed at $23.15 Tuesday. INTC October option implied volatility of 35 is near its 26-week average, suggesting non-directional price movement.
Cisco (NASDAQ: CSCO) closed at $24.11 Tuesday. CSCO October option implied volatility of 30 is below its 26-week average of 33, suggesting decreasing price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
PC and chip companies have been trying to get TV viewers to use internet functions on their home entertainment systems for years. The problem may be that people who watch television are old. Consumers who use PCs are young. That has not stopped repeated attempts to marry the two.
Intel (NASDAQ: INTC) and Yahoo! (NASDAQ: YHOO) are making another run at putting the two technologies together and it will probably fail. According toThe Wall Street Journal, "The pair outlined software tools, based on Yahoo technology, to help companies deliver Web content alongside TV programming. The software complements a new chip from Intel designed to enable interactive features on TVs."
Under this new plan, web content will sit in a bar at the bottom of the screen.
TV viewers already see information at the bottom of their TV monitors. Most business news channels like CNBC use the space to run stock quotes. Sports programming often scrolls scores in that section of the screen. Those bits of information may be useful, but TV is still a passive experience.
People who sit in front of a television set want information and entertainment. They do not want to have to make any effort to get those things. The PC has hundreds of applications that involve a great deal of effort. The keyboard is an "active" feature. People sitting in lounge chairs to watch the tube want to fall asleep.
Douglas A. McIntyre is an editor at 247wallst.com.
Intel (NASDAQ: INTC) is beginning to offer its new "Atom" chip, which is designed to work in "low-end "netbooks" and other mobile computing devices, " according to the FT.
The trouble is that it is a chip for devices that no one wants.
Intel is trying to drive a wedge between low-end laptops that weigh only a couple of pounds and new smartphones like the products from RIM (NASDAQ: RIMM) and just about every other large handset company. The new smartphones can access the internet and use WiFi hotspots instead of the cellular system, access 3G broadband wireless, and read e-mail and attachments. Cheap laptops now cost as little as $500.
Intel is up against a PC market that is growing more slowly each year, especially in large markets like North American and Europe. It has decided to launch a product in the hope the new devices will come along because the chip is available.
Unfortunately, no one wants the products that Atom would drive. The niche is already crowded.
Douglas A. McIntyre is an editor at 247wallst.com.
U.S. stock futures were lower Tuesday morning, indicating stocks would likely start the same. Investors' concerns about the financial sector dampened sentiment, but oil prices continued to decline and could offset some of the negative mood. Still, housing and inflation data are on tap before the market opens today. And of course earnings with The Home Depot already beating investors' expectations this morning but with Staples issuing a warning.
A day after smaller Lowe's (NYSE: LOW) reported a profit drop, The Home Depot (NYSE: HD) followed suit, reporting a 24% profit decline for the second quarter. It held onto its earnings outlook as second-quarter net fell 24% to $1.2 billion, or 71 cents per share. Sales declined 5.4% to $21 billion. Analysts had projected earnings per share of 61 cents on revenue of $20.58 billion. Home Depot shares rose 2% in premarket trading.
Other retailers scheduled to release earnings include discounter Target (NYSE: TGT) -- could it follow Wal-Mart's results? -- while Hewlett-Packard (NYSE: HPQ) is to report after the close -- AP preview.
Meanwhile, Staples, Inc. (NASDAQ: SPLS) issued a profit warning, saying that "Challenging market conditions continued during the company's second quarter, resulting in weaker than anticipated results in Staples' pre-acquisition business." Staples said sales increased approximately 3% and earnings per share decreased approximately 15% yoy. Shares of Staples declined nearly 6.5% in premarket trading.
Stock futures were higher Thursday morning, as bulls tried to answer to two bear days. Wal-Mart reported this morning, beating estimates and boosting guidance as well as Street sentiment. Still, coming ahead is inflation data at 8:30 a.m. Economists expect CPI to rise 0.4% in July, and could very well impact markets. Meanwhile, oil prices rose and the EU reported that euro-zone economy contracted 0.2% in the second quarter.
