Why Intel's Surprise Announcement Means the PC Isn't Dead After All

Now that we're in the age of smartphones and tablets, you may have heard that the personal computer is dead. After all, industry reports and earnings reports from companies still tethered to the PC foretell the same thing. Supposedly, mobile devices are taking over, and growth in personal computers going forward would be extremely unlikely.

But chip giant Intel Corporation (NASDAQ: INTC  ) has something to say about that. Intel just raised its current-quarter and full-year outlook, based almost entirely on more robust PC demand than it had previously anticipated.

Not surprisingly, shares of Intel jumped the day after the announcement, since Intel's past forecast called for little to no revenue growth this year. You can bet that this is good news for Hewlett-Packard Company (NYSE: HPQ  ) as well, shares of which rose strongly the same day.

Despite what you may have heard over the past year, Intel wants you to know that the personal computer is alive and well.

Intel's momentum set to accelerate
Chip stocks like Intel have performed well to start the year, and the company's updated guidance may mean its got further room to run. Intel raised its revenue and margin guidance for both the current quarter and the full year. Intel now expects $13.7 billion in second-quarter revenue, $700 million more than it previously guided.

Plus, Intel expects revenue growth this year as well. And, it also sees gross margin expanding by a full percentage point, to 64%.

Management attributes this unexpected growth to stronger-than-expected demand in business PCs. There were signs that an upcoming product refresh cycle was the impetus for chip stocks such as Intel rising to begin 2014. There's now solid evidence that this is indeed occurring.

Intel's announcement definitely came as a surprise, since most industry research up to this point had almost nothing but bad news about the state of global PCs. For instance, two of the top industry watch dogs, Gartner and IDC, both stated that global PC shipments fell in the first quarter. shipment volumes over the first three months of the year fell 4.4%, according to IDC. Gartner found that shipments dropped 1.7% in first three months of the year. This marked the eighth straight quarterly decline.

In addition, IDC had fairly dour things to say about the future. In its report, it noted:

The transition to more mobile devices and usage modes is unlikely to stop, although the short-term impact on PC shipments may slow as tablet penetration rises. There is potential for PC shipments to stabilize, but not much opportunity for growth.

Clearly, Intel's update flies in the face of industry data. This should be good for a slew of companies heavily involved in personal computers, like Hewlett-Packard. HP is making inroads in non-PC related areas, such as the cloud and big data, but its personal systems group still makes up approximately 30% of its revenue. As such, any uptick in enterprise PC shipments stands to bode very well for HP.

The news couldn't come at a better time for Intel, which has posted two consecutive years of falling revenue. The trend continued in the first quarter of this year, when the company's PC client group revenue fell 1% year over year. This might not seem like much, but the PC segment accounts for roughly 61% of Intel's revenue. Clearly, a rise in PC activity at the enterprise level is great news.

The Foolish takeaway
A common theme that circulated throughout the technology sector over the past few years was that the PC is dead. Industry data and weak earnings from companies still chained to the PC supported the idea that tablets and smartphones are the wave of the future. While it's true that growth going forward will largely be focused in mobile computing, it seems premature to declare that the PC is dead.

Intel expects revenue growth and margin expansion this year, which is a great sign that its turnaround is gaining traction. And, at just 15 times forward earnings, Intel is still modestly priced, meaning its shares may still have room to run.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2993969, ~/Articles/ArticleHandler.aspx, 9/4/2015 8:26:59 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:01 PM
HPQ $28.13 Up +0.18 +0.63%
Hewlett-Packard Co… CAPS Rating: ***
INTC $29.08 Down +0.00 +0.00%
Intel CAPS Rating: ****