The microprocessor slugfest resumes after the bell Wednesday when

Advanced Micro Devices

(AMD) - Get Report

delivers its first-quarter financial results.

Of course,

Intel

(INTC) - Get Report

spoiled some of the suspense when it warned the Street in early March that its revenue

would fall short of expectations.

But investors will look at AMD's results to answer another important question: Did AMD thrive at Intel's expense, or are both companies now grappling with a weak PC market?

Although analysts are expecting AMD to report numbers at the high end of its guidance, investors have pushed the stock down nearly 17% since Intel issued its warning, suggesting a bearish view of the PC microprocessor market in general.

AMD entered the seasonally slow first quarter of the year with optimistic expectations. In January, the chipmaker projected that first-quarter sales would be flat to slightly down sequentially from the fourth quarter -- results that the company said were tantamount to a 70% revenue increase on a year-over-year basis.

At that rate, AMD's first-quarter sales would range between $1.275 billion and $1.35 billion. Although AMD recorded $1.84 billion in revenue in the fourth quarter, sales were $1.35 billion without the Spansion flash-memory business, which was spun off in a December initial public offering.

"We began 2006 with more momentum and higher-quality momentum than at any other time in our history," CEO Hector Ruiz told analysts in a January conference call, citing adoption of the company's technology by major computer vendors and the start of production shipments from AMD's new chip-fabrication facility in Dresden, Germany during the first quarter.

Analysts polled by Thomson First Call are leaning toward the high end of the company's guidance, with the average estimate pegging AMD's sales at $1.33 billion and earnings of 30 cents a share.

"Any way you measure it, I think it's going to be a far better quarter than what Intel is experiencing right now," says Christopher McHugh, senior portfolio manager of Turner Investment Partners, which is long AMD.

To view Street Insight's video preview of AMD, please click here

.

Largely thanks to the strength of its dual-core Opteron server processor, AMD has chipped away at Intel's dominant share of the microprocessor market in recent months.

In the fourth quarter of 2005, AMD took 3 percentage points of market share from Intel, giving AMD a roughly 20% total share of the PC market, according to industry research firm Gartner. With Intel not expected to strike back with competitive products until the second half of 2006, it seems likely that AMD's advance continued in the first quarter.

The magnitude of the gains may not be as pronounced as in the fourth quarter, says McHugh, but he's confident that AMD continued to increase its share in the first three months of the year.

Intel acknowledged in its March preannouncement that it had experienced a "slight market segment share loss." But Intel also ascribed its first-quarter sales shortfall to weaker-than-expected demand. This has fanned fears of a generally weak PC market -- bad news for both Intel and AMD.

Recent reports from research firms suggest that 2006 will be a year of decelerating growth for the PC market, as demand for desktops continues to stall and notebook sales cool off. According to IDC, PC shipments will increase by just over 10% annually for the next couple of years, after several consecutive years of 15% growth.

These concerns may have taken some of the air out of AMD's stock, which closed down 22 cents to $34.35 Tuesday, compared with its 52-week high of $42.70 set on March 3.

But even if AMD has managed to ride out stormy market conditions in the first quarter, many investors are focused on the rest of the year.

"I would not be surprised at it beating first-quarter numbers, but I think special attention is going to be paid to the guidance," says Monetta Financial Services Chief Investment Officer Bob Bacarella.

"What its outlook is going forward, and whether or not it can continue to maintain the profitability level that we've all gotten used to over the last few quarters -- that's going to be the key," says Bacarella, whose fund owns AMD shares.

According to one Wall Street analyst, AMD's profit margins are under pressure because of its increasing reliance on dual-core processors. These chips have been the key to AMD's success and command high average selling prices, but because of the way AMD makes them, they're prone to a lot of waste. When one core is defective, the company is forced to scrap the entire chip, contends Moors & Cabot analyst Hans Mosesmann.

"Hence, the more high-performance processors (dual-core) the company sells, the more pressure on gross margins," wrote Mosesmann in a recent note to investors maintaining his sell rating on the company. Moors & Cabot does not have business relationships with AMD or Intel.

And of course, Intel's

forthcoming triad of processors -- the desktop Conroe, the notebook Merom and the server Woodcrest -- which feature a new microarchitecture, are expected to ratchet up the level of competition when they are released in the second half of 2006. AMD will release its own processor upgrades later this year, incorporating support for faster DDR2 memory.

Analysts are still split on which company's next-generation processors will claim the performance and power-efficiency crown. At the very least though, it appears the days of AMD's steady share gains against Intel are coming to an end.

"Although AMD's market share is likely to increase again in the coming quarters, following significant share gains over the past two years, it is evident from our analysis that most of the easy share gains have been accomplished as Intel is fighting back with new products, new microarchitecture, and aggressive pricing," wrote Bear Stearns analyst Gurinder Kalra in a recent note to investors. (Bear Stearns has had non-investment-banking relationships with Intel and AMD in the past 12 months.)