Intel, the largest semiconductor manufacturer, shook the industry on Friday by announcing a decline in chip demand and sharply lowering its revenue forecast for the quarter.
But the bigger loser on the day was its main competitor, Advanced Micro Devices, which had been flying high of late. Even though Intel conceded a slight loss of market share to its rival, AMD's stock closed 4.4 percent lower, while Intel's shares fell only slightly.
Ashok Kumar, an analyst with Raymond James, said AMD investors feared that Intel would cut prices to regain lost ground.
Intel said it now expected to post quarterly sales of US$8.7 billion to US$9.1 billion, down from the estimate of US$9.1 billion to US$9.7 billion that it gave in January.
Analysts had been expecting sales of US$9.42 billion for the first quarter, according to a survey by Thomson Financial. But in recent weeks, several analysts have lowered their estimates, citing increased competition. Intel declined to elaborate on the reasons for the warning; the company plans to report its first-quarter results on April 19.
On Thursday, Joseph Osha, an analyst at Merrill Lynch, trimmed his quarterly revenue and earnings estimates for Intel, calling processor shipment data for January "surprisingly weak."
Friday's report, issued before financial markets opened, caused shares of Intel to decline US$.17, to US$20.32, its lowest point in more than a year, but did not prompt the major sell-off that Intel's misses have caused in the past. Shares of AMD declined US$1.82, to US$39.51.
The revised forecast was one of Intel's sharpest warnings since 2001, when the company's troubles were part of the industrywide slump that caused a sharp slowdown in the growth of personal computer sales. Intel's warning on Friday was seen as a combination of broad industry troubles and problems unique to Intel.
"For the first time we're seeing weakness in the food chain and share loss," said Apjit Walia, an analyst with RBC Capital Markets. "We don't usually see them at the same time."
Walia said investors were concerned that Intel's troubles point to weakness in the overall PC industry. That concern has already had an impact on Intel's stock, which has declined by a third in the last three months. AMD's share price, however, had doubled since mid-October, so the effect of the investor concern is more intense.
Some PC makers also seemed to feel the chill. Dell's stock lost 1.5 percent, to close at US$29.13, while Hewlett-Packard was off 2.7 percent, to US$33.26.
For several quarters, AMD has gained considerable momentum over Intel, particularly in the market for business servers. It beat Intel to market with a line of high-performance dual-core chips as Intel stumbled to recast its product strategy. At the same time, Intel appears to have lost ground in the desktop market, too. Intel's share of the retail PC market in the US fell by 11 percentage points last year, to 53.3 percent in the fourth quarter of last year from 64.4 percent in the fourth quarter of 2004, according to Current Analysis, a market research firm. Those figures, however, do not reflect sales by Dell, Intel's largest customer, which sells directly to customers and uses only Intel chips.
Still, Intel continues to have a huge lead over AMD in the fast-growing notebook market, where Intel's Centrino chipset has helped the company gain a strong foothold. But even there Intel's lead is shrinking. During the fourth quarter of last year, AMD's share of the notebook market increased to 30.5 percent from 22.3 percent a year earlier, according to Current Analysis.