Investors Bet on Sunny Forecast at Intel - TheStreet

Investors Bet on Sunny Forecast at Intel

Coming-quarter forecasts will show just how much the chipmaker is on the mend.
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It's time for

Intel

(INTC) - Get Report

to deliver the goods.

Expectations are running high: The chip giant's stock has risen about 24% in the past three months vs. the

Nasdaq's

8% gain in the same period, hitting a 52-week high of $26 last week.

This run-up comes despite

the flat first-quarter sales that Intel reported in April and a disappointing outlook for the second quarter, as the chipmaker continues to feel the effects of fierce competition with

Advanced Micro Devices

(AMD) - Get Report

.

But with Intel now fielding a formidable lineup of new microprocessors and running leaner after a major restructuring, investors and analysts appear confident that tangible evidence of Intel's recovery is at hand.

Only a single analyst rates Intel a sell, 12 recommend the stock as a strong buy and 14 analysts rate it a buy.

Parnassus Investments President Jerry Dodson expects to see a first demonstration of Intel's new financial vigor when the company reports its second-quarter results after Tuesday's market close. Dodson, whose firm has a long position in Intel, believes that the Santa Clara, Calif.-based company could beat the Street's 19 cents earnings-per-share expectation by a couple of pennies.

Dodson is betting that Intel's crop of energy-efficient dual- and quad-core chips has allowed it to reverse some of the

market share gains obtained by AMD last year. And PC sales, which got off to a slow start this year, are showing signs of strength as consumers warm to

Microsoft's

(MSFT) - Get Report

new Vista operating system, says Dodson.

Analysts polled by Thomson Financial expect Intel to report $8.5 billion in second-quarter sales, representing the midpoint of Intel's guidance, compared with $8 billion at this time a year ago.

Of course, there are a few factors working against Intel in the second quarter.

Intel itself set a low bar for the second quarter, projecting gross margin of 48% -- its lowest level in years, due to what it said will be weaker-than-seasonal revenue and the start-up costs associated with readying its manufacturing facilities to produce the next generation of chips.

A.G. Edwards analyst David Wong reckons that Intel may have actually lost market share to AMD in the second quarter, the effects of

Dell's

(DELL) - Get Report

line of AMD-based machines

hitting store shelves at

Wal-Mart

(WMT) - Get Report

and

Toshiba

building

its first line of notebooks featuring AMD chips.

"We would not be surprised if AMD achieves better sequential sales and unit growth than Intel in the June quarter, boosted by the benefit of one-time special considerations," Wong wrote in a recent note to investors.

"However, we think that the underlying market share trends are shifting toward Intel, and we expect to see this play out over the next few quarters," wrote Wong. A.G. Edwards received noninvestment banking compensation from Intel in the past 12 months.

Indeed, the real thrust of Intel's turnaround is tied to the second half of the year.

For that reason, Intel's third-quarter forecast and any updates on its full-year outlook will be of particular interest, and a good gauge of whether the company's recovery is truly on track.

In order for Intel to hit its 51% full-year gross margin target, analysts reckon that the company will need to push its margins back up to 52% and 54% in the third and fourth quarters of the year, respectively.

"The guidance will dictate the movement in the stock the next day," says Pat Becker Jr., of Becker Capital Management, which has a position in Intel.

Complicating the picture of the second half of the year are the new products that both AMD and Intel have on tap.

AMD will release its first quad-core processor, dubbed Barcelona, in August. Depending on how the chip measures up in performance and energy-efficiency tests, AMD could regain some ground in the lucrative market for server processors.

Intel meanwhile, is expected to release chips before the end of the year that feature 45-nanometer circuits instead of the current 65-nanometer width. The smaller circuitry promises improved performance and gives Intel more flexibility to reduce prices.

Until both companies' new chips prove their mettle in the market however, Intel's profit margins, and the timing of its turnaround, remain slippery.

Shares closed Monday's regular session at $25.95, off by 2 cents.