TechWeek: Intel Incline

Intel(INTC), which hasn't done a lot right lately, is getting a lot of props for its hot new line of chips known as Core2Duo. Not only are the processors beefy enough to (finally) compete with Advanced Micro Devices'(AMD) best, Intel actually got them out on time.

So much for the good news. Nathan Brookwood, a longtime chip maven and principal analyst of Insight 64, says it will take more than a quarter or two for the new chips to reverse Intel's loss of market share to AMD. Indeed, Brookwood's best-case scenario has Intel holding onto market share this year -- but at the expense of declining average selling prices and margins.

Here's why: Intel holds a 77% share of the market for microprocessors that go into desktop PCs, and IDC estimates that 142 million of them will be shipped this year. With a share of 77%, Intel needs to sell 109 million chips this year just to stay even with AMD, says Brookwood. Subtracting sales of low-end Celeron chips (25% of the total), and chips shipped during the first half of the year, Intel needs to sell about 46 million chips for mainstream and high-end PCs in the third and fourth quarters.

And here's the rub: Giving the world's-largest chipmaker the benefit of the doubt, Brookwood figures Intel can produce 9 million of its new Core2 Duo chips. "That's a very steep ramp," he says, "like an airliner taking off vertically." In any case that leaves a deficit of about 37 million chips. How will Intel make up the difference? By selling its old -- and highly unpopular -- Netburst line of processors, which are already selling at a discount. It's not a pretty picture.

Making matters even worse is the possibility that Dell(DELL), which has plenty of its own problems, is on the verge of announcing an expanded deal with AMD. Dell's initial deal called for AMD to supply the PC maker with chips for advanced servers, a relatively small win, but the rumored deal would include chips for much of Dell's product line.