Why the Free Upgrade to Windows 10 Might Limit Intel’s Prospects



Free upgrade to Windows 10

In this series, we discussed how sluggishness in the PC market impacted Intel’s (INTC) CCG segment. In 2Q15, global PC shipments fell by 9.50% to 68.4 million units on a YoY (year-over-year) basis in 2Q15. This is the steepest PC shipment fall recorded since 3Q13, as the chart below shows. For the full-year 2015, PC shipments are expected to fall by 4.40%. This is not good news for Intel, as its chips are used extensively in PCs.

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When Microsoft (MSFT) first announced the launch of Windows 10 in late 2014, Intel expected chip sales would increase due to the upcoming release. However, Windows 10, which will launch on July 29, is a free upgrade on PCs that are currently running Windows 7 and Windows 8.1. Thus, the length of the PC refresh cycle cannot be judged as of now, and many fear that Windows 10 won’t prompt users to buy new PCs. This translates to a huge revenue loss for Intel, as its chips are used in approximately 90% of PCs.

Steady decline in PC market urged Intel to seek data center and IoT as its key growth drivers

The sluggishness in the PC market, where Intel is a dominant player and draws a majority of its revenues from, forced it to diversify its operations. As a result, the company took the initiative to diversify products and offerings in the data center and IoT (Internet of Things) segments.

With the finalization of Intel’s acquisition of Altera on June 1, 2015, Intel can now strengthen its footprint in the datacenter and IoT space. Another major acquisition in the semiconductor space was Avago Technologies’ (AVGO) announcement that it would acquire Broadcom (BRCM) for $37 billion, as announced on May 28, 2015.

If you’re bullish about Intel, you can invest in the VanEck Vectors Semiconductor ETF (SMH) and the Technology Select Sector SPDR Fund (XLK). SMH and XLK invest 19.4% and 3.55% of their holdings in Intel, respectively.


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