Analyst: Intel''s quarter not ''in the bag''

Intel Corp. (Nasdaq: INTC) was stuck in the middle of profit warnings from Gateway and Altera Thursday as analysts downgraded the chip maker.

Intel, which has already suffered from a round of bad news, was off 10 percent to $38 in early trading. Intel shares were the most heavily traded on the Nasdaq.

The chip maker was downgraded by Lehman Brothers and A.G. Edwards, which cut its rating on Intel to "maintain" from "accumulate." Other brokerages either adjusted estimates or issued research notes expressing concerns.

Lehman Brothers analyst Dan Niles cut Intel from "buy" to "outperform." He also lowered rival Advanced Micro Devices to "neutral" from "outperform."

Given Gateway's profit warning, Niles said Intel will have to stretch even to meet its lowered guidance given in its third quarter earnings report.

"We believe that even though Intel gave conservative revenue growth guidance of 4-8 percent quarter over quarter, that this is certainly not in the bag and that Intel is being very aggressive to try and meet this guidance," he said in a research note.

Niles said a 5 percent sequential sales decline is possible. He had targeted growth of 2 percent. Lehman Brothers is also questioning his 8 percent unit growth forecasts given the outlooks from various vendors in the PC food chain.

"We had originally hoped we could see a surge pre-Thanksgiving or great sell through during Thanksgiving, but neither seems to have been achieved," said Niles. "This makes us cautious on the potential for processor cancellations later in the quarter or a large drop in pricing.

Other analysts downgraded Intel because of Altera's profit warning. Christopher A. Chaney, an analyst with A.G. Edwards, said the semiconductor sector looks good long term, but added that investors "should not be committing additional capital in the sector at this time."

Terry Ragsdale, an analyst with J.P. Morgan, stuck to his "buy" rating. He said in a note that Intel was "safer" than most semiconductor stocks, but issued a host of qualifications.

Although he said PC sales, margins and AMD are issues, Ragsdale said if Intel holds above the $35 level it'll be telling since most of Intel's bad news is already baked into the stock price.

Ragsdale said he wasn't recommending investors "back up the truck" for Intel shares, but added that the stock was a "lesser evil buy."

"It's going to be hard to find any incremental reasons to hate the stock from here," he said.

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