Please ensure Javascript is enabled for purposes of website accessibility

Dow Jones Up Slightly as Cisco's Guidance Tanks Stock, Intel Unveils New Chips

By Timothy Green – Updated Aug 14, 2020 at 11:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Cisco sees another quarter of steep sales declines, and Intel will up its laptop game later this year.

The Dow Jones Industrial Average (^DJI -0.69%) ended the day slightly up by +0.08% at market close Thursday. Unemployment benefit claims in the U.S. for the week ended Aug. 8 declined substantially from the previous week to 963,000, below the 1.12 million expected by economists. While this is good news for the economy, a pandemic that remains far from under control could undermine the recovery.

Tech stocks Cisco Systems (CSCO -0.76%) and Intel (INTC -1.01%) contributed to the Dow's losses on Thursday. Cisco beat analyst estimates for its fiscal fourth quarter, but its guidance suggested that the current slump in demand isn't going away anytime soon. Meanwhile, Intel stock failed to rally after the company unveiled its upcoming laptop chips.

Cables plugged into computer equipment.

Image source: Getty Images.

More pain ahead for Cisco

Cisco's core business of selling networking hardware to enterprise customers goes through cycles. When the economic outlook is cloudy, customers tend to pull back and delay orders, which hurts Cisco's results.

With the pandemic creating the most uncertain economic environment in recent memory, it's not surprising that Cisco is feeling some pain. Revenue was down 9% in the fiscal fourth quarter to $12.2 billion, and adjusted earnings per share sank 4% to $0.80. Both those numbers beat analyst expectations, but investors were focused on the company's outlook.

Cisco expects revenue to decline by between 9% and 11% in the fiscal first quarter. "As you would expect, the pandemic has had the most impact on our enterprise and commercial orders, driven by an overall slowdown in spending," CEO Charles Robbins said during the earnings call.

There were a few bright spots in Cisco's fourth-quarter results. Security revenue surged 10%, and services revenue was flat. The software business, which spans multiple segments, now accounts for 31% of total revenue. More than three-quarters of software revenue came from subscriptions during the quarter, with the company seeing strong demand for subscription software like WebEx.

Cisco will eventually move past this downturn in demand, but there's no telling how long it will last. Shares were down around 11.4% by Thursday afternoon.

Intel announces Tiger Lake chips

Advanced Micro Devices (AMD 1.31%) made a splash in the laptop market this year with its Ryzen 4000 Mobile chips. The company has accelerated its share gains in the laptop market thanks to the chips, which are built using a 7nm manufacturing process from Taiwan Semiconductor Manufacturing.

Intel will strike back this year with Tiger Lake, a family of chips that should give AMD a run for its money. Tiger Lake chips are based on the Willow Cave architecture, and they're built using Intel's 10nm SuperFin manufacturing process. Tiger Lake will also be the first chips to include Intel's new Xe-LP graphics technology, which will boost graphics performance dramatically compared to last-gen products.

Graphics has been one area where AMD has consistently bested Intel over the years. While the integrated graphics that ship with AMD's latest laptop chips can't compete against discrete graphics chips, they do provide enough power for light gaming and other graphics-intensive tasks. If Tiger Lake lives up to expectations, Intel could close the graphics gap with its smaller rival.

Intel has struggled in recent years with manufacturing. The company's 10nm process was chronically delayed, and it announced last month that its upcoming 7nm process would be delayed as well. Intel also hinted that it may turn to third-party foundries to manufacture some of its chips, a move that would have been unthinkable just a few years ago.

Tiger Lake could help Intel slow AMD's share gains in the laptop market, but the company has a lot of work to do to regain its edge in manufacturing. Intel stock was down about 0.8% by Thursday afternoon.

Timothy Green owns shares of Cisco Systems. The Motley Fool owns shares of and recommends Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
$27.36 (-1.01%) $0.28
Cisco Systems Stock Quote
Cisco Systems
$41.67 (-0.76%) $0.32
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
$68.83 (1.31%) $0.89
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$30,064.67 (-0.69%) $-209.20

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.