SAN FRANCISCO -- Intel ( INTC) confirmed the obvious: It's getting ugly out there.

The world's No.1 chipmaker told investors Tuesday that corporate spending on technology has weakened in the past month, and that consumer demand is not what it should be at this time of year.

The comments represent an unusually downbeat assessment from Intel, which as of July was still insisting that demand was running strong.

But a cautious fourth-quarter outlook from Intel was widely expected on Wall Street in the wake of September's global financial conflagration -- and its forecast wasn't as catastrophic as some of the worst-case scenarios feared by some investors.

Intel's stock, which has fallen roughly 18% in the weeks leading up to its quarterly earnings report, was off just 20 cents at $15.73 in midday trading Wednesday amid a broad market selloff.

Analysts tweaked their estimates to reflect the latest financial guidance, but did not appear to have made any fundamental changes to their view of Intel.

"While end demand is deteriorating, we think we are now capturing enough bad news in our estimates for next year and think that further EPS downside risk from here is modest," wrote Friedman Billings Ramsey analyst Craig Berger in a note to investors Wednesday.

Berger, who rates Intel a neutral, lowered his 2009 earnings estimate from $1.40 to $1.33, and cut his price target to $22, instead of $23.

Analysts with more bearish leanings interpreted Intel's report as the first taste of bad things to come.

"Although Intel is taking a cautious stance with its guidance, we believe there could be further downside as the company noted only some of its customers experiencing weakening business conditions, while others were not," JPMorgan analyst Chris Danely wrote in a note to investors.

"We believe demand will continue to weaken through 1H09 and all channels will eventually feel the impact of a downturn," he wrote.

JPMorgan makes a market in Intel shares and has provided Intel with non-investment banking services in the past 12 months, and intends to seek compensation from Intel for investment banking services.

Danely cut his 2009 sales and earnings estimates for Intel, but stuck with his neutral rating.

Intel grew its net income 12% year-over-year in the third quarter to $2 billion, or 35 cents a share, on revenue of $10.2 billion.

The chipmaker said sales in the current quarter will range between $10.1 billion and $10.9 billion. At best, Intel will experience a less-than-seasonal fourth quarter. At worst, the company's sales will actually decline sequentially in the fourth quarter. The last time that happened was in the fourth quarter of 2000, although the decline was a relatively small $29 million. Intel's only fourth-quarter sequential decline before that occured in 1984.

Intel said it would report back to investors in early December for a rare midquarter update, underscoring the uncertainty it currently sees in business conditions.

The cloudy outlook comes as Intel rival Advanced Micro Devices ( AMD) is changing up its game and threatening to turn up the competitive heat.

AMD, which has bleeding red ink for almost two years, is set to unveil a new server microprocessor in the fourth quarter (as is Intel). And the company announced last week that it will spin off its manufacturing assets into a separate company, funded in part by the government of Abu Dhabi.

An effective comeback by AMD is hardly a given, but it does raise the potential of renewed pressure on chip prices and consequently on Intel's profit margins. Intel posted a 58.9% gross margin in the third quarter, and projected 59% gross margin in the fourth quarter.

But questions remain about Intel's ability to maintain and grow its profit margins going forward.

Intel allayed some of those concerns Tuesday by providing more details on its Atom chip, a processor designed specially for inexpensive netbook PCs.

According to Intel executives, the Atom delivers the same amount of gross margin dollars as Intel's Celeron chip, the processor it offers for low-end laptop PCs.

But should consumer taste increasingly turn to netbooks at the expense of full-fledged laptops, Atom sales could cannibalize not just Celeron, but Intel's more profitable laptop processors as well.

A report by market research firm Gartner on Tuesday said sales of netbook PCs accelerated around the world in the third quarter.

The economic crunch created more interest in sub-$500 PCs in the North American market, Gartner said. And Hewlett-Packard ( HPQ) lost its top spot in the Europe, Middle East and Africa market because of its tardiness in offering a netbook product.

Virtually every major PC maker, including Dell ( DELL) and Acer, now offer netbook products.

Intel has acknowledged that the world is changing. What that means for Intel is still not entirely clear.

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