Why Microsoft's free Windows 10 upgrade is bad news for ailing chip giant Intel
Reuters/Robert GalbraithIntel CEO Brian KrzanichMicrosoft is rolling out free Windows 10 upgrades later this month, but that might be bad news for one of its longtime partners: $140 billion chipmaking giant Intel.
The reason is simple. Every time Microsoft releases a new Windows operating system, a lot of consumers buy a new PC in order to upgrade their set-up. But with Microsoft offering free updates of its operating system to all existing users of Windows 7 and 8.1, many people will simply opt to upgrade the software without replacing their PC.
That means overall PC sales could slow, and every company that makes money off PC components - such as Intel who drives most of its sales from PC chips - could also see its sales drop in the coming months.
"Based on early feedback from some early PC OEMs, they're not expecting much of a big jump [in PC sales], and the reason is Microsoft offering free Windows 10 upgrades. The view now in the industry is the effect from the Windows 10 launch will be fairly muted, at least when it comes to new PC purchases," Gartner analyst Mike Hung told Business Insider.
Gartner expects the global PC shipment market to shrink 4.5% this year, after reporting a sharp 9.5% sales decline in the second quarter alone.
That's bad news for Intel, which is scheduled to report second quarter earnings on Wednesday. Analysts have already cut EPS estimates to $0.50 per share, and $13.06 billion in revenue, which is below the mid-point of Intel's guidance of $13.2 billion for the quarter.
"It's likely going to be a miss. Full estimates have been coming down since last week. We are definitely expecting weakness in PCs," Wedbush Securities SVP of equity research Betsy Van Hees told us.
IDC analyst Mario Morales says Windows 10 will eventually drive up PC sales, but it just won't happen immediately. "It's going to take some time for [Windows 10] to really start kicking into the market, especially around the enterprise, and I think that would really have to happen to drive a really nice uptick in the market," he said.
Morales added Intel will likely announce some more layoffs in the coming months, as the company continues to right-size its overall business. Last month, Intel CEO Brian Krzanich confirmed in a leaked company-wide email that Intel will start layoffs "no more than a few hundred employees in any given site or geography."