Like an old race horse, Intel ( INTC) continues to frustrate investors betting on its comeback.

Just as the chipmaker appeared to be on track to recapture its former glory, Intel's second-quarter results have left investors wringing their hands and heading for the exits.

Shares of Intel sank 5%, or $1.31, to $25.01 in midday trading Wednesday.

The main cause of consternation is Intel's gross profit margin, which came in at 46.9% -- the lowest level in years and short of Intel's own target of 48%.

Missing gross margins by about 1 percentage point isn't the end of the world. But the context of the margin weakness, which occurred during Intel's first quarter of year-on-year revenue growth since the end of 2005, was a red flag for some investors.

"The bottom line here is, for semiconductor stocks you expect revenue and unit upside to lead to margin upside," says one investor.

The margin weakness calls into question the shape of Intel's recovery.

"You have to figure out what is the long-term model for the company," says the investor, speaking anonymously because he said he was trading Intel shares. "If we're dealing with margins that are going to peak in the mid-50s, that's a little different than a company with margins that peaked in the low 60s."

Only a couple of years back, Intel regularly notched gross margins in the low-60% range. Increasing competition from rival Advanced Micro Devices ( AMD) has changed the rules of the game, though, forcing both companies to pick up the pace of product development and to cut prices of their microprocessors.

In 2006, Intel began a major restructuring to adapt to the new environment, eliminating 10% of its workforce.

AMD, meanwhile, has been bogged down by dwindling cash flow and a massive debt load incurred to acquired graphics chipmaker ATI.

During Tuesday's post-earnings conference call, Intel management painted an improving picture of profit margins going forward.

The investments to ramp up a new manufacturing process will taper off in the second half of the year, helping lift gross margins. Intel's improving mix of higher-end chips and bigger production output will also provide a boost.

And Intel's forecast for a 52% margin in the current quarter suggests that the company is confident about its prospects -- the chipmaker has not guided margins above 50% in the last five quarters.

Indeed, some Intel investors interpreted the weakness in the second quarter as a sign of strength for the months ahead.

"At this point, you ask yourself, even though the quarter wasn't everything we wanted it to be, do I lower my expectations? And the answer is no. If anything, they go up a bit," says Bill Gorman, VP of equity research at PNC Wealth Management, which owns Intel shares.

He points to Intel's 51% target for full-year gross margins. Because Intel left that target unchanged Tuesday, the company has effectively indicated that it will make up for the second-quarter's margin shortfall in the last two quarters of the year.

"They are putting pressure on themselves," says Gorman. "But they're smart enough not to do that unless they thought they could do it," he says, citing the company's improvements in its manufacturing and the improving inventory levels.

The second half of the year is a strong time for PC sales, thanks to the back-to-school and Christmas shopping seasons. And Intel management affirmed Tuesday that the PC market this year appears to be in good shape.

Several financial analysts raised their estimates on similar logic.

Stifel Nicolaus analyst Cody Acree bumped up his estimate for Intel's full-year EPS from $1.07 to $1.13.

"Through the second half, we believe strong unit volumes, likely derived from market share gains, will combine with higher production yields and lean supplies resulting in a more rapid than projected gross margin increase," Acree wrote in a note to investors Wednesday.

"Ultimately we believe this gross margin upside will be the catalyst for further material share appreciation," wrote Acree. Stifel Nicolaus makes a market in Intel shares and has provided Intel with non-investment-banking services in the last 12 months.

The big wild card, of course, is pricing. And Intel confessed that price erosion was a bit more aggressive than it expected in the second quarter and that the company expects the trend to continue for the rest of the year.

That's a tough environment in which to raise gross margins, and in fact, it accounts for much of Intel's recent drop in profitability.

Intel has adapted impressively to the new forces shaping its market. The question now may be whether investors have accepted the new Intel.