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AMD Blinks in Intel Battle

Slowing demand for PCs and the beginnings of a price war with Intel (INTC - Get Report) have taken their toll on Advanced Micro Devices (AMD - Get Report), which lowered its second-quarter sales forecast late Thursday.

The news wasn't completely unexpected; some analysts had already lowered their sales estimates, and the selloff that followed wasn't terribly sharp in the wake of a broader market working back from opening losses.

In recent trading on Friday, shares of AMD were off 39 cents, or 1.6%, to $23.44, while Intel had gained 3 cents to $18.88.

Intel hasn't yet preannounced its upcoming quarterly results, which are expected on July 19, although some analysts believe a warning -- or an earnings report below estimates -- may still come.

AMD now expects second-quarter revenue of $1.22 billion, up 52% from a year ago but down 9% from the first quarter. AMD had previously forecast second-quarter sales that were equal to or down slightly from the first quarter. Analysts were expecting sales of $1.31 billion, according to Thomson First Call.

AMD did not give EPS guidance for the quarter, but analysts are looking for a profit of 28 cents a share.

The culprits in the top-line miss were slower-than-expected demand for both notebook and desktop PCs, although demand for the company's Opteron chips, used to power servers, remained strong, AMD said. Bear Stearns analyst Gurinder Kalra said there appears to be a buildup of processor inventory in the distribution channel and at AMD itself, which suggests "more aggressive price cuts and an inventory correction."

He added, however, "that PC builds are heading in a positive direction" for the third quarter and said he may consider revising his neutral stance on the stock. Bear Stearns does not have an investment banking relationship with AMD.

The company didn't offer a forecast on gross margins, but analyst Eric Gomberg at Thomas Weisel Partners cuts his estimate to 53.5% from 56.5%, down from a record 58.5% in the first quarter. His company is seeking investment banking business with AMD

Despite AMD's continued strength in server chips, Intel's recent launch of its own high-end server chip , the Xeon 5100, or Woodcrest, is something of an overhang on the stock.

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