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Intel's Rosy Scenario Chris Kraeuter, 10.18.06, 8:50 AM ET BURLINGAME, CALIF. -Intel hammered away on the theme that its worst days are behind it, posting solid financial results late Tuesday and betting that smaller rival Advanced Micro Devices won't be able to post as impressive earnings when it reports on Wednesday. Intel (nasdaq: INTC - news - people ) executives claimed they gained market share thanks to a revamped product lineup, and they predicted fourth-quarter sales in line with Wall Street's expectations. The report helped boost Intel's shares 2.4%, to $21.50, in late trading Tuesday, but AMD (nyse: AMD - news - people ) shares also benefited modestly, advancing 0.3%, to $24.55, from Intel's relatively optimistic comments about business conditions heading into the important fourth quarter. The back-and-forth between the two Silicon Valley companies will continue Wednesday afternoon as AMD reports its financial results for the third quarter. For now, Intel says it's busy pushing out its new microprocessors as fast as possible--6 million chips based on its new Core design have shipped during the previous 100 days, its steepest ramp ever--and cutting costs to better compete. (See " Intel Woos Investors, Engineers" and " Intel's Open House.") Santa Clara, Calif.-based Intel enacted its largest makeover in two decades this year, ultimately deciding to cut 10%, or 10,500, of its staff by the middle of next year in a bid to save $2 billion next year and $3 billion in 2008. Chief Executive Paul Otellini said the plans are on track and that its staff will be down to 92,000 by the middle of next year. Severance costs ran to $98 million during the third quarter and are expected to hit $125 million in the fourth and $120 million in 2007. (See "Intel Declares War.") The company also shaved its capital spending plans by $400 million, to between $5.7 billion and $5.9 billion, and knocked $100 million from its research and development tab, to an expected $5.4 billion. Chief Financial Officer Andy Bryant said spending will hold flat or be down next year even if revenue grows. Analysts expect sales growth next year for Intel of 8.2%, to $37.9 billion. Overall for the third quarter, Intel reported net income excluding charges and amortization of $1.5 billion, or 27 cents a share, and sales of $8.7 billion, compared with net income of $2.4 billion, or 38 cents a share, and sales of $9.96 billion during the same period last year. Analysts expected earnings of 18 cents a share and sales of $8.6 billion. The biggest kick for Intel during the quarter came from its server and mobile chips, two areas of particular interest for AMD. For servers, Intel boasted of record unit shipments, increased dollar sales and improved pricing. For mobile, Intel recorded record unit shipments and improved revenue. AMD's strongest product offering is in servers, with its Opteron line of chips. The Sunnyvale, Calif.-based company has captured almost 30% of the market from practically none in 2003. Those gains have propelled AMD's financial results and its stock during the previous few years, but Intel struck back during the third quarter with a new version of its own Xeon server chip, improving its energy efficiency and power from earlier iterations. (See "AMD Retools Server Chip.") AMD's weakest product offering is its mobile lineup, with introductions planned next year to bolster its range. Intel, on the other hand, has established a stronghold in laptops with its popular Centrino brand, a line that should get considerable attention during the holiday season from consumers continuing a rapid migration to wireless computing. Microprocessors used in notebooks command higher prices and better margins than those in desktop computers. AMD is expected to post net income excluding charges and amortization of $116 million, or 23 cents a share, on sales growth of 30%, to $1.3 billion. The company is currently close to finalizing its $5.4 billion purchase of ATI Technologies (nasdaq: ATYT - news - people ), the graphics chipmaker based in Ontario, Canada. (See "AMD Makes Its Move.")

[Forbes News] Intel's Rosy Scenario Chris Kraeuter