We’re down over 200 points on the Dow and 35 on the Nasdaq right now, and I’m reading headlines that are blaming Intel (INTC), down 2.5%, for part of that. I’m not buying it. The market does what the market does, and best just to draw inferences.

On Intel’s conference call in mid-January, Intel CFO Stacy Smith said, “Our expectation for gross margin percentage in the first quarter is 56% plus or minus a couple of points.”

Last evening, Intel issued a press release lowering but firming gross margin guidance to “54 percent, plus or minus a point.”

I’m not holding Intel to the hard-and-fast rule that “a couple” equates to “two” - and I take the original guidance to mean slightly more than 2% in terms of wiggle room. If we were to represent gross margin guidance mathematically then, we have:

Then: 56% ± 2.5% = 53.5% < X < 58.5%
Now: 54% ± 1% = 53% < X < 55%

If you read further into the Intel call, you’ll see what they were saying is that margins in this quarter are going to be weaker than on a quarter-over-quarter basis. In their last quarter, gross margin was 58.1%. When viewed this way, the guidance seems to be more accurately stated as 56%, with 2-3 points in potential downside…. which is basically what Intel actually said, albeit belatedly. Now we have:

Then*: 56% - 2.5% = 53.5% < X < 56%
Now: 54% ± 1% = 53% < X < 55%

So why the downside move today? You could argue that it has to do with the removal of upside potential in gross margin, but I don’t think there was a realistic bet being placed on that in the first place that has to be priced out. I think this is more evidence that we haven’t quite turned the corner, economically speaking, and you should still have time to place your bets in the non-sexy tech sector.

As I said back in February, we’re going to need to see evidence that we are at the bottom in terms of the economic cycle for there to be a broad-based rally in the Intels, Ciscos (CSCO), and Oracles (ORCL) of the market. IBM looks to be the outlier here, up about 10%, but I believe the broader pattern in tech still holds.

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