Intel Corp, the biggest computer-chip maker, fell 2.2 percent in NASDAQ Stock Market trading after a Morgan Stanley analyst said price cuts may drag down profit.
Intel and rival Advanced Micro Devices Inc may face a supply glut and a price war, New York-based analyst Mark Lipacis wrote in a research note on Wednesday.
Investors should sell the stocks "ahead of what we expect will be an inventory correction and increasingly aggressive price environment," he said. "The risk is high that Intel reacts to AMD's increased competitiveness with aggressive price cuts."
Lipacis, in his previous job at Prudential Equity, was one of the first analysts to predict that new products from Advanced Micro would allow it to steal market share from Intel and damage the larger company's profits last year. This year, Intel has snatched back orders with new chips, leading many analysts to predict that earnings will improve this year.
Of the 37 Intel analysts tracked by Bloomberg, Lipacis is one of only three that has a "sell" or equivalent recommendation on the stock. He has "underweight" ratings on both Intel and Advanced Micro, saying they will trail the rest of the semiconductor industry for the next six to 12 months.
Intel and Advanced Micro have built production capacity that exceeds market demand, Lipacis wrote. That, and Advanced Micro's losses, mean that the two companies are likely to cut prices to try to hang on to orders, he said.
Intel fell US$0.57 to US$25.81 at 4pm New York time. Advanced Micro rose US$0.03 to US$13.23 on the New York Stock Exchange.
Advanced Micro is Intel's only remaining rival in the market for personal-computer microprocessors, the main component in devices ranging from laptops to servers.
The market share battle, which saw Advanced Micro end last year at an 11-year high, led to a 42 percent drop in Intel's profit last year. Intel's gross margin, the percentage of sales remaining after deducting costs of production, was 46.95 percent in the second quarter, the narrowest since the third quarter of 2001.
Separately, Citibank analyst Glen Yeung said yesterday that both companies may earn less than expected in the fourth quarter because of a slowdown in US consumer spending. Intel is scheduled to report its third-quarter results and give forecasts for the fourth on Oct. 16.
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