Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The market is feeling fine today. The Dow Jones (DJINDICES: ^DJI ) blue-chip index recovered from an early drop to trade up by 0.1% in midday action. Other market barometers are also rising higher. But Intel (NASDAQ: INTC ) didn't get the memo.
Intel is by far the worst Dow performer this morning, plunging as much as 5% overnight. That's a highly unusual move for any stock of Dow-level caliber. This particular plunge was made even more unusual by the fact that PC partner Microsoft (NASDAQ: MSFT ) didn't join Intel's market woes at all. Microsoft shares rose a market-beating 0.6% instead, goaded by a successful launch of the new Xbox One gaming console. Gamers lined up around the block outside gaming stores with confirmed Xbox One inventories, and the product is primed for record-setting sales figures on opening day.
But you should know that Intel plays no part in the Xbox One. Microsoft selected an integrated CPU and graphics chip from Intel rival Advanced Micro Devices (NASDAQ: AMD ) to power this console, leaving Intel on the sidelines. Game console contract wins helped AMD beat revenue and earnings targets in the recently announced third quarter, and management said that contracts for the Xbox One and Sony PlayStation 4 raised a ton of interest from other industry players with an eye on semicustom system chips.
Intel may not feel too bad about missing that particular boat. The total installed base of last-generation consoles like the PS3 and Xbox 360 works out to about 80 million units per console model.
That seems like a lot, but Intel is missing a much bigger boat in a different industry.
The real elephant in the room
Apple (NASDAQ: AAPL ) has shipped 388 million iPhones and 155 million iPads to date, absolutely dwarfing the total console market. And Apple is a minority player in the mobile market, albeit a premium one -- add in the Android platform, and you'll see a truly massive market taking shape.
And Intel essentially plays no part in the mobile market, either. That's not exactly news, but investors were reminded of this harsh reality when Intel held its annual analyst conference on Thursday.
Intel Chairman Andy Bryant conceded at the event that Intel missed the mobile market, even though it should have seen the signs of a game-changing opportunity early on.
"A year ago, I was personally embarrassed that we seemed to have lost our way," Bryant said. "We were in denial of tablets, that put us in a hole, and we're paying the price for that."
Bryant's mea culpa sent shock waves across the Intel investing community. Management saw the mobile revolution coming, but failed to take swift action. As it turns out, it's tough to break into this solidifying market a few years after the revolution, even for industry titans like Intel. And if management ignored the red flags with blinking neon lights around this opportunity, then why should we trust them not not miss the next game-changing revolution?
Is it time to panic and sell?
As an Intel investor myself, I feel a twang of the same doubts. Then again, admitting that you have a problem is the first step toward recovery. That's why I appreciate Bryant's candor in admitting this crucial mistake, and I expect Intel to have learned something from the humbling experience.
If there is such a thing as "too big to fail" in the computing sector, Intel would define that concept. The company is too rich and too stacked with top-shelf engineering talent to ever become irrelevant. And right now, investors are pricing the stock as if it were about to go out of business.
If anything, this quick discount looks like a fine buy-in opportunity on Intel's rock-solid business and stock.
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