That news should be very concerning for investors in tech, more broadly, but especially for Microsoft (MSFT) holders. Microsoft is preparing to report its earnings after the bell Thursday.
Most investors knew that Intel was at risk. That didn't seem to concern many. The thinking was that Intel's issues were temporary weakness in PCs. We certainly saw that in the results.
The PC industry is contracting right now. Its growth rates have been negative in four of the last 8 quarters. People are buying tablets instead of notebooks. Specifically, they're buying iPads. The only growth in computers these days is in Macs from Apple (AAPL).
However, Intel showed greater weakness in its results on Tuesday from its server business. Folks like Google (GOOG) and Facebook (FB) just don't seem to be gobbling up servers like they used to. The average selling price for Intel chips for servers was down 8% sequentially.
But the IBM results were very depressing. IBM is supposed to be bullet proof. All it does is keep delivering performance through a Steady Eddie managing of earnings. Yet, their revenue fell short of estimates. Services and the U.S. (as opposed to Europe) were particularly weak -- especially in September. The stock dropped 5% on Wednesday.
But all of this should most concern Microsoft. They have an important services business that could be side-swiped as easily as IBM's was. But the real worry is with PCs. If this is a big secular shift that is happening with PCs, it cannot only affect Dell, HP, and Intel without impacting Microsoft.
Microsoft and PC bulls believe that things will change when Windows 8 hits the market later this month. And, additionally, Microsoft is coming out with its new Surface tablets to show off its skills in tablets.
Won't that prompt a big Windows 8 upgrade cycle?
It's not clear.
It's hard to see why consumers will get excited to shell out an equal amount of money for a Microsoft tablet instead of just opting for an iPad. Will enterprises? What's the driver for them to spend money on a tablet now? And they might just decide to skip this upgrade cycle if they're already slowing new PC purchases and most upgraded to Windows 7 fairly recently.
You put all these things together and it could really spell trouble for Microsoft and for them hanging on to their steady $30 stock price. We'll really only see the full impact of how well the new Surface tablets are selling next quarter, but Thursday's report will certainly give us some clues about the health of the PC market today.