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Can Rick Sherlund and Jerry Sanders both be right?

Goldman Sachs

analyst Sherlund is the dean of the sell-side analyst community that covers

Microsoft

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. As the analyst on the software giant's 1986 initial public offering, his pronouncements are considered to be only one step removed from the voice of Redmond itself. As such, his well-publicized downward revenue revision Wednesday due to weaker-than-expected personal computer demand cratered Microsoft's stock and the entire market along with it.

Sanders, long the clown prince of the chip industry for his bombastic and promotional speaking style, is chairman and CEO of

Advanced Micro Devices

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, the perennial No. 2 in the microprocessor industry. AMD, which reported record earnings after the

close on Wednesday, helped bring a little cheer to the tech sector. Sanders' message of uplift: PC demand is strong and will remain that way.

So who's right? Despite all the talk of wireless toys (like cell phones and pagers, for example) and Internet appliances (like personal digital assistants, for example), PCs still matter. They matter so much that Sherlund's assertion that demand would be weak was enough to send Microsoft's stock into a tailspin. Appliances make headlines; PCs make money.

"Our conversations with our hardware and component analysts are beginning to build our convictions that PC demand was just not strong enough in the quarter

ended in March to meet expectations," Sherlund told clients -- and the rest of the world -- Wednesday morning.

As usual, investors paid attention to what they wanted to pay attention to, namely that Sherlund was lowering his third-fiscal-quarter revenue estimates for Microsoft from $5.95 billion to $5.75 billion. What people paid less attention to is that Sherlund's comments were more specifically about what he thinks already had gone on during the quarter than what the outlook is for the rest of the year. "While demand appears to have picked up in March, it appears that it may have come back quite late in the quarter and not in time to bail out an already challenging quarter," Sherlund wrote. He also pointedly noted that "management refuses to comment before the April 20th report date."

It's worth pointing out that Sherlund thinks the revenue shortfall will lower Microsoft's earnings by two cents, an amount he expects the company to make up with gains on investment income. Sherlund's full-year earnings estimate of $1.69 are a penny above the rest of Wall Street's. Sherlund did not remove Microsoft from Goldman's vaunted "recommended list," a punishment he's meted out only once, when he briefly fretted in 1995 about the company's ability to embrace the Internet.

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"I don't take stocks off the recommended list at the bottom," Sherlund said Thursday afternoon, adding that he expects Microsoft investors to "limp along" for part of the rest of the year. "We think Microsoft is going to be OK."

So what about Jerry Sanders? He told investors following the company's surprisingly strong earnings report that, "We think the PC market is strong, and it's getting stronger."

The market seems to have endorsed his view -- if in a perverse way -- by bidding up shares of AMD's nemesis,

Intel

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. Shares in the market leader jumped 5% to the mid-128 range in midday trading, while AMD's shares closed down .

The main event, of course, for a gauge on PC demand isn't AMD's report: It's Intel's, and that comes April 18 after the market closes. Intel CEO Craig Barrett sparked enthusiasm earlier in the week by saying Intel's new capital-expenditure budget for 2000 had jumped 20% to $6 billion. The company's outlook on PCs, followed two days later by Microsoft's, will be far more of a "tell" than that of Sherlund, who also noted that Intel typically appears to do relatively better than Microsoft.

Mark Edelstone, chip analyst with

Morgan Stanley Dean Witter

, guesses that Intel will exceed Wall Street's earnings expectations because of higher-than-expected average selling prices. He believes PC demand is "very normal" this year, meaning that the first quarter generally is down seasonally from 6% to 13% from the fourth quarter, then flat to up slightly in the second quarter. He expects a significant uptick in the second half of the year due to a strong global economy, the increased adoption of Microsoft's Windows 2000 operating system and increased price performance from Intel and AMD chips.

"Anyone involved in the PC industry -- still 30% of semiconductor consumption -- should benefit," says Edelstone.

That, one would think, should include Microsoft, the dean of the analyst community's perceived bearishness notwithstanding.

Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.

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