The PHLX Semiconductor Sector index (SOX), a modified capitalization-weighted index composed of semiconductor companies, surged 1.93% to an intraday high of 711.33 on Wednesday after Intel [NASDAQ:INTC] reported its Q1 revenues of U.S. $12.8 billion and the EPS of U.S. $0.41. Revenues came in flat year-on-year, missing the analysts' consensus of U.S. $12.83 billion. Intel blamed the revenues miss on weak PC sales, challenging macroeconomic conditions, and a strengthening dollar.

Despite that Intel’s gross margins were down 4.9% to 60.5% from a year earlier, the EPS was up 8% from U.S. $0.38 in Q1 2014, in line with expectations, due probably in part to tailwinds from the lower tax rate of 25.5%, compared to 27.7% in Q1 2014, and share buybacks. During the last quarter, Intel repurchased 21.3 million shares, or about 0.45% of the shares outstanding, at an average cost of U.S. $35.21 per share. As of March 28, 2015, the company still has U.S. $11.6 billion available for repurchase under the existing repurchase authorization limit.

In the current quarter Q2 2015, the company sees revenues of U.S. $13.2 billion, below analysts' consensus of U.S. $13.5 billion, as the weakness in PC sales persists but demand is expected to pick up in the second half of the year. The datacenter, Internet of Things (IoT) and NAND memory chip businesses. which account for approximately 40% of Intel’s total revenue and two-thirds of its overall operating profit, are expected to see double digit growth. Intel said their tax rate will drop to just about 20% in the current quarter and move back to 25% in Q3 and Q4 2015. 

Currently, Intel’s Xeon processor has a market share of about 98% in datacenter servers, meaning the company has full control of pricing power, more or less. Google [NASDAQ:GOOGL], Microsoft [NASDAQ:MSFT] and others have explored the possibility of switching to ARM-based processors, which might cost less or operate more efficiently. If Intel still keeps rolling out the next generation of their Xeon chips, it could take some time for Broadcom [NASDAQ:BRCM], Cavium [NASDAQ:CAVM] or Samsung [KRX:005930] to become credible threats to Intel with their 64-bit ARM server chips.

Intel shares surged 4.76% to an intraday high of U.S. $32.99 on Wednesday, as analysts stepped in and defended the stock from falling downward to retest the U.S. $30.50 level. RBC Capital Markets upgraded Intel to outperform and increased their price target to U.S. $40 from $38, citing that bearish PC sentiment is fully priced into the shares. The ability of Intel’s datacenter business to generate cash and profit will outweigh the decline in demand for PC chips, RBC said.

Analysts at Canaccord Genuity, Nomura, Pacific Crest Securities and Topeka Capital Markets also came out and boosted their price targets on Intel shares. The exception was Cowen & Co., which lowered its price target to U.S. $33 from $37.

Taiwan Semiconductor Manufacturing Co. [NYSE:TSM] didn’t fare well either with their forward guidance. On Thursday, the company lowered their projected revenues for the current quarter to between U.S. $6.57 billion and $6.67 billion, up 8.1% to 9.8% year-on-year, missing analysts' expectations of U.S. $6.9 billion. The company blamed escalating competition, loss of business at one of its key customers. tapering smartphone demand from emerging markets, and a strengthening Taiwanese dollar.

The SOX index is up 1.34% year-to-date, underperforming the NASDAQ composite's 4.13% gain for the year. The SOX index, which has been moving in a bearish rising wedge since September of last year, tumbled 4.71% to an intraday low of 683.98 on March 25, as the rising wedge broke down. 

The SOX's next move could depend on Texas Instruments [NYSE:TXN] and Qualcomm [NASADQ:QCOM], two of the PHLX SOX’s other bellwethers. Both companies will announce their quarterly earnings reports next week. A further pullback could send the index downward to retest the 662.29 level, or 38.2% Fibonacci retracement.

Disclosure: No Position in INTC or any other stocks mentioned.