Intel Plays the World’s Smallest Violin for Cisco

Europe has been causing a significant amount of stress in financial markets around the globe. Recently, Cisco Systems Inc. (NASDAQ:CSCO) raised red flags on its conference call after its CEO highlighted concerns in the eurozone. John Chambers said, “We have seen the issues of southern Europe expand. Central and Northern Europe have their own set of challenges.” However, other technology names are trying to distance itself from the networking-giant.

In relation to European woes, Cisco lowered its guidance for the current quarter. The company is now estimating earnings of 44 cents to 46 cents per share, below the average estimate of 49 cents per share. The dismal outlook caused shares in the California-based company to fall more than 12 percent in only two trading days. In an effort to counter the gloomy European outlook made by Cisco, Intel Corp.’s (NASDAQ:INTC) CEO Paul Otellini made a statement of his own.

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At a meeting for investors, Otellini explained, “We haven’t seen any change in enterprise in Europe. The year is playing out just as we expected. Enterprise is good. It’s not fantastic,” according to Bloomberg. Otellini also added that “I don’t see what he’s seeing,” referring to the negative comments made by Chambers’ regarding Europe. Otellini even suggested that Cisco’s problems stem from competitive issues, rather than European problems. Intel was founded in 1968 and is the world’s largest chipmaker. The company also reaffirmed its forecasts for the second quarter.

As the five-year chart above shows, Intel shares have outperformed Cisco shares the past couple years. Since October 2010, Intel has gained 43 percent, completely disconnecting from Cisco’s 25 percent loss in the same period. Technically speaking, both stocks look questionable in our T= ‘Technicals on the Stock Chart are Strong’ CHEAT SHEET investing framework variable. Intel is currently looking weak as shares trade below their 50-day moving average. Meanwhile, Cisco shares are also trading below the same average and even made a gap on the chart last week after the company reduced guidance.

Even though the technicals may look weak on Intel, the company is positioning itself for longer-term success. In order to build a bigger presence in the mobile chip arena, a space dominated by Qualcomm Inc. (NASDAQ:QCOM), Intel is overhauling older plants and building new ones to shift more towards advanced production processes. “We intend to be a leader in this business. We’re just getting started here. You’ll see more announcements coming,” explained Otellini. He also said that costs to build new facilities capable of producing advanced chips will increase from $5 billion to more than $10 billion within the decade. Only “one or two” other chip companies will be able to match Intel’s building in such state-of-the-art facilities.

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