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When the undisputed kingpin of the semiconductor industry, Intel (Nasdaq: INTC ) , makes an earnings or demand announcement, the effects ripple far and wide. So when Intel announced Friday that revenue is going to come in below expectations, an already jittery industry took one step closer to the edge.
Join the club, Intel
Intel's warning focuses on consumer weakness, which isn't exactly new information. It can join NVIDIA (Nasdaq: NVDA ) in the blaming-consumers-for-worse-than-expected-results club. NVIDIA closed out last quarter with $811 million in sales, significantly below its initial guidance of $950 to $970 million. The culprit behind NVIDIA's stunning revenue miss: weak consumer demand. Oh, and the favorite punching bag of executives blowing earnings: Europe.
Buy this smartphone, not that PC
Beyond the general economic woes that are causing consumers to spend less, the PC industry faces an alarming shift in consumer spending habits. The explosion of smartphones and tablets isn't causing consumers to spend more on electronics; the Consumer Electronics Association expects consumer electronics sales to be flat in 2010.
Instead, consumers are shifting their electronics dollars away from expensive PCs, where Intel gets higher sales and better margins, and toward tablets and smartphones, where Intel's processor offerings either aren't as competitive or don't exist. The average age of PCs has risen to its highest level in a decade, 4.4 years. Consumers are sticking with old PCs while buying the newest iPhone or Blackberry.
That should spell some future problems for AMD (NYSE: AMD ) . When Intel reported its last record-shattering quarter, strong enterprise spending was the driving factor. AMD's recent quarter focused on its strength in the consumer market. Whatever pains Intel is seeing should only be amplified at its smaller rival.
More winners and losers
However, while Intel's results should have a general downward pull on the IT industry, it'd be wrong to apply that weakness to a wide swath of companies.
For one, Intel affirmed that demand from large companies remains strong. That's good news for companies targeting sales to large businesses. Outside of semiconductors, the announcement shouldn't reflect any weakness in companies such as EMC in the booming storage industry or enterprise-focused sellers like STEC (Nasdaq: STEC ) . Nor should the announcement have much of an effect on semiconductor companies Qualcomm (Nasdaq: QCOM ) or Broadcom, which derive significant sales from the smartphone market. Intel's warning only further points to the continuing success of small, connected devices.
However, the warning is a bad omen for hard-drive makers Western Digital and Seagate (Nasdaq: STX ) . These two companies have higher exposure to PCs, and less to booming markets like smartphones that use solid state drives (SSDs). Neither Western Digital nor Seagate have much exposure to those markets. The warning is also bad news for an obscure software outfit from Redmond named Microsoft (Nasdaq: MSFT ) , which presumably sells software that are on most PCs.
Intel's announcement once again demonstrates the significant shift going on in consumer spending. That shift puts all the more pressure on Intel's new Moorestown processor to enter the market and be a smashing success. The winners of a previous technological generation are rarely the winners of the next. Unless Intel wants to be another example of that axiom, it'd be better off spending less money buying software companies and more money winning the war to power mobile phones and tablets.