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Wall Street wary ahead of Intel results

Analysts and investors are keeping a close eye on Intel, which reports results after the bell, amid more discouraging news regarding the chip sector.

Analysts and investors will be keeping a close eye on Intel, which reports results after the bell Tuesday, amid more discouraging news regarding the chip sector.

And one analyst isn't even waiting for Intel to report, slashing his estimates on the stock.

On Monday, semiconductor equipment maker Novellus Systems said that "business conditions remain exceptionally weak." Novellus topped estimates for its second quarter, posting a profit of $59.2 million, or 40 cents a share, on sales of $376.9 million. But the company cautioned that the current economic instability could further depress bookings.

Novellus wasn't alone in expressing caution. Competitor Applied Materials' chief financial officer told attendees at an industry conference that the company didn't see a recovery until next year.

That glum news served as a backdrop to Intel's second-quarter earnings report after the market closes. Analysts are looking for the company to record a second-quarter profit of 10 cents a share on sales of $6.29 billion.

But not everyone is holding out hope that the company will make those numbers. ABN Amro analyst Paul Leming cut his rating on the stock from "hold" to "reduce," saying he suspects Intel will "noticeably" miss forecasts.

If it doesn't, it will only be because it "borrow(ed) so heavily form the third quarter, (so) that the third-quarter earnings will be very disappointing," he wrote. Leming is projecting that Intel will race to book revenue this quarter at the expense of future quarters.

He cut earnings estimates for 2001 from 56 cents per share to 42 cents per share, and 2002 estimates from $1 per share to 60 cents per share. Both of the new forecasts are well below consensus.

"We continue to believe that growth expectations for the semiconductor industry in general, and for Intel specifically, are too high," Leming wrote.

One particular issue of concern to Leming was the current price war with Advanced Micro Devices. The two companies have been at war over the low end of the market. Analysts had hoped that the two companies would scale back on the price cuts, saying that the hits to revenue were undercutting any market-share gains. Intel cut prices up to 37 percent on mobile Pentium IIIs and more conservatively on desktop Pentium III and Celeron chips. An Intel spokesman said the cuts were part of the company's regularly scheduled price reductions aimed at keeping prices current.

The effects of the price war on AMD have been clear; the company posted a profit of $17.4 million, or 5 cents a share, 92 percent lower than the earnings recorded the year before. Sales slipped 16 percent to $985 million from $1.17 billion.

"The reasons for a sluggish microprocessor market are the same as we've been citing for some time: mediocre products, limited consumer and corporate interests, a lousy economy, stiff competition, software stagnation and huge excess capacity," wrote SG Cowen analyst Drew Peck. "You can't put the genie back in the bottle. The world is moving to $800 computers and $100 microprocessors, and Intel is simply acknowledging the inevitable."

The microprocessor business "remains the least attractive segment for long-term growth," Peck wrote. He maintained a "neutral" rating on Intel.