Countering reports of a slowdown in the PC market, Intel said Thursday that it is seeing signs of stability in its chip business. The company said it expects demand to pick up in the second half of the year, but second-quarter sales will likely fall just below the middle of the range it had earlier given analysts.
"Intel's comments again suggest that PC demand is no longer deteriorating, which will likely be perceived as good news for Microsoft," said Merrill Lynch analyst Henry Blodget.
He did note, however, that Intel didn't say it expects to see year-over-year growth in the second half of the year, only that it expects seasonal strength due to typical factors such as back-to-school and holiday sales.
Blodget's fellow analyst at Merrill Lynch, Steve Fortuna, recently said he expects worldwide PC sales to continue to decline year over year in the June quarter.
But since Microsoft receives around 60 percent of revenue and more than 70 percent of its profits from PC applications and operating systems, good news from that sector should help the company, said ABN AMRO analyst George Godfrey.
Microsoft will report its fiscal fourth-quarter earnings next month. The company is expected to report a profit of 42 cents a share on sales of $6.45 billion, according to First Call. The fourth-quarter earnings would be roughly flat with Microsoft's third-quarter results.
Still, analysts said that Intel's news, while welcome, was not exactly earth-shattering.
"This is sort of what we had been hearing coming back from the channel," said Brendan Barnicle, analyst at Pacific Crest Securities. "More importantly, Microsoft demonstrated last quarter that it can still makes its numbers and have good strength even with declining PC sales."
Godfrey said that Intel's outlook is the latest evidence boosting Microsoft. The company has generated a lot of buzz about its upcoming release of Windows XP and is likely to garner a favorable ruling from the appellate court on the company's antitrust case.
"Microsoft has a number of other catalysts upcoming in the second half of calendar 2001," he said.