In an otherwise moribund semiconductor market, demand for Intel's ( INTC) products is improving, and tight cash management could enable it to expand its margins in coming quarters, a brokerage argued Monday.

Citigroup Smith Barney upgraded the shares to outperform from neutral, raised its 2004 earnings estimate to 80 cents from 70 cents a share and upped the price target to $23 from $20. The shares were recently up 57 cents, or 2%, to $21.10 in Instinet premarket trading.

"Overall chip demand is decelerating year-over-year and quarter-over-quarter into 2003, while Intel is accelerating year-over-year and quarter-over-quarter," Smith Barney wrote. "We anticipate Intel will be able to meet or slightly exceed consensus estimates for the second quarter and give at least in-line guidance for the third quarter."

Intel's market position protects it from some of the pressures its peers feel.

"In the intermediate and longer-term, a slower-growth industry likely favors proprietary incumbents," the brokerage wrote. "Specifically, the current environment is allowing Intel to slow price decreases and thereby increase profitability."