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Why Computer Stocks Fell Today

By Evan Niu, CFA - Feb 27, 2020 at 12:39PM

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Microsoft warns that the coronavirus outbreak will hurt its PC business.

What happened

Shares of prominent computer-related companies have fallen today after Microsoft (MSFT 1.70%) warned that it would not meet its guidance for its personal computing segment this quarter due to the coronavirus outbreak. Here are some notable declines as of 12:15 p.m. EST:

  • Advanced Micro Devices (AMD 2.76%), down 5%
  • Intel (INTC 1.46%), down 3%
  • NVIDIA, down 3%
  • Apple (AAPL 2.14%), down 3%

All of the companies either provide critical components for PCs or compete directly in that market.

So what

Microsoft provided an update yesterday to investors regarding its guidance for the current quarter. Specifically, the company expected its "More Personal Computing" segment to generate $10.75 billion to $11.15 billion in revenue this quarter.

Woman using Surface Laptop

Surface revenue will be hurt by the coronavirus outbreak. Image source: Microsoft.

"In Windows, overall, OEM revenue growth should be in the low- to mid-single digits and continue to reflect healthy Windows 10 demand, end of support for Windows 7, and the supply chain's ability to meet demand," CFO Amy Hood had said on the earnings call in late January. "The wider-than-usual range in More Personal Computing segment reflects uncertainty related to the public health situation in China."

Microsoft now says it won't meet the outlook because the epidemic is disrupting the consumer electronics supply chain, which is concentrated in China.

"Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated at the time of our [fiscal] Q2 earnings call," the company said in a statement yesterday. "As a result, for the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated."

The Windows OEM segment refers to PC makers that buy chips from AMD, NVIDIA, and Intel. Microsoft added that its guidance for other parts of the business -- such as productivity software or cloud computing -- is not affected.

Apple is not directly related to Microsoft's Windows OEM business, but had already separately issued its own warning to investors that it would miss its outlook due to the outbreak. The coronavirus is also affecting Apple's supply chain, with CEO Tim Cook acknowledging the "challenge" that the outbreak represents at the company's annual shareholder meeting yesterday.

Now what

Fears continue to mount that the epidemic will keep spreading and impact economies all over the world. Due to the supply chain concentration, the tech sector faces relatively higher risks than other industries.

The crisis continues to evolve rapidly, and markets have been tanking all week over concerns that the outbreak could cause a global macroeconomic slowdown.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Microsoft, and NVIDIA. The Motley Fool recommends Intel and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$100.83 (2.76%) $2.71
Apple Inc. Stock Quote
Apple Inc.
AAPL
$172.10 (2.14%) $3.61
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$291.91 (1.70%) $4.89
Intel Corporation Stock Quote
Intel Corporation
INTC
$36.11 (1.46%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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