One potential explanation that I've seen Intel (NASDAQ:INTC) investors give for the company's recent earnings warning is the "Osborne Effect." The idea is that because Intel's customers -- particularly business customers -- are waiting for systems based on the company's next-generation Skylake processors and Windows 10, PC sales have hit a temporary speed bump.
If this explanation turns out to be true, then that might give investors reason to be more optimistic on how the rest of the year is likely to play out for Intel. However, is that explanation likely to be the real reason behind Intel's weak first quarter?
If this were the case, Intel would have said so
Intel's business and stock price have been doing pretty well during the last year or so. Investors have finally been getting comfortable with the idea of Intel as a company that could see revenue grow rather than shrink as its revenue did in 2012 and 2013. Investors finally had a reason to believe in the company's story.
This revenue warning may shake that confidence among the investor base. I know that for me, the idea that the PC market had finally stabilized was very encouraging. I'd bet that there are many investors now thinking that the PC market -- from which Intel derives the majority of its revenue and profit -- might not be as "stable" as Intel's management indicated at its November 2014 investor meeting.
If this warning were due to a push-out of sales as a result of businesses waiting on Windows 10 and new processors, I think Intel might have said that it expected this in its press release. It said no such thing.
What did it say, though?
Intel blamed this shortfall on the following:
- "Weaker than expected demand for business desktop PCs"
- "Lower than expected inventory levels across the PC supply chain"
In the press release, Intel blamed these two factors on "lower than expected Windows XP refresh in small and medium businesses," and "increasingly challenging macroeconomic and currency conditions, particularly in Europe."
If Intel's management, which should have more insight into its customers' demands than do outsiders, felt that this was a case of the "Osborne Effect" in play, then I think it would have said something in the press release.
Another reason why Skylake (and Windows 10) is probably not a big deal to business-oriented desktop PCs
Skylake, for those unfamiliar with Intel's codenames, is Intel's next-generation processor architecture. It should offer more performance than the current Haswell chips for desktops, and it should be more power efficient. However, what I'm not expecting it to be is a huge leap from the current Haswell chips.
Yes, it's better; but there's always something better around the corner. From how I understand it, however, companies tend to buy new systems when they need them. I doubt that a business is going to tell a new hire that he/she needs to wait six months before he/she gets a computer because Intel has a new chip coming. Nor would I expect a company to put off upgrading a fleet of aging, potentially productivity-hampering systems just for the speed boost that Skylake will purportedly bring.
Furthermore, I'm not convinced that most business users will care all that much about Windows 10. Windows 7 seems to be the operating system of choice in business settings, and it remains to be seen whether Windows 10 can ultimately serve as a viable successor to Windows 7 in those settings.
I'm just not convinced of the "Osborne Effect" explanation, plain and simple.