Wal-Mart Stores Inc. (NYSE: WMT), the world's largest retailer,reported a second-quarter earnings growth of 17% to of $3.4 billion, or 87 cents a share, beating analyst estimates of profit of 84 cents a share. Revenue rose 10% to $101.6 billion, slightly below estimates. The company also boosted its full-year earnings forecast. The company benefited from the challenging economic conditions as shoppers looked for lower prices. Its cost cutting measures also helped. WMT shares are gaining nearly 1.5% in premarket trading.
As Apple Inc. (NASDAQ: AAPL) shares rose in recent years, many have tracked its progress as it surpassed one major company after another in market capitalization. Well, All Things Digital noticed that Apple can put another check mark, this time as it passed Google Inc. (NASDAQ: GOOG). Yes, Apple is now larger than Google.
TheStreet.com's Jim Cramer says all that money has to go somewhere, and this is a likely destination.
Clash of the ideals! Oil's down, and what can you buy when there's so much bad bank news? What can you buy when Wachovia (NYSE: WB) (Cramer's Take) is boosting reserves and Morgan Stanley (NYSE: MS)) (Cramer's Take) is still being pursued by authorities and JPMorgan (NYSE: JPM) (Cramer's Take) says July stunk and UBS (NYSE: UBS) (Cramer's Take) is so tarnished that you can't believe it was once the most conservative blue chip out there.
The answer is tech, of course!
Wait a second. Would anyone mind if we actually had a reason to buy tech beyond the Kindle, the device that made Citigroup gaga about Amazon (NASDAQ: AMZN) (Cramer's Take) -- not that you needed a device to do that.
Sure, we have pre-seasonality. Remember, you are supposed to buy tech at the end of the summer, not that anyone waits that long.
Intel (NASDAQ: INTC) knows that the market for basic server and PC chips will not grow as fast over the next five years as it did over the last five. The economy plus high market penetration will see to that.
So, Intel is looking to new markets to save its bacon. It has already entered the segment for relatively low-powered chips for handheld "computers." Whether that business will ultimately be large is anyone's guess.
According toThe Wall Street Journal, the world's largest chip company "is providing the first details of a chip technology that is designed to help break into new markets, starting with high-end graphics used for computer games and animation." This technology will help higher end PCs run games and video content.
With Intel's balance sheet and big share of the current PC market, the announcement could spell gigantic trouble for AMD (NYSE: AMD) and Nvidia (NASDAQ: NVDA). A little over two years ago AMD bought graphics chip company ATI. So far, the deal has been a bust.
Concerns that the graphics chip market could get crowded and that margins could be under pressure have already driven AMD and Nvidia to recent 52-week lows. Over the last year, Intel shares are off about 5%. Shares in the other two companies are down over 60%. With Intel coming into the market, that could actually get worse.
Back in the day when internet companies ruled the rolls of the Nasdaq, a number of online and tech companies had venture capital arms. Intel (NASDAQ: INTC) has kept its to this day. The tech collapse of 2000 and 2001 eliminated most of those funds.
Now Google (NASDAQ: GOOG) has decided to revive the tradition of big tech companies spreading money around. According toThe Wall Street Journal, "The group will be lead by David Drummond, Google's senior vice president of corporate development and chief legal officer."
The move is a bad idea because it could alienate current and future Google partners. There is still an abundance of venture capital, so it is not as if the search company is filling a hole in the market.
The trouble is that Google could put money into a wireless broadband company only to find down the road it wants to form a partnership with one of that company's competitors. Should a firm risk doing business with Google when the giant internet company owns a piece of its nemesis?
Google may like the idea of supporting startups that are aligned with its goals. But it is cutting off the option of doing business with companies that don't have Google backing but do have services Google wants.