The Day Ahead: 'Wintel' alive and kicking

It's just like old times on Wall Street as Intel and Microsoft are dominating the news. Intel won back Wall Street confidence with an upside surprise and Microsoft's Bill Gates handed the reins to Steve Ballmer.

Shareholders should be pleased with both moves. We don't know how long the Wintel juggernaut will last, but Microsoft and Intel will set the Nasdaq pace at least for a day.

First we'll look at Intel.

Intel cruised past estimates in the fourth quarter with earnings of $2.4bn (£1.5bn), or 69 cents a share, on sales of $8.2bn. First Call was expecting earnings of 63 cents a share. Average selling prices were solid, product mix was good and margins were strong. Not a lot to complain about.

And the outlook looks pretty good too. Intel officials said revenue would be down slightly in the first quarter, but that's a seasonal thing and investors shouldn't be worried. Intel is likely to benefit from Windows 2000 upgrades.

Intel also said its high-end products are ramping up nicely and the company should be able to handle demand in the first quarter after a few fourth quarter slip-ups.

If you really want to know what Intel thinks about its future, look at capital spending. Intel said capital spending will jump significantly as it adds capacity for new products. Capital spending for 2000 is expected to be about $5bn, up from $3.4bn in 1999 as the company spends on new technology. (Translation: Applied Materials should benefit big time from Intel's spending.)

But more importantly, Intel didn't suffer what would have been a third consecutive earnings miss. Analysts hopped back onto the Intel bandwagon days before the company's earnings. That Wall Street lovefest should last today.

And then there's Microsoft and it's non-news event of the day. When Bill Gates steps down to be "chief software architect" (whatever that is), you'd think Wall Street would fret. But Gates is handing the reins to Steve Ballmer so analysts are happy. Ballmer wasn't just a number two guy, he was more like a 1a guy.

Ballmer was essentially running Microsoft day-to-day operations anyway so the move wasn't unexpected. Gates also was distancing himself from the CEO role and focusing on product development.

Now Gates gets to cook up Microsoft's next products. And Gates needs to get cracking on some new toys. Microsoft faces threats from broadband, wireless, the Internet and all sorts of new developments. Microsoft is fighting battles everywhere -- Linux is gaining momentum and AOL Time Warner wants to dominate broadband.

The timing is a bit curious, however. Gates is stepping out just as reports are surfacing that the Department of Justice wants to break up Microsoft. The DOJ has demonised Gates so maybe a new face is needed at Microsoft. By stepping away, Gates stays out of the antitrust muck. Ballmer is better suited for the antitrust battle.

Ballmer said it would be "reckless and irresponsible of anybody to try and break up this company".

Gates said the reorganisation has nothing to do with the antitrust battle. But consider this: Microsoft is now split into four groups with strong leaders (Paul Maritz, Jim Allchin, Bob Muglia, and Rick Belluzzo). All four could be CEOs if Microsoft is broken into pieces. They just might get their chance.

In any case, Microsoft is in good hands as long as the government doesn't interfere.

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