But Intel is expected to have weathered the storm better than AMD in the first quarter.
"We believe Intel's gain in unit share will offset weaker ASPs (average selling prices)," wrote Needham & Co. analyst Edwin Mok, who rates Intel shares a hold.
Santa Clara, Calif.-based Intel is currently forecasted to report sales of $8.9 billion and earnings of 22 cents a share, according to analysts polled by Thomson Financial. By comparison, Intel has estimated sales in the range of $8.7 billion to $9.3 billion.
Based on AMD's sales warning April 9, industry watchers say Intel gained some market share from its smaller rival over the past three months. Intel won more share, withstanding a string of price cuts AMD initiated to clear older processor parts, analysts say.
The question is: At what price?
"That's what really concerns us," said David Stepherson, senior portfolio manager at Baltimore-based Hardesty Capital Management, which owns Intel shares.
As always, when Intel reports earnings, investors will be keying on Intel's gross margin to gauge whether the company has turned the corner.
The company's gross margin has suffered amid lower prices for microprocessors. Intel has pegged its first-quarter gross margin at 49% of sales. In better times, Intel's gross margin has ranged from 55% to 62%.
"If we can see gross margin firming or stabilizing that would be good news," Stepherson added. "It would tell us that not only are they selling more, but they are selling more of the right things that are more profitable."
Intel last summer rolled out new Core Duo and Xeon chips in a bid to beat back advances AMD has made since 2004. Yet those gains didn't quite materialize as AMD gained more share on an overall basis. At year-end 2006, Intel owned about 75% of the worldwide microprocessor market, while AMD owned 25%.
With microprocessor prices floundering, and the possibility of more prices cuts from both Intel and AMD in the months ahead, some analysts fret that Intel's financial forecast for the June ending quarter will fall short of current Wall Street projections.
"While we continue to warm up to Intel at current valuations, we believe Street estimates heading into earnings are too high given the challenging pricing environment," Goldman Sachs analyst James Covello wrote in a recent research report. He rates Intel shares a hold.
Sunnyvale, Calif.-based AMD is taking its knocks after taking market share from Intel the past three years.
AMD is currently expected to report sales of $1.3 billion and a loss of 46 cents a share, according to Thomson Financial.
This month, the chipmaker warned its sales would fall 19% short of Wall Street's target due to lower chip prices and much lower unit sales of its microprocessors. AMD said revenue in the quarter ended March 31 would total about $1.225 billion. See full story.
The company also said it plans to restructure its operating, cutting its 2007 spending plans by $500 million to $2 billion. Most analysts think AMD will have to cut its capital expenditures further or raise more money to ensure it gets through the year without any cash problems. See full story.
The chipmaker is betting on a new server chip, called Barcelona, to help revive its struggling business. The chip is scheduled to hit the market this summer. But many industry analysts are anticipating a tough year for AMD, whose recent success has altered its business model.
AMD is now supplying more chips to big PC manufacturers, such as Dell Inc. and Hewlett-Packard Co. The chipmaker, by its own admission, has struggled to meet their supply demands.
"AMD's business will remain under pressure given the mounting pressure from Intel in desktops and notebooks," wrote Sumit Dhanda, analyst at Banc of America Securities. "Exacerbating the situation also is a slower than previously envisioned ramp at Dell."
Dhanda rates AMD shares a hold and Intel a shares a buy. End of Story
marketwatch.com