Two Analysts Battle for the Soul of Intel

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Amidst Friday's turbulent stock-market action, two analysts waged a ferocious battle for the soul of

Intel

(INTC) - Get Report

.

The mighty chip maker, considered one of the nation's best companies, took a shot to the jaw when

Merrill Lynch

analyst Tom Kurlak downgraded his short-term rating for the company. That news sent Intel's stock sharply lower and helped unhinge the already tender

Nasdaq

.

Not only did the Intel downgrade spark widespread technology weakness in the market, it also brought to the surface an interesting Wall Street drama: the battle for influence among Wall Street's analysts. The surprising winner in this analysts' duel contributed strongly to Friday's late-afternoon rebound.

The most influential analyst in an industry, often called "the axe" on Wall Street, can command multimillion-dollar contracts. Investors need to pay close attention to who these axes are, because their words become self-fulfilling truth.

Kurlak, courtesy of timely calls and Merrill's huge retail distribution, has become the "axe" in Intel's stock. When he speaks -- even in the nuanced tones of his modest downgrade Friday -- people sell first and sort it out later. His bearish tone affected not just Intel, but spanked other semiconductor stocks, including

Texas Instruments

(TXN) - Get Report

. Selling in the chip sector swiftly infected software, computers and PCs. It was not a fun day for tech.

But Kurlak's pronouncement did not go unchallenged. Newcomer analyst Mark Edelstone at

Morgan Stanley Dean Witter

stepped up to defend Intel's honor. Having just taken over the chip-watching job from John Marren, Edelstone made a rather public debut by challenging the industry's axe.

As the herd sprinted the other way, Edelstone made bullish declarations about Intel in an industry overview released Friday. He shrugged off the price-cutting wars being driven by competitors

Advanced Micro Devices

(AMD) - Get Report

and

Cyrix

(CYRX) - Get Report

over Pentium and MMX processors, saying Intel was simply too dominant. While Edelstone said buy on the dip, he was really saying that Kurlak was wrong. In his own words he was more technical in making the bullish case.

"The second half is shaping up well, and the Pentium II cycle which kicks in next year should really help drive PC growth, and Intel's at the heart of that," Edelstone said.

When asked about the timing of his first public statement, he said: "I'm comfortable with Intel's prospects."

Edelstone's soothing words lifted Intel from its lows. After touching 91 1/2, Intel closed above 96. That rally, fueled by Edelstone's strong comments, helped the broader market recover from steep intraday losses.

Prior to his controversial Intel move, Kurlak was already limping from his downward revision of

Micron Technology

(MU) - Get Report

earnings last week. Kurlak had come under fire for remaining too optimistic for too long on Micron, skewing the consensus earnings estimates for the DRAM maker. When Kurlak lowered his estimates on Micron, other analysts welcomed his move. This week analysts declined to endorse Kurlak's downgrade of Intel.

"I think this quarter is shaping up to be OK" for Intel, says Drew Peck, an analyst at

Cowen

. "Demand is actually pretty good and while competitive pricing pressures will continue to build, they will counteract each other."