Intel’s Earnings Warning is an Ominous Sign for the Tech Sector

Tech stalwarts like Apple, Google, IBM, Intel, and Microsoft have been powering through the recession. If these companies falter, the U.S. is in trouble.

  • Share
  • Read Later
Getty Images

Citing the weak global economy, Intel, the world’s largest microchip-maker, lowered its financial forecast for the rest of 2012. It’s an ominous sign for the technology sector, which is entering the heart of earnings season. Reporting second-quarter financial results, the closely-watched tech bellwether (INTC) revised its revenue growth projection downward to between 3% and 5% — below the previous forecast of “high single-digit growth.”

As policymakers seek to return America to healthy growth and employment, Intel’s lowered outlook is a clear reminder that the global economy — and Europe in particular — is placing a drag on the U.S. economy. Tech stalwarts like Apple, Google, IBM, Intel, and Microsoft have been powering through the recession. If these companies falter, the U.S. is in trouble.

“As we enter the third quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment,” Intel CEO Paul Otellini said in a statement. Or, as Quentin Hardy of The New York Times put it: “The world’s largest semiconductor maker is getting pounded by poor consumer demand.”

Simply stated, the global economy isn’t growing fast enough. We’re starting to see the impact on U.S. corporate earnings. Intel is a key signal, not only for the tech industry, but also for the broader economy. Intel’s reduced forecast bodes ill for the entire tech supply chain and the broader U.S. and global economies. We need high-tech companies to be buying more microchips, not fewer.

(MORE: Your Global Economic Mess Is Now Being Served)

Meanwhile, struggling tech giant Yahoo reported in-line-to-positive earnings, which heightened chatter about the company’s blockbuster new hire: Google star Marissa Mayer. On a conference call with Wall Street analysts, Yahoo! CFO Tim Morse said he hadn’t even had the chance to discuss the company’s earnings forecast with his new boss.

On Monday, Yahoo appointed Mayer as CEO; she was not on the conference call. Mayer was Google’s 2oth employee and is a 37-year-old self-proclaimed “geek.” Several years ago, she informed a reporter that she was one billion seconds old (31.7 years). She’s now one of the most famous corporate executives in the world. On Monday, Mayer revealed to Fortune that she is pregnant with her first child, due on October 7.

“In the second quarter, non-GAAP earnings per share exceeded consensus and both display and search revenue ex-TAC showed modest growth,” Yahoo!’s chief financial officer Tim Morse, said in a statement. “We also moved aggressively with new strategic agreements with Alibaba and Facebook and announced several new partnerships including CNBC, Clear Channel and Spotify.”

Hardy, at The Times, sketches out a sampling of Mayer’s challenges:

Facebook commands 16.8 percent of the online display ad market in the United States and Google is at 16.5 percent, while Yahoo’s share has fallen to 9.1 percent — a drop from 2008, when Yahoo had 18.4 percent of the market and Facebook earned just 2.9 percent a share — according to eMarketer.

Yahoo has also lost its command of the overall online advertising market, where it held 15.7 percent share in 2009. Last year, Yahoo’s share fell to 9.5 percent and, according to eMarketer, its share will fall further to 7.4 percent this year, even as online advertising spending in the United States is expected to grow 23.3 percent, to $39.5 billion.

The downfall of Yahoo’s search business has been even worse. It turned over its search business to Microsoft and now holds 6.7 percent of the $15.36 billion search ad market last year. Google, meanwhile, continues its reign with 75.9 percent of all search ad revenues.

And Yahoo has yet to dip a toe in mobile advertising. Should it introduce new mobile products under Ms. Mayer, Yahoo will again face a market dominated by Google. According to eMarketer, Google held 51.7 percent of the $1.45 billion in total mobile advertising spending in the United States last year.

MORE: Yahoo Mess: More Proof That Media Companies Don’t Know Anything About Dealing with the Media