Intel, Chip Stocks Get Waxed as PC Orders “Fall off a Cliff”

Intel, Chip Stocks Get Waxed as PC Orders “Fall off a Cliff”

Personal computer chip stocks Intel, AMD, and others are all getting slammed this morning, as a couple of bearish research reports were issued regarding the outlook for PC’s:

Personal computer orders are “falling off a cliff,” according to J.P.Morgan analyst Christopher Danely, who issued a research report downgrading his revenue and earnings estimates for Intel, the world’s largest chipmaker. Meanwhile, Robert W. Baird & Co. analyst Tristan Gerra offered a similarly glum assessment of PC orders.

Our checks point to a sharp deceleration in PC order trends continuing into August, after a below-expectation July month,” Gerra wrote in a note to clients. “Hopes of a meaningful recovery for the September month are less and less likely, in our view, leading to a likely below-expectation [third quarter].

(See full article from DailyFinance:

This “news” is hitting chip  like a ton of bricks, but Mr. Market’s been on the beat of this story since April – when Intel’s stock price topped.  Since then, we’ve had two blowout earnings reports from Intel – all accompanied by giddy outlooks to boot.

And the stock price has gone nowhere but down:

Intel Stock Price Chart August 10 2010Source:

When Intel reported it’s Q2 earnings after-hours on July 13th, we wondered Intel’s immediate pop would last:

Intel’s stock price had topped in April, and since has traded down in a series of “lower lows and lower highs” along with the broader indices.

So will today’s earnings news send INTC up to new highs?

It’s probably the last thing you’d have anticipated from looking at the chart leading up until today.  So it will be very interesting to see where it heads from here.

Will these gains be sustained, and built upon?  Or will they be given back quickly in the next couple of days?  For me, that’ll be the real story to watch.

If I were a betting man (I know, preposterous), I think these gains will be retraced sooner rather than later.  But we shall see!

Thus far, it looks like Mr. Market was on the beat before the analysts, and even Intel CEO Paul Otellini!

This is a great example of why trading based on “news” can often get you slaughtered!  I’ve learned that no matter how good the news is, you have to respect the price action of the market first and foremost.

Taking it back a step, Intel is a great company with a very solid moat around it’s business, high margins, and it now pays a 3% dividend to boot.  So long-term it’s probably a decent play.  On the other hand, INTC dropped below $12 during the last wave of deflation – so if you believe another nasty deflationary wave is coming (as I do), then it might be best to stay on the sidelines and chill for now.