Intel Talking in the Dark

The company is trading at 16 times 2005 EPS and 15 times 2006 EPS, well below historic levels, according to First Call.

AMD, meanwhile, trades at the other extreme -- 58 times 2005 estimates and 30 times next year's estimates.

Even so, Intel isn't quite cheap enough for Jerome Dodson, president of Parnassus Investments, which manages assets of $1.4 billion. "We'll be buyers below $21 a share," says Dodson, whose company no longer owns Intel.

At that price, he says, the downside risk is very low, because it's unlikely that the stock will trade below $18. Dodson adds, however, that his longer-term view is much more positive, and he expects significant appreciation in the medium term.

Intel and AMD have danced a complex, competitive minuet in recent years, with AMD now holding the technological edge in microprocessor development, despite Intel's vastly greater resources and manufacturing capacity.

Most recently, AMD scored a win with Hewlett-Packard(HPQ Quote), which is now using the company's Turion mobile chip in high-end notebooks.

The win surprised analysts, who generally see Intel's mobile chips -- processors used in PC notebooks -- as the company's strongest suit. "Intel has its work cut out for them," says Nathan Brookwood, principal analyst of Insight64 and a longtime chip watcher.

Manufacturing capacity, for instance, is a two-headed problem. First, Intel didn't have enough capacity to build chipsets -- circuitry inside a PC that moves data to and from the microprocessor -- earlier in the year.

And second, because a processor doesn't work without a chipset to plug into it, customers who couldn't get Intel chipsets went to AMD for them and for processors, says Brookwood.

For now, Intel is ceding low-end chipset business to companies such as Taiwan-based Via Technologies and using the capacity to build chipsets for higher-margin processors, a transition that will take a number of months, the analyst adds.