Market Trips Over Behemoth Intel's Falling Stocks

Intel Corp. created quite the stock trend in a span of 24 hours -- one that you won't find in its next press release, but that still illustrates how much one bellwether company can change the entire market's tune.

Last Tuesday, Intel lowered its year's estimate for gross margin, or percentage of revenue less cost of goods sold, from 62 percent to 60 percent, pointing to 15 percent more in inventory pileups in the second quarter.

Last Wednesday, the company's stock fell, taking not only the share prices of other chip and chip-equipment makers, but also the Dow Jones Industrial Average, Nasdaq composite index and Standard & Poor's index with it.

Even upbeat stock news from fast food giant McDonald's Corp. and Caesars Entertainment Inc., then just rumored to be scooped up by rival Harrah's Entertainment Inc., couldn't fully atone for Intel's 11 percent drop -- the Dow's worst performer after being its best last year -- by end of day Wednesday, business stories reported.

Calling the world's largest chipmaker "the market's Achilles heel," CNBC reporters Kim Khan and Ron Prichard wrote that "Intel proved to be a huge stone around the market's neck. Stocks opened sharply lower, fought back to about even at midday, and then wilted again."

Intel couldn't help but be the most active stock, counting more than 230 million share swaps, which CNBC calculated as nearly five times the average daily volume of heavily traded names.

"Sometimes bellwethers actually do what they're supposed to do, and Wednesday, Intel led the market down," wrote Adam Lashinsky in "Street Life" in Fortune magazine. "A whopping 275 million shares of Intel changed hands Wednesday, almost six times the average. Intel was at about $32 at the beginning of the year. So much for 2004 continuing 2003's tech-stock recovery."

In fact, Bloomberg reported, "Intel, the world's biggest chipmaker, led the Philadelphia Semiconductor Index toward its lowest in more than nine months." That index, an 18-member bundle of the country's largest chip companies, followed its trademark company right down the stock slide, not stopping Thursday morning, when it slipped another 0.9 percent lower in otherwise flat trading, according to a story by Michael Paige in Investor's Business Daily.

Intel rival Advanced Micro Devices Inc. didn't fare too much better on Wednesday, dipping 80 cents to $13.70 and still falling after announcing a quarterly profit after the markets closed. The Bloomberg and CNBC stories give a further dismal account of Intel's and AMD's peers in the Philadelphia index and abroad: National Semiconductor fell 5 percent. Applied Materials tumbled almost 6 percent. KL-Tencor dropped more than 7 percent. In Europe and Asia, Tokyo Electron Ltd., Samsung Electronics Co., STMicroelectronics NV and Royal Philips Electronics NV all saw a decline.

But Khan and Prichard take a little of the heat off of Intel in their CNBC story: "Just so Intel doesn't get all the blame, we should note the market had some other data to digest today that wasn't exactly a plus," they wrote, citing drops in oil and retail stocks.

The difference, however, is that they couldn't point to one player within either industry that single-handedly set the trading tone like bellwether Intel did for technology.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism