Advanced Micro Devices

(AMD) - Get Report

suffered a painful market reprimand after announcing it would delay shipments of its desktop Hammer processor by one quarter. The news suggests that the company's massive rival

Intel

(INTC) - Get Report

could score some extra business, at a time AMD desperately needs it.

In early afternoon trading, AMD was down 37 cents, or 4.9%, to $7.27. Intel, which earlier this week was talking up its own new-generation Banias notebook chip at a developers' conference, climbed 41 cents, or 2.6%, to $16.11.

AMD had initially planned to ship its new, more powerful desktop processor late in the fourth quarter of 2002, but it now expects to deliver it in the first quarter of 2003. PCs containing the new chips won't become available sometime in the second quarter of 2003.

The server and mobile version of the Hammer chip are still on schedule to be shipped in mid-2003, as originally planned.

AMD maintains that the delay won't affect fourth-quarter revenue much. "For the fourth quarter, we had almost zero baked into our forecasts from the Hammer product," says Mike Haase, a spokesperson in investor relations. "We had thought we would be able to ship the desktop at the very end of 2002, in the last couple of weeks. So we were talking about very modest volumes. This will not materially change our financial forecast at all."

But news of the delay prompted analysts at Merrill Lynch and UBS Warburg to cut their sales and earnings estimates for the current fiscal year ending in December, as well as fiscal year 2003.

In the short term, since AMD won't be able to sell the relatively higher-priced Hammer chips as soon as planned, its average selling prices will be lower than expected, noted UBS analyst Thomas Thornhill. That should depress revenue at a time the company is already struggling for growth.

Wall Street doesn't expect AMD to make money until the fourth quarter of 2003. The last time it was in the black was the second quarter of 2001.

AMD expects sequential sales to rise modestly in the quarter underway, but it will post another loss. In its most recent earnings report delivered in July, AMD lost $185 million and fell 9 cents short of analyst expectations.

Besides hurting an already fragile AMD, the delay in processor shipments is bound to help Intel, said Thornhill. "We continue to believe AMD will lose market share in the next several quarters as Intel accelerates the introduction of higher performance Pentium 4s and the Banias

mobile processors," he wrote in a research note. "The delay could steer potential box manufacturers towards Intel's processor offerings."

Thornhill reiterated a sell rating on the stock, citing a laundry list of troubles at AMD: the loss of market share to Intel, the increased risk that medium-term ASPs will slide and the possibility that AMD's customers will lose faith in the company.

Shares of the company have dropped 54% from the beginning of the year, though that's only slightly worse than Intel's 49% drop in the same period.