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Intel investors cheer outlook, analysts wrangle

There are as many opinions on Intel's first quarter as there are Wall Street analysts.

While investors unanimously cheered Intel's prediction that its business has stabilized, analysts were split between the bulls and a loud minority of bears that warned that the worst is far from over.

Intel (Nasdaq: INTC) shares opened up $3.16 to $29.20, or 12 percent Wednesday, still well off their 52-week high of $75.81.

The chipmaker posted what was undoubtedly its worst quarter in years Tuesday night. Revenue came to $6.7 billion, the lowest since late 1997. Earnings excluding one-time costs were $1.1 billion, or 16 cents a share, topping First Call's expectation of 15 cents a share. But they paled in comparison to Intel's results for the same period last year and even last quarter.

Nearly all product divisions saw lower sales this quarter, and the average price of microprocessors declined. On the positive side, the company said its PC business has "stabilized," but continued declines are expected in the communications divisions.

Instead of resolving the ongoing clash between analysts staunchly divided on Intel's future, the company's first-quarter report only raised more issues. The debate is likely to continue until June 7, when Intel gives a mid-quarter update on its business.

Salomon Smith Barney's Jonathan Joseph, Wall Street's most visible Intel believer glowed about the company's report.

He took management's announcement that the second quarter will be the bottom at face value, and praised its projection that the second half would show improvement over the first half as "very positive."

Joseph raised his second-quarter earnings estimates and maintained his "buy" rating. He also noted this could be the beginning of a turnaround for the sector, as "it has usually been Intel, among other semiconductor companies, that has led the group out of its cyclical downturn."

Joseph wasn't alone.

"Management's current view supports our PCs-as-first-to-recover thesis, and we expect the stock to rock and roll," wrote Goldman Sachs analyst Terry Ragsdale, who maintained his "market outperformer" rating.

Several analysts upgraded the stock Wednesday, including Prudential Securities' Hans Mosesmann, who raised it to "strong buy" from "hold" and Banc of America Securities analyst Douglas Lee, who bumped it up to "buy" from "market perform."

But for every optimistic analyst, there seemed to be another questioning Intel's outlook.

"Processors stable? Margins are not!" Lehman Brothers' Dan Niles said in his report. The analyst, who has been more negative on Intel, blasted the company for news that margins would hit 14 percent in the second quarter versus 34 percent a year ago. Niles also noted that conversations with PC original equipment manufacturers (OEMs) don't indicate the PC market has hit a bottom in demand.

Morgan Stanley Dean Witter analyst Mark Edelstone also expressed disappointment about the quarter, but said investors' greatest concern should be the company's uncertain outlook. The analyst, who also has a history of being bearish on Intel and its competitors, said order visibility from PC OEMs and communications customers is poor. He estimates further declines in sales, margins and earnings for the second quarter, and lowered his 2001 and 2002 earnings estimates. He also maintained his "neutral" rating.

Merrill Lynch analyst Joseph Osha was perhaps the most skeptical of the bunch, and called management's declaration that the PC business had reached a bottom "premature." He maintained his "accumulate" rating and predicted the semiconductor business would bottom sometime over the summer.

Osha, like other analysts, seemed to be trying to play it both ways. "As an investment, we believe Intel makes sense here, despite our disagreement with the management's short-term view," Osha wrote.