Intel: At Least It's Not AMD

Gorman, whose fund owns Intel shares, has a price target of $26 on the stock.

Second-Half Optimism

As it is, Intel's full-year gross margin guidance stands at 50%, which Gorman says implies that margins will remain depressed during the second quarter and pick up in the back half of 2007.

Market share gains, new product introductions and a seasonal rise in demand should all converge in the second half of the year.

If all those pieces fall into place, then the 50% full-year gross margin guidance could prove conservative, according to some investors.

Of course, there are still plenty of potholes dotting the road ahead, including the so-far disappointing boost to PC demand triggered by Microsoft's(MSFT Quote) new Vista operating system as well as the fierce price war that Intel and AMD have been waging for several months.

Both companies have plenty of incentive to continue competing on price, despite the devastating effect that has had on profitability.

AMD's Barcelona quad-core processor will not be released until later this year, leaving the company few options in the meantime besides price cuts as it competes with Intel's new chip lineup.

And Intel has $4.3 billion of inventory on its balance sheet -- $1.7 billion of which is finished goods -- meaning that it might not be done slashing the prices of its own chips.

Under these conditions, the microprocessor market may not be so much about winning as it is about losing less than the competition.