Intel Tarnishes Turnaround Story
Like an old race horse, Intel (INTC) continues to frustrate investors betting on its comeback.
Just as the chipmaker appeared to be on track to recapture its former glory, Intel's second-quarter results have left investors wringing their hands and heading for the exits.
Shares of Intel sank 5%, or $1.31, to $25.01 in midday trading Wednesday.
The main cause of consternation is Intel's gross profit margin, which came in at 46.9% -- the lowest level in years and short of Intel's own target of 48%.Missing gross margins by about 1 percentage point isn't the end of the world. But the context of the margin weakness, which occurred during Intel's first quarter of year-on-year revenue growth since the end of 2005, was a red flag for some investors. "The bottom line here is, for semiconductor stocks you expect revenue and unit upside to lead to margin upside," says one investor. The margin weakness calls into question the shape of Intel's recovery. "You have to figure out what is the long-term model for the company," says the investor, speaking anonymously because he said he was trading Intel shares. "If we're dealing with margins that are going to peak in the mid-50s, that's a little different than a company with margins that peaked in the low 60s."
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