Shares of


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quicklycollapsed back to the lows they had dipped to lastweek, in the wake of a

lousy earnings report.The results posted yesterday put an abrupt halt to a

short-lived chiprally that had propelled the leadingsemiconductor index up some 20% in less than a week.

In early afternoon trading, the stock was down$2.80, or 17% from yesterday's close, to $13.72. ThePhiladelphia Stock Exchange Semiconductor Indexslumped 8.3%.

Several analysts chopped their ratings on Intel,criticizing weaker-than-expected gross margins andpointing to the likelihood of a soft fourth quarter.At Banc of America, Douglas Lee slashed his rating tomarket performer from buy, citing both weak resultsand the company's deteriorating profit growth outlook.

"Given the ongoing malaise in IT spending, coupledwith Intel's inability to deliver expected profitimprovement, we are no longer convinced that Intelwill steadily outperform industry averages goingforward," he writes in a note issued this morning. Leethinks shares of Intel could sink to as low as $10, orabout two times book value -- a level consistent with trough levels seen between 1990 to 1992. His firm has done recent banking for the company.

Meanwhile, he has slashed earnings estimates for 2003 from 70 cents to 53 cents. "For perspective, our new 03 EPS estimate is roughly equivalent to 01 levels(i.e. no measurable EPS growth)," he says, adding,"Should the IT demand environment remain weak, webelieve there could be further downside to estimates."

"With our change in rating, we are no longerrecommending purchase of any large-cap semiconductorstock," Lee concludes.

Lehman analyst Dan Niles, who has an equal weightrating on Intel, says the "troubling" aspect ofIntel's third-quarter results is that the company, inhis words, botched gross margin guidance. His firmhasn't done recent banking for the company. WhenIntel's managers lowered the revenue outlook inearly September, they "had every opportunity and wereasked a number of times on the conference call whythey did not lower guidance. Their answer at the timewas that cost savings were running better thanexpected in manufacturing," he notes.

But yesterday, the company 'fessed up that theexpected savings didn't materialize. "With less than a month left in the quarter and revenues running below expectations, we think this should not have happened," scolds Niles.

At Bear Stearns, analyst Charles Boucher sounds a somewhat more positive note, saying he'd recommend buying the stock in the $13 range and below. "Intel is doing the right things for its long-term future -- investing in advanced process technology will be a powerful weapon in the PC and new markets like wireless and networking," he writes. "We think Intel'smargins and earnings power will recover to nearhistorical peaks."

Yet he doesn't see any near-term catalyst to liftthe stock price: "Processor prices are weak, unitdemand is weak, the company has too much capacity forcurrent market conditions," Boucher says, adding thatIntel's cautious outlook could be weigh on PC stockssuch as


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Today, Dell is down 82 cents, or 3%, to $26.72,Gateway is off 7 cents or 2.5% to $2.69, and H-P has lost59 cents, or 4.4% to $12.91.

Indeed, in the wake of Intel's report, BearStearns cut profit estimates for three companies thatdraw more than 30% of sales from PC end-markets:


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. Boucher's take: TheDecember quarter is likely to be weaker than usual,and in the meantime, "overly pessimistic" investorsentiment could knock down stock prices further.

He cut Micron's profit outlook for the currentfiscal year from a loss of $1.08 to a loss of $1.22,Cypress from a loss of 18 cents to a loss of 27 cents,and National Semi from a loss of 8 cents to a loss of26 cents.

In early afternoon trading, Micron plummeted$1.65, or 11.3% to $12.90, while Cypress was off 68cents or 12.1% to $4.93, and National was down $1.07 or 8%to $12.33.

Intel's Knock on Chip Equipment

Besides slamming PC stocks, Intel's earnings report also depressed chip-equipment stocks today, since the giant chipmaker confirmed ongoing speculation that it would cut its 2002 capital expenditure budget by as much as $500 million, to $4.7 billion.

In early afternoon trading, Applied Materials

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lost $1.01, or 7.7%, to $12.04, Lam Research

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was off 69 cents or 7.4% to $8.63, and KLA Tencor

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was off $2.49, or 7.8% to $29.31.



, which issued earnings yesterday, was down $1.81, or 6.9%, to $24.32, though results were basically in line with expectations, and guidance was somewhat better than expected. "The upside surprise is that the forward guidance is for orders in the fourth quarter to be flat at about $200 million, which is substantially better than the general Street expectation of the industry overall being down another 15% to 20%," writes Bear Stearn's Robert Maire -- though he adds that Novellus' management said a sales decline of 10% remained at least a possibility.

Overall, he considers Novellus' news a positive for the stock, but he concedes that Intel's capex announcement may outweigh it. Bear Stearns has not done recent banking for Intel.


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, likewise, posted results in line with expectations, with revenue up 7% sequentially and earnings at the high end of guidance, due to better-than-expected gross margins and improved cost controls. Today the stock was off 69 cents, or 7%, to $9.21.