Bad for ↓
Intel warned of weak PC demand in a week of disappointing tech results. Its CEO pointed to costlier memory chips, and MarketWatch adds that corporate IT teams have less to spend on laptops. That likely hurts PC makers HP Inc. and Dell, which pay more for memory and may sell fewer business laptops.
Source: Reuters ↗
When a key part gets more expensive and customers have less to spend, the companies that assemble the finished product get squeezed from both sides.
Results reported October 28 and 29 disappointed across big tech. Amazon and Alphabet missed revenue expectations. Alphabet lost about $500bn in market value after it reported negative free cash flow of $9.07bn as AI spending climbed. ServiceNow (NOW) had its worst day ever on fears that AI will disrupt its software business. Intel (INTC) shares fell more than 22% in after-hours trading on October 29 after it forecast fourth-quarter revenue below analysts' expectations. Intel gave memory costs as a reason, and its CEO himself cited 'already limited IT budgets'. HP Inc. (HPQ) and Dell Technologies (DELL) buy that memory and sell those laptops. PCs are about three-quarters of HP's sales: its Personal Systems unit had $11.8B of its $15.7B revenue in the quarter to July 31. At Dell, PCs brought in $15.0B of $47.0B, about a third. Intel now expects the PC market to shrink 12% this year and 10% more in 2027, and its own PC chip revenue to fall more than 20% from the previous quarter.
Intel reported after the close on October 29, so that day's small drops in HP (-1.9%) and Dell (-3.7%) came before its warning. After it, HP fell about 7.4% in overnight trading and Dell about 9.6% before the open on October 30. A week earlier, both had barely moved when Counterpoint reported a 21% fall in Q3 PC shipments.
PC makers may be able to pass higher memory costs on to buyers and keep their profits. HP's and Dell's PC revenue was still growing through July (HP +18%, Dell +20%) because of price increases. Some buyers may also order early before prices rise further. Part of Intel's weak outlook came from lost server-chip output after an explosion at its factory in Israel, so not all of its miss reads across to PC makers. If HP's next quarterly report, expected in the coming weeks, shows steady PC sales and margins, the link is weaker than Intel's outlook suggests.
Dell's 58% revenue growth in the quarter to July 31 came mainly from AI servers, so PCs are a smaller part of its business than the headline suggests. Memory makers raising prices can also prompt buyers to order early, which would lift PC makers' sales for a quarter or two.
In July 2024, results from Alphabet and Tesla revived doubts about the returns on AI spending, and the Nasdaq fell more than 10% before recovering.
Intel makes the main chip inside most laptops and desktops. When it expects to sell fewer of those chips, it is really saying PC makers plan to build fewer machines. That is why its weak outlook works like an early report on the whole PC business.
Intel's CEO pointed to higher memory prices, so each new laptop costs more to make or to buy. MarketWatch adds that company IT departments have smaller budgets for new laptops. Think of a bakery whose flour bill rises just as its biggest office customers cut their lunch orders.
HP Inc. and Dell build and sell those laptops, so they could feel both pressures at once. They pay more for the memory inside each machine. Their business customers may also buy fewer of them, which means less revenue and thinner profit on each sale.
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