Intel set to post lower profit

Intel Corp is expected to show a 35-per cent drop in profit when it reports quarterly results next week.

Intel Corp is expected to show a 35-per cent drop in profit when it reports quarterly results next week, as the world's biggest chipmaker lost more market share to rival Advanced Micro Devices Inc.

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After watching the technology bellwether suffer several quarters of disappointing profit and sales, analysts say another bad quarter is a given.

What analysts want to know more than anything is: How much worse is it going to get before it gets better?

"Hopefully, they give enough guidance to put everything on the table. Don't say you didn't lose share to AMD, don't say everything is back to normal," said Hans Mosesmann, an analyst with Moors & Cabot.

"If it's ugly, make sure you say it's ugly and that it's as ugly as going to get."

Intel, based in Santa Clara, California, is expected to post a net profit of 22 cents per share in the first quarter, according to the average analyst estimate on Reuters Estimates.

That compares with 34 cents per share a year earlier.

Revenue is expected to fall 6 per cent to $8.87 billion. Intel warned last month that revenue would come in lower than expected, and analysts also expect gross margin to fall.

Intel's most pressing task is to get rid of inventories, a problem the company has tackled by aggressively cutting prices on a wide variety of processors, from those for low-end PCs to expensive servers that run corporate networks.

"AMD has been taking market share because it had better cost (for) performance, but now Intel is slashing prices," said Eric Ross, an analyst with ThinkEquity Partners.

"I don't know if cutting prices is enough to gain back market share, but it should be enough to stop the market share gains by AMD."

The Intel price cuts threaten to take the steam out of AMD's steady advance.

AMD shares plummeted 10 per cent on Thursday, a day after the company issued a cautious outlook for second-quarter sales, reflecting uncertainty over Intel's pricing moves. Intel shares rose 1.7 per cent.

Even after their drop, AMD shares have risen 85 percent over the past year, compared with a fall of 15 per cent for Intel's.

"While Intel's valuation is reasonable, we remain concerned about continuing share loss and industry pricing in 2006," Credit Suisse analyst Michael Masdea said in a recent note.

"We believe Intel's share price is nearing support, but do not see any positive catalyst near-term."

Analysts say Intel's prospects look brighter in the second half of the year, when its redesigned chips -- optimized to use less energy and run at higher speeds -- hit the market.

"They essentially have a less competitive architecture right now, though in the second half of the year they might have a better one," Ross said.