SAN FRANCISCO -- The world has changed since Intel's ( INTC) last public assessment of its business.

Back in July, CEO Paul Otellini said confidently, "As we enter the second half, demand remains strong for our microprocessor and chipset products in all segments and in all parts of the globe."

With the financial crisis that occurred in the following months, along with the steady stream of bad news regarding the economy and PC industry, it seems almost self-evident that the view from Santa Clara, Calif., is no longer so rosy.

When Intel delivers its third-quarter financial results after Tuesday's close of market, investors will get a crucial update on how the tech market is being affected by the changed circumstances -- and how much pain it will inflict on Intel.

The 22% drop in Intel's shares over the last three months -- hitting a five-year low at $14.26 last week -- reflects the widespread fear and uncertainty among investors (the stock did shoot up nearly 9% to $16.99 in Monday's broad market rally).

Friedman Billings Ramsey analyst Craig Berger says the PC market deteriorated sharply in September. But by that point, he says, Intel had already sold enough chips to meet financial targets for the third quarter.

"They already had most of the quarter in the bag," says Berger, whose firm makes a market in Intel shares.

The fact that Intel didn't issue a preannouncement suggests it can't be too far off from the $10.3 billion in sales and 34 cents in earnings expected by Wall Street analysts, which equates to the midpoint of Intel's guided range.

It's what happens after the third quarter that has investors biting their nails.

The collapse of major banks and other financial firms around the world significantly weakens one of the prime sources of demand for the PCs and servers that feature Intel's chips.

On Monday, market research firm Gartner cut its forecast for corporate tech spending in 2009 to 2.3% growth, instead of its previous estimate of a 5.8% increase. Europe will experience a spending decline next year, while spending on technology in the U.S. and Japan will be flat year over year, Gartner said.

And with the holiday sales season around the corner, there's a sense that consumers aren't exactly chomping at the bit to buy new machines from Dell ( DELL) , Hewlett-Packard ( HPQ) or any other PC maker.

Earlier this month a Micron ( MU) executive revealed just how low expectations have fallen, suggesting that industrywide shipments of PC's could be flat to up or down a few percentage points in the fourth quarter, instead of the 10% increase previously expected.

As it stands now, Wall Street expects a weaker-than-normal fourth quarter for Intel, which supplies the microprocessors for about 80% of the world's PCs.

Over the past five years, Intel has averaged 8.8% sequential sales growth in the fourth quarter. This year, the average analyst expectation calls for Intel to bring in $10.86 billion in fourth-quarter sales. That translates to only 5.7% growth from the third-quarter estimates.

Wedbush Morgan Securities analyst Patrick Wang believes even that figure is too optimistic. He expects Intel's fourth-quarter sales will grow only 4.4% sequentially to $10.59 billion.

Wedbush Morgan makes a market in Intel shares, and Wang maintains a long position in Intel shares.

Wang also reckons that Intel's goal of a 57% gross margin in 2008 could be at risk. Assuming Intel achieves the 58% gross margin it has forecast for the third quarter, Wang says Intel will need to notch an impressive 59% gross margin in the fourth quarter to hit the full-year margin target. Intel has been steadily rebuilding its gross margin profitability in the wake of a brutal price war with rival Advanced Micro Devices ( AMD) more than a year ago.

But a couple of important trends now threaten to halt that progress. The oversupply of NAND flash memory has crushed prices for the chips, taking a financial toll on all producers. After falling NAND prices dented Intel's profit margins in the first quarter, CEO Otellini promised investors he wouldn't allow the flash business to be a drag on the company.

Last week, however, Micron -- which produces flash memory through a joint venture with Intel -- shuttered one of its flash chip factories and announced plans to lay off 15% of its workforce. Some analysts believe Intel will announce some flash-related news during its earnings announcement Tuesday.

Meanwhile, the advent of new low-cost "netbook" PCs is threatening to alter the economics of the business. Intel has moved to get ahead of the curve by releasing a specially designed netbook chip dubbed Atom, which it can produce at lower cost than its typical microprocessors.

Yet even at the lower cost, the Atom chips feature thinner gross margins than Intel's traditional products. And it's still unclear whether the Atom will provide revenue that is in addition to Intel's existing processor sales, or at their expense.

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