Microsoft and Intel by default

Posted on February 26, 2007 , filed under Stocks | Print This Post

Another way to have titled this article would have been: “Vista and the Core 2 Duo by default”. A quick cursory look at several brick and mortar stores reveals a quick phase out of Windows XP. In fact the phase out occurred much quicker than I had expected. Purchasers looking for a choice between discounted Windows XP PC’s and Windows Vista PC’s are likely only going to find one choice on the shelves just weeks after the Windows Vista launch. It appears the lengthy delay from Microsoft Corporation (MSFT) over delivering the retail version of Windows Vista has allowed manufacturers and retailers to properly plan out the logistics for phasing out Windows XP hardware. It’s a bit easier for online purchasers to find Windows XP hardware on sites like New Egg, a top online retailer of computer equipment.

It’s hard however for a purchaser to justify purchasing a Windows XP computer when the price difference between an XP model and a newer Vista model appears to be negligible. An obvious trend that I see is the Intel Corporation’s (INTC) Core 2 Duo powering a significant portion of the Windows Vista offerings from various manufacturers. An earlier cursory holiday look showed Advanced Micro Devices, Inc. (AMD) gaining quite a large number of design wins with manufacturers providing Windows XP offerings. I expect the current Microsoft and Intel trend to continue until the fourth quarter of 2007.

Again these are my cursory observations. We won’t know the actual details until Microsoft and Intel announce firm sales numbers for the first quarter of 2007. I am bullish on Microsoft and Intel for the remainder of 2007. I expect to see Intel outperform Microsoft in terms of percentage gain in the stock. Microsoft has steadily moved up as we approached the January 2007 launch date of Vista. Intel on the other hand has stalled over everything from jitters of a semiconductor glut to slow adoption rate. I suggest that Intel fans simply watch Intel’s pricing scheme closely to see if they will aggressively cut CPU prices throughout 2007. Without any aggressive price cuts I expect to see revenue and profit margin continue to improve throughout the year and that alone should increase investor confidence in the company. Watching Intel is an important strategy since the company is the 900lb. gorilla of the semiconductor industry. Watching the biggest player alone is enough to give you a general idea where the semiconductor market is headed. It’s no wonder that when Intel drops other semiconductor stocks like TSM and UMC tend to fall in suit. As an Intel investor, I watch much less what stocks like Taiwan Semiconductor Manufacturing Company Limited (TSM) and United Microelectronics Corporation (UMC) are doing and I decidedly focus purely on Intel’s sales performance. In reverse when I was invested in TSM and UMC I closely followed Intel’s stock price movements and the company’s sales.

My price target for Intel is $24 in the next 3-6 months and $28 in 6-12 months.

*Disclaimer: The author currently owns 5000 shares of INTC purchased at an average price of $20.55.

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