Intel Stock Surge Good News for Microsoft and HP

Intel’s management disclosed:

As a result of stronger than expected demand for business PCs, Intel Corporation now expects second-quarter revenue to be $13.7 billion, plus or minus $300 million, as compared to the previous range of $13.0 billion, plus or minus $500 million.

And:

Intel now expects some revenue growth for the year as compared to the previous outlook of approximately flat. The change in outlook is driven mostly by strong demand for business PCs.

The news increased Intel’s shares to $30.06, which is not only a 52-week high but also its best price in five years.

The PC market has been so mature that most analysts assumed that Intel’s future would be relatively weak. As PC sales have begun to fall worldwide, tablet and smartphone sales have risen sharply.

Any improvement in PC sales will help Microsoft, which is the major provider of PC operating systems, and Hewlett-Packard, the leader in PC sales.

Despite Microsoft’s efforts to diversify into cloud computing and HP’s push into to IT services, neither has been able to shed its reliance on PC sales. That may be good in the short run. In the most recent quarter, the Microsoft division that includes Windows (Devices and Consumer Licensing) produced about a quarter of Microsoft’s $20.4 billion revenue. This division produced $3.9 billion of the company’s $14.5 billion in gross margins. The story at Hewlett-Packard is not much different. Of HP’s $27.3 billion in revenue last quarter, $14 billion came from its PC and printing operations. And they were $1.4 billion of $2.7 billion in operating income.

Conventional wisdom has been that if Intel could not diversity into chips for tablets and smartphones, its future would be grim. The current improvement in Intel PC sales allows the company more time to achieve this necessary goal.

ALSO READ: Eight Companies That Owe Employees a Raise