The new year has barely begun, and Intel ( INTC) has already raised serious doubts about where its stock can go in 2007.

With competition from rival Advanced Micro Devices ( AMD) as intense as ever, Intel projected that its gross margins would remain stunted at a 50% level for 2007 -- well below the happy days of 60% that investors hoped would soon return.

That impaired profitability leaves the fate of Intel's stock dependent on either a major catalyst or an end to the price war with AMD.

And with Intel's management offering scant evidence of either during the post-earnings conference call, investors bid down the stock 5.4%, or $1.22, to $21.08 in trading Wednesday.

"I don't know how this dance ends," says Fred Weiss, chip analyst at Atlantic Trust SteinRoe.

"Pricing is a big variable that nobody can get a handle on, because each company wants the other company to be the first one to say, 'I'm going to back off a little,'" says Weiss, whose firm has a small position in Intel.

So far, the thirst for market share appears to be trumping the mounting evidence of the price war's mutually destructive effects on each chipmaker's financial statements.

Last week, AMD warned that "significantly lower" average selling prices for its microprocessors would crush its fourth-quarter profit , largely offsetting the company's increase in unit sales.

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