Intel and the PC World: The Investor Feels Betrayed

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Intel (INTC), which is the largest maker of PC and server chips in the world, announced earnings that beat analyst expectations. No one would have known that by looking at the collapse of the share price. The company, which has about 80% of the market for the main processors used in personal computers, is considered a bellwether for how hardware firms like Dell (DELL) and HP (HPQ) will do. Intel's figures are considered predictive of the strength of the sales of Microsoft's (MSFT) Windows.

For the last quarter, Intel Corporation reported revenue of $7.1 billion, net income of $647 million and earnings per share of $.11. Revenue was $9.7 billion in the same period last year. Aside from topping expectations, Intel's CEO, Paul Otellini, said, "We believe PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns." (See pictures of the Top 10 scared traders.)

Intel did two things the market dislikes. The first is that it said very little about how the company expected to be doing over the next two or three quarters. The firm would only indicate that revenue for the current quarter would be about flat with the last one. Intel also did not offer any evidence that the PC industry is beginning to do better or if companies were just ordering a few more chips to fill falling inventory. Intel's results are good news for the broader tech sector if PC companies are actually buying more chips because their product sales have increased. But, the Intel would not say as much. "Returning to normal seasonal patterns" is double talk.

The Intel earnings are a perfect example of why the market is having trouble recovering and why there is so little solid data to support the concept of an improving economy. The report that sales will be flat only implies that the worst will continue, not that it is in the past.

Large corporations have never had a lot of credibility when investors have attempted to interpret their predictions. The comments from Intel's CEO were gibberish. His business is dead, but for some reason he implies that the activity in his customer base is improving.

Intel is the first large tech company to report each quarter. If Intel's comments are positioned to support its belief in a recovery, there is a temptation for Wall St. to buy up its shares.

If there is anything good about the stock market catastrophe it is the skepticism that has become a part of the investor's way of thinking. Intel traded down because Wall St. read its comments as a "false positive." Investors look at its vague statements as being the equivalent of misleading. Intel clearly did not have any sinister intentions. It just hinted at something that isn't true because the broader economy does not lend it any credence.

One of the reasons it will take the stock market a very long time to get back to the level where it traded when the DJIA was above 14,000 is because the average stockholder believes that he was cheated. Corporations promoted their prospects. Almost none of them warned of the downturn in the economy or in their own business. Public companies turned themselves into charlatans, not because of what they said, but because of what they did not say. When businesses went bad, nearly everyone at big American companies became quiet. For Wall St. the silence was a betrayal and one which won't be forgotten.

Douglas A. McIntyre

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