Fears about Intel Corp's absence in tablets and smartphones are overshadowing the chipmaker's strong earnings and reinforcing the impression that the company no longer sets the direction of the tech industry.
The world's largest semiconductor maker has new chips for mobile devices on the way this year and is boosting spending on research and development, but it remains far behind rival ARM Holdings, whose chip architecture is found in most smartphones and tablets.
Despite better-than-expected fourth-quarter earnings and guidance posted on Thursday, and a broadly higher market, its shares slipped as investors focused on the company's failure to stake out territory in the mobile market.
Even as Intel's stock fell, shares of other semiconductor companies rose, with ARM rising 6.5 percent to a 10-year high.
The stock market, and sentiment on the wider technology industry, for years moved in tandem with Intel following its earnings report. But in recent quarters they have diverged.
It's historically been the bellwether, that if you're positive on the (technology) sector you're positive on Intel, but I think that relationship is breaking down, said Craig Berger, an analyst at FBR Capital Markets.
Intel's strategy in the mobile market has been to adapt chips originally designed for personal computers but versions released so far consume more energy than ARM-based chips, making them less suitable for mobile gadgets that are left on for hours at a time.
People are increasingly turning to mobile devices to surf the Web and some investors believe Intel's traditional focus on PCs could begin to lose relevance.
Intel's struggles are highlighting smaller rival Advanced Micro Devices Inc's lack of strategy in the exploding ultramobile market too.
This week AMD Chief Executive Dirk Meyer left the company following concerns he hadn't done enough to pursue the mobile market. And Silicon Valley rival Nvidia Corp's stock surged for days on high expectations for its new Tegra 2 chips for tablets and smartphones.
AMD is in a very unenviable position of having arguably one of the worst balance sheets in semiconductors, said Rick Schafer, an analyst at Oppenheimer. And its sandwiched between Intel and Nvidia, two guys with huge balance sheets, huge cash flows and resource to spend on research and development.
Intel and AMD shares both fell about 1 percent on Friday. Intel's shares are trading at about the same level as a year ago, compared to a 19 percent rise in the Standard & Poor's 500 index since then.
AMD is scheduled to deliver fourth-quarter earnings on Thursday. This week, it said its fourth-quarter revenue increased 2 percent sequentially to $1.65 billion, with a gross profit margin of roughly 45 percent.
Investors cited Intel's meager position in growing tech segments like tablets and mobile devices as a reason its status as a go-to proxy for tech shares is waning.
Ralph Shive, the South Bend, Indiana-based manager of the $1.7 billion Wasatch-1st Source Income Equity Fund, said he has added to his Intel holdings in the last year, but we understand that the momentum group won't be pounding the table to get in here.
Financial analysts' ratings on Intel's stock on average lean toward buy, according to Thomson Reuters data, and many say it has been punished too much for the company's lag in mobile.
People are worried that tablets will have an impact and ARM will move up the food chain, and that Intel won't be able to move down the food chain. But I think that's overdone, said Mahesh Sanganeria, an analyst at RBC Capital.
Intel is nearly doubling its capital spending in 2011 to around $9 billion and ramping up production of its next-generation 22-nanometer microprocessors, which will give it a major technological lead against competitors.
Also on Friday, Intel's general manager for Asia-Pacific said he was positive about growth in PC sales in emerging Asia, particularly China and India.
I look around and travel around and I see the emerging markets continuing to be quite good, Navin Shenoy told Reuters.
Intel was the first major technology company to report fourth-quarter results, and despite worries about the chipmaker's mobile strategy, its upbeat numbers set a positive tone for much of the rest of the sector. The Philadelphia Semiconductor Index was up 2.6 percent.
(Additional reporting by Paul Sandle and Atul Prakash in London, Christoph Steitz in Frankfurt, Li Baker in Taipei, Ryan Vlastelica and Chuck Mikolajczak in New York; Editing by Richard Chang